In the Matter of the Winding-up of the Christian Brothers of Ireland in Canada [Indexed as: Christian Brothers of Ireland in Canada (Re)]

68 O.R. (3d) 1

[2003] O.J. No. 4249

Docket No. C39421

Court of Appeal for Ontario

Laskin, Feldman and Armstrong JJ.A.

November 13, 2003

Professions -- Barrister and solicitor -- Fees -- Premium -- Law firm acting for court-appointed liquidator in winding-up proceedings to obtain assets to pay compensation to victims of child abuse -- Law firm acting without assurance that it would be paid -- Litigation successful -- Liquidator applying for approval of payment of legal fees including payment of premium -- Representative of victims not opposing premium -- Motions judge disallowing premium -- Appellate court may intervene when judge ordering costs fails to consider relevant factors and so exercises his or her discretion unreasonably -- Law firm entitled to premium.

DW of WF was counsel for the court-appointed Liquidator of the estate of the Christian Brothers of Ireland in Canada ("CBIC"), which had owned and operated schools and orphanages throughout Canada. Under the Winding-up and Restructuring Act, R.S.C. 1985, c. W-11, CBIC was being wound up to facilitate payments to victims of child abuse at its Mount Cashel Orphanage. In the winding-up, the Liquidator instructed WF to secure for CBIC the ownership of two private schools in British Columbia. If these assets were excluded from the winding-up, the victims would recover no compensation.

The litigation was complex, difficult and time consuming. It was vigorously contested, and its outcome was uncertain. The schools and the parties supporting them retained five separate law firms, among them 14 counsel, including five of the senior counsel of British Columbia. The Attorney General of British Columbia petitioned the court to prevent the Liquidator from realizing on the assets. By the beginning of 2001, CBIC was insolvent, and without any assurance that it would be paid, WF continued to act for CBIC. Ultimately, the litigation was successful, and the assets of the estate were increased by $19 million.

WF sought a premium on its fees for the 20 months when it acted without any guarantee of payment. The premium, which totalled $495,495, was measured by increasing DW's hourly rate from $400 to $675 per hour, which was the top hourly rate charged by any other lawyer on the case. The court-appointed representative of the victims did not oppose the premium. As required by the winding-up order, the liquidator applied for court approval of payment of the legal fees and disbursements of WF, including the premium. The motions judge denied the premium. Leave to appeal having been granted, the liquidator appealed.

Held, the appeal should be allowed.

A costs order is discretionary and entitled to deference on appeal. However, an appellate court may intervene when the judge ordering costs fails to consider [page2 r]elevant factors and so exercises unreasonable discretion. Many factors bear on whether lawyers are entitled to a premium. These factors include the difficulty and complexity of the case, the responsibility assumed by the lawyer, the amount in issue, the importance of the case to the client, the skill shown by the lawyer, the result achieved, the client's ability to pay, and the lawyer's corresponding financial risk. In failing to consider the risk assumed by WF, the Liquidator's own views, and the acquiescence of representative counsel for the victims, the motions judge made a reviewable error in exercising his discretion to deny the premium to WF. Of these factors, the financial risk assumed by the law firm was the most important. Awarding a reasonable premium to a law firm that assumes such a risk gives lawyers an economic incentive to take on this kind of litigation and do it well. Awarding a premium enhances access to justice for future cases. The year of call to the Bar should be irrelevant as to whether a premium is approved. The court should not take away the financial incentive for younger members of the Bar to take on these cases. The premium in this case was also supportable by other considerations. The motions judge erred by failing to take into account the Liquidator's views and the position of the representative counsel for the victims, who, throughout the proceedings, acted fairly, honourably, and in the best traditions of the Bar. Accordingly, the appeal should be allowed.

APPEAL from an order for the payment of legal fees in winding-up proceedings under the Winding-up and Restructuring Act, R.S.C. 1985, c. W-11.

Cases referred to

Gagne v. Silcorp Ltd. (1998), 41 O.R. (3d) 417, 167 D.L.R. (4th) 325, 39 C.C.E.L. (2d) 253, 27 C.P.C. (4th) 114 (C.A.), revg (1997), 35 O.R. (3d) 501, 14 C.P.C. (4th) 269 (Gen. Div.); Parsons v. Canadian Red Cross Society (2001), 11 C.P.C. (5th) 17, [2001] O.J. No. 214 (QL), 140 O.A.C. 348 (C.A.) [Leave to appeal to S.C.C. refused [2001] S.C.C.A. No. 190], affg (2000), 49 O.R. (3d) 281, 46 C.P.C. (4th) 236, [2000] O.J. No. 2374 (QL), [2000] O.T.C. 968 (S.C.J.); Rowland v. Vancouver College Ltd. (2001), 2001 BCCA 527, 94 B.C.L.R. (3d) 249, 205 D.L.R. (4th) 193, [2001] 11 W.W.R. 417, 41 E.T.R. (2d) 78, [2001] BCCA 527 (C.A.); Royal Bank of Canada v. Soundair Corp. (1991), 4 O.R. (3d) 1, 46 O.A.C. 321, 83 D.L.R. (4th) 76, 7 C.B.R. (3d) 1 (C.A.); Ontario (Ministry of Transportation) v. Tripp (1999), 26 R.P.R. (3d) 1, 123 O.A.C. 278, [1999] O.J. No. 2823 (QL) (C.A.)

Statutes referred to

Winding-up and Restructuring Act, R.S.C. 1985, c. W-11

Benjamin Zarnett and Francy Kussner, for appellant Liquidator Arthur Andersen Inc. Douglas G. Garbig, for representative counsel for victims.

The judgment of the court was delivered by

LASKIN J.A.: --

A. Overview

[1] The issue in this appeal is whether the motions judge committed a reviewable error in exercising his discretion to deny a law firm a premium on its account to its client. [page3]

[2] The law firm of WeirFoulds LLP acted as counsel for the court-appointed liquidator (the "Liquidator") of the estate of the Christian Brothers of Ireland in Canada (the "CBIC"). For over five years, the law firm and its lead counsel, David Wingfield, pursued litigation to determine whether the estate would have assets to compensate its creditors, principally victims of childhood abuse at the Mount Cashel Orphanage in Newfoundland.

[3] The litigation was complex, difficult and time consuming, its outcome uncertain. By the beginning of 2001, the estate was insolvent and could not pay its lawyers. Nonetheless, without any assurance that its fees would be paid, WeirFoulds agreed to continue the litigation. Its efforts succeeded. The assets of the estate were increased by $19 million. The law firm then sought a premium on its fees for the 20 months when it acted without any guarantee of payment. The premium sought was measured by increasing Mr. Wingfield's hourly rate from $400 to $675 per hour. This premium amounted to less than 3 per cent of the assets recovered.

[4] The Liquidator agreed to the premium. The court-appointed representative of the victims did not oppose it. However, Blair R.S.J. refused to approve the premium. He recognized that the "tenacity" of the Liquidator and all counsel had saved the estate from insolvency and justified the significant professional fees and disbursements claimed. But he said that he could not "approve a $675 hourly rate for a 1988 call . . . keeping in mind that the liquidated estate is being used to compensate victims of egregious acts".

[5] The Liquidator appeals with leave from Goudge J.A. It submits that the motions judge exercised his discretion unreasonably by failing to consider the risk assumed by WeirFoulds, the Liquidator's own views and the acquiescence of representative counsel for the victims. I agree with this submission. And because I consider the premium to be reasonable, I would allow it in full.

B. Background Facts

(a) The winding-up of CBIC

[6] The CBIC was the Canadian branch of the worldwide teaching order of the Roman Catholic Church. Since its incorporation in 1962, it had owned and operated schools and orphanages throughout Canada.

[7] In 1996, the CBIC applied to be wound up under the Winding-up and Restructuring Act, R.S.C. 1985, c. W-11, as amended. It did so to facilitate payment of its liabilities, especially to victims of [page4 c]hild abuse at the Mount Cashel Orphanage. When it applied to be wound up, the CBIC claimed it had assets of $4.3 million. On October 26, 1996, CBIC was ordered to be wound up. Arthur Andersen Inc. was appointed Liquidator of the estate, and the Ontario General Division (now the Superior Court of Justice) was named the supervising court. Under the winding-up order, the Liquidator was required to obtain court approval of its expenses, including the fees and disbursements of its legal counsel.

(b) The litigation to determine the assets of CBIC

[8] The Liquidator determined that the CBIC's assets included the assets of two private schools in British Columbia, Vancouver College and St. Thomas More Collegiate. It retained WeirFoulds to pursue those assets. In 1998, the winding-up court concluded that unless the assets of these two schools were included in the winding-up of the CBIC, the victims would "for practical purposes . . . be without recourse". If, however, these assets were included, the victims' claims could largely be satisfied.

[9] Litigation over the schools culminated in a three-month trial in early 2000 in the British Columbia Supreme Court. The trial judge decided that the CBIC owned the schools, but that its ownership was subject to a special purpose trust for local Roman Catholic education.

[10] Both the Liquidator and the schools appealed. By then, however, the estate had run out of money to finance the litigation. The Liquidator and WeirFoulds agreed on terms to keep the litigation alive. WeirFoulds would continue to conduct the litigation at its own expense, except for a single $30,000 payment by the Liquidator on account of disbursements. If the litigation was unsuccessful, WeirFoulds would be paid neither its fees nor the disbursements it incurred. If the litigation was successful, it would be reimbursed for disbursements and its fees would be determined. In short, from February 1, 2001 onward, WeirFoulds assumed virtually the entire risk of the litigation.

[11] Over the next 20 months, WeirFoulds, and especially Mr. Wingfield, devoted substantial time to the litigation. In essence, this litigation took place on three fronts. First, WeirFoulds dealt with the schools' appeal and the Liquidator's own cross-appeal in the British Columbia Court of Appeal. The two schools fought vigorously to keep their assets out of the estate, and did so with apparently unlimited resources. The schools and the parties supporting them retained five separate law firms, among them 14 counsel, including five of the senior counsel in the province. Ultimately the estate succeeded in the British Columbia Court of [page5 A]ppeal by a two-to-one majority. The dissent would have deprived the estate of any recovery. See Rowland v. Vancouver College Ltd. (2001), 2001 BCCA 527, 94 B.C.L.R. (3d) 249, 205 D.L.R. (4th) 193 (C.A.).

[12] In the second piece of litigation, WeirFoulds responded to applications by the schools in the Supreme Court of Canada for a re-hearing of that court's judgment denying leave to appeal from a decision of this court. Again, WeirFoulds was successful for the estate.

[13] The final piece of litigation also took place in British Columbia. The Attorney General of British Columbia petitioned the court to prevent the Liquidator from realizing on the assets of the schools. After WeirFoulds succeeded in having the petition dismissed, the Attorney General brought yet another application to require the Liquidator to transfer ownership of the two schools to a solvent British Columbia entity, which would not be exposed to the liabilities of the CBIC. During the hearing of this application in July 2002, the parties settled.

[14] On the settlement, the Liquidator agreed to sell the two schools to the local Roman Catholic community for $30 million less the costs the Liquidator would have incurred if it had liquidated the schools' assets. The estate realized net proceeds of $19 million. Thus, the litigation resulted in an increase in the assets of the estate from just over $4 million to over $20 million.

(c) WeirFoulds' accounts

[15] The overall fees sought by WeirFoulds and a British Columbia law firm that also acted for the Liquidator totalled about $4.3 million. Of this total, WeirFoulds' fees accounted for $3,243,180, or about 17 per cent of the assets recovered. During the time the estate was solvent, WeirFoulds submitted bills at its lawyers' normal hourly rates. The court approved these bills, amounting to just under $2 million in fees.

[16] The bill in question on the appeal is WeirFoulds' account for the period from February 1, 2001 to October 15, 2002, the period for which it was at risk of not being paid. For this period, it submitted a bill for fees of $1,344,487.50, reflecting 2,150 hours of time, of which Mr. Wingfield contributed 1,800 hours. The bill consisted of a base fee of $848,992.50 and a premium of $495,495, calculated by an increase in Mr. Wingfield's hourly rate from its normal $400 per hour to $675 per hour (which was the top hourly rate charged by any other lawyer on the case). The premium amounted to 2.6 per cent of the assets recovered. The motions judge approved the base fee, but not the premium. [page6 ]

C. Analysis

[17] Many factors may bear on whether lawyers are entitled to a premium over their hourly rates. These factors include the difficulty and complexity of the case, the responsibility assumed by the lawyer, the amount in issue, the importance of the case to the client, the skill shown by the lawyer, the result achieved, the client's ability to pay and the lawyer's corresponding financial risk. See for example Ontario (Ministry of Transportation) v. Tripp (1999), 123 O.A.C. 278, 26 R.P.R. (3d) 1 (C.A.). In an insolvency, the interest and position of the creditors and the views of the receiver or liquidator must also be considered. The judge or officer assessing or approving a lawyer's account must, in exercising discretion, take into account and weigh these factors in deciding whether to award a premium.

[18] In this case, the motions judge properly took into account several of these relevant factors. He took into account the importance of the case and the result achieved. He held: "[T]he reality is that without the tenacity of the Liquidator and its counsel and that of Representative Counsel, in pursuing the B.C. schools litigation and succeeding, the estate would be bankrupt and there would be nothing to satisfy the claims of the victims." He expressly considered Mr. Wingfield's obvious skill and, impliedly, the complexity of the proceedings, when he said that his refusal to approve a premium was "not in the least a reflection on Mr. Wingfield's skill or indeed his considerable contribution to the successful results in this case". Also, the motions judge took into account the interests of the creditors, observing that "the liquidated estate is being used to compensate victims of egregious acts."

[19] A costs order is discretionary, and therefore is entitled to deference on appeal. An appellate court may intervene when the judge ordering costs fails to consider relevant factors, and so exercises his or her discretion unreasonably. That is what has occurred here. The motions judge failed to take into account three relevant factors: the financial risk assumed by WeirFoulds, the view of the Liquidator and the position of representative counsel for the victims.

[20] Of these three factors, by far the most important is the financial risk assumed by WeirFoulds. Not only did the law firm carry on with the case from early 2001 with no assurance of receiving any of its fees or any of the disbursements it incurred, but it did so when it was far from certain that the Liquidator would recover any assets to compensate the creditors of the estate.

[21] Awarding a reasonable premium to a law firm that assumes such a risk gives lawyers an economic incentive to take [page7 o]n this kind of litigation and do it well. Thus, awarding a premium enhances access to justice in this case and promotes access to justice for future cases.

[22] Undoubtedly, any premium paid to the law firm will diminish the funds available to satisfy the claims of the victims. The motions judge correctly took into account the interests of these men who as boys "suffered unspeakable acts of sexual, physical and emotional abuse" at the hands of the Christian Brothers. But as important as their interests are, they must be balanced against the risk that the law firm undertook and the result it achieved for its client and, therefore, for the victims. The reality is that but for WeirFoulds having assumed this risk, the estate would have had no money at all to compensate the victims.

[23] The motions judge did not turn his mind to the financial risk assumed by WeirFoulds. Instead he dismissed the requested premium by stating that Mr. Wingfield was "called to the Bar in 1988 and I do not think I can approve a $675 hourly rate for a 1988 call". I disagree with the motion judge's reason for refusing to award a premium. Here, Mr. Wingfield had carriage of the case against much more senior counsel and he should be entitled to a senior counsel rate for the risk he took on behalf of his firm and the result he achieved. Moreover, the year of call to the Bar should be irrelevant to whether a premium is approved. The court should not take away the financial incentive for younger members of the Bar to take on these cases.

[24] The financial risk assumed by WeirFoulds alone supports a premium. But other considerations support it as well.

[25] The motions judge also failed to take account of the Liquidator's view. The Liquidator made a considered business decision to approve the premium sought by WeirFoulds. Its decision is entitled to the same deference as are the business decisions of court-appointed receivers. Thus, the principle affirmed by this court in Royal Bank of Canada v. Soundair Corp. (1991), 4 O.R. (3d) 1, 83 D.L.R. (4th) 76 (C.A.), at pp. 5-6 O.R. applies: the court should place confidence in the Liquidator's decision and assume it has acted properly unless the contrary is shown. The court should recognize that by appointing a liquidator, it "intends to rely upon the [liquidator's] expertise and not upon its own". Unless a liquidator can make these kinds of arrangements with its counsel, meritorious litigation may never go forward. Although the court should not rubber-stamp a liquidator's decision, it should nonetheless be reluctant to second-guess it. Here, the motions judge did not consider the Liquidator's decision at all.

[26] Finally, the motions judge failed to take account of the position of representative counsel for the victims. Mr. Garbig, [page8 c]ounsel for the victims, had reason to oppose a premium. The more money paid to the lawyers, the less money available for the victims. Yet he fairly recognized that a premium was justified and he did not oppose one being given.

[27] Because of the motions judge's failure to consider the financial risk assumed by WeirFoulds, the view of the Liquidator and the position of the victims' counsel, I have concluded that the motions judge unreasonably exercised his discretion in denying WeirFoulds a premium. The law firm was entitled to one for Mr. Wingfield's efforts.

[28] The remaining question is whether the premium asked for -- $495,495, reflecting an increase of $275 over Mr. Wingfield's normal hourly rate of $400 per hour -- is reasonable. In this court, Mr. Garbig suggested that half this amount -- approximately $250,000 -- would be fair. In my opinion, however, the premium requested is eminently reasonable. To summarize what I have said earlier: Mr. Wingfield conducted this litigation with consummate skill; his law firm assumed the entire risk for the litigation after the British Columbia trial court's decision, a decision that would not have benefited the victims; many of the legal issues were novel, complex and difficult; success on appeal was far from guaranteed, as perhaps best evidenced by the split decision in the British Columbia Court of Appeal; and Mr. Wingfield achieved an exceptional result for the Liquidator and, indirectly, for the abuse victims.

[29] Whether viewed as a percentage of the total recovery (2.6 per cent) or as a percentage increase on the firm's base fee (58 per cent), the premium is, if anything, modest. In class action litigation this court and experienced Superior Court judges have approved proportionately larger premiums. See for example Gagne v. Silcorp Ltd. (1998), 41 O.R. (3d) 417, 167 D.L.R. (4th) 325 (C.A.) and Parsons v. Canadian Red Cross Society (2000), 49 O.R. (3d) 281, 46 C.P.C. (4th) 236 (S.C.J.), affd on other grounds (2001), 140 O.A.C. 348, 11 C.P.C. (5th) 17, leave to appeal to S.C.C. refused [2001] S.C.C.A. No. 190. And in substance, if not in form, the litigation maintained by the Liquidator amounted to a class action because its fruits go to the members of the class of abuse victims. The work of WeirFoulds might well have merited a larger premium. That I need not decide. I can say, however, that I would unhesitatingly approve the premium it asked for.

[30] I close these reasons with a brief comment about Mr. Garbig. He represented his clients -- the abuse victims -- ably throughout these proceedings. He did not seek and was not paid a premium for his work. In recognizing that WeirFoulds was entitled to a premium, though it would come out of the pool of [page9 m]oney available to the victims, he acted fairly, honourably and in the best traditions of the Bar. I commend him for his work and for the positions he took.

[31] I would allow the appeal, set aside the costs order of the motions judge dated December 4, 2002, and in its place I would approve the payment in full of WeirFoulds' account dated November 5, 2002. I make no costs order as counsel advised the court that it was unnecessary to do so.

Order accordingly.