In Marcoccia v. Gill, Mr. Justice John C. Wilkins has criticized, in rather strong language, various practices that have grown up around court approval under Rule 7.08, of settlements of claims by persons under legal disabilities. (These are what were often colloquially referred to as “infant settlements”, although the claimant need not be underage to have a legal disability, such that court approval of a settlement is required.)
In this case, His Honour was asked to approve partial settlement of a catastrophic case. The legal fees and disbursements that the plaintiff’s solicitors were seeking to retain from the overall funds paid by the insurer of the two settling defendants was approximately 41% of the total. Justice Wilkins refused to approve the legal expenses, in the amount requested.
The decision contains little information about the circumstances leading up to the settlement. However, we learn from an earlier ruling in this litigation, made by Madam Justice Julie Alexandra Thorburn in 2006, that the case arose out of a motor vehicle accident on June 8, 2000. The plaintiff Robert Marcoccia was struck by a vehicle driven by the defendant Gill and leased by the defendant Purba Furniture from the defendant Ford Credit Canada Ltd. Gill and Purba had insurance limits of $1 million. The plaintiff suffered severe brain injuries.
The partial settlement saw Gill and Purba’s insurer paying its $1 million limits plus an additional $395,000 for costs and disbursements. The action is to continue against the defendant Ford Credit, with the latter having agreed to forego any subrogated claim against Gill or Purba.
According to Justice Wilkins’ reasons, the plaintiff’s solicitors estimated that the overall value of the case was in excess of $16.5 million, leading His Honour to observe that the partial settlement that he was being asked to approve was for only 7% to 9% of the total potential value of the claim.
In the course of his 11 pages of reasons, Justice Wilkins discussed how court approval is supposed to be done under Rule 7 and contrasted that process with the one that, in practice, does take place. We predict that his reasons in this case will be influential.
The following were the main targets of His Honour’s criticisms:
- What he described as the “very strange” practice in Toronto , “where solicitors forward files for approval to judges of their own choice”;
- Counsel separating, on an ad hoc basis, the three elements of a settlement requiring court approval and bringing some of these three elements before different judges. The three “essential ingredients” identified by Wilkins J. are: (a) the amount of the monetary sum being paid; (b) the disposition of those funds in the best interests of the person under a disability; and (c) a scheme of management and accounting for the ultimate disposition of the funds. In Justice Wilkins’ view, all three aspects of a settlement ought to be dealt with by one judge.
- Failure to follow Rule 7.08 [which sets out the procedure for obtaining court approval of a settlement entered into on behalf of a person under a disability] in its entirety in all settlements;
- Where settlement funds are to be paid into a structure or otherwise dealt with prior to court approval having been obtained (as happened in this case), failure to provide satisfactory information “to explain what was done and why, as well as how it is in the plaintiff’s best interests”. His Honour went on to say that, “included in this information, in my view, should be the amount of the commission being charged by the structured settlement broker if that commission reduces the amount of money available to make payments on behalf of the plaintiff under a disability….[T]he Court should know how much that commission reduces the stream of payments in the annuity”; and
- solicitors’ fees.
Escrow Payment of Structure Funds
As anyone invovled in personal injury litigation knows, where a structured settlement is being entered into, it is commonplace for the liability insurer to “pre-fund” the structure, pending court approval. The rationale for this practice is that it allows the broker to “lock in” the funds at advantageous rates of return. Justice Wilkins was troubled by this practice but was not prepared to go so far as to condemn it, saying he could see some benefit accruing to the injured party. However, he was clearly unhappy with the way the matter had been handled in this case. He referred to correspondence that he had received from the structured settlement broker, explaining why $735,000 had been deposited with a life insurer, pending court approval. He complained that “they [the brokers] have proceeded to ‘lock-in rates’ and they have proceeded with establishing the schedule of payments, indexing and any other circumstances that might be relevant ahead of time and simply forwarded ‘our final print-out suitable for attachment to your draft minutes of settlement and judgment’ as if I was a rubber stamp.”
Wilkins J. said that where this sort of escrow funding is done, material should be placed before the judge to satisfy him or her on all other aspects of the annuity and the company with which the annuity has been placed. He observed that in a particular case, a judge might wish to consider a selection of several life insurance companies and for that purpose, might need to have some information about the company in order to evaluate the security of the investment.
In this case, His Honour approved the amount of the settlement and the disposition of the funds into the proposed structure. He then turned to his principal concern: the fees being sought by the plaintiffs’ solicitors.
Solicitors’ Fees and Disbursements
This case did not involve a contingency fee arrangement. Rather, there was a retainer agreement between the law firm and the litigation guardian. It specified an hourly rate of $350 for the lead counsel, with other members of “the legal team” to charge different rates, not specified in the agreement.
The retainer agreement went on to say that fees in similar cases do not normally exceed 15% plus party-and-party costs [the former term for what are now known as “partial indemnity costs”].
As part of the settlement, partial indemnity costs had been paid by Gill and Purba’s insurer: $270,000 for fees (including GST) and $130,000 for disbursements. The solicitors for the plaintiff were seeking court approval for payment to them of:
- the $400,000 paid for partial indemnity fees and disbursements;
- a further $150,000 in fees, plus $9,000 GST, as solicitor and client costs over and above the partial indemnity fees; and
- a further $100,000 plus GST of $6,000, representing a hold-back to be held in trust and applied against future legal fees and disbursements incurred in continuing the litigation against Ford Credit.
Justice Wilkins allowed category (1), disallowed category (2) and allowed category (3), with an increase to $150,000 plus GST of $9,000.
His Honour made short shrift of the provision in the retainer agreement, which said that the fees do not normally exceed 15% plus the partial indemnity costs. He said that the provision was “ambiguous to the point of being meaningless” and that, in any event, he was not bound by it.
Counsel for the plaintiff had apparently refused, at first, to provide a breakdown of time spent by her and others in her office. She relented though and did provide the judge with a computer printout which showed fees of $463,080 as of the date of the partial settlement. His Honour was obviously sceptical about this figure though; he referred to “purported services rendered” and “hours allegedly spent working on the file”.
The plaintiff’s solicitor argued for the 15% fee on the basis of the risk she had assumed in taking on the case and the cost of carrying fees and disbursements over a number of years. As Justice Wilkins noted, “the argument she presents is the argument that was presented on numerous earlier cases with respect to requests for a premium in fees”.
Counsel for the plaintiff submitted that “to deny her fees would be to set a precedent which would discourage solicitors from litigating on behalf of persons under a disability” and from “carrying a litigation file and incurring certain risks with respect to payment of fees”. However, Justice Wilkins rejected that argument, saying, “it occurs to me that very few solicitors would be discouraged in pursuing the interests of their clients if they knew they could get 25% of a partial settlement and be entitled to pursue the balance of their claim against a defendant with more than adequate insurance”.
In disallowing the claimed 15% fee, Wilkins J. used strong language:
I disallow the fee of $150,000 and the GST sum of $9,000 over and above the partial indemnity fees obtained in this matter. I am not satisfied that the foundation on which that amount is based is proper or appropriate. I am not satisfied that the amount is in proportion to the partial settlement being obtained. I am further not satisfied that the amount being charged is for services in the best interests of the plaintiff under a disability. I might add that I also seriously question how that sum was calculated and the appropriateness of a retainer agreement providing for an hourly rate, plus a percentage of the recovery unrelated to a contingency agreement.
The unapproved agreement with respect to fees made with the mother of Robert Marcoccia at 15% is, in my view, not an agreement at all. This was not a contingency arrangement. The provisions of the Solicitors’ Act do not apply to this agreement. I am of the view that the Court is not bound by that agreement.
On the other hand, His Honour concluded that the amount that had been requested on account of future fees and disbursements ($100,000 plus GST), was too low and he increased it to $150,000 plus GST to reflect the likely cost of going forward with the litigation.
Coincidentally, at a CLE program in Ottawa last week, Mr. Justice Colin McKinnon spoke on the subject of court approval of settlements under Rule 7.08. Foreshadowing Justice Wilkins’ ruling in Marcoccia, McKinnon J. also emphasized the importance of plaintiffs’ solicitors providing the court with a complete breakdown of legal fees and disbursements, what the sources of payment are and how the fees and disbursements claimed have been computed. In the wake of Justice Wilkins’ decision, we anticipate that judges being asked to approve settlements may become quite a bit more demanding in terms of the material placed before them, particuarly with respect to legal fees. (If the words of Wilkins J. are heeded by other judges, quite a bit more information will also be asked of structured settlement brokers.)