Awash in cash

Pam
Pam Frampton
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"The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing."

- Jean-Baptiste Colbert, (1619-1683), French statesman

One of a newspaper editor's many duties is to proofread pages, so imagine my surprise when I came upon my own name in a letter to the editor while proofing one of the op/ed pages of this edition of The Telegram.

The letter was a response to my column last week from Brenda B. Grimes, executive director of the Law Society of Newfoundland and Labrador.

It was a surprise, because I had written the law society on Monday with followup questions and had not gotten a response. Only after seeing the letter on the page did I receive a message from Grimes saying she had sent it, and that it should answer all my questions.

But it doesn't quite.

Last week, I wrote about the transaction levy, a fee paid by practising members of the law society on real estate and litigation cases, the cost of which - $50 per transaction - is often passed on to their clients.

The fee started out in 2005 as a short-term measure in response to a higher than usual number of insurance claims and rising insurance costs. There was an exacerbating factor in 2004, when property developer Myles Leger went belly up. The fallout was $5 million in insurance claims involving the legal practices of William Parsons and Glen Bursey.

That was all taken care of years ago, but the levy continues to swell the coffers of the law society's insurance program.

Law society members in private practice - government lawyers are exempt - have gone from fearing they would be slapped with $15,000-a-year insurance premiums in 2003, to paying $4,650 in 2008 and $2,180 in 2009. And the premiums were even lower in 2010 and 2011, and will be lower again in 2012.

"The (insurance program) continues to maintain premium costs to its members that are stable and are actually lower than the national average premium charged by other law societies across Canada," states the annual report from 2010-11.

And the good news for lawyers doesn't stop there.

Flush with cash

The levy has brought in even more money than it needed to stabilize premiums. By December 2010 the capital pool was worth more than $9.5 million, and has likely surpassed the $10 million mark by now.

"It was not that long ago that the (insurance program) was faced with numerous challenges and its financial stability was in jeopardy. Primarily as a result of the introduction of the levy ... it is now stable," the 2010-11 annual report notes.

"In the past ... it was thought that a capital pool of up to $12 (million) was required. This was recently reviewed by the (program's) actuaries and, based on their advice, the insurance committee has recently recommended ... the appropriate long-term target surplus to be retained is $6 (million)."

So why not quash the levy, since it has more than accomplished its mandate?

Grimes' letter does seem to suggest it could be reviewed at some point: "(F)unding of the insurance program will be adjusted as required to meet changing needs and demands from time to time," she writes.

But I wouldn't hold my breath. According to the law society's latest annual report, deciding what to do with all that money requires a period of rumination.

"While the present surplus held by the (program) is in excess of the recommended surplus," it says, "careful thought and analysis should be conducted with respect to the use of the excess surplus."

Methinks we should protest

So, the public continues to be dinged with the levy to the tune of more than a million dollars a year, even though law society members' insurance rates are below the national average and the number of insurance claims is down.

Now, insurance coverage is important - it means lawyers are covered if something goes wrong in their dealings with you and you sue them for damages. Fair enough.

But they should pay their own insurance premiums in full, and not look to the public for subsidization.

Lawyers should either drop this levy or clients should refuse to pay it. After all, your legal transaction would still be valid; it's just that your lawyer would have to pay the fee themselves.

Used for other purposes

And here's the other thing: not only has the levy brought in even more money than was needed, some of it is being used to do things other than defraying lawyers' premiums.

Grimes mentions in her letter that in 2010, the insurance program contributed money to the law society for "loss-prevention activities."

A law society report says $250,000 was to be spent "in areas such as the trust audit program, discipline, the law library and legal education, all these activities providing direct benefits to the insurance program. While the trust audit program is largely self-financing ... (it) still requires considerable office management that is not billed to members and is absorbed by the society as a general operating cost."

So, now the levy is being used to help defray general operating costs. That is not why it was introduced or why we were told it was necessary.

Grimes' letter says "there have been relatively few complaints or inquiries ... made by the public to the law society about the transaction levy since its inception on May 1, 2005.

Most of those complaints, she says, "resulted from a lack of understanding about the purpose of the transaction levy."

Surely we can be forgiven for that.

Let's be frank and call this what it is: a cash cow.

And it's time it was put out to pasture.

Pam Frampton is The Telegram's story editor. She can be reached by email at pframpton@thetelegram.com. Twitter: pam_frampton

Organizations: The Telegram

Geographic location: Newfoundland and Labrador, Canada

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  • Townie
    December 03, 2011 - 10:18

    One reason that dropping the fee doesn't quite cut it is that then the cost of the fund has fallen the customers that had land transactions since 2005 and not for those in the future that could have claims. Not that this should counter the argument for a revision of the fee system. How do we know that all lawyers who collected the fee have paid into the fund after all it was set up because of lawyer improper actions. I would suggest that the proper way to deal with this would be to determine a period after which claims would be no longer be valid and if a claim has not been made, to return the money to the customers. This is the way that insurance, which is what they claimed it was, normally works. Although this I believe would have to be enacted by the Provincial Government and with their inability to find a reason to open the House I would guest that this would be low on their list of priorities.