In Krukowski v Aviva 2019 ONSC 3557, Justice Glithero was asked to consider an application pursuant to Rule 7.08 for the court’s approval of a proposed accident benefits claim in respect of a party under a disability. In issue was the appropriateness of the proposed plan for the management of the settlement funds and legal fees being claimed on a contingency fee basis.
The Applicant was 25 years of age. On January 20, 2014, he hit a culvert while operating a snowmobile. As a result, he sustained various injuries including a brain injury, right femur fracture and a fractured sternum. The original contingency fee agreement provided that his lawyer would be paid 15% of any full or partial settlement including costs, interest, disbursements and HST. The Applicant was subsequently found incapable of managing his finances and property. The Office of the Public Guardian and Trustee was appointed as his guardian of property. The PG&T, acting as a litigation guardian, appointed counsel to continue this matter.
The second contingency fee agreement provided for a 15% contingency fee exclusive of costs, taxes and disbursements but plus HST. In addition, the Applicant was entitled to any costs awarded to him. It further reduced the hourly rates his lawyer could charge in the event the contingency fee retainer was terminated. Eventually, the Applicant’s sister was appointed as his guardian of property. A third contingency fee agreement was entered into consistent with the first agreement.
The Proposed Settlement
The AB claim settled for $1,200,000 broken down as $500,000 for the medical/rehabilitation benefit and $700,000 for the attendant care benefit. The proposed legal fees totaled $205,691.91 with the remaining $994,308.09 to be used to purchase a structure which generated a monthly income of $3,085.53 in addition to the $1,151.00 received from ODSP for a total monthly income of $4,236.53.
Justice Glithero wrote to the PG&T seeking their input on the proposed settlement given their prior involvement. The PG&T advised that the settlement represented 79% of the remaining limits and generated enough income to exceed the plaintiff’s monthly expenses. The PG&T recommended that 10% of the total settlement be notionally backed out as representing an appropriate amount for costs resulting in $135,800 inclusive of HST being held back. Based on the remaining settlement amount, counsels fees calculated at 15% of the remaining amount totaled $180,415.80. The Applicant’s lawyer, sister, and the PG&T all agreed this amount was reasonable based on the work completed and results achieved.
The materials showed the total amount of time spent on the file was 115.6 hours 24.7 of which were spent by his lawyer. The value of the total time spent was $18,743.99 plus $2,291.91 in disbursements.
The court reviewed the general principles related to contingency fee agreements. It referred to two different approaches to contingency fee agreements found in the case law.
As noted in Hibo Mohamed Abdulahi et al v. Dr. Claudia Kessler et al (2018 ONSC 3952), a contingency fee agreement is not binding on a party under a disability until it is approved by the court. The onus is on counsel to prove that the contingency fee sought is: a) fair at the time it was made and b) the fees now being charged are reasonable under the circumstances as the court determines at the date of the settlement.
The first approach was established by the Ontario Court of Appeal in Raphael v Lamb (2002 CanLII 45078). The court stated that the reasonableness of the contingency fee is based on the time expended, the legal complexity of the matter, the results achieved, and the risk assumed by the lawyer. In Henricks-Hunter v 814888 Ontario Inc. (2012 ONCA 496), the court held that, given the role played by contingency fee agreements, the time spent by the lawyer is relevant but does not control the question as to whether the fees are reasonable. Further, a motions judge on these types of applications cannot simply disregard the contingency fee agreement or blindly give effect to it but rather must undertake an assessment of the fairness and reasonableness of the agreement. In addition, the solicitor has the onus of satisfying the court that the way in which the agreement was obtained was fair and that the client fully understood the terms of the agreement.
The second approach was found in the cases relied on by the Applicant’s solicitor. In Giusti v Scarborough Hospital, Justice Spies noted she preferred to approach contingency fee agreements not from the perspective of whether to approve the agreement or not, but rather to determine whether a premium should be awarded over and above the hourly rate fees. She applied the same approach from Adler v State Farm where she concluded that in the circumstances of that case, when approving an AB settlement with a party under a disability, a premium should not be awarded. It is important to note in that case that the settlement, while reasonable, did not provide for all of the plaintiff’s needs.
Justice Glithero found no substantive differences between these two approaches as they relied on the same factors.
Ultimately, the court approved the proposed settlement. The court made note of the relevant factors to be considered when fixing costs for counsel of the party under a disability (Aywas v Kirwan 2010 ONSC 2278):
- The time expended by the solicitor;
- The legal complexity of the matters dealt with;
- The degree of responsibility assumed by the solicitor;
- The monetary value of the matters in issue;
- The importance of the matters to the client;
- the degree of skill and competence demonstrated by a solicitor;
- the results achieved;
- the ability of the client to pay;
- the client’s expectations of the amount of the fee;
- the financial risk assumed by the solicitor of pursuing the action, including the risk of non-payment, the likelihood of success and the amount of the expected recovery; and
- the social objective of providing access to justice by injured parties.
With respect to these enumerated factors, the court noted that counsel had considerable experience with AB claims but that he was asking for fees that were several times his docketed time. It further found that matter was not legally complex and the result was reasonable as it provided for all of the Applicant’s anticipated needs. The court also noted that the there was little risk that the Applicant would not receive substantial accidents benefits by the time his lawyer was retained as the determination of catastrophic impairment was made without this involvement.
The court ultimately concluded that the proposed settlement was in the best interests of the Applicant as it provided significant financial stability which he would not have absent the settlement. The court stated there was no guarantee the insurer would continue to pay for various benefits and that future disputes could result in delay and increased legal fees. The court found that the settlement provided finality, certainty and was adequate to meet the Applicant’s foreseeable needs. The court also noted that the agreement was freely made, understood and accepted by the litigation guardian.
That said, the Court found that fees of 15% in this case were unreasonable, given the virtual certainty of meaningful recovery and very little if any real risk. The Court set costs to counsel in the amount of $50,000 plus disbursements plus HST, representing 5% of the settlement amount and more than 3x the amount invested in the file by counsel. The court found this to be a sufficient degree of reward for counsel and serve to promote providing access to justice to injured plaintiffs in circumstances like that of this claimant.
The takeaway from this case is that even where there is an enforceable contingency fee agreement, and the acquiescence of the PG&T and the litigation guardian, the Court has the ultimate and final say as to what fees are reasonably charged in a particular case. The idea of a percentage of recovery in an accident benefit case where there is no risk associated with the pursuit of same, is something that the courts will look at carefully, especially if the work associated with gaining recovery is not proportional to the fee being sought.