Define: Contingent Fee

A contingent fee is a type of fee arrangement commonly used in legal representation, where the attorney’s compensation is contingent upon the outcome of the case. Under a contingent fee agreement, the attorney agrees to represent the client without charging any upfront fees or hourly rates. Instead, the attorney’s fee is calculated as a percentage of the monetary recovery obtained for the client, typically through a settlement or court judgement. If the client does not win the case or recover any money, the attorney receives no fee. Contingent fee arrangements allow clients who may not have the financial resources to afford legal representation to pursue claims without upfront costs, while also incentivising attorneys to work diligently to achieve favourable outcomes for their clients. However, the percentage of the contingency fee and other terms of the arrangement are typically subject to negotiation between the attorney and the client.

A contingent fee is a type of fee arrangement in which a lawyer or law firm agrees to be paid a percentage of the amount recovered in a legal case, only if the case is successful. This means that the lawyer’s fee is contingent upon the outcome of the case, and if the case is not successful, the lawyer will not receive any payment. Contingent fees are commonly used in personal injury cases and other types of civil litigation where the client may not have the financial means to pay for legal services upfront.

A contingent fee in the United States or conditional fee in the United Kingdom is any fee for services provided where the fee is only payable if there is a favourable result. According to the law, this is the “no win, no fee” system.

Subtly different from a Contingency fee arrangement, a contingent fee arrangement is one in which the claimant’s legal representative makes no charge in the event of an unsuccessful outcome. In the jargon of Conditional fee arrangements, the usual term is ‘conditional normal fee.

Fee Structure

A client is not charged attorney fees if he loses the case; however, in the United States, a client is charged for court costs and expenses. If the client recovers damages from settlement or a favourable verdict, the attorney receives a fee from the recovery. The attorney’s permitted fee varies depending on the country and even local jurisdictions. In the US, for example, the most an attorney can charge is the contracted contingency fee. The fee is calculated as a share of the eventual damage judgement or settlement won by the client. The percentage allowed is subject to the ethical rules of professional conduct and, in many circumstances, statutory limitations. In the UK, on the other hand, the client is liable for a normal fee (based on hourly billing plus a profit element) plus a success (or bonus) fee. The amount of success is limited to 100 per cent of the normal fees. Most lawyers charge a success fee, which is much less than this, between 25 and 50 percent. In English law, fees are subject to compliance with the statutory scheme.

Advantages

A contingency fee arrangement provides access to the courts for those who cannot afford to pay the attorneys fees and costs of civil litigation. Contingency fees also provide a powerful motivation to the attorney to work diligently on the client’s case. In other types of litigation where clients pay the attorney by the hour for their time, it makes little economic difference to the attorney whether the client has a successful outcome to the litigation. Finally, because lawyers assume the financial risk of litigation, the number of speculative or unmeritorious cases may be reduced.

Disadvantages

Contingency fees do not guarantee civil justice or even access to the courts. Lawyers sometimes “cherry-pick” only the strongest claims, which are most likely to succeed. Not all cases are immediately transparent. Some require extensive investigation before the chances of success can be properly assessed. Such cases might be turned away because even the initial assessment of their strength is costly and risky.

Canada

In North America, contingent fee agreements are legal in the United States and some provinces of Canada (Alberta, Ontario, and Quebec, among others). In other Canadian provinces, an attorney may collect a percentage of recovery in the event of a victory but must charge an hourly fee otherwise. Many countries prohibit contingent fees.

United Kingdom

In English law, conditional fees were introduced by the Courts and Legal Services Act 1990 (section 58), but the relevant statutory instruments were not made until 1995. Initially, the success fee was not recoverable from the losing party, but on April 1, 2000, Section 27 of the Access to Justice Act 1999 amended the Courts and Legal Services Act 1990 to allow recovery of success fees from the losing party. The regulations that accompanied this change in the law (the Conditional Fee Agreements Regulations 2000) were far from clear, and the result was that a great deal of satellite litigation took place. On November 1, 2005, these regulations were revoked, and now it is much easier to enter into conditional fee agreements than was previously the case.

United States

Most jurisdictions in the United States prohibit working for a contingent fee in family law or criminal cases, as made clear in Rule 1.5(d) of the Model Rules of Professional Conduct of the American Bar Association. In the United States, contingency fees are the standard in personal injury cases and are less common in other types of litigation. Fees range from 5% to 50% of the amount recovered. In general, the smaller or more speculative a case is, the larger the percentage the fee must be in order to entice a lawyer to accept the case. Conversely, a law firm may be willing to take on a very large case with very high chances of success in return for a very small slice of the eventual verdict or settlement. The ABA’s Model Rules provide guidelines for when a contingency arrangement is appropriate. Sometimes lawyers and clients agree to a “split-fee” arrangement, where the client pays a reduced retainer or reduced hourly rate and the lawyer receives a reduced percentage of the recovery if successful.

This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.

This glossary post was last updated: 11th April 2024.