Court File and Parties
Court File No.: CV-17-130237-00 Date: 2019-01-15 Superior Court of Justice – Ontario
Re: Peter B. Cozzi, Applicant/Solicitor And: Frank Polsinelli, Lynda Polsinelli, Alyssya Polsinelli, and Cyerra Polsinelli, Respondents/Clients
Before: DE SA J.
Counsel: Peter B. Cozzi, for the Applicant Daniel Mauer, for the Respondents
Heard: October 24, 2018
Reasons for Decision
Overview
[1] This motion involves the enforceability of a contingency fee arrangement (the “Agreement”) between the Applicant Solicitor (“Applicant” or “Solicitor” or “Applicant solicitor”) and his Clients (the “Respondents” or the “Clients”).
[2] The Assessment Officer reduced the amounts payable to the Applicant under the Agreement. The basis for the reduction of the Applicant’s fees concerned the Respondents’ purported understanding of what their settlements would provide for them in terms of the net proceeds which they would receive from those settlements.
[3] The Applicant solicitor opposes confirmation of the Assessment Officer’s decision and moves to set it aside, seeking an order enforcing without reduction the fee agreements which the Applicant had contractually entered into with the Respondents.
[4] Having reviewed the record and materials filed, I confirm the Assessment Officer’s reduction in fees. However, I will set aside the Assessment Officer’s decision to impose the appropriate taxes on those fees on the Applicant solicitor.
[5] The reasons for my decision are outlined below.
The Facts
Background of the Claims
[6] On or about August 8, 2009 the Respondents were involved in a “head-on car accident” which resulted in them sustaining a variety of physical and emotional injuries.
[7] On or about September 2009, the Respondents retained the services of the Applicant solicitor, Mr. Cozzi, to represent them in all their matters related to this motor vehicle accident. This represented an accident benefits claim and a tort claim for each individual client, in total eight claims. Ultimately the retainers were signed on or about 10 October 2009.
[8] The retainer agreements as signed were clearly defined as “contingency agreements” which is to say the Applicant solicitor would be paid a percentage of whatever settlement/resolution was achieved for his fees not including disbursements. One of the individual clients, Lynda Polsinelli, had retained the services of the Applicant solicitor on at least one previous occasion under the same style of retainer agreement.
[9] The Respondents were initially denied benefits pursuant to their accident benefit claims against the insurance company and the Applicant solicitor commenced legal proceedings/negotiations to recover funds in this regard. In addition, the Applicant solicitor commenced a tort claim against the other parties involved in the accident to compensate the Respondents for their physical and emotional distress as a result of the accident.
[10] The Applicant solicitor, through his firm, provided services to negotiate with the insurance companies in relation to the accident benefits claims and to achieve a compensation package that covered the majority of the costs associated with the recovery for the Respondents.
[11] The Applicant solicitor also prepared, filed and pursued litigation on behalf of the Respondents as related to a tort claim against the other parties. As outlined in the decision of the Assessment Officer, this work included drafting, finalizing and issuing a statement of claim to provide for a variety of eventualities; compiling relevant documents to support the litigation; preparing and service of Affidavits of Documents; reviewing and organizing a large amount of medical and accident benefit documents; preparing for and attending a number of examinations for discovery; preparing briefs; and, attending mediation.
[12] The matter involved a protracted negotiation/arbitration/mediation process with the Applicant solicitor having to obtain voluminous documentation in order to meet the threshold for tort claims of this nature. Ultimately, the tort matter was settled through a mediated settlement.
The Decision of the Assessment Officer to Reduce the Fees
[13] The Assessment Officer found, after hearing testimony from the parties at the assessment hearing, that the fee agreements were fair and reasonable. In particular, the Assessment Officer found that the Respondents had understood the nature and effect of their contingency fee arrangements with the Applicant in respect of the tort claims and the Applicant solicitor achieved satisfactory results. Additionally, the Assessment Officer found that the Applicant solicitor’s time spent on the tort claim actually exceeded the contingency fees charged.
[14] With respect to the accident benefit claims, however, the Assessment Officer ordered that the accounts be reduced by $24,311.51, or about one quarter of the amount that had been billed by the Applicant solicitor on the basis of the Clients’ expectation of the net amount of the accident benefit settlements.
[15] Included in this reduction, the Assessment Officer found that when the Clients’ accident benefit accounts were settled, the Applicant solicitor should not have charged the Clients HST of 13% because the 2009 retainer agreements specified that the Applicant solicitor would charge the Respondents on his fees and disbursements GST of 5%, which was the applicable tax rate when the retainer agreements were entered into. The difference of $6,964.89 was found to be payable by the Applicant solicitor.
[16] The Assessment Officer determined that because the 2009 retainer agreements were not amended with the change of the applicable tax to HST of 13%, upon the 2017 settlement of the Respondents’ claims, the Respondents should not have been required to pay HST of 13%, but instead GST of 5%. The Assessment Officer stated in his Reasons that the Applicant solicitor had no legal obligation to pass the provincial statutory tax on his legal services on to the Clients.
Position of the Parties
[17] The Applicant solicitor takes the position that the Assessment Officer erred in principle in not enforcing the agreed upon contractual terms of the contingency fee agreements. The Assessment Officer conducted a quantum meruit assessment of the Applicant solicitor’s accounts and treated the fee agreements as being only one of several factors to be taken into account in the Assessment Officer’s determination of the money properly owed. The Applicant solicitor argues that the Assessment Officer also erred in requiring the Applicant solicitor to pay the taxes on the amount.
[18] The Respondents take the position that the contingency fee agreements at issue do not comply with many of the statutory requirements and accordingly they do not qualify as valid contingency agreements. They should not be treated as binding agreements. The Respondents also take the position that considerable deference is owed to the decision of the Assessment Officer, particularly with respect to matters relating directly to the quantum of costs.
Analysis
Background
[19] The Law Society of Upper Canada amended its Rules of Professional Conduct in October 2002 to allow lawyers to enter into contingency fee agreements.
[20] When it amended the Solicitors Act, R.S.O. 1990, c. S15, to allow for contingency fees, the government intended to promote access to justice and to ensure that the cost of our legal system would not act as a barrier to justice for members of the public. Re Cogan, , [2007] O.J. No. 4539 at paragraph 37.
[21] Section 16 of the Solicitors Act authorizes a solicitor to make an agreement in writing with a client concerning the amount and manner of payment for legal services conducted for the client, including an agreement that allows for compensation at a rate greater than the solicitor’s normal rate of remuneration.
Fair and Reasonable
[22] Section 17 of the Solicitors Act provides that a contingency fee agreement should be examined by the Assessment Officer before a solicitor is entitled to receive payment under it. The Act affords to clients the added protection that an agreed upon solicitor’s fee is only payable where there is a determination that it is fair and reasonable.
[23] The fairness requirement of section 24 of the Solicitors Act is concerned with the circumstances surrounding the making of the agreement and whether the client fully understood and appreciated the nature and effect of the agreement that was executed.
[24] The factors relevant to an evaluation of the reasonableness of or the quantum of the fees charged by a solicitor are well established. They include the time expended by the solicitor, the legal complexity of the matter at issue, the results achieved and the risk assumed by the solicitor. The latter factor includes the risk of non-payment where there is a real risk of an adverse finding on liability or with respect to the provability of the particular damages claimed by the client in the circumstances of his [or her] case.
Setting Aside Agreement
[25] Section 18 of the Solicitors Act provides that where it appears to the assessment officer that the agreement is not fair and reasonable, he or she may refer the matter to the Court for a determination of the issue. Upon any such application, the Court may either reduce the amount payable under the agreement or order the agreement to be cancelled and the costs, fees, charges and disbursements in respect of the business done to be assessed in the same manner as if the agreement had not been made. Solicitors Act, R.S.O. 1990, c. S15, section 18.
[26] Where a fee agreement is cancelled because as a contract it is not properly enforceable, the proper amount for the solicitor’s fees should then be assessed in a quantum meruit manner.
[27] It is only once a contract has been set aside by a Court, however, that an assessment officer will determine fees on the basis of a quantum meruit assessment.
[28] In Henricks-Hunter v. 814888 Ontario Inc. (Phoenix Concert Theatre), 2012 ONCA 496, [2012] O.J. No. 3207 (C.A.)., the Ontario Court of Appeal held that the motion judge erred in failing to consider whether the contingency fee agreements should be enforced and by proceeding directly to the determination of the amount of fees without due and appropriate regard to the contractual terms of the contingency fee agreements. The Court explained, at paras. 13 and 14:
In our view, the motion judge erred in failing to consider whether the CFA should be enforced and by proceeding directly to the determination of the amount of fees without regard to the CFA. In Raphael this court explained the two-step process to be followed by a judge where enforcement of a contingency fee agreement is sought pursuant to s. 24 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. A contingency fee agreement can only be declared void, or be cancelled and disregarded, where the court determines that it is either unfair or unreasonable. (emphasis added)
In this case, the motion judge’s analysis of the proposed fees focussed almost exclusively on the amount of time spent by the solicitors and their hourly rates. As noted in Raphael, at para. 54, because of the important role played by contingency fee agreements in the administration of justice, the time spent by solicitors on a file is a relevant factor, but it does not control the question of whether a solicitor is entitled to the fees charged through enforcement of a contingency fee agreement. (emphasis added)
Application to the Facts of this Case
[29] I agree with the Applicant solicitor that the Assessment Officer erred in law by conducting a quantum meruit solicitor and client assessment, instead of applying the Agreement between the parties as contemplated under sections 16 to 18 of the Solicitors Act. If the Assessment Officer was of the view that the Agreement was not proper, he should have referred the Agreement to the Court for review.
[30] While I agree that the Assessment Officer had no authority to simply set aside the Agreement, I still must decide whether the fees owed pursuant to the Agreement should be confirmed. In making this assessment, I must take into account the Assessment Officer’s findings in determining whether or not the Agreement was fair and reasonable in the circumstances.
[31] Ultimately, the basis for the Assessment Officer’s reduction of the Solicitor’s fees concerned the Respondents’ understanding of what their accident benefits settlements would provide for them in terms of the net proceeds which they would receive from those settlements. The Assessment Officer explained:
There was considerable evidence provided by all parties as related to a meeting held at Tim Horton’s on or about January 12, 2015 during which the Clients “signed off” as accepting the negotiated settlement of the Accident Benefits Claims. Of special note was the testimony of all four Clients (separately) that during this meeting the Solicitor indicated that they would receive “in their pocket” a specific amount. Subsequently the amounts they received were substantially reduced due to the Solicitor’s fees, this despite the Solicitor at the time of the meeting indicating that that was the amount they would receive. During his cross-examination of the Clients, the Solicitor raised the possibility of a “misunderstanding” on the part of the Clients as to the amount. I find that the Clients have sustained their position within reasonable probability. If there was a “misunderstanding” on the part of the Clients, it is the responsibility of the Solicitor to ensure that the Clients understand exactly what they are signing. (emphasis added)
[32] The factual record suggests that the Respondents only agreed to the settlement on the basis of the Solicitor’s representations. Obviously, there was some miscommunication between the Solicitor and the Respondents regarding the settlement. However, a client has the right to decide whether to accept an offer to settle his or her claim. This entails understanding the full parameters of that settlement. I agree with the Assessment Officer that it was the responsibility of the Applicant solicitor to ensure that the Respondents properly understood the terms of the settlement.
[33] Contrary to the Applicant’s assertion, this is not simply an issue of calculation, or the application of the contingency fee to the settlement amount. The Applicant made the Respondents believe they would receive a certain “net amount” by accepting the settlement, and they did not. If the amount they would receive “in their pockets” was miscommunicated to them by the Applicant solicitor, he must bear the costs of this error. I agree with the Assessment Officer, that to require the Respondents to pay the entire fee in these circumstances would be unfair.
[34] Accordingly, I will dismiss the challenge to the Assessment Officer’s reduction in fees.
Reduction for GST Amount
[35] The Assessment Officer also reduced the Applicant solicitor’s fee account by $6,964.89 by finding that when the Clients’ accident benefit accounts were settled, the Applicant should not have charged the clients HST of 13% because the 2009 retainer agreements specified that the solicitor would charge the Clients on his fees and disbursements with GST of 5%, which was the applicable tax rate when the retainer agreements were entered into.
[36] The Respondents take the position that the Assessment Officer was correct to impose the costs associated with the tax increase on the Applicant solicitor. The Respondents rely on the case of Canada (Attorney General) v. Fairmont Hotels Inc., [2016] 2 SCR 720, 2016 SCC 56 for the proposition that rectification is not available to the Applicant as a means to undo the unanticipated effect of tax liability. The retainer agreement specifically states that GST will be payable at the rate of 5% on fees and disbursements. Ironically, the Respondents argue that the Applicant is bound by the very agreement they themselves have sought to set aside.
[37] I disagree with the Respondents. In my view, it would be inappropriate to impose these costs on the Applicant solicitor in the circumstances. These amounts were collected by the Applicant solicitor to be remitted to the government. Any change in the tax amount has nothing to do with the Applicant, nor could this increase in tax liability be reasonably expected to be assumed by the Applicant solicitor.
[38] In my view, the Respondents’ reliance on Canada (Attorney General) v. Fairmont Hotels Inc., supra, is misplaced. As the Supreme Court explained in Fairmont Hotels Inc., supra, at para. 12:
If by mistake a legal instrument does not accord with the true agreement it was intended to record — because a term has been omitted, an unwanted term included, or a term incorrectly expresses the parties’ agreement — a court may exercise its equitable jurisdiction to rectify the instrument so as to make it accord with the parties’ true agreement. Alternatively put, rectification allows a court to achieve correspondence between the parties’ agreement and the substance of a legal instrument intended to record that agreement, when there is a discrepancy between the two. Its purpose is to give effect to the parties’ true intentions, rather than to an erroneous transcription of those true intentions (Swan and Adamski, at §8.229). (emphasis added).
Disposition
[39] The Certificate of Assessment by Officer Brough dated January 8, 2018 is confirmed with respect to the reduction of fees ($17,347.62). However, the Respondents are required to pay the appropriate taxes. The Assessment Officer’s decision in this regard is set aside.
[40] Given that the results are divided, each party will bear its own costs.
Justice C.F. de Sa
Released: January 15, 2019