Applications to Approve a Settlement: What Will and Will Not Satisfy Judges
Aug 21, 2020
You have gotten through what you may think is the hard part: settling your client’s Accident Benefits (“AB”) claim. However, if the Plaintiff is a party under disability, the Court will need to approve the settlement, in keeping with Rule 7 of the Rules of Civil Procedure. Meade v Echelon, 2020 ONSC 4431 is the latest in a line of cases which shows that it is not automatic that a settlement will be approved, and that judges are getting more and more particular respecting what they need to be satisfied about before signing off on a settlement.
The injured party, Ms. Meade, was involved in a motor vehicle accident, which resulted in injuries leaving her catastrophically impaired. As a result, Ms. Meade did not have capacity to instruct counsel, and a Litigation Guardian, Ms. Benoit, was appointed to act on Ms. Meade’s behalf in her AB claim.
The parties settled Ms. Meade’s AB claim for $500,000.00, subject to Court approval. It was proposed that $197,750.00 of that amount would be paid to Ms. Meade’s lawyers for fees, costs and HST; $140,000.00 would be placed into structured settlement; and $35,000.00 would be paid for loans obtained by Ms. Meade. After all of those deductions, Ms. Meade would be left with $127,456.10 plus the proceeds of the structure.
In terms of how the $127,456.10 would be used, it was proposed that $53,000.00 of that amount would be used to pay off a consumer debt proposal that Ms. Meade had entered into, and a further $45,000.00 would be used to repay personal loans from family and friends. After those additional deductions, Ms. Meade would be left with $29,456.10.
Justice Mark Edwards gave the Endorsement of the Superior Court on July 20, 2020. Justice Edwards assessed the evidence before the Court, the settlement proposed, and raised a number of concerns.
Justice Edwards pointed out that he was not satisfied that the Court should approve the settlement amount without better up to date medical evidence, and indicated that the matter would be referred to the Office of the Public Guardian and Trustee for further input. Justice Edwards also noted that there was no evidence of a management plan for the settlement amounts payable to Ms. Meade. Similarly, there was also no evidence regarding the loans which it was proposed be repaid from Ms. Meade’s settlement , nor was any evidence provided regarding what advice she received prior to incurring such a loan, or how she could enter such contracts at a point in time when she was apparently a party under disability.
Particular scrutiny was given by the Court when looking at Ms. Meade’s lawyers’ retainer agreement. Justice Edwards expressed significant concerns with the proposed legal fees that Ms. Meade was going to be charged, in keeping with the retainer agreement. On that front, the Court indicated that it required evidence that Ms. Meade was mentally competent to sign the retainer agreement, as well as what advice she received prior to signing the contract. The Court also pointed out that the retainer agreement did not make any reference to the lawyers representing Ms. Meade in an AB claim or arbitration before the LAT, but instead addressed the concurrent personal injury claim in tort.
Justice Edwards further noted that in any event, the retainer agreement would need to be fair and reasonable, and that in a SABS claim where the law firm had taken on little to no risk, a contingency fee of 35% did not remotely come close to anything that is fair or reasonable. Justice Edwards found that he was not prepared to approve any accident benefit settlement that exceeds 15% plus HST and disbursements as the costs payable to counsel.
In light of all of these concerns, the Court found that until all of the concerns were dealt with by Counsel, and until such time as the Court received a report from the Office of the Public Guardian and Trustee, it was not prepared to approve the proposed terms of settlement.
This Endorsement reinforces that the approval of settlements with a party under disability is not simply a procedural task which will be easily accomplished without providing proper and fulsome evidence to the Court. For Plaintiff Lawyers, this should be borne in mind from the outset when a retainer agreement is being drafted and signed, as the agreement will ultimately be placed under a proverbial magnifying glass once it is before the Court in an approval application. In any event, however, this decision should serve as a lesson to all Lawyers involved in such an Application, to ensure that the Court has as much complete and accurate information before it as possible to increase the likelihood that the settlement will be approved without any difficulty. Where lawyers tend to view accident benefit settlements as part and parcel of the tort claim under which they are retained, they ought to think again. Here, the Court has made clear that it views AB settlements as much lower risk to counsel and thus generally deserving of much more modest recovery. Where it might be normal to see a judge approve a contingency fee agreement of 30% or even more in higher risk litigation, Justice Edwards has made clear that he views 15% to be the maximum for AB contingency fee settlements, save for extraordinary circumstances.