Jackson v. Stephen Durbin and Associates

Citation: 142 O.R. (3d) 379 | 2018 ONCA 424

Court: Court of Appeal for Ontario

Judges: Benotto, D.M. Brown and B.W. Miller JJ.A.

Date: May 4, 2018

Case Summary

Professions — Barristers and solicitors — Fees — Contingency fee — "Results achieved fee" charged by law firm in family law matter constituting contingency fee which was prohibited under s. 28.1(3) of Solicitors Act — Solicitors Act, R.S.O. 1990, c. S.15, s. 28.1(3)(b).

The appellant law firm's retainer in a family law matter provided for "an increase in fees in the event of a positive result achieved (a 'Results Achieved Fee')". The respondent client was awarded sole custody of his child, half the proceeds of the matrimonial home and costs. The appellant unilaterally deducted a results achieved fee from the moneys paid to it in trust. The respondent objected. The application judge found that the results achieved fee was a contingency fee agreement as defined in the Solicitors Act and therefore prohibited under s. 28.1(3)(b) of the Act. The appellant appealed, arguing that the results achieved fee was not a contingency fee agreement as, under the retainer agreement, the respondent was liable to pay the appellant's fees regardless of the outcome of the trial and as the results achieved fee was linked to success at trial, not the specific monetary result.

Held: The appeal should be dismissed.

The appellant's position was outdated and did not accord with the current provisions of the Act. The Act was amended in 2004 to include the phrase "contingent, in whole or in part" on a successful outcome. The legislature's inclusion of the phrase "or in part" must be given real meaning and must not be interpreted to render it mere surplusage. Moreover, s. 28.1(2) stipulates that remuneration must be "contingent" on the "successful disposition or completion of the matter". It does not specify that the lawyer's fees must be tied to -- or "contingent" on -- the specific monetary result. A contingency fee agreement under the Act is one in which any part of a lawyer's compensation is dependent on the successful disposition or completion of the matter for which the lawyer was retained. A premium or bonus added on to a lawyer's fee is captured by the meaning of contingency fee agreement and is prohibited by s. 28.1(3)(b).

Appeal from Lower Court

APPEAL from the judgment of Lofchik J., [2017] O.J. No. 4754, 2017 ONSC 5396 (S.C.J.).

Counsel:

• Sean Dewart and Shoshana Bentley-Jacobs, for appellant
• Michael G. Cochrane, for respondent

The judgment of the court was delivered by

Judgment

[1] Introduction

BENOTTO J.A.: — The sole issue in this appeal is whether a "results achieved fee" charged by the appellant law firm in a family law matter is a prohibited contingency fee agreement under the Solicitors Act, R.S.O. 1990, c. S.15 (the "Act"). I have concluded that the fee is a contingency fee agreement within the meaning of the Act and is thus prohibited.

Background

(1) Facts

[2] Retainer Agreement

The respondent retained the appellant, Stephen Durbin and Associates, to represent him in family law litigation. The primary issue was the custody of the respondent's six-year-old daughter.

[3] Terms of Retainer

The respondent signed a retainer agreement outlining hourly rates, daily fees for court appearances and an automatic yearly increase of 15 per cent with respect to those fees. The retainer agreement also provided for "an increase in fees in the event of a positive result achieved (a 'Results Achieved Fee')".

[4] Client's Financial Situation

The respondent was a police officer, then earning about $96,000 per year. He depleted his retainer funds of $10,000 and began accruing arrears. He signed a direction that any funds payable to him from the litigation would be paid to the appellant in trust and the appellant would deduct outstanding fees from those funds.

[5] Trial Outcome and Trust Funds

After a lengthy trial, the respondent was awarded sole custody of the child, half of the proceeds of sale of the matrimonial home and costs of $192,000. The funds were all payable to the appellant pursuant to the direction. The appellant received $423,510.47 in trust representing the respondent's share of the proceeds of sale from the matrimonial home plus the costs award.

[6] Unilateral Deduction of Results Achieved Fee

The appellant deducted $132,597.74 from the trust to satisfy the outstanding account. The appellant also unilaterally deducted a Results Achieved Fee of $72,433.24. It is unclear on the record how the appellant arrived at this amount.

[7] Assessment and Objection

The respondent did not object to the deduction of fees to satisfy the outstanding account. He did, however, object to the results achieved fee. He sought to have it assessed, but the assessment officer concluded that a judge would have to decide the matter as a question of law.

[8] Application Judge's Decision

The application judge determined that the results achieved fee is a contingency fee agreement as defined by the Act, and thus is a prohibited charge.

(2) Statutory Context

[9] Relevant Statutory Provisions

The Act provides:

Purchase of interest prohibited

28. A solicitor shall not enter into an agreement by which the solicitor purchases all or part of a client's interest in the action or other contentious proceeding that the solicitor is to bring or maintain on the client's behalf.

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,

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

(b) a family law matter.

Parties' Positions

[10] Appellant's Arguments

The appellant submits that the results achieved fee is not a contingency fee agreement, but rather a permissible "premium" or "bonus". It points to two features that it claims distinguish the two.

[11] First Argument: Liability Regardless of Outcome

First, under the retainer agreement, the respondent was liable to pay the appellant's fees regardless of the outcome at trial. The appellant argues that contingency fee agreements are limited to those wherein the lawyer only receives compensation for a successful result.

[12] Second Argument: Not Tied to Monetary Result

Second, the results achieved fee was linked to success at trial, not the specific monetary result. The appellant argues that the public policy concerns that give rise to the prohibition against contingency fee agreements in family law matters do not arise where the lawyer's fee is not tied to a fixed portion of the monetary result.

[13] Reliance on Teplitsky

The appellant relies on a series of civil law cases, including Teplitsky, Colson v. McCrea, [2008] O.J. No. 6014 (S.C.J.). There, the client's fee arrangement in an employment matter provided it would be augmented to include a percentage of the recovery that exceeded a certain offer to settle. In determining whether this constituted a contingency fee agreement, Strathy J. (as he then was) distinguished between a "bonus" in the event of success and a contingency fee agreement. At paras. 77-78, he stated:

There has been no authority cited to me . . . other than the statute itself, for the interpretation of Section 28 to apply to agreements which are not in and of themselves conditional on success, but which contain a bonus in the event of success. This agreement provided for a fee in any event, but a bonus calculated on a percentage basis in the event of success. Nor is any authority cited for the proposition that it is the charging of a percentage that makes the agreement objectionable.

While contingency fee agreements are frequently based on a percentage, the calculation of a part of the lawyer's compensation by reference to a percentage, does not make the agreement bad as a contingency fee agreement.

[14] Reliance on Warnica

The appellant also relies on Warnica v. Van Moorlehem, [2012] O.J. No. 3340, 2012 ONSC 4241 (S.C.J.), in which clients agreed to pay an amount [at para. 10] "equal to 30% of the amount recovered in the action brought on their behalf". Relying on Teplitsky, Quigley J. rejected that the mere payment of percentage-based remuneration renders an agreement a contingency fee agreement. He stated, at para. 33:

So the question is, just what is a contingency agreement? Is every agreement involving the payment of percentage-based remuneration to the solicitor, based upon the amount received in damages at the end of a trial or settlement negotiation a contingency fee agreement? Clearly the answer is no. Regardless of whether percentage compensation may be paid in whole or in part, the only fee arrangements which will fall within the definition are those embraced by section 28 of the Solicitors Act where the solicitor effectively purchases all or part of the client's interest and potential success in the action. The mere calculation of a part of a lawyer's compensation by reference to a percentage does not necessarily makes the agreement bad as a contingency fee agreement, and thus require the protections enacted in the statute and the Regulations.

[15] Warnica's Conclusion

Justice Quigley concluded that the agreement at issue was a contingency fee agreement since, under the plain terms of the agreement, the solicitor would receive no fees for his services unless an amount was recovered.

[16] Respondent's Position

The respondent takes the position that the application judge was correct in finding that the results achieved fee was a contingency fee agreement in contravention of the Act.

Analysis

(1) Overview

[17] Outdated Position

As I will explain, the appellant's position is outdated and does not accord with the current provisions of the Act. The Act was amended in 2004 to include the phrase "contingent, in whole or in part" on a successful outcome. Consequently, a premium or bonus added on to a lawyer's fee is captured by the meaning of contingency fee agreement and is thus prohibited by s. 28.1(3)(b).

[18] Approach to Analysis

To demonstrate the meaning of a contingency fee agreement, I first consider the plain and ordinary meaning of the words in the Act; I then consider the broader statutory context. I conclude that a contingency fee agreement is an agreement under which any part of a lawyer's compensation is tied to the successful resolution of the matter for which the lawyer was retained. Accordingly, the results achieved fee is a contingency fee agreement and is prohibited by the Act.

(2) Standard of Review

[19] Question of Law

The interpretation of the term, "contingency fee agreement", under the Act is a question of law, reviewable on a correctness standard: Housen v. Nikolaisen, [2002] 2 S.C.R. 235, [2002] S.C.J. No. 31, 2002 SCC 33, at para. 8.

[20] Mixed Fact and Law

Whether the results achieved fee constitutes a contingency fee agreement is a question of mixed fact and law. The application judge's conclusion on this point is entitled to deference absent an extricable error in principle or palpable and overriding error: Housen, at para. 36.

(3) The Meaning of a Contingency Fee Agreement

[21] Historical Description

In the past, this court and others have described contingency fee agreements as those in which a lawyer's fees are entirely dependent upon success. Specifically, in McIntyre Estate v. Ontario (Attorney General) (2002), 61 O.R. (3d) 257, [2002] O.J. No. 3417 (C.A.), O'Connor A.C.J.O. stated, at para. 1:

Contingency fee agreements may take a variety of forms, but the one element common to all of them is that the client only becomes liable to pay the lawyer's fees in the event of success in the litigation.

[22] Predated Statutory Provisions

However, this description predated the statutory provisions at issue. At the time of McIntyre, the Act (as discussed below) was significantly different.

[23] Change in Statutory Language

The change in the Act to include "in whole or in part" appears to have gone unnoticed by lower court decisions after McIntyre, and renders Teplitsky and Warnica inapplicable.

[24] Current Wording

Thus, I interpret the meaning of a contingency fee agreement in light of the current wording of the Act.

(a) Principles of Statutory Interpretation

[25] Modern Approach

The modern approach to statutory interpretation is well established. The words of an act or provision "are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament": Rizzo & Rizzo Shoes Ltd. (Re) (1998), 36 O.R. (3d) 418, [1998] 1 S.C.R. 27, [1998] S.C.J. No. 2, at para. 21, quoting E.A. Driedger, Construction of Statutes, 2nd ed. (Toronto: Butterworth-Heinemann, 1983), at p. 87; and Bell ExpressVu Limited Partnership v. Rex, [2002] 2 S.C.R. 559, [2002] S.C.J. No. 43, 2002 SCC 42, at para. 26.

[26] Presumptions Against Absurdity

It is presumed that the legislature does not intend to produce absurd consequences, such as rendering some aspect of a statute pointless or futile: Rizzo, at para. 27. It is further presumed "that the legislature avoids superfluous or meaningless words" and "does not . . . speak in vain": British Columbia Human Rights Tribunal v. Schrenk, [2017] 2 S.C.R. 795, [2017] S.C.J. No. 62, 2017 SCC 62, at para. 45, quoting Ruth Sullivan, Sullivan on the Construction of Statutes, 6th ed. (Markham, Ont.: LexisNexis, 2014), at para. 8.23.

(b) The Grammatical and Ordinary Meaning

[27] Statutory Definition

Section 15 of the Act defines a contingency fee agreement as "an agreement referred to in section 28.1". Section 28.1(2), reproduced in its entirety above, describes a contingency fee agreement as one that provides the remuneration paid to a solicitor for legal services is contingent in whole or in part on the successful disposition or completion of the matter for which the services were provided.

[28] Observations on Grammatical Meaning

I make several observations regarding the grammatical and ordinary meaning of the words in this provision.

[29] Not All Remuneration Need Be Contingent

First, all of the lawyer's remuneration need not be contingent on success. Section 28.1(2) explicitly captures agreements where only "part" of a lawyer's remuneration is contingent.

[30] "In Whole or In Part" Must Have Real Meaning

Second, the legislature's inclusion of the language "in whole or in part" (emphasis added) must be given real meaning and must not be "interpreted so as to render it mere surplusage": R. v. Proulx, [2000] 1 S.C.R. 61, [2000] S.C.J. No. 6, 2000 SCC 5, at para. 28. This clear legislative language provides reason to depart from this court's statement in McIntyre.

[31] Not Limited to Monetary Results

Lastly, s. 28.1(2) stipulates that remuneration must be "contingent" on the "successful disposition or completion of the matter". It does not specify that the lawyer's fees must be tied to -- or "contingent" on -- the specific monetary result. It is broader in scope.

[32] Grammatical Meaning Does Not Support Appellant's Limitations

Based on these observations, the grammatical and ordinary wording of the relevant provisions does not support limiting contingency fee agreements to those in which (i) a lawyer's fees are only payable in the event of success; and/or (ii) a lawyer's fees are calculated by reference to the specific monetary result -- as urged by the appellant.

[33] Broader Context

Nor does the broader context support such an interpretation.

(c) The Entire Context

(i) The History of s. 28

[34] Appellant's Argument Regarding s. 28

The appellant argues that the application judge failed to consider whether the appellant had purchased all or part of the respondent's interest in the action pursuant to s. 28 of the Act. It claims that this was a necessary analysis, since contingency fee agreements permitted by s. 28.1(2) are those referred to in s. 28.

[35] Interpretation in Teplitsky and Warnica

This interpretation is consistent with the line of analysis adopted in Teplitsky and Warnica. For example, in Warnica, Quigley J. described s. 28.1 as "the exception to the antecedent stipulation" in s. 28 (at para. 29) and held, at para. 33:

[T]he only fee arrangements which will fall within the definition [of a contingency agreement] are those embraced by section 28 of the Solicitors Act where the solicitor effectively purchases all or part of the client's interest and potential success in the action.

[36] Disagreement with Appellant's Interpretation

With respect, I do not agree that s. 28 defines or limits contingency fee agreements in this manner, nor acts as a necessary antecedent. For one thing, this interpretation is contrary to the express language of s. 15, which defines contingency fee agreements as those referred to in s. 28.1 (not s. 28). More importantly, this interpretation overlooks the context of ss. 28 and 28.1 and how they have developed.

[37] Historical Context: Champerty

Historically, courts in Ontario held that lawyers' contingency fee agreements were champertous and unenforceable: McIntyre, at para. 49. As this court explained in McIntyre, at para. 26, champerty at common law was directed at:

[T]hose who, for an improper motive, often described as wanton or officious intermeddling, become involved with disputes (litigation) of others in which the maintainer has no interest whatsoever and where the assistance he or she renders to one or the other parties is without justification or excuse . . . [and] the maintainer shares in the profits of the litigation.

[38] The Champerty Act

In 1897, the Ontario legislature enacted An Act Respecting Champerty, R.S.O. 1897, c. 327 (the "Champerty Act"), codifying that "All champertous agreements are forbidden, and invalid."

[39] Shift in Attitude and 2004 Amendments

Over time, rising litigation costs and concerns about access to justice resulted in a shift in attitude towards contingency fee agreements: McIntyre, at para. 55. In 2004, the legislature amended the Act to permit contingency fees in certain circumstances pursuant to s. 28.1.

[40] Distinct Prohibitions

While contingency fee agreements are now permitted, the champertous purchase of a client's interest in litigation remains prohibited and the Champerty Act remains in effect. Section 28 relates to this separate and distinct prohibition.

[41] Legislative Evolution of s. 28

The distinctness of s. 28 from s. 28.1 is evident from the legislative evolution of s. 28. Prior to the 2004 amendments, s. 28 read as follows:

28. Nothing . . . gives validity to a purchase by a solicitor of the interest or any part of the interest of his or her client in any action or other contentious proceeding to be brought or maintained, or gives validity to an agreement by which a solicitor retained or employed to prosecute an action or proceeding stipulates for payment only in the event of success in the action or proceeding, or where the amount to be paid to him or her is a percentage of the amount or value of the property recovered or preserved or otherwise determinable by such amount or value or dependent upon the result of the action or proceeding.

(Emphasis added)

[42] 2004 Amendments Removed Contingency Fee References

In 2004, the legislature removed the reference in s. 28 to agreements stipulating for payment in the event of success, tied to a percentage of recovery, determinable by the amount recovered or dependent on the result of the action. These are contingency fee agreements now permitted in accordance with s. 28.1.

[43] Legislature's Differing Treatment

However, the legislature left the reference to the purchase of a client's interest in an action. To interpret s. 28 as an antecedent to s. 28.1, wherein agreements must be captured by s. 28 to trigger s. 28.1, would render the legislature's differing treatment of the old elements of s. 28 "pointless", contrary to the principles of statutory interpretation.

(ii) Policy Concerns

[44] Public Policy in Family Law

I do not accept the appellant's submission that the public policy concerns regarding contingency fee agreements in family law matters do not apply where the agreement is contingent only on success, and not tied to a specific monetary result.

[45] Unique Aspects of Family Law

Family law litigation is fundamentally different from civil litigation. One of the unique aspects of family law is that monetary recovery does not occur in the same way in family law litigation as it does in civil litigation. Instead, the family finances -- which are depleted daily by litigation costs -- are divided. No outside funds are injected into the recovery. In these circumstances, it is inappropriate for a lawyer's fee to be contingent on the monetary result.

[46] Emphasis on Resolution and Mediation

It is also inappropriate for a lawyer's fees to be contingent on success. In family law litigation, the emphasis is "on resolution, mediation and ways to save time and expense in proportion to the complexity of the issues": Frick v. Frick (2016), 132 O.R. (3d) 321, [2016] O.J. No. 5625, 2016 ONCA 799, at para. 11. A fee based on success risks detracting from, and indeed undermining, this emphasis.

[47] Custody Determinations

When the primary issue is custody, a fee based in whole or in part on results achieved is even less appropriate. There are no "winners" and "losers". A custody decision by the court involves a determination of a child's best interests. It cannot be scrutinized to determine which parent had the more "successful disposition".

[48] Legislative Exclusion on Public Policy Grounds

The legislature excluded family law matters from contingency fee agreements on public policy grounds under s. 28.1(3)(b) of the Act. There is no reason to limit that exclusion to only agreements tied to monetary results.

(d) Conclusion

[49] Definition of Contingency Fee Agreement

A contingency fee agreement under the Act is one in which any part of a lawyer's compensation is dependent on the successful disposition or completion of the matter for which the lawyer was retained.

(4) Is the Results Achieved Fee a Contingency Fee?

[50] Application to Facts

The appellant's retainer agreement provided that, in addition to hourly rates and daily counsel fees, the respondent would be charged "an increase in fees in the event of a positive result achieved", defined as the results achieved fee. This results achieved fee -- part of the appellant's remuneration -- was based on a positive result achieved -- i.e., the successful disposition of the matter.

[51] Conclusion on Results Achieved Fee

Accordingly, the results achieved fee is a contingency fee agreement per the Act and is prohibited.

Conclusion

[52] Disposition

The appeal is dismissed with costs payable to the respondent in the agreed upon amount of $9,000, inclusive of disbursements and HST.

Appeal dismissed.

Notes

1 It appears that the wording change was not brought to the attention of the court in either case.

End of Document