A contingency fee lawyer is paid a share of whatever the client wins, and nothing if the case is lost. How big that share gets depends on where the case is heard. In England and Wales, a personal injury lawyer can take no more than 25% of the damages. In the Australian state of Victoria, a court has approved rates of 27.5% and 40% in class actions.
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The percentage is only half of it. The other half is who gets to say no.
The bargain behind the fee
The client trades part of the award for certainty. Rachel Rothwell, editor of Litigation Funding magazine, described the trade in the Law Gazette. A client with a sound claim but no money may hand over a decent chunk of the damages in return for paying nothing if the claim fails.
The lawyer carries the risk instead. A firm working this way can tie up its litigators for years and see no income until the case settles or ends. Rothwell also reported that the largest US firms, where contingency fees are long established, tend not to use them.
England: capped for injury, open for business disputes
England and Wales call the arrangement a damages-based agreement, or DBA. From April 2013 the Jackson reforms let lawyers take fees out of a client’s damages for the first time outside employment cases.
Before that change, the Civil Justice Council set up a working party, chaired by Michael Napier, to advise the Ministry of Justice. Its brief covered what regulations to make under section 58AA of the Courts and Legal Services Act 1990 and what every DBA should contain. Among its annexes were papers on whether to cap a DBA and on options for those caps.
The reforms set the injury cap at 25%. For commercial claims the question was still open in 2012. Jackson himself told Rothwell he could see the logic of no cap in disputes between “two adult parties”.
Rothwell also flagged the obvious worry about an uncapped share. A lawyer who wrote one stern letter and then claimed 30% of the settlement would be getting a poor bargain for the client.
Australia: a ban with one court-supervised exception
Australia bans law practices from charging any fee worked out from the size of an award or settlement. Critics of the fee argue that a direct financial stake in the result damages a lawyer’s ethical duties, both in fact and in appearance.
Victoria carved out one exception. After a March 2018 report by the Victorian Law Reform Commission, the state parliament added section 33ZDA to the Supreme Court Act 1986. From 1 July 2020 it let the Supreme Court of Victoria make a group costs order, the country’s first contingency fee.
The law sets no range for the rate. The court picks one and can change it later. The plaintiff must apply and persuade the court that the order is needed to see justice done. In the first three applications, the court refused one and granted the other two, at 27.5% and 40% including GST.
The lawyers pay for the privilege. A firm granted an order becomes liable for any adverse costs awarded against its client, and must put up any security for the defendant’s costs. The court often appoints independent counsel, called a contradictor, to test the application on behalf of group members.
Canada: when a judge cuts the share afterwards
Agreeing a percentage does not guarantee the lawyer collects it. In a CA$10 billion Canadian treaty settlement, two Indigenous communities found their lawyers were taking more than they were. They hired the Toronto firm McCarthy Tétrault, and a judge cut the $510 million contingency fee by 90%.
“A lawyer’s retainer is not a lottery ticket,” the Ontario judge ruled. The lawyers were hoping the appeal court would see the fee differently.
That case is the question every contingency client should ask before signing. The percentage on the page is a starting point. Whether it survives depends on whether a court thinks the reward matched the work.
