Court says earlier review officer’s decision contains ‘palpable and overriding errors’
An Alberta Court of Queen's Bench judge recently revoked a review officer’s decision that a law firm’s 20 per cent contingency fee for handling an Indigenous agricultural benefits settlement — amounting to $11.5 million — was “not clearly unreasonable,” and instead ruled that it be overturned and substituted with a lower amount.
“In my analysis, the reasons and decision of the RO [review officer] are reversible for ‘correctness’ and also contain ‘palpable and overriding errors’ of mixed fact and law," Justice Donald Lee wrote in an October decision Tallcree First Nation v Rath & Company. It involved a dispute heard in chambers over the contingency fee payable to the Alberta law firm of Rath & Company by Tallcree First Nations.
He noted the amount of time spent on the file and how quickly and easily the settlement was reached with the federal government, coming as it did after the Liberal government of Prime Minister Justin Trudeau was voted into power. While the Conservative government of Stephen Harper took a harder line on these negotiations, the Liberals were more open to settling quickly.
Justice Lee also noted that Rath was “a small six-lawyer law” firm practicing in Priddis, Alberta, and found that “most of the work product found in the record are actually simple emails created and signed” by the firm’s paralegal, that didn’t match up with what was in the contingency fee agreement (CFA).
York University law professor Allan Hutchinson, who has studied the area of contingency fees, says there is a need for transparency with the fees that lawyers charge, “so that what is being charged relates to the work actually done.”
“Contingency fees serve an important role,” Hutchinson says, noting that without them, “there would be many people who could not afford to go to court to seek justice.’
“But the problem is that sometimes, not always, the way they are used by lawyers creates problems, and they can end up the real winner.”
Hutchinson notes that some reforms could be introduced, such as what has happened in Ontario, whereby contingency fees are much more open to being challenged.
In the Tallcree case, The CFA that originally went before the RO was a result of an agricultural benefits settlement paid by the Government of Canada to Tallcree of $57,590,375. The 20 per cent contingency fee amounted to $11,518,075 and was based on an agreement signed in October 2015.
Tallcree went to the court RO to dispute the figure, and the RO determined that while the 20 per cent fee resulted in an extremely high fee that he had never seen before, it was “not one that was clearly unreasonable.”
Tallcree appealed that decision.
The First Nations group acknowledged it was aware of the CFA's terms and that the possible range of recovery from the federal government would be in the $50 million to $80 million range.
However, Tallcree said it was unaware how long such a recovery would take. It noted the length of the settlement process was a critical factor in determining the CFA's reasonableness.
In evidence presented to the RO, the Band Administrator said the original claim, with another firm, dates to about 2000. “We understood in entering into this contingency fee agreement that this could potentially take years. This could potentially take an undisclosed amount of time in which case Rath & Company would have, in our view, been quite entitled to take 20 to 35 per cent if they had to go to court, had to call experts.”
But given how things were settled so quickly, “20 per cent seemed outrageous,” the Band Administrator said: “And if we felt at any point in time that we could have approached [Rath] and re-negotiated that – I mean, he stood up in public meetings and basically said, you know, whether this goes ahead or not he is going to get paid and he is going to get paid his 20 per cent, and he said that at the very first meeting before we really got going with any offers or anything on the table.
“We felt at any point in time we could have negotiated with him to something a little more what we felt would have been reasonable.”
Rath & Company countered with the argument that Tallcree was a sophisticated First Nation that owned several operating businesses.
Other circumstances related to the case include Tallcree previously retaining another law firm for approximately eight years, from 2007, on an hourly basis to negotiate these agricultural benefits claims with the federal government.
Tallcree was dissatisfied with these lawyers because, as Justice Lee wrote, “they had not made much progress on the claims and allegedly had not reported regularly since 2013.
However, as referenced by Rath & Company in a December 2015 letter to two Federal Ministers, this was probably not the previous firm’s fault entirely “because it appears that no claims were being dealt with during this time by the Government of Prime Minister Stephen Harper.
In his ruling, Lee wrote that Tallcree argued Rath withheld critical information at the time of the CFA, informatation indicating the agricultural benefit settlement they were seeking would be resolved quickly in the band's favour.
“In hindsight, this was predictable as a result of statements made by Prime Minister Justin Trudeau, who appeared to promise to resolve these types of claims as soon as possible,” Lee wrote. He added that Tallcree said “all Rath ever told them” was that the firm had close connections to the Trudeau government.
“I conclude that Rath was essentially only successful in settling those claims in short order after the CFA because of the change in government,” Lee wrote. “Rath would have been aware of this fortuitous change in the attitude of the Federal government” at the time the Oct. 14, 2015 retainer agreement was entered into, as a fixed-date election was set to occur on Oct. 19, 2015.
The judge also noted that approximately 20 other First Nations settled their agricultural benefits claims around the same time that Tallcree did. Rath or other legal counsel represented them, and Tallcree’s prior legal counsel settled nine cases. “These other similar settlements by Rath and other law firms establish that these settlements were clearly attainable at the time the CFA was entered into.”
An estimate of time records, based on an average of $500 an hour, came to $391,900, representing about per cent of the $11.5 million that would be paid out under terms of the CFA. But Lee said his review of the actual work performed by the firm for Tallcree shows that this estimate “overstated the actual time spent on this file.
He reached this conclusion because Rath’s legal work in this case “essentially consisted of filing a formal claim in Federal Court” and sending a three-page letter to two federal ministers on behalf of Tallcree proposing a settlement offer of $83 million.
“After some minor negotiations and a one-year bureaucratic delay between the government negotiators and Rath, a settlement figure of $57,590,375 was finalized at the end of 2016, and the ratification process began,” Lee wrote. “I conclude based on my review of the Record that the bulk of Rath’s efforts consisted of outstanding paperwork and efforts by Rath to comply with federal government administrative processes and documentation of no particular complexity or uniqueness, usually authored or signed off on by Rath’s paralegal.”
Before deciding on the appropriate amount that Tallcree should pay Rath, Justice Lee wrote he would give each party “a further opportunity to provide me with written submissions as to the appropriate final amount of Rath’s fee." He noted Tallcree had already indicated a fee of "one and two million dollars would be appropriate in these circumstances.”
Justice Lee heard arguments in chambers on Nov. 27 from both sides on what those fees should be and reserved his decision.
Rath has indicated it is planning to appeal Justice Lee’s decision. However, in another court ruling released Dec. 3, Justice Ritu Khullar of the Alberta Court of Appeal directed that the appeal of Lee’s initial decision “be held in abeyance until it is known whether his final decision [on the amount] will be appealed. If it is appealed, Khullar wrote that both appeals should be heard together.
Edward Molstad, the lawyer representing Rath, declined to comment because the case is still under appeal.