Court File and Parties
Citation: Murillo v. Turnbull, 2016 ONSC 1906
Court File No.: 8030/12
Date: 2016-03-17
Superior Court of Justice - Ontario
Re: Luz Gomez Murillo and Christian Moreno Gomez, Plaintiffs
And: Max Turnbull and Custodio Moreno Romero, Defendant
Before: Heeney R.S.J.
Counsel: T. McKinlay, for Karl Arvai Professional Corporation R. Mitri, for Grillo Barristers
Heard: March 16, 2016 at London
Endorsement
[1] This endorsement will provide reasons for the oral ruling I made yesterday following argument. I will endeavour to make it as brief as possible. As will be observed below, there has been a colossal waste of legal resources on this dispute to date, and I am not inclined to add to the tally.
[2] The case involves a motor vehicle accident that occurred on August 29, 2010. The plaintiffs initially retained Patey Law Group to act on their behalf in the tort claim, and proceedings were commenced. The retained the Accident Resolution Group to deal with the accident benefits claim.
[3] Following examinations for discovery of the defendant Max Turnbull, it appeared that partial liability might be found against Custodio Moreno Romero, who was represented by Patey in a separate action against the same defendant. This put Patey into a conflict of interest, which necessitated a change in counsel. Custodio Romero was later added as a defendant in this action.
[4] The plaintiffs then retained Grillo Barristers (“Grillo”) to act for them, in both the tort and accident benefits claims. In accordance with standard practice, Grillo paid Patey and the Accident Benefits Group for the disbursements they had incurred to date, amounting to about $2,800. They also undertook to protect their accounts for fees when the action was settled or judgment was obtained.
[5] Grillo prosecuted the action through the completion of discoveries and compliance with undertakings, and the assembly of evidence to support their claims. On August 28, 2015, they received a courtesy call from the plaintiffs, advising that they had retained new counsel. They were assured that it was nothing personal, and was by no means as a result of the services they had received.
[6] A letter followed from Lee Wiseman on behalf of Karl Arvai Professional Corporation (“Arvai”), advising that they had been retained. It enclosed a Direction for transfer of the file, and undertook to protect Grillo’s account for fees and disbursements against litigation proceeds subject to the client’s right of assessment.
[7] Following verbal communications regarding the status of the files, Grillo responded by letters dated September 28, 2015, which enclosed copies of their accounts for fees and disbursements to date. They indicated that they were prepared to forward the file upon payment of their disbursements, as well as an undertaking to protect their account for fees from any settlement or judgment. Disbursements stood, at that point in time, at just over $11,000, which included the amount Grillo had reimbursed to the two previous firms.
[8] Arvai responded on September 30, 2015, stating that they were not agreeable to paying Grillo’s disbursements, and demanded transfer of the file.
[9] Things went downhill quickly from there.
[10] Grillo obtained an order for assessment of their costs under the Solicitor’s Act, and according to the Affidavit of Service sworn October 9, 2015, all of that material was served on Arvai. No-one appeared for the plaintiffs on the assessment, and costs were assessed in their absence. When Arvai received a copy of the Certificate of Assessment, they claimed that they never received the material sent on October 9.
[11] Then the barrage of legal proceedings commenced. Arvai served a Notice of Motion dated January 8, 2016 for an order that the file be transferred, followed by Notice of Motion dated January 27, 2016 for an order setting aside the Certificate of Assessment, followed by a Notice of Application issued February 3, 2016 for an order declaring the retainer agreement executed between the plaintiffs and Grillo null and void.
[12] Ms. Mitri, for Grillo, was trying to bring an end to this escalating conflict, and wrote an email on February 11, 2016 offering to settle all outstanding proceedings. In that email, she agreed to forward the file, and consent to an order setting aside the Certificate of Assessment. In return, she was content to accept Arvail’s undertaking to protect their fees and disbursements, but wanted the additional security of a charging order against the proceeds of settlement, for their fees and disbursements as agreed upon or as determined upon assessment. All pending proceedings would be discontinued on a without costs basis.
[13] Arvai’s offer to settle followed, dated February 12, 2016. It essentially agreed to resolve all matters as proposed, but demanded costs of $11,195.66.
[14] Unsurprisingly, matters did not settle, and Grillo served a Cross-Motion of their own dated March 14, 2016, for an order that they be removed from the record and be paid their disbursements.
[15] All of this landed on my dais on March 16 in the form of a banker’s box full of material. I immediately observed that the only issue in dispute appeared to be which law firm would carry about $11,000 in disbursements, whereas at least double or triple that amount had undoubtedly been spent in legal fees already so as to generate the enormous volume of documentation that was before me. I urged counsel to bring some sense of proportionality to bear, and adjourned court so that they could attempt to resolve matters.
[16] To the credit of counsel, they did arrive at a resolution. Consent orders were prepared to resolve matters as follows: the file was to be transferred, upon Arvai paying $4,000 in disbursements to Grillo, with the balance to be carried by them pending completion of the file; the Certificate of Assessment was to be set aside; and the Application was withdrawn, on the basis that the Assessment Officer will not be bound by the terms of the retainer, but will assess Grillo’s accounts on a quantum meruit basis.
[17] What they could not agree on was costs, and that was left for argument before me.
[18] Mr. McKinlay, for Arvai, presented Costs Outlines showing substantial indemnity costs totalling $25,991.84, although he was prepared to accept a lower amount on a partial indemnity basis. Ms. Mitri, for Grillo, filed Costs Outlines showing substantial indemnity costs totalling $12,004.07.
[19] Where matters are settled, the court has not declared a “winner” or a “loser”. For that reason, the court is placed in a difficult position when asked to award costs to one side or the other. In such cases, the court should be very slow to make an award of costs against either party to a settlement: see Talbot v. Talbot, 2016 ONSC 1351 per Templeton J. The default position on a settlement would be an order that there be no costs.
[20] Mr. McKinlay vigorously argued that the position advocated by them throughout was correct, such that they should be vindicated by an order of costs. He relied on caselaw which stands for the proposition that successor counsel can’t be ordered to pay the disbursements of the law firm that previously handled the file. That is quite true. A law firm is not a party and cannot be ordered to do anything, and in particular they cannot be ordered to take over a file on terms that are not acceptable to them.
[21] However, that does not answer the question as to whether the prior law firm can insist on payment of their disbursements from the client prior to releasing the file, when they have a written retainer agreement signed by the clients that entitles the firm to payment of their fees and disbursements “forthwith” upon breakdown of the solicitor and client relationship. In this case, a contingency fee retainer was executed by the plaintiffs on September 25, 2013, which provided for precisely that, in clear and unambiguous terms.
[22] Mr. McKinlay argued that the retainer agreement was void because it was not fair and reasonable. However, he conceded that he could point to no decided case holding that the term relied upon by Grillo was unfair and unreasonable and therefore unenforceable. The closest he came to it was a decision by Miller J. (as he then was) in a related file, Romero v. Turnbull, 2015 ONSC 3638, which ordered the transfer of that file to Arvai notwithstanding the existence of a retainer agreement whereby the client agreed to pay for the fees and disbursements up to the date of termination of the lawyer’s services. However, that case did not turn on the enforceability of that term, but rather on the basis that the agreement did not specify when payment had to be made.
[23] In Ashurst v. Wilson (2000), 2000 BCSC 901, the court ordered transfer of the file, notwithstanding the existence of a retainer agreement which contained a similar flaw. At paras. 19 and 20, Boyle J. said the following:
There is nothing in the Act or in the retainer letter requiring payment of disbursements before a file is transferred.
The retainer letter is specific only as to hourly rate of fees on transfer. It fixes no time-table. Contingency practice is risky. Counsel can be protected only by full and clear terms in a retainer letter.
[24] Grillo’s retainer agreement was full and clear, and required payment “forthwith” upon breakdown of the solicitor and client relationship.
[25] There is nothing inherently unfair or unreasonable about such a term. Mr. McKinlay concedes that it is standard practice among the personal injury bar for the successor law firm to reimburse the previous law firm for their disbursements upon taking over the file, coupled with an undertaking to protect their fees from settlement or judgment. While this does not create a legal obligation on the successor law firm to do so, the fact that it is standard practice speaks to the reasonableness of such a term.
[26] Taking on a personal injury file on a contingent fee basis is a gamble. The law firm puts up their own money to fund disbursements, and carries their work in progress on their books unbilled, in the expectation that they will ultimately reap a generous reward when the case is concluded by a settlement or judgment. In many or most cases, the firm stands to recover as much as 1/3 of the client’s award, which usually amounts to substantially more than the firm would earn on the basis of hourly billings.
[27] In this case, Arvai now has the file and stands to reap those rewards, yet seeks to have Grillo continue to carry the disbursements and the risk that the case may ultimately be unsuccessful, while having no right to share in the fruits of settlement or judgment beyond their hourly billings. That, in my view, is not reasonable. If the case has sufficient apparent merit to warrant taking the file on, Arvai should be prepared to carry the disbursements, as they no doubt do with their many other personal injury files where they are retained on a contingent fee basis.
[28] Mr. McKinlay argued that Arvai could not assess the case for the purpose of determining whether they should take it on without first having the file. That submission is fully answered by the fact that Grillo was prepared to make the file available for inspection.
[29] That is not to say that transfer of the file without the assumption of disbursements should necessarily be refused whenever such a retainer agreement is in place. There are other considerations that could potentially be at play. Here, the plaintiffs are on public assistance, and do not have the means to pay $11,000 in disbursements. Denying them their file could well raise access to justice issues. However, this would only become a concern if it were clear that they simply could not retain competent counsel who were willing to carry their disbursements. From all of the evidence in this file, I am not persuaded that this is the case.
[30] I find it telling that Arvai maintains that it was unable to pick up $11,000 in disbursements, yet was apparently prepared to incur legal expenses totalling $25,991.84 to litigate the issue. This was a shockingly disproportionate waste of legal resources.
[31] If anyone is entitled to costs, it is Grillo. The result that was ultimately arrived at is more favourable to Grillo than their offer to settle of February 11, 2016. However, in my view, parties and counsel should be encouraged to settle their disputes, and should not be discouraged from doing so by the threat of a substantial award of costs being made against them thereafter. I am disposed to follow the approach of Templeton J. in Talbot, and award no costs to either side on any of the matters before me.
[32] I have signed the draft orders that were presented to me, with handwritten costs endorsements to that effect. Although three orders were in the material I was left with, counsel indicated that there were four. If there is an additional order that requires my signature, counsel may forward it to my office. The Application was dealt with by a handwritten endorsement on the Application Record.
[33] For housekeeping purposes, these reasons are released within court file 8030/12, but they resolve motions brought in court files 2097/15 and 2098/15 as well. Copies thereof should be placed in each file.
“T. A. Heeney R.S.J.”
Regional Senior Justice T. A. Heeney
Date: March 17, 2016