COURT OF APPEAL FOR ONTARIO
Weiler, Simmons and Rouleau JJ.A.
BETWEEN
Michael Paoletti, Guiseppe Trapani, Issam Mroue, Francesco Donato and John Russo
Applicants (Respondents in Appeal)
and
D. Kenneth Gibson, Gibson & Associates LLP, and Gibson & MacLaren LLP
Respondents/Solicitors (Appellants)
John Parr Telfer, for the appellants
John J. Cardill, for the respondents
Heard: September 3, 2008
On appeal from the order of Justice T. Ray of the Superior Court of Justice, dated April 8, 2008.
OVERVIEW
1The appellants (the "Solicitors") provided legal services to the respondents (the "Clients") regarding a condominium development project, for which the Solicitors billed the Clients a total of $451,044.94. Following an assessment of the Solicitors' accounts pursuant to s. 3 of the Solicitors Act, R.S.O. 1990, c. S.15, the total bill was reduced to $179,250.43. The Solicitors' motion to the Superior Court seeking an order that the report and certificate of the assessment officer not be confirmed was dismissed. The Solicitors now appeal to this court from the order of the motion judge.
2The central issue on appeal is the correct interpretation of s. 3 of the Solicitors Act and, more specifically, what is meant by the phrase "where the retainer of the solicitor is not disputed" in s. 3. Pursuant to this provision, the assessment officer has jurisdiction to conduct an assessment only "where the retainer of the solicitor is not in dispute".
3The Solicitors submit that the essential terms of the retainer were in dispute and, accordingly, that the assessment officer erred in conducting the assessment, contrary to s. 3 of the Solicitors Act. The Solicitors further submit that the assessment officer improperly relied on the evidence and report of an expert in condominium law to assist him in determining the terms of the retainer.
4For the reasons that follow, with the exception of the assessment officer's treatment of the construction lien matters, I would dismiss the appeal.
FACTS
5The Clients purchased a property in the City of Ottawa in August, 2001. In January, 2002, with financing provided by Peoples Trust Company ("Peoples Trust"), the Clients commenced construction of an apartment complex. Shortly after the construction began, the Clients thought that they could realize a greater and more immediate profit by converting the building from apartments to condominiums.
6The Clients were referred to the Solicitors, D. Kenneth Gibson and his firm, Gibson & Associates LLP, who had experience with condominiums, for advice on this new venture. On April 29, 2002, the Clients met with the Solicitors. The following day, on April 30, the Solicitors forwarded a retainer letter for the Clients' approval (the "retainer letter"). The relevant portions of the retainer letter are as follows:
Re: 257 Cumberland Condominium Corp; Conversion, Qualified Title to Absolute Title
We wish to inform you that you have retained our firm regarding the above noted matter for which you wish us to represent you. This letter sets out the terms and conditions of our retainer as legal counsel for you.
Subject to the qualifications set out below, we estimate that our fees in this matter will be approximately $50,000. All disbursements and taxes will be in addition to fees.
LEGAL SERVICES
Our services will includes; preparing and submitting an application for absolute title to allow the property to qualify for condominium registration; preparation and supply of a specific condominium project agreement of purchase and sale; preparation and submission of application for project registration under the Ontario New Home Warranty Program. As well we will prepare all documentation necessary to submit an application for and complete creation of a new Condominium Corporation to own the property at 257 Cumberland Street, Ottawa, Ontario under the provisions of the "New" Condominium Act of Ontario.
COSTS
We have provided you, in the paragraph above, an approximate estimate of legal fees. Should any matter arise on your file which requires special attention, our fee will vary according to the amount of time required to attend to these matters. My fees are $325.00 per hour. I may be assisted by other lawyers, our student or paralegals from time to time
Jack McNab of McNab & Baldwin will provide Counsel at a rate of $250.00 per hour.
Should any complex matters arise in this matter, your legal fees and disbursements in this matter will be determined based on the amount of work and its complexity
I cannot predict with certainty how much time will be required as I have a limited amount of control in this area. The other parties may not cooperate or may engage us in excessive correspondence and negotiations. However, as the matter proceeds, I will be in a better position to tell you what you may expect as far as your legal fees are concerned.
7Pursuant to the retainer letter, the Solicitors were retained by the Clients to carry out the legal work involved with the project.
8As soon as Peoples Trust became aware of the project's change to a condominium conversion, it withdrew its financing on the grounds that this change violated the terms of its agreement with the Clients and that construction of a condominium project was more complex and subject to greater regulation than construction of an apartment building.
9Due largely to the withdrawal of financing by Peoples Trust and to the decision to change the project to a condominium conversion, a myriad of difficulties arose, which included, among others, difficulties in securing new lenders, cash flow problems, changes in the project architect and engineer, as well as amendments to the physical height and layout of the building. These problems, in turn, resulted in a significant increase in the amount of legal work required to complete the project. To further complicate matters, the Clients were unable to sell any of the condominium units in 2002 due to inactivity in the condominium market in that year. Further, numerous liens were registered on the property and the Clients experienced difficulties in satisfying the prerequisite to the sale of condominium units, enrolment in what was then known as the Ontario New Home Warranty Program ("ONHWP"), now referred to as Tarion. Considerable involvement by the Solicitors was ultimately required to remove the liens and salvage the project. In 2003, however, when the condominium market improved, units started to sell and, by July, 2003, the condominium was finally registered with the ONHWP. By the end of the summer, most of the units had been sold.
10On October 3, 2003, the Clients removed their files from the Solicitors' office and the Solicitors rendered their final bill which, together with the interim bills previously rendered, totaled $451,044.94.
11On October 24, 2003, the Clients obtained a Praecipe Order for an assessment of the Solicitors' accounts. In March, 2006, the Solicitors brought a motion to challenge the Praecipe Order but, for reasons that were not explained, they never proceeded with the motion.
12The assessment hearing was finally commenced on January 22, 2007, and lasted seven days.
13At the opening of the assessment hearing, the Solicitors raised the objection that most of the accounts complained of by the Clients were older that one month and, in accordance with s. 3(b) of the Solicitors Act, the clients should have obtained a judge's order for assessment, rather than a Praecipe Order.
14The assessment officer ruled that, in the absence of a judge's order varying or setting aside the Praecipe Order, he had no choice but to comply with the terms of the Praecipe Order. As no request for an adjournment was then made by the Solicitors at the time to bring the motion before a judge, the assessment officer proceeded with the assessment.
15Experts' reports were filed by both parties: the Clients filed a report by Deborah Bellinger, a recognized expert in condominium and construction law; and, the Solicitors filed a report by Philip Rimer, a lawyer with experience in the financing, acquisition, and restructuring of condominium projects and other real estate assets. In her report, Bellinger outlined the typical or conventional legal services provided by a lawyer in the development of a condominium project and opined that $50,000 was a reasonable estimate of the fees generally charged for those services. Rimer, on the other hand, who acknowledged that he was not an expert in condominium law, opined that the Clients' condominium project involved a significant number of unforeseen events and, accordingly, legal services, which were not typical or conventional. Increased legal fees where therefore justified.
16At the assessment hearing, the Solicitors took the position that the $50,000 fee estimate set out in the retainer letter covered only the basic legal services in respect of the condominium conversion. In their view, most of the work they performed went beyond what was contemplated in the $50,000 estimate and was therefore properly characterized as additional fees and billed at the hourly rates set out in the retainer letter. The Clients, on the other hand, argued that the $50,000 estimate contemplated most of the work performed by the Solicitors, and only a minimal amount of the completed work fell outside of the scope of this amount.
17The assessment officer relied on Bellinger's report in concluding that much of the work billed by the Solicitors as additional fees actually fell within the scope of the $50,000 estimated fee set out in the retainer letter. Accordingly, the assessment officer reduced the total bill to $179,250.43.
18The Solicitors brought a motion in the Superior Court opposing confirmation of the assessment officer's report and certificate, based on two main grounds: first, that the Praecipe Order was invalid and the assessment officer exceeded his jurisdiction under s. 3 of the Solicitors Act by conducting an assessment when the retainer was in dispute; and, second, that the assessment officer committed an error in principle by relying on Bellinger's expert report to disallow certain of the Solicitors' costs.
19In dismissing the Solicitors' motion, the motion judge held that the Solicitors were estopped from raising the validity of the Praecipe Order at such a late stage. The motion judge noted that the Solicitors failed to explain not only why they did not raise the issue previously, but also why they had not proceeded with their earlier motion. Accordingly, the motion judge held that reviewing the Praecipe Order and its validity at such a late stage would be patently unfair and would amount to an abuse of process.
20With respect to the jurisdiction of the assessment officer, the motion judge held that the retainer was not in dispute, as the Solicitors' authority to perform the work described in the invoices was never disputed. That, according to the motion judge, was "the nub of the retainer. The assessment officer was properly evaluating the value of the services in the context of the budget letter." The motion judge therefore dismissed the Solicitors' motion and, in so doing, confirmed the assessment officer's report and certificate.
21The Solicitors appeal to this court from the order of the motion judge and request that the motion judge's order be set aside and that an order be granted that the assessment officer's report and certificate not be confirmed.
ISSUES
22On appeal, the Solicitors argue that the motion judge erred in failing to find that the assessment officer exceeded his jurisdiction in the following ways:
a) by conducting the assessment of interim accounts dated more than one month before the requisition for an assessment was made;
b) by conducting the assessment when the retainer and the terms thereof were in dispute; and
c) by relying on the evidence of Bellinger to determine the terms of the retainer.
DISCUSSION
(a) Did the assessment officer exceed his jurisdiction in conducting an assessment of the interim accounts rendered to the Clients?
23The Solicitors argued that the assessment officer exceeded his jurisdiction in conducting the assessment of bills delivered more than one month prior to the date that the Clients requisitioned the assessment, contrary to s. 3(b) of the Solicitors Act. However, the Solicitors advised in oral submissions that they would not be pressing this ground of appeal.
24In my view, this ground of appeal is without merit. The bills assessed by the assessment officer consisted of a series of interim accounts delivered to the Clients which culminated in a final account dated less than one month prior to the date of the requisition. Consequently, all of the interim accounts can properly be characterized as part of one continuing matter related to the condominium conversion project. The Solicitors neglected to pursue their motion for the determination of this issue before a judge prior to the assessment. As a result, the assessment officer had no option but to assess all of the bills rendered. In any event, as set out by this court in Price v. Sonsini (2002), 2002 CanLII 41996 (ON CA), 60 O.R. (3d) 257 (C.A.), interim bills can be assessed as part of the assessment of the final account. In Price, at para. 16, Sharpe J.A. highlighted the underlying policy of this rule, where he stated as follows:
A rule that required clients to move for immediate assessment of interim accounts would force clients into the invidious position of straining, if not rupturing, the solicitor-client relationship before the retainer has ended. Clients should not be forced to choose between harming the solicitor-client relationship and foregoing the right to have an interim account assessed. Rather, under s. 3, clients should be entitled to move for an assessment of an interim account within one month of delivery of the final account.
(b) Were the retainer and the essential terms thereof in dispute?
25The central issue in the appeal is whether the motion judge erred in failing to find that the assessment officer exceeded his jurisdiction in conducting the assessment when the retainer and the essential terms thereof were in dispute.
26The Solicitors Act establishes the authority of an assessment officer to conduct assessments of solicitors' accounts. Assessments are intended to provide a speedy and inexpensive process for settling solicitors' accounts outside the realm of ordinary litigation: see Re Whiteacre v. McGregor (1980), 19 C.P.C. 279 (Ont. Div. Ct.), at p. 281. Section 3 of the Solicitors Act reads as follows:
Where the retainer of the solicitor is not disputed and there are no special circumstances, an order may be obtained on requisition from a local registrar of the Superior Court of Justice,
a) by the client, for the delivery and assessment of the solicitor's bill;
b) by the client, for the assessment of a bill already delivered, within one month from its delivery;
c) by the solicitor, for the assessment of a bill already delivered, at any time after the expiration of one month from its delivery, if no order for its assessment has previously been made. [Emphasis added.]
27Pursuant to s. 3, the assessment officer has jurisdiction only "where the retainer of the solicitor is not disputed". Therefore, the absence of a dispute as to the retainer is a condition precedent to the registrar's authority to issue an order for assessment on requisition pursuant to s. 3. Accordingly, once it appears that the retainer is disputed, the assessment officer cannot proceed with the assessment and the matter must proceed before a judge by way of an action or application.
28The retainer is disputed not only where there is an issue as to whether a retainer actually exists, but also where the terms or extent of a retainer that is acknowledged to exist are disputed. There are, however, two qualifications to these general principles.
29First, only a legitimate dispute regarding the retainer or the terms thereof will oust the jurisdiction of the assessment officer. As explained by Molloy J. in Park v. Perrier (2005), 2005 CanLII 25637 (ON SCDC), 200 O.A.C. 377 (Div. Ct.), at para 66:
The client cannot avoid the assessment procedure by a bare allegation of a disputed retainer. The dispute must be a legitimate one, and an assessment officer is empowered to make a limited inquiry to determine if that test is met.
30Second, if the dispute is solely with respect to quantum, the assessment officer retains jurisdiction to proceed with the assessment. In fact, determining the appropriate fee to be charged for the work performed by the solicitor is precisely the task with which the assessment officer is charged under the Solicitors Act.
31In the present case, the dispute between the parties is, in my view, strictly one of quantum and, accordingly, there is no legitimate dispute as to the retainer within the meaning of s. 3 of the Solicitors Act. The retainer and the terms thereof are articulated in the retainer letter, which clearly provides for a $50,000 fee to perform the legal work required to complete the condominium project. According to the retainer letter, that fee included the following services:
Land titles application – application for first registration/absolute title;
Preparation and supply of agreement of purchase and sale;
Enrolment application under the ONHWP; and
Completion of all documents necessary to submit an application for and complete the creation of a new condominium corporation at 257 Cumberland Street under the Condominium Act.
32The retainer letter provides that any additional work would be charged at the Solicitors' regular hourly rates.
33It was clear from the evidence tendered at the assessment hearing that both the Solicitors and the Clients understood that:
a) all of the work performed by the solicitors was contemplated by and was to be billed pursuant to the retainer letter;
b) the fee of $50,000 covered the legal work involved in the condominium conversion as outlined in the retainer letter; and
c) other necessary work would be billed at the Solicitors' regular hourly rate.
34The essence of the dispute in this case was the determination of what portion of the work performed by the Solicitors was contemplated by the $50,000 quoted. In accordance with the retainer letter, the balance of the work performed was properly billed at the Solicitors' hourly rates, although the assessment officer was still entitled to assess this portion of the bill. In other words, the dispute did not relate to the existence or terms of the retainer but, instead, focused on the proper allocation of the hours worked as between the $50,000 fixed fee portion and the hourly rate portion of the retainer, as well as the appropriateness of the work and amount charged within each category. Therefore, in my view, the retainer was not in dispute within the meaning of s. 3 of the Solicitors Act.
(c) Did the assessment officer improperly rely on the expert evidence of Bellinger?
35The Solicitors further argue that the assessment officer improperly relied on the evidence of Bellinger in two ways. First, they submit that Bellinger's evidence should not have been used by the assessment officer to determine the essential terms of the retainer. Second, they submit that the assessment officer wrongly concluded that the Solicitors should have advised the clients to abandon the condominium conversion when, in fact, no evidence was led that the Clients sought or received advice in this regard from the Solicitors. I disagree with these submissions.
i) The terms of the retainer
36As set out above, I have concluded that the terms of the retainer were clearly articulated in the April 30, 2002 retainer letter and that the disagreement between the parties was strictly in respect of the proper characterization and apportionment of the work performed. Whereas the Solicitors viewed the vast majority of the time docketed as additional work outside the scope of the $50,000 quoted, the Clients believed that most of the time spent was either included in the $50,000 fee or, alternatively, was excessive and of little value. Unfortunately, the accounts provided by the Solicitors were of limited assistance to the assessment officer, as they did not allocate the work between the two categories. Instead, the Solicitors simply billed all of the work at their regular hourly rates, despite the provision in the retainer letter which outlined the services that were included in the set amount of $50,000.
37Bellinger's report was tendered by the Clients to assist the assessment officer in allocating the work billed by the Solicitors between the two categories. Based on her comprehensive review of the work performed and billed by the Solicitors and the terms of the retainer letter itself, as well as on her experience and expertise in condominium law, Bellinger concluded as follows:
[T]he excess in actual costs over budget appear to relate to insufficient experience on the part of Mr. Gibson and his colleagues to anticipate all of the work that [was] involved in the project and an inability to complete the work in an efficient and cost effective manner. Very little of the work undertaken on the project can be attributed to the actions of the client or other professionals or to unforeseen circumstances or complexities beyond Mr. Gibson's control.
38In other words, Bellinger concluded that the $50,000 budgeted fee contemplated all of the legal work that should have been anticipated by the Solicitors given the state of the project at the time the fee was quoted. The assessment officer agreed with Bellinger's conclusion and found as a fact that, at the time the retainer was drafted and the budgeted fee was provided or, very shortly thereafter, the Solicitors knew or should have known of most of the problems the Clients would encounter in completing the conversion project. In my view, the assessment officer properly relied on Bellinger's report to assist him in his determination of the proper quantum and not, as the Solicitors suggest, to guide him in ascertaining the essential terms of the retainer. As I have already explained, the terms of the retainer were never in dispute; the dispute was solely with respect to the characterization and apportionment of the services provided by the Solicitors pursuant to that retainer.
ii) Based on Bellinger's evidence, did the assessment officer erroneously conclude that the Solicitors should have advised the Clients to abandon the condominium conversion?
39After agreeing with Bellinger's conclusion, the assessment officer states that "the solicitor did not perform adequate due diligence at the outset and failed to advise his clients as to the perils of proceeding with a conversion from rental to condominium units." The Solicitors submit that this finding is an error, as it wrongly assumes that the Solicitors had been retained to advise the Clients as to whether or not they should proceed with the conversion. The Solicitors submit that this error resulted from the assessment officer's misinterpretation of Bellinger's report, namely, his earlier incorrect reference to Bellinger having established "that the [Solicitors were] initially consulted about the feasibility of converting from rental to condominium."
40I would not give effect to this submission. Although the assessment officer's reference to the Solicitors having been consulted about the feasibility of the conversion was in error, in my view, it was not central to the assessment officer's decision. Rather, the decision was based on Bellinger's conclusion that the excess costs resulted from the Solicitors' "insufficient experience", their failure to "anticipate all of the work involved in the project", and their "inability to complete the work in an efficient and cost effective manner". It was not based on whether the Solicitors had initially been consulted as to the feasibility of the conversion.
41When the assessment officer refers to the Solicitors' failure both to "perform adequate due diligence at the outset" and to advise "as to the perils of proceeding with a conversion from rental to condominium units", he is simply indicating that the Clients expected, quite properly, that the $50,000 fee covered all the services needed to complete the project as viewed by an experienced condominium solicitor at that time. Further, the Solicitors never informed the Clients that they had underestimated the fee and that the costs were, in fact, spiraling out of control, nor did they attempt to reconcile the interim accounts rendered to the Clients with the $50,000 budgeted fee. The Solicitors, therefore, cannot now complain that they underestimated the fee; this mistake was the result of their own inexperience and/or lack of due diligence.
d) Assessment of the Solicitors' work to resolve the construction liens
42I have some concern about the assessment officer's treatment of several of the accounts that relate to the Solicitors' work to resolve construction liens. These accounts, numbers 4303, 4442, 4488, and 4712, which total approximately $47,000, were disallowed entirely by the assessment officer because, in his view, they resulted from the Solicitors' lack of due diligence at the outset of the retainer. The record, however, does not support this finding. Specifically, Bellinger's report included the construction lien issues among those issues that could not reasonably have been anticipated by the Solicitors at the time the retainer letter was drafted and, accordingly, suggested that the time spent dealing with these issues should "be billed at regular hourly rates unless there were specific discussions with the client or other circumstances that might suggest that the work was anticipated when the estimate was prepared" (emphasis in original). Neither the assessment officer nor the parties referred to any evidence to show that there was any discussion or that there were other circumstances at the time the retainer letter was drafted to suggest that the Solicitors anticipated or should have anticipated the lien issues. Therefore, there is no basis for the assessment officer's finding that, with due diligence, the lien issues would have been anticipated by the Solicitors and thus included in the $50,000 fee. Accordingly, these accounts should not have been fully disallowed.
43In light of the delays already endured in this matter, in my view, it is in the best interests of both parties that this court set the proper amount for these accounts, rather than returning the matter to the assessment officer. The amount allowed, however, should be somewhat less than the full amount being claimed by the Solicitors for these accounts because, as Bellinger observed, the charges recorded by the Solicitors included "significant time recorded for administrative or secretarial tasks, that form part of the costs of doing business but are not typically passed on to the client". I would therefore allow $44,000 for the lien work.
CONCLUSION
44For these reasons, I would allow the appeal in part and increase the amount of the assessed accounts by $44,000 to $223,250.43. Accordingly, I would reduce the amount due to the Clients by $44,000 to $258,596.21. Given the relatively small change in the assessment figures, I would make no change to the cost award below. Further, because the Solicitors have had some success on this appeal, I would make no award of costs for the appeal.
"Paul Rouleau J.A."
"I agree K.M. Weiler J.A."
"I agree J.M. Simmons J.A."
RELEASED: January 27, 2009
