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Guardianship Weekly – Week 18: Rule 7 Motions

Introduction: What is a Rule 7 Motion?

Rule 7.08(1) of the Rules of Civil Procedure provides that a settlement of a claim by or against a party under disability is not binding on that party without the approval of a judge.[1] Court approval is also required for consent judgments in favour of or against a party under disability.[2] Rule 1.03(1) defines “a party under disability” as a person who is a minor, mentally incapable,[3] or an absentee.[4]

In addition to court approval of the settlement agreement, Rule 7 motions invite the court’s approval of legal fees.[5] Court approval is expressly required where counsel have entered into a contingency fee agreement.[6]

For many lawyers, a Rule 7 motion signals the end of legal proceedings, and the end of a file. But for a client who was acting as litigation guardian on behalf of an injured loved one, a Rule 7 motion may be just the beginning. If the Rule 7 motion pertains to a significant settlement arising from an injury, your client may wish to commence an application for an order appointing him/her as guardian of property in respect of the injured party.

A Rule 7 motion represents your client’s transition from his or her role as litigation guardian, to the role as an applicant in guardianship proceedings, wherein the court and the Children’s Lawyer or Public Guardian and Trustee will scrutinize their intentions regarding the care of their loved one. If the guardianship application is successful, the newly-appointed guardian must then assume the role of a fiduciary who is accountable to the court for all of the decisions he or she makes in respect of the management of the settlement funds.

This fiduciary role does not always rest easily with the role of a loving parent. Counsel representing the litigation guardian in personal injury proceedings must therefore consider the process and procedure for Rule 7 motions within this larger guardianship context in order to help their clients navigate the road ahead.

Why are Rule 7 Motions Necessary?

A litigation guardian acting on behalf of a party under disability is responsible for ensuring that a settlement is in the best interests of that party. However, the litigation guardian’s recommendation respecting settlement, and his/her agreement to legal fees payable from the property of the party under disability, are subject to approval of the court. This can come as a surprise to some.

The Ontario Court of Appeal explained the historical context of Rule 7 motions in Wu Estate v Zurich Insurance Co.:

The requirement for court approval of settlements made on behalf of parties under disability is derived from the court’s parens patriae jurisdiction.  The parens patriae jurisdiction is of ancient origin and is “founded on necessity, namely the need to act for the protection of those who cannot care for themselves…to be exercised in the ‘best interest’ of the protected person…for his or her ‘benefit or ‘welfare’”: Re Eve, 1986 CanLII 36 (SCC), [1986] 2 S.C.R. 388 at para. 73.  The jurisdiction is “essentially protective” and “neither creates substantive rights nor changes the means by which claims are determined”: Tsaoussis (Litigation Guardian of) v. Baetz (1998),1998 CanLII 5454 (ON CA), 41 O.R. (3d) 257 at 268 (C.A.).  The duty of the court is to examine the settlement and ensure that it is in the best interests of the party under disability: Poulin v. Nadon, 1950 CanLII 121 (ON CA), [1950] O.R. 219 (CA).  The purpose of court approval is plainly to protect the party under disability and to ensure that his or her legal rights are not compromised or surrendered without proper compensation.[7]

For this reason, it is necessary in a Rule 7 motion for the litigation guardian and his/her solicitor to set out the rationale in support of a settlement in their respective affidavits, as discussed in more detail below.

How is a Rule 7 Motion Commenced?

The settlement in question may arise either before or after a claim is commenced. The colloquial term “Rule 7 motion” can therefore be a misnomer if an originating process has not yet issued; in that case, court approval under Rule 7 is actually obtained by way of an application.[8]

If a statement of claim, notice of claim or notice of application has been issued, then the appropriate procedure for obtaining court approval of a settlement is by way of a motion.

To start, you should review Rule 37 for the usual notice requirements, and take note of the extra material to be filed in support of a Rule 7 motion, as discussed below.

Full and Frank Disclosure

Regardless of whether proceedings have been commenced or not, Rule 7.02(4) provides that the following material shall be served and filed with the notice of motion or application:

(a) an affidavit of the litigation guardian setting out the material facts and the reasons supporting the proposed settlement and the position of the litigation guardian in respect of the settlement;

(b) an affidavit of the lawyer acting for the litigation guardian setting out the lawyer’s position in respect of the proposed settlement;

(c) where the person under disability is a minor who is over the age of sixteen years, the minor’s consent in writing, unless the judge orders otherwise; and

(d) a copy of the proposed minutes of settlement.

Jurisprudence tells us that counsel who fail to appreciate the historical context of these motions, or those who are too literal-minded, risk running afoul of Rule 7.02(4); counsel for the litigation guardian in Rops v Intact Insurance Company filed affidavits setting out the reasons in support of the settlement without actually asserting that the settlement was in the best interests of the party under disability. The court declined to approve the settlement.[9]

While it is open to counsel to bring a Rule 7 motion in writing, given that the opposing party will usually not participate, it would be a mistake to assume that these motions are purely procedural, or that the materials can be perfunctory or summary in their content. In fact, Rule 7 motions require full and frank disclosure, much like the disclosure obligations in ex parte motions.

The rationale for this heightened disclosure requirement is articulated by Justice Grace in the following excerpt from His Honour’s reasons in CT v KJ, a 2013 motion for approval of settlement on behalf of a minor:

Like settlement approval, the fees issue is usually determined on a written record and in a non-adversarial setting.  Albeit in the context of class proceedings, Juriansz J.A. addressed the problems that can arise in those instances.  He wrote:

Our system of justice is based on the basic tenet that the court will be able to reach the most informed, considered and impartial and wise decision after presiding over the confrontation between opposing parties, in which each side can identify issues, lead evidence, cite law, discuss policy considerations, and seek to undermine the position of the other.  Motions for approval of settlements and class counsel fees in class proceeding (sic) depart from this basic tenet as a matter of routine. [Smith Estate v National Money Mart Company, 2011 ONCA 233 at para 15]

That same dynamic – or lack of it – exists in motions of this kind.  The court exercises a supervisory role over the litigation guardian.  Vigilance and care are required but the record provided to the court is compiled by the persons seeking approval.

It is for that reason that persons seeking approval of settlements on behalf of a party under disability must treat the proceeding as if it was one brought without notice.  They must, therefore, make full and frank disclosure of all material facts relevant to the issues the court is asked to determine.  They must also make every effort to follow the mandated procedural and substantive rules that apply.

Fulfilment of that duty allows the reviewing judge to make an initial determination: is the material sufficient to permit disposition or should the decision be postponed pending receipt of further material from the moving party or assistance from the OCL.  It should be self-evident that complete, accurate and understandable information is required for that initial – and ultimate – determination to be made.[10]

The following issues should be addressed in detail in your affidavit material:

The details of the injury;

The positions taken by the parties involved;

The prospect for success at the outset of the claim; and

The experts retained and the opinion produced.

But What about Solicitor-Client Privilege?

There is no rule that waives a solicitor’s duty of privilege as regards the litigation guardian client for the purpose of Rule 7 motions. Yet , the requirement of full and frank disclosure, and the necessity of advising the court of all of the reasons why a settlement is in the best interests of the party under disability, clearly places the solicitor in a difficult position by requiring service of the motion record on opposing counsel.

To protect your client, consider removing the solicitor and litigation guardian affidavits from the motion records that are served on opposing parties. You may also wish to include in your notice of motion a request for an order sealing the motion record.

Contingency Fee Agreements

A solicitor entering into a contingency agreement must comply with section 5(1) of the Solicitors Act Regulation, “Contingency Fee Agreements,” which provides that:

A solicitor for a person under disability represented by a litigation guardian with whom the solicitor is entering into a contingency fee agreement shall,

(a) apply to a judge for approval of the agreement before the agreement is finalized;  or

(b) include the agreement as part of the motion or application for approval of a settlement or a consent judgment under rule 7.08 of the Rules of Civil Procedure.[11]

Contingency fee agreements are permitted by the Law Society of Upper Canada’s Rules of Professional Conduct[12]; litigation guardians are free to enter into one on behalf of a party under disability. However, counsel and their litigation guardian clients must have regard for the fact that section 24 of the Solicitor’s Act expressly provides that any fee agreement may be declared void by the court if the court is of the view that the terms of the agreement are not fair and reasonable.

The process of enforcing contingency fee agreements was reviewed in detail by the Ontario Court of Appeal in Henricks-Hunter:

When a solicitor seeks to enter into an enforceable contingency fee agreement with a party under a disability, the solicitor must comply with the regulations passed pursuant to the Solicitors Act.

Therefore, the solicitor can choose to have the agreement approved by the court before it is finalized with the PGT.  If a contingency fee agreement is approved by the court before being finalized, the fairness of the agreement is no longer an issue.

Alternatively, the agreement can be finalized and presented on a motion or application for approval of a settlement under rule 7.08 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.  Upon hearing a rule 7.08 motion or application, the judge cannot simply disregard a finalized contingency fee agreement.  Rather, the motion judge must assess both the fairness and reasonableness of the agreement. If the agreement is fair and reasonable, the motion judge may give effect to it.[13]

The Court of Appeal then provided the following commentary on the two-step process to be followed by the court when counsel seeks to enforce a contingency fee agreement on a motion for approval of settlement:

First, the fairness of the agreement is assessed as of the date it was entered into.  Second, the reasonableness of the agreement is assessed as of the date of the hearing. A contingency fee agreement can only be declared void, or be cancelled and disregarded, where the court determines that it is either unfair or unreasonable.[14]

On the hearing of the Rule 7 motion, the court will consider whether the contingency fee agreement was in the best interests of the party under disability. Jurisprudence provides that, in theory, fees are “fair” if the lawyer can precisely quantify their fee before settlement of the action is completed, the client fully understands and appreciates the nature of the agreement, and the agreement appears fair when assessed in light of the entire course of dealings between the parties regarding the lawyer’s remuneration.[15] With respect to the reasonableness of fees, much will depend on the time expended, the legal complexity of the matter at issue, the results achieved and the risks assumed by the lawyer.[16] The court’s determination of the proper fee in contingency agreements is not based on the amount of time, but rather the amount recovered.[17] This is not to say that dockets will not be considered, but it suggests that the outcome is a more significant factor than the time spent by the lawyer to achieve that outcome.

The risks assumed by the lawyer will be greater where the retainer is contingent. Such retainer agreements require lawyers to fund the litigation and, in some cases, the disbursements, which means the lawyer assumes the risk of non-payment if the litigation fails.[18] Factors include the risk of adverse liability and/or contributory negligence.[19]

The determination of fairness requires the court to consider factors that existed at the outset of the retainer, while the determination of reasonableness requires the court to consider the outcome of the retainer and the proceedings as a whole. However, if the retainer agreement included a contingency fee agreement, the court’s investigation into both fairness and reasonableness will be conducted at the time of settlement approval.

The Children’s Lawyer / The Public Guardian and Trustee

The Rules do not require that the motion record be served on the Children’s Lawyer or the Public Guardian Trustee. However, one should arguably serve the appropriate office in any event if the settlement has arisen prior to the appointment of a litigation guardian under the appropriate Rule.

Where a litigation guardian is already acting on behalf of the party under disability, the court hearing or reading a Rule 7 motion may direct the service of the Motion Record on either office and require a report from the Children’s Lawyer or the Public Guardian and Trustee regarding any objections or recommendations pertaining to the settlement.

Timing of Guardianship Proceedings: A Difficult Dance

If the litigation guardian is acting as an attorney for property under a valid continuing power of attorney for property of the party under disability, he or she already has the authority under the Substitute Decisions Act, 1992[20] to receive payment of the settlement funds in trust for the party under disability.

If the settlement payment in respect of a minor is modest, there may be an argument in favour of considering and requesting an order to pay the settlement funds into court until the minor turns 18, rather than to a guardian of property. The costs of additional legal proceedings in respect of guardianship, and the duty to periodically account, can erode a modest settlement. However, this approach is not always appropriate; counsel should contact the Accountant for the Ontario Superior Court of Justice for more information.

In most other circumstances, a guardianship order will be necessary. The lawyer for the litigation guardian will want to ensure that his or her client has an opportunity to receive advice and recommendations on any necessary guardianship proceedings well in advance of the judgment approving settlement.

For many families, the settlement in question is the product of a traumatic and life-changing event, followed by a long, emotionally exhausting litigation process. The necessity of additional guardianship proceedings should not come as an unpleasant surprise. Parents of a catastrophically injured child, for example, will be understandably frustrated if they believe that the settlement of tort/personal injury proceedings represents the end of litigation, when in fact they must immediately commence a new legal proceeding to obtain the appointment of guardian of property before the settlement funds can be put to use for the benefit of their injured child.

Many litigation guardians are unaware of the legal obligations and duties of guardians of property, and have little understanding of the work involved in meeting their fiduciary duties. A parent acting as litigation guardian for an injured child may be surprised to learn that the Children’s Lawyer – not the parent – acts as litigation guardian in guardianship proceedings. In other words, it is not presumed that a parent is acting in the best interest of their child; the parent will be required to justify his or her decisions with respect to the use of the settlement funds, and the proposed plan of care of their child will be scrutinized by the court and the Children’s Lawyer. This is a significant shift in mindset that should not be foisted on the parents for the first time immediately prior to a Rule 7 motion.

For these reasons, if a litigation guardian intends to apply for an order appointing him/her as guardian of property, an early consultation with lawyers experienced in guardianship proceedings can be useful in managing the expectations of clients.

Clients and their legal team must understand that the timing of guardianship applications and Rule 7 motions may not always easily coincide. For example, the court and the Children’s Lawyer or the Public Guardian and Trustee will want to understand the needs of the injured party as of the date of the guardianship application. Where the personal injury litigation has been ongoing for several years, many of the expert reports relied upon in the personal injury litigation may be outdated by the time it becomes necessary to commence guardianship proceedings. Up-to-date experts’ and/or future care reports may be necessary, especially if the status or nature of any functional disability has changed over time, whether due to the benefit of treatments received, or due to changes in the age and stage of the injured party.

In addition, the management plan required for an application for guardianship must address all of the details pertaining to the investment and management of the settlement funds, whether that settlement be a lump sum, structured settlement, occasional balloon payments, or a combination thereof. Accordingly, these details are not always available until the personal injury litigation has actually settled.

It may therefore be ill-advised to incur legal fees to research and complete a management plan too far in advance of any settlement agreement if the pertinent details regarding the needs of the injured party and the nature of the settlement are subject to change.

A consultation with counsel who is experienced in guardianship proceedings can assist in educating the proposed guardian of property about the intricacies of guardianship proceedings well in advance of any settlement, and can work with the applicant’s legal team to ensure a smooth transition into guardianship proceedings at the right time.

The Court Judgment

The court’s judgment should include the following:

In the preamble, a list of all of the material before the court in respect of the Rule 7 motion, as well as the birth dates of any minors;

Approval of legal fees and any contingency agreement, and terms providing for the payment of those fees;

Where appropriate, where the funds will be held pending the court’s appointment of a guardian of property;

Dismissal of claims of other parties;

A schedule containing any structured settlement or management plan approved by the court.

Rule 7.09(1) requires the payment into court of any funds payable to a person under disability unless a judge orders otherwise. Larger settlements tend to be paid to the party under disability by his or her guardian of property. Where guardianship is required but not yet in place, judgments may provide that the funds be held in trust by counsel pending the appointment of a guardian of property.

Concluding Comments

Clients who are acting as litigation guardians do not want to be surprised to find that upon settlement, the decisions they made regarding contingency fee agreements and settlement are contingent upon the approval of the court. Consider advising your client of the Rule 7 process at the outset of your retainer to avoid any unpleasant surprises.

Similarly, if the litigation guardian intends to apply for an order appointing him or her as guardian of property of the party under disability, consider referring him or her to counsel with experience in guardianship proceedings for a preliminary consultation well in advance of any settlement.

Guardianship proceedings are not always straightforward, and the legal and fiduciary obligations of guardians of property are not always intuitive; it may take some time for your client to fully appreciate the new role that he or she will assume if appointed as guardian of property.

[1]             Rules of Civil Procedure, RRO 1990, Reg 194 [“Rules”], r 7.08 (1).

[2]             Ibid, r 7.08(2).

[3]             Within the meaning of the Substitute Decisions Act, 1992, SO 1992, c 30, in respect of an issue in the proceeding.

[4]             Within the meaning of the Absentees Act, RSO 1990, c A.3.

[5]             See, for example, Cogan v MF, 2007 CanLII 50281 (Ont SC) at para 20.

[6]             Henricks-Hunter v 81488 Ontario Inc (Phoenix Concert Theatre), 2012 ONCA 496 [“Henricks-Hunter”].

[7]             2006 CanLII 16344, [2006] OJ No. 1939 at para 10, 268 DLR (4th) 670 (CA) [“Wu Estate”].

[8]             Rules, supra note 1, r 7.08(3).

[9]             Rops v Intact Insurance Company, 2013 ONSC 7366, paras 10-13.

[10]           2013 ONSC 7563 at paras 31-34.

[11]           O Reg 195/04, under Solicitors Act, RSO 1990, c S.15.

[12]           Law Society of Upper Canada, Rules of Professional Conduct, rule 3.6-2 and commentary [“LSUC Rules”].

[13]           Henricks-Hunter, supra note 6 at paras 15-18.

[14]           Ibid at para 13, citing Raphael Partners v Lam, 2002 CanLII 45078, [2002] OJ No 3605, 61 O.R. (3d) 417 (CA) [“Raphael Partners”].

[15]           Raphael Partners, ibid, paras 37-41.

[16]           Ibid at para 50.

[17]           Henricks-Hunter, supra note 6 at para 14.

[18]           Ibid.

[19]           Raphael Partners, supra note 14 at paras 52-53.

[20]           Substitute Decisions Act, 1992, SO 1992, c 30.

This paper is intended for the purposes of providing information only and is to be used only for the purposes of guidance. This paper is not intended to be relied upon as the giving of legal advice and does not purport to be exhaustive.

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