Fairweather v. Davies, 2017 ONSC 7051

CITATION: Fairweather v. Davies, 2017 ONSC 7051

COURT FILE NO.: CV-14-2907-00

DATE: 2017 11 27

SUPERIOR COURT OF JUSTICE – ONTARIO

RE: RENAE FAIRWEATHER, CHANTE ADAMSON, a minor, by her Litigation Guardian Renae Fairweather and CHENNEL ADAMSON, a minor, by her Litigation Guardian Renae Fairweather

PLAINTIFFS

AND:

REBECCA DAVIES

DEFENDANT

BEFORE: Trimble J.

COUNSEL: Muhammad M. Alam for the Plaintiffs

Mary-Catherine Lill for the Defendant

HEARD: November 22, 2017

ENDORSEMENT

1This is a motion brought by the mother and Litigation Guardian for approval of a settlement of a tort claim brought for two minors, Chante Adamson (age 17) and Chennel Adamson (age 15).

2By endorsement dated August 17, 2017 I asked for a further affidavit providing the retainer agreements and dockets or computer printouts showing the amount and value of time expended on the file for each infant and particulars regarding the Statutory Accident Benefits Settlement reached, if any. I later asked for counsels’ and clients' (if they chose to) written or oral comments about the application of the principles enunciated in the then recent case Mounce v. Rae, 2017 ONSC 2288. I received further written submissions and, on 15 November, 2017, heard from counsel for the Plaintiffs.

Facts:

3On October 13, 2012, the two minor Plaintiffs were passengers in in an automobile driven by their mother and Litigation Guardian. The Defendant entered the roadway from a driveway from a plaza and struck the vehicle in which the minors were riding. The minors were diagnosed with whiplash as a result of the accident. After what appears to be some physiotherapy and modest medical treatment, the minors made a recovery from their injuries.

4Pleadings were exchanged, documentary production completed, examinations for discovery were held of the mother/Litigation Guardian in August, 2015, and the matter was settled on June 1, 2017 for an all-inclusive payment to each minor of $12,500. In addition, the insurer paid $2,500 to the solicitor to prepare the infant settlement material.

5Out of her $12,500.00 it is proposed that Chante Adamson receives $7,681.05, and the lawyer $4,818.95 comprising fees of $3,750.00, HST on those fees of $487.50, and disbursements of $581.45, inclusive of HST.

6Out of her $12,500.00 it is proposed that Chennel Adamson receives $7,781.05, and the lawyer $4,718.95 comprising fees of $3,750, HST on those fees of $487.50, and disbursements of $481.45, inclusive of HST.

7The fees and disbursements represent approximately 39% of the Tort Settlement of $12,500 for each claimant. The payments are to be made to the litigation guardian, not to the Accountant for the Superior Court. The Litigation Guardian has agreed with the proposed settlement.

8The solicitor also acted on each of the minors' Statutory Accident Benefits claims. Each of those claims was settled with the Accident Benefits insurer for the sum of $8,500.00, all inclusive. The solicitor's fees for each of those files were $3,207.50 leaving a payment to the client of $5,292.50, paid to the Litigation Guardian on behalf of the miners. The fees and disbursements represented 39% of the total settlement. Orders were taken out on January 21, 2016 approving those settlements. I do not address those settlements, but mention it to provide background of the overall settlement picture for the minors.

Contingency Fee Agreements (CFA):

9The Litigation Guardian entered into a contingency fee agreement with the lawyer. I was provided only with the CFA in the tort claim after my August request. I was not provided with the CFA in the Accident Benefits claims, but infer from the amounts of the fees that the agreements were the same.

10The lawyer did not seek approval of the CFA in that at the time they were entered into.

11The CFAs in the tort claims are identical for each of the two minors. The relevant clauses for present purposes are Clauses 3 and 4 which read:

3. Fees on Tort Claim

I acknowledge that your fees in a motor vehicle and/or slip and fall accident claim will be 30% of all damages and interest on damages (by settlement or judgment), plus HST and disbursements.

I acknowledge that the total statement of account to me will consist of four parts: your fee on damages and interest on damages recovered, disbursements incurred by you on my behalf, which I have agreed to repay to you out of the proceeds of any settlement or judgment, HST on legal fees, and HST on disbursements, where applicable.

I hereby agree to pay such fees inclusive of HST and disbursements incurred by you on my behalf at your sole discretion and inclusive of HST where applicable, out of the proceeds of any settlement or judgment.

I acknowledge that when calculating your fee based on the percentage referred to above for any amounts recovered for damages and interest on damages, under no circumstances, shall you include any amount either awarded or agreed to by way of costs and disbursements when calculating your fee.

I acknowledge that the amount paid for legal fees shall not exceed the amount that I recover as damages or receive by way of settlement or judgment.

4. Costs

I understand that, in this type of personal injury claim, the insurance company of the at-fault party or the parties, or the at fault party, typically pays some money for costs which will be either agreed to or may be awarded by the court. Unless otherwise ordered by a judge, I am entitled to receive any such costs contribution or award on a partial indemnity scale or substantial indemnity scale, if I am the party entitled to costs.

The term costs require (sic) some explanation. In addition to an award of damages and interest on damages, almost always, a Defendant is required to pay costs to a successful Plaintiff. Costs represent only a contribution to legal fees, disbursements, and HST. Costs never provide full indemnification for an account a lawyer sends to a client.

I acknowledge that the at fault party, when a case is settled, usually pays 10% to 15% for costs pertaining to legal fees, and such costs will be paid by the at fault party to Alam Law Office, in trust, for which I will receive full credit at the conclusion of my case.

I further acknowledge that the at fault party, when a case is settled, will usually pay approximately 15% for costs on the first $100,000 and 10% for costs on any amount over $100,000.

Applicable Principles of Law:

12The principles of law applicable in the assessment of CFAs in the case of a minor are well settled. They are set out, most recently, by McKelvey, J. in Mounce v. Rae, 2017 ONSC 2288, and Daley, R.S.J. in Karwal v. Karwal, 2017 ONSC 5485, and are:

1. while CFAs increase access to justice, they are not a carte blanche to permit lawyers to charge what the agreement states. Fairness and reasonableness must be considered (St. Jean v. Armstrong, 2015 ONSC 13, aff'd 2017 ONCA 145);

2. the CFA must be assessed both in terms of reasonableness and fairness. The fairness of the CFA is to be assessed as of the date of the agreement. The reasonableness of the CFA is to be assessed at the date of the hearing or settlement. A CFA can only be declared void if the court determines that it is either unfair or unreasonable. (Hendricks-Hunter v. 814888 Ont. Inc., 2012 ONCA 496, [2012] O.J. No. 3207 (C.A.);

3. the fairness of a CFA is concerned with the circumstances surrounding the making of the agreement and whether the client fully understood and appreciated the nature of the agreement (Raphel Partners v. Lam, 2002 CanLII 45078 (ON CA), [2002] O.J. No. 3605 (C.A.));

4. a solicitor seeking to collect fees under a CFA with a party under disability must comply with section 5 (1) of Ontario Regulation 195/04 under the Solicitors Act which provides that the solicitor shall either apply to a judge for approval of the CFA before it is finalized or include the agreement as part of the motion or application for approval of a settlement under Rule 7.08;

5. when assessing the reasonableness of fees charged by the solicitor, the court should consider a number of factors including the time expended by the semester, the legal and factual complexity of the matter, the results achieved, and the risk assumed by the solicitor (Raphel Partners, supra); and

6. if the CFA violates Section 28.1(8) of the Solicitors Act, or is not approved, the agreement is not enforceable (Hodge v. Neinstein, 2015 ONSC 7345 (Div. Ct.), although under appeal).

Fairness of the Contingency Fee Agreement:

13The solicitor has an onus to ensure that his CFA is fair and reasonable, and to explain the agreement to the client.

14In this case there is no issue with respect to whether the solicitor explained the CFA to the client. The client does not challenge the account.

15I conclude, however, that the CFA, at the time it was entered into, when viewed objectively, was NOT fair at the time it was entered into as it is confusing and inconsistent. In the five unnumbered sub-paragraphs of Clause 3, the firm uses the terms "fee" as excluding HST in the 1st paragraph and including HST in the 3rd. It uses the term "fee" in the 4th paragraph without indicating whether it includes HST. The 2nd paragraph introduces the “Statement of Account” as including fees, disbursements and HST on both. In the 5th paragraph, the firm introduces the term "legal fees" and says that the legal fees shall not exceed the amount recovered.

16In oral submissions, counsel agreed that the 5th paragraph is ambiguous. It is not clear whether "legal fees" means only the fees calculated (whether exclusive or inclusive of HST), or the full obligation the client owes to the firm. To that extent, implicitly, the solicitor concedes that the CFA is not fair.

17I also hold that the remaining four unnumbered paragraphs of Clause 3 are also ambiguous, and therefore, the CFA was not fair at the time it was entered into.

18The term "fees" is given different meaning in different sub-paragraphs. The term "legal fees" is used in all but the last paragraph of Clause 3 separately and distinctly from other charges the client agrees to pay. The client, in all of those paragraphs, agrees to pay disbursements (incurred in the solicitor's sole discretion), and HST in addition to legal fees, as part of the overall legal expense. The final paragraph of Clause 3 says that "… the amount paid for legal fees shall not exceed the amount that I recover as damages or received by way of settlement or judgment" (emphasis added). Clause 3 already limits the fee portion of the total legal expense to 30% of damages and interest on damages; therefore, "legal fees" never can exceed the amount of the settlement. This paragraph is redundant. There is no risk that "legal fees" will exceed the settlement or judgment. The "final account" or "total legal expense", however, may exceed the settlement where the HST and disbursements take the total legal expense higher than the settlement.

19The agreement does not meet the fairness requirement of section 24 of the Solicitor's Act.

Reasonableness of the Contingency Fee Arrangement:

20Counsel conceded, and I find that the CFA is not reasonable as of the time of the settlement.

21As indicated above, reasonableness of the CFA is assessed at the time of the settlement or approval. In other words, the CFA's reasonableness must be viewed in light of the legal expense to the client that the CFA generates in the circumstances of the case. The onus is on the solicitor to justify his fee.

22In determining the reasonableness of the agreement, I considered the factors from Raphel Partners, supra. The most significant of those factors are:

1. The minors had no liability risk. The Plaintiffs were passengers in automobile and bear no liability on the facts of the case. It was a straightforward automobile accident case. Most, if not all of the liability rested with the Defendant, and if any rested with the minors' mother, she could have been added;

2. The issues are straightforward;

3. It ought to have been clear from the outset, or at least from receipt of medical information, that the case was a modest value. What little information was contained in the Affidavits filed on the Approval motion suggest that the injuries were modest;

4. It was clear from the outset that any general damages recovered would be reduced by the statutory deductible under Section 267.5(7) of the Insurance Act, of over $36,000, and that any pecuniary losses would have been reduced by any applicable Statutory Accident Benefits;

5. The only risk or complicating factor in this case (and a potentially significant one) is whether each minors' injuries surpassed the verbal threshold found in section 267.5(5) of the Insurance Act; and

6. The case proceeded through oral discovery and medical documentation was produced.

23The solicitor has not met his onus to establish the reasonableness of his fees, as calculated. This is the case for many reasons including:

1. I was not provided with any dockets or printout of work on the file as I requested. Rather, I was provided with a supplementary affidavit, four pages of which addressed what was done on the file. The description comprised blocks of description and large portions of time. It is not itemized. I cannot assess whether the activity or the amount of time spent on the activity is reasonable;

2. No medical documents, or even a list of them, was provided to assist me in assessing the severity of the damages or the complexity of the medical issues, and whether the severity and complexity of the medical issues may have resulted in the lawyer assuming any risk in the file;

3. Because of the dearth of information about the minors' injuries, I cannot independently and accurately assess their severity, causal relationship to the accident, or the extent of their resolution, and therefore, cannot assess whether $12,500 is a reasonable settlement. I accept, however, from the 12 lines in the solicitor's affidavit and the 6 lines in the litigation Guardian's affidavit which address the minors' injuries and recovery that the minors have recovered from their injuries;

4. The fees claimed are in violation of the CFA that the parties entered into. The solicitor admitted that he calculated his fees on 30% of the total settlement, and that he calculation is in violation of the CFA. According to the unsigned release which the solicitor says reflects the settlement reached, the $12,500 paid in respect of each minors' claim is "inclusive of all damages, interest, costs, GST/HST and disbursements". The CFA provides that the fees are calculated on the damages and interest portion of the settlement, only; and

5. Further, the solicitor failed to account for the $2,500 paid by the Defendant toward the cost of obtaining approval of the infant settlement. To that extent, he increased his fee by that to $2,500.00.

What Is a Reasonable Fee?

24Having concluded that the contingency fee agreement is not enforceable because it is unfair and not reasonable, the question still remains as to what amount the solicitor should be paid for the services provided to the minors in this claim.

25Counsel conceded that in order to calculate a fee under the retainer agreement, I would first have to back out from the all-in settlement, the disbursements and a reasonable amount for costs, and HST on fees and disbursements.

26Referring to the considerations outlined above, I find that a reasonable, proportional, and fair fee for the solicitor is $2,500 per minor claimant, plus HST of $325 and disbursements. This represents a fee of approximately 25%, as calculated in accordance with the methodology set out in the contingency fee agreement.

How did I arrive at this fee?

27The fee should be calculated on the damages and interest on the damages, not on disbursements, HST or amounts paid toward costs. I agree that this is a reasonable approach to calculating the base sum on which the fees are calculated. In order to calculate a reasonable fee, therefore, I reduced the all-in settlement of $12,500 by the disbursements (approximately $500), and a further $1,800 reflecting the 15% contribution to costs that the retainer contemplates that an insurer usually makes, and HST on that amount. That left a net amount for damages and interest on damages of $10,200 on which to calculate the fee.

28I accept that 30% to 33% is the standard contingency rate charged. In this case however, as indicated, above, the only risk borne by the solicitor vis-à-vis his fee, is that the injuries of one or both of the claimants would not meet the verbal threshold and/or surpass the statutory deductible.

29The total legal expenses I allow for each minor claimant and the amount recoverable by each claimant is as follows:

Chante:

Total All Inclusive Settlement

$12,500.00

50% of Costs Contribution

1,250.00

Fees

$2,500.00

HST

325.00

Disbursements

581.45

Total Legal Expenses

$ 3,406.45

($3,406.45)

Net to Client:

$10,343.55

Chennel:

Total All Inclusive Settlement

$12,500.00

50% of Costs Contribution

1,250.00

Fees

$2,500.00

HST

325.00

Disbursements

481.45

Total Legal Expenses

$3,306.45

($3,306.45)

Net to Client:

$10,443.55

30These net amounts will be paid to the litigation Guardian on behalf of, and for the benefit of the minor claimants.

Trimble J.