ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: 10-48044
DATE: 20131105
BETWEEN:
DONNA SÉGUIN
Applicant
– and –
FRANK E. VAN DYKE
Respondent
William Sammon, for the Applicant
John Cannings, for the Respondent
HEARD: October 15, 2013
LALONDE J.
DECISION ON VALIDITY OF A cONTINGENCY FEE aGREEMENT
[1] Donna Séguin (“Ms. Séguin” or “the Plaintiff”) has brought an Application for a declaration that the Contingency Fee Agreement (“CFA” or “the Agreement”) that she entered into with Frank Van Dyke (“Mr. Van Dyke” or “the Defendant”), dated May 11, 2007, is unenforceable pursuant to s. 28.1(9) of the Solicitors Act, R.S.O. 1990, c. S.15 (“the Act”). She has also applied for an assessment of his account dated September 25, 2009, pursuant to s. 28.1(11)(b) of the Act and O. Reg. 195/04, rr. 1-3, (the “Regulation”).
[2] Mr. Van Dyke had brought a motion for an order to dismiss or to stay the Application. He argued that the issue should be included in the tort action which has been commenced by Ms. Séguin and other family members against Mr. Van Dyke. Mr. Van Dyke’s motion was dismissed by Justice James on December 1, 2010, and his application for leave to appeal that decision was subsequently dismissed by Justice Annis on February 4, 2011.
[3] In the present motion before the Court, Ms. Séguin seeks a declaration that the CFA is unenforceable and void, as well as an order requiring Mr. Van Dyke to repay immediately, and with interest, the 33.3% contingency which he charged on costs, including disbursements and HST. Ms. Séguin posits that this amounts to $21,922.00. The balance of his account should be referred for assessment.
[4] Mr. Van Dyke has now consented to repay Ms. Séguin $21,922.00 and I order that this be done within 60 days following the release of this decision.
[5] As there is a tort action to be tried in the near future which involves the reasonableness of the fees charged by Mr. Van Dyke to Ms. Séguin, I will not deal with that aspect of the case.
Issue
[6] Is the Contingency Fee Agreement void and unenforceable by Mr. Van Dyke against Ms. Séguin because a solicitor cannot charge a contingency fee on the costs awarded either by settlement or under a court order?
[7] Under s. 28.1(8) of the Act, a Contingency Fee Agreement may not ordinarily include any amount arising as a result of an award of costs or costs obtained as part of a settlement. However, a solicitor and his client can jointly apply to a judge of the Superior Court of Justice for approval to include the costs, or a proportion of the costs, in a Contingency Fee Agreement where there are special circumstances. If a judge is satisfied that such special circumstances exist, the prohibition against including costs in a CFA can be waived in accordance with s. 28.1(8)(a) & (b) and s. 28.1(9) of the Act.
Background
[8] Donna Séguin (DOB 25th May 1962) is married to Leo Séguin. They have three daughters, Tammy (31), Julie (23), and Jenna (21), and two grandchildren, Cameron (9) and Sara (4). Ms. Séguin was involved in a motor vehicle accident on October 20, 2006, with Lianne Chaput, from which she sustained catastrophic injuries.
The Contingency Fee Agreement
[9] Ms. Séguin entered into a Contingency Fee Agreement with Mr. Van Dyke dated May 11, 2007. The following are the relevant provisions of the Agreement:
5 (a) No Trial
It is agreed that with respect to the Action, it is a civil proceeding, the final account for services (excluding disbursements and G.S.T.) with respect to the Action is to be contingent on FVD securing a settlement. The fee shall be 33.3% of the settlement amount, including all amounts received for costs and disbursements received in relation to the civil proceeding. This estimate includes hourly rates and a premium based on results achieved.
Example #1: Award - $10,000.00 (all inclusive of costs and disbursements) Fee (33.3%) - $3,330.00 plus disbursements and G.S.T.
Example #2: Award - $150,000.00 plus costs of $30,000.00 plus disbursement of $5,000.00
Fee (33.3%) - $61,605.00 plus disbursements and G.S.T.
(b) Trial
It is agreed that with respect to the Action, if the matter proceeds to trial, FVD will be entitled to receive 100% of any costs awarded by the Court in addition to 33.3% of the amount awarded for damages by the Court.
Example: Damages Awarded $450,000.00 plus costs of $75,000.00
Fee: $224,850.00 ($450,000.00 x 33.3% + $75,000.00)
Recommended Settlement
- In the event that I recommend a settlement for acceptance but you choose to proceed further in the proceeding, you will be obligated to pay FVD 35% of the settlement proposed, plus disbursements and G.S.T. and thereafter will retain myself on the basis of an hourly rate. You acknowledge that my hourly rate is $200.00 per hour.
[10] The Plaintiff eventually signed the Minutes of Settlement for $342,000.00, “all in.” The Defendant charged a contingency fee of 33.3% on the total recovery of $342,000.00 which included both costs and disbursements. The defendant received $150,044.04 to pay his account in full. This last figure included approximately $18,000.00 for various disbursements. The plaintiff refused to sign the release and brought this application to have the entire Contingency Fee Agreement declared unenforceable.
Plaintiff’s Position
[11] Contingency Fee Agreements that include costs are only allowed as an exception under s. 28.1(8) of the Solicitors Act. The approval of a Superior Court Judge is required if fees are to be calculated on court costs. It is admitted, in the present case, that no approval was sought and thus, clause 13 of the Contingency Fee Agreement renders the entire Agreement void and unenforceable. It is also admitted that court costs were included in the Defendant’s calculations as to what was owed to him under the CFA.
[12] The relevant sections of the Solicitors Act read as follows:
Solicitors Act, R.S.O. 1990, CHAPTER S.15
Determination of disputes under the agreement
23 No action shall be brought upon any such agreement, but every question respecting the validity or effect of it may be examined and determined, and it may be enforced or set aside without action on the application of any person who is a party to the agreement or who is or is alleged to be liable to pay or who is or claims to be entitled to be paid the costs, fees, charges or disbursements, in respect of which the agreement is made, by the court, not being the Small Claims Court, in which the business or any part of it was done or a judge thereof, or, if the business was not done in any court, by the Superior Court of Justice.
Enforcement of agreement
24 Upon any such application, if it appears to the court that the agreement is in all respects fair and reasonable between the parties, it may be enforced by the court by order in such manner and subject to such conditions as to the costs of the application as the court thinks fit, but, if the terms of the agreement are deemed by the court not to be fair and reasonable, 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.
Agreement not to include costs except with leave
28.1 (8) A contingency fee agreement shall not include in the fee payable to the solicitor, in addition to the fee payable under the agreement, any amount arising as a result of an award of costs or costs obtained as part of a settlement, unless,
(a) the solicitor and client jointly apply to a judge of the Superior Court of Justice for approval to include the costs or a proportion of the costs in the contingency fee agreement because of exceptional circumstances; and
(b) the judge is satisfied that exceptional circumstances apply and approves the inclusion of the costs or a proportion of them.
Enforceability of greater maximum amount of contingency fee
28.1 (9) A contingency fee agreement that is subject to approval under subsection (6) or (8) is not enforceable unless it is so approved.
[13] Counsel for the Plaintiff argues that no permission was sought from a Superior Court Judge to include costs in the Contingency Fee Agreement. Because the Defendant did not understand the Solicitors Act, he was not mindful of the costs prohibition contained in s. 28.1(8) of the Act. The inclusion of costs in the CFA constituted a substantial mistake, rather than a minor or trifling omission that would have enabled the Agreement to survive.
[14] Counsel for the Plaintiff points out that there are no cases directly on this point. In Du Vernet, Stewart v. 1017682 Ontario Ltd. (2009), 75 C.P.C. (6th) 295 (Ont. Sup. Ct. J.), Aston J. had to deal with several defects in a Contingency Fee Agreement, some of which were minor or technical in nature, and some of which were significant. While his decision focussed on the reasonableness of the fees pursuant to s. 24 of the Act, he nevertheless made the following comment regarding an “all inclusive” settlement:
20 Paragraph 6 of the Regulations for Contingency Fee Agreements under the Solicitors Act specifically provides “a Contingency Fee Agreement that provides that the fee is determined as a percentage of the amount recovered shall exclude any amount awarded or agreed to that is separately specified as being in respect of costs and disbursements.” In my view, this provision obliges the solicitors acting on a proposed settlement for a plaintiff to separately identify the amount agreed to in respect of costs and disbursements in advising plaintiff/clients. It is not possible to fulfill the solicitors’ obligations by simply coming to an all inclusive number for settlement purposes, as was apparently the case here.
[15] Consequently, in this case, the Defendant, not having separately identified the amount agreed to with respect to costs, and not having advised his client accordingly, did not fulfill his obligation to his client by coming to an all inclusive number for settlement purposes.
[16] Thus, the CFA is subject to s. 28.1(8)(a)(b) and 28.1(9) of the Act and is thereby unenforceable.
Defendant’s Position
[17] Counsel for the Defendant argues that the validity of the CFA and the reasonableness of the fees charged should both be determined by the same judge. She relies on the decision of Power J. in Simpson v. Laushway Law Office (2009), 181 A.C.W.S. (3d) 1031 (Ont. Sup. Ct. J.), specifically at para. 62, which reads as follows:
I also agree with counsel for the respondent that the authorities from other provinces with respect to the consequences of non-compliance with an act or regulation are distinguishable. There is nothing in the Ontario legislation that clearly states that a court must declare void, or voidable, or unenforceable, an agreement that does not strictly comply with the Act or Regulation. In the absence of clear language to this effect, a judge’s judicial discretion should not be unduly restricted. Indeed, in my opinion, s.24 of the Ontario Solicitors Act clearly bestows a discretion on the court to consider whether an agreement is fair and reasonable between the parties before determining whether the agreement should be declared void. The section says that, even where a declaration is made that an agreement is void, the court may direct that the “costs, fees, charges and disbursements incurred or chargeable in respect of the matter included therein to be assessed in the ordinary manner”.
[18] Counsel for the Defendant also relied on Hendricks-Hunter (Litigation Guardian of) v. 814888 Ontario Inc., 2012 ONCA 496, 28 C.P.C. (7th) 227, particularly at para. 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.
[19] Thus, she concludes that, pursuant to s. 24 of the Act, the matter should be remitted to a trial judge who would both decide the reasonableness of the Agreement and perform an assessment of the account.
Decision
[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. In the meantime, the Defendant will repay to the Plaintiff $21,922.00 as specified earlier, in paragraph 3.
[21] Beaudoin J., in Laushway Law Office v. Simpson, 2011 ONSC 4155, 336 D.L.R. (4th) 632, agreed that a CFA could survive if the deficiencies were minor or of a technical variety. At para. 122, he states:
Justice Aston differentiated between "minor" or "technical" breaches and "significant" ones. This implies that a CFA may be enforced regardless of certain breaches. One can accept this analysis when one looks at the list of deficiencies prepared by Simpson and attached as Schedule "C". An agreement could be enforced even if it did not meet the requirements, provided that the deficiencies were of the minor or technical variety.
[22] In Laushway Law Office v. Simpson, the judge was faced with minor deficiencies. In the case at bar, the breach is fundamental and not technical.
[23] In Hendricks-Hunter (Litigation Guardian of) v. 814888 Ontario Inc., supra, the law firm acting for the Public Guardian and Trustee had complied with the Solicitors Act. The matter was before the Court to determine only if the fees charged were fair and reasonable. In the case at bar, I am concerned with an agreement which, on its face, breaches the Solicitors Act.
[24] I also find that in deciding the issue in this case, s. 24 must be read in conjunction with s. 28; otherwise why would s. 28 form part of the legislation? It is a basic principle of construction that the words of a provision are to be read in their grammatical and ordinary sense, harmoniously with the scheme of the Act, and should be interpreted to avoid an absurd, illogical or redundant result: Rizzo & Rizzo Shoes Ltd., Re, 1998 837 (SCC), [1998] 1 S.C.R. 27 at para. 21; Medovarski v. Canada (Minister of Citizenship & Immigration), 2005 SCC 51 at para. 8, [2005] 2 S.C.R. 539. I do not believe, in a case such as the present one, that s. 24 dictates that the proper forum to deal with the CFA is before a Superior Court Judge who will assess the Defendant’s work. The breach here is fundamental.
Mr. Justice Paul F. Lalonde
Released: November 5, 2013
COURT FILE NO.: 10-48044
DATE: 20131105
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
DONNA SÉGUIN
Applicant
– and –
FRANK E. VAN DYKE
Respondent
DECISION ON VALIDITY OF A cONTINGENCY FEE aGREEMENT
Lalonde J.
Released: November 5, 2013