Higher percentage contingency fee on accident benefit claim was triggered by minor mediation matter
The Court of Appeal for Ontario dismissed the appeal of a personal injury law firm that argued it properly charged 30 percent in contingency fees for a $1-million accident benefits award - a contingency fee percentage increase triggered by a minor treatment plan mediation worth $2,065.
In doing so, the appeal court upheld the lower court’s ruling that said the firm’s legal team did not properly advise its client when a minor dispute with her insurer arose in 2015, entitling the plaintiff to engage in mediation, that this mediation would trigger an increase in the contingency fees to 30 percent from 15 percent.
The appeal court acknowledged in its ruling in June that the law firm, Campesi and Campesi LLP, secured “impressive settlements” for tort claims ($580,000) and for accident benefits ($1 million). It also retained 30 percent of the proceeds of each settlement as fees, $145,500 for the tort claim and $300,000 for the accident benefits claim, before paying the balance to the client, Blanka Novosel.
However, Novosel, who switched lawyers, successfully applied to reopen the compensation agreement after it had been paid. The application judge, Elizabeth Sheard, declared the Contingency Fee Retainer Agreement (CFRA) unenforceable and ordered the “costs, fees, charges and disbursements” chargeable to Novosel to be assessed “pursuant to the provisions of ss. 24 and 25 of the Solicitors Act.”
It also ordered $150,000 to be repaid after finding the fees paid towards the accident benefits claim to be “unreasonable and excessive.” She also ordered fixed costs in the application, payable to Novosel, of $66,000 plus HST and disbursements. The lawyers at Campisi then appealed Justice Sheard’s superior court decision and the costs order from June and July of 2022.
Contingency fee needs to be justified, regardless of whether specified in CFRA
Allen Wynperle, the personal injury lawyer who handled the case for the plaintiff after she switched firms, says that PI lawyers, himself included, need to be aware that “if you have a contingency fee agreement, and it says 30 percent, that doesn’t mean you get to charge 30 percent, you only get to charge what’s fair and reasonable up to 30 percent.
“Sometimes lawyers feel they have the right to charge the full amount. And that’s not true because they have a right to only charge what is fair and reasonable, regardless of what the retainer agreement says.”
The appeal court confirmed there were errors in the contingency in question, Wynperle says, but even if a contingency agreement were valid, “if you charge the maximum amount stated in the agreement, you better be prepared to back it up.”
Justice Sheard, whose ruling was taken to the appeal court, wrote that had the money in dispute triggering the mediation been disclosed, “given the small amount of money in dispute, as compared to the cost to her of the increased contingency fees, it is reasonable to conclude that [the plaintiff] would not have proceeded with the mediation.
“I, therefore, reject the submissions by the lawyers that the mediation that took place in 2015 should, or did, operate to trigger the increase of the contingency fee from 15 percent to 30 percent.”
Justice Sheard also wrote the lawyers knew “that the CFRA included terms of art not understood by lay persons, and that the ‘mediation’ referenced in the CFRA that the lawyers relied on to trigger the increase in contingency fee to 30 percent from 15 percent “was no longer applicable” due to amendments to the Insurance Act, RSO 1990, c. I.8.
Wynperle notes that in these cases, “You’re also dealing with people suffering the effects of injuries related to the accident. That’s the purpose of why they’re there to see you in the first place. And that makes them even more vulnerable than the average layperson.”
He adds that there is always the “potential for conflict of interest” when lawyers talk to clients about legal fees. On the one hand, there’s the obligation to tell clients what actions or procedures are legally possible. However, that must be balanced with advising clients about what is in their best interest, “not to our commercial advantage.”
Campesi’s grounds of appeal and the appeal court’s response
The lawyers at Campesi pursued two grounds of appeal of this decision. They argued that the application judge erred in finding the accident benefits claim fee to be “excessive and unreasonable” and challenged the costs order she made.
They did not take issue with the application judge’s decision to set aside the CFRA, the declaration that the CFRA was unenforceable, or the order that they repay the $150,000.
The application judge, the law firm said, erred in ordering the assessment “pursuant to the provisions of ss. 24 and 25 of the Solicitors Act” and in deciding whether the assessment was “fair and reasonable.”
Specifically, the Campesi lawyers argued that this was a simple s. 25 application and that once the application judge chose to reopen the CFRA, an assessment order was automatic under the terms of s. 25 without the need to determine whether the accident benefits claim fee was “fair and reasonable” within the meaning of s. 24.
However, the appeal court panel, made up of Justices Bradley Miller, David Paciocco and Steve Coroza did not agree. It said Novosel required s. 25 to reopen the CFRA (as the fees had been paid) and to secure the repayment order she was seeking. She also needed s. 24 to obtain a declaration that the CFRA was void.
The appeal court said: “Both sections provided a path to an assessment order. The application judge did not err by considering both routes.”
Moreover, “there is merit in Ms. Novosel’s submission that the application judge was entitled to consider the fairness and reasonableness of the accident benefits claim fees in deciding whether to order the repayment of $150,000.”
The lawyers’ second argument was that the application judge erred in principle by considering only the hours docketed in determining the reasonableness of the fee for the accident benefits claim and by giving insufficient reasons for this decision.
The lawyers argued that this is contrary to the “authority from this court that hourly rates do not control the reasonableness of contingency fees and that numerous relevant factors are to be considered.”
Again, the appeal court said it was not persuaded that the application judge made this error in principle or that her reasons were insufficient. “When the decision is read as a whole, it is evident that the application judge engaged the issue of the reasonableness of the fees appropriately.”
Finally, the court ruled, “This is not a case for interfering with the discretionary determination of the application judge to make the costs award that she did. The lawyers have not sought leave to appeal costs. “This is enough to warrant dismissing their challenge to the costs award.
“In any event, they are not well-situated to challenge the costs award given that the costs award given to Ms. Novosel of $66,000 is but a fraction, only slightly more than half, of the $120,098 costs award the lawyers were seeking on the application.”
In the Superior Court of Justice ruling released in 2022, the judge noted that the lawyers knew that the CFRA included terms of art not understood by lay persons and that the ‘‘mediation’’ referenced in the CFRA that the lawyers relied on to trigger the increase in contingency fee to 30 percent from 15 percent “was no longer applicable” due to amendments to the Insurance Act, RSO 1990, c. I.8.
Wynperle said the case brings to light some inherent issues with dealing with cost assessments, noting that it’s been more than two years since he made the application, and there is still more to be done before matters are settled.
“It’s just not a system that is easy or user-friendly for the client who wants to have their account assessed,” he says. “And that is something we should all consider. There should be a process that is more user-friendly for the victim.