Archive for the ‘assessments’ Category

Written Retainer Agreement Ousts Small Claim Court’s Jurisdiction

December 8, 2014

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If you’re an Ontario litigator and thought suing your client for fees in Small Claims Court based upon a written retainer agreement was an option, then take a read of Justice Nordheimer’s decision in Jane Conte Professional Corporation v. Josephine Smith, 2014 ONSC 6009 (CanLII), (Div.Ct.).

The case dealt with an appeal by the defendant client from the decision of Deputy Judge Prattas, dated April 29, 2014, dismissing her motion to dismiss her former counsel’s action for unpaid accounts.  The plaintiff lawyer commenced an action against the client defendant in the Small Claims Court seeking to recover payment of the sum of $26,051.59 pursuant to a contingency fee agreement relating to a personal injury action.  Nordheimer J. allowed the appeal, set aside the order of the Deputy Judge and dismissed the claim for want of jurisdiction and held, in part:

[16]      It will be seen from these sections that the Legislature has established a process by which the validity and enforceability of written fee agreements between lawyers and clients are to be handled.  There is nothing in any of these sections that gives any authority to the Small Claims Court to consider issues arising under a written fee agreement including a contingency fee agreement.  Indeed, as I have already mentioned, the Small Claims Court is expressly excluded from considering such matters.

[20] In my view, once a lawyer chooses to enter into a written agreement with his or her client “respecting the amount and manner of payment for the whole or a part of any past or future services in respect of business done or to be done by the solicitor” then the lawyer is bound by the procedures set out in ss. 20 to 32 of the Solicitors Act. In particular, if the lawyer wishes to enforce the agreement then he or she must, as set out in s. 23, bring an application for that purpose in the court “in which the business or any part of it was done or a judge thereof, or, if the business was not done in any court, by the Superior Court of Justice”. I repeat that s. 23 expressly excludes the Small Claims Court from this authority.

Nordheimer J. expressly rejected the former lawyer’s argument that the contingency fee agreement was a “hybrid” agreement, ousting it from judicial scrutiny under ss.20-32 of the Solicitors Act, R.S.O. 1990, c. S.15, stating:

[23]      Further, even if the respondent is correct that the Agreement in this case was both a contingency fee agreement and a regular fee agreement, depending on how events unfolded, that result would not take the Agreement outside the application of ss. 20 to 32 including the enforcement procedure set out in s. 23 since those provisions apply to all written fee agreements.

[24]      Consequently, I concluded that the Small Claims Court had no jurisdiction to consider a claim made by a lawyer based on a written fee agreement including a contingency fee agreement.  I would note, in passing, that this conclusion appears to be consistent with the general rule that questions involving the nature, validity or effect of a contingency fee agreement should be resolved by judges:  Cookish v. Paul Lee Associates Professional Corp.,[2013] O.J. No. 1947 (C.A.) at para. 39.

This decision may come as a big surprise to most who sue their clients for unpaid legal accounts in Small Claims Court.

It is puzzling that the Small Claims Court retains jurisdiction in actions between a lawyer and client for unpaid accounts where there is no written retainer agreement, but loses jurisdiction where there is a written retainer agreement. Of course, all contingency fee agreements must be in writing pursuant s. 28.1(4) of the Solicitors Act.

Incidentally, the Court of Appeal for Ontario previously held that where a written retainer agreement includes an  arbitration clause for fee disputes, it is enforceable, as long as the arbitrator applies the protections under the Solicitors Act: : see, Jean Estate v. Wires Jolley LLP, 2009 ONCA 339 (CanLII) (Ont. C.A.).

Second Chair Doesn’t Play Second Fiddle on Fees, Ontario Court of Appeal rules

February 1, 2011

The Court of Appeal for Ontario decision in Angela Assuras Professional Corporation v. Advocates LLP, 2011ONCA 84 provides two important lessons for trial lawyers: (1) playing second chair at trial doesn’t always mean playing second fiddle on fees; and (2) it’s hard to call all the shots when you’re sharing the barrister’s gown.

The appeal arose out of the retaining of the respondent by the appellant (who is herself a lawyer) to assist her at a trial. As the Court of Appeal laments: “It is a sorry story of neither ensuring a smooth working relationship. The question for this court is whether there is any basis to interfere with the decision appealed from.”

The Court of Appeal dismissed the appeal and held in part:

“[2]              The appellant argues that neither on assessment nor on appeal was there a proper appreciation of the subordinate role to be played by the respondent nor of the fact that it was to take place within a context of cost constraint.

[6]              The appellant also argues that too little attention was paid below to the fact that the respondent’s initial estimate of costs was some $50,000 and yet the accounts ultimately exceeded $150,000.

[7]              Again we disagree. The assessment officer was well aware of the initial estimate and of what transpired following. The appellant was told from time to time by the respondent of the cost of the work he was doing and that it was growing significantly beyond the original estimate. Yet she had him continue his work. Being a lawyer herself, she knew what was coming, and having received his previous bills, would have had some idea of what that would cost her. It is true that, for his part, the respondent should have provided her early on with a revised assessment of his ultimate costs. Clients should not be left without this information. However, in the circumstances of this case that failure cannot be said to have resulted in any real surprise to the appellant.

[8]              That leaves the question of whether, viewed overall, the accounts were unreasonable. This is an important element of an assessment that must go beyond a simple calculation depending on hours and rates. It requires a broad view of what was reasonably required of the lawyer given what was at stake. Here the assessment officer made such an assessment and found the accounts reasonable. Leitch J. found that this conclusion does not reflect an error in principle. There is no basis for this court to interfere with that conclusion.”

Going Commando: Special Circumstances and Solicitors Act Assessments

October 29, 2010

“Somewhere, somehow, someone’s going to pay.” (Commando)

“History is written by the victors.” – (Winston Churchill)

Corporate warfare may be bloodless, but it is no less ruthless; and sometimes, it is the litigators who end up as collateral damage, at least as far as their paid accounts are concerned.
The recent decision of the Court of Appeal for Ontario in Echo Energy Canada Inc. v. Lenczner Slaght Royce Smith Griffin LLP, 2010 ONCA 709 [“Echo Energy“] further clarifies the meaning of “special circumstances” under s. 11 of the Solicitors Act, R.S.O. 1990 c. S.15 and reinforces a “client-centred approach” for determining whether solicitors’ accounts that have already been paid may be referred for assessment.

The appellant, Echo Energy Canada Inc. and five of its directors retained the respondent Lenczner Slaght Royce Smith Griffin LLP in relation to certain litigation. The appellant retained Voorheis & Co. LLP on Lenczner’s recommendation to assist with some aspects of the litigation. Once some of the litigation was completed and another group took control of the appellant, the appellant sought to assess the Lenczners and Voorheis accounts. Both firms’ accounts totaled almost $840,000, and since they had all been approved by the former group’s President Gary Conn and paid, the appellant had to establish special circumstances.
Concurrently,  the appellant sought to refer the paid accounts of McCarthy Tétrault LLP for assessment. McCarthys had been retained by the former control group as the appellant’s corporate lawyers  arising from a conflict of interest with the appellant’s former law firm. McCarthys accounts of $144,000 represented its work over a one year period. All but one of these accounts were paid prior to the change in control.
The application judge, Brown J., found there were no special circumstances with respect to any of the accounts and declined to direct the references.In a split decision, (Goudge, J.A. dissenting) Rosenberg, J.A. (Feldman J.A. concurring) allowed the appeal in relation to Lenczners and Voorheis, but dismissed the appeal with respect to McCarthys.
Echo Energy Canada Inc. [“Echo”] is a natural gas operator in Ontario.  In 2007, one of the directors and a substantial shareholder, Salvatore Fuda, surmised that public disclosure of the appellant’s gas reserves was inaccurate.  In November 2007, Echo received a request from Fuda’s company, Challenge Gas Holding AB to appoint an independent consulting engineer to review the appellant’s gas reserves and to appoint an additional director.  When no response was forthcoming, Fuda called a meeting of the appellant’s Board of Directors during which time his proposals were rejected.  At this same meeting, the Board authorized a private placement of shares that potentially would dilute the Fuda group’s shareholder stake.  The next day, the Fuda group called a special shareholders’ meeting for the purpose of voting two of its nominees onto the Board. 
The intra-corporate battle ultimately came before Morawetz J., who dismissed the application for a declaration that the acquisition by Challenge of the appellant’s shares was in violation of the Securities Act, R.S.O. 1990, c. S.5. The net result was a change in control of the Board and installation of new management led by the Fuda group.  The appellant thereafter commenced litigation against some of its former officers and directors for breach of fiduciary duty based upon an independent reserves engineering firm report that found significant declines in the appellant’s gas reserves, causing it to take a write-down on its gas reserves from $44M to $11.8M.
The application judge, Brown, J. dismissed the application to refer all of the accounts for assessment., rejecting the argument that the firms should have known that the five directors were not acting in the best interest of the company as without merit. Rosenberg, J.A. rejected the “lawyer-centred” approach taken by the application judge:
[33]          In my view, the motions judge erred in principle in several respects.  He looked at the case from the perspective of the lawyers rather than the client.  He failed to take into consideration evidence rebutting the presumption that the client accepted the account as proper and reasonable.  And, he relied on a speculative theory that lawyers would not undertake this kind of work if they knew their accounts might be assessed when new management came in.

[36]          In my view, the starting point was not the perspective of the lawyers.  Section 11 of the Solicitors Act attempts to strike a balance between a solicitor’s legitimate interest in finality and the client’s interest in access to an independent process for review of accounts for legal services.  However, the starting point ought to be the perspective of the client.  

[37]          The application judge’s error in taking a law firm focused approach led him to conclude that the manner in which the accounts were approved did not constitute special circumstances.  By taking this approach, he failed to consider the evidence showing that the appellant was not well served by those within the company tasked with making the decisions about the conduct of the litigation, including payment of the accounts.

[40]          Furthermore, the reasons of Morawetz J. disclose troubling conduct and motives of Mr. Conn and Mr. Moore.  Mr. Conn and Mr. Moore were members of the special committee that was supposed to be overseeing the litigation and Mr. Conn approved the lawyers’ accounts for payment.  Morawetz J. found that many of the witnesses on both sides of litigation were not credible in important respects.  But, he made a finding against Mr. Conn that raises the spectre that he may not have been acting in the best interests of the corporation.  Morawetz J. was troubled that the issue of the propriety of the Challenge share transaction was raised for the first time three years after the fact, when the result could be that Mr. Conn and the other directors would be ousted from the company.

The learned justice concludes:

[42]          In my view, these findings, coupled with the apparent failure of the special committee to fulfill its function in supervising the litigation in a transparent way, go a long way towards establishing special circumstances.  Those facts tend to rebut the presumption that the appellant accepted the accounts as proper and reasonable.  It cannot be forgotten that it was the appellant, a public company, that was paying the bills, not the directors.


[45]          There are other factors that, in my view, point towards this being a case of special circumstances.  I would summarize them as follows:

·        The Lenczners written retainer referred only to action brought by Challenge, not to any of the other litigation;
·        The written retainer is signed by Mr. Conn on behalf of the appellant, there is no written retainer on behalf of the five directors;
·        There was no written retainer with Voorheis;
·        The appellant had total revenue of $2.8 million in 2008, recorded expenses of over $5 million, yet spent almost $840,000 on litigation during that period;

·        The relatively short time that elapsed before the application was brought.

[46]          Taking into consideration all of these factors, the appellant made out a case of special circumstances with respect to the accounts from Lenczners and Voorheis.
Conversely, McCarthys’ accounts were not subject to “special circumstances”:

[50]          I take a different view of the application to assess McCarthys’ accounts.  The appellant has pointed to no circumstances that would rebut the presumption of propriety and reasonableness arising from the payment of the accounts.  The findings by Morawetz J. and the lack of transparency within the special committee do not affect the accounts rendered by McCarthys in its role as corporate counsel and de facto secretary to the Board.  The appellant adduced no evidence to show that the amounts billed were excessive.  The appellant paid McCarthys’ last account, without complaint, after the change in management.  The suggestion that there may have been some duplication of work with the litigation counsel is not supported by anything in the record.  While McCarthys too did not produce its retainer until after the application was launched, Mr. Fuda was part of the process retaining McCarthys.

Interestingly, Goudge, his dissent takes a more pragmatic (if not arguably, Machiavellian) view of the Conn and Moore’s motives and actions in the best interests of the corporation, when he wryly observes:

[66]          … it is important to underline that the presumption that the appellant must rebut is that when it paid the accounts, that is presumed to reflect its acceptance of the reasonableness of those accounts. It is the appellant’s acceptance at the time of payment that matters. There is no doubt that, at that time, the appellant considered it in its best interest to resist the attempted at takeover by the Fuda group by vigorously defending the litigation brought by that group and by commencing the proceeding before Morawetz J.  The Conn directors, including Mr. Conn, shared the same interest. I do not think anything said by Morawetz J. can be taken to suggest that Mr. Conn and Mr. Moore may not have had the company’s best interest in mind when the accounts were approved.  They shared that interest.

The Court of Appeal’s client-centred approach is laudable. It is the cornerstone of ethical lawyering.  I agree that lawyers are professionally bound to put their clients’ interests before their own. My only question is: how many other professions permit a client to obtain a refund after having reviewed and then paid an account? I am inclined to side with Justice Goudge that there may be a chilling effect if highly sophisticated business clients are able to assess accounts simply as a result of a change in control. In my view, litigators can no longer “go commando” with boiler-plate retainer agreements. Litigators must now seriously consider including change of control clauses in retainer agreements to protect against retaliatory assessments, or include arbitration clauses to balance the scales. The only alternative it seems, is to have an extra pair of underwear handy.

New Limitation Period for Assessing Lawyers’ Accounts in Ontario

August 11, 2009
The recently released Ontario decision in Christian v. William Shanks/Cheadle LLP, 2009 CanLII 40559 (ON S.C.) demonstrates the continuing confusion over the applicable limitation period for assessing a lawyer’s accounts in Ontario.

The facts in Christian v. Shanks/Cheadles LLP are straightforward. In the Fall of 2005, the applicant (Christian) retained the respondent (Shanks) to act on her behalf in divorce proceedings and signed a retainer agreement on September 12, 2005. Pursuant to the terms of the retainer agreement, detailed interim billings were sent to Christian in 2006 and 2008. In May of 2008, a Trial Management Conference was held, but due to incomplete information, trial scheduling was delayed. During this time, the applicant claimed she discussed her outstanding account of $31,661.50 with her solicitor and instructed that she was terminating the retainer and wished to have her file transferred to new counsel for completion. Further discussions resulted in a reduction of the account to $27,000, which was paid in full on October 14, 2008, upon which the respondent lawyer released the client’s file. The applicant continued to complain about the amount charged and subsequently she attended before the Registrar of the Supreme Court in Thunder Bay and obtained a date for assessment of the bill. In February 2009, she further attended the court and obtained the Order for the Assessment from the Registrar. Subsequently, the applicant retained new counsel, who thereafter commenced an application for assessment on April 22, 2009.

The respondent lawyer then brought a Motion to Quash a Registrar’s Order for an assessment of a solicitor’s bill under section 3 of The Solicitors Act. Surprisingly, the application judge quashed the application for assessment, stating:

“[2] Regarding the Motion to Quash, the parties are in agreement that the bill (the last interim billing) was delivered August 29, 2008 which covered work from September 2, 2005 to August 29, 2008. However the Order for Assessment obtained from the Registrar was dated February 11, 2009, months beyond the one month time limit under Section 3 of the Act. Consequently, it should be quashed, and it is so ordered.”
Despite the misapplication of the former limitation period under s.3(b) of the Solicitors Act, the application judge found special circumstances warranting an assessment, stating in part:

“[9] In coming to my decision, I would first say that I can see very little wrong with the Respondent’s Retainer. Many of the complaints about the fees, or the people being charged for, and their rates etc. could easily have been found out by a phone call after receiving one of the interim accounts.

[10] I am, however, quite concerned that a large proportion of the work done and billed for was not done by the solicitor but by law office staff. This leads me to wonder whether the account should be assessed so the solicitor can explain why such a large proportion of staff work was required in a case where the solicitor had little involvement.

[11] I am also of the view that the Applicant notified the Respondent promptly about her concerns, and he cannot be surprised when she moved to have the bill assessed. I also agree that under the circumstances of the situation, payment of the bill cannot be interpreted to be acceptance of it.”

Although the learned judge correctly applied the test for “special circumstances” and the result is undoubtedly correct, it is submitted that the judicial exercise was unnecessary, insofar as the former limitation periods (one month under s.3(b) and one year under s.4) of the Ontario Solicitors Act are effectively repealed and all assessments of lawyers’ interim and/or final accounts rendered on or after January 1, 2004 are now subject to the general two-year limitation period under s.4 of the Limitations Act, 2002 and beyond, if special circumstances are proven.

Antonin I. Pribetic

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