



COURT OF APPEAL FOR ONTARIO

CITATION:
Henricks-Hunter v. 814888
    Ontario Inc. (Phoenix Concert Theatre), 2012 ONCA 496

DATE: 20120712

DOCKET: C54982

OConnor A.C.J.O., MacPherson and Rouleau JJ.A.

BETWEEN

Stephanie
    Marie Henricks-Hunter, by her litigation guardian,

the
    Office of the Public Guardian and Trustee, Britney Starr Henricks,

by her
    litigation guardian, Michael Alberts Henricks, Arianna Monique

Hunter,
    a minor by her litigation guardian, Atley Hunter, Michael

Albert Henricks, Cecilia Delprima Henricks
    and Michael Edward Henricks

Plaintiff (Respondent)

and

814888
    Ontario Inc., carrying on business as Phoenix Concert

Theatre and Sherbourne
    Community Clinic Inc.

Defendants

J.G. Hodder, for the appellant, Howie Sacks and Henry
    LLP

No one appearing for the respondent, Stephanie Marie
    Henricks-Hunter

Heard: July 6, 2012

On appeal from the order of Justice John C. Wilkins of
    the Superior Court of Justice, dated January 23, 2012.

By
    the Court:

[1]

The appellant, Howie Sacks and Henry LLP, is the law firm that acted for
    the respondent, Stephanie Marie Henricks-Hunter, in this action.  The appellant
    was appointed by Stephanies litigation guardian, the office of the Public
    Guardian and Trustee (PGT).  The appeal is from the motion judges order fixing
    the fees that the appellant can charge to Stephanie at $325,000 including HST, plus
    disbursements of $46,831.27, for a total of $371,831.27. The appellant
    originally sought to recover a total of $516,536.92 from Stephanie in
    accordance with a contingency fee agreement (the CFA) that it negotiated with
    the PGT.

BACKGROUND

[2]

Stephanie and several family law claimants brought the within action as
    a result of the serious injuries suffered by Stephanie when she fell from a
    catwalk while attending a concert at the premises of the defendant Phoenix
    Concert Theatre.  The accident occurred when Stephanie leaned back against what
    she thought was a railing from which an advertisement banner was hanging. 
    There were, however, no vertical stiles in that area between the railing and
    the floor.  As a result, when Stephanie leaned back she fell through the banner
    down to the floor below. She sustained serious personal injuries including a
    severe traumatic brain injury.

[3]

A capacity assessment was conducted in February 2006.  The assessment
    showed that Stephanie was incapable of managing property.  Since all of
    Stephanies family over the age of majority resided in the United States of
    America, the PGT became her guardian of property by default pursuant to s. 16
    of the
Substitute Decisions Act, 1992
,
    S.O. 1992, c. 30
.

[4]

On March 2, 2006, the PGT entered into a CFA with the appellant on
    Stephanies behalf.  Pursuant to that agreement, the appellant agreed to defer
    rendering an account to Stephanie for disbursements or legal fees until a successful
    conclusion of her action.  The CFA also provided that the appellant would
    receive fees equal to 25 per cent of any judgment or settlement up to $2.5
    million and 20 per cent of any judgment or settlement in excess of that
    amount.  The agreement further provided that Stephanie would recover any
    partial indemnity costs awarded and any amount attributed to costs in any
    settlement or judgment would be excluded from the application of the CFA.  Finally,
    the appellant was to receive 100 per cent of all out-of-pocket expenses and
    disbursements.

[5]

The action was commenced on July 26, 2006.  Phoenix contested liability
    on the basis that Stephanie was responsible for her injuries.  The defendant,
    Sherbourne Community Clinic Inc., was the owner of the land, but had no
    involvement as it had leased the premises to Phoenix.  Sherbourne denied any
    liability, claiming that it did not have care or control over the premises.

[6]

The claim was settled in October 2009 at mediation without the need for a
    trial. The gross settlement amount was $2,050,000.  This represented a net
    recovery to the plaintiffs of approximately 20 per cent of the value of their
    claims.  The appellant was of the view that the case on liability against
    Phoenix was very good.  However, the appellant believed that the claim against
    Sherbourne would probably fail given the lack of evidence and weak legal basis for
    it.

[7]

The liability insurance carried by Phoenix had limits of $2 million. The
    appellant recommended that Stephanie accept the settlement offer. The PGT also recommended
    acceptance of the settlement, and took no position on the amount of fees being
    requested other than to confirm that they accurately reflected the amount
    produced by applying the CFA to the settlement.  The PGT has not appeared and
    takes no position on this appeal.

ISSUES

[8]

On appeal, the appellant makes two principal submissions:

1)

The motion judge erred
    in failing to consider whether the CFA was fair and reasonable in accordance
    with the two-part test set out in s. 24 of the
Solicitors Act
,
R.S.O. 1990, c. S.15.

2)

In the alternative, if
    the two-part test does not apply to persons under a disability, then the motion
    judges reasons are inadequate and he failed to consider the relevant factors
    in arriving at an appropriate fee.

[9]

For the reasons that follow, the appeal should be allowed and the matter
    remitted to a motion judge to determine whether, after applying the analysis
    set out in
Raphael Partners v. Lam
(2002), 61 O.R. (3d) 417 (C.A.),
    the CFA ought to be cancelled and the fees assessed in the ordinary manner.

ANALYSIS

[10]

The
    appellant argues that the CFA negotiated with the PGT is a fee agreement that
    can be enforced and that s. 24 of the
Solicitors Act
applies.  Section
    24 provides that a court may enforce a fee agreement if it is in all respects fair
    and reasonable between the parties.  The appellant relies on this courts
    decision in
Raphael
for the approach that is to be taken by a court
    determining whether a contingency fee agreement is fair and reasonable and
    ought to be enforced.

[11]

The
    reasons of the motion judge on the approval of the settlement and the setting
    of the appellants fees are quite short.  On the first appearance, on January
    13, 2012, the motion judge indicated that the materials submitted in support of
    the requested $516,536.92 in fees were inadequate.  He stated that the full
    amount of docketed time, disbursements and taxes should be shown in a separate
    table and explain extra undocketed work.

[12]

On
    January 23, 2012, after additional materials were filed, the matter returned to
    the motion judge.  The motion judge approved the settlement amount of
    $2,050,000.  On the issue of fees, he started his analysis by stating that the
    solicitor entered into an agreement as to how they would be compensated
which does not bind Stephanie or the court
 (emphasis
    added).  The motion judge made no further mention of the CFA.

[13]

In
    our view, the motion judge erred in failing to consider whether the CFA should
    be enforced and by proceeding directly to the determination of the amount of
    fees without regard to the CFA.  In
Raphael
this court
explained the two-step process
    to be followed by a judge where enforcement of a contingency fee agreement is
    sought pursuant to s. 24 of the
Solicitors Act
.  First, the fairness
    of the agreement is assessed as of the date it was entered into.  Second, the
    reasonableness of the agreement is assessed as of the date of the hearing. A contingency
    fee agreement can only be declared void, or be cancelled and disregarded, where
    the court determines that it is either unfair or unreasonable.

[14]

In
    this case, the motion judges analysis of the proposed fees focussed almost
    exclusively on the amount of time spent by the solicitors and their hourly
    rates.  As noted in
Raphael
, at para. 54, because of the important
    role played by contingency fee agreements in the administration of justice, the
    time spent by solicitors on a file is a relevant factor, but it does not
    control the question of whether a solicitor is entitled to the fees charged
    through enforcement of a contingency fee agreement.

[15]

When
    a solicitor seeks to enter into an enforceable contingency fee agreement with a
    party under a disability, the solicitor must comply with the regulations passed
    pursuant to the
Solicitors Act
.  Section 5(1) of O. Reg. 195/04 provides
    that:

5. (1) A solicitor for a person under disability represented by
    a litigation guardian with whom the solicitor is entering into a contingency
    fee agreement shall,

(a) apply to a judge for approval of the agreement before the
    agreement is finalized;  or

(b) include the agreement as part of the motion or application
    for approval of a settlement or a consent judgment under rule 7.08 of the Rules
    of Civil Procedure.

[16]

Therefore,
    the solicitor can choose to have the agreement approved by the court before it
    is finalized with the PGT.  If a contingency fee agreement is approved by the
    court before being finalized, the fairness of the agreement is no longer an
    issue.

[17]

Alternatively,
    the agreement can be finalized and presented on a motion or application for
    approval of a settlement under rule 7.08 of the
Rules of Civil Procedure
,
    R.R.O. 1990, Reg. 194.  Upon hearing a rule 7.08 motion or application, the
    judge cannot simply disregard a finalized contingency fee agreement.  Rather, the
    motion judge must assess both the fairness and reasonableness of the agreement.
    If the agreement is fair and reasonable, the motion judge may give effect to it.

[18]

In
    the present case, the appellant did not apply for the approval of a judge
    before finalizing the CFA. Thus, the motion judge had to treat the CFA as an
    agreement that the appellant was seeking to enforce. Both the fairness and the
    reasonableness of the CFA ought to have been assessed.

[19]

We
    turn now to that assessment.

Fairness

[20]

In addressing the issue of fairness,
Raphael
provides, at para. 37, that the solicitor bears the
    onus of satisfying the court that the way in which the agreement was obtained
    was fair. The fairness requirement is concerned with the circumstances
    surrounding the making of the agreement and whether the client fully
    understands and appreciates the nature of the agreement that he or she
    executed (
Raphael
,

at para. 37).  As noted above, the
    fairness of the agreement is determined as of the date the agreement was
    entered into.

[21]

In the present case, the
    CFA was negotiated with the PGT.  It is apparent from the materials filed by
    the PGT and the appellant that the CFA was fair when it was negotiated.  We
    note, in particular, that when it was negotiated there was considerable uncertainty
    as to the likely success of the claim and the extent of the investment that
    would be required of the solicitors to bring the action to a favourable
    conclusion.  Thus, in our view the CFA was fair.

Reasonableness

[22]

The test for reasonableness was set out in
Raphael
, at para. 50
.
The factors to be considered are:

(a)
the time expended by the solicitor;

(b) the legal
    complexity of the matter at issue;

(c) the results
    achieved; and

(d) the risk assumed by
    the solicitor.

[23]

Assessing
    the reasonableness of a contingency fee agreement in a matter as complex as the
    one in issue in this case is more difficult and nuanced than assessing the
    fairness of the agreement.  In our view, this court is not well placed to carry
    out that review.  On the appeal the appellant made virtually no submissions on
    the issue of reasonableness of the CFA, and the court is faced with the
    substantial record of what was before the motion judge on the approval motion.

[24]

If
    a judge faced with a contingency fee agreement calls into question the fairness
    or reasonableness of the agreement, the judge should normally raise the issues
    with the solicitors and seek their submissions.  In the present case, no issues
    were raised by the motion judge; no doubt because he considered that the CFA was
    not binding.

[25]

In
    our view, it would also be incumbent upon the PGT to raise any concerns as to the
    fairness and reasonableness of a fee agreement.  The failure by the PGT to
    raise any such concerns ought to be given substantial weight.

CONCLUSION

[26]

The
    appeal is allowed and the matter is remitted to a motion judge for
    determination of the reasonableness of the CFA in accordance with these
    reasons.  If, upon remittal, the motion judge has concerns with respect to the
    reasonableness of the fee agreement, those should be raised with the appellant
    and the appellant should be given an opportunity to respond.

D. OConnor A.C.J.O.

J.C.
    MacPherson J.A.

Paul Rouleau J.A.

Released: July 12, 2012


