COURT FILE NO.: CV-17-571222-0000 DATE: 20170623 SUPERIOR COURT OF JUSTICE – ONTARIO

RE: ABDULLAH ALMALKI, KHUZAIMAH KALIFAH, ABDULRAHMAN ALMALKI, by His Litigation Guardian Khuzaimah Kalifah, SAJEDA ALMALKI, by her Litigation Guardian Khuzaimah Kalifah, MUAZ ALMALKI, by his Litigation Guardian Khuzaimah Kalifah, RUQAYA ALMALKI, by her Litigation Guardian Khuzaimah Kalifah, ZAKARIYYA ALMALKI, by his Litigation Guardian Khuzaimah Kalifah, NADIM ALMALKI and FATIMA ALMALKI and FATIMA ALMALKI, Plaintiffs

AND:

THE ATTORNEY GENERAL OF CANADA, JOHN DOE and JANE DOE, Defendants

BEFORE: Madam Justice V.R. Chiappetta

COUNSEL: J. Thomas Curry, for the Moving Party, Stockwoods LLP Peter I. Waldman, for the Plaintiffs

HEARD: June 22, 2017

ENDORSEMENT

Overview

[1] On January 13, 2009, Stockwoods LLP (Stockwoods) and the plaintiffs entered into a contingency fee agreement (the fee agreement).

[2] There are two issues before the court. The first issue is whether paragraph 16 of the fee agreement is enforceable and binding on the parties. If paragraph 16 is enforceable, the second issue is whether the plaintiffs are required to join Stockwoods in a motion to the court for approval to include in the fee payable to Stockwoods a portion of the costs obtained as part of the settlement because of exceptional circumstances.

[3] For reasons that follow I have concluded that paragraph 16 of the fee agreement is enforceable and that the plaintiffs are required to join Stockwoods in a motion to the court for approval to include in the fee payable to Stockwoods a portion of costs obtained as part of the settlement because of exceptional circumstances.

Whether paragraph 16 of the fee agreement is enforceable and binding on the parties

(a) Background

[4] The parties agree that the form of fee agreement entered into is a contingency agreement as defined in s.28.1(2) of the Solicitor’s Act R.S.O., 1990, CHAPTER S. 15 (the Act). The fee agreement provides for Stockwoods to receive a contingency fee calculated as a percentage of an amount recovered in the action by way of settlement, judgment or other recovery amount received. The issue is whether that fee may properly include a percentage of the amount the plaintiffs received in the settlement for legal costs as expressly provided for at paragraph 16 in the fee agreement. The plaintiffs allege that paragraph 16 of the fee agreement is contrary to s.28.1(8) of the Act.

[5] On November 10, 2008, Mr. Almalki first approached Stockwoods about the possibility of the plaintiffs retaining the firm as counsel of record.

[6] On November 14, 2008 Owen Rees, a former associate with Stockwoods, sent an email to Mr. Almalki outlining the financial terms on which the firm would be prepared to represent the plaintiffs. The email sets out the basis on which the firm’s compensation for all time spent and other professional services rendered would be calculated. The email reads in relevant part:

In the event of settlement after the date that is 60 days before the scheduled commencement of a trial, the Fee would be calculated as twenty percent (20%) of the full net settlement or judgment amount received, inclusive of costs and interests and after payment of disbursements.

[7] Mr. Almalki responded to the proposed financial terms by email the same day and asked a question unrelated to the inclusion of costs in the “full net settlement or judgment amount received.” Protracted negotiations about the terms and conditions of a contingency fee retainer agreement ensued with Stockwoods’ lawyers and Mr. Almalki between December 2008 and January 2009. Mr. Almalki raised questions and sought revisions regarding several specific paragraphs of the proposed fee agreement including those pertaining to a joint retainer with two others concerning separate actions and the consequences of Stockwoods withdrawing from representing the plaintiffs.

[8] Prior to executing the fee agreement, Stockwoods encouraged the plaintiffs to obtain independent legal advice about the terms of the proposed fee agreement. Throughout the period of its negotiation with Stockwoods, Mr. Almalki sought independent legal advice from one or more lawyers with respect to issues specific to the proposed fee agreement. By email dated January 7, 2009, Mr. Almalki advised representatives of Stockwoods:

Below is a reply I got from one of the lawyers asked for their opinion on the retainer. Would you please give me examples of what you regard as good cause? “I do not understand why they would be entitled to their contingency fee if they withdraw from case for good cause. You might ask them to give you some examples of what they would regard as good cause.”

[9] The fee agreement contains an express acknowledgment by the plaintiffs that they were advised to obtain independent legal advice and had the opportunity to do so (paragraph 11). The evidence of Mr. Almalki today is that he chose not to receive advice about what is now paragraph 16 of the fee agreement. If this is so, it does not negate the fact that he had full opportunity to do so when he received independent legal advice on the terms of the draft fee agreement nor the fact that he was informed by Stockwoods that the plaintiffs should obtain independent legal advice prior to executing the proposed fee agreement.

[10] Stockwoods exchanged various drafts of the proposed fee agreement with Mr. Almalki. Mr. Almalki commented and proposed various revisions to the drafts before the fee agreement was finalized. All drafts of the proposed fee agreement exchanged with Mr. Almalki for his review and comment contained a provision setting out the terms of what is now paragraph 16 of the fee arrangement. At no time did Mr. Almalki object to that provision or raise any questions or concerns about the inclusion of costs in the “full net settlement or judgment amount received” on which Stockwoods fee would be calculated.

(b) Compliance with s.28.1(8) of the Act

[11] Contingency fee agreements are permitted in Ontario, subject to certain restrictions set out in the Act and the regulation thereto.

[12] Regarding the issue of costs under a contingency fee agreement, section 28.1(8) of the Act reads as follows:

A contingency fee agreement shall not include 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.

[13] The legislature has recognized therefore that under a contingency fee agreement there may be some circumstances wherein lawyers are entitled to all or part of an award of costs or costs obtained as part of settlement in order to be fairly compensated. Section 28.1(8) of the Act creates a safeguarded process whereby the client and the lawyer jointly seek the court’s approval of the inclusion of costs or a portion of them in a contingency fee agreement and the court’s finding that exceptional circumstances apply.

[14] Paragraph 16 of the fee agreement reads as follows:

the Clients and Stockwoods LLP acknowledge and agree that given the exceptional circumstances that may arise in this case and subject to the Court’s approval, their mutual intent is that is the Clients receive any settlement, judgment or other recovery amount that includes an award of legal costs (including any such award for fees or disbursements), then any such amounts received by the Clients as legal costs be included in the net amounts to which the Fee calculation in para. 4 of this agreement is applied. Accordingly, if requested by Stockwoods LLP, the Clients agree to join in an Application under s.28(8) [ sic s. 28.1(8) ] of the Solicitor’s Act , 1990. C. S-25 for approval by the Court of the payment to Stockwoods LLP of an appropriate percentage portion of any legal costs amounts received, by way of settlement, judgment, or otherwise.

[15] The parties to the fee agreement contracted that exceptional circumstances may arise and if they do, their mutual intent is to have a portion of legal costs awarded included in the net fees payable. Their mutual intent however is not enforceable as it remains subject to court approval. Judicial approval of costs in the fee agreement and judicial determination of a finding of exceptional circumstances is preserved. Stockwoods is not entitled to any portion of the costs unless the court is satisfied that exceptional circumstances exist.

[16] The fee agreement therefore does not include in the fee payable an amount arising as a result of an award of costs. Rather, it recognizes a mutual intent should exceptional circumstances arise and, if so, a commitment by the contractual parties to comply with section 28.1(8).

[17] The contingency fee agreement at issue is therefore distinguishable from the contingency fee agreement considered in Hodge v Neinstein, 2015 ONSC 7345 (Div Ct); 2017 ONCA 494 (OCA). In Hodge, the contingency fee agreement in issue included the recovery of costs plus a percentage of the damages as fees. It did not contain a clause advising the client that a Judge’s order was required before the solicitor was entitled to take a costs portion of the monies recovered for the client. The evidence before the Divisional Court was that the standard practice of the law firm was not to obtain court approval for taking a percentage fee plus costs as a fee under a contingency fee agreement (para. 29).

[18] In this case, the fee agreement expressly sets out the clients’ rights. It expressly restricts Stockwoods’ rights to take part of the costs without seeking court approval or without satisfying a court that exceptional circumstances apply and it expressly obtains the plaintiff’s agreement by execution of the fee agreement.

[19] The plaintiffs’ acknowledgement that exceptional circumstances may arise in this case and their consent to jointly apply to the court pursuant to s.28.1(8) of the Act is obtained by contract at the time of the retainer. Securing the clients’ agreement to jointly apply to the court pursuant to s.28.1(8) of the Act at the commencement of the solicitor and client relationship is not limited by the Act. There is good reason for this. The purpose of a contingency fee agreement in part is for the client and the lawyer to fully understand and agree to all terms that will determine the amount of money received by each party upon the completion of the solicitor and client relationship. The agreement provides both the lawyer and the client with equal expectations of legal fees that the client cannot otherwise pay for throughout the course of the litigation. It is prudent therefore for the parties to negotiate, agree and set out their intention concerning exceptional circumstances at the beginning of the relationship. This prevents conflict at the end of the relationship as a result of second thoughts or a reconsideration of fees and highlights the potentially impactful consequences of judicial approval in this regard on the distribution of the amounts recovered. The client is not waiving any rights it may have under the Act, as argued by the plaintiffs. Rather, it is acknowledging its intent to have a portion of legal costs awarded included in the net fees payable should exceptional circumstances arise and agreeing to the statutory process required to affect its intent. It is on this basis that Stockwoods agreed to assume the risks resultant to law firms from contingency fee agreements and provide the legal services as contracted.

[20] In my view, therefore, the language of paragraph16 of the fee agreement addresses, respects and preserves the safeguards set out in s.28.1(8) of the Act.

(c) General principles of contract

[21] Stockwoods acknowledges that a contingency fee agreement is not a purely commercial contract such that there are higher expectations (Zipchen v Bainbridge, 2008 SKCA 87, at para 64). In this case however, there is no evidence of fraud, duress, mistake of fact or unconscionability. There is no evidence of Mr. Almalki’s failure to understand the fee agreement or specifically the effect of the language of paragraph 16. There is no evidence that the plaintiffs were misled by Stockwoods.

[22] Further, and significantly, Mr. Almalki actively participated in the negotiation of the particular terms of the fee agreement objectively informed by independent legal advice. Paragraph 16 of the fee agreement is written in clear unambiguous language. It reflects the intention of the plaintiffs to acknowledge that exceptional circumstances may arise in the case and, if so, to join Stockwoods’ motion to the court to request Stockwoods be entitled to a portion of any amount awarded to the plaintiffs on account of costs. Mr. Almalki did not raise any concerns about the inclusion of the language of what is now paragraph 16 of the fee agreement nor did he seek to revise it at any point during the lengthy negotiation process, despite raising questions and seeking revisions regarding certain other provisions of the draft fee agreement.

[23] The plaintiffs argue that the doctrine of contra proferentem requires an interpretation of paragraph 16 against Stockwoods’ position, submitting that the ambiguity in the paragraph should be resolved in favour of the plaintiffs (Seidel v Telus Communications Inc., 2011 SCC 15 at paras. 47-48). The plaintiffs rely upon a typographical error wherein section 28(8) of the Act is written, which does not exist, instead of section 28.1(8). Further ambiguity is reflected, it is submitted, in describing exceptional circumstances in paragraph 16 as something that “may” arise in the future, implying therefore that they may not and using the word “accordingly” thereafter.

[24] In my view the language of the fee agreement, including paragraph 16 is clear on its face and unambiguous such that the principle of contra proferentem does not apply. The typo was unfortunate but obvious in that there is no section 28(8) of the Act and the context of paragraph 16 clearly speaks to section 28.1(8). There is no evidence that the plaintiffs’ legal advisor was confused by the typographical error. Further, paragraph 16 clearly describes the parties’ mutual intent in advance of something that could not be foretold at the time of contract and specifically recognizes that this mutual intent is not determinative; it remains subject to a court’s finding of exceptional circumstances.

[25] Finally, the plaintiffs argue that the court should not enforce paragraph 16 on public policy grounds as it is “expressly or impliedly prohibited by statute.” Paragraph 16 is not prohibited by statute however. Rather, as set out above, the language of paragraph 16 and the bargain made therein respects the obligations, protections and purposes of section 28.1(8) of the Act, advancing access to justice and preserving the court’s oversight with respect to a determination of exceptional circumstances.

[26] There is no good reason, therefore, to set aside the terms of the fee agreement. I have concluded that paragraph 16 of the fee agreement is enforceable and binding on the parties.

Whether the plaintiffs are required to join Stockwoods in a motion to the court for approval to include in the fee payable to Stockwoods a portion of the costs obtained as part of the settlement because of exceptional circumstances.

[27] By executing the fee agreement, the plaintiffs agreed that exceptional circumstances may arise. They further agreed to join Stockwoods in the motion, if requested, to affect the mutual intention of the parties should exceptional circumstances arise and include a portion of the costs awarded in the fee payable to Stockwoods. The plaintiffs have received the benefit of Stockwoods’ services as contemplated by the fee agreement. I see no reason not to hold the plaintiffs to the bargain they made over eight years ago, in return for such services, including to join Stockwoods’ motion for approval by the Court of the payment to Stockwoods of an appropriate percentage portion of any legal costs amounts received, by way of settlement.

[28] The plaintiffs argue that they should have the ability to make clear to the court that they oppose the existence of exceptional circumstances because paragraph 16 does not provide that exceptional circumstances existed at the time of the fee agreement was executed and paragraph 16 does not state the client is to be silenced. I disagree. The legislation and the fee agreement contemplate a joint application meaning, in my view, a joint submission to the court. By accepting the terms of the fee agreement, the plaintiffs agreed to join in Stockwoods’ motion for approval by the Court. The intention and clear wording of paragraph 16 would be defeated if the plaintiffs were permitted to join Stockwoods motion but make submissions opposing Stockwoods’ requested relief or argue that there are no exceptional circumstances.

Conclusion

[29] For reasons set out above I have concluded that paragraph 16 of the fee agreement is enforceable and is binding upon the plaintiffs. The plaintiffs are obligated to join Stockwoods’ motion pursuant to s.28.1(8) of the Act for court approval to include in the fee payable to Stockwoods a portion of the amount obtained in the settlement of this action on account of costs. The motion shall proceed before me for one day on or before September 30, 2017. Counsel are to schedule the return date of the motion with the motions’ scheduling office on or before June 29, 2017. Costs of today are reserved to the motion for court approval pursuant to s.28.1(8) of the Act.

V.R. Chiappetta J. Date: June 23, 2017