Thorburn J. Discusses What’s Required for Court Approval of Settlements

In Rivera v. Leblond, Madam Justice Julie Ann Thorburn was asked to approve the settlement of the claim of a cyclist who had suffered a serious head injury when struck from behind by an automobile. In the course of her reasons, Her Honour provided a very useful and detailed discussion of the evidentiary requirements of motions, under Rule 7.08, for court approval of settlements of claims by persons under a legal disability. (In this case, the injured plaintiff had been in a coma since the accident. The Rule also applies to other legal disabilities, such as claims by minors.)

Following an examination of the defendant for discovery and a private mediation, the parties arrived at a settlement of tort and accident benefit claims, in the amount of $1,850,000 all-inclusive. It was proposed that a portion of the settlement funds be placed into a structure. Partial indemnity costs, in the amount of $175,000 plus GST and disbursements, were to be paid by the defendants. In addition, a further $250,000 was to be payable to the plaintiffs’ solicitors for fees and disbursements. Her Honour noted that the total fees to be paid to the plaintiffs’ solicitors as part of the proposed settlement, was $417,500 plus GST.

Justice Thorburn reviewed the law dealing with court approval of settlements and ruled that the material that had been provided to her was not adequate. She referred to the recent decision (discussed in one of our earlier posts) in Marcoccia v. Gill, in which Wilkins J. had expressed his dissatisfaction with the evidence typically provided to the court on motions for approval of settlements. Acknowledging that what is “sufficient” will vary with the facts of the case, Justice Thorburn said that generally, applicants for court approval of settlements will have to provide evidence that an appropriate investigation and assessment of liability and damages has been made and that the fees and disbursements sought to be charged by the plaintiffs’ solicitors are reasonable. Her Honour went on to say that:

In a case such as this involving a severely disabled party, there must be:

a) medical evidence adduced to show not only the present medical condition of the disabled person but the future prospects for that person, the anticipated future care needs and costs, and the life expectancy of the disabled person;

b) any additional evidence material to the assessment of general damages;

c) evidence to enable the court to assess any other economic damages such as loss of income;

d) evidence to justify the solicitor’s proposed fees and disbursements, including a copy of any retainer agreement, the full dockets, and evidence pertaining to the length and complexity of the litigation and the difficulties involved in establishing liability and damages and the risk taken by the solicitors;

e) a means of ensuring that the settlement funds will be secure and that monies paid for the care of the disabled person will in fact be spent on the disabled person;

f) where a portion of the settlement funds are to be structured, full particulars of the proposed structure including the benefits and the cost;

g) where the structure provides a benefit to a person other than the person under a disability, such as a guaranty to pay after the death of the injured person, disclosure of the cost and benefit and evidence that such a settlement is in the interest of the person under a disability;

h) evidence that the structure has properly considered the long term needs of the person under a disability including reasonably foreseeable changes in the care and the costs of such care; and

i) evidence to establish that minor dependants of the disabled person with valid Family Law Act claims have been considered and that appropriate amounts have been included in the settlement for those persons.

In this case, the court had been given only one medical report. That report did not deal with the likely future changes in the plaintiff’s condition, nor with his life expectancy. There was no evidence about the reasonableness of the solicitors’ fees. Further, no provision had been made for the approval of expenses by the Office of the Public Guardian and Trustee. Accordingly, Thorburn J. refused to approve the settlement on the basis of the evidence before her. She directed that further evidence be provided, dealing with the injured plaintiff’s future needs and his life expectancy. She also asked for information to substantiate the claim for legal fees, including a copy of the retainer agreement and time dockets.

When the latter evidence was provided, it emerged that the retainer agreement had said that “partial indemnity costs may pay for part of the legal expenses but, ‘the balance of the solicitor client account over and above the partial indemnity costs is generally in the range of 15% to 25% of the amount we recover for you’.” Her Honour noted that lawyers had docketed 165.5 hours, students 15.9 hours and law clerks 275.8. She remarked that, “[t]he amount sought for payment of solicitor’s fees exceeds the value of time spent based on typical hourly rates.” Thorburn J. found that the amount proposed for legal fees was excessive. She acknowledged that the plaintiffs’ solicitors faced “substantial risk”, even though it was clear from the outset that “that significant sums would be payable by the defendants to the plaintiffs”. She reduced the fees recoverable by the plaintiffs’ solicitors, to $300,000 and ordered that the resultant savings be reallocated to the structured settlement in favour of the injured party.

Pursuant to the latter order, the settlement proposal was modified, such that the guarantee period of the structure was extended for a further 12 years and 7 months. Justice Thorburn again refused to approve the settlement. She noted that the extension of the guarantee period under the structure provided no benefit whatever to the injured plaintiff. (A “guarantee period” in a structured settlement is the time during which payments will continue to be paid by the life insurer, whether or not the injured person is alive. Thus, if the injured plaintiff in this case were to die during the guarantee period, the amounts payable under the structure would continue to be paid until the end of that guarantee period, benefiting the plaintiff’s heirs, but not the plaintiff.) Her Honour said:

While it may be common to include a guarantee period in an annuity used in a structured settlement, such guarantee only provides a direct benefit to the beneficiary of such guarantee. While such guarantees may be appropriate in some cases, the Court must be careful to weigh the true costs of the guarantee, which is reflected in lower periodic payments, and the benefits to ensure that the guarantee is appropriate for the case at hand. In this case the proposal did not give any additional benefit to Rivera [the comatose plaintiff] and was therefore unacceptable. It was in effect a reapportionment of the settlement funds in favour of the beneficiaries of Rivera’s estate, with no evidence provided to justify such an apportionment. While the amounts available for Rivera’s care are currently sufficient to meet his current care needs, these amounts are fixed while Rivera’s needs may increase or the costs may increase in time. Should Rivera live a long time, the effect is likely to be considerable.

Justice Thorburn sent the settlement proposal back with a direction that “additional funds were to be used for the benefit of Rivera rather than a contingent benefit for the benefit of the beneficiaries of his estate”. For some reason, this direction was not followed, yet the settlement was nevertheless approved by Justice Thorburn. The modified proposal included an increase in the monthly benefit to Mr. Rivera, in the amount of $564.67, plus a longer guarantee period for the beneficiaries of his estate.

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