Thursday, 7 June 2012

Beware "Entire Contracts"

Ordinarily, even an incompletely performed contract gives rise to quantum meruit compensation.  This is not the case, however, for "entire contracts" or "lump sum contracts".  These contracts require full performance before a duty to pay arises.  For such contracts, a court cannot imply a pro rata payment term, nor find that equity imposes a restitutionary quantum meruit obligation.  For example, a builder who agreed to construct a house under a lump sum contract but who did not complete it was not entitled to recover for the work actually completed.  

The decision of Master Taylor in Slater Vecchio LLP v. Cashman, 2012 BCSC 830, is a notable example of the application of this doctrine and a cautionary tale for lawyers taking on contingency files.

The solicitors in this case transferred in an ongoing personal injury file with two ICBC actions - tort and Part 7 benefits.  Under the retainer agreement, the client agreed to pay them a 33.3% contingency fee for acting as his solicitors "with respect to my claim for damages incurred as a result of personal injuries and other losses arising out of a motor vehicle accident...".  The solicitors settled the tort claim and reached an agreement with the previous law firm regarding distribution of fees.  However, when the client asked about the status of the Part 7 action, he was advised that the solicitors were not prepared to act further because they did "not believe the case is worth pursuing".  When the client refused to consent to the withdrawal, the solicitors terminated the retainer.

On a review under s. 70 of the Legal Profession Act, Master Taylor found that the retainer was "an entire contract and intended as such by which the Solicitors were obligated to prosecute both the Client’s tort action and his Part 7 action to their respective conclusions in order to be entitled to any fee."  Finding that the retainer was neither replaced by a new one, nor amended, nor released when the fee was settled between firms, Master Taylor concluded that the solicitors breached the retainer when they unilaterally withdrew.  Accordingly, they had to refund to the client $201,600 in fees plus Court Order Interest.

An important fact in this case is how the solicitors terminated the retainer.  The solicitors argued that they had "reasonable grounds" to withdraw their services because "the client insisted on advancing arguments that were 'hopeless' in law, and 'not properly arguable'".  However, Master Taylor found that evidence did not support this argument, since the client was neither provided with proper advice of why his claim was untenable, nor in fact insisted on prosecution of an untenable claim:
[86]          As well, another difference has to do with the complete lack of any advice from the lawyer to the client as to the existence of a part of a claim that was not properly arguable. In Richard Buxton, the client submits, the court found that the advice given by the lawyers to their client was that three of the four grounds that the client wished to advance were hopeless, but that the client had insisted that those points be taken anyway. Such is not a fact in the case at bar.
[87]         Another difference between this case and Richard Buxton v. Mills-Owens says the client, is the nature of the client’s instructions in light of the advice given. In that case, the client specifically instructed the lawyers to take positions that he had been advised were not properly arguable. Here, not only was Mr. Cashman not given advice that a claim for TTDs in the first 104 weeks was doomed to fail, there was also no evidence that he specifically instructed the Solicitors to continue on in that claim notwithstanding its supposed futility.
[88]         What the evidence shows is that all Mr. Cashman did in January, 2011, was call Mr. Gordon to find out what was happening on the Part 7 Action. In response to that inquiry, the Solicitors simply quit. The taking of that step in response to a simple inquiry as to the status of the matter is, in my view, unfortunate.
[89]         In my view, the least the Solicitors could have done was to prepare an opinion for the Client setting out in some detail the weaknesses of his case and recommending that he not pursue the Part 7 action, and, as well, setting out the risks of pursuing the claim, thus discharging their duty not to unreasonably expose the client to costs. Thereafter, it might be that the client may or may not wish to proceed knowing all the facts and having had an opportunity to consider them.