OCA confirms lawyers' duty to communicate terms of retainer clearly

In siding with two law firms’ interpretation of a retainer agreement, the Ontario Court of Appeal has confirmed lawyers’ duty to communicate the agreement’s terms to their clients clearly.

“If there is any ambiguity in a solicitor-client retainer, it is to be construed against the drafter – that is, the lawyer,” wrote a unanimous panel in Boudreau v. Lavery, De Billy LLP.

According to Robert Schipper, a Toronto sole practitioner who represents lawyers in matters involving legal fees, interpretation of retainer agreements, costs and limitation periods, Boudreau represents Ontario courts’ strongest statement of this principle.

“Other cases have cited this proposition, but never as clearly as the court did in this case.”

That may be why, according to Schipper, there are so many disputes regarding the meaning of retainers.

“Many retainers fall short of the clarity required, and questions about their interpretation come up all the time in assessments. It’s taking up a lot of our courts’ time because assessment officers have to refer the case to a judge if the terms of the retainer are in dispute.”

Boudreau involved an application by Joseph and Suzanne Boudreau to interpret their retainer agreement with Lavery, de Billy LLP and Low Murchison Radnoff LLP.

“The lawyer who had drafted the agreement was not available to give evidence because he had died,” says Gary Boyd, who appeared on behalf of his firm, Ottawa’s Low Murchison.

The Boudreaus maintained that the retainer agreement was contingency fee-based, with fees capped at one-third of any settlement or judgment. The law firms saw the arrangement as a “pay-as-you-go” based on hourly rates, with a possible premium depending on the result of the litigation.

In January 2022, Ontario Superior Court Justice Kevin Phillips ruled in the lawyers’ favour. He concluded that the fee cap applied only to any premium that became payable but not to the hourly fees.

The Boudreaus appealed.

In its October decision, the OCA upheld Phillips’ order.

“The agreement clearly referred to an hourly rate. It also clearly explained that for a reduction in the hourly rate, the retainer agreement provided for the law firm to charge a premium in the event of a ‘favourable’ award. The meaning of ‘favourable’ was defined in the retainer agreement, and the method of calculating the premium was clearly explained.”

As the court saw it, Phillips had correctly applied the principles of contractual interpretation enunciated by the Supreme Court of Canada in Sattva Capital Corp. v. Creston Moly Corp. to the retainer agreement. He had also recognized lawyers’ fiduciary duty to communicate clearly, and that ambiguities were to be resolved against them.

Phillips found the wording in the agreement to be “readily understood and unambiguous.” He also considered the context and decided that “a plain reading made commercial sense.”

The Boudreaus argued that Phillips had failed to consider the evidence surrounding the formation of the retainer. To this end, Joseph outlined the drafting history of the agreement and conveyed his understanding that the retainer was a contingency agreement.

But the panel was not convinced that Phillips had erred.

“Putting to one side possible concerns about the parol evidence rule with respect to some of Mr. Boudreau’s evidence, we emphasize the caution expressed by the Supreme Court in Sattva . . . that, although the surrounding circumstances are to be considered in interpreting a contract, ‘they must never be allowed to overwhelm the words of that agreement.’”

The upshot, Boyd says, is that circumstances “can’t change the plain meaning of a contract.”

In conclusion, the panel declined to interfere with Phillips’ finding that the retainer agreement was clearly a pay-as-you-go with the possibility of a premium and not a contingency fee agreement.

Still, retainers that contain a premium based on a percentage of recovery may continue to prove troublesome, considering s. 28.1(2) of the Solicitors Act, which provides that a contingency fee may be part of a retainer agreement “in whole or in part.”

“The Boudreau court didn’t refer to the Act, but ‘in part’ could be interpreted to mean that a premium expressed as a percentage amounted to a contingency agreement,” Schipper says.