Brief Introduction About Contingency Fee Agreement
What is contingency? A contingency fee agreement is a contract wherein the fees payable to a lawyer is based on the outcome of the case. If the lawyer manages to attain a victory for the client, then he would be a paid a fee from the damages received from the court, and if he loses the case, then he would be paid nothing. It thus becomes a high-risk venture for the lawyer as he puts a lot of his time and resources in every case.
Such contracts between a lawyer and the client are not allowed in India with it being one of the few countries that completely bars such agreements citing legal and ethical reasons for the same. In the case of Ganga Ram v. Devi Das, contingency fee agreements were held to be void, citing that they were against public policy and also against the professional ethics of lawyers.
Who Takes the Contingency Fee Agreement?
In the simplest form of a contingency fee agreement, there are only two parties to the agreement.
- The plaintiff: He/she is the injured party in a case seeking legal remedy and gives a particular sum of money if the lawyer wins the case for them.
- The lawyer: He/she is the person who is responsible for winning the case for their client and gets a particular sum of money at the end of the case in case they win.
Purpose of a Contingency Fee Agreement – Why Do You Need It?
The purpose of any agreement is to protect both the parties to the agreement, with the help of some terms and conditions. Similarly, in a contingency fee agreement, both the client and the lawyer are protected by the terms and conditions mentioned in the contract between them, which helps to bring a sense of clarity and avoid disputes.
Contents of a Contingency Fee Agreement – Inclusions
A sample contingency fee agreement may be used as a reference for drafting such contracts.
- How much the lawyer will be paid at the outset of the case is mentioned.
- What percentage of the damages would the lawyer be paid and other conditions outlining that?
- Names of the parties, their addresses, contact details, etc.
- What would happen in case the agreement is violated.
- Other essential terms and conditions.
How to Draft a Contingency Fee Agreement?
An effective contingency fee agreement template can be prepared using the following guidelines:
- Express Contract: Express contract is essential first to draft a contract with transparent terms and conditions mentioned in it. The agreement must be agreed upon by writing or by signing it. Such agreements are enforceable by law with specific remedies in case of a breach of contract.
- Fee Determination: A contingent fee agreement must identify the method by which the fee is calculated. Some could be based on percentage, some based on reasonableness, etc. Lawyers may also demand for a particular payment based on the time taken to win the case, the amount of damages awarded by the court, and the amount of risk involved in the case.
- Termination of Representation: A client may typically terminate the contract at any time. So, a lawyer working under these circumstances would be at a high risk of not getting paid at all. Therefore, it is essential to have clear terms explaining the actions upon the termination of the agreement.
- Arbitration: An arbitration clause is typically included to express the action upon violation of the agreement between the lawyer and his client. Lawyers thus include an arbitration or mediation clause in the deal which proves to be an effective way to avoid further disputes with their clients.
The following are the negotiation strategies for a contingent fee agreement.
- The first and foremost thing is to understand the agreement clearly; what would be the percentage of damages the lawyer would be getting if he wins the case, the fact that the lawyer will not get anything if he loses the case, etc.
- To win any case the most critical aspect is to gather all the essential or pertinent documents connected to the case such as medical history, police records, income statement or any other information that could indicate injuries and damages. These documents help a lawyer to gather all the essential information and save him the time in doing so himself. This helps the parties in two ways; the client can waive off a certain amount of fee because he saved the lawyer’s time and the lawyer is one step closer to winning the case as he has all the important documents needed by him to win the case.
- Even if a client hasn’t gathered any documents, he/she could use some prompting to negotiate. A lawyer would not reduce the fee without any prompting from the client. If the lawyer thinks that there is a high chance for a positive outcome in the case, he may consider reducing the fee.
Benefits and Drawbacks of a Contingency Fee Agreement
One of the most significant gains in a contingency agreement is the fact that if you lose the case, you don’t pay the lawyer for the work done. What also happens in many cases is that the plaintiff can’t afford a lawyer unless the case is won, which motivates the lawyer to do the best work he can because otherwise he will not be paid.
The main problem with a contingency fee agreement is that it could cost the plaintiff more than what he would typically pay if he had gone based on the hourly rates of the lawyer. A typical contingency fee could be between 30-40% of the final damages given by the court to the client. In case it is a risky case or a sure shot win case, the lawyer may ask for an even higher fee. Thus, a client will mostly end up paying more.
What Happens in Case of Violation?
A contract in general sense is subject to all the terms and conditions mentioned in it, and therefore a violation of the contract would be considered as a breach. The same analogy can be applied to a contingency fee agreement as well. In case the agreement is violated, the breaching party would be liable to pay damages for the same to cover for all the losses incurred by the non-breaching party. Such agreements mostly contain an arbitration clause to solve any dispute in case of violation, so an arbitration or mediation procedure can be an effective way of addressing these disputes(1).
Contingency fee agreements are essential to form a clear understanding between the lawyer and his client such that there are no disputes between them, and even if they are, they can be resolved. They make it easier for the less financially stable people to sue someone in case their rights have been violated as one must typically be wealthy enough to do so due to the hefty litigation costs. It thus creates a win-win situation for both the lawyer and the client.