The Code of Professional Conduct provides ethical rules for the conduct of licensees, which range from the broad, guiding principle of integrity to more specific rules about how to practice ethically. Included in the Code are rules with respect to such practical matters as fees and billing practices. The Code provides that a licensee should not charge a client for a disbursement for which the licensee has not yet paid. Licensees have recently contacted CPATA with ethics inquiries about the effect of this rule on their current billing practices with respect to fees paid to foreign agents.
Many licensees work with foreign agents to assist them with foreign filings. It may be the licensee’s or their firm’s billing practice to charge a flat fee to a client for their services, or a licensee or firm might work routinely with a foreign agent who submits bills to the licensee or firm on a schedule. This scenario could result in a client being charged a foreign agent’s fee on a bill before the licensee or firm has paid the foreign agent.
Some licensees have also contacted CPATA with questions about the effect of Rule 5(5) of the Code, which provides that a client should not be invoiced for a disbursement that has not yet been paid to a third party, as it is their practice to invoice a client for a foreign agent’s services, and this sometimes occurs before they have paid the foreign agent for their services. The licensees shared that this has been their practice prior to the Code coming into effect and the licensees were wondering whether their billing practices were running afoul of the new Code.
The Code came into effect as of June 28, 2021. Rule 5(5), paraphrased above, states that:
an agent must separately and clearly detail all fees and disbursements and must not show as a disbursement to a third party any amount that has not been paid to the third party [emphasis added].
Rule 5(5) (above) raises the question of whether a licensee and/or firm billing a client for a foreign agent’s fees where they have not yet paid the foreign agent is running afoul of the rules in the Code.
In order to evaluate a licensee’s obligations in these circumstances, CPATA needs to consider the principles underpinning Part 5 of the Code, which deals with Fees and Disbursements, as well as the Model Code of Professional Conduct from which the CPATA Code of Conduct was largely built. The Model Code of Professional Conduct has commentary to its rules with respect to fees which includes:
A lawyer may charge as disbursements only those amounts that have been paid or are required to be paid to a third party by the lawyer on a client’s behalf [emphasis added].
While this portion of the Commentary was not adopted by CPATA, it does appear to be consistent with the spirit of the Principle of Part 5 of the CPATA Code, which states that “an agent owes a duty of fairness and reasonableness in their financial dealings with the client.” The Principle of Part of 5 of the Code informs how the rules are to be read, in addition to the Fundamental Canon of the Code which provides that
the most important attribute of an agent is integrity. That principle is implicit in this Code and in each of the rules and commentaries set out in it.
CPATA’s analysis is based on these principles. In evaluating whether a licensee or firm that invoices a client and includes a fee for retaining a foreign associate, even where the firm has not yet paid that foreign agent, the College considered whether this would be a fair and reasonable way to manage financial dealings with the client and whether this billing practice maintains the principle of integrity.
In order to ensure that the billing practice is fair and reasonable the licensee/firm must:
- confirm that the client knows upfront what the fee for the foreign agent is,
- the fee for the foreign agent when charged must not be more than the client expected to pay, and
- the invoice/statement of account must set out clearly that “x” fee represents the amount that will be paid to an agent or lawyer in a foreign jurisdiction.
CPATA’s guidance to the licensees was that, if they could ensure that their billing practice with respect to foreign agent’s fees met the three criteria set out above, the billing practice was likely to be considered fair and reasonable and would not necessarily run afoul of the rules in the Code.
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, CPATA’s professional conduct experts 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 the College identify areas where further information or analysis might be instructive and it will help to inform 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.