A Vancouver lawyer's proposed bill of $900,000 for securing a medical malpractice settlement of $3.2-million on behalf of a disabled infant was cut to $600,000 by the Supreme Court of British Columbia recently after a judge deemed the original amount "excessive."
The case brings into sharp relief the rewards -- and risks -- of contingency fee arrangements, a common form of legal billing long available to most Canadians but legalized only recently in Ontario.
The Ontario Ministry of the Attorney-General is currently finalizing regulations to govern contingency fee arrangements in Canada's most populous province, including a clause that would provide for a review mechanism in cases where clients -- whether individuals or corporations -- consider their fees unreasonably high.
Contingency fees link a lawyer's remuneration to the success of a case. If the plaintiff prevails, the lawyer earns a percentage of the award, according to a prearranged contract, typically between 20 and 40 per cent. If the lawyer loses, the client pays only the lawyer's out-of-pocket expenses -- or disbursements -- relating to such costs as arranging for expert witnesses.
Four years ago, lawyer Nathan Smith of Nathan Smith Law in Vancouver entered into an agreement with the parents of Jessica Catherine Makowsky to receive 35 per cent of any financial settlement or money awarded by a court in her favour. The plaintiff was born in 1991 with serious physical and mental limitations after suffering brain damage during birth. Mr. Smith brought a malpractice case against Peter Jaron, the doctor attending the delivery, and Prince George Regional Hospital. The defendants settled out of court.
But B.C. law provides for an automatic review of contingency fee deals negotiated for infants by parents or guardians. The Makowsky case was sent to the B.C. Supreme Court to rule on a reasonable sum, which turned out to be less than two-thirds of the agreed-upon percentage of the financial settlement.
Contingency fees generally are seen as a mechanism for encouraging skilled lawyers to take on cases in which the plaintiff cannot afford to bring forward a meritorious claim. They are also being used increasingly by corporations as alternatives to hourly billing, particularly in cases involving debt collection, where there is a lump-sum windfall that can later be divided between the client and legal firm.
While many lawyers are happy to take on the risk of a contingency fee case when the potential payout is large enough, they must also weigh that potential payout against the chance of a court later declaring the sum unreasonable.
In his summary of the Makowsky case, Justice Harvey Groberman of the B.C. Supreme Court stated he had "no doubt that in this case the plaintiff's claim could not have been pursued if a contingency arrangement had not been available to the infant's parents." But he ruled that, while the amount of time and money invested in the case by Mr. Smith was "not insubstantial," the complexity and magnitude of the case -- settled well in advance of trial -- did not warrant $900,000.
Mr. Smith, who works solely on a contingency fee basis, said in an interview that while it "seems like a large amount of money," it should be considered in the context of other cases in which he fails to obtain settlements or court awards and therefore draws no fee. In many cases involving financially strapped clients, he said, he even absorbs the disbursements, which in a personal injury case "easily can be $50,000 or $60,000."
He also said the proposed $900,000 fee he requested represents less than the original 35-per-cent arrangement he made with the Makowsky family.
Aside from automatic review laws for minors, it is also possible for courts to intervene in contingency fee arrangements even when fully responsible adult plaintiffs and corporations later challenge the sums, said Gordon Turriff, a lawyer with Stikeman Elliott LLP in Vancouver and a specialist in solicitor and client financial relations and costs of litigation. "But there are many examples of lawyers' charges being upheld even when they are challenged."
Norm Letalik, a partner in the litigation department of Borden Ladner Gervais LLP in Toronto, said the "vast majority" of contingency fee clients are happy with their arrangements. "Disputes are fairly few and far between."
Now contingency fees have been legalized in Ontario, he expects law firms in the province to begin offering such billing arrangements to U.S. companies that often look to file claims against Canadian debtors. He said his office used to turn away contingency fee inquiries out of the United States. "Now the climate is changing, it would be something we'd have to consider on a case-by-case basis."
While contingency arrangements have been permitted in British Columbia for about 40 years and are now legal in all 10 provinces, they are a matter of considerable debate in Ontario, which, in December, 2002, became the last province to sanction them.
Some lawyers fear the move will devalue their services and raise the spectre of opportunistic professionals wagering on chances of big payouts. Still others fear that giving a lawyer a stake in the action could promote legal strategies not in the best interests of the client, such as settling for a less-than-optimal sum just to close the case early and minimize the legal effort expended.
The Ministry of the Attorney-General recently solicited public submissions on its draft regulations governing contingency fees. A finalized list of regulations is expected "in the near future," said Brendan Crawley, spokesman for the Attorney-General's office.