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BARRISTERS AND SOLICITORS - Contingency fee agreements - Measure of compensation - Quantum meruit

Wednesday, March 17, 2021 @ 6:34 AM  

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Appeal by the law firm SK and cross-appeal by the client, Lima, from an assessment of SK’s fees. Appeal by Lima from the costs award. SK represented Lima in an action against his insurer and his insurance broker. Pursuant to a contingency fee agreement, Lima agreed to pay a fee equal to 20 per cent of all claims paid by the defendants up to $500,000, and 10 per cent of all claims paid in excess of $500,000. In addition to the percentage fee, the Agreement also entitled SK to costs paid by the defendants. The action proceeded through discoveries, three pretrials and a mediation. The broker then agreed to settle the claims against it for $150,000. The insurer settled for $1,250,000. In total, SK took fees of $372,290 and disbursements of $101,994 out of the settlement funds. The parties agreed well before the assessment commenced that SK was entitled to the disbursements listed in its accounts and need not prove them. At the assessment, SK conceded that the fee agreement contravened the Solicitors Act and was unenforceable due to the parties’ failure to obtain judicial approval. SK argued that its fees should thus be calculated on a quantum meruit basis. The application judge agreed. On the application judge’s findings, the Agreement reflected Lima’s agreement as to how SK’s fees would be calculated, and Lima understood the Agreement included both a percentage fee component and a costs component. Ultimately, she concluded SK was entitled to fees of $328,546. Despite the parties’ agreement that disbursements were not in issue, and the absence of any submissions from counsel, the application judge, based on her own review of the billing documents, concluded SK inadvertently double-billed disbursements in the amount of $16,100. The application judge awarded Lima costs on a partial indemnity basis up to the date on which SK served Lima with an Offer to Settle for $50,000. The application judge fixed those costs at $20,000. The application judge awarded SK partial indemnity costs after that date, fixing those costs at $17,000.

HELD: Appeal allowed in part. Cross-appeal dismissed. Appeal from costs award allowed. SK’s appeal was allowed to the extent of eliminating the application judge’s recalculation of the disbursements. SK’s breach of the Solicitors Act did not disentitle SK to reasonable fees for services. The terms of the agreement negotiated by Lima provided valuable insight into his reasonable expectations as to the fees he would eventually have to pay. None of the arguments advanced by SK or Lima gave cause to set aside or vary the application judge’s quantum meruit assessment. SK had no reason to think the amount of disbursements it claimed was challenged or that the application judge would take issue with the amount claimed for disbursements. As the parties specifically agreed SK was entitled to the disbursements claimed and need not prove them, it was unfair to deny SK disbursements for want of proof. Absent a clear and demonstrated double-counting, the application judge erred in requiring SK to repay $16,100 to correct a double-counting of disbursements. By entering into a fee agreement it knew to be contrary to the Solicitors Act and unenforceable without prior court approval, and by failing to inform the client of these facts, SK made the ultimate assessment of its fee virtually inevitable when the client learned the Agreement was unenforceable. While SK made several bona fide attempts to settle the assessment, Lima made none. Lima thus bore significant responsibility for the four-day hearing that eventually ensued. A proper balance was achieved by awarding Lima his costs up to the point of SK’s first offer to settlement, assessed at $20,000, and denying either party any costs after that point.

Lima v. Kwinter, [2021] O.J. No. 317, Ontario Court of Appeal, D.H. Doherty, A. Hoy and M. Jamal JJ.A., January 26, 2021. Digest No. TLD-March152021006