Law Times

Law Times • June 13, 2016 Page 7 www.lawtimesnews.com COMMENT Plea for leadership on advertising and marketing BY ROGER OATLEY T he personal injury bar is appalled, embar- rassed, and frustrated by the advertising and marketing methods of a few lawyers. Because of the volume and lack of taste in much of the advertising, personal injury lawyers are now perceived to be ambulance chasers. Misleading, tawdry, voluminous advertising has been the norm for a number of years, yet the Law Society and the Law Society's staff has done very little about it. The Law Society's only response has been to take steps to make minor revisions to the Rules of Profes- sional Conduct. They are a modest step in the right direction. But what will amending the rules achieve if they are not enforced with meaningful penalties? Had the existing rules been enforced, the Law Society could have prevented much of the mess that we are in now. The Rules of Professional Conduct allow a lawyer to market legal services if the marketing is demonstrably true, accurate, and verifiable, is neither misleading, confusing, or deceptive, nor likely to mislead, confuse, or deceive; and is . . . consistent with a high standard of professionalism. The rules also provide that a law- yer shall not use means that are intended to inf luence a person . . . to change their lawyer, and further pro- vide that marketing and advertising must not bring the profession into disrepute. Also, the rules provide that a lawyer must not take advantage of a person who is vul- nerable or who has suffered a traumatic experience and has not yet had a chance to recover. Why hasn't the Law Society enforced these rules? Ex- amples of lawyers breaking these rules are everywhere. We have lawyers brazenly offering second opinions on their web sites and on radio and television. We've had one advertiser promoting himself in public bathrooms at the ACC for years. One of that firm's ads compared the size of a litigation settlement to part of the male anatomy. It has been suggested that the Law Society in- vestigator looking into a complaint about that ad found it funny. How can such an ad not bring the profession into disrepute? We've had lawyers claiming to be "award winning", "the best" and "Number 1" — claims based on readers' choice awards that have nothing to do with peer-reviewed credentials. Now we have an apparent in- terview of a lawyer by none other than Larry King! Of what value to the consumer is an endorsement by an American celebrity who knows nothing about the law- yers' credentials? These examples demonstrate the extent of the problem for the profession. The Law Society says it doesn't need a complaint to inspire action. So we all ask why does it continue? Why has the Law Society allowed our profession to be so denigrated in the eyes of the public? Do firms f launt the rules because they know the Law Society won't en- force them? And why has nothing been done about the prolif- eration of ads on billboards and buses? The expression "Nero fiddled while Rome burned" comes to mind. When you exit the Q.E.W. for downtown Hamilton, count the personal injury billboards between the high- way and downtown. The ads on buses are so numerous it makes us all cringe as we drive to work. As a member firm of the PIA, my firm tried this media, but we chose not to be part of the problem so we washed our hands of it. Why has our Law Society not asked us whether we should ban this kind of advertising because it brings the profession into disrepute? I fear it is only going to get worse, because a few law- yers appear willing to stop at nothing to get work. We have new clients tell us that lawyers have visited them without invitation in their hospital rooms to solicit their business. They tell us lawyers cold-call them in their beds while they are still in acute care. They tell us that agents of personal injury lawyers pretend to be the fam- ily of patients, and when they have made a connection that they try to steer the injured person's family to the lawyer they represent. Some in the Law Society have expressed surprise that few lawyers complain about these practices. Partly it's because lawyers have lost respect and confi- dence in the Law Society to deal with these abuses. And those lawyers who do complain experience delays in the Law Society's processing of complaints. Part of the prob- lem lies in the complaints staff closing their file once the offending lawyer has agreed to alter his or her advertise- ment. There has to be a sanction that is commensurate to the offence. I do have some suggestions: • The Law Society's staff must enforce the rules aggres- sively and expeditiously; • Sanctions must be sufficiently severe that they are a de- terrent to others; • The names of lawyers who have breached the rules, the nature of the offence, and the penalty should be pub- lished for all to see; • A lawyer who breaches the rules should be required to post the details and the penalty on his or her web site home page for at least six months; • An independent panel of lawyers should be appointed to guide the work of the complaints staff and to help de- fine what a "high standard of professionalism" means; • Lawyers should step up and complain whenever the rules are breached. It is not just we lawyers who will continue to suffer in the eyes of the public if we fail to take action. The clients we try to help will suffer, too, because we cannot be effective advocates if the public holds us in contempt. So I end with this plea to the Law Society for the sake of our profession and for the sake of the public to provide decisive leadership to restore the dignity of our profession. It has gone way too far for far too long. Enough is enough. LT u Roger Oatley, a plaintiff 's lawyer, is a senior partner of Oatley Vigmond Personal Injury Lawyers. u SPEAKER'S CORNER Default interest by any other name still default interest BY JEFFREY W. LEM AND MEGAN J. LEM F ederal law has, since 1880, restricted the ability of mortgage lenders in Canada from charging default interest. Of course, the proscription does not prevent mortgage lenders from charging interest after a default — it is just that Can- adian mortgage lenders are not allowed to charge a higher rate of interest after default than was payable prior to default. This rule is codified under Section 8 of the Interest Act and is quite uniquely Canadian. Mortgage lenders south of the border, for instance, do not have any restrictions against charging default interest (at rates sometimes quite a bit higher than pre- default rates). Indeed, when asked, U.S. mortgage lenders operating in Canada often cite the inability to collect default interest as being the single biggest (and most surprising) difference in the mortgage lending laws between the two countries. Practically speaking, it means that, while a borrower in default of a mort- gage in Canada may still face foreclosure (whether by power of sale or judicial pro- cess, depending on the lender and the ju- risdiction), dispossession, action on the covenant, and any number of other re- medial indignities and burdens, nowhere in Canada will that borrower also have to pay a higher rate of interest just because the borrower fell into default. Canadian interest legislation has al- ways been somewhat borrower protec- tionist, seeing such persons as having enough perils to face without, all of a sudden, having to pay an interest rate that has just doubled or tripled overnight as a result of a default. This is precisely what happened in Krayzel Corp v. Equitable Trust Co., 2016 SCC 18, a re- cent Supreme Court of Canada case on appeal out of Alberta. Reduced to its very simplest facts, the borrower in Krayzel was paying interest at approximately 7.5% per annum, but, af- ter it defaulted on a payment, the interest rate effectively jumped to 25% per annum overnight. Alas, therein lies the rub — the facts in Krayzel were very deliberately not that simple. For as long as there has been a Section 8, there have been structures, arrange- ments, and schemes to try and avoid the operation of Section 8. The Krayzel mortgage was one such structure. The mortgage was deliberately struc- tured so that the interest structure ap- peared as a discount for prompt payment rather than a penalty after default. The mortgage documentation express- ly provided that "interest rate" was 25 per cent per annum, with monthly install- ments to be made at a "pay rate" of only 7.5 per cent per annum. If the borrower promptly made all payments on time, the spread between the "interest rate" and the "pay rate" would be forgiven. If the borrower missed a payment, however, the nomi- nal 25-per-cent per-annum inter- est rate would then govern, and the spread between the "interest rate" and the "pay rate" would be automatically capital- ized into the principal then outstanding. In effect, what the lender in Krayzel did was to convert what would have been a pen- alty or bonus after default into a discount for prompt and full payment, a fee structure that would be familiar to just about anybody who has ever paid a local utility bill. The question before the Supreme Court of Canada was simple: Does an in- terest rate structure smell as sweet by any other name? Would default interest oth- erwise clearly prohibited by Section 8 be somehow legally salvaged if expressed in the inverse as a lost discount? In a 6-3 split decision, the majority concluded that the mortgage in Krayzel breached Section 8 because it had the ef- fect of imposing a rate of interest that was higher on payments in arrears than on payments not in arrears. According to majority reasons, 25 per cent per annum was higher than 7.5 per cent, and the higher rate was payable after a default, "irrespective of the label used . . . given S. 8's explicit concern of substance over form." The majority came to the decision notwithstanding that the borrower in Krayzel was a sophisticated and fully represented borrower (and hardly the widow or orphan that usually attracts such consumer-friendly interpretations) and notwithstanding that the arrange- ment might have had a "legitimate com- mercial purpose," noting that the nature of the borrower was irrelevant and that the operative test was always the "effect" not the "purpose" of the impugned inter- est arrangements. While the lender in Krayzel ultimately lost at the Supreme Court of Canada, the legal gamble was far from reckless. In ad- dition to three Supreme Court judges in dissent, the lender's interpretation of Sec- tion 8 also had the tacit support of a num- ber of Canadian courts (several of them at appellate levels). That said, regardless of the legal risk appetite of mortgage lenders in Canada to structure around Section 8 before Kray- zel, it would be a daring mortgage lender indeed who expects such structures to be enforceable post-Krayzel, and one can expect the Supreme Court's "substance over form" approach to Section 8 to figure prominently in reasoned opinions on in- terest enforceability going forward. LT u Jeffrey Lem is the Director of Titles for the Province of Ontario. Megan Lem is an articling student at Osler Hoskin & Har- court LLP. This article reflects the perso- nal views of the authors alone. The Dirt Je rey W. Lem Je rey W. Lem The Dirt Megan J. Lem The Dirt Je rey W. Lem Je rey W. Lem

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