Understanding Contingency Fee Agreements (CFAs)

CFAs play an important role in personal injury cases. It helps people with accessing legal services, without any upfront payment. We will discuss about the benefits and necessary considerations of CFAs.

Meaning:

CFA is a contract between the lawyer and the client in which the lawyer’s payment is based upon on the outcome of the case. Clients are not charged by the hour or required to pay an upfront payment, but the lawyer only gets paid if the client wins or settles the case, successfully.

Key regulations:

The key regulations provided by the Ontario’s Solicitors Act and the Law Society of Ontario (LSO) to regulate the contingency fees and to ensure fairness and transparency in all CFAs prepared by the lawyers:

• Fair Contingency: While there is no capped fee percentage, lawyers must ensure the contingency percentage is fair and not excessive. Client are required to make informed decisions after their discussion with the lawyers.
• Standard Forms and Disclosure: Lawyers must use a Standard Form CFA (revised as of November 2021) and provide a copy of the LSO’s “Contingency Fees: What You Need to Know” guide to the clients.
  
  Read this guide carefully before you enter into any agreement about contingency fees.
• Prohibited Terms: CFAs in Ontario cannot include certain restrictive clauses, such as requiring the lawyer’s consent for the client to discontinue a claim or restricting the client’s right to terminate the agreement. Additionally, lawyers cannot split contingency fees with others unless specific exceptions apply.

Benefits of CFA:

• Financial Ease: for client with limited payment resources, contingency agreements act as an easier alternative to pursue justice without immediate or an upfront financial burden.
• Reduced Financial Risk: If the case does end in favour of the client, the client typically doesn’t owe any legal fees, thus reducing their financial risk.
• Shared Incentive: Both the lawyer and client are motivated towards a favorable outcome as only if they have a favourable outcome or a settlement, will the lawyer be paid.

Important considerations:

Clients are encouraged to review the agreement carefully and discuss any questions with their lawyer. Important considerations include:

• Disbursements: Contingency fees cover legal services but may not include other costs, like court fees, expert reports, etc., which the client could still be responsible for, regardless of the case outcome.
• Early Termination: If a client decides to end the agreement early, they may still owe the lawyer for disbursements and any hourly fees for the work completed.

Case Insight: Bellama v. Trafalgar Insurance, 2023 ONSC 172:

In the above-mentioned case, Ontario Superior Court rejected a CFA because it didn’t meet legal requirements. The plaintiff, injured in a car accident, settled his tort claim but faced delays in finalizing his statutory accident benefits claim due to capacity issues.

A new CFA in 2018 set a 20% fee on recovered amounts, but the court identified issues, including:

• Clarity on protections: The agreement does not explicitly state “that the client understands that all usual protections and controls on retainers between a solicitor and client, as defined by the Law Society of Ontario and the common law, apply to the contingency fee agreement.”
• Incomplete court review information: While the agreement includes a statement informing the client of their right to ask the Superior Court of Justice to review and approve the solicitor’s bill, it fails to mention the applicable timelines for requesting such a review.
• Insufficient details on disbursements: The agreement does not address the subject of disbursements with the degree of specificity required, leaving clients unclear about potential additional costs.
• Verification issues: A witness verified the signatures of both the party and counsel, but the witness only placed their initials rather than their full signature as evidence of verification, raising questions about the integrity of the agreement.
• Missing Contact Information: The lawyer and client’s names, addresses, and telephone numbers are not included in the agreement, which detracts from its completeness and transparency.

As a result, the CFA was nullified, and the lawyer was compensated based on hourly work instead of a contingency percentage.

Recent changes to CFA:

Since July 1, 2021, Ontario law mandates even more transparency for CFAs. Lawyers must clearly communicate billing practices and disclose any maximum fees if they advertise using a contingency basis.

Conclusion:

CFAenhance access to justice, especially for those with financial constraints. With a clear understanding of their structure, benefits, and legal safeguards, clients can confidently embark on their pursuit of fair compensation.

For additional information on contingency fees please check - LSO.ca.