Preliminary Report of the Law Society of New Brunswick
Ad Hoc Committee on Contingent Fee Agreements
September 23, 2020 Contents
A. Introduction………………………………………………………………………………..1
B. History of Contingent Fees in New Brunswick…………………………………………...1
C. Current Statute and Regulation……………………………………………………………3
D. Regulation in Other Provinces…………………………………………………………….4
E. Problematic Cases under Existing New Brunswick Regulation…………………………..4
a) Medical Malpractice………………………………………………………………………4
b) Claims for Periodic Payments……………………………………………………………..5
c) Claims Including Non-Monetary Relief…………………………………………………..6
d) Family Law and Criminal Cases…………………………………………………………..6
F. Issues with Existing CFA Form and Structure……………………………………………6
a) Standard Form……………………………………………………………………………..6
b) Disbursements……………………………………………………………………………..7
c) Requests for Review / Appointment of Reviewing Officers……………………………...8
G. Competition Bureau Recommendation……………………………………………………9
H. Recent Law Society of Ontario Reforms………………………………………………...10
I. Caps on Fees……………………………………………………………………………..11
J. Recommendations………………………………………………………………………..12
a) Increase, but do not eliminate caps on fees………………………………………………12
b) Maintain the existing ban on CFA's in family and criminal cases……………………….12
c) More transparent and flexible options for how to deal with disbursements……………..12
d) More flexible options for how to deal with interest on disbursements…………………..12
e) Reviewing Officers to be appointed by Council…………………………………………13 f) Changes to Reviewing Officer Procedure………………………………………………..13
g) “Know Your Rights” Document…………………………………………………………13
K. Next Steps. ………………………………………………………………………………14
L. Conclusion……………………………………………………………………………….15
APPENDICES…………………………………………………………………………………...16 A. Introduction
1. On April 28, 2017, Council struck an ad hoc committee to investigate the issue of contingent fee agreements (CFA’s) in general, and to make recommendations to Council on whether there ought to be changes to those rules. 1 2 3
2. The Committee considered inputs including: • current governing statutes, regulations and rules; 4 and the current Form 1 CFA; 5 • memo from our late colleague Richard Scott, Q.C.; 6 • CFA regimes in other provinces; 7 • report of the Competition Bureau of Canada; 8 • submission from Canadian Defence Lawyers to Law Society of Upper Canada (LSUC); 9 • report from LSUC counterpart to the Committee; 10 • data provided by LSNB staff; • the Committee members’ own experience with CFA’s.
3. The Committee considered the issue from two main perspectives:
• access to counsel: does the existing CFA structure allow people with worthy cases to afford to retain counsel?
• fair compensation: does the existing CFA structure allow lawyers fair compensation for the time, effort, risk and expense of taking on some worthy cases?
B. History of Contingent Fees in New Brunswick
4. Historically, in much of the common law world, CFA’s were considered illegal and unenforceable as being against public policy. The concern was that a lawyer in a CFA was participating in the tort of maintenance and champerty by funding and sharing in the proceedings of a civil case.
1 The terms “Contingent Fees” and “Contingency Fees” are both in common use, and both understood to mean the same thing. In this report, we have adopted the term “Contingent Fees” because the fee is “contingent” on some outcome. 2 The Committee is comprised of Darren Blois (chair); David O’Brien, Q.C.; Mark Canty, Q.C.; Philippe Eddie,Q.C.; Justin Robichaud; and John Jarvie. The late Richard Scott, Q.C. was also appointed to the Committee and contributed immeasurably with written reports and suggestions, but sadly did not participate in its deliberations. The Committee was grateful to have the assistance of LSNB staff members Shirley MacLean, Q.C., Michèle Morin, and Lucie Leclerc. 3 The Committee met, in person or by telephone conference on July 11 and November 8, 2017; February 1, March 23, July 4 and November 14, 2018; May 10 and October 16, 2019; March 11, May 1, and June 10, 2020, plus several other deliberations by email. 4 Summary of Current and Proposed Statutes and Regulations Governing Contingent Fees in New Brunswick [Appendix A] 5 Current and Proposed Form 1 Contingent Fee Agreement [Appendix B] 6 Richard Scott, Q.C., Regulation of Contingent Fee Agreements in New Brunswick, October 30, 2012 [Appendix C] 7 Summary of Contingent Fee Regulation in Other Provinces [Appendix D] 8 Competition Bureau of Canada, Self-Regulated Professions: Balancing Competition and Regulation, 2007 [Appendix E] 9 Canadian Defence Lawyers Submission to Law Society of Upper Canada, September 28, 2016 [Appendix F] 10 Fifth Report of the Advertising & Fee Arrangements Issues Working Group [Appendix G]
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1 5. New Brunswick courts had historically been more permissive than most jurisdictions in allowing CFA’s since at least 1962. 11
6. In 1971, the Barristers’ Society of New Brunswick (precursor to LSNB) first regulated CFA’s with the adoption of a new Professional Conduct Handbook. The only regulation at that time was that a CFA must: • be in writing; • be reasonable; • provide that the client has the option at the outset of paying on the usual solicitor- client basis; • be subject to review pursuant to s. 85 of the Law Society Act, 1996 (or taxation as it was then called); • not be used in a criminal or quasi-criminal case. 12
7. In 1974, LSNB adopted the Canadian Bar Association’s Code of Professional Conduct (1974), which provided only that CFA’s be “reasonable.” 13
8. In 1979, the New Brunswick Legislature regulated CFA’s by statute for the first time by enacting amendments to the Judicature Act. Highlights of the 1979 legislation include:
• a lawyer could only enter into a CFA with a client who is or will be unable to pay for legal fees and disbursements in the usual way; 14
• the fee was not limited to a percentage of the final result, as we are used to now, but could be a “gross sum, commission, percentage or otherwise.” 15
• it was left open whether a CFA could call for the client to pay disbursements regardless of the outcome. 16
9. In 1996, the 1979 amendments were repealed and replaced upon the enactment of the Law Society Act, 1996.
10. The Law Society Act, 1996 delegated to Council the authority to adopt rules for CFA’s (s. 17(2)(dd)). The Act permitted (but did not require) Council to adopt limits on the amounts of contingent fees; and provided that CFA’s that allowed fees in excess of those limits would be unenforceable (s. 83.(3)).
11 Scott, Regulation of Contingent Fee Agreements in New Brunswick, pp 2-3 [Appendix C] 12 Barristers Society of New Brunswick, Professional Conduct Handbook (1971), Part E, s. 2; cited in Scott, Regulation of Contingent Fee Agreements in New Brunswick, p 4 [Appendix C]. 13 Canadian Bar Association, Code of Professional Conduct (1974), Chapter X, s. 8; cited in Scott, Regulation of Contingent Fee Agreements in New Brunswick, p 5 [Appendix C]. 14 Judicature Act (1979), s. 72.1(3); cited in Scott, Regulation of Contingent Fee Agreements in New Brunswick, Appendix A [Appendix C]. 15 Judicature Act (1979), s. 72.1(3); cited in Scott, Regulation of Contingent Fee Agreements in New Brunswick, Appendix A [Appendix C]. 16 Scott, Regulation of Contingent Fee Agreements in New Brunswick, pp 6-8 [Appendix C].
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2 11. In 1997, pursuant to the authority newly delegated to it under this Act, Council adopted the Contingent Fee Rules Under Section 83 of the Law Society Act, 1996 (the “CFA Rules”).
12. Neither the Act nor the CFA Rules have been amended since 1997. 17
13. In summary, until Council adopted the CFA Rules in 1997, there was no regulation on how much a lawyer could charge under a CFA, other than that it be “reasonable.”
C. Current Statute and Regulation
14. The Law Society Act, 1996 provides that:
• CFA’s continue to be authorized; 18
• a CFA shall contain: 19 o the name of the lawyer or firm; o the name of the client; o a description of the legal services to be provided; o the method by which the contingent fee is to be calculated; o provision for who gets any costs awarded on a settlement or judgment; • fees under CFA’s were still subject to review pursuant to s. 85 of the Law Society Act, 1996 (formerly “taxation”); 20
• CFA’s could not be used in any case involving: 21 o child custody or access; o matrimonial disputes; o criminal or quasi-criminal charges. 15. The 1997 CFA Rules provided both new flexibility and new restrictions. For the first time in New Brunswick:
• a standard form CFA was enacted; 22
• fees under CFA’s were limited to 25% of the amount recovered, or 30% if the lawyer represented the client in an Appeal; 23
17 Scott, Regulation of Contingent Fee Agreements in New Brunswick, p 12 [Appendix C]. 18 Law Society Act, 1996, s. 83(1) [Appendix A]. 19 Law Society Act, 1996, s. 83(2) [Appendix A]. 20 Law Society Act, 1996, s. 83(7)-(8) [Appendix A]. 21 Law Society Act, 1996, s. 83(5) [Appendix A]. 22 Contingency Fee Rules, R. 3(1); Form 1 [Appendix A]. 23 Contingency Fee Rules, R. 1 [Appendix A].
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3 • there was no regulation on whether lawyers were allowed to charge interest on disbursements;
• a lawyer and client could apply to have a CFA in a different form, or for higher limits, to a Reviewing Officer. 24 The Reviewing Officers are appointed by Order in Council. 25
D. Regulation in Other Provinces
16. In eight of the ten provinces, there is no prescribed maximum contingent fee, and no prescribed form for CFA’s. 26
17. The only province other than New Brunswick that prescribes maximum contingent fees is British Columbia. Fees in BC are capped at 33.33% for claims for personal injuries or wrongful death arising from a motor vehicle accident; 40% for claims for non-MVA personal injuries; and no maximum for non-personal injury claims. 27 Parties may apply to the Court for fees in excess of these maximums. British Columbia does not prescribe a form for CFA’s.
18. In the eighth fee-unregulated provinces, and in British Columbia non-personal injury cases, the only regulation of contingent fees is that they are fair and reasonable.
E. Problematic Cases under Existing New Brunswick Regulation
19. In the majority of cases, the existing regulations are satisfactory. In a simple motor vehicle injury case, for example, lawyers and clients are generally satisfied with a fee of 25% of the amount recovered.
20. However, there are areas where the existing CFA regime does not work as well.
a) Medical Malpractice
21. Medical malpractice cases are notoriously expensive to litigate, requiring sometimes several expert witnesses; and difficult to settle without a great expenditure of a lawyer’s time. Some lawyers report that they simply cannot accept medical malpractice cases in
24 Contingency Fee Rules, R. 2(1)-(4) [Appendix A]. 25 Law Society Act, 1996, s. 82 “reviewing officer; s. 17(2)(gg)(i) [Appendix A]. 26 See Appendix D: Alberta: Rules of Court, R. 10.7. Manitoba: Law Society of Manitoba, Code of Professional Conduct, R. 3.6-2. Newfoundland: Law Society of Newfoundland and Labrador, Code of Professional Conduct, R. 3.6-2. Nova Scotia: Rules of Court, R. 77.14. Ontario: Law Society of Ontario, Rules of Professional Conduct, R. 3.6-2. Prince Edward Island: Law Society of Prince Edward Island, Code of Professional Conduct, R. 3.6-2. Quebec: Barreau du Québec website: “Doing Business with a Lawyer: Billing for a Lawyer’s services”. Saskatchewan: Law Society of Saskatchewan, Code of Professional Conduct, R. 2.06(2). 27 Law Society of British Columbia, Law Society Rules, R. 8
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4 cases not involving catastrophic injuries, as the potential fee under the CFA Rules would not fairly compensate the lawyer for not only the time spent, but also the financial risk of carrying high disbursements in a difficult case.
22. In such cases, either:
• the lawyer will say he or she cannot take the case (which creates a problem of access to justice);
• the lawyer will apply to a Reviewing Officer for a higher contingent fee, which: o increases fee uncertainty in initial consultations between lawyer and client; o requires additional expenditure of the lawyer’s time; and o requires that a bureaucracy be maintained by LSNB to administer Requests for Review;
23. LSNB staff reports that roughly 80% of applications to a Reviewing Officer for a higher contingent fee involve med-mal cases, and all but one of these applications since 2012 was approved. Given that such a high proportion of requests for higher fees are approved, it begs the question of why we need this layer of bureaucracy to get to a result that is nearly universal anyway.
b) Claims for Periodic Payments
24. The existing CFA Rules lend themselves to easy calculation in cases where the settlement or judgment is a lump sum of cash. How, though, to calculate a contingent fee in a Section B or LTD case where what is recovered for the client is a periodic payment for a definite or even indefinite future period?
25. In a Section B motor vehicle insurance case, for example, the recovery is often a lump sum payment of some period of past benefits (say six months, $6,500) plus reinstatement of future benefits for an indeterminate period, The future benefit may go on for one year ($13,000) or for life (say a present value of $500,000):
• is the lawyer limited to a fee of 25% x $6,500 = $1,625, even though he or she has obtained for the client a benefit worth perhaps $500,000?
• is the lawyer permitted a fee of 25% x $500,000 = $125,000, even though the client’s future benefit may only amount to $13,000? Or
• is the lawyer required to have the benefits paid to him or her, where he or she deducts 25% and remits the balance to the client every two weeks for an indefinite future?
26. It is easy to see how such cases do not lend themselves easily to CFA’s.
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5 c) Claims Including Non-Monetary Relief
27. The Committee considered the example of a client who came in to see a lawyer, wanting an injunction against his neighbour for an ongoing trespass. The client did not know he was also entitled to modest damages and did not care whether he received any money – all he wanted was the injunction.
28. Under existing rules, a contingent fee can only be a percentage of money. A CFA in this case could only be for a maximum of 25% of the modest damages; the part of the lawyer’s work for getting the injunction (the main part of the work) would be essentially pro bono. In this case, the client would have freely agreed to pay a fee of 100% of the modest damages in exchange for the lawyer obtaining the injunction, which would have been fair compensation for the lawyer’s time. However, this would not be allowed under the existing regime.
29. Other non-monetary claims where CFA’s do not easily fit include claims for declaratory relief; Human Rights Tribunal cases; and Charter challenges.
d) Family Law and Criminal Cases
30. The ban against using CFA’s in family law and criminal cases is found in statute and cannot be changed by LSNB unilaterally. 28
31. In family law, monetary claims for support and property division are often interrelated with claims for child custody and access. If CFA’s were allowed in such cases, there may be a fear or at least a perception that a lawyer with a CFA would have a pecuniary interest in maximizing the alimony and property division claims (where the lawyer could charge a contingent fee) in exchange for abandoning claims for child custody and access (where there may be no contingent fee).
32. It is difficult to perceive how CFA’s might be used in criminal law cases.
F. Issues with Existing CFA Form and Structure
a) Standard Form
33. The Committee was concerned that the current Form 1 CFA is difficult for clients to understand. Where possible, a new standard form CFA should:
• avoid jargon and terms of art where necessary, while maintaining well-known and litigated legal terms where necessary;
• have a Definition section to provide client-friendly definitions for terms of art, where those terms of art are required for the reasons in the previous paragraph;
28 Law Society Act, 1996, s. 83(5) [Appendix A].
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6 • be in point form where possible, instead of long sentences with several commas and semicolons;
• use Arabic numerals instead of written numbers (i.e.: 25% instead of “twenty-five percent”).
34. However, no matter how user-friendly a CFA may be, it is still a legal document for which the client will be looking to the lawyer for advice. Legal advice on a CFA is problematic as there is inherent potential for a conflict of interest between the lawyer and client.
35. An option commonly seen in other transactions is independent legal advice. However requiring that for every CFA in the province would:
• increase the transactional cost; and
• double the risk of conflicting lawyers out of cases, especially in smaller locations.
36. In order to help the client make the best possible decision in negotiating a CFA, the Committee favoured the options of:
• adding a "Certificate of Explanation" to the Form 1 CFA, requiring the lawyer and client to certify that the lawyer has explained the CFA to the Client paragraph by paragraph; and particularly explained how fees and disbursements will be paid; 29
• a "Know Your Rights" package, prepared by LSNB staff, to be given to all clients with the CFA. 30
b) Disbursements
37. The statute and regulations require clarification on at least two issues surrounding disbursements:
• is it acceptable for a CFA to require that the client pay disbursements before settlement or judgment, regardless of the result?
• what rate of interest can a lawyer charge interest on disbursements?
38. The Act provides only that a CFA must include "a description of the costs, charges, disbursements and taxes to be paid under the agreement." 31
39. The CFA Rules are completely silent on the subject of disbursements.
29 Proposed Form 1 [Appendix B] 30 Proposed “Know Your Rights” Package [Appendix G] 31 Law Society Act, 1996, s. 83(2)(e) [Appendix A]
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7 40. Form 1 provides:
• interest may be charged, but only "at the rate provided under the Rules of Court on judgments," which is currently 7% p.a.; 32 Note there is technically no option for a lawyer to charge less than 7% on disbursements;
• the parties can choose from two options for how to deal with disbursements in cases where there is no amount recovered - either the lawyer absorbs the disbursements; or the Client pays all disbursements. 33 Note the options are "all or nothing." There is technically no provision for the lawyer and client to share the risk of disbursements. For example, a lawyer and client may wish to agree that the client pay the cost of an initial expert opinion regardless of the outcome, and the lawyer to take the risk of all further disbursements if recovery is insufficient to cover them.
41. There is no clarity in Form 1 on the question of whether the lawyer can require payment of disbursements as the file goes along, before the settlement or judgment.
42. Form 1 ought to provide clear options for the payment of disbursements, so that the lawyer and client can discuss and agree upon them in advance.
c) Requests for Review / Appointment of Reviewing Officers
43. If the Committee were to recommend maintaining fee caps, the next best way to make CFA's useful in medical-malpractice cases, claims for non-monetary relief, and other problematic cases would be to streamline the review process.
44. Currently, Reviewing Officers are appointed by the Lieutenant-Governor in Council (Cabinet) on recommendation by the LSNB. There is an inevitable delay and bureaucracy in getting new Reviewing Officers appointed.
45. There is also a concern about the independence of the profession, in having government appointees oversee and approve solicitor-client relationships. This is not a practical concern as Reviewing Officers are invariably lawyers themselves and are recommended by LSNB, but the profession should exercise great caution in sanctioning the transfer to government of any supervisory role over the profession.
46. LSNB staff report difficulties administering a roster of Reviewing Officers to consider applications for variations to Form 1 or the maximum fee percentage:
• they are difficult to recruit, as the fee involved ($150) is not fair compensation for the Reviewing Officer's time;
• it is cumbersome to appoint and replace Reviewing Officers as the current legislation requires that appointments be done by Order in Council;
32 Current Form 1, para 5(2) [Appendix B]; Rules of Court R. 60.08 33 Current Form 1, para 6(1) [Appendix B]
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8 • the Reviewing Officers often may not be able to act due to potential conflicts and with the small number of Reviewing Officers it is often difficult to find one to accept an assignment to review a CFA.
47. Once appointed, LSNB maintains a roster of eligible Reviewing Officers. Lawyers and clients can apply to have a non-compliant CFA approved by a Reviewing Officer by: • requesting LSNB to appoint a Reviewing Officer; • providing the Reviewing Officer with a copy of the proposed CFA; • paying a fee of $150 to the Reviewing Officer.
48. The Reviewing Officer may then require the lawyer and client to provide further information and shall then approve or reject the proposed CFA. The Reviewing Officer even has the authority to make unilateral changes to the proposed CFA; 34 it is highly unusual to allow a third party to amend an agreement entered into between contracting parties.
G. Competition Bureau Recommendation
49. In 2007, the Competition Bureau of Canada prepared a study on anti-competitive regulations in legal and other professions entitled Self-Regulated Professions: Balancing Competition and Regulation. 35 Perhaps counter-intuitively, the Competition Bureau found that prescribing maximum fees actually increased the overall cost to clients.
50. The Competition Bureau recommended:
The law societies of British Columbia and New Brunswick should consider eliminating the maximum percentage to which lawyers are entitled under contingency fee agreements. The appropriate fee structure should be left to market forces to determine. 36
51. The rationale for this recommendation was that by prescribing maximums, LSNB may have inadvertently “fixed prices” at 25% to the disadvantage of clients, when a more open marketplace may result in lower fees for certain cases:
The Bureau recognizes that restrictions on the maximum percentage that lawyers may demand under contingency fee agreements have been put into place to protect consumers. However, a maximum percentage has the potential to be anti-competitive when it is set at a supra-competitive level and serves as a focal point towards which lawyers will move, creating an inviting opportunity for tacit collusion. 37
52. The Committee considered the Competition Bureau’s warning about a capped 25% fee being uncompetitively high. The Committee also considered that a capped 25% fee may also be uncompetitively low; if lawyers do not take a certain case because a contingent
34 Contingency Fee Rules, R. 2(4) [Appendix A]. 35 Appendix E 36 Competition Bureau, Self-Regulated Professions: Balancing Competition and Regulation, p. 76 [Appendix E] 37 Competition Bureau, Self-Regulated Professions: Balancing Competition and Regulation, p. 76 [Appendix E]
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9 fee would not provide fair remuneration, then a client may be forced into paying fees on an hourly rate that the client cannot afford.
H. Recent Law Society of Ontario Reforms
53. While the Committee was considering changes to the regulation of CFA’s in New Brunswick, it was cognizant that the Law Society of Ontario (“LSO”; formerly the Law Society of Upper Canada) is also considering changes to its CFA regulation. LSO’s process has been underway there since a special working group of the LSO was formed in February of 2016 to study this area. We have reviewed the work they have done thus far in this regard, in conjunction with our review of our own New Brunswick regulation.
54. In December 2017, Convocation (the LSO’s Board of Directors) approved a series of reforms to the regulation of contingent fees. These reforms were intended to enhance transparency and protect consumers against unscrupulous practices, while safeguarding the role of contingent fees in facilitating access to justice. In early 2018, Convocation adopted additional related regulatory measures and initiated a call for comment on specific Rule amendments, a mandatory standard form of Contingency Fee Agreement and a “Know Your Rights” guide for clients.
55. The work of the Ontario special committee has been complicated by the fact that they proposed two mandatory standard contingent fee agreements: one based on current Legislative requirements, and a second based on proposed amendments to the Solicitors Act, which would require Legislative amendment before implementation.38 While contingent fees have been widely utilized in Ontario since the early part of this century, it was only in December 2017 that Convocation, in principle, adopted their working group’s plan to regulate contingent fees. As the Law Society of New Brunswick has been regulating contingent fees for a much longer period of time, the perspective in Ontario is rather different, although the recent acknowledgment by the LSO that this is an area which does need regulation reassures those of us on our own Committee here in New Brunswick that we are indeed on the right track by maintaining and updating regulation by the Law Society of this area of legal practice.
56. That being said, however, the “mandatory standard contingency fee agreement” (based on the LSO recommendations and proposed Legislative amendments) is a lengthy (nine pages) form plus attachments including a sample contingent fee calculations, and a “short-form disclosure document” which would summarize some of the points from the main agreement. The proposed Ontario format is extremely detailed, but differs from our historical and continued preferred approach in that it:
• has no cap on percentages; • differentiates between “substantial indemnity” and “partial indemnity” costs;
38 See “Contingency Fee Reforms Consultation Document, Winter 2018”, Advertising & Fee Arrangements Issues Working Group, Law Society of Ontario, available on LSO website.
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10 • provides for a “graduated contingency fee” percentage based on time of settlement (i.e. before discovery, during discovery, after discovery, before trial, during trial, before judgment, etc.); • differentiates between percentages chargeable for claims in Superior Court or Small Claims Court); and • is applicable for the retainer of either a lawyer or a paralegal.
57. On balance, our Committee felt that the existing New Brunswick agreement, based on the generally positive experience which we view it to have been here in New Brunswick, is more suited to the needs of lawyers and clients in this Province.
58. The proposed Ontario “Know Your Rights” guide itself is a very detailed document with many references specific to the Ontario situation; but our Committee found the idea of a “Know Your Rights” guide in general to be a very helpful development; and it prompted us to recommend our own “Know Your Rights” guide, which we recommend to be a Schedule attached to the Form 1 CFA.
59. When we embarked on our own process here in New Brunswick, we expected to see the final result achieved by the LSO before we finalized our own recommendations, but as of mid-March 2020, we were advised informally by the LSO working group that background discussions were still underway with the Department of Justice of the Province of Ontario prior to the LSO proceeding any further with its intended reforms.
I. Caps on Fees
60. Most of the Committee’s discussions were on the issue of whether contingent fees should be capped, and if so at what level.
61. Considerations against capping contingent fees include:
• the Competition Bureau of Canada recommends that LSNB remove caps;
• the vast majority of other provinces do not have caps.
62. Considerations in favour of capping contingent fees include:
• New Brunswick lawyers and clients have become used to having a cap;
• the 25% cap in New Brunswick seems to work well in simple motor vehicle accident cases;
• a general sense that, notwithstanding the Competition Bureau’s warning, having no maximum fee seemed unfair and prone to abuse.
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11 63. The Committee’s consensus was that New Brunswick should keep a cap on fees, but that it should be increased.
64. The Committee carefully considered, but ultimately rejected, proposals for: • no cap on fees; • higher caps for medical malpractice cases; • different caps for MVA and non-MVA personal injury cases.
J. Recommendations
65. The Committee recommends to Council the following changes to regulation of CFA’s in New Brunswick:
a) Increase, but do not eliminate caps on fees.
The Committee recommends that the maximum percentage of the amount recovered that may be charged as a fee under CFA’s should be increased from 25% to 33% in most cases; and from 30 to 38% in cases that go to Appeal. 39
b) Maintain the existing ban on CFA's in family and criminal cases.
The Committee recommends no change to the current statutory provisions.
c) More transparent and flexible options for how to deal with disbursements.
The Committee recommends that Form 1 provide for the lawyer and client to choose from among the following options: • client to pay disbursements regardless of result, interim billing allowed; • client to pay disbursements, but only at conclusion of file; • client to pay disbursements, but only to extent of amount recovered (i.e.: lawyer absorbs disbursements if recovery is insufficient to cover them); • lawyer and client to share risk of disbursements according to a formula they may agree on.
d) More flexible options for how to deal with interest on disbursements.
The Committee recommends that Form 1 be amended to allow for interest on disbursements up to the rate provided in the Rules of Court for interest on judgments; as opposed to the current inflexible requirement that interest may only be charged at that rate.
39 Proposed Contingent Fee Rules, R. 2 [Appendix A]
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12 e) Reviewing Officers to be appointed by Council.
The Committee recommends that LSNB, through Council, the President and Staff, request and recommend to Government that the Law Society Act, 1996 be amended to shift the authority to appoint Reviewing Officers from Cabinet to Council.
f) Changes to Reviewing Officer Procedure.
The Committee recommends that the Reviewing Officer procedure be amended by:
• requiring the proposing lawyer to submit a single comprehensive Application for Review including: o the proposed CFA, underlining any changes, additions or deletions from Form 1; o a written certificate that the lawyer has explained to the client the proposed agreement, the Reviewing Officer procedure, and the right to have the final fee reviewed pursuant to s. 85 of the Law Society Act, 1996; o a written justification for the proposed CFA; • establishing an explicit test to be applied by a Reviewing Officer’s in considering non-standard CFA’s: o from the current, “shall advise the member and client as to its acceptability on the basis of its fairness and reasonableness”; o to the proposed, “shall … approve the proposed agreement unless the Reviewing Officer finds that the proposed agreement is not reasonable as between the Lawyer and Client, or is not in the interest of the administration of justice”;
• removing the Reviewing Officer’s discretion to unilaterally vary a CFA, and instead giving the Reviewing Officer the jurisdiction to “vary, add or delete any of the provisions of a contingent fee agreement, provided that the member and client agree to such variations, additions or deletions”; and providing that the Reviewing Officer retains jurisdiction to reconsider the CFA if variations, additions or deletions are made;
• increasing the fee from $150 to $250.
g) “Know Your Rights” Document
The Committee recommends adding a Know Your Rights document as a schedule to the Form 1 CFA, for the purpose of further explaining some of the rights, obligations and terminology used in the CFA in easy-to-understand language, without unduly bogging down the Form 1 itself.
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13 66. Precise wording to implement these recommendations is proposed at:
• Summary of Current and Proposed Statutes and Regulations Governing Contingent Fees in New Brunswick; 40
• Current and Proposed Form 1 Contingent Fee Agreement. 41
K. Next Steps
67. In terms of process, the Committee recommends that Council proceed as follows:
• the Committee chair would present the Preliminary Report to Council for initial discussion;
• Council would task the Committee to undertake a round of consultations including: o publishing the Preliminary Report: . by email to all LSNB members; . on the LSNB website; . a press release including a summary of the Preliminary Report and recommendations; o soliciting responses from: . LSNB members; . the Judiciary; . New Brunswick Department of Justice; . Canadian Bar Association – New Brunswick Branch; . Atlantic Trial Lawyers Association; . Canadian Defence Lawyers Association; . Insurance Bureau of Canada; o public sessions in a number of locations around the province, in person or virtually as circumstances allow;
• the Committee would prepare a Final Report based on these consultations;
• Council would vote on the recommendations at regular Council meeting;
• the President would communicate to Government any recommendations requiring statutory amendment (i.e.: the recommendation to change who appoints Reviewing Officers).
40 Appendix A 41 Appendix B
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14 L. Conclusion
68. The Committee has found this be an interesting and challenging topic, and worthy of reform. The Committee hopes that this Report and its recommendations go some way to improving public access to counsel, while also providing for fair compensation to lawyers.
Date: September 23, 2020 ______DARREN G. BLOIS Chair
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15 APPENDICES
A Summary of Current and Proposed Statutes and Regulations Governing Contingent Fees in New Brunswick
B Current and Proposed Form 1 Contingent Fee Agreement
C Richard Scott, Q.C., Regulation of Contingent Fee Agreements in New Brunswick, October 30, 2012
D Summary of Contingent Fee Regulation in Other Provinces
E Competition Bureau of Canada, Self-Regulated Professions: Balancing Competition and Regulation, 2007
F Canadian Defence Lawyers Submission to Law Society of Upper Canada, September 28, 2016
G Fifth Report of the Advertising & Fee Arrangements Issues Working Group, Law Society of Ontario
H Proposed “Know Your Rights” Package
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16 Appendix "A"
Summary of Current and Proposed Statutes and Regulations Governing Contingent Fees in New Brunswick
CURRENT PROPOSED
Law Society Act, 1996 Law Society Act, 1996
PART 4 – POWERS OF COUNCIL PART 4 – POWERS OF COUNCIL
16(2) Without limiting the generality of the 16(2) Without limiting the generality of the foregoing, Council may foregoing, Council may
(w) appoint reviewing officers for purpose of Part 14.
PART 5 – RULES OF THE SOCIETY PART 5 – RULES OF THE SOCIETY
17(2) Without limiting the generality of the 17(2) Without limiting the generality of the foregoing, the rules may foregoing, the rules may
(gg) provide for the review of a member’s (gg) provide for the review of a contingent bill for fees, costs, charges, disbursements or fee agreement, or a member’s bill for fees, taxes, including costs, charges, disbursements or taxes, including (i) providing for the appointment of (i) providing for the appointment of reviewing officers; reviewing officers; (ii) fixing the fees and expense (ii) fixing the fees and expense allowances payable to reviewing officers; allowances payable to reviewing officers; (iii) establishing procedures in relation to (iii) establishing procedures in relation to the commencement and conduct of the commencement and conduct of reviews; reviews; (iv) establishing the powers of reviewing (iv) establishing the powers of reviewing officers; officers; (v) providing for the appeal of orders of (v) providing for the appeal of orders of reviewing officers; reviewing officers; (vi) prescribing a time limit for the giving (vi) prescribing a time limit for the giving of notice of review and respecting the of notice of review and respecting the grounds on which a reviewing officer may grounds on which a reviewing officer may extend such time limit, extend such time limit,
17 PART 14 – FEES AND REVIEW PART 14 – FEES AND REVIEW
82 In this Part 82 In this Part
“reviewing officer” means a person appointed “reviewing officer” means a person appointed by the Lieutenant-Governor in Council in by Council in accordance with subparagraph accordance with subparagraph 17(2)(gg)(i). 17(2)(gg)(i).
Agreements for remuneration
83(1) Notwithstanding any law or usage to We recommend no change. the contrary, a member may enter into an agreement in writing, including a contingent fee agreement, with a person for the remuneration to be paid the member for legal services.
83(2) An agreement entered into under subsection (I) shall contain
(a) the name of the member, on the firm to which the member belongs, responsible for the performance of the legal services,
(b) the name of the person entering into the agreement and the name of the person for whom the legal services are being performed,
(c) a description of the legal services to be performed,
(d) the amount of fees to be charged for the performance of the legal services and, in the case of a contingent fee agreement, the method by which the fees are to be calculated and paid,
(e) a description of the costs, charges, disbursements and taxes to be paid under the agreement,
(f) the manner in which costs awarded by the court or on a settlement are to be applied to the payment of fees, costs,
18 charges, disbursements and taxes, and
(g) any other matter that affects the agreement, and
(h) a statement that the person is entitled to a copy of the agreement at the time of its execution.
83(3) Where a member’s remuneration under a contingent fee agreement exceeds the limits established by the rules under paragraph 17(2)(dd), the contingent fee agreement is void, but the member may, on the successful disposition of the matter in respect of which the services are provided, charge the fees that the member could have charged had there been no contingent fee agreement.
83(4) The rules enacted under paragraph 17(2)(dd,) apply only to contingent fee agreements that are made after the commencement of the rules and, if the rules are amended, the amendments apply only to contingent fee agreements that are made after the amendments take effect.
83(5) A contingent fee agreement is void with respect to legal services relating to child custody or access, to a matrimonial dispute or to a criminal or quasi-criminal case, unless it is approved by the Court.
83(6) A contingent fee agreement shall not include a provision that allows the member to be paid both a fee based on a proportion of the amount recovered and costs awarded to the client by order of a court or by settlement of the matter in issue.
83(7) A person who enters into a contingent fee agreement under subsection (1) may, within ninety days after the agreement is made or the retainer between the member and client is terminated, apply to a reviewing officer to have the agreement reviewed, notwithstanding that the person has made
19 payment to the member under the agreement.
83(8) A reviewing officer considering an application under subsection (7) may, if of the opinion that the agreement is unfair or unreasonable under the circumstances existing at the time the agreement was entered into, modify or cancel the agreement and, if cancelling the agreement
(a) may allow the member to prepare a bill for review, and
(b) shall review the bill as though there were no agreement.
83(9) All agreements between a member and any person that the member shall not be liable for negligence or that the member shall be relieved from responsibility to which the member would otherwise be subject as a member are void.
83(10) Where remuneration has been received or retained by a member in excess of the amount permitted by this section or the rules or, in the case of a review by a reviewing officer under subsection (8), in excess of the amount allowed, the member shall refund the excess amount on demand of the person with whom the member had the agreement.
20 RULES FOR THE REVIEW OF RULES FOR THE REVIEW OF LAWYERS’ BILLS LAWYERS’ BILLS
3(2) Council shall recommend to the 3(2) Council may appoint and remove Lieutenant-Governor in Council the reviewing officers. appointment and removal of persons as reviewing officers.
3(3) The Executive Director shall maintain a 3(3) The Executive Director shall maintain a current list of members appointed as current list of members appointed as reviewing officers by the Lieutenant- reviewing officers by Council. Governor in Council.
We recommend either: • no further changes to the Rules for the Review of Lawyers’ Bills, as those Rules pertain to reviews of bills, as opposed to reviews of s of CFA’s; or • an entire overhaul of the Rules for the Review of Lawyers’ Bills to include both reviews of bills and reviews of CFA’s.
21 CONTINGENT FEE RULES CONTINGENT FEE RULES UNDER SECTION 83 OF THE LAW SOCIETY ACT, 1996
1(1) In these Rules
"Act" means the Law Society Act, 1996.
1(2) All other words or expressions have the same meaning as in the Act.
2 A contingent fee agreement shall:
(a) not be inconsistent with any of the provisions of section 83 of the Act, and
(b) subject to subsection 6(1), be in Form 1.
1 Subject to subsection 2(1), a contingent fee 3 Subject to subsection 6(1), the maximum fee agreement entered into under subsection to which a member is entitled under a 83(1) of the Act shall not provide for the contingent fee agreement shall not exceed: payment of a contingent fee in excess of the twenty-five percent of the amount recovered (a) 33% of the amount recovered; or on behalf of the client, exclusive of costs, charges, disbursements and taxes directly (b) if the member represented the client incurred on behalf of the client in recovering in an appeal from a trial judgment in the such amount, or, in the event of an appeal to a proceeding for which the member was higher court, in excess of thirty percent. retained, 38% of the amount recovered.
4 In a contingent fee agreement, a member and client may agree that the client shall pay interest on disbursements incurred at a rate not to exceed the rate prescribed by the Rules of Court on judgments.
2(1) All contingent fee agreements which 5(1) Any contingent fee agreement which provide for a contingent fee in excess of that allowed under section 1, shall require the (a) is not in Form 1; or approval by a reviewing officer appointed by the Lieutenant Governor in Council in (b) provides for a fee in excess of those accordance with subparagraph 17(2)(gg)(i) of prescribed by section 3; the Act, and designated for that purpose. shall have no force or effect unless approved by a reviewing officer appointed in accordance with subparagraph 17(2)(gg)(i)
22 of the Act, and designated for that purpose.
2(2) A request under subsection (1) for 5(2) A request for approval pursuant to approval of a contingent fee agreement shall subsection (1) shall be made by delivering to be made by forwarding to the designated the designated reviewing officer, with a copy reviewing officer a copy of the proposed delivered to the client, a request for approval agreement together with payment of one consisting of: hundred and fifty dollars to the reviewing officer to be credited against the fees for (a) a copy of the proposed agreement, services in reviewing the agreement. with any changes, additions or deletions from Form 1 underlined;
(b) a written certificate in which the member confirms having explained to the client:
(i) the practical effect of the proposed agreement, in simple English or French;
(ii) the procedure for approval of the proposed agreement as prescribed by these Rules;
(iii) that the client has the right to have the member’s final bill reviewed pursuant to section 85 of the Act;
(c) a written justification for the proposed agreement explaining:
(i) how the proposed agreement varies from Form 1;
(ii) why the member and client have agreed to the proposed agreement, as opposed to an agreement in Form 1;
(iii) why the proposed agreement is in the better interests of the client, as opposed to an agreement in Form 1; and
(iv) why the proposed agreement is not contrary to the public
23 interest;
(d) payment of a fee of $250.00 to the reviewing officer.
5(3) The fee prescribed in paragraph (2)(d) shall be paid by the member and shall not be charged to the client as a disbursement or in any other way.
2(3) Upon receipt of a contingent fee 5(4) Upon receipt of a request for agreement under subsection (2), the approval pursuant to subsection (2), the reviewing officer shall forthwith examine it reviewing officer: and advise the member and client as to its acceptability on the basis of its fairness and (a) may: reasonableness and in making that decision, shall take into consideration its contents and (i) communicate with the member all of the circumstances surrounding its for further clarification of the making, and may require the member and the application; client to produce information to enable reaching a conclusion. (ii) communicate with the client so as to be satisfied that the matters prescribed in paragraph (2)(b) have been satisfactorily explained to the client;
(iii) request further information from the member or client;
(b) shall, within 14 days of receiving the request for approval, or such extended period as may be agreed by the member and client, approve the proposed agreement unless the reviewing officer finds that the proposed agreement is not reasonable as between the member and client, or is not in the interest of the administration of justice.
2(4) The reviewing officer may vary, modify 5(5) The reviewing officer may vary, add or disallow all or any of the provisions of a or delete any of the provisions of a contingent contingent fee agreement. fee agreement, provided that the member and client agree to such variations, additions or deletions, and signify their agreement by signing a new contingent fee agreement including such variations, additions or deletions.
24 5(6) The reviewing officer retains jurisdiction to reconsider a request for approval if the member and client submit an amended application for review after rejection of, variation of, addition to or deletion from the contingent fee agreement in the original application for review.
2(5) Contingent fee agreements which are 5(7) Contingent fee agreements which are required to be approved under subsection (1), not approved under subsection (4) are void but which are not approved under subsection but may be re-negotiated by the member and (1) are void, and the member may only client. charge such fees as allowed under subsection 83(3) of the Act.
3(1) Subject to subsection (2), a contingent [deleted; moved to subsection 2(b)] fee agreement shall be in Form 1.
3(2) A contingent fee agreement may vary [deleted; moved to paragraph 5(1)(a)] from Form 1 provided (a) it is approved by a reviewing officer designated under subsection 2(1), and (b) it is not inconsistent with any of the provisions of section 83 of the Act.
3(3) A request under subsection (2) to vary a [deleted; moved to subsection 5(2)] contingent fee agreement from Form 1 shall be made by forwarding to the designated reviewing officer a copy of the proposed agreement together with payment of one hundred and fifty dollars to the reviewing officer to be credited against the fees for services in reviewing the agreement. (Adopted September 15, 1997)
4(1) A contingent fee agreement which must [deleted] be approved under subsection 2(1) shall be filed with the Executive Director and shall be maintained on file until the final disposition of the subject matter of the agreement.
4(2) A contingent fee agreement filed under [deleted] subsection (1) shall be kept in such a way as to maintain its confidentiality.
25 Appendix "B"
CURRENT AND PROPOSED FORM 1 CONTINGENT FEE AGREEMENT
FORM 1 CONTINGENT FEE AGREEMENT
EXISTING PROPOSED
Agreement made this ___ day of ______, 20____,
BETWEEN: BETWEEN: ______(the Lawyer or Firm) (the Lawyer or Firm) “the Lawyer” “the Lawyer”
- and - - and - ______(the Client and name of person for (the Client and name of person for whom services to be performed) whom services to be performed) “the Client” “the Client”
1. In this Agreement:
“Amount Recovered” means any money recovered by the Lawyer in respect of the Claim for damages, debt, costs, interest and taxes, including advance payments, but not including Disbursements or Subrogated Claims.
“Disbursements” include all expenses paid by the Lawyer on the Client’s behalf for the purpose of pursuing the Claim.
“Hourly Rate” is $_____ per hour, or as amended no more than once per year by delivery of written notice to the Client. Other legal and paralegal staff may also work on the Client’s file at lower hourly rates.
“Justifiable Cause” for a Client to terminate this Agreement includes where the Lawyer has created any of the following circumstances: • where the Lawyer acts contrary to
26 professional ethics; • where the Lawyer lies or knowingly provides inaccurate information to the Client; or • where the Lawyer is not competent to continue to handle the Claim.
“Justifiable Cause” for a Lawyer to terminate this Agreement includes where the Client has created any of the following circumstances: • where the Client persists in instructing the Lawyer to act contrary to professional ethics; • where the Client lies or knowingly provides inaccurate information to the Lawyer; • where the Client repeatedly fails to respond to requests from the Lawyer for instructions or information; or • where the Client has moved without providing an effective forwarding address to the Lawyer; • where the solicitor-client has been irreparably severed and could not continue due to an act or omission of the Client.
“Statement of Distribution of Amount Recovered” means a written accounting by the Lawyer to the Client showing all Amounts Recovered, and all amounts paid out.
“Subrogated Claim” means a claim brought by a third party such as an insurer or by the government for benefits paid to the Client, which the insurer or government may seek to recover from the person responsible for your damages, or from the Client.
“Claim” means [Give full description of claim in respect of which legal services are be provided]: ______
27 ______.
1. The Client retains the Lawyer and the 2. The Client retains the Lawyer and the Lawyer agrees to represent the Client Lawyer agrees to represent the Client with with respect to the following matter ("this respect to the Claim. matter"):
[Give full description of the legal services to be provided]
2. The Lawyer agrees to act in the best 3. The Lawyer agrees to act in the best interests of the client in performing legal interests of the client in pursuing the services with respect to this matter, Claim, including making every reasonable including making every reasonable effort effort to reach a settlement on behalf of the to reach a settlement on behalf of the client and commencing appropriate legal client and commencing appropriate legal proceedings. proceedings; including, inspection of documents, conduct of examinations for discovery, preparation for trial, conduct of trial, conduct of appeals, and the retention of experts or other assistance necessary for the proper conduct of the legal proceedings.
3. Notwithstanding section 2, the Lawyer 4. The Lawyer shall keep the Client fully shall keep the Client fully informed at all informed of the status of the Claim, and times of the status of this matter, obtain the Client’s approval before: including steps to be taken in any legal (a) commencing court proceedings; proceeding, and shall not finalize any (b) taking any significant steps in the settlement without the approval of the litigation; Client, or take any significant steps in the (c) incurring any significant legal proceedings, including the retention Disbursements, including retaining of experts, without also obtaining the experts; or Client's approval. (d) settling the Claim.
Fees and Disbursements
4(1) In consideration of the legal services to 5. The Client shall pay to the Lawyer a fee be performed by the Lawyer for the based on the following formula, subject to Client under this agreement, the Client the Contingent Fee Rules: agrees to pay to the Lawyer: [Check as many as are applicable]
(a) a fee of 25 % of the total amount (a) _____ [FLAT PERCENTAGE] a recovered for the client in this fee of _____% of the Amount matter, exclusive of costs, charges, Recovered in respect of the Claim, disbursements and taxes directly not including Disbursements;
28 incurred on behalf of the Client in recovering such amount, either by settlement or by any legal proceedings;
(b) in the event that a decision giving (b) _____ [APPEAL] if a decision judgment in this matter is appealed giving judgment on the Claim is to a higher court, a fee of 35% of appealed to a higher court, a fee of the total amount recovered for the _____% of the Amount Recovered Client in this matter, exclusive of in respect of the Claim, not costs, charges, disbursements and including Disbursements. taxes directly incurred on behalf of the Client in recovering such amount;
(Paragraph (b) is optional and can be inserted or omitted at the discretion of the lawyer)
(c) notwithstanding section 5, all costs, 6. The Client agrees to pay Disbursements charges, disbursements and taxes based on the following formula: directly incurred on behalf of the Client in recovering damages which [Check one] the lawyer may bill to the Client from time to time during the course (a) _____ [REGARDLESS OF of the work; and RESULT] the Client shall pay to the Lawyer all Disbursements, regardless of the Amount Recovered, as they are billed and become due;
(b) _____ [REGARDLESS OF RESULT, BUT NOT UNTIL FILE CONCLUDED] the client shall pay to the Lawyer all Disbursements, regardless of the Amount Recovered, but not until the file is concluded either by settlement or judgment;
(c) _____ [DEPENDENT ON RESULT] the Client shall pay to the Lawyer all Disbursements, but only to up to the Amount Recovered;
(d) _____ [SHARED DISBURSEMENTS] the Client
29 shall pay to the Lawyer the following Disbursements: ______;
(d) all taxes imposed by law on fees for 7. The Client agrees to pay all taxes imposed legal services and disbursements. by law on fees, and on any Disbursements for which the client is responsible.
8. [OPTIONAL] The Client agrees to pay to the Lawyer interest on all Disbursements, from the date of actual payment to the date of receipt of the Amount Recovered, if any, at the rate of ______(not to exceed the rate prescribed by the Rules of Court on judgments, currently 7% per year).
4(2) It is understood between the Lawyer and [Moved to Definitions and Amount Client that any amount recovered in this Recovered] matter as a subrogated claim on behalf of a third party for medical, hospital or related expenses, shall not be included in the amount recovered on behalf of the Client under subsection 4(1) for the purpose of calculating fees or for determining costs, charges, disbursements and taxes, but is subject to separate and independent arrangements between the Lawyer and the third party.
5(1) The Client agrees: [Disbursements dealt with in para 6]
(a) that all costs, charges, dis- bursements and taxes, or a portion thereof, recovered on behalf of the Client, either by settlement of this matter or by judgment of a court, shall be applied directly against the total amount of costs, charges, disbursements and taxes incurred by the Lawyer on behalf of the Client in pursuing the matter, and
(b) that any balance to be paid for costs, charges, disbursements and taxes remaining after the deduction
30 of amounts applied under paragraph (a) shall be paid to the Lawyer from the amount recovered for special or general damages.
5(2) The Client agrees to pay to the Lawyer [Interest dealt with in para 8] interest at the rate provided under the Rules of Court on judgments, on all costs, charges, disbursements and taxes paid directly by the Lawyer, from the date of actual payment to the date of recovery of payment, if any.
6(1) The Client agrees that in the event it is [Disbursements dealt with in para 6] not possible to settle this matter, or no amount is recovered in any legal proceedings, to pay to the Lawyer all costs, charges, disbursements and taxes incurred by the Lawyer on behalf of the Client.
OR
In the event it is not possible to settle this matter, or no amount is recovered in any legal proceedings, the Lawyer is responsible for all costs, charges, disbursements and taxes incurred by the Lawyer on behalf of the Client.
(Select one of (1) as agreed between Lawyer and Client)
6(2) In the event that costs under the Rules of 9. If costs are awarded against the Client in Court are awarded against the Client in any legal proceeding, payment of such any legal proceeding, the payment of all costs is the responsibility of the Client and such costs is the full responsibility of the not the Lawyer. Client and not the Lawyer.
Mechanism of Payment
7(1) Upon the settlement of this matter, or 10. Upon payment to the Client or to the upon the completion of any legal Lawyer of any Amount Recovered, the proceedings in which the Client recovers Lawyer shall provide a Statement of judgment, the Lawyer shall provide the Distribution of Amount Recovered. Client with an account in writing separately setting out the amounts recovered for special and other damages,
31 and for costs, charges, disbursements and taxes, and showing the amounts charged to the Client under this agreement and the balance payable to the Client.
7(2) Upon approval by the Client of the 11. Upon the Client’s approval of the account under subsection 7(1) the Lawyer Statement of Distribution of Amount may deduct the total amount owing to the Recovered, the Lawyer may deduct the Lawyer and pay the balance to the Client total amount owing to the Lawyer and pay or as the Client directs. the balance to the Client or as directed by the Client.
12. If the Client does not approve of the Statement of Distribution of Amount Recovered, the Lawyer shall hold in trust the total amount claimed by the Lawyer, until the Lawyer’s entitlement to fees and Disbursements is assessed by a reviewing officer.
13. If the Client settles this matter without the knowledge or participation of the Lawyer, the Client shall pay to the Lawyer the fees, Disbursements, taxes and interest as set out in this Agreement, based on the Amount Recovered by the Client.
Termination of Agreement
8(1) In the event the Client discharges or 14. The Client may terminate this Agreement otherwise terminates the services of the for any reason on the following terms: Lawyer without adequate cause, before settlement is reached or judgment of a (a) the Client shall pay to the Lawyer a court is obtained, the Lawyer is entitled fee based on the hours worked by to recover from the Client fees on the the Lawyer on the Client’s behalf at basis of the Lawyer's normal hourly rate the Lawyer’s Hourly Rate, or such for such a matter, and for costs, charges, other amount allowed by a disbursements and taxes, to which the reviewing officer; Lawyer would be entitled if there was no contingent fee agreement, or such greater (b) the Client shall pay to the Lawyer amount as may be allowed by a all Disbursements for which the reviewing officer. Client is responsible pursuant to paragraph 6, plus interest at the rate prescribed by paragraph 8;
8(2) The Lawyer's bill under subsection 8(1) (c) all such amounts that the Client may be enforced as a lien against any shall pay to the Lawyer may be settlement or judgment recovered on enforced as a lien against any claim,
32 behalf of the Client in this matter settlement or judgment that may be subsequent to the Lawyer being recovered by or on behalf of the discharged or otherwise terminated under Client. subsection 8(1).
15. The Client may terminate the Agreement for Justifiable Cause on the following terms:
(a) the Client shall notify the Lawyer in writing that he is terminating the Agreement, and stating the grounds of cause alleged;
(b) the Lawyer may accept the termination without claiming a fee, in which case the provisions of paragraph 16 are deemed to apply; or
(c) the Lawyer may accept the termination but claim a fee, in which case the Lawyer shall: (i) continue to hold in Trust any amounts held in Trust for the client, pending agreement between the Lawyer and Client or order of the Court; (ii) issue an invoice to the Client for the fees and Disbursements claimed.
9(1) The Lawyer may withdraw from 16. The Lawyer may terminate this Agreement representing the Client under this with the Client’s consent, on the following agreement on reasonable notice to the terms: Client, provided that upon such withdrawal the Lawyer shall not be (a) the Lawyer shall give written notice entitled to any fee for services or for to the Client of the Lawyer’s payment of any costs, charges, intention to terminate the disbursements and taxes incurred on Agreement; behalf of the Client. (b) the Lawyer shall charge no fees, Disbursements, taxes or interest.
9(2) If the Lawyer withdraws under 17. The Lawyer may terminate this Agreement subsection 9(1) because of cause created for Justifiable Cause on the following by the Client, the Lawyer is entitled to terms: recover from the Client fees on the basis
33 of the Lawyer's normal hourly rate for (a) the Lawyer shall notify the Client in such matter, and for costs, charges, writing that the Lawyer is disbursements and taxes, to which the terminating the Agreement, and Lawyer would be entitled if there was no stating the grounds of cause contingent fee agreement, and the alleged; Lawyer's bill may be enforced as under subsection 8(2). (b) the Client shall pay to the Lawyer a fee based on the hours worked by the Lawyer on the Client’s behalf at the Lawyer’s Hourly Rate, or such other amount allowed by a Reviewing Officer;
(c) the Client shall pay to the Lawyer all Disbursements for which the Client is responsible pursuant to paragraph 6, plus interest at the rate prescribed by paragraph 8;
(d) all such amounts that the Client shall pay to the Lawyer may be enforced as a lien against any claim, settlement or judgment that may be recovered by or on behalf of the Client.
18. If this Agreement cannot be completed due to frustration, including the death or incapacity of the Lawyer, or a conflict of interest, then:
(a) the Lawyer and Client may agree to transfer the file to another lawyer, in which case all of the Client’s rights and obligations under this Agreement continue, and all of the Lawyer’s rights and obligations under this Agreement are assumed by the new lawyer, unless the Client and the new lawyer agree otherwise; or
(b) the Lawyer shall charge no fee; but the Lawyer may charge for Disbursements incurred pursuant to paragraph 6.
10. If the Client settles this matter without [MOVED to para 13]
34 the knowledge or participation of the Lawyer, the Client shall pay to the Lawyer the fees agreed under section 4 based on the final recovery received by the Client. General
11. The Lawyer makes no warranty or 19. The Lawyer makes no warranty or representations concerning the successful representation that the Client will be outcome of this matter, or that the successful in the Claim, or that the Client Lawyer can recover any amount for will receive any particular amount in costs, charges, disbursements and taxes respect of the Claim. Any statements by that will be incurred on behalf of the the Lawyer in this regard are statements of Client. Any statements of the Lawyer in the Lawyer’s professional opinion only, this regard are statements of opinion based on the facts as known by the Lawyer only, based on the Lawyer's best at the time they are made. judgment of the issues.
12. The Client's address and telephone 20. The Client's address and telephone number number for receipt of all communications for receipt of all communications connection with this agreement are: connection with this agreement are:
[ADDRESS, TELEPHONE, EMAIL] [ADDRESS] ______
[EMAIL] ______
13. This agreement shall be governed by the 21. This agreement shall be governed by the law of New Brunswick. law of New Brunswick.
14. The Client is entitled to receive a copy of 22. The Lawyer shall give the Client a copy of this agreement at the time of signing, and this agreement at the time of signing, and acknowledges receipt. shall ensure that the Client acknowledges receipt.
Dated this _____ day of ______, Dated this _____ day of ______, 20_____. 20_____.
______Witness Lawyer
______Witness Client
35 CERTIFICATE OF EXPLANATION
The Lawyer confirms that the Lawyer has explained this Agreement to the Client, paragraph by paragraph, including Schedule B, including particularly how the Lawyer’s fee and Disbursements will be paid at the conclusion of the retainer.
The Client confirms that the Lawyer has explained this Agreement to the Client, paragraph by paragraph, including Schedule B, including particularly how the Lawyer’s fee and Disbursements will be paid at the conclusion of the retainer.
[Lawyer]
[Client]
36 SCHEDULE A
KNOW YOUR RIGHTS
37 SCHEDULE B
NOTICE FROM LAW SOCIETY
These Footnotes are part of Form I and are to This Schedule is part of Form 1 and is to be included with all contingent fee agreements. be included with all contingent fee agreements.
1. The fees allowed under section 4, 1. The fees allowed under section 5, paragraph (a) shall not exceed 25 percent paragraph (a) shall not exceed 33% and and under paragraph (b) 30 percent. All under paragraph (b) 38%. Any agreement agreements that exceed these percentages, that exceed these percentages, or is not in or otherwise contain terms different from Form 1, shall have no force or effect unless Form 1, shall be approved by a reviewing approved by a reviewing officer. officer or the agreement is void and not enforceable.
2. Any contingent fee agreement is subject to 2. Any contingent fee agreement is subject to review by a reviewing officer under review by a reviewing officer under subsection 83(7) of the Law Society Act, subsection 83(7) of the Law Society Act, 1996, within 90 days after (a) the 1996, within 90 days after (a) the agreement is made; or (b) the retainer agreement is made; or (b) the retainer between the Lawyer and Client is between the Lawyer and Client is terminated. terminated.
3. In the event of a dispute, any bill under a 3. In the event of a dispute, any bill under a contingent fee agreement is subject to contingent fee agreement is subject to review by a reviewing officer under the review by a reviewing officer under the Rules for Review of Lawyers Bills which Rules for Review of Lawyers Bills which sets out the procedure to be followed. sets out the procedure to be followed.
4. The Lawyer's “normal hourly rate” as [deleted] referred to in 8(1) and 9(2) may be provided to the client in a letter to accompany this Agreement.
5. Any Lawyer or Client having questions 4. Any Lawyer or Client having questions with respect to contingent fee agreements with respect to contingent fee agreements may contact the Executive Director at the may contact the Executive Director at the Law Society Office: Law Society Office:
68 Avonlea Court 68 Avonlea Court Fredericton, NB E3C 1N8 Fredericton, New Brunswick Telephone: (506) 458-8540 E3C 1N8 Fax: (506) 451-1421 Telephone: (506) 458-8540
38 Appendix "C"
MCINNES COOPER LAWYERS 1 AVOCATS
MEMORANDUM
TO: File
FROM: Richard J. Scott, Q.C.
DATE: October 30, 2012 File No.:
RE: Regulation of Contingent Fee Agreements in New Brunswick
The purpose of this memorandum is to set out the relevant legislative and professional conduct standards applicable to contingent fee agreements in New Brunswick since their validity has been recognized by the courts of New Brunswick.
Three time periods and regulatory regimes will be addressed:
(1) Before July 1, 1979: when their use was generally unregulated;
(2) From July 1, 1979 to December 31, 1996: when their use was regulated by section 72.1 of the Judicature Act, R.S.N. B. 1973, c. J-2; and
(3) After December 31 , 1996: when their use has been regulated by section 83 of the Law Society Act, 1996, S.N.B. 1996, c. 89.
While reference is made to a number of decisions of the courts of New Brunswick with respect to contingent fee agreements, this memorandum is not intended to provide a complete summary of judicial commentary on the regulatory regimes in question.
Case law must be read and understood in the context of the regulatory regime applicable at the relevant time and may not be applicable in the context of a later regulatory regime due to changes in the scheme of regulation.
39 -2-
Commentary must be read in context to ensure it represents the current regulatory scheme. For example, the discussion of contingent fees in Chapter 12 of Gavin
MacKenzie, Lawyers & Ethics: Professional Responsibility and Discipline, looseleaf
(Carswell, 1993), reflects the second regulatory regime in effect in New Brunswick and does not necessarily reflect the current regulatory regime.
Over the course of time in New Brunswick, these fees have variously been referred to as a "contingency fee" and a "contingent fee". For ease of reference in this memorandum, the term "contingent fee" will be used unless context mandates the use of "contingency fee".
Prior to October 1 1986, the Law Society of New Brunswick was known as the
Barristers' Society of New Brunswick. For ease of reference in this memorandum, the term "Law Society" will be used regardless of the time period being referenced, unless context mandates the use of the "Barristers' Society".
With respect to legislation and other documentation adopted in a bilingual format reference will be made only to the English version.
-- (1) Before July 1,1979
The courts of New Brunswick have recognized the validity of contingent fee agreements since at least 1962: Hogan v. Hello (1962), 1 N.B.R. (2d) 306, [1962] N.B.J. No. 2 (QL)
(S.C.,Q.B.D.).
In commenting on this jurisprudence, Drapeau C.J.N.B., delivering the judgment of the
Court of Appeal in Mealey v. Godin, (1999), 221 N.B.R. (2d) 372, [1999] N.B.J. No. 413
(QL) (C.A.), stated:
[17] Essentially, a contingent fee is one that is dependent upon success in the effort to enforce a supposed right and which is generally paid out of the recovery for the client. In this province, unlike some others, contingency fee agreements have long been considered acceptable fee
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arrangements between a lawyer and his or her client in respect of contested matters, and they have frequently been the fee arrangement of choice between lawyers and victims of motor vehicle accidents. The jurisprudence that predates the enactment of s. 72.1 of the [Judicature Act, with effect from July 1, 1979,] recognized, correctly in my view, that such an agreement, when entered into by a client not under legal disability, was proper and legally enforceable. See Hogan v. Hello et al. (1962), 1 N.B.R.(2d) 306 (Q.B.).
In adopting its Professional Conduct Handbook (Barristers' Society of New Brunswick,
1971), the Law Society, in Part E entitled "Pecuniary Relations with a Client", addressed both "Fees" in general and "Contingent Fees" in particular, as follows, at 16-17:
1. FEES
The legal profession is a branch of the administration of justice and lawyers' fees must be set fairly and reasonably and must be based on the nature and value of the services rendered.
In determining the amount of the fee, it is proper for the lawyer to be guided by the following circumstances, none of which are to be considered as controlling:
(a) the time expended on the matter or cause,
(b) the skill and experience required to conclude the matter or to conduct the cause,
(c) the importance of the matter and the amount involved in the transaction or controversy,
(d) the customary charges of the Bar for similar services, such as, schedules of minimum fees,
(e) the result obtained for the client,
(f) the reasonable expectation of loss of other employment by accepting the retainer,
(g) the character of the retainer—whether it was casual or continuing,
(h) the certainty of compensation,
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(i) the urgency of concluding the matter or controversy.
A client's ability to pay cannot justify a larger than ordinary fee although a client's poverty may require a smaller than ordinary fee or none at all.
2. CONTINGENT FEES.
A retainer agreement providing for a contingent fee must be in writing and signed by the client; the terms must be reasonable; and the client must be given the opportunity at the outset of paying for the legal services on a regular solicitor and client basis. A copy of any such agreement must be given to the client at the time of its execution and the lawyer shall include in any such agreement notice of the provisions of Section 31(8) of the Barristers' Society Act 1931. See Hogan v, Hello (1969), 1 N.B.R. (2d) 306.
An agreement providing for a contingent fee for representing a defendant in a criminal or quasi criminal case is improper.
Section 31(8) of the Barristers' Society Act, 1931 , S.N.B. 1931, c. 50, as enacted by
S.N.B. 1961-62, c. 78, s. 1, stated:
31(8) Notwithstanding anything contained in this Act, a client may require a barrister or solicitor by notice in writing to tax his bill for services and disbursements before the Registrar. A banister or solicitor who receives such notice in writing shall, and a barrister or solicitor may, of his own motion, give Notice of Taxation to his client and shall tax his bill for services and disbursements before the Registrar, who shall certify to the client and to the barrister or solicitor the result of such taxation.
The Law Society subsequently adopted the Canadian Bar Association's Code of
Professional Conduct (1974) as applicable to its members. The Commentary to the
Rule on Fees as set out in Chapter X, at 39-40 and 41, states:
1 . A fair and reasonable fee will depend upon and reflect such factors as
(a) the time and effort required and spent;
(b) the difficulty and importance of the matter;
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(c) whether special skill or service has been required and provided;
(d) the customary charges of other lawyers of equal standing in the locality in like matters and circumstances;
(e) the amount involved or the value of the subject matter;
(f) the results obtained;
(g) tariffs or scales authorized by local law;
(h) such special circumstances as loss of other employment, uncertainty of reward, and urgency.
A fee will not be fair and reasonable if it is one which cannot be justified in the light of all pertinent circumstances, including the factors mentioned, or is so disproportionate to the services rendered as to introduce the element of fraud or dishonesty.
2. It is in keeping with the best traditions of the legal profession to reduce or waive a fee in a situation where there is hardship or poverty, or the client or prospective client would otherwise effectively be deprived of legal advice or representation.
8. Except as prohibited by the laws of the jurisdiction in which the lawyer practices, it is not improper for him to enter into an arrangement with his client for a contingent fee provided such fee will be fair and reasonable.8
Note 8. See Williston, The Contingent Fee in Canada (1968) 6 Alta. L.R. 184; Arlidge, Contingent Fees, (1974) Ottawa L.R. 374; Thomson v. Wishart (1910) 19 Man. R. 340 (Man. C.A.), and Monteith v. Calladine (1965) 47 D.L.R (2d) 322 (B.C.C.A.); Hogan v. Hello (1969) 1 N.B.R. (2d) 306. Alberta, British Columbia, Manitoba, New Brunswick, the Northwest Territories, Nova Scotia and Quebec now (1974) permit regulated "contingent fees"; the remaining Canadian jurisdictions do not.
[Other notes omitted.]
With the exception of these professional standards, the use of contingent fee agreements was unregulated during this time period.
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-- (2) From July 1, 1979 to December 31, 1996
Effective July 1, 1979, section 72.1 was added to the Judicature Act, R.S.N. B. 1973. c.
J-2, by S.N.B. 1978, c. 32, s. 32, to regulate contingent fee agreements.
Section 72.1 as originally enacted as of July 1, 1979, is set out in Appendix A. A
consolidated version of section 72.1 as of December 31, 1996, is set out in Appendix B.
As defined in section 72.1(1) a contingent fee agreement was:
...an agreement entered into between a banister and solicitor and a client whereby only on the successful accomplishment or disposition of any matter to which the agreement relates ... will the barrister and solicitor receive any [compensation] in return for professional legal services performed and disbursements incurred in relation thereto on behalf of the client.
Pursuant to section 72.1(2), except as provided in section 72.1, a contingency fee agreement entered into between a barrister and solicitor and a client was void.
The Registrar of the day took the position that an agreement which provided that disbursements would be payable by the client even on the failure of the litigation in question was not a contingent fee agreement within the statutory definition and was therefore void.
Contingent Fee Agreements
No contingent fee agreements have been filed with the Registrar since Section 72.1 of the Judicature Act was proclaimed on October 31, 1978. Agreements have been forwarded for approval but returned, all for the same reason. The agreements all provided for the recovery of disbursements on failure which is contrary to Section 72.1(1). None have been returned for filing and pursuant to the section, they are void. ...: Registrar's Practice Memorandum #5 dated April 24, 1979, attached as an Addendum to the Registrar's decision in Breau v. Carson (1980), 31 N.B.R. (2d) 309, [1980] N.B.J. No. 193 (QL) (C.Q.B. Reg.).
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Stevenson J. agreed, stating in Soucyv. Lee (1983), 51 N.B.R. (2d) 119, [1983] N.B.J.
No. 336 (QL) (C.Q.B.,T.D.):
[17] I conclude that the agreement was not a contingency fee agreement within the meaning of section 72.1 and that the Registrar erred in accepting it in February, 1991. The definition of "contingency fee agreement" in section 72.1(1) excludes an agreement that provides for payment by the client to the solicitor, in any event, for disbursements incurred in relation to the matter on behalf of the client. The agreement here so provided. That restriction on contingency fee agreements is consistent with section 72.1(3) which permits such agreements only with clients who are unable to pay. A solicitor cannot make a contingency fee agreement with an affluent client. Section 72.1(10) underlines the principle that a contingency fee agreement relates to disbursements as well as to fees. A contingency fee agreement entered into other than as provided in section 72.1 is void. ...
In allowing an appeal from a decision of a Deputy Registrar with respect to a contingent fee agreement, Richard C.J.C.Q.B., however, ordered in Comeau, Re (1994), 151
N.B.R. (2d) 77, [1994] N.B.J. No. 629 (QL) (C.Q.B.,T.D.), as follows:
It is clear from reading s. 72.1 of the Judicature Act as a whole and ss. 72.1(1), 72.1(3) and 72.1(10) that a contingency fee agreement which provides that in the event of an unsuccessful disposition of the client's case, the client will nevertheless be responsible for the disbursements which are not remuneration to the solicitor, is a proper and valid agreement under s. 72.1 .
a) The appeal is allowed and the decision of the Registrar of the Court of Queen's Bench of New Brunswick is reversed;
b) The contingency fee agreement dated November 24, 1993 between Gertrude Comeau in her own name, as litigation administrator of the Estate of John Arthur Comeau and as litigation guardian of Katelyn Comeau and Jared Comeau, minors, and Innes, Bosse & Eddie, per Marc A. Bosse, Q.C., and Philippe J. Eddie, is to be filed in accordance with s. 72.1(5) of the Judicature Act, R.S.N. B. 1973, c. J-2 as amended.
[Emphasis in original.]
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No authority was discussed by Richard C.J.N.B. in his decision and the motion before him was disposed of having heard only counsel who had entered into the contingent fee agreement with the intended plaintiff.
Section 72.1(3) provided a barrister and solicitor might make a contingent fee agreement with a client "who is, or who foreseeably will be, unable to pay for the amount and manner of payment of the future services, fees, charges".
As Stevenson J. stated in Soucy v. Lee, supra :
[17] ... [S[ection 72.1(3) ... permits such agreements only with clients who are unable to pay. A solicitor cannot make a contingency fee agreement with an affluent client. ...
The year earlier, Stevenson J. had stated in Shanks v. Moore (1993), 133 N.B.R. (2d)
220, [1993] N.B.J. No. 88 (QL) (C.Q.B..T.D.):
[12] A contingency fee agreement may only be made with clients who are, or foreseeably will be, unable to pay for the solicitor's services, fees, charges and disbursements. One of the justifications for contingency fees is the risk and uncertainty of the solicitor being compensated. Although the contingency fee agreement here is void, the factors of risk and uncertainty are relevant considerations in fixing a fair and reasonable fee in this case.
The professional standards discussed above remained in effect during this time period.
While the Canadian Bar Association adopted a revised Code of Professional Conduct
(1987), which was also adopted by the Law Society, no substantive change was made to the commentary quoted above.
Section 72.1 was repealed effective January 1, 1997, with the coming into force of the
Law Society Act, 1996, S.N.B. 1996, c. 89.
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-- (3) After December 31, 1996
The current state of the law with respect to the regulation of contingent fee agreements was summarized as follows in N.B. v. Rothmans Inc., 2010 NBCA 35, 357 N.B.R. (2d)
160, [2010] N.B.J. No. 160 (QL), by Drapeau C.J. N.B. delivering the judgment of the
Court of Appeal:
[1] Under the typical contingent fee agreement, the client agrees to pay the lawyer a fee for services calculated as a percentage of the amount recovered on the client's behalf either by settlement or pursuant to a judgment. In this jurisdiction, such agreements have long been viewed favourably (see Hogan v. Hello et al., [1962] N.B.J. No. 2; 1 N.B.R.(2d) 306 (Q.B.) and Mealey c. Godin et al., [1999] N.B.J. No. 413; 221 N.B.R.(2d) 372; 567 A.P.R. 372 (C.A.)). Since the mid to late 1990s, contingent fee agreements have been subject to the Law Society Act, 1996, S.N.B. 1996, c. 89, and its Contingent Fee Rules.
The Law Society Act, 1996, S.N.B. 1996, c. 89 ("LSA"), came into effect on January 1,
1997, and repealed section 72.1 of the Judicature Act. In its place, Part 14 entitled
"Fees and Review" of the LSA governs agreements for remuneration to be paid for legal services, including contingent fee agreements. Part 14 is composed of sections 82-94.
Sections 82 and 83 state:
Interpretation
82 In this Part
"bill" means a bill for fees for legal services, costs, changes, disbursements and taxes, and includes a bill under a contingent fee agreement,
"contingent fee agreement" means an agreement in writing entered into between a member and any person providing that the remuneration for legal services for or on behalf of a client is contingent, in whole on in part, on the successful disposition of the matter in respect of which the services are provided,
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"person charged" includes a person who has agreed with a member to pay for legal services, whether on not the services were provided on that person's behalf,
"reviewing officer" means a person appointed by the Lieutenant- Governor in Council in accordance with subparagraph 17(2)(gg)(i).
Agreements for remuneration
83(1) Notwithstanding any law or usage to the contrary, a member may enter into an agreement in writing, including a contingent fee agreement, with a person for the remuneration to be paid the member for legal services.
83(2) An agreement entered into under subsection (1) shall contain
(a) the name of the member, or the firm to which the member belongs responsible for the performance of the legal services,
(b) the name of the person entering into the agreement and the name of the person for whom the legal services are being performed,
(c) a description of the legal services to be performed
(d) the amount of fees to be charged for the performance of the legal services and, in the case of a contingent fee agreement, the method by which the fees are to be calculated and paid,
(e) a description of the costs, charges, disbursements and taxes to be paid under the agreement,
(f) the manner in which costs awarded by the court or on a settlement are to be applied to the payment of fees, costs, changes, disbursements and taxes, and
(g) any other matter that affects the agreement, and
(h) a statement that the person is entitled to a copy of the agreement at the time of its execution.
83(3) Where a member's remuneration under a contingent fee agreement exceeds the limits established by the rules under paragraph 17(2)(dd), the contingent fee agreement is void, but the member may, on the successful disposition of the matter in respect of which the services are provided, charge the fees that the member could have charged had there been no contingent fee agreement.
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83(4) The rules enacted under paragraph 17(2)(dd) apply only to contingent fee agreements that are made after the commencement of the rules and, if the rules are amended, the amendments apply only to contingent fee agreements that are made after the amendments take effect.
83(5) A contingent fee agreement is void with respect to legal services relating to child custody or access, to a matrimonial dispute or to a criminal or quasi-criminal case, unless it is approved by the Court.
83(6) A contingent fee agreement shall not include a provision that allows the member to be paid both a fee based on a proportion of the amount recovered and costs awarded to the client by order of a court or by settlement of the matter in issue.
83(7) A person who enters into a contingent fee agreement under subsection (1) may, within ninety days after the agreement is made or the retainer between the member and client is terminated, apply to a reviewing officer to have the agreement reviewed, notwithstanding that the person has made payment to the member under the agreement.
83(8) A reviewing officer considering an application under subsection (7) may, if of the opinion that the agreement is unfair or unreasonable under the circumstances existing at the time the agreement was entered into, modify or cancel the agreement and, if cancelling the agreement
(a) may allow the member to prepare a bill for review, and
(b) shall review the bill as though there were no agreement.
83(9) All agreements between a member and any person that the member shall not be liable for negligence or that the member shall be relieved from responsibility to which the member would otherwise be subject as a member are void.
83(10) Where remuneration has been received or retained by a member in excess of the amount permitted by this section or the rules or, in the case of a review by a reviewing officer under subsection (8), in excess of the amount allowed, the member shall refund the excess amount on demand of the person with whom the member had the agreement.
As noted above, while section 72.1 of the Judicature Act arguably prohibited a
contingent fee agreement in which the client was to be responsible for disbursements
regardless of the success of the litigation, a contingent fee agreement as defined in
section 82 may provide:
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... that the remuneration for legal services for or on behalf of a client is contingent, in whole on in part, on the successful disposition of the matter in respect of which the services are provided
[Emphasis added.]
Unlike section 72.1, section 83 includes no equivalent provision restricting a contingent fee agreement to "a client who is, or who foreseeably will be, unable to pay for the
amount and manner of payment of the future services, fees, charges and
disbursements".
As well section 83 includes no provision equivalent to section 72.1(11.1) with respect to the enforceability of a contingent fee agreement against a minor or a person under legal
disability.
Section 17(2)(dd) of the LSA specifically permits the Council of the Law Society to make
rules, subject to section 83, to regulate the use of contingent fee agreements by its
members.
Pursuant to section 17(2)(dd), the Council of the Law Society has made the Contingent
Fee Rules and adopted the related Form 1 : Contingent Fee Agreement.
The Contingent Fee Rules as adopted are set out in Appendix C. They have not been
amended.
Section 83(3) of the LSA refers to certain limits to be established by the rules under
paragraph 17(2)(dd). Section 1 of the Contingent Fee Rules provides that, subject to
approval by a reviewing officer pursuant to section 2, a contingent fee agreement shall
not provide for the payment of a contingent fee in excess of 25% of the amount
recovered on behalf of the client, exclusive of costs, charges, disbursements and taxes
directly incurred on behalf of the client in recovering such amount, or, in the event of an
appeal to a higher court, in excess of 30%.
Form 1 : Contingent Fee Agreement as originally adopted is set out in Appendix D.
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Section 4(1) of this prescribed Contingent Fee Agreement provided for payment to the
lawyer of a fee calculated based on a % of the total amount recovered for the client,
exclusive of costs, charges, disbursements and taxes directly incurred on behalf of the
client in recovering that amount, as well as:
(c) in accordance with section 5, all costs, charges, disbursements and taxes directly incurred on behalf of the Client in recovering damages;
Section 5(1) provided that all costs, charges, disbursements and taxes recovered on
behalf of the client were to be applied directly against the amount payable by the client to the lawyer in accordance with section 4(1 )(c) with any balance remaining to be paid from the amount recovered for special or general damages.
Read together, these provisions required the lawyer to carry the costs, charges,
disbursements and taxes in question until the action was resolved by settlement or legal
proceedings, at which time he or she would be entitled to be reimbursed.
With effect from October 23, 1998, section 4(1 )(c) was amended to read as follows:
(c) notwithstanding section 5, all costs, charges, disbursements and taxes directly incurred on behalf of the Client, in recovering damages which the lawyer may bill to the Client from time to time during the course of the work; thereby permitting the lawyer to bill the client for such costs, charges, disbursements
and taxes as the work on the matter proceeded.
This assumes, of course, that the lawyer has in fact agreed to fund those costs as they
are incurred.
A lawyer's obligation to fund such costs was recently addressed by the Courts of Appeal for both Manitoba and New Brunswick.
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The Manitoba Court of Appeal was addressing the circumstances in which the court should permit severance of liability and damages for purposes of trial.: O'Brien v.
Tyrone Enterprises Ltd., 2012 MBCA 3 (CanLII).
The plaintiff was seeking to have the issues severed as she would "not be able to proceed because she could not afford to retain the necessary experts for trial of the damages issue, and, further, that her lawyers were 'not prepared to front" the costs of the disbursements required for expert witnesses unless the defendant was found to be liable." Her lawyers were representing her pursuant to a contingent fee agreement.
Liability was "very much an issue".
The defendant's response, in part, is summarized as follows by Scott C.J.M, who delivered the judgment of the Court of Appeal, as follows:
[18] ... The difficulty in this case is not so much one of access to justice the defendant argues, but rather the refusal of plaintiff's counsel to enter into a contingency fee arrangement for the entire case, contrary to what it says is the ordinary practice in Manitoba. The plaintiff already has a lawyer; the difficulty, counsel for the defendant asserts, is the terms of the contingency fee agreement, which results from a manipulation of the traditional contingency fee arrangement.
[19] Counsel [for the defendant] argues ...Finally, should the decision be sustained, this will be seen as tacit approval by the court of the terms of this particular contingency fee arrangement and will open the flood gates to similar tactical maneuvering by other plaintiffs' counsel, contrary to the raison d'etre of contingency fee arrangements.
The plaintiff disputed "the defendant's bald assertion that there is a so-called "standard" contingency fee arrangement - there is simply no evidence before the court on this point."
In responding specifically to this argument, Scott C.J.M. stated:
[44] Is there a relationship between contingency fee arrangements and access to justice, and what of the defendant's argument that the limited mandate in the contingency fee arrangement is the real culprit?
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[45] Contingency fee arrangements have been authorized in Manitoba since 1890. Section 55 of The Legal Profession Act, C.C.S.M., c. L107, defines "contingency contract" and provides certain protections for the client, which include the ability, within six months after the payment of the contingency fee, to move for a declaration that the contract is not fair and reasonable to the client, with the attendant return of fees and disbursements found to be excessive if the application is granted.
[46] The Law Society of Manitoba, Code of Professional Conduct, Winnipeg: Law Society of Manitoba, 2011, has a specific rule for contingency fee agreements, Rule 2.06(2), which provides:
Contingent Fees and Contingent Fee Agreements
2.06(2) Subject to subrule (1) and section 55 of The Legal Profession Act, a lawyer may enter into a written agreement that provides that the lawyer's fee is contingent, in whole or in part, on the outcome of the matter for which the lawyer's services are to be provided.
[emphasis added [by Scott C.J.M.]
While this wording likely refers to the fee arrangement rather than the outcome, it provides no support for the defendant's "all or nothing" argument. In the absence of evidence to the contrary, I am simply not prepared to assume, as invited by counsel for the defendant, that a contingency fee arrangement such as that described in these proceedings is improper or even unusual.
This issue was also addressed by Drapeau C.J.N.B., speaking for the Court of Appeal in LeBlanc v. Doucet and the New Brunswick Power Corporation, 2012 NBCA 88. In this case the impecunious plaintiff who lacked the required financial resources to proceed with the litigation had to resort to a third party litigation funder after a local bank and caisse populaire refused to loan him the necessary funds. The issue before the Court of
Appeal was whether the interest costs accrued on that portion of the monies loaned used to finance certain litigation expenses was an allowable disbursement for purposes of costs. It is implicit in the reported reasons that the plaintiff's lawyer was acting on the basis of a contingent fee agreement. The record indicates that disbursements incurred by the lawyer were to be paid by the plaintiff as they were incurred.
Drapeau C.J.N.B. stated:
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[39] Seahold Investments [the third party litigation funder] was a source of financing totally independent of Mr. LeBlanc [the plaintiff/client]. The interest rate it set reflected an assessment of the risk assumed in granting the loans in question, a risk that two financial institutions had previously deemed prohibitive. Only a foolhardy lawyer would have agreed to undertake that risk. Parenthetically, I reject the respondents' submission that the Law Society Act 1996. S.N.B. 1996, c. 89, and the rules that govern contingency fee agreements foisted upon Mr. LeBlanc's lawyers the obligation to assume that risk. Frankly, the logic of that argument escapes me and I would have difficulty explaining it. ...
[Emphasis added.]
The prescribed Contingent Fee Agreement as amended is set out in Appendix E.
Section 83(6) of the LSA provides that a contingent fee agreement shall not include a provision that allows the member to be paid both a fee based on a proportion of the amount recovered and costs awarded to the client by order of a court or by settlement of the matter in issue.
Section 5(1 )(a) of the prescribed Contingent Fee Agreement states:
5(1) The Client agrees
(a) that all costs, charges, disbursements and taxes, or a portion thereof, recovered on behalf of the Client, either by settlement of this matter or by judgment of a court, shall be applied directly against the total amount of costs, charges, disbursements and taxes incurred by the Lawyer on behalf of the Client in pursuing the matter, ...
The interaction of these provisions was addressed as follows by Cyr. J. in N.B. v.
Rothmans Inc., 2009 NBQB 198, 352 N.B.R.(2d) 226, [2009] N.B.J. No. 221 (QL) (T.D.); leave to appeal on the issue as to whether the contingent fee agreement between the plaintiff and its counsel was void under the Law Society Act denied: [2009] N.B.R.(2d)
Uned. 83 (C.A.); leave to appeal denied: (2010), 405 N.R. 392n (S.C.C.):
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[92] The wording of paragraph 5(1 )(a) of the CFA was taken from Form 1 prescribed in the Contingent Fee Rules. The defendants argue that the form approved by the Law Society is inconsistent with subsection 83(6) of the Law Society Act, 1996 in that it allows the lawyers to be paid both a fee based on a proportion of the amount recovered and costs awarded to the client. The Province concedes that the wording in paragraph 5(1 )(a) of the CFA does contravene the prohibition stated in subsection 83(6), however, adds that any transgression emanates from the use of the form prescribed by the Law Society.
[103] Moreover, any non-compliance with subsection 83(6) of the Act, as it relates to the remuneration of the lawyers, emanates from the wording of the form prescribed by the Law Society. Consequently, it would make no sense whatsoever to declare the CFA void because the form prescribed by the Law Society is in violation of the statute. The reason why the terminology was utilized to comply with the requirements established by the Law Society by using their form.
Cyr J. did not hear from the Law Society on this issue. As Quigg J.A., Richard J.A. concurring, has stated in Trifidus Inc. v. Samgo Innovations, 2011 NBCA 59, 375
N.B.R.(2d) 141, [2011] N.B.J. No. 231 (QL), at TJ 41 , where the interpretation of section
33 of the LSA was in issue: "[N] no one gave notice to the Law Society, which would undoubtedly have an interest in the interpretation of its governing legislation."
It could be argued that the intention of section 83(6) of the LSA is to ensure that the lawyer is not entitled to recover as remuneration both a fee based on a proportion of the amount recovered and the costs awarded to the client by order of a court or by settlement of the matter in issue, while section 5(1) of the prescribed Contingent Fee
Agreement addresses how the lawyer is to be reimbursed for the costs, charges, disbursements and taxes the lawyer has actually agreed to incur on behalf of the client in pursuing the matter. In such a case, there would be no contravention.
With effect from January 1, 2004, the Council of the Law Society adopted a new Code of Professional Conduct (2003), to replace the Code of Professional Conduct approved by the Canadian Bar Association on August 25, 1974, and revised and updated August
1 987, and the Professional Conduct Handbook adopted by the Law Society in 1 971 .
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The Rule with respect to Fees and the related Commentary states, in part, at 40-41 and
43:
RULE
(a) The lawyer shall ensure that any fee or disbursement for professional legal services stipulated or charged to the client by the lawyer is fully disclosed, is fair and is reasonable .
COMMENTARY
Waiver of fees 1 In cases of hardship or poverty or where the client or prospective client would otherwise effectively be deprived of legal advice or representation the lawyer is encouraged to observe the high tradition of the legal profession to reduce or to waive, or to arrange with the client for delayed payment of, a fee for professional legal services provided by the lawyer to or on behalf of the client. Conversely, the wealth of the client shall have no relevance to a determination of the amount that constitutes a fair and a reasonable fee.
Criteria for establishing fees 2(a) A fair and a reasonable fee for professional legal services provided by the lawyer to or on behalf of the client shall depend upon and reflect factors such as
(i) the time and effort required and spent;
(ii) the difficulty and importance of the matter;
(iii) whether special skill or service has been required and provided;
(iv) the customary charges of other lawyers of equal standing in the locality in like matters and circumstances;
(v) in civil cases, the amount involved or the value of the subject matter; (vi) in criminal cases, the exposure and risk to the client;
(vii) the results obtained;
(viii) tariffs or scales of fees authorized by the Society or by local governing bodies;
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(ix) reasonable office overhead;
(x) special circumstances such as loss of or adverse effect upon other work, urgency and uncertainty of reward;
(xi) any reasonable agreement made between the lawyer and the client.
2(b) A fee for professional legal services provided by the lawyer to or on behalf of the client will not be fair and will not be reasonable and may subject the lawyer to disciplinary proceedings if it is one that cannot be justified in the light of all the pertinent circumstances including the factors set out herein, or is so disproportionate to the services rendered as to introduce the elements of fraud, dishonesty or undue profit.
2(c) For greater clarity it is stated that
(i) a fee for professional legal services provided by the lawyer to or on behalf of the client shall not be dependent solely on the success of the outcome of such services as were undertaken, and
(ii) while important, the amount of time spent by the lawyer in the provision of professional legal services to or on behalf of the client shall not be the sole or the most important single determinant of the amount of the fee charged for those services.
Contingent fees 10(a) Subject to law and to the rules of the Society the lawyer may enter into a contingent fee agreement with the client for professional legal services to be provided by the lawyer to the client as long as the fee stipulated is fair and is reasonable.
10(b) The lawyer shall not enter into a contingent fee agreement with the client for professional legal services to be provided by the lawyer to the client in relation to criminal, quasi-criminal, divorce, custody or family law matters.
[Notes omitted.]
-- Fair and Reasonable
Throughout the materials summarized above, there are numerous references to the
requirement that a lawyer's fee must be fair and reasonable.
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These twinned concepts were discussed by Stevenson J. in Soucy v. Lee (1983), 51
N.B.R, (2d) 119, [1983] N.B.J. No. 336 (QL) (C.Q.B..T.D.), as follows:
[19] It is open to a solicitor and a client in this Province to agree on an hourly-charge basis for the solicitor's remuneration. Such an agreement does not offend anything in the Barristers' Society Act. (Contingency fee agreements are, of course, subject to s. 72.1 of the Judicature Act). When there is such an agreement the situation is the same as set out by Hall, J.A., of the Saskatchewan Court of Appeal in Speers v. Hagemeister (1974), 52 D.L.R. (3d) 109, at p. 112:
"A solicitor and client may make an agreement as to fees and contract themselves out of the Legal Profession Act, R.S.S. 1965, c. 301, and the tariff established thereunder: see Allan v. Dangerfield (1911), 18 W.L.R. 184; MacMillen v. Taylor, [1932] 3 W.W.R. 264.
In that event, however, the court will examine the agreement to determine whether it is fair and reasonable. A fair and reasonable agreement will not be interfered with. One which is not will be rectified: Re Solicitor ( 1911), 19 W.L.R. 249; Gola v. Philion (1919), 13 S.L.R. 427, [1920] 3 W.W.R. 348; Re Malone, Q.C. (1961), 34 W.W.R. 699.
In each case the proper order of determining the issues is that set out by Procter, J.A., in Re Malone, Q.C., namely:
(1) was there any agreement between the parties as to the payment of the costs of action;
(2) if there was such an agreement, was it a fair and reasonable one?"
and at pp. 113-114:
"The words 'fair' and 'reasonable' refer to distinct and separate tests. 'Fair' relates to the manner in which the agreement was brought about and means that there can be no undue advantage taken of the client. In Re Stuart, Ex p. Cathcart, [1893] 2 Q.B. 201, Lord Esher, M.R., said at p. 204:
With regard to the fairness of such an agreement, it appears to me that this refers to the mode of obtaining the agreement, and that if a solicitor makes
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an agreement with a client who fully understands and appreciates that agreement that satisfied the requirement as to fairness.
"It is not necessary to review in detail the evidence which relates to the issue of fairness here. I am satisfied that the agreement was fairly obtained.
"The term 'reasonable' relates to the quantum of remuneration which the agreement provides the solicitor. In Galbraith v. Murray, Robertson & Thomas, [1930] 4 D.L.R. 1005, [1930] 3 W.W.R. 120, the contingent agreement was entered into pursuant to enabling legislation. Omitting the references to that legislation, I would adopt the views expressed by Kilgour, J., at pp. 125-6 and apply them here. At p. 125 he said:
Other considerations have to be borne in mind in estimating the reasonableness to the client of the contract. The contract might well have been fairly entered into without being wholly reasonable to the client, and if so, the court, if called upon, cannot escape the duty of revising it. Reasonableness, as already noted, has to do with the amount. In determining whether the amount is reasonable, the actual work which the solicitor is called upon to do is undoubtedly a factor, though not the sole factor, to be taken into account (see In re Stuart; Ex parte Chathcart, supra)."
In determining whether a fee to be paid to a lawyer is fair and reasonable where a
contingent fee agreement is in place, guidance can be taken from the decision of the
Court of Appeal in Mealeyv. Godin, (1999), 221 N.B.R. (2d) 372, [1999] N.B.J. No. 413
(QL) (C.A.); aff'g (1998), 203 N.B.R. (2d) 271, [1998] N.B.J. No. 293 (QL) (C.Q.B.,T.D.).
Settlement of the action brought on behalf of a minor having been negotiated, approval
of the settlement was sought from the court as required by Rule 7.06 of the Rules of
Court. As part of the application, approval was sought to pay a portion of the settlement
amount to the plaintiff's lawyers in accordance with a contingent fee agreement
approved by the Deputy Registrar while section 72.1 of the Judicature Act was still in force. The settlement was not reached until after section 72.1 was repealed. The
Contingent Fee Rules applied only to contingent fee agreements entered into after the
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Rules came into force and no transitional provisions were included in the LSA to
address the continued effect of contingent fee agreements entered into under section
72.1 before its repeal. The Court of Appeal concluded that the contingent fee agreement was no longer enforceable as the amount payable under the agreement was an substantially larger than originally anticipated by the parties" and the right of review
under section 72. 1 (8) was no longer available.
It was in this context that Drapeau J.A., as he then was, delivering the judgment of the
Court, stated:
[18] Traditionally, judges in this province have given effect to contingency fee agreements in fixing counsel's compensation as part of the adjudication required by rule 7. They have not hesitated to do so, even when the legal fees payable on the basis of such agreements were significantly higher than the fees computed on an hourly basis. Having said that, I doubt very much that judges have given effect to contingency fee agreements because they were considered binding. I am inclined to believe that effect was given to them because they generated legal fees that were judged to be fair and reasonable.
[19] Rule 7 invests the court with an onerous responsibility: it must ensure that the proposed settlement is in the best interest of the person under legal disability. Its decision makes the settlement binding and determines, finally and conclusively, the lawyer's compensation. No matter what ethical duties are owed by counsel to his or her client, and no matter what counsel's views are with respect to the wisdom of the proposed settlement and the fairness of the account, the ultimate decision on the appropriateness of the settlement, including counsel's account, rests with the court, exercising a discretion judicially.
[21] In disposing of an application under rule 7 that features a request for approval of legal fees computed on the basis of a contingency fee agreement, the court's approach to counsel's claim must be orderly and principled. The court should first determine whether the contingency fee agreement is compliant with the prevailing regulatory legislation. If it is, the court should not lightly disregard its terms in fixing counsel's compensation. After all, while the legislature has not done away with the court's inherent jurisdiction to tax counsel's account, it has seen fit to sanction the use of contingency fee agreements, even for persons under legal disability. See s. 72.1 of the Act and s. 83(2)(b) of the Law Society Act, 1996. Moreover, the fees generated by such agreements are a direct
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function of the size of the recovery, a result that is itself, more often than not, a by-product of counsel's efforts and skill. It would not be just if, in a case where counsel was instrumental in bringing about a large settlement, the court disregarded the terms of the contingency fee agreement merely because the fees were correspondingly large.
[22] When a contingency fee agreement conforms with the prevailing regulatory legislation, the court should not derogate from its terms unless the legal fees generated under it are inordinately high and markedly disproportionate to the risks assumed, the effort furnished and the skill displayed by the lawyer. These criteria are exacting because of the need to respect the legislature's sanction of contingency fee agreements, and to foster the continued vitality of such agreements as a means by which persons under legal disability can secure quality legal representation. Nonetheless, the test which I have articulated above to identify intolerably high legal fees preserves more than enough of the court's jurisdiction over its officers to protect persons under legal disability from abuse. If it is satisfied that the contingency fee agreement does not conform to the prevailing regulatory legislation or that, although valid, the agreement generates intolerably high legal fees, the court has the right, even the obligation, to tax counsel's account on a guantum meruit basis. The court would then be required to give due consideration to all of the circumstances mentioned by Mr. Justice Riordon in the court below and by Larlee, J., now a justice of this court, in Noel v. Bell (1997), 188 N.B.R.(2d) 109; 480 A.P.R. 109 (T.D.). Those circumstances are now found in s. 86 of the Law Society Act, 1996.
[Emphasis added.]
At first instance, Riordon J. had stated:
[28] As I understand the Noel case [Noel v. Bell (1197), 188 N.B.R. (2d) 109; [1997] N.B.J. No. 178 (QL) (C.Q.B.,T.D.)], an earlier decision of Judge Stevenson had been made to the effect that the contingency fee agreement was void and the legal account reviewable. The decision of Judge Stevenson is reported in [1993], N.B.J. No. 156; 133 N.B.R.(2d) 309; 341 A.P.R. 309 (T.D.). The issue, according to Justice Larlee was whether legal fees charged were fair and reasonable. At pages 117-118, paragraphs 26 & 27 (N.B.R.) of the decision, she said:
"The issue to be decided before me is whether the legal fees charged are fair and reasonable in the circumstances. Page 16 of the Professional Conduct Handbook, Law Society of New Brunswick, states the following:
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'In determining the amount of the fee, it is proper for the lawyer to be guided be the following circumstances, none of which are to be considered as controlling:
a) the time expended on the matter or cause;
b) the skill and experience required to conclude;
c) the importance of the matter and the amount involved in the transaction or controversy;
d) the customary charges of the bar for similar services, such as, schedules of minimum fees;
e) the results obtained for the client;
f) the reasonable expectation of loss of other employment by accepting the retainer;
g) the character of the retainer whether it was casual or continuing;
h) the certainty of compensation;
i) the urgency of concluding the matter or controversy.'
"The approach that I take is to look at the criteria in a global sense and not to minutely examine each item in the legal bill."
Drapeau J.A. had also referred to section 86 of the LSA as now setting out these relevant circumstances.
Section 86 of the LSA provides that any bill for fees for legal services, costs, changes, disbursements and taxes, including a bill under a contingent fee agreement, may be reviewed by a reviewing officer. Note 3 to the prescribed Contingent Fee Agreement states:
In the event of a dispute, any bill under a contingent fee agreement is subject to review by a reviewing officer under the Rules For Review of Lawyers Bills which sets out the procedure to be followed.
Section 86 of the LSA states, in part:
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Matters to be considered on a review
86(1) In reviewing a bill, the reviewing officer shall consider all of the circumstances, including the following: (a) the complexity, difficulty or novelty of the issues involved;
(b) the skill, specialized knowledge and responsibility required of the member;
(c) the member's standing in the profession;
(d) the amount involved;
(e) the time reasonably expended; and
(f) where there has been an agreement between the member and the person charged that fixes a fee based on an amount per unit of time spent by the member, whether the rate was reasonable;
(g) the importance of the matter to the client whose bill is being assessed, and
(h) the result obtained.
86(2) The discretion of the reviewing officer under subsection (1) is not limited by the terms of an agreement between the member and the person charged.
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APPENDIX A
SECTION 72.1 OF THE JUDICATURE ACT AS OF JULY 1, 1979
CONTINGENCY FEE AGREEMENTS
72.1(1) In this section, "contingency fee agreement" means an agreement entered into between a banister and solicitor and a client whereby only on the successful accomplishment or disposition of any matter to which the agreement relates, and in which the barrister and solicitor is not directly concerned, will the barrister and solicitor receive any money or thing from or out of such matter in return for professional legal services performed and disbursements incurred in relation thereto on behalf of the client.
72.1(2) Except as provided in this section, a contingency fee agreement entered into between a barrister and solicitor and a client is void.
72.1(3) A barrister and solicitor may make a contingency fee agreement with a client who is, or who foreseeably will be, unable to pay for the amount and manner of payment of the future services, fees, charges and disbursements to be rendered and incurred by the barrister and solicitor with respect to a cause; and the form of payment specified in the contingency fee agreement may consist of a gross sum, commission, percentage or otherwise in an amount that may be the same, greater or less than that which the barrister and solicitor would otherwise normally receive as remuneration in respect of such cause.
72.1(4) The contingency fee agreement shall be in writing and
(a) shall be signed by the client or his authorized agent and by the barrister and solicitor,
(b) shall contain the names and addresses of the client and the barrister and solicitor, and
(c) shall contain a statement of the nature of the cause and a statement of the contingency upon which the future services, fees, charges and disbursements are to be paid, and the basis of such payment.
72.1(5) The contingency fee agreement shall be filed with the Registrar of the Court of Queen's Bench who shall retain its confidentiality in respect to all but the barrister and solicitor and the client.
72.1(6) Upon receipt of the contingency fee agreement filed with him, the Registrar shall forthwith examine it and thereupon advise the barrister and solicitor as to its acceptability on the basis of its fairness and
64 -27-
reasonableness and pursuant to the provisions of subsections (4) and (5) and in making his decision in that respect the Registrar shall take into consideration its contents and all of the circumstances surrounding its making, and may require the barrister and solicitor to produce such information as will enable him to reach his conclusion.
72.1(7) The Registrar may vary, modify or disallow all or any of the provisions of a contingency fee agreement filed with him pursuant to subsection (5) at the time of filing.
72.1(8) Following the successful accomplishment or disposition of a matter referred to in a contingency fee agreement, the Registrar may review it and disallow any amounts payable thereunder to the barrister and solicitor which, because of the successful accomplishment or disposition of the matter, have become substantially larger in amount than originally anticipated by the parties to the contingency fee agreement to the extent that the amounts payable thereunder to the barrister and solicitor are no longer fair and reasonable in all of the circumstances.
72.1(9) Until the Registrar decides that a contingency fee agreement made pursuant to subsection (3) complies with subsection (6), it is null and void and is not capable of enforcement by any party thereto.
72.1(10) A contingency fee agreement accepted by the Registrar pursuant to this section shall be in lieu of fees, charges and disbursements which the barrister and solicitor who is a party thereto would otherwise normally receive as remuneration in respect of the cause referred to therein; but in the event that a client without adequate cause discharges the barrister and solicitor before the conclusion of the contingency fee agreement, the barrister and solicitor shall be, entitled to recover by way of taxation such fees, charges and disbursements to which he would be entitled at law in the absence of the contingency fee agreement.
72.1(11) A provision in a contingency fee agreement made pursuant to this section that purports
(a) to relieve the barrister and solicitor from liability for professional negligence or other liability to which he might be subject as a barrister and solicitor;
(b) to provide that a cause cannot be abandoned, discontinued or settled without the personal consent of the barrister and solicitor; or
(c) to provide that the client may not change solicitors before the conclusion of the contingency fee agreement
Is void.
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72.1(12) An appeal lies from a decision of the Registrar made pursuant to this section on the same basis as an appeal from a taxation by the Registrar,
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APPENDIX B
SECTION 72.1 OF THE JUDICATURE ACT AS OF DECEMBER 31, 1996
CONTINGENCY FEE AGREEMENTS
72.1(1) In this section
"client" includes a minor and a Litigation guardian or committee acting for a person under legal disability;
"contingency fee agreement" means an agreement entered into between a barrister and solicitor and a client whereby only on the successful accomplishment or disposition of any matter to which the agreement relates, and in which the barrister and solicitor is not directly concerned, will the barrister and solicitor receive any money or thing from or out of such matter in return for professional legal services performed and disbursements incurred in relation thereto on behalf of the client.
(S.N.B. 1980, c. 28, s. 11(a); S.N.B. 1986, c. 4, s. 28(1 0)(a).)
72.1(2) Except as provided in this section, a contingency fee agreement entered into between a barrister and solicitor and a client is void.
72.1(3) A barrister and solicitor may make a contingency fee agreement with a client who is, or who foreseeably will be, unable to pay for the amount and manner of payment of the future services, fees, charges and disbursements to be rendered and incurred by the barrister and solicitor with respect to a cause; and the form of payment specified in the contingency fee agreement may consist of a gross sum, commission, percentage or otherwise in an amount that may be the same, greater or less than that which the barrister and solicitor would otherwise normally receive as remuneration in respect of such cause.
72.1(4) The contingency fee agreement shall be in writing and
(a) shall be signed by the client or his authorized agent and by the barrister and solicitor,
(b) shall contain the names and addresses of the client and the barrister and solicitor, and
(c) shall contain a statement of the nature of the cause and a statement of the contingency upon which the future services, fees, charges and disbursements are to be paid, and the basis of such payment.
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72.1(5) The contingency fee agreement shall be filed with the Registrar of the Court of Queen's Bench who shall retain its confidentiality in respect to all but the barrister and solicitor and the client.
72.1(6) Upon receipt of the contingency fee agreement filed with him, the Registrar shall forthwith examine it and thereupon advise the barrister and solicitor as to its acceptability on the basis of its fairness and reasonableness and pursuant to the provisions of subsections (4) and (5) and in making his decision in that respect the Registrar shall take into consideration its contents and all of the circumstances surrounding its making, and may require the barrister and solicitor to produce such information as will enable him to reach his conclusion.
72.1(7) The Registrar may vary, modify or disallow all or any of the provisions of a contingency fee agreement filed with him pursuant to subsection (5) at the time of filing.
72.1(8) Following the successful accomplishment or disposition of a matter referred to in a contingency fee agreement, the Registrar may review it and disallow any amounts payable thereunder to the barrister and solicitor which, because of the successful accomplishment or disposition of the matter, have become substantially larger in amount than originally anticipated by the parties to the contingency fee agreement to the extent that the amounts payable thereunder to the barrister and solicitor are no longer fair and reasonable in all of the circumstances.
72.1(9) Until the Registrar decides that a contingency fee agreement made pursuant to subsection (3) complies with subsection (6), it is null and void and is not capable of enforcement by any party thereto.
72.1(10) A contingency fee agreement accepted by the Registrar pursuant to this section shall be in lieu of fees, charges and disbursements which the barrister and solicitor who is a party thereto would otherwise normally receive as remuneration in respect of the cause referred to therein; but in the event that a client without adequate cause discharges the barrister and solicitor before the conclusion of the contingency fee agreement, the barrister and solicitor shall be, entitled to recover by way of taxation such fees, charges and disbursements to which he would be entitled at law in the absence of the contingency fee agreement.
72.1(11) A provision in a contingency fee agreement made pursuant to this section that purports
(a) to relieve the barrister and solicitor from liability for professional negligence or other liability to which he might be subject as a barrister and solicitor;
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(b) to provide that a cause cannot be abandoned, discontinued or settled without the personal consent of the barrister and solicitor; or
(c) to provide that the client may not change solicitors before the conclusion of the contingency fee agreement
Is void.
72. 1 (1 1 . 1 ) A contingency fee agreement
(a) entered into by a minor or by a litigation guardian or committee acting for a person under legal disability, and
(b) accepted by the Registrar pursuant to this section is enforceable against the minor or the person under legal disability.
(SMB. 1980, c. 28, s. 11(b); S.N.B. 1986, c. 4, s. 28(1 0)(b).)
72.1(12) An appeal lies from a decision of the Registrar made pursuant to this section on the same basis as an appeal from a taxation by the Registrar.
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APPENDIX C
CONTINGENT FEE RULES UNDER SECTION 83 OF THE LAW SOCIETY ACT, 1996
1 Subject to subsection 2(1), a contingent fee agreement entered into under subsection 83(1) of the Act shall not provide for the payment of a contingent fee in excess of the twenty-five percent of the amount recovered on behalf of the client, exclusive of costs, charges, disbursements and taxes directly incurred on behalf of the client in recovering such amount, or, in the event of an appeal to a higher court, in excess of thirty percent.
2(1) All contingent fee agreements which provide for a contingent fee in excess of that allowed under section 1, shall require the approval by a reviewing officer appointed by the Lieutenant Governor in Council in accordance with subparagraph 17(2)(gg)(i) of the Act, and designated for that purpose.
2(2) A request under subsection (1) for approval of a contingent fee agreement shall be made by forwarding to the designated reviewing officer a copy of the proposed agreement together with payment of one hundred and fifty dollars to the reviewing officer to be credited against the fees for services in reviewing the agreement.
2(3) Upon receipt of a contingent fee agreement under subsection (2), the reviewing officer shall forthwith examine it and advise the member and client as to its acceptability on the basis of its fairness and reasonableness and in making that decision, shall take into consideration its contents and all of the circumstances surrounding its making, and may require the member and the client to produce information to enable reaching a conclusion.
2(4) The reviewing officer may vary, modify or disallow all or any of the provisions of a contingent fee agreement.
2(5) Contingent fee agreements which are required to be approved under subsection (1), but which are not approved under subsection (1) are void, and the member may only charge such fees as allowed under subsection 83(3) of the Act.
3(1) Subject to subsection (2), a contingent fee agreement shall be in Form 1 .
3(2) A contingent fee agreement may vary from Form 1 provided
(a) it is approved by a reviewing officer designated under subsection 2(1), and
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(b) it is not inconsistent with any of the provisions of section 83 of the Act.
4(1) A contingent fee agreement which must be approved under subsection 2(1) shall be filed with the Executive Director and shall be maintained on file until the final disposition of the subject matter of the agreement.
4(2) A contingent fee agreement filed under subsection (1) shall be kept in such a way as to maintain its confidentiality.
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APPENDIX D
FORM 1 : CONTINGENT FEE AGREEMENT AS ORIGINALLY ADOPTED WITH
EFFECT FROM JANUARY 1, 1997
FORM 1
CONTINGENT FEE AGREEMENT
Agreement made this day of 20
B ETWE E N: (the Lawyer or Firm) "the Lawyer"
- and -
(the Client and name of person for whom services to be performed) "the Client"
1 The Client retains the Lawyer and the Lawyer agrees to represent the Client with respect to the following matter ("this matter"):
(Give full description of the legal services to be performed)
2 The Lawyer agrees to act in the best interests of the client in performing legal services with respect to this matter, including making every reasonable effort to reach a settlement on behalf of the client and commencing appropriate legal proceedings; including, inspection of documents, conduct of examinations for discovery, preparation for trial, conduct of trial, conduct of appeals, and the retention of experts or other assistance necessary for the proper conduct of the legal proceedings.
3 Notwithstanding section 2, the Lawyer shall keep the Client fully informed at all times of the status of this matter, including steps to be taken in any legal proceeding, and shall not finalize any settlement without the approval of the Client, or take any significant steps in the legal proceedings, including the retention of experts, without also obtaining the Client's approval.
4(1) In consideration of the legal services to be performed by the Lawyer for the Client under this agreement, the Client agrees to pay to the Lawyer
( a ) a fee of % of the total amount recovered for the Client in this matter,
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exclusive of costs, charges, disbursements and taxes directly incurred on behalf of the Client in recovering such amount, either by settlement or by any legal proceedings;
(b) in the event that a decision giving judgment in this matter is appealed to a higher court, a fee of % of the total amount recovered for the Client in this matter, exclusive of costs, charges, disbursements and taxes directly incurred on behalf of the Client in recovering such amount;
(Paragraph (b) is optional and can be inserted or omitted at the discretion of the lawyer)
(c) in accordance with section 5, all costs, charges, disbursements and taxes directly incurred on behalf of the Client in recovering damages; and
( d) all taxes imposed by law on fees for legal services.
4(2) It is understood between the Lawyer and Client that any amount recovered in this matter as a subrogated claim on behalf of a third party for medical, hospital or related expenses, shall not be included in the amount recovered on behalf of the Client under subsection 4(1) for the purpose of calculating fees or for determining costs, charges, disbursements and taxes, but is subject to separate and independent arrangements between the Lawyer and the third party.
5(1) The Client agrees
(a) that all costs, charges, disbursements and taxes, or a portion thereof, recovered on behalf of the Client, either by settlement of this matter or by judgment of a court, shall be applied directly against the total amount of costs, charges, disbursements and taxes incurred by the Lawyer on behalf of the Client in pursuing the matter, and
(b) that any balance to be paid for costs, charges, disbursements and taxes remaining after the deduction of amounts applied under paragraph (a) shall be paid to the Lawyer from the amount recovered for special or general damages.
5(2) The Client agrees to pay to the Lawyer interest at the rate provided under the Rules of Court on judgments, on all costs, charges, disbursements and taxes paid directly by the Lawyer, from the date of actual payment to the date of recovery of payment, if any.
6(1) The Client agrees that in the event it is not possible to settle this matter, or no amount is recovered in any legal proceedings, to pay to the Lawyer all costs, charges, disbursements and taxes incurred by the Lawyer on behalf of the Client.
OR
(1) In the event it is not possible to settle this matter, or no amount is recovered in 73 -36-
any legal proceedings, the Lawyer is responsible for all costs, charges, disbursements and taxes incurred by the Lawyer on behalf of the Client.
(Select one of (1) as agreed between Lawyer and Client)
(2) In the event that costs under the Rules of Court are awarded against the Client in any legal proceeding, the payment of all such costs is the full responsibility of the Client and not the Lawyer.
7(1) Upon the settlement of this matter, or upon the completion of any legal proceedings in which the Client recovers judgment, the Lawyer shall provide the Client with an account in writing separately setting out the amounts recovered for special and other damages, and for costs, charges, disbursements and taxes, and showing the amounts charged to the Client under this agreement and the balance payable to the Client.
7(2) Upon approval by the Client of the account under subsection 7(1) the Lawyer may deduct the total amount owing to the Lawyer and pay the balance to the Client, or as the Client directs.
8(1) In the event the Client discharges or otherwise terminates the services of the Lawyer without adequate cause, before settlement is reached or judgment of a court is obtained, the Lawyer is entitled to recover from the Client fees on the basis of the Lawyer's normal hourly rate for such a matter, and for costs, charges, disbursements and taxes, to which the Lawyer would be entitled if there was no contingent fee agreement, or such greater amount as may be allowed by a reviewing officer.
8(2) The Lawyer's bill under subsection 8(1) may be enforced as a lien against any settlement or judgment recovered on behalf of the Client in this matter subsequent to the Lawyer being discharged or otherwise terminated under subsection 8(1).
9(1) The Lawyer may withdraw from representing the Client under this agreement on reasonable notice to the Client, provided that upon such withdrawal the Lawyer shall not be entitled to any fee for services or for payment of any costs, charges, disbursements and taxes incurred on behalf of the Client.
9(2) If the Lawyer withdraws under subsection 9(1) because of cause created by the Client, the Lawyer is entitled to recover from the Client fees on the basis of the Lawyer's normal hourly rate for such matter, and for costs, charges, disbursements and taxes, to which the Lawyer would be entitled if there was no contingent fee agreement, and the Lawyer's bill may be enforced as under subsection 8(2).
10 If the Client settles this matter without the knowledge or participation of the Lawyer, the Client shall pay to the Lawyer the fees agreed under section 4 based on the final recovery received by the Client.
11 The Lawyer makes no warranty or representations concerning the successful outcome of this matter, or that the Lawyer can recover any amount for costs, charges,
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disbursements and taxes that will be incurred on behalf of the Client. Any statements of the Lawyer in this regard are statements of opinion only, based on the Lawyer's best judgment of the issues.
12 The Client's address and telephone number for receipt of all communications in connection with this agreement are
1 3 This agreement shall be governed by the law of New Brunswick.
14 The Client is entitled to receive a copy of this agreement at the time of signing, and acknowledges receipt.
Dated this day of 20
(Witness) (Lawyer or Law Firm)
(Witness) (Client)
FOOTNOTES
These footnotes are part of Form 1 and are to be included with all contingent fee agreements.
1. The fees allowed under section 4, paragraph (a) shall not exceed 25 percent and under paragraph (b) 30 percent. All agreements that exceed these percentages, or otherwise contain terms different from Form 1 , shall be approved by a reviewing officer or the agreement is void and not enforceable.
2. Any contingent fee agreement is subject to review by a reviewing officer under subsection 83(7) of the Law Society Act, 1996, within 90 days after
(a) the agreement is made; or
(b) the retainer between the Lawyer and Client is terminated.
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3. In the event of a dispute, any bill under a contingent fee agreement is subject to review by a reviewing officer under the Rules For Review of Lawyers Bills which sets out the procedure to be followed.
4. The Lawyer's "normal hourly rate" as referred to in 8(1) and 9(2) may be provided to the client in a letter to accompany this Agreement.
5. Any Lawyer or Client having questions with respect to contingent fee agreements may contact the Executive Director at the Law Society Office:
68 Avonlea Court Fredericton, New Brunswick E3C 1N8
Telephone: (506) 458-8540
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APPENDIX E
FORM 1: CONTINGENT FEE AGREEMENT AS AMENDED WITH EFFECT FROM
OCTOBER 23, 1998
FORM 1
CONTINGENT FEE AGREEMENT
Agreement made this day of 20
BETWEEN: (the Lawyer or Firm) "the Lawyer"
- and -
(the Client and name of person for whom services to be performed) "the Client"
1 The Client retains the Lawyer and the Lawyer agrees to represent the Client with respect to the following matter ("this matter"):
(Give full description of the legal services to be performed)
2 The Lawyer agrees to act in the best interests of the client in performing legal services with respect to this matter, including making every reasonable effort to reach a settlement on behalf of the client and commencing appropriate legal proceedings; including, inspection of documents, conduct of examinations for discovery, preparation for trial, conduct of trial, conduct of appeals, and the retention of experts or other assistance necessary for the proper conduct of the legal proceedings.
3 Notwithstanding section 2, the Lawyer shall keep the Client fully informed at all times of the status of this matter, including steps to be taken in any legal proceeding, and shall not finalize any settlement without the approval of the Client, or take any significant steps in the legal proceedings, including the retention of experts, without also obtaining the Client's approval.
4(1) In consideration of the legal services to be performed by the Lawyer for the Client under this agreement, the Client agrees to pay to the Lawyer
(a) a fee of % of the total amount recovered for the Client in this matter,
77 -40-
exclusive of costs, charges, disbursements and taxes directly incurred on behalf of the Client in recovering such amount, either by settlement or by any legal proceedings;
(b) in the event that a decision giving judgment in this matter is appealed to a higher court, a fee of % of the total amount recovered for the Client in this matter, exclusive of costs, charges, disbursements and taxes directly incurred on behalf of the Client in recovering such amount;
(Paragraph (b) is optional and can be inserted or omitted at the discretion of the lawyer)
(c) notwithstanding section 5, all costs, charges, disbursements and taxes directly incurred on behalf of the Client, in recovering damages which the lawyer may bill to the Client from time to time during the course of the work; and
(d) all taxes imposed by law on fees for legal services.
(Section 4(1)(c) amended 1998-10-23.)
4(2) It is understood between the Lawyer and Client that any amount recovered in this matter as a subrogated claim on behalf of a third party for medical, hospital or related expenses, shall not be included in the amount recovered on behalf of the Client under subsection 4(1) for the purpose of calculating fees or for determining costs, charges, disbursements and taxes, but is subject to separate and independent arrangements between the Lawyer and the third party.
5(1) The Client agrees
(a) that all costs, charges, disbursements and taxes, or a portion thereof, recovered on behalf of the Client, either by settlement of this matter or by judgment of a court, shall be applied directly against the total amount of costs, charges, disbursements and taxes incurred by the Lawyer on behalf of the Client in pursuing the matter, and
(b) that any balance to be paid for costs, charges, disbursements and taxes remaining after the deduction of amounts applied under paragraph (a) shall be paid to the Lawyer from the amount recovered for special or general damages.
5(2) The Client agrees to pay to the Lawyer interest at the rate provided under the Rules of Court on judgments, on all costs, charges, disbursements and taxes paid directly by the Lawyer, from the date of actual payment to the date of recovery of payment, if any.
6(1) The Client agrees that in the event it is not possible to settle this matter, or no amount is recovered in any legal proceedings, to pay to the Lawyer all costs, charges, disbursements and taxes incurred by the Lawyer on behalf of the Client.
78 -41 -
OR (1) In the event it is not possible to settle this matter, or no amount is recovered in any legal proceedings, the Lawyer is responsible for all costs, charges, disbursements and taxes incurred by the Lawyer on behalf of the Client.
(Select one of (1) as agreed between Lawyer and Client)
(2) In the event that costs under the Rules of Court are awarded against the Client in any legal proceeding, the payment of all such costs is the full responsibility of the Client and not the Lawyer.
7(1) Upon the settlement of this matter, or upon the completion of any legal proceedings in which the Client recovers judgment, the Lawyer shall provide the Client with an account in writing separately setting out the amounts recovered for special and other damages, and for costs, charges, disbursements and taxes, and showing the amounts charged to the Client under this agreement and the balance payable to the Client.
7(2) Upon approval by the Client of the account under subsection 7(1) the Lawyer may deduct the total amount owing to the Lawyer and pay the balance to the Client, or as the Client directs.
8(1) In the event the Client discharges or otherwise terminates the services of the Lawyer without adequate cause, before settlement is reached or judgment of a court is obtained, the Lawyer is entitled to recover from the Client fees on the basis of the Lawyer's normal hourly rate for such a matter, and for costs, charges, disbursements and taxes, to which the Lawyer would be entitled if there was no contingent fee agreement, or such greater amount as may be allowed by a reviewing officer.
8(2) The Lawyer's bill under subsection 8(1) may be enforced as a lien against any settlement or judgment recovered on behalf of the Client in this matter subsequent to the Lawyer being discharged or otherwise terminated under subsection 8(1).
9(1) The Lawyer may withdraw from representing the Client under this agreement on reasonable notice to the Client, provided that upon such withdrawal the Lawyer shall not be entitled to any fee for services or for payment of any costs, charges, disbursements and taxes incurred on behalf of the Client.
9(2) If the Lawyer withdraws under subsection 9(1) because of cause created by the Client, the Lawyer is entitled to recover from the Client fees on the basis of the Lawyer's normal hourly rate for such matter, and for costs, charges, disbursements and taxes, to which the Lawyer would be entitled if there was no contingent fee agreement, and the Lawyer's bill may be enforced as under subsection 8(2).
10 If the Client settles this matter without the knowledge or participation of the Lawyer, the Client shall pay to the Lawyer the fees agreed under section 4 based on the final recovery received by the Client.
79 -42-
11 The Lawyer makes no warranty or representations concerning the successful outcome of this matter, or that the Lawyer can recover any amount for costs, charges, disbursements and taxes that will be incurred on behalf of the Client. Any statements of the Lawyer in this regard are statements of opinion only, based on the Lawyer's best judgment of the issues.
12 The Client's address and telephone number for receipt of all communications in connection with this agreement are
1 3 This agreement shall be governed by the law of New Brunswick.
14 The Client is entitled to receive a copy of this agreement at the time of signing and acknowledges receipt.
Dated this day of , 20.
(Witness) (Lawyer or Law Firm)
(Witness) (Client)
FOOTNOTES
These footnotes are part of Form 1 and are to be included with all contingent fee agreements.
1 . The fees allowed under section 4, paragraph (a) shall not exceed 25 percent and under paragraph (b) 30 percent. All agreements that exceed these percentages, or otherwise contain terms different from Form 1 , shall be approved by a reviewing officer or the agreement is void and not enforceable.
2. Any contingent fee agreement is subject to review by a reviewing officer under subsection 83(7) of the Law Society Act, 1996, within 90 days after
(a) the agreement is made; or
80 -43-
(b) the retainer between the Lawyer and Client is terminated.
3. In the event of a dispute, any bill under a contingent fee agreement is subject to review by a reviewing officer under the Rules For Review of Lawyers Bills which sets out the procedure to be followed.
4. The Lawyer's "normal hourly rate" as referred to in 8(1) and 9(2) may be provided to the client in a letter to accompany this Agreement.
5. Any Lawyer or Client having questions with respect to contingent fee agreements may contact the Executive Director at the Law Society Office:
68 Avonlea Court Fredericton, New Brunswick E3C 1N8
Telephone: (506) 458-8540
81 Appendix "D"
LAW SOCIETY OF NEW BRUNSWICK BARREAU DU NOUVEAU-BRUNSWICK
SUMMARY OF CONTINGENT FEE REGULATION IN OTHER PROVINCES
Province Max Percentage Disbursements Costs
NB 25% Can req client to pay No rule 30% (Appeals) regardless of outcome ______BC 33.33% (MVA) Client pays regardless No rule 40% (other pers inj) of outcome No maximum (other)
Source: https://www.lawsociety.bc.ca/working-with-lawyers/lawyers-fees/ ______AB No maximum Can req client to pay May charge CFA on costs, at same % regardless of outcome
Source: Rules of Court R. 10.7 www.lawsociety-barreau.nb.ca/files/Public/Alberta_Rules_of_Court_R_10.7.pdf ______SK, MB No maximum No rule May charge CFA on costs, but sugg PE, NL that overall % be lower in such cases
Source: Law Society of Saskatchewan Code of Professional Conduct R. 2.06(2) www.lawsociety-barreau.nb.ca/files/Public/Saskatchewan.pdf
Source: Law Society of Manitoba Code of Professional Conduct R. 3.6-2 www.lawsociety-barreau.nb.ca/files/Public/Manitoba.pdf
Source : Law Society of PEI Code of Professional Conduct R. 3.6-2 https://lawsocietypei.ca/media/for- lawyers/regulation/Professional%20Code%20of%20Conduct.pdf
Source : Law Society of Nfld and Lab Code of Professional Conduct R. 3.6-2 www.lawsociety-barreau.nb.ca/files/Public/Newfoundland%20and%20Labrador.pdf
______ON No maximum No rule May charge CFA on costs, but sugg that overall % be lower in such cases
Source: http://www.lsuc.on.ca/ContingencyFees/
______
82 QC No maximum; ??? ??? May require hourly fee in addition to CFA
Source: https://www.barreau.qc.ca/media/1277/2017-tarification-regard.pdf ______NS No maximum Can req client to pay No rule regardless of outcome
Source: Rules of Court R. 77.14 http://www.courts.ns.ca/Civil_Procedure_Rules/CPRs_in_html/Rule_77.htm
83 Appendix "E"
Self-regulated professions Balancing competition and regulation
Competition Bureau 2007
84 For information on the Competition Bureau’s activities, please contact:
Information Centre Competition Bureau 50 Victoria Street Gatineau QC K1A 0C9
Tel.: 819-997-4282 Toll free: 1-800-348-5358 TDD (for hearing impaired): 1-800-642-3844 Fax: 819-997-0324
E-mail: [email protected] Web site: www.competitionbureau.gc.ca
This publication can be made available in alternative formats upon request. Contact the Competition Bureau's Information Centre at the numbers listed above.
Permission to Reproduce Except as otherwise specifically noted, the information in this publication may be reproduced, in part or in whole and by any means, without charge or further permission from the Competition Bureau provided due diligence is exercised in ensuring the accuracy of the information reproduced; that the Competition Bureau is identified as the source institution; and that the reproduction is not represented as an official version of the information reproduced, nor as having been made in affiliation with, or with the endorsement of, the Competition Bureau.
For permission to reproduce the information in this publication for commercial redistribution, please e-mail [email protected].
Cat. No. Iu54-13/2007E ISBN 978-0-662-47414-2
85 Contents
Foreword v
Executive summary vii Competition and regulation viii Findings and recommendations viii Conclusion xi
Introduction 13 The importance of professions to Canadians 14 The role of regulation 15 Research process 15 Structure of the study 16
1. Economic analysis 17 Market failure and the potential benefits of regulation 18 Anticompetitive effects and the potential costs of regulation 20 Restrictions 22 Conclusion 34
2. Effective regulation 37 Principles 37 Competition assessment 39 Conclusion 41
3. Accountants 43 Overview 43 Restrictions and recommendations 47 Conclusion 60
4. Lawyers 61 Overview 61 Restrictions and recommendations 64 Conclusion 78
86 5. Optometrists 81 Overview 81 Restrictions and recommendations 85 Conclusion 97
6. Pharmacists 99 Overview 99 Restrictions and recommendations 102 Conclusion 114
7. Real estate agents 115 Overview 115 Restrictions and recommendations 119 Conclusion 131
Conclusion 133 Entering the profession 133 Mobility 134 Overlapping services and scope of practice 134 Advertising 135 Pricing and compensation 135 Business structure 136
Appendices Appendix 1 Questionnaire 137 Appendix 2 Organizations that provided input to the study 153 Appendix 3 Recommendations 155
87 Foreword
The professions comprise up to one fifth of Canada’s service economy and seven percent of the total hours worked in Canada’s business sector. It is cause for concern, therefore, that labour productivity in this important sector of the Canadian economy is approximately half that of the professions in the United States and is in the bottom quintile for labour productivity among Canadian industries.
Research by the Organization for Economic Co-operation and Development (OECD) confirms the worrisome state of Canada’s professional services sector. The OECD reported earlier this year that Canada’s best opportunity for growth is in labour productivity and specifically recommended that Canada promote competition in professional services by reducing regulation. Other research by the OECD has shown that countries that have streamlined and improved their regulatory regimes have seen significant payoffs in terms of productivity.
Much of the productivity problem that plagues Canada’s professions may be due to regulators not considering competition issues, or considering them inadequately, when they were creating their regulatory schemes, in the context of a very different Canadian economy than exists today.
Normally, competition in a free market system protects both consumers and service providers better than any other alternative. The only time it is desirable to supplant competition by regulation is when markets are not functioning as well as they should be and when the benefits of regulation demonstrably outweigh the benefits of competition alone. But even then, regulation will be most effective when it imposes minimal restraints on competition.
This study, the first of its kind by the Competition Bureau, is a detailed look at the way regulation affects competition in self-regulated professions in Canada. As such it is a valuable tool for professionals, politicians, policy makers and consumer advocates. The Bureau is uniquely placed to do this study. As advocates for competition, we have considerable expertise in analyzing professional practices to identify uncompetitive elements. In addition, we hope that our advocacy and enforcement activities will work in tandem: by having regulators consider the competitive impacts of regulation, it will become unnecessary for the Bureau to consider them during investigations into alleged anti-competitive conduct.
v 88 Self-regulated professions: Balancing competition and regulation
I encourage readers to see this report’s findings as applying to all professions. Our recommendations, which we plan to revisit in two years, are certainly not an indictment of any of the professions. Rather, our goal is to identify opportunities for improving necessary regulations and eliminating unnecessary ones so that Canadians can benefit from the best combination of regulation and competition.
Some will no doubt argue, correctly, that competition needs to be balanced against other policy objectives. My concern is that we have regulatory regimes that were established without adequately considering competition.
Our collective challenge, whether we are professionals or users of professional services, is to bring more competition to the professions. This study is a good place to start.
Sheridan Scott Commissioner of Competition
vi 89 Executive summary
Despite comprising a significant part of the service economy in Canada, perhaps as much as one fifth, the professions comprise one of the overall economy’s least productive sectors. According to the Conference Board of Canada, professional services rate in the bottom quintile for productivity per hours worked. In addition, labour productivity in the professions in Canada is approximately half that of the professions in the United States. At the same time, the professions are one of the most regulated sectors of the Canadian economy, and the regulation in place in the professions is more restrictive in Canada than in many member nations of the Organization for Economic Co-operation and Development.
Given a considerable body of evidence that shows that reducing regulation improves competition and, as a result, productivity, it is reasonable to ask whether and how professional services could be less regulated in Canada. The Competition Bureau is ideally placed to answer this question, since one of its primary responsibilities is advocating for competition in Canada. On several occasions, the Bureau has advised Canadian regulatory bodies on how to improve their approach to regulation to realize the benefits of competition. The Bureau also has considerable experience investigating anti- competitive behaviour in the professional services sector.
The five groups of professionals—accountants, lawyers, optometrists, pharmacists and real estate agents—the Bureau chose for this study of the self-regulated professions in Canada are vital to the Canadian economy and are of great importance to Canadians in their daily lives. Access to advanced, innovative and competitive professional services is essential for individual Canadians as well as businesses. These professions affect the cost of many other services as well as most goods, including the most basic consumer goods.
These professions are also self-regulated, meaning that they have been given some powers that normally only governments hold. The organizations given self-regulating powers may therefore put in place restrictions that have the force of law. At the same time, these organizations have potentially conflicting concerns and interests—their own and those of the public. This is all the more reason to ensure that competition, from which both professionals and consumers benefit, is protected.
The Bureau selected these particular groups of professionals based on their volume of commerce as well as on the volume of complaints about anti-competitive behaviour in these professions it received, both from the public and from within the professions themselves, which gave it good reason to believe that existing regulation might be
vii 90 Self-regulated professions: Balancing competition and regulation restricting competition excessively. However, the Bureau’s findings are transferable to other professions, since it is reasonable to expect the type of regulation found in these professions generally exists in others.
Competition and regulation Competition is generally the best means of ensuring that consumers have access to the broadest range of services at the most competitive prices and that producers have the maximum incentive to reduce their costs as much as possible and meet consumer demand. However, professional services markets are characterized by particular qualities that can justify some form of regulation to protect consumers and ensure service quality. At the same time, there are compelling economic arguments that regulation can have the effect of severely limiting competition, thus preventing consumers from benefiting from the many advantages of a competitive environment.
The Competition Bureau does not argue blindly for competition at the expense of all other policy objectives, since there may be legitimate public interests other than the efficient allocation of resources at issue. The Bureau does, however, advocate that to be effective, regulatory decisions must be fully informed, keeping in mind the many direct and indirect impacts they may have on consumers through reduced competition. Regulation that is excessive or restricts competition more than an equally effective alternative comes at great cost and should be removed or modified.
This is an important message for all professions. Regulators—comprising provincial and territorial governments, and self-regulating organizations—must evaluate regulatory decisions through a balanced, evidence-based assessment, taking into account the numerous channels through which regulation can be beneficial or harmful to consumers of professional services. To this end, the governance structure of each profession must ensure broad representation. It is the Bureau’s hope that this study will increase awareness of the competitive impact of regulation in professional services and motivate an expansive deliberation among regulators of the effects—favourable and not—of regulation.
Findings and recommendations This study is the Bureau’s first effort to identify potentially unnecessary and anti- competitive restrictions that exist in a representative group of self-regulated professions and that may well be present in other professions. (The specific examples below are just that, examples to illustrate the Bureau’s findings. Chapters 3–7 contain all the recommendations.) The Bureau’s recommendations are not based on findings of wrongdoing; rather, they reflect opportunities the Bureau believes regulators should seize.
Restrictions on entering the profession Most professions maintain substantial entry qualifications, coupled with continuing education requirements. The Bureau found that these qualifications are, in some instances, noticeably uneven across the country.
viii 91 Executive summary
In general, the Bureau supports the need for entry requirements to assure quality in the provision of professional services. However, any proposed increase to required entry qualifications should be justified as being the minimum that will reasonably ensure consumer protection. Furthermore, jurisdictions that maintain higher standards than others should look to the outcomes of less regulated jurisdictions when defining the minimum necessary level of qualification.
The Bureau was interested to find that the authority to accredit all Doctor of Optometry programs in Canada and the United States rests with the U.S.-based Accreditation Council on Optometric Education, which almost entirely comprises members of the American Optometric Association. The Bureau is of the view that there is a risk that the Council’s accreditation policies are formed and evolve based on conditions of supply and demand in the U.S. and do not necessarily reflect conditions in Canada. As a result, provincial and territorial colleges of optometry should consider ways to ensure that the Council takes conditions of supply and demand in Canada into account when developing accreditation policies.
The Bureau also reviewed empirical studies on the effect of market entry restrictions on the price and quality of professional services. Generally, the studies found that the incomes of members of professions with restrictions on entry are higher than the incomes of comparable professionals who do not face restrictions. The effect on quality is unclear.
Restrictions on mobility Generally, the professions are moving in the right direction with respect to interprovincial and international mobility. In each profession, the majority of provinces have signed a mutual recognition agreement to remove unnecessary barriers to mobility of qualified professionals and to establish the conditions under which professionals registered or licensed in one jurisdiction may have their qualifications recognized in another. Further work can be done to get all Canadian jurisdictions on board and to develop strong dispute-handling mechanisms and consistent implementation of these agreements.
Most professions use various mechanisms to assess the qualification of foreign professionals wishing to have their credentials recognized in Canada. Many of these mechanisms take the form of national organizations that assess basic educational or professional qualifications on behalf of the provinces and territories. However, the pharmacy profession in Canada does not use any of these mechanisms, relying instead on each province to set its own evaluation and entry criteria and assessment process. Given that the roles and responsibilities of pharmacists are essentially the same across the country, there is no apparent reason for the variation in the admission requirements for foreign-trained pharmacists. When the requirements are higher than necessary, the cost of entry can be needlessly high, resulting in fewer foreign-trained professionals applying to become pharmacists in certain provinces and territories.
Restrictions on overlapping services and scope of practice The Bureau has identified a number of instances in which professionals who provide overlapping services are requesting that their scope of practice be expanded to include
ix 92 Self-regulated professions: Balancing competition and regulation one or more activities currently beyond their authorization. Regulators should conduct a thorough assessment of the overall effect of any proposed expansion. A full evaluation should take into account both the potential costs, in terms of public safety, and the potential benefits, in terms of lower prices, increased choice and enhanced consumer access to professional services.
For example, the Bureau learned that members of some accounting designations in some Canadian jurisdictions are not allowed to provide the full extent of public accounting services. Such restrictions limit the number of accountants who can offer this important service and therefore limit competition. The Bureau recommends that regulators reconsider these restrictions so that all accountants who are qualified to provide public accounting services may do so.
Restrictions on advertising The Bureau has identified numerous restrictions that appear to go beyond what is necessary to protect consumers from false or misleading advertising and, as a result, limit consumers’ access to legitimate information that greatly benefits competition. Among these are restrictions that limit the use of certain words and expressions and those that limit the size of advertisements. The Bureau is particularly concerned by restrictions on comparative advertising. Such restrictions obstruct competition between service providers and make it difficult for new entrants to advertise any distinct features of the services they offer, protecting incumbents from the full forces of competition.
The Bureau found many such restrictions on lawyers in many Canadian jurisdictions. Removing these restrictions would go a long way toward bettering this profession’s competitiveness. Moreover, the Bureau recommends that the regulators in all professions review existing restrictions on advertising and remove those that go beyond prohibiting false or misleading advertising.
The Bureau also reviewed empirical studies on the effect of advertising restrictions on the price and quality of professional services. Generally, these studies found that restrictions on advertising increase the price of professional services, increase professionals’ incomes and reduce the entry of certain types of firms. The effect on quality is small, except that the restrictions may result in fewer consumers using the service.
Restrictions on pricing and compensation Some regulators publish suggested fee guides, which they claim to be non-binding. Fee guides that are purely voluntary in nature, while unquestionably preferable to any mandatory directive, remain a source of unease from a competition perspective, since they risk facilitating overt or tacit collusion. Given the negative effect of collusion on consumer welfare, the Bureau urges regulators to look to less intrusive means than fee guides to provide consumers with the information they need about prices. In addition, regulators should ensure that any maximum prices they set are not functioning as fixed prices in practice.
x 93 Executive summary
In the real estate industry, all provinces and territories but Quebec restrict agents’ remuneration to either a fixed amount or a percentage of the selling price. Ontario goes even further and uses the phrase but not both in its restriction, meaning that real estate agents may not, for example, ask for a fixed amount for their initial work and then a percentage of a property’s selling price. Such a restriction disallows two-part fees, a type of pricing arrangement one would expect to arise in a competitive real estate market in which some fixed level of work is generally required, but anything beyond it is uncertain. This approach prevents what would otherwise be a perfectly acceptable compensation arrangement that should spur competition among agents, since it maintains the incentive for them to work to get a higher selling price for their clients while ensuring that they will be fairly compensated for the preparatory work they do.
Restrictions on business structure The Bureau is of the view that certain restrictions on business structure, namely restrictions on multidisciplinary practices between complementary service providers, have the potential to significantly reduce the benefits of competition.
Lawyers and public accountants, for example, appear to be natural complements to one another in terms of the services they provide. By working together, they would also be able to realize business efficiencies. However, the Bureau uncovered some restrictions in some provinces that prohibit or discourage members of these professions from working together or with other professionals in multidisciplinary practices.
Professions justify restrictions on multidisciplinary practices as preventing possible conflicts of interest, which is a laudable goal. However, the Bureau recommends that regulators consider less intrusive mechanisms than an outright prohibition on multidisciplinary practices to circumvent possible conflicts of interest, such as requiring all participants in collaborative relationships to adhere to similar rules of conduct.
Conclusion An examination of competition in the self-regulated professions is a legitimate exercise at any time, since the right to self-regulate brings with it the responsibility for regulators to consider the greater good in all that they do, including competition.
The professions in general, and those included here, currently face a situation that is rich with opportunities to benefit from increased competition. These benefits will accrue not only to the professions themselves but also, and perhaps more importantly, to Canada and Canadians. This study is, as such, only a starting point. There is ongoing work for regulators to do. For the Competition Bureau’s part, it plans to review in two years whether the professions have addressed the recommendations this study presents.
xi 94 4. Lawyers
Overview
Role and function Among other things, lawyers advise clients on legal matters, represent clients before bodies such as administrative boards and tribunals, draft legal documents such as contracts and wills, plead cases and conduct prosecutions in court.
In Quebec, notaries may perform all the same functions as lawyers except for litigation and advocacy. Notaries’ traditional activities are in areas in which the law requires notarial deeds and instruments (such as mortgages and marriage contracts) prepared in prescribed ways. As with lawyers, Quebec notaries may give legal advice.1
Many lawyers work in law firms (or notarial offices for Quebec notaries), while other lawyers and notaries are employed in the offices of private companies, associations, non- governmental organizations, and federal, provincial and municipal governments; many others are self-employed.2
How the profession is regulated Provincial and territorial law societies regulate the legal profession in Canada. For example, the Law Society of Manitoba, empowered by the Legal Profession Act, establishes standards for education, professional responsibility and competence, disciplines members and regulates the practice of law in that province.3 There are 14 law societies in Canada: one for each province (two in Quebec) and territory.4
Although not a regulatory body, the Federation of Law Societies of Canada (FLSC) is a national body representing lawyers in Canada. The FLSC has representatives from each of the 14 law societies and has historically functioned as a “clearing house facilitating the exchange of views and information of member law societies.”5 The FLSC’s mission is to research matters of importance to the legal profession in Canada, further co-operation and uniformity among the provincial governing bodies, improve the public’s understanding of
1 Chambre des notaires du Québec, “Areas of notarial practices,” www.cdnq.org/en/notariesInQuebec/areas.html. 2 Human Resources and Skills Development Canada, “About the NOC 2006 Update,” www23.hrdc- drhc.gc.ca/2001/e/groups/4112.shtml; Service Canada, “Judges, Lawyers and Quebec Notaries,” www.jobfutures.ca/noc/411p1.shtml. 3 Legal Profession Act, C.C.S.M. c. L107. 4 For a complete list of the provincial and territorial law societies, go to Federation of Law Societies of Canada (FLSC), “The Practice of Law in Canada,” www.flsc.ca/en/lawSocieties/lawSocieties.asp#list. In Quebec, there is one law society for lawyers, the Barreau du Québec, and one for notaries, the Chambre des notaires du Québec. 5 FLSC, “History of the Federation,” www.flsc.ca/en/about/history.asp.
61 95 Self-regulated professions: Balancing competition and regulation the legal profession in Canada, and express the views of the provincial governing bodies on national and international issues.6
The Canadian Bar Association (CBA) is a voluntary professional organization, formed in 1896 and incorporated by a Special Act of Parliament on April 15, 1921. The CBA represents lawyers, judges, Quebec notaries, law professors and law students from all Canadian provinces and territories. Approximately half of all practising lawyers in Canada are members of the CBA. The objectives of the CBA include improving the law and the administration of justice, promoting fair justice systems and effective law reform, and protecting and promoting the rule of law and the independence of the legal profession.7
Overlapping services There are a number of other service providers whose services may complement or be substitutes for the services lawyers offer. For instance, paralegals may perform various legal duties under the guidance of lawyers, such as preparing legal documents (including wills, real estate papers and affidavits), maintaining records and files, conducting legal research and interviewing clients. Paralegals may not, however, give legal advice. Generally, paralegals obtain their qualifications through education, experience or both.
Notaries public provide services such as certifying real estate papers, legalizing documents and swearing declarations.8
Mediators substitute for lawyers when the parties to a legal proceeding or transaction choose dispute resolution through mediation instead of litigation. The mediator is neutral and helps the parties reach a conclusion without a trial. Apart from lawyers, mediators may be social workers, psychologists or other professionals trained in dispute resolution.9
Arbitrators may also offer services that substitute for the services of lawyers. Arbitrators help the parties to a legal proceeding or transaction avoid litigation and reach a settlement. Unlike mediators, arbitrators hear the facts of the case and legal issues and make a decision the parties must follow.10
Entering the profession Individuals seeking to be lawyers must have a common law degree or, in Quebec, a civil law degree. Following university, prospective lawyers must complete a provincial bar admission course and pass the accompanying examination(s). All law societies require prospective lawyers to complete an articling period, as well as register with a society in
6 FLSC, “Mission of the Federation,” www.flsc.ca/en/about/mission.asp. 7 Canadian Bar Association, consultation submission, July 11, 2007. See also Canadian Bar Association, “About the CBA,” www.cba.org/CBA/about/main. 8 Notaries in Quebec are not to be confused with notaries public. Quebec notaries must complete a full legal education and must article before being admitted to the profession, while notaries public are strictly commissioned clerks. Also, contrary to notaries in Quebec, notaries public may not provide legal advice. Although notaries public have the power to certify documents, their certification has only a limited probative effect. Chambre des notaires du Québec, “The Latin notary and the notary public,” www.cdnq.org/en/notariesInQuebec/latin.html; Canlaw, “What is a Notary Public,” www.canlaw.com/notaries/notary.htm. 9 Department of Justice Canada, “Resolving Disputes: Think About Your Options,” www.justice.gc.ca/en/dept/pub/rd/index.html#dispute_resolution. 10 Ibid.
62 96 Lawyers order to practise law. The requirements for registering with a law society typically include the educational requirements listed above and paying an annual membership fee.
Market Demand The demand for legal advice and representation comes from the general public, businesses and governments.
Members of the public use lawyers for a variety of legal matters, including estate planning, divorce, real estate transactions, and civil and criminal court cases.
Some businesses exclusively employ lawyers to provide legal services, such as drawing up contracts or acting in mergers, court cases and other legal matters.
The federal government employs approximately 1,800 lawyers at the Department of Justice in various fields, such as criminal litigation, civil litigation, tax litigation, public law, civil law, criminal and social policy, and legislative services.11
The geographic market for legal services likely depends on the client and the service requested. The market is likely fairly local for individuals and small firms, whereas it is provincial, national or international for large firms.
Generally, rising caseloads and continued regulation drive the need for lawyers, although demand is difficult to predict.12 The demand for lawyers is also influenced by the state of the economy and the business cycle, since a change in the volume of business activity affects the demand for lawyers, particularly those involved with real estate transactions, mergers and acquisitions, bankruptcies, contract preparation and other legal proceedings particular to commercial activity.
A decrease in the use of lawyers’ services may result from an increased use of dispute- resolution services in which a lawyer’s services are not mandatory.13
Supply In 2006, there were approximately 72,000 lawyers in Canada’s 10 provinces, 90 percent of whom practised in Ontario, Quebec, Alberta and British Columbia. Further, there were 23,559 law offices across the provinces and territories.14 In 2006, approximately 50 percent of lawyers in Canada were self-employed. Table 1 shows the number of lawyers by province that year.
11 Department of Justice Canada, “A Legal Career with Justice,” http://canada.justice.gc.ca/en/dept/ri/rec/lcj/index.html. 12 Law School Admission Council, Inc., “Law as a Career,” www.lsac.org/canadianCFC/template2.asp?url=LawCareer.htm. 13 Department of Justice Canada, note 11, above. 14 Statistics Canada, “Employment Size Ranges for NAICS 541110—Offices of Lawyers,” custom request, 2006. There were 23,484 law offices across the 10 provinces and 75 offices in the territories. Note that the FLSC reports total membership in all Canadian law societies of approximately 98,000. This includes notaries in Quebec and may also include double counting of lawyers who are members of more than one law society. FLSC, “2005 Law Societies Statistics,” www.flsc.ca/en/pdf/statistics2005.pdf.
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Table 1: Number of lawyers by province, 2006 Employment type Province Total Self- Firm- Firm-employed, employed employed employed full time Alberta 8,200 4,200 4,000 3,700 British Columbia 9,300 4,600 4,600 4,200 Manitoba 1,300 600 800 700 New Brunswick 1,100 500 600 600 Newfoundland and 900 500 n/a n/a Labrador Nova Scotia 2,000 1,100 900 800 Ontario 29,800 15,300 14,500 14,000 Prince Edward Island 200 n/a n/a n/a Quebec 17,400 8,900 8,500 8,300 Saskatchewan 1,700 800 1,000 1,000 Canada (excluding 72,000 36,600 35,400 33,900 the territories) Source: Statistics Canada, “Employee Statistics for NOCS E012—Attorneys,” custom request, 2006.
From 2001 to 2006, the number of lawyers increased 13 percent, from 63,600 to 72,000.
In 2005, 2,778 lawyers in Canada practised in provinces in which they did not reside. Ontario had the largest number of non-resident practising lawyers, with 769; Newfoundland and Labrador, with 13, had the fewest.15 That year, there were also 297 lawyers with occasional appearance certificates across all provinces, as well as 321 transfers between jurisdictions (see “Mobility,” below).16
In 2005, there were more than 3,100 articling students, more than 3,300 students admitted to the bar admission course, and slightly more than 3,000 students called to the bar across all provinces.17
Restrictions and recommendations
Market entry restrictions Entering the profession To become a lawyer in Canada, individuals must possess an LL.B from a recognized Canadian university.18 Applicants to law school most likely hold an undergraduate degree, although some law schools accept applicants who have only completed two years of an undergraduate degree.19 In Quebec, lawyers and notaries must have a three-year civil law degree instead of a common law degree. Students wishing to become notaries must take an additional year of schooling to obtain a diploma in notarial law. Civil law schools require applicants to have completed a two-year CEGEP (college) diploma.
15 FLSC, ibid. 16 Ibid. 17 Ibid. 18 FLSC, “Admission to a Law Society,” www.flsc.ca/en/lawSocieties/lawSocieties.asp#admission. 19 See, for example, University of Manitoba, “Admissions Information,” www.umanitoba.ca/law/newsite/faq.php, and University of New Brunswick, “Admission Handbook 2007,” http://law.unb.ca/pdf/AdmissionsHandbook2007_001.pdf.
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All provincial and territorial law societies require prospective lawyers to complete a professional legal training course, known as the bar admission course, which includes the bar examinations.20 Across the country, the course varies significantly in length, as the following examples show:
• British Columbia: 10-week Professional Legal Training Course and examinations; • Alberta: six-month Canadian Centre for Professional Legal Education Program and assessments and examinations; • Saskatchewan: eight-week Bar Admission Course and examinations delivered by the Saskatchewan Legal Education Society Inc.; and • Nova Scotia: five-week Skills Training Course and an examination.21
All law societies also require prospective lawyers to complete an articling period, either before or after the bar admission course. The minimum length of articling varies by jurisdiction, ranging from six months for lawyers in Quebec and nine months in British Columbia, to a year in Alberta, Yukon and several other provinces and territories.22
The noted variations in the length of the professional legal training course and articling suggest that the entry requirements may have been set, in some instances, at a higher than necessary level, thereby increasing the requirements prospective lawyers have to meet to enter into the profession. In its consultation submission, the FLSC did not provide the Bureau with a rationale for the dissimilarities across the country.23 Furthermore, given the National Mobility Agreement (see below), which allows lawyers to move freely among jurisdictions regardless of the legal training course or articling period required by their home jurisdictions, the reason for the discrepancies is not apparent.24
Recommendation Law societies should justify the duration of the professional legal training course and articling as the minimum necessary to properly and effectively practise law while protecting the public interest. When reviewing the duration of education and training lawyers require, law societies should look at other law societies that have maintained the quality of legal services while requiring shorter periods for training and articling.
20 FLSC, “The Practice of Law in Canada,” www.flsc.ca/en/lawSocieties/lawSocieties.asp. 21 Law Society of British Columbia, “About PLTC,” www.lawsociety.bc.ca/licensing_membership/pltc/about.html; Law Society of Alberta, “2007–2008 CPLED Program,” www.lawsocietyalberta.com/files/trends/CPLED_Information Circular_2.pdf; Law Society of Saskatchewan, “Programs and Services: Saskatchewan Legal Education Society Inc.,” www.lawsociety.sk.ca/newlook/Programs/sklesi.htm; Nova Scotia Barristers’ Society: “Bar Admission Course,” www.nsbs.ns.ca/barcourse.html. 22 École du Barreau du Quebec, “Stages,” www.ecoledubarreau.qc.ca/stages/admissibilite.php; Law Society of British Columbia, “New Admissions,” www.lawsociety.bc.ca/licensing_membership/becoming_bc_lawyer/new_admissions.html; Law Society of Alberta, Rules of the Law Society of Alberta, r. 56(1)(a); Law Society of Yukon, Rules of the Law Society of Yukon, r. 84.1(a). 23 The FLSC responded to the Bureau’s questionnaire and provided a consultation submission on behalf of the law societies of Newfoundland and Labrador, New Brunswick, Nova Scotia, Prince Edward Island, Ontario, Manitoba, Saskatchewan, Alberta, British Columbia, Yukon and Northwest Territories. Although Nunavut is not expressly mentioned as being covered by the FLSC’s questionnaire response and consultation submission, it is implicitly, since Nunavut has adopted the Northwest Territories’ Legal Profession Act and Rules. 24 Lawyers must meet certain specified conditions in order to provide legal services outside their home jurisdictions under the scope of the National Mobility Agreement. See “Mobility,” below.
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Mobility Interprovincial mobility For lawyers wishing to move between jurisdictions, nine provinces (British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick, Prince Edward Island, Nova Scotia, and Newfoundland and Labrador) have fully implemented the National Mobility Agreement (NMA). The NMA sets out principles that govern temporary and permanent mobility among signatory provinces. Under this agreement, practising lawyers in provinces that have implemented the NMA, who have liability insurance and defalcation coverage, and who “have no outstanding criminal or disciplinary proceedings, no discipline record, and no restrictions or limitations on the right to practise may provide legal services [on a temporary basis] in or with respect to the law of a reciprocating jurisdiction for up to 100 days in a calendar year without a permit.”25 Lawyers do not have to inform other law societies that they are doing so.26
Lawyers practising for more than 100 days, or who otherwise develop an “economic nexus” (by opening an office from which to serve the public, opening and operating a trust account or becoming a resident in the jurisdiction) are ineligible for temporary mobility but may apply to transfer to the desired jurisdiction (permanent mobility).27 Lawyers transferring permanently, who are entitled to practice in a signatory jurisdiction that has implemented the NMA and who are of good character, are excused from writing transfer examinations or any other examinations; however, they “must still meet any qualifications that ordinarily apply for lawyers to be entitled to practise law in the jurisdiction in question. They must also certify that they have reviewed and understood reading materials required by the jurisdiction.”28
The NMA eases the mobility of lawyers between jurisdictions, which effectively serves to reduce barriers to entry and increase the supply of lawyers by allowing them to practise their profession outside their home jurisdiction. Although not full members of the NMA, Quebec and the three territories have allowed for some mobility.
Although Quebec has signed the NMA, it has not yet implemented it. Nonetheless, the Bâtonnier of Quebec—the head of the Quebec Bar (the Barreau du Québec)—may, under section 33 of the province’s Professional Code and upon fulfilling certain conditions, issue special authorizations allowing Canadian or foreign lawyers to practise law in Quebec for specific cases. Special authorizations are valid for up to 12 months and may be renewed. The Barreau du Québec may require that counsel who are members of the Barreau help lawyers seeking special authorizations because of the differences in legal regimes between Quebec and other jurisdictions, in Canada and abroad. Special authorizations do not fall within the scope of the rules of temporary mobility under the NMA.29
25 FLSC, “Mobility of Lawyers in Canada,” www.flsc.ca/en/committees/mobility.asp. According to Black’s Law Dictionary (8th ed., 2004, p. 448), defalcation can mean embezzlement, the failure to meet an obligation, and/or a non-fraudulent default. 26 FLSC, consultation submission, June 11, 2007. 27 Ibid. An economic nexus is a connection that is established when a lawyer, while practising law on an occasional basis within a jurisdiction, does something that is inconsistent with this. 28 FLSC, “Mobility of Lawyers in Canada,” note 25, above. 29 FLSC, consultation submission, June 11, 2007. See also Barreau du Québec, “Special Authorization to Practise Law in Québec,” www.barreau.qc.ca/avocats/autorisation-speciale/index.html.
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On November 3, 2006 Northwest Territories, Nunavut and Yukon signed the Territorial Mobility Agreement with the 10 provinces. This means the territories now “participate in national mobility as reciprocating governing bodies with respect to the permanent (transfer) mobility provisions of the NMA.”30 The territories do not seem to have established guidelines for temporary mobility, although in Northwest Territories and Nunavut lawyers may apply for restricted appearance certificates for a single matter or for a number of matters over a limited period of time.31
From a competition standpoint, complete mobility of lawyers across Canada is optimal and could be increased if all jurisdictions signed and implemented the NMA with respect to both temporary and permanent mobility.
Recommendation Law societies should facilitate the movement of lawyers between jurisdictions to ensure complete temporary and permanent mobility throughout Canada. To do so, the Quebec Bar should implement, and the territories should sign and implement, the National Mobility Agreement.
International mobility Instead of each law society establishing its own committee to assess and recognize foreign legal education and experience, the Council of Canadian Law Deans and the FLSC created the National Committee on Accreditation (NCA) to evaluate the credentials of foreign lawyers applying for admission to a Canadian common law society from either outside of Canada or from Quebec. The NCA does not evaluate foreign lawyers for acceptance into the Quebec law societies.32 Those wishing to become a member of the Quebec Bar must apply to the equivalencies committee to have any training or diploma they received outside Quebec recognized as equivalent.33 Following the evaluations, the NCA sets out the educational and practice requirements that applicants must meet to qualify for admission and issues successful candidates with certificates of qualification to practise in Canada. Foreign lawyers may still need to take the bar admission course and write the provincial or territorial bar examination, do other coursework or gain work experience before being accepted into a law society.34
Members of the Law Society of Alberta, the Law Society of Saskatchewan, the Law Society of Upper Canada (Ontario) and the Law Society of Prince Edward Island must be either Canadian citizens or permanent residents. The Law Society of Newfoundland and Labrador requires that members be residents of Canada.35
The necessity of residency restrictions is questionable, since other law societies have not deemed residency or citizenship requirements to be essential. The law societies that have such restrictions provided the Bureau with no rationale for them. From a competition
30 Ibid. 31 Law Society of the Northwest Territories, Rules of the Law Society of Northwest Territories, r. 49. 32 FLSC, “The Practice of Law in Canada,” www.flsc.ca/en/lawSocieties/lawSocieties.asp#foreign. 33 Regulation respecting the Standards for equivalence of diplomas and training of the Barreau du Québec, R.Q. c. C-26, r.19.2.1. 34 See, for example, Nova Scotia Barristers’ Society, “Practising in N.S.: Foreign Applicants,” www.nsbs.ns.ca/foreign.html. 35 FLSC, “The Practice of Law in Canada,” www.flsc.ca/en/lawSocieties/lawSocieties.asp#admission.
67 101 Self-regulated professions: Balancing competition and regulation standpoint, such restrictions limit the supply of lawyers by imposing an additional requirement that lawyers must meet before becoming members of a law society that has such a restriction.
Recommendation The law societies that require their members to be residents or Canadian citizens should consider following the example of law societies that have not considered it necessary to include such requirements and eliminate these restrictions.
In most jurisdictions, foreign lawyers have the option of practising as foreign legal consultants, providing advice on the law of their home jurisdictions and on international law; however, Quebec, Northwest Territories, Yukon and Nunavut do not currently allow this.36 Allowing foreign lawyers to act as legal consultants would provide for greater competition in this important area of the law.
Recommendation The law societies of Quebec, Northwest Territories, Yukon and Nunavut should adopt rules enabling foreign lawyers to act as foreign legal consultants.
Foreign lawyers applying for permission to practise as foreign legal consultants must, in some instances, be residents of the jurisdiction in which they wish to practice, as is the case in Ontario, for example.37 Such a requirement effectively limits the extent to which foreign lawyers who are not residents may practise as foreign legal consultants, which in turn limits competition for these services.
Recommendation Law societies should remove the residency requirements for foreign legal consultants. Local presence should not be necessary.
Overlapping services and scope of practice Members of provincial and territorial law societies have the exclusive right to practise law.38 The statutes of the various law societies each include a similar definition of the term practice of law. Generally, it encompasses a variety of tasks, such as giving legal advice, making representations and drafting legal documents.
Included in the statutes are exceptions to the general rule of exclusivity, whereby certain people—namely students-at-law, individuals acting on their own behalf, public officers, insurers, court agents and legal assistants (also called paralegals)—are allowed to do certain legal tasks. In the case of paralegals, the statutes often contain a section listing the specific tasks that lawyers may delegate to them.39 These tasks are generally limited to
36 FLSC, consultation submission, June 11, 2007. See also World Trade Organizations, Trade Policy Review: Report by the Secretariat, February 14, 2007, www.wto.org/English/tratop_e/tpr_e/s179-04_e.doc. 37 Law Society of Upper Canada, By-law 14, s. 4(2). 38 See, for example, British Columbia, Legal Profession Act, S.B.C. 1998, c. 9, s. 15, and Prince Edward Island, Legal Profession Act, R.S.P.E.I. 1988, c. L-6.1, s. 20(1). 39 See for example, Law Society of British Columbia, Professional Conduct Handbook, c. 12, r. 8, and Law Society of Newfoundland and Labrador, Rules of the Law Society of Newfoundland and Labrador, r. 12.07.
68 102 Lawyers matters of routine administration and often require constant supervision of lawyers, as is the case in, for example, British Columbia, and Newfoundland and Labrador, where no independent paralegal practice is allowed.40
In certain jurisdictions, members of the public may hire independent paralegals to appear and represent them in small claims court and before most tribunals, boards and agencies. Paralegals may also deal with simple wills, uncontested divorces, incorporations and pardons. In addition, paralegals may undertake work in other fields: for example, paralegals may practise as immigration consultants when properly registered with the Canadian Society of Immigration Consultants.
In Ontario, however, the independence of paralegals may be compromised under Bill 14, which was passed by the Ontario Legislature on October 19, 2006, and came into effect on May 1, 2007.41 Bill 14 amended the Law Society Act and, as a result, the Law Society of Upper Canada became responsible for regulating paralegals. Independent paralegals are now subject to licensing requirements set by the Law Society and are only allowed to engage in permitted activities that do not fall under the definition of legal services. Under the legislation, “a person provides legal services if the person engages in conduct that involves the application of legal principles and legal judgment with regard to the circumstances or objectives of a person.” Paralegals are allowed to continue to work independently on matters before small claims court, provincial boards and agencies, and on Provincial Offences Act matters before the Ontario Court of Justice, such as highway traffic cases. However, Bill 14 outlaws non-advocacy work by paralegals, such as simple incorporations, wills, uncontested divorces and powers of attorney.
The Law Society of Upper Canada will not have the authority to regulate paralegals until it issues the first paralegal licence, which is expected to be in early 2008. In the meantime, the Law Society will continue to receive, investigate and act on complaints that paralegals are providing legal services that only lawyers may provide.42
The legislative changes in Ontario restrict the set of suppliers to whom consumers may turn for certain legal services, thereby curtailing the option of working with paralegals and increasing the costs of legal services to consumers. Furthermore, a conflict of interest arises from having the Law Society of Upper Canada regulate paralegals, given that they have an incentive to restrain the range of legal activities paralegals may offer.
Recommendation To the extent that paralegals need to be regulated, the proper avenue for this is not through the law societies, given the obvious conflict of interest that arises from having one competitor regulate another. Alternative means of regulatory oversight should be explored.
40 Law Society of British Columbia, Professional Conduct Handbook, c. 12(4); Law Society of Newfoundland and Labrador, Rules of the Law Society of Newfoundland and Labrador, r. 12.03. In its consultation submission of June 28, 2007, the British Columbia Paralegal Association defined a paralegal as “a person with training and knowledge of the substantive and procedural aspects of the law, who is capable of independent legal work performed subject to the general supervision of a lawyer.” 41 An Act to Promote Access to Justice by Amending or Repealing Various Acts and by Enacting the Legislation Act, 2006, S.O. 2006, c. 21. 42 Law Society of Upper Canada, “Paralegal Regulation,” www.lsuc.on.ca/paralegals/.
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Another example of an area that has been affected by the wide scope of practice of lawyers is that of title insurance. Title insurance is an insurance policy covering the condition of title or ownership of real property at the time the policy is issued. This type of insurance protects property owners against losses or damages suffered as a result of title and off-title defects. It can be purchased as a substitute for a solicitor’s report or the coverage a land title assurance fund provides. It is designed to streamline the conveyancing process and to enable real estate professionals to close transactions in a timely fashion.
Certain laws and regulations currently prevent title insurance companies from fully conducting their business. In some jurisdictions, laws and regulations give exclusive authority on certain aspects of real estate conveyancing to lawyers and notaries, which impedes title insurers’ ability to offer their services. For instance, members of the Law Society of Upper Canada have the exclusive mandate to certify title on behalf of title insurers. Recent amendments to Ontario’s Land Titles Act have had the effect of allowing only lawyers to transfer titles.43 Proposed professional rules would require two lawyers to work on title transfers, a requirement that consumers would have no right to waive. In British Columbia, the law society allows only a lawyer or notary, and a limited number of other people, to witness the borrower’s signature on mortgage documents. In addition, the Director of Land Registration in British Columbia has designated lawyers and notaries public as the only people under the Land Title Act who are allowed to affix digital signatures to documents to be filed at the Land Title Office.44 The Law Society of New Brunswick has a practice standard that prevents an Application of First Registration for property to be registered unless the property owner has met with a lawyer. Through the Act to Amend the Land Titles Act (Bill 17), New Brunswick has given lawyers a monopoly on the electronic submission of documents.
The range of activities that is reserved for lawyers must be justified by a clear social benefit. An overly broad scope of practice for lawyers only raises costs for consumers by prohibiting alternative low-cost providers (such as paralegals and title insurers) from offering certain legal services. The FLSC stated in its consultation submission that “the underlying rationale for [providing lawyers with an exclusive right to practise law] is to protect the public.”45 The Bureau acknowledges that this is valid but is of the view that it can be achieved without affording lawyers complete exclusivity on all legal tasks.
Recommendation Law societies should neither prohibit related service providers (such as paralegals and title insurers) from performing legal tasks, nor limit their ability to do so, unless there is compelling evidence of demonstrable harm to the public.
43 Land Titles Act, R.S.O. 1990, c. L.5. 44 In this capacity, lawyers and notaries are known as subscribers. The Land Title Act, R.S.B.C. 1996, c. 250, s. 168.1, defines a subscribe as “an individual who is authorized by a certificate to sign electronic applications and instruments under this Part, and electronic returns under the Property Transfer Tax Act.” 45 FLSC, consultation submission, June 11, 2007.
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Market conduct restrictions Advertising Typically, lawyers are permitted to advertise their services and fees, provided that the advertising claims are not false or misleading and are in good taste, so as not to bring the profession or the administration of justice into disrepute. The Bureau recognizes the need for such restrictions; however, some of those currently in place go beyond simply preventing false or misleading advertising and, as a result, raise competition concerns in light of the numerous benefits advertising brings to consumers.
Size, style and content of advertising In Newfoundland and Labrador, and Ontario, lawyers may only advertise fees charged for their services when the advertisements do not use words or expressions such as from..., minimum, ...and up or the like, when referring to the fees to be charged.46 Similarly, in Nova Scotia, an advertisement may not contain the words simple or complicated, or words of like import, in addition to the words previously mentioned.47 The Law Society of Newfoundland and Labrador, besides forbidding the use of certain words, also prohibits members from indicating in advertisements that prices are discounted, reduced or special rates.48
In advertisements in Yukon, lawyers may only convey information about their places and hours of business, the identity of lawyers in their firms, the identity of representative clients, the fields of law to which they restrict their practices and the types of services they provide.49 Contrary to other law societies, Yukon’s does not permit lawyers to use photographs, logos or symbols in their advertisements.50
The Law Society of Alberta recently amended its Code of Professional Conduct to remove the restriction on advertising by former judges and to allow them to refer to their former status.51 In contrast, the law societies of Nova Scotia, Prince Edward Island, Saskatchewan and Yukon have maintained their restrictions on such advertising.52
The law societies of Yukon and Nova Scotia are the only ones to restrict the size of advertisements. Both require advertisements to be of a size commensurate with the amount of information being given.53 In Yukon, lawyers may only place one listing in each of the white pages and yellow pages, no bigger than a double quarter column.54
46 Law Society of Newfoundland and Labrador, Rules of the Law Society of Newfoundland and Labrador, r. 8.11(c); Law Society of Upper Canada, Rules of Professional Conduct, r. 3.04(2)(c) 47 Regulations made pursuant to the Legal Profession Act, r. 7.6.6 (c). 48 Law Society of Newfoundland and Labrador, Rules of the Law Society of Newfoundland and Labrador, r. 8.11 (c) 49 Legal Profession Act, R.S.Y. 2004, c. 134, s. 105. 50 Law Society of Yukon, Rules of the Law Society of Yukon, r. 193. 51 Law Society of Alberta, “Changes to Advertising Rules Effective February 2007,” www.lawsocietyalberta.com/advisory/advisory_nov_04.cfm. 52 Nova Scotia, Regulations made pursuant to the Legal Profession Act, r. 7.6.3 (d); Law Society of Prince Edward Island, Regulations of the Law Society of Prince Edward Island, r. 41(2); Law Society of Saskatchewan, Rules of the Law Society of Saskatchewan, r. 1605; Law Society of Yukon, Rules of the Law Society of Yukon, r. 199. 53 Nova Scotia, Regulations made pursuant to the Legal Profession Act, r. 7.6.2 (d); Law Society of Yukon, Rules of the Law Society of Yukon, r. 193. 54 With the approval of the Chairman of the Discipline Committee, an advertisement may be allowed to exceed the prescribed size (Law Society of Yukon, Rules of the Law Society of Yukon, r. 197).
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Certain law societies, such as those in Newfoundland and Labrador, and Quebec, prohibit their members from using statements of gratitude in their advertisements.55
Referral fees Lawyers are also prohibited from compensating non-lawyers for recommending their services or referring clients to them. In Newfoundland and Labrador, the law society rules state that lawyers may not provide to or receive from real estate brokers or title insurers any reward for directing or receiving clients.56
The FLSC stated in its consultation submission that advertising is regulated to “protect public interest and confidence in the legal system.”57 From the Bureau’s perspective, the restrictions currently in place on advertising go outside of what is necessary to guarantee this, since the public needs only to be protected against advertising that is false or misleading. The elimination of the superfluous restrictions would allow for more innovative and informative advertising and, as a result, increase competition and lower consumers’ search and information-gathering costs.
Recommendation Generally, law societies should lift any unnecessary restrictions on advertising—that is, any restriction above and beyond the prohibitions on false, misleading and deceptive advertising—unless they can justify their existence. In particular, law societies should remove restrictions on the size, style and content of advertisements and allow non- lawyers to be compensated for referring services or clients.
Of particular concern to the Bureau are restrictions on claiming to be a specialist or expert in a field of law as well as on comparative advertising, as set out below.
Specialist and expert certification Although most law societies allow members to list preferred areas of practice, they prohibit members from claiming to be specialists or experts in given fields. For example, lawyers in British Columbia may state a preference for practising in certain fields when they have devoted at least 20 percent of their time to it in the past three years.58 At the same time, they are strictly prohibited from using the title of specialist.59 Manitoba lawyers “may advertise a preferred area or areas of practice provided the advertisement does not contain a claim, either directly or indirectly, that the advertising lawyer is a specialist or expert.”60 In Newfoundland and Labrador, lawyers may advertise preferred areas of practice so long as they do not claim to be specialists, experts, leaders or established or experienced practitioners in any field.61 In Prince Edward Island, lawyers may only advertise preferred areas of practice that are approved under regulation.62
55 Law Society of Newfoundland and Labrador, Rules of the Law Society of Newfoundland and Labrador, r. 8.05 (c); Quebec: Code of ethics of advocates, R.Q. c. B-1, r.1, s. 5.06, for lawyers; Code of ethics of notaries, R.Q. N-3, r.0.2, s 70, for notaries. 56 Law Society of Newfoundland and Labrador, Rules of the Law Society of Newfoundland and Labrador, r. 8.12(1), 8.12(2). 57 FLSC, consultation submission, June 11, 2007. 58 Law Society of British Columbia, Professional Conduct Handbook, c. 14, r. 16. 59 Ibid, r. 18. 60 Law Society of Manitoba, Code of Professional Conduct, c. 14, C8. 61 Law Society of Newfoundland and Labrador, Rules of the Law Society of Newfoundland and Labrador, r. 8.10. 62 Law Society of Prince Edward Island, Regulations of the Law Society of Prince Edward Island, s. 40(1), 40(2).
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Interestingly, although Saskatchewan does not permit lawyers to use the titles specialist, expert and leader, or any similar designation, members of the law society may be identified as leading practitioners in any publication that relies on input from independent parties approved by the ethics committee.63
The Law Society of Upper Canada is the only law society to have implemented a program for lawyers to obtain specialist certification in a given practice area when they can show they meet the following qualifications:
• that they practised for a minimum of seven years prior to the date of the application; • that they had substantial involvement in the specialty area during five of the seven years; • that they complied with the professional development requirements; and • that they complied with the professional standards requirements.64
Although the laws and regulations of certain law societies allow lawyers to state that they are specialists or experts when certified, no means for obtaining certification have been put in place. This is the case in Alberta and Quebec.65 In New Brunswick, although the Law Society Act specifies that the law society rules may designate specialized areas of practice and set out how and under what conditions members may present themselves as preferring or limiting their practice to one area, no such rules have been adopted.66
The FLSC stated in its consultation submission that the constraints on members of the legal profession from presenting themselves as specialists are “intended to ensure that potential clients are accurately informed about the skills and knowledge of a particular practitioner.”67 However, such restrictions also reduce the quantity and quality of information available to the public and prevent consumers from being able to identify the most competent lawyers in a given field. The Bureau is of the view that allowing the designation of specialists through a recognized certification program, similar to that offered by the Law Society of Upper Canada, will ensure information about lawyers’ skills and knowledge is accurate. Such a designation may help members of the public choose lawyers that best suit their needs and assure that the public has access to a certain calibre of lawyers who meet specific requirements. Such a designation contrasts favourably with lawyers simply stating preferred areas of practice, which provides no indication of the quality of their services.
63 Law Society of Saskatchewan, Rules of the Law Society of Saskatchewan, r. 1615(1), 1615(3). 64 Law Society of Upper Canada, “About the Program,” http://mrc.lsuc.on.ca/jsp/csp/index.jsp. 65 Law Society of Alberta, Code of Professional Conduct, c. 5, r. 5; Quebec Professional Code, R.S.Q., c. C26, s. 58. 66 Law Society Act, 1996, S.N.B. 1996, c. 89, s. 17(2)(u), 17(2)(v). 67 FLSC, consultation submission, June 11, 2007.
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Recommendation Law societies should evaluate the possibility of adopting a specialist certification program similar to that in Ontario. Alternatively, law societies could consider allowing members to be identified as leading practitioners in publications that rely on data from independent parties approved by the law societies’ ethics committee, as is the case in Saskatchewan.
Comparative advertising Lawyers in Alberta, British Columbia, New Brunswick, Ontario and Saskatchewan may not, in their advertisements, compare their fees to those of other lawyers.68 In addition, lawyers in Alberta, British Columbia, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island and Saskatchewan are not permitted, in advertisements, to compare the quality of their services to those of other lawyers.69
In most instances, lawyers may not state or imply any qualitative superiority over other lawyers, although the regulations do not explicitly state that lawyers are proscribed from using comparative advertising (in Manitoba and Nova Scotia, for example).70 In its chapter on advertising, the Law Society of Alberta’s Code of Professional Conduct states that lawyers’ advertisements must, among other things, be verifiable: “an advertisement that states or implies qualitative superiority to another firm or lawyer is generally unacceptable, because it cannot be verified according to any objective, widely-held standard.”71
In Yukon, the regulation takes a more general form, prohibiting lawyers from referring to the quality of the services they provide, regardless of whether the advertisements are comparative or claiming superiority.72
Comparative advertising fosters price competition by allowing prospective clients to compare fees. When consumers cannot compare the prices for legal services, there is little or no incentive for lawyers to compete on price, thereby raising the costs to consumers. Additionally, such restrictions hinder competition between lawyers and make it particularly difficult for new lawyers to advertise their entry and distinguish their services from those of their competitors.
68 Law Society of Alberta, Code of Professional Conduct, c. 5, r. 6(d); Law Society of British Columbia, Professional Conduct Handbook, c. 14, r. 12c; Law Society of New Brunswick, Code of Professional Conduct, c. 16, commentary 4f); Law Society of Upper Canada, Rules of Professional Conduct, r. 3.04(1)c); Law Society of Saskatchewan, Rules of the Law Society of Saskatchewan, r. 1611(1)(c). 69 Law Society of Alberta, Code of Professional Conduct, c. 5, R.1, C.1a); Law Society of British Columbia, Professional Conduct Handbook, c. 14, r. 5d; Law Society of New Brunswick, Code of Professional Conduct, c. 16, commentary 4e); Law Society of Newfoundland and Labrador, Rules of the Law Society of Newfoundland and Labrador, r. 8.05(1)(a); Nova Scotia: Regulations made pursuant to the Legal Profession Act, r. 7.6.3; Law Society of Upper Canada, Rules of Professional Conduct, r. 3.04(1)c); Law Society of Prince Edward Island, Regulations of the Law Society of Prince Edward Island, s. 38(3)(b); Law Society of Saskatchewan, Rules of the Law Society of Saskatchewan, r. 1602 (d). 70 Law Society of Manitoba, Rules of the Law Society, r. 5-114(1), and Code of Professional Conduct, c. 14, r. 7; Nova Scotia: Regulations made pursuant to the Legal Profession Act, r. 7.6.3. 71 Law Society of Alberta, Code of Professional Conduct, c. 5, R1, C1(a). 72 Nova Scotia: Regulations made pursuant to the Legal Profession Act, r. 7.6.3; Law Society of Yukon, Rules of the Law Society of Yukon, r. 193.
74 108 Lawyers
Recommendation Law societies should abolish prohibitions on comparative advertising of verifiable factors, such as price.
Pricing and compensation Every provincial and territorial law society has a section in its code of professional conduct that describes the rules concerning fees. Some have adopted the Canadian Bar Association’s code in its entirety; others have adopted it with slight variations.
Lawyers may not charge or accept any fee that is not fully disclosed, fair and reasonable. The CBA code lists several factors to consider when determining a fair and reasonable fee, namely the time, effort and skill required, customary charges for similar work, the exposure and risk to the client in criminal cases, and any prior relevant agreements made between the client and lawyer. Disciplinary action may be taken against lawyers who cannot justify their fees as being fair and reasonable.73 New Brunswick’s code further clarifies that fees should not entirely depend on the outcome of the case or the hours spent on the case.74 Clients who do not believe their lawyers’ fees to be reasonable can request an independent review of them by the courts.
The restrictions appear reasonable and do not raise any competition concerns. However, there are some that seem overly restrictive, as follows.
According to the FLSC, none of the law societies has adopted suggested fee schedules.75 However, under Quebec’s Professional Code, the General Council of the Barreau du Québec, which governs the Quebec Bar, “may, in particular, by resolution […] suggest a tariff of professional fees that the members of the order may apply in respect of the professional services they render.”76
The presence of suggested fees may create an opportunity for price fixing, which is contrary to the principles of competition. As a result of the suggested fees, lawyers may set prices higher than they otherwise would. The quality of legal services may decrease, since professionals who have fixed prices likely have little or no incentive to improve the quality of their services.
Recommendation The Quebec legislature should consider repealing the provision of the Professional Code that gives professions the right to suggest a tariff of professional fees that the members may apply.
73 Canadian Bar Association, Code of Professional Conduct, c. XI, Commentary 1. 74 Law Society of New Brunswick, Code of Professional Conduct, c. 9, Commentary 2)(c)i). 75 FLSC, questionnaire response, question 5.1, January 18, 2007. 76 Professional Code, R.S.Q., c. C-26, s. 86.01(12). The Professional Code is the parent legislation governing the Quebec professional system. In consequence, the Bureau’s recommendation that follows applies to all professionals, not only lawyers and notaries, including pharmacists, accountants and optometrists, which other chapters of this study cover.
75 109 Self-regulated professions: Balancing competition and regulation
Contingency fee agreements are generally acceptable as long as they remain fair and reasonable, and respect any other condition the law societies have established.77 Some jurisdictions have restricted the areas of practice in which contingency fees may be used. For example, Yukon prohibits lawyers from entering into contingency fee agreements when the services provided relate to matrimonial causes, the property of people under legal disability or the distribution of estates.78 In Ontario, lawyers may not enter into contingency fee agreements for criminal or quasi-criminal proceedings or for family law matters.79 Other law societies void agreements in certain areas of the law unless the courts approve the agreements: this is the case, for instance, in British Columbia, New Brunswick and Saskatchewan.80
Since contingency fee agreements attach a lawyer’s remuneration to the outcome of a case, they may provide lawyers with incentive to act in their clients’ best interests. Furthermore, contingency fee agreements render the justice system more accessible for those who are unable to access it due to financial limitations.
Recommendation Law societies should identify the goals of the restrictions on contingency fees in certain practice areas, and then determine whether the restrictions are the best means of achieving the desired goals, considering that other law societies have not deemed such restrictions necessary.
Two law societies have set maximums for the remuneration lawyers are entitled to receive under contingency fee agreements. In British Columbia, this maximum is 33.3 percent of the amount the plaintiff recovers for a claim for personal injury or wrongful death arising out of the operation of a motor vehicle. The maximum remuneration for any other type of claim for personal injury or wrongful death is 40 percent.81 In New Brunswick, a reviewing officer must approve agreements that set the contingency fees at more than 25 percent of the amount recovered.82
The Bureau recognizes that restrictions on the maximum percentage that lawyers may demand under contingency fee agreements have been put into place to protect consumers. However, a maximum percentage has the potential to be anti-competitive when it is set at a supra-competitive level and serves as a focal point towards which lawyers will move, creating an inviting opportunity for tacit collusion.
Recommendation The law societies of British Columbia and New Brunswick should consider eliminating the maximum percentage to which lawyers are entitled under contingency fee agreements. The appropriate fee structure should be left to market forces to determine.
77 A contingency fee agreement is an agreement between a lawyer and a client whereby a lawyer is only paid when there the legal matter concludes successfully for the lawyer’s client. The fee is based on a percentage of the award. 78 Legal Profession Act, R.S.Y. 2004, c. 134, s. 68(3). 79 Solicitors Act, R.S.O. 1990, c. S.15, s. 28.1(3). 80 British Columbia, Legal Profession Act, S.B.C. 1998, c. 9, s. 67(5); New Brunswick, Law Society Act, 1996, S.N.B. 1996, c. 89, s. 83(5); Law Society of Saskatchewan, Rules of the Law Society of Saskatchewan, r. 1502(b). 81 Law Society of British Columbia, Rules of the Law Society of British Columbia, r. 8-2. 82 Law Society of New Brunswick, Contingent Fee Rules, r. 2(1).
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Business structure All law societies, apart from the Law Society of Upper Canada and the Barreau du Québec, have made multidisciplinary practices unfeasible by prohibiting lawyers from splitting, sharing or dividing clients’ fee with anyone other than other lawyers.83 Furthermore, lawyers are not allowed to enter into any arrangement whereby non-lawyers share in the fees or revenues generated by the practice of law.84
In Ontario, upon receiving approval from the Law Society of Upper Canada, lawyers may form multidisciplinary practices with individuals who are not members of the Law Society. The individuals must be of good character and practise professions, trades or occupations that support or supplement the practice of law. Lawyers must maintain effective control over the individuals’ practice by ensuring, in particular, that they comply with the law society’s regulations and practise with the appropriate level of skill, judgment and competence.85 A member of the Law Society must maintain professional liability insurance coverage for the individual.86 In Quebec, lawyers may only share fees with members of the bar, other professional orders or professions listed in Schedule A of the Regulation respecting the practice of the profession of advocate within a limited liability partnership or joint-stock company and in multidisciplinarity or persons that are a partnership or joint-stock company within which they are authorized to engage in their professional activities.87
Many law societies specify that law corporations must not carry on any activities other than providing legal services or services directly associated with providing legal services (see, for example, British Columbia, Manitoba, New Brunswick).88
In Saskatchewan, lawyers “may share premises, facilities and staff with a person who is not a member of the Society, provided that the non-member’s reputation or activities do not jeopardize the integrity of the profession, that the business of the member and non- member are kept entirely separate, and that clients of the member are not confused as to the person with whom they are dealing.”89
Multidisciplinary practices translate into cost efficiencies and increased consumer choice and convenience. Restricting this form of business structure may cause harm to consumers, since they cannot take advantage of the numerous benefits of a one-stop- shop. The Law Society of Upper Canada and the Barreau du Québec, by allowing
83 See, for example, Law Society of British Columbia, Professional Code Handbook, c. 9, r. 6, and Law Society of Manitoba, Code of Professional Conduct, c. 11, C10. 84 See, for example, Nova Scotia Barristers’ Society, Legal Ethics and Professional Conduct Handbook, r. 12.10, and Law Society of Saskatchewan, Code of Professional Conduct, c. 11, C9. 85 Conditions that must be satisfied in order for a member of the Law Society to be able to enter into a multidisciplinary partnership with an individual who is not a member are set out in Law Society of Upper Canada, By-law 7, s. 18(2). 86 Law Society of Upper Canada, ibid, s. 30(2). 87 Code of ethics of advocates, s. 3.05.14. In section 1 of the Professional Code, a professional order is defined as any professional order listed in Schedule I of the Code or constituted in accordance with the Code. Schedule A of the Regulation lists other persons authorized to engage in professional activities within a limited liability partnership or joint stock company: contributors of the Chambre de l’assurance de dommages; contributors of the Chambre de la sécurité financière; members in good standing of a law society constituted outside Quebec; patent agents registered with the Commissioner of Patents under the Patent Act; and members in good standing of the Canadian Institute of Actuaries. 88 British Columbia, Legal Profession Act, S.B.C. 1998, c. 9, s. 81(4); Manitoba, Legal Profession Act, C.C.S.M. c. L107, s. 33(3); New Brunswick, Law Society Act, 1996, S.N.B. 1996, c. 89, s. 37(8). 89 Law Society of Saskatchewan, Rules of the Law Society of Saskatchewan, r. 1616.
77 111 Self-regulated professions: Balancing competition and regulation multidisciplinary practices, have demonstrated the feasibility of such structures. That they do allow multidisciplinary practices is evidence in itself that other law societies should reconsider the cost-benefit analysis of their restrictions on multidisciplinary practices.
Recommendation Law societies should consider less intrusive mechanisms than prohibiting multidisciplinary practices to circumvent possible conflicts of interests. Examples to follow are those of the Law Society of Upper Canada and the Barreau du Québec, both of which allow lawyers to form partnerships with non-lawyers, under certain conditions and appropriate regulation.
Recommendation In order to allow for multidisciplinary practices, law societies will have to remove restrictions that currently prohibit or discourage lawyers from working in multidisciplinary arrangements with other professionals. Instead, they should allow the following:
• lawyers to split, share or divide clients’ fees with non-lawyers; • lawyers to enter into arrangements with non-lawyers regarding sharing fees or revenues generated by the practice of law; and • law corporations to carry on activities other than providing legal services or services directly associated with providing legal services.
Recommendation Law societies wishing to take a more conservative approach should consider allowing lawyers, under specific conditions, to share premises, facilities and staff with non- lawyers, as is the case in Saskatchewan.
Conclusion Law societies must assess, from a competition standpoint, the costs and benefits of the various types of restrictions they impose. Many of the restrictions currently in place have the effect of raising costs to consumers.
The most evident of these restrictions are those on overlapping services and scope of practice, which prohibit low-cost providers from offering certain legal services. However, costs to consumers may also be increased indirectly though restrictions on conduct. For example, many existing advertising restrictions go above and beyond simple prohibitions of false, misleading and deceptive advertising. This effectively limits the innovative means by which lawyers may advertise and reduces the information advertisements contain.
Maximum pricing restrictions on contingency fee agreements may also raise costs for consumers, since they potentially create an inviting opportunity for tacit collusion. When restrictions set maximum prices higher than the competitive level, they serve as a focal point for lawyers when pricing their services.
78 112 Lawyers
As for multidisciplinary practices, their prohibition deprives consumers of the cost efficiencies and convenience of purchasing a number of services from one firm.
With increasing legal fees, access to justice in Canada is a genuine concern. Escalating legal costs will mean that only the very wealthy will be able to afford legal assistance. As the Right Honourable Beverley McLachlin, Chief Justice of the Supreme Court, said in a speech she gave to the Empire Club of Canada on March 8, 2007,
Many Canadian men and women find themselves unable, mainly for financial reasons, to access the Canadian justice system. Some of them decide to become their own lawyer. Our courtrooms today are filled with litigants who are not represented by counsel, trying to navigate the sometime complex demands of law and procedure. Others simply give up.
Although legal aid may offer a solution to some, qualifying for it is very difficult, which leaves a large group of people without the financial means to seek legal assistance. Because of the inaccessibility of the legal system, it is of vital importance that consumers not incur avoidable costs resulting from overly restrictive regulation.
79 113 Appendix "F"
September 28, 2016
THE LAW SOCIETY OF UPPER CANADA 130 Queen Street West Toronto, ON M5H 2N6
Attention: Juda Strawczynski [email protected]
Dear Mr. Strawczynski:
Re: Advertising and Fee Issues Working Group, Call for Input
The Law Society of Upper Canada’s Advertising and Fee Issues Working Group is seeking input from the profession. (Ref. https://www.lsuc.on.ca/advertising-fee-arrangements/) Canadian Defence Lawyers (CDL) is pleased to offer the following input.
WHO WE ARE
CDL is an association of civil defence litigation lawyers with members in all Canadian provinces and territories. We speak for a membership of over 1,400 lawyers across Canada. CDL is affiliated with the Defense Research Institute, a U.S. association of defence lawyers boasting over 22,000 members. For the most part, our members’ clients are corporations, including but not limited to insurers, self-insured companies and reciprocal defence associations. Through a Joint Education Committee and Roundtable Committee, CDL has a privileged leadership role in sharing insurance industry information, claims practices and education with the Canadian Insurance Claims Managers Association and the Canadian Independent Insurance Adjusters Association.
Our members in private practice are not precluded from acting for personal injury clients, but none of our members are under the commercial pressures of a volume plaintiff personal injury practice. Perhaps because of the defence practice, our members in centres across Canada are courted for referrals from plaintiff injury firms. Indeed, CDL cooperates extensively with its main plaintiff counterpart, the Ontario Trial Lawyers Association (OTLA). To its knowledge, CDL does not believe any of its members operate as a business model a referral-fee based practice.
CDL members can therefore provide a unique perspective on these emergent regulatory issues concerning the consumer protection, because they generally act for the adversaries of the consumers of Canadian Defence Lawyers Suite 3425, 130 Adelaide St W, Toronto ON M5H 3P5 416.340.9859 www.cdlawyers.org 114 personal injury law. Lawyers practising in the area of civil defence litigation are usually acting for sophisticated consumers of legal services. The objective view from across the negotiating table, tribunal hearing room or the courtroom is seldom articulated to members of the plaintiff bar or to the regulator, because of the confidential and closed nature of the institutional defence retainer. The Public will not see CDL members holding scrums for TV reporters at the court house steps publicizing how little their clients had to pay out to someone injured in an accident, or advertising on talk radio stations expressing empathy for their corporate clients. Defence lawyers’ mandate is to contain and reduce claims and litigation, not to encourage demand in the legal market or seek publicity. Our members do not sell litigation, but rather an end to litigation.
Despite the adversarial role our members play in relation to plaintiff personal injury lawyers, CDL members are proud to foster lasting collegial relationships with their plaintiff counterparts as part of striving for just and fair results for the clients of CDL members. The commercial aspects of retail personal injury law do have an impact on our members’ ability to work on litigation efficiently and to settle claims based on objective, evidence-based norms and standards. CDL members are therefore aware of the impact that the commercialization of retail practice has on the legal process.
CDL RESPONSE
CDL’s response to the Law Society’s Questions for Consideration are as follows:
1. Advertising and fees in real estate law.
CDL does not express an opinion on this subject.
2. Contingency Fees
In consulting with our membership, we asked the following questions, with a view to obtaining answers that deal with the topics raised by the Law Society:
How can contingent fee structures, including the total costs associated with contingent fees be made more transparent to consumers at the outset? Should lawyers and paralegals typically operating on contingency fee arrangements be required to disclose their standard arrangements, including their usual contingent rates and arrangements with respect to disbursements on their websites? How is the Solicitors Act operating in practice?
The CDL members responding to our survey voiced the need for greater standardization and transparency, while at the same time respecting solicitor-client confidentiality. One member pointed out that it was not long ago that the Law Society was sanctioning retail law firms for posting their fees for standard services. Indeed, previous strict limits on advertising until late in the 20th century were a paternalistic way of protecting an unsophisticated public from hiring lawyers based on their own ideas of what they wanted in a lawyer. In fact, the limits protected
Canadian Defence Lawyers Suite 3425, 130 Adelaide St W, Toronto ON M5H 3P5 416.340.9859 www.cdlawyers.org 115 traditional referral networks (“I’ll scratch your back …”) and prevented new lawyers, especially women and those from diverse and racialized backgrounds, from directly marketing their expertise to the public. These arguments are part of the historical debate, and there is no need to revisit the basic concept that lawyers should be allowed to advertise as part of the mandate to inform the public about their rights. The right to advertise is a constitutionally protected form of speech, and there is no turning back that clock.
New Brunswick is a jurisdiction in which a standard-form contingency fee agreement has been adopted by the law society. The diversity of cases as well as the established experience with contingency fees in Ontario would likely make a mandatory agreement cause more difficulties than the problems it would solve. Nevertheless, coming at the problem from the consumer perspective, there is a need to overcome a general lack of public understanding of how contingency fee arrangements are regulated under the arcane legalese of the Solicitors Act requirements.
Given that the plaintiff bar has employed widespread conventional formulae for engaging with the defence bar on settlements, there is no reason why the Law Society cannot impose minimum expectations for contingency fee arrangements, in order to level the bargaining positions between clients and law firms when negotiating a retainer. The Law Society can also provide explanatory public information in the form of website information and brochures for use in law offices. This is the type of effort needed to restore public confidence in the balance between the commercial interests of lawyers and the ethical obligations created by lawyers contracting with vulnerable parties.
CDL has watched with interest the class proceedings in Hodge v. Neinstein, where the issue is the ability under s. 28.1 of the Solicitors Act of a lawyer to collect costs in addition to a contingency fee, without prior approval of the court. CDL members have pointed out three (perhaps dissociated) problems with this provision in the Act as currently formulated:
o The requirement for prior judicial approval interferes with the freedom of contract and creates a disincentive for lawyers to work on and advance personal injury claims where liability may be strongly disputed but damages are likely modest. In such instances, the ability to recover a contingency plus partial indemnity costs would reflect fair remuneration for the lawyer’s efforts and allow access to justice for accident clients who do not have permanent or catastrophic injuries. The potential for abuse can be accomplished by reversing the onus from the solicitor to the client, to complain to the court as opposed to requiring prior court approval.
o If costs are paid to the lawyer in addition to the percentage of recovery, the practice offends the indemnity principle of court-awarded costs and thus artificially drives up the settlement value of every claim in which there is a contingency fee arrangement. Claimants and lawyers are encouraged to inflate damage assessments, to employ future
Canadian Defence Lawyers Suite 3425, 130 Adelaide St W, Toronto ON M5H 3P5 416.340.9859 www.cdlawyers.org 116 care and other damage assessors with an incentive to facilitate inflated claims, and to delay the resolution of claims until after lengthy and costly examinations for discovery.
o There appears to be no consistent standard on the recovery on which the contingency fee is calculated. Is the rate to be applied to damages and interest only, or is it applied to damages, interest and costs? Whatever solicitors and clients bargain for, the result must be fair and reflect the indemnity principle of costs.
These problems also involve potential conflicts of interest between the lawyer and client between the economic interest of lawyers and their clients’ interest in obtaining fair and prompt settlement of claims. Although the responses from our members are, on the surface, contradictory in some respects, they can be reconciled if the unifying law reform goal is to allow solicitors to be paid for their effort in bringing modest claims, without causing inflation of more significant ones. Most likely, the use of a plain-language and standard contract template with multiple options would allow lawyers to adapt permissible contingency fee arrangements to allow modest but meritorious cases to be advanced, while not distorting the economic incentives in the case of cases involving catastrophic damages.
3. Personal Injury Advertising
In consulting with our membership, we asked the following questions, with a view to obtaining answers that deal with the topics raised by the Law Society:
Personal Injury Advertising: Where a significant portion of the revenue generated by advertising is from referral fees, should the advertiser be required to advertise on that basis, making it perfectly clear that the advertiser may not itself provide the legal services and in such a case may refer clients to others for a fee? In the alternative, should advertising for the purpose of obtaining work to be referred to others in exchange for a referral fee simply be banned?
Advertising second opinion services: Do current requirements balance consumer rights with maintaining professionalism around providing second opinions? If not, should the provider of the second opinion who advertises or markets “second opinion” services be prohibited from taking on the cases where a second opinion is given?
Much of the law firm advertising in major centres is geared toward name recognition, not public legal education about their right to pursue compensation from tortfeasors. Indeed, “victims” are often encouraged to sue despite the absence of a legal cause of action against any defendant. It is for this reason that most advertising in public spaces is purchased by personal injury firms and referral firms: to create demand for legal services, not simply to inform the public that legal services are available. Much of it is presented in poor taste. However, regulation of taste has always been fraught with many perils, not the least of which is the wide latitude for commercial speech protected by s. 2(b) of the Charter. Anecdotally, CDL members are aware of concerns among their plaintiff counterparts that questionable advertising by law Canadian Defence Lawyers Suite 3425, 130 Adelaide St W, Toronto ON M5H 3P5 416.340.9859 www.cdlawyers.org 117 firms may have the effect of lessening the credibility of lawyers appearing before juries. Most likely, it would be a waste of revenue from members’ levies to police good taste if the plaintiff bar regulates itself through these corrective “market” effects.
CDL members surveyed did express considerable concern over the ethical dimension of advertising by referral or injury brokerage firms. Many were of the view that such advertising should be banned outright, as opposed to regulating the practice. Others expressed the view that the practice should be permitted, provided the public is made aware in a clear manner that the sponsor of the advertising will be making a referral for a fee. The rationale behind the calls for a ban is that of bait and switch, an unlawful commercial practice under competition and consumer protection law. Bait and switch is a concept members of the public readily understand. That lawyers seem to be allowed to get away with a breach of consumer law derogates from the public image of lawyers.
This discomfort would be mitigated if advertisers were required to be clearer in stating their role in the legal marketplace. Transparency would also have the effect of encouraging lawyers to whom referrals are made to establish at least a minimum level of relationship-building and empathy with their clients, as opposed to the impersonal commoditized relationship between a service provider and a referred customer. A personal injury law suit is not like installing a pre-fab kitchen or a ride to the airport. It should not be a commodity, but rather a legal proceeding dealing with people when they are most vulnerable. The reason this is of importance to CDL members is that defence counsel need to engage with their counterparts with some level of confidence that personal injury plaintiffs have some reasonable expectations of possible outcomes of the legal process for the purpose of pretrial disclosure and settlement.
CDL is concerned about advertising for second opinion services in the personal injury field. There is no evidence that consumers of legal services are unaware of their right to consult another lawyer if they are unsure whether their current lawyer is advising or representing them in the best way. Our members voiced the opinion that it appears unethical for lawyers to advertise legal services on the basis of seeding dissatisfaction with clients’ current lawyers. If the Law Society were to restrict advertising of such services on that basis and charge a fee for that service but should not be able to take on the case in which they have given an opinion. Nor should the Law Society permit lawyers to accept a referral fee after a second opinion prompts the client to seek a referral to different counsel.
4. Identification of Type of Licence
The following response has also been informed by responses to the questions posed in Topic #3: Protection of the public means the elimination of confusion in the legal marketplace. Not only should paralegals identify themselves as such, they should avoid confusing words such as ‘Law Office,’ ‘licensed to provide legal services,’ and the like. Canadian Defence Lawyers Suite 3425, 130 Adelaide St W, Toronto ON M5H 3P5 416.340.9859 www.cdlawyers.org 118 In the personal injury field, there is potential for conflict of interest or disservice where clients might be short-changed into pursuing a smaller claim within the Small Claims jurisdiction when their injuries might in fact require an action in the Superior Court.
5. Use of Awards
The following response has also been informed by responses to the questions posed in Topic #3:
Awards recognizing legal excellence should never be available for sale or tied to the purchase of advertising. The Law Society should investigate the market in questionable awards, not only in personal injury but throughout the legal profession.
CDL itself confers two awards on deserving members:
The Lee Samis Award of Excellence is CDL’s award for distinguished service, named after the founding President of CDL. It recognizes exceptional contributions and/or achievements by members of CDL for contribution to the legal profession, Canadian jurisprudence and law reform, and benefits to the association and/or the insurance industry.
The Richard B. Lindsay Q.C. Exceptional Young Lawyer Award is named in honour of a Past President of CDL. The award recognizes exceptional contributions by a Young Lawyer member of CDL based on published criteria similar to those governing the Lee Samis Award, but for young members.
The purpose of these awards is to recognize and encourage a career based on lifelong service, collegiality and excellence. Commercial concerns to not play a factor in selection. Given the fact that defence lawyers are often called on to take positions that are not popular, there is no element of “people’s choice” or questionable public input based on “likes.”
For its part, OTLA confers various awards on members and holds an annual event to celebrate the accomplishments of both plaintiff and defence lawyers (https://www.otla.com/index.cfm?pg=AwardsAndHonours). While it is possible some of the recipients of recognition from OTLA are also recipients of tabloid advertising awards or ‘rate my lawyer’ websites, the lists of recipients do not appear to name lawyers or firms whose advertising appears in public spaces associated with the words ‘Top Rated’ or similar expressions.
There appears to be a disconnect between lawyers actually recognized through real committees of peers, and the lawyers and firms promoting themselves as being highly rated or achieving the Canadian Defence Lawyers Suite 3425, 130 Adelaide St W, Toronto ON M5H 3P5 416.340.9859 www.cdlawyers.org 119 best results. If there were not such a divergence between actual deserving lawyers and those advertising themselves as deserving, there would be no need for the Law Society to scrutinize this area of lawyer and law firm advertising. However, this divergence does appear to exist and constitutes a potential harm to the public in diverting consumer choices toward firms boasting about successes and away from those actually achieving them while maintaining a threshold level of professionalism.
6. Referral Fees
The following response has also been informed by responses to the questions posed in Topic #3:
The practice of referral fees remains controversial because it is a safety valve against lawyers holding on to files in which they are out of their depth. CDL members surveyed identified the potential for members of the public to feel deceived if the arrangement is not properly informed of referral fees. Some have recommended putting an end to the practice, while others voiced the view that percentages should be capped.
In order to maintain referral fees for the beneficial purpose they serve, without eroding further public confidence in the provision of legal services in the personal injury sector, the Law Society should require greater information and transparency. Negative public perceptions of professions arise from the notion that someone might be making a secret profit out of a transaction. If there is an active expectation on the part of the referring lawyer, the onus should be placed not only on the lawyer receiving the referral but on the referring lawyer to explain to the client that the referral may result in a financial reward to the referring lawyer, without increasing the overall fee. This type of sharing of information would be seen as invoking a higher level of professional integrity than among realtors, interior designers, and other sectors where referral fees are common but rarely disclosed. The Law Society should also consider caps, either on the rate or the total amount, or some combination of both. This way, the referral fee would compensate the referring lawyer for the commercial value of the referral and the work that goes into a pre-retainer interview, but not more.
Respectfully,
David W. Festeryga President, Canadian Defence Lawyers
Compiled and prepared by: R. Lee Akazaki Board Member, Canadian Defence Lawyers
Canadian Defence Lawyers Suite 3425, 130 Adelaide St W, Toronto ON M5H 3P5 416.340.9859 www.cdlawyers.org 120 Appendix "G" Convocation - Professional Regulation Committee Report
Tab 4.6 FOR INFORMATION
FIFTH REPORT OF THE ADVERTISING & FEE ARRANGMENTS ISSUES WORKING GROUP
SUMMARY OF THE ISSUE UNDER CONSIDERATION
143. In this fifth report to Convocation, the Advertising and Fee Arrangements Issues Working Group ("Working Group")1 is providing this status report on its work to date and proposed next steps with respect to its review of contingency fees.
144. As described further in this report, the Working Group has received a great deal of information regarding the current operation of contingency fees. Contingency fees remain an important means of facilitating access to justice for individuals who have legal claims and rights which they may otherwise be unable to advance. However, the Working Group has observed significant issues in the current operation of Ontario's contingency fee regime.
145. The Working Group is concerned that there appears to have been widespread noncompliance with the current regulatory requirements governing Ontario's contingency fee regime. Lawyers and paralegals are expected to adhere to the current requirements.
146. The Working Group is also of the view that change is necessary in order to protect
consumers.
147. The Working Group recommends requiring a mandatory standard form contingency fee agreement to facilitate client understanding of contingency fee agreements ("CFAs") and facilitate comparison of the cost of legal services being offered.
148. The Working Group is also considering recommendations for reforms to the Solicitors Act, R.S.O. 1990, c. S.15 (" Solicitors Act') to ensure that fees are clear, fair and reasonable. It is currently considering a series of related recommendations, comprised of the following:
1 The Advertising & Fee Arrangements Issues Working Group ("Working Group") is providing this interim report on its work. Since it was established in February 2016, the Working Group has been studying current advertising, referral fee and contingency fee practices in a range of practice settings, including real estate, personal injury, criminal law and paralegal practices, to determine whether any regulatory responses are required with respect to them. The history of the Working Group can be found on the Law Society's website at https://www.lsuc.on.ca/advertisina -fee-arrangements/. The Working Group is chaired by Malcolm Mercer. Working Group members include Jack Braithwaite, Paul Cooper, Jacqueline Horvat, Michael Lerner, Marian Lippa, Virginia Maclean, Jan Richardson, Jonathan Rosenthal, Andrew Spurgeon and Jerry Udell. Benchers Robert Burd and Carol Hartman served on the Working Group until August, 2016.
1
121 227 Convocation - Professional Regulation Committee Report
a. Requesting that amendments be made to the Solicitors Act to require that contingency fees be calculated as a percentage of the all-inclusive settlement amount or all-inclusive amount awarded at trial, less disbursements. This method simplifies the calculation of fees and aligns the interests of clients and licensees. It would replace the current provision that the fee is based on a percentage of the total settlement amounts less recovery on account of disbursements and legal costs, which is difficult to calculate in practice for reasons explained further in the report, and which creates inherent conflicts between the licensee's interest and the client's interest.2
b. At the same time, introduce safeguards to ensure that costs are clear, fair and reasonable. The Working Group is considering a range of approaches, including:
i. A limit on fees by a percentage cap or other means;
ii. Requiring independent legal advice be provided to a client in certain situations before the fee is paid; and
iii. Introducing new client reporting requirements to ensure that fees are fair and reasonable.
149. With the agreement of the Committee, the Working Group proposes to seek further input with respect to reforms to Ontario's contingency fees system. Input will be accepted until Friday, September 29, 201 7. The Working Group will then review the feedback it received before returning to Convocation with its recommendations.
BACKGROUND
150. Contingency fee agreements provide that the lawyer or paralegal's fee is "contingent, in whole or in part, on the successful disposition or completion of the matter for which the services are to be provided."3
151. The Working Group has been considering contingency fee issues since it was established in February 2016. It held a series of meetings in spring 2016 with plaintiff and defence side personal injury lawyers.
152. In June 2016 the Working Group reported on these meetings, and presented its initial findings with respect to contingency fees to Convocation ("June 2016 Report to Convocation").4
2 The Working Group continues to consider approaches to ensure that there is access to justice in cases where there is a high likelihood of requiring a trial, but where legal fees under the proposed general approach may not be sufficient for the licensee to take the case to trial.
3 Rules of Professional Conduct, Rule 3.6-2 and Paralegal Rules of Conduct, Rule 5.01(7).
4 The June 2016 Report to Convocation can also be found online at https://www.lsuc.on.ca/advertising- fee-arrangements/.
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153. In July 2016, the Working Group sought further input through a Call for Feedback, and at that time asked the following with respect to contingent fees:
a. How can contingent fee structures, including the total costs associated with contingent fees be made more transparent to consumers at the outset?
b. Should lawyers and paralegals typically operating on contingency fee arrangements be required to disclose their standard arrangements, including their usual contingent rates and arrangements with respect to disbursements on their websites?
c. How is the Solicitors Act operating in practice?5
154. The Call for Feedback closed at the end of September 2016. In its February 2017 Report to Convocation, the Working Group attached a summary of the feedback it received ("Summary"), attached as Tab 4.6.1 ,6 As the Summary notes, the Working Group received comments from nearly 60 individuals and 20 organizations, including legal organizations, a consumer group and insurers.7 The Working Group again thanks all those who responded to its first Call for Input.
155. In addition to considering the feedback it received directly in 2016, the Working Group has also taken into account recent developments, including the following:
a. Two private members' bills which were introduced in the legislature in fall 2016 and in winter 2017, both of which, among other matters, recommended capping contingency fees with respect to motor vehicle actions at 15% and 33% respectively. 8
5 Call for Feedback: Advertising and Fee Arrangements, online at http://www-lsuc.on.ca/uploadedFiles/Fact-Sheet-Ad~and-Fee-Consultation-EN-Julv-2016.odf-
6 Summary of Feedback Received in Response to the Advertising and Fee Issues Working Group July 2016 Call for Feedback ("Summary"), February 2017 Convocation - Professional Regulation Committee Report, pages 119-136, online at: www.lsuc.on.ca/uoioadedFiles/For the Public/About the Law Society/Convocation Decisions/2017/201 7-Feb-Convocation-Professional-ReQulation-Committee-RePort.pdf.
7 Summary, at para. 2.
8 Bill 103, Personal Injury and Accident Victims Protection Act, 2017, introduced March 8, 2017 by Mike Colle, MPP, Legislative Assembly of Ontario online at: www.ontla.on.ca/web/bills/bills detail.do?locaie=en&lntranet=&BilllD=4614; Bill 12, Protection for Motor Vehicle Accident Victims and Other Consumers from Unfair Legal Practices Act, 2016, introduced September 14, 2016 by Tim Hudak, MPP, Legislative Assembly of Ontario online at www.ontla.on. ca/web/bills/bills detail.do?locale=en&lntranet=&BilllD=4123.
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b. The Insurance Bureau of Canada's report, A Study of the Costs of Legal Services in Personal Injury Litigation in Ontario, by Professor Allan C. Hutchinson ("Hutchinson Study").9
c. The report Fair Benefits Fairly Delivered, prepared by David Marshall, Ontario's advisor on auto insurance (the "Marshall Report").10
d. Recent cases addressing contingency fee costs, where there have been findings that fees were unreasonable and, in some cases, where the Court found that the lawyer violated s. 28. 1(8) of the Solicitors Act by including costs obtained as part of settlement as part of the lawyer's fee, without first obtaining approval of a judge of the Superior Court of Justice.11
e. The Court of Appeal for Ontario's decision in Hodge v. Neinstein, released June 15, 201 7.12
156. The Working Group has also considered academic articles and media reports, and has reviewed the operation of various types of contingency fee models in other jurisdictions, particularly in the United States, England & Wales and Australia.
157. This report provides the Working Group's analysis, preliminary recommendations and proposed next steps regarding its review of the current operation of contingency fees in Ontario other than in class actions.13
9 Allan C. Hutchinson, "A Study of the Costs of Legal Services in Personal Injury Litigation in Ontario" Final Report ("Hutchinson Study"), Insurance Bureau of Canada, online at: http://assets.ibc.ca/Documents/Studies/Studv-of-the-Costs-of-Leaal-Services-in-Personal-lniurv-LitiQation- Allan-C-Hutchinson.pdf.
10 David Marshall, Fair Benefits Fairly Delivered, A Review of the Auto Insurance System in Ontario, Final Report, April 1 1 , 201 7, online at http://www.fin.qov.on.ca/en/autoinsurance/fair-benefits.html.
11 For example: Batalla v. St Michael's Hospital, 2016 ONSC 1 51 3 (CanLII), online: http://canlii.ca/t/qng6b: Edwards v Camp Kennebec (Frontenac) (1979) Inc., 2016 ONSC 2501 (CanLII), online: htto://canlii,ca/t/gpfzs: Hosseini v Anthony, 2016 ONSC 5405 (CanLII), online: http://canlii,ca/t/at55s: Lopresti v Rosenthal, 2016 ONSC 7494 (CanLII), online: http://canlii.ca/t/awlvm.
12 Hodge v. Neinstein, 2017 ONCA 494, online at www.ontariocourts.ca/decisions/201 7/201 7QNCA0494.htm ['Neinstein"].
13 In light of the material differences between class actions, including the representative nature of class actions and judicial approval of fees paid to plaintiff's counsel, this report does not address class action contingency fees.
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DISCUSSION
(1) Contingency Fees in Ontario 158. Contingency fees were introduced in Ontario in 1992 with respect to class proceedings and in 2004 with respect to claims being brought by individual litigants.14
1 59. The amendments to the Solicitors Act and the related regulation O Reg 1 95 / 04 came into force on October 1 , 2004. On October 28, 2004, Convocation further amended the Rules of Professional Conduct regarding CFAs to ensure consistency with the legislative scheme.
160. Ontario was the last Canadian jurisdiction to permit and regulate contingency fees.15
(2) The Policy Rationale for CFAs: Facilitating Access to Justice
161. The basis for permitting contingency fees has been described in various ways, but at its core, CFAs are a means of providing clients with access to justice. As the Court of Appeal of Ontario stated in Mclntyre Estate v. Ontario (Attorney General), 2002 CanLII 4506 (ON CA):
There can be no doubt that from a public policy standpoint, the attitude towards permitting the use of contingency fee agreements has undergone enormous change over the last century. The reason for the change in attitude is directly tied to concerns about access to justice. Over time, the costs of litigation have risen significantly and the unfortunate result is that many individuals with meritorious claims are simply not able to pay for legal representation unless they are successful in the litigation. In this regard, Cory J. made the following comments about the [page275] importance of contingency fees to the legal system in Coronation Insurance Co. v. Florence, [1994] S.C.J. No. 116 at para. 14:
The concept of contingency fees is well established in the United States although it is a recent arrival in Canada. Its aim is to make court proceedings available to people who could not otherwise afford to have their legal rights determined. This is indeed a commendable goal that should
14 Class Proceedings Act, 1992, S.O. 1992, c.6; Solicitors Act; O Reg 195/04: Contingency Fee Agreements under Solicitors Act, R.S.O. 1990, c. S.15.
15 See Mclntyre Estate v. Ontario (Attorney General), 2002 CanLII 4506 (ON CA),
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be encouraged. . . . Truly litigation can only be undertaken by the very rich or the legally aided. Legal rights are illusory and no more than a source of frustration if they cannot be recognized and enforced. This suggests that a flexible approach should be taken to problems arising from contingency fee arrangements, if only to facilitate access to the courts for more Canadians. Anything less would be to preserve the courts facilities in civil matters for the wealthy and powerful.16
162. The increased access to justice brought about by properly regulated CFAs has also been recognized as providing "compelling" advantages to the administration of justice.17
(3) The Challenge: Balancing Access to Justice and the Cost of Justice
163. The constant challenge is to balance access to justice and the cost of providing access to justice. This is a balance as to how licensees "should be remunerated fairly for their services, whilst simultaneously improving access to justice, but not at public expense.18
(4) The Current Regulation of CFAs in Ontario
164. There are a range of options available to regulate contingency fees in ways to facilitate access to justice while protecting consumers. Ontario's current CFA regime is set out in the Solicitors Act and O Reg 195/04 (the "Regulation").
165. Under the Solicitors Act, CFAs are available for any matter except for criminal or quasi- criminal proceedings or family law matters.19
166. A CFA must be in writing.20 The Regulation requires that a CFA must include, among other information, statements:
a. of the type of matter in respect of which services are being provided;21
16 Mclntyre Estate, supra note 15 at para. 55.
17 Raphael Partners v. Lam, 2002 CanLII 45078 (ON CA),
18 Marshall, Glen, "The Economics of Speculative Fee Arrangements", Civil Justice Quarterly, vol. 21 (Oct), 2002, p. 326.
19 Solicitors Act, at s.28.1(3).
20 Ibid, at s. 28.1(4).
21 Regulation, at s.2.2.
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b. indicating that the client and solicitor have discussed options for retaining the solicitor other than by contingency fee agreement, including by doing so by hourly rate;22' c. setting out how the fee is to be determined, and a simple example of how the contingency fee is calculated;23 d. outlining how the client or solicitor may terminate the contingency fee agreement, the consequences of termination and the manner in which the solicitor's fee is to be determined if the agreement is terminated;24 e. informing the client of the right to ask the Superior Court of Justice to review and approve of the solicitor's bill;25 and f. if the client is a plaintiff, that the solicitor shall not recover more in fees than the client recovers.26
167. Currently fees under CFAs are regulated by the Solicitors Act as follows:
a. Fees shall not be more than the value of the property recovered in the action or proceeding, unless, within 90 days of the CFA being executed, the lawyer and client bring an application to have the agreement approved by the Superior Court of Justice.27
b. The CFA shall not include in the fee "any amount arising as a result of an award of costs or obtained as part of a settlement" unless the lawyer and client jointly apply to a Judge of the Superior Court of Justice for approval of the costs because of "exceptional circumstances".28
1 68. CFAs are subject to an assessment of the lawyer's bill on application to the Superior Court of Justice.29
169. The Solicitors Act provides that the Lieutenant Governor in Council may make regulations governing CFAs, including with respect to:
22 Ibid, at s.2.3.
23 Ibid, at s.2.3-2.4.
24 Ibid, at s.2.9.
25 Ibid, at s.2.8.
26 Ibid, at s.3.
27 Solicitors Act, at s.28.1(6).
28 Ibid, at s. 28. 1(8).
29 Ibid, at s. 28.1(11).
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a. the maximum percentage or amount that may be a contingency fee; b. the lawyer's remuneration pursuant to a CFA; and c. the form of the CFA and terms to be included.30
170. The Law Society's lawyer and paralegal conduct rules also regulate licensees providing services pursuant to contingency fee agreements. The general conduct rules related to fees and disbursements apply to contingency fees; fees and disbursements must be fair and reasonable and disclosed in a timely fashion.31 In addition, the conduct rules specifically relating to contingency fees and contingency fee agreements apply. The Law Society's Rules of Professional Conduct provide as follows:
Contingency Fees and Contingency Fee Agreements
3.6-2 Subject to rule 3.6-1 , except in family law or criminal or quasi-criminal matters, a lawyer may enter into a written agreement in accordance with the Solicitors Act and the regulations thereunder, that provides that the lawyer's fee is contingent, in whole or in part, on the successful disposition or completion of the matter for which the lawyer's services are to be provided. [Amended - November 2002, October 2004]
Commentary
[1] In determining the appropriate percentage or other basis of the contingency fee, the lawyer and the client should consider a number of factors, including the likelihood of success, the nature and complexity of the claim, the expense and risk of pursuing it, the amount of the expected recovery and who is to receive an award of costs. The lawyer and client may agree that in addition to the fee payable under the written agreement, any amount arising as a result of an award of costs or costs obtained as a part of a settlement is to be paid to the lawyer. Such agreement under the Solicitors Act must receive judicial approval. In such circumstances, a smaller percentage of the award than would otherwise be agreed upon for the contingency fee, after considering all relevant factors, will generally be appropriate. The test is whether the fee in all of the circumstances is fair and reasonable.
30 Ibid, at s. 28. 1(12).
31 Rule 3.6-1, Rules of Professional Conduct and Paralegal Rules of Conduct Rule 5.01.
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[New - October 2002, Amended October 2004, October 2014]
1 71 . As paralegals are not included in the Solicitors Act, the CFA regulations provided under it do not apply to paralegals. However, Paralegal Rule 5.01 regarding Fees and Retainers permits paralegals to enter into contingency fee agreements as follows:
Contingency Fees
(7) Except in quasi-criminal or criminal matters, a paralegal may enter into a written agreement that provides that the paralegal's fee is contingent, in whole or in part, on the successful disposition or completion of the matter for which the paralegal's services are to be provided.
(8) In determining the appropriate percentage or other basis of a contingency fee under subrule (7), the paralegal shall advise the client on the factors that are being taken into account in determining the percentage or other basis, including the likelihood of success, the nature and complexity of the claim, the expense and risk of pursuing it, the amount of the expected recovery, who is to receive an award of costs and the amount of costs awarded.
(9) The percentage or other basis of a contingency fee agreed upon under subrule (7) shall be fair and reasonable, taking into consideration all of the circumstances and the factors listed in subrule (8).
(5) The Operation of CFAs in Ontario
172. The Working Group has considered the following major themes related to the current operation of contingency fee arrangements:
(i) Access to justice;
(ii) Transparency of CFAs;
(iii) Contingency Fees:
a. Simplification;
b. Ensuring that licensee and client interests are aligned; and
c. Ensuring that contingency fees are clear, fair and reasonable.
(i) Access to Justice
1 73. The Working Group reaffirms the Law Society's support for properly regulated
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contingency fee agreements as a means of facilitating access to justice.
174. The Law Society was an early advocate for properly regulated contingency fees as a means of facilitating access to justice. In May 1988, the Law Society first recommended that the Attorney General be urged to permit contingency fee arrangements to facilitate access to justice, and subsequently reaffirmed its support for the regulation of contingency fees.32
175. The Law Society was also a participant in the Attorney General's Joint Committee on Contingency Fees which recommended the introduction of contingency fees on an access to justice basis as follows:
One way to make justice more accessible is to provide a flexible approach to the payment of legal services by permitting contingency fees. Contingency fees are advantageous for middle class litigants because they shift most of the risk of litigation from a client to a lawyer. Under a contingency fee agreement, the lawyer finances the litigation for the client while a case is pending. As a result, middle class clients, who are generally risk averse, do not have to commit to pay an unpredictable amount for their lawyer's services and are then able to turn to the justice system to seek redress for their injuries...33
176. This rationale is as applicable today as it was when contingency fees were first recommended. Contingency fees enable clients to seek redress without incurring the up front costs and risks of litigation.
177. Since contingency fee agreements were introduced in Ontario, the Law Society Act (the legislation granting the Law Society's statutory authority to license and regulate lawyers and paralegals in the public interest) has been amended such that the Law Society, in carrying out its functions, "has a duty to act so as to facilitate access to justice for the people of Ontario."34 It must also "maintain and advance the cause of justice and the rule of law"35 and act in a manner that protects the public interest. 36
178. Given the Law Society's statutory responsibility, the continued access to justice crisis,
32 See Mclntyre Estate v. Ontario (Attorney General), 2002 CanLII 4506 (ON CA),
33 Ibid.
34 Law Society Act, R.S.O. 1990, c.L.8, s.4.2(2).
35 Ibid. s.4.2(1).
36 Ibid, at s. 4.2(3).
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the vital access to justice role played by contingency fees to advance both class action and individual claims, and the related benefits that access to justice brings to the administration of justice, the Working Group continues to support the availability of contingency fees in Ontario.
1 79. The Working Group also reaffirms that contingency fees must be properly regulated. Contingency fees must be regulated in a way that protects consumers, so that consumers understand contingency fee arrangements, and consumer protections are in place to ensure that contingency fees are transparent, fair and reasonable.
(ii) Transparency of CFAs
180. In June 2016, the Working Group stated that from a policy perspective it "believes that contingent fee structures should be transparent and that the total costs associated with contingent fees should be clear to the consumer at the outset. Consumers should be able to evaluate proposed fees against the fees being offered by others."37 It further stated as a general principle that "fees should be on an agreed upon and transparent basis."38
181. The Working Group expressed concern that "contingency fee pricing is not currently sufficiently transparent at the outset to consumers" and that "it is difficult to determine whether a competitive fee structure is being proposed".39
1 82. The Working Group reported that it was of the "preliminary view that lawyers and paralegals typically operating on contingency fee arrangements should be required to disclose their standard arrangements, including their usual contingent rates and arrangements with respect to disbursements on their websites" on the basis that "This would facilitate greater transparency for prospective clients."40 The Working Group also indicated that it "welcomes input on other means of enhancing transparency and the availability of information about contingent fees and the contingent fee market."41
1 83. The Working Group's further study of contingency fee issues has reinforced its view that action is necessary to ensure that contingent fee structures are transparent and that the total costs associated with contingent fees are clear to the consumer at the outset. It has, however, shifted its views on what are appropriate actions to foster such transparency and consumer protection.
37 June 2016 Report to Convocation at para. 60.
38 Ibid, at para. 102.
39 Ibid, at para. 61 .
40 Ibid, at para. 62.
41 Ibid, at para. 109.
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184. The Working Group initially considered requiring the publication of standard contingency and disbursement arrangements on licensee websites. This was intended as a means of fostering transparency. However, in the Call for Feedback, several responses noted that licensees and firms generally do not have one standard contingency fee rate. The rate will depend on a range of factors specific to the particular case, such as the nature of the claim and the risk involved.
185. The Working Group recognizes that a published standard rate could have unintended consequences. If licensees were required to offer services for all matters at their published standard rate, this may limit the types of cases that licensees would be willing to take, or lead to licensees charging a higher standard rate in order to cover high-risk cases. If licensees were permitted to publish a standard rate but depart from it based on the nature of the case, then the published rate would be of little use to consumers. Given the uncertainties of contingent fee files, and the need for licensees with contingent fee practices to be able to manage the risk not only of individual cases but their portfolios of cases, licensees must be permitted to tailor their contingency fees. Ultimately the Working Group believes that requiring the publication of a standard rate would not be an appropriate recommendation.
Recommendation: A Standard Form Contingency Fee Agreement
186. There is nearly universal recognition that contingency fee agreements are unduly complex, and that enhanced transparency is necessary. In the current marketplace, the different approaches make it difficult for consumers to compare services. The Working Group has also heard that current contingency fee agreements are difficult for consumers to understand.
187. In addition, it is the Law Society's experience that there are a range of contingency fee agreements in use in the marketplace, and many licensees have not complied with all of the technical statutory requirements in their standard contingency fee agreements. In many cases licensees may have inadvertently not complied with all of the technical requirements under the Solicitors Act and the Regulation.
1 88. Several submissions in response to the Call for Feedback expressed support for an approved standard form contingency fee agreement to be used by all licensees. Under such a model, consumers could more easily compare the cost of legal services between firms.
1 89. The Working Group sees great value in the development of a mandatory standard form contingency fee agreement. This could be drafted to simplify the agreement to highlight key consumer rights and responsibilities. A mandatory standard form would also ensure that all client retainer agreements meet all of the technical requirements under the Solicitors Act and its Regulation. This would enhance consumer protection, foster consumer choice and ensure that licensees fully comply with the Solicitors Act requirements.
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1 90. The Working Group therefore recommends a mandatory standard form contingency fee agreement to be used by both lawyers and licensed paralegals.
(iii) Contingency Fees
191. The Law Society has observed that the single greatest issue in the operation of contingency fee agreements relates to the calculation of the contingency fees.
192. The Working Group has learned of different practices with respect to the calculation of contingency fees.
193. Currently a range of contingency fee rates are being charged in the marketplace based on a range of factors. The Working Group has learned that contingency fees for tort claims generally range between 25 - 35%. A contingency fee of 1 5% is often applied by paralegal licensees handling statutory accident benefits schedule ("SABS") matters; however, that amount can be significantly higher. Different types of claims appear to bear different risk; for example motor vehicle tort claims and medical malpractice claims.
194. In some cases, however, licensees have entered into CFAs whereby they charge a percentage fee but also claim some or all legal costs, without obtaining approval of a judge of the Superior Court of Justice, contrary to s.28.1(8) of the Solicitors Act.
1 95. The Court of Appeal stated in Neinstein that "it appears that non-compliance with the Act is widespread".42
1 96. The Working Group notes that in some cases non-compliance with all of the regulatory requirements have been inadvertent and with respect to technical areas. However, non compliance with respect to the calculation of fees is not a minor breach of the requirements. In some cases, the Working Group has learned, licensees shifted to non- compliant practices because of the difficulties created by the current requirements. However, there are also numerous cases, as noted above, where Courts have found that the fees charged were not compliant with the Solicitors Act, were unreasonable in the circumstances, and were accordingly reduced.
197. The Working Group is concerned by noncompliance with the current regulatory requirements governing Ontario's contingency fee regime. Lawyers and paralegals are expected to adhere to the current requirements. Lawyers and paralegals must follow the Solicitors Act, the Regulation and the professional conduct requirements; failure to do so erodes the public's respect for the administration of justice.
1 98. At the same time, as described further below, the Working Group is of the view that the current requirement that legal costs belong to the client has had unintended consequences. The rule results in an unnecessarily complex calculation to determine a client's net recovery and counsel's fees. The rule also creates inherent conflicts of
42 Neinstein, at para. 170.
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interest for licensees during settlement negotiations and when considering whether to take a matter to trial, and fundamentally misaligns the client and licensee interests at these stages. The requirement increases risks of licensee/client miscommunication, enshrines inherent conflicts of interest between the licensee, and at times has enabled unprofessional conduct by licensees putting their interests above their client's interest. The Working Group therefore is of the view that change is necessary.
a) Simplification
1 99. In Neinstein, the Court of Appeal stated that the Solicitors Act language "has created difficulties for lawyers and clients for many years", and that "much in the Act is not clear [...] This case before this court represents another struggle to make sense of the Act. "43
200. The Law Society has seen in the complaints it has received from clients and from its discussions with counsel the difficulties that the Solicitors Act language has created for lawyers and clients. The current rule regarding legal costs belonging to the client is difficult to explain at the outset of the retainer, and clients often do not understand the equation when it is applied at settlement. The Working Group is of the view that the calculation of legal fees is unduly complex, and should be simplified. b) Ensuring that licensee and client interests are aligned
201 . The Working Group notes that licensee and client interests should be aligned to the greatest degree possible. However, the current Solicitors Act structure creates unnecessary inherent conflicts of interest between licensees and clients at key points in the course of a contingency fee matter. i) Inherent Conflict #1: Settlement Negotiations
202. Many if not most of the complaints received by the Law Society with respect to contingency fee matters relate to issues arising at the time of settlement.
203. Clients often do not appreciate at the time of settlement what net amount they will receive.
204. There are also significant issues which arise at the time of settlement due to the inherent conflict between the lawyer and client interests embedded in the current Solicitors Act.
205. Under the current rule, legal costs "belong" entirely to the client and are not included in the calculation of the contingency fee. This creates an inherent conflict that arises during settlement negotiations between the licensee's economic interests and the client's interest. During settlement negotiations, defendants regularly offer a global settlement amount, inclusive of legal costs. This leaves the plaintiff's counsel and the plaintiff to determine what part of the settlement offer amount should be attributed to legal costs. The licensee's interest and the client's interests are misaligned at this point,
43 Ibid, at para 12.
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as any increase in the licensee's fee comes from the plaintiff's net recovery, and vice
versa.
206. To further complicate this issue, there are no standard formulae on which the plaintiffs counsel and plaintiff can calculate the amount of an "all-in" settlement offer that should be treated as legal costs. Some lawyers reported that there is an industry "rule of thumb", but such standards are unwritten, shifting, and are not prescribed rules.
207. One practical option to attempt to address the inherent conflict is for the plaintiff to ask a defendant to apportion the "all in" settlement amounts, that is, to ask the defendant to set out the amounts intended to cover legal fees, damages, disbursements and other amounts totalling the "all in" amount. But at that point, certain defendants have reportedly sought to take advantage of the inherent conflicting interests of the lawyer and client by deliberately apportioning the amounts in ways that can help realize a settlement. The Working Group heard that in some cases, defendants can use the apportionment of legal fees as a means of seeking to push for a settlement; however, the defendant has no interest or duty in ensuring that the amounts they offer as fees are fair and reasonable. The apportioning of legal fees by the defendant may make the fees transparent, but does little to ensure that the net amount received by the plaintiff is fair and reasonable.
208. In short, the Working Group is concerned that the current Solicitors Act requirement that legal costs belong to the client has caused a significant inherent conflict for lawyers and paralegals during settlement negotiations.
209. The danger of having the licensee and client interests misaligned during settlement is compounded by the fact that the vast majority of matters (>95%) settle before trial. Other than for certain limited circumstances, such as settlements involving a party under disability, which require Court approval, the costs amounts are not subject to judicial review or any review to ensure that they are fair and reasonable.
210. While most licensees attempt to navigate the ethical Catch-22 that the current Solicitors Act requirement creates during settlement negotiations, this has led to instances of unprofessional conduct. The Law Society has been addressing these issues as they arise. At times cases related to CFAs have led to hearings and findings of misconduct.44
44 The following are recent decisions of the Law Society Tribunal related to contingency fee issues: Law Society of Upper Canada v Jesudasan, 2016 ONLSTH 181 (CanLII), online:
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Moreover, as the Working Group has previously reported, a specialized investigations team has been established with respect to advertising and fee issues, and there are ongoing investigations.
ii) Inherent Conflict #2: Whether to Take a Matter to Trial
21 1 . In its June 2016 Report, the Working Group noted that it had heard from several personal injury lawyers that the current Solicitors Act requirements are unworkable for certain cases, particularly those requiring a trial:
This is because, under the Solicitors Act, legal costs belong to the client. When a matter goes to trial, and the plaintiff is successful, the licensee is compensated as a percentage of the award alone, and the legal costs, which may be significant given the trial that took place, belong to the client. The result is that in certain cases, the law firm's time and expertise may dramatically enhance the client's recovery, at the cost of the law firm's time and effort."45
212. In certain circumstances, particularly when there is an existing reasonable offer to settle on the table or the case is a relatively small value case, the client and licensee may have quite divergent incentives.
213. The difficulties arising out of the current contingency fee requirements were summarized by the Canadian Defence Lawyers Association ("CDL") as follows:
CDL members have pointed out three (perhaps dissociated) problems with this provision in the Act as currently formulated:
o The requirement for prior judicial approval interferes with the freedom of contract and creates a disincentive for lawyers to understood by his client. The lawyer was suspended for one month, and ordered to repay his client $5,750.00 and pay the Law Society's costs of $3,500.
Law Society of Upper Canada v Meiklejohn, 2015 ONLSTH 193 (CanLII), online:
45 June 2016 Report to Convocation at para. 48.
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work on and advance personal injury claims where liability may be strongly disputed but damages are likely modest. In such instances, the ability to recover a contingency plus partial indemnity costs would reflect fair remuneration for the lawyer's efforts and allow access to justice for accident clients who do not have permanent or catastrophic injuries. The potential for abuse can be accomplished by reversing the onus from the solicitor to the client, to complain to the court as opposed to requiring prior court approval.
o If costs are paid to the lawyer in addition to the percentage of recovery, the practice offends the indemnity principle of court- awarded costs and thus artificially drives up the settlement value of every claim in which there is a contingency fee arrangement. Claimants and lawyers are encouraged to inflate damage assessments, to employ future care and other damage assessors with an incentive to facilitate inflated claims, and to delay the resolution of claims until after lengthy and costly examinations for discovery.
o There appears to be no consistent standard on the recovery on which the contingency fee is calculated. Is the rate to be applied to damages and interest only, or is it applied to damages, interest and costs? Whatever solicitors and clients bargain for, the result must be fair and reflect the indemnity principle of costs.
These problems also involve potential conflicts of interest between the lawyer and client between the economic interest of lawyers and their clients' interest in obtaining fair and prompt settlement of claims. Although the responses from our members are, on the surface, contradictory in some respects, they can be reconciled if the unifying law reform goal is to allow solicitors to be paid for their effort in bringing modest claims, without causing inflation of more significant ones.46
214. The Working Group is of the view that express changes to the fee requirements are necessary to remove the inherent conflict of interest scenarios described above, to protect the public and balance access to justice and reasonable legal costs.
46 Canadian Defence Lawyers, October 3, 2016 Submission to the Advertising and Fee Issues Working Group, Canadian Defence Lawyers online at https://www.cdlawvers.0rg/2paqe-16#a452.
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c) Ensuring that Contingency Fees are Clear, Fair and Reasonable
215. The Working Group stated in its June 2016 Report to Convocation as a general principle that "fees should be on an agreed upon and transparent basis."47 As per existing Law Society professional conduct rules, fees and disbursements must be fair and reasonable and disclosed in a timely fashion. 48
216. As the above discussion highlights, under current requirements:
a. Clients often do not have a full understanding of contingent fees;
b. The current requirement that costs belong to the client creates inherent conflicts of interest for licensees;
c. The current requirements misalign the interests of licensees and clients;
d. There is unnecessary risk that fees will not be fair and reasonable, unfairly compensating a licensee at the expense of the net amount recoverable by a client; and
e. There is also an unnecessary risk that a client may receive a windfall amount for legal costs reflecting work performed by a licensee.
21 7. The Working Group is also concerned because of the lack of checks on legal fees for matters that settle before trial, and which are not subject to a mandatory Court approval process. Lawyers' fees are subject to oversight by courts, and clients can have their fees assessed. The Courts will consider whether the fee is fair and reasonable in the circumstances.49 However, most claims do not require Court approval, and in a properly functioning system, clients should not have to resort to assessment processes to be assured that the fees at the conclusion of the matter were reasonable.
21 8. The Working Group is therefore considering recommending that the Solicitors Act fee requirements should be amended so as to align licensee and client interests and ensure that contingency fees are clear, fair and reasonable. The Working Group is considering three related recommendations in this regard:
i. Request amendments to the Solicitors Act to calculate fees based on a percentage of the total settlement amount or amount awarded at trial, less disbursements;
ii. Introduce, under the Regulation or the Rules of Professional Conduct as may be appropriate, new safeguards to ensure that fees are fair and reasonable; and
iii. Introduce enhanced client reporting requirements.
47 June 2016 Report to Convocation at para. 102.
48 Rules of Professional Conduct Rules 3.6-1 and 3.6-2; Paralegal Rules of Conduct Rule 5.01.
49 See generally Lam, supra.
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0) Simplifying the Calculation of Fees
219. Calculating fees based a percentage of the total amount offered on settlement or awarded at trial, less disbursements, is a simple means of calculating fees. Settlement calculations would not be dependent on a preliminary arbitrary determination of what amount from a settlement offer should be treated as legal costs. Any amounts inclusive of legal costs awarded at trial would be included in the calculation of the licensee's fee. This approach also aligns the interests of clients and licensees.
220. The Working Group recognizes that there are certain cases where there is a high likelihood of requiring a trial, but relatively low to mid value compensatory damages at issue which present a particular challenge to the proposed approach. Under the current regime, where the client receives all of the costs, the limit on compensation may prevent licensees from taking the case to trial. Under the above proposed approach, the award and the costs would be combined, but the legal fees may still not be sufficient for the licensee to take this type of case to trial. Such cases may be logically turned down if the fees are not reasonable given the particular risks, time and effort required to take the matter to trial. The Working Group is seeking input into potential approaches to address this category of cases. One option may be to have the lawyer and client jointly apply for approval to charge a CFA above a prescribed limit if the case goes to trial in order to ensure access to justice in such higher risk cases.
09 New Safeguards to Ensure Fees are Fair and Reasonable
221. The Working Group is unanimous in its view that an amendment to simplify the calculation of fees should be accompanied by new safeguards to ensure that fees are fair and reasonable.
222. The Working Group is considering a range of options, including:
a. A percentage cap on contingency fees, either on a fixed or sliding scale;
b. Requiring independent legal advice ("ILA") before a client agrees to the payment of legal fees in certain circumstances; and
c. Disclosure before payment of legal fees of the value of the time actually spent on the matter at the licensee's agreed hourly rates.
223. A review of the history with respect to the consideration of fair and reasonable contingency fees in Ontario and approaches in other jurisdictions is attached as Tab 4.6.2.
224. The Working Group is also considering the appropriateness of different types of safeguards by area. The Working Group is considering the possibility of different approaches to a limitation on fees for tort and other contingency fee matters and SABS
cases.
225. Assuming a limit on contingent fees, the Working Group is of the view that there should
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still be a means for the lawyer and the client to jointly apply to court for approval to charge a contingency fee rate above any prescribed limit. This will be necessary to ensure that access to justice is still available for higher risk cases, such as medical malpractice claims where liability and/or causation may be at issue.
226. Clients would continue to be able to seek an assessment of their account.
(iii) Enhanced Client Reporting Requirements
227. The Working Group is also considering further transparency measures through new client reporting requirements. Enhanced transparency measures are intended to ensure that clients have a sense of the cost of the services provided, and may act as a further check on the reasonableness of fees.
228. The Working Group is currently considering a range of new regulatory requirements which would promote clear communication to clients about the basis for fees, ensure that the fees charged are related to the value of the services provided and otherwise generally ensure that fees are reasonable. The Working Group is considering a range of measures to enhance transparency and client understanding of fees and their rights, including requiring licensees to:
a. Explain in the client reporting letter the basis for the fee by reference to the agreed percentage under the CFA, and by reference to the factors used to generally consider the reasonableness of a fee. These factors could be those found in the case law assessing contingency fees, and/or pursuant to the factors provided for in the lawyer and paralegal conduct rules, and could include factors such as the nature and complexity of the claim, the expense and risk of pursing it, the amount of the recovery that was expected, and who was expected to receive an award of costs.50
b. Record the professional and para professional time spent on CFA matters;
c. Report the amount and value of time spent on the matter on the final account to the client; and
d. Advise the client on the final account of the right to apply to have the legal fees assessed.
NEXT STEPS - A CALL FOR FEEDBACK
229. The Working Group is issuing a Call for Feedback with respect to the recommendations contained in this report to Convocation. The Call for Feedback will remain open through to Friday, September 29, 201 7. The Working Group will consider the feedback it receives, before reporting to Convocation with its recommendations regarding the operation of the Solicitors Act.
50 These factors are examples taken from the Commentary to Rule 3.6-2 of the Rules of Professional Conduct and Rule 5.01(8) of the Paralegal Rules of Conduct.
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230. The Working Group also continues to explore issues regarding lawyers receiving compensation or other benefits and related practices with respect to title insurance and other services, and will report to Convocation regarding this issue in due course.
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SUMMARY OF FEEDBACK RECEIVED IN RESPONSE TO THE ADVERTISING AND FEE ISSUES WORKING GROUP JULY 2016 CALL FOR FEEDBACK
Contents
(i) Introduction 2
(ii) Overview of Feedback 2
(iii) Advertising and Marketing 2
Identification of type of license 2
Advertising: General Comments and Regulatory Options 3
Use of Awards 4
Advertising Second Opinion Services in Personal Injury Law 5
(iv) Advertising and fees in real estate law 6
"All in" pricing 6
Payments / Other Benefits 8
Advertising of Referral / Brokerage Services 8
(v) Referral Fees 9
Up-Front Referral Fees 9
Referral Fees Generally 9
Support for Referral Fee Arrangements 9
Support for Banning or Capping Referral Fees 11
Enhancing Transparency Related to Referral Fees 12
Other Issues: Paid Referrals from Non-Licensees 13
(vi) Contingent Fees 13
Transparency and Potential Disclosure of Standard Arrangements 14
The Solicitors Act in Practice 15
Gaps in Data 15
Potential Abuses of the Solicitors Act 16
Difficulties in the Treatment of Legal Costs under the Solicitors Act 16
Capping Contingent Fees 18
Other Options 18
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(i) Introduction
1. The following memorandum provides a detailed summary of feedback received by the Advertising and Fee Arrangements Working Group ("Working Group") in response to its July 2016 Call for Feedback.
(ii) Overview of Feedback
2. The Working Group issued a Call for Feedback in July 2016, and requested input by the end of September 2016. It received comments from nearly 60 individuals and 20 organizations, including legal organizations, a consumer group, and insurers.
(iii) Advertising and Marketing
3. The feedback addressed several different issues related to advertising and marketing.
Identification of type of license
Should all licensees be required to identify the type of license they have in their advertising and marketing materials (e.g. lawyer or paralegal)?
4. A significant majority of those who provided feedback on this issue recommended that licensees should be required to identify the type of license they have.
5. Several rationales were provided in support of this measure, including that it would foster transparency, enhance the public's awareness of the different categories of license and the distinctions between them / reduce confusion in the marketplace.
6. It was also noted that in personal injury this transparency is necessary to protect injured plaintiffs. In certain personal injury cases, a paralegal considering representing a prospective client may be presented with a conflict of interest, and might persuade the client to pursue a smaller claim within the Small Claims jurisdiction notwithstanding that the injuries might warrant an action in the Superior Court. This would be a disservice to the client.
7. Certain submissions also noted that certain licensed paralegal practices may be engaging in misleading advertising that give the impression that the licensee is a lawyer.
8. Submissions also noted that misleading advertising at times targets vulnerable groups, such as linguistic minorities, equity seeking groups and others. Disclosure of the type of license in these settings was supported.
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9. Two individuals opposed to the measure noted that (i) certain clients may be prejudiced towards one profession or another and (ii) as most members of the public probably do not know the differences in scope of practice, requiring the licensee to state whether the licensee holds a P1 or an L1 license is unlikely to significantly advance the public interest.
Advertising: General Comments and Regulatory Options
10. The Call for Feedback did not ask about the state of advertising of legal services in Ontario generally, nor did it pose questions related to taste, both of which were addressed in the June 2016 Report. However, these issues were frequently raised in the feedback received.
11. There were different views expressed about advertising in general. As has been a consistent theme heard by the Working Group to date, many individuals and organizations raised concerns regarding the rise of personal injury advertising. Some described personal injury advertisements as misleading / false / embarrassing / degrading and provided specific examples in support of this general concern. A few submissions suggested that the Law Society should ban advertising because it is not helping the public understand the role of lawyers. However, most feedback on advertising principles opined that advertising should remain, but be regulated in the public interest.
12. Certain submissions suggested that although the regulator should not be concerned with matters of taste in advertising, advertising does raise professionalism issues, and the regulator should be ensuring that advertising operates in the public interest. Many noted that advertising should be verifiable and objective, but suggested that the marketplace is currently overrun by big brand advertisers engaging in misleading advertising.
13. The feedback provided a range of regulatory options for the Law Society to consider, including the following:
(i) Determine the total amounts spent on advertising in personal injury matters, require both law firms and licensees to report how much they are spending on advertising, and benchmark these amounts to the broader legal profession and other industries; (») Use existing regulatory tools to address inappropriate advertising, dedicating additional regulatory resources to enforce existing rules if necessary; (ill) Give further regulatory consideration to misleading advertising that may be targeting equity seeking groups and prospective equity seeking clients who may face additional barriers, such as by engaging in more proactive enforcement, including random periodic checks on racialized or ethnic advertising; (iv) Regulate personal injury firm advertising in hospital and health care facilities or ban such advertising in or near hospitals;
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(v) Engage in "swifter" and "clearer" enforcement of distasteful advertising; (vi) Engage in enhanced communications with the professions and the public regarding permitted and impermissible advertising. Options include, for example: a. Developing clear advertising guidelines as have developed by others (e.g. the Real Estate Council of Ontario); b. Communicating regulatory actions, and publishing determinations and findings related to unacceptable advertising and marketing practices more generally; (vii) Engage in public education efforts about misleading advertising practices; (viii) Further consider regulating the use of search engine optimization and Google advertising (as one firm described, the misuse of its firm name and goodwill to redirect searches to competitors); and (ix) Develop a pre-approval process whereby the Law Society will review advertisements in advance.
Use of Awards
Should the Law Society ban the use of awards and honours, limit the nature of awards and honours that may be included in advertising and marketing, or require full disclosure of the nature of an award or honour, such as on a licensee website, including any fees paid or other arrangements which may have affected the making of the award?
14. A few submissions suggested that the current general rules governing advertising suffice. However, many submissions expressed concerns over the current use of awards and recommended new regulatory responses. Many who provided feedback expressed concern that certain awards being advertised are misleading, bought or do not provide any objectively helpful information for the public.
1 5. The feedback featured a range of options, including:
(i) Banning the advertising of awards entirely; (ii) Banning advertising of all awards other than the Law Society's Certified Specialist designation; (iii) Banning "bought" awards; (iv) Limiting the advertising of awards to those based on peer review; (v) Permitting all awards, so long as the law firm's website provides full disclosure regarding the relationship, if any, between the award recipient and the entity granting the award; (vi) Only permitting objectively verifiable awards; (vii) Considering the creation of a personal injury designation within the Law Society's Certified Speciality in civil litigation which could serve as a clear mechanism for assessing the quality and experience of lawyers; and (viii) Having the Law Society develop a list of permitted awards that have been granted based on verifiable criteria, which can be used by licensees in advertising and marketing.
16. The Working Group was invited to consider rules from other jurisdictions, such as Rule
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7.1 of the New York Rules of Professional Conduct, which permits advertisements to include information as to "bono fide professional ratings" and which defines "bona fide" as follows:
[A] rating is not 'bona fide' unless it is unbiased and non discriminatory. Thus, it must evaluate lawyers based on objective criteria or legitimate peer review in a manner unbiased by the rating service's economic interests (such as payment to the rating service by the rated lawyer) and not subject to improper influence by lawyers who are being evaluated. Further, the rating service must fairly consider all lawyers within the pool of those who are purported to be covered.
Advertising Second Opinion Services in Personal Injury Law
r Do current requirements balance consumer rights with maintaining professionalism around providing second opinions? r If not, should the provider of the second opinion who advertises or markets "second opinion" services be prohibited from taking on the cases where a second opinion is given?
17. A few submissions maintained that current requirements balance consumer rights with professionalism around providing second opinions.
18. However, many submissions expressed concerns over the risks of abuse involved in advertising with respect to second opinion work.
19. Most participants who considered second opinion advertising in personal injury law expressed concerns that current advertising efforts are really an attempt to induce a person who already has counsel to change counsel, and that it would be unethical to advertise in a manner that sows client dissatisfaction with current counsel.
20. Certain feedback submitted that second opinion advertising offends Rule 4.1-2(d) of the Rules of Professional Conduct:
In offering legal services, a lawyer shall not use means [...] (d) that are intended to influence a person who has retained another lawyer for a particular matter to change their lawyer for that matter, unless the change is initiated by the person or the other lawyer.
21 . Submissions generally noted that curtailing advertising in this area would be reasonable in the circumstances. Another noted that there is no evidence of consumers being unaware of their right to consult another lawyer if they have concerns with respect to
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their representation. One suggested it would be naive to believe that second opinion advertising is for any other reason than to obtain a file from an existing lawyer.
22. There were different solutions proposed to address advertising of second opinions in personal advertising, including:
Clearly banning second opinion advertising; Permitting second opinion advertising on the basis that the licensee advertising such services may charge a fee for providing a second opinion, but should not be able to take on the case nor receive a referral fee after a second opinion prompts the client to seek a referral to different counsel; and Banning advertising of second opinion services, but permitting the provider of the second opinion to be able to take on the file if requested to do so by the client.
(iv) Advertising and fees in real estate law
o How could pricing in real estate law be made consistent so that consumers may more easily compare services? Should the Law Society take further action regarding "all in" pricing in real estate transactions? o How can the Law Society eliminate reported issues with respect to "fees" and related practices with respect to title insurance and other services where law firms receive compensation or other benefits related to the purchase of services.
"All in" pricing
23. The feedback received in this area provided divergent views.
24. The input confirmed that "all in" real estate advertising practices present several challenges, including the following:
a. A lack of consistency in the marketplace as to what is included in "all in" pricing. Variations depend, for example, on whether all disbursements are included, whether certain costs are categorized as disbursements and not included in the up-front quote, and how the lawyer decides to treat amounts received from a title insurer or other third party. b. "Bait and switch" techniques / deceptive "all in" pricing: There is a concern that prospective clients may retain a firm on the basis of one price and then be billed a different amount due to the nature of the transaction or because of disbursements. c. Threats to ethical and professional practice: i. Many expressed the concern that the advertising of all-in fees has fueled price competition that has created disincentives for real estate lawyers to spend money to conduct searches or spend the necessary time on matters.
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ii. Many noted that the downward cost pressure and current uneven advertising practices causes a race to the bottom, d. Focusing solely on price to the detriment of other considerations: Some expressed concern that a regulatory focus on price risks detracting from other important consumer considerations such as professionalism, service and expertise, and consumer evaluation of real estate legal services on price and other considerations.
25. There were differences in approaches regarding how to address the above pricing issues.
26. Some noted that existing rules can be used to enforce transparency in real estate pricing.
27. Certain legal organizations are opposed to permitting any "all-in" fee quotes in real estate transactions unless there are regulatory changes. Another legal organization appeared to take issue with regulation of pricing, stressing that there is no "on size fits all" real estate transaction, and that it would be a mistake to assume that real estate transactions can or should be subject to uniform pricing.
28. In contrast, some of the feedback received generally recognized that if it were possible to easily compare prices on an "all in" basis, this would give prospective clients choice and peace of mind. Some therefore recommend regulating "all in" pricing, with the caution that if the rationale of "all in" pricing is to foster reasonable price comparisons, then any regulatory approach would need to ensure that there are not hidden fees or inconsistencies in approach which could skew the marketplace.
29. Options for considering "all in" real estate pricing include, for example:
a. Taking no further action with respect to real estate pricing; b. Educating consumers on real estate advertising and the costs of real estate transactions; c. Regulating what is included in any price quote, and what categories of costs are not included and should be paid by the client; d. Regulating whether a lawyer should be required to abide by an all-in legal fee in all cases without exception; e. Defining what constitutes disbursements; f. Re-introducing a tariff with respect to disbursements or otherwise regulating disbursements; and/or g. Developing different "all in" requirements for different types of common real estate transactions; and h. Banning "all in" pricing.
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Payments / Other Benefits
30. On the issue of other payments or benefits received from title insurers or other vendors, the Working Group received feedback from the two legal organizations and individual lawyers, but did not hear from title insurers. One individual commented that a title insurance legal fee received by the lawyer should be included as a fee rather than as a disbursement. One legal organization suggested it would be unethical and a breach of the lawyer's fiduciary duty not to disclose fees received from a title insurer. One submission provided a draft rule intended to expressly prohibit a lawyer's law firm to receive any fee, reward or other compensation from a title insurer, agent or other party relating to the application for or purchase of a title insurance policy.
Advertising of Referral / Brokerage Services
Where a significant portion of the revenue generated by advertising is from referral fees, should the advertiser be required to advertise on that basis, making it perfectly clear that the advertiser may not itself provide the legal service and in such a case may refer clients to others for a fee? In the alternative, should advertising for the purpose of obtaining work to be referred to others in exchange for a referral fee simply be banned?
31. Several submissions expressed concern that it is misleading for firms to advertise in order to refer many of the files in exchange for a referral fee.
32. Certain responses also highlighted broader impacts of mass advertising for the sole purpose of obtaining a file to refer out, including that this approach has:
fueled litigation generally; increased costs in the personal injury law system; and/or contributed to negative public perception of plaintiff side lawyers, which may impact jury perceptions of plaintiff cases generally.
33. Several submissions advocated for an outright ban on advertising for the sole purpose of obtaining work to be referred to others in exchange for a fee, also referred to as the "brokerage model". Some were of the view that licensees should not be permitted to advertise for work that they are not permitted to provide, are not competent to provide or do not intend to provide. The practice was described by many as a misleading "bait and switch", a tactic which is unlawful in consumer law and competition law.
34, A consumer organization submitted "We would be hard-pressed to find an MVA [motor vehicle accident] victim who was pleased to find that their case was taken on by a firm who intends to refer them on for a fee. It would likely be less common if the intended 'referral fee' were demanded of the potential client at the time of signing the contract".
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35. Many submissions recommend that if the practice of advertising in order to obtain files to refer to others is to be permitted, then the advertising must be transparent; it must be made clear that the advertising firm intends to or may refer the client out to another firm.
36. Some submissions noted that certain practices refer some files and keep some within the firm, which raises the question as to how to define what constitutes brokerage services and when disclosure of such practices in advertising could / should be required.
(v) Referral Fees
Should the Law Society: o Ban up-front flat referral fees on contingent fee matters? o Limit the referral fees that may be charged as a percentage of the ultimate fee in contingent fee and other matters? o Require referees to fully disclose their standard referral fee arrangements? o Require the client, the referrer and the referee to enter into a standard form agreement at the time that the referral is made, fully disclosing the nature of the referral and the referral fee? o Require licensees to record referral fees paid or received in their financial records in a manner to be maintained and accessible to the Law Society on request?
Up-Front Referral Fees
37. Some submissions expressed the view that up-front referral fees are a business transaction between the referrer and referee and should not be banned.
38. However, several submissions expressed support for a ban of all up-front referral fees. Charging up-front fees, it has been suggested, may not align the interests of the referring licensee and the receiving licensee, and also adds economic pressure on counsel which potentially compromise the quality of service the counsel is then able to provide.
Referral Fees Generally
39. There were nuanced and divergent submissions on issues related to the use of referral fees in general.
Expanding Referral Fee Arrangements to Non-Licensees
40. One individual suggested that referral fees should be permitted to be paid to non- licensees.
Support for Referral Fee Arrangements
41 . Some submissions favoured the use of referral fees for a variety of reasons, including the following:
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a. The rules are clear and sufficient; b. Paid referrals can align the interests of the licensee and the client; c. Paid referrals for sole and small lawyers provide the same benefit that lawyers in a large firm receive from internally transferring matters; d. Paid referrals help sole and small lawyers: For some licensees, particularly sole and small practitioners, paying for referrals is a vital way to attract business. Moreover, a ban may disproportionately burden sole and small practitioners, and as equity seeking groups are more likely to be in sole practice, this raises equity- related concerns; e. Freedom of contract of licensees: According to some, licensees (who are sophisticated parties) should be able to make referral arrangements and should not be subject to additional Law Society regulation, as long as the referrals do not increase the cost to the client. As one organization put it, payment of a referral fee "is a business transaction, nothing more or less"; f. There is no consumer risk: The client in practice does not care about the referral arrangement because it will not add to the cost of the legal services received. Moreover, consumers can choose whether or not to accept the practice, if fully disclosed. g. Paid referrals enhance access to justice: i. According to some submissions, the service of providing a proper referral is, in and of itself, a valuable service. The development of effective systems to identify legal issues and refer prospective clients to licensees is a valuable service, and one that depends on paid referrals. ii. A mass advertising personal injury firm similarly noted that its referral of a wide range of inquiries to competent lawyers serves a valuable access to justice goal.
42. Several licensees submitted that the referral system as currently permitted works well. According to these submissions, there are costs to finding clients. Not every firm, particularly small firms, have the resources to seek business on their own and rely on referrals to maintain a client base. For some licensees, referral fee arrangements are viewed as economically efficient and fair. One firm reported that referral fees had contributed to that firm's growth.
43. One licensee explained that decisions with respect to the amount to pay for a referral fee are complex. The factors considered in negotiating the fee for a particular case include, for example, the complexity of the case, the volume of cases in the office, and staff availability. Certain responses therefore cautioned against regulatory micromanagement of this area.
44. Finally, certain submissions highlighted that paid referral fees reduce the incentive for licensees to hold onto cases that they are not competent to handle.
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Support for Banning or Capping Referral Fees
45. Others support banning or capping referral fees.
(i) Banning referral fees
46. Some licensees submitted that referring matters as required is a professional obligation and should not be something for which the referring professional receives payment. Some suggested that the time and effort to refer a matter is typically minimal and does not warrant a fee.
47. Many submissions taking issue with referral fees in general or their amounts were concerned by brokerage practices. One submission described the practice as advertising in order to have a client's issue "sold off' in a manner that is unprofessional and that should be prohibited. Another submission stated that referral fees disempower consumers to make informed choices about their legal representation.
48. One legal organization concluded that permitting referrals to other firms for a fee as long as this is disclosed in marketing materials would be too difficult to enforce and therefore recommends banning referral fees outright (although further consideration of such a rule in the class action litigation would need to be undertaken). It also supported a ban in part because:
a. referral fees are a factor driving the increase in volume of advertising in personal injury law and creating an economic incentive for law brokerages; and b. referral fee structures have also negatively impacted the professions, as they discourage co-counsel opportunities, which provide a means to mentor less experienced counsel.
49. One submission put the issue as follows:
We would be very content to see the 1 5-year experiment with referral fees end, as the negatives outweigh the positives. Referral fees were allowed to provide a public service and to increase access to justice. This goal has not been achieved. If we reflect on the health of the profession in 2000, before referral fees were permitted, and contrast it with the current state of affairs, we can only conclude that the profession was healthier before referral fees arrived. There is no risk that the elimination of referral fees will in any way harm the public or create any limitation on access to justice. We believe the public would be best served with an outright ban on referral fees. To the extent however that the Law Society concludes there is some remaining role for formal referral fees, we would recommend a referral fee cap of 10% of the overall fees generated in the action, coupled with an outright ban on upfront referral fees.
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50. The submissions from the insurance industry suggested that referral fees should be banned or made more transparent on the theory that referral fees are a factor driving up settlement costs which, in turn, is increasing insurance costs.
(ii) Banning flat fees
51 , One consumer organization recommended banning flat fees, on the assumption that such fees create a cost that is ultimately incurred by the client regardless of outcome.
(Hi) Capping referral fees
52, Several submissions supported a cap on referral fees, with the recommended cap ranging from 5-30%, with different ranges supported as follows:
5-10% cap
o A law professor noted that excessive referral fees may reduce the net fee to the paying firm to the point that quality of service may be impacted in some cases. He recommended the 5-10% cap. He also recommended changes to, inter alia, expressly require that all paid referrals are made solely on the basis of the best interests of the client; expressly prohibit choosing a referral based on the referral fee offered; and requiring the referring firm to identify at least three firms that could competently assist the client, together with service price information regarding each, as well as advantages and disadvantages of each, in order to facilitate client choice.
10-15% cap:
o Some supported a cap at 1 0% or 1 5% of the fee charged on a file as a form of "modest" compensation for referring lawyers without exceeding the value to the client. Some noted that it would also discourage the operation of brokerage firms.
30% cap:
o One law firm recommended a cap on referral fees of 30% of the net legal fee to promote access to justice for the public and align financial incentives with the goal of referring a matter to a capable licensee at no cost to the client.
Enhancing Transparency Related to Referral Fees
53. Several submissions supported enhanced transparency. As one submission noted, "in any referral situation the net cost to the client - has to be readily apparent and fully explained to the client before the retainer is finalized. If the lawyers / paralegals involved
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are unwilling to do this openly - it should cause concern. It isn't rocket science nor should it be. A simple requirement that any and all referral fees be broken out and shown separately ought to do it."
54. One stakeholder's survey found that over three-quarters of respondents supported requiring licensees to record referral fees paid or received in their financial records in a manner that would allow review by the Law Society. Similarly, a consumer organization noted that such fees "should be recorded as such and clients should be advised before such costs are paid out, as any other disbursement on their account should be, and to whom".
55. In contrast, one legal organization noted that more information is required as to what use the Law Society would make of data collected before endorsing such a measure.
Other Issues: Paid Referrals from Non-Licensees
56. Certain submissions cautioned that non-licensees are referring cases to licensees in exchange for payment, despite the prohibition against licensees paying referral fees to non-licensees. This practice was reported to be used in various equity seeking communities.
57. The Working Group also received feedback from a therapist who reported a law firm referring their personal injury clients to particular health professionals, and only submitting invoices from the therapists to whom they referred clients.
58. These submissions recommended that the Law Society be more active in addressing licensee arrangements / paid referrals with non-licensees. It was suggested that the Law Society could do more to educate licensees about the prohibition against paying referrals to non-licensees, and should participate in initiatives to educate health care facilities and health care providers about the prohibition through collaborative, interdisciplinary regulatory efforts.
(vi) Contingent Fees
o How can contingent fee structures, including the total costs associated with contingent fees be made more transparent to consumers at the outset? o Should lawyers and paralegals typically operating on contingency fee arrangements be required to disclose their standard arrangements, including their usual contingent rates and arrangements with respect to disbursements on their websites? o How is the Solicitors Act operating in practice?
59. Although the Call for Feedback sought input on the use of contingency fees in all areas, virtually all of the feedback received focused on the personal injury sector. The
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submissions noted that the introduction of contingency fee arrangements in personal injury was intended to provide access to justice. As described further below, most submissions addressing this area described issues related to the transparency of contingency fee arrangements, and the costs arising in this model.
Transparency and Potential Disclosure of Standard Arrangements
60. The responses to the Call for Feedback nearly universally confirmed that contingency fee agreements are complex and that enhanced transparency is necessary. The submissions did not generally support disclosure of standard arrangements, although other options were suggested to enhance transparency.
(i) Disclosure of Standard Contingent Fee Arrangements, Including Rates and Disbursements
61. There were divergent views as to whether standard contingency arrangements, including rates and disbursements, should be disclosed. While there was some support for requiring the publication of standard contingency and disbursement arrangements on websites, and one law professor recommending required disclosure of pricing and disbursements of all firms, and disclosing this information to the Law Society, several submissions noted that transparency initiatives alone will not necessarily lead to increased public understanding around fees arising in personal injury matters. Contingency fee agreements are complex documents and simply requiring their publication online would not necessarily sufficiently address issues related to consumer education and empowerment. Moreover, as some law firms, (particularly in remote and rural areas) may not have websites, this requirement could raise accessibility concerns.
62. Several submissions noted that there simply is no standard contingency fee rate. The rate will depend on a range of factors. Moreover, requiring plaintiff firms to publish their fees would risk providing defendants with access to privileged information and a tactical advantage. One consumer group cautioned that there does not appear to be a "usual rate" and that requiring the publication of such a rate could lead to higher prices for
consumers.
63. Insurers generally recommend that contingency fee arrangements should be filed with the Law Society, the Court, the Financial Services Commission of Ontario (FSCO) or a ministry within government.
(ii) Other Options
64. Other potential means of enhancing transparency include the following:
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a. Public education efforts:
Some suggest that the regulator must engage in greater public legal education efforts around the use of contingency rates. For example, the Law Society could develop brochures for use in law offices that explain the contingency fee system.
b. Licensee education efforts / ongoing monitoring of compliance with the Solicitors Act:
It has been suggested that the Law Society could develop educational tools to assist licensees in meeting the requirements under the Solicitors Act and pay particular attention to contingent fee agreement practices when conducting spot audits. It could also review contingency fee agreements to monitor levels of compliance under the Solicitors Act.
c. Encourage Clients to Compare Rates and Services
Another organization suggested that the Law Society should educate consumers on the importance of meeting with several lawyers before deciding on who to retain. This is a way to compare contingency fee rates and consider different approaches to service delivery.
d. Development of a Standard Form Contingency Fee Agreement Approved by the Law Society
Several submissions expressed support for a standard form contingency fee agreement that would be approved by the Law Society and used by the entire profession. Under this model, consumers could easily compare the cost of legal services between firms.
In addition, a consumer group recommended developing a standard list of potential disbursements and requiring lawyers to discuss specific disbursements before spending funds which would come out of final settlement funds.
The Solicitors Act in Practice
65. Certain submissions noted that while there may be difficulties in the operation of the Solicitors Act, the introduction of contingency fee arrangements has ensured that there is access to legal services in personal injury.
Gaps in Data
66. Both the Ministry of Finance and insurers expressed concern that there are gaps in the available data, making it difficult to determine how much money in the personal injury
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system is being paid to accident victims. There is an incomplete picture as to how the Solicitors Act is working as an access to justice tool.
Potential Abuses of the Solicitors Act
67. Insurers and defense counsel raise concerns about the Solicitors Act being abused. What was established to facilitate access to justice has, according to some, been used by plaintiff personal injury lawyers to improperly and excessive bill clients. Several submissions noted that the troubling facts alleged in the case of Hodge v. Neinstein, 2015 ONSC 7345.
68. Insurers expressed concern that a high percentage of total damage awards would go towards legal and other costs instead of directly to the plaintiffs, and suggested that more research is necessary in this regard.
Difficulties in the Treatment of Legal Costs under the Solicitors Act
69. Several submissions addressed s.28.1(8) of the Solicitors Act and s.6 of the regulations made pursuant to it. These key provisions are as follows:
Solicitors Act. 5-28.1(8):
A contingency fee agreement shall not include in the fee payable to the solicitor, in addition to the fee payable under the agreement, any amount arising as a result of an award of costs or costs obtained as part of the settlement, unless, (a) the solicitor and client jointly apply to a judge of the Superior Court of Justice for approval to include the costs or a proportion of the costs in the contingency fee agreement because of exceptional circumstances; and (b) the judge is satisfied that exceptional circumstances apply and approves the inclusion of the costs or a portion of them.
O.Rea. 195/04: Contingency Fee Agreements, s.6:
A contingency fee agreement that provides that the fee is determined as a percentage of the amount recovered shall exclude any amount awarded or agreed to that is separately specified as being in respect of costs and disbursements.
70. Read together, these provisions indicate that, as a general rule, the legal costs incurred belong to the client under a contingency fee agreement, unless a Court orders otherwise.
71 . Plaintiff-side lawyers raised concerns with the current requirements under the Solicitors
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Act. They note that in some cases, this creates an imbalance and potential inherent conflicts between counsel's interest and their client's interest.1 For the purpose of settlement, it creates an incentive for the lawyer to treat little of the all-inclusive settlement amount as costs. Some raised the concern that it also creates the risk of lawyers settling cases heading for trial for lower amounts to avoid, as one submission put it "their own economic disaster". They also note that this raises access to justice issues, as injured persons may risk losing the "leverage of taking a matter to trial".
72. To address this issue, plaintiff-side counsel made different recommendations, including the following:
- Set a sliding scale with a maximum contingency fee, increasing the contingency fee from something less than the maximum for cases that settle at stages prior to trial, to a maximum fee for matters that proceed to trial; - Permitting a "fees plus costs" model, with a cap on the total percentage fee lawyers may charge in excess of the cost contribution; - Amending the Solicitors Act and regulations concerning contingency fee rates to consider the total recovery, after deduction of disbursements, rather than distinguishing between damages and legal fees; and - Amending the Solicitors Act to permit contingency fee retainer agreements based on percentage-of-the-total agreements if the case settles, and costs-plus arrangements if costs are adjudicated by a court or tribunal.
73. Certain legal organizations support the Law Society proposing changes to the Solicitors Act and regulations in order to maintain access to justice for modest value cases.
74. In contrast, insurers take a markedly different approach. For example: a. One insurer recommends amending s.28.1 (8) of the Solicitors Act in order to eliminate the ability of lawyers to apply for court approval of contingency fee agreements, including the award of costs as part of the settlement. b. One insurance association submits that "the government should consider the appropriateness of [contingency fee] arrangements to compensate legal representatives for work relating to the no-fault medical and income replacement benefits provided through Ontario's automobile insurance system".
75. The Law Society is also urged by the insurance industry to apply additional resources to ensure high compliance with the current rules governing contingency fee agreements.
1 One example provided by a legal organization is illustrative: The lawyer and client enter into a 30% contingency fee. The matter goes to trial, where the Court awards $100,000 in damages and a further $100,000 for costs. In this situation, the lawyer receives $30,000, while the client receives $170,000.
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Capping Contingent Fees
76. In light of these issues, several submissions suggested that there should be a cap on contingency fees. Some endorsed amounts under 25%. One insurer recommended a 25% cap as found in New Brunswick, with controls so that this does not become the new floor. Others suggested 33% as proposed in BC and more recently in Ontario by Tim Hudak in Bill 12, Protection for Motor Vehicle Accident Victims and other Consumers from Unfair Legal Practices Act, 2016.2 One law firm suggested a cap could be 33% up to trial, and 45% at trial.
Other Options
Use tools already within the Solicitors Act Regulation
77. One insurer suggested that consideration should be given to using tools already provided for in the Solicitors Act Regulation.
Simplify the Solicitors Act
78. Several submissions noted that contingent fee arrangements and the Solicitors Act requirements are complex. Some encourage the Law Society to work with the Ministry of the Attorney General to simplify the legislation.
Other Factors Requiring Further Consideration
79. A few submissions noted the rapidly changing environment for funding cases. In Ontario, adverse costs insurance is available. This product reduces plaintiff counsel's risk and may reduce the justification for high contingency fees. Third party litigation financing is also available in certain instances. Consideration of potential changes to the Solicitors Act may require consideration of other means of seeking to facilitate access to justice, and the relative costs and risks related to these other options.
2 Bill 12, Protection for Motor Vehicle Accident Victims and other Consumers from Unfair Legal Practices Act, 2016, online: http://www.ontla.on.ca/web/bills/bills detail. do ?iocaje-en&Bill[S-4123.
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TAB 4.6.2
A History of the Consideration of Contingency Fee Rates in Ontario and Approaches in other Jurisdictions
Early Consideration of Appropriate Contingency Fee Rates
1. The notion that contingency fee agreements ("CFAs") should be capped or otherwise prescribed in Ontario is not new.
2, In July 1992, a Law Society Special Committee on Contingency Fees recommended (and Convocation subsequently approved) a maximum cap of 20%, with party and party costs awarded to the client to go to the lawyer. Notwithstanding the cap, a lawyer would be permitted to apply to court, at the time of entering the CFA for approval to charge a higher contingency fee rate.1
3. In June 2000, a Joint Committee on Contingency Fees comprised of representatives from the Advocates' Society, the Canadian Bar Association (Ontario), the Law Society and the Ministry of the Attorney General recommended a 33 1/3 % cap, and that the client alone should be entitled to receive the award of costs. Under this approach the lawyer could apply to court for approval to charge a contingency fee in excess of the cap.2
4. In September 2002, the Professional Regulation Committee again recommended that the maximum contingency fee rate should be capped at 20%, with the lawyer entitled to receive the costs award. The lawyer could apply to court to charge a fee in excess of the cap. However, with the Court of Appeal's Mclntrye v. Attorney General of Ontario decision being released thereafter, this proposed approach was tabled.3
5. In October 2002, the Professional Regulation Committee ultimately recommended new rules that did not specify a maximum percentage or require that costs be either included in or excluded from the lawyer's fee. The rule simply required fees to be fair and reasonable.4
The Solicitors Act
6. The Solicitors Act did not set a maximum percentage cap. However, costs belong to the client, and a lawyer's fee cannot exceed the amount paid to the client.
1 Report to Convocation June 23, 2000, Report from Society's Representative on Joint Committee on Contingency Fees at para. 14.
2 Ibid.
3 Report to Convocation on Regulation of Contingent Fees, Professional Regulation Committee, October 10, 2002, at paras. 14-17.
4 Ibid, at para. 22.
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Recent Calls for a Cap
7. There have been recent calls to cap CFA fees. For example:
In submissions to the Working Group, one insurer recommended a cap of 25%; The Insurance Bureau of Canada recommends a sliding cap; The Hutchison Study similarly recommends that if a fee-multiplier for successful cases is not adopted, then a maximum percentage of 25% may be appropriate;5 Bill 12, Protection for Motor Vehicle Accident Victims and other Consumers from Unfair Legal Practices Act, 2016, introduced by Tim Hudak, would introduce a 33% cap;6 Bill 103, Personal Injury and Accident Victims Protection Act7, introduced by Mike Colle, proposes an amendment to the Solicitors Act to cap CFAs in personal injury claims to no more than 15% of the value of the property recovered in the action or proceeding.
Approaches to Caps / Limiting Fees in Other Jurisdictions
8. A comparative approach provides some assistance in considering options. The following are examples from Canada, the United States, Australia and England and Wales.
Canada
9. There are limits for contingency fees in British Columbia and New Brunswick.
10. In British Columbia, CFAs for motor vehicle accident claims are capped at one third of the amount recovered. In all other personal injury / wrongful death claims, the cap is 40% of the amount recovered. There are no other CFA caps. B
11. In New Brunswick, there is a CFA cap of 25% of the amount recovered, exclusive of costs, taxes and disbursements, which increases to 30% if the matter proceeds to appeal. If a lawyer and client wish to enter into a CFA with a higher contingent fee amount, they must apply to the Law Society and file a $150 deposit. An appointed reviewing officer will provide written reasons approving or denying the request.9
5 Allan C. Hutchinson, "A Study of the Costs of Legal Services in Personal Injury Litigation in Ontario" Final Report ("Hutchinson Study"), Insurance Bureau of Canada, online at: http://assets.ibc.ca/Documents/Studies/Studv-of-the-Costs-of-LeQal-Services-in-Personal-lniurv-Litigation- Alian-C-Hulchinson.pdf.
6 Bill 12, Protection for Motor Vehicle Accident Victims and other Consumers from Unfair Legal Practices Act, 2016, online: httD://www.ontla.on.ca/web/bills/bills detail.do?locale=en&BilllD=4123.
7 Bill 103, Personal Injury and Accident Victims Protection Act online: http://www.ontla.on.ca/web/bilis/bills detail.do?locale=en&lntranet=&BilllD=4614.
8 Law Society of British Columbia, "Lawyers' Fees", online at https://www.lawsocietv.bc.ca/workinq-with- lawvers/lawvers-fees/.
9 Law Society of New Brunswick, "Contingent Fee Agreements", online at httP://lawsocietv- barreau.nb-ca/en/public/continoent-fee-aqreements.
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USA: CPAs and Percentage Caps
12 In the United States contingency fees are permitted, but given high damage awards in areas such as medical malpractice, fees have been capped in certain States for personal injury or solely for medical malpractice claims on a flat or sliding basis. Flat fee caps are generally 1/3 of the amount recovered (although in Oklahoma the cap is 50%). Sliding fees range by State, as demonstrated in this chart providing a few examples of sliding caps for medical malpractice claims:10
STATE CAP
California 40% of first $50k, 1/3 of next $50k, 25% of next $500K, 1 5% of amounts >$600K
Delaware 35% of first $100k, 25% next $100K, and $10% thereafter
Massachusetts 40% of first $1 50k, 1 .3 of next $1 50k; 30% of next $200k, and 25% thereafter
New York 30% of first $250k; 25% of second $250k; 20% of next $500k; 15% of next $250k; 10% over $1.25M
Australia
13. In Australia, while CFAs are prohibited, conditional cost agreements are permitted in certain states. Conditional cost agreements are agreements where payment of some or all of the legal cost is conditional upon the successful outcome of the matter.11 A conditional cost agreement may include an "uplift" fee, an additional amount payable on successful outcome of the matter. Flowever, an uplift fee can only be included in litigation if the lawyer has a reasonable belief that a successful outcome of the matter is likely, and must not be more than 25% of the legal costs payable, excluding disbursements.12
England and Wales
14. In England and Wales, following the Jackson reforms, lawyers may enter into conditional fee agreements, where the lawyer can claim costs plus a "success fee", which can be up
10 Hyman, David A., Bernard Black, and Charles Silver. "The Economics of Plaintiff-Side Personal Injury Practice". University of Illinois Law Review, vol. 2015, no. 4, pp. 1563-1603, at Table 1, page 1574. Further examples are provided in Table 1 of this article.
11 Legal Profession Uniform Law, s 181(1), (6); Western Australia Legal Profession Complaints Committee, "Fact Sheet: Types of Costs and Costs Agreements" (updated 23 May 2014), online:
12 Legal Profession Uniform Law, s. 182(1).
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to 100% of the lawyer's regular fees. For personal injury cases, the "success fee" remains up to 100% of the lawyer's regular fees, but is also subject to being capped at no higher than 25% of the damages awarded.13
15. Contingency fees (known as "Damages-Based Fees") are permitted such that clients do not pay legal fees unless they are successful in their matter. These are capped at 50% in certain areas, 35% for employment tribunal cases, and 25% on personal and clinical negligence claims. There is no cap for appeal proceedings.14
Ratio Based on the Net Amount to the Client
16. Another potential option could include, for example, setting a percentage or comparative ratio of the net amount that will be paid from the settlement funds to the client to the gross amount of the lawyer's fees.
Summary of Options to Limit Fees
17. As the above jurisdictional scan indicates, there are a range of approaches taken in different jurisdictions, including:
i) A straight cap on the contingency fee percentage; ii) A sliding cap based on the stage of proceedings; iii) Limiting the contingency fee to a multiple of the "normal fee"; iv) Permitting a "success fee" that is tied to the "normal fee" and that can only be provided if the lawyer has a reasonable belief that the outcome will likely be a successful for the client (thereby aligning plaintiff counsel screening functions with risk and reward); v) Setting a cap based on a ratio of the net amount that will be paid to a client out of settlement funds to the lawyer's fees; and vi) Setting a cap based on the type of legal matter (ex. Tort, employment).
Potential benefits to limiting legal fees
18. Proponents of a cap generally argue that they "fix" the problem of high legal fees, and make sure that more settlement or awarded amounts end up in the hands of plaintiffs.
Potential risks to limiting legal fees
19. "Fixing" legal fee issues by capping them comes with the risk of creating an imbalance impacting the entire CFA system to the detriment of those who rely on it to be able to access the justice system.
20, Studies have shown that there are important indirect effects to caps. Where there are damage caps, for example, which effectively limit the lawyer's contingency fee amount, the evidence is that this causes lawyers who rely on contingency fees to stop
13 The Conditional Fee Agreements Order 2013, 2013 No. 689 online at: tittp://www.leaislation.aov-uk/uksi/2013/689/contents/made.
14 The Damages-Based Agreements Regulations 2013, 2013 No. 609, online at: http://www.leaislation.Qov.uk/uksi/2013/609/contents/made.
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representing certain clients in such cases, and to handle fewer malpractice cases generally.15 Tort reforms based on caps may "disproportionately reduce contingent fee lawyers' willingness to represent lower-income groups" due to the lower potential recovery.16
21, This research is particularly salient to the Ontario experience, as new caps in auto insurance benefits were recently introduced, taking effect on June 1, 2016. The impact of these new caps have yet to be determined. The key changes to Ontario's Statutory Accident Benefits Schedule ("SABS") include a reduction in standard medical, rehabilitation and attendant care benefits for non-catastrophic injuries from $86,000 in total to $65,000 in total, and a reduction in these benefits for catastrophic injuries from $2 million to $1 million.17
15 Stephanie Daniels & Joanne Martin, "It is No Longer Viable from a Practical and Business Standpoint": Damage Caps, "Hidden Victims," and the Declining Interest in Medical Malpractice Cases, 17 INT'L J. LEGAL PROF. 59 (2010).
16 Joanna Shepherd, "Uncovering the Silent Victims of the American Medical Liability System", 67 VAND. L. REV. 151 , 154 (2014). While a bodily injury may be identical in two cases, the claim by a lower-income person will be lower than that of a higher-income person if there is a loss of income claim that can be advanced. For the lower-income person, the loss of income is either zero (not working) or lower compared to that of the higher-income person.
17 Financial Services Commission of Ontario, "Important Changes to Auto Insurance", online: www.fsco.QOv.on.ca/en/auto/brochures/paaes/brochure chanqeslO.aspx.
164 270 Appendix"H"
LAW SOCIETY OF NEW BRUNSWICK BARREAU DU NOUVEAU-BRUNSWICK
Contingent Fees – Know your Rights
Please note: The information and examples contained in this Document are provided for general informational purposes only. In the case of any uncertainly, inaccuracy or inconsistency between this Know Your Rights document and the Law Society Act, 1996 and Rules, or the contractual wording in the preceding portion of Form 1, the actual wording in those other documents and the laws of the Province of New Brunswick shall govern.
What Clients Need to Know
Hiring a lawyer is an important decision. Before hiring a lawyer on a contingent fee basis, there is information that you need to know.
To ensure transparency and to protect the public, the Law Society requires that lawyers provide their clients with this document. The information that you need to know is set out in four sections:
1. Learning the basic terms 2. Deciding whether contingent fees are right for you 3. Hiring a lawyer on a contingent fee basis 4. Ending a lawyer-client contingent fee agreement
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1. Learning the basic terms
What are hourly rates and fixed fees? An hourly rate is a fee arrangement where a lawyer charges for each hour (or portion of an hour) that the lawyer works on the client’s case. For example, if the lawyer’s regular rate is $200 per hour and the lawyer works 5 hours, the fee will be $1,000, plus HST. Lawyers typically have different fee scales with more senior lawyers charging a higher hourly rate than those who are less experienced. Typically, the lawyer would bill the client on an ongoing basis and the client would be required to pay these bills regularly. The client would also be required to pay regardless of whether or not the client received a settlement or was successful at a proceeding, such as a trial or hearing.
165 A fixed fee (or a flat fee) is a fee arrangement where a lawyer charges a specific, total fee, plus HST, regardless of the amount of time that the lawyer spends working on the case. Usually a fixed fee is paid by the client to the lawyer before the lawyer begins the legal work.
What are contingent fees? Contingent fees are fees for a lawyer’s services that are charged to and payable by a client only if you receive money. That is, if the matter is settled or there is a final judgment. Payment of the fee depends on or is contingent upon the outcome.
Contingent fees are most often calculated as a percentage of the total amount of damages and costs recovered in a settlement or awarded at a proceeding, plus disbursements and HST. Disbursements and HST are typically paid by the client in addition to the contingent fee.
What is a contingent fee agreement? A contingent fee retainer agreement is a legal document that sets out the terms and conditions of the relationship between the client and the lawyer when the lawyer is charging the client on a contingent fee basis (i.e. when the fee paid to the lawyer is a percentage of the amount recovered for the client).
What are disbursements? Disbursements are expenses that a lawyer has paid on a client’s behalf to others who have provided services in support of the case. Disbursements are not included as part of an hourly rate or a contingent fee but may be included in a fixed fee. Examples of disbursements are hiring court reporters, expert witnesses, accountants or property appraisers. Lawyers are also permitted to charge clients for other ongoing disbursements such as photocopying costs to provide documents for use by a court and supplied to the opposite party, copies of records, costs of transcripts and court filing fees.
What are costs? Costs are an amount that the Court may add to a judgment to partially reimburse the successful party for the expense of hiring a lawyer. Costs are generally an amount based on the amount of the judgment, as prescribed by a Tariff in the Rules of Court. Costs are generally much less than the actual amount you will pay your lawyer.
If you are successful in your case, costs will be included the settlement or judgment, and the contingent fee percentage will be applied to the costs.
If you are not successful in your case, the Court could order you to pay the Defendant’s costs. These are your responsibility to pay, not your lawyer’s.
What is a settlement’? A settlement is an agreement to resolve a dispute where one person pays an amount and/or does something that satisfies the person making the claim. A settlement is an agreement between the parties while an ‘award’ is an amount determined by a Court or arbitration panel.
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166 2. Deciding whether contingent fees are right for you
For what matters are contingent fees permitted? Contingent fees are permitted for all matters except for family law and criminal or quasi-criminal matters. If your matter relates to family or criminal law, a lawyer is not permitted to charge you a contingent fee. For such matters, lawyers charge clients on a fixed-fee or an hourly basis.
Do I have to pay for legal fees on a contingent fee basis? No, there are other options and your lawyer is required to tell you about them. One option is for a lawyer to charge you for the time that they spend working on your case at an hourly rate plus disbursements. Another less common option is a fixed-fee arrangement.
What legal services are covered by a contingent fee retainer agreement? The legal services that are covered will be described in the contingent fee agreement. If you cannot determine what services are included after reading the contingent fee agreement, you should ask the lawyer what legal services are included and excluded. You should ask these questions and ensure the agreement is clear before signing the agreement.
How do lawyers determine the percentage or other basis for the contingent fee? Lawyers consider a number of factors in determining the appropriate percentage or other basis for a contingent fee. These factors include:
• The likelihood of success; • The nature and complexity of the claim; • The expense and risk of pursuing the claim; • The amount of the expected recovery; • Who may receive an award of costs.
Is there a maximum that a lawyer can charge as a contingent fee? Yes. In New Brunswick, a lawyer may retain 33%, at most, of the amount recovered for the client, including costs, interest and HST but excluding disbursements. However, if the matter proceeds to an appeal, the maximum percentage increases to 38%, including costs, interest and HST and excluding disbursements incurred on behalf of the client. That is, the disbursements (and HST on disbursements) are paid first, and the lawyer receives the agreed percentage of whatever is left.
Sometimes a lawyer and his or her client will both agree they would like to either increase the percentage to be paid to the lawyer or change some other aspect of the standard agreement. There are various reasons why this might be reasonable, and it is therefore allowed in some cases, but such agreements must be pre-approved. Lawyers and clients who wish to agree to a percentage greater than the 33% / 38% allowed, or who wish to change some other part of the agreement itself, must apply to the Law Society to have their particular contingent fee agreement approved by a ‘reviewing officer’. A reviewing officer is appointed by the Law Society and the lawyer is required to pay a fee to the reviewing officer.
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167 Who is responsible for paying for disbursements? The client may be responsible to pay for the disbursements. There are four payment options:
1. The client pays for all disbursements, as they are incurred and billed, regardless of the amount recovered, if any; 2. The client pays for all disbursements, regardless of the amount recovered, but not until the file is concluded either by settlement or judgment; 3. The client pays for disbursements, but only up to the limit of the amount recovered (in other words, you will not pay for any disbursements that exceed the amount recovered at the conclusion of your matter); 4. The client pays for some disbursements, and the lawyer pays for others, as specifically agreed upon by the client and the lawyer and set out in the contingent fee agreement.
If you cannot determine which payment option applies to you after reading the contingent fee agreement, you should ask the lawyer about this and ensure the agreement is clear before signing it.
It is important to note that some disbursements, for example, experts’ reports, may be very costly so it is important that you understand what you are agreeing to pay.
How and when are contingent fees payable? Contingent fees are payable from any amount recovered, whether the amount is recovered by settlement or after a trial. In some cases, your lawyer may be able to arrange for you to receive part of the settlement in advance before the case settles or before trial. Your lawyer would discuss that procedure with you. Contingent fees are payable to the lawyer from any advance payment or interim settlement agreement, unless the payment has been agreed to be for a designated purpose or payable to someone other than the client.
Funds will be paid to your lawyer. Your lawyer will then deduct the contingent fee (and, if agreed, disbursements) plus any HST. The lawyer will give you the balance, unless the contingent fee retainer agreement states otherwise or unless the lawyer is required by law to pay some other person (for example, the Canada Revenue Agency). You must receive an invoice from your lawyer, and also a statement showing the distribution by the lawyer of the total amount received.
If I receive a settlement or win at a proceeding, will the other side pay my costs? If the other person agrees to pay and you get a settlement or you win at a proceeding in Court, in most cases your lawyer will seek costs on your behalf.
The New Brunswick Rules of Court do not provide for high costs awards and even when a Court awards costs to you, they will not cover the actual legal costs / fees that have been incurred.
Where your lawyer recovers costs on your behalf, typically, the contingent fee will be calculated as a percentage of the total of the damages and costs awarded to you. You should carefully review your contingent fee agreement to confirm this.
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168 Is there a financial downside to me if I lose at a proceeding? If you lose in court, you may have to pay a portion of the other side’s legal costs. If costs are awarded against you (i.e. in favour of the other party), you and not the lawyer will be responsible for the payment of such costs.
What is a disadvantage of contingent fees for clients? A disadvantage of choosing a contingent fee agreement is that you may end up paying your lawyer more in legal fees than if he/she were to charge you an hourly fee for work done. This could happen if your lawyer is able to settle your claim quickly.
What are some of the advantages of contingent fees for clients? First, you will not have to pay any legal fees up front or on an ongoing basis. Second, if the lawyer cannot settle your case or if you lose at a proceeding in Court, then you would not have to pay your lawyer any fees and you may not have to pay any disbursements (depending on the payment option that was established). Third, if your matter goes to a proceeding and you win, the contingent fee may be less than an hourly fee if your lawyer has spent a significant amount of time on the proceeding.
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3. Hiring a lawyer on a contingent fee basis
How do I hire a lawyer on a contingent fee basis? Once you have read this document and the contingent fee agreement, if you decide to hire the lawyer, then you and the lawyer must sign and date the contingent fee agreement. By signing the agreement, you are confirming that you have sufficient information to enter into the lawyer-client relationship and that you agree to the terms, including the payment terms. The lawyer is required to provide you with a signed copy of the contingent fee agreement for your records. The lawyer will also keep a signed copy.
What are my responsibilities and rights as a client? You are responsible for giving your lawyer all the facts and being completely honest with them. It is very important that you give your lawyer all information that you have or have access to about your claim. This includes copies of documents.
You have the right to information about your case. You should understand the range of outcomes for your case, including how likely you are to win or lose. If you have questions about your case, you should ask your lawyer.
Even though your lawyer will give you legal advice, you have the right to make all critical decisions about your matter.
What responsibilities does a lawyer have to me? Your lawyer is required to keep you informed about matters that arise, discuss with you any significant decisions you must make and give you legal advice as the matter progresses. This
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169 includes letting you know if there are major expenses for your case and the impact these expenses will have on the total settlement or award you may receive.
When your lawyer is providing advice to you about settlement, the lawyer should provide you with a written estimate of the approximate net amount that you would receive based on the settlement offer. The estimate should include enough information so that you can make an informed decision and should include a breakdown of the lawyer’s fees, disbursements and any other charges that will be deducted from the amount that you will receive.
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4. Ending a lawyer-client contingent fee agreement
If I am unhappy with my lawyer after signing a contingent fee agreement, do I have the right to dismiss them? Yes, you have the right to dismiss your lawyer at any time. However, you should be aware that contingent fee retainer agreements typically have sections that come into effect if you end the relationship. For example, if you end the relationship with your lawyer without adequate reasons, you will have to pay your lawyer a fee based on the hours worked (i.e. an hourly rate). If you end the relationship for adequate cause, the lawyer may accept the termination without claiming a fee or may accept the termination but claim a fee. You may also have to pay the lawyer for all disbursements incurred with respect to your matter.
Can a lawyer end the contingent fee agreement with me? Yes, but there are limitations on the lawyer’s ability to do so under the Law Society of New Brunswick Code of Professional Conduct. The only reasons the lawyer may terminate the relationship are: • with the client’s consent; • if a client persists in instructing the lawyer to act contrary to professional ethics; or • other reasons that may be set out in the Contingent Fee Agreement.
How will I know when the contingent fee has been paid? When you are ultimately charged the contingent fee, your lawyer is required to provide you with a Statement of Distribution of Amounts Recovered and an invoice, which is a written accounting that clearly sets out the total amount of the settlement or award and the amount that you will receive and clearly lists the disbursements, legal fees and taxes charged to you.
What can I do if I think my lawyer’s final bill is too high? Once you have received your bill, if you think the bill is too high, you have two options. The first option is to talk to your lawyer about the bill to see if the lawyer is willing to reduce it. If not, the second option is for you to apply to have your bill reviewed. The review process allows the client (or the lawyer) to have a bill or a series of bills assessed by an independent third party called a “reviewing officer”. The reviewing officer has the authority to reduce the bill where appropriate or to confirm that the bill is fair and reasonable. Reviewing officers are lawyers appointed by the Law Society.
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170 A person who wishes to have a lawyer’s bill reviewed should contact the Law Society immediately. If the review process is not begun within the time allowed, it may be impossible for the reviewing officer to complete the review. Clients requesting a review must start the process within 120 days after the date the bill is received. This period can only be extended if the reviewing officer finds there are “special circumstances” that justify and extension.
For more information with respect to this information, see Review of Lawyers’ Bills (Taxation). (https://lawsociety-barreau.nb.ca/en/public/review-of-lawyers-bills-taxation)
(This document has been modified from a document prepared by the Law Society of Ontario entitled ‘Know Your Rights Guide for the Public’, with permission of the Law Society of Ontario)
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