How to create a conditional fee arrangement in Ontario

A conditional fee arrangement can be the difference between a client starting a claim or walking away. While creating one may sound simple, the agreement itself cannot be so casual as the Law Society of Ontario (LSO) has imposed certain rules that lawyers must follow.

What is a conditional fee arrangement?

Also known as contingency fee, a conditional fee arrangement is where a part of the lawyer's fees depends (or conditioned) on the success of the case. Here, the fees will be coming from the settlement or award to be received by the client at the end of the matter.

This is usually offered by law firms and lawyers to allow clients who have no capacity to pay legal fees at the start of the retainer to start their case. If the case is lost, the client will only have to pay a reduced fee, as agreed by both parties.

Here's a video that explains contingency or conditional fee arrangements in the context of a personal injury case:

Bookmark our Personal Injury practice area page for more news, articles, and updates for legal professionals in Ontario working in personal injury cases.

Key features of a conditional fee arrangement

Here are the following considerations when using a contingency or conditional fee arrangement in your practice:

• clients are accommodated: since legal fees are somehow delayed, the issue on legal representation is addressed, since you can take on a case even if the client has not yet paid a single dime
• rules for the agreement: the LSO's Rules of Professional Conduct (RPC), the Solicitors Act, and the regulations on Contingency Fee Agreements govern the drafting and contents of these agreements

While certain matters are left to the lawyer and client to talk about, some are not entirely left to them, since a lot of these considerations are for the protection of the client.

When are conditional fee arrangements allowed?

Contingency or conditional fee arrangements are allowed in all cases, except for the following:

• family law cases
• criminal cases
• quasi‑criminal matters

The most common use of these types of arrangements is personal injury cases, where the client (the plaintiff in the case) is set to receive a settlement or an award of damages.

Is there a required form for conditional fee arrangements?

The LSO now requires using the "Standard Form Contingency Fee Agreement dated November 18, 2021" for contingency or conditional fee arrangements:

• the form can be downloaded from the LSO's website, can be edited directly, and has notes that will guide its future users
• the form is formatted according to the current rules of the LSO on contingency or conditional fee arrangements
• the form must be used whether the legal services were rendered in full or only partially for a matter allowed by the LSO's rules

The Standard Form also includes a calculation of fees in a situation where the retainer is terminated before the case is concluded.

When the Standard Form is not required

The LSO says that lawyers are exempt from using the Standard Form for contingency or conditional fee arrangements in the following instances:

• the court has approved the contingency or conditional fee, or the Contingency Fee Agreement;
• the client, or the person or entity who will pay for the client's legal fees, is an organization; or
• in class actions, since contingency fees in class actions in Ontario are governed by the Class Proceedings Act (CPA)

The term "organization" here refers to entities that either:

• employs more than 25 individuals;
• employs a lawyer on a full-time basis; or
• has assets or gross annual revenues exceeding $10 million

As such, it's important to know if the matter is required to use the Standard Form or not, since it's not automatically applicable in every case.

In other types of conditional fee arrangements

Another instance that the Standard Form will not apply is when the legal fees are not based on a percentage or proportion of an award or settlement, although the fees depend on if the case is won, or the matter is completed.

However, these types of contingency or conditional fee arrangements are still required to comply with the other requirements by the LSO, such as the following:

• that it be agreed on in writing
• what should be included in the agreement
• the client disclosure requirements
• the marketing disclosure requirements

It is safe to say that contingency or conditional fee arrangements must follow these basic rules, although not all are required to use the Standard Form.

How the Standard Form can be modified

When it is required to use the Standard Form for contingency or conditional fee arrangement, it can only be modified in the following ways:

• filling in relevant information for the matter, or modifying the optional language as appropriate for the matter
• aligning the Standard Form with the law firm's branding, such as putting the firm's letterhead in the Form
• removing the "Example based on a partial award for costs" if it does not include a partial cost or if it's not applicable

Otherwise, the Standard Form cannot be modified.

When the client receives a structured settlement

A structured settlement is the gradual way of releasing the settlement or compensation to the client, depending on the agreed period. The LSO says that while the Standard Form does not address structured settlements, it still cannot be modified to fit these settlements.

What are the basic rules when using conditional fee arrangements?

Here are the rules from the LSO that must be followed, whether the Standard Form is required or not:

• amount of legal fees
• client disclosure requirements
• marketing disclosure requirements
• prohibited provisions on an agreement

We'll discuss these requirements below.

Amount of legal fees

While there's no maximum limit, the legal fee must not exceed the amount of award or settlement, including any costs, but excluding disbursements and taxes. However, these disbursements and taxes may be recovered by the lawyer from the client if it is stated in their contingency or conditional fee agreement.

Lawyers must also note some recent cases related to these arrangements:

• Halimi v. Certas Home and Auto Insurance, 2023 ONSC 432: a contingency fee agreement that would have paid the plaintiff's personal injury lawyer more than one-third of the proposed $900,000 settlement was held to be unfair
• Barbeau v Peel District School Board, 2023 ONSC 4116: the Ontario Superior Court of Justice has approved a proposed settlement, but reduced the lawyer's contingency fee from $40,500 to $25,000
• Lim v. Jennings, 2021 ONSC 777: the Superior Court of Justice of Ontario found that the contingency fee agreement of 33% between a firm and the litigation guardian of a party injured by a dog bite fair and reasonable

Client disclosure requirements

There are certain things that you must tell your clients under the client disclosure requirements:

• provide the client a copy of the LSO's Consumer Guide on contingency fees
• a Statement of Account, which tells the client the:
• breakdown of the award or settlement
• factors considered in computing the contingency or conditional fee
• client's right to apply to the Superior Court for the bill's assessment

Again, these requirements do not apply in class actions or if the client is an organization.

If the client is a person under disability

For clients who are persons under disability, lawyers must do either of the following when entering a contingency or conditional fee arrangement with them:

• apply to the judge for the agreement's approval before it is finalized; or
• include the agreement as part of the motion or application for approval of a settlement or a consent judgment

Marketing disclosure requirements

Lawyers or firms that are marketing themselves as those who allow the use of a conditional fee arrangement must disclose the general maximum percentage of contingency fee charged, either:

• in their website, and in a manner in an easily accessible manner; or
• at the time they first communicated with the potential client

Still, the exemptions for this requirement are class action lawsuits and organizational clients.

Prohibited provisions on an agreement

Here are the prohibited provisions in a contingency or conditional fee agreement when not required to use the Standard Form:

• requiring the lawyer's consent before a claim may be abandoned, discontinued, or settled at the instructions of the client
• preventing the client from terminating the agreement with the lawyer, or from changing legal representation
• allowing the lawyer to split their fee with any other person, except as provided by the RPC

Here's another video that explains contingency or conditional fee arrangements, this time in estate litigation:

Check out our Events page for a list of the upcoming lawyer conferences and awards nights that you may be interested in joining to leanr more about practice management tactics.

Conditional fee arrangement: Turning rules into client-friendly agreements

For lawyers, a well-drafted contingency or conditional fee arrangement is not just paperwork; it is a risk-sharing tool that shapes the entire relationship with the client. When both sides know the terms from day one, the focus can stay on the strength of the claim, rather than on the dollars each is getting.

Head over to our Professional Regulation page for other articles on the law society's rules and updates, including resources on contingency or conditional fee arrangements.