New Professional Conduct Ruling – Contingency Agreements

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By Melanie Hodges Neufeld

In June, the Ethics Committee considered a rather important question that arose in relation to contingency agreements designed to protect members’ remuneration in the event a client unilaterally decides to discontinue an action, or to change lawyers before conclusion of an action. The result was a Professional Conduct Ruling that renders two previous Professional Conduct Rulings obsolete (1988 SKLSPC 6 and 1991 SKLSPC 6). For your reference, please read the ruling below and see a more detailed analysis here.

Date:   June 16, 2016
Cite as:   2016 SKLSPC 5
Code Chapter:   2.06(2) (See also Rule 1051(2)(d) and (e))
Code Heading:   Contingency Agreements
Classification:   Contingency Agreements
Practice Area:   Civil Litigation

Facts

Lawyer X requested a Ruling from the Ethics Committee in relation to the terms included in their firm’s contingency fee agreement.  Specifically, the concern related to provisions in the contingency agreement designed to protect the Lawyer X’s remuneration in the event that the client unilaterally decides to discontinue an action, or to change lawyers before conclusion of an action. It was noted that the Ethics Committee had issued two Rulings on this subject (1988 SKLSPC 6 and 1991 SKLSPC 6), more than 25 years previous, but those Rulings, in light of more a more recent Queen’s Bench Court decision, now appear out of step with the approach taken in the courts.  The relevant Rules to be considered are 1501(2)(d) and (e), which require that a contingent fee agreement “does not purport to require the member’s consent before a client’s cause may be abandoned, discontinued or settled” and “does not purport to prevent the client from changing solicitors before the conclusion of the retainer”. The Code requires (in s. 2.06(2)) that “the appropriate percentage or other basis of a contingency fee [should be determined based on] a number of factors, including the likelihood of success, the nature and complexity of the claim, the expense and risk of pursuing it, the amount of the expected recovery and who is to receive an award of costs. … The test is whether the fee, in all of the circumstances, is fair and reasonable.”

The Ethics Committee considered the historical judicial treatment of these fee agreements, focussing on a more recent, Saskatchewan Queen’s Bench decision in Re Legal Profession Act, 1990 and Merchant Law Group, 2001 SKQB 311 (CanLII) Pritchard, J.  In that case, Justice Pritchard concluded that “until the matter commenced pursuant to a contingency fee arrangement has concluded, it is impossible for a taxing officer or the court to assess the reasonableness of fees that might be charged thereunder.”  Accordingly, Justice Pritchard found that the law firm was “not entitled to tax its account under the [contingency] agreement until the client’s recovery under the action has been determined. Therefore, notwithstanding that the [contingency] agreement provides that [the law firm’s] fees are payable forthwith upon transfer of the action to another law firm I find that this portion of the agreement is not enforceable at this time.”  Justice Pritchard went on to note that this did not apply to disbursements, which the client can become liable at any time (depending on the terms of the agreement).  Justice Pritchard also noted, with approval, a previous Alberta decision, in that an original solicitor is not entitled to assert a solicitor’s lien with respect to fees payable under the agreement when a client requests to transfer a file undertaken on contingency.

Ruling

The Committee determined that the Rulings on this issue rendered in 1988 and 1991 no longer conform with the common law as it informs Rule 1501.

In determining a “fair and reasonable” fee, relevant factors such as the time expended by the lawyer, the legal complexity of the matter, the degree of responsibility assumed by the lawyer, the monetary value of the matters in issue, the importance of the matter to the client, the degree of skill and competence demonstrated by the lawyer, the ability of the client to pay, and the client’s expectation as the proposed fee, cannot be assessed until the litigation, presumably successful, has been concluded. Consequently, it stands to reason that proposed fees for professional services rendered prior to such a conclusion must be held in suspense until the sum owing can be quantified. Further, where a fee cannot be fixed until the outcome of litigation is known and quantified, a lien cannot arise until after such quantification. Option for protection of lawyers’ fees entertained by the Courts have involved an hourly rate or quantum meruit assessment (subject to assessment), charging order, undertakings imposed on successor lawyers, or judgements enforceable against future awards. To direct that fees be fixed and paid before completion of the action, would unacceptably constrain a client’s freedom to change lawyers in a contingency case and, in Saskatchewan, offend Rule 1501.

Summary:

  • A Contingency Fee Agreement that purports to require immediate payment of fees on an hourly or quantum meruit basis when a client ceases their action or wishes to change lawyers breaches Rule 1501(2)(d) or (e)
  • A Contingency Fee Agreement that purports to allow the lawyer to exercise a solicitor’s lien on the file pending payment of fees on an hourly or quantum meruit basis, breaches Rule 1501(2)(d)
  • Aside from the prohibitions above, there are several different approaches to handle the determination and protection of fees, when a client decides not to pursue an action or when a client wishes to change lawyers prior to completion of an action. The best approach will be dictated by the particular circumstances of each case. In the case of changing lawyers, approaches may include such options as reaching an agreement with successor counsel requiring notification of the litigation’s result prior to proceeds being paid to the client, agreeing to a fixed fee payable only after the action is complete, or implementation of a charging order, among other things. When a client either abandons litigation or settles against his/her lawyer’s advice, the starting point will be negotiations between the client and lawyer as to proposed fees, likely based on terms of the contingency fee agreement that contemplate such circumstances. An account for time spent or a settlement percentage may be rendered at that time, to either be paid, litigated, or resolved in another way. Moreover and beyond the language of the Agreement, the court or a taxing officer may determine the matter. Ideally, a Contingency Fee Agreement should specify the approach that will be taken should termination of either the action or the solicitor-client relationship occur before judgement.

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