Law Firm Entitled to $60,000 Fee Premium for Converting Client’s $1M Liability Into $150,000 Profit

premium.jpgThe law firm of Kramer Henderson had a very good day today. It had appealed an assessment officer’s refusal to allow a $60,000 fee premium from their former client. Superior Court Justice John Belleghem allowed the firm’s appeal and found that Kramer Henderson was entitled to its premium. In his reasons, he lavishly praised the “wisdom”, “exceptionality in negotiating skills” and “exceptional skill and ability” of the law firm, in achieving a “result…beyond the client’s wildest expectation”.

In Kramer Henderson v. Salgado et al., the client, Salgado, was in the business of selling “Monte Cristo” cigars over the Internet to U.S. customers. In doing so, it was violating a copyright on the name “Monte Cristo”, held by a U.S. company called “Altadis”.

Altadis had sued Salgado in the United States. Salgado consulted an Ontario lawyer who had advised it to ignore the American litigation. Altadis proceeed to obtain a judgment from a U.S. court, for more than $1,000,000, which it then tried to enforce in Ontario. Salgado was facing bankruptcy if Altadis had been able to enforce its judgment in Ontario. It consulted Kramer Henderson.

That firm claimed against Salgado’s original lawyer (the one who had advised Salgado to ignore the U.S. suit). It entered into an agreement with that lawyer’s E & O insurer, LawPRO, whereby Kramer Henderson would defend the suit brought by Altadis in Ontario and LawPRO would fund the defence.

While the Ontario litigation between Altadis and Salgado was going on, the Supreme Court of Canada handed down a decision which, according to Justice Belleghem, made it “virtually certain that the American judgments would be enforceable in Ontario”. [The case doesn’t specify the Supreme Court decision. It might have been Morguard Investments Ltd. v. De Savoye, although that case was released over 15 years ago.]

In any event, LawPRO then decided that it no longer wanted to fund the defence of what it evidently perceived to be a losing cause. Kramer Henderson negotiated a settlement of Salgado’s claim against the negligent lawyer, for $250,000. The firm continued with the defence of the Altadis lawsuit to enforce the U.S. judgment in Ontario.

Eventually, Kramer Henderson settled with Altadis for $100,000. That meant that instead of a $1 million liability, Salgado had turned a $150,000 profit (having already gotten $250,000 from LawPRO.)

The law firm added a $60,000 premium to its bill to Salgado, on account of this rather favourable outcome for the client. The client balked and the account went to assessment. The Assessment Officer disallowed the premium on the basis that the original retainer agreement between the firm and the client had made no provision for it.

Justice Belleghem heard the law firm’s appeal. He heaped praise on Kramer Henderson. In his view, the absence of any provision for the “windfall” in the retainer agreement was irrelevant because no one could have foreseen such a spectacular outcome: “It is beyond a shadow of a doubt – had the issue been broached ahead of time – that the client would have agreed to a ‘premium’ to be paid from any resulting notional ‘profit’, if such funds ‘miraculously’ appeared.” In Justice Belleghem estimation, the premium had been well-earned by the lawyers by their skilled negotiations with Altadis and LawPRO. His Honour felt that it was the client who was trying to take advantage of the law firm here, not the other way around.


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