Trial Counsel for Law Firms

Contingency Fees and Trial

How well are contingency fee retainer agreements equipped to deal with trial?

This question may be a matter of perspective.  When cases are viewed in isolation, contingency fee retainer agreements are only equipped to deal with relatively large personal injury trials, executive wrongful dismissal trials and substantial commercial trials.  That is because the risk / reward ratio for smaller cases from the lawyer of record’s perspective becomes too risky at trial where the potential reward is small.

For example, consider in isolation a meritorious but modest personal injury trial may require 1-2 months of work for trial preparation and trial, together with tens of thousands of dollars in disbursements.  Let’s say the case has a 50% chance of $300,000 in damages and a 50% chance of $0 in damages.  The anticipated fee for the case is 33% of $150,000, or $50,000.  Considering that 1-2 months of time (that can be devoted to settling multiple cases for multiple fees) and perhaps $30,000+ in disbursements is risked, the net result is that for personal injury trials with an upside under $300,000, trial is not worth the risk.

However, when a law firm’s case load is viewed as a portfolio, the above calculation is no longer done on a case-by-case basis.  A law firm must consider that some cases will settle early, some cases will settle late and some cases must be tried.  The moment a law firm decides not to follow through on trying cases is the the moment that not only is that case lost, but all other cases in the law firm’s portfolio of cases are adversely affected.  This concept applies in personal injury and possibly employment law, where the defendants are insurance companies and employers who litigate frequently.  Conversely, law firms that follow through on trial commitments set their firms apart from those that don’t.

Personal injury is the area of law where contingency fees are most prevalent.  40% of claims issued in Superior Court and 60% of civil trials in Superior Court are personal injury cases.  They are litigated based on contingency fees.  A majority of these cases are motor vehicle accidents and slip/trip and falls.  Most of those cases are not only time-consuming and expensive to litigate, but the upside potential is below the $300,000 discussed above.  With a trend across insurance companies towards trying more cases, plaintiff firms must seriously consider whether their standard contingency fee retainer agreement is adequate in terms of risk / reward.  In the current environment, many plaintiff personal injury law firms are settling cases too low or walking away from modest yet meritorious cases because their perspective of a specific cases is that the economics of trying the cases do not justify trial.

As law firms enter 2017, it may be worthwhile to reconsider the standard law firm contingency fee retainer agreement.  Here are some options:

33% not matter what – carry on with a 33% no matter what approach.  Try cases based on the perspective that cases are part of a portfolio and for the portfolio to succeed, the law firm of record must go to trial.

Escalating percentage – another approach is that the percentage should rise as the case proceeds.  This may mean starting below 33% if a case settles pre-discovery, 33% post-discovery but before pre-trial and something above 33% from pre-trial onwards.

33% or costs, whichever is greater – the Solicitors Act and the Contingency Fee Agreements Regulation thereunder prevent taking a percentage plus costs.  Although it is judicially untested, many law firms are moving towards a model where the firm can choose between a percentage or costs, but not both.

Best offer before trial – under the best offer before trial approach, the law firm of record gives its opinion on the best offer available and if there is a positive recommendation to accept the offer, the client must decide whether to accept the offer or pay the law firm of record its fee based on the offer before the law firm of record will conduct the trial.  This approach guards against clients acting unreasonably and can be implemented in conjunction with the above approaches.

Trial counsel as a disbursement – more and more law firms recognise that going to trial may require additional resources, including external trial counsel.  It is widely recognized that a law firm may hire associates to work on a file.  The same concept applies in terms of hiring external trial counsel to act as an agent.  Furthermore, law firms generally insert into their retainer agreements that the law firm of record may hire experts and disburse the cost to their clients.  A similar approach can be taken with trial counsel.  For the sake of clarity, some law firms are inserting into their retainer agreements a clause that should the case proceed to a pre-trial conference, then the law firm may retain trial counsel to act as their agent at trial, with some or all of the cost borne by the client.  This may mean that total fees to the client increase from 33% up to the pre-trial conference to 33% plus trial counsel from the pre-trial conference onwards.  Such an arrangement is permissible under the Solicitors Act and is a variation on an escalating percentage.

Mick Hassell is trial counsel for multiple law firms across Ontario.  He frequently advises law firms on their contingency fee retainer agreements and compliance with the Solicitors Act and related Contingency Fee Agreements Regulation.

Hassell Trial Counsel is trial counsel for law firms in civil and commercial trials before the Ontario Superior Court of Justice.  Click here for our Services for Law Firms

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