Court File and Parties

COURT OF APPEAL FOR ONTARIO DATE: 20210126 DOCKET: C67269

Doherty, Hoy and Jamal JJ.A.

BETWEEN

David Lima Applicant (Respondent/Appellant in Cross-Appeal)

and

Alfred M. Kwinter, Alfred Kwinter Professional Corporation and 1736314 Ontario Inc. carrying on business as Singer Kwinter Respondents (Appellants/Respondents in Cross-Appeal)

Counsel: Chris G. Paliare and Lauren Pearce, for the appellants/respondents in cross-appeal Peter I. Waldmann, for the respondent/appellant in cross-appeal

Heard: In writing (submitted to a panel on September 17, 2020)

On appeal from the judgment of Justice Cynthia Petersen of the Superior Court of Justice, dated July 3, 2019 with reasons reported at 2019 ONSC 4064.

Doherty J.A.:

I

[1] This is an appeal brought by the law firm, Singer Kwinter (“SK”), and a cross-appeal brought by their former client, Mr. David Lima. SK represented Mr. Lima in an action brought against his insurer and his insurance broker. The appeal and cross-appeal are from an assessment of SK’s fees. That assessment proceeded by way of an application before a Superior Court judge. In addition to appealing the assessment, both SK and Mr. Lima also seek leave to appeal the costs order made by the application judge.

[2] I would allow SK’s appeal, but only to the extent of eliminating the application judge’s recalculation of the disbursements to account for what she believed to be a double-counting of certain disbursements. I would dismiss Mr. Lima’s appeal from the assessment.

[3] I would dismiss SK’s application for leave to appeal the costs ordered on the application. I would grant Mr. Lima leave to appeal, allow the appeal and vary the costs order in his favour to $20,000.

II

Background Facts

[4] Mr. Lima’s home and other buildings on his property burned down in February 2011. Investigation revealed the fire was deliberately set. Mr. Lima’s insurer suspected him.

[5] In the summer of 2011, frustrated with the progress of his insurance claim, Mr. Lima decided to retain SK. [1] SK, a well-known plaintiffs’ litigation firm, has enjoyed considerable success taking lawsuits to trial against insurers who have denied coverage on fire insurance policies and alleged arson.

[6] Mr. Lima could not fund what was potentially long, complicated and expensive litigation on an ongoing basis. He and SK negotiated a contingency fee agreement (“CFA”). SK initially proposed a fee equal to one-third of all monies ultimately paid by any defendants. Mr. Lima verbally agreed with this proposal, but shortly afterwards, suggested to Mr. Singer the fee was too high. Mr. Singer agreed to renegotiate.

[7] In September 2011, Mr. Lima signed a retainer agreement with SK. The retainer provided for payment to SK, calculated in two ways. SK was to receive a fee based on a percentage of any amount recovered. Mr. Lima agreed to pay a fee equal to 20 percent of all claims paid by the defendants up to $500,000, and 10 percent of all claims paid in excess of $500,000. In addition to the percentage fee, the CFA also entitled SK to costs paid by the defendants. The relevant provision read:

In addition to the above-noted sums, the balance of our fees will be paid by the defendant known as partial indemnity costs. This amount is in addition to the amounts paid by you noted above.

[8] In October 2011, SK commenced an action against the insurer and the insurance broker. In addition to claiming damages against the insurer of over $5 million for negligence and breach of contract, Mr. Lima sought punitive damages based on the insurer’s bad faith denial of coverage. As against the broker, Mr. Lima claimed damages of $2 million, alleging the broker failed to give him proper advice and arrange adequate or appropriate insurance coverage.

[9] The insurer denied coverage in its statement of defence, alleging Mr. Lima had either started the fire or caused someone else to start the fire. The insurer and the broker both maintained the losses claimed by Mr. Lima were grossly exaggerated. The insurer also counterclaimed against Mr. Lima, seeking $1.7 million in damages for monies the insurer said it was obliged to pay to mortgagees under the terms of the policy.

[10] The action proceeded through discoveries, three pre-trials, and a mediation. In May 2015, the broker agreed to settle the claims made against it with a payment to Mr. Lima of $150,000 “all in”. The insurer settled about a month later in June 2015 with an “all in” payment of $1,250,000. Neither settlement attributed any part of the settlement amounts to any specific head of damages, or to costs.

[11] Mr. Lima directed that certain payments be made directly to third party creditors. The remainder of the settlement funds was paid into SK’s trust account. SK billed Mr. Lima $50,000 in respect of the settlement with the broker. SK unilaterally attributed $20,000 of that amount to costs. The remaining $30,000 represented SK’s fees calculated in accordance with the percentages set out in the CFA. SK’s bill to Mr. Lima showed $33,900 ($30,000 in fees, plus $3,900 HST) paid to SK from the settlement funds deposited into SK’s trust account by the broker. Mr. Singer testified SK forgave the remaining amount owing on fees as part of its final accounting with Mr. Lima after the settlement with the insurer.

[12] In respect of the funds paid by the insurer into SK’s trust account, SK took fees of $338,390.04, of which it unilaterally attributed $150,000 to costs, with the remainder representing the fees owed to SK under the percentages set down in the CFA. [2]

[13] In total, SK took fees of $372,290.04 ($33,900 plus $338,390.04). In addition, disbursements of $101,994.34 were paid out of the settlement funds.

III

The Application

[14] About a year after receiving SK’s final account, Mr. Lima served a Notice of Assessment under the Solicitors Act, R.S.O. 1990, c. S.15. After a false start before an assessment officer, Mr. Lima commenced an application in the Superior Court in July 2017, challenging the legality of the CFA. The application was eventually heard in late January and early February 2019.

[15] On the application, SK conceded that it knew when it entered into the CFA with Mr. Lima the agreement contravened s. 28.1(8) of the Solicitors Act, and was unenforceable by virtue of s. 28.1(9). [3] According to SK, it was commonplace in 2011 to negotiate contingency fee agreements, like the one negotiated with Mr. Lima, and to fail to apply for, or obtain, the judicial approval required under s. 28.1(8). [4]

[16] SK argued, that because the CFA was unenforceable, its fees should be calculated on a quantum meruit basis. SK further submitted, that in performing that quantum merit assessment, the court must look at Mr. Lima’s reasonable expectations as one of the relevant factors. SK contended Mr. Lima’s reasonable expectations were reflected in the terms of the CFA he had agreed to with SK. SK contended the amount it had billed Mr. Lima pursuant to the CFA was reasonable and justifiable on a quantum meruit analysis.

[17] On the application, Mr. Lima did not argue that SK should be required to return all of the funds it had taken as fees as a consequence of deliberately entering into an unenforceable contingency fee agreement. Instead, Mr. Lima submitted SK’s bills should be reduced by subtracting the amounts SK had arbitrarily allocated to costs in the settlement with the insurer and the broker ($170,000). Mr. Lima argued those arbitrary figures were “made up numbers” and amounted to double-counting, having regard to the fees SK had taken as a percentage of the settlement funds. Mr. Lima insisted he had never been told that SK would be entitled to costs paid by the defendant on top of the percentage fee he had agreed to pay. Finally, Mr. Lima submitted there should be other specific deductions from the fees charged to reflect duplications and excessive charges.

[18] Prior to the application, counsel for Mr. Lima and SK agreed disbursements were not in issue and did not have to be proved. The application proceeded on the basis that the amount claimed for disbursements was not in issue.

[19] The application judge agreed that SK’s fees should be assessed on a quantum meruit basis. After referencing the many factors identified in Cohen v. Kealey and Blaney, [1985] O.J. No. 160 (C.A.), the application judge proceeded to consider each factor at length. Ultimately, she concluded SK was entitled to fees in the amount of $328,546.41 rather than the $372,290.04 SK had claimed. The application judge ordered the difference, $43,743.63, returned to Mr. Lima.

[20] Despite the parties’ agreement that disbursements were not in issue, and the absence of any submissions from counsel, the application judge, based on her own review of the billing documents, concluded SK had inadvertently double-billed disbursements in the amount of $16,100. She ordered repayment of that amount by SK to Mr. Lima. In total, the application judge awarded judgment to Mr. Lima in the amount of $59,843.63, plus pre-judgment interest.

IV

The Issues

[21] Both parties advanced a number of grounds of appeal. Their arguments raised three questions:

• Did the application judge err in failing to eliminate or at least substantially reduce SK’s fees on account of SK entering into a CFA it knew to be unenforceable under the Solicitors Act?
• Assuming the application judge was correct in assessing SK’s fees on a quantum meruit basis, did she make legal errors or material factual errors in her analysis?
• Should the application judge have reviewed the amounts attributed to disbursements, given the position of the parties on the application, and if so, did she correctly hold $16,100 in disbursements had been inadvertently double counted?

A. Should SK’s deliberate non-compliance with the Solicitors Act have disentitled SK to any fees or, alternatively resulted in a substantial reduction in SK’s fees?

[22] The CFA crafted by SK required Mr. Lima to pay a percentage fee based on the amount he recovered and, in addition, authorized payment of costs to SK. Sections 28.1(8) and (9) of the Solicitors Act, when read together, provide that a contingency fee agreement, which includes both a fee payable under the agreement and an amount “arising as a result of an award of costs or costs obtained as part of a settlement”, is unenforceable unless that agreement is approved by a justice of the Superior Court. Approval is granted only if the lawyer and client make a joint application for approval of the contingency fee agreement, and satisfy the justice there are “exceptional circumstances” warranting including payment of costs to the lawyer as part of the fees owed under a contingency fee agreement. SK knew an application to the court for approval was necessary, but did not make any application. SK did not tell Mr. Lima court approval was required. [5]

[23] Sections 28.1(8) and (9) are consumer protection legislation. The requirements of a joint application for approval and judicial approval predicated on exceptional circumstances protect clients from excessive fees and fees determined, according to contractual terms, lacking in transparency and predictability: Almalki v. Canada (Attorney General), 2019 ONCA 26, at paras. 47-50. The lack of transparency is apparent from a review of the CFA entered into by SK and Mr. Lima. Under the terms of that agreement, it was left to SK to unilaterally attribute an amount from the settlement amounts to costs. Mr. Lima could not know, from the terms of the CFA, what amount from any settlement SK would attribute to costs paid by the defendant, and therefore ultimately payable to SK as part of its total fee.

[24] With the CFA rendered unenforceable by the Solicitors Act, the question becomes how should SK’s fees be assessed? Counsel for Mr. Lima on appeal submits SK’s reliance on a CFA it knew to be contrary to the Solicitors Act and unenforceable should disentitle SK to any payment for the services it provided, or alternatively should result in a substantial reduction of any amount otherwise payable to SK for those services. Counsel argued that SK’s blatant disregard of the constraints of the Solicitors Act resulted in a breach of its fiduciary duty to Mr. Lima and an improper removal of Mr. Lima’s funds from SK’s trust account. Counsel stresses SK knew all along the CFA contravened the Solicitors Act and could not be enforced. He submits that SK’s deliberate and knowing breach of the Solicitors Act distinguishes this case from cases like Tri Level Claims Consultants Ltd. v. Koliniotis (2005), 257 D.L.R. (4th) 297 (Ont. C.A.), at para. 40, in which this court allowed recovery of fees on a quantum meruit basis, after a paralegal unknowingly entered into an unenforceable contingency fee agreement.

[25] I cannot accept Mr. Lima’s submission for several reasons. The assessment process is intended to provide a relatively expeditious manner in which to determine a reasonable fee for legal services provided. Allegations of misconduct against a lawyer, which have no impact on the value of the legal service provided, are not properly resolved in the context of an assessment application. Mr. Lima’s argument would introduce a punitive element into the assessment process. He invites the court to “punish” SK for non-compliance with the Solicitors Act by eliminating or reducing his fee. Punishment is not normally a goal of civil litigation. If SK should be punished, that task must be left to the state or the Law Society.

[26] Mr. Lima also seeks a windfall. He would have the court make an order allowing him to avoid reasonable payment for legal services that resulted in significant financial benefit to Mr. Lima. The approach urged by Mr. Lima, which would allow him to reap the benefits of the settlements achieved by SK’s efforts without paying a fair and reasonable fee, goes well beyond any legitimate consumer protection goal, and strikes me as the very definition of unjust enrichment.

[27] Mr. Lima’s contention that SK’s breach of the Solicitors Act should disentitle SK to reasonable fees for services finds no support in the language of the relevant provisions in the Solicitors Act. Section 28.1(9) renders a contingency fee agreement that does not comply with s. 28.1(8) unenforceable. Courts have long drawn a distinction between services provided pursuant to an agreement which is illegal as offensive to fundamental public policy notions and agreements that are unenforceable. Services provided under agreements which are unenforceable but not illegal as contrary to public policy are compensable on a quantum meruit basis: Tri Level Claims Consultants Ltd., at para. 34 (Ont. C.A.).

[28] Section 28.1(9) speaks only to the enforceability of a non-compliant contingency fee agreement. SK cannot enforce the CFA. That is, SK cannot rely on the terms of that agreement to fix the value of the legal services provided to Mr. Lima. The unenforceability of the CFA does not, however, alter the reality that the services provided by SK had real value to Mr. Lima. Nor, in my view, does the unenforceability of the CFA negate SK’s entitlement to reasonable compensation for the services it provided. Had the legislature intended to deny legal fees for services provided pursuant to an unenforceable CFA, or had the legislature intended that non-compliance with s. 28.1(8) should compel a deduction in fees otherwise owed, the legislature would have done much more than simply declare the contingency fee agreement unenforceable.

[29] Apart from the specific language of s. 28.1(9), the common law provides no basis for depriving SK of any payment for its services by virtue of its non-compliance with s. 28.1(8). Courts will not recognize or enforce claims predicated on illegal agreements that are offensive to public policy. For example, the court process will not lend itself to recovery for services provided pursuant to an agreement to commit a tort or a crime: Tri Level Claims Consultants Ltd., at para. 35.

[30] The CFA entered into by SK and Mr. Lima does not contemplate the commission of a crime. Nor do the terms necessarily constitute champerty, maintenance or any other tort: see McIntyre Estate v. Ontario (Attorney General) (2002), 61 O.R. (3d) 257 (C.A.), at paras. 26, 47, 70-76. The common law offers no justification for going beyond the statutory consequences described in s. 28.1(9). That section speaks only to the enforceability of the contingency fee agreement, and not to any entitlement to compensation for the value of services provided pursuant to the agreement.

[31] Sections 23 and 24 of the Solicitors Act offer strong support for the interpretation of s. 28.1(9) that does not deny a lawyer a quantum meruit assessment of fees if the contingency fee agreement is rendered unenforceable by s. 28.1(9). Under s. 23, a client may challenge fees owing under any agreement, including a contingency fee agreement, on the basis the terms of the agreement are not “fair and reasonable between the parties”. If the court accepts that the terms are not “fair and reasonable”, s. 24 directs:

… 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.

[32] As s. 24 makes plain, a contingency fee agreement that is not fair and reasonable is “void” and “cancelled”. The section, however, goes on to provide that fees are to be assessed “in the ordinary manner”, that is by a determination of what is reasonable in all the circumstances: see Raphael Partners v. Lam (2002), 61 O.R. (3d) 417 (C.A.), at paras. 30-33, 49-50; Henricks-Hunter v. 814888 Ontario Inc. (Phoenix Concert Theatre), 2012 ONCA 496.

[33] Although s. 28.1(9) does not specifically indicate a contingency fee agreement found unenforceable under that section should be assessed in the ordinary manner, I see no principled reason to draw a distinction between a contingency fee agreement found “unenforceable” under s. 28.1(9) and a contingency fee agreement found “void” or “cancelled” under s. 24. The same consequence should follow in respect of agreements found wanting under either s. 24 or s. 28.1(9). The lawyer can no longer rely on the terms of the contingency fee agreement as the basis for determining their fee, but is entitled to reasonable compensation reflective of the value of the legal services provided.

[34] The case law, while sparse, is also against Mr. Lima’s position. In Cookish v. Paul Lee Associates Professional Corporation, 2013 ONCA 278, the client claimed the contingency fee agreement with his lawyer was invalid for non-compliance with the Solicitors Act. This court framed the issue in this way, at para. 2:

As it turns out, however, there is a dispute about the nature of the retainer agreement entered into between the parties. Is it, or is it not, a valid contingency fee agreement, as contemplated by the Solicitors Act [citation omitted]? If the answer is no – as Ms. Cookish contends – then the account may be assessed as to the amount on a quantum meruit basis. If the answer is yes – as the solicitors contend – then effect must be given to the formula set out in the agreement in determining the amount.

[35] Ultimately, at para. 60, the court remitted the matter to the application judge to consider the nature, validity and effect of the agreement entered into between the client and the solicitor.

[36] In Du Vernet v. 1017682 Ontario Limited and Victor Wong, 2009 ONSC 29191, the client sought an assessment of his lawyers’ fees payable under a contingency fee agreement. The motion judge held the contingency fee agreement did not comply with the relevant regulations under the Solicitors Act: Du Vernet, at paras. 18-20. He further held the agreement was void under s. 24 of the Solicitors Act as unfair and unreasonable: Du Vernet, at para. 23. The motion judge went on, however, to determine that the lawyers were entitled to fees assessed in the ordinary manner: Du Vernet, at paras. 26-29.

[37] In Séguin v. Van Dyke, 2013 ONSC 6576, the motion judge considered a contingency fee agreement that did not comply with s. 28.1(8). He declared the agreement “void and unenforceable”. The motion judge said, at para. 20:

I grant the application and declare the contingency fee agreement void and unenforceable. The reasonableness of the fees charged by the defendant will be determined by the trial judge in the tort action, who will receive viva voce evidence and who will be in a better position to determine the credibility of the parties.

[38] The order in Séguin recognizes the lawyer’s entitlement to reasonable fees, despite non-compliance with s. 28.1(8) of the Solicitors Act, and the unenforceability of the contingency fee agreement. For reasons peculiar to that case, the motion judge directed that the assessment of the fees should be determined in the context of the pending tort action.

[39] Mr. Lima relies on Chudy v. Merchant Law Group, 2008 BCCA 484. In Chudy, the client sued his former solicitors alleging fraud, breach of trust and breach of fiduciary duty. Among other things, the client demanded the return of the funds paid pursuant to a contingency fee agreement. The client alleged the agreement was invalid for a variety of reasons, all of which involved misconduct by his former lawyers. The client maintained any fees paid were paid as a result of the lawyers’ deceit and breach of their fiduciary duty.

[40] The majority of the British Columbia Court of Appeal concluded the contingency fee agreements were unenforceable primarily because the solicitor who entered into the agreements was not licensed to practice law. The majority also rejected the lawyer’s claim to a quantum meruit assessment of those fees. The court said, at para. 76:

The appellant’s arguments do not address the misconduct found by the trial judge or how that misconduct affects the quantum meruit claim. In this respect, the finding that the respondents would have taken the file elsewhere had they known the truth about Mr. Shaw’s professional status in the winter of 2002 takes on particular significance. The application seeks to recover fees it would not have earned but for Mr. Shaw’s deceit. His deceit clearly makes the quantum meruit claim untenable in equity.

[41] I agree with the conclusion reached by the majority of the British Columbia Court of Appeal. On the findings of the trial judge, the fees paid by the client were paid directly as a consequence of the deceit perpetrated upon the clients by the lawyers. The client was entitled to recover any fees paid as damages flowing from the lawyers’ fraud. A quantum meruit claim could not mitigate those damages.

[42] There is no suggestion in this record Mr. Lima would not have agreed to the terms of the CFA if he knew the agreement contravened s. 28.1(8) of the Solicitors Act. Further, on the application judge’s findings, Mr. Lima was not deceived or misled as to the terms of the CFA. Chudy does not assist Mr. Lima.

[43] Both parties made some reference to Hodge v. Neinstein, supra. In that case, the Divisional Court and this court were concerned with whether s. 28.1(8) of the Solicitors Act could support a cause of action for the purposes of certification as a class action. Neither court opined on the consequences of non-compliance with s. 28.1(8). The Divisional Court did, however, indicate the court trying the action might order the return to the client of all funds paid under the unenforceable contingency fee agreement. The court went on to observe, if the funds were ordered returned, it would be incumbent on the lawyer to establish a valid quantum meruit claim for fees: Hodge v. Neinstein, at para. 8.

[44] In summary, for the reasons set out above, the application judge correctly held the CFA was unenforceable. She properly concluded SK’s fees should be assessed on a quantum meruit basis and correctly did not treat SK’s deliberate breach of s. 28.1(8) of the Solicitors Act as a reason for eliminating or substantially discounting fees otherwise earned by SK.

[45] On the application judge’s findings, the CFA reflected Mr. Lima’s agreement as to how SK’s fees would be calculated. Specifically, the application judge was satisfied Mr. Lima understood the CFA included both a percentage fee component and a costs component. In coming to that conclusion, the application judge rejected Mr. Lima’s evidence to the contrary, stating at, para. 176:

I find that Mr. Lima was aware, from the time that he retained Singer Kwinter, that partial indemnity costs would be added to the solicitors’ percentage fees in the event of a settlement. There is, however, no evidence that Mr. Lima knew how partial indemnity costs would be calculated.

[46] By all accounts, Mr. Lima is a successful and experienced business person. He negotiated the fee agreement with SK. The terms of the agreement negotiated by Mr. Lima provided valuable insight into his reasonable expectations as to the fees he would eventually have to pay. His reasonable expectations are a significant factor in determining reasonable value for the service provided. It must, however, be stressed that the terms of the agreement go only so far in shedding light on Mr. Lima’s reasonable expectations. Based on the CFA, Mr. Lima could not know how the costs component would be determined, or what the amount would be.

B. Did the application judge make errors in her quantum meruit analysis?

[47] The application judge’s quantum meruit assessment tracked the individual factors identified in the case law. She clearly understood it was not her function to value the services according to the terms of the unenforceable CFA. Instead, she had to arrive at a quantum meruit assessment after weighing all of the relevant factors, including Mr. Lima’s reasonable expectations as to the fees he would be required to pay: Lima v. Singer, at para. 62.

[48] In her detailed consideration of the factors relevant to a quantum meruit assessment, the application judge made a number of significant factual findings:

• SK took appropriate and reasonable steps to advance Mr. Lima’s litigation (para. 85);
• It would have been reasonable for SK to have spent roughly 300 billable hours on the file (paras. 86-88);
• The file had significant legal complexity (para. 100);
• SK handled the litigation with demonstrable expertise and competence. They showed a high degree of skill, which “favours a generous assessment of their fees” (paras. 100, 124);
• Mr. Lima’s claim that SK failed to follow his instructions on a specific matter was, like significant other parts of his evidence, false (paras. 121, 175);
• SK assumed a substantial financial risk by committing to take Mr. Lima’s case all the way through trial without payment. There was a genuine risk the claim would be dismissed at trial. Had the claim failed at trial, SK would have been required to absorb losses in excess of $500,000 (paras. 133, 134, 141-43, 159);
• The results achieved by SK were “very good” and “excellent” (para. 160);
• Without SK extending the contingency fee agreement, Mr. Lima would not have been able to finance the litigation. On a normal fee-for-service basis, he would have been required to advance at least $100,000 before the case got to trial (para. 164); and
• The amounts to be paid to Mr. Lima under the terms of the settlements were commensurate with the amounts he had been told he could expect to receive under those settlements before Mr. Lima signed the Minutes of Settlement and the Directions to Counsel (para. 186);

[49] It is fair to say that neither SK nor Mr. Lima are happy with the application judge’s quantum meruit analysis. Both argue she was wrong about the level of success Mr. Lima realized through the settlements. SK argues the application judge understated the success by calculating SK’s fees at the low end of the range suggested by one witness. Mr. Lima, however, submits the application judge mischaracterized what were, in reality, average results as “very good” or “excellent”.

[50] I will not go through the arithmetic and other exercises performed by the parties in support of their very different interpretations of the results achieved by SK. The assessment of the level of success achieved, like other assessments (e.g. the level of risk assumed by the lawyers, the skill of the lawyers), requires a holistic assessment which places the results in the context of the entirety of the relevant circumstances. There is no doubt an element of subjectivity to some of the necessary assessments. It is sufficient, in my view, to hold that the application judge’s assessments were reasonable and available to her on the record before her. I would not interfere with any of her factual findings.

[51] SK and Mr. Lima allege errors in respect of the treatment of the evidence of the witness, David Leblanc. Mr. Leblanc, an appraiser who had been retained by Mr. Lima during the litigation, was called as a witness on the assessment by Mr. Lima. In cross-examination, Mr. Leblanc was asked about his experience working with law firms in cases like this one and the kinds of fees charged by those law firms. Mr. Leblanc testified to his considerable experience in cases like this one. He indicated that, as “a rough average”, fees ranged from 25 to 35 percent of the recovery. Counsel for Mr. Lima objected to the answer, but the trial judge admitted it, indicating the witness was speaking only to his personal experience and not offering a broader opinion.

[52] The application judge ultimately determined SK should receive a fee of 25 percent of the settlement funds, less disbursements (paras. 189-92). SK submits the 25 percent falls at the bottom of Mr. Leblanc’s range and, given the findings of the application judge, the assessment should have been closer to the 35 percent, at the top of the range. Mr. Lima maintains Mr. Leblanc’s evidence was inadmissible and should have been rejected outright. He claims Mr. Leblanc was not qualified to give expert evidence and the procedural requirements in respect of expert evidence were not followed.

[53] The trial judge was entitled to consider Mr. Leblanc’s evidence, based on his personal experience, for what it was worth. His evidence constituted some evidence of fees charged in cases that were, at least, generically similar to this one.

[54] I would also reject SK’s submission in respect of Mr. Leblanc’s evidence. That submission proceeds on the faulty assumption that, because the application judge permitted Mr. Leblanc to testify about his personal experience, she was required to translate that evidence into a range of fees within which she must operate, for the purposes of determining SK’s fees. Mr. Leblanc’s evidence did not set a general range, and the application judge did not use it for that purpose. His testimony simply provided some evidence of the level of contingency fees charged in similar cases in which he had been involved.

[55] The application judge made no error in her treatment of Mr. Leblanc’s evidence. She did not arrive at 25 percent as an appropriate fee by relying on Mr. Leblanc’s evidence. She explained how she arrived at 25 percent as an appropriate fee, at para. 190:

This percentage takes into consideration the significant monetary value of the matters in issue and their importance to Mr. Lima, the very substantial amount of time reasonably expended by the solicitors on the file, the high degree of skill and competence demonstrated by the solicitors, the risk of non-payment assumed by the solicitors, the excellent results achieved by the solicitors, Mr. Lima’s ability to pay any amount that Mr. Lima could reasonably have expected to pay in the circumstances. It also takes into consideration the fact that the claims were settled prior to trial and prior to completing full trial preparation. Had the matter gone to trial with the same result, I would have found that a higher percentage than 25 percent was appropriate.

[56] SK next submits the application judge wrongly took into account Mr. Lima’s ability to pay his legal fees as at the time of the assessment, some four years after the settlement. SK submits Mr. Lima’s ability to pay at the time of the retainer, or at the time of settlement, may have relevance in assessing his fees on a quantum meruit basis, but Mr. Lima’s financial circumstances years after the settlement cannot have any relevance.

[57] There is merit to SK’s submission. However, although the application judge made a brief reference to Mr. Lima’s difficult financial circumstances as of 2019 under the heading “Ability of the Client to Pay” (para. 163), I do not read Mr. Lima’s financial difficulties as having any impact on the application judge’s ultimate assessment. The application judge went no further than to indicate some reduction in SK’s fees could provide financial help for Mr. Lima. The application judge did not endorse that approach or identify any reduction on account of Mr. Lima’s difficult financial circumstances.

[58] SK’s last submission challenging the quantum meruit assessment by the application judge arises out of the treatment of legal services provided by SK in respect of ancillary claims made by Mr. Lima’s creditors. These claims had some collateral connection to Mr. Lima’s claims against the insurer and the broker. Mr. Singer testified SK undertook to help Mr. Lima on these matters without charging him anything beyond the amounts payable under the CFA.

[59] SK submits that its decision not to charge for services relating to ancillary matters was predicated on the existence of the CFA. SK contends, that because the CFA was unenforceable, it is entitled to a quantum meruit assessment of all of the services it provided.

[60] SK’s submission is bold, if nothing else. In effect, SK submits that it should not be bound by its agreement not to charge for certain legal services because the CFA, which it knew all along was unenforceable, is indeed unenforceable. In any event, Mr. Lima clearly had every reason to reasonably expect he would not be required to pay for services rendered in respect of the ancillary matters.

[61] Even if the service in respect of these ancillary matters should have been taken into account in the quantum meruit assessment, the application record indicates that minimal work was done on these ancillary files. Assuming the work should have been taken into account, I see no reason to think the minimal additional work involved would have led to any different ultimate determination as to the appropriate fee.

[62] Like SK, Mr. Lima raises several alleged errors in the application judge’s quantum meruit assessment. He argues, that without a valid contingency fee agreement, a quantum meruit assessment cannot be based on a percentage of the settlement amounts. He submits, if a quantum meruit assessment is based on the percentage of the settlement amounts, it is simply a contingency fee under another name. Contingency fees that do not comply with the Solicitors Act are not enforceable. Counsel contends the application judge could not avoid the prohibition against enforcing the CFA by, in effect, implementing a contingency fee agreement under the guise of a quantum meruit assessment.

[63] The application judge did not base her quantum meruit assessment on a percentage of the settlement amounts. She based that assessment on her thorough review of the relevant factors and a careful blending of those factors. Her reasons clearly set out the path to her decision.

[64] The application judge did ultimately determine that the assessment should be quantified as a percentage of the settlement amounts. I see no error in that mode of quantification, particularly where a significant part of the value of the legal services provided flowed from the lawyer’s assumption of a very real, significant financial risk, absent which the client could not have pursued the claim. Furthermore, an assessment based on a percentage of the settlement amounts was clearly the mode of quantification contemplated by both SK and Mr. Lima.

[65] Mr. Lima next argues, that even if the application judge properly determined that quantum meruit fees could be awarded as a percentage of the settlement amounts, the motion judge erred in failing to deduct the amounts SK had attributed to costs ($170,000) from the settlement amounts before determining the fee based on 25 percent of the settlement amounts.

[66] I would reject this argument. The amount SK had attributed to costs from the settlement for the purposes of their fee calculations under the CFA had no relevance to the application judge’s quantum meruit assessment. The application judge concluded the value of SK’s legal services should be quantified as a percentage of the settlement amounts recovered for Mr. Lima. Whatever part of those amounts SK unilaterally attributed to costs, for the purposes of the CFA, had no relevance to the trial judge’s assessment of SK’s fees on a quantum meruit basis.

[67] Mr. Lima further submits that time spent on the file is the “major factor” in any quantum meruit assessment. He contends, that while the application judge referred to the hours spent, she largely ignored them in her assessment: Lima v. Singer Kwinter, at paras. 73-88.

[68] Time spent on the file is obviously a relevant consideration. Under traditional retainers, it will, in all likelihood, be among the most important considerations. Its significance in any given case, however, depends on the interplay of all of the relevant factors.

[69] The application judge decided that the nature of the retainer and the totality of the circumstances warranted giving prominence to factors other than the time spent on the file. She said, at para. 143:

Given the substantial risk assumed by Singer Kwinter, it would be inequitable to compensate the solicitors in this case on an hourly basis for the services they provided on a percentage contingency fee basis. The clients assume no financial hardship. Mr. Lima paid an initial retainer of only $5,000, but that amount was ultimately refunded to him. The clients benefitted from skilled legal representation at no costs to them with all the financial risk assumed by their solicitors.

[70] I agree with the trial judge’s observations. They explain why the hours put in on the file were not as important in arriving at a quantum meruit assessment in this situation, as they would be in many others.

[71] None of the arguments advanced by SK or Mr. Lima give cause to set aside or vary the application judge’s quantum meruit assessment.

C. Should the application judge have reviewed the disbursements and, if so, did she err in finding an inadvertent double-counting?

[72] The parties had agreed well before the application commenced that SK was entitled to the disbursements listed in its accounts and need not prove those disbursements. The application proceeded on that basis. The disbursements went unchallenged and the documents relevant to the disbursements were left unexplored.

[73] In her reasons, the application judge concluded SK had inadvertently included in its final bill disbursements in the amount of $16,100, that had already been claimed and paid in connection with the settlement with the broker: Lima v. Singer Kwinter, at paras. 57-60, 191-95. The application judge had discovered the apparent double-counting on her own review of the records during the preparation of her reasons. Neither party had any opportunity to address the issue. They first became aware that disbursements were in issue when they read the application judge’s reasons.

[74] The rules governing raising issues not properly pleaded are not necessarily applied as strictly in a proceeding involving an assessment of a lawyer’s fees, as they would be in regular civil litigation. I think it would have been appropriate for the application judge to raise the question of the possible double-counting of disbursements, even though the parties had agreed disbursements were not in issue. The application judge erred, however, in deciding that issue without giving the parties any opportunity to address the apparent double-counting she had discovered during her review of the evidence.

[75] SK had no reason to think the amount of disbursements it claimed were challenged, or that the application judge would take issue with the amount claimed for disbursements. Fairness dictated that when the application judge had concerns about the amounts claimed for disbursements during her review of the record, she bring those concerns to the attention of the parties and give them an opportunity to call evidence and make submissions before she decided the issue.

[76] The wisdom of allowing counsel an opportunity to address the issue before deciding it, is made clear on this record. The billing documents referred to by the application judge do not demonstrate any double-counting, although they do raise that distinct possibility. The submissions made in the facta filed in this court are not convincing either way. There may or may not have been an inadvertent double-counting. It may also be that the fees owing to SK as a result of the settlement with the insurance broker were understated in the same billing documents. Evidence and submissions based on that evidence would, in all likelihood, have resolved the issue one way or the other.

[77] Normally, the onus would be on SK to prove the disbursements. However, when, as here, the parties had specifically agreed SK was entitled to the disbursements claimed and need not prove them, it would be unfair to deny SK disbursements for want of proof. Absent a clear and demonstrated double-counting, I would hold Mr. Lima to his agreement that SK was entitled to the disbursements claimed. The application judge erred in requiring SK to repay $16,100 to correct a double-counting of disbursements.

V

Conclusion on the Appeal and Cross-Appeal

[78] I would allow SK’s appeal to the extent that the judgment in favour of Mr. Lima is reduced by $16,100 from $59,843.63 to $43,743.63, plus pre-judgment interest.

[79] Mr. Lima’s cross-appeal is dismissed.

VI

The Costs Appeals

[80] The application judge awarded Mr. Lima costs on a partial indemnity basis up to November 13, 2018, the date on which SK served Mr. Lima with an Offer to Settle in the amount of $50,000. The application judge fixed those costs at $20,000.

[81] The application judge treated the $50,000 offer as more favourable than the judgment obtained by Mr. Lima, as in her view the $16,100 attributable to the inadvertent double-counting of disbursements should be deducted from the judgment for the purposes of assessing costs, leaving a “net” judgment of $43,743.63. Based on this calculation, the November 13, 2018 $50,000 offer exceeded the judgment. The application judge awarded SK partial indemnity costs after November 13, 2018. She fixed those costs at $17,000. [6]

[82] In the end, SK was required to pay Mr. Lima $3,000 in costs ($20,000 minus $17,000).

[83] Both parties have alleged a myriad of errors by the application judge in her costs assessment. I do not propose to address each argument. Nor do I think the appropriate costs order in these circumstances should turn on the rules applicable to offers to settle. There are two fundamental facts which are largely determinative of the proper costs order on this application.

[84] First, SK bears the responsibility for the need for an assessment. By entering into a fee agreement it knew to be contrary to the Solicitors Act and unenforceable without prior court approval, and by failing to inform the client of these facts, SK made the ultimate assessment of its fee virtually inevitable if and when the client learned the CFA was unenforceable. Not only was the assessment made inevitable by SK’s conduct, I think its very combative tone was also very much a predictable consequence of SK’s troubling lack of candor with Mr. Lima. Mr. Lima had little reason to accept at face value anything SK said about their fees by the time he commenced his application.

[85] SK’s misconduct in respect of the CFA made the assessment of its fees virtually inevitable and goes a long way to making SK responsible for the costs of that assessment, regardless of the outcome.

[86] The second important fact, however, points in the opposite direction. Beginning about two months before the application hearing, SK made several bona fides attempts to settle the assessment. Mr. Lima made none. His only offer to settle proposed terms more suggestive of capitulation than settlement.

[87] Mr. Lima bears significant responsibility for the four-day hearing that eventually ensued. Two of the offers he rejected were better, one was much better, than the amount Mr. Lima is due under the judgment, as varied by this court. While SK’s actions are largely responsible for the bringing of the assessment application, Mr. Lima’s actions are primarily responsible for the four-day hearing.

[88] In my view, a proper balance is achieved by awarding Mr. Lima his costs up to the point of the offer in November 2018 and denying either party any costs after that point.

[89] The application judge fixed Mr. Lima’s costs at $20,000 up to November 2018. This amount may be somewhat high on a partial indemnity basis. However, Mr. Lima was entitled to something more than partial indemnity costs, given SK’s misconduct.

[90] I would grant Mr. Lima leave to appeal costs and vary the costs to $20,000, all inclusive. I would dismiss SK’s motion for leave to appeal costs.

VII

Costs of the Appeal

[91] SK was successful on the main appeal to the extent of reducing the judgment by $16,100. Mr. Lima was successful on the costs appeal to the extent of increasing the costs award to him by $17,000. In light of the similar and limited success of both parties, I would make no order as to costs on the appeal.

Released: January 26, 2021 Doherty J.A. I agree Alexandra Hoy J.A. I agree M. Jamal J.A.

[1] SK was retained by Mr. Lima and his common-law wife, Ms. Martha Hildebrandt. I will refer to Mr. Lima as the client.

[2] As the application judge points out, at para. 61, by treating the settlement amounts paid by the broker and insurer separately, contrary to the terms of the CFA, the total amount claimed for fees by SK exceeded the amount actually owed under the percentages set out in the CFA. The application judge did not quantify that amount, but it would appear to be about $15,000.

[3] The CFA also did not comply with the applicable regulations: O. Reg. 195/04 – Contingency Fee Agreements, ss. 2, 3.

[4] The practice apparently changed after December 2015, when the Divisional Court certified a class action against a law firm. The class action raised common issues with respect to the enforceability of the contingency fee agreements and the client’s entitlement to a return of any and all fees collected under contingency fee agreements that contravened the Solicitors Act: Hodge v. Neinstein, 2015 ONSC 7345 (Div. Ct.), aff’d in part, 2017 ONCA 294, leave to appeal to SCC dismissed, [2017] S.C.C.A. No. 341.

[5] In May 2018, legislation was enacted repealing ss. 28.1(8) and (9) of the Solicitors Act. That amendment has not yet been proclaimed in force.

[6] The application judge erred in deducting the $16,100 from the judgment, for the purposes of determining whether SK’s offer exceeded the judgment. However, that error was overtaken when this court varied the judgment to $43,743.63, the amount used by the trial judge in determining whether the offers exceeded the judgment.