ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: CV-13-0318 & CV-03-0319
DATE: 2014-07-21
B E T W E E N:
COURT FILE NO.: CV-13-0318
Erickson & Partners,
Applicant
- and –
Her Majesty the Queen in Right of Ontario (Ministry of Health and Long-Term Care)
Brian Babcock, for the Applicant
Rita V. Bambers and Sonal Gandhi, for the Respondent
Respondent
AND B E T W E E N:
COURT FILE NO.: CV-13-0319
Erickson & Partners,
Applicant
- and -
Brian Babcock, for the Applicant
Her Majesty the Queen in Right of Ontario (Ministry of Health and Long-Term Care)
Rita V. Bambers and Sonal Gandhi, for the Respondent
Respondent
HEARD: April 1, 2014,
at Thunder Bay, Ontario
J. dep. Wright, J.
Reasons For Judgment
[1] In these applications the plaintiffs’ solicitors ask the court to rule on two issues:
a) The enforceability of their Contingency Fee Agreements with the injured plaintiffs, and
b) The proper manner of dividing, between the injured party and the plan, responsibility for payment under those agreements.
[2] In dealing with these issues the argument has proceeded on the basis:
a) That although the Contingency Fee Agreement was only executed by the solicitors and the injured plaintiff, within the limits of s.39 Reg. 552 Health Insurance Act the Plan will pay its portion of solicitors’ costs lawfully agreed to by the injured party,
b) That the injured party has not disputed either the enforceability of the Contingency Fee Agreement or the solicitors’ method of allocating responsibility for their costs between the injured party and the Plan but has not surrendered the client’s right to have the solicitors’ account assessed by the court.
c) That the proceedings before me are neither motions for approval under subsection 28.1(6) or 28.1(8) of the Solicitors Act nor are they intended as assessments.
d) That the solicitors are content to have rulings made on the validity of the CFA without prejudice to or without abrogating the requirement for final court approval under subsection 28.1(8) of the Solicitors Act if necessary.
[3] The applicants are solicitors who have sought the same relief in two actions, the “Saisho” litigation (action #CV-13-318) and the “Pinette” litigation (action #CV-13-319). In each action the respondent is Her Majesty the Queen in Right of Ontario (Ministry of Health and Long Term Care). For convenience the respondent has been referred to as “the plan” or “OHIP” (Ontario Health Insurance Plan”).
[4] These applications have been generated by a dispute between the solicitors for the injured plaintiffs and the plan
[5] The solicitors’ Notices of Application each seek:
(a) A conditional order that the wording of the Contingency Fee Retainer Agreement between the solicitors, Erickson and Partners, and [the client] complies with section 28.1 of the Solicitors Act RSO 1990 C. S. 15 [I take this to mean “comply with section 28.1 of the Solicitors Act as amplified by Ont. Reg 195/04 passed pursuant to the Solicitors Act”], the condition being that such a holding does not prejudice or abrogate the requirement for final court approval of the agreement under subsection 28.1 (8) of the Solicitors Act;
(b) an order that subsection 39 (6) of the Ontario Regulation 552, under the Health Insurance Act, R. S. O. 1990, Ch 6 is interpreted in the following manner and has the following meanings:
(i) "the insured person" means the insured plaintiff who was the recipient of services which were paid for by the plan,
(ii) "the recovery made on behalf of the plan" includes the Plan’s damages with interest thereon and a proportionate share of costs recovered in the action, but does not include a proportionate share of disbursements recovered,
(iii) "the total recovery of the insured person" includes the damages with interest thereon which are referable exclusively to the insured person and costs recovered in the action, but does not include the damages with interest thereon and the proportionate share of costs referable exclusively to the plan.
[6] The Crown asks for a determination:
a) that the term "recovery of the plan" as used in section 39 (6) of Regulation 552 includes damages recovered by the plan with interest but excludes costs and disbursements.
b) that the term "total recovery of the insured person" as used in section 39 (6) consists of damages recovered by the insured personally and on behalf of the plan, such damages including interest but not costs or disbursements assessed or awarded.
c) that the wording found in the contingency fee agreements used in the two actions does not comply with the Solicitors Act [in that it offends s.28.1(8) of the Solicitors Act and s.2(5) s.3(1), s.3(2) and s.6 of Reg. 195/04 under the Solicitors Act,]
d) that where a contingency fee agreement provides that costs as awarded or assessed to the client form part of the lawyer’s fees payable and an application must be made to the court in accordance with section 28.1 (8) of the Solicitors Act and OHIP should receive notice of any such application [when it has an interest in the litigation].
DOES THE CONTINGENCY FEE RETAINER AGREEMENT COMPLY WITH THE SOLICITORS ACT AND REGULATION?
[7] No. The Contingency Fee Agreement does not comply with the Solicitors Act and Regulation.
[8] While the decision whether to enter into a contingency fee agreement is optional, once this is done, the agreement must be in accordance with section 28.1 Solicitors Act [and Regulation 195/04] (Williams v. Bowler (2006), 2006 19466 (ON SC), 81 OR (3d) 209 ¶23 (Roccamo, J.))
[9] The Solicitors Act and regulation are somewhat confusing. I accept, however, that they contemplate two distinct fee agreements. The first, which I shall call the "standard agreement", provides for a contingent fee involving a percentage of the amount or of the value of the property recovered in an action or proceeding. Both the Act (s. 28.1(8)) and the Regulation (ss.2(5), s.6) make it clear that the "standard agreement" shall exclude in the fee payable to the solicitor, any amount arising as a result of the receipt of costs and disbursements.
[10] As well as the “standard agreement” the Act and Regulation provide for what I shall call a “supplementary agreement”. This agreement is one in which the parties agree that in addition to the fee payable to the solicitor under the standard agreement, the client will also pay an amount arising as a result of an award of costs or costs obtained as part of a settlement regardless of the prohibitions in the Solicitors Act s. 28.1(8) and Regulation 195/04 s.2(5) and s.6.
[11] A supplementary agreement is not enforceable (s. 28.1 (9) Solicitors Act) unless a Superior Court Judge, upon joint application of the solicitor and client, is satisfied that exceptional circumstances apply and the judge approves the inclusion of any amount arising as a result of the recovery of costs on the fee to be paid to the solicitor (s.28.1(8)). Since OHIP may be affected by such an order OHIP should have notice of such an application.
[12] S.2(5) of Regulation 195/04 under the Solicitors Act provides:
A solicitor who is a party to a contingency fee agreement shall ensure that the agreement includes the following:
A statement that sets out the method by which the fee is to be determined and, if the method of determination is as a percentage of the amount recovered, a statement that explains that for the purpose of calculating the fee the amount of recovery excludes (emphasis mine) any amount awarded or agreed to that is separately specified as being in respect of costs and disbursements.
[13] Paragraph 6(i) of the solicitors’ Contingency Fee Retainer Agreement provides:
6(i) The undersigned acknowledges that the agreed-upon contingency fee account to be charged pursuant to this agreement will be calculated and determined as follows:
(1) 25% (twenty-five percent) of the damages recovered (by judgment or settlement) plus HST, plus
(2) A percentage of the damages equal to the amount awarded as costs recovered or identified as costs recovered as part of a settlement, plus HST, plus
(3) The amount awarded as disbursements recovered or identified as disbursements recovered as part of a settlement plus HST, plus
(4) Disbursements not recovered from the defendants plus HST
[14] There is no such statement as that required by s. 2(5) of Regulation 195/04 under the Solicitors Act.
[15] Section 3 (3)(i) of Regulation 195/04 provides that a contingency fee agreement must contain a statement that indicates that if the client is entitled to costs in the action it is the client who is entitled to receive those costs unless a judge orders otherwise.
[16] There is no such statement.
[17] The solicitors argue that paragraph 6(i) (2) of their agreement makes no mention of costs being taken by the solicitors rather it speaks to a portion of the damages recovered calculated on the basis of costs recovered.
[18] Section 28.1(8) the Solicitors Act provides:
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. 2002, c. 24, Sched. A, s. 4.
[19] Section 28.1(8) of the Solicitors Act does not deal with costs per se, it addresses amounts arising as a result of an award of costs or by negotiation. If the amount to be paid to the solicitor is based upon the amount received as costs, it matters not from which envelope payment is to be made: the “damages” envelope, or the “costs” envelope. To hold otherwise would be to defeat the clear intention of the legislation. The duty of the courts is to execute the lawful intent of the legislature.
[20] In saying no more about the agreement’s non compliance with the Solicitors Act and regulations I must not be taken to have approved the agreement otherwise.
[21] For example, s. 28.1 (11) Solicitor’s Act provides:
"for purposes of assessment, if a contingency fee agreement:
(a) is not one to which subsection (6) or (8) applies, the client may apply to the Superior Court of Justice for an assessment of the solicitors bill within 30 days after its delivery or within one year after its payment; or
(b) is one to which subsection (6) or (8) applies, the client or the solicitor may apply to the Superior Court of justice for an assessment within the time prescribed by regulation made under this section.”
[22] Section 10 Regulation 195/04 provides:
"for the purposes of clause 28.1 (11) (b) of the act, the client or the solicitor may apply to the Superior Court of justice for an assessment of the solicitors bill rendered in respect of the contingency fee agreement to which subsection 28.1 (6) or (8) of the act applies within six months after its delivery."
[23] Paragraph 6(xi) of the agreement provides:
“I understand that I have the right to request the Superior Court of Justice to review [the solicitor’s] accounts for fees, disbursements and HST within one year of the date that I receive the account (six months applies if the account is sent to me as litigation guardian).”
[24] This paragraph addresses the client’s right to have the actual solicitor’s account assessed. It does not address a motion under s. 28.1(6) Solicitor’s Act brought by the client and solicitor within 90 days after the agreement is executed to have a judge approve an amount to be paid that exceeds the maximum prescribed by regulation, or a motion under s. 28.1(8) to have a judge approve payment of some or all of the money arising as a result of fees.
[25] Section1(1)(c) Reg. 195/04 provides that the Contingency Fee Agreement shall be signed by both the client and the solicitor with each of their signatures being verified by a witness.
[26] In at least one of these cases it appears that the client signed as a witness to the solicitor’s signature and the solicitor signed as a witness to the client’s signature. I leave to another day the determination of the adequacy of that procedure.
[27] Section 1(2) provides that an executed copy shall be given to the client.
[28] There is no evidence I have seen that shows compliance.
[29] Section 2(1) provides that the agreement shall include the name, address, and telephone number of the client.
[30] A cursory review of the document failed to show compliance.
[31] These and other prima facie deficiencies were not argued. I may be wrong in my assessment of them so I leave their determination and effect to another day.
ALLOCATING COSTS
[32] Section 39 of Reg.552 Health Insurance Act provides that, generally speaking, the solicitor for a person who was the recipient of insured services under the Ontario Health Insurance Plan as a result of certain torts committed, shall also act as solicitor for the plan in the recovery of the plan’s loss. This is ordinarily done by including the sums paid out by the plan on behalf of the insured persons in the latters’ action for damages.
[33] In return the plan must pay a share of the costs of the litigation whether successful or not. The calculation of that share under sections 39(6), (7) and (8) Regulation 552 under the Health Insurance Act is a matter of contention.
[34] Section 39(6) Reg, 552 provides in part:
“. . . the plan shall bear the same proportion of the taxable costs otherwise payable by the insured person as the recovery made on behalf of the plan bears to the total recovery of the insured person.”
[35] In this case application of s. 39(6) has raised two questions:
a) Should a proportion of costs recovered in the action be attributed to the plan when calculating “the recovery made on behalf of the plan”?
b) Should the amount of costs and damages ascribed to the plan be included when calculating “the total recovery of the insured person”?
Calculation Of “The Recovery Made On Behalf Of The Plan”:
[36] The solicitors submit that the recovery made on behalf of the plan is calculated by adding the plan’s damages with interest thereon plus a proportionate share of costs recovered in the action, but not including a proportionate share of disbursements recovered.
[37] The plan submits that the recovery made on behalf of the plan is simply the amount of damages attributed to the plan plus the interest thereon. (I believe the plan agrees that since the client was responsible for disbursements, to the extent that costs recovered included disbursements no portion of the disbursements should be attributed to the plan.) The plan submits that costs (not including disbursements) are accounted for by first applying them to the final solicitors’ bill and then using s. 39(6) to allocate the plan’s responsibility for its proportionate share of the net fees owing. (I.e. net fees equal total taxable fees owing minus fees recovered. Plan pays its proportion of the net fees based upon damages and interest ascribed to damages only.) At first I was attracted by the simplicity of this approach and the memory (perhaps faulty) that this was the practice in years gone by.
[38] Having mulled over this issue for far too long I find that I am led to accept the solicitors’ approach to the application of costs received. A proportion of the costs received should be attributed to the plan for the purposes of determining the “proportion of the taxable costs otherwise payable by the insured person . . . as the recovery made on behalf of the plan bears to the total recovery of the insured person in the action”.
[39] The answer to this issue is to be found in the interpretation of the phrase "costs otherwise payable by the insured party" found in s. 39(6) Reg.552. In my opinion this refers to the costs payable by the injured party but for the subrogation provision found in s. 30 of the Health Insurance Act and s. 39(6) Reg. 552.
[40] Section 30 (1) of the Health Insurance Act provides that
". . . The plan is subrogated to any right of the insured person to recover the cost incurred for. . . insured services. . .".
[41] “In insurance law ‘subrogation’ is the name given to the right of the insurer who has paid a loss to be put in the place of the insured so that he can take advantage of any means available to the insured to extinguish or diminish the loss for which the insurer has indemnified the assured." MacGillivray & Parkington On Insurance Law, 8th ed. (1988) at p.477, cited by Laskin, JA in Mason v. Ontario (Ministry of Community and Social Services (1998), 1998 1316 (ON CA), 39 O.R. (3d) 225 (CA) at ¶ 21.
“This passage illustrates that where an insurer is subrogated to the claim of its insured, the claim nevertheless remains that of the insured in whose name and with whose rights the claim must be advanced. The law generally insists that the insured, though no more than a nominal plaintiff, must assert the claim, not the insurer for whose benefit the action is being brought. . . .” Mason v. Ontario (Ministry of Community and Social Services (1998), 1998 1316 (ON CA), 39 O.R. (3d) 225 (CA) at ¶ 22
[42] In the context of s. 39(6) “cost incurred” refers primarily to the sum paid out by the plan for insured services.
[43] The phrase “insured person” used in s. 39(6) Reg. 552 and s. 30(1) of the Health Insurance Act is defined by S. 1 of the Health Insurance Act, under which Reg. 552 was promulgated:
“insured person” is “a person who is entitled to insured services under this Act and the regulations”.
[44] We start the analysis regarding the handling of costs receivable by accepting that the ultimate object of the exercise is to determine the proportion of “the taxable costs otherwise payable by the insured person”. I take this to mean “otherwise payable but for the subrogation legislation and the mandatory provision of s. 39(6).”
[45] The only person contractually obligated to pay the solicitors’ fees is the injured person. On his part, in the absence of the subrogation provisions, the solicitor is entitled to send only one account and that is to the injured party.
[46] At common law an injured person was entitled to the profits of the collateral benefits rule (sometimes referred to as the collateral source rule). This provided that if an injured person received compensation for his injuries from a source independent of the tortfeasor, the payment should not be deducted from the damages that the tortfeasor must pay. If there was no subrogation agreement between the injured party and his insurer or if there was no legislation similar to that which exists in this situation, an injured party might be enriched to the extent of the insurer’s unsubrogated contribution. Litigation over the past 30 years has modified the application of this rule but the principle remains intact.
[47] But for the legislation and regulation set out above the injured person would have been entitled to recover damages which included the amount paid on his behalf by OHIP without accounting for it to OHIP. On the other side of the coin, but for s. 30 of the Act and s. 39(6) of the regulation the insured person would have been responsible for 100% of the gross costs.
[48] It is that 100% of the gross costs that constitutes "the taxable costs otherwise payable [“but for s. 30 and s.39(6)”] by the insured person”.
[49] The fact that we are apportioning “taxable costs” reinforces the conclusion that there is no legislative intent that the costs received should first be applied to the final bill before the apportionment takes place. One taxes the entire bill even though some if not all of the bill might have been paid in advance.
[50] It was argued that including a proportion of the costs recovered in the recovery made on behalf of the plan involves “double dipping”. I reject this argument. At this stage in the computation we are simply determining proportions, not finite amounts.
Should costs and damages ascribed to OHIP be included when calculating “the total recovery of the insured person”?
[51] The solicitors take the position that in determining the proportion of the costs as the recovery made on behalf of the plan bears to the total recovery of the insured person in the action one uses as the denominator the net recovery of the insured person after deduction of the amount ascribed to OHIP.
[52] In other words, disregarding for the moment what is considered when determining each party’s entitlement, the solicitor submits that in a case where the solicitor’s fee is $60,000, the plan recovers $50,000 and the insured party recovers $100,000 the Plan has recovered ½ that of the insured party and should be expected to pay ½ of the solicitor’s fee. Thus the Plan should pay $50,000 x $60,000 ÷ $100,000 or $30,000.
[53] I do not believe this to be the case.
[54] While I had no mathematical evidence before me, my understanding of the calculation of proportions involves taking each individual claim and apportioning it according to the total of claims outstanding. Similar situations occur not only in personal injury litigation affecting OHIP but in the apportioning of child support expenses under s.7 of the Child Support Guidelines and the distribution of bankrupt estates amongst creditors.
[55] This is done by multiplying the recovery made on behalf of the plan (which, as we have seen includes a proportion of the fees recovered,) by the amount of the fees owing divided by the sum of the total recovery by the plan and the injured party.
[56] In other words the plan would owe: $50,000 x $60,000 ÷ $150,000 = $20,000.
Family Law Act Claimants:
[57] The examples above are based upon two parties: the injured party and the plan. Other considerations apply when Family Law Act claimants also claim in the same action. While OHIP’s claim is essentially a claim of the injured party advanced by the injured party on the understanding that the amount claimed will be paid to OHIP by the injured party in return for OHIP paying the regulatory proportion of the costs of litigation, claims under s 61 of the Family Law Act are essentially class actions brought by at least one member of the class on behalf of them all. While it can be argued that the total recovery of the insured person includes the amount to be paid to OHIP under subrogation, the same cannot be argued regarding the amounts recovered by Family Law Act claimants. These claims are “stand alone”[1]claims and the parties would do well to decide in advance whether the Family Law Act claimants will be expected to contribute their proportional share to the final legal costs in which case the amount recovered by the FLA claimants including a share of costs received will be used as the numerator and the total of everyone’s recovery, including costs recovered, will be the denominator). If not, will their share be borne by the injured party and OHIP proportionally or by the injured party alone? If they are expected to contribute to the final costs the solicitor would be well advised to enter into an express fee agreement with them.
Summary:
[58] Assume:
A is the taxable costs (without disbursements) to be divided between the injured party and the plan.
A1 is the net taxable costs to be divided according to OHIP’ theory (A-B)
B is the amount of costs recovered (without disbursements).
C is OHIP’s proportionate share of costs recovered
D is OHIP’s damages and interest awarded
E is the Injured party’s personal damages and interest awarded
F is the amount of “the recovery made on behalf of the plan”
G is the “total recovery of the insured person”
H Injured party’s share of costs recovered (B – C)
[59] Positions
Solicitors’ position:
“the recovery made on behalf of the plan" includes the Plan’s damages with interest thereon and a proportionate share of costs recovered in the action, but does not include a proportionate share of disbursements recovered, (F= (D + C))
"the total recovery of the insured person" includes the damages with interest thereon which are referable exclusively to the insured person and costs recovered in the action, but does not include the damages with interest thereon and the proportionate share of costs referable exclusively to the plan. (G = (E + H))
OHIP’s position:
that the term "recovery of the plan" as used in section 39 (6) of Regulation 552 includes damages recovered by the plan with interest but excludes costs and disbursements. (F = D)
that the term "total recovery of the insured person" as used in section 39 (6) consists of damages recovered by the insured personally and on behalf of the plan, such damages including interest but not costs or disbursements assessed or awarded. (G= E)
the costs recovered are deducted from the costs payable and it is the net that is apportioned amongst the parties. (A1 = A – B)
Opinion Of The Court:
[60] The Contingency fee Agreement does not comply with the Solicitors Act and regulation.
[61] In determining OHIP’s obligation to pay a proportion of the taxable costs owing:
a) Ascertain the amount of the taxable costs owing, (the solicitor’s fees) (A). The taxable amount of the solicitor’s fees (A) should be ascertained by agreement of all parties, including OHIP or assessment.
Where S. 28.1(8) dictates that an application be made to a judge for approval to include in the fee an amount arising as a result of an award of costs etc. notice of that application must be served upon OHIP as an interested party.
Where notice is given of the assessment of such fees natural justice demands that OHIP be served as well.
b) Ascertain OHIP’s share the amount of costs recoverable (B) . The amount of the costs recovered (B) attributable to OHIP (C) should be ascertained by multiplying OHIP’s share of the damages and interest (D) by the amount of costs recovered (B) and dividing by the amount of damages and interest personally recovered by the insured party (E).
c) Ascertain the amount of the recovery made on behalf of the plan (F): Having determined C, the amount of the recovery made on behalf of the plan is the total of OHIP’S share of the damages and interest plus its share of the costs receivable. (F= (D + C))
d) Ascertain OHIP’s proportion of the taxable costs: The amount of fees OHIP should pay is ascertained by multiplying the amount of the recovery made on behalf of the plan (F) by the amount of the taxable costs (A) and dividing by the total amount recovered in the action (D + E + B)
[62] A Declaratory Judgment may issue accordingly.
[63] I may be spoken to regarding costs and any matters of a mathematical nature.
_____”original signed by”
The Hon. Mr. Justice J. deP. Wright
Released: July 21, 2014
COURT FILE NO.: CV-13-0318 & CV-03-0319
DATE: 2014-07-21
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
COURT FILE NO.: CV-13-0318
Erickson & Partners,
Applicant
- and –
Her Majesty the Queen in Right of Ontario (Ministry of Health and Long-Term Care)
Respondent
A N D B E T W E E N:
COURT FILE NO.: CV-13-0319
Erickson & Partners,
Applicant
- and –
Her Majesty the Queen in Right of Ontario (Ministry of Health and Long-Term Care)
Respondent
REASONS FOR JUDGMENT
J. deP. Wright J.
Released: July 21, 2014
Final
/mls
[1] While Family Law Act claims are derivative or vicarious and exist only if the injured person himself could recover damages (Fera v. Uguccioni (1981) 1980 1781 (ON SC), 29 O.R. (2d) 65 (Anderson, J), the injured party cannot assert the claim on behalf of the others. (Hartwick v. MacIntyre (1981) 1980 1844 (ON SC), 29 O.R. (2d) 417,appeal denied 1982 2213 (ON CA), 35 O.R. (2d) 119 (CA). While FLA claims can be brought in an action commenced by the injured person, they must be brought by a member of the class asserting the rights on behalf of himself and all other FLA claimants. Where contributory negligence is likely to be alleged against the injured party the derivative claim should be asserted in a separate action against both the injured party and the third party. (Goudie v. Eramosa (1980) 1980 1794 (ON SC), 31 O.R. (2d) 414 (Carruthers, J.)
In Holder v. Greater Niagara General Hospital [1998] O.J. No. 1523, a case in which no recovery had been made and the issue was the percentage of the agreed party-party costs to be borne by OHIP, the definition of “Insured Person” in the Health Insurance Act was applied to s.39(6) Regulation 552 and limited to the injured plaintiff. MacFarland, J.(as she then was) held that “to include the F.L.A. claims and other claims of the parents into the calculation would offend the very clear language of the legislation.” (¶8). She accepted, however, “that some minor portion of the agreed costs figures would be attributable to those other claims and some amount should be carved out of the [agreed costs figures] to reflect those other costs.” (¶9)