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Rule 6 Commentary – fees and disbursements – file transfer/withholding a file – accounts receivable

The following analysis applies when a licensee has been retained by a client whose file was previously with another Agent. The analysis focuses on the question of whether a file can be withheld by the previous Agent/Firm on the basis of outstanding accounts.

The Scenario

The Code of Professional Conduct (the “Code”) sets out rules with respect to the transfer of files from one Agent/Firm to another. The Commentary to Rule 6 of the Code sets out the obligations of the new or “successor” Agent and the obligations of the former Agent/Firm and illustrates how to ensure the client’s best interests may be served. The Code also provides guidance for when the client has an outstanding account with the former Agent/Firm.

The following is an analysis of licensees’ obligations with respect to the transfer of files and explores whether a file can be withheld from a successor Agent by the previous Agent/Firm on the basis of outstanding accounts receivable.

The Rule

The Code provides a list of an Agent’s obligations upon discharge or if they withdraw from a file. The Code requires that an Agent promptly render their account and that they cooperate with the successor Agent on the file:

On discharge [by a client] or withdrawal, an agent must… (e) promptly render an account for outstanding fees and disbursements; (f) cooperate with the successor agent in the transfer of the file in a manner that minimizes expense and avoids prejudice to the client [emphasis added].

The word cooperate is important here, as the Code later reiterates that the Agent who was discharged has an obligation to cooperate with the successor Agent and what that cooperation will look like, stating:

Cooperation with the successor agent will normally include providing copies of all files for applications and patents but confidential information not clearly related to the matter must not be disclosed without the written consent of the client.

The emphasis on avoiding prejudice is also important, as the Code puts the interests of the client first. While the commentary provides that “the obligation to deliver papers and property is subject to any agreement between the agent and the client”, it also states that:

if a matter is in progress or is imminent, or if the client would otherwise be prejudiced, the existence of an outstanding account must not be allowed to interfere with the successor agent acting for the client [emphasis added].

There is a positive obligation on the agent who is taking over carriage of the file to encourage their client to settle their account with their former agent or to assist with securing the outstanding amount. The Commentary states:

It is quite proper for the successor agent to urge the client to settle or take reasonable steps towards settling or securing any outstanding account of the former agent, especially if the latter withdrew for good cause or was capriciously discharged.

And if there is a dispute between the client and their former Agent, the Agent taking over the file is obligated to make efforts to have their client and the previous agent to settle that dispute (see Commentary to Rule 6).

CPATA's Advice

Accounts receivable should not be used as a basis for refusing to transfer a file that is in progress with deadlines and/or has urgent work to be done. The client’s interests are paramount, and a file should not be withheld if it will prejudice the client.

This does not mean, however, that the client is not obligated to pay the accounts receivable or for the value of the work in progress to the former firm. The successor Agent should urge their client to settle their account with the previous agent, or they should take steps to assist in securing the amount owed to the prior Agent/Firm. One way of doing so may be for the successor Agent to provide a written commitment to provide funds to the prior Agent/Firm when the matter is complete, along with a mechanism to ensure compliance.

If the client has provided written instructions that the file is to be transferred to the successor agent and there are arrangements with respect to any outstanding fees, the prior Agent/Firm must transfer the file to the successor Agent.

Ultimately each licensee has to decide what the correct course of action is that will protect client interests and adhere to their professional obligations. Every circumstance is unique and it is up to the licensee to exercise their own professional judgement. But through the Ethics Inquiry process, we are happy to help interpret the Code as part of the process of risk-assessment and ethical analysis.

We look forward to receiving more inquiries and providing more guidance to licensees. It helps us identify areas where further information or analysis might be instructive and it will help to inform our consultation on the Code, which will be rolling out in early 2023.

If you are a licensee with a question regarding professional conduct and your responsibilities under the Code, fill in our Ethics Inquiry Form.