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The Absent Ethics of Legal Fees : Putting Profit-Seeking in Its Place

A lawyer should be a loyal ally for a person with a legal need. This loyalty is at the core of our profession’s value proposition to society. Thus, legal ethics strives to guarantee devoted service to clients. Conflict of interest rules prohibit all situations creating “substantial risk” that the lawyer’s loyalty to a client “would be materially and adversely affected by the lawyer’s own interest.” Lawyers, as fiduciaries, must be “concerned solely for the beneficiary [client]’s interests, never the fiduciary [lawyer]’s own.”

There is, however, a glaring exception to the duty of selfless loyalty to clients. Lawyers are allowed to pursue their own pecuniary interests in collecting fees, at the expense of the clients who pay them. When a lawyer acts to obtain fees from a client, (s)he is clearly not acting as a fiduciary who puts the beneficiary’s interest first.

Everyone deserves to be paid for their work, and without the profit motive very few legal services would be made available to anyone. However, legal ethics must reconcile lawyers’ self-interested pursuit of fees with the general prohibition of conflicts of interest, and with the generally fiduciary nature of the lawyer-client relationship.

I don’t think that Canadian legal ethics has adequately squared this circle. Rules of professional conduct, which are very long-winded on many topics, are extremely terse on the topic of fees. The Model Code of Professional Conduct, a 122 page document, dedicates only 4 pages to the topic, which is very complex. Fees must be “fair and reasonable” and “disclosed in a timely fashion,” but there is little or no guidance about whether specific billing and retainer-drafting practices comply with these vague directives. A previous column, and comments thereto, listed “Hall of Shame” shady billing practices used by Canadian lawyers that are not specifically forbidden by the Rules. These include lawyers arbitrarily awarding themselves bonuses from client funds, charging “disbursements” at rates that generate profit for the firm, and over-lawyering files just because there is big money involved.

Excessively directive regulation can choke flexible and creative professional service. Nevertheless, the inherent conflict of interest involved in fee-seeking calls for more detailed rules. In other situations where lawyers act against their clients, the Rules are admirably fulsome. An example is the lawyer defending a client who has privately admitted guilt, but wishes to plead “not guilty.” This lawyer must refuse certain defence strategies, even if these strategies would manifestly serve the client’s interests. When refusing to mislead the court, the lawyer doffs the garb of client ally, and dons the garb of officer of the court. The Rules rightly recognize that allowing (or requiring) a lawyer to act against her client’s interests is not to be done lightly. Thus, Rule 5.1-1 Commentary 10 carefully delineates exactly what a lawyer in this position may and may not do.

Like avoiding an unethical defence strategy that could lead to a “not guilty” verdict, pursuing the client’s money is a necessary – but jarring — note in a generally fiduciary lawyer-client relationship. In some client meetings, an awkward moment comes when the lawyer moves between (i) information-gathering, advice-giving, and strategy-devising in the client’s interest, to (ii) demanding or negotiating payment of overdue legal fees, in the lawyer’s interest. When this occurs, the lawyer doffs the garb of the client’s loyal ally, and dons the garb of the self-interested businessperson. For such a significant, and potentially problematic costume change, it is insufficient for legal ethics to merely mutter vaguely that the lawyer must be “fair and reasonable.” The steady stream of fee disputes proves the inadequacy of the status quo.

Both clients and lawyers deserve to know exactly what decisions and recommendations the lawyer can make qua profit-seeking businessperson. I think the Law Society of Ontario’s move toward mandatory retainer agreements is a step in the right direction, which should be extended from contingency fees into other billing models as well. Under a mandatory retainer agreement, the lawyer-qua-profit-seeker “bids” a small defined list of price terms to the client – e.g. hourly rate, contingency percentage, and cash retainer deposit requirement. Outside of these items, none of the retainer terms can be drafted in a self-interested way by the lawyer. Profit-seeking is an awkward but necessary part of the lawyer-client relationship. Appropriate regulation can reduce its potential to infect the entire relationship with distrust and uncertainty.

Comments

  1. I strongly agree with all the above. I left my former firm based on, in part, dubious billing practices and other issues related to how they over-billed clients. IMHO, I will say that Retainer Agreements should be mandatory and it is in the best interests of both clients and the legal profession to be clear and open with billing and fees. It just makes good business sense.

    In immigration, you have likely seen the discussion regarding the flawed regulation of “immigration consultants”. One of the common arguments to support these professionals is that immigration lawyers charge too much and clients should be allowed to retain the services of non-lawyers to save money. Alas, the facts available do not support this argument. Ravi Jain has provided excellent research on this point. I have seen consultants charge thousands of dollars more than I would charge. My fees are published on our website and this brings me to my next point.

    In addition to mandatory Retainer Agreements, I would also advise that law firms publish an FAQ page that explains standard clauses and conditions in the Agreements. The focus should be on helping clients. Since we have published everything online, I spend much less time discussing fees and billings which, in turns, saves me time to do what I love. I just makes sense!

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