Court of Appeal Confirms that Lawyer’s Contingency Agreement was Unfair

On May 11, 2017, the Saskatchewan Court of Appeal released its decision in Maurice Law v. Sakimay First Nation, 2017 SKCA 36.

We previously blogged about the Court of Queen’s Bench decision, but the basic facts were these:

  • Maurice Law (the “Solicitor”) began acting for the First Nation in 2003 under the terms of a Treaty Land Entitlement claim (“TLE”) retainer agreement. Under the TLE retainer, Maurice Law would bill the First Nation on a straight hourly basis for work on the TLE file and work on any other file which might be assigned to Maurice Law.
  • In 2006, the Solicitor was engaged by the First Nation in relation to the unlawful flooding of a portion of its reserve in 1942. The flooding also affected a neighbouring reserve.
  • The Solicitor immediately began negotiating a new retainer agreement with Sakimay under which he would continue to bill the First Nation hourly but would also receive a 3% bonus. He continued to work on the file while negotiations on the retainer continued.
  • By the time the final settlement was reached with Canada in August of 2008, no agreement had yet been reached on the renegotiation of the Solicitor’s retainer agreement.
  • As part of his effort to convince the First Nation that his bonus was fair, the Solicitor told the First Nation, incorrectly, that the lawyer working for the neighbouring reserve was receiving a 10% bonus.
  • During this negotiation, the Solicitor did not tell the First Nation that the TLE Agreement already governed its relationship, nor did he refer the First Nation for independent legal advice.
  • In March 2009, the First Nation voted narrowly in favour of signing a new retainer agreement with the Solicitor on the terms proposed, including the 3% bonus (the “Bonus Agreement”).

As we wrote in our earlier blog, the Court of Queen’s Bench found that the retainer agreement was both unfairly obtained and unreasonable.

The Court of Appeal concluded that the Bonus Agreement was unfairly obtained.  They did not need to consider the reasonableness of the Bonus Agreement.

On Appeal, the Solicitor argued, among other things, that:

  • Mere unfairness to the client is insufficient to find the Bonus Agreement to be unfair. The client should have to show that the unfairness resulted in “marked or disproportionate” unfairness to the client.
  • In negotiating a retainer agreement, the client should not be able to rely on the accuracy of statements made by the lawyer in negotiating for a retainer agreement. They should instead be obligated to verify that information.

The Court of Appeal rejected both of these arguments.

First, with respect to the standard of fairness owed by a solicitor to his client, the court made the following statements of law:

[52] In my view, the test for fairness suggested by ML being “marked or disproportionate unfairness to the client” is not the correct test to be applied when determining whether a fee agreement is fair pursuant to s. 64 of the Act. In Re Stuart, ExParte Cathcart, [1893] 2 QB 201 at 204–205 (quoted with approval by this Court in both Zipchen and Speers), Lord Esher described a solicitor’s onus as being to establish “the agreement was absolutely fair with regard to the way in which it was obtained …” and that the onus of fairness would be satisfied if the solicitor “makes an agreement with a client who fully understands and appreciates that agreement ….”

[55] Whether a fee agreement is fair will depend on the circumstances of each case. In my view, however, lawyers have a duty to ensure at a bare minimum that their potential or existing clients fully understand the nature and effect of any such agreement, the rationale for the agreement and what other fee arrangements may be available to them. This is particularly true when a lawyer has been acting for a client under a fee arrangement that the lawyer then seeks to change. In such situations there is clearly an imbalance both in information and in the strength of bargaining positions. The client is, as pointed out by the Alberta Court of Appeal in Morrison, negotiating with someone to whom the client would normally look to for advice. There is an established relationship of trust, yet the lawyer finds himself in a situation where he is advancing his own interests over those of his client. Usually, the lawyer has prepared the agreement and fully understands its nature and effect. In such circumstances, a lawyer has a duty to be scrupulously honest with the client – disclosing the pros and cons of the agreement that he or she has prepared and advances as “fair.”

While the Court observed that there was no obligation on a law firm to send the client out for independent legal advice, it remains the best way of assuring the circumstances surrounding the entering of a fee arrangement are fair.

With respect to the Solicitor’s argument that the First Nation should not have been able to rely on the information presented to them by their lawyer, the Court held lawyers to a high standard of honesty and integrity:

[62] ML also submits that in negotiating a retainer agreement a client should be expected to exercise due diligence and verify information given to him by his lawyer, particularly when the information provided is within the client’s ability to confirm. In this case, ML submits Sakimay could easily have verified whether Mr. Brabant was receiving a 10% bonus.

[63] In my view, given the unique circumstances surrounding the negotiation and execution of fee arrangements between lawyers and clients, a client should not need to verify the truth of what their lawyer is telling them. A client should be able to rely on their lawyer’s statements. Lawyers are members of an “honourable profession” and that membership demands a high standard of honesty and integrity when dealing with clients. Maurice was “uncertain” whether Mr. Brabant was receiving a bonus, yet he represented the payment of that bonus as fact. He expressed no doubts. Councillor Sparvier had doubts and he prudently tried to alleviate them by asking Mr. Brabant himself whether he was receiving a bonus. When Mr. Brabant said he was not, Councillor Sparvier relayed that information to Maurice. Maurice then did two things. First, he insisted Mr. Brabant was receiving a bonus. Second, he then wrote Mr. Brabant and told him not to discuss his fee arrangement with the Sakimay leadership. This conduct raises concerns of fairness. At best, it demonstrates a reckless disregard for the truth on Maurice’s part.

As we observed back in 2014, the law in this area continues to move in the direction of requiring “informed consent” on the part of the client before a retainer agreement will be found to be enforceable against a client.

In our view, the Court’s decision identifies at least three key pieces of information which must be understood by the client:

  • the nature and effect of any such agreement,
  • the rationale for the agreement, and
  • what other fee arrangements may be available to them.

Obviously, the information presented to a client to allow them to understand these critical concepts must be accurately conveyed. A lawyer will be held to a high standard of honesty and integrity in its dealings with his client.

Finally, the Court once again quoted with approval that passage of Morrison v. Rod Panton Professional Corporation, 2008 ABC, 145 which underscores the public policy reasons for the development of the law in this area:

[25] Retainer agreements are obviously in a special category. The client is negotiating an agreement with a person (the solicitor) that the client would usually look to for advice on such matters. In negotiating the agreement the parties are adverse in interest, contrary to the normal state of affairs where the solicitor is bound to represent the client’s interest. There is also an imbalance of information and knowledge, because the solicitor will be more familiar with the terms and operations of the retainer agreement than the client. It is undoubtedly for those reasons that solicitor-client contracts are reviewed by the court, whereas the court will not conduct that sort of analysis of ordinary contracts. The courts will obviously not tolerate any sharp practice by the solicitor, or any patent unfairness.

Clients who are considering entering into retainer agreements with lawyers proposing terms which are atypical – and particularly those clients considering entering into a contingency agreement – would be well advised to seek a second opinion or independent legal advice about the terms of the retainer. For that matter, practitioners proposing a contingency agreement would be equally wise to insist that their client receive independent legal advice before the agreement is executed.

Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.