Contingency Fee Counsel Not Required to Post Security for Costs for Impecunious Corporate Client

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Today’s endorsement by the Court of Appeal for Ontario in Indcondo Building Corporation v. Sloan, 2012 ONCA 83 by Mr. Justice Armstrong is welcome news for contingency fee lawyers:

5]          The respondents argue that lawyers who act on a contingency basis and who have accepted the risk of bearing the plaintiff’s costs of litigation should be treated no differently than the plaintiff would be treated when it comes to the costs obligations to a successful defendant.

[6]          With respect, I disagree.  The issue does not appear to have been previously addressed by this court.  Counsel were unable to cite any authority from this court on point.  However, the issue was addressed squarely by Nordheimer J. of the Superior Court of Justice inIntellibox Concepts Inc. v. Intermec Technologies Canada Ltd. (2005), 14 C.P.C. (6th) 339 at para. 12:

As I have noted, the logical extension of ordering security for costs to be posted by an impecunious corporate plaintiff by reason of the fact that its solicitors are operating on a contingency fee basis is, in effect, to require those solicitors to provide the security.  Solicitors who make legal services available based on contingency fee arrangements with clients, who could not otherwise afford to litigate a claim, assume the risk that they may not be paid for their work unless a favourable result is achieved.  To require those solicitors to assume the additional burden of posting security for costs, with the concomitant risk of losing those funds (in addition to going unpaid for their own services), would impose a significant disincentive to contingency fee arrangements and would run contrary to the very rationale by which they are permitted.  In my view, it would be incongruous to interpret the Rules of Civil Procedure in such a fashion.

[7]          I agree with Nordheimer J.  In my view, as a matter of principle, the lawyer who acts on a contingency fee basis is already carrying the significant risk of not being paid and, as in this case, being stuck with the costs of paying the disbursements.  To add the additional burden of posting security for costs would no doubt have a chilling effect on those lawyers who might otherwise make their services available on a contingency basis – thus creating another problem for access to justice.

Nevertheless, Armstrong J.A. adds the following caveat:

[8]          While I have said what I believe the governing principle is, it may be that in some future case, a basis will be established upon which such an order is justified.  That said, I do not see this as such a case.

 Clearly, if a future decision imposes an order for security for costs against a lawyer or law firm taking a case on a contingency basis (sometimes referred to as taking a case on ‘spec’), the likely result will be no more contingency fee lawyers in Ontario. The other potential consequence is lawyers and law firms inserting some form of indemnification clauses into contingency fee retainers with general security agreements added for good measure.  The alternative may be indemnity insurance, but I am unaware of any existing comprehensive general liability (CGL) policies that cover such a contingency (pun intended).

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2 Responses to “Contingency Fee Counsel Not Required to Post Security for Costs for Impecunious Corporate Client”

  1. nothingwillbehidden Says:

    In two words “I agree!”

  2. ADP Says:

    Merits of this case, on behalf of the plaintiffs rights speaks for its self.

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