Executive Summary: Key Legal and Evidentiary Issues

• Scope of a contingency fee retainer limited the law firm’s entitlement to recover only where damages were obtained by settlement or judgment at trial, not on appeal.
• Interpretation of the retainer was treated as a fact-specific contractual exercise, attracting deference absent an error in principle or palpable and overriding error.
• Omission of any reference to appeal recoveries in the payment clause was held to reflect the parties’ bargain, even though that outcome was financially unfavourable to the law firm.
• Arguments that general “success on the claim” language overrode the specific list of triggering events for payment were rejected as an invitation to re-interpret the contract afresh.
• A claim for quantum meruit failed because the parties had already allocated the circumstances in which fees would be payable, leaving no gap for restitutionary recovery.
• The Court of Appeal dismissed the law firm’s appeal and awarded the clients costs of $35,000, confirming the order that the bulk of the damages award be returned to them.

Background and underlying litigation

In 2004, Aylmer Meat Packers Inc. commenced an action against the Province of Ontario and the Attorney General of Canada seeking damages in negligence, trespass, and conversion. The case arose from governmental actions that allegedly caused loss to Aylmer’s business operations, although the detailed factual matrix of those allegations is not set out in this appellate fee decision. Initially, Aylmer was represented by a different law firm.

In 2013, Aylmer retained Harrison Pensa LLP to act on a contingency fee basis in the ongoing litigation. Under that retainer, the firm was to receive up to 40 percent of any recovery on the claim, making its remuneration contingent on success. The precise words of the operative payment clause became the centrepiece of the later dispute. The agreement specified that the firm would be entitled to its contingency fee upon the recovery of damages “whether by settlement award obtained through negotiation, mediation, settlement meetings or judgment at trial,” but said nothing about damages recovered on appeal.

The contingency fee retainer and pre-trial settlement

Before the trial proceeded against Ontario, the claim against Canada was resolved. Shortly before trial, Canada agreed to pay $120,000, and that settlement sum was held by Harrison Pensa. The firm’s entitlement to fees in relation to this settlement was relatively straightforward: under the contingency agreement, it could charge a percentage of this $120,000 as its fee for work done in achieving that resolution.

The trial against Ontario was unsuccessful. Aylmer lost at trial and received no damages from Ontario. Since the contingency fee was premised on a monetary recovery, there was no recovery from Ontario at that stage on which the firm could take a percentage.

The successful appeal and shift in representation

After losing at trial, Aylmer changed legal representation. New counsel were retained to take the matter to the Court of Appeal for Ontario, and Aylmer paid the new firm $312,000 for the appeal work. Importantly, there was no retainer agreement between Aylmer and Harrison Pensa relating to the appellate proceedings.

The appeal against Ontario was successful. The Court of Appeal awarded Aylmer $3.52 million in damages, plus $1.1 million in costs and interest, for a total of $4.62 million in the underlying litigation. Harrison Pensa held $1.72 million of this damages award and claimed that amount as fees pursuant to its original contingency fee retainer. The question then became whether that 2013 retainer, drafted in contemplation of trial-level work, extended to the damages obtained only after a later, separate appeal conducted by different counsel.

The application for return of funds and fee entitlement

Aylmer and Richard Walter Clare (collectively, the respondents in the 2026 appeal) brought an application seeking the return of the $1.72 million that Harrison Pensa was holding. The firm responded with a cross-application, asserting two bases for retaining the funds: first, that it was contractually entitled to a share of the appeal damages under the original contingency fee agreement; and second, that if the contract did not cover that recovery, it was entitled to be paid on a quantum meruit basis for the value of its services.

The application judge interpreted the retainer and concluded that the firm was only entitled to a contingency fee if it recovered damages before or at trial. Because the damages against Ontario were obtained only after an appeal conducted by new counsel, the judge held that the retainer did not entitle Harrison Pensa to a percentage of those appeal-level damages. The judge ordered that the firm was entitled to a contingency fee on the $120,000 pre-trial settlement with Canada but otherwise directed that the balance of the $1.72 million held by the firm be returned to Aylmer.

Interpretation of the retainer agreement

On appeal, Harrison Pensa argued that the application judge made both legal errors and palpable and overriding errors of fact in her interpretation of the retainer. The firm contended that the contract tied its entitlement to fees to “money received on the claim” in a broad sense, such that any ultimate monetary success—whether achieved at trial or on appeal—should trigger payment of its contingency fee.

The Court of Appeal began by reaffirming the applicable standard of review for contractual interpretation. The retainer was a contract, and its interpretation was governed by the principles from Sattva Capital Corp. v. Creston Moly Corp. and later Ontario appellate authority. Under that framework, absent an error of principle or a palpable and overriding error in the application judge’s appreciation of the evidence and context, deference is owed to her interpretation of the agreement.

The key textual issue was the payment clause, which provided that the firm was entitled to fees upon recovery of damages “whether by settlement award obtained through negotiation, mediation, settlement meetings or judgment at trial.” The Court of Appeal emphasized that damages awarded on appeal were not mentioned in this list. Harrison Pensa argued that the list merely provided examples of when fees would be payable, subject to an overarching notion that any success on the claim should trigger payment. The court rejected this submission, holding that it was open to the application judge to treat the language as an exhaustive delineation of the circumstances in which the contingency fee would be earned.

The appellate court concluded that the judge had in fact considered the contract as a whole and had not ignored any relevant provisions. The firm’s arguments were characterized as an invitation to the Court of Appeal to re-interpret the retainer de novo, contrary to the deferential standard of review. Because no error in principle or palpable and overriding error was established, the application judge’s interpretation—limiting the firm’s contractual entitlement to recoveries obtained by settlement or judgment at trial—was left undisturbed.

Rejection of the quantum meruit claim

Harrison Pensa also asserted that the application judge erred by conflating contractual and restitutionary quantum meruit and by concluding that contractual quantum meruit was not available. It further argued that she made palpable and overriding errors in her factual analysis bearing on the equitable claim.

The Court of Appeal rejected these submissions. It held that the parties had deliberately specified in the retainer the circumstances under which the firm would be paid. They had chosen not to provide for an entitlement to fees if the client were successful only on appeal, and the absence of such a term was part of the bargain they struck. While that bargain proved to be financially unfavourable to the law firm in hindsight—given that the major recovery occurred on appeal with new counsel—the court considered that to be an “improvident bargain” the firm nonetheless chose to make.

Because the contract itself addressed when payment would be made and did not leave a gap regarding appellate success, there was “no room for quantum meruit to operate” in the circumstances. The court endorsed the application judge’s conclusion that a restitutionary remedy could not be used to rewrite or supplement the contractual allocation of risk and reward agreed to by the parties at the outset.

Final outcome and costs

In the result, the Court of Appeal dismissed Harrison Pensa’s appeal and confirmed the orders made by the application judge. The firm remained entitled to a contingency fee only on the $120,000 settlement with Canada and was otherwise obliged to return the balance of the $1.72 million it had held from the appeal damages to Aylmer, subject to whatever precise calculation followed from its limited fee entitlement on the Canada settlement. In addition, the court ordered that Aylmer Meat Packers Inc. and Richard Walter Clare, as the successful parties, receive $35,000 in all-inclusive costs of the appeal, on top of the underlying $3.52 million in damages and $1.1 million in costs and interest previously awarded in their favour, although the exact net total of monetary benefit to them cannot be determined from this decision alone because the precise contingency fee on the $120,000 settlement is not specified.