Are Ontario’s New Contingency Fee Retainer Rules Effective?
On July 1, 2021, the Law Society of Ontario’s new rules for Contingency Fee Retainers came into force. According to the Law Society, the new requirements are intended to simplify and standardize the information that clients receive if they hire a lawyer to provide legal services under a Contingency Fee Retainer. The new rules will certainly standardize the information clients receive and the retainer agreements they sign, however, an issue yet to be determined, is whether clients will find the new information easily understood or helpful.
The changes are extensive. The Law Society of Ontario has published a detailed information package on the new requirements on its website.
The changes include the following:
New Standard Form Contingency Fee Agreement
Every lawyer must use a new standard form Contingency Fee Agreement, which can be viewed on the Law Society of Ontario’s website. Lawyers are only allowed to make very few changes to the standard document. While the Law Society states that the standard form is drafted in plain language and that clients will find it easy to understand, it is possible that once it has been completed with the necessary information about the client, and the legal services that are covered by it, every Contingency Fee Retainers will be at least 10 pages long, and perhaps longer. This will depend in part on the percentages which will be applied and whether the lawyer gets to keep some, or all, of the “costs”. Personally, I anticipate that clients will find the standard form difficult to comprehend and will have many questions about it. I frankly suspect that most will not bother to read all of it and will simply want to know what percentage they will be charged.
Disclosure Of Maximum Contingency Fee Percentage Is Mandatory, Maybe
Every lawyer who uses Contingency Fee Retainers must disclose the maximum percentage they will charge. The percentage must be stated on their website “in a manner that is easily accessible to potential clients”. If they do not have a website (And what lawyer does not have a website these days?), they must provide this information during the first client contact. If the lawyer quotes a percentage which is higher than their publicized percentage, they must tell the prospective client that they are charging a higher rate and then they must publish the new higher percentage. The object is clear enough, but I anticipate that issues will arise over how effectively the Law Society is monitoring lawyers to ensure that they increase their publicized percentage after charging a client a new higher one. Unless a disgruntled client makes a complaint, it is highly unlikely that the Law Society will be aware of a lawyer’s failure to publish their higher rate. The requirement of publicizing maximum rates was meant to ensure potential clients were well informed; however, an unscrupulous lawyer could use a low publicized rate as part of a “bait and switch” scheme. While forcing lawyers to publish their maximum contingency fee percentage sounds good in theory, it will probably not be effective to protect clients from unprincipled lawyers.
Simpler Fee Calculation
Previously, lawyers who used a Contingency Fee Retainer were not allowed to apply their contingency fee to “costs”. Costs are any amount collected from another party as a contribution to a litigant’s legal expenses. In the past, the contingency percentage was only to be applied to damages and interest; the costs were to be paid to the client. This could create a problem in an “all‑inclusive settlement” in which the amount allocated to costs was not clearly set out. The lawyer then had to determine what portion of that settlement should be considered costs. This could put the lawyer in a conflict of interest with their client. The client’s best interest was to have a larger portion of the settlement allocated to costs, but the lawyer’s best interest was to have a smaller portion allocated to costs. In the personal injury field, this should not have created a problem because it was standard practice for the defence to pay 15% of the first $100,000 in damages and 10% of the balance of the damages as costs, plus an additional amount for HST. A personal injury lawyer could easily determine how much of a lump sum settlement should fairly be considered costs. Unfortunately, some dishonest lawyers did not explain this to their clients and charged their contingency fee percentage to the entire settlement amount.
Under the new standard form Contingency Fee Agreement, lawyers are allowed to apply their contingency percentage to costs. This change is meant to remove any potential conflict of interest between the lawyer and their client. With this reform, at least clients will know with certainty what portion of any settlement is subject to the contingency fee and it will prevent improper fee calculations.
Lawyers offering contingency fee retainers must provide all potential clients with a standard form guide called Contingency Fees: What You Need to Know.
This 15-page document has a detailed explanation of contingency fees and provides sample questions that clients can ask their lawyer about their expertise and how their claim will be handled. Although it is meant to assist clients in understanding the proposed contingency fee retainer, there is a real possibility that very few people will take the time to read it through, and those that do may come away more confused than before they did. Fifteen pages of explanation may not be suitable substitute for an informative discussion between a prospective client and a lawyer which gives the client an opportunity to assess the lawyer’s communication skills and ability to represent them effectively.
Purpose of the Changes
While the Law Society is of the opinion that these changes to the entire Contingency Fee Retainer “regime” will benefit clients because the changes will make it easier for a potential client to compare lawyers, there is reason to question whether the changes will benefit clients.
- Is it an advantage to have the maximum contingency fee percentage each firm charges set out on their websites if the lawyer is allowed to tell them that their percentage will be higher than advertised?
- Is there really an advantage to the client knowing that fees will be charged on costs, when previously the client was entitled to receive 100% of those costs?
- Is it an advantage to have a standard Contingency Fee Retainer and Client Guide if they are so long and complex that no one reads or understands them?
To its credit, the Law Society of Ontario acknowledges that more clarification will likely be needed on the mandatory changes but believes that the new requirements will be appreciated by clients and lawyers. Only time will tell if this is the case.