What are 'no-win - no-fee' costs agreements?

Many lawyers and law firms enter into ‘no win ‐ no fee’ costs agreements and will do legal work on behalf of their clients on what is sometimes called a ‘speculative’ (or ‘spec’) basis.

A ‘no win ‐ no fee’ costs agreement provides a way for people with limited finances to access legal services to engage a lawyer on their behalf.  In these types of agreements, the lawyer is paid only if the matter is successful, or after the matter is settled or otherwise decided.

Provided below is information on some things to be aware of when entering into a no win - no fee costs agreement.

In a ‘no win ‐ no fee’ costs agreement, a lawyer agrees with a client not to charge any fees for their services unless and until the client ‘wins’ the case. The lawyer agrees to take the risk that the case might lose – and if this happens, the lawyer does not charge any fees. The client agrees to pay the lawyer if the case succeeds (typically, but not always, out of the money recovered from the other party).

Some things to be aware of:

  • Generally the law firm is still entitled to recover their outlays (also known as disbursements). These are monies the law firm has spent in pursuing the claim and include court filing fees, the cost of expert reports and barristers’ fees.
  • The terms of the ‘no win ‐ no fee’ costs agreement should state whether or not the firm can recover their outlays.
  • While a lawyer may carry the risk for their own fees, it is highly unusual for them to carry any risk for the other party’s legal costs. Typically, if a case is not successful, the party who is not successful must pay the other party's legal costs, regardless of whether or not they have a ‘no win ‐ no fee’ costs agreement with their own lawyer.

‘No win ‐ no fee’ arrangements are one type of what the Legal Profession Act 2007 (the Act) calls ‘conditional costs agreements’. The Act defines conditional costs agreements to be agreements which provide ‘that the payment of some or all of the legal costs is conditional on the successful outcome of the matter to which those costs relate.’ (See Legal Profession Act section 323).

Lawyers and their clients can enter into this type of arrangement for any matter except criminal or family law matters.

Law firms typically offer no win ‐ no fee terms only in cases where there is, or is likely to be, money available to pay the costs after the matter is settled.

The most common cases are personal injury claims and some types of deceased estate matters.

Ask your lawyer if they are prepared to enter into a no win‐ no fee costs agreement.

Lawyers and their firms are not obliged to take any matter on a no win ‐ no fee basis. Some firms do not offer these terms at all.

It may be a good idea to talk to different law firms to see what types of fees, funding arrangements and expertise they are able able to offer. Ask several firms how they would approach your matter and if they will agree to a no win ‐ no fee arrangement.

If the lawyer you consult does not work on a no win - no fee basis, another option may be to find a lawyer or law firm that does. You could also talk to the lawyer about an alternative arrangement. For instance, some firms may not require their fees to be paid until the end of a matter.

If you cannot afford legal services and cannot find a lawyer who will act for you on a no win ‐ no fee basis, you may also consider the following options:

  • The Queensland Law Society (QLS)  keeps lists of lawyers who practise in a variety of fields around Queensland and may be able to refer you to a lawyer who may consider a no win ‐ no fee arrangement.
  • Free legal advice is available from your local Community Legal Centre.
  • Contact Legal Aid Queensland to see if you qualify for legal aid to pursue the matter.
  • Some law firms offer a ‘pro bono’ service for some matters. This usually means the firm will not charge a fee or only charge a nominal fee for their services.  You can contact these law firms directly to see if they will take on your matter under a pro bono arrangement. Most law firms will state on their websites if they take on pro bono matters.
  • If your matter is a ‘test case’ or involves a matter of public interest, LawRight may help by referring you to a pro bono lawyer.

Where a lawyer and a client agree to a no win ‐ no fee arrangement (that is, if there is a conditional costs agreement between them), there are certain legislative requirements imposed on the lawyer.

In particular, the no win - no fee agreement:

  • must set out the circumstances that constitute a ‘successful outcome’ of the matter
  • may provide for outlays to be paid (possibly with interest) irrespective of the outcome of the matter
  • may provide for payment of an ‘uplift fee’ (see uplift fees below)
  • must be in writing; in clear plain language; and signed by the client
  • must contain a statement that the client has been informed of his/her right to seek independent legal advice before entering into the agreement
  • must contain a cooling‐off period of not less than five clear business days during which the client, by written notice, may terminate the agreement.

While these requirements must be observed, there is no ‘standard’ form of agreement.

The fees charged in a ‘no win ‐ no fee’ costs agreement can be higher than those charged in a standard costs agreement between a lawyer and client. This is because the lawyer is taking the risk that the matter might not be successful and that they may not be paid for their services.

Law firms are allowed to charge an ‘uplift fee’ in conditional costs agreements. This is an additional fee over and above any fees that are otherwise payable. The uplift fee is payable only on the successful outcome in the matter and may be stated in dollar terms but is usually calculated as a percentage of the fees. The uplift fee does not generally include outlays.

The uplift fee must not exceed 25% of the fees otherwise payable, and must be separately identified in the costs agreement.

The lawyer must give the client an estimate of what the uplift fee is likely to be, and explain what is taken into account when determining the uplift fee.

Not all lawyers charge an uplift fee.

If you have a ‘no win ‐ no fee’ arrangement with a lawyer and your claim is for damages for personal injury, then there is a legislative requirement for the lawyer to make an arrangement subject to what is often referred to as the ‘50/50’ rule.

The 50/50 rule restricts the amount the law firm can charge in personal injury matters. The objective of the 50/50 rule is to ensure that claimants are not worse off financially after pursuing a legitimate personal injury claim.

The 50/50 rule puts an upper limit on the professional fees (including GST) that a law firm may charge in personal injury matters.

The maximum a law firm can charge (including GST) is one half (or 50%) of the settlement amount after refunds (e.g. to Medicare or Centrelink) and outlays have been deducted.

The 50/50 rule formula

The formula used is roughly stated as follows:

Maximum fees = settlement amount – (refunds + disbursements) ÷ 2

An example is set out below.

There are some important qualifications to the 50/50 rule formula:

  • The formula only applies to claims for ‘damages for personal injury’.
  • There are certain types of matters that might be thought of as personal injuries cases but which might not qualify under the legislation. These may include claims against insurance companies under life or disability insurance policies, claims for government benefits such as a disability pension, claims for workers’ compensation benefits' and claims for criminal compensation. The courts have not yet ruled on whether these types of cases are subject to the ‘50/50’ rule or not, so its application is uncertain.
  • The formula does not take into account the interest on any loans (whether a litigation loan or a personal loan) made in connection with the claim. This interest must be paid from the client’s ‘share’ of the settlement or judgment.

How the 50/50 rule works

Imagine you receive a settlement amount of $50,000 including costs. You owe Medicare a refund of $1,000, you owe Centrelink a refund of $6,000 and your outlays (for medical reports and the like) total $9,000. The 50/50 rule means that your lawyer could not charge you more than $17,000.

The formula works like this:

Settlement amount (including costs recovered from the other party) is:

Total $50,000.00Settlement amount
 - $1,000.00Refund to Medicare
 - $6,000.00Refund to Centrelink
 - $9,000.00Outlays (medical reports etc.)
 = $34,000.00Remaining                                                                                                                                    
 $34,000.00Divided by 2 (50/50 rule)
Total$17,000.00To the lawyer (this is a cap on the lawyer's fees)
Total  $17,000.00To client - the remaining amount paid to the client once the lawyer's fees have been paid

Note: If your lawyer’s fees come to $12,000, they can charge you the full amount of their fees
(i.e. $12,000), but if their fees come to $20,000, they can charge you no more than $17,000.

Check to see whether there is an uplift fee which may effect the final settlement amount you receive.

If you change law firms during the course of your claim, both law firms may charge you legal fees. Usually, the firm that acts first will release your file to the second firm with an agreement from you, or the second firm, to pay their fees once the matter is finalised.

However, not all firms will agree to this arrangement. Remember to check your costs agreement (and speak to your lawyer, if possible) before changing firms. It is important you know exactly what will happen if you change firms.

If you change firms and the ‘50/50’ rule applies to your claim, there may be a dispute as to what each firm is entitled to. Although the courts have not decided this issue as yet, the Legal Services Commission believes that the rule is designed to ensure that a client receives a fair proportion of any settlement or judgment.

The Commission's view is that the rule should cap the total costs payable by the client to both (or all) law firms which acted in the matter. How that cap is divided between those firms can be negotiated commercially between them. In most cases, this would involve the amount being divided proportionately between them, depending on the amount of work done by each firm.

Before entering into a no win - no fee costs agreement you should:

  • Carefully read the terms of the agreement and understand them. If you are unsure, ask for them to be explained to you.
  • Use the five day cooling off period to think about the terms of the agreement. Most importantly, if you’re unsure about anything, seek independent advice (for instance, from your local community legal centre).
  • Get independent legal advice if you are in any way unsure about the no win - no fee arrangement.
  • Check to see if the law firm is charging an uplift fee, and how much it is. This can heavily affect the ultimate cost of the case, and the amount you will recover.
  • Consider the estimate of how much the matter will cost and ask questions if you don't understand something.
  • Remember that a ‘no win ‐ no fee’ costs agreement for a personal injury claim is subject to the ‘50/50’ rule. Check this has been stated in the agreement.
  • Remember that even with a ‘no win ‐ no fee’ costs agreement, you will still have to pay the other side’s legal costs if you lose your claim.

While a law firm accepts the risk of not being able to charge for their work under a no win ‐ no fee costs agreement, they are usually entitled to recover any outlays.

Some firms pay the outlays out of their own money, and recover them from the client once the matter is finalised - generally with an interest charge added. Where there is an interest rate charged, the rate should be stated in the costs agreement.

Other law firms may ask you to enter into a litigation loan. This is a commercial loan from a credit provider that covers the cost of the outlays while the matter progresses, but which has to be paid back (with interest) once the matter is finalised.

Before entering into a litigation loan you should be aware of the following:

  • Any loan is separate from the no win ‐ no fee costs agreement.
  • These loans sometimes carry significant interest charges and other fees which must be repaid at the end of the matter. This can mean that the ultimate amount you receive may be much less than you expected.
  • Before entering into a litigation loan, be sure you receive the full terms for the loan and understand the interest, fees and charges.
  • Seek independent legal and financial advice before entering into the loan.
  • Some companies offer a different type of loan that is not used just for outlays, but which can provide cash to an injured person while their claim goes through the system. Be aware that these loans often carry significant interest charges and other fees, and they must be repaid once the matter settles. Again, this can significantly reduce any settlement amount.
  • Interest on a litigation loan is not counted in the ‘50/50’ rule. Any interest on the loan will come out of your set ‘share’ of the settlement at the end of the matter.

If you are unsure about a no win - no fee agreement or any information provided by the Legal Services Commission, you should seek independent advice..

The Legal Services Commission does not provide legal advice. Any information provided by the Legal Services Commission should not be considered legal advice.