Introduction
The decision of Leduc v. Dufour is notable for a number of reasons, first amongst those is a proposed staggered contingency fee percentage in birth trauma and other high damages claims. Second, is the review of the statutory and regulatory standards that govern contingency fee agreements and a reminder of the essential elements of the same.
Decision
A proposed settlement of the underlying birth trauma case was reached in 2023 for an all-inclusive sum of $14,000,000. Counsel for the minor plaintiff (Mrs. Wallbridge), brought a motion under Rule 7 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (Rules of Civil Procedure) for approval of the proposed settlement, the provisional contingency fee agreement (CFA) and the requested contingency fee of approximately $4.1 million, plus HST and disbursements.
The action was commenced in 2015 and examinations for discovery were completed by August 2018. Following this, a mediation was conducted in November of 2020 but failed to resolve the action. Pre-trial conferences were held on March 17, 2021 and December 2, 2021, but neither resulted in a settlement. An eight-week trial was scheduled to commence on September 5, 2023. With trial approaching, counsel exchanged further offers to settle the action, cumulating in the settlement of $14,000,000 all-inclusive.
Two CFAs were entered into over the course of litigation. The first CFA was entered into in 2015 while the second was signed in 2018, after the examinations for discovery were completed.
In April of 2023, Justice Ellies approved the overall settlement but expressed concerns regarding several of the details, namely the validity of the provisional CFA and the amount of the proposed contingency fee. Counsel was retained by both Mrs. Wallbridge and Ms. Vanier (the mother of the minor plaintiff) and submissions were made by both parties regarding Justice Ellies’ concerns.
The Law Governing Contingency Fee Agreements
Justice Ellies began his decision with a brief overview of the statutory and regulatory landscape that governs CFAs. “Compensation agreements”, of which CFAs are a subset, are governed by Sections 15 to 33 of the Solicitors Act, R.S.O. 1990, c. S.15 (Solicitors Act). Section 16(1) and (2) of the Solicitors Act allow lawyers to make written agreements with their clients respecting the amount and manner of payment for the whole or part of any past and future services, including payment by way of percentage. Section 24 of the Solicitors Act stipulates that the court will only enforce such agreements where it appears that the agreement is in all respects fair and reasonable and, where it is not, the court may order that the fees and disbursements be assessed in the ordinary manner.
CFAs themselves are subject to further regulation. At the time the two CFAs were entered into in the present matter, the applicable regulation was Contingency Fee Agreements, O. Reg. 195/04. This regulation was replaced by Contingency Fee Agreements, O. Reg. 563/20 on July 1, 2021 The regulation required the provisional agreement to meet several conditions, including, but not limited to:
- The agreement be titled “Contingency Fee Agreement.”
- The agreement be signed by both the clients and the solicitor.
- The agreement contains statements that:
- The client and solicitor have discussed options for retaining the solicitor other than by way of CFA, such as by an hourly rate retainer;
- The client retains the right to make all critical decisions regarding the conduct of the matter;
- The solicitor shall not recover more in fees than the client recovers as damages or receives by way of settlement; and
- If the client is a party under a disability represented by a litigation guardian, then:
- The CFA must be reviewed by a judge before it is finalized or as part of the motion or application for approval of the settlement under Rule 7.08 of the Rules of Civil Procedure; and,
- The amount of legal fees, costs, taxes and disbursements are subject to approval of a judge.
Was the Contingency Fee Agreement Fair
To satisfy the requirements of Section 24 of the Solicitors Act, the onus is on the lawyer to show that the agreement was fair at the time it was entered into. The focus of the analysis is “the circumstances surrounding the making of the agreement and whether the client fully understands and appreciates the nature of the agreement that he or she executed” (Raphael Partners v. Lam, 2002 CanLII 5078 [ON CA], para 37).
Justice Ellies differentiated the formation of a solicitor and client relationship from most other commercial relationships. Although both parties are looking out for their interests, the formation of a solicitor and client relationship often involves a significant power imbalance with the layperson often being dependent on the lawyer to inform them of their rights, the risks and the potential rewards.
Justice Ellies likened the Solicitors Act and the regulations governing CFAs to a form of consumer protection legislation. The resulting requirements are not mere formalities but rather a means of providing crucial information to clients to attenuate the power imbalance between the lawyer and client(s). The further a CFA strays from compliance, the more difficult it is for a lawyer to satisfy the onus that the CFA was entered into fairly.
Justice Ellies was not satisfied that the CFAs were entered into fairly, noting deficiencies with the provisional agreements, such as the failure to note that the client had the right to make all critical decisions, that the CFA must be reviewed by a judge, and an explanation that the lawyer could never recover more in fees that the client recovered in damages.
Was the Fee Reasonable
Although Justice Ellies acknowledged that the jurisprudence stipulates that fairness should be assessed as of the date of the agreement and reasonableness is assessed as of the date of the approval motion, he questioned this logic, pondering how an agreement that is unfair when the fee is due could be reasonable, and vice versa. Nonetheless, he proceeded with assessing the reasonableness of the fee as of the date of the hearing based on four factors he identified from case law: the time expended by the solicitor, the legal complexity of the matter, the results achieved and the risks assumed by the solicitor (Raphael Partners v. Lam, 2002 CanLII 5078 [ON CA], para 50).
A) Time Expended by the Solicitor
Justice Ellies accepted that significant time was expended in litigating the case, but he was critical of the lack of contemporaneous docketing.
B) Legal Complexity of the Case
Justice Ellies acknowledged that there is inherent complexity in birth trauma cases but questioned whether the complexity was beyond normal for these types of cases. Opinion evidence provided by two experienced lawyers who specialize in birth trauma cases was divided on this topic. Regardless, Justice Ellies accepted that Mrs. Wallbridge demonstrated skill and experience in litigating the case and that she was one of a limited number of lawyers in Ontario who could do so competently.
C) The Result Achieved
In assessing the adequacy of the result achieved, Justice Ellies referred to two damages estimates that were prepared by Mrs. Wallbridge for pre-trial. One of these estimates calculated the defendants’ assessment of the claim at approximately $19.5 million, versus the plaintiffs’ estimate of approximately $32 million. In light of the defendants’ assessment of damages, Justice Ellies commented that the proposed settlement fell short by approximately $10 million in damages.
D) Risks Assumed by Solicitor
Justice Ellies found that the risk of non-payment was low at the time the case was settled but acknowledged that there is always some risk to proceeding to trial. By the time the provisional settlement was reached, the likelihood that the nurses would be found liable was high and the issue of causation had become much less of a threat.
Conclusion on Reasonableness
After weighing the aforementioned factors, Justice Ellies concluded that it would be unreasonable to grant the proposed fee of approximately $4.1 million, plus HST and disbursements.
Determining a Reasonable Fee
Given Justice Ellies’ finding that the CFA was not fair or reasonable, it fell to him to calculate an appropriate fee. As a guide, Justice Ellies outlined a staggered percentage formula (below) that he believed resulted in a fair and reasonable fee, regardless of the amount of damages suffered:
- 33 percent of the first five million recovered as damages;
- 25 percent of the next five million recovered as damages; and
- 15 percent of the remaining amount recovered as damages.
On this basis, Justice Ellies concluded that the appropriate fee was $3,250,000 plus HST and disbursements.
