Contingency fees, disbursements and what actually lands in your account

The basic bargain

Under a contingency agreement the firm is paid a percentage of what it recovers for you, and nothing if it recovers nothing. Rates in Canadian injury work commonly fall between roughly a quarter and forty percent depending on province, complexity and how far the file goes. Provincial rules govern these agreements, and several jurisdictions require a written agreement in a prescribed form, with review available if a fee is challenged.

Disbursements are not the fee

Disbursements are the out-of-pocket costs of building the case, and on a serious file they are substantial: medical records, expert reports, independent assessments, an economist, court filing fees, process servers, mediation costs, transcripts. A catastrophic file can carry six figures of disbursements. The firm usually advances them and is repaid from the settlement.

Interest on advanced costs

Some firms fund disbursements from their own capital. Others borrow, through litigation lenders or a line of credit, and pass the interest to you. On a file that runs four years, interest on advanced disbursements can quietly become one of the largest line items on your final statement. It is disclosed in the retainer, and it is one of the least-read clauses in Canadian legal practice.

The risk of losing

Canada is a loser-pays jurisdiction. If a claim is dismissed, a plaintiff can be ordered to pay a portion of the other side’s legal costs — an exposure that does not exist in the American system most people have absorbed from television. Many firms carry adverse-costs insurance to cover this, with the premium treated as a disbursement. Ask whether you are covered and who pays the premium.

Tax and clawbacks

General damages for personal injury are generally not taxable in Canada, but GST or HST applies to legal fees, and income-replacement benefits, disability payments, employment insurance and social assistance may be subject to repayment out of a settlement. Provincial health insurers also have statutory rights to recover the cost of treating you. None of these are surprises to an experienced firm — but they are a surprise to a client who was never told.

A worked example

Take a $250,000 settlement, a one-third contingency, and $30,000 of disbursements. Fee on the gross: about $83,300, leaving roughly $136,700 after disbursements and before tax on fees and any repayment obligations. Fee calculated after disbursements come off: about $73,300, leaving roughly $146,700. Same firm quality, same headline percentage, ten thousand dollars apart. This is why the retainer matters more than the pitch.

Figures are illustrative and exclude GST/HST on fees and any benefit repayment or subrogated health-care claim, which vary by province and by file.

What a good firm does at the end

• Gives you a written settlement statement itemising every deduction before you sign the release.
• Explains any repayment obligation to a benefits provider or health insurer in advance, not on the day.
• Discusses whether a structured settlement suits your situation, particularly on large or long-horizon claims.
• Answers "why is this number what it is" without irritation.