Mariame Koanda Barry v. Safiatu Musah, 2022 ABKB 706

Court of King’s Bench of Alberta Citation: Barry v Industrial Alliance Insurance and Financial Services Inc (IAF), 2022 ABKB 706 Date: 20221025 Docket: 1801 06059 Registry: Calgary Between: Mariame Koanda Barry and Safiatu Musah Plaintiffs - and - Industrial Alliance Insurance and Financial Services Inc. (IAF) Defendant _______________________________________________________ Reasons for Decision of the Honourable Justice Colin C.J.

Feasby _______________________________________________________ Introduction [ 1 ] This application concerns the unusual circumstance of a costs award against an unsuccessful party assessed as a percentage of a contingency fee arrangement between the successful parties and their counsel: Barry v Industrial Alliance Insurance and Financial Services Inc (IAF) , 2022 ABQB 265 ( Barry #1 ) at para 107 . The Defendant contests the validity of the contingency fee agreement and the reasonableness of the contingency fee.

The Defendant submits that costs should be calculated in the normal fashion pursuant to Rule 10.2 and not as a percentage of the damages award.

Previous Costs Direction [ 2 ] On April 14, 2022, I issued reasons for decision in Barry #1 . I awarded the Plaintiffs, Ms. Barry and Ms. Musah, costs of the action. I held at para 107: I award the Plaintiffs costs of this action in the amount of 75% of the amount of actual costs incurred. In the event that the Plaintiffs have entered into a contingency fee arrangement for this litigation the same 75% indemnity applies. [ 3 ] The Defendant appealed my decision, but subsequently withdrew the appeal.

The question of entitlement to “75% of the amount of actual costs incurred” is decided and cannot be revisited. [ 4 ] The words “actual costs” were taken from McAllister v Calgary (City), 2021 ABCA 25 at paras 43-45 where the Court of Appeal explained that the intention of

Schedule C to the Rules of Court was to compensate successful litigants for 40-50% of their actual costs. The words “actual costs” must be viewed in the context of the Rules of Court costs provisions as a whole which provide for an assessment of the reasonableness of costs.

Where, as in Barry #1 , there was no evidence of the successful party’s actual costs before the Court, a statement that the party is entitled to recover a percentage of actual costs is not a finding of fact and is qualified by the Court’s jurisdiction under the Rules of Court to assess whether such costs are reasonable. [ 5 ] The Court of Appeal in McAllister at para 48 set out a two-step process for assessing the reasonableness of costs which involves: (1) assessing the reasonableness of costs as between solicitor and client; and (2) assessing the reasonableness of “ requiring the unsuccessful party to indemnify the successful party for a percentage of them.” [ 6 ] The second McAllister step – the determination of the indemnification percentage – was decided in Barry #1 .

The first McAllister step – the reasonableness of costs as between solicitor and client – was not decided in Barry #1 . [ 7 ] To address the first McAllister step, I must consider whether there is a valid contingency fee agreement and, if so, whether the contingency fee is clearly unreasonable. If the contingency fee agreement is not valid, then I must consider what is a reasonable amount for Plaintiffs’ counsel to be paid pursuant to Rule 10.2.

Validity of the Contingency Fee Agreement Standing to Contest the Validity of the Contingency Fee Agreement [ 8 ] A threshold issue is whether the Defendant has standing to challenge the contingency fee agreement between the Plaintiffs and their counsel. The Plaintiffs submit that because the Defendant is not a party to the contingency fee agreement, the Defendant cannot challenge the enforceability or

interpretation of the contingency fee agreement. [ 9 ] Initially, the Plaintiffs provided only partial disclosure of the contingency fee agreement. The Defendant sought disclosure of the whole contingency fee agreement. On May 11, 2022, I directed that if the Plaintiffs wished to seek costs based on the contingency fee agreement as provided for in Barry #1 , they must disclose the entire contingency fee agreement. The Plaintiffs now complain that my direction was contrary to Rule 10.15(

b) which guarantees the confidentiality of contingency fee agreements. [ 10 ] My direction to disclose the contingency fee agreement must be viewed in context. At all times, it has been open to the Plaintiffs to tender a Bill of Costs calculated using

Schedule C to the Rules of Court rather than pursuing costs based on the contingency fee agreement. The direction simply required the Plaintiffs to disclose their contingency fee agreement if they sought costs based on the amount of the contingency fee payable pursuant to the contingency fee agreement.

The direction for disclosure of the whole contingency fee agreement is consistent with how Courts have resolved issues where parties rely on privileged communications: see the discussion in PetroFrontier Corp. v Macquarie Capital Markets Canada Ltd., 2022 ABCA 136 at paras 44-50 . [ 11 ] The point of requiring disclosure of a contingency fee agreement in circumstances where a party seeks to recover costs calculated as a percentage of a contingency fee is to permit the party obliged to pay costs to contest whether the costs as between solicitor and client are reasonable under the first step of the McAllister analysis. [ 12 ] The Plaintiffs’ objection to the Defendant’s right to challenge the enforceability and

interpretation of the contingency fee agreement on the grounds of a lack of contractual privity is misplaced. The Defendant’s right to challenge the enforceability and

interpretation of the contingency fee agreement is not rooted in the agreement to which it is a non-party. Instead, the Defendant’s right to question the enforceability and

interpretation of the contingency fee agreement stems from the Plaintiffs’ claim for costs calculated as a percentage of the contingency fee payable under the contingency fee agreement and the Plaintiffs’ right under the Rules of Court to question the reasonableness of the costs as between solicitor and client. Validity of the Contingency Fee Agreement [ 13 ] The Defendant asserts that the contingency fee agreement does not comply with the requirements of Rule 10.7.

Rule 10.7 is a consumer protection provision; it sets out requirements to ensure that the terms of the contingency fee are clear and to ensure that the client has executed and been provided with a copy of the agreement. The contingency fee agreement between the Plaintiffs and their counsel does not meet several of the Rule 10.7 requirements. [ 14 ] The Defendant submits that, pursuant to Rule 10.8 where a contingency fee agreement fails to meet the requirements of Rule

10.7, the Plaintiffs’ lawyer is only entitled to reasonable compensation pursuant to Rule 10.2. Accordingly, the Defendant submits it is only obliged to compensate the Plaintiffs for 75% of costs calculated pursuant to the principle in Rule 10.2 and not as a percentage of the damages award. [ 15 ] The requirements for contingency agreements set out in Rule 10.7 exist to protect clients from being taken advantage of by their lawyers. The present case is one where, despite technical defects in the contingency fee agreement, the Plaintiffs and their counsel accept it as enforceable.

There is no suggestion that the Plaintiffs and their counsel are acting in bad faith toward the Defendant in treating the contingency fee agreement as enforceable. [ 16 ] Where, as here, the parties to a contingency fee agreement themselves do not take issue with the validity of the agreement, a Court should be wary of arguments by an opposing litigant that the agreement is invalid by reason of a failure to satisfy the consumer protection requirements of Rule 10.7 where the result would be to discourage the bringing of meritorious cases and thereby undermine access to justice. [ 17 ] The real problem with the contingency fee agreement is that it does not contemplate the scenario that transpired in the present case.

The contingency fee agreement provides as follows in paragraph 3: 3. The Clients agree to pay the Solicitors, for rendering the services described, a percentage of the recovery as follows:

a) Ten Percent (10%) of any gross recovery obtained by way of a settlement prior to the commencement of legal proceeding;

b) Twenty-Five Percent (25%) of any gross recovery obtained by way of a settlement after the commencement of legal proceedings but prior to trial;

c) Thirty-Five Percent (35%) of any gross recovery by way of settlement or court order after the matter is entered for trial.

d) The “Costs Award” in accordance with the Rules of Court that may be assessable, but only if the Solicitors collect same. [ 18 ] The contingency fee agreement only provides percentage recoveries where the matter is settled or there is a court order after the matter is entered for trial. The Plaintiffs were successful on a

summary judgment application.

Summary judgment is neither a settlement nor, in this case, was it a court order after the matter was entered for trial. The outcome in this case does not fit with the scenarios contemplated in either paragraphs 3(

b) or 3(c). There is no fee specified for success on a dispositive application that occurs prior to entry for trial. [ 19 ] The Plaintiffs and their counsel advised in their written submissions that they resolved the uncertainty in the contingency fee agreement between themselves by agreeing that the contingency fee would be 30% – halfway between the percentages specified in paras 3 (

b) and (c) – and that counsel give up the entitlement to a fee on the costs award provided for in para 3(d).

The agreement between the Plaintiffs and their counsel is a reasonable compromise, but it is an agreement that occurred after the fact and, as such, does not comply with Rule 10.7 and cannot bind the Court in its assessment of the reasonableness of the fees as between solicitor and client. [ 20 ] Even if the contingency fee agreement in the present case specified the fee applicable when the case was determined by way of a dispositive pre-trial application and complied with Rule 10.7, Rule 10.9 provides that a contingency fee provided by a valid agreement may be reviewed for reasonableness.

Contingency Fees and Reasonable Compensation for Services [ 21 ] The Defendant submits that reasonable costs calculated under Rule 10.2 are not to be calculated as a percentage of the damages award. The assumption embedded in this submission is that costs should be a percentage of the lawyer’s fees calculated using an hourly rate or on a flat fee for service basis as provided for in

Schedule C to the Rules of Court . [ 22 ] Rule 10.2 provides the criteria that the Court must consider when determining reasonable compensation for a lawyer: 10.2(1) Except to the extent that a retainer agreement otherwise provides, a lawyer is entitled to be paid a reasonable amount for the services the lawyer performs for a client considering (

a) the nature, importance and urgency of the matter, (

b) the client’s circumstances, (

c) the trust, estate or fund, if any, out of which the lawyer’s charges are to be paid, (

d) the manner in which the services are performed, (

e) the skill, work and responsibility involved, and (

f) any other factor that is appropriate to consider in the circumstances. [ 23 ] Nothing in the text of Rule 10.2 precludes the reasonable amount of compensation for a lawyer’s services being calculated based on a percentage of a Court’s damages award. If the drafters intended Rule 10.2 to preclude assessment of reasonable compensation using a percentage of a Court’s damages award, clear language to that effect could have been used. [ 24 ] The Defendant relies on Rule 10.8 which provides that where a contingency fee agreement is invalid, counsel is “entitled only to lawyer’s charges determined in accordance with rule 10.2 as if no contingency fee agreement had been entered into ” [emphasis

added]. This simply means that if the Court is required to assess a lawyer’s reasonable compensation pursuant to Rule 10.2, it is to do so without giving weight to the invalid contingency fee agreement. [ 25 ] Pursuant to Rule 10.2, the Court may determine a lawyer’s reasonable compensation as a percentage of a damages award in the absence of a contingency agreement.

Justices Slatter and Feehan in Tallcree First Nation v Rath & Company , 2022 ABCA 174 observed at para 110 that where a contingency fee agreement is invalid, a review officer or judge may “ set a fair fee on any basis contemplated by R. 10.5(2).” Rule 10.5(2) provides that “[t]he amount a lawyer is to be paid may be determined in any appropriate way, including ... (

c) percentage....” Justices Slatter and Feehan, however, declined to set a percentage in Tallcree First Nation . [ 26 ] Rule 10.2 directs me to consider, among other things, the nature of the matter and the circumstances of the client. The Plaintiffs are poor and the claim was not straightforward to prosecute. The likelihood that the Plaintiffs could have brought the case in the absence of counsel working for a contingency fee is low. Counsel for the Plaintiffs was required to engage a lawyer in Burkina Faso and a bailiff of the Burkina Faso court to investigate the circumstances of Mr. Barry’s death.

Counsel for the Plaintiffs was also required to employ the services of a translator because one of his clients does not speak English. The only realistic way that this claim could be advanced was if counsel took on the financial risk of working for free and bearing the cost of disbursements, including the Burkina Faso investigation, unless and until a successful result was obtained. [ 27 ] Counsel that represent plaintiffs on a contingency basis have choices as to where to devote their energy and financial resources.

They weigh the merits of each case, the cost of prosecuting the case, and the probable time to payout against the potential return on a claim. A case that is complicated, time consuming, and costly to advance will not be taken on by counsel unless there is a commensurate reward for success. Deferred payment calculated based on hourly rates or

Schedule C to the Rules of Court is not a sufficient inducement for most counsel to take on a case that represents any kind of challenge. [ 28 ] The present case cries out for compensation based on a percentage of a damages award. To compensate counsel based on an hourly rate or

Schedule C to the Rules of Court would be to ignore the circumstances of the client, the nature of the case, and would be a disincentive to counsel that act for plaintiffs taking on cases of similar complexity that require substantial investment. [ 29 ] Unlike Tallcree First Nation , the present case was not a “piggyback” claim, nor was a quick settlement probable. As noted previously, the claim was complex and required an investigation in a foreign country. The Defendant made it clear from the outset that the claim would be resisted.

Indeed, shortly before the hearing, the Defendant made a Calderbank offer in the amount of $50,000 which represents less than 5% of the Plaintiffs’ recovery following

summary judgment. Counsel for the Plaintiffs was faced with a determined adversary and delivered an outstanding result for his client. [ 30 ] Even though the Plaintiffs were successful, the claim was resolved by

summary judgment which avoided the effort and expense of a full trial. Accordingly, the high percentage success fees sometimes justified when a complex matter goes to trial are not warranted in the present case. Balancing the complexity and investment of time and money required to advance the case against the resolution by way of

summary judgment prior to trial, a 25% success fee is appropriate in the circumstances. The success fee applies to the damages award and the interest accrued to the date of payment of the damages award. The 25% success fee shall not be calculated on the costs award ( ie . no costs on costs) or disbursements. [ 31 ] Consistent with Barry #1 at para 107 , the Plaintiffs are entitled to recover 75% of the 25% success fee from the Defendant. The Plaintiffs are also entitled to recover for reasonable disbursements. Heard on the 25 th day of October, 2022.

Dated at the City of Calgary, Alberta this 25 th day of October, 2022. Colin C.J. Feasby J.C.K.B.A. Appearances: Timothy J. Boyle for the Plaintiff Rinus de Waal & Karolina Kluz for the Defendant