This article comments on arbitrating legal fee disputes as opposed to going to Court or through an Assessment. The article is relevant to lawyers, paralegals and clients. Arbitration is an under-utilized and advantageous dispute resolution mechanism.
Legal Fee Dispute Options
When negotiation and/or mediation fail, there are 3 options for legal disputes:
- Assessment; or
Why Clients Prefer to Arbitrate
Clients prefer arbitration because it’s faster, simpler and most significantly, it’s confidential.
Going to Court or an Assessment means that sensitive, privileged information will be disclosed in public. Retainer agreements, invoices and correspondence all become evidence accessible to anyone. Especially in ongoing litigation, this can have unintended consequences.
Consider how a simple billing line such as “telephone conference to discuss pros and cons of settlement offer and recommendation to accept offer” can undermine a negotiation if it falls into the wrong hands.
Legal Fee Disputes and Small Claims Court
In late 2014, the Divisional Court ordered that you cannot take a legal fee dispute to Small Claims Court where there is a written retainer agreement. Please see Jane Conte Professional Corporation v. Josephine Smith (http://canlii.ca/t/gf2r5) for the decision.
With most lawyers putting retainer agreements in writing, going to Small Claims Court for legal fee disputes has been ruled out.
Arbitrating Legal Fee Disputes and the Solicitors Act
Arbitrators have jurisdiction to hear legal fee disputes.
The Ontario Court of Appeal ruled in 2009 in Jean Estate v. Wires Jolley (http://cadynlii.ca/t/23bpn) that an arbitrator had jurisdiction over a legal fee dispute and in this particular case a contingency fee dispute, which is the type of retainer agreement with maximum protections under the Solicitors Act.
The Ontario Court of Appeal ruled that an agreement to arbitrate was enforceable despite the client requesting to have the contingency fee dispute heard by a Judge.
The Court of Appeal held that an arbitration must be conducted in accordance with the substantive statutory protections contained in the Solicitors Act and that parties cannot contract out of these protections.
Arbitrating Legal Fee Disputes and LawPRO Insurance
LawPRO is not responsible for and does not get involved in legal fee disputes. But legal fee disputes can often trigger allegations of errors, omissions and negligence.
LawPRO is required to defend any “civil suit” and the definition of civil suit means “an action, application or arbitration in which a claim for damages is asserted”.
Therefore, while there is no insurance coverage for the legal fee aspect of a dispute, LawPRO is obliged to get involved in the arbitration if insurable allegations of errors, omissions or negligence are made.
Assessments of Legal Fees
Assessment hearings involve painstakingly slow line-by-line analyses of invoices, which makes it a huge waste of time for everyone involved.
This does not mean that arbitration of legal fee disputes results in a duplication of a line-by-line analysis as would be the norm at an assessment hearing. Arbitrations do not have time for that sort of analysis, which would result in an adjudicator unable to see the forest for the trees.
A better approach is to review the contractual obligations in the retainer agreement and only if necessary look beyond the contract to consider the importance of the matter, complexity, time, effort and results, or in other words the value of services.
Retainer Agreements and Arbitration
Many, but not all, retainer agreements can and should include an arbitration clause. A sample arbitration clause appears toward the end of the article. Arbitration clauses should be inserted into retainer agreements because arbitration is going to be best for lawyers, paralegals and clients.
Arbitration clauses can only go into business retainer agreements, not consumer retainer agreements. This is due to the Consumer Protection Act and is discussed next.
Arbitrating Legal Fees Disputes and the Consumer Protection Act, 2002
What is a consumer retainer agreement? Section 1 of the Consumer Protection Act contains relevant definitions necessary to answer this question.
A consumer retainer agreement is an agreement between a supplier of legal services to an individual for personal, family or household purposes excluding an individual who is retaining the lawyer/paralegal for business purposes.
Subsection 7(2) of the Consumer Protection Act invalidates any consumer retainer agreement clause that prevents going to Court but subsection 7(3) permits consumer arbitration agreements once a legal fee dispute arises.
Agreements to arbitrate consumer legal fee disputes are valid if they are made after the dispute arises. Agreements to arbitrate business legal fee disputes can be made before or after a legal fee dispute arises.
Sample Retainer Agreement Arbitration Clause
Below is a sample retainer agreement clause for lawyers, paralegals and clients to insist on being inserted into their retainer agreement:
The parties to this retainer agreement agree to make good faith efforts to resolve any issues concerning this retainer agreement and/or the representation of the client by the lawyer/paralegal through negotiation and/or mediation. Should any issue not resolve through voluntary negotiation and/or mediation, the parties shall arbitrate.
Whenever arbitration is permitted or required by this retainer agreement, one party may initiate arbitration by giving notice to the other party identifying the issue to be arbitrated. A single arbitrator shall conduct the arbitration.
The parties shall do their best to agree on an arbitrator and will consider agreeing to appoint Hassell Arbitration (www.hassellarbitration.ca). If the parties cannot agree on an arbitrator, they may ask Hassell Arbitration to choose an arbitrator for them or agree on an alternate method to appoint an arbitrator or apply to the Ontario Superior Court of Justice to appoint an arbitrator pursuant to Ontario’s Arbitrations Act, 1991.
Unless the parties agree otherwise, the arbitration shall be conducted in accordance with the laws of the Province of Ontario and the arbitration shall be held in Ontario. The arbitrator may direct a telephone or videoconference.
The parties agree to act in good faith during the arbitration process in order to enable swift justice.
How Do I Start Arbitrating My Legal Fee Dispute
If you are a lawyer, paralegal or client with a legal fee dispute that you cannot resolve, you can agree to arbitrate and then serve and file a notice to arbitrate, available online here: www.hassellarbitration.ca/arbitrate-now
You do not have to have a clause in your retainer agreement to do so. You can arbitrate business and consumer legal fee disputes.