Connolly and Connolly Obagi LLP, 2019 ONSC 1693

COURT FILE NO.: 17-73339 DATE: 2019/03/15

ONTARIO SUPERIOR COURT OF JUSTICE

IN THE MATTER OF: THE SOLICITORS ACT – and – IN THE MATTER OF THE APPLICATION OF MICHELLE CONNOLLY, MICHAEL TAYLOR CONNOLLY, by his litigation guardian, MICHELLE CONNOLLY and CONNOLLY OBAGI LLP Joint Applicants

Counsel: Thomas P. Connolly, Counsel for Connolly Obagi LLP, Taylor Connolly, and Michelle Connolly Ashley Bennett, Counsel for Christopher Moore

HEARD: October 29, 2018

Addendum to RULING on application for approval of contingency fee retainer agreement

CORTHORN J.

Introduction

[1] A number of applications and motions are required to bring to a conclusion, personal injury litigation on behalf of Michael Taylor Connolly and his mother Michelle Connolly. The various proceedings are for approval of:

a) The settlements reached in each of the main action and third party claim in the personal injury litigation;

b) The contingency fee retainer agreement between counsel and the clients (the “Agreement”); and

c) The solicitor-client accounts of the two firms by which Taylor Connolly and Michelle Connolly have been represented over time.

[2] In addition, an application is pending in which the relief sought is an order appointing Michelle Connolly as the guardian of property for her son, and approving the Management Plan put forward by her with respect to the management of her son’s property. I am seized of all proceedings.

[3] The request for approval of the Agreement was dealt with in two parts. An unexpected series of events resulted in the request for approval of the Agreement in the context of the third party claim being addressed before the request for approval of the Agreement for the purpose of the main action.

[4] An interim order was made in December 2017 (“the Interim Order”), dealing with the Agreement for the purpose of trial of the third party claim scheduled for March 2018. An unintended consequence of the two-part approval process for the Agreement was a lack of clarity as to the substantive effect of the Interim Order.

[5] Approval of the Agreement for the purpose of the main action was not addressed until the spring of 2018. The court’s ruling on that application was released in August 2018 (Connolly and Connolly Obagi, 2018 ONSC 4696 (the “Ruling”)). In response to the Ruling, the applicants requested an opportunity to provide the court with additional evidence and make further submissions. In the interest of fairness to counsel and to Taylor Connolly and Michelle Connolly, that request was granted.

[6] The additional evidence called and further submissions made relate to (a) the request for approval of the Agreement with respect to the main action, and (b) the issue of “exceptional circumstances” within the meaning of s. 28.1(8) of the Solicitors Act, R.S.O. 1990, c. S.15 (the “Act”).

[7] An addendum to the Ruling is required.

Background

[8] Taylor Connolly was eight years old in 2003 when, as a pedestrian crossing a residential street, he was struck by a car and injured. He is now 23 years old. He does not have the capacity to instruct counsel. Michelle Connolly has been and remains Taylor’s litigation guardian.

[9] The plaintiffs were represented initially by Christopher Moore. From early 2011 to the present, the plaintiffs have been represented by Joseph Obagi of Connolly Obagi. The plaintiffs’ family name and that of Mr. Obagi’s partner in the law firm is a matter of coincidence.

[10] When the file was transferred from Mr. Moore to Connolly Obagi, a fee agreement was reached between the law firms and with Michelle (personally and in her capacity as litigation guardian for her son). The fee agreement is reflected in the Agreement. It provides that the total fees shall be based on 25 per cent of the damages and interest recovered plus the fee portion of costs paid by the opposing party.

[11] The Agreement specifies that Mr. Moore is entitled to base the fee portion of his account on 10 per cent of the damages and interest recovered. Connolly Obagi are entitled to base the fee portion of their account on 15 per cent of the damages and interest recovered plus the fee portion of costs paid by the opposing party.

[12] Although Mr. Moore is not named as an applicant, he has an interest in the outcome of the application for approval of the Agreement. He is represented by counsel; materials were filed on his behalf; and his counsel was present for the hearing. Mr. Moore’s counsel made submissions in April 2018; she did not do so on the continuation of the hearing in October 2018.

Approval Process to Date

[13] The chronology of the events leading to this point in the process is:

Summer 2017 - The application for approval of the Agreement is commenced. At that time, the plaintiffs and their counsel anticipate that both the main action and the third party claim will proceed to trial in March 2018.

Aug. 24, 2017 - The applicants appear before the court, for the purpose of a case conference, and are directed to schedule a date for the application to be heard.

Sept. 11, 2017 - The contingency fee retainer agreement included in the original application does not meet the relevant regulatory requirements with respect to content. The application for approval of the Agreement is adjourned to permit the applicants to file additional evidence, including a revised contingency fee retainer agreement and evidence with respect to Taylor’s capacity.

Fall 2017 - A settlement of the main action is reached and is approved by the court by order dated October 25, 2017. The approval requested of the proposed solicitor-client accounts is adjourned, to be addressed subsequent to the determination of the application for approval of the Agreement.

As part of the settlement of the main action, the plaintiffs receive from the defendant an assignment of his rights with respect to the third party claim (for contribution and indemnity). The plaintiffs, in their capacity as assignees, and their counsel anticipate that the trial of the third party claim will proceed in March 2018.

Nov. 15, 2017 - The application for approval of the Agreement is adjourned pending completion of a capacity assessment then under way for Taylor.

Dec. 7, 2017 - Approval of the Agreement with respect to the third party claim only is requested. The Agreement (a) is a revised and more fulsome contingency fee retainer agreement than was the first version of the document presented for approval, and (b) addresses both the main action and the third party claim.

With the trial date for the third party claim approaching, counsel and the clients require certainty as to the terms of the retainer. The Interim Order is made. The Agreement is approved with respect only to “the future contingency fees payable to Connolly Obagi LLP” for the purpose of the third party claim. No endorsement is made when the Interim Order is issued.

Early 2018 - A settlement of the third party claim is reached. The settlement is approved by the court by order dated March 12, 2018. Approval of the proposed solicitor-client accounts is adjourned, to be addressed at the same time as those proposed for the main action.

Apr. 13, 2018 - The application for approval of the Agreement is heard.

The August 2018 Ruling

[14] The history of both the personal injury litigation and the Agreement is set out in detail in the Ruling. I shall not repeat that history.

[15] In the Ruling, the court found that the 25 per cent contingency fee is reasonable with respect to both the main action (at paras. 32-48) and third party claim (at paras. 49-53). The court found “that ‘exceptional circumstances’ do not exist with respect to either the main action or the third party claim” (at para. 60).

[16] The latter finding gave rise to a response from the applicants, in which they requested an opportunity to make further submissions. In support of that request, the applicants relied on the following points.

[17] First, the applicants submitted that given the terms of the Interim Order, they understood that the court had, for the third party claim, approved not only the 15 per cent contingency fee but also the “plus costs” portion of the Agreement, both as they relate only to Connolly Obagi. As a result, when the applicants were before the court in April 2018, they were under the impression that the court was satisfied that “exceptional circumstances” exist with respect to both the main action and the third party claim.

[18] Second, the applicants submitted that, if allowed to stand, the Ruling with respect to “exceptional circumstances” as it relates to the third party claim, effectively sets aside the Interim Order. If the Interim Order was not intended to address “exceptional circumstances”, then that intention was not clarified in any way and resulted in confusion leading up to the April 2018 appearance.

[19] Third, had the applicants been aware, when appearing before the court in April 2018, that they were required to address “exceptional circumstances”, they would have provided the court with evidence and made additional submissions on the issue.

[20] The applicants appeared before the court on September 5, 2018. At that time, counsel for the applicants raised a fourth point in response to the Ruling. He argued that it was not open to the court to accept the contingency fee portion of the Agreement and reject the “plus costs” element. Either the Agreement is approved in its entirety or the application for approval is dismissed.

[21] In a handwritten endorsement dated September 5, 2018, the court acknowledged that, as a result of the Interim Order, it is functus with respect to the approval of the Agreement as it relates to Connolly Obagi and the third party claim. The applicants were directed to make arrangements for the completion of the application for approval of the Agreement, with respect to the main action only. They did so and appeared before the court on October 29, 2018 for the completion of the application.

Status of the Application

[22] As a result of the combination of the Interim Order (December 2017), the Ruling (August 2018), and the handwritten endorsement (September 2018):

• The total percentage contingency fee of 25 per cent, the allocation of that percentage between the two law firms, and the “plus costs” in relation to Connolly Obagi are approved with respect to the third party claim; and
• In this addendum to the Ruling, the issue to be determined is whether the Agreement is approved with respect to the main action.

Disposition

[23] For the reasons set out below, the Agreement is approved with respect to the main action.

Terms of the Agreement

[24] The Agreement was drafted in the fall of 2017, subsequent to the settlement of the main action. By that time, it was known that the plaintiffs, as assignees of the defendant, would be pursuing the third party claim. As a result, the matter to which the Agreement applies is described as:

[A] potential claim (the “Claim”) for recovery of damages for personal injuries sustained by Michael Taylor Connolly and his mother, Michelle Connolly, as a result of a motor vehicle accident which occurred on November 1, 2003. This retainer includes the prosecution of the Third Party Claim issued by Robert Riopelle as against Michael Connolly.

[25] The Agreement (a) highlights that the client chose a contingency fee basis for the retainer, and (b) includes a narrative explanation as to how fees will be calculated:

The fees payable to CONNOLLY OBAGI LLP are based on a contingency amount equal to 15% of the total amount recovered, plus applicable HST, together with any and all costs recovered.

The fees of your previous counsel, namely Christopher A. Moore Professional Corporation, shall be fixed at 10%, plus H.S.T., of any recovery or award of damages secured, plus disbursements incurred. [Emphasis in original.]

The Requirement for Court Approval

[26] Court approval of the Agreement is required for two reasons. First, because Taylor is a person under a disability (O. Reg. 195/04, s. 5 (“the Regulation”)). Second, because the Agreement provides that the fee account to be delivered by Connolly Obagi will be based on a percentage of the damages and interest recovered, plus the full amount of costs recovered from the opposing party.

[27] The second reason arises from s. 28.1(8) of the Act, which 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.

[28] The first of the two criteria is met by the applicants. The application is made jointly by counsel involved and Michelle Connolly (personally and in her capacity as the litigation guardian for Taylor Connolly).

[29] With respect to the second criteria, only in “exceptional circumstances” is a lawyer acting pursuant to a contingency fee retainer agreement permitted to deliver to their client an account based on the total of (a) the stated percentage of damages and interest recovered, and (b) costs recovered from the opposing party. Otherwise, the costs recovered are paid to the client.

The Evidence

[30] In support of the request for approval of the Agreement for the purpose of the main action, the applicants rely on the affidavit evidence of Michelle Connolly, Joseph Obagi, and Christopher Moore. The additional evidence provided in the fall of 2018 is from Mr. Obagi and William J. Sammon. Mr. Obagi gave his additional evidence viva voce. Mr. Sammon’s evidence is in the form of an affidavit (“the Sammon Affidavit”). A copy of a report prepared by Mr. Sammon is attached as an exhibit to his affidavit.

[31] In their respective evidence, Mr. Obagi, Mr. Moore, and Mr. Sammon address the factors to be considered by the court when a contingency fee retainer agreement is presented for approval (see Re Cogan (2007), 88 O.R. (3d) 38 (S.C.J.) at para. 42). Mr. Obagi, in his viva voce evidence, and Mr. Sammon also address the issue of “exceptional circumstances”.

[32] Mr. Sammon was retained by the applicants to provide opinion evidence with respect to the issue of “exceptional circumstances” within the meaning of s. 28.1(8) of the Act. The Sammon affidavit includes (a) an expert’s acknowledgement of duty (Rules of Civil Procedure, R.R.O. 1990, Reg. 194, Form 53) and (b) a “Brief Biography”, which summarizes Mr. Sammon’s experience in civil litigation.

[33] At para. 5 of his affidavit, Mr. Sammon sets out the specific issue about which the applicants requested that he provide opinion evidence: “whether ‘exceptional circumstances’ existed when Michelle sought to retain Mr. Obagi to take over an action involving her son, which had been commenced by her former counsel, Mr. Christopher Moore.” Based on Mr. Sammon’s experience in civil litigation, including in the area of personal injury, I accept his qualifications to provide opinion evidence on that issue.

The Law

[34] There is no definition of “exceptional circumstances” in either the Act or the Regulation.

[35] Subsequent to October 2018, when counsel most recently appeared before the court on this matter, the Ontario Court of Appeal released its decision in Almalki v. Canada (Attorney General), 2019 ONCA 26. In that decision, the Court discusses contingency fee retainer agreements, s. 28.1(8) of the Act, and the concept of “exceptional circumstances”.

[36] At para. 49 of the decision, Doherty J.A. summarizes the purpose of contingency fee retainer agreements:

I accept the appellants’ characterization of the Act as consumer protection legislation. However, the Act is also intended to facilitate access to justice by providing for contingency fee agreements. These agreements allow clients who could not afford to retain counsel through traditional retainers to secure legal representation. Contingency fee agreements have proven particularly valuable in complex, expensive litigation in which the outcome is very much in doubt.

[37] Justice Doherty and judges in other cases dealing with contingency fee retainer agreements refer to the payment contemplated by s. 28.1(8) of the Act as a “premium” (Almalki at para. 23).

[38] In Almalki, the Court of Appeal upheld the decision of the motion judge that there were “exceptional circumstances” justifying payment of a premium (at paras. 58-59). The factors considered by the motion judge included:

• The factual and legal complexity of the litigation;
• The substantial financial risk assumed by counsel during the several years in which they represented the appellants;
• The significant importance of the litigation, not only to the parties, but to the public; and
• The immense resources expended by counsel in achieving a very good result for the appellants.

[39] In an earlier decision, Perrell J. considered the first two of those factors from the perspective of lawyers who take on the type of litigation for which contingency fee retainer agreements are intended. At paras. 16 and 17 of his decision in Oakley and Oakley Professional Corporation v. Aitken, 2011 ONSC 5613, Perrell J. said:

I have read the debates in the Legislature concerning the formal introduction of contingency fees in Ontario, and it appears that the policy concerns that underlie s. 28.1(8) of the Act [are] that lawyers’ fees should not be excessive and that there should be no “double-dipping.”

It appears that in authorizing the court to allow a lawyer to obtain both a contingency fee and to recover the costs awarded to his or her client in “exceptional circumstances,” the Legislature recognized that there will be cases where having regard to the nature of the litigation and the associated risks, a contingency fee alone would not fairly compensate the lawyer for taking on the case.

[40] Counsel in Oakley were representing 99 individuals in their respective actions against the same physician. The claims were not proceeding by way of class action. Counsel for the 99 plaintiffs sought approval of a contingency fee retainer agreement that called for either a 25 or 30 per cent contingency fee plus “any award of costs to the clients in their respective actions” (at para. 2). The higher percentage would apply if the defendant physician raised a limitation defence.

[41] Justice Perrell approved the contingency fee retainer agreement, without prejudice to the rights of the clients to have their respective accounts assessed. The order made by Perrell J. in Oakley demonstrates the balance between fairness to counsel who take on complex, expensive, risky litigation and fairness to clients who, by signing an agreement that provides for a premium, “give up effective veto over the payment” of a premium (Almalki at para. 51).

[42] Even when a contingency fee retainer agreement is approved pursuant to s. 28.1(8) of the Act, the client’s right to proceed with an assessment of the solicitor-client account is preserved by ss. 23 and 24 of the Act. The fees ultimately charged must be “fair and reasonable” (Almalki at para. 54 and s. 24 of the Act). In a 2013 decision, the Court of Appeal emphasized that, “[c]ontingency fee agreements may only be enforced if they are fair and reasonable, as these qualities form the heart of their legitimacy” (Cookish v. Paul Lee Associates Professional Corp., 2013 ONCA 278, 305 O.A.C. 359, at para. 43).

[43] Regardless of the outcome of the application for approval of the Agreement, the fairness and reasonableness of the fees charged to Taylor Connolly and Michelle Connolly will be addressed. Approval of the solicitor-client accounts of both Mr. Moore and Connolly Obagi will be considered by the court as the final stage of the settlement approval process in Taylor’s personal injury litigation.

Analysis

Background

[44] In the Ruling, a number of findings were made with respect to the appropriateness of a contingency fee retainer agreement in the pursuit of Taylor’s personal injury litigation. The findings made relate to both the main action and third party claim.

[45] Those findings were, however, made on the basis of an approach taken by the court that was incorrect; the appropriateness of the contingency fee of 25 per cent was considered independent of the appropriateness of the premium. I agree with the applicants’ submission that the Agreement—as it relates to the main action—is either approved in its entirety or the application for approval is dismissed.

[46] This addendum relates only to the request for approval of the proposed fee agreement (25 per cent contingency plus costs) in the context of the main action. In re-considering the request for approval of the Agreement in that context, I continue to take into consideration the circumstances that gave rise to Taylor’s personal injury litigation:

• Taylor was visiting with and being looked after by his maternal grandparents on the day of the accident. The third party Michael Connolly is Taylor’s grandfather;
• At the time of the accident, Taylor was in his grandfather’s care;
• Taylor darted from the front lawn of his grandparents’ home, without looking, onto the road and into the path of a car driven by the defendant Robert Riopelle; and
• The defendant was not charged with an offence pursuant to either of the Highway Traffic Act, R.S.O. 1990, c. H.8 or the Criminal Code of Canada, R.S.C. 1985, c. C-46.

[47] The issue of liability for the collision was investigated by a police officer (technical traffic investigation) and two engineers (accident reconstruction). The engineers were both retained on behalf of the defendant driver. The opinions expressed by all three individuals make it clear that liability for the collision would be a significant issue:

• The police officer and both engineers opined that Riopelle did not have sufficient time to avoid striking Taylor with his car; and
• The two engineers also expressed the opinion that the accident was caused by Taylor’s inattentiveness in darting onto the road as he did.

[48] I turn next to consider the factors relevant to a request for approval of a contingency fee retainer agreement, specifically one in which the client and counsel have agreed to fees that include a premium.

Factors

[49] In Re Cogan, R. Smith J. set out the factors to be considered by the court when a contingency fee retainer agreement is presented for approval (at para. 42). The factors include:

a) The financial risk assumed by the lawyer, with reference to the likelihood of success, the nature and complexity of the claim, and the expense and risk of pursuing it;

b) The results achieved and the amount recovered;

c) The expectations of the client;

d) Which of the lawyer or the client is to receive an award of costs; and

e) Achievement of the social objective of providing access to justice for injured parties, including injured children and parties under disability.

[50] Those factors are reflected in the four factors considered by the motion judge in Almalki (see para. 37 above). For example, in Almalki, the motion judge considered the “factual and legal complexity” of the claims advanced; Smith J. in Re Cogan referred to “the nature and complexity of the claim”.

[51] It is important to distinguish the nature of the relief sought on the application now before the court from the relief sought in Re Cogan and in Almalki. In Re Cogan, the application was for both approval of a contingency fee retainer agreement and approval of the solicitor-client account based on the agreement. In Almalki, the issue before the motion judge was whether a specific paragraph of the contingency fee retainer agreement was enforceable, such that the clients were required to join with their counsel on a motion for approval of the agreement (i.e., including a premium because of “exceptional circumstances”).

[52] On the present application, the only relief sought is approval of the Agreement. The issue of enforcement of the Agreement—consideration of the solicitor-client accounts now that settlements have been reached—is a separate issue. That issue will be addressed on the continuation of the motion, pursuant to r. 7.08 of the Rules of Civil Procedure, for approval of the settlements. That motion is made in the personal injury litigation and was adjourned pending the outcome of this application. In addition, the plaintiffs intend to provide additional evidence on the motion in support of the proposed management of funds payable to Taylor.

[53] The application for approval of the Agreement is not determined with the benefit of hindsight; it is determined based on whether exceptional circumstances existed when the fee agreement was reached—in 2011 when Michelle Connolly, Mr. Obagi, and Mr. Moore entered into that agreement. The fact that the fee agreement was not reduced to writing until 2017 is less than ideal. It would be unfair to all parties to the fee agreement if factors such as “expectations of the client” were assessed as of the summer of 2017 (when the first version of the fee agreement was drafted) or as of the fall of 2017 (when the settlement of the main action was reached and the second version of the fee agreement—now the Agreement—was drafted).

[54] The factors considered on this application are based on the circumstances as they existed in 2011, when the fee agreement was reached.

[55] In the Ruling, findings were made with respect to the extent to which the Agreement complies with the Regulation in terms of the contents of a contingency fee retainer agreement. There is no reason to revisit those findings. The Agreement complies with the Regulation.

Nature and complexity of the claim

[56] The complexity of Taylor’s personal injury litigation arises in large part because of (a) the liability issue, (b) the daughter/father relationship between Michelle and the third party Michael Connolly, (c) how the accident occurred, and (d) Taylor’s age at the date of the accident (eight years).

[57] In his viva voce evidence, Mr. Obagi identified a number of the challenges he faced in 2011, when he assumed carriage of the main action. In his opinion evidence, Mr. Sammon concurs with Mr. Obagi in terms of the challenges faced. I accept the evidence of both Mr. Obagi and Mr. Sammon in that regard. I find that the challenges faced in the pursuit of the main action included:

• Given that Taylor was eight years old at the date of the accident, it was anticipated that the claim for damages for future loss of income would be vigorously defended;
• The liability issues were “fraught with uncertainty and highly contentious” (Sammon report at p. 2);
• Taylor’s claim for damages for the cost of future care is significant. Once again it was anticipated that the claim would be vigorously defended; and
• A significant amount of work was required to marshal the evidence with respect to damages and liability.

[58] Any one or more of the challenges listed above are frequently faced by plaintiffs’ counsel in personal injury litigation. Those challenges alone do not give rise to “exceptional circumstances”.

Financial Risk Taken by Counsel

[59] Mr. Moore was retained by Michelle in December 2003. Because of Taylor’s age at the date of the accident, it was anticipated that it would be at least ten years before the damages suffered would begin to be fully appreciable (i.e., once Taylor became an adult). Mr. Moore was aware that he would be carrying the file for more than “several years” (Almalki at para. 59).

[60] In 2011, when Mr. Obagi took over carriage of the file, Taylor was approximately 16 years old. As of that time, the examinations for discovery with respect to liability had been conducted. Minimal work had been done to begin to marshal the evidence with respect to damages. In 2011, it was clear to Mr. Obagi that (a) he would be carrying the file for a number of years, and (b) during those years, he would be investing time and disbursements in marshaling the evidence in support of the plaintiffs’ claims, in particular the evidence with respect to Taylor’s damages.

[61] It is not unusual for plaintiffs’ counsel to expect to carry a file for a number of years, in particular when they represent a minor plaintiff. Nor is it usual for plaintiffs’ counsel to expect to do a significant amount of work and incur significant expenses in the pursuit, including to trial if necessary, of complex personal injury litigation. The financial risk, by reason of carriage of the file for a number of years and the expenditure of resources (in both human and financial) alone does not create “exceptional circumstances”.

[62] There is a difference between the “financial risk” factor listed in Re Cogan and that identified in Almalki. In Re Cogan, the relevant factor is described as “the financial risk assumed by the lawyer, with reference to the likelihood of success, the nature and complexity of the claim, and the expense and risk of pursuing it” (at para. 42). In Almalki, the Court of Appeal refers to “substantial financial risk assumed by [counsel] during the several years in which it represented the [clients]” (at para. 59).

[63] In another case titled Re Cogan, 2010 ONSC 915, Hackland J. concluded that “[exceptional circumstances] refers to cases in which the solicitor has taken on an exceptional risk and/or has rendered unusually extensive services such as may happen in a lengthy medical negligence trial involving hard fought liability issues” (at para. 30).

[64] In determining whether “exceptional circumstances” exist, I considered whether the financial risk taken by counsel is substantial or exceptional with reference to the likelihood of success, the nature and complexity of the claim, the expense and risk of pursuing it, and the number of years over which counsel had carriage of the file. No one factor was accorded greater weight than any of the other factors.

[65] I find that, as of 2011, Connolly Obagi assumed substantial financial risk when Mr. Obagi took over carriage of the file from Mr. Moore. The elements of the risk include:

• The defendant was advancing a counterclaim against Michelle. The counterclaim was based on alleged negligence in training Taylor with respect to road safety;
• The third party (Michael Connolly, Taylor’s grandfather) has pursued but lost, a motion for summary judgment. The third party had appealed the dismissal of that motion, the hearing of the appeal was pending. The third party was represented by Bryan Carroll, as a result of which Mr. Obagi concluded that (a) the merits of the appeal had been very well-considered, and (b) the advocacy on behalf of the third party on the appeal would be of high quality;
• If the third party’s appeal was successful, the only insurance policy from which the plaintiffs might recover damages would be limited to that of the defendant driver. Riopelle’s third party liability limits were known to be $1,000,000;
• If the third party’s appeal was not successful, the third party had insurance limits of $1,000,000. Access to any portion of that amount would only be available if:
  • The plaintiffs succeeded at trial in recovering an award of damages against the defendant in excess of $1,000,000 (taking into account the apportionment of liability), and
  • The defendant, in turn, was successful on the third party claim (i.e., for contribution and indemnity);
• Michelle had from the outset been, and remained, adamant that she did not wish to have Michael added as a defendant (even though the limitation period for the pursuit of that claim had not yet expired);
• The defendant had filed a jury notice. As a result, a trial of the action and third party claim had the uncertainty of a jury verdict; and
• The trial of the main action and, if necessary, the third party claim was expected to take between five and eight weeks. The disbursements incurred to prepare for and proceed with a trial of that duration were expected to be in the six-figure range. The fees associated with preparation for and attending at trial would be well into the six-figure range.

[66] Mr. Obagi’s evidence, which I accept, is that, appreciating the factual and legal complexity of the litigation and from the outset of their solicitor-client relationship, he recommended to Michelle that a specific approach to the litigation be taken. That approach was to attempt to maximize the potential recovery for Taylor, by doing the work required, being prepared at all times, and taking the position with opposing counsel that he was prepared to take the case to trial. Significant emphasis would be placed on the evidence related to damages so as to maximize the overall number to which the percentage, if any, of liability attributed to the defendant driver would ultimately be applied to determine Taylor’s recovery.

[67] In his viva voce evidence, Mr. Obagi drew an analogy between the complexity and risk of Taylor’s motor vehicle accident litigation and that associated with the pursuit of complex medical negligence litigation. In both types of litigation (a) the damages claimed are in the high seven-figure, if not eight-figure, range, (b) a significant amount of time, resources, and expense is required to marshal the requisite evidence, and (c) the risks associated with pursuit of the claims are very high.

[68] Mr. Obagi testified, and Mr. Sammon opined, that the analogy ends when it comes to the potential for recovery. In medical negligence litigation, there is no cap on the fund from which damages and pre-judgment interest (“PJI”) are paid. In motor vehicle accident litigation, there is a limited fund from which damages and PJI (awarded or negotiated) are paid.

[69] In arithmetic terms, a plaintiff in a medical negligence case who is entitled to damages totaling, for example, $8,000,000 would, if successful, recover from the at-fault defendant(s) the full amount of damages and PJI awarded. The same plaintiff in motor vehicle accident litigation would likely only be able to recover from the at-fault party up to the amount of third party limits available to that individual. Those limits are frequently in the six-figure or low-seven figure range; they would fall well short of the $8,000,000 in damages and PJI to which the plaintiff is entitled. Yet, in both cases, the same amount of work is required to marshal the evidence with respect to damages and PJI.

[70] The time and resources expended to address the issues of liability in motor vehicle accident litigation does not always compare to that expended to address liability in medical negligence litigation. Regardless, the time and resources expended to address a liability issue in motor vehicle accident litigation, if required, adds to the financial risk taken by counsel with carriage of such files.

[71] The third party limits available to an at-fault vehicle owner/driver serve to cap not only the potential damages and PJI recoverable; they serve to cap the potential contingency fee. Staying with the same $8,000,000 example (for damages and PJI), consider a vehicle owner/ driver with third party limits of $1,000,000. Liability issue or not, the contingency for calculation is based on a percentage of $1,000,000. Based on a 30 per cent contingency fee:

• In the motor vehicle accident litigation, the maximum fee that counsel could charge is $300,000, (30 per cent of $1,000,000); and
• In the medical negligence litigation, the maximum fee that counsel could charge is $2,400,000 (30 per cent of $8,000,000).

[72] In the words of Perrell J., in those circumstances “a contingency fee alone would not fairly compensate the lawyer for taking on the [motor vehicle accident] case” (Oakley at para. 17).

[73] One method by which to provide for fair compensation to counsel who take on complex and risky litigation is to approve the payment of a premium, as requested in this case.

[74] On an application of this kind, one factor to consider is whether the contingency percentage agreed upon, when added to the premium, is reasonable. The Commentary to rule 3.6-2 of the Law Society of Ontario Rules of Professional Conduct suggests that when a premium is included, “a smaller percentage of the award than would otherwise be agreed upon for the contingency fee, after considering all relevant factors, will generally be appropriate”.

[75] Mr. Obagi’s evidence is that the contingency fee typically charged by Connolly Obagi, absent a premium, is in the range of 30 to 33 per cent. For Taylor’s litigation, the contingency fee was reduced to 25 per cent, specifically because of the inclusion of the premium as part of the fee agreement.

[76] Mr. Obagi’s evidence is that when he assumed carriage of the file, he and Michelle anticipated that the main action would not be resolved through settlement negotiations—the action would likely only be resolved with a trial. Mr. Obagi testified that the reliance on a percentage plus costs approach provided Michelle with the confidence that Connolly Obagi would (a) invest the requisite time, resources, and money towards disbursements, and (b) be in a position to take the action to trial if it was not resolved through a negotiated settlement.

[77] For the matter to have any chance to settle, it would be necessary to:

• Build up the claim for damages to such a large amount that, even with a liability split in favour of the defendant, the damages and PJI had the potential to exceed the third party liability limits available to the defendant; and
• Invest a significant amount of time and disbursements to gather expert evidence to address liability, collect health-care and other records in support of the claim for damages, and marshal the expert evidence required to address the claims for damages for loss of income and the cost of future care.

[78] I find that the 25 per cent contingency, when considered in light of the premium, is reasonable.

[79] Speaking generally about solicitor-client relationships, Mr. Obagi testified that by relying on the percentage plus costs approach, the potential for conflict between the interests of the lawyer and the interests of the client is reduced. Although he did not elaborate, it is clear that Mr. Obagi was referring to the conflict between the client, in maximizing their recovery (including through a trial, if necessary), and the lawyer, in being fully compensated for all work done and disbursements incurred (regardless of whether the action is resolved through settlement or a trial).

[80] Mr. Obagi’s evidence is, and I agree, that such a conflict could lead to settlements that are less favourable for the client than might be achievable if the fee agreement includes a contingency plus the premium. Without the potential to be paid the premium, the lawyer might recommend settlement so as to avoid (a) a trial, and (b) the risk that he or she is not fully compensated for all work done.

Significance of the litigation

[81] The third factor considered in Almalki is the significance of the litigation, not only to the parties, but to the public. There is nothing in either the decision at first instance or from the Court of Appeal to suggest that “exceptional circumstances” exist only if the litigation is important to both the parties and the public. To impose such a requirement would detract from the potential for contingency fee retainer agreements to serve their intended purpose of “[allowing] clients who could not afford to retain counsel through traditional retainers to secure legal representation” (Almalki at para. 49).

[82] I find that the Agreement achieved both (a) the above-noted intended purpose, and (b) the social objective of providing Taylor and Michelle access to justice that they would not otherwise have been able to afford (Re Cogan (2007) at para. 42, factor (e)).

[83] Taylor was raised by his mother and she remains his sole source of parental support. Michelle is devoted to her son and that devotion is a significant factor in the success that Taylor has achieved despite his injuries and resultant limitations. Michelle’s devotion alone is not the solution to Taylor’s long-term needs. The litigation was an important piece of the financial puzzle to ensure that Taylor has funds available to assist him in meeting his needs for the balance of his life.

[84] I find that the litigation was very significant to Taylor. It was also significant to Michelle; it was a vehicle by which she was able to achieve some peace of mind about her son’s long-term future.

Resources expended

[85] The fourth factor considered by the motion judge in Almalki was “the immense resources expended by [counsel] in achieving … a very good result” (at para. 59). In Re Cogan (2007), the expense (and risk) of pursuing an action is identified as one of the elements of “the financial risk assumed by the lawyer” (at para. 42, factor (a)).

[86] The application for approval of the Agreement is based on the existence of exceptional circumstances that existed in 2011. What was known at that time about the expenditure of resources—both to date and anticipated? Based on the evidence of Mr. Obagi, Michelle Connolly, and Mr. Moore, I find that the following was known with respect to resources:

• Mr. Moore had been carrying the file for six years;
• It was anticipated that the file would remain open for a number of years, specifically to reach the trial stage; and
• An anticipated five to eight-week trial would require the investment of at least $100,000 in disbursements. That amount would be in addition to counsel fees well into the six-figure range.

[87] In summary, I find that the applicants were well-aware of the significant resources to be expended to carry out the approach recommended and undertaken by Mr. Obagi, including a trial of the action.

Summary

[88] I find that exceptional circumstances existed in 2011 when the fee agreement was reached between the applicants. The Agreement is approved with respect to the main action.

[89] The request for enforcement of the Agreement remains to be determined on the continuation of the motion pursuant to r. 7.08 of the Rules of Civil Procedure for approval of the settlements reached of the main action and the third party.

[90] On the Rule 7 motion, both Connolly Obagi and Mr. Moore have submitted to the court for approval their respective solicitor client accounts based on the terms of the Agreement. The proposed solicitor-client accounts submitted by Connolly Obagi for approval are based on the contingency fee of 15 per cent plus costs paid by the opposing parties. The proposed solicitor-client accounts submitted by Mr. Moore are based on the 10 per cent contingency fee.

[91] Submissions have been made with respect to the proposed solicitor-client accounts. The decision with respect to that aspect of the Rule 7 motion is under reserve.

[92] The Rule 7 motion is still before the court. It is scheduled to continue in the spring of 2019, specifically to address the remaining issue of the proposed management of the settlement funds payable to Taylor Connolly.

Madam Justice Sylvia Corthorn

Date: March 15, 2019