The Ontario Court of Appeal has dismissed an appeal and upheld a Superior Court ruling that a “results achieved fee” charged by a family lawyer was a contingency fee and so prohibited under the Solicitors Act.
“Our family law justice system in Ontario is a fragile thing and we as practitioners, who economically benefit from that system, have to be responsible because we’re custodians of that process,” says Heather Hansen, a certified specialist in family law and partner at Martha McCarthy & Company LLP in Toronto.
According to s. 28 of the Solicitors Act, along with criminal or quasi-criminal proceedings, lawyers are prohibited from taking a contingency fee in family law matters.
The appellant in the case was Stephen Durbin and Associates, who had acted for Davis Jackson, a police officer, in his divorce.
Jackson signed a retainer with Stephen Durbin and Associates for hourly rates, daily court appearance fees and “an increase in fees in the event of a positive result achieved,” according to the decision. At the end of the trial, Jackson was awarded sole custody, half of the house and costs of $192,000. The funds were held in trust by the appellant, who received $423,510.47. Jackson’s lawyers deducted $132,597.74 from the trust but then deducted a results achieved fee of $72,433.24. The decision states that it is unclear on the record how the latter figure was determined.
Stephen Durbin and Associates argued that contingency fee agreements are those in which the lawyer is only paid if the result is successful, whereas Jackson would be paying fees regardless of the outcome. They also argued that their results achieved fee was “linked to success at trial, not the specific monetary result,” according to the decision.
Justices Mary Lou Benotto, David Brown and Bradley Miller of the Court of Appeal were the judges on the case. In the decision, penned by Justice Benotto, the appeal court states that the appellant’s position was outdated, that the Solicitors Act was amended to include a fee contingent “in whole or in part” on a successful outcome as a contingency fee. “A premium or bonus added on to the lawyer’s fee is captured by the meaning of the contingency fee agreement and is thus prohibited.”
To argue their fee arrangement was legitimate, the appellant cited Warnica v. Van Moorlehem and Teplitsky, Colson v. McCrea, where the court ruled that the calculation of a part of the lawyer’s compensation by reference to a percentage, does not make that arrangement a contingency agreement.
In Warnica v. Van Moorlehem, Justice Michael Quigley wrote that the payments that fall under s. 28 are “where the solicitor effectively purchases all or part of the client’s interest and potential success in the action.”
The Court of Appeal disagreed that s. 28 of the Solicitors Act “defines or limits contingency fee agreements” in the way Warnica and Teplitsky stated it did, saying this interpretation overlooks the context of the Act and how it developed. The appeal court wrote that lower courts have not take into consideration the amendment of the Solicitors Act to include the words “in whole or in part” rendering the two cases cited inapplicable.
The judges also rejected that public policy concerns regarding contingency fees are only relevant when the fee is tied to a monetary amount, as opposed to success. “In family law litigation the emphasis is ‘on resolution, mediation and ways to save time and expense in proportion to the complexity of the issues,” they wrote, citing Frick v. Frick.
“There’s supposed to be an emphasis on resolution, mediation and trying to find cost-efficient ways to resolve family matters because the system is overrun with family law files,” says Julie Stanchieri of Stanchieri Family Law, a family law arbitrator and mediator.
There are no winners and losers in custody battles and the child’s best interests are the aim and “it cannot be scrutinized to determine which parent had the more successful disposition,” the decision stated.
“How could you possibly define that who won and who lost if you're looking at concepts like best interest of the child. It becomes a lot more difficult,” Stanchieri says.
The judges concluded that a contingency fee is one in which “any part of a lawyer’s compensation is dependent on the successful disposition or completion of the matter for which the lawyer was retained,” they wrote.
“From a policy perspective embedding a results based fee does two things,” says Hansen. “First of all, it takes away from the fundamental purpose of family law legislation in Ontario, which is to fairly divide up assets following the breakdown of the marriage… Second, it incentivizes lawyers to engage in an adversarial process, which is also the antithesis of our obligations under the legislation. So it actually doesn't have a place in family law.”
For lawyers to take a cut of the portion of the assets retained by their clients, funds are being taken away from the family and therefore the children, says Hansen.
“Every dollar that's spent on the litigation is $1 less for the family, and in particular the children to benefit from,” she says.
But Hansen says that this doesn’t mean family lawyers ought not “engage in creative fee negotiations with their clients,” and exclusively work on the hourly-rate model. She says the Law Society of Ontario allows for “block fee” agreements and “limited retainer” agreements.
“It's sometimes important that we consider alternate fee arrangements, but they always have to be in the best interest of the client,” she says. “You have to look at your fee arrangement relative to the client’s best interest."
If contingency fees were allowed in family law cases, even more stress would be put on the already overburdened system, Stanchieri says.
“There's such a thing as a contingency fee allowed for family clients, many of them may be more likely to go to trial because they're not really spending the money up front and so the concern is that it may encourage more litigation,” she says. “Which is not what anybody wants.”
Family law litigation is often initiated in a cloud of emotion and contingency fees incentivize making a rash decision to go to court, Stanchieri says.
“You can see how somebody might make an emotional decision to sign on to a contingency arrangement and perhaps that's what the court is concerned with,” she says.