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Yes. Section 3.6-3 of the Code of Conduct of the Law Society of Alberta (the “Law Society”) and the accompanying commentary permit the billing of disbursements and other charges, provided they are “fair and reasonable” and have been “disclosed in a timely fashion”.
The Law Society has confirmed that the CLFL may be passed on to clients as a disbursement (as opposed to an “other charge”). Accordingly, if you are required to pay the CLFL, you may charge it to your client as a disbursement.
The Code of Conduct requires full disclosure in all financial dealings between lawyers and clients and includes that 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.
Lawyers should be sure to address the CLFL in writing with their client in accordance with the Code of Conduct, for example, in their retainer letter.
Alberta’s Assessment Offices have confirmed to ALIA that the CLFL would be allowed on a review of lawyer’s charges, on the basis that the Law Society has confirmed it to be a disbursement. They have also confirmed it would be recoverable by successful litigants, whether as disbursements for Schedule C costs or for solicitor and client or solicitor and own client costs.
The obligation of Subscribers to certify and pay the CLFL will be set out in the Rules of the Law Society and communicated to Subscribers by ALIA. ALIA will provide more information on implementation matters prior to the CLFL becoming effective.
Each year, the specifics of the CLFL will be set out in a Transaction and Filing Levy Schedule that will also be posted to ALIA’s website in connection with annual announcement of the Part A and Part B Levies. Subscribers will be given notice of the posting through an electronic bulletin.
The first Transaction and Filing Levy Schedule will be posted in connection with the announcement of the Part A and Part B levies in May 2021 for the 2021-2022 policy year.
Although the first Transaction and Filing Levy Schedule will be posted a short time before the CLFL first becomes effective on July 1, 2021, Subscribers will already have received all information required to be able to administer their reporting and payment of the CLFL.
In particular, the CLFL Information Chart describes the specifics of the CLFL, including a listing of assessable and exempt filings. The CLFL Information Chart will be posted together with the Transaction and Filing Levy Schedule to assist in interpreting the exemptions.
As noted below, the required certification form will be posted in 2021 prior to the CLFL commencing.
The first self-reports and payments will be due on October 31, 2021 for remittances covering the three-month period ending September 30, 2021 (i.e. the first quarterly period of the 2021-2022 policy year, which commences on July 1, 2021).
Civil litigation and real estate levies are charged in Ontario (LawPRO) and Newfoundland and Labrador. In addition, a personal property transaction levy is charged in Newfoundland and Labrador. Transaction levies are not currently charged in other Canadian jurisdictions.
LawPRO’s civil litigation transaction levy is $100 (including GST) for commencements and responses, and Newfoundland and Labrador’s is $75 (plus HST).
Both the LawPRO and the Newfoundland and Labrador programs use an “honour system” for collecting the amounts. Lawyers and firms are required to make quarterly declarations of the number of commencements and responses filed in the quarter and submit the required amount within 30 days of the end of the quarter.
Both programs exempt a number of matters from their civil litigation transaction levies. Subscribers who wish to review the details of these exemptions may refer to the respective program websites for further information.
Why is ALIA implementing the CLFL for the 2021-2022 policy year, given that ALIA was able to lower the Part A Levy by approximately $800 for the 2020-2021 policy year?
The Part A Levy (and the Part B Levy) is set annually by ALIA’s Board in two steps: first, calculating the “theoretical levy”, which is the net levy requirement determined on an actuarial basis to address existing and anticipated claims and fund ALIA’s operations; and second, determining the actual levy paid by Subscribers, which involves an actuarial adjustment of the theoretical levy based on ALIA’s capital levels.
Claim costs are a substantial portion of indemnity program costs, so have a large bearing on the theoretical levy. Although the Part A Levy for the 2020-2021 policy year levy was approximately $800 lower than the prior year, this was not because the projected claim costs were lower (which would have lowered the Part A theoretical levy); it was because ALIA was able to make a larger reduction to the Part A theoretical levy by using ALIA’s existing capital reserves. The Part A theoretical levy was reduced more in 2020-2021 than it was in 2019-2020 due to strong investment returns and a one-time $316 adjustment to help provide relief for Subscribers facing cashflow issues with the onset of COVID-19. This meant the Part A Levy was approximately $800 lower in the 2020-2021 policy year than it was in the 2019-2020 policy year. Without the one-time COVID-19 adjustment, it would have been approximately $500 lower (versus $800 lower).
ALIA expects the CLFL will lower each Subscriber’s Part A Levy from what it otherwise would have been, because amounts collected under the CLFL will help offset some of the claim costs of the indemnity program. This may again provide some relief to Subscribers from ongoing effects of the pandemic. That said, the purpose of the CLFL is not to provide financial relief due to the pandemic; it is to make the Part A Levy fairer to all Subscribers by reallocating some of the higher cost/risk associated with civil litigation to that practice area.
What if lawyers decide not to disburse the CLFL to their clients? Could that make their total levy payment higher than pre-CLFL?
There may be cases where Subscribers agree with their clients not to pass on the CLFL or otherwise decide not to pass it on as a disbursement, despite its being disbursable to clients. To the extent any Subscriber or firm does not pass on the CLFL to any client, the Subscriber or firm will absorb the $75 levy, as they would for any other cost that they incur but do not pass on to their clients.
Mathematically, if a Subscriber absorbs this cost enough times, that cost could equal or surpass the reduction of the Part A Levy that is received by all Subscribers. That potential consequence would involve the only situation in which implementation of the CLFL would increase the total professional liability levy (Part A Levy plus CLFL) paid by a Subscriber, regardless of the practice area.
That result is aligned with one of the basic premises of underwriting: if one engages in higher risk activities, one is likely to have to pay higher premiums.
Moreover, the CLFL will not necessarily raise the total professional liability levy (Part A Levy plus CLFL) paid by Subscribers practicing in a high risk/cost area (civil litigation). This is one of the benefits of the CLFL for those Subscribers, as opposed to simply increasing the Part A Levy for all Subscribers engaging in civil litigation.
The ALIA Board of Directors will determine this when it sets the Part A Levy for the 2021-2022 policy year in April 2021, which will involve ALIA’s regular actuarial assessment conducted by its independent actuary.
While the amount of the reduction attributable to the CLFL is not known at this time, under current estimates, the CLFL could help offset some of the claim costs of the indemnity program by approximately $3.85 million per year, or over $500 per Subscriber. The actual amounts raised by the CLFL may be affected by factors such as the number of exempted filings versus the number of assessable filings, the number of filings by self-represented litigants, and the actual volume of litigation. Further, the usual factors that contribute to the determination of the Part A Levy, including the number and severity of claims against Subscribers and the program’s return on investments, will continue to be significant determinants. Because amounts collected under the CLFL will help offset some of the claim costs of the indemnity program, the Part A Levy is expected to be reduced from what it would otherwise would have been.
Will ALIA adjust the amount of the CLFL if the revenue collected differs greatly from the amount required to deal with civil litigation matters?
The CLFL is designed to reallocate indemnity program risk/costs more fairly among all Subscribers; it is not intended to cover all additional losses incurred in civil litigation. The amount of the CLFL, $75, was calculated to offset some of these claim costs. ALIA continuously monitors indemnity program data, including losses by practice area, and this data will help inform the analysis of financial results at the end of the two-year pilot project. Necessary adjustments may be made at that time. Adjustments could also be made annually when ALIA’s Board of Directors sets the annual base levy (Part A and Part B). This is consistent with the practice in other provinces with similar levies.
How will ALIA help Subscribers determine what filings must be reported and interpret the exemptions from the CLFL?
How will the CLFL deal with multiple lawyers working on a single litigation file in a firm or multiple firms working for multiple parties?
A detailed list of scenarios can be found in the CLFL Information Chart. While the CLFL will be charged per filing of a commencement or response document (as set out in the CLFL Information Chart), there may be examples where more than one Subscriber would be charged in commencing or responding to an action. For example, if more than one Subscriber in a firm is working for the same party to the litigation in respect of filing the statement of claim, only one CLFL would be charged; however, if multiple plaintiffs are represented by different Subscribers in different firms, each firm (i.e. the responsible Subscriber in each firm) would be charged. Subscribers and firms will be responsible for determining which Subscriber is responsible for the filing. For more information on how reporting and payment will be made, view the FAQ on who can report civil litigation transactions.
If a file is transferred from one firm to another, a new CLFL would not be charged unless that subsequent firm filed a document that commenced or responded to an action.
Would two CLFLs be payable if a Subscriber files both a statement of defence and a counterclaim? Would a CLFL be payable if the other Subscriber filed a defence to a counterclaim?
Only one CLFL would be payable with respect to a defendant who files a statement of defence and counterclaim at the same time, but would be charged on each of the filings where they are filed separately. Further, a new CLFL would not be payable by a Subscriber who commences an action by statement of claim who then files a defence to a counterclaim. A detailed list of various payment/exemption scenarios can be found in the CLFL Information Chart.
Who can report civil litigation transactions? What will be involved in the declaration of civil litigation transactions?
Although the Rules of the Law Society will require that individual Subscribers certify all assessable civil litigation transactions to the Law Society on a quarterly basis, certifications and payments may be made by individual Subscribers or law firms. Certifications for the previous quarter must be made within 30 days of the end of that quarter and remittances must be received by the Law Society by:
- April 30 (for remittances covering the three-month period ending March 31);
- July 31 (for remittances covering the three-month period ending June 30);
- October 31 (for remittances covering the three-month period ending September 30); and,
- January 31 (for remittances covering the three-month period ending December 31).
ALIA will be posting the certification form through the existing member and firm administrator portal, that Subscribers or their firms will need to use to report assessable filings. Payments will be remitted electronically using one of the Law Society’s approved payment options.
The certification form, which will be electronic, will be posted in 2021 prior to the CLFL commencing. It will require identification of the Subscriber who is reporting the particular filing(s), a listing of the filing(s), and calculation of the amount due (i.e. $75 (plus GST) multiplied by the number of filings being certified).
It is also anticipated that this form will need to list the Court of Queen’s Bench action numbers for all certified filings, which information will then be used for audit and compliance purposes.
What steps will ALIA and the Law Society take to ensure Subscribers certify assessable filings and pay the CLFL?
A number of steps are being taken to ensure compliance with the CLFL, although most of them will not be imposed during the two-year pilot period.
Audit procedures, which may be undertaken by the Trust Safety department of the Law Society, will be developed throughout the pilot period. As noted above, it is anticipated that Subscribers and firms will be required to list action numbers of all assessable filings in the quarterly certification form.
Several repercussions for failing to report assessable filings or pay the CLFL will be implemented at the end of the pilot project. In the event a Subscriber reports a claim to ALIA with respect to a civil litigation action in which a required CLFL was not reported or paid by the Subscriber (or other Subscribers in their firm or their firm), ALIA may require the Subscriber to indemnify ALIA for all amounts paid out on the claim and/or may charge a substantially increased deductible amount. Again, this will not apply during the two-year pilot period.
ALIA understands that Subscribers may inadvertently miss certifying an assessable filing and only intends to exercise these remedies in cases where a Subscriber (or their firm) has intentionally failed to report the filings in an attempt to avoid the CLFL. Again, these remedies will not apply during the two-year pilot period.
During the pilot period, ALIA will also consider whether a late fee should be charged on assessable filings where the CLFL was not reported or paid. This will depend on the nature of compliance issues that arise during the two-year pilot period. No late fee will be implemented for the pilot period.
Finally, failure to report an assessable filing or pay the CLFL would result in a breach of the Rules of the Law Society of Alberta. As with any other breach of the Rules, this could have regulatory consequences. Failing to pay an invoice may cause an automatic suspension, which would be set out in the Transaction and Filing Levy Schedule.
Reallocating the cost of high-risk practice areas has been a strategic topic for ALIA’s Board of Directors for a number of years. Depending on the outcome of the CLFL pilot project, ALIA may consider additional transaction levies for other high-risk practice areas, such as real estate.
ALIA is conscious that the CLFL will be a new process for lawyers and firms that may require changes to their internal processes and procedures. ALIA is announcing the CLFL at this time to ensure all Subscribers are aware of it as early as possible. ALIA also wants to ensure that information being circulated about the CLFL is accurate.
The CLFL was approved by ALIA’s Board of Directors in November 2020 and is to commence as a two-year pilot project in the 2021-2022 policy year (July 1, 2021 to June 30, 2022). The intent of the pilot project is to refine the CLFL through the two-year pilot project period to improve ongoing implementation of the CLFL.