Hodge v. Neinstein, 2015 ONSCDC 7345

minicounsel

Footnotes

Hodge v. Neinstein, [2014] O.J. No. 3572, 2014 ONSC 4503, 58 C.P.C. (7th) 37, 243 A.C.W.S. (3d) 537 (S.C.J.) (certification motion reasons).
Hodge v. Neinstein, [2014] O.J. No. 5204, 2014 ONSC 6366, 246 A.W.C.S. (3d) 531 (S.C.J.) (costs reasons).
Class Proceedings Act, 1992, S.O. 1992, c. 6, s. 5(1).
R.S.O. 1990, c. S.15.
Pearson v. Inco Ltd. (2005), 2006 913 (ON CA), 78 O.R. (3d) 641, [2005] O.J. No. 4918 (C.A.), at para. 43.
Anderson v. Wilson (1999), 1999 3753 (ON CA), 44 O.R. (3d) 673, [1999] O.J. No. 2494, 175 D.L.R. (4th) 409 (C.A.), leave to appeal to S.C.C. refused [1999] S.C.C.A. No. 476; Hickey-Button v. Loyalist College of Applied Arts & Technology, 2006 20079 (ON CA), [2006] O.J. No. 2393, 267 D.L.R. (4th) 601 (C.A.) ("Hickey-Button"), at para. 5; Cloud v. Canada (Attorney General) (2004), 2004 45444 (ON CA), 73 O.R. (3d) 401, [2004] O.J. No. 4924 (C.A.), leave to appeal to S.C.C. refused [2005] 1 S.C.R. vin, [2005] S.C.C.A. No. 50.
Hickey-Button, ibid., at para. 5.
Fresco v. Canadian Imperial Bank of Commerce (2012), 111 O.R. (3d) 501, [2012] O.J. No. 2883, 2012 ONCA 444, at para 68; Hickey-Button, supra, note 7, at para. 6; Cloud v. Canada, supra, note 7, at paras. 39-40.
Contingency Fee Agreements, O. Reg. 195/04.
Ibid., ss. 3(3) and 6.
Anderson v. Wilson, supra, note 7, at para. 18; Hollick v. Toronto (City), [2001] 3 S.C.R. 158, [2001] S.C.J. No. 67, 2001 SCC 68, at para. 25 ("Hollick"); Hunt v. Carey Canada Inc., 1990 90 (SCC), [1990] 2 S.C.R. 959, [1990] S.C.J. No. 93, at p. 980 S.C.R.; Fresco v. Imperial Bank of Commerce, supra, note 9, at paras. 56-58, 68, 70-71.
Certification motion reasons, supra, note 1, at paras. 89-90, 93, 99.
Ibid., at paras. 92, 94, 100.
Séguin v. Van Dyke, [2013] O.J. No. 5013, 2013 ONSC 6576, 233 A.C.W.S. (3d) 1015 (S.C.J.).
Certification motion reasons, supra, note 1, at paras. 32-33, 35, 39-42, 47-52, 95.
Interpretation Act, R.S.O. 1990, c. I.11, s. 10; Rizzo & Rizzo Shoes Ltd. (Re) (1998), 1998 837 (SCC), 36 O.R. (3d) 418, [1998] 1 S.C.R. 27, [1998] S.C.J. No. 2, at para. 22.
Ontario, Legislative Assembly, Official Report of Debates (Hansard), 37th Parl. 3rd Sess., No. 64B (November 28, 2002) at 3415.
Ibid.
E.A. Driedger, Construction of Statutes, 2nd ed. (Toronto: Butterworths, 1983), at 87; Rizzo & Rizzo Shoes, supra, note 17, at para. 21.
Solicitors Act, supra, note 4, at s. 28.1(6).
Seneca College of Applied Arts and Technology v. Bhadauria, 1981 29 (SCC), [1981] 2 S.C.R. 181, [1981] S.C.J. No. 76, 124 D.L.R. (3d) 193.
Canada v. Saskatchewan Wheat Pool, 1983 21 (SCC), [1983] 1 S.C.R. 205, [1983] S.C.J. No. 14.
Frame v. Smith, 1987 74 (SCC), [1987] 2 S.C.R. 99, [1987] S.C.J. No. 49.
Canadian Alliance of Pipeline Landowners' Assn. v. Enbridge Pipelines Inc., [2008] O.J. No. 1221, 2008 ONCA 227, 291 D.L.R. (4th) 487.
Séguin v. Van Dyke, [2010] O.J. No. 5805, 2010 ONSC 6636, 197 A.C.W.S. (3d) 53 (S.C.J.).
Séguin v. Van Dyke, [2011] O.J. No. 468, 2011 ONSC 843, 198 A.C.W.S. (3d) 45 (S.C.J.).
Raphael Partners v. Lam (2002), 2002 45078 (ON CA), 61 O.R. (3d) 417, [2002] O.J. No. 3605 (C.A.).
Henricks-Hunter (Litigation Guardian of) v. 814888 Ontario Inc., [2012] O.J. No. 3207, 2012 ONCA 496.
Cookish v. Paul Lee Associates Professional Corp., [2013] O.J. No. 1947, 2013 ONCA 278.
Chrusz v. Cheadle Johnson Shanks MacIvor, [2010] O.J. No. 3441, 2010 ONCA 553.
Laushway Law Office v. Simpson, [2011] O.J. No. 3184, 2011 ONSC 4155, 336 D.L.R. (4th) 632 (S.C.J.).
Du Vernet v. 1017682 Ontario Ltd., [2009] O.J. No. 2373, 75 C.P.C. (6th) 295, 177 A.C.W.S. (3d) 1100 (S.C.J.) ("Du Vernet").
Ibid., at paras. 18-19.
Ibid., at para. 20.
Markson v. MBNA Canada Bank (2007), 85 O.R. (3d) 321, [2007] O.J. No. 1684, 2007 ONCA 334.
R.S.C. 1985, c. C-46.
Markson, supra, note 37, at para. 75; Oldfield v. Transamerica Life Insurance Co. of Canada, [2002] 1 S.C.R. 742, [2002] S.C.J. No. 23, 2002 SCC 22.
Cloud v. Canada, supra, note 7, at para. 53.
Certification motion reasons, supra, note 1, at paras. 174-78.
See Cookish v. Paul Lee Associates, supra, note 31.
Markson v. MBNA Canaa Bank, supra, note 37, at para. 69.
Hollick, supra, note 12, at paras. 28-30.
Ibid., at para. 27.
AIC Ltd. v. Fischer, [2013] 3 S.C.R. 949, [2013] S.C.J. No. 69, 2013 SCC 69.
Ibid., at paras. 26-38.
Hodge v. Neinstein, [2014] O.J. No. 3572, 2014 ONSC 4503 (S.C.J.) (Perell J.), at paras. 13, 26 and 127.
Reasons of Molloy J., at paras. 8, 34 and 37.
R.S.O. 1990, c. S.15.
Reasons of Molloy J., at paras. 8 and 72.
Linden and Feldthusen, Canadian Tort Law, 9th ed. (Markham, Ont.: LexisNexis, 2011), at p. 225.
R.S.O. 1990, c. L.19, s. 39; and see Menow v. Honsberger, 1969 459 (ON SC), [1970] 1 O.R. 54, [1969] O.J. No. 1423 (H.C.J.), affd 1970 47 (ON CA), [1971] 1 O.R. 129, [1970] O.J. No. 1629 (C.A.), affd 1973 16 (SCC), [1974] S.C.R. 239, [1973] S.C.J. No. 80; McInytre v. Grigg (2006), 2006 37326 (ON CA), 83 O.R. (3d) 161, [2006] O.J. No. 4420, 274 D.L.R. (4th) 28 (C.A.), at para. 23.
Section 23 states: 23. No action shall be brought upon any such agreement, but every question respecting the validity or effect of it may be examined and determined, and it may be enforced or set aside without action on the application of any person who is a party to the agreement or who is or is alleged to be liable to pay or who is or claims to be entitled to be paid the costs, fees, charges or disbursements, in respect of which the agreement is made, by the court, not being the Small Claims Court, in which the business or any part of it was done or a judge thereof, or, if the business was not done in any court, by the Superior Court of Justice. (Emphasis added)
Section 24 states: 24. Upon any such application, if it appears to the court that the agreement is in all respects fair and reasonable between the parties, it may be enforced by the court by order in such manner and subject to such conditions as to the costs of the application as the court thinks fit, but, if the terms of the agreement are deemed by the court not to be fair and reasonable, the agreement may be declared void, and the court may order it to be cancelled and may direct the costs, fees, charges and disbursements incurred or chargeable in respect of the matters included therein to be assessed in the ordinary manner. (Emphasis added)
Section 25 states: 25. Where the amount agreed under any such agreement has been paid by or on behalf of the client or by any person chargeable with or entitled to pay it, the Superior Court of Justice may, upon the application of the person who has paid it if it appears to the court that the special circumstances of the case require the agreement to be reopened, reopen it and order the costs, fees, charges and disbursements to be assessed, and may also order the whole or any part of the amount received by the solicitor to be repaid by him or her on such terms and conditions as to the court seems just. (Emphasis added)
Section 15 states: "contingency fee agreement" means an agreement referred to in section 28.1.
Section 16(1) states: 16(1) Subject to sections 17 to 33, a solicitor may make an agreement in writing with his or her client respecting the amount and manner of payment for the whole or a part of any past or future services in respect of business done or to be done by the solicitor, either by a gross sum or by commission or percentage, or by salary or otherwise, and either at the same rate or at a greater or less rate than that at which he or she would otherwise be entitled to be remunerated.
Reasons of Molloy J., at para. 45.
Solicitors Act, supra, note 50, s. 23, quoted, at para. 16, above.
Solicitors Act, ibid., s. 24, quoted, at para. 16, above.
Solicitors Act, ibid., s. 28.1(8).
Section 28.1(7) states: 28.1(7) In determining whether to grant an application under subsection (6), the court shall consider the nature and complexity of the action or proceeding and the expense or risk involved in it and may consider such other factors as the court considers relevant.
Reasons of Molloy J., at para. 46.
Reasons of Molloy J., at para. 52.
Section 16(2) states: For purposes of this section and sections 20 to 32, "agreement" includes a contingency fee agreement.
See note 7.
Class Proceedings Act, s. 5(1)(a).
Hodge v. Neinstein, supra, note 1 (Perell J.), at para. 94.
Ibid., at 3416.

Ontario Reports

Ontario Superior Court of Justice,

Divisional Court,

Then, Molloy and Lederer JJ.

December 9, 2015

129 O.R. (3d) 111 | 2015 ONSC 7345

Case Summary

Civil procedure — Class proceedings — Certification — Plaintiff bringing proposed class action against her former lawyer and his firm alleging that they took unauthorized fees, failed to obtain required court approval and charged illegal interest rates on disbursements while acting under invalid contingency fee agreements — Motion judge erring in dismissing certification motion on grounds that common issue and preferable procedure criteria were not met — Scope existing within Solicitors Act for client to obtain declaration that contingency fee agreement is void and unenforceable because of s. 28.1 of Act — Solicitors Act, R.S.O. 1990, c. S.15, s. 28.1.

The plaintiff brought a proposed class action against her former lawyer and his firm, alleging that they took unauthorized fees, failed to obtain court approval when required by law, and charged illegal interest rates on disbursements while acting under invalid contingency fee agreements. Her motion to certify the action as a class proceeding was dismissed. The motion judge found that the plaintiff had pleaded a tenable cause of action for breach of fiduciary duty and breach of contract, as well as for an application under s. 23 of the Solicitors Act to determine whether the contingency fee claimed was fair and reasonable. He found that there was an identifiable class and that the plaintiff was an acceptable representative plaintiff. However, he found that the common issue criterion for certification was not met as any analysis of the claim would be individualistic, involving the relationship between each client and his or her solicitor, the nature of the information disclosed by the lawyer, the amount of work done, and the fairness of the agreement within the particular context of each case. Given the individualized nature of the claims, he found that a class proceeding could not be the preferable procedure. Even if there was a common issue, the preferable procedure would be individual client applications under the Solicitors Act, rather than a class action. The plaintiff appealed.

Held, the appeal should be allowed.

Per Molloy J. (Then J. concurring): The motion judge erred in law in his interpretation of the Solicitors Act. He failed to consider that ss. 23-25 of the Act may not apply to a contingency fee agreement that does not comply with the provisions of s. 28.1(8) and (6). There is scope within the Act for a client to obtain a declaration that a contingency fee agreement is void and unenforceable because of s. 28.1 of the Act. It is arguable that the appropriate remedy would then be the disgorgement of all moneys received by the law firm in respect of invalid contingency fee agreements. The legal issues involved would be common to all clients within the class. Further, the quantification of the claims would be relatively straightforward. It would then be incumbent upon the law firm to establish whether there was a valid claim to be paid fees on a quantum meruit basis. Those counterclaims would be individual, but that would not bar using the class action procedure to determine the common claims. Given the scope for narrowing the issues and determining the entitlement of plaintiffs falling within the class, that is the preferable procedure. It is also preferable because it better addresses the [page112] objectives of behaviour modification and access to justice. The alleged improper interest charges and other improper billing practices could also be dealt with as common issues. The class should have been certified.

Per Lederer J. (concurring in the result): The appeal should be allowed on the basis that it is not plain and obvious that an action which depends solely on s. 28.1 of the Solicitors Act cannot succeed. The motion judge was not necessarily wrong in his understanding of the effect of ss. 23, 24, 25 and 28.1 of the Solicitors Act. It should be left to the trial judge to determine whether or not the motion judge was wrong.

Canadian Alliance of Pipeline Landowners' Assn. v. Enbridge Pipelines Inc., [2008] O.J. No. 1221, 2008 ONCA 227, 94 L.C.R. 129, 291 D.L.R. (4th) 487, 237 O.A.C. 200, 165 A.C.W.S. (3d) 743; Frame v. Smith, 1987 74 (SCC), [1987] 2 S.C.R. 99, [1987] S.C.J. No. 49, 42 D.L.R. (4th) 81, 78 N.R. 40, 23 O.A.C. 84, 42 C.C.L.T. 1, [1988] 1 C.N.L.R. 152, 9 R.F.L. (3d) 225, 6 A.C.W.S. (3d) 263; Seneca College of Applied Arts and Technology v. Bhadauria, 1981 29 (SCC), [1981] 2 S.C.R. 181, [1981] S.C.J. No. 76, 124 D.L.R. (3d) 193, 14 B.L.R. 157, 2 C.H.R.R. D/468, 37 N.R. 455, 81 CLLC 14,117, J.E. 81-704, 9 A.C.W.S. (2d) 262, distd

Chrusz v. Cheadle Johnson Shanks MacIvor, [2010] O.J. No. 3441, 2010 ONCA 553, 272 O.A.C. 1, 191 A.C.W.S. (3d) 1106; Cookish v. Paul Lee Associates Professional Corp., [2013] O.J. No. 1947, 2013 ONCA 278, 305 O.A.C. 359; Du Vernet v. 1017682 Ontario Ltd., [2009] O.J. No. 2373, 75 C.P.C. (6th) 295, 177 A.C.W.S. (3d) 1100 (S.C.J.); Henricks-Hunter (Litigation Guardian of) v. 814888 Ontario Inc., [2012] O.J. No. 3207, 2012 ONCA 496, 294 O.A.C. 333; Laushway Law Office v. Simpson, [2011] O.J. No. 3184, 2011 ONSC 4155, 336 D.L.R. (4th) 632, 205 A.C.W.S. (3d) 857 (S.C.J.); Raphael Partners v. Lam (2002), 2002 45078 (ON CA), 61 O.R. (3d) 417, [2002] O.J. No. 3605, 164 O.A.C. 129, 24 C.P.C. (5th) 33, 218 D.L.R. (4th) 701, 117 A.C.W.S. (3d) 335 (C.A.); Séguin v. Van Dyke, [2013] O.J. No. 5013, 2013 ONSC 6576, 233 A.C.W.S. (3d) 1015 (S.C.J.), consd

Other cases referred to

AIC Ltd. v. Fischer, [2013] 3 S.C.R. 949, [2013] S.C.J. No. 69, 2013 SCC 69, 452 N.R. 80, 312 O.A.C. 128, 2013EXP-3985, J.E. 2013-2175, EYB 2013-230429, 366 D.L.R. (4th) 1, 45 C.P.C. (7th) 227; Anderson v. Wilson (1999), 1999 3753 (ON CA), 44 O.R. (3d) 673, [1999] O.J. No. 2494, 175 D.L.R. (4th) 409, 122 O.A.C. 69, 36 C.P.C. (4th) 17, 89 A.C.W.S. (3d) 441 (C.A.) [Leave to appeal to S.C.C. refused [1999] S.C.C.A. No. 476]; Canada v. Saskatchewan Wheat Pool, 1983 21 (SCC), [1983] 1 S.C.R. 205, [1983] S.C.J. No. 14, 143 D.L.R. (3d) 9, 45 N.R. 425, [1983] 3 W.W.R. 97, 23 C.C.L.T. 121, 18 A.C.W.S. (2d) 133; Cloud v. Canada (Attorney General) (2004), 2004 45444 (ON CA), 73 O.R. (3d) 401, [2004] O.J. No. 4924, 247 D.L.R. (4th) 667, 192 O.A.C. 239, 27 C.C.L.T. (3d) 50, [2005] 1 C.N.L.R. 8, 2 C.P.C. (6th) 199, 135 A.C.W.S. (3d) 567 (C.A.) [Leave to appeal to S.C.C. refused [2005] 1 S.C.R. vin, [2005] S.C.C.A. No. 50]; Fresco v. Canadian Imperial Bank of Commerce (2012), 111 O.R. (3d) 501, [2012] O.J. No. 2883, 2012 ONCA 444, 293 O.A.C. 248, 100 C.C.E.L. (3d) 81, 21 C.P.C. (7th) 223, [2012] CLLC Â210-040; Hickey-Button v. Loyalist College of Applied Arts & Technology, 2006 20079 (ON CA), [2006] O.J. No. 2393, 267 D.L.R. (4th) 601, 211 O.A.C. 301, 31 C.P.C. (6th) 390, 148 A.C.W.S. (3d) 853 (C.A.); Hodge v. Neinstein, [2014] O.J. No. 3572, 2014 ONSC 4503, 58 C.P.C. (7th) 37, 243 A.C.W.S. (3d) 537 (S.C.J.); Hodge v. Neinstein, [2014] O.J. No. 5204, 2014 ONSC 6366, 59 C.P.C. (7th) 248 (S.C.J.); Hollick v. Toronto (City), [2001] 3 S.C.R. 158, [2001] S.C.J. No. 67, 2001 SCC 68, 205 D.L.R. (4th) 19, 277 N.R. 51, J.E. 2001-1971, 153 O.A.C. 279, 42 C.E.L.R. (N.S.) 26, 13 C.P.C. (5th) 1, 24 M.P.L.R. (3d) 9, REJB 2001-26157, 108 A.C.W.S. (3d) 774; Hunt v. Carey Canada Inc., 1990 90 (SCC), [1990] 2 S.C.R. 959, [1990] S.C.J. No. 93, 74 D.L.R. (4th) 321, 117 N.R. 321, [1990] 6 W.W.R. 385, J.E. 90-1436, 49 B.C.L.R. (2d) 273, 4 C.C.L.T. (2d) 1, 43 C.P.C. (2d) 105, 23 A.C.W.S. (3d) 101; [page113] Markson v. MBNA Canada Bank (2007), 85 O.R. (3d) 321, [2007] O.J. No. 1684, 2007 ONCA 334, 282 D.L.R. (4th) 385, 224 O.A.C. 71, 32 B.L.R. (4th) 273, 43 C.P.C. (6th) 10, 157 A.C.W.S. (3d) 29; McIntyre v. Grigg (2006), 2006 37326 (ON CA), 83 O.R. (3d) 161, [2006] O.J. No. 4420, 274 D.L.R. (4th) 28, 217 O.A.C. 217, 43 C.C.L.T. (3d) 209, 39 M.V.R. (5th) 39, 152 A.C.W.S. (3d) 624 (C.A.); Menow v. Honsberger, 1973 16 (SCC), [1974] S.C.R. 239, [1973] S.C.J. No. 80, 38 D.L.R. (3d) 105, affg 1970 47 (ON CA), [1971] 1 O.R. 129, [1970] O.J. No. 1629, 14 D.L.R. (3d) 545 (C.A.), affg 1969 459 (ON SC), [1970] 1 O.R. 54, [1969] O.J. No. 1423, 7 D.L.R. (3d) 494 (H.C.J.); Oldfield v. Transamerica Life Insurance Co. of Canada, [2002] 1 S.C.R. 742, [2002] S.C.J. No. 23, 2002 SCC 22, 210 D.L.R. (4th) 1, 284 N.R. 104, J.E. 2002-485, 156 O.A.C. 310, 35 C.C.L.I. (3d) 165, [2002] I.L.R. I-4058, 112 A.C.W.S. (3d) 353; Pearson v. Inco Ltd. (2005), 2006 913 (ON CA), 78 O.R. (3d) 641, [2005] O.J. No. 4918, 261 D.L.R. (4th) 629, 205 O.A.C. 30, 20 C.E.L.R. (3d) 258, 18 C.P.C. (6th) 77, 43 R.P.R. (4th) 43, 143 A.C.W.S. (3d) 973 (C.A.); Rizzo & Rizzo Shoes Ltd. (Re) (1998), 1998 837 (SCC), 36 O.R. (3d) 418, [1998] 1 S.C.R. 27, [1998] S.C.J. No. 2, 154 D.L.R. (4th) 193, 221 N.R. 241, J.E. 98-201, 106 O.A.C. 1, 50 C.B.R. (3d) 163, 33 C.C.E.L. (2d) 173, 98 CLLC Â210-006, 76 A.C.W.S. (3d) 894, D.T.E. 98T-154; Seguin v. Van Dyke, [2010] O.J. No. 5805, 2010 ONSC 6636, 197 A.C.W.S. (3d) 53 (S.C.J.) [Leave to appeal to Divisional Court dismissed [2011] O.J. No. 468, 2011 ONSC 843, 198 A.C.W.S. (3d) 45 (S.C.J.)]

Statutes referred to

Class Proceedings Act, 1992, S.O. 1992, c. 6 [as am.], ss. 5(1), (a), (c), (d), 23, 24

Criminal Code, R.S.C. 1985, c. C-46, s. 347 [as am.]

Family Law Act, R.S.O. 1990, c. F.3 [as am.]

Interpretation Act, R.S.O. 1990, c. I.11, s. 10 [rep. S.O. 2006, c. 21, Sch. F]

Liquor Licence Act, R.S.O. 1990, c. L.19 [as am.], s. 39

Solicitors Act, R.S.O. 1990, c. S.15, ss. 15-33 [as am.], 16(1), (2) [as am.], 23 [as am.], 24, 25 [as am.], 28.1, (1), (2), (3), (4), (6), (7), (8), (9), (11)(b), 33, (2)

Rules and regulations referred to

Contingency Fee Agreements, O. Reg. 195/04, ss. 3, (3), 6

Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rule 21.01(1) (b)

Authorities referred to

Driedger, E.A., Construction of Statutes, 2nd ed. (Toronto: Butterworths, 1983)

Linden, Allen, and Bruce Feldthusen, Canadian Tort Law, 9th ed. (Markham, Ont.: LexisNexis, 2011)

Ontario, Legislative Assembly, Official Report of Debates (Hansard), 37th Parl. 3rd Sess., No. 64B (November 28, 2002)

APPEAL from an order dismissing a motion to certify an action as a class proceeding.

Peter Waldmann and Andrew Stein, for appellant.

Chris G. Paliare, Odette Soriano and Denise Cooney, for respondents.

Scott C. Hutchinson and Sherif Foda, for intervenor Law Foundation of Ontario.

MOLLOY J. (THEN J. concurring): — [page114]

A. Introduction

Introduction

1Cassie Hodge seeks to bring a class action against her former lawyer, Gary Neinstein, and his law firm, Neinstein & Associates. She alleges that the Neinstein firm, while acting under improper contingency fee agreements with her and other clients, took unauthorized fees, failed to obtain court approval when required by law, and charged illegal interest rates on disbursements.

2Ms. Hodge applied to certify her action as a class proceeding. Her application was dismissed by Perell J. for reasons dated July 29, 2014.¹ Subsequently, for reasons dated November 4, 2014,² Perell J. ordered Ms. Hodge to pay costs to the respondents in the amount of $328,758.45.

3Ms. Hodge appeals to this court from the order dismissing the certification application. She also seeks leave to appeal the costs order, and if leave is granted, asks that the costs order be set aside or reduced.

4The motion judge considered the five criteria for certification of a class proceeding: an arguable cause of action; an identifiable class; common issues of fact or law; whether a class proceeding would be a preferable procedure; and whether there is a suitable representative plaintiff.³

5The motion judge found that Ms. Hodge had pleaded a tenable cause of action for breach of fiduciary duty and breach of contract, as well as for an application under s. 23 of the Solicitors Act⁴ to determine whether the contingency fee claimed was fair and reasonable. However, he also found that Ms. Hodge had failed to establish a free-standing cause of action for a strict liability claim under s. 28.1 of the Solicitors Act. The motion judge did not deal specifically with Ms. Hodge's allegation that the Neinstein firm charged improper interest on unpaid disbursements, presumably because this would be subsumed within the application under s. 23 of the Solicitors Act. While the motion judge did not accept the class definition proposed by the plaintiff, he found that there was an identifiable class capable of definition for purposes of certification. He found that Ms. Hodge [page115] was an acceptable representative plaintiff. Thus, three of the five criteria were met: cause of action; identifiable class; and representative plaintiff.

6The motion judge held that the fatal flaw in Ms. Hodge's case was the common issue requirement. He held that any analysis of the claim would be individualistic, involving the relationship between each client and his or her solicitor, the nature of the information disclosed by the lawyer, the amount of work done and the fairness of the agreement within the particular context of each case. Given the individualized nature of the claims, the motion judge found that a class proceeding could not be the preferable procedure. He determined that, even if there was a common issue, the preferable procedure would be individual client applications under the Solicitors Act, rather than a class action.

7With respect to costs, the motion judge found that Ms. Hodge was not a public interest litigant and had not raised novel points. He also rejected the argument that wrongdoing had been established against the defendant law firm. He held that the normal rules with respect to costs applied and that the successful respondents should have their costs, which he fixed at $300,000 for fees plus $28,758.45 for disbursements.

8For the reasons that follow, the decision of the motion judge is set aside. The motion judge erred in law in his interpretation of the Solicitors Act. The motion judge failed to consider that ss. 23-25 of the Solicitors Act may not apply to a contingency agreement that does not comply with the provisions of s. 28.1(8) and (6). There is scope within the Solicitor's Act for a client to obtain a declaration that a contingency agreement is void and unenforceable because of s. 28.1 of the Solicitors Act. It is arguable that the appropriate remedy would then be the disgorgement of all moneys received by the law firm in respect of invalid contingency fee agreements. The legal issues involved would be common to all clients within the class. Further, the quantification of the claims would be relatively straightforward. It would then be incumbent upon the law firm to establish whether there was a valid claim to be paid fees on a quantum meruit basis. Those counterclaims would be individual, but that would not bar using the class action procedure to determine the common claims. Given the scope for narrowing the issues and determining the entitlement of plaintiffs falling within the class, this would be the preferable procedure. It is also preferable because it better addresses the objectives of behaviour modification and access to justice. The alleged improper interest charges [page116] and other improper billing practices could also be dealt with as common issues. Accordingly, the class should have been certified.

9If the motion judge's decision is reversed, it follows that the costs award must also be set aside. It is therefore unnecessary to deal with the merits of the appeal of the costs decision.

10My reasons for these conclusions follow.

B. Standard of Review

Standard of Review

11The parties agree on the applicable standard of review. On questions of law, the motion judge is required to be correct. On issues of fact or mixed fact and law, this court should only interfere if the motion judge made a "palpable and overriding error".⁵

12Appellate courts have recognized that deference is required in cases of this nature because of the specialized nature of class proceedings and the particular expertise of judges dealing with these issues on a regular basis.⁶ Where decisions involve the "careful balancing of competing interests and delicate judgment calls" by class action judges, considerable deference must be accorded.⁷ However, where the motion judge makes an error on a matter of general principle or a legal error central to the proper application of the certification requirements under the Class Proceedings Act, less deference is required.⁸

C. Contingency Fees in Ontario

Contingency Fees in Ontario

13The proposed class action focuses on clients of Neinstein & Associates who entered into written contingency fee agreements with the firm. Before turning to the nature of those claims and how they fit or do not fit within the class action [page117] regime, it is useful to consider the nature of contingency fees and how they are regulated in Ontario.

14Historically, lawyers in Ontario were permitted to charge a fee for their services, and were prohibited from basing that fee on a percentage of any damages they recovered for their clients. As a practical matter, however, many lawyers would agree informally with their clients to only render a bill at the conclusion of the case, and only if successful. In more recent years, the Law Society of Upper Canada and the legislature have recognized that contingency fees are not necessarily "all bad" and that many people of limited means would not have access to justice without such an arrangement with a law firm. Accordingly, legislation was introduced to authorize contingency fees in certain circumstances, while at the same time imposing certain limits and requirements to ensure the protection of vulnerable clients and to avoid the perils historically associated with a lawyer having a monetary interest in the outcome of an action.

15 Sections 15 to 33 of the Solicitors Act deal with "agreements" between a solicitor and client for fees and services. Within that part of the Act,ss. 23, 24 and 25 apply to the determination of disputes under an "agreement".

16For purposes of this analysis, it is useful to first set out the terms of ss. 23-25 of the Act, as these sections are relied upon by the defence and also formed the basis for one of the causes of action recognized by the motion judge.

Determination of disputes under the agreement

No action shall be brought upon any such agreement, but every question respecting the validity or effect of it may be examined and determined, and it may be enforced or set aside without action on the application of any person who is a party to the agreement or who is or is alleged to be liable to pay or who is or claims to be entitled to be paid the costs, fees, charges or disbursements, in respect of which the agreement is made, by the court, not being the Small Claims Court, in which the business or any part of it was done or a judge thereof, or, if the business was not done in any court, by the Superior Court of Justice.

Enforcement of agreement

Upon any such application, if it appears to the court that the agreement is in all respects fair and reasonable between the parties, it may be enforced by the court by order in such manner and subject to such conditions as to the costs of the application as the court thinks fit, but, if the terms of the agreement are deemed by the court not to be fair and reasonable, the agreement may be declared void, and the court may order it to be cancelled and may direct the costs, fees, charges and disbursements incurred or chargeable in respect of the matters included therein to be assessed in the ordinary manner. [page118]

Reopening of agreement

Where the amount agreed under any such agreement has been paid by or on behalf of the client or by any person chargeable with or entitled to pay it, the Superior Court of Justice may, upon the application of the person who has paid it if it appears to the court that the special circumstances of the case require the agreement to be reopened, reopen it and order the costs, fees, charges and disbursements to be assessed, and may also order the whole or any part of the amount received by the solicitor to be repaid by him or her on such terms and conditions as to the court seems just.

(Emphasis added)

17Essentially, the issue for the court under ss. 23-25 is whether the agreement is fair and reasonable. If it is, it will be enforced. If it is not, it will be declared void, and the lawyer's entitlement to remuneration will be referred for an assessment.

18The definition sections of the Solicitors Act determine which agreements can be dealt with under ss. 23-25. Section 16(2) provides that for purposes of ss. 20-32, "agreement" includes "contingency fee agreement". At first blush, it would therefore appear that disputes under contingency fee agreements, along with disputes under all other agreements between a solicitor and client, are dealt with under ss. 23-25.

19However, "contingency fee agreement" is a defined term under the Solicitors Act. Section 15 states:

In this section and in sections 16 to 33,

"contingency fee agreement" means an agreement referred to in section 28.1.

20 Section 28.1 of the Solicitors Act sets out the circumstances in which a lawyer is permitted to enter into a contingency fee agreement and certain requirements without which such an agreement is not enforceable. The relevant subsections state:

Contingency fee agreements

28.1(1) A solicitor may enter into a contingency fee agreement with a client in accordance with this section.

Remuneration dependent on success

(2) A solicitor may enter into a contingency fee agreement that provides that the remuneration paid to the solicitor for the legal services provided to or on behalf of the client is contingent, in whole or in part, on the successful disposition or completion of the matter in respect of which services are provided.

No contingency fees in certain matters

(3) A solicitor shall not enter into a contingency fee agreement if the solicitor is retained in respect of, [page119]

(a) a proceeding under the Criminal Code (Canada) or any other criminal or quasi-criminal proceeding; or

(b) a family law matter.

Written agreement

(4) A contingency fee agreement shall be in writing.

Maximum amount of contingency fee

(5) If a contingency fee agreement involves a percentage of the amount or of the value of the property recovered in an action or proceeding, the amount to be paid to the solicitor shall not be more than the maximum percentage, if any, prescribed by regulation of the amount or of the value of the property recovered in the action or proceeding, however the amount or property is recovered.

Greater maximum amount where approved

(6) Despite subsection (5), a solicitor may enter into a contingency fee agreement where the amount paid to the solicitor is more than the maximum percentage prescribed by regulation of the amount or of the value of the property recovered in the action or proceeding, if, upon joint application of the solicitor and his or her client whose application is to be brought within 90 days after the agreement is executed, the agreement is approved by the Superior Court of Justice.

Factors to be considered in application

(7) In determining whether to grant an application under subsection (6), the court shall consider the nature and complexity of the action or proceeding and the expense or risk involved in it and may consider such other factors as the court considers relevant.

Agreement not to include costs except with leave

(8) A contingency fee agreement shall not include in the fee payable to the solicitor, in addition to the fee payable under the agreement, any amount arising as a result of an award of costs or costs obtained as part of a settlement, unless,

(a) the solicitor and client jointly apply to a judge of the Superior Court of Justice for approval to include the costs or a proportion of the costs in the contingency fee agreement because of exceptional circumstances; and

(b) the judge is satisfied that exceptional circumstances apply and approves the inclusion of the costs or a proportion of them.

Enforceability of greater maximum amount of contingency fee

(9) A contingency fee agreement that is subject to approval under subsection (6) or (8) is not enforceable unless it is so approved.

Assessment of contingency fee

(11) For purposes of assessment, if a contingency fee agreement, [page120]

(a) is not one to which subsection (6) or (8) applies, the client may apply to the Superior Court of Justice for an assessment of the solicitor's bill within 30 days after its delivery or within one year after its payment; or

(b) is one to which subsection (6) or (8) applies, the client or the solicitor may apply to the Superior Court of Justice for an assessment within the time prescribed by regulation made under this section.

21In addition, the Regulation under the Solicitors Act provides further restrictions and directions governing contingency fee agreements. Of particular relevance to this proceeding are the following:

In addition to the requirements set out in section 2, a solicitor who is a party to a contingency fee agreement made in respect of a litigious matter shall ensure that the agreement includes the following:

(3) A statement that explains costs and the awarding of costs and that indicates,

(i) that, unless otherwise ordered by a judge, a client is entitled to receive any costs contribution or award, on a partial indemnity scale or substantial indemnity scale, if the client is entitled to costs[.]

A contingency fee agreement that provides that the fee is determined as a percentage of the amount recovered shall exclude any amount awarded or agreed to that is separately specified as being in respect of costs and disbursements.
Despite any terms in a contingency agreement, a solicitor for a plaintiff shall not recover more in fees under the agreement than the plaintiff recovers as damages or receives by way of settlement.
For the purposes of clause 28.1(11)(b) of the Act, the client or the solicitor may apply to the Superior Court of Justice for an assessment of the solicitor's bill rendered in respect of a contingency fee agreement to which subsection 28.1(6) or (8) apply within six months after its delivery.⁹

22It is important to note the distinction between permissive and mandatory provisions under the Solicitors Act. For example, s. 28.1(1) and (2) are permissive, stating that a solicitor "may" enter into these agreements. However, s. 28.1(4) is expressed in mandatory language: a contingency fee agreement "shall be in writing". Likewise, there is a proscription in s. 28.1(3) against contingency fee agreements in certain types of cases -- criminal [page121] and family -- and that is also in mandatory language (the solicitor "shall not enter into a contingency fee agreement . . .").

23Of particular importance in this case is s. 28.1(8), which uses the same kind of proscriptive language as the subsection prohibiting contingency fees in criminal and family law cases. This subsection prohibits a lawyer from entering into an agreement under which he gets a fee and also any portion of costs recovered in an award or settlement. The same "shall not" language is used, but with a provision that the solicitor and client can apply to a judge for approval to include such a term in an agreement in exceptional circumstances. However, without such approval, such a term shall not be included in a contingency fee agreement.

24Subsection 28.1(9) provides additional force to the s. 28.1(8) prohibition by stipulating that any agreement requiring approval with respect to recovering costs as well as fees is not enforceable unless that approval is obtained. The same applies to a contingency fee agreement that provides for the solicitor obtaining a greater percentage of the client's recovery than is permitted under the Regulations. Under s. 28.1(6), approval is required, failing which the agreement is unenforceable.

25Further, the Regulations require the lawyer to include in the agreement a provision advising the client that any costs recovered shall be paid to the client, unless a judge orders to the contrary. Also, under the Regulations, the percentage fee attaches to the whole of the settlement or damages award, but excludes any amount awarded or agreed upon that is separately specified to be in respect of costs or disbursements.¹⁰

D. Factual Context

Factual Context

26Neinstein & Associates is a Toronto law firm specializing in personal injury litigation. It works almost exclusively under contingency fee agreements with its clients. The firm has approximately 1,000 open and active cases ongoing at any given time. The proposed class would include between 4,000 and 6,000 of its clients.

27One of those clients is Cassie Hodge. She was injured in a motor vehicle accident in December 2002. She switched counsel and retained Gary Neinstein of Neinstein & Associates in September 2006. Ms. Hodge signed a standard form retainer agreement, which included a clause stipulating that she would be required to pay the firm 25 per cent of any damages recovered plus anything recovered [page122] for partial indemnity costs (which would be no more than 40 per cent of the amount recovered). She would also be liable to pay for any disbursements incurred by the firm. The agreement did not include a provision, as required under the Regulations, advising her that she was entitled to any costs recovered unless a judge ordered otherwise. Although the contingency fee agreement provided that the solicitors would be paid a fee plus any costs recovered, no application was made to a judge for approval of the agreement, as required under s. 28.1(8) of the Solicitors Act.

28In April 2010, a settlement was reached in Ms. Hodge's tort claim, which resulted in an "all-in settlement" of $150,000. Ms. Hodge received a letter from Neinstein & Associates stating that the breakdown of the settlement proceeds was $100,000 for damages and $50,000 for costs. Gary Neinstein admitted under cross-examination that he arbitrarily made this division himself. In the account Ms. Hodge subsequently received from Neinstein & Associates, the costs portion was further broken down, with $30,000 allocated to party and party costs and $20,000 to disbursements. In the final account, Ms. Hodge was charged $60,326.49 for legal fees, of which $30,000 was said to be the party and party costs portion of the settlement and $30,326.49 was the legal fee plus GST. In addition, she was charged $48,942.37 for disbursements. The disbursements included $4,008.27 for photocopies; $2,791.20 for laser copies; $1,280.70 for scanned documents; $1,372.33 for interest recovery; and $200 for miscellaneous expenses/file closing charges. Ms. Hodge recovered the total sum of $41,906.41.

29The contingency fee agreement signed by Ms. Hodge with Neinstein & Associates is one of their standard form agreements. Individual lawyers may negotiate different terms with individual clients. Sometimes a discount may be applied at the end of the case such that the full amount provided in the contingency agreement is not taken. However, the norm for contingency agreements at Neinstein & Associates is to include the recovery of costs plus a percentage of the damages as fees. The motion record filed on the certification motion included 42 Neinstein & Associates contingency agreements and templates. All of them provided for the firm to receive any costs award plus a percentage of the damages as fees. None of them contained a clause advising the client that a judge's order was required before the solicitor was entitled to take the costs portion of the moneys recovered for the client. Gary Neinstein testified that his standard practice when there is an all-in settlement at an early stage mediation is to allocate 15 per cent of the first $100,000 and [page123] 10 per cent of the remainder as costs. Except for obtaining court approval of a settlement for a party under a disability, it is not the practice of Neinstein & Associates to obtain court approval for taking a percentage fee plus costs as a fee under a contingency fee agreement. Neinstein & Associates did not provide a single example of a situation in which a contingency fee agreement was approved under s. 28.1(8) of the Solicitors Act.

30The motion materials filed by the plaintiff on the certification motion included affidavits from two other clients of Neinstein & Associates, Ryszard Kolbuc and Czeslaw Kupnicki. Both of them signed similar contingency fee agreements with the firm. Both of those agreements provided for the law firm receiving both costs and a percentage of damages as fees. Neither of the agreements contained a clause advising that a judge's approval was required in order to include such a term. A judge's approval was not sought nor obtained in either case. Mr. Kolbuc's case proceeded to trial and appeal, and he ultimately obtained a judgment. Neinstein & Associates took its fees based on both a percentage of damages plus the amounts recovered as costs.

E. Requirements for Certification

Requirements for Certification

31The requirements for certification are set out in s. 5(1)(a) of the Class Proceedings Act ("CPA"), as follows:

5(1) The court shall certify a class proceeding on a motion under section 2, 3 or 4 if,

(a) the pleadings or the notice of application discloses a cause of action;

(b) there is an identifiable class of two or more persons that would be represented by the representative plaintiff or defendant;

(d) a class proceeding would be the preferable procedure for the resolution of the common issues; and

(e) there is a representative plaintiff or defendant who,

(i) would fairly and adequately represent the interests of the class,

(ii) has produced a plan for the proceeding that sets out a workable method of advancing the proceeding on behalf of the class and of notifying class members of the proceeding, and

(iii) does not have, on the common issues for the class, an interest in conflict with the interests of other class members. [page124]

32The issues in this appeal involve subsections (a) cause of action, (c) common issues and (d) preferable procedure.

G. Cause of Action

The reasons of the motion judge

Cause of Action

33It is common ground between the parties that the test under s. 5(1)(a) for determining whether the proposed statement of claim discloses a cause of action is the same as under rule 21.01(1)(b) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. Certification will be refused under this criterion only if it is "plain and obvious" that no cause of action exists. No evidence is admissible to make this determination. Allegations of fact are taken as proven unless patently ridiculous or incapable of proof. The novelty of a cause of action is not a basis for striking it; matters of law not fully settled in the jurisprudence must be permitted to proceed. The pleadings must be read generously, recognizing the early stage of the proceeding, the lack of disclosure and discovery at that stage, and allowing for inadequacies in drafting.¹¹

34The motion judge correctly articulated the test for determining whether the pleading disclosed a cause of action. However, he erred in law in interpreting the provisions of the Solicitors Act, in particular the intersection between ss. 23-25 and s. 28.1, and in doing so erred in finding there was no cause of action in respect of the s. 28.1(8) breach.

35The motion judge held that Ms. Hodge's pleading disclosed a cause of action for breach of contract and breach of fiduciary duty. I agree. When entering into a contingency fee arrangement with a client, the solicitor has a fiduciary duty to protect the interests of that client. Ms. Hodge's claim alleges that the solicitors in this instance entered into agreements that enabled the solicitor to receive as fees both costs and a percentage of the damages. Further, they did so without including in the agreement a provision that advises the client that costs belong to the client unless a judge orders otherwise (as required under the Regulations) and without getting a judge's approval for taking the costs (as required under the Solicitors Act). The purpose of both provisions is the protection of clients. The breach of these provisions provides a basis for an arguable cause of action for breach of [page125] fiduciary duty and breach of contract. Further, the plaintiff alleges that the law firm entered into all-in settlements and then simply allocated a portion of the proceeds to costs, thereby increasing the fees to be received by the solicitors, to the detriment of the client. That would be a conflict of interest and a further basis for a claim in contract and for breach of fiduciary duty. In addition, Ms. Hodge claims that the solicitor's fees exceeded the amount permitted under the statute and charged impermissible interest on unpaid disbursements. Those claims would also fall within breach of contract and breach of fiduciary duty.¹²

36The motion judge held that the law firm had a strong argument that the plaintiff's equitable and common law claims were precluded by ss. 23 to 25 of the Solicitors Act. However, he concluded that this argument was not so strong that it is plain and obvious that the breach of fiduciary duty and breach of contract claims are precluded. He treated Ms. Hodge's claim as being an application under s. 23 of the Solicitors Act, even though that had not been specifically pleaded.¹³

37Finally, the motion judge ruled that he would not certify a cause of action for a free-standing strict liability civil wrong for breach of ss. 28.1(8) and 28.1(9) of the Solicitors Act. He held that the Solicitors Act sets out a comprehensive code for determining whether contingency fee agreements are fair and reasonable. He referred to a number of cases, which he considered to be binding, holding that non-compliance with the Solicitors Act or Regulations does not make a contingency agreement void or unenforceable, but that the court must determine in each case what is "fair and reasonable" between the parties. The motion judge distinguished the one case to the contrary, Séguin v. Van Dyke,¹⁴ as being inconsistent with a binding Court of Appeal authority and, in any event, based in part on the solicitor's consent to the remedy sought.¹⁵ This finding was pivotal to the motion judge's decision not to certify the class proceeding as it determined not only the cause of action issue, but also his findings with respect to common issues and preferable procedure. I find the motion judge erred in law in that regard, and in particular in his interpretation of these provisions of the Solicitors Act. [page126]

Statutory interpretation: Sections 23-25 of the Solicitors Act do not apply

Statutory Interpretation: Sections 23-25 of the Solicitors Act Do Not Apply

38The motion judge was correct in finding that ss. 23-25 apply to the determination of disputes under an agreement between a solicitor and client, and that the term "agreement" in those sections is stipulated to include contingency fee agreements. That is specifically provided for in s. 16(1), which states that for purposes of ss. 16 and 20-32, "agreement" includes a contingency fee agreement. However, it appears that the motion judge failed to take into account the definition of "contingency fee agreement" in s. 15, which states that it means an agreement referred to in s. 28.1.

39Section 28.1(8) states that a contingency fee agreement shall not include in the fee payable to the solicitor any amount arising from an award of costs, whether at trial or by way of settlement, unless approved by a judge upon a joint application by the solicitor and client. Further, s. 28.1(9) states that if a contingency fee agreement is subject to approval, and approval is not obtained, the agreement is not enforceable. The same applies to contingency fee agreements in which judicial approval is required under s. 28.1(6) because the proposed fees exceed the percentage allowable under the Regulations.

40These provisions of the Solicitors Act are intended for the protection of the public and to improve access to justice. These are issues vitally important to the integrity of our justice system. As such, they are to be given a broad and liberal construction, consistent with that remedial purpose.¹⁶

41At the time of first reading of Bill 25 (which introduced the amendments to permit and regulate contingency fee agreements), Attorney General Michael Bryant noted that lawyers in Ontario had informally been acting on contingency of success for many years before the law was changed. He stated:

It [acting on a contingency arrangement] was simply unregulated, and the potential was always there for abuse. The point of my private member's bill, and I think the point of this government bill, is to do just that.¹⁷

42The Attorney General also noted the primary purpose of the legislation, as follows: [page127]

The first and obvious reason for bringing in contingency fee legislation is that it's going to increase access to justice.¹⁸

43The Attorney General also noted the specific abuses that the legislation was meant to address, stating:

Some of the reasons for a contingency fee bill are in fact to address the abuses, whatever abuses there may be, to provide for a cap; to provide for the circumstances in which contingency arrangements are not allowed; to deal with the question of double-dipping, getting both the award and costs and in what circumstances that might happen[.]^19

44The purpose and intent of the legislation is relevant to take into account when interpreting its terms. It is also necessary to interpret the individual provisions of legislation within the context of the legislation as a whole.²⁰

45The legislature provided a mechanism (in ss. 23-25 of the Solicitors Act) for clients to bring disputes arising from contingency fee agreements before a judge to ensure that they are "fair and reasonable". The legislature also saw fit to treat two particular potential abuses in a different manner: percentage fees in excess of a certain limit (s. 28.1(6)) and double-dipping, the practice of taking any costs award plus a percentage of the damages (s. 28.1(8)). With respect to the "double-dipping" aspect, the legislature recognized that in some cases this might be permissible. To allow for that, a separate mechanism was set up whereby such provisions could be included in a contingency fee agreement, if by a judge upon a joint application by the lawyer and the client. The test to be applied by the judge was specified: "exceptional circumstances". Further, the legislation specifies that in the absence of such approval, any purported contingency agreement that permits the taking of costs in addition to a percentage fee is unenforceable. These are specific provisions meant to deal with a specific form of abuse.

46It is arguably inconsistent with the intent of that legislation to have agreements that do not comply with s. 28.1(8) still be subject to the general provisions of ss. 23-25 of the Solicitors Act. If those provisions apply, the following could occur (and, indeed, did occur in this case): [page128]

a lawyer could enter into an agreement allowing him to take costs plus a percentage of damages, in contravention of s. 28.1(8);

the lawyer could also ignore the requirement for approval and not bring the joint application contemplated by s. 28.1(8);

the lawyer could fail to tell his client about the requirement of a judge's approval, in contravention of the Regulation;

the lawyer could then collect an improper fee, without his client being aware that there was anything improper about it; and

if the client was ever troubled about it, the onus would be on the client to bring an application under ss. 23-25.

47The fatal flaw in putting this onus on the client is the very reason for permitting contingency fees in the first place: access to justice. Where the presence of such a clause without judicial approval is deemed by the legislation to render the agreement unenforceable, it is antithetical to put the onus on the client to first discover what his rights are and then take his own steps to bring an application before a judge to review it. This is particularly ironic given that the inability of persons of modest means to access the justice system was the primary purpose for introducing contingency fees in the first place -- a classic "Catch-22" situation.

48Further, the test to be applied under s. 24 ("fair and reasonable") does not appear to fit with the test for approval of agreements with a double-dipping clause ("exceptional circumstances"). The use of different language in the two sections arguably means that different tests should be applied. An arrangement that might be seen as "fair and reasonable" might not constitute "exceptional circumstances", and vice versa. These provisions were meant to operate separately.

49There are many similarities between the provisions dealing with contingency agreements that provide for double-dipping and agreements that permit a percentage fee above that which is allowable under the Regulations (i.e., more than 50 per cent). In both situations, the Solicitors Act provides that such clauses shall not be included in a contingency agreement unless a joint application is brought by the solicitor and the client and the judge approves it. In both situations, if the approval is not obtained, the contingency fee agreement is deemed by s. 28.1(9) to be unenforceable. The main difference between these two situations is that the legislation does not provide a time frame in [page129] which an application to approve a double-dipping clause must be brought, whereas an application for approval of a percentage fee over 50 per cent must be brought within 90 days after the agreement is executed.²¹ Although the Solicitors Act is silent as to when the approval of double-dipping clauses must be obtained, it cannot be the case that such applications can be delayed by solicitors until after the case is over and all of the funds disbursed, and only then if the client brings an application under ss. 23-25. Such an interpretation would render s. 28.1(9) redundant, and would give no effect to s. 28.1(8).

50The prohibition against having a client sign a double-dipping clause without judicial approval also addresses two other potential abuses. First, when cases settle prior to trial, such clauses will frequently put the solicitor in a direct conflict of interest with his own client. It is the solicitor who negotiates the settlement. Defendants typically have no particular interest in how much of a settlement payment is allocated to damages and how much is allocated to costs. What a defendant is interested in is the bottom line -- how much in total the defendant is prepared to pay to settle the case. Often, the settlement amount is an all-in figure. If the plaintiff's lawyer is taking a flat percentage, there is no issue. However, if the plaintiff's lawyer takes a percentage of the damages in addition to all of the costs, it is in the interests of the lawyer to maximize the amount allocated to costs and in the interests of the client to maximize the amount allocated to damages. A simple example is illustrative. Suppose there is a contingency agreement providing for a 20 per cent fee to the lawyer and a settlement agreement is reached for $100,000, all-in. The lawyer's fee would be $20,000. On the other hand, if the lawyer's fee is 10 per cent of the damages plus all of the costs, and the $100,000 settlement is allocated as $70,000 for damages and $30,000 for costs, then the lawyer's fee is $37,000. Since it is often the plaintiff's lawyer who negotiates the allocation of costs or, even worse, allocates the costs/damages himself, the conflict of interest is obvious.

51The second danger is that permitting a lawyer to double-dip without prior approval can result in the lawyer circumventing s. 28.1(6) (approval of a percentage more than 50 per cent) without obtaining the approval required under that section within 90 days of the execution of the agreement. Again, an example is illustrative. Suppose there is a settlement for $100,000. If the lawyer's fee in the agreement is stipulated to be [page130] 60 per cent of any recovery, the Solicitors Act is clear that judicial approval is required within 90 days of execution of the agreement, failing which the agreement is unenforceable. A lawyer's fee of $60,000 would be prohibited without the required prior approval. However, if the lawyer's fee is 40 per cent of damages plus any costs and the plaintiff recovers $70,000 for damages and $30,000 for costs, the lawyer will actually receive $58,000 without having obtained the prior approval, which is more than 50 per cent of the total proceeds. This would enable lawyers to circumvent the strict requirements of s. 28.1(6), which is inconsistent with the purpose and intent of the legislation.

52In my view, it is at least arguable that, on a proper interpretation of the legislative scheme, ss. 23-25 do not apply to contingency agreements that are not compliant with s. 28.1. A comparison of the language used in s. 24 and that used in s. 28.1(8) underscores that point. Under s. 24, the court is required to consider whether an agreement is "fair and reasonable" and, if so, it may be enforced. Under s. 28.1(8), a double-dipping provision in a contingency agreement can only be approved if "the judge is satisfied that exceptional circumstances apply and approves the inclusion of the costs or a proportion of them". In the absence of such approval, the contingency agreement is deemed to be unenforceable under s. 28.1(9). That provision would have no meaning if there could still be an application under s. 24 to determine if it was fair and reasonable to enforce the agreement. These provisions can only live together and make sense if recourse to ss. 23-25 is limited to those agreements where the issues raised in s. 28.1(6) and (8) do not arise or for which the required approval has been obtained. Even where the prior approval for the double-dipping provision has been obtained under s. 28.1(8), there may be a dispute as to the lawyer's fee at the end of the litigation. In those circumstances, there can be a review by a judge under ss. 23-25 to determine if the fee is fair and reasonable. However, that cannot arise unless there has been approval. Without the prior approval, the contingency agreement is unenforceable.

53Such an interpretation would give force to the definition in s. 15, which when read literally means that ss. 23-25 do not apply to agreements that do not fit the requirements of s. 28.1. That is the plain and ordinary meaning of the definition and one that accords with the intention of the legislature, as well as the contextual interpretation of the legislation as a whole. [page131]

Cause of action for declaration that agreement is unenforceable

Cause of Action for Declaration That Agreement Is Unenforceable

54If s. 28.1 applies, it follows that in the absence of prior approval, any agreement that is found to have contravened either ss. 28.1(6) or 28.1(8) is unenforceable.

55The respondents argue that no action lies in respect of the validity of such an agreement, except as provided for in ss. 23-25. However, as I have already indicated, there is a strong argument that ss. 23-25 do not apply to the type of contingency fee agreements alleged in this case. Therefore, the terms of s. 23 preventing other actions would not apply.

56Further, as was found by the motion judge, the clients have an arguable cause of action in both breach of fiduciary duty and breach of contract, the factual matrix for which would be overlapping.

57In my view, it is also arguable that the clients would have the right to seek a declaration that such an agreement is unenforceable. This would be a straightforward application for a determination of rights under an agreement. That is not the same thing as basing a cause of action in damages upon breach of a statutory term, as was the issue in cases such as Seneca College v. Bhadauria²² or Canada v. Saskatchewan Wheat Pool,²³ which were relied upon by the motion judge as negating a cause of action arising from s. 28.1(8). Likewise, if ss. 23-25 of the Solicitors Act do not apply, it cannot be said that the act is a comprehensive scheme for redressing all wrongs arising from contingency fee agreements. This being so, other cases relied upon by the motion judge, notably Seneca College v. Bhadauria, Frame v. Smith²⁴ and Canadian Alliance of Pipeline Landowners' Assn. v. Enbridge Pipelines Inc.,²⁵ are also distinguishable.

Analysis of the case law

Analysis of the Case Law

58The motion judge reviewed a number of cases dealing with contingency fees and concluded that all but one of them supported his finding that there is no strict liability for civil wrongs under the Solicitors Act. The motion judge recognized [page132] that one case (Séguin v. Van Dyke) favoured the applicant's case, but found that there was binding precedent from the Ontario Court of Appeal to the contrary. This was an error of law by the motion judge. First, it is not necessary to find a strict liability civil wrong under the Solicitors Act in order to obtain a declaration that an agreement is not enforceable. Second, I disagree with the motion judge's characterization of the case authority. To my mind, there is only one directly applicable case: Séguin v. Van Dyke. All of the other cases relied upon by the motion judge are distinguishable.

59In Séguin v. Van Dyke, the plaintiff had signed a contingency fee agreement with her lawyer, Mr. Van Dyke, pursuant to which the lawyer was to be paid

(a) in the event of a settlement, 33.3 per cent of the settlement amount (including costs) plus disbursements;

(b) in the event of judgment after trial, 33.3 per cent of the damages, plus 100 per cent of the costs.

60Mr. Van Dyke did not apply to the court for approval of this agreement, as required under s. 28.1(8) of the Solicitors Act. The action settled for $342,000, all-in. Mr. Van Dyke calculated his account based on the contingency fee agreement. Subsequently, Ms. Séguin brought a tort action against Mr. Van Dyke seeking damages for negligence. She also instituted an application for a declaration that the contingency agreement was unenforceable under s. 28.1(8) and (9) of the Solicitors Act and seeking an assessment of his account under s. 28.1(11) (b). Mr. Van Dyke brought a motion seeking to stay the application and to have the enforceability of the agreement and the assessment of his account determined in the tort action, arguing that these were related matters and should be heard together. For brief written reasons, James J. dismissed that motion, holding that the issues in the application were sufficiently discrete that they did not need to be rolled into the action.²⁶ Leave to appeal from that decision was denied, again for very brief reasons.²⁷ Neither decision deals directly with whether there is a cause of action for a declaration, nor with the interaction of ss. 23-25 and s. 28.1. [page133]

61The application itself then came before Lalonde J. for argument. Before LaLonde J., Mr. Van Dyke consented to repay the sum of $21,992, representing the portion of his account that he conceded was a recovery of costs. However, Mr. Van Dyke argued that Ms. Séguin should not be entitled to a declaration of unenforceability, citing cases under ss. 23-25 in which breaches of the Solicitors Act did not result in a declaration that the contingency fee agreement was void or unenforceable. He further argued that the reasonableness of his fees should be determined in the tort action. Lalonde J. accepted the argument that the tort action was the proper forum for determination of the reasonableness of the fees because issues of credibility were involved. However, he ruled in Ms. Séguin's favour in respect of the enforceability of the contingency fee agreement and issued a declaration that it was void and unenforceable. In coming to that conclusion, he distinguished cases in which there had been more minor breaches of the Solicitors Act and found that the lawyer's failure to get approval for an agreement that permitted him to recover costs plus his fee was a fundamental, not trivial breach. Because the breach was fundamental, he held that the proper forum to deal with the contingency fee agreement was not s. 24 of the Solicitors Act. He stated that to hold otherwise would be to make s. 21.1(8) meaningless and redundant.

62In dealing with the Séguin decision, the motion judge in this case held, at paras. 53, 56 and 57:

Ms. Hodge relies on Séguin v. Van Dyke, but upon analysis it does not support her theory and in any event Séguin cannot overrule the Court of Appeal authorities that stand against Ms. Hodge's theory.

Given that Mr. Van Dyke consented to the refund of the $21,922.00, the Séguin v. Van Dyke judgment does not alter the principle that non-compliance with the Solicitors Act does not entail that the solicitor may not recover reasonable fees under the impugned contingency fee agreement that does not comply with the Solicitors Act.

In any event, I am bound by the Court of Appeal decisions that stand against any strict liability civil wrong under the Solicitors Act.

63With respect, I believe the motion judge has misread what was determined in Séguin. The solicitor did agree to refund the portion of the costs he had collected as part of his fee. However, he did not agree that the contingency fee agreement was unenforceable. Rather, he sought to uphold the 33.3 per cent fee provided for in the agreement with respect to all portions of the funds recovered that were for damages. Notwithstanding this, Lalonde J. held that the agreement was unenforceable. The [page134] lawyer was entitled to a reasonable fee for his services, but not under the contingency fee agreement. Further, the solicitor consented to return only that portion of the fee that came directly from the costs award. There was no finding that this was the total amount that could be recoverable by the client and no finding that the agreement was unenforceable only to the extent of the costs portion. The agreement itself was found to be unenforceable, in its entirety. That is a finding that had nothing to do with any concession by the lawyer.

64I do not agree that any of the Court of Appeal decisions cited and relied upon are relevant or binding. The motion judge relied upon Raphael Partners v. Lam²⁸ as to the two-part procedure to be followed under ss. 23-25 of the Solicitors Act. First, the fairness of the agreement is assessed as of the date it was entered into. Second, the reasonableness of the agreement is assessed as of the date of the hearing. The Court of Appeal held that the agreement could only be declared void or disregarded where it was found to be unfair or unreasonable. The motion judge correctly pointed out that this case pre-dated the amendments to the legislation dealing with contingency agreements. However, he relied upon the fact that subsequent cases have applied Raphael Partners to cases involving contingency fee agreements. That is also correct. However, none of those cases (except Séguin v. Van Dyke) have dealt with a case in which approval was required under s. 28.1 and was not obtained.

65In Henricks-Hunter (Litigation Guardian of) v. 814888 Ontario Inc.,²⁹ the plaintiff suffered catastrophic injuries (including a severe traumatic brain injury) when she fell from a catwalk during a rock concert. The litigation was managed by the Public Guardian and Trustee, who entered into a contingency fee agreement with plaintiff's counsel. The contingency fee agreement provided for the solicitors to receive 25 per cent of any judgment or settlement up to $2.5 million, and 20 per cent of any settlement or judgment more than that. The solicitors would receive 100 per cent of their disbursements and out-of-pocket expenses, but all costs recovered would go to the plaintiff. Because the plaintiff was a person with a disability, the settlement and the solicitor's fees had to be approved by a judge. The motion judge found the fees to be excessive based on the time [page135] spent. The Court of Appeal reversed the motion judge, holding that the procedure established in Raphael Partners must be followed and the fairness and reasonableness of the contingency fee agreement must first be determined as of the date the agreement was entered into. There was no issue in this case involving s. 28.1 of the Solicitors Act. The contingency fee agreement complied with s. 28.1 and was therefore subject to being considered under ss. 23-25 of the Solicitors Act.

66Similarly, in Cookish v. Paul Lee Associates Professional Corp.,³⁰ the issue as to breaches under s. 28.1(8) or (6) did not arise. The issue in that case was whether the jurisdiction of an assessment officer extended to determining the validity of a contingency fee agreement and whether the agreement was fair and reasonable, as opposed to being limited only to issues of quantum. The Court of Appeal held that, for the most part, a judge should determine the validity of the agreement.

67The only other Court of Appeal decision cited by the motion judge is Chrusz v. Cheadle Johnson Shanks MacIvor.³¹ In that case, the appellants had commenced two actions in which they were represented by the Cheadle law firm. That retainer was terminated and the appellants retained the Petrone firm. After mediation, a settlement agreement was reached between the appellants (the clients) and the two sets of lawyers as to how the fees were to be payable to each of the two law firms. Subsequently, the actions settled and the appellants challenged the fees payable to the solicitors under the settlement agreement as being unfair and unreasonable. The appellants also argued that the settlement agreement was a contingency fee agreement. With respect to the Cheadle firm, the Court of Appeal held that this was not a contingency fee agreement and that the provisions of the Solicitors Act did not apply. With respect to the Petrone firm, the Court of Appeal held that even if the settlement agreement could be characterized as a contingency fee agreement, it could not be taken to be void ab initio for breach of s. 28 because, at the time it was entered into in 2000, the amendments to the legislation in respect of contingency fee agreements had not yet been enacted. It was in that context that the Court of Appeal remitted the matter back to the Superior [page136] Court for a decision as to whether the agreement was fair and reasonable under s. 24 of the Solicitors Act.

68Accordingly, none of the Court of Appeal decisions relied upon by the motion judge relate to the issue dealt with in Séguin v. Van Dyke or the cause of action issue raised in this case.

69Further, although a number of decisions of the Superior Court were cited, both on the certification motion and before this court, none deal directly with this issue. The motion judge referred to a number of cases in which courts have enforced contingency agreements as being fair and reasonable, notwithstanding a breach of the Solicitors Act or the Regulations. However, none of these were breaches that were deemed by s. 28.1(9) to make the agreement unenforceable.

70In Laushway Law Office v. Simpson,³² Beaudoin J. found a contingency agreement to be enforceable, notwithstanding the fact that it had numerous deficiencies within it. Those defects were listed in Schedule C of the decision, and all relate to breaches of the Regulations with respect to what is required to be in a contingency agreement. In coming to that conclusion, Beaudoin J. drew a distinction between breaches of the Solicitors Act and Regulations that could be said to be "minor" or "technical" and those that must be seen as "significant". He found that the defects in the agreement before him were not substantial in nature and that the agreement was therefore enforceable. In coming to that conclusion, he relied, in part, on the decision of Aston J. in Du Vernet v. 1017682 Ontario Ltd.³³ In Du Vernet, there were numerous technical defects in the contingency fee agreement, in breach of the Regulations. Aston J. also found that there were some significant deficiencies -- notably, the agreement did not contain a statement informing the client that the client retains the right to make all critical decisions regarding the conduct of the matter, and it did not contain the statement that the solicitor "shall not recover more in fees than the client recovers as damages or receives by way of settlement".³⁴ Aston J. then stated:

Paragraph 6 of the Regulations for Contingency Fee Agreements under the Solicitors Act specifically provides "a Contingency Fee Agreement that provides that the fee is determined as a percentage of the amount recovered [page137] shall exclude any amount awarded or agreed to that is separately specified as being in respect of costs and disbursements". In my view this provision obliges the solicitors acting on a proposed settlement for a plaintiff to separately identify the amount agreed to in respect of costs and disbursements in advising plaintiff/clients. It is not possible to fulfill the solicitors' obligations by simply coming to an all-inclusive number for settlement purposes, as was apparently the case here.³⁵

71In the result, Aston J. found the contingency fee agreement unenforceable. However, these breaches were not the only problems between the solicitor and client in that case. The other issues that arose do not have any bearing on this case. Further, Aston J. did not deal with s. 28.1(6), (8) or (9), and it is not completely clear whether those sections had been breached.

Conclusion on cause of action

Conclusion on Cause of Action

72I agree with the motion judge that Ms. Hodge has met the test for showing a cause of action in breach of fiduciary duty and breach of contract. However, I find the motion judge erred in holding that Ms. Hodge must apply under ss. 23-25 of the Solicitors Act. In my view, it is arguable that those sections do not apply where there is a breach that brings s. 28.1(9) into play, rendering the agreement unenforceable. I am also of the view that there is no obstacle in the case law or in the statute to Ms. Hodge applying to the court for a declaration that the contingency agreement she signed is unenforceable. The motion judge erred in law in finding such a cause of action was so completely without merit that it could not pass the low threshold test for establishing a cause of action under s. 5(1)(a) of the Class Proceedings Act.

G. Common Issues

The reasons of the motion judge

Common Issues

73The trial judge found that none of the 37 proposed common issues met the criterion for certification. He did not deal with each proposed issue individually, but stated, at para. 126:

In my opinion, the long list of common issues does not satisfy the common issues criterion because each question is deficient for one or more or all of the following reasons: (1) the answer would be dependent upon findings that would have to be made at individual trials; (2) the question is based on assumptions, the proof of which require individual determinations; (3) the question is not a substantial ingredient of each Class Member's claim; (4) the answer to the question is not necessary to the resolution of each [page138] Class Member's claim; and (5) the answer is not capable of extrapolation to each member of the class. There is also the objection that several of the questions are based on the uncertified claims for unjust enrichment and negligent or fraudulent misrepresentation.

74Because the motion judge had ruled that Ms. Hodge's cause of action must proceed under ss. 23-25 of the Solicitor's Act, he also concluded that each determination of whether an agreement was enforceable involved a consideration of what was fair and reasonable in all of the circumstances both at the time the agreement was negotiated and at the time of the assessment. He therefore held, at para. 128:

What fee is charged and analyzing whether that fee contravenes the Solicitors Act and its regulations ultimately involves an investigation from beginning to end of a lawyer and client relationship, between the individuals that formed that relationship. The relationship typically lasts for years and the relationship will have its unique history and story including the story of the lawyer's fee.

75I agree that an analysis of what is fair and reasonable under ss. 23-25 is necessarily individualistic. However, as I have already stated above, those provisions do not apply where an agreement is deemed to be unenforceable under s. 28.1(9) of the Solicitors Act. Therefore, it is necessary to consider afresh whether there are common issues that meet the criterion for certification in light of the cause of action for a declaration that the contingency agreements at issue are unenforceable.

76The motion judge did deal with this point briefly, although in obiter, as follows (at para.131):

Even if a breach of sections 28.1(8) and 28.1(9) were a free-standing strict liability civil wrong -- which it is not -- it would not avoid the problem that every individual client bill would still have to be examined to determine whether there had been a breach and the extent of the breach and, as Ms. Hodge's own situation demonstrates, there would be individual inquiries about what is the significance of multiple accounts and the settlement of claims in stages or increments. Where defendants make all-in settlement offers, there would be difficult individual factual matters to resolve and evidence of trade practices about different types of claims and circumstances would probably be necessary.

Analysis

77As I have already mentioned, the motion judge's analysis on this point was directed to an assessment under ss. 23-25 of the Solicitors Act. I agree with the motion judge that such an analysis would be so individualized that no meaningful common issues would emerge. Likewise, a claim by a solicitor to be paid a fee on a quantum meruit basis would be individualized. However, I do not agree with the motion judge's observations, in the [page139] alternative, with respect to common issues under an application for a declaration that the contingency fee agreements are unenforceable. In his reasons, at para. 131, the motion judge focused on what would be disclosed by individual client bills and an analysis of settlement offers received: see Hodge v. Neinstein, [2014] O.J. No. 3572, 2014 ONSC 4503 (S.C.J.), at para. 131. In my view, that would not be the focus at this initial stage. It is not the bill that is unenforceable, it is the agreement. Likewise, it is not the actual taking of a percentage of costs in addition to fees that is the issue; the focus is on whether the agreement contains such a provision. The position of the appellant is that if the agreement contained such a provision and if judicial approval was not obtained, the agreement itself is unenforceable. In my view, that accords with the plain meaning of s. 28.1(9) of the Solicitors Act.

Common issue -- Costs plus fees

Common Issue — Costs Plus Fees

78The appellants seek a declaration that any contingency agreement entered into by Neinstein & Associates with a client in which the firm has an entitlement to take any portion of costs in addition to a fee is unenforceable. Making such a determination is a question of law. Since there is evidence that this was a term of Neinstein & Associate's standard form precedents, there is a factual foundation for it on the record. The determination of whether the agreements are unenforceable does not require a finding of breach of fiduciary duty within each lawyer and client relationship. Rather, the question would be whether entering into such an agreement without getting approval of the court, in and of itself, renders the agreement unenforceable. The only individual analysis required would be for each member of the class to be party to an agreement containing such a clause. Such a term can be built into the definition of the class. This would be a question common to all members of the class and one which would advance the interests of all members.

79Further, if there is a declaration that any such agreement is unenforceable, the next issue would be what other remedy may flow from that declaration. The appellants present a compelling argument that fees obtained under an unenforceable agreement that breaches the Solicitors Act must be disgorged, drawing a parallel with a criminal keeping the proceeds of his crime. In Markson v. MBNA Canada Bank,³⁶ the Court of [page140] Appeal considered a class action against the defendant bank in which it was alleged that the combination of annual fee plus interest rate charged by the bank on credit card cash advances constituted a usurious rate of interest contrary to s. 347 of the Criminal Code.³⁷ The motion judge found that it would be impossible to include a claim in restitution as a common issue because of the difficulty involved in computing each individual instance in which the bank had taken the usurious interest rate. The Court of Appeal reversed that decision, holding that the restitution and breach of contract claims could be calculated by statistical sampling or in the aggregate under ss. 23 and 24 of the CPA. The alternative would be that the plaintiffs would receive a declaration that the bank charged an illegal interest rate, but the bank would retain the interest it had collected illegally. The Court of Appeal applied long-standing Supreme Court of Canada precedent that, "As a matter of public policy, a criminal should not be permitted to keep the proceeds of his crime".³⁸

80In this case, there is no allegation of criminal conduct by Neinstein & Associates. However, solicitors are in a special position of privilege vis-à-vis the clients those solicitors represent and the justice system as a whole. Legislation was passed to permit contingency fees as a matter of public policy and access to justice, but subject to certain legislative restrictions to prevent abuses. Clients rely on lawyers to know the law, to safeguard their interests, and to behave ethically. There is a strong argument that it is antithetical to a lawyer's fiduciary duty to enter into an agreement that so fundamentally breaches the Solicitors Act. Further, the appellants have established an arguable case that the solicitors should be disentitled from retaining all funds received under the unenforceable agreements. Alternatively, and at the very least, the lawyers would be disentitled to retain the costs portion of any recovery made. While these are not proceeds of crime, they are nevertheless moneys received in breach of legislation designed to protect the very clients who would be members of the class. There is an arguable basis for holding that public policy would require all fees recovered under these agreements to be disgorged.

81Undoubtedly, Neinstein & Associates did work for these clients that resulted in the clients receiving proceeds of settlements or litigation awards. If the contingency fee agreements [page141] are unenforceable, it does not necessarily follow that Neinstein & Associates would be disentitled to recover any fees. There are at least two possible ways of accomplishing this. One would be for Neinstein & Associates to be entitled to a fee based on a quantum meruit basis. This could be raised as a defence or counterclaim by Neinstein & Associates, and assessments could be directed. Such claims would need to be disposed of individually. However, that is not an impediment to certifying a common issue for the plaintiff's claim. A second alternative would be to permit Neinstein & Associates to retain the fee portion based on the percentage of damages, but not anything attributable to costs. This has the advantage of simplicity, but involves a complicating factor when it was Neinstein & Associates itself who determined what portion of an all-in settlement was attributable to costs and what was for damages. Also, it may not be fair compensation for the lawyer in all cases, particularly where the percentage fee taken was low in relation to the amount of costs taken. However, in either event, once the agreement is determined to be unenforceable, the onus would be on the solicitor to show some other basis for compensation.

82Further, even without the disgorgement remedy, and even if the individual plaintiffs would be left with the task of assessing the solicitors' accounts individually, the initial finding of unenforceability advances the litigation. As noted by the motion judge, at para. 124, "An issue can be a common issue even if it takes up a very limited aspect of the liability question and even though many individual issues remain to be decided after its resolution."³⁹

83Accordingly, I find that the trial judge erred in principle in failing to find as common issues the following:

(a) whether the respondents' contingency fee agreements are in violation of the Solicitors Act by including as the respondents' fees amounts arising from costs in an award or settlement;

(b) whether the contingency fee agreements are not made in accordance with s. 28.1(1) of the Solicitors Act;

(c) whether the respondents have taken amounts arising from costs in an award or settlement from the class members contrary to the Solicitors Act; [page142]

(d) whether the respondents have failed to obtain approval under s. 28.1(8) of the Solicitors Act to obtain as part of their fees any part of the costs arising from an award or settlement;

(e) whether the class members are entitled to a declaration that the respondents' contingency fee agreements are unenforceable under s. 28.1(9) of the Solicitors Act;

(f) whether the provision in the contingency fee agreements for the respondents that takes, in addition to their fees, all or a portion of the costs arising from an award or settlement is severable;

(g) whether the respondents should be ordered to disgorge all fees collected under any contingency fee agreements found to be unenforceable;

(h) in the alternative, whether the respondents should be ordered to repay to the class any amounts taken for costs in addition to their percentage fee, together with interest pursuant to s. 33(2) of the Solicitors Act.

Common issue -- Interest recovery charges

Common Issue — Interest Recovery Charges

84It was the practice of Neinstein & Associates to include in its accounts to clients a charge described as interest recovery. This charge related to interest on disbursements incurred by the firm during the course of the litigation. Section 33 of the Solicitors Act provides that solicitors may only charge interest on accounts rendered after 30 days. No accounts were rendered for the disbursements until the conclusion of the case. However, the firm's billing system compounded interest on disbursements monthly.

85There is an arguable cause of action that such amounts were charged improperly and in breach of contract and breach of fiduciary duty. This practice was common to each and every client in the class. The amounts are not inconsiderable. The interest recovery charged to the three clients who provided affidavits were Ms. Hodge -- $1,300; Mr. Kolbuc -- $1,300; and Mr. Kupnicki -- $3,400. The average amount per client is $2,000. Assuming these are average amounts for all clients and accepting the estimate of 6,000 members in the class, the total of improper interest recovery charges would be $12 million.

86The motion judge did not deal directly with this issue except in a general omnibus fashion, under para. 126 of his reasons. None of the general objections raised by the motion judge apply to this issue. In particular: (1) it is not dependent on [page143] factual findings in individual trials as it was a common practice and done through the central accounting system; (2) it is not based on assumptions that require individual determinations; (3) it is a substantial ingredient of each class member's claim; (4) it is a question that must be answered to resolve each claim; and (5) the answer to the general question can be extrapolated to each member of the class. To the extent individual analysis is required, it would merely be an accounting matter to review all the accounts and add up the amounts charged in each case.

87Accordingly, I find this to be an appropriate common issue.

Common issue -- Other improper charges

Common Issue — Other Improper Charges

88Ms. Hodge's proceeding also challenges other standard charges billed by Neinstein & Associates to its clients as a matter of general practice. These include disbursements which the appellants assert are part of office overhead and not properly chargeable to the clients, notably computer legal research, closing fees and storage fees.

89The motion judge gave no reasons on this issue, except for the generic reasons, in para. 126 of his reasons. For the same reasons as I expressed above with respect to the interest recovery charges, I find the issues with respect to computer research, closing fees and storage fees to be appropriate common issues for the class proceeding.

90Likewise, Ms. Hodge alleges that Neinstein & Associates routinely charged excessive rates for photocopying and scanning documents. For the same reasons, these are common issues that can be resolved without having to deal with each individual account; they would be common rates for all clients.

Common issue -- Referral fees

Common Issue — Referral Fees

91Ms. Hodge alleges that Neinstein & Associates improperly paid finder's fees to other firms and charged these fees to their clients. There is no suggestion that this would apply to each and every client in the class. This is not an issue of general application to each member of the class, nor is it necessary for the resolution of some aspect of each claim. I would not certify this claim as a common issue.

H. Preferable Procedure

Reasons of the motion judge

Preferable Procedure

92The motion judge considered whether a class proceeding would be a preferable procedure for dealing with this case if the [page144] other criteria for certification had been met. He concluded it would not for three reasons: (1) individual applications under ss. 23 and 24 of the Solicitors Act or by way of assessment is the preferable procedure; (2) a class action is unsuitable because the class members' claims are inherently individualistic; and (3) a class proceeding would be unmanageable and inefficient. The respondents had also argued that allowing a class proceeding to proceed would result in a breach of solicitor-client privilege held by thousands of clients and former clients of the firm. The motion judge rejected that argument, holding that breach of solicitor and client privilege could be avoided by serving each class member personally with the notice of certification and advising those individuals that a failure to opt out would be deemed to be a waiver of solicitor and client privilege.⁴⁰

93I agree with the motion judge that the solicitor and client privilege issue is not an obstacle to the class action procedure. The procedure he suggested is one way to avoid the problem; there may be others. I will leave the specific manner of dealing with the problem to the judge case managing the class proceeding. For present purposes, suffice to say there is at least one way to avoid the problem, and it is therefore not a basis for refusing certification.

94With respect to the other grounds stated by the motion judge, I find he erred in law and erred in principle in finding they support a conclusion that there is a preferable procedure to a class proceeding.

95Some of the reasons for overruling the motion judge on this point are the same as my conclusions with respect to the common issues. The common issues I have identified are not individualistic, for the reasons I have already stated. Further, as I stated above, an application under ss. 23 and 24 of the Solicitors Act is not available to review the validity of the contingency agreements at issue here. Neither is this a simple assessment of the lawyers' accounts, because issues with respect to the validity of the retainer agreements are involved. Only a judge can determine that issue.⁴¹

96However, there could notionally be individual applications brought by individual clients to challenge the validity of the Neinstein & Associates contingency fee agreements and to recover from Neinstein & Associates any amounts that were charged or taken improperly. The question is whether such a manner of [page145] proceeding would be preferable to a class proceeding. In his reasons, the motion judge reviewed the leading cases on the principles to be applied in determining preferable procedure. However, he failed to apply those principles to the circumstances of this case.

Analysis

97A determination of preferability requires a consideration of (a) whether a class proceeding would be an appropriate method of advancing the claims of the class members; and (b) whether a class proceeding would be better than other methods, such as joinder, test cases, consolidation and any other means, including non-litigation means.⁴² The latter aspect cannot be answered by looking at the potential for the class action to resolve the common issues in a vacuum. Rather, it is necessary to consider the importance of the common issues in relation to the claims as a whole.⁴³

98The Supreme Court of Canada held in Hollick that "the preferability inquiry should be conducted through the lens of the three principal advantages of class actions -- judicial economy, access to justice, and behaviour modification".⁴⁴

99In AIC Ltd. v. Fischer,⁴⁵ the sole issue before the Supreme Court of Canada was whether a class action was the preferable procedure to redress the claims of class members, as opposed to an already concluded Ontario Securities Commission proceeding to which the class members were not parties but through which they had received some compensation. The decision focused on issues of access to justice, which in my view are also pivotal to the determination of the case now before this court. The Supreme Court's analysis is therefore particularly helpful in this case. Cromwell J. (writing for the unanimous court) listed five questions to be answered in considering access to justice issues in determining the proposed preferable alternatives to a class proceeding, as follows:

(1) Are there economic, psychological, social or procedural barriers to access to justice in this case?

(2) What is the potential of the class proceeding to address those barriers? [page146]

(3) What are the alternatives to a class proceeding?

(4) To what extent do the alternatives address the relevant barriers?

(5) How do the two proceedings compare?⁴⁶

100With respect to the first two questions, there are considerable barriers to access to justice for the class members in this case and little ability for the members to address those barriers other than through a class proceeding. The access to justice issue has two components in this case. First, the legislation that is alleged to have been breached by the law firm was itself intended to provide access to justice for persons like the members of the class. Without contingency fee arrangements, many injured people would not have the financial means to seek compensation for their injuries. The contingency fee scheme in the legislation was meant to provide that access, while at the same time protecting vulnerable clients from overreaching solicitors. The other aspect of access to justice is the inability of these individuals to effectively bring proceedings against their former solicitors without a class proceeding. One of the most significant barriers is lack of knowledge. These are individuals who relied upon their lawyers to protect them and to provide them with the information necessary to understand their rights. If those very lawyers not only failed to protect them, but also did not provide them with the information needed to know they have a claim, how can those individuals get access to justice other than through a class proceeding? They cannot bring a claim unless they know they have a claim.

101Further, there are economic barriers to the members of the class being able to vindicate their rights. All of the members of the class will, by definition, be individuals who did not prosecute their civil litigation out of their own pockets; all are individuals who were prepared to give their lawyers a percentage of any damage award they obtained in order to be able to proceed with their claim. It is highly unlikely that many members of the class would have the financial wherewithal to commence proceedings against their former solicitors in order to recover any excessive amount they may have paid in fees.

102The affidavits filed by members of the potential class speak to their inability to proceed with their claims individually. Mr. Kolbuc speaks only Polish. He contracted West Nile virus [page147] and was rendered a paraplegic. He has sworn that his lack of resources, poor health and current disabilities make it impossible for him to pursue litigation against Neinstein & Associates on his own. Ms. Hodge, through her solicitor, requested Neinstein & Associates' dockets and invoices for disbursements. Gary Neinstein demanded $500 before providing them and then threatened that if his bill was assessed he would be seeking fees in a greater amount than had been charged. Ms. Hodge testified that she cannot afford this risk without being indemnified for costs, which is available in the class proceeding because of the backing of the Class Proceedings Fund.

103The litigation claims made by the class members were not brought in respect of business transactions or investments. These were personal injury claims, and the underlying litigation was directed to obtaining compensation for those injuries. Any excessive fees taken by the solicitors come directly from moneys otherwise intended to compensate the clients for injuries they sustained. The interpretation of the legislative scheme proposed by the respondents would involve (a) permitting conditional fee agreements to enable a client to access justice and assert a civil claim for compensation; (b) allowing that client's lawyer to take an improper fee by circumventing the legislation designed to protect the client; and then (c) telling the client that the only recourse is to start an individual civil proceeding against his former lawyer to recover the improper fees. Such an interpretation is inconsistent with the fundamental objective of ensuring access to justice -- an objective that underlies both the Solicitors Act and the Class Proceedings Act. If the system can only work that way, then the whole purpose of the legislation will have been defeated.

104The only alternative procedure suggested by the defendants, and accepted by the motion judge, is for each individual class member to bring an individual claim for assessment of their lawyer's account. As indicated, the realities of this remedy put it beyond the reach of the class. It is neither effective nor practical, and will not result in vindication of the rights of all class members. Only those with knowledge, financial resources and sufficient good health will be able to exercise their rights. Further, the amount involved for each individual client may mean that an individual application for an assessment is simply not worth the cost of bringing it.

105When the two alternative procedures are compared, it is clear that the class proceeding provides the class members with the only realistic opportunity of advancing their claims. The common issues are all threshold questions that need to [page148] be answered. They are not insignificant or mere side issues, but go to the heart of the dispute between the clients and their former lawyers. Under the class proceeding, all clients would receive notice of their potential claim. The preliminary issues with respect to the enforceability of the contingency fee agreements and propriety of some of the other charges would be settled in advance. Once the common issues were settled, all that would remain would be for the solicitors to establish what would be a reasonable fee in all the circumstances. This might require individual assessments but, if so, the burden would be on the solicitors to establish the fairness of their fees. If there is a finding that those solicitors knowingly entered into unenforceable agreements and failed to bring the application for approval required under the Solicitors Act, I find it completely appropriate that the onus should then be on the solicitors to initiate whatever individual assessments are required to obtain their fees.

106Unless this is done by way of a class proceeding, there is a real risk that the vast majority of any improper fees taken by the solicitors will be retained by them, simply because individual clients are unable to initiate proceedings on their own. It is important to the administration of justice that this should not happen. This is particularly so given the role of lawyers as the gatekeepers entrusted to protect their clients.

107I am also of the view that judicial economy favours the class proceeding rather than individual applications. Even assuming only 10 per cent of clients come forward to assert individual claims, that would be an unwieldy number of claims to case manage effectively, particularly with multiple lawyers with different strategies. The overarching issues of enforceability of the agreements, the effect of s. 28.1(9) and the propriety of many of the billing practices need to be determined uniformly. There would need to be a system to avoid inconsistent verdicts, which would be difficult with actions being commenced at different times and in different places. In my view, going forward with one test case, or joinder, or consolidation of multiple claims would all be more cumbersome than adjudicating the common issues first in one proceeding that decides the rights of the whole class.

108Finally, I have considered the importance of behaviour modification. I find this to be a significant advantage to the class proceeding. Leaving individuals to pursue their own individual remedies will inevitably mean that even if some individuals are successful, there will be others who simply will not come forward. If individual clients are left to their own devices to right these wrongs, there will be little financial incentive for lawyers to follow the procedures demanded by the legislation. There will [page149] be no encouragement for lawyers to advise their clients of their rights in the contingency fee agreement as required by the Solicitors Act and Regulations and no incentive for lawyers to bring the appropriate applications for approval before taking their fees. It would be far too tempting for lawyers to simply take whatever fees they believe they can negotiate with the client, ignoring the legislation, and doing so with impunity unless the clients themselves go elsewhere for advice and take proceedings against their own lawyers after the fact. The notoriety of the class proceeding will serve as a reminder and a warning to all lawyers in Ontario that the fundamental requirements for contingency fee agreements must be followed and that those who ignore them do so at their peril.

109Taking all of these factors into account, I find that a class proceeding is the preferable procedure. The motion judge erred in law and erred in principle in failing to so find.

I. Identifiable Class and Representative Plaintiff

Identifiable Class and Representative Plaintiff

110The motion judge found that if the other tests for certification are met, Ms. Hodge would be an appropriate representative plaintiff. There is no challenge to that finding. Further, the class as identified by the motion judge is not challenged.

J. Preliminary Motion to Amend

Preliminary Motion to Amend

111At the outset of the appeal before us, counsel for the appellant sought leave to amend to add a claim based on the tort of conversion. The starting premise is that costs are the property of the client, unless there has been an application under s. 28.1 of the Solicitors Act. Without judicial approval, a lawyer taking those costs as part of his fee would be converting the moneys to his own use, rendering him liable for the tort of conversion.

112We elected to hear the full argument of the appeal before ruling on this motion. In my view, it adds nothing of substance to the proceeding as currently drafted. Whether the conduct is characterized as breach of fiduciary duty, breach of contract or conversion, the same factual matrix applies. Further, the same bottom line emerges: whether the clients are entitled to a declaration that an agreement is unenforceable, pursuant to s. 28.1(9) of the Solicitors Act. It was not necessary for our analysis to consider this additional cause of action, and we did not do so.

K. Alternatively: Costs Order

Alternatively: Costs Order

113Having determined that Ms. Hodge has satisfied the test for certification, it follows that the order of Perell J. that she pay costs of the certification motion must also be set aside. [page150] While I disagree with the motion judge's finding that Ms. Hodge was not a public interest litigant and that this case does not raise novel issues, it is not necessary to deal with the merits of the costs award in light of the decision on the main appeal.

L. Conclusion and Order

Conclusion and Order

114The motion judge erred in principle in failing to find a triable cause of action with respect to the clients' right to apply for a declaration that the contingency fee agreements at issue are unenforceable. Flowing from that error, the motion judge failed to recognize viable common issues and reached a wrong conclusion with respect to preferable procedure. In my opinion, all of the criteria for certification have been met.

115Accordingly, the decision of the motion judge is set aside and an order shall issue certifying the class proceeding. The common issues to be tried are set out in Schedule A to this decision.

116Ms. Hodge has been wholly successful on the certification motion and on this appeal. If the parties are unable to agree on these costs, we will consider written submissions on the following terms:

(1) On behalf of Ms. Hodge, no later than 15 days after the release of these reasons. Such submissions to be no more than six pages, double spaced, not including any bill of costs, costs outline or case law that may be referred to.

(2) On behalf of Gary Neinstein and Neinstein & Associates, no later than ten days thereafter. Such submissions to be no more than six pages, double spaced, not including any bill of costs, costs outline or case law that may be referred to.

(3) On behalf of Ms. Hodge in reply, if necessary, no later than five days thereafter. Such submissions to be no longer than two pages, double spaced.

Reasons of Lederer J. (Concurring)

117LEDERER J. (concurring): -- This is an appeal from a motion to certify a class proceeding. The motion judge recognized causes of action for breach of fiduciary duty and breach of contract. Ultimately, he refused to certify these causes of action. The motion judge concluded there were no common issues and that a class proceeding was not the preferable procedure. For him, there is a fatal flaw in the effort made by the representative plaintiff to have this action certified being the lack of commonality⁴⁷ [page151] or conversely the individual nature of the relationship between a solicitor and a client. Quite apart from these findings, the motion judge determined that there was not and could not be an action based on a breach of ss. 28.1(8) and 28.1(9) of the Solicitors Act, R.S.O. 1990, c. S.15. He concluded that it was "plain and obvious" that such an action could not succeed. He determined that there was no free-standing, strict liability civil wrong for breach of those sections. Madam Justice Molloy has found that the motion judge was wrong.⁴⁸ As she sees it, he erred in his interpretation of the applicable sections of the Solicitors Act.⁴⁹ On this basis, she concluded that it was open to the representative plaintiff to apply for a declaration that the contingency agreement she signed was unenforceable. With such a determination in hand, it would be "arguable" that the appropriate remedy would be disgorgement of all moneys received by the law firm in respect of invalid contingency fee agreements. The quantification of such claims would be "relatively straight forward".⁵⁰ Madam Justice Molloy makes no mention of a "free-standing, strict liability civil-wrong" as referred to by the motion judge. To my mind, her interpretation of the applicable sections of the Solicitors Act inexorably leads to the conclusion that such a cause of action exists, whereas the motion judge found that it does not. Be that as it may, the fundamental premise of the decision of Molloy J. is that where there is a breach of s. 28.1 of the Solicitors Act an action may be brought.

118I agree with Molloy J. as to the outcome. The motion judge erred in principle. It is not plain and obvious that an action which depends solely on s. 28.1 of the Solicitors Act cannot succeed. The cause of action should have been certified. I write this not because I disagree with the result but because I do not accept the reasons on which it is founded. I do not accept that the interpretation by the motion judge of the applicable sections of the Solicitors Act is necessarily wrong and Molloy J. necessarily correct. She may be. It [is] on this basis that I conclude it is not plain and obvious that an action relying solely on s. 28.1 will inevitably fail.

119It is a "rare occasion that the legislature expressly declares its will on the matter of civil liability".⁵¹ One example, [page152] in Ontario, is the Liquor Licence Act [R.S.O. 1990, c. L.19]. A person who sells liquor may be sued under the Family Law Act [R.S.O. 1990, c. F.3] where its consumption would intoxicate the person to whom or for whom it was sold such that he or she commits suicide or meets death by accident. Similarly, where the person to whom or for whom the liquor was sold causes injury or damage to another person, that person is entitled to commence an action against the person who sold the liquor.⁵²

120The words of the Solicitors Act are more limited. Section 23 makes clear that there can be no action brought upon the agreements to which it applies. Only an application is permitted.⁵³

Pursuant to s. 24 such an agreement may be enforced or declared void and cancelled with the fees and charges being assessed. What happens depends on whether the agreement was "fair and reasonable".⁵⁴

Under s. 25, where it appears to the Superior Court of Justice that special circumstances require it, an [page153] agreement to which it applies may be reopened.⁵⁵

Section 28.1 says nothing about the right to either an action or an application. It is in this context that Molloy J. finds there is an independent right to an action for breach of a contingency fee agreement under s. 28.1(8) and s. 28.1(9) separate from s. 23 and s. 24.

121Madam Justice Molloy finds support for an independent cause of action in the Solicitors Act. She relies on the definition of "contingency fee agreement" in s. 15⁵⁶ to separate their treatment from the more general reference to "agreements" as described in s. 16(1).⁵⁷ toShe does this by relying on the direction found in s. 15 to the effect that contingency fee agreements are those referred to in s. 28(1). She finds that pursuant to s. 28.1, the "Legislature also saw fit to treat two particular potential abuses in a different manner: percentage fees in excess of a certain limit (s. 28.1(6)) and . . . the practice of taking any costs award plus a percentage of the damages (s. 28.1(8))".⁵⁸ On this basis (or in respect of these particular wrongs), "contingency fee agreements" are to be treated pursuant to s. 28.1, separate from ss. 23, 24 and 25. Madam Justice Molloy is confirmed in this distinction by reference to the different tests these sections apply, on the one hand, to the enforcement of "any such agreements"⁵⁹ (being "the agreement [page154] [appears] . . . in all respects fair and reasonable.")⁶⁰ and, on the other hand, to an order approving the inclusion of an award of costs in a "contingency fee agreement" (being "exceptional circumstances"⁶¹). It should be said that this latter standard does not apply to an order that the percentage fees may be in excess of the limits imposed by regulation. Rather, the Solicitors Act, s. 28.1(7) notes factors to be considered on such a motion.⁶² toMadam Justice Molloy finds: "It is arguably inconsistent with the intent of [the Solicitors Act] to have agreements that do not comply with s. 28.1(8) to still be subject to the general provisions of ss. 23-25[.]"⁶³ She concludes that "it is at least arguable that ss. 23-25 do not apply to contingency agreements that are not compliant with s. 28.1".⁶⁴ It is from this foundation that Madam Justice Molloy finds that the motion judge erred. On the interpretation, she posits there is under or arising from s. 28.1 of the Solicitors Act a separate or freestanding cause of action.

122Is there another plausible, possible interpretation of the relevant sections of the Solicitors Act? Is there an interpretation that would stand to sustain the decision made by the motion judge? There may be.

123 Section 16(2) of the Solicitors Act makes clear that the more general description of "agreements" found in s. 16(1) specifically includes "contingency fee agreements". This being so it is not that "contingency fee agreements" are separated from "agreements". They are subsumed within them. The Solicitors Act is clear on this point. Section 16(2) goes on to direct that this incorporation of "contingency fee agreements" within "agreements" is also "[f]or the purposes of" or applies to ss. 20 to 32.⁶⁵

These sections include ss. 23, 24 and 25, the sections which [page155] provide for the enforcement of "agreements". On this understanding, the ability to enforce "agreements" found in these sections applies to "contingency fee agreements". It follows that just as there can be no action to enforce an "agreement", there cannot be an action to enforce a "contingency fee agreement". The only available procedure would be an application as authorized by s. 23.⁶⁶ There is no suggestion that "any such agreement" as referred to in s. 23 excludes a "contingency fee agreement" and allows for a remedy by action. This is so even with respect to the two particular wrongs identified by Molloy J. It may be that the Solicitors Act sets out the requirement that contingency fee agreements that include a percentage fee in excess of the limit set out in regulation or add to the percentage fee any cost award must be approved by the court. However, if there is no such order, the standard for the latter ("exceptional circumstances") and the factors applicable to the former ("the nature and complexity of the action or proceeding and the expense or risk involved. . .") are of no immediate moment. Where no order was sought, these criteria have not been considered. What is clear is that if there is no order, a contingency fee agreement that provides for a premium either by adding to the percentage fee or adding costs cannot be enforced (s. 28.1(9)).

124There is nothing inherently wrong with an interpretation of the Solicitors Act which allows that while a "contingency fee agreement" that should have but does not have an approval required either by s. 28.1(6) or (8) cannot be enforced, it may nonetheless be fair and reasonable with respect to the charges it calls for. The policy foundation behind this is not hard to find. Lawyers who do good and proper work for their clients should be fairly paid. In such circumstances, an application under ss. 23 and 24 may result in a recognition that the contingency fee agreement cannot be enforced and yet the work undertaken ("the costs, fees, charges and disbursements") subject to assessment "in the ordinary manner". If the interpretation suggested by Molloy J. is sustained, the lawyer loses the right to demonstrate that, despite failure to obtain the requisite approval, the loss was neither intentionally nor negligently inflicted.

125With this approach in mind, I am unable to agree with Molloy J. that the motion judge is necessarily wrong in his understanding of the effect of ss. 23, 24, 25 and 28.1 of the Solicitors Act. On the other hand, I am unable to say with certainty that he is correct. Where does this leave me? [page156]

126The Class Proceeding Act is a procedural statute. It does not add to or subtract from the legal substance that indicates the presence or absence of a cause of action. A certification motion is directed to determining whether the proceeding in question is one that can properly take advantage of the process the legislation offers. It does not require nor should it necessarily determine the merits of any proposed action. Where certification is ordered, the process foresees a trial; that is where the actual determination of whether there is a cause of action would be determined. The test on a certification motion (do the pleadings disclose a cause of action?⁶⁷) is a low one. The motion judge found that it was "plain and obvious" that there was no free-standing strict liability civil wrong. To my mind, the reasons of Molloy J. establish that such an action may exist, not that it does. The question of whether there is an independent ability to commence an action relying on s. 28.1 of the Solicitors Act (as seen by the motion judge: a free-standing action based on a strict liability, civil wrong) should be left to the trial judge. This is no different than the conclusion the motion judge came to with respect to the causes of action he was prepared to recognize as having satisfied the requirement found in s. 5(1)(a) of the Class Proceedings Act. He accepted that Neinstein & Associates (and Gary Neinstein) had a strong argument that the causes of action he certified were precluded by ss. 23 to 25 of the Solicitors Act. Despite this, he concluded that that the argument was not so strong that it was plain and obvious that these causes of action could not succeed.⁶⁸

127I point out that Molloy J. was careful to review the policy justification for the approach she has taken. This is directed to the abuses that would be available to lawyers while the onus to catch the problem and raise it with the court would be left to the client. This would lead to a failure of access to justice which is at the root of the policy which supported the acceptance of contingency fee agreements in Ontario. It strikes me that there are, or could be, other policy concerns. An independent action, separate from the broader application of s. 24, would respond to an underlying assumption that there will be an oversupply of lawyers ready to breach the legislation and "game the system" for no reason other than that they expect to get away with it. This could send an unfortunate message about how the legislature views the general ethical standards of the legal profession and [page157] create a level of disrepute it does not deserve. More importantly, this negative attribution could extend to the administration of justice as a whole. It may also be the case that the realization that a misstep may lead to strict liability or, as Molloy J. sees it, a declaration that the contingency fee agreement is invalid may discourage lawyers who otherwise might seek to help those who suffer injury but are unable, without reliance on a contingency fee arrangement, to retain counsel. In her reasons, Molloy J. discusses the potential for disgorgement, a remedy that recognizes the possible return of all moneys received by the law firm in respect of invalid contingency fee agreements, even those that represent reasonable compensation for work well and properly done.

128To my mind, we should not act too quickly to use the apparent facts of this case as the foundation to set a context for a finding that s. 28.1 of the Solicitors Act allows for an action to be commenced independent of the apparent limitation found in ss. 23 and 24 of the Solicitors Act. It could be unwise to anticipate that lawyers will systematically set out to regularly breach the restraints the legislation imposes on "contingency fee agreements". The Solicitors Act is not geared to class proceedings. It provides for access to justice in a different way. It makes justice more readily available to clients who are concerned about the fees they are being charged under "contingency fee agreements". It provides ready access to the courts by earmarking these concerns as ones to be dealt with by application and assessment rather than action and trial.

129It is for the reasons reviewed that, left to myself, I would grant the motion and order that the cause of action alleging and relying on a breach of s. 28.1 of the Solicitors Act be certified on the basis that it is not clear and obvious that such an action cannot succeed.

130What are the implications of this approach? Assuming for the moment that the action proceeds to trial, the trial judge agrees with Molloy J. and finds that s. 28.1 of the Solicitors Act supports an action independent of ss. 23 and 24 of the Solicitors Act. What then? I have no difficulty with the remainder of reasons of Molloy J. insofar as they would apply in such circumstances. In particular, I accept her definition of the common issues and her conclusion that a class proceeding would be the preferable process. What if the trial judge concludes that there is no free-standing cause of action. In such circumstances, the route to resolution would be through reliance on ss. 23 and 24 of the Solicitors Act. I agree with the motion judge that decisions to be made pursuant to those provisions would be inherently [page158] individual. Every case would depend on an understanding of the nature and complexity of the proceeding, the work done and fees sought. With such a finding, presumably the action would be dismissed without prejudice to individual applications being brought or, alternatively, accepting the understanding of the motion judge that the proceeding he was considering was an application made pursuant to s. 23, adjourning to allow for the individual claims to be made under its umbrella. It is not clear to me that this situation will not come to the attention of those who are affected by it. Nor is there any demonstration that there is a shortage of lawyers who will be prepared to pick up the cudgel and fight for those who may have been wronged, if there is reason to do so.

Appeal allowed.

SCHEDULE "A"

CERTIFIED COMMON ISSUES

Definitions

Schedule A: Certified Common Issues

"class members" means the amended class definition described in Hodge v. Neinstein, [2014] O.J. No. 3572, 2014 ONSC 4503 (S.C.J.), at paras. 113-18;

"interest recovery" means the charges collected by the respondents relating to interest on disbursements incurred by the firm during the course of the litigation;

"other improper charges" means disbursements charged by the respondents that are not properly chargeable to clients, e.g., fees related to computer legal research, closing fees and storage fees; and

"Solicitors Act" means the Solicitors Act, R.S.O. 1990, c. S.15.

COMMON ISSUES

Violations of the Solicitors Act Involving Costs

(1) Did the respondents' contingency fee agreements violate the Solicitors Act by including, as the respondents' fees, amounts arising from costs in an award or settlement in addition to a percentage of the award or settlement?

(2) Were the respondents' contingency fee agreements made in accordance with s. 28.1(1) of the Solicitors Act? [page159]

(3) Did the respondents take amounts arising from costs in an award or settlement from the class members contrary to the Solicitors Act?

(4) As required by s. 28.1(8) of the Solicitors Act, did the respondents obtain approval from the class members to obtain as part of their fees any part of the costs arising from an award or settlement?

(5) Are the class members entitled to a declaration that the respondents' contingency fee agreements are unenforceable under s. 28.1(9) of the Solicitors Act?

(6) Can the provision in the contingency fee agreements that takes, in addition to the respondents' fees, all or a portion of the costs arising from an award or settlement, be severable?

(7) Should the respondents be ordered to disgorge all fees collected under any contingency fee agreements that are found to be unenforceable?

(8) If it is determined that fees collected under unenforceable contingency fee agreements should not be disgorged, should the respondents be otherwise ordered to repay to the class members any amounts taken for costs in addition to their percentage fee, together with interest pursuant to s. 33(2) of the Solicitors Act?

Violations of the Solicitors Act Involving Interest Charges

(9) Did the respondents charge the class members for interest contrary to s. 33 of the Solicitors Act, including the interest recovery charges shown in their accounts for disbursements to class members?

(10) If it is determined that the respondents charged the class members for interest contrary to s. 33 of the Solicitors Act, does this violation amount to a breach of contract?

(11) If it is determined that the respondents charged the class members for interest contrary to s. 33 of the Solicitors Act, does this violation amount to a breach of the respondents' fiduciary duty?

(12) Should the respondents be ordered to disgorge all interest charged in violation of s. 33 of the Solicitors Act?

(13) If it is determined that interest collected in violation of s. 33 of the Solicitors Act should not be disgorged, should the respondents be otherwise ordered to repay to the class [page160] members any amounts taken on account of interest charged by the respondents?

Other Improper Charges and Photocopying/Scanning Fees

(14) Did the respondents charge the class members for other improper charges without disclosing or obtaining agreement from the class members?

(15) Did the respondents charge the class members excessive rates for photocopying and scanning documents?

(16) If it is determined that the respondents charged the class members for other improper charges without disclosing or obtaining agreement from the class members, should the respondents be ordered to disgorge these funds?

(17) If it is determined that the other improper charges should not be disgorged, should the respondents be otherwise ordered to repay to the class members any amounts taken on account of the other improper charges?

(18) If it is determined that the respondents charged the class members excessive rates for photocopying and scanning documents, should the respondents be ordered to disgorge these funds?

(19) If it is determined that the excessive photocopying and scanning fees should not be disgorged, should the respondents be otherwise ordered to repay to the class members any amounts taken on account of these excessive fees?

Notes

Footnotes

Hodge v. Neinstein, [2014] O.J. No. 3572, 2014 ONSC 4503, 58 C.P.C. (7th) 37, 243 A.C.W.S. (3d) 537 (S.C.J.) (certification motion reasons).
Hodge v. Neinstein, [2014] O.J. No. 5204, 2014 ONSC 6366, 246 A.W.C.S. (3d) 531 (S.C.J.) (costs reasons).
Class Proceedings Act, 1992, S.O. 1992, c. 6, s. 5(1).
R.S.O. 1990, c. S.15.
Pearson v. Inco Ltd. (2005), 2006 913 (ON CA), 78 O.R. (3d) 641, [2005] O.J. No. 4918 (C.A.), at para. 43.
Anderson v. Wilson (1999), 1999 3753 (ON CA), 44 O.R. (3d) 673, [1999] O.J. No. 2494, 175 D.L.R. (4th) 409 (C.A.), leave to appeal to S.C.C. refused [1999] S.C.C.A. No. 476; Hickey-Button v. Loyalist College of Applied Arts & Technology, 2006 20079 (ON CA), [2006] O.J. No. 2393, 267 D.L.R. (4th) 601 (C.A.) ("Hickey-Button"), at para. 5; Cloud v. Canada (Attorney General) (2004), 2004 45444 (ON CA), 73 O.R. (3d) 401, [2004] O.J. No. 4924 (C.A.), leave to appeal to S.C.C. refused [2005] 1 S.C.R. vin, [2005] S.C.C.A. No. 50.
Hickey-Button, ibid., at para. 5.
Fresco v. Canadian Imperial Bank of Commerce (2012), 111 O.R. (3d) 501, [2012] O.J. No. 2883, 2012 ONCA 444, at para 68; Hickey-Button, supra, note 7, at para. 6; Cloud v. Canada, supra, note 7, at paras. 39-40.
Contingency Fee Agreements, O. Reg. 195/04.
Ibid., ss. 3(3) and 6.
Anderson v. Wilson, supra, note 7, at para. 18; Hollick v. Toronto (City), [2001] 3 S.C.R. 158, [2001] S.C.J. No. 67, 2001 SCC 68, at para. 25 ("Hollick"); Hunt v. Carey Canada Inc., 1990 90 (SCC), [1990] 2 S.C.R. 959, [1990] S.C.J. No. 93, at p. 980 S.C.R.; Fresco v. Imperial Bank of Commerce, supra, note 9, at paras. 56-58, 68, 70-71.
Certification motion reasons, supra, note 1, at paras. 89-90, 93, 99.
Ibid., at paras. 92, 94, 100.
Séguin v. Van Dyke, [2013] O.J. No. 5013, 2013 ONSC 6576, 233 A.C.W.S. (3d) 1015 (S.C.J.).
Certification motion reasons, supra, note 1, at paras. 32-33, 35, 39-42, 47-52, 95.
Interpretation Act, R.S.O. 1990, c. I.11, s. 10; Rizzo & Rizzo Shoes Ltd. (Re) (1998), 1998 837 (SCC), 36 O.R. (3d) 418, [1998] 1 S.C.R. 27, [1998] S.C.J. No. 2, at para. 22.
Ontario, Legislative Assembly, Official Report of Debates (Hansard), 37th Parl. 3rd Sess., No. 64B (November 28, 2002) at 3415.
Ibid.
E.A. Driedger, Construction of Statutes, 2nd ed. (Toronto: Butterworths, 1983), at 87; Rizzo & Rizzo Shoes, supra, note 17, at para. 21.
Solicitors Act, supra, note 4, at s. 28.1(6).
Seneca College of Applied Arts and Technology v. Bhadauria, 1981 29 (SCC), [1981] 2 S.C.R. 181, [1981] S.C.J. No. 76, 124 D.L.R. (3d) 193.
Canada v. Saskatchewan Wheat Pool, 1983 21 (SCC), [1983] 1 S.C.R. 205, [1983] S.C.J. No. 14.
Frame v. Smith, 1987 74 (SCC), [1987] 2 S.C.R. 99, [1987] S.C.J. No. 49.
Canadian Alliance of Pipeline Landowners' Assn. v. Enbridge Pipelines Inc., [2008] O.J. No. 1221, 2008 ONCA 227, 291 D.L.R. (4th) 487.
Séguin v. Van Dyke, [2010] O.J. No. 5805, 2010 ONSC 6636, 197 A.C.W.S. (3d) 53 (S.C.J.).
Séguin v. Van Dyke, [2011] O.J. No. 468, 2011 ONSC 843, 198 A.C.W.S. (3d) 45 (S.C.J.).
Raphael Partners v. Lam (2002), 2002 45078 (ON CA), 61 O.R. (3d) 417, [2002] O.J. No. 3605 (C.A.).
Henricks-Hunter (Litigation Guardian of) v. 814888 Ontario Inc., [2012] O.J. No. 3207, 2012 ONCA 496.
Cookish v. Paul Lee Associates Professional Corp., [2013] O.J. No. 1947, 2013 ONCA 278.
Chrusz v. Cheadle Johnson Shanks MacIvor, [2010] O.J. No. 3441, 2010 ONCA 553.
Laushway Law Office v. Simpson, [2011] O.J. No. 3184, 2011 ONSC 4155, 336 D.L.R. (4th) 632 (S.C.J.).
Du Vernet v. 1017682 Ontario Ltd., [2009] O.J. No. 2373, 75 C.P.C. (6th) 295, 177 A.C.W.S. (3d) 1100 (S.C.J.) ("Du Vernet").
Ibid., at paras. 18-19.
Ibid., at para. 20.
Markson v. MBNA Canada Bank (2007), 85 O.R. (3d) 321, [2007] O.J. No. 1684, 2007 ONCA 334.
R.S.C. 1985, c. C-46.
Markson, supra, note 37, at para. 75; Oldfield v. Transamerica Life Insurance Co. of Canada, [2002] 1 S.C.R. 742, [2002] S.C.J. No. 23, 2002 SCC 22.
Cloud v. Canada, supra, note 7, at para. 53.
Certification motion reasons, supra, note 1, at paras. 174-78.
See Cookish v. Paul Lee Associates, supra, note 31.
Markson v. MBNA Canaa Bank, supra, note 37, at para. 69.
Hollick, supra, note 12, at paras. 28-30.
Ibid., at para. 27.
AIC Ltd. v. Fischer, [2013] 3 S.C.R. 949, [2013] S.C.J. No. 69, 2013 SCC 69.
Ibid., at paras. 26-38.
Hodge v. Neinstein, [2014] O.J. No. 3572, 2014 ONSC 4503 (S.C.J.) (Perell J.), at paras. 13, 26 and 127.
Reasons of Molloy J., at paras. 8, 34 and 37.
R.S.O. 1990, c. S.15.
Reasons of Molloy J., at paras. 8 and 72.
Linden and Feldthusen, Canadian Tort Law, 9th ed. (Markham, Ont.: LexisNexis, 2011), at p. 225.
R.S.O. 1990, c. L.19, s. 39; and see Menow v. Honsberger, 1969 459 (ON SC), [1970] 1 O.R. 54, [1969] O.J. No. 1423 (H.C.J.), affd 1970 47 (ON CA), [1971] 1 O.R. 129, [1970] O.J. No. 1629 (C.A.), affd 1973 16 (SCC), [1974] S.C.R. 239, [1973] S.C.J. No. 80; McInytre v. Grigg (2006), 2006 37326 (ON CA), 83 O.R. (3d) 161, [2006] O.J. No. 4420, 274 D.L.R. (4th) 28 (C.A.), at para. 23.
Section 23 states: 23. No action shall be brought upon any such agreement, but every question respecting the validity or effect of it may be examined and determined, and it may be enforced or set aside without action on the application of any person who is a party to the agreement or who is or is alleged to be liable to pay or who is or claims to be entitled to be paid the costs, fees, charges or disbursements, in respect of which the agreement is made, by the court, not being the Small Claims Court, in which the business or any part of it was done or a judge thereof, or, if the business was not done in any court, by the Superior Court of Justice. (Emphasis added)
Section 24 states: 24. Upon any such application, if it appears to the court that the agreement is in all respects fair and reasonable between the parties, it may be enforced by the court by order in such manner and subject to such conditions as to the costs of the application as the court thinks fit, but, if the terms of the agreement are deemed by the court not to be fair and reasonable, the agreement may be declared void, and the court may order it to be cancelled and may direct the costs, fees, charges and disbursements incurred or chargeable in respect of the matters included therein to be assessed in the ordinary manner. (Emphasis added)
Section 25 states: 25. Where the amount agreed under any such agreement has been paid by or on behalf of the client or by any person chargeable with or entitled to pay it, the Superior Court of Justice may, upon the application of the person who has paid it if it appears to the court that the special circumstances of the case require the agreement to be reopened, reopen it and order the costs, fees, charges and disbursements to be assessed, and may also order the whole or any part of the amount received by the solicitor to be repaid by him or her on such terms and conditions as to the court seems just. (Emphasis added)
Section 15 states: "contingency fee agreement" means an agreement referred to in section 28.1.
Section 16(1) states: 16(1) Subject to sections 17 to 33, a solicitor may make an agreement in writing with his or her client respecting the amount and manner of payment for the whole or a part of any past or future services in respect of business done or to be done by the solicitor, either by a gross sum or by commission or percentage, or by salary or otherwise, and either at the same rate or at a greater or less rate than that at which he or she would otherwise be entitled to be remunerated.
Reasons of Molloy J., at para. 45.
Solicitors Act, supra, note 50, s. 23, quoted, at para. 16, above.
Solicitors Act, ibid., s. 24, quoted, at para. 16, above.
Solicitors Act, ibid., s. 28.1(8).
Section 28.1(7) states: 28.1(7) In determining whether to grant an application under subsection (6), the court shall consider the nature and complexity of the action or proceeding and the expense or risk involved in it and may consider such other factors as the court considers relevant.
Reasons of Molloy J., at para. 46.
Reasons of Molloy J., at para. 52.
Section 16(2) states: For purposes of this section and sections 20 to 32, "agreement" includes a contingency fee agreement.
See note 7.
Class Proceedings Act, s. 5(1)(a).
Hodge v. Neinstein, supra, note 1 (Perell J.), at para. 94.
Ibid., at 3416.

Introduction

Standard of Review

Contingency Fees in Ontario

Factual Context

Requirements for Certification

Cause of Action

Statutory Interpretation: Sections 23-25 of the Solicitors Act Do Not Apply

Cause of Action for Declaration That Agreement Is Unenforceable

Analysis of the Case Law

Conclusion on Cause of Action

Common Issues

Analysis

Common Issue — Costs Plus Fees

Common Issue — Interest Recovery Charges

Common Issue — Other Improper Charges

Common Issue — Referral Fees

Preferable Procedure

Analysis

Identifiable Class and Representative Plaintiff

Preliminary Motion to Amend

Alternatively: Costs Order

Conclusion and Order

Reasons of Lederer J. (Concurring)

Schedule A: Certified Common Issues

Footnotes

Introduction

Standard of Review

Contingency Fees in Ontario

Factual Context

Requirements for Certification

Cause of Action

Statutory Interpretation: Sections 23-25 of the Solicitors Act Do Not Apply

Cause of Action for Declaration That Agreement Is Unenforceable

Analysis of the Case Law

Conclusion on Cause of Action

Common Issues

Analysis

Common Issue — Costs Plus Fees

Common Issue — Interest Recovery Charges

Common Issue — Other Improper Charges

Common Issue — Referral Fees

Preferable Procedure

Analysis

Identifiable Class and Representative Plaintiff

Preliminary Motion to Amend

Alternatively: Costs Order

Conclusion and Order

Reasons of Lederer J. (Concurring)

Schedule A: Certified Common Issues

Footnotes

Cited By (12 cases)

Leduc v. Dufour, 2024 ONSC 6882

McGee v. Dr. Farazil, 2023 ONSC 3671

Calles v. Yormak, 2023 ONSC 1248

Treleaven v. Kilgour, 2021 ONSC 646

Lima v. Kwinter, 2021 ONCA 47

Zarabi-Majd v. Levitt LLP, 2021 ONSC 135

Fairweather v. Davies, 2017 ONSC 7051

Fanshawe v Hitachi, 2017 ONSC 2791

Mounce v Rae, 2017 ONSC 2288

Kee Kwok v. State Farm Mutual, 2016 ONSC 7339

Hosseini v. Anushika Anthony Professional Corporation, 2016 ONSC 5405

Cited By (12 cases)

Leduc v. Dufour, 2024 ONSC 6882

McGee v. Dr. Farazil, 2023 ONSC 3671

Calles v. Yormak, 2023 ONSC 1248

Treleaven v. Kilgour, 2021 ONSC 646

Lima v. Kwinter, 2021 ONCA 47

Zarabi-Majd v. Levitt LLP, 2021 ONSC 135

Fairweather v. Davies, 2017 ONSC 7051

Fanshawe v Hitachi, 2017 ONSC 2791

Mounce v Rae, 2017 ONSC 2288

Kee Kwok v. State Farm Mutual, 2016 ONSC 7339

Hosseini v. Anushika Anthony Professional Corporation, 2016 ONSC 5405