Appeal assails ruling deeming contingency fee agreement unfair, unreasonable
In proceedings arising from a medical malpractice settlement, the Ontario Court of Appeal ordered a law firm to pay the injured party and his mother costs of $37,000 after upholding a decision finding a contingency fee agreement (CFA) unfair and unreasonable.
In Leduc v. Dufour, the respondents were a boy diagnosed with cerebral palsy and his mother. The boy sustained a hypoxic ischemic brain injury during his birth at the Sudbury Regional Hospital in November 2009. He received his diagnosis in 2010.
In 2011, his mother retained a lawyer at the appellant law firm to conduct an investigation for a medical malpractice claim. The lawyer gathered hospital records and other documents and hired various experts to give opinions on medical negligence and causation.
The mother and the lawyer executed CFAs in August 2015 and in May 2018. Under both agreements, the appellant firm would get a third of the compensation, including interest but excluding costs and disbursements if the claim settled before trial. The firm could not charge any fees or disbursements in the event of no recovery.
Under the 2018 CFA, if the appellant firm had to prepare for or conduct a trial, it could charge a quarter of the settlement or judgment, plus a prescribed hourly rate for trial preparation and trial time, disbursements, and harmonized sales tax (HST).
The lawyer brought an action against the hospital, the attending obstetrician, and the nursing staff. The nursing defendants, who unsuccessfully sought testing to ascertain whether the boy’s cerebral palsy had a genetic cause, served an expert report indicating that meconium-induced vascular necrosis caused the injuries.
In January 2023, the action settled for the all-inclusive sum of $14 million. In February 2023, the appellant firm moved on the respondents’ behalf for the approval of the settlement and the fee payable under the 2018 CFA pursuant to r. 7 of the Rules of Civil Procedure, RRO 1990, Reg 194.
The settlement’s damages portion was around $12.325 million after deducting the defendants’ cost contribution and disbursements. The appellant firm’s proposed contingency fee, excluding HST, was about $4.108 million.
On Dec. 10, 2024, Justice M. Gregory Ellies of the Ontario Superior Court of Justice issued a decision approving the overall settlement.
However, the motion judge replaced the appellant firm’s proposed contingency fee with a $3.25 million fee, plus HST and disbursements. He considered the 2018 CFA unfair at the time of its execution and unreasonable at the time of the motion.
Unfairness finding upheld
Last Jan. 8, the Court of Appeal for Ontario dismissed the appeal. On Mar. 25, the appeal court fixed the respondents’ all-inclusive costs at $37,000 after considering the parties’ written submissions and cost outlines.
The appeal court saw no reversible error in the motion judge’s finding that the 2018 CFA was unfair. The appeal court determined that the judge:
- properly focused on the circumstances surrounding the agreement’s making and the client’s understanding and appreciation of the agreement’s nature
- reasonably emphasized the importance of complying with Ontario’s Solicitors Act, 1990, given the mother’s vulnerability and the need for crucial information to address the lawyer-client imbalance and level the playing field between them
- acknowledged that the regulations for CFAs were a form of consumer protection legislation
- considered the relevant evidence and accepted the mother’s assertions that she believed that the 2018 CFA was a standard form agreement and had no idea that the CFA needed court approval
Given its finding of unfairness, the appeal court saw no need to consider the judge’s determination regarding unreasonableness.
