Court Approves Contingency Fee of $4.2 Million in Birth Injury Case

UPDATE: CanLII now has an active link to the reasons in this case. You can access it here. Accordingly, we have removed the PDF link that formerly appeared as part of this post.

Mr. Justice Robert Smith has released a significant decision in which he has considered the issue of contingency fees charged to persons under a legal disability. He approved legal fees of $4.2 million in a medical malpractice case that settled for about $12.5 million. His Honour held that while it is up to the court to approve contingency fee arrangements with disabled plaintiffs, “substantial weight” should be given to such agreements where they have been entered into by a sophisticated party who considered and weighed the risks involved and acted in the best interests of the child.

In this case, Re Cogan, well-known Ottawa lawyer J. Arthur Cogan, Q.C. took over a medical malpractice claim that had been languishing for five years. The minor plaintiff (referred to in the decision as “M.F.”) suffered from cerebral palsy and other severely disabling conditions, allegedly as a result of negligence of the obstetrician and nurses attending at his birth. When Mr. Cogan assumed the plaintiffs’ case, they were in default on five outstanding case management orders for production of an expert’s report and the action was on the verge of being dismissed. On the eve of trial, the action settled for $12,543,750 in damages. On this motion, Mr. Cogan sought court approval of the contingency fee agreement into which he had entered with the child’s litigation guardian (the child’s mother). Pursuant to that agreement, Mr. Cogan had agreed to fund disbursements for expert witnesses. He had also agreed that he would not be paid if the action was unsuccessful. If the action did succeed, he was to receive one third (33 ⅓) percent of the total amount recovered.

At the request of Mr. Justice Smith, the Office of the Children’s Lawyer had made submissions with respect to the fee sought to be charged. Counsel for the Office of the Children’s Lawyer submitted that Mr. Cogan should receive a fee based on his full hourly rate for the time spent (this amounted to $540,987.00) plus a premium of $1 million. As Justice Smith noted, the Office of the Children’s Lawyer took the position that the contingency fee arrangement entered into with the litigation guardian was unenforceable as against the person under a disability:

The Children’s Lawyer approaches the matter as if no contingency fee agreement had been agreed upon, because the agreement is not binding on the child. Mr. Cogan, on the other hand, submits that I should approve his fees in accordance with the contingency fee agreement, agreed upon by the child’s litigation guardian, unless the litigation guardian has made a mistake or acted unreasonably and as a result have disregarded the child’s best interests.

Resolution of this issue was key to His Honour’s decision.

As has been made clear in cases like Rivera v. Leblond, Marcoccia v. Gill and Lau v. Bloomfield, the Superior Court has recently taken a much more activist role in the approval of settlements involving persons under a disability. The paramount concern of the court is, what is in the best interest of the disabled person. In this case, the settlement itself had already received court approval. (We are advised that that approval was also done by Justice Smith.). On this motion, it was only the lawyer’s fees that were in issue. Still, those fees will come out of the settlement funds, so Justice Smith focused his inquiry on whether payment of the contingency fee sought by Mr. Cogan would deplete, to an unacceptable level, the funds available to meet the needs of M.F., the injured child.

His Honour undertook a detailed analysis of the cost of M.F.’s future care. (He would presumably have been familiar with this evidence as a result of having approved the settlement itself.)

 He noted that about $5.3 million had been structured and another $2.2 million was to be held in trust and invested for future needs. He concluded that the parents (both of whom were chartered accountants) had “arranged an excellent financial plan to meet M.F.’s future care needs”.

Justice Smith then looked at the factors set out in the Court of Appeal’s 1985 decision in Cohen v. Kealey & Blaney, with respect to what constitutes a fair and reasonable fee for a solicitor. He noted that Cohen was decided before contingency fees were permitted in Ontario. As a result, he concluded that the Law Society’s Rule 2.08(3) “should be given more weight than the traditional factors which do not deal with a contingency fee agreement”.

His Honour concluded that Mr. Cogan had achieved an excellent result for his client. He pointed to the following:

  • Mr. Cogan had assumed great financial risk in relation to experts’ fees and his own time (the total amount of both was estimated to be over $1 million).
  • When he took over the case, there was a substantial risk of failure on the issue of causation, since only 2% of cerebral palsy cases can be attributed to inappropriate obstetrical care.
  • The reasonable expectation of the plaintiffs was that they would recover nothing or up to $4 million to $6 million. The latter range is based on prior decided cases involving cerebral palsy and the opinion expressed by the case management Master at the settlement conference. As Justice Smith noted, the actual recovery was approximately double the maximum amount that the plaintiffs could reasonably have expected to recover.

With respect to the fairness of the contingency fee agreement itself, Justice Smith was influenced by the fact that the parents were both chartered accountants. He held that they had freely entered into the agreement and that they had understood it.

In considering whether or not the proposed fee was reasonable, Justice Smith took into account, in addition to the factors above, “access to justice”. He held that contingency fees promote the objective “of ensuring that injured children have access to the courts to recover damages for injuries suffered, which were caused by some other person’s negligence”. His Honour emphasized that an injured child should have the right to enter into a contingency fee arrangement through his or her litigation guardian and that “substantial weight should be given to a contingency agreement entered into by a sophisticated party who considered and weighed the risks involved and acted in the best interests of the child”.

He rejected the argument of the Children’s Lawyer, who had approached the case by considering what would be appropriate as a premium over and above the hourly rates of the lawyer, “in the same manner as if the contingency fee arrangement had never been made”. Such an approach would, he said, “effectively deny the benefit of contingency agreements to injured children and limit the fee arrangements to a solicitor’s hourly rate plus a premium, which was the situation before the amendments to allow contingency fees were made”.

His Honour did comment on the Marcoccia and Rivera cases, distinguishing them from this one. He said that in Marcoccia, there had been no contingency fee agreement but rather, fees had been computed on an hourly rate plus an adjustment factor. (In fact, there was a contingency agreement by the end of that case. It appears that the fee arrangement may have changed after a partial settlement reached in October, 2006. See here for Justice Moore’s decision with respect to the defendant’s motion for leave to participate in the court approval of the contingency fee.)

Justice Smith did agree with the statement in Marcoccia, that “any contingency fee agreement entered into with a litigation guardian ‘has no force and effect in the absence of approval by a judge’.” But he emphasized that this does not mean that the contingency agreement is to be ignored.

He noted that in Rivera too, there had been no contingency agreement. He also pointed to the fact that there had been a relatively low level of risk assumed by the solicitor in that case.

In light of the comments that were made by the panel at the recent Montebello Conference about court approval of settlements, including legal fees, it will be interesting to see the treatment given to Justice Smith’s reasons in later cases. However, the concern of the judges at Montebello and in recent decisions has been primarily to see to it that the needs of the injured person are protected. Justice Smith’s decision indicates that even very large contingency fees can be approved so long as that threshold issue is satisfactorily addressed.

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