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Court awards premium in 'Mary Carter' agreement

|Written By Julius Melnitzer

Although premiums to plaintiffs'' personal injury counsel are no longer rare in Ontario jurisprudence, no court has considered a premium where some of the parties have entered into a "Mary Carter" agreement.

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But Justice Nancy Spies crossed that threshold in April when she awarded a $100,000 premium to Craig Brown and Darcy Merkur of Toronto's Thomson Rogers LLP after their client Nathan Resch entered into a Mary Carter agreement some four days before trial.

"Mary Carter agreements are still somewhat novel," Merkur explains. "They envisage a plaintiff cutting a deal with a defendant and together they point the finger at other defendants.

 "The courts have said that such an agreement is perfectly ethical as long as their existence is disclosed - although there is no obligation to reveal the amounts involved in the agreement."

Resch brought his claim following a bicycle accident, which occurred after he took his bicycle for repairs to Mills-Roy Enterprise Ltd., a Canadian Tire franchisee. Because the necessary parts were not available, Mills-Roy returned the bike to him for the weekend, during the course of which he was involved in a catastrophic accident.

Resch sued Canadian Tire Corporation Limited (CTC), the store and the manufacturer, ProCycle Group Inc. CTC and ProCycle had the same interest, as both were covered by the same insurance policy.

ProCycle made an offer to settle of $500,000. Resch countered at $1.6 million. In January 2006, just before the 27-day trial commenced, Resch and Mill-Roy entered into a Mary Carter agreement.

When the trial ended, the jury found ProCycle 90 per cent liable and Mills-Roy 10 per cent liable, rejecting ProCycle's argument that Resch was contributorily negligent. The jury assessed ProCycle's share of the damages at just over $3.5 million, including punitive damages and prejudgment interest.

Spies awarded costs in the amount of $646,000 to Resch, based on partial indemnity before the offer to settle and substantial indemnity afterwards. But Thomson Rogers sought a $125,000 risk premium.

A premium on solicitor client costs ought to be awarded only rarely, Spies noted, and only where the facts "cried out" for it. The test for such an award required the plaintiffs to show both that a financial risk had been assumed by counsel and that counsel had achieved an outstanding result.

 "In terms of risk assumed, the plaintiff need not be impecunious, but to justify the award of a premium the risk must be based on evidence that the plaintiff lacked the financial resources to fund lengthy and complex litigation, plaintiff's counsel financed the litigation, the defendant contested liability and plaintiff's counsel assumed the risk not only of delayed but possible non-payment of fees," Spies wrote.

So far as risk was concerned, Thomson Rogers "largely" bore the cost of the litigation, including disbursements exceeding $150,000.

Here the plaintiff was a minor, and his parents would have been responsible for his fees. Although they were not impecunious, they lacked the financial resources to fund this litigation. They were even unable to pay for rehabilitation treatments recommended before trial

Still, Spies could not conclude that Thomson Rogers was at risk for non-payment of all the firm's fees. However, the firm did not have to establish that it was completely at risk.

"Certainly given the evidence of the financial means of Nathan's parents and given the evidence that the jury accepted concerning Nathan's past income loss and future earning potential and given the quantum of fees and disbursements incurred, I have no difficult in concluding that, apart from the Mary Carter agreement, counsel for the plaintiffs were at risk of possible non-payment of their fees and a real risk that they would be unable to recover the bulk of their fees and disbursements from Nathan and his parents," Spies wrote.

The plaintiffs, therefore, met the risk criterion. Nor did the Mary Carter agreement affect this conclusion, for the following reasons:

• Thomson Rogers met the risk criterion until the Mary Carter agreement was reached just before trial;

• Following execution of the agreement, the firm was at risk for at least the differential between partial indemnity costs and substantial indemnity costs as the agreement did not contemplate payment of the difference; and

•  On ProCycle's argument, the plaintiff could have been found completely responsible for the accident, and so the plaintiffs would have been liable for 50 percent of ProCycle's costs pursuant to the Mary Carter agreement.

In considering the impact of the Mary Carter agreement, Spies emphasized the policy considerations favouring the granting of premiums.

"The possibility, albeit rare, of a premium being granted by the court, will encourage plaintiffs' counsel to provide access to the court to plaintiffs who have meritorious cases and who could not otherwise afford to come to court, by counsel financing the litigation and accepting the risk of possible non-payment of fees and disbursements, which in these types of cases can be quite substantial as they were in this case," Spies wrote.

"Furthermore, given that a premium is only awarded when liability is disputed and an outstanding result has been achieved and that it in effect requires plaintiffs to make a reasonable offer to settle (since a premium can only be awarded, absent misconduct by the defendant, on the basis of a substantial indemnity award), the requirement that must be met before the court can consider awarding a premium ensure that it is well deserved."

The plaintiffs also met the "outstanding result" test.

Although the jury significantly discounted some of the plaintiff's claims, the amounts awarded were much closer to the plaintiff's position that to that of the defendants, "and it can certainly be said that the result was very favourable." The overall result was more than double the plaintiff's offer to settle and six times the amount of the ProCycle offer.

"This in my mind is the most compelling factor in judging the overall success and result achieved by the plaintiffs," Spies wrote.

According to Spies, compensating counsel for the risk fact was the goal to be achieved in fixing the quantum of the premium.

"In my view less regard should be had to the outstanding result in fixing the quantum of a premium, as the overriding principle is one of indemnity with respect to costs," she wrote.

"There are no policy reasons to reward plaintiff's counsel by a payment from the losing party because an outstanding result has been achieved, even though result is a criterion that must be met before a premium can be considered."

In Spies' opinion, the premium should also bear some proportion to the difference between the amount awarded for substantial indemnity costs and the actual costs on a full indemnity basis. Here, bearing in mind that the differential between substantial indemnity and full indemnity was approximately $50,000, the requested amount of $125,000 was reasonable. The fact the plaintiffs were not totally impecunious and the Mary Carter agreement had alleviated the risk somewhat, however, justified a reduction to $100,000.

Peter Trebuss of Toronto's Trebuss Rapley LLP, who represented Mills-Roy, believes the premium is well deserved.

"I don't have a problem with it," he said. "Thomson Rogers worked awfully hard and did a super job."

Not surprisingly, Mark Edwards of Beard Winter LLP, who represented CTC and ProCycle, does have a problem. The case is under appeal.

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