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Monday Morning Case Bites for October 28, 2019

Last Week’s Court Rulings from the Alberta Court of Queen’s Bench, Court of Appeal and SCC.

Edited by Amanda Kostek & Christie Dewar

Athwal v Mather, 2019 ABQB 801
Contingency Fee | Reasonableness

1566117 Alberta Ltd v JRT Services Ltd. 2019 ABPC 259
Breach of Contract | Pierce Corporate Veil

Athwal v Mather, 2019 ABQB 801

This was an application for approval of a contingency fee after a settlement was confirmed. The settlement amount was confidential. The Plaintiff counsel’s contingency fee would net $1,811,657 in fees and disbursements. The Court declined to approve the contingency fee and instead awarded $800,000 and reasonable disbursements of $118,916.30. In doing so, the Court noted the following:

[6]               Mr. Singh and Ms. Kaur quit their jobs to look after Amber. They would not have been able to pursue this claim without the services of a lawyer acting on a contingency fee basis. The cost of civil litigation in general and professional negligence claims in particular, puts those claims out of the reach of many Canadians, unless they are able to find lawyers willing to act on contingency. If the Courts do not approve reasonable percentage fees in contingency agreements, lawyers will stop entering into them, and access to justice will be diminished. Reasonable percentages will exceed the value of the time on the file in some cases, to make up for the cases where the percentage fee is less than the value of the time on the file, and those cases were nothing is recovered and the fee is zero.

[9]               The plaintiffs’ lawyers had to work their way through substantial evidence, including testimony at a two-week regulatory hearing and expert evidence, to obtain a clearer picture of which defendants were responsible for Amber’s injuries. Some defendants were released from the litigation. Ultimately, with the help of a mediator, the parties were able to agree on a global settlement without the defendants revealing what amounts each contributed. This was a moderately complex case, but no more so than many health care malpractice cases.

The Court also noted that this claim was low risk:

[13]           A law firm taking on a file on a contingency fee agreement risks not getting paid for the lawyers’ work and not being reimbursed the disbursements paid by the firm. The relevant time to assess that risk is when the contingency agreement was entered into, in this case December 8, 2016, which was three months after Amber Athwal suffered a devastating brain injury in Dr. Mather’s dental office. Mr. Embury advised me during the oral hearing on September 10, 2019 that the liability of Dr. Mather and the other defendants was uncertain on December 8, 2016, because few records and no expert opinions and been obtained at that stage. However, based on Mr. Embury’s affidavit evidence, as set out in section 3.4 above, I find that it was clear from the beginning that at least one defendant was liable.

[14]           Liability is one component of assessing the risk when taking on a contingency file; the other is the ability to recover a judgment. In this case the main defendant was a dentist. Dentistry is a self-governing profession. As a member of that profession, Dr. Mather was likely encouraged or required to carry malpractice insurance, and he likely had an opportunity to accumulate personal wealth. Furthermore, I also find, as set out in section 3.5 above, that Mr. Embury’s firm could have anticipated in December 2016 that they would have to prove their clients’ claims, but that having done so, the liable defendants would settle based on their lawyers’ advice, using personal assets or insurance.

[15]           Looking at the case from the lawyers’ point of view in December 2016, this was a low risk case. Substantial work would be required, but not a full trial, and ultimately there would be some recovery. Given the devastating injury Amber suffered, the lawyers could anticipate that recovery might be limited by the defendants’ insurance coverage and personal assets, which were unknown but could be foreseen to be in the multi-millions. In these circumstances it was not reasonable to set the contingency fee at a flat percentage; it should have been set at a sliding scale, with a high percentage if a small settlement were obtained and lower percentages the more was recovered.

The Court concluded that the legal work on the file likely amounted to approximately $600,000, but awarded more on the basis of the efficient legal service provided. In particular, the Court noted that less than three years elapsed between the injury and the date of settlement, which was very quick for this type of claim:

[47]           Except for their failure to keep time records, the legal team led by Mr. Embury did good work on this case. They assumed some risk in taking this file on and in funding some of Amber’s treatment costs so they should be compensated beyond the value of their work. However, liability was never in issue and recovery was very likely, so the extra compensation should not be large. Taking into account the work done by the lawyers, described in section 3.10 above, I estimate the value of their work, including work to obtain approval of the settlement and future work to establish a structure, to be $600,000. Taking into account the small risk they assumed, their efficiency in prosecuting the claim, and their failure to keep time records, I find that a fair and reasonable fee is $800,000.

1566117 Alberta Ltd v JRT Services Ltd. 2019 ABPC 259

This was a successful breach of contract claim by the Plaintiff for the cost to repair a semi truck. The Plaintiff was successful against both the corporate defendant, and the sole director and shareholder of the company, by piercing the corporate veil.

The Court outlined the law on piercing the corporate veil as follows:

[76]           A corporation is a legal entity distinct from its shareholders: Salomon v. Salomon & Co., [1897] A.C. 22 (U.K. H.L.) In the case at bar, JRT is legally separate from Rowlinson as shareholder notwithstanding that he is the only shareholder. One of the reasons Rowlinson probably incorporated his business was to obtain the benefit of limited liability. It would not be conducive to commercial practice for the Courts to lightly over-ride this key benefit of incorporation.

[77]           In appropriate cases, the “corporate veil” may be pierced by the Court, meaning that a shareholder may be held accountable for actions of the corporation, thereby side-stepping limited liability. The Court may deem that a corporation is actually an “agent” or “puppet” of its controlling shareholder. The corporate veil may be pierced when treating the corporation as a distinct legal entity would yield a result “too flagrantly opposed to justice”: Kosmopoulos v. Constitution Insurance Co. of Canada, [1987] 1 S.C.R. 2 (S.C.C.), 1987 Canlii 75 at para. 12.

[78]           Corporate status ought not to shield principals of a corporation against misconduct or fraud perpetrated by those principals. In such cases, liability may be extended to the principals. Lifting the corporate veil is a discretionary remedy: Sylvan Lake Golf & Tennis Club Ltd. v. Performance Industries Ltd., 2000 ABCA 116 (CanLII) (Alta. C.A.) at para. 23.

The Court accepted that the corporate veil could be pierced if the party in charge of a corporation directed that something wrong be done:

[79]           As per Mitchell v. Lewis, 2016 ONCA 903 (CanLII) (Ont. C.A.) at paras. 16-18:

16 The motions judge relied on this court’s decision in Montreal Trust Co. of Canada v. ScotiaMcLeod Inc. (1995), 1995 CanLII 1301 (ON CA), 26 O.R. (3d) 481 (Ont. C.A.), at p. 491, for the following proposition: “Those cases in which the corporate veil has been pierced usually involve transactions where the use of the corporate structure was a sham from the outset or was an afterthought to a deal that had gone sour.” The motions judge found that as the Fresh as Amended Statement of Claim contained no allegations that any of the corporate respondents were a sham and, on the contrary, alleged that GLGI was a successful business, the pleading did not support piercing the corporate veil.

17 In my view, the motions judge adopted too narrow a view of when the corporate veil could be pierced.

18 While the corporate veil has been pierced in cases involving sham corporations, that remedy is not limited to those cases. Most recently, this court in Shoppers Drug Mart Inc. v. 6470360 Canada Inc., 2014 ONCA 85 (CanLII), 372 D.L.R. (4th) 90 (Ont. C.A.), at para. 43, confirmed that the appropriate test to apply in determining whether the corporate veil should be pierced was stated by Laskin J.A. in 642947 Ontario Ltd. v. Fleischer (2001), 2001 CanLII 8623 (ON CA), 56 O.R. (3d) 417 (Ont. C.A.), at para. 68, as follows:

Typically, the corporate veil is pierced when the company is incorporated for an illegal, fraudulent or improper purpose. But it can also be pierced if when incorporated “those in control expressly direct a wrongful thing to be done”: Clarkson Co. v. Zhelka at p. 578. Sharpe J. set out a useful statement of the guiding principle in Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co. (1996), 1996 CanLII 7979 (ON SC), 28 O.R. (3d) 423 at pp. 433-34 (Ont. Ct. (Gen. Div.)), aff’d [1997] O.J. No. 3754 (C.A.): “the courts will disregard the separate legal personality of a corporate entity where it is completely dominated and controlled and being used as a shield for fraudulent or improper conduct.”

The Court concluded that although a breach of contract claim will not typically attract the piercing of the corporate veil, in this case the directing mind of the corporation was acting in bad faith such that he could not rely on the corporate veil to protect him:

[81]           There was an ultimate breach of the Contract in the case at bar. That is a fairly commonplace occurrence. In and of itself, that ought not to call for piercing the corporate veil. However, the Court has to consider Rowlinson’s deliberate conduct in causing JRT to be struck only a couple of months after JRT entered into the Contract with Beaut, yet not making the latter aware of the corporation’s status. It was only incidentally  that Beaut found out, on a very belated basis which was prejudicial.

[82]           During the intervening time, Rowlinson let Beaut believe that JRT was continuing to perform its obligations as per the Contract. Payment for those services was directed to the same bank account throughout the relationship.

[83]           The Court concludes that Rowlinson’s actions in these particular circumstances were tainted by bad faith to the extent that he should be disallowed the protection of the corporate shield. As such, Rowlinson is found to be personally liable.

As a result, Judgment was granted against both the corporation, which had been struck by the registry, and the sole director and shareholder of the corporation.