Category Archives: A2J

Self represented parties and sharp practice by counsel. Should we be thinking differently?

War is the means by which nation states have sometimes resolved their differences. Litigation is the means by which people in our society sometimes resolve their differences. In both cases, there is value in prescribing the rules of engagement.

As wars between sovereign states have become less common and wars between sovereign states and insurgencies have become more the norm, the traditional rules of war seem to have become less relevant. This is presumably because rules that work to govern combat between traditional armies don’t effectively address asymmetric disputes where conventional militaries face off against “guerrillas”, “terrorists” or “freedom fighters” (the language depending on perspective and context).

Of course litigation is not and should not be conducted like a war.

My point is that necessary rules of engagement can be based on principles that no longer apply in some circumstances. Our professional conduct rules may face a similar challenge as the rules of war as the conduct rules appear to be premised on the assumption that all parties are represented by counsel and are comparably resourced.

Perhaps more importantly, life is not mostly about rules. Social norms are often more important than rules both between nations and within societies. We know from recent events that destabilizing important social norms is corrosive and threatening. But the reverse is also true. Making clear what is fair and acceptable is valuable. If we are going to deal properly with access to justice and SRLs, we need to be clear that treating people properly and not taking advantage of their vulnerability matters.

The 2nd National-Self Represented Litigants Project Dialogue

I recently attended the 2nd National-Self Represented Litigants Project Dialogue (the “Dialogue”) at the University of Windsor. In attendance were self-represented litigants, lawyers, judges and academics. This conference was held five years after the first SRL Dialogue which addressed the research undertaken by Professor Julie Macfarlane about self-represented litigants (SRLs).

One of the topics raised by SRLs at the Dialogue was sharp practice by counsel. These SRLs made clear that they consider that they were commonly being dealt with unfairly by opposing counsel. One lawyer at the Dialogue suggested that this was because the conduct rules were written by lawyers for lawyers.

I disagreed saying that it seemed to me that our approach to legal ethics was premised on the assumption that all participants in the adversarial process are represented by professional advocates – and that our approach can be problematic where that assumption does not apply.

Legal ethics in the adversarial system where parties are not evenly matched

In litigation

Essential to Canadian legal ethics is that advocates will resolutely advance their client’s interests subject to ethical obligations intended to ensure that the administration of justice works properly. For example, ethical rules require that counsel not “deliberately refrain from informing a tribunal of any binding authority that the lawyer considers to be directly on point and that has not been mentioned by another party” and not “make suggestions to a witness recklessly or knowing them to be false”[1].

Adversarial systems, by their nature, work best where the protagonists are similarly resourced. An independent adjudicator is best able to reach a fair decision where competition between adversaries ensures that all relevant evidence and arguments are tested. Where parties are very differently resourced, the adversarial process works less well. This is the stuff of movies where a human David takes on a corporate Goliath in court. Davids win in movies but not so much in real life.

The David and Goliath problem can exist where David is represented by counsel. Even having experienced counsel does not necessarily overcome having insufficient resources to conduct investigations, retain experts and prepare for trial. The unfortunate reality is that some Goliaths conduct strategic wars of attrition. Even where that does not occur, being out-gunned is problematic in an adversarial system.

A David and Goliath problem can arise where a represented party engages with another party who can’t afford counsel. This appears to be most common in family law proceedings. While it is of course commonly the case that neither party is represented, it is common for one family law litigant be represented while their opposing party is not. This also occurs in other civil litigation between individuals and in civil litigation between individuals and business.

It was striking to hear from SRLs attending the Dialogue of their perception was that they commonly experience sharp practice in dealing with the advocates on the other side. Of course, this is anecdotal information. It may be that SRLs who experience sharp practice are more motivated to become engaged and to report their experiences. It may be that there is another side to the story. It may be that SRLs may consider some conduct to be sharp practice which actually is not. But it makes sense to think that SRLs are more vulnerable to sharp practice and the stories told seemed to me to reflect real problems.

If we accept that SRLs are more vulnerable to sharp practice and that some advocates seek to advance their clients’ interests by taking unfair advantage of their greater expertise and client resources, the question arises whether ethical rules premised on representation adequately protect the administration of justice where the adverse party is self-represented.

Probably more importantly, if the administration of justice is going to work properly where SRLs are involved, it is important that counsel take care to act properly.

Demand Letters

A similar issue arises where lawyers make demands for payment for relatively small amounts on behalf of well-resourced clients against parties who are unlikely to seek representation. Amy Salyzyn wrote about this several years ago in her column Bully Lawyers & Shoplifting Civil Recovery Letters: Who’s Going to Stop Them? and in her journal article Zealous Advocacy or Exploitative Shakedown?: The Ethics of Shoplifting Civil Recovery Letters. The Toronto Star has recently addressed this issue in an article which quotes Alice Woolley saying that “There’s an exploitation of power here”.

A problem arises where the amount in issue, say a few hundred dollars, is not enough to merit the cost and trouble of seeking legal advice and the demand for payment is either without legal merit or of dubious merit. The problem is compounded where there is no real prospect that the claimant will commence proceedings and have the merits of the claim fairly adjudicated. While many recipients of such demands will ignore them, some will pay on demand out of fear or ignorance.

Where the recipient of a dubious demand letter seeks legal counsel, the recipient can elect to pay or not pay on an informed basis. Where a demand is adjudicated, a dubious demand can be dealt with on the merits and, where appropriate, costs can be awarded against the claimant.

But where large numbers of dubious or improper demands are sent where legal representation is unlikely, there is a problem where payments are made out of ignorance or fear. It is not a sufficient answer to say that the courts will adjudicate such demands where proceedings will not be brought and adjudication will not occur. Economics underlie the problem. There is an incentive for a claimant to send a volume of demands if the cost of each demand is low and some demands are satisfied. There is little if any incentive for a claimant to actually commence litigation against any one potential defendant. It makes little practical sense for any recipient to engage legal counsel for a few hundred dollars to decide whether or not to pay a claim for a few hundred dollars.

Our adversarial system and our approach to legal ethics operate effectively where parties are represented by counsel and have reasonably comparable resources. But for Davids facing Goliaths, whether in litigation or before litigation, there can be problems.

The Conduct Rules and self-represented parties

Rule 5.1 of the Model Code (The Lawyer as Advocate) does not address dealing with represented and self-represented adverse parties any differently[2]. The requirements of Rules 5.1-1 and 5.1-2 simply do not address acting against self-represented parties[3].

Under Rule 7.2 (Responsibility to Lawyers and Others), Rule 7.2-9 provides that:

When a lawyer deals on a client’s behalf with an unrepresented person, the lawyer must:

(a) urge the unrepresented person to obtain independent legal representation;

(b) take care to see that the unrepresented person is not proceeding under the impression that his or her interests will be protected by the lawyer; and

(c) make it clear to the unrepresented person that the lawyer is acting exclusively in the interests of the client.

Rule 7.2-9(a) is of little value in addressing imbalance where a person is self-represented because the person cannot afford representation or because the cost of representation is disproportionate to the matters in issue. Where a person can’t afford representation, it is of no value to urge them to obtain representation. Beyond this, the rule simply ensures that SRL understand the role of opposing counsel.

That said, it is not entirely obvious how the conduct rules ought to be modified where one party is represented by counsel and the other is not. It is difficult to conceive of conduct rules that provide for constrained representation in an adversarial process when our entire ethical approach is premised on undivided loyalty.

What to do?

At a deeper level, the problem is less the conduct rules that the advocate must follow and more the use of the adversarial system to resolve disputes where some of the adversaries do not have sufficient resources for the adversarial system to work properly. And particularly in the family law context, it is seems more than odd to think that an adversarial approach is constructive where relationships must continue through custody and support and where emotion rather than reason is so often in play. It is the very adversarial system, rather than the conduct required of counsel therein, that appears to be the problem.

But assuming the adversarial system, we should question whether reform is appropriate to address the fact that the adversarial system and the conduct rules are built on the assumption that all parties are represented by counsel.

As to modified conduct rules, I’m not aware of any proposals that could effectively make the administration of justice work more effectively in this context[4]. I doubt that it would be useful to vaguely require counsel not to take “unfair advantage” if that means doing something other than acting in accordance with the existing rules. And if the existing rules should be modified in context, advocates should be told what that the modifications really mean[5].

Perhaps the answer is not so much the conduct rules themselves but rather their application. Where both parties are represented by counsel, the advocate knows that breach of the conduct rules may well be identified by opposing counsel. There is greater disincentive to breach. And some breaches will be less likely to have an adverse effect on the administration of justice where there is effective adversarial competition.

If this is so then three points seem to me to emerge. The first is that there could be value in commentary in the conduct rules to the effect that a lawyer or paralegal is required to take special care to fully comply with the conduct rules where the adverse party is an SRL[6].

This might help set stronger social norms which could be valuable.

The second and third relate to the concurrent jurisdiction of the courts and the law societies in addressing the conduct of advocates[7]. As Chief Justice McLachlin said for the Court in Canadian National Railway Co. v. McKercher LLP, 2013 SCC 39 at paras. 13 and 15:

… The courts’ purpose in exercising their supervisory powers over lawyers has traditionally been to protect clients from prejudice and to preserve the repute of the administration of justice, not to discipline or punish lawyers.

… The purpose of law society regulation is to establish general rules applicable to all members to ensure ethical conduct, protect the public and discipline lawyers who breach the rules — in short, the good governance of the profession.

Notably, not all sharp practice in litigation will engage the jurisdiction of the court over proper administration of justice. For example, where litigation does not follow a dubious demand letter, the court will have no jurisdiction. Even if improper conduct does engage the jurisdiction of the court, a judge may conclude that it is better not to “to criticize or complain about an advocate’s uncivil conduct in court” given “the simple reality that refraining from such action in a given case may permit the proceeding to advance more efficiently”[8].

Similarly, the law societies do not necessarily investigate and prosecute all professional misconduct. Give the volume of conduct investigated, relatively few conduct proceedings are commenced. Law societies are understandably reticent to adjudicate the propriety of legal claims. Law societies tend to defer investigation and prosecution of alleged misconduct in a proceeding until after the proceeding is completed to better ensure that complaints are not used as tactical weapons in proceedings and to avoid interfering with the administration of justice.

For an SRL who is uncertain about the process and see themselves as outsiders, this may contribute to a greater lack of confidence about the process itself. It may seem like protection of the advocate by the system. This may also result in fewer disincentives against improper practice. Those who are prepared to operate close to, or over, the line may be more prepared do so.

Assuming the adversarial system, the question is whether courts and law societies should be more willing to address alleged sharp practice where the opposing party is an SRL. There seem to be credible reasons to think so. There may be procedural mechanisms, just as an ombudsperson in the courts, who could assist. The risk on the other hand is that complaints could compromise the litigation process, whether intentionally or because the SRL is not well positioned to assess impropriety, thereby making an already inefficient and expensive process more so.

As is so often the case, the ultimate answer requires thoughtful balancing. But it does appear that the current balance may not best ensure the proper administration of justice[9].

_______________________

[1] Rule 5.1-2 of the Model Code of Professional Conduct

[2] The Commentary addresses dealing with unrepresented complainants in criminal and quasi-criminal proceedings which is a different matter

[3] Commentary 6 to Rule 5.1-1 contains an interesting but enigmatic reference to situations where the adversarial system does not operate effectively: “When opposing interests are not represented, for example, in without notice or uncontested matters or in other situations in which the full proof and argument inherent in the adversarial system cannot be achieved, the lawyer must take particular care to be accurate, candid and comprehensive in presenting the client’s case so as to ensure that the tribunal is not misled.” (Emphasis added)

[4] But I haven’t gone looking either.

[5] Alice Woolley has argued in Slaw that asking a prosecutor to “do justice” doesn’t really provide genuine guidance to a prosecutor who is to act as a strong advocate within the adversarial process.

[6] That said, I wonder if the implication of such guidance might be that full compliance with the conduct rules is not otherwise required.

[7] Groia v. Law Society of Upper Canada, 2018 SCC 27 at para. 55

[8] Groia v. The Law Society of Upper Canada, 2016 ONCA 471 at para. 108

[9] As always, this column reflects my personal views. It is written to raise rather than resolve the issues discussed.

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Cost disease, the practice of law and access to justice

(First published on slaw.ca)

How is it that we are such a wealthy society yet services that were once available are no longer available (at least at affordable prices)? Many people, but certainly not all, had help in their homes and farms, even full-time help. Doctors used to make house calls. When I was a child, the milkman[1] made deliveries each day. There used to be people who actually answered telephones in businesses.

What we call the “access to justice” problem seems to be similar in nature. We know that the number of self-represented litigants has dramatically increased over the last four decades. Ordinary people can’t afford lawyers. Even lawyers can’t afford lawyers. Yet, it seems that there was a time that people had a family lawyer just like they had a family doctor.

Some of this is pastoral myth. The idea that doctors were once available to all isn’t true as Tommy Douglas addressed in Saskatchewan in the 1950s. The poor didn’t have servants even though domestic help seems to have been more common than it is now. The image of the small town lawyer serving the whole town fails to recognize that there were income differences that must have affected who could afford to pay for a lawyer.

And while the price of legal services is a significant issue, it isn’t the only issue in the “access to justice” problem. There is also much to the idea that our legal system has become more and unnecessarily complex with attendant costs. A system of justice that is too expensive for most to access is a denial of access to justice even if the perfect justice can be obtained by those who can afford it.

While the problem of access to justice has more than one cause (and so must be addressed in more than one way), the cost of lawyers seems increasingly to be part of the problem. But why is that?

Cost Disease

A few weeks ago, I listened to a podcast on economics[2]. There was an interview with Larry Summers[3] who is a highly regarded economist[4]. Stephen Dubner, the interviewer, asked Summers about the cost of government and why it is that the cost of government doesn’t shrink. As Dubner asked:

You talk about us having conquered inflation, but lately you’ve been writing about the reasons why federal government can’t shrink. One of those reasons that I found really interesting — you talked about how changes in structural pricing that disproportionately affect government are huge. You talk about the Consumer Price Index from 1983 versus today and the things that have gotten relatively cheaper and the things that have gotten relatively much more expensive. Can you talk about that for a moment? I assume where that leads to is a conversation about what you economists call cost disease, yes?

Summers responded saying:

This is the phenomenon that was first noticed by the late Princeton economist William Baumol, that’s sometimes referred to Baumol’s Disease or cost disease. It refers to the fact that if workers become much more productive doing some things — and their wage has to be the same in all sectors, then there’s going to be a tendency for the price of the areas in which labor is not becoming productive to rise. That’s why it costs more to go to the theater relative to other things that it did when I was a child. That’s why tuition in colleges has risen. That’s why the cost of mental-health counseling has risen. All kinds of activities where it takes inherently a person one hour to provide a given service and where productivity growth is defeating the point. Productivity growth in education, after all, is a higher ratio of students to teachers — which is exactly the opposite of what we all want for our kids. Those structural changes are going to define our economy.

The cost disease thesis says that relatively unproductive sectors become more costly with productivity increases in other sectors because incomes increase in both productive and unproductive sectors as a result of increased productivity.

A core idea of cost disease is that there is labour mobility over time. In the long run, a sector will not be able to continue to pay people lower incomes if work is available to them elsewhere for higher incomes. Just because one sector is less productive than another sector doesn’t mean the less productive sector will be able to get away with paying its workers lower incomes. The cost disease thesis also reflects the economic view that incomes over time generally rise as productivity generally rises. Of course, there are questions about some of the underpinning of the cost disease thesis.[5]

But even if one does not accept the idea that productivity increases positively affect incomes generally[6], it must be true that sectors that do not become more productive will become relatively more costly unless these relatively unproductive sectors decrease incomes in their sectors.

Cost disease and the practice of law

I was struck by the application of the idea of cost disease to the practice of law. The last four decades have seen amazing productivity increases in other sectors of the economy. Computing capacity and networks have fundamentally changed the productivity of significant sectors of the economy. Before that, mechanization, electrification and industrialization radically changed the productivity of other sectors of the economy.

On the other hand, it also seems pretty clear that lawyer productivity has little changed over the long term. While there have been some productivity changes arising from modern technology, most of that has simply been to reduce overhead as lawyers do their own document processing.

This is particularly true in litigation. The approach to analyzing documentary evidence, interviewing clients and witnesses, discovering adverse parties and trying cases for ordinary people is highly lawyer-intensive without there having been material changes in productivity over the decades[7]. This may be less true in some of the solicitor’s practices where technology has made document production more efficient and where process efficiencies can be adopted in routine aspects of legal work where there is sufficient volume.

Of course, economic theories do not always hold in practice. There can be other factors at work. Market efficiency assumptions may not hold. But actual labour market information seems to show that lawyer incomes have followed incomes generally. A few years ago, I looked at census information over the last forty years or so and found that lawyer incomes generally tracked family incomes over that period. I also understand that research has indicated that lawyer, engineer and doctor incomes track a similar path[8].

Let’s assume for the sake of argument that lawyer incomes do rise and fall with incomes generally for whatever reason. That means that if other sectors have become more productive then the cost of what is produced in those sectors will have declined. Costs in sectors like law where productivity has not improved, or improved as much, will relatively increase.

I was excited by the new (to me) thought that apparent increases in legal costs and resulting diminution in access to justice could be explained in part by increased productivity in other sectors and the limited productivity increases in law. I went looking for further discussion of cost disease and, particularly, its application to the practice of law.

Not surprisingly, I found that this was not a new thought. For those interested in reading more, Professor Gregory W. Bowman posted two blogs on exactly this point over a decade ago in his Law Career Blog[9]. More recently, Emery Lee[10] published a journal article in the University of Miami Law Review entitled “Law Without Lawyers: Access to Civil Justice and the Cost of Legal Services”[11]

In his article, Lee looked at the cost of legal services for the “Big Guy” and the cost for the “Little Guy” i.e. the ordinary person. Lee said at pp. 514 to 515 that “In relation to the Little Guy, the cost disease is his problem. As discussed above, in general, it is not the levels, or amount, of discovery that keep the Little Guy out of court. Most of the Little Guy’s cases are not going to be discovery-heavy, and reforms designed to reduce discovery levels are unlikely to help the Little Guy.” and “The Little Guy has simply been priced out of the market for legal services. Reducing discovery levels is unlikely to solve this problem.”

So what?

As a profession, we have had difficult discussions about innovating our existing business structures. Some argue that we should simply focus on procedural and substantive simplification of the litigation process, that it is only litigation that is a problem and that solicitors’ practices are just fine. Accepting that simplification in litigation is important, my view has long been that the significant areas where people do not use legal services at all (sometimes called the 85%) must be addressed and that the cost of providing services is a major part of the reason for the lack of service in the 85%. Increases in costs arising from increased productivity in other sectors may be part of the reason that the 85% cannot be effectively served without significant productivity changes. This supports the idea that it is important to bring capital and technology to bear because increasingly expensive professional labour is simply too expensive for the task[12].

What is a significant implication for me is that decreased access to justice in the 15% served by lawyers, and particularly in litigation, may be the result of cost disease and the lack of productivity increases in law. Where access to capital is constrained as is true in the practice of law, labour is overwhelmingly the means of production. Where productivity in other sectors improves, the cost of legal work certainly relatively increases. And if labour costs actually rise generally with increased productivity, the absolute cost of legal work will increase as lawyer incomes rise with productivity in other sectors[13].

If “cost disease” is a material reason for the increasing cost of legal services and diminishing access to legal services, it follows that legal costs will continue to relatively increase unless productivity in the legal sector improves. Even without this analytic framework, it is obvious that new ways of providing legal services are already here and that they are less expensive and more easily accessible. This will only increase.

The implication is significant. If the traditional practice of law becomes relatively more and more expensive over time then fewer legal services will be consumed and the threat from new and less expensive forms of legal service will increase. Legal services regulation will not ultimately hold back this tide, nor should it in my view.

So the question is whether we should continue to restrict the practice of law to traditional practices or should we encourage real innovation in the way that law is practiced so that productivities are achieved.

I used to think that the answer was obviously that increased productivity should be encouraged because of the moral and policy obligation to promote access to justice. While still thinking that is so, I also think that existing legal practices are imperilled by our unwillingness to allow the conditions required for innovation. Cost disease is not just a disease suffered by consumers of legal services. Cost disease is suffered by lawyer and paralegal producers too and the consequences may be more severe if not addressed. Attempting to hold back the tide can work for a while but when the dike fails much can be lost that could have been saved.

Something to think about.

_____________________________

[1] Herb was our milkman and he had a very cool truck. He let me ride with him in his truck on our street when I was a little boy

[2] http://freakonomics.com/

[3] http://freakonomics.com/podcast/larry-summers-economist-everyone-hates-love/

[4] Even if not so much on other topics

[5] It is not so clear that the benefits of productivity increases are generally distributed. Labour market mobility is suspect with income disparities having increased over the last generation. Increases in productivity over the last generation have not resulted in increased real incomes for many people. Some increases in income have been enjoyed in distant economies with local labour markets facing downward pressures.

[6] i.e. that the wealthy disproportionately enjoy the profitability arising from increased profitability

[7] Significant e-discovery advances exist but are mostly irrelevant outside of “big business” disputes and mostly address the significant increase in e-documents in business over the last couple of decades. Litigation for ordinary people has not seen material productivity gains other than legal research, especially CanLii.

[8] Alice Woolley kindly reviewed a draft of this column. She advised that this observation was made in the research underlying Woolley, Alice and Farrow, Trevor C. W., “Addressing Access to Justice Through New Legal Service Providers: Opportunities and Challenges” (2015), 3 Texas A & M Law Review 549

[9] http://law-career.blogspot.ca/2006/07/baumols-cost-disease-and-practice-of.html and http://law-career.blogspot.ca/2006/08/baumols-cost-disease-and-lawyers-part.html

[10] Senior Researcher in the US Federal Judicial Centre

[11] Emery G. Lee III, Law Without Lawyers: Access to Civil Justice and the Cost of Legal Services, 69 U. Miami L. Rev. 499 (2015)

[12] If legal services are only relatively more expensive but not absolutely more expensive, it would still follow that consumption of legal services would decline.

[13] Whether because of increased productivity in other sectors or not, lawyer incomes have followed other incomes.

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Contingent Fees, Portfolio Risk and Competition – Calls for reform

(first published on slaw.ca)

In theory, contingent fee pricing is an elegant way of providing access to justice at a fair and reasonable price. In this column, I try to look at both theory and practice and also at prospects for reform.

Time and materials

Let’s start with a different approach to pricing. Legal work can be done on a “time and materials” basis (to use language from another industry), on a fixed fee basis or on a contingent fee basis. These different approaches shift risk between suppliers and consumers of legal services.

Legal work is still largely priced on a “time and materials” basis. While time spent is not the only factor considered when setting price, it is ordinarily the dominant factor.

Fixed Fees

Legal work is increasingly offered on a fixed fee basis. Where available, this is attractive to clients because of the increased certainty that fixed fees offer. Fixed fees can also allow increased competition as clients can more easily shop for a better price.

Where a fixed fee is agreed, the lawyer has the risk that the work may take more time than anticipated. Given that the lawyer likely has an understanding of what is required based on past work and given that the lawyer can make up losses on some fixed fee matters by gains on other fixed fee matters, this risk is mitigated. Where fixed fees are fairly agreed, it would be inappropriate for the client to be charged an increased cost because it turned out that extra time was required and it would be inappropriate for the client to demand a rebate because it turned out that less time was required than was anticipated. Either fixed prices are agreed or not.

But all of this assumes an effective market. For lawyers and clients, there is significant information asymmetry. Clients cannot assess whether a particular fixed price makes sense as clients ordinarily cannot assess the cost of the work to be done and likely outcomes. However, where prices are generally available, clients can “shop” based on price. Where prices are transparent and price shopping is possible, clients need not make their own assessments because a competitive market does so for them.

Contingent Fees

Contingent fees have some similarity to fixed prices. The price of the legal work is fixed as a percentage of the ultimate recovery. However, contingent fees add a further complexity as no fee is charged where there is no recovery.

There are two risks facing clients and lawyers, or paralegals, where personal injury and other disputes are to be resolved. There is the risk of non-recovery where liability is in issue. There is uncertainty as to the amount of the net recovery as both the amount of the recovery and the cost of obtaining recovery are uncertain. Because disputes can be settled at any stage (and are usually resolved by settlement rather than judicial decision), the cost of resolving a dispute is much more uncertain than, for example, the cost of completing a residential real estate transaction.

For the lawyer or paralegal, the risk inherent in contingent fees is mitigated by their expertise in assessing the risk inherent in particular matters and by their “portfolio” of cases. The situation of the client is very different. The client has no ability to assess the viability of their own case. The client has no portfolio through which to manage risk.

Portfolios of risks

While perhaps not obvious, investment by portfolio in the financial world offers the same risk management as having a portfolio of cases in the contingent fee world. A simple example shows the main advantage. Imagine a $1,000 bet based on a single coin toss. Heads you win $1,100. Tails you lose. There is a 50% chance of a complete loss. But imagine the same bet made on a portfolio of ten coin tosses. The probability of a complete loss drops to a little less than one in one-thousand and profit becomes very likely.

In the contingent fee context, a single contingent fee case can be very risky. But where work done in the losing cases can be recouped in the winning cases, risk is better managed. To make a very simple example, if there is a portfolio of cases each of which has a 50% chance of success and each of which requires a fixed amount work and disbursements worth $10,000, charging $20,000 for each case that is successful is a very low risk proposition even though the prospect of payment for any particular case is only 50/50.

Contingent fee work is more complicated than betting on coin tosses. The probability of success varies from case to case. The work and disbursements required in any given case is uncertain and difficult to accurately predict. More becomes known as the matter progresses. The outcome of a case is most uncertain at the outset. Assessing the amount of work to be done is also most uncertain at the outset of the matter. For a lawyer or paralegal, a contingent fee case is like a financial investment but with the added complexity that the amount to be invested is uncertain.

Modern portfolio theory says that risk is reduced by having a portfolio of risks. Before this was well understood, it used to be that trustees were only legally permitted to make certain “safe” investments. The idea was that the “prudent investor” would not make risky investments. However, we now know that a portfolio of higher risk investments can be low risk as a whole. The winners pay for the losers. The risk of having all losers is very much reduced by portfolio investment. Indeed, modern portfolio theory shows that a diverse portfolio of higher risk investments is likely to be more profitable than a portfolio of lower risk investments. But the investor must be able to enjoy the fruits of the winning investments for the portfolio to do its magic.

Contingent fees and markets

Injured people typically cannot afford the cost of the legal services required for their case. Borrowing the money to pay the cost of doing the necessary work is risky unless the case is not. Even assuming that recovery is quite likely, there is uncertainty as to the cost of obtaining recovery. Some cases settle quickly at low cost. Some cases go to trial or appeal. Contingent fees move this risk from the client to the lawyer or paralegal who can better assess the risk and reduce the risk by having a portfolio of cases.

But the contingent fee system will not work fairly in the real world unless there is an effective market in which contingent fees are set. Obviously, clients have limited insight into their cases. Otherwise, they would not need legal experts to assist them. Clients have no insight into the portfolio of cases maintained by their lawyers or paralegals. Where there is information asymmetry and a market which is not truly competitive, the party with superior information will have an advantage in setting prices. This either results in higher prices where the party with superior information is the supplier or by diminished demand from consumers or both.

It seems pretty clear that we do not have an effective market for contingent fees. While the problem of information asymmetry can be addressed by active bidding by informed suppliers for work, there is no good evidence of robust bidding being common. The significant growth of brand advertising appears to show that injured people have difficulty knowing who to approach for legal services. There is, at best, limited market information available to consumers or suppliers as to the costs of obtaining recovery. Unlike commodity products such as tomatoes or motor vehicles, assessing the expected value of a particular matter is not easy and requires information and expertise. We cannot directly assess whether the existing market is competitive as we have no information as to the profitability of the portfolios.

Ensuring fair and reasonable contingent fees

So how do we currently address the prospect of unfair and unreasonable contingent fees? The first way is by regulating the agreement entered into at the outset. The Solicitors Act establishes certain requirements and, in some circumstances, allows the parties to agree on a different approach with judicial approval. The second way is by considering, after the work is done, whether the contingent fee agreement and the contingent fee are fair and reasonable. For those who cannot represent themselves, the court must approve the ultimate fee. For others, the supervision of the court may be invoked by the assessment process.

The recent case of Evans Sweeny Bordin LLP v. Zawadzki, 2015 ONCA 756 considered judicial supervision of contingent fees and started with the proposition that “A contingency fee agreement is enforceable only if it is both fair and reasonable”.

The question of fairness and reasonableness could be considered based only on what was known at the outset of a matter. In theory at least, a contingent fee agreement that fairly and reasonably reflects the risk of non-recovery and of uncertainty in the cost of recovery would not need to be the subject of after the fact examination. Otherwise, the cases that are more lucrative for the lawyer or paralegal would not pay for the less lucrative cases and, as a result, lawyers and paralegals would decline to take on the higher risk or higher cost cases.

Nevertheless and as Evans Sweeny Bordin LLP makes clear, fairness is currently addressed after the fact, but as of the date of the contingency fee agreement. and reasonableness is addressed after the fact. For the later reasonableness assessment, the Court of Appeal cited with approval its earlier decision in Henricks-Hunter v. 814888 Ontario Inc. (Phoenix Concert Theatre), 2012 ONCA 496 which set out the following factors to be considered in the test for reasonableness:

(a) the time expended by the solicitor;

(b) the legal complexity of the matter at issue;

(c) the results achieved; and

(d) the risk assumed by the solicitor.

The Court of Appeal in Henricks-Hunter followed Raphael Partners v. Lam (2002), 61 OR (3d) 417 (OCA) which held that:

The factors relevant to an evaluation of the reasonableness of fees charged by a solicitor are well established. They include the time expended by the solicitor, the legal complexity of the matter at issue, the results achieved and the risk assumed by the solicitor. The latter factor includes the risk of non-payment where there is a real risk of an adverse finding on liability in the client’s case.

It is clear that our current approach to contingent fees provides for after-the-fact assessment and does not presume that a competitive market will result in reasonable contingent fees.

Calls for Reform – are caps the answer?

There has been much recent public controversy about contingent fees. There are private members bills calling for a cap on the percentage of recovery that may be charged. There are articles in the media decrying situations where the lawyer recovers more than the client or recovers an unusually high proportion of the recovery. The volume of advertisements on buses, taxis, television, the internet and elsewhere, without reference to price, may suggest that personal injury work is lucrative and worth substantial spending to attract work.

Unfortunately, the prescriptions may not address the disease or its symptoms. Following from the discussion above, where a limit is set on the percentage of the recovery that may be taken as a fee, the logical response may be not to take on riskier cases. Again assuming a competitive market and a diverse portfolio, the higher return winners pay for the higher risk losers. The policy problem is that we simply have no idea of the actual risk of the portfolio as a whole or its elements and we have no basis from which to conclude what percentage is unreasonable representing an uncompetitive market and what limit would fairly protect injured people and what limit would cause some injured people to lose access to justice because their cases will not be taken on. In an uncompetitive market, setting a limit can be tantamount to fixing a tariff as the cap becomes a signal to consumers who have no better information and may foster tacit collusion among firms.

There is another problem as well. For some cases which are vigorously defended, the cost of taking the case to trial is comparable to the amount in issue or even more. For those cases, a lawyer would generally be foolish to take on a case destined for trial if the potential recovery assuming success simply cannot fund the work required. But there are exceptions. A personal injury lawyer needs to be credible with defence counsel and insurers. Showing that cases will be tried if necessary makes settlement of other cases more likely. The threat of trial must be a credible threat to have value.

But it is said that there are areas of practice where the practical effect of limiting the contingent fee to a capped portion of the damages recovery would be that injured people would be denied access to justice. These are areas of practice where the risk and cost of obtaining recovery at trial is not commensurate with the damages award. even though it can be commensurate with the costs award together with a proportion of the damages award. Where there is a significant likelihood that a trial will be required, a lawyer is unlikely to accept a case where there isn’t a prospect of recovery of the lawyer’s risk-adjusted investment.

My point is not to argue in this column that there should or should not be a cap on the percentage fee. My point is that the question is tricky and that a cap may have unintended consequences and may not actually address the genuine issue at hand.

Some further thoughts about reform

As for the current after-the-fact assessment approach, there is value in that approach assuming that it is well done. At least in theory, assessing risk-return is a legitimate check on reasonableness. But there are at least two glaring problems1. The first is that an after-the-fact reasonableness assessment that looks only at the risk/return of the particular case fails to reflect that portfolio risk is less than the risk of any individual case. Absent portfolio information, there is a very real potential that after-the-fact reasonableness assessment is a Potemkin assessment. It looks real but isn’t. On the other hand, after-the-fact reasonableness assessment also fails to reflect the reality that only the “winners” get assessed. Portfolio information addresses this as well.

The second problem is that “successful” plaintiffs can have no idea whether their particular contingent fee is reasonable as they do not have the information that the courts have said is required for that assessment. They do not know the time expended by the solicitor, the legal complexity of the matter at issue, or the risk assumed by the lawyer. All that they know is the result achieved. There is no current obligation to disclose the other requisite information. There is no obligation to recommend an independent opinion or an assessment for cases where these factors suggest unreasonableness. That is not to say that responsible lawyers and paralegals will not take these factors into account in setting their ultimate fees. But a fiduciary cannot be permitted to withhold information that is necessary to hold the fiduciary accountable. The system should empower clients who do not know that they should be unhappy with their fees. It would be better if the system did not cause clients who ought to be happy with their fees to become unhappy. But it is surely unacceptable to hold back relevant information because the information may be misused.

Standing further back, can we make the contingent fee system more transparent and accordingly more competitive with the intent that a fair contingent fee agreement may be more reliably seen to generate a reasonable contingent fee? The answer must surely be yes. But this requires that portfolio information be gathered from lawyers and paralegals and aggregated so that injured people can have a better idea of the contingent pricing offered to them, so that lawyers and paralegals can better compete for work and so that society, through the courts, the government and the Law Society, can genuinely understand the risks and rewards involved in contingent fee work.

It is to be expected that lawyers and paralegals will resist reforms that impose costs on them, limit their returns and create uncertainty as to whether their contracts will be honoured. Cries of “bureaucracy” and “freedom of contract”2 will be heard. But it is necessary that the interests of injured people be kept firmly in mind rather than just the competing voices of advocates and insurers.

But it would be best if creative solutions could be found that maintain access to justice for injured people through contingent fees while better ensuring that substantive justice is obtained – that the amount taken from the compensatory recovery of an injured person is not unreasonable taking into account the risks and costs involved.

1 Noel Semple kindly reviewed a draft of this column and provided a number of helpful comments and suggestions. Noel raises a third glaring problem which is that risk is often not appreciated after the fact. What was reasonably seen to be risky at the outset may well not seem risky when the results are known. The reverse can be true as well.

2 Despite that our current contingent fee system requires after-the-fact assessment for fairness and reasonableness and the relative vulnerability of clients, some still argue that any reform should be on the basis on caveat emptor.

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Access to justice needs access to research

First published on slaw.ca

In December, the UK Competition & Markets Authority released its Legal services market study focused on individual consumer and small business experience of purchasing legal services in England and Wales. Not surprisingly, this report (the “CMA Market Study”) found:

Overall, we have found that the legal services sector is not working well for individual consumers and small businesses. These consumers generally lack the experience and information they need to find their way around the legal services sector and to engage confidently with providers. Consumers find it hard to make informed choices because there is very little transparency about price, service and quality.

This finding will be entirely unsurprising to anyone with passing familiarity with the substantial body of work, in Canada and elsewhere, showing unmet legal needs and lack of access to justice and legal services.

Naturally given the mandate of the Competition & Markets Authority, the CMA Market Study comes at these issues from a market perspective. This report looks at whether the market for legal services works effectively and concludes that it does not. The above quotation from this report makes the fundamental point which is that individual consumers and small businesses are not generally sophisticated purchasers of legal services and the providers of legal services provide very little transparency about price, service and quality. Entirely by coincidence, I wrote about this very point in my last column Access to Justice and Market Failure which focused on information asymmetry and market failure. As the CMA Market Study says:

Our market study was prompted by a range of concerns raised by interested parties, including concerns relating to the affordability of legal services, the high proportion of consumers that were not seeking to purchase legal services when they had legal needs (‘unmet demand’) and the possibility that regulation might be dampening competition.

Most of these concerns can be linked to the fact that the legal services sector is characterised by incomplete or asymmetric information. Consumers are often unable to judge quality before (or sometimes even after) they choose to buy a legal service. Information asymmetries can give rise to consumer protection issues, which provides part of the rationale for sector-specific regulation.

If legal services are to continue to be predominantly delivered by the market rather than the state (through legal aid or otherwise), it is important to be clear thinking about the realities of markets. This market study is an important evidence-based contribution to that thinking. But the point of this column is not to focus on the CMA Market Study.

The point that I want to make in this column is to highlight the importance of high quality research to truly addressing problems of access to justice and unmet legal needs. Not an exciting point to be sure but an important one, I think.

 In reading the CMA Market Study, I was reminded of another quite different study. In 2009, the Department of Justice Canada released a report prepared by Ab Currie of its Research and Statistics Division. The report was entitled The Legal Problems of Everyday Life – The Nature, Extent and Consequences of Justiciable Problems Experienced by Canadians. This is a fundamentally important work that looked the everyday experiences of ordinary Canadians. The first paragraphs of this report (the “Justice Canada Report”) are important:

The problems of civil justice, of access to civil justice and of unmet need for service in civil justice are most commonly studied from the point of view of the justice system, mainly with regard to the courts. The large, and reportedly increasing, number of self representing litigants crowding the courts is the issue that currently dominates both public and professional discourse. This is certainly an important problem, one that is as much a problem for the courts, mainly with respect to justice system efficiencies, as it is for the individuals who find themselves adrift without professional assistance in the complex and unfamiliar environment of the civil courts.

However, a wider perspective than one that begins with the courts is required to understand the full breadth of civil justice problems. It is widely accepted that many people with serious civil justice problems do not have access to the courts and thus do not appear as un-represented litigants. It is also part of the growing orthodoxy that many problems could be better resolved using alternative means, without engaging in expensive and lengthy court proceedings.

Two points can be taken from this quotation. The first is that access to justice/unmet legal needs is not just about what happens in the courts. Given our training as lawyers and especially for litigators, it is not surprising that we tend to see these issues as being about courts. To a hammer, everything is a nail.

The second and more important point is that there are a number of different and necessary perspectives from which to understand the extent and causes of unmet legal needs. The Justice Canada Report looked at the unmet legal needs of ordinary people by focusing on the problems of everyday life. The CMA Market Study examines the operation of the market for legal services. Neither report focuses on non-market provision of legal services through legal aid and otherwise or effect of the law and legal institutions on access to justice. This is no criticism – to the contrary. Understanding how a complex system works, does not work and should be reformed requires thoughtful analysis looking at the different component parts of the system separately and together.

Returning to the Justice Canada Report itself, it is significant in several ways. The first is that it is a Canada-wide report. The importance of this cannot be underestimated. We have a real risk of parochial understandings and approaches especially given how much of legal services is within provincial jurisdictions.  The second is that there is significant efficiency and efficacy in doing serious research and analysis at the national level. To state the blindingly obvious, access to justice and unmet legal needs are not only local problems even if some of the solutions must be.

Further, the Justice Canada Report had a significant on subsequent work and understanding. The Ontario Civil Legal Needs Project undertaken as a joint research project of the Law Society of Upper Canada, Legal Aid Ontario, and Pro Bono Ontario  lead to Listening to Ontarians focused on demand for legal services among low and middle-income Ontarians and The Geography of Civil Legal Services in Ontario focused the demographic characteristics of the Ontario population and the distribution of legal services. In 2011,  a colloquium was held at the U of T law school which lead to Middle Income Access to Justice,a collection of essays  about civil justice issues from Canada, Britain, the United States, and Australia. Most recently, the Canadian Forum on Civil Justice has undertaken the Everyday Legal Problems and the Cost of Justice in Canada National Survey which addresses the costs to individuals and to society of addressing and failing to address legal problems. In providing these examples, I don’t want to suggest direct causal lines from one project to another and I’ve not attempted to create a comprehensive listing of important work in this area. The point that I make is that each important piece of research from one perspective enables and betters further research. Understanding that there are unmet civil needs leads, for example, to consideration of the costs of addressing and failing to address legal needs.

Earlier this year,  White House Legal Aid Interagency Roundtable Civil Legal Aid Research Workshop Report was released (not exactly a consumer-friendly name). Richard Zorza describes this report in his Access to Justice Blog

 Formally titled White House Legal Aid Interagency Roundtable Civil Legal Aid Research Workshop Report, this Report represents a major milestone in one of the [U.S. Department of Justice Office for Access to Justice’s] most important initiatives.  It is no accident that since the Office was created, and particularly since [the Legal Aid Interagency Roundtable] was set up, we have seen an explosion of research interest in access to justice.  Prior recommendations to create research capacity in this field went unheard ever since the 1980’s when this capacity at [Legal Services Corporation was closed down.

Again, the point o f this column is not to examine the substance of this US report which is well described in Richard Zorza’s blog. Rather, the quotation above shows a parallel with the impact of the Research and Statistics Division of the Department of Justice in Abe Currie’s Justice Canada Report. Research capacity matters. Sadly, whether the US research capacity continues must now be uncertain given the recent election. In England and Wales, the CMA Report provides important insight but the ongoing research capacity of the Legal Services Board is important as is the fact that this research is not just from the lawyers’ perspective. This is inherent in the history and mandate of the Legal Services Board as well as a reflection of the impact of the LSB Consumer Panel.

So what is the punch line to all of this. The starting point is that research capacity matters. The next point is that good research leads to more good research and analysis. A virtuous cycle follows. Further, we cannot effectively address serious systemic issues like access to justice and unmet legal needs by intuitive responses that reflect our own limited perspectives. We need solid research and analysis.

What this leads to is to make two final points. The first is to encourage the Department of Justice to continue the good work that is reflected in the Justice Canada Report. While we now have further capacity, there is real value in maintaining  long term research capacity and Department of Justice is a natural place for such capacity given its breadth, depth and resources.

The second comes out of a recent discussion. There are many players in the legal system including attorneys general and their ministries, legal aid providers, the courts, law societies and universities. Each are busy doing their own work and thereby generating information/data about the justice system. While it is understandable, each player sees the value of its own information to itself but will not see the value to others including to researchers. Perhaps the time has come to take an open data approach to information about the legal system with a view to encouraging research and analysis addressing access to justice and unmet legal needs.

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Access to justice and market failure

First published on slaw.ca

Lemonish Lawyers [1]

The problem of access to justice is likely the result of a number of causes. Unnecessary complexity in substantive and procedural law is likely part of the problem. Our adversarial court-based administration of justice is problematic both where powerful actors have disputes with ordinary people and where family disputes require resolution. Ease of access to information through the internet may be both part of the solution and part of the problem.

Market regulation and access to justice

Our approach to legal services regulation plays a role as well. Limiting who can provide legal services restricts how legal services are provided and protects licensed lawyers and paralegals[2] from new forms of competition. Some problems cannot be economically addressed by spending the time of legal experts at costly hourly rates yet innovative new ways of providing legal services are prohibited.

Limiting legal service provision to licensed lawyers has always seemed to me to provide a logical explanation for the puzzling gap between legal services supply and demand. While there are substantial unmet legal needs, lawyers simply can’t survive if they drop their rates to the level that cost-effectively addresses most ordinary legal needs. Ordinary people won’t spend more to solve a problem than the problem is worth. Allowing new ways of obtaining legal services logically addresses this gap. Said another way, the market for legal services is constrained by limiting the supply side thereby causing unmet demand.

I make these points (none of which are new) as context for the balance of this column which suggests that there may other market failures present in the legal services market that impair access to justice. On this view, new ways of understanding and addressing problems of access to justice appear.

Information asymmetry and market failure

In the 1960s, economic theory evolved from its earlier focus “on figuring out the conditions that would allow markets to work perfectly” to a new focus on “what would happen when these conditions fail”[3]. One of the requirements for perfect markets is perfect information. Perfect market models assume that buyers and sellers are perfectly informed and accordingly can effectively see the value to them (“utility” to an economist) of goods and services that are bought and sold.

Of course, it is absurd to think that market participants are perfectly informed. Virtually inevitably, potential sellers know more about their wares than do potential buyers. George Akerlof was awarded the Nobel Prize in economics in 2001 for his research addressing the problems that arise in markets where sellers have material information that buyers do not (i.e. “asymmetric information”).

Akerlof’s research led to publication of his 1970 paper The Market for Lemons: Quality Uncertainty and the Market Mechanism[4]. As an example of a market with asymmetric information, Akerlof examined the used car market. Unlike the new car market where most all cars of a particular type have the same qualities, there are “lemons” and “peaches” in the used car market. Sellers know whether their cars are lemons. Most buyers have no ability to assess the quality of a used car. There is asymmetric information on a fundamental question on which value depends.

If “lemons” are worth $2,000 and “peaches” are worth $10,000, what happens in a market in which buyers can’t tell the difference? The answer is smart buyers won’t pay more than about $2,000 for any used car, buyers who only want a “peach” won’t buy at all and owners of “peaches” won’t be able to sell them for a reasonable price. Asymmetric information similarly can cause a downward quality spiral where producers see no point in providing “peach” quality service because purchasers can’t tell the difference and so will only pay “lemon” prices[5].

This problem of asymmetric information is part of the reason that cars depreciate so much when first purchased and driven off the lot and is part of the reason that “used car salesman” is a term of derision.

The labour market provides another example of market failure based on asymmetric information. Why is it that it is easier to find a job if you have a job and why does it get harder to find a job the longer that one is unemployed? The answer is that prospective employers don’t know whether the prospective employee is a lemon or a peach and rely on limited and often inaccurate information to avoid employing a lemon. Where an employer can’t effectively judge the quality of a prospective employee, employers assume that the currently employed are of higher quality than the unemployed and that the recently unemployed are of higher quality than the longer term unemployed.

But if asymmetric information leads to market failure, how did eBay come to be such a success? Buyers and sellers deal with each other virtually and at a distance. Information asymmetry is a particular problem where buyers and sellers don’t know each other and buyers can’t inspect the products being sold.

The answer appears to be that eBay took great care to provide market signals on which potential buyers could rely. One of eBay’s solutions is the establishment of an “Expert Community” where thousands of eBay members post advice on how to avoid buying a “lemon” or otherwise being taken advantage of. eBay encourages and organizes ratings of buyers and sellers so that confidence is enhanced by information from other market participants and so that taking advantage is deterred. As well, eBay has established one of the largest dispute resolution systems in the world. eBay has effectively reduced information asymmetry and has provided remedies that allow transactions to proceed despite a degree of information asymmetry.

On reading about information asymmetry and eBay in the recently released book The Inner Lives of Markets[6], I was struck by the question of information asymmetry in the practice of law. Clients would not need lawyers if they did not require expert assistance. By definition, unsophisticated clients have difficulty assessing the quality of their legal advisors and the quality of the legal assistance provided to them. Indeed, law is described as a “credence good”. Unlike a great (or lousy) dinner, it is difficult for consumers of legal services to assess the impact of legal services even after they have been provided. Also, unlike a used car, there is no sticker price nor even price negotiation prior to sale.

The market for legal services for ordinary people is fairly characterized as a market with asymmetric information as to the quality of the lawyer, the price of the services on offer and what is reasonably achievable as a result of proffered services. Ordinary consumers are at a very decided information disadvantage compared to the lawyers offering their services.

Professional self-regulation as a way of addressing market failure?

Keeping the problem of information asymmetry in mind, professional self-regulation can be thought of in a different way. Lawyers have ethical obligations of candour which require disclosure of information relevant to their retainer and disclosure of errors and omissions. The Law Society provides assurance of competence by requiring legal training and by testing prior to entry to practice. Further assurance of competence is provided by mandatory errors and omissions insurance and, it is thought, by mandatory continuing professional development. The Law Society provides assurance of proper conduct by establishing codes of professional conduct and by disciplining for professional misconduct.

It is interesting in this context to note that the definition of professional misconduct in Ontario is “conduct in a lawyer’s professional capacity that tends to bring discredit upon the legal profession”. It is also interesting how the discipline case law justifies license revocation in cases involving fraudulent or dishonest conduct. As the Divisional Court recently said in Bishop v. Law Society of Upper Canada, 2014 ONSC 5057 at para. 28:

… [There is a] pressing need to send a consistent message that engaging in fraudulent conduct by a lawyer is a matter that will not be tolerated because of its impact on the profession as a whole.  As was observed by Sir Thomas Bingham M.R. in Bolton, at p. 519:

The reputation of the profession is more important than the fortunes of any individual member.  Membership of a profession brings many benefits, but that is a part of the price.

While we ordinarily think of professional self-regulation in terms of protection of clients and the administration of justice, it is quite plausible to see assurance as to candour, competence, quality of service and professional conduct as addressing information asymmetry. It signals to prospective clients that they can retain lawyers without fear that they are retaining a lemon lawyer.

In the same way, applying fiduciary law to the lawyer-client relationship can be seen as providing assurance in the face of information asymmetry and addressing the fact that law is a credence good. With this thought in mind, Justice Binnie’s statement in Strother[vii] takes on new meaning:

… Monarch was dealing with professional advisors, not used car salesmen or pawnbrokers whom the public may expect to operate on the basis of “didn’t ask, didn’t tell”, and who collectively suffer a corresponding deficit in trust and confidence.  Therein lies one of the differences between a profession and some businesses.

Perhaps the difference between a profession and some businesses is that professions organize their affairs more like eBay (and less like used car salesmen) by reducing information asymmetry by requiring candour and by providing effective remedies where candour is lacking!

To be clear, none of this is problematic. Providing assurances of candour, competence, quality and conduct does protect consumers and does allow clients to more safely retain licensees. But what is a new thought for me is that there is good self-interested reason for professions to provide these assurances because the alternative is reduced demand for professional services because consumers cannot easily differentiate between lemon and peach professionals.

The Access to Justice gap and market failure

As discussed at the outset, it is plausible that the access to justice gap is explicable in part by the choice to limit the provision of legal service to licensees and those directly supervised by licensees. If ordinary people don’t have sufficient information about the quality and cost of prospective lawyers, some will think it better simply to “lump it”, some will access other resources and some represent themselves.

It also plausible that the access to justice gap would be even worse if ordinary people did not have assurance of minimum competence, quality and conduct.

But it would be naïve to think that our minimum professional standards mean that there are no choices to be made between us. We know that is not true and that there are great, good and not-very-good licensed lawyers and paralegals. We know that prospective clients have limited ability to assess who is a good and who is a less good lawyer in general or for a particular problem. Clients have limited ability to assess whether they have received quality or substandard services.

What is interesting is the possibility that the access to justice gap may be, if only in part, explained by market failure arising from continuing information asymmetry despite minimum standards.

Said more simply, being a lemon is a relative thing[7]. While prospective clients have some assurance, prospective clients have limited ability to distinguish between lawyers. As a result, economic theory suggests that rational consumers are forced to assume that no lawyer is better than the minimum standard actually required. While perhaps not lemon standard, this standard is “lemonish”. Where a potential client is not able to sufficiently assess the quality of the professional or of the service provided, the amount that the potential client will be prepared to pay is limited or the potential client may not be willing to retain anyone at all”.

If this analysis is right then the answer may come from eBay. We should be considering how to provide better information and how to better address service problems.

The difficulty with this is that we professionals are conflicted. Where minimum professional standards are established, we all benefit because prospective clients see all of us in a better light. But where distinctions are drawn between us, some will be winners and some will be losers. And where distinctions are made based on imperfect information, some will be losers who ought not to be.

This reaction is seen in discussions about greater transparency in Law Society complaints and investigations. There is immediate unease when it is suggested that prospective clients have access to information about, for example, complaints rather than just about discipline proceedings.

There are other tools that might be considered. One is bringing an end to general practice by limited licensing, thereby requiring and signalling specific expertise.

In writing this column, I don’t claim to know what specific approaches make sense. But it does seem clear that information asymmetry is a “thing” and that it is particularly applicable in the legal services market and that market failure is a consequence of information asymmetry. It also seems clear that we should recognize that addressing information asymmetry through self-regulation will be challenging given the inherent competitive conflict within the professions.

If we are serious about the access to justice gap, we should accept that no one solution will slay the access dragon. Indeed, we have to accept that we cannot predict with confidence what solutions will be effective. But it is time to be creative and to actually attempt solutions.

And addressing the market for lemonish lawyers may be part of that. Better information may allow consumers to retain lawyers who otherwise would not.

And the added (and important advantage) would be that pressure to reduce quality to the lemonish levels would be reduced and those who provide higher quality would have a better prospect of being paid better prices where clients

[1] This column borrows heavily from Fisman and Sullivan: The Inner Lives of Markets: How people shape them and they shape us (2016 Pereus Books Group), https://www.amazon.ca/Inner-Lives-Markets-People-Shape/dp/1610394925

[2] I will refer to lawyers rather than lawyers and paralegals in the balance of this column for ease of reading. But the point is relevant for paralegals as much as for lawyers and perhaps more .

[3] Fisman and Sullivan supra., Chapter 3

[4] Quarterly Journal of Economics, 1970

[5] My thanks to Noel Semple for editing a draft of this column and pointing out the downward-spiral problem which seems highly relevant in some areas of the legal services market.

[6] Fisman and Sullivan supra., Chapter 3

[7] Strother v. 3464920 Canada Inc., [2007] 2 SCR 177 at para. 42

[8] Thanks again to Noel Semple for pointed out the following reference which notes that professional regulation ordinarily sees quality in yes/no terms. Ordinary licensing does not permit consumers to differentiate between licensees. Michael J. Trebilcock, Carolyn J. Tuohy and Alan D. Wolfson, Professional regulation : a staff study of accountancy, architecture, engineering and law in Ontario prepared for the Professional Organization Committee (Toronto: Ministry of the Attorney General, 1979) at pages 78-9: “all standard-setting mechanisms, including licensing, necessarily proceed on the assumption that quality is a discontinuous attribute. A licensing regime assumes that either one satisfies the required licensing conditions and provides a corresponding quality of service, or one does not meet the standards and is not permitted to provide any lesser quality of service on any terms. “

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