The Law Society of Upper Canada Releases Report with Proposed Amendments to the Rules on Contingency Fee Agreements
July 6, 2017
BY Valerie Le Blanc
On June 29, 2017, the Law Society of Upper Canada (“LSUC”) released its Professional Regulation Committee Report to Convocation, which contains the interim report of The Advertising & Fee Arrangements Issues Working Group (“Working Group”) on proposed amendments to Ontario’s contingency fee system. The topic of how contingency fee agreements function as a model to finance litigation is of interest to the BCLI’s ongoing Financing Litigation Legal Research Project.
Background of the Project
In February 2016, the LSUC formed the Working Group to review contingency fee practices in Ontario. Meetings with members of the Ontario personal injury bar and licensed paralegals were held in spring 2016 to gather input on issues with contingency fee agreements. Other issues canvassed by the Working Group were advertising practices and referral fees.
The Working Group published a June 2016 Report to Convocation summarizing its findings from the focus group data. Concerns raised by participants included:
- A lack of clarity on contingency fee requirements in the Ontario Solicitors Act;
- The impact of competition on how lawyers set contingency fee rates;
- Non-compliance by lawyers and licensed paralegals with the contingency fee requirements under the Solicitors Act; and
- Absence of a contingency fee model for cases requiring a trial.
Participants suggested a need for reform of the Ontario Solicitors Act to provide more clarity and alignment of interests for lawyers and clients. The Working Group’s 2016 report proposed that Ontario’s contingency fee model could be reformed in two key ways. First, the model could be modified to allow for the deduction of legal fees from the judgment or settlement, rather than being paid direct from the client. Second, advertising of contingency fee rates on firm websites could help promote transparency for clients seeking this type of fee arrangement, and increase awareness among the Ontario legal profession about contingency fee practices and their impact on access to justice.
Following its 2016 report, the Working Group released a Call for Feedback from the public on ideas for recommendations to help prepare its 2017 report. The Working Group sought input on the following three questions:
- 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?
Recommendations for Reform
Recommendations from the 2017 report for reform of Ontario’s contingency fee structure are summarized as follows:
Development of a standard form contingency fee agreement:
- The array of contingency fee agreements currently used by lawyers and licensed paralegals creates too much uncertainty for clients, and prevents them from being able to compare services;
- A standard agreement would “highlight key consumer rights and responsibilities” and “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.”
Simplification of the contingency fee calculation structure in the Solicitors Act:
- Develop a simplified contingency fee calculation structure to facilitate communication and transparency on fees for both clients and lawyers (or licensed paralegals) at the outset of a retainer;
- Proposed options to consider by the Working Group to implement this recommendation include:
- “A percentage cap on contingency fees, either on a fixed or sliding scale;
- Requiring independent legal advice (“ILA”) before a client agrees to the payment of legal fees in certain circumstances; and
- Disclosure before payment of legal fees of the value of the time actually spent on the matter at the licensee’s agreed hourly rates.”
- If a percentage cap on contingency fees is adopted, an option in the rules for joint application by lawyer and client to the 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.”
Other proposed amendments to the Solicitors Act:
- Amendments to the rules regarding legal costs (the current rule states legal costs belong entirely to the client and are omitted from any calculation of the contingency fee)
- The Working Group suggests complications arise for plaintiffs and counsel in applying this rule, as oftentimes defendants build into a settlement a payment of legal costs. This leaves plaintiffs and their counsel to assess what amount should be attributed to legal costs without any clear direction from the existing rules;
- Amendments to develop a contingency fee structure applicable to cases where a trial is required, taking into account the interests of both clients and lawyers with respect to legal costs arising from a trial settlement;
- Amendments to the contingency fee structure to:
- “Calculate fees based on a percentage of the total settlement amount or amount awarded at trial, less disbursements;
- 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
- Introduce enhanced client reporting requirements.”
Additional regulatory requirements:
- To enhance communication and transparency for clients who enter into contingency fee arrangements with lawyers and licensed paralegals, the Working Group suggests the following regulatory requirements could be developed:
- Communication in the client reporting letter on the factors used to establish a reasonable contingency fee rate in the circumstances of the case (either from case law and/or from professional conduct rules);
- Recording of time spent by the lawyer and paralegal on a contingency fee file;
- Reporting of “the amount and value of time spent on the matter on the final account to the client”; and
- “Advise the client on the final account of the right to apply to have the legal fees assessed.”
The LSUC Report and Financing Litigation
Release of the LSUC 2017 report directly relates to the BCLI’s examination on the use of contingency fee arrangements in British Columbia as a method of financing litigation. The BCLI has reviewed the existing contingency fee structure in the province, under Part 8 of the provincial Law Society Rules, and considered potential limitations it may impose on certain types of cases. Of interest to the BCLI’s study is whether there may be opportunities for structural, systemic or legal changes that would enhance its application to a wider range of cases, thereby facilitating access to justice for litigants.
In its 2017 report, the Working Group suggests the proposed reforms will not only address those concerns outlined by the focus group participants, but will enhance access to justice “for individuals who have legal claims and rights which they may otherwise be unable to advance.”
The Working Group has issued a Call for Comment on the recommendations contained in its 2017 report. The deadline for submissions is Friday, September 29, 2017. The Working Group intends to review the feedback received, with a follow-up report to Convocation for further recommendations.