Personal injury payout guide: How courts value pain and loss

A contingency fee agreement is one of the ways to serve the ends of justice in a personal injury case while still ensuring lawyers receive fair compensation for their work. In this personal injury payout guide, we'll discuss how this agreement works, plus other legal considerations when Ontario lawyers use them.

How much is a lawyer's fee in a personal injury payout?

Generally, the lawyer's fee is governed by their agreement with their client. While there is no specific rate prescribed for personal injury cases, there are rules that restrict the amount lawyers can charge and govern how they charge clients.

For instance, the Law Society of Ontario (LSO) requires that the amount charged for a lawyer's legal fees and disbursements must be fair, reasonable, and disclosed in advance. As applied to personal injury cases, several factors may be considered to ensure that the lawyer's fees are fair according to the LSO:

• difficulty of the matter: while most injuries and accidents are straightforward, some cases are complex and need more time to resolve
• results obtained for the client: if a large personal injury payout is secured for the client, the lawyer may also charge a considerable amount in fees
• lawyer's experience and ability: lawyers with high success rates in past personal injury cases will typically command higher fees than others

In any case, what's important is that the client agrees to the fees and is fully informed of all the details.

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How are lawyers paid in a personal injury case?

Aside from charging an hourly rate or a fixed rate for a specific task, using a contingency fee basis is the most common way to pay a lawyer in a personal injury case.

Contingency fees in personal injury cases

Under a contingency fee arrangement (CFA), a lawyer will be paid a certain percentage of the personal injury payout to be received by the client. This can either be from:

• the award of compensation (when awarded by a court); or
• the settlement money (through out-of-court settlement negotiations)

It basically means that the client will only pay if the lawyer wins the case for them. It also follows that if the lawyer does not win the case for the client, they will not be paid at all, except for some costs and disbursements that the lawyer paid on behalf of the client. This is why it's called a "contingency," because the lawyer's fee is conditioned on the lawyer winning the case.

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Requirements when using contingency fees

The LSO sets out a list of requirements that lawyers must meet before they can use contingency fees when handling a clients' personal injury payout:

• use the Standard Form Contingency Fee Agreement (CFA) provided by the LSO, unless exempted
• clients must be given the LSO's consumer guide on contingency fees before entering a CFA
• disclose certain prescribed information and the lawyer's general maximum contingency fee

As part of the client disclosure requirements, the factors considered in determining the appropriate contingency fee must also be disclosed to the client before entering the CFA.

In addition, the fee-related disclosure requirements state that the lawyer must prepare a statement of account (SOA) after the CFA is signed and provide it to the client. This SOA must include important details according to the LSO, such as the following:

• breakdown of the award or settlement: it must include the net amount that the client will receive, and an itemized list of the disbursements, legal fees, and taxes charged to the client
• explanation of the fees' reasonableness: this explanation must show the time used by the lawyer, the complexity of the matter, the results achieved, and the risks that the lawyer assumed
• statement of the client's right: lastly, there must be a statement that the client has the right to apply to the Superior Court of Justice for an assessment of the fees, with the latest date for doing so

The last two requirements do not apply if it is the court that approved the contingency fee.

Calculating contingency fees

There's no prescribed amount that a lawyer must charge their clients under a contingency fee from their personal injury payout. Being a contract, the CFA or retainer agreement will contain all legal costs to be agreed by both parties, including the percentage that will be used.

Requirements when computing the contingency fees

The LSO lays down the requirements when lawyers compute the contingency fees that they will be charging their clients:

• what must be included and excluded: disbursements and taxes must be excluded when calculating the contingency fee, unless these are paid by the lawyer and the CFA requires the client to pay them
• the maximum amount of the fees: the contingency fee cannot exceed the amount the client receives from an award or a settlement, including any costs, but excluding disbursements and taxes

In all cases, whether on an hourly billing or contingency fee basis, a lawyer's fee must be fair and reasonable based on the circumstances of the case and the work done by the lawyer.

Non-negotiables for lawyers' fees

Below are the costs and disbursements that the client must pay even on a contingency fee basis:

• legal fees: fees that lawyers pay in advance for their clients (e.g., court filing fees, hiring court reporters, fees for expert witnesses, photocopying of documents)
• taxes: win or lose, taxes on the contingency fee and disbursements (e.g., HST) are another type of cost charged to the client
• costs: if the client loses in court and is ordered to pay the winning party, clients must pay those costs, as these are outside the CFA's scope

Again, how and when these disbursements and costs should be paid must be stated in the CFA, including whether they will be deducted from the client's personal injury payout. Either way, what costs must be paid should be detailed in the CFA or retainer agreement.

There are three scenarios on how to collect these costs and disbursements:

• if the case is won: it can be deducted from what is due to the client, on top of the agreed contingency fee
• if the case is lost: the client would still have to pay these costs and disbursements from their own pockets
• waived, but higher contingency fee: the lawyer waives collecting these fees, but instead charges a higher rate of contingency fee

This goes back to the principle that a lawyer-client relationship is contractual in nature – whatever is put on paper must be followed.

Factors in determining the percentage of contingency fees

A contingency fee is based largely on the percentage or rate agreed by both the lawyer and the client. This is still based on the requirement that a lawyer's fee must be fair and reasonable.

Several factors must be considered by lawyers when deciding how much this percentage should be. Below are some of these factors:

• complexity of the case: complexity is proportional to the fees, where a simple case with no other legal complications will justify a smaller rate for contingency fees; otherwise, a larger rate can be used, as the case will take up a lot of the lawyer's time and resources
• ways of closing the case: the legal methods used to reach an award may also affect the percentage; for instance, settlement negotiations with a smaller chance of going to court call for a smaller contingency fee, but full‑blown litigation requires larger legal fees
• lawyer's expertise on personal injury: when a lawyer or law firm has a strong track record in handling personal injury cases, a higher percentage of contingency fees will be justified; however, other lawyers may also charge a larger percentage, regardless of their experience, depending on the other factors
• potential amount of damages: while some lawyers and firms would charge a bigger rate if the potential amount of damages is high, others would also charge a lower rate if the final contingency fees are also satisfactory

It's important to evaluate the case based on these factors to arrive at a commensurate contingency fee. These factors can also guide potential clients in calculating their net proceeds from their personal injury payout.

Examples of percentages for contingency fees

Here are some suggestions on how lawyers or law firms can set up the different ranges of percentages that they can use when doing the contingency basis in personal injury cases:

These are just examples to help lawyers figure out what percentage they should use for a case. Among the lawyers and law firms in Canada offering contingency fees, the most common is to charge between 20 percent and 40 percent from the settlement or award of damages. Of course, any percentage will do, provided that both the lawyer and the client agreed to it.

Personal injury payout guide: Helping lawyers get their due

While it's important that clients attain the justice they deserve, it is only fair that lawyers receive appropriate compensation for their work. As such, contingency fee arrangements are one way to serve both interests without compromising either. In any case, the requirements set by the LSO must be followed, particularly by the lawyer.

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