LSO amends Rules of Professional Conduct to address new contingency fee regime

On Feb. 24 Convocation, the chair of the Law Society of Ontario’s Professional Regulation Committee, Megan Shortreed, presented a joint report with the Paralegal Standing Committee to seek an amendment to the Rules of Professional Conduct as required by the province’s new contingency fee regime, which went into effect Jan. 1.

The amendments addressed concerns that the rules would be impractical and unhelpful for lawyers who exclusively represent organizations.

On Oct. 6, 2020, the Ontario government proclaimed amendments to the Solicitors Act and adopted a new regulation – O. Reg. 563/20 – which introduced a new standard form contingency fee agreement. The amendments came into force on July 1, 2021.

The changes sought to address long-standing issues with contingency fees by enhancing consumer protections, improving transparency and fairness for clients and ultimately facilitating access to justice while reducing licensee burden and supporting efficiency, Shortreed said.

“The proposed amendments remove the requirement under the rules to include certain prescribed information in the client’s bill, to provide the client with contingency fee consumer guide and to disclose information about the licensees maximum contingency fee charge.”

The revision also included a new paragraph to the lawyer commentary rules, which clarified that unless a lawyer markets legal services exclusively to organizational clients as defined by the new legislation, they must still comply with marketing requirements to disclose their maximum contingency fee charge.

Following the launch of the new requirements last July, Shortreed said some licensees expressed concerns that the form did not provide options that reflected their practice areas or specific fee arrangements, and the LSO raised further concerns with the Ministry of the Attorney General.

She said the Ontario Bar Association also recommended a regulatory exemption for clients that are organizations stating that the new requirements added costs, provided no consumer protection and could not be operationalized.

Adam Wagman, a senior partner at Howie Sacks and Henry LLP, told Law Times in a previous article that the new amendments allow for simpler fee calculation, and a standard form that everyone uses will clear up confusion among clients, who are often unsure as to the exact financial terms for which they are signing up.

The article also reported that a challenging element of the current regime was that lawyers could not accept partial indemnity or substantial indemnity costs awards as part of their legal fees. Instead, the lawyer’s fee must be calculated only on the damages and interest recovered, and the recovered costs would be returned to the client.

“The government has now amended the regulation. In addition, the standard form agreement which is incorporated into the regulation was amended to provide more flexibility and options for licensees,” Shortreed said.

She said the new amendments streamlined the regime and targeted requirements while maintaining enhanced consumer protection, improved transparency and fairness for clients. However, the standard form agreement changes do not affect the Rules of Conduct requirement regarding establishing transparency in billing and marketing.

Bencher Jared Brown said the committee did not foresee the opposition from Bay Street law firms after passing the contingency fee changes in 2020. “Let’s not mince words here, Bay Street people were pissed because they do charge contingency fees, and somehow this committee neglected to realize [the] impacts on those businesses, those law firms.”

Brown said that while he applauds the attempts to clarify the contingency fee calculation, the persisting problem remains. “Perhaps this endeavour will allow us to finally put to rest something that comes up time and again at Convocation and, that is the idea that we must follow the recommendations of our committees, that our committees get things right, that we should defer to our committee structure on any issue that’s brought forward.”

“I applaud that we’re revisiting this issue. I think this is an example of how good governance should proceed, but let’s not fool ourselves. The committees are not sacrosanct. They get things wrong once in a while, they don’t see all and this is why the Convocation is here to provide sober second thought.”

Shortreed responded to Brown’s remarks, clarifying that the Ontario government rewrote the standard form contingency fee agreement.

The motion passed with a majority vote.

Treasurer Teresa Donnelly also notified Convocation that the LSO was further contemplating the issue of additional legal service support in family law. She said the Access to Justice Committee report on family legal service provider license released in January received valuable input from stakeholders, and the feedback required additional deliberation.

“This is a complex issue involving the regulatory obligation to protect the public balanced with the need for more flexible legal service options in support of family law client needs,” Donnelly said. “As a result, that report is not on our agenda today and I’ll be considering next steps on how to move the access to legal services forward in this important area in a way that’s realistic and achievable.”