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Consensus forming over contingency fees

Focus on: Litigation Funding
|Written By Judy van Rhijn

The use of contingency fees has been attracting critical attention over the last year, with a private member’s bill, an independent report and a Law Society of Upper Canada task force all targeting the issue. Calls for greater transparency and regulation have been countered by arguments highlighting the importance of flexibility.

Framed as an access to justice issue, the debate cuts to the willingness of law firms to take on cases of all proportions, not just the high-paid ones.

“The goals you want to have at the end of the case is that the contingency fee is fair and reasonable and that the client is satisfied and not surprised by the fee,” says Claire Wilkinson, president of the Ontario Trial Lawyers Association.

Malcolm Mercer is the chairman of the Advertising and Fee Arrangements working group at the LSUC, which first tackled advertising, then referral fees, leaving contingency fees to last.

“It’s probably right that contingency fees are the most difficult,” he says.

The working group issued a paper outlining specific recommendations for contingency fees in June 2017, and it has requested feedback by the end of September. The response so far shows that consensus is firming between the LSUC and plaintiff’s bar, and even the insurance industry.

“On both sides, there is general agreement that there needs to be greater simplicity and transparency and that a simple and standardized contingency fee agreement will be welcome,” says Mercer.

“Currently, there is no standard agreement. Each lawyer is free to draft an agreement to reflect their needs, their client’s needs and the Solicitors Act. It’s hard to effectively compare the agreements and there is much reinventing of the wheel.”

Wilkinson identifies this suggestion as a key piece from the LSUC report.

“It is absolutely critical that Ontario has a standardized fee agreement. If that were to happen, a lot of confusion, misinformation and difficulties that the bar has experienced with respect to contingency fees should go away,” she says.

“There are requirements under the Solicitors Act that make lawyers put a whole lot of provisions in an agreement. They are intended to protect consumers, but it causes confusion and, at nine pages long, it is unwieldy.”

Wilkinson says the OTLA is working on a stripped-down, transparent, consumer-friendly agreement.

“It is two and a half pages long and easy to understand. We are currently working on the draft,” she says. “When we make our submission to the working group, we will attach the final draft. If it’s a good template, and they like it, it may be the one.”

Miles Obradovich, a litigation lawyer in Toronto, would welcome a standard, simple agreement.

“The current legislation requires us to include quite a few clauses in which the terminology is not straightforward,” he says. “We need language that is simple from a client’s perspective and a model everyone can follow to make it more accessible to consumers.”

Wilkinson believes the move will help consumer choice.

“It allows clients to compare apples to apples. If solicitors charge one-third or 35 per cent or 30 per cent, clients can have a very simple, easy comparison and select a lawyer,” she says.

In fact, this one change may render many of the other recommendations in the LSUC report unnecessary, such as independent legal advice, more education for consumers and enhanced reporting.

“If you get a standardized agreement, there is no need for independent advice at the beginning, although it might still be useful at the end of the case,” says Mercer. “The contingency fees system is based on the requirement that the ultimate fee charged will be a reasonable fee. Where the court is involved, the judge analyzes that against certain factors, but most cases don’t involve judicial sanction of the fee. The important question is: How can ordinary people get some assurance that fees are reasonable. One way is independent legal advice.”

He considers that making it a requirement in every case would be “expensive and overkill.”

Obradovich says there will still be occasions when independent legal advice is required, but that will be the exception.

“Hopefully, lawyers will use the agreement the proper way and all be quoting the same way,” he says.

The report also suggests that “enhanced reporting” may be of benefit.

“The law tells us which factors are to be considered to be reasonable,” says Mercer. “In the reporting option, the lawyer will give that information to the client so they can decide if they need independent legal advice.”

More client education is another option raised by the report, but Mercer thinks that with a simple standardized agreement you may not need to educate.

The other proposal in the LSUC report that the OTLA is endorsing is that contingency fees be charged on a percentage of the total amount recovered, less disbursements, rather than the damages award only, as currently occurs.

Contingency fees are regulated under the Solicitors Act, which specifies that it is the client who is entitled to receive the award of costs and amounts allocated for disbursements.

“Right now, the Solicitors Act says this is to occur unless the parties jointly apply for a variance,” says Wilkinson.

“It doesn’t align the interests of client and lawyer. Most settlements don’t have costs broken out as a separate piece.”

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