New contingency fee regime set to come into effect July 2021

While a significant improvement, there is room for further clarification, says Adam Wagman

New contingency fee regime set to come into effect July 2021
Adam Wagman

Uncertainty remains but, overall, Ontario’s recent contingency-fee reforms are “far and away an improvement,” says Adam Wagman, senior partner at Howie Sacks and Henry LLP.

The new standard form agreement is shorter than that which many lawyers are currently using, the language is simpler and the fee calculation is more straightforward, which clears up a source of frequent confusion among clients, he says. But there is still room for further improvement, with aspects of the regulation remaining unclear, adds Wagman who was president of the Ontario Trial Lawyers Association in 2016 and 2017.

On Oct. 6, the Ontario Government proclaimed amendments to the Solicitors Act and adapted a new regulation – O. Reg. 563/20 – which introduced a new standard form contingency fee agreement. The amendments will come into force July 1, 2021.

Having a standard form that everyone must use will clear up confusion among clients, who are often unsure as to the exact financial terms for which they are signing up, says Wagman.

“Far too often in the past, a prospective client would say to me, yeah, but this other lawyer wants to charge me something very different from what we said that we were going to charge them. And, in reality, it was the same thing, just said in a different way,” he says.

The new amendments also allow for simpler fee calculation, says Wagman. Among the most challenging aspects of the current regime is that lawyers are not allowed to accept partial indemnity or substantial indemnity costs awards as part of their legal fees. The lawyer’s fee needs to be calculated only on the damages and interest recovered and recovered costs were to be returned to the client, he says.

“That created a number of significant problems,” says Wagman.

Costs, what they represent and how they are calculated is difficult to explain to a client, he says, adding that 80 per cent of the time, these calculations were a “major source of confusion.”

“And then fitting that explanation into the discussion about how much a client is actually going to receive in their pocket at the end of the case. Because, ultimately, that's what a client wants to know,” says Wagman.

“Using this standard form language, makes it infinitely easier for clients to compare lawyers.”

Another problem Wagman had with the current regime would arise during settlement negotiations. Defendants often make offers to clients on an all-inclusive basis, without carving-out which portion of the sum is for partial indemnity costs, harmonized sales tax or disbursements, he says. Wagman says this creates a situation where the lawyer is “artificially” creating those categories to determine what the legal fee should be.

“Because if you can't charge a percentage of the cost that has been recovered for the client, then you have to figure out what those costs are, even though the other side didn't bother to tell you what they were, or what they thought they should be,” he says.

“And it put lawyers in almost an immediate conflict position, where in order to act in the client’s best interest, if there was any uncertainty, they would have to err on the side of putting more money into the costs part of the heading.”

But the amendments are not perfect. For one, Wagman says there is a need for more clarification on how lawyers who have received an all-inclusive offer should treat disbursements.

Section 2 of the Regulation states: “A contingency fee agreement that provides that the fee is determined as a percentage of the amount recovered by the client under an award or settlement shall exclude any amount that is specified as being in respect of disbursements that a court allows or would allow as recoverable from an adverse party.”

Lawyers are to charge the contingency fee on the amount recovered for the client and not the amount recovered to reimburse the law firm for money expended on disbursements during the case, Wagman says. The problem, again, is that settlement offers typically do not specify the portion of the offer representing disbursements.

“It is still a little bit unclear from that regulation, how a lawyer is to calculate a contingency fee under circumstances where there is not an amount that is specified as being in respect of disbursements.”

Better terminology would state that the solicitor should take off all proper disbursements, whether specified by the defence or not and the contingency fee calculated from the remainder, says Wagman.

Another problem is that the standard form agreement is silent on who pays the initial disbursements in a scenario where a client changes lawyers during the case, he says. Standard practice dictates that the new lawyer agrees to pay the disbursements of their predecessor, in exchange for that lawyer’s file. The new standard form contingency fee agreement says the client is free to end the agreement at any time and the lawyer is entitled to collect disbursements from a settlement when the case concludes. This will create confusion and disagreement and may be used to argue that the standard practice is no longer in effect, says Wagman.

“In my opinion, that can't be right. It can't be right that a lawyer who is no longer working on the file, because a retainer agreement has been terminated, essentially has to continue to fund that file with their disbursement money – which can be 10s of thousands of dollars – while they have no involvement in the case,” he says.

“That part of the agreement should make it clear that under circumstances where the client retains a new lawyer that there is an expectation that the new lawyer will pay for the previous lawyer’s disbursements in exchange for the file materials being delivered to the new lawyer.”

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