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- Contingency Fee Issues
Last updated: June 2022
The Calculation of Fees
Lawyers use a range of methods to calculate fees on contingency files. Unfortunately, many result in overpayments to lawyers which must be reimbursed to clients, and which may be subject to review under rule 10.7(7) of the Alberta Rules of Court. Law Society of Alberta audits reveal some common problems, including contingency fee agreements that do not comply with the Rules of Court, charging fees on retainer deposits and inaccurately calculating fees on advances.
Contingency Fee Agreements Not Complying With Current Rules
With periodic amendments to the Rules of Court, lawyers must ensure their contingency fee agreements are updated for ongoing compliance. Lawyers should be aware of amendments to the Rules of Court and update their precedents when Rule amendments impact contingency fee agreements.
For example, some lawyers historically calculated contingency fees on disbursements which they incurred and recovered on the client’s behalf. The 2015 amendment to the Rules of Court prohibits this. Rule 10.7 presently states:
(2) To be enforceable, a contingency fee agreement must contain the following particulars in precise and understandable terms: …
(e) a statement about
(i) the manner in which the contingency fee is to be calculated, provided that no fee, calculated as a percentage or otherwise, may be payable on disbursements or other charges recovered.
A lawyer whose contingency fee agreement contains a provision that the contingency fee is calculated on disbursements or other charges will likely be void under rule 10.8, and the lawyer will be limited to charges determined under rule 10.2.
The Rules of Court also address payments to lawyers from costs orders. Rules 10.7(2)(f) and 10.7(6) limit the lawyer’s recovery to the applicable contingency fee percentage applied to the costs award. These rules also stipulate that the contingency fee agreement must contain terms to ensure that the client understands that they own the costs award, and if the lawyer receives a percentage of it, the payment will be in addition to the lawyer’s fees calculated under the balance of the agreement.
Charging Fees on Retainer Deposits or Advances Made to Clients
Sometimes lawyers charge contingency fees on retainer deposits or advances. While it may be permissible to charge fees on advances to clients, it is not permissible to do so on retainer deposits. Charging fees on retainer deposits usually occurs because the lawyer fails to correctly identify the source of funds deposited into their trust accounts.
This error can be avoided by providing the client with a summary of monies received and disbursed along with the invoice. Reviewing the summary before providing it to the client will enable the lawyer to identify those amounts on which the fee should properly be calculated. See a Sample Calculation.
In some instances, lawyers seek an advance payment on their client’s behalf. For example, section 581 of the Insurance Act and section 5.6 of the Fair Practices Regulation give the court discretion to order an insurer to pay a claimant in advance of final resolution.
In rendering an account on an advance payment, the lawyer must be cautious first to ensure the payment is contemplated in the contingency fee agreement, and second not to take more than they are entitled to. Because the payment is to enable the client to minimize hardship by contributing to the necessities of life, lawyers who charge fees on an advance may cause the client to run out of funds before final resolution of their action. The lawyer should consider whether to wait until final resolution to deduct fees from the total amount, or at least to bill a lesser amount than the stage of the proceedings would warrant under the contingency fee agreement, with final accounting on resolution addressing that earlier billing
Claims for Hourly Fees on Termination of a Retainer
Many contingency fee agreements stipulate that the client must pay the lawyer’s fees on an hourly basis if they terminate the retainer prior to final resolution. On occasion, the former lawyer seeks to impose a trust condition on the new lawyer requiring payment of their account before they will transfer the file.
Both provisions likely result in the client not being able to transfer their file and being left with the choice of continuing with a lawyer whom they do not trust (or worse) or walking away from their claim. Courts recognize that contingency fee agreements are key tools in providing access to justice and are unlikely to enforce such provisions.
In addition, the former lawyer cannot withhold the file or assert a lien for unpaid fees. They can only require the new lawyer to provide an undertaking to hold the resulting fees in trust, with the intention that they will be split on a quantum meruit basis between the respective counsel upon the file’s conclusion.
In Law Firm v Solicitor,  AJ No 1242 (QB), the Court held that the law firm could not assert a solicitor’s lien for its interest in potential fees and that solicitors’ liens are not available in contingency situations. Ultimately, the firm was entitled to an undertaking from the new lawyer to share the fees as determined after final resolution of the client’s underlying matter. The fees were to be held in trust until the firm’s accounts were taxed. The firm was entitled to assert a lien with respect to disbursements. The Court stated:
The lien in respect of fees in a contingency arrangement is inappropriate and does not exist in my view. To hold otherwise would, in effect, limit the client to the retention of his original solicitor and would effectively prevent the client from discharging that solicitor prior to the completion of the matter.
Time Keeping Habits
Though many lawyers who work primarily on a contingency fee basis do not track time spent on client matters, it is advisable to do so in case fees have to be shared between lawyers. In addition, the contingency fee agreement might be set aside or reviewed by the court. This can happen, for example, if the fee agreement was not properly served on the client or if it involves a minor’s claim (see Sonnenberg v. Schumacher & Associates,  AJ No 725 and Rusk (Next Friend of) v Medicine Hat (City),  A.J No 1577, respectively).Accurate and reasonable records of the time spent and the tasks completed will enable the lawyer to establish an appropriate claim for legal fees.
Practice Advisors can help lawyers address questions about contingency fees and can also assist lawyers with issues arising on file transfers.