Client focus, not lawyer focus, in determining "special circumstances"

Echo Energy Canada Inc. v. Lenczner Slaght Royce Smith Griffin LLP, 2010 ONCA 709 was released online today.

The decision makes clear the finding of "special circumstances" for an extension of time to assess an account is made from the client's perspective.

The Court holds:

[28] Section 11 of the Solicitors Act provides as follows:

11. 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. [Emphasis added.]

[29] 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: Plazavest Financial Corp. v. National Bank of Canada (2000), 47 O.R. (3d) 641 (C.A.), at para. 33; Guillemette v. Doucet (2007), 88 O.R. (3d) 90 (C.A.), at para. 4.

The Lenczners and Voorheis Accounts

[30] As indicated, under s. 11 of the Solicitors Act a client may obtain an order referring its lawyers' paid accounts for assessment only where it demonstrates "special circumstances". 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: see Enterprise Rent-a-Car Co. v. Shapiro, Cohen, Andrews, Finlayson (1998), 38 O.R. (3d) 257 (C.A.).

[31] 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 appellant relies upon both aspects. It submits that the presumption was rebutted in this case because the person approving the accounts had no real interest in reviewing them and ensuring that they were reasonable. It also submits that on their face the accounts are excessive given that a company with limited resources spent almost $840,000 in litigation. I can deal with this latter submission summarily. The appellant adduced no evidence that this amount was grossly excessive given the nature and complexity of the litigation. That said, it seems to me that the size of the accounts can be a factor to consider under the first leg of special circumstances.

[32] 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: see Enterprise Rent-a-Car at p. 265. However, in the end, special circumstances is a fact-specific inquiry: Guillemette v. Doucet at para. 4. Any number of factors specific to the particular case can amount to special circumstances if they undermine the presumption. See, for example, the reasons of Murray J. in Andrew Feldstein & Associates Professional Corp. v. Keramidopulos, [2007] O.J. No. 3683 (Sup. Ct. J.), at para. 67.

[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.

[34] The application judge's lawyer-focused, rather than client-focused approach is found in two key passages. In the first passage, the application judge considered what he termed the "all-important" context for considering the appellant's assertion that the directors were indifferent to how the appellant's money was spent. Thus the application judge found as follows:

I cannot see any evidence in the record before me that the company's litigation counsel did anything other than what one would expect from counsel -- "fearlessly to raise every issue, advance every argument, and ask every question, however distasteful, which he thinks will help his client's case" and to endeavour "to obtain for his client the benefit of any and every remedy and defence which is authorized by law": Commentary to Rule 4.01(1) of the Rules of Professional Conduct of the Law Society of Upper Canada. Litigation counsel did so on the understanding that Echo Energy had agreed to pay for them to represent both the company and the Five Directors in the litigation. They performed legal services and rendered periodic accounts, which were paid by the company in the ordinary course without complaint. [Emphasis added.]

[35] In the second passage, the application judge deals directly with the assertion that former management never really reviewed the accounts. He held as follows:

The starting point for considering this submission must be the perspective of the law firms. Each of the three firms filed evidence that they understood their submitted accounts had been reviewed, approved and paid in the ordinary course; they had no reason to understand otherwise. There is no evidence that the law firms exerted any pressure on Echo Energy to pay their accounts, or that Echo Energy paid the accounts by mistake. The evidence all points to the law firms operating on the reasonable premise that by paying their bills Echo Energy was satisfied that the services rendered were appropriate to the retainers. [Emphasis added.]

[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. As Murray J. said in Andrew Feldstein & Associates Professional Corp. v. Keramidopulos, at para. 63:

At a time when access to justice is such an important issue, and when lawyers' fees are getting so far out of reach for many ordinary people, it is crucial that an individual's right to a fair procedure for assessment of lawyers' fees exists. As Justice Sharpe said in Price v. Sonsini, [Price v. Sonsini (2002), 60 O.R. (3d) 257 (C.A.)] public confidence in the administration of justice requires the court to intervene where necessary to protect the client's right to a fair procedure for assessment of a solicitor's bill. His admonition that solicitors should facilitate the assessment process when a client objects to a solicitor's account rather than frustrating the process is more than just a guideline for law firms. It is essential. Clients must be able to assess their lawyers' accounts or they will be or will perceive themselves to be powerless in the face of unfair billing practices. There can be little doubt that if the courts permit lawyers to avoid scrutiny of accounts in appropriate cases, the administration of justice will be brought into disrepute.

[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.