DATE: 20050812
DOCKET: C42704
COURT OF APPEAL FOR ONTARIO
MCMURTRY C.J.O., DOHERTY and LAFORME JJ.A.
B E T W E E N :
NICKI KOLINIOTIS
Glenn Stuart, for the appellant
Appellant (Defendant)
- and -
TRI LEVEL CLAIMS CONSULTANTS LTD.
Pina Celli, in person
Respondent (Plaintiff)
Heard: May 11, 2005
On appeal from the order of Justice John H. Jenkins of the Superior Court of Justice sitting as a single judge of the Divisional Court dated March 19, 2004, dismissing the appeal from the judgment of Deputy Judge A. Fisher of the Superior Court of Justice sitting as a judge in Small Claims Court, dated July 26, 2002.
BY THE COURT:
[1] This appeal raises the important question whether the law permits paralegals and their clients to enter into contingency fee agreements. It also raises the question whether a paralegal can recover in quantum meruit for services provided under a contingency fee agreement that is found to be champertous.
FACTS
[2] These issues arise in the context of a Workplace Safety and Insurance Board (“WSIB”) claim. The appellant, Nicki Koliniotis, had worked at the Toronto General Hospital for twenty years. In August 1999, she began to experience pain in her right wrist, forearm, shoulder and the back of her neck. The pain worsened and Koliniotis was forced to stop working on May 23, 2000. She received short-term disability benefits from her employer until August 2, 2000. When the benefits stopped, she submitted an employee incident report to her employer, which in turn submitted a report to the WSIB.
[3] On September 26, 2000, Koliniotis approached Tri Level Claims Consultants Ltd. (“Tri Level”), a paralegal business specializing in WSIB claims, to discuss her legal options. Pina Celli, the principal of the company, initially suggested that Koliniotis ask her union for free assistance with the claim. Koliniotis returned on September 28, 2000, stating that she had decided that she did not want the union to assist her. Celli, who had worked for the WSIB for twenty-six years before becoming a paralegal, agreed to represent Koliniotis. The parties discussed a contingency fee arrangement, but did not sign a retainer at that time.
[4] Koliniotis next visited Tri Level on December 15, 2000 with her daughter. Her daughter translated Tri Level’s retainer, including a contingency fee arrangement, into Greek for Koliniotis. Koliniotis did not sign the retainer but took it home for her son to see. Although her son advised her that a lawyer would be available for an hourly rate of $165, Koliniotis signed the retainer on December 18, 2000. In it, she agreed to pay Tri Level a $600 retainer and “a percentage of fees (not to exceed 20%) on any settlement achieved as a result of [Tri Level’s] intervention on [Koliniotis’s] behalf”.
[5] After learning from her doctor that third-party representation was not necessary in WSIB procedures, Koliniotis sought to terminate Tri Level’s retainer. In a letter to Tri Level dated March 9, 2001, counsel with the Community and Legal Aid Services Programme, a legal clinic associated with Osgoode Hall Law School, stated on behalf of Koliniotis that the retainer was not enforceable. The evidence did not establish whether the appellant attempted to terminate the contingency fee agreement before or after she knew that the WSIB would approve her claim.
[6] On March 28, 2001, the WSIB approved Koliniotis’s claim. She received $22,176 in income replacement benefits, including $9,966 in retroactive pay. The benefit payments terminated in November of 2001.
[7] There was no evidence at trial establishing the actual total time spent by Tri Level on the appellant’s file. According to the notes on file of the respondent, Koliniotis visited Tri Level’s office approximately six times, once in the presence of a WSIB investigator. Celli’s notes indicate that she spoke with Koliniotis and with the WSIB adjudicator a number of times on the telephone.
The Small Claims Court Decision
[8] Fisher D.J. found Celli to be a credible witness and he characterized the case as one of “caveat emptor to a certain degree”. Fisher D.J. concluded that Tri Level performed services for Koliniotis and assisted her in processing the WSIB claim and that the parties had entered into an agreement, which was not “unconscionable”.
[9] Tri Level was awarded judgment in the Small Claims Court of $4,800.00 plus disbursements. This amount was slightly less than the contingency fee claim of $5,106.60, which was based on the $600 retainer plus 20% of the appellant’s recovery.
The Divisional Court Decision
[10] Koliniotis’s appeal of Fisher D.J.’s judgment to the Divisional Court was heard by Jenkins J., sitting as a single judge. In his reasons dismissing her appeal, Jenkins J. stated, “The reality of all this is that there is no prohibition in law against the paralegalist being a non-lawyer to charge a contingency fee”. He also stated, “I cannot find that there was any palpable and overriding error that [Fisher D.J.] made in determining the facts.”
[11] For the reasons that follow, we find that the Divisional Court erred in law and that the respondent Tri Level’s contingency fee agreement was invalid as champertous. However, we also conclude that the respondent is entitled to some compensation for the services provided on a quantum meruit basis.
ANALYSIS
Paralegals, the Champerty Act, and this Court’s Decision in McIntyre Estate
[12] We begin our analysis by acknowledging that there are benefits and risks inherent in contingency fee arrangements for the payment of legal services. Without contingency fees, people without the means of paying for legal services under the more traditional fees for services schemes would go unrepresented. Contingency fees increase access to justice and thereby improve the overall administration of justice. Contingency fees also pose serious risks to the due administration of justice. A lawyer, or a paralegal, with a financial interest in the outcome of a case may be tempted to engage in sharp or even dishonest practice. A contingency fee may also put a lawyer or a paralegal in a conflict of interest position with his or her own client. For example, an offer to settle made early in the proceedings before a lawyer or paralegal has done much work may appear attractive to a lawyer or paralegal who is being paid a percentage of the settlement amount regardless of the work done. That offer may, however, not do justice to the client’s claim.
[13] The determination of whether contingency fee arrangements between paralegals and their clients should be regarded as per se champertous and, therefore, unenforceable depends on how one assesses the benefits and risks inherent when individuals and paralegals enter into contingency fee agreements.
[14] If the law prohibits paralegal contingency agreements, the prohibition lies in An Act Respecting Champerty, R.S.O. 1897, c. 327 (“Champerty Act”). This act has only two sections. The complete text is as follows:
Champertors be they that move pleas and suits, or cause to be moved, either by their own procurement, or by others, and sue them at their proper costs, for to have part of the land in variance, or part of the gains.
All champertous agreements are forbidden, and invalid.
[15] The Champerty Act is broadly worded. It governs champertous arrangements entered into by lawyers and by anyone else, including paralegals. The appellant argues that the contingency fee arrangement entered into with the respondent offends the Champerty Act and is, therefore, void. The respondent contends that while contingency fees may have been viewed as champertous at one time under the common law, the modern realities, particularly access to justice concerns, require that the court accept that contingency fees are not per se champertous.
[16] The leading authority in Ontario on the validity of contingency fees is the decision of O’Connor A.C.J.O. in McIntyre Estate v. Ontario (Attorney General) (2002), 61 O.R. (3d) 257 (C.A.). This case considered whether lawyers and their clients are prohibited by the law of champerty from entering into contingency fee agreements for civil law suits in Ontario. Although the case at bar involves a paralegal and not a lawyer, McIntyre informs the analysis of the application of the law of champerty to contingency fee agreements between paralegals and their clients.
[17] In McIntyre, at para. 46, O’Connor A.C.J.O. held that champerty as described in the Champerty Act, should be equated with champerty at common law. The common law definition of champerty required that an individual become involved in the litigation of another person for an improper motive and that the individual share in the profits of the litigation. O’Connor A.C.J.O. observed that the fundamental aim of the law of champerty has always been to protect the administration of justice from abuse (at paras. 26-32).
[18] O’Connor A.C.J.O. recognized that the common law had evolved over time so that the prohibition against champerty would continue to catch only conduct that interfered with the proper administration of justice (at para. 32). He quoted with approval Lord Mustill in Giles v. Thompson, [1993] 3 All E.R. 321 at 360:
As Steyn LJ has demonstrated, the law of maintenance and champerty has not stood still, but has accommodated itself to changing times: as indeed it must if it is to retain any useful purpose…. I believe that the law on maintenance and champerty can best be kept in forward motion by looking to its origins as a principle of public policy designed to protect the purity of justice and the interests of vulnerable litigants [emphasis added].
[19] O’Connor A.C.J.O. went on to acknowledge that the common law had traditionally regarded contingency fee arrangements between lawyers and clients as champertous per se (at para. 49). This per se rule reflected the view that the linking of a lawyer’s compensation to the result of litigation was sufficiently deleterious to the proper administration of justice so as to constitute irrefutable proof of the improper motive required to establish champerty (at paras. 51-2).
[20] O’Connor A.C.J.O. then turned to whether contingency fee arrangements between lawyers and clients should continue to be per se champertous. He questioned the assumptions underlying the common law position that such arrangements were automatically deleterious to the due administration of justice (at para. 53). He went on to demonstrate that those assumptions were no longer valid in Ontario. He said at paras. 70-1:
I am persuaded that the historic rationale for the absolute prohibition is no longer justified. The common law of champerty was developed to protect the administration of justice from abuse, one aspect of which involved the protection of litigants. Within that broad framework, the courts historically held that contingency fee arrangements were per se champertous. But, as examples from other jurisdictions amply demonstrate, the potential abuses that provided the rationale for the per se prohibition of contingency fee arrangements can be addressed by an appropriate regulatory scheme governing the conduct of lawyers and the amount of lawyers’ fees.
Currently, in Ontario, the Solicitors Act provides a comprehensive process for reviewing and assessing the reasonableness of lawyers’ accounts. The Rules of Professional Conduct contain a complete set of standards for regulating lawyers’ ethical behaviour and the complaints and discipline process of the Law Society of Upper Canada provides accessible means by which those standards can be enforced. While many of the jurisdictions that have enacted legislation permitting contingency fee agreements have enacted specific regulations to govern their use, I am satisfied that the basic regulatory framework necessary to address potential abuses in the use of contingency fee agreements is presently in place in Ontario [emphasis added].
[21] Having determined that the per se rule went beyond the purpose justifying the prohibition against champerty, O’Connor A.C.J.O. further held that some contingency fee arrangements will be champertous. That determination can only be made on a case-by-case basis and often only after the services covered by the contingency fee agreement have been provided. The reasonableness of the lawyer’s fee is a factor for the court to consider in assessing whether a contingency fee arrangement is champertous. As O’Connor A.C.J.O. stated (at para. 76):
When considering the propriety of the motive of a lawyer who enters into a contingency fee agreement, a court will be concerned with the nature and the amount of the fees to be paid to the lawyer in the event of success. One of the originating policies in forming the common law of champerty was the protection of vulnerable litigants. A fee agreement that so over-compensates a lawyer such that it is unreasonable or unfair to the client is an agreement with an improper purpose – i.e., taking advantage of the client.
[22] The decision in McIntyre made it possible for lawyers in Ontario to enter into reasonable contingency fee agreements with their clients. After McIntyre, the Legislature amended the Solicitors Act, R.S.O. 1990, c. S.15 to permit lawyers to charge contingency fees in particular areas. It also created regulations governing the formation of contingency fee arrangements. This legislation brought Ontario into line with the other provinces of Canada, which had permitted regulated contingency fee arrangements, in some provinces for as long as twenty-five years.
[23] The regulatory network applicable to lawyers, including the Rules of Professional Conduct and the detailed statutory provisions for the review of legal fees found in the Solicitors Act, played a central role in the holding in McIntyre that contingency fee arrangements between lawyers and clients should no longer be subject to an absolute prohibition. O’Connor A.C.J.O. was satisfied that this regulatory framework sufficiently addressed the potential abuses associated with contingency fee arrangements to reduce the risk to the administration of justice inherent in such arrangements to a level where those risks could be satisfactorily addressed with something less than an absolute prohibition against contingency fees. At the same time, the added access to justice flowing from contingency fee arrangements provided a real benefit to the administration of justice. In short, O’Connor A.C.J.O. held that the conduct of lawyers was sufficiently regulated to tip the benefit/risk analysis away from the absolute prohibition against contingency fees to a case-by-case determination of the lawfulness of contingency fee arrangements.
[24] Paralegals have an important role to play in increasing access to justice. The role of paralegals in increasing access to justice has been recognized in several reports on paralegal activity in Ontario: see A Framework for Regulating Paralegal Practice in Ontario (Toronto: Ontario Ministry of the Attorney General, 2000) (“Cory Report”) and Report of the Task Force on Paralegals (Toronto: Ontario Ministry of the Attorney General, 1990) (“Ianni Report”). Both the Cory Report and the Ianni Report comment that the majority of paralegals operate in an ethical, dedicated and professional manner. The Law Society has proposed that: “When lawyers are finally permitted to enter into contingent fee agreements and to incorporate a practice, licensed paralegals should then be permitted to do so as well, subject to all restrictions on doing so that will apply to lawyers”: An Analysis of A Framework for Regulating Paralegal Practice in Ontario (Toronto: Law Society of Upper Canada, 2000) at 12.
[25] The Government of Ontario has acknowledged the potential value of paralegals to the due administration of justice. It has also stated that paralegals should be regulated and has asked the Law Society of Upper Canada to accept the responsibility for that regulation. The Law Society agreed to take on this task and has forwarded draft regulations to the Ontario government. However, no such regulations have been put in place as of yet.
[26] Four factors may be suggested as providing some control over contingency fees charged by paralegals. They are:
• the Law Society’s ability to prosecute paralegals who engage in activities beyond those in which they are allowed to represent individuals;
• contract remedies such as a plea of unconscionability;
• the inherent power of the courts to control their own process; and
• the law of champerty.
[27] However, the Law Society’s power to prosecute paralegals who practice law without a licence does not provide any real protection against contingency fee arrangements. If the activity is one in which paralegals are allowed to provide legal representation, the Law Society has no power to challenge the propriety of any fee arrangement between the client and the paralegal. The Law Society can prosecute paralegals who practice law without a licence, but it cannot prosecute paralegals who enter into contingency fee agreements for payment of services that they are entitled to provide to clients.
[28] Contract remedies are available to an individual who has entered into a contingency fee agreement with a paralegal. But these remedies are limited and provide only after-the-fact protection. That protection also comes at the expense of further litigation, an expense that many who resort to contingency fee arrangements with paralegals cannot afford.
[29] The court’s inherent jurisdiction to control its own process may, and we stress may, give a court some power over a contingency fee agreement made in respect of proceedings before that court. That inherent jurisdiction cannot reach cases like this one where the individual retains a paralegal in relation to proceedings before an administrative body. At the very best, the inherent jurisdiction of the court offers a limited means of regulating some contingency fee agreements between paralegals and their clients.
[30] The fourth possible control, the law of champerty, suffers from the same shortcomings as the contractual remedies potentially available to the individual client. That client must go to court and litigate in order to obtain any relief.
[31] Evidently, these four factors do not come close to the kind of regulation described in McIntyre at para. 71 for controlling the conduct of lawyers. Significantly, the professional and ethical limitations imposed on lawyers provide prophylactic protection against unfair contingency fee arrangements, as does the power of the Law Society to regulate the kinds of fees that can be charged and the circumstances in which contingency fees can be charged. Paralegals are presently not subject to any before-the-fact regulation.
[32] Not only is there no regulation of paralegals equivalent to that applicable to lawyers, we think the need for regulation to avoid the abuses inherent in contingency fees may be more pressing in the case of paralegals. This is so not because paralegals are inherently less trustworthy than lawyers, but because many, if not most, individuals who retain paralegals are particularly vulnerable because of their social and/or economic circumstances. For example, paralegals figure prominently in the representation of immigrants and injured workers before various specialized tribunals. Unlike some of the paralegals who provide these services, the individuals who need the services may have little or no idea of the work involved in bringing a particular matter to resolution. Individuals retaining paralegals will often have no concept of the fair market value of the work provided by paralegals. Most of these individuals will also be in no position to assess the fairness of a proposed contingency fee arrangement. Contingency fee arrangements between paralegals and their clients will seldom reflect a bargain made by an informed consumer. Effective regulation of paralegals must be a prerequisite to contingency fee arrangements.
[33] Unless and until paralegals are brought within a regulatory scheme that permits oversight of the terms and conditions of contingency fee arrangements, the benefit/risk analysis favours maintaining the absolute prohibition against contingency fee agreements. We acknowledge that this conclusion must have some negative effect on the ability of individuals to gain access to justice. Absent contingency fees, some individuals who may have been represented by paralegals under a contingency fee agreement will be unrepresented. The net loss to public access to justice is inevitable, although the extent of that loss cannot be measured. We are convinced, however, that the appropriate response to this problem lies not in opening the door to unregulated contingency fee arrangements between paralegals and their clients, but in the enactment of long called for and anticipated legislation recognizing the valuable role of paralegals in the justice system and regulating that role.
Quantum Meruit and Illegal Contracts
[34] We now consider whether the respondent may recover on a quantum meruit basis for services provided under the contingency fee agreement that we have found unlawful. Quantum meruit is a quasi-contractual remedy. It allows a court to order payment of the reasonable value of services to a service provider when the contract under which the services were provided does not state a price for those services or when that contract cannot be enforced. Courts have traditionally refused to grant quantum meruit in cases in which the contract was illegal, rather than merely unenforceable.
[35] The principle barring relief for benefits conferred in performance of an illegal contract was first stated in Holman v. Johnson (1775), 98 E.R. 1120, where Lord Mansfield stated at 1121:
The objection, that a contract is immoral or illegal as between plaintiff and defendant, sounds at all times very ill in the mouth of the defendant. It is not for his sake, however, that the objection is ever allowed; but it is founded in general principles of policy, which the defendant has the advantage of, contrary to the real justice, as between him and the plaintiff, by accident, if I may say so. The principle of public policy is this…No court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act [emphasis added].
On the facts in Holman v. Johnson, Lord Mansfield concluded that the plaintiff had not committed a crime and was entitled to recovery.
[36] This principle was intended as a flexible principle, as Robertson J. commented in Still v. Minister of National Revenue (1997), 154 D.L.R. (4th) 229 (F.C.A.) at para. 15. However, in the more than two centuries since Holman v. Johnson was decided, the principle appears to have been applied in a rigid, categorical fashion. This absolute application has often been criticized because the refusal of the courts to permit restitutionary relief in a situation governed by an illegal contract may result in a prima facie injustice: see, for example, Peter D. Maddaugh and John D. McCamus, The Law of Restitution, looseleaf (Aurora: Canada Law Book Inc., 2004) at 15:100, 15:700. The result has been that a person who performed a service, unaware that the contract governing that service was illegal, would not be compensated for services provided in good faith.
[37] The trial court judge in McIntyre Estate v. Ontario (Attorney General) (2000), 53 O.R. (3d) 137 reviewed the traditional position at common law that restitutionary relief is not available where a contract is found unenforceable by reason of illegality. Wilson J. observed that a finding that a contingency fee agreement is champertous could result in a windfall to the recipient of the contingency fee services. Cullity J. made a similar observation in Robinson v. Cooney, [1999] O.J. No. 1341 (Sup. C.J.). He cited the traditional law that champertous agreements are sufficiently illegal “as to preclude recovery on the basis of a quantum meruit for the value of services rendered” (at para. 22). He also recognized that the courts should examine the traditional bar against quantum meruit in terms of the policy justifying it to see if quantum meruit recovery made more sense in the modern context than a bar against it (at para. 23). Cullity J. declined to engage in such an examination because the policy considerations had not been fully argued before him.
[38] Other judicial decisions have engaged in such an examination and have suggested that an absolute bar against quantum meruit recovery where an agreement is found to be illegal lacks coherence and is no longer justified in principle. For example, in Still, supra, Robertson J. stated at para. 46:
Professor Waddams suggests that where a statute prohibits the formation of a contract the courts should be free to decide the consequences (at 372) [S.M. Waddams, The Law of Contracts, 3rd ed. (Toronto: Carswell, 1993)]. I agree. If legislatures do not wish to spell out in detail the contractual consequences flowing from a breach of a statutory prohibition, and are content to impose only a penalty or administrative sanction, then it is entirely within a court’s jurisdiction to determine, in effect, whether other sanctions should be imposed. As the doctrine of illegality is not a creature of statute, but of judicial creation, it is incumbent on the present judiciary to ensure that its premises accord with contemporary values.
[39] In Berne Development Ltd. v. Haviland (1983), 40 O.R. (2d) 238 (H.C.J.), Saunders J. criticized the absolute bar. In that case, the parties structured an agreement specifically to mislead a third party. Saunders J. stated that the need to preserve public policy by not enforcing illegal agreements must be balanced with the need to prevent unjust enrichment. He commented that the illegal action in the case did not demonstrate “moral turpitude of such a magnitude as to call for the severe consequence of depriving the vendor of the balance of the purchase price to the benefit of the purchaser” (at para. 43). In that case, the illegal conduct did not preclude the plaintiff from obtaining some relief. In coming to this conclusion, Saunders J. referred to Steinberg v. Cohen, [1930] 2 D.L.R. 916 at 928 (Ont. C.A.), where Masten J.A. stated rather presciently, “It is possible that each case should depend upon its own facts, and upon balancing by the Court of the public interest on the one hand and of the private injustice on the other”.
[40] In this appeal, several factors demonstrate that an absolute bar on quantum meruit recovery creates an injustice that is unacceptable when considered in light of the public policy informing the statutory prohibition against champertous agreements. As noted, that policy is to protect the administration of justice from abuse. In the case before us, the contingency fee agreement was created in fair circumstances, as both parties were fully aware of what they bargained for. Any imbalance of power was remedied by giving the potentially vulnerable party time to consult with others. There is no evidence to suggest that the respondent engaged in sharp or dishonest practice in advancing the appellant’s claim, nor that the respondent was in a conflict of interest with the appellant. To employ Saunders J.’s phrase in Berne Development, supra, there is not sufficient “moral turpitude” to justify denying the respondent any payment whatsoever for the work that was performed. In this regard, it is significant that it is not suggested that the respondent knew that a paralegal contingency fee agreement was illegal. To the contrary, it seems that contingency fee agreements were an accepted practice. We therefore conclude that the principle of quantum meruit can be applied in the circumstances.
What is a reasonable fee for the services Tri Level performed?
[41] The appellant argued that Tri Level expended, at most, thirteen hours of work on the matter, which was not disputed by the respondent. This court is not in a position to express an opinion as to an appropriate hourly fee for a paralegal. However, we are prepared to apply a generous view of the value of the assistance provided to the appellant and conclude that the sum of $1,300 would be reasonable compensation on a quantum meruit basis.
Conclusion
[42] The decision of the Divisional Court is set aside and the amount awarded in the judgment of Fisher D.J. is reduced to the sum of $1,300.
Costs
[43] As success has been divided between the parties and as the appeal raised an important and novel issue of law, there will be no order of costs.
RELEASED: “AUG 12 2005” “DD:
“R.R. McMurtry C.J.O.” ”Doherty J.A.” ”H.S. LaForme J.A.”