LSUC considers revamping contingency fee rules

After making changes to the rules about advertising and referral fees, the Law Society of Upper Canada has turned its attention toward contingency fees.

The LSUC’s Advertising and Fee Arrangements Issues Working Group released an interim report Monday that identified potential recommendations — including a cap — to make contingency fees more fair and reasonable.

“The work we’ve done leads us to conclude that the contingency arrangement is not well understood by clients, is overly complicated, doesn’t align interests and may not have sufficient checks and balances to ensure reasonable fees,” says Bencher Malcolm Mercer, chairman of the working group.

Contingency fees have been permitted in Ontario since 1992 for class action lawsuits and since 2004 for individual litigation.

They have found their way in front of the law society’s regulatory crosshairs amid concerns that there has been non-compliance with the rules in the Solicitors Act that bar lawyers from taking fees from costs.

Currently, lawyers often assign a value to the costs element of a settlement or compensation when they come in a lump sum, Mercer says. As they are not meant to take from costs, Mercer says lawyers’ interests are better served by having smaller costs and higher compensation.

Many of the complaints the law society has received concerning contingency fees have come out of when settlement is reached, as this conflict between the lawyer’s and client’s economic interests often arises during settlement negotiation, the report said.

To tackle this problem, the working group is looking to recommend that the provincial government makes amendments to the Solicitors Act that would make contingency fees based on a percentage of a total settlement, or amount awarded at trial, less disbursements.

Mercer says this would do away with the inherent conflict of interest that is created by the current requirements.

“We think that that conflict is an unnecessary conflict that doesn’t serve anyone. It would be simpler and it would avoid the conflict if all dollars were received or treated the same way,” he says.

The working group is also considering new safeguards and enhanced client reporting requirements. Mercer could not share any specifics as to what a possible cap might be other than to say it is one of the options being considered.

The working group is also considering a requirement that clients receive independent legal advice before signing on to a contingency fee agreement in certain circumstances.

Another option the working group is looking at is requiring lawyers to disclose the value of time spent on a matter at their hourly rates before the client pays legal fees.

The working group is also considering a standard form be created for contingency fee agreements. Mercer says contingency agreements at the moment are “all over the map and unduly complicated.”

“It would be helpful both to clients and to lawyers to simplify them,” he says. The report was part of an ongoing regulatory initiative by the law society to tackle legal advertising, referral fees and contingency fees. Starting in 2016, the working group has been looking at how the law society can greater regulate fees and advertising, particularly in the personal injury area.

The working group also made recommendations Monday concerning advertising for residential real estate lawyers. These recommendations would require lawyers who want to advertise prices for residential real estate transactions would have to do so in a way that includes everything with specific exceptions.

“The intent of that is to allow people to be able to compare prices and to ensure a reasonably level playing field,” says Mercer.

Convocation has already approved changes the working group put forward concerning referral fees and advertising.

The working group has not finalized its recommendations on contingency fees and is asking interested parties to submit feedback by Sept. 29.