Client Update: A judge’s guide to settlement approval and contingency fee agreements in P.E.I.

In Wood v. Wood et al, 2013 PESC 11, a motion pursuant to Rule 7.08 of the Rules of Civil Procedure for court approval of a settlement involving a minor, Mr. Justice John K. Mitchell approved the settlement among the parties and in so doing, released reasons which included general comments on motions made pursuant to Rule 7.08 and contingency fee agreements. In Justice Mitchell’s words, the reasons “may serve as a guide to counsel in future cases”.

As Justice Mitchell set out, Rule 7.08 invokes the parens patriae jurisdiction of the court, meaning that it is the duty of the court to protect a person who has a disability (which, by definition, includes minors or those persons who are mentally incompetent or incapable of managing their affairs, whether or not so declared by a court) and to ensure that any settlement involving a party under disability is in the best interests of that party. This involves an examination of the reasonableness of the settlement, as well as an examination of how and to whom funds are to be disbursed.

The onus is on the party seeking approval of the settlement to prove that the settlement is fair, reasonable and in the best interests of the party under disability. Justice Mitchell stated that wise counsel will treat the requirements under Rule 7.08(5) as a bareminimum Generally the moving party should file such additional documentation as the pleadings; medical reports to explain the nature of the injuries and the prognosis; experts’ reports such as rehabilitation and actuarial reports; and any other material relating to any relevant issue to assist the court to conclude whether or not the settlement is in the best interests of the person under disability. He also stated that case law relevant to the quantum of damages in similar cases would be helpful.

Justice Mitchell explained that while it is often the case that a settlement is a global figure, he was not prepared to approve a settlement that did not separate the damages from the defendants’ contribution to the plaintiff’s costs. The contingency percentage charged on a contingency fee agreement should not be applied to costs. According to Justice Mitchell, it is incumbent on the plaintiff’s lawyer to negotiate a separate amount as the defendants’ contribution to the plaintiff’s costs and the contingency percentage would not apply to those costs. If the parties negotiate an all-inclusive settlement, the court should set aside a reasonable amount for costs and not apply the contingency percentage to that amount.

Justice Mitchell also highlighted the importance of clients being made aware of alternative payment options at the outset. A contingency fee arrangement should not be the automatic default arrangement; sometimes it will be in a litigant’s best interests to choose a more traditional fee arrangement. However, when a client does knowingly choose a contingency fee agreement, if the risk is low, the contingency percentage should reflect that fact. Justice Mitchell set out what he considered to be appropriate percentages in a contingency fee agreement as follows:

        As a general rule, I should think it would be appropriate to have
a contingency fee agreement of 15-20% to the end of discovery,
20-25% if the matter settles at mediation and 25-30% or 33.3%
if the matter settles during trial or after trial. Contingency percentages          above 30-33.3% are not inconceivable but would be rare indeed.

Justice Mitchell further stated that before signing a contingency agreement, litigants need to be made aware of what they are signing and the consequences of that document. It is the lawyer who has the knowledge and experience in litigation and an understanding of the nature of a contingency fee agreement and, therefore, the onus is on the lawyer to ensure that the client signs an agreement that is fair and reasonable. According to the decision, the purpose of contingency fee agreements is not to give lawyers extra fees for those cases where there is little or no risk.

WHAT THIS MEANS FOR YOU

Plaintiffs’ counsel may be more hesitant to agree to global settlement figures following this decision, particularly where court approval will be required. Further, the process for seeking court approval may be more costly. This decision confirms that the court’s role on a motion seeking court approval is one of scrutiny, to ensure the settlement is in the best interest of the minor or person otherwise under disability.