In Bellama v. Trafalgar Insurance, 2023 ONSC 172, a recent case from the Ontario Superior Court of Justice, the court rejected a contingency fee agreement in a personal injury case for failing to follow the proper statutory form.
This case provides guidance regarding the proper form and information to include in a contingency fee agreement and an example of how a lawyer may be paid when a court declines to approve a contingency fee agreement.
Below, we’ll also cover contingency fees and what personal injury claimants need to know about them.
What is a Contingency Fee Agreement?
A contingency fee agreement is an agreement signed between a lawyer and their client. Essentially, these agreements state that the lawyer will be paid a percentage of the money their client wins in a lawsuit rather than charging an hourly or fixed rate. The lawyer’s payment is therefore “contingent” on recovering money for their client.
Contingency fee agreements are common in personal injury cases, though they can also appear in other types of legal claims.
The Plaintiff Suffered Injuries Arising from a Motor Vehicle Accident
The plaintiff was injured in a motor vehicle accident in 2012 and settled his tort claim in 2015. However, his claim for statutory accident benefits remained open because, at the time of settlement in 2016, the insurer believed the plaintiff could not agree to the settlement due to capacity issues. Therefore, they required the plaintiff to seek the court’s approval of the settlement amount.
This process was delayed for various reasons, and the motion for court approval of the settlement did not occur until 2022.
In 2018, the Plaintiff Signed a Contingency Fee Agreement for the Statutory Benefits Claim
While the plaintiff signed a contingency fee agreement in 2012 with his lawyer, this contingency fee agreement related to the tort claim, as the plaintiff’s capacity was declining in 2018, his lawyer prepared a contingency fee agreement for the statutory accident benefits claim.
The plaintiff’s litigation guardian signed the 2018 agreement. This agreement provided, among other things, that the plaintiff would pay his lawyer 20% of all amounts recovered plus HST, excluding costs awarded in the settlement.
Given the capacity issues at play, the court would still be required to approve the plaintiff’s settlement.
The Court Was Asked to Approve the Settlement
The plaintiff – through his litigation guardian – sought court approval of the settlement.
In such a motion, the plaintiff (through their lawyer) must produce evidence to convince the court that the proposed settlement is reasonable and in the plaintiff’s best interests. Therefore, the court looks at the settlement amount and various other pieces of evidence, such as any contingency fee agreements related to the proceeding.
The Court Approved the Settlement Amount
The court approved the settlement of the plaintiff’s claim for statutory accident benefits. However, they were concerned about the contingency fee agreement between the plaintiff and her lawyer.
Deficiencies in the Contingency Fee Agreement
To determine whether the contingency fee agreement was valid, the court asked the following questions:
- Does the contingency fee agreement comply with the requirements of the Solicitors Act, RSO 1990, c S.15?
- Is the proposed contingency (20%) appropriate?
After a review of the contingency fee agreement, the court declined to approve it because it needed some requirements outlined in the Solicitors Act. Some of those deficiencies included the following:
- The contingency fee agreement was titled incorrectly.
- The witnesses to signing the contingency fee agreement included their initials, but not their signatures, on the document.
- The contingency fee agreement did not include the plaintiff’s lawyers’ names, addresses, and telephone numbers.
- The contingency fee agreement lacked specificity regarding certain topics, including a sample calculation for the settlement of the statutory accident benefits claim, disbursements, and how legal fees would be paid.
As a result, the court only approved the contingency fee agreement after considering the second question (whether the proposed contingency was appropriate).
The Plaintiff’s Lawyer was Paid on a Fee-for-Service Basis
Despite the contingency fee agreement not being approved, the plaintiff’s lawyer was still paid for their services. Instead of receiving 20% of the settlement proceeds, the plaintiff’s lawyer received payment on a fee-for-service basis. This means that, instead of a lump-sum payment based on the settlement amount, the lawyer was paid based on the hours they worked on the file.
What Personal Injury Claimants Need to Know About Contingency Fee Agreements
As the above case demonstrates, there are very specific requirements for contingency fee agreements – and alternative payment arrangements that can be made when the court does not approve a contingency fee agreement.
Beyond these requirements, there are a few things that personal injury claimants need to know about contingency fee agreements when entering into an agreement with a personal injury lawyer.
- Lawyers use standard forms when drafting contingency fee agreements: lawyers are held to a high standard, and contingency fee agreements are no different. The Solicitors Act contains specific requirements regarding what a contingency fee agreement should include so clients can rest assured that their interests are preserved.
- The law has requirements regarding the amount lawyers can charge in contingency fee agreements: while there is no “maximum percentage” that lawyers can charge for a contingency fee agreement, lawyers cannot charge a fee that exceeds the amount the client receives under an award for damages. Lawyers must also ensure that their contingency fee is fair and reasonable and advise their clients of the factors they considered when determining the appropriate contingency fee.
- Some terms are not allowed in a contingency fee agreement: The Law Society of Ontario prohibits lawyers from including provisions in a contingency fee agreement that require the lawyer’s consent before abandoning, discontinuing, or settling a claim; prevent the client from terminating a contingency fee agreement or changing legal representation; or permit the lawyer to split their contingency fee with other people (unless certain circumstances apply).
- If you end a contingency fee agreement, you may still have to pay the lawyer: Contingency fee agreements typically allow lawyers to recover disbursements and legal services (paid as hourly fees rather than contingency) to the time the agreement ends.
- Lawyers are happy to answer questions about contingency fee agreements before you sign! If you have any questions or concerns about the terms of a contingency fee agreement, don’t hesitate to ask your lawyer about them before signing the agreement.
For more information, review the Law Society of Ontario’s Standard Form Contingency Fee Agreement.
Contact the Personal Injury Lawyers at Tierney Stauffer LLP for Advice on your Personal Injury Claim
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