The 50 50 rule is often referred to as a safety net in some complex no win no fee cases.
What is the 50/50 rule for personal injury cases?
In some states, there is what is called a 50/50 rule which is designed to protect the plaintiff when making a personal injury claim from being wiped out financially by legal costs. It works by restricting the amount that a law firm can charge their clients by putting an upper limit on the professional fees (including GST) that a law firm is allowed to charge their client.
So why the term 50/50?
The reason it’s called the 50/50 rule is that a law firm cannot deduct more than 50% from a client’s compensation. For example, if you were awarded $50,000 in compensation for your accident and injuries after outlays such as medical bills have been deducted, but your law firms’ fees amounted to $33,095, they would only be able to recover $25,000. This means that you would keep $25,000 in compensation instead of ending up with just $19,905.
No win no fee legal practioners use the following formulas when calculating caps:
- Begin with the amount of compensation, including any costs to be paid by the losing party
- Deduct any refunds the plaintiff needs to make and all your disbursements, to arrive at a balance
- Then calculate your fees, inclusive of GST which must not exceed half of that balance.
- Maximum fees = [settlement amount – (refunds + disbursements) ÷ 2]