Contingency fee agreements play an important role in access to justice by allowing lawyers to fund litigation upfront and share in recovery without requiring clients to pay as the case proceeds. But a recent Ontario Superior Court decision serves as a reminder that even well-intentioned contingency agreements can cross the line into impermissibility, regardless of client consent.
When 5% Becomes Too Much
In Nootchtai v. Nahwegahbow Corbiere Genoodmagejig Barristers and Solicitors, Justice Myers was asked to review a contingency fee agreement under which six senior lawyers claimed $510 million (representing 5% of a $10 billion settlement) for their work on the Robinson Huron Treaty litigation. On its face, the 5% rate seems modest. The underlying work was extraordinary: 17 years of litigation, 65,000 billable hours, and an unprecedented settlement benefiting 40,000 Indigenous beneficiaries across 21 First Nations.
Yet the court found the fees unreasonable and unenforceable. Justice Myers reduced the total compensation to approximately $40 million, which was double the lawyers’ full billable fees on a quantum meruit basis. The decision exposes problems with percentage-based contingency fees in mega-fund cases.
The Champerty Problem
Justice Myers grounded his analysis in the doctrine of champerty, which prohibits buying a piece of a lawsuit without a legitimate interest in the case. He explained that while contingency fees are lawful, percentage-based fees can become champertous when they produce windfalls unrelated to the value of services rendered.
Justice Myers noted: “But lawyers are not their clients. The recovery from a lawsuit, whether by settlement or judgment, belongs to the clients. Lawyers are not entitled to a percentage of the clients’ recovery amounting to a windfall of huge fees in an amount that is unrelated to value of the professional services rendered. That would be champerty.”
He further observed that “a lawyer’s professional retainer is not a lottery ticket offering a bonus prize of generational wealth to the lawyers if the clients hit the jackpot and win a mega-award.”
The Conflict of Interest Trap
Beyond the percentage-fee analysis, the decision highlighted a critical conflict of interest problem. The same legal team that negotiated the contingency agreement also prepared reports to the clients, arguing that they were entitled to the full $510 million. When some First Nations proposed obtaining independent legal advice before approving the fees, one of the lawyers advised that doing so would delay distribution of settlement funds.
Justice Myers noted that “it is simply human nature to believe we are acting in good faith even when in conflict of interest.” The court stressed that lawyers cannot advise clients on their own fees without independent legal advice being obtained. The fact that the clients later consented to the fees provided little protection because that consent was built on conflicted advice.
Mega-Funds Change the Calculus
Perhaps most significantly, Justice Myers held that percentage-based contingency fees become problematic in mega-fund cases as a matter of principle. He adopted the reasoning from another recent decision by Justice Belobaba, who stated in Brown v. Canada (Attorney General), 2018 ONSC 3429: “Mega-fund cases are rare and when they settle, and almost all of them settle, the size of the settlement fund can be in the hundreds of millions of dollars. A percentage of the fund approach, given economies of scale, will result in windfalls. Windfalls should be avoided because class action litigation is not a lottery and the CPA was not enacted to make lawyers wealthy.”
In this case, 15 of the 21 First Nations stood to receive less from the settlement than the $510 million claimed by the six lawyers. That disproportionality was fatal to the reasonableness analysis.
Key Takeaways
Percentage contingency fees should be approached with caution in large-value cases. Even if the percentage seems reasonable in isolation, courts will examine whether it produces a proportional fee in relation to hours worked, complexity, risk assumed, and results achieved. Clients should also receive independent legal advice on contingency fee structures. Ultimately, the Solicitors Act subjects all contingency fees to court scrutiny regardless of client agreement, so it is important that the work as billed remains accurately docketed to compare the fee that would typically have been paid as compared to the fee under the contingency agreement.
The Robinson Huron case does not condemn contingency fees. What it does condemn is allowing the structure of a fee arrangement to obscure the fundamental principle that lawyers must charge only fair and reasonable fees for services rendered, measured against the actual value they provided.
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