Practice Watch, by Barbara Buchanan, Practice Advisor
The BC Code: questions and answers
Fees, disbursements and other charges; contacting opponent’s expert; mortgage to secure legal fees; and more
The BC Code course, Parts I and II, generated much interest among BC lawyers — 4,895 people registered for the free CLE-TV sessions — a record high for a Continuing Legal Education Society course. In Part II we promised a follow-up Q&A in this column to help lawyers understand some of the information, particularly regarding fees, disbursements and other charges.
As we explained, the Ethics Committee has a number of Code items on its agenda. At its February 28 meeting, the committee decided that it will recommend to the Benchers at their April 5 meeting that they suspend commentary  of rule 3.6-3 while the committee considers the commentary. The committee made its views known to the profession through the March 2013 E-Brief.
Watch for further announcements about Ethics Committee opinions or rule changes that could affect the information in this column. Also, the course is now available to watch on the Law Society’s YouTube channel.
Fees, disbursements and other charges
Does the Code require lawyers to always have a written fee agreement with clients?
No. The Code has writing requirements; however, the Code doesn’t go so far as to state that all clients must have a written agreement. When reading the Code, keep in mind that “disclosure” and “consent” are defined terms and that “consent” has a writing requirement. Rule 1.1-1 states that “consent” means fully informed and voluntary consent after disclosure
(a) in writing, provided that, if more than one person consents, each signs the same or a separate document recording the consent; or
(b) orally, provided that each person consenting receives a separate written communication recording the consent as soon as practicable.
Examples of situations where there is a writing requirement are:
- contingent fee agreements (Law Society Rule 8-3);
- being paid by someone other than the client (rule 3.6-1, commentary );
- when fees are divided between lawyers from different firms (rule 3.6-5);
- when paying a referral fee to another lawyer (rule 3.6-6);
- when a lawyer and client agree that the retainer must be paid in advance of services (rule 3.6-9).
- billing for “Other Charges” that are not disbursements (rule 3.6-3, commentary );
At this time, if lawyers are candid with clients regarding billing matters as section 3.6 requires, in my opinion it is not unprofessional conduct not to conform precisely with commentary . For example, lawyers who are candid about disbursements that are third party and those that are internal costs (i.e. “Other Charges”), may include paralegal charges under the fees heading rather than under “Other Charges.”
A written agreement that sets out the terms, including when a bill would be considered overdue, is good practice, even if not mandatory, as there is less opportunity for problems to develop. Consider the following additional reasons for a written agreement:
- One of the factors in determining whether a fee is fair and reasonable is the client’s prior “consent” to the fee (rule 3.6-1, commentary (k)).
- “A lawyer should provide to the client in writing, before or within a reasonable time after commencing a representation, as much information regarding fees and disbursements, and interest, as is reasonable and practical in the circumstances, including the basis on which fees will be determined.” (rule 3.6-1, commentary )
- “A lawyer should confirm with the client in writing the substance of all fee discussions that occur as a matter progresses ...” (rule 3.6-1, commentary ).
Rule 3.6-2, commentary  states that, if a client agrees, a lawyer can receive both a fee based on a proportion of the amount recovered and a portion of an amount awarded as costs. Is this permitted?
No. Section 67(2) of the Legal Profession Act says that a contingent fee agreement must not provide that a lawyer is entitled to receive both a fee based on a proportion of the amount recovered and any portion of an amount awarded as costs in a proceeding or paid as costs in a settlement. In other words, it’s one or the other, not both. Accordingly, rule 3.6-2, commentary  is contrary to the Act (the Act prevails). There doesn’t appear to be a provision within the Act to apply for judicial approval to receive costs and a proportion of the amount recovered. The Ethics Committee will recommend to the Benchers to amend commentary  by removing the second and third sentences so that it would state:
In determining the appropriate percentage or other basis of a contingency fee, a lawyer and client should consider 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.
What is a disbursement on a client’s bill? What are “Other Charges”?
The Dictionary of Accounting, Roger Hussey (ed), Oxford University Press 1999, provides the following definition of disbursement:
A payment made by a professional person, such as a solicitor or banker, on behalf of a client. This is claimed back when the client receives an account for the professional services.
Section 69 of the Legal Profession Act permits a lawyer to issue a “bill” (defined in section 64(1)) that is a lawyer’s written statement of fees, charges and disbursements. The Code provides that “[a] lawyer may charge as disbursements only those amounts that have been paid or are required to be paid to a third party by the lawyer on a client’s behalf” (rule 3.6-3, commentary , suspended). The Code requirement is in line with what accountants view as a disbursement. For billing purposes, disbursements must be billed at their actual, rather than estimated, costs (August 10, 2012 Discipline Advisory)
The Code distinguishes disbursements from “Other Charges.” “Other Charges” are internal charges that a firm is entitled to bill, not disbursements paid on behalf of the client to a third party. Binnie, J. in R. v. Neil, discussed the duty of candour with respect to matters relevant to the retainer. Fees are relevant to the retainer; accordingly disclosing the law firm’s fees and internal charges to the client is part of the lawyer’s fiduciary duty of candour.
The provision regarding disbursements and “Other Charges” is based on the Federation of Law Societies’ Model Code. At the time of writing this column, five of the six provinces that have adopted the Model Code have adopted this provision. A Law Society of Alberta practice advisor has informed us that Alberta lawyers have been following the same provision with respect to what may be charged as disbursements for more than 22 years and it’s working well.
Do law firm management companies qualify as third parties for the purposes of billing disbursements? For example, can the management company bill the law firm for items such as photocopies at more than the actual cost and then, in turn, the law firm bill these charges as a disbursement to the client?
This question has been referred to the Ethics Committee. As the law firm management company is not at arm’s length, a lawyer’s duty of candour would require the lawyer to disclose to the client the lawyer’s direct or indirect financial interest in the management company and the charges that the firm wishes to bill.
If a lawyer incurs travel expenses at the client’s request, such as airline tickets, hotel accommodation and meal expenses, are they “disbursements” or “Other Charges”?
The charges would be disbursements as the lawyer would have paid a third party provider for the services, i.e. an airline, a hotel and restaurants.
If a lawyer charges clients for photocopies that are tracked to the client files and billed to the law firm by an arm’s length third-party provider, but the photocopier is physically in the lawyer’s office, is that a disbursement?
Are there resources on the website to assist us with fee agreements and billing?
Yes, see the following:
- Trust Accounting Handbook (www.lawsociety.bc.ca/page.cfm?cid=592);
- Retainer agreement – General (www.lawsociety.bc.ca/docs/practice/resources/retainer-general.pdf);
- How does a lawyer bill for disbursements and “Other Charges” under the BC Code? (www.lawsociety.bc.ca/docs/practice/resources/Code-disbursements.pdf);
- Sample Statement of Account (www.lawsociety.bc.ca/docs/practice/resources/Sample_Statement_of_Account.pdf);
- Proper recording and billing of disbursements required by rules, August 10, 2012 Discipline Advisory (www.lawsociety.bc.ca/page.cfm?cid=2546); Winter 2012 Practice Watch – Fees, disbursements and interest (www.lawsociety.bc.ca/page.cfm?cid=2629);
- How to handle aged trust accounts, January 11, 2013 Discipline Advisory (www.lawsociety.bc.ca/page.cfm?cid=2665);
- Bills and retainers are frequent source of complaints, December 7, 2011 Discipline Advisory (www.lawsociety.bc.ca/page.cfm?cid=2339);
- Lawyers must disclose commissions in investor immigrant matters, July 18, 2011 (www.lawsociety.bc.ca/page.cfm?cid=2251).
The sample retainer agreement and sample statement of account are intended to give lawyers a place to start. It’s expected that lawyers will amend the sample documents to mesh with their styles, needs and circumstances.
In a fee review, will a registrar take into account the Code requirements regarding fees, disbursements and “Other Charges”?
We don’t know if or how a registrar will take the Code into account. Section 71(2) of the Legal Profession Act provides that the registrar must allow fees, charges, and disbursements for services:
(a) reasonably necessary and proper to conduct the proceeding or business to which they relate;
(b) authorized by the client or subsequently approved, whether or not reasonably necessary and proper to conduct the proceeding or business to which they relate.
However, subsection (2) is subject to section 71(4) and (5). Subsection (4) sets out circumstances that the registrar must consider at the review (e.g. the time reasonably spent), but the registrar is not limited to those circumstances. Further, subsection (5) makes it clear that a registrar’s discretion is not limited by the terms of an “agreement” (a defined term) between the lawyer and client. Section 64(1) defines an agreement as follows:
“agreement” means a written contract respecting the fees, charges and disbursements to be paid to a lawyer or law firm for services provided or to be provided and includes a contingent fee agreement.
“Charges,” also defined, includes, but is not limited to, taxes on fees and disbursements and interest on fees and disbursements.
I employ paralegals and want to bill for their work on client files. Where do I show the charge?
A paralegal is your employee, so the charge isn’t a disbursement. You may include these charges as a subcategory entitled “Other Charges” under the fees heading or in the fees heading.
Rule 3.6-4 says that, if a lawyer acts for two or more clients in the same matter, the lawyer must divide the fees and disbursements equitably between them, unless there is an agreement by the clients otherwise. If I act for two spouses jointly, must I divide the fee between them if I don’t have an express retainer agreement?
Ask the spouses how they want to be billed. In the future, this is a good question to ask all clients for whom you act jointly, at the beginning of your relationship. This rule isn’t new. It’s the same language as in the Handbook (Chapter 9, Rule 5).
Rule 6.1-3(o) provides that a lawyer must not permit a non-lawyer to issue a statement of account. Can a paralegal sign a lawyer’s statement of account? Be the sole signatory on a lawyer’s trust cheque?
A paralegal or designated paralegal can prepare a draft bill for a lawyer’s review, but the lawyer must determine what he or she will charge the client. After the lawyer approves the bill for delivery, a non-lawyer may sign the account on the lawyer’s behalf if the supervising lawyer has delegated that authority. Section 69(3) of the Legal Profession Act provides that a bill must be signed by or on behalf of the lawyer, or be accompanied by a letter signed by or on behalf of a lawyer, that refers to the bill. Trust cheques must be signed by a practising lawyer (www.lawsociety.bc.ca/page.cfm?cid=2305).
My paralegal sometimes refers clients to me. Can I pay a referral fee to a paralegal or legal assistant employed by me?
No. Rule 3.6-7 prohibits a lawyer from giving a financial or other reward for the referral of clients or client matters to any person other than another lawyer. The rule’s commentary makes it clear that a lawyer may pay an employee for services, other than for referring clients, based on the revenue of the lawyer’s firm or practice.
Can a lawyer require a client to provide a credit card number in a retainer agreement, so that the lawyer can charge the credit card if the client doesn’t pay the bill?
A lawyer could include such a requirement in the retainer agreement; however, the conditions upon which the lawyer would apply the charges should be clearly disclosed. Further, if the bill’s amount is in dispute, it may be inappropriate to apply the credit card, and instead the lawyer should try to resolve the matter or seek a review by the registrar.
Contacting an opponent’s expert
The Handbook had rules about contacting an opponent’s expert (Chapter 8, Rules 14 to 18). Are these rules replicated in the Code?
Experts aren’t singled out in the Code, and it’s not a requirement that counsel advise opposing counsel in advance of contacting an opposing party’s expert. Section 5.3 covers interviewing witnesses. Subject to the rules on communication with a represented party, a lawyer may seek information from any potential witness, whether under subpoena or not, but the lawyer must disclose the lawyer’s interest and take care not to subvert or suppress any evidence or procure the witness to stay out of the way.
It would be courteous and appropriate, though not required, for a lawyer to continue to follow the former rules and advise opposing counsel about contacting an expert. Also, it could help avoid unnecessary conflict.
This topic has been referred to the Ethics Committee. The Federation’s Standing Committee on the Model Code will also review this area as part of the desire to have a consistent approach for litigators throughout Canada.
The Professional Conduct Handbook, Chapter 11, Rule 12, provided that a lawyer who knows that another lawyer has been consulted in a matter must not proceed by default without inquiry and reasonable notice. Rule 12 wasn’t carried forward into the Code. What is a lawyer’s obligation to opposing counsel?
Though it is not expressly stated in the Code, the course presenters expressed a view that a lawyer should make inquiry and provide reasonable notice to opposing counsel. A lawyer must be courteous and civil and act in good faith with all persons with whom the lawyer has dealings in the course of his or her practice, avoid sharp practice and waive procedural formalities and similar matters that do not prejudice the rights of the client (see rules 2.1-4 and 7.2-1). Lawyers have been disciplined for not adhering to the former Handbook rule. The Ethics Committee will recommend to the Benchers that language be expressly added to the Code similar to the former Handbook rule.
Mortgage to secure legal fees
Are there any rules around accepting property in payment of legal fees?
Code rule 3.4-30 requires a lawyer to recommend that a client receive independent legal advice if the client intends to pay for legal services with property instead of cash. The lawyer should also check whether a court order prevents him or her from creating or registering a mortgage on the property. Here is an example of a situation that went wrong.
In 2006, to secure his fees, a lawyer registered a $20,000 mortgage in favour of his law firm against a family home owned by his client and the client’s wife, the opposing party. However, a 2005 court order mutually consented to by the parties, restrained and enjoined them from disposing of, encumbering, assigning, or in any similar manner dealing with family assets until further order of the court. The law firm mortgage was in breach of the court order and should never have been created or registered. In 2009, the court declared the law firm mortgage null and void.
In October 2011, a Law Society discipline hearing panel found that the lawyer’s action in permitting the execution and registration of the mortgage constituted professional misconduct. Lawyers are officers of court and owe a duty to maintain the integrity of the legal system. For more details, read the discipline summary in the Spring 2012 Benchers’ Bulletin or see the decision (CIBC Mortgages Inc. v. Hemming, 2009 BCSC 1726).
General questions on the Code
Will changing from the Professional Conduct Handbook to the Code make any difference to practice and ethics in BC?
It should have a positive impact. The Practice Advice department receives over 6,000 inquiries a year from lawyers asking for help related to practice and ethics, so lawyers are clearly interested in complying with their obligations. The Code’s design, with commentary on how a rule operates, is more informative than the Handbook and should give lawyers a better understanding of their responsibilities. Also, law schools must have an ethics course for all students by 2015, and we understand that the Model Code will be used for teaching. This should result in a consistent approach across Canada and a better and greater understanding of ethical issues.
Are the Code rules and the commentary of equal weight?
During the BC Code course, the presenters expressed their view that the rules and the commentary are of equal weight, but explained that this question has been referred to the Ethics Committee for its opinion.
Contact Practice Advisor Barbara Buchanan at 604.697.5816 or firstname.lastname@example.org for confidential advice or more information regarding any items in Practice Watch.