CITATION: Mulhall v Fraser, 2017 ONSC 6551
Lindsay COURT FILE NO.: 21385/03
07/09
DATE: 20171101
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN: Court File No. 21385/03
Bradley Michael Mulhall, Michael Mulhall,
Marie McShane and John Mulhall
Plaintiffs
— and —
Jesse Keeghan Fraser and Michael J. Fraser
Defendants
AND
Court File No. 07/09
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
Bradley Michael Mulhall
Plaintiff
----and----
The Wawanesa Mutual Insurance Company
Defendant
COUNSEL:
David Zarek for Plaintiff,
Nicholas Hedley for Deputy Public Guardian and Trustee and Deputy Legal Director,
SHAUGHNESSY J.
COURT APPROVAL OF SETTLEMENTS
[1] There are two proceedings before the court for approval of settlements. The first proceeding is Mulhall v Frazer which will be referred to as the “tort action”. The second proceeding listed is the accident benefit action and more specifically, the settlement of the attendant care benefits. This proceeding will be referred to as the “attendant care action.”
[2] Pursuant to Rule 7.08(5), I requested on December 13, 2016 a report from the Public Guardian and Trustee upon the application by the plaintiff for court approval of a Statutory Accident Benefits settlement (the attendant care action.)
Background Circumstances
[3] The plaintiff Bradley Michael Mulhall was 17 years of age and a rear seat passenger when he sustained a severe traumatic brain injury in a motor vehicle accident which occurred on March 18, 2001. Mr. David Zarek was retained by Michael Mulhall and Marie McShane to pursue a tort claim as against the owner and operator of the vehicle in which Bradley Mulhall was a passenger and as well to obtain Bradley’s entitlement to statutory accident benefits pursuant to the Statutory Accident Benefits Schedule----Accidents On or After November 1, 1996.
[4] The tort claim settled in 2007 on the eve of trial for a total amount of $ 1 million plus costs of $ 159,000 and disbursements estimated by Mr. Zarek of between $ 75,000 and $90,000.
[5] In relation to the tort action, counsel for the plaintiff filed 2 volumes of material which are exhibits to the affidavit of David Zarek, sworn August 4, 2017. There was no application ever made on behalf of Bradley Mulhall for court approval of the tort settlement prior to August 2017. This issue came to my attention when Mr. Zarek attended before me on June 28, 2016 for a 2 ½ hour meeting for court approval of the attendant care claim. I requested details of the settlement of the tort action and I was quite surprised when counsel advised that there had not been any court approval of the tort settlement. Mr. Zarek did advise that the tort claim was settled for the policy limits. I expressed the view that a further application should be made for court approval of the tort claim and that the Public Guardian and Trustee should be put on notice. After a number of months lapsed and as I was not satisfied with the progress of the matter, I made a request under Rule 7.08(5) for a report from the Public Guardian and Trustee in relation to both the tort and attendant care proceedings.
[6] Ultimately, I received a report from the Public Guardian and Trustee dated September 26, 2017. Prior to receipt of this report I had my judicial assistant arrange a conference call with all counsel for September 27/17. I then received a further affidavit sworn by David Zarek dated September 26/17 again with two volumes of material. The Public Guardian and Trustee had only been made aware of this additional affidavit and material a couple of hours before the conference call. I raised a number of issues in relation to Mr. Zarek’s late filed material and then concluded that it was only reasonable and fair to provide more time to the Public Guardian and Trustee to respond with a further report touching on matters raised in the new materials. I also granted Mr. Zarek further time to respond to the PGT report dated September 26, 2017.
[7] On October 23, 2017, I received a further supplementary report from the PGT of the same date. In this report I was advised that Mr. Zarek in the course of the week of October 9, 2017 had forwarded a draft affidavit, dockets for the SABS matter, an offer to settle from Wawanesa dated March 6, 2016 and an Excel spreadsheet showing settlement funds available and the proposed distribution. Under cover of correspondence dated October 24, 2017 I received an affidavit of David Zarek sworn October 24, 2017 which is the same material as counsel forwarded to the PGT the week of October 9, 2017.
[8] When the tort claim was settled in 2007 there was no capacity assessment. In the material filed, it is stated that the father, Michael Mulhall was of the view that in 2007 his son was capable of approving the settlement and had the requisite capacity to instruct counsel and manage his affairs. Further in his affidavit sworn August 4, 2017 Mr. Zarek states (para.91): “There was no doubt in my mind that Brad Mulhall had capacity to understand the decision he was making and he appreciated the consequences of his decision.” The Minutes of Settlement dated October 10, 2007 are executed by Bradley and Michael Mulhall. The Minutes of Settlement detail the following:
Damages inclusive of interest $ 1 million
Costs inclusive of GST $ 159,000
Disbursements paid $ 75,000
[9] The affidavit material indicates that Bradley Mulhall received the net amount of $672,000 (after legal fees and disbursements were paid). Out of this amount $ 400,000 was paid to purchase a structured settlement and the remaining $ 272,000 was paid directly to Bradley. Of the amount paid to Bradley, $ 218,589.30 was used as a down payment to purchase a home at 20 Gilson Point Place, Little Britain, Ontario. The structured settlement provides for a monthly income of $ 1,182.26 per month indexed at 2% annually, plus a payment of $ 5,000 every five years.
[10] Counsel for the plaintiff, in his affidavit sworn August 4, 2017 suggests (pg.3) that “at the time of settlement of the tort matter, no Arbitrator, Directors Delegate or Judge had suggested that Brad did not have the capacity to make his own decision or did not appreciate the consequences of his decision. In fact, the Arbitrator’s decision in 2005 suggests that Brad in fact had all the capacity that he needed.” I do not find this comment persuasive. A review of the medical reports of Dr. P.G. Rumney of the Neurorehabilitation Program at Bloorview Macmillan Children’s Centre dated July 27, 2001 and the several reports of Dr. Van Duerson dated April 27, 2016, February 28, 2007 and March 6, 2007 certainly suggest that Bradley Mulhall had significant ongoing mental impairments. He should have been sent for a capacity assessment in 2007 before the action was settled in October 2007.
[11] The fact remains that Bradley Mulhall was not sent for a capacity assessment in 2007. This leaves the court with the terms and merit of the settlement. I note that the tort claim was settled for the policy limit of $ 1 million plus costs of $ 150,000 and disbursements of $ 75,000. Counsel charged fees of $ 300,000 which in all the circumstances appears to be within the high end of the reasonable range for a tort action taking into consideration that the case settled the morning that the trial was to commence. I have the medical reports available for the trial and I accept that the trial required significant preparation.
[12] The remaining funds of the tort settlement were distributed as follows:
(1) Michael Mulhall (father) -----------------$ 39, 215.12
(2) Marie McShane (mother) -----------------$ 20,176.65
(3) John Mulhall (brother) --------------------$ 6,725.54
(4) Balance held in trust by Counsel*--------$ 104,149.46
- the Balance held in trust has been the subject of an ongoing accounting to the PGT.
[13] In the affidavit of David Zarek sworn September 26, 2017 and in response to issues raised by this Court, a narration of facts relating to the purchase of a home out of the proceeds of the tort settlement is outlined. The PGT report of September 26, 2017 details that the PGT has conducted an extensive review of the materials relating to the home purchased in Little Britain in 2008 for the purchase price of $ 472,500. Bradley Mulhall contributed $ 218,589.34 from funds that he received in the tort settlement. A mortgage to the CIBC for the balance of the purchase price in the amount of $ 252,500 was registered on title. Title to the property was registered in only the name of the father, Michael Mulhall. This mortgage was transferred and renewed in 2015 at which time the principal amount was increased to $ 300,000. In the affidavit of Mr. Zarek it is explained that the attendant care of the accident benefits were reduced by the insurer (Wawanesa) in 2009 until August 2015. This increased the liabilities related to attendant care and other accident care benefits. Therefore while the CIBC mortgage had reduced to $ 179,762 at renewal nevertheless the mortgage had to be increased to $ 300,000 to pay off liabilities related to Bradley Munhall’s care.
[14] My concerns related to the title to the residence were addressed by the PGT. Under a management plan filed by Michael Mulhall in relation to a separate guardianship application commenced in Toronto, it was proposed that title to the property will be changed to reflect that Bradley is a 52% tenant-in-common owner and that Michael is a 48% tenant-in-common owner. The percentages reflect the contributions of Bradley and Michael to the property. Bradley contributed $218,589.34 from the funds received in the tort settlement and Michael paid all the house-related expenses since 2008. Michael’s total contribution is estimated to be at $ 200,322.65 which includes paying the mortgage on the home. Since June 2015, Michael has continued to make all mortgage payments, pay for repairs, utilities and property taxes.
[15] The PGT approved this aspect of the management plan. The PGT, after reviewing the materials filed on behalf of Michael Mulhall, does not dispute the amount of his contribution and agrees that his contribution should be recognized. The management plan for the future is that Michael Mulhall pays 60% of the expenses of the property and Bradley pays 40%. The management plan was placed before Justice T. McEwen on September 29, 2017 and was approved subject to the court approval of the accident benefit settlement.
[16] In the late filed affidavit of Mr. Zarek sworn September 26, 2017 (para. 44), it is stated:
……..I have been advised by Mr. Michael Mulhall and do verily believe that it would be his wish and that of Bradley Mulhall that they use some funds to look after certain things. They need some plumbing work done at the house which may cost in the range of $ 2,000 to $ 5,000. Their roof is now soft and needs replacing. A rough estimate would be in the range of $ 15,000 to $ 25,000. It would save them a lot in heating costs if they could replace at least some of their windows. That might cost about $ 10,000. Their water is not drinkable on site so they use Culligan water supply which costs them about $ 160 per month. They would prefer to buy a system which will likely lead to cost savings. The vehicle that they are using is a vehicle [which] is on its last tires and needs replacing. They would like to buy another truck which will hopefully last 8-10 years. The cost is likely to be in the range of $ 40,000 to $ 50,000. Last but not least they presently pay on a monthly basis just shy of $ 2,000 per month for the mortgage. The mortgage has a balance owing of around $ 290,000 at this time. By paying off the mortgage, they will be able to save the payment of $ 2,000 per month and therefore have more money to save. The interest paid for the first year of the mortgage was just shy of
$ 22,000. With interest rates going up, it is in their best interest to pay off the mortgage as soon as possible and they do hope to be able to do so as soon as possible after the settlement of the Accident Benefit matter.
[17] I agreed to adjourn the approval of settlement of the accident benefit (attendant care) claim until the PGT could provide the further supplementary report (now received and dated October 23, 2017). I also agreed that Mr. Zarek will have an opportunity to respond to the PGT report dated September 26, 2017, which I have also received and reviewed.
[18] This matter has been complicated by the guardianship issues as well as a comingling of Bradley Mulhall funds from various sources into his counsel’s trust account over time. Counsel for the plaintiff states that he is presently holding $419,948.34 (as of September 26, 2017) which includes an advance from the proposed AB settlement as well as costs under the proposal, funds remaining from the tort settlement, and a non-earner benefit award previously paid. In addition interest has accrued on the trust account over time and payments have been made from this account for various needs that have arisen in relation to Bradley Mulhall as detailed the affidavits of David Zarek.
[19] Bradley Mulhall will receive more than what is proposed in the settlement because Mr. Zarek is holding funds for him from other sources, most significantly from his earlier tort settlement. Finally, the issues raised in counsel’s affidavit of September 26, 2017 (see para [16] above) has confused the issues for this Court on the approval of the settlement motion. Further the affidavit of David Zarek sworn October 24, 2017 only further compounds the confusion as it details a number of other expenditures (including criminal counsel fees) made on behalf of Bradley Mulhall. Therefore I direct that those issues will have to be submitted under an amended management plan to the Public Guardian and Trustee or to the court in Toronto within 90 days of a judgment being granted approving Bradley Mulhall’ s accident benefits settlement.
Approval of the Tort Claim
[20] As stated previously I do not accept the assertion made by Michael Mulhall in the affidavit of David Zarek that Bradley was capable of managing his affairs and was capable of approving the tort settlement. The medical information filed does not support such an assertion. The fact that no arbitrator or judge (prior to me) did not suggest that Bradley was incapable is also not persuasive. Bradley should have been assessed for capacity and a report filed before the tort settlement. Depending on the findings on the capacity assessment, court approval of the tort settlement ought to have been obtained. I have reviewed the settlement and with little else available, and with the recommendation of the PGT, I reluctantly approve the tort settlement including the fees and disbursements charged.
[21] In approving the tort settlement I am cognizant of the law as provided at pg. 3 of the PGT report. Although Bradley was age 17 at the time of the accident, he was over age 18 when the tort claim settled. Under the Age of Majority and Accountability Act, R.S.O. 1990, c.A.7, a person attains the age of majority and ceases to be a minor on attaining the age of eighteen years. The Public Guardian and Trustee suggests that Court approval is not required because the settlement was reached after Bradley had attained the age of 18. The PGT states that this case is “distinguishable from Mills v. Raymond 1997 CanLII 16258 (ON SC), [1997] O.J. No. 4083 which found that an offer made while an individual is a minor would require court approval even if it is accepted after the individual had attained the age of majority. In Bradley’s case, the offer was made after Bradley had attained the age of majority.”
[22] As stated, I am not satisfied that Bradley had the requisite mental capacity to accept the settlement. Notwithstanding my view that a capacity assessment ought to have been obtained in 2007 at the time of the offer to settle, I approve of the tort settlement, post-facto.
The Statutory Accident Benefits Schedule ---Accidents On or After November 1, 1996.
[23] Mr. Zarek was also retained to pursue Bradley Mulhall’s statutory accident benefits. I am very familiar with the accident benefit settlement as I conducted a day long judicial pretrial in April 2016 after Justice Gunsolus made a decision on the trial of an issue. The Plaintiff had commenced an action as against the accident benefit insurer, The Wawanesa Mutual Insurance Company (action 07/09).
Background History
[24] A bit of the background history is necessary to give context to this proceeding.
[25] Bradley Mulhall was 17 years of age when he was seriously injured in the motor vehicle accident on March 18, 2001. His date of birth is November 14, 1983.
[26] The accident benefit claim proceeding primarily involved a single issue namely attendant care benefits. The trial was originally to proceed at the sittings in Lindsay in November 2015. When the matter came before Justice Gunsolus, he trimmed the trial into a motion for determination of when interest should commence to run in relation to attendant care benefits that may be found to be owed during a retrospective time period. Counsel agreed to the suggestion by Justice Gunsolus which substantially reduced the time required for trial and which focussed on the central issue to be decided. The motion was heard November 17, 18 and December 3, 2015. Justice Gunsolus rendered his decision on December 18 2015 (2015 ONSC 7495). The trial then for the declaration of benefits was adjourned to the May 2016 sittings of the court.
[27] This was the point where I became involved by way of a judicial pre-trial. While Justice Gunsolus had fixed the date as to when interest would commence the quantum of the damages would have to proceed to trial before him, if not resolved.
[28] The action did settle for all past, present and future accident benefit claims in the amount of $ 3 million plus costs. Counsel made a request that I assess the costs which was argued before me. In written reasons released, I fixed the costs of the proceeding on a partial indemnity scale (excluding the costs awarded by Justice Gunsolus on the motion) in the amount of $ 295,319.44 inclusive of disbursements and HST. In terms of an accounting, the PGT should be made aware that Justice Gunsolus also awarded costs for the three day motion in 2015.
[29] This did not end my involvement with the proceeding, as counsel for the plaintiff asked that I review and approve the settlement on behalf of Bradley Mulhall. This motion for court approval of the SABS settlement was presented to the court by motion dated June 23, 2016.
[30] At the time of the settlement, according to counsel for the plaintiff and Michael Mulhall, Bradley’s cognitive function had declined, necessitating decisions in the litigation to be made on his behalf by a litigation guardian. Accordingly, Michael Mulhall, Bradley’s father, acted as Bradley’s litigation guardian, both in a de facto capacity and then officially following his appointment by Order of Justice Gunsolus dated May 11, 2016.
[31] On April 30 2016 Bradley Mulhall was assessed for his capacity to manage property, which resulted in a finding of incapacity in a report dated May 11, 2016. As a result of this finding the Public Guardian and Trustee was appointed guardian of the property. The Public Guardian and Trustee continued to act as Bradley’s guardian of property however this was changed by Order of Justice T. McEwen dated September 29, 2017 when Michael Mulhall was appointed the guardian of property pursuant to s.22 of the Substitute Decision Act 1992. In that application Michael Mulhall is represented by Ms. Nimali Gamage of Goddard Gamage LLP. The PGT has been actively involved with this Application, which has been amended since it was submitted and will likely require a further amendment after this court’s approval of the AB settlement. The Judgment of Justice T. McEwen dated September 29, 2017 in action 03-117/17 inter alia provides:
(a) that Michael Mulhall is appointed guardian of the property of Bradley Mulhall;
(b) approving a management plan by Michael Mulhall dated July 20, 2017.
(c) that an amended management plan be submitted to the Public Guardian and Trustee within 90 days of a judgment being granted approving Bradley Mulhall’s accident benefits if such judgment approves a settlement that is significantly different than the settlement described in the management plan dated July 20, 2017;
(d) title to the residence at 20 Gilson Point Place, Little Britain is changed such that Bradley Mulhall has a 52% tenant-in-common owner and Michael Mulhall is a 48% tenant- in- common owner.
Settlement of the Statutory Accident Benefits.
[32] In the application for approval of the accident benefit claim, as noted by the PGT, the Minutes of Settlement found at tab 2 of the plaintiff’s motion record are unsigned by the plaintiff as is the consent to Judgment found at tab 5. I hereby direct that fully executed Minutes must be filed pursuant to Rule 7.08(4). I also understand that page 5 of the solicitor’s affidavit is missing in the copy served on the PGT in the motion record.
[33] While there is no Settlement Disclosure Notice filed in the materials. Counsel advises (solicitor’s affidavit para. 14) that the proposed settlement is not broken down into specific categories of benefits. In the unique circumstances of my involvement in this proceeding, I do not require a completed Settlement Disclosure Notice.
[34] As outlined above, the settlement requires the defendant to pay a total sum of $ 3 million plus costs of $ 295,319.44. While this is a significant sum of money, it must be appreciated that the vast majority of the settlement is being paid on account of interest accumulated on unpaid attendant care costs. The central issue in the case as decided by Justice Gunsolus in his Reasons on the Motion dated December 18, 2016, was Bradley Mulhall’s entitlement to attendant care benefits (which were not paid from 2001 to 2006 and thereafter paid at a level lower than what the plaintiff claimed) would bear interest on the unpaid amounts (to be determined) at 2% per month. Counsel valued the amount of the unpaid attendant care benefits at $ 264,711.00 and the value of the interest on unpaid amounts at $ 2,764,246.00 (as outlined of para 42 of the solicitor’s affidavit).
[35] While other numbers were bantered around in the course of the all-day judicial pretrial before me in April 2016, suffice to say based on my knowledge and the extensive briefs filed before me on the pretrial that the settlement of the accident benefits was a very good settlement and it maximized the recovery of the plaintiff and was in his best interest. Accordingly, I approve the quantum of the settlement.
[36] After receiving the initial motion record for court approval and after reviewing the material in the solicitor’s affidavit filed in the record, I had the court staff contact Mr. Zarek requesting that he come and meet with me to review concerns that I had with respect to the distribution of funds. I met with Mr. Zarek in my chambers on June 28, 2016 for 2 ½ hours reviewing issues relating to the proposed settlement. It was in the course of this discussion that I was made aware of the tort settlement. I outlined to Mr. Zarek all my concerns which would not permit me to approve the settlement as presented. I advised counsel at that meeting that the Public Guardian and Trustee would have to be put on notice and I would require a report from the PGT. After 6 months of waiting for information relating to notice to the PGT and a further and better affidavit from Mr. Zarek, without success, I decided to put the PGT on notice and in correspondence dated December 13, 2016 addressed to the PGT and Mr. Zarek I directed service of the motion for approval of the settlement and accompanying record to be served on the PGT on or before December 28, 2016. I requested a report from the PGT which would address a number of issues which were outlined in the correspondence.
[37] The PGT report dated September 26, 2017 was received and reviewed by me on September 26, 2017. A conference call with counsel for the PGT, Mr, Zarek, and Ms. Gamage took place on September 27, 2017.
[38] In the initial motion record the litigation guardian proposes to pay $ 1,900,000.00 from the settlement into a structured annuity. In fact the annuity was purchased before this court approved the settlement. It now appears likely that a larger amount of money will be available that could have been structured for Bradley Mulhall’s benefit. Further, the Court may have ordered a different structure terms. However, since the structure has already been funded and payments are flowing I decline ordering that the structure be collapsed. The annuity will pay $ 4,031.98 monthly indexed at 2% annually and is guaranteed for a period of 50 years. This would guarantee payments to Bradley Mulhall or his beneficiary until Age 82. At the present time Bradley Mulhall receives $ 1,412.91 monthly from his tort settlement annuity, as well as a lump sum of $ 5,000 every five years. Those payments are guaranteed until 2033.
[39] The management plan submitted to the Court in the Toronto proceeding on Michael Mulhall’s guardianship application, which I am advised has been modified from that which appears in the Motion for Court Approval, indicates that Bradley’s monthly expenses presently are $ 5,184.75 ($ 62,216.95 per year).
[40] The choice of structured settlement as outlined in the solicitor’s affidavit includes the fact that Bradley’s life expectancy is less than 50 years and that the monthly payment is higher with a time limited guarantee as opposed to a lifetime guarantee.
[41] The issue of a guarantee is normally considered when the insured has dependants. The inclusion of a guarantee reduces the annuity payment for the benefit of a beneficiary in the event of the insured’s death. The material indicates that Bradley has no dependants and therefore reducing his monthly income to provide a benefit to his beneficiaries is at the present time of limited value to him. However, given his age it is not inconceivable that he may have dependants in the future. Also as the PGT correctly states, in “Bradley’s unique circumstances, his father is effectively a dependant.” His father left his employment to provide care to Bradley. Bradley’s mother is now deceased. Therefore there is a financial co-dependent relationship which I find justifies a guaranteed structure.
[42] The initial proposed distribution of the settlement as outlined in the solicitor’s affidavit is as follows:
To Plaintiff’s counsel for fees, disbursements and HST $ 630,742.01
To Michael Mulhall for unpaid attendant care and interest $ 330,000.00
To Bradley Mulhall by his guardian of property $ 139,257.99
Legal Fees and Disbursements
[43] In the statement of Account found at Tab O of the solicitor’s affidavit, the solicitor has already received $ 109,907.52 toward his fees. I am not completely clear where these funds came from. As indicated above (para. [18] and [19]) there are other funds being held that are payable to Bradley Mulhall and will have to be dealt with in the guardianship amended plan in Toronto
[44] Based on the original solicitors affidavit in the motion record the total proposed legal fees, inclusive of disbursements and HST amounts to $ 1,035,968.97 ($ 630,742.01 proceeds of settlement + $ 109,907.52 already received+ $ 295,319.44 assessed costs payable by the defendant).
[45] The legal costs as first advanced by Mr. Zarek is broken down as follows:
Fees based on 27.5% of recovery $ 825,000.00
Disbursements $ 103,718.97
HST $ 107,250.00
Total $ 1,035,968.97
[46] At paragraph 48 of Mr. Zarek’s affidavit sworn September 26, 2017, Mr. Zarek states:
….Based upon further reflection and consideration, I would estimate that the fees that we should receive should be the sum of $ 600,000 on the first $ 2,000,000 of the settlement (past benefits and interest) and 15% of the $ 1,000,000 policy settlement or $ 150,000. Therefore I suggest that the appropriate fees that should be charged would be the sum of $ 750,000.00 plus HST plus all disbursements made on the file, not otherwise recovered.
Retainer Agreements
[47] In this proceeding there are two retainer agreements. The first retainer agreement was executed by Marie McShane and Michael Mulhall dated April 5, 2001. At that time Bradley was under the age of majority. This agreement provides for a fee not to exceed 20% of the total payment of the opposing party or insurer as damages and interest plus any fees charged and/or received by Bradley in conjunction with the recovery of the claim. I am assuming that the reference to fees charged and received refers to an award of costs. Accordingly, in that case, the fees here would have been $ 895,319.44 ($ 600,000
- 295,319.44).
[48] The second retainer agreement was executed on or about May 1, 2016 by Michael Mulhall as litigation guardian for Bradley Mulhall. This agreement provides for a 30% contingency fee.
[49] A contingency fee agreement is not binding on a party under disability until it receives approval of the court under section 5 of the Solicitors Act. The section provides:
- (1) A solicitor for a person under disability represented by a litigation guardian with whom the solicitor is entering into a contingency fee agreement shall,
(a) apply to a judge for approval of the agreement before the agreement is finalized; or
(b) include the agreement as part of the motion or application for approval of a settlement or a consent judgment under rule 7.08 of the Rules of Civil Procedure. O. Reg. 195/04, s. 5 (1).
(2) In this section,
“person under disability” means a person under disability for the purposes of the Rules of Civil Procedure. O. Reg. 195/04, s. 5 (2).
[50] The legal fee agreement was not approved by the court before it was finalized pursuant to section 5(1)(a) of the Solicitors Act. Therefore this Court must review the agreement as part of this motion for court approval under section 5(1)(b) of the Act.
[51] As outlined previously Bradley Mulhall was assessed for capacity on April 30, 2016 and the report of the assessor dated May 11, 2016 found that he is a “person under disability.”
[52] A contingency fee agreement will only be enforceable if it appears to the Court that the agreement is in all respects fair and reasonable between the parties, otherwise it may be declared void, under section 24 of the Act which states:
- Upon any 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. R.S.O. 1990, c.S.15, s.24.
[53] The onus is on the solicitor seeking to enforce the contingency agreement to prove that the agreement was fair at the time it was made and the fees were reasonable under the circumstances assessed at the date of the settlement. (Raphael v Lam 2002 CanLII 45078 (ON CA), [2002] O.J. No. 3605 at para. 37; 61 O.R. (3d) 417 (CA)).
[54] In this case, neither the original materials filed nor the subsequent affidavit of Mr. Zarek sworn September 26, 2017, provides little information concerning the circumstances in which the new retainer agreement dated May 1, 2016 was executed apart from Mr Zarek’s responding affidavit sworn October24, 2017(para.17) stating that it was fair. I have serious concerns that the fee agreement, that the solicitor in his materials relied on, was signed on behalf of an incapable party on the eve of settlement, approximately 15 years into the solicitor and client relationship. I also note as outlined at paragraph [44] above that in the updated affidavit sworn September 26, 2017, Mr. Zarek suggests yet another amount for fees. However, the point remains that there is no explanation or information provided relating to the new fee agreement. In Batalla v St. Michael’s Hospital 2016 ONSC 1513 at para. 52, Justice Wilson stated that the fairness inquiry involves whether on the motion to approve the settlement, the evidence establishes that the required level of factual, procedural and legal disclosure was made at the time the agreement was signed. I am not satisfied that these requirements were met.
[55] In yet a further affidavit sworn October 24, 2017, Michael Mulhall states that he is satisfied with a 30% contingency fee as well as the reduced fee of $ 750,000. At paragraph 4 of this affidavit he states:
As best I can recall now, before I signed the contingency agreement in 2016, Mr. Zarek went over all the paragraphs in it with me and I understood them all.
[56] The most recent unsolicited affidavit does not alter my opinion as detailed in para. [54} above
[57] The Courts have held that evaluating whether a contingency fee agreement was fair at the time it was signed, in the absence of information surrounding the execution of the agreement, the presiding judge should not have to “wonder whether the required level of factual, procedural and legal disclosure has been made,” and that it is not necessary or desirable for the Court to speculate and make assumptions about the disclosure that was made at the time of the execution of the agreement. (Batalla v St. Michael’s Hospital supra para 49 and 50 referencing C.T. v. K.J. 2013 ONSC 7563.).
[58] The factors to be considered whether the fees charged pursuant to a contingency agreement are reasonable are as follows:
(a) The time expended by the solicitor;
(b) The legal complexity of the matter in issue;
(c) The results achieved; and
(d) The risk assumed by the solicitor.
Time Expended
[59] In the September 26, 2017 affidavit of Mr. Zarek at para. 48, reference is made to the amount of work done by law clerks and counsel in order to meet the requirements of my directions relating to deficiencies in the materials for court approval of the settlements. The court make no apologies or allowance for this work as the deficiencies were of counsel’s making. Mr. Zarek then provides his “estimate” of what he should be compensated. I note that counsel was paid the sum of $ 300,000 plus disbursements on the tort settlement.
[60] In the further affidavit of Mr. Zarek sworn October 24, 2017 a print out of dockets has been provided which I have reviewed. The dockets are not the single or necessarily the most significant issue in determining a reasonable and fair contingency fee. The dockets in summary reflect:
(a) Articling student time 76 hours (pg 1-4)
(b) Law Clerk’s time 1,401.10 hours (pg 4 -99)
(c) Courtney Madison time 304 hours (pg. 99-104)
(d) David Zarek time 443.20 hours (pg. 104 -126)
(e) Eric Grossman time 22.20 hours (pg. 126)
(f) Ian C. Lambert time 4.70 hours (pg. 126)
(g) Jennifer Griffiths time 15 hours (pg. 127)
(h) Jonathan Frydman time 25.80 hours (pg. 128)
[61] The time expended appears excessive in light of the issue to be determined. The PGT in its report of October 23, 2017 advises that based on the dockets provided “the cost of time expended on this matter was $ 445,000.00”.
Complexity
[62] Counsel states that the attendant care claim was complex and risky. The claim for attendant care proceeded by way of a Statement of Claim (and responding Statement of Defense). The claim proceeded to trial in the November 2015 sittings, when the issue of interest on the unpaid attendant care benefits was argued as a three day motion. The plaintiff was successful on the motion. Therefore these factors weigh in favour of higher fees.
[63] The PGT report of September 26, 2017, identifies the principle dispute around the attendant care benefits which was the result of those benefits not being explicitly sought by the plaintiff until December 7, 2006, and then the benefits not having been retroactively requested for the period from 2001 to December 2006 until August 2015. The decision of Justice Gunsolus dated December 18, 2015 at para 7-9 deals with this point. Therefore, I find that that the solicitor, having been retained in April 2001, bears some degree of responsibility for this oversight which lead to the case becoming more complex and contentious than it had to be. This is not to ignore that this oversight ultimately resulted in a windfall for Bradley Mulhall based on the application of the interest calculation on a monthly basis pursuant to the legislation.
Results Achieved
[64] Since I presided over the judicial pretrial I can state with confidence that the settlement achieved was a good settlement and well within the range if the matter proceeded to trial and the plaintiff was successful.
Risk
[65] The fact is that the vast amount of the proposed settlement is on account of interest. Suffice to say that if Justice Gunsolus had ruled in favour of the insurer, the plaintiff’s claim was worth substantially less. The issue in the case was whether attendant care benefits should have been paid from 2001 despite the failure to explicitly request them in a timely way. I find that this case accordingly carried a much higher risk than a typical accident benefit case.
Decision on Contingency Fee
[66] I find that the contingency fee agreement was not fair at the time it was signed. Further I am not satisfied that counsel has satisfied the Court that the requisite factual, procedural and legal disclosure was made at the time of execution of the contingency fee agreement.
[67] Therefore I find that the contingency fee agreement is not enforceable and further that the agreement is not in all respects fair and reasonable between the parties and consequently is declared void pursuant to section 24 of the Solicitor’s Act.
[68] Taking into consideration all the factors outlined above, I find that an appropriate amount for the legal fees is $ 510,000 (calculated at 17% on the recovery of $ 3 million). In most of the reported cases relating to fees awarded in accident benefit cases a range of 10% -15% of the recovered amount is awarded as these claims are less complicated than tort claims. However, in the present proceeding I am awarding an amount outside the range based on the work done the risk assumed and the result achieved. I find that the amount awarded by this court is fair and reasonable.
[69] There still remains a credit for the sum of $ 109,957.02 (see para. 42 above) which has already been received by the solicitor. A further wrinkle was introduced in Mr. Zarek’s affidavit of October 24, 2017. At paragraphs 15 and 16, Mr Zarek states that as a condition of an adjournment of the trial the plaintiff received $ 75,000 which “was over and above the settlement amount of $ 3 million concluded in 2016.” The amended management plan will have to take this amount into consideration. Finally, there are the costs of the Public Guardian and Trustee on this application which must be addressed.
[70] The report of the PGT dated October 23, 2017 has not taken into account a number of matters that affect the funds to be distributed as follows:
(a) There are the costs awarded by Justice Gunsolus in the amount of $ 32,530.51 inclusive of HST and disbursements for the three day trial of an issue in 2015.
(b) There is also the sum of $ 109,907.52 already received by Mr. Zarek (para.[43] above).
(c) Finally there is the sum of $ 75,000 that Mr Zarek states was paid by the defendant over and above the settlement of $ 3 million (para [69] above).
(d) There is also interest on funds not structured which has to be accounted for.
Conclusion
[71] I am approving the accident benefit settlement in the sum of $ 3 million plus costs awarded by this court in the amount of $ 295,319.34 plus HST and reasonable disbursements. In addition there are the items referenced in para. [70] which have to be brought into the final calculation to determine the final amount of funds available for distribution.
[72] The Court also approves the following distribution of settlement funds:
(a) The $1.9 million already advanced to Henderson Structured Settlements.
(b) The sum of $ 311,035.42 inclusive of interest to Michael Mulhall for attendant care.
(c) The sum of $ 510,000 to Zarek Taylor Grossman Hanrahan for fees plus HST and disbursements subject to accounting with respect to funds already received and costs as outlined above.(The costs of $ 295,319.34 plus the costs awarded by Justice Gunsolus in the amount of $ 32,530.51 payable to Bradley Mulhall by his guardian of property, Michael Mulhall.)
(d) The balance of funds after taking into account the distributions noted in this paragraph and the items referenced in para. [70] above shall be paid first to Bradley Mulhall by his guardian of property, Michael Mulhall and thereafter paid into an annuity as approved by the Public Guardian and Trustee.
(e) This Court orders that the lump sum payment owed to Bradley Mulhall as outlined above as well as funds remaining in Mr. Zarek’s trust account from the proceeds of the tort settlement or otherwise shall be held in trust pending the approval by the Public Guardian and Trustee or the Court in Toronto of an Amended Management Plan.
[73] I will determine the amount of costs to be awarded to the Public Guardian and Trustee on this motion, if counsel cannot agree. Any application for costs must be made within 60 days from the date of this Judgement.
[74] A Judgment, as approved by the Public Guardian and Trustee, shall issue in accordance with the terms outlined.
Justice J. Bryan Shaughnessy
Date Released: November 1, 2017