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Civil Litigation

Case strategy should involve cost-benefit analysis

Lawyers should conduct cost-benefit analyses with clients during litigation after two firms that were trying to recover fees from unsatisfied customers received unfavourable decisions, Toronto litigator Jeffrey Silver tells AdvocateDaily.com.

In one recent case, the province’s top court overturned a motion judge’s decision to grant summary judgment in favour of a large Bay Street firm that was chasing $180,000 in unpaid fees, and reinstated their former client’s $1-million negligence counterclaim, ordering both issues to a full trial. 

And in another recent Ontario Superior Court case, the judge awarded a law firm just $30,000 towards its unpaid $106,000 legal bill for pursuing a client’s unsuccessful wrongful dismissal claim. Despite the undoubted quality of the legal work, the judge expressed concern that there was no discussion between lawyer and client about the financial risks of proceeding with an action that was never going to be worth more than $100,000 in damages.    

Silver, principal of Jeffrey C. Silver Barrister, says too few lawyers offer clients strategic guidance, allowing both to easily lose sight of what a case is worth.

“No matter how sophisticated your client is, you’ve got to do a cost-benefit analysis to determine whether the path being followed is justifiable,” he says. “If they still want to roll the dice, that’s fine, but if the lawyer never explained the risks, then it opens them up to a negative reaction.

“A prudent lawyer has to offer strategic guidance. And until more do, we’re going to continue to see cases like this, where they are either sued or unable to recover all their fees,” Silver adds.

In the appeal court case, the law firm went to court to claim $182,000 in unpaid bills built up over five years while representing a former client, a medical treatment company, in litigation. In response, the client countersued the firm, claiming $1 million in damages for its alleged negligent representation, arguing the litigation would have been cut short if their lawyers had provided a meaningful assessment of the potential damages they could expect.

A motion judge granted the law firm summary judgment for its full claimed fees and dismissed the counterclaim, ruling that there was no causal link between the failure to obtain an earlier formal damages assessment and the continuation of the lawsuit.

However, the appeal court ruled neither the claim nor the counterclaim were appropriate for summary judgment and ordered a full trial on both.  

“In our view, the motion judge erred in law in finding that the appellants’ principals as sophisticated business people were aware of the value of the damages and risks of litigation. This finding reflects a misapprehension of the solicitors’ duty of care to advise the clients about the legal basis for the damages and the risks of litigation,” the unanimous three-judge panel concluded.

In the Superior Court case, the law firm was hired by a man who claimed he was wrongfully dismissed by his long-time employer. The firm refused to act on a contingency fee basis but agreed to defer payment of its accounts until the conclusion of the matter due to his financial struggles.

The judge rejected the client’s claim that his lawyer promised the lawsuit would cost no more than $30,000 but did find that “before the issuance of the claim and thereafter, there was no discussion between lawyer and client of the risks and rewards of suing for $100,000 in the Superior Court of Justice.”

After a six-day trial, the client’s claim was dismissed, leaving him with an unpaid legal bill of $106,000 and a $25,000 adverse cost award owed to his former employer. The judge said he would only grant the firm judgment for $30,000 of its fees, because of the disproportion between what he stood to recover in a best-case scenario and the costs it would take to achieve them.

“I appreciate that [the client] was adamant in having a day in court, and I believe that [the firm’s] lawyers were well-intentioned in agreeing to defer payment of the firm’s accounts until [the client] had his day in court, but these good intentions were a trap and a recipe for the financial disaster that followed. The deferred retainer ran the risk that a poor family would be out on the street having lost everything,” the judge wrote in his decision.

“If [the firm] was not prepared to act on the matter based on a contingency fee under which they would bear some of the risks, they cannot expect to be fully paid in the absence of having made it perfectly clear that it would be foolish for [the client] to sue having regard to the risks and rewards of litigation.”

Silver acknowledges that it can be a difficult task to spell out the deficiencies of a client’s case to them.

“It can make you look overly skeptical or insufficiently confident to the client,” he says. “It’s something I’ve always done, and it is always uncomfortable, but I’m glad I do it because it is the appropriate manner in which to practice as per these two cases.”  

He says a side effect of more lawyers giving sound strategic advice could be to relieve the pressure on judicial resources since fewer cases would proceed unnecessarily to trial, and suggests the principle extends beyond litigation.

“If you’re a securities lawyer with a sophisticated client considering an initial public offering, you should be talking them through the chances of success,” Silver adds. “To give full value, all lawyers should be explaining the risks to clients.”

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