COURT OF APPEAL FOR ONTARIO

CITATION: Henricks-Hunter v. 814888 Ontario Inc. (Phoenix Concert Theatre), 2012 ONCA 496

DATE: 20120712

DOCKET: C54982

O’Connor A.C.J.O., MacPherson and Rouleau JJ.A.

BETWEEN

Stephanie Marie Henricks-Hunter, by her litigation guardian, the Office of the Public Guardian and Trustee, Britney Starr Henricks, by her litigation guardian, Michael Alberts Henricks, Arianna Monique Hunter, a minor by her litigation guardian, Atley Hunter, Michael Albert Henricks, Cecilia Delprima Henricks and Michael Edward Henricks

Plaintiff (Respondent)

and

814888 Ontario Inc., carrying on business as Phoenix Concert Theatre and Sherbourne Community Clinic Inc.

Defendants

J.G. Hodder, for the appellant, Howie Sacks and Henry LLP

No one appearing for the respondent, Stephanie Marie Henricks-Hunter

Heard: July 6, 2012

On appeal from the order of Justice John C. Wilkins of the Superior Court of Justice, dated January 23, 2012.

By the Court:

[1] The appellant, Howie Sacks and Henry LLP, is the law firm that acted for the respondent, Stephanie Marie Henricks-Hunter, in this action. The appellant was appointed by Stephanie’s litigation guardian, the office of the Public Guardian and Trustee (PGT). The appeal is from the motion judge’s order fixing the fees that the appellant can charge to Stephanie at $325,000 including HST, plus disbursements of $46,831.27, for a total of $371,831.27. The appellant originally sought to recover a total of $516,536.92 from Stephanie in accordance with a contingency fee agreement (the CFA) that it negotiated with the PGT.

BACKGROUND

[2] Stephanie and several family law claimants brought the within action as a result of the serious injuries suffered by Stephanie when she fell from a catwalk while attending a concert at the premises of the defendant Phoenix Concert Theatre. The accident occurred when Stephanie leaned back against what she thought was a railing from which an advertisement banner was hanging. There were, however, no vertical stiles in that area between the railing and the floor. As a result, when Stephanie leaned back she fell through the banner down to the floor below. She sustained serious personal injuries including a severe traumatic brain injury.

[3] A capacity assessment was conducted in February 2006. The assessment showed that Stephanie was incapable of managing property. Since all of Stephanie’s family over the age of majority resided in the United States of America, the PGT became her guardian of property by default pursuant to s. 16 of the Substitute Decisions Act, 1992, S.O. 1992, c. 30.

[4] On March 2, 2006, the PGT entered into a CFA with the appellant on Stephanie’s behalf. Pursuant to that agreement, the appellant agreed to defer rendering an account to Stephanie for disbursements or legal fees until a successful conclusion of her action. The CFA also provided that the appellant would receive fees equal to 25 per cent of any judgment or settlement up to $2.5 million and 20 per cent of any judgment or settlement in excess of that amount. The agreement further provided that Stephanie would recover any partial indemnity costs awarded and any amount attributed to costs in any settlement or judgment would be excluded from the application of the CFA. Finally, the appellant was to receive 100 per cent of all out-of-pocket expenses and disbursements.

[5] The action was commenced on July 26, 2006. Phoenix contested liability on the basis that Stephanie was responsible for her injuries. The defendant, Sherbourne Community Clinic Inc., was the owner of the land, but had no involvement as it had leased the premises to Phoenix. Sherbourne denied any liability, claiming that it did not have care or control over the premises.

[6] The claim was settled in October 2009 at mediation without the need for a trial. The gross settlement amount was $2,050,000. This represented a net recovery to the plaintiffs of approximately 20 per cent of the value of their claims. The appellant was of the view that the case on liability against Phoenix was very good. However, the appellant believed that the claim against Sherbourne would probably fail given the lack of evidence and weak legal basis for it.

[7] The liability insurance carried by Phoenix had limits of $2 million. The appellant recommended that Stephanie accept the settlement offer. The PGT also recommended acceptance of the settlement, and took no position on the amount of fees being requested other than to confirm that they accurately reflected the amount produced by applying the CFA to the settlement. The PGT has not appeared and takes no position on this appeal.

ISSUES

[8] On appeal, the appellant makes two principal submissions:

1. The motion judge erred in failing to consider whether the CFA was fair and reasonable in accordance with the two-part test set out in s. 24 of the Solicitors Act, R.S.O. 1990, c. S.15.

2. In the alternative, if the two-part test does not apply to persons under a disability, then the motion judge’s reasons are inadequate and he failed to consider the relevant factors in arriving at an appropriate fee.

[9] For the reasons that follow, the appeal should be allowed and the matter remitted to a motion judge to determine whether, after applying the analysis set out in Raphael Partners v. Lam (2002), 2002 CanLII 45078 (ON CA), 61 O.R. (3d) 417 (C.A.), the CFA ought to be cancelled and the fees assessed in the ordinary manner.

ANALYSIS

[10] The appellant argues that the CFA negotiated with the PGT is a fee agreement that can be enforced and that s. 24 of the Solicitors Act applies. Section 24 provides that a court may enforce a fee agreement if it is “in all respects fair and reasonable between the parties”. The appellant relies on this court’s decision in Raphael for the approach that is to be taken by a court determining whether a contingency fee agreement is fair and reasonable and ought to be enforced.

[11] The reasons of the motion judge on the approval of the settlement and the setting of the appellant’s fees are quite short. On the first appearance, on January 13, 2012, the motion judge indicated that the materials submitted in support of the requested $516,536.92 in fees were inadequate. He stated that “the full amount of docketed time, disbursements and taxes should be shown in a separate table and explain extra undocketed work.”

[12] On January 23, 2012, after additional materials were filed, the matter returned to the motion judge. The motion judge approved the settlement amount of $2,050,000. On the issue of fees, he started his analysis by stating that “the solicitor entered into an agreement as to how they would be compensated which does not bind Stephanie or the court” (emphasis added). The motion judge made no further mention of the CFA.

[13] 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.

[14] 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.

[15] When a solicitor seeks to enter into an enforceable contingency fee agreement with a party under a disability, the solicitor must comply with the regulations passed pursuant to the Solicitors Act. Section 5(1) of O. Reg. 195/04 provides that:

5. (1) A solicitor for a person under disability represented by a litigation guardian with whom the solicitor is entering into a contingency fee agreement shall,

(a) apply to a judge for approval of the agreement before the agreement is finalized; or

(b) include the agreement as part of the motion or application for approval of a settlement or a consent judgment under rule 7.08 of the Rules of Civil Procedure.

[16] Therefore, the solicitor can choose to have the agreement approved by the court before it is finalized with the PGT. If a contingency fee agreement is approved by the court before being finalized, the fairness of the agreement is no longer an issue.

[17] Alternatively, the agreement can be finalized and presented on a motion or application for approval of a settlement under rule 7.08 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. Upon hearing a rule 7.08 motion or application, the judge cannot simply disregard a finalized contingency fee agreement. Rather, the motion judge must assess both the fairness and reasonableness of the agreement. If the agreement is fair and reasonable, the motion judge may give effect to it.

[18] In the present case, the appellant did not apply for the approval of a judge before finalizing the CFA. Thus, the motion judge had to treat the CFA as an agreement that the appellant was seeking to enforce. Both the fairness and the reasonableness of the CFA ought to have been assessed.

[19] We turn now to that assessment.

Fairness

[20] In addressing the issue of fairness, Raphael provides, at para. 37, that “the solicitor bears the onus of satisfying the court that the way in which the agreement was obtained was fair”. The fairness requirement “is concerned with the circumstances surrounding the making of the agreement and whether the client fully understands and appreciates the nature of the agreement that he or she executed” (Raphael,at para. 37). As noted above, the fairness of the agreement is determined as of the date the agreement was entered into.

[21] In the present case, the CFA was negotiated with the PGT. It is apparent from the materials filed by the PGT and the appellant that the CFA was fair when it was negotiated. We note, in particular, that when it was negotiated there was considerable uncertainty as to the likely success of the claim and the extent of the investment that would be required of the solicitors to bring the action to a favourable conclusion. Thus, in our view the CFA was fair.

Reasonableness

[22] The test for reasonableness was set out in Raphael, at para. 50. The factors to be considered are:

(a) the time expended by the solicitor;

(b) the legal complexity of the matter at issue;

(c) the results achieved; and

(d) the risk assumed by the solicitor.

[23] Assessing the reasonableness of a contingency fee agreement in a matter as complex as the one in issue in this case is more difficult and nuanced than assessing the fairness of the agreement. In our view, this court is not well placed to carry out that review. On the appeal the appellant made virtually no submissions on the issue of reasonableness of the CFA, and the court is faced with the substantial record of what was before the motion judge on the approval motion.

[24] If a judge faced with a contingency fee agreement calls into question the fairness or reasonableness of the agreement, the judge should normally raise the issues with the solicitors and seek their submissions. In the present case, no issues were raised by the motion judge; no doubt because he considered that the CFA was not binding.

[25] In our view, it would also be incumbent upon the PGT to raise any concerns as to the fairness and reasonableness of a fee agreement. The failure by the PGT to raise any such concerns ought to be given substantial weight.

CONCLUSION

[26] The appeal is allowed and the matter is remitted to a motion judge for determination of the reasonableness of the CFA in accordance with these reasons. If, upon remittal, the motion judge has concerns with respect to the reasonableness of the fee agreement, those should be raised with the appellant and the appellant should be given an opportunity to respond.

D. O’Connor A.C.J.O.

J.C. MacPherson J.A.

Paul Rouleau J.A.

Released: July 12, 2012