The Calculation of Fees

Law Society of Alberta audits have recently disclosed a wide range of methods for calculating contingency fees, many of which result in overpayments to lawyers. Where the auditors find such overpayments, the law firms are often asked to make refunds to their clients.

The following examples illustrate the most common problems:

• Lawyers occasionally calculate their fees on the basis of disbursements which have been incurred and recovered on behalf of the client, even though recovery of these funds does not amount to actual recovery which might find its way to the client.
• Sometimes fees are charged on retainer deposits and even on advances made to clients. For the most part, these errors are made accidentally, when lawyers have failed to correctly identify the source of funds deposited into their trust accounts.
• In other cases, lawyers have failed to amend their contingency fee agreements to comply with the 2000 amendments to the Rules of Court, which prohibit lawyers from taking the entirety of the recoverable taxable costs as part of their fee. In such cases, the auditors will require the lawyers to reimburse their clients for the overpayments.

It is a simple matter to correct the problem arising in the third example – review the form of agreement your firm is using to ensure it complies with the current rules.

To avoid the error in the second example, get in the habit of providing the client with a Summary of Monies Received and Disbursed along with the Invoice. The summary will allow your firm to identify those amounts on which the fee should properly be calculated. See a Sample Calculation.

In most cases, contingency fee agreements do not contemplate fees on the recovery of disbursements and it is a questionable practice for lawyers to charge fees on that basis. Of course, any contingency fee agreement is subject to taxation and much will depend on the contents of the agreement. It might be possible to collect fees, calculated as a percentage of recovered disbursements, if it is made very clear in the fee agreement and was adequately explained to the client. The result might also depend, for example, on whether the lawyer is responsible for funding the disbursements, with no right of recovery from the client if the lawsuit fails. The Taxation Officers will, however, carefully scrutinize the lawyers’ accounts in these cases.

Claims for Hourly Fees on Termination of a Retainer

It is not appropriate for lawyers to make claims for hourly fees when the lawyer and client end their relationship before the matter is settled. On occasion, the former lawyer seeks to impose a trust condition on the client’s new lawyer, requiring payment of the account before transferring the file. Solicitors’ liens can only be maintained with regard to disbursements, where the client has agreed to be responsible for them. The former lawyer cannot withhold the file or assert a lien for unpaid fees, and can only require the new lawyer to provide an undertaking to hold the resulting fees in trust, with the intention that they will be split on a quantum meruit basis between the respective counsel upon the conclusion of the file.

This position is supported by the Queen’s Bench decision of Law Firm v. Solicitor, [1992] A.J. No. 1242, and is also consistent with the Rules of Court.

Please also keep in mind that your trust conditions on a file transfer should not indicate that the lawyers’ fee disputes will be settled by the Taxation Officers – this function does not technically fall within the scope of their mandate and they have refused to hear such matters.

Time Keeping Habits

Though many lawyers who work primarily on a contingency fee basis do not keep track of the time spent on client matters, it is advisable to do so in the event you might be required to apportion fees with other counsel. In addition, there may be occasions when your contingency fee agreement might be set aside or reviewed by the court. This can happen if the fee agreement was not properly served on the client or if it involves a minor’s claim (see Sonnenberg v. Schumacher & Associates, [2005] A.J. No. 725 and Rusk (Next Friend of) v. Medicine Hat (City), [2001] A.J. No. 1577, respectively). In those circumstances, accurate and reasonable records of the time spent will assist you in establishing your claim for appropriate legal fees.