Queensland Law Society

What is the ‘50/50 rule’ for ‘no win no fee’ personal injury cases?

The rule is to be found in ss.345-347 of the Legal Profession Act 2007 (LP Act) and only applies to personal injury claims which you conduct on a speculative basis. The rule applies to matters where a “request for payment” is made on or after 1 July 2007, whether or not a client agreement predates that. These provisions replaced ss. 48IA-48IC of the Queensland Law Society Act 1952 which had applied from 6 November 2003.

The rule sets a cap on the fees you may charge. This cap is to be calculated in the following way:

  • start with the amount of the settlement or judgment, including any costs to be paid by the other side
  • then deduct any refunds your client has to make and all disbursements, to arrive at a balance
  • your fees, inclusive of GST (calculated in accordance with your client/costs agreement, or s.319 of the LP Act if no client/costs agreement) must not exceed half of that balance.

Put another way, in the words of the Legal Services Commissioner (LSC), you are entitled to charge your client no more than half the amount to which your client is entitled under a judgment or settlement after deducting any refunds your client is required to pay and the total of disbursements for which your client is liable.

The new rule in the LP Act has much additional wording compared to the previous rule in the QLS Act. The changes are intended to provide clarity and to close certain possible loopholes identified by the LSC in the rule as it was under the QLS Act.

Due to this uncertainty about the meaning of the old rule in the QLS Act, the LSC made an application to the Supreme Court for declarations as to the meaning of “disbursements” in the rule, whether this term included interest on litigation loan repayments, and the treatment of GST – see Legal Services Commissioner v Dempsey [2008] QCA 122.

The LSC believes that the principles the Court of Appeal enunciated relating to the old rule in the QLS Act also apply to the new rule in the LP Act.

Following the Court of Appeal judgment the LSC issued Regulatory Guide 3: Charging Fees in Speculative Personal Injury Matters.  An article about the judgment and the guidelines was published in Proctor in July 2008 50-50 Rule: Court of Appeal upholds decision.

Notably, the LSC has made it clear in the guidelines that following the Court of Appeal judgment you are expected to review all relevant files to ensure that you have not overcharged your clients on the basis of an incorrect interpretation of the old rule (or even the new rule) and if you have, to refund the overpayment with interest. The LSC has said:

We say that we see no public interest in initiating disciplinary proceedings against any lawyers who misunderstood the true meaning of the rule and so overcharged their clients before the law was settled by the decision of the Court of Appeal provided of course that they reimburse their clients the amounts they overcharged them together with interest. We say that lawyers who overcharge their clients in the relevant ways now that the law is settled will not be treated so leniently. If you don’t know about these matters, you should, and you should make it your business to find out.

Further reading: LSC Annual Report 2007-08 pp 26-28.

The solicitor concerned in the 2008 Court of Appeal decision has since been prosecuted by the LSC in relation to breach of the rule under the QLS Act – Legal Services Commissioner v Dempsey [2009] LPT 20. The Legal Practice Tribunal found that the solicitor had committed unsatisfactory professional conduct by charging excessive fees, that is fees in excess of the amount permitted by the rule.

The solicitor in that case was also found guilty of professional misconduct in preferring his own interests to those of the client by purporting to have her waive the benefit of the rule. This case makes it clear that the rule cannot be waived. Similarly a client cannot contract out of the rule by signing a client agreement containing such a term. See paragraphs 109-112 of the judgment.

The case stresses that the only way you can charge more than the statutory formula is with the approval of the QLS Council.  Section 347 permits an application to the QLS Council for approval to charge more. The QLS has issued guidelines and details of QLS Council policy for these applications. The most common circumstance under which an application may be successful is if your client has materially misled you, or not told the whole story, intentionally or not, and this comes out at some stage, resulting in a lower than expected outcome.