Law Society of Ontario approves regulatory sandbox for legal tech

The Law Society of Ontario Convocation has approved a five-year regulatory sandbox pilot to encourage the development of innovative technological legal services in the province. 

 

Participants in the sandbox will have to apply and get approval to operate for a specific period -- generally two years, according to a FAQ published on the LSO site. Participants can then serve consumers through innovative technological legal services (ITLS) while complying with risk-based monitoring and reporting requirements.

 

British Columbia launched its own regulatory "sandbox" program for legal tech innovation in December of last year, following the example set by Utah, which also began a similar program in 2020. Given the vast unmet need for legal services among the public and ongoing problems around access to justice, technology is seen by many as a way to chip away at that deficit. 

 

Still, some players in the legal innovation field have their reservations about this particular model.

 

"I think this would be a terrific initiative," says Jordan Furlong, a legal sector analyst based in Ottawa, before the vote. "Not just because of the practical effect of actually helping to accelerate the development of new solutions to legal problems in this province, which we need, but also because of the messages it sends and what it represents."

 

Furlong said that the "sandbox" adoption would mean that Ontario is serious about taking steps to improve access to justice. It would also be a vote of confidence to investors and innovators in Ontario, and elsewhere, that their time and effort are worthwhile.

 

Furlong adds that while BC gets the credit for moving first, Ontario has a world-class legal technology sector that will have a safe space to road test new services and products.

 

Gillian Hadfield, a professor of law and strategic management at the University of Toronto, and the Schwartz Reisman Chair in Technology and Society, also interviewed before the approval, said that it would be a mistake not to move forward with a sandbox pilot. Hadfield helped design the regulatory sandbox in Utah, and consulted with the LSO on the proposal.

 

"The problem we're facing in access to justice is that we only licence individuals – we don't license and regulate other providers," says Hadfield. "That means you can't build the technologies that would be extremely helpful in our access to justice problem."

 

It's important to note, however, that LSO is setting restrictions. It is not opening the door to all kinds of providers, as has been the case in England and Wales, Australia and Arizona, which last year scrapped its ethics rule barring non-lawyers from taking an economic interest in a law firm or participating in fee-sharing. Furlong notes that while complaints about access to justice persist in England and Wales, reregulation of legal services a decade ago was about bringing more competition to the sector from market actors.

 

The legal industry in Ontario uses very little technology, says Hadfield. Most of it is found in the corporate space because it's easier to sell e-discovery tools and others like Blue J Legal's use of machine learning for tax law to those firms. A sandbox could help give a push to web platforms with the capacity to better connect people to lawyers, for example. 

 

"Over seventy percent of people showing up in family court in Toronto have no representation, so we really want technologies that are consumer-facing," says Hadfield.

 

Natural language processing tools could provide plain-language translation for clients, for instance. "There are people who are building AI-powered systems to do that," says Hadfield. "You can give it a document and say to explain it to someone in grade five, and it's pretty good at translating complex legal language into simple terms. That's a big chunk of legal need."

 

Furlong also points to a service in the United States called Upsolve, an online tool for helping Americans navigate bankruptcy proceedings.

 

"I have no idea if Upsolve has any interest in the Canadian market, but if they did, this would be the perfect opportunity to come in and show us what they can do," says Furlong.

 

Furlong notes that the warnings of doom prior to the England and Wales changes never came to pass, and there have been improvements in the legal field there.

 

"It's not a licence to run amok," he says. "It's a very closely monitored and regulated laboratory for the development of innovative legal services. There are criteria for getting in. There are criteria for continuing to operate. There are very close measures in terms of risk and potential harm, as well as measuring benefits to the public, customers, and clients, and they are all monitored and reported on."

 

Chris Bentley, managing director of the Legal Innovation Zone at Ryerson University, opposes the sandbox as proposed.

 

"I think this is the wrong direction, and I'm concerned it will not have the effect that its proponents hope," says Bentley. "I think it will have a chilling effect on innovation initiatives. It will not help the 80 percent of Ontarians who do not have a route to justice get one, and it will ultimately have a negative effect on jobs and investment in the province."

 

Bentley insists that the existing prohibition on outside investment in law firms has no basis in fact, but the sandbox would allow tech companies to compete with lawyers who can't attract outside investment.

 

"Imagine the scenario where a start-up applies, developed by a combination of lawyer expertise, technology experts and business experts, to compete with lawyers who can't access that expertise in the same way," says Bentley. "How is that going to work?"

 

 He favours a system more like that in England and Wales, which allows outside investment without regulatory intervention and oversight.

 

"The Law Society should encourage innovative approaches and encourage outside investment and ideas, which brings not just money but different knowledge and expertise," says Bentley. "The public need is far too great."

 

Hadfield notes that law societies across North America have rejected most other attempts at regulatory changes, but the shift with this proposal is to create a new approach to regulation. She says that Utah required leadership of the state's supreme court and the presidents of their bar association, which started a move for other states to consider opening up.

 

"I'm more optimistic about change now than I have ever been in the past fifteen years," says Hadfield.

 

As for Ontario, "[i]t's directly in the Law Society's mandate to regulate legal services," says Furlong. "The report makes clear – there are dozens of these products, companies and services already right across the country. This is not a theoretical issue that we're discussing. You can't prosecute them all, you can't ignore them, and you can't simply issue a blanket approval because that's not responsible either. You need to find some way to oversee and monitor the trial runs of these sorts of products in a regulated environment, and in doing so, collect data."

 

Alexandre Désy, lawyer and co-founder of BidSettle, says there is also growing recognition in Québec that technology moves quickly. In France, too, he says, companies like Obtenez Justice have been automating and offering legal services online. The company won a challenge from the Paris Bar because the tech did not qualify as "legal advice."

 

"We're not going to automate going to the Supreme Court and debating case law," says Désy. "For the simple cases, it's already almost administrative. Your legal aspects aren't debated that much. Same thing with tenant issues. It's forms to [describe] what happened,: who are you, and how much money are you looking for? It's simple stuff."

 

According to Désy, the legal community in Canada needs to try new things, and if there are too many roadblocks to innovation, nothing will happen.

 

"There's a huge imbalance between access to justice and quality of justice," says Désy. "This imbalance needs to be treated, and tech is the most promising way. It's critical that we allow people to be able to innovate."

 

He warns that too much red tape for legal innovation will drive it to other countries and leave Canada without an industry.

 

With Ontario and BC pursuing the legal regulatory sandbox model, Furlong says there could be real momentum in legal innovation in regulatory reform. The two provinces also represent a major chunk of the legal profession in Canada.

 

"You might not need a sandbox anywhere else if you have one in BC and one in Ontario," says Furlong. "BC and Ontario moving ahead with this would really usher in a new era in legal regulation, and it would be an entirely new approach to how we govern the delivery of legal services, and how we help to ensure the delivery of access to remedies for Canadians. That might be the best outcome of all."