National Post (National Edition)
CONTINGENCY FEES FOR LAWYERS POSE CONUNDRUM FOR LEGAL PROFESSION.
An Ontario law professor has conducted a study in which he concludes that contingency fee arrangements are a better deal for lawyers than their clients.
It’s bound to be a controversial report. Allan Hutchinson of York University’s Osgoode Hall Law School, received financial support for the report from the Insurance Bureau of Canada, an industry group whose members are often on the defence side in personal injury claims. Hutchinson tried to survey trial lawyers about contingency fee arrangements. He said that initial effort was met with a “firestorm” of negative emails and phone calls.
So he instead examined a database of Ontario cases from January 2010 and April 2016. He reviewed more than 62 reported decisions that involved judicial scrutiny of a lawyer’s contingency fee arrangement. Most of these were personal injury matters. The results suggest to him that lawyers collect more from contingency fee arrangements or CFAs than they would if they billed by the hour.
“As things stand now and as a result of the research done for this study, it cannot be reported that the present scheme in regard to CFAs is operating to protect and advance the interests of clients in their dealings with lawyers,” Hutchinson concludes.
As a general proposition, Hutchinson says he thinks contingency fees are an excellent way to ensure those without the financial means can retain a lawyer and see justice in court. Yet in practice, he said his case law review suggests that contingency fee arrangements provide more of a payday to lawyers than their clients.
“While lawyers are fully entitled to receive fair and reasonable fees for services rendered, there is suggestive evidence that lawyers are cashing in on the opportunities for enhancing their fees afforded by CFAs,” he concludes.
In a contingency fee arrangement, a plaintiff hires the lawyer at no cost up front. If the case fails, the plaintiff pays nothing. If the case results in a settlement or trial award, the plaintiff pays a pre-determined percentage of the recovery. It’s a simple solution for someone who can’t afford to pay hundreds of dollars per hour up front for legal advice.
Yet contingency fee arrangements come with a lot of fine print. Just what does the plaintiff eventually have to pay? The fee arrangement may contemplate a certain percentage of the recovery, but that’s not everything. The plaintiff might also have to pay for disbursements, such as the expert reports that will be needed to build the case.
The lawyer might pay for those costs up front, but if the case results in a recovery, the client must repay those out-of-pocket costs — plus applicable GST — on top of the contingency fee.
Ontario legal rules prevent the lawyer’s share from exceeding the total recovery received by the plaintiff, but Hutchinson unearthed a couple of cases in which courts approved payments that amounted to more than 40 per cent.
The Law Society of Upper Canada, the self-regulating body that governs the legal profession in Ontario, recognizes there could be a problem. Last June, it called for submissions on whether it should tweak its own professional conduct rules on several issues relating to the personal injury bar, among them contingency fees, advertising and referral fees.
Malcolm Mercer, a partner with McCarthy Tétrault LLP, is chair of the law society committee that is reviewing those submissions. He says his working group could suggest changes to the rules on advertising and referral fees in a month or so. The review of the contingency fee rules will take longer.
Mercer said his working group wants to know if there are ways to make contingency fee agreements easier to read and more transparent for consumers. As Mercer puts it: “Are ordinary people who are in a difficult situation able to make judgments about what’s being proposed to them?”
For its part, Ontario’s Ministry of the Attorney General, which is responsible for implementing the province’s Solicitors Act, met with Mercer’s working group to discuss the review. “We look forward to reviewing the Law Society’s report and working with them on this topic,” a ministry spokesperson said in an email.
Legal Post spoke to a couple of plaintiffs who used to have contingency fees and discovered the potential pitfalls.
Michelle Francis of Pickering, Ont., hired a law firm on a contingency fee basis after a traffic accident a couple of years ago. She has since resolved her legal matter, but looking back she says she was incredibly naive about the contents of the retainer agreement. A big issue is what happens if you decide to switch law firms in the middle of the case, she says. “It’s a horrible marriage if you’re not married to the right person,” she says.
Mark Clatney, an Ottawa businessman, discovered that switching law firms can trigger a dispute over the work-in-progress. His case has resulted in a groundbreaking appellate decision — one that Clatney says could have been avoided if retainer agreements clearly specified how to handle transfers of work-in-progress among law firms. “That’s something I think you need to have in any contingency fee agreement in case you switch lawyers,” he says. “People switch lawyers if they’re not being serviced properly.”
A possible move could be for the Law Society to mandate that Ontario lawyers use a standard form retainer agreement.
The Ontario Trial Lawyers Association says it supports efforts to simplify retainer agreements. It even makes a sample agreement available on its website, along with some commentary that explains why certain terms are in the text, and what they mean for clients.
But the association is cautious about over-regulating retainer agreements. It points out that there is already quite a bit of regulation that governs what Ontario retainer agreements must include. Those existing rules, the association says, make it difficult to produce concise, easy-to-read agreements.
For his part, Hutchinson recommends that lawyers use a standard form retainer agreement, but he would go a step further and require that this form be filed with the court.
He also recommends that Ontario should cap the maximum percentage a lawyer can collect from a client’s financial settlement, and that lawyers should be required to track their work to ensure a contingency fee is in line with actually time spent on the file.
And while Hutchinson acknowledges the law society is in the midst of a review, he recommends the regulator conduct its own empirical study into whether contingency fee arrangements provide value to clients. He describes his own work as an attempt to analyze the world by looking through a keyhole.
Only the Law Society, he believes, would have the ability to capture something closer to the big picture. Still, Hutchinson believes he’s had enough of a peek to conclude that lawyers have more to gain from contingency fees than their clients.