Do You Offer Contingency Fee Arrangements in your Law Practice? Be Aware: LSUC Considering Regulatory Changes

Many lawyers, in particular personal injury lawyers, are paid through contingency fee arrangements (“CFAs”), where the lawyers charge their clients a fee based on a percentage of the damages recovered by their clients (the amount of money the client ‘wins’).

It wasn’t until 2004 that the Solicitors Act and the Rules of Professional Conduct were amended to authorize CFAs in Ontario with respect to claims being brought by individual litigants (CFAs have been allowed in class proceedings since 1994). The legislature and the Law Society of Upper Canada (“LSUC”) recognized that CFAs can provide access to justice to people of limited means.

However, the legislation governing CFAs has been far from clear. Recently, Justice Hoy in the case of Hodge v. Neinstein commented on the language of the legislation:

It can fairly be said that the language in the Act has created difficulties for lawyers and clients for many years . . . Courts have also struggled with the language, since much in the Act is not clear: see, for e.g. Gilbert’s LLP v. David Dixon Inc., 2017 ONSC 1345 (CanLII), [2017] O.J. No. 1037 (Div. Ct.).  The case before this court represents another struggle to make sense of the Act.

In addition to the confusing language of the Act, the Advertising & Fee Arrangements Issues Working Group of the LSUC has noted that, while CFAs play an important role in access to justice as they allow people who may not be able to afford lawyer’s fees to pursue litigation, some lawyers are taking advantage of these clients in vulnerable positions. The Working Group wants to enhance consumer protection for CFAs noting that there has been “widespread noncompliance with the current regulatory requirements governing Ontario’s contingency fee regime”.

After asking for comments on the current state of CFAs and holding a series of meetings with plaintiff and defence side personal injury lawyers in the spring of 2016, in June 2017 the Working Group suggested several changes to the current governance of CFAs in its Report to Convocation, including:

1) Making a mandatory standard form to be used for all contingency fee agreements.

2) Making changes 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 differs from the current calculation that the fee is based on the percentage of the total settlement amount less recovery on account of disbursement and legal costs, which is difficult to calculate. This can also create an inherent conflict between the lawyer’s interest and the client’s.

3) Putting in place safeguards to ensure fees are clear, fair and reasonable including putting a limit on fees by a percentage cap or other means; potentially requiring the client to obtain independent legal advice in certain situations before the fee is paid; recording the time spent on CFA matters, and advising the client in the final account of the client’s right to apply to have legal fees assessed.

The Working Group wants to hear from lawyers, paralegals and the public about these potential changes by September 29, 2017. If you use CFAs in your practice it is important for the LSUC to hear your opinion on this matter. You can make submissions online here.

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