Echo Energy Canada Inc. v. Lenczner Slaght Royce Smith Griffin LLP et al., 2010 ONCA 709

• Judge: Rosenberg, Goudge and Feldman, JJ.A.
• Court: Court of Appeal (Ontario)
• Case Date: August 10, 2010
• Jurisdiction: Ontario
• Citations: 2010 ONCA 709;(2010), 269 O.A.C. 382 (CA)

Echo Energy v. Lenczner Slaght Royce (2010), 269 O.A.C. 382 (CA)

MLB headnote and full text

Temp. Cite: [2010] O.A.C. TBEd. OC.056

Echo Energy Canada Inc. (applicant/appellant) v. Lenczner Slaght Royce Smith Griffin LLP, McCarthy Tétrault LLP and Voorheis & Co. LLP (respondents/respondents in appeal)

(C51659; 2010 ONCA 709)

Indexed As: Echo Energy Canada Inc. v. Lenczner Slaght Royce Smith Griffin LLP et al.

Ontario Court of Appeal

Rosenberg, Goudge and Feldman, JJ.A.

October 27, 2010.

Summary:

A company and five of its directors retained the law firm of Lenczner Slaght Royce Smith Griffin LLP (Lenczners) to defend against oppression and securities litigation commenced by the Fuda group of shareholders. On the recommendation of Lenczners, the company retained the firm of Voorheis & Co. LLP (Voorheis) to assist with some aspects of the litigation. After the litigation had ended and the Fuda group had gained control of the company, the company sought to have the accounts of Lenczners and Voorheis, which totalled $840,000, assessed. It also sought to refer the accounts of McCarthy Tétrault (McCarthys), which totalled $144,000, for assessment. McCarthys had been retained by the former control group to act as the company's corporate lawyers because the previous corporate lawyers had a conflict of interest. As none of the accounts had been paid, the company had to establish special circumstances (Solicitors Act, s. 11).

The Ontario Superior Court, in a decision reported at [2010] O.T.C. Uned. 187, concluded that special circumstances did not exist and dismissed the application. The company appealed.

The Ontario Court of Appeal dismissed the appeal as it related to McCarthys. The court, Goudge, J.A., dissenting, allowed the appeal as it related to Lenczners and Voorheis and ordered that all of the accounts rendered by those firms be assessed.

Barristers and Solicitors - Topic 3249

Compensation - Taxation or assessment of accounts - Where client has paid bill - Section 11 of the Solicitors Act provided that "The payment of a bill does not preclude the court from referring it for assessment if the special circumstances of the case, in the opinion of the court, appear to require the assessment." - The Ontario Court of Appeal stated that "... The term 'special circumstances' is used in other parts of the Act but in the context of s. 11, those special circumstances relate to the underlying principle that payment of the account implies that the client accepted that the account was proper and reasonable ... Thus, special circumstances will tend to either undermine the presumption that the account was accepted as proper or show that the account was excessive or unwarranted ... The cases identify a number of circumstances in which the presumption may be rebutted. For example, clients cannot be expected to bring assessment applications while a solicitor is still representing them for fear of alienating the solicitor. Special circumstances may also exist if the client makes known its concerns within a reasonable time ... However, in the end, special circumstances is a fact-specific inquiry ... Any number of factors specific to the particular case can amount to special circumstances if they undermine the presumption. ..." - See paragraphs 30 to 33.

Barristers and Solicitors - Topic 3249

Compensation - Taxation or assessment of accounts - Where client has paid bill - After oppression and securities litigation had ended and a new group of shareholders had gained control of the company, the company applied to, inter alia, have the accounts of two law firms assessed - The law firms had been retained by the company's former control group to act on behalf of them and the company in the oppression and securities litigation - The accounts totalled $840,000 - The applications judge concluded that special circumstances did not exist as required by s. 11 of the Solicitors Act and dismissed the application - The company appealed - The Ontario Court of Appeal stated that special circumstance tended to either undermine the presumption that the account was accepted as proper or show that the account was excessive or unwarranted - The company relied upon both aspects - It asserted that the presumption was rebutted because the person approving the accounts had no real interest in reviewing them and ensuring that they were reasonable - It also asserted that on their face the accounts were excessive given that the company had no resources - The court rejected that assertion where the company adduced no evidence that the amount was grossly excessive given the nature and complexity of the litigation - However, the size of the account could be a factor to consider under the first leg of special circumstances - See paragraph 31.

Barristers and Solicitors - Topic 3249

Compensation - Taxation or assessment of accounts - Where client has paid bill - A company and five of its directors (including Conn and Moore) retained two law firms to defend against oppression and securities litigation commenced by the Fuda group of shareholders - After the litigation had ended and the Fuda group had gained control of the company, the company sought to have the accounts of the two law firms, which totalled $840,000, assessed - Because the accounts had been paid, the company had to establish special circumstances (Solicitors Act, s. 11) - The applications judge concluded that special circumstances did not exist and dismissed the application - The Ontario Court of Appeal allowed an appeal - The applications judge erred by looking at the case from the perspective of the lawyers rather than the client - He also failed to consider evidence rebutting the presumption that the company had accepted the accounts as proper and reasonable - The court noted that the judge who had dealt with some of the litigation had raised concerns respecting the transparency of a special committee that was overseeing the litigation on the company's behalf and the conduct and motives of Conn and Moore who were committee's members - Conn had also approved the accounts for payment - Those findings combined with the special committee's apparent failure to fulfill its functions went a long way towards establishing special circumstances - The applications judge had also stated that the fact the company waited eight months before raising the issue of the accounts spoke volumes about the genuineness of the application - That relatively brief delay equally spoke of care by new management in obtaining the necessary information and understanding the context before moving precipitously - It was of some significance that one of the law firms had not produced its retainer agreement until two days before the application was heard - The court listed other factors that pointed to this being a case of special circumstances - See paragraphs 30 to 49.

Barristers and Solicitors - Topic 3249

Compensation - Taxation or assessment of accounts - Where client has paid bill - A company and five of its directors retained two law firms to defend against oppression and securities litigation commenced by the Fuda group of shareholders - After the litigation had ended and the Fuda group had gained control of the company, the company sought to have the accounts assessed - Because the accounts had been paid, the company had to establish special circumstances (Solicitors Act, s. 11) - The applications judge concluded that special circumstances did not exist and dismissed the application - The Ontario Court of Appeal allowed an appeal - The applications judge erred by, inter alia, relying 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 - The court agreed that courts needed to be wary of cases where the application for a reference was nothing more than an attempt by the winning party to strike back at the losing party, rather than a genuine concern about the reasonableness of the accounts - However, it was quite another thing to say that companies would have difficulty retaining counsel - The court expressed similar concerns with the judge's observation that to grant the assessment would result in repetitious litigation - An assessment was carried out in accordance with well established principles - The exercise of the client's right to assessment would inevitably prolong the litigation, but that was no reason to deprive them of their rights where special circumstances were made out - See paragraphs 30 to 49.

Barristers and Solicitors - Topic 3249

Compensation - Taxation or assessment of accounts - Where client has paid bill - A company under the control of new management (including Fuda) applied to have a law firm's accounts assessed - The firm had been retained by the company's former control group to act as its corporate lawyers because the previous corporate lawyers had a conflict of interest - When the corporate secretary resigned, the firm also attended meetings to act as de facto secretary and to provide legal advice as requested - Because the accounts had been paid, the company had to establish special circumstances (Solicitors Act, s. 11) - The applications judge concluded that special circumstances did not exist and dismissed the application - The Ontario Court of Appeal affirmed the decision - The company had pointed to no circumstances that rebutted the presumption of propriety and reasonableness arising from the payment of the accounts - The company adduced no evidence to show that the amounts billed were excessive - The company paid the firm's last account, without complaint, after the change in management - The suggestion that there might have been some duplication of work with the litigation counsel was not supported by the record - While the firm did not produce its retainer until after the assessment application was launched, Fuda was involved in the process of retaining the firm - See paragraph 50.

Barristers and Solicitors - Topic 3257

Compensation - Taxation or assessment of accounts - Appeals - Section 11 of the Solicitors Act provided that "The payment of a bill does not preclude the court from referring it for assessment if the special circumstances of the case, in the opinion of the court, appear to require the assessment." - An applications judge concluded that special circumstances did not exist to refer paid accounts to an assessment - The applicant appealed - The Ontario Court of Appeal stated that "The section has been interpreted as giving the court a broad discretion to be exercised on a case-by-case basis. As such, this court will defer to the decision of the application judge absent an error in principle or a clearly unreasonable result ..." - See paragraphs 28 and 29.

Cases Noticed:

Plazavest Financial Corp. et al. v. National Bank of Canada et al. (2000), 133 O.A.C. 100; 47 O.R.(3d) 641 (C.A.), refd to. [para. 29].

Guillemette v. Doucet (2007), 230 O.A.C. 202; 88 O.R.(3d) 90 (C.A.), refd to. [paras. 29, 54].

Enterprise Rent-A-Car Co. v. Shapiro, Cohen, Andrews, Finlayson (1998), 107 O.A.C. 209; 38 O.R.(3d) 257 (C.A.), refd to. [paras. 30, 54].

Feldstein (Andrew) & Associates Professional Corp. v. Keramidopulos, [2007] O.T.C. Uned. K35 (Sup. Ct.), refd to. [para. 32].

Katana v. McComb Dockrill, [2007] O.T.C. Uned. H51 (Sup. Ct.), refd to. [para. 44].

Tripkovic v. Glober et al. (2003), 172 O.A.C. 116; 64 O.R.(3d) 481 (C.A.), refd to. [para. 44].

Katana v. McComb Dockrill (2008), 237 O.A.C. 220 (C.A.), refd to [para. 47].

Cohen v. Kealey & Blaney (1985), 10 O.A.C. 344; 26 C.P.C.(2d) 211 (C.A.), refd to. [para. 49].

Statutes Noticed:

Solicitors Act, R.S.O. 1990, c. S-15, sect. 11 [para. 28].

Counsel:

Patricia Virc, for the appellant;

Malcolm M. Mercer, for the respondent, McCarthy Tétrault LLP;

Benjamin Zarnett, for the respondents, Lenczner Slaght Royce Smith Griffin LLP and Voorheis & Co. LLP.

This appeal was heard on August 10, 2010, by Rosenberg, Goudge and Feldman, JJ.A., of the Ontario Court of Appeal. The decision of the court was released on October 27, 2010, with the following opinions:

Rosenberg, J.A. (Feldman, J.A., concurring) - see paragraphs 1 to 51;

Goudge, J.A., dissenting in part - see paragraphs 52 to 73.