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Contingency fees – change is coming

May 17, 2021

New requirements regarding contingency fees are coming into effect on July 1, 2021, to enhance consumer protection by improving transparency and fairness for clients – thereby improving access to justice. The changes also benefit lawyers and paralegals by being more efficient and reducing burdens.

In licensee terms, a contingency fee agreement is a retainer under which payment, including payment of a bonus or premium, is dependent on the successful disposition or completion of a client’s matter. In Ontario, O. Reg. 563/20 prescribes the required form and content of contingency fee agreements and sets out impermissible terms.

For consumers, this means if you hire a lawyer or paralegal to assist you with a legal matter for which you could receive money, you may be able to pay for their services on a contingency basis. That means you only pay legal fees if you receive money because you win your case or get a negotiated settlement. If you lose your case, you do not pay legal fees, although you may have to pay for other legal expenses. Your lawyer or paralegal will usually charge a percentage of the money that you get as a contingency fee, plus HST.

Here’s what’s changing for licensees


On July 1, 2021, amendments to the lawyer and paralegal conduct rules come into effect which require you to disclose the maximum contingency fee percentage charged in certain circumstances and to provide potential clients with the standard form consumer guide: Contingency Fees: What you need to know.
 

The rules also clarify that if you or your firm market your legal services on the basis that clients may be charged a contingency fee, you must disclose the general maximum percentage of contingency fee on your website in a manner that is easily accessible to potential clients or, if you do not have a website, by providing this information to every potential client at the first point of contact.
 

Amendments to the Solicitors Act and new regulation O. Reg. 563/20 also come into force on July 1 which remove the prohibition on the inclusion of costs in the amount on which a contingency fee calculation is based and extend the provisions on contingency fee agreements to paralegals.
 

The new regulation requires the use of a new standard form Contingency Fee Agreement, which uses plain-language to ensure that the agreement is easily understood by clients and licensees. Upon completion of the agreement, you must provide the following fee-related disclosure in the statement of account that is delivered to the client:

  • A clear breakdown of the award or settlement (including the net amount that the client will receive and an itemized list of the disbursements, legal fees, and taxes charged to the client). 
  • An explanation of the reasonableness of the contingency fee with reference to the following factors: the time expended, the legal complexity of the matter, the results achieved, and the risks assumed. This requirement does not apply where a court has approved the contingency fee.
  • A statement that the client has the right to apply to the Superior Court of Justice for an assessment of the bill in accordance with Section 28.1 of the Solicitors Act and which specifies the latest date for doing so. This requirement does not apply where the court has approved the contingency fee.


The Law Society has developed frequently asked questions about contingency fees to support lawyers and paralegals with understanding and implementing the new requirements. This includes a specific section on marketing requirements.  


Read more about contingency fee reforms.

Here’s what’s changing for consumers


You’ve likely seen legal services advertised as: “If you don’t win, you don’t pay.” This type of advertising indicates that these firms, lawyers or paralegals work on a contingency fee basis. In the past, what contingency fees are, what they include and how much they could end up costing may have been unclear to potential clients.


Beginning July 1, 2021, in order to provide transparency, any lawyer or paralegal who is  offering to represent you on a contingency basis must provide you with a copy of the Law Society’s Contingency fees: What you need to know consumer guide and give you reasonable time to review and consider the information.


Additionally, the lawyer or paralegal is obligated to disclose the general maximum percentage of contingency fee clearly on their website or, if they do not have a website, by providing this information to you during your initial contact. If this information is provided verbally, the  lawyer or paralegal may ask you to acknowledge in writing that you have received this information.  


If you agree to hire the lawyer or paralegal, they are obligated to use the new standard form Contingency Fee Agreement, which is easy for both you and the lawyer or paralegal to understand.


Upon completion of a Contingency Fee Agreement, money that has been awarded by the court or negotiated in a settlement will usually be paid to your lawyer or paralegal. They hold it in trust for you.

Before they give the money to you, they prepare an account statement showing what they will deduct for fees, disbursements and applicable taxes. The account statement must clearly set out:

  • The amount of the settlement or award and the net amount that you will receive.
  • Itemized disbursement costs, legal fees and taxes that are charged to you.
  • The way you will receive the money.


The account statement must also explain why the legal fees are reasonable and what you can do if you feel that they are not reasonable.


We encourage you to learn more about Contingency fees through the Consumer Guide or via our website.


 

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