COURT OF APPEAL FOR ONTARIO

CITATION: Hannafin v. Adair Morse LLP, 2012 ONCA 402

DATE: 20120612

DOCKET: C54599

Rosenberg, MacPherson and Cronk JJ.A.

BETWEEN

Edmund J. Hannafin and Judith G. Hannafin

Clients (Respondents on Appeal)

and

Adair Morse LLP

Lawyers (Appellant)

John J. Adair and Jennifer L. King, for the appellant

R. Steven Baldwin, for the respondents

Heard: June 8, 2012

On appeal from the orders of Justice John A. McMunagle of the Superior Court of Justice, dated October 31, 2011 and January 26, 2012.

By the Court:

I. Background

[1] The appellant law firm was retained by the respondents in 2006 to act on their behalf in litigation arising out of the respondents’ sale of their interest in a business. Written retainer agreements were executed by the respondents in February 2006 and 2007. Under the retainer agreements, the parties agreed that: (1) the appellant would render interim accounts for fees and disbursements incurred, which would be payable by the respondents within 30 days of receipt; (2) the appellant’s interim fees would be billed at 50% of its applicable hourly rates; (3) if the litigation concluded without recovery of damages by the respondents – either by settlement or judgment – the appellant would receive no further payment in excess of its interim billings; and (4) conversely, if the litigation concluded with recovery of damages by the respondents, the appellant would be paid a fee in addition to fees already billed that would result in total fees billed at 150% of its applicable hourly rates.

[2] As agreed, interim accounts were rendered by the appellant and paid by the respondents. However, in approximately mid-August 2008, the respondents informed the appellant that they were unable to continue to fund the litigation, even on the agreed 50% interim fee basis. After negotiations regarding alternate payment arrangements proved unsuccessful, the respondents retained new counsel to assume carriage of the litigation on their behalf.

[3] Difficulties then arose concerning the transfer of the respondents’ file to their new counsel and the terms of an Irrevocable Direction that the appellant wished the respondents to sign to protect the appellant’s account. At this point, although unresolved, the litigation was well underway and various discoveries had been held.

[4] On January 26, 2010, on motion by the respondents, Tausendfreund J. of the Superior Court of Justice directed that the appellant deliver the respondents’ litigation file to the respondents’ new solicitors. He also directed that the appellant’s accounts – both paid and unpaid – be assessed under the Solicitors Act, R.S.O. 1990, c. S. 15 (the Assessment Order).

[5] The assessment hearing was originally scheduled for June 9, 2011. By that time, the respondents’ new solicitors had settled the respondents’ litigation for the sum of $1 million, payable to the respondents.

[6] In early June 2011, on request of the respondents’ solicitors, the appellant delivered a final account dated June 1, 2011 (the June Account), which represented the appellant’s total claimed outstanding fees, including the premium payment envisaged under the retainer agreements. When the respondents disputed the amount claimed and the appellant’s entitlement to have the June Account included in the assessment, the appellant moved for directions regarding the assessment hearing.

[7] By order dated October 31, 2011, McMunagle J. of the Superior Court of Justice ruled that the June Account was not to be included in the assessment. By order dated January 26, 2012, he also awarded the respondents their costs of the motion for directions, on a full indemnity basis.

[8] The appellant appeals both rulings by the motion judge.

II. Issues

[9] The appellant contends that the motion judge erred in three respects in excluding the June Account from the assessment: (1) by considering irrelevant factors, including the reasonableness of the fees claimed by the appellant and the appellant’s entitlement to the fees and disbursements covered by the June Account; (2) by failing to consider relevant factors, in particular, the plain language and context of the Assessment Order; and (3) by concluding that, by operation of s. 6(1) of the Solicitors Act and the two-year limitation period under the Limitations Act, 2002, S.O. 2002, c. 24, the appellant’s right to deliver the June Account and to seek compensation on the basis reflected in the June Account was statute-barred.

III. Discussion

[10] In our view, the language of the Assessment Order is dispositive of this appeal.

[11] There was only one issue properly before the motion judge for determination: whether the June Account should be included in the assessment. All other issues considered by the motion judge, including the fairness of the quantum of the June Account and the appellant’s entitlement to deliver and to seek payment as contemplated by the June Account, were extraneous to the motion judge’s task. These were matters for the assessment officer.

[12] The Assessment Order explicitly contemplated that the assessment hearing was to be held in Belleville “at the earliest convenient date”. It directed an assessment of “all accounts paid to date, unpaid accounts, interim accounts and final accounts” of the appellant directed to the respondents. It also provided that the appellant was to deliver all “accounts, pre-bills [and documents related to the appellant’s accounts] forthwith, to permit the [respondents] sufficient opportunity to prepare for the assessment” (emphasis added).

[13] The appellant failed to comply with a critical term of the Assessment Order: it did not deliver the June Account until June 2011, almost 18 months after the date of the Assessment Order.

[14] The appellant contends that it was unable to deliver its final account to the respondents “forthwith” after the Assessment Order, as required, because the amount of its final account could not be determined until the outcome of the respondents’ litigation was known. As the litigation was not settled until the fall of 2010, the amount of the appellant’s compensation entitlement was not known until then.

[15] We reject this submission. The Assessment Order stipulated, in clear and unambiguous language, that all accounts were to be delivered by the appellant “forthwith” and that the assessment hearing was to be held “at the earliest convenient date”. The appellant acknowledges that the maximum amount of the compensation potentially to be claimed by it was known to all parties prior to the appearance before Tausendfreund J. – the appellant had sought to have this amount included in the Irrevocable Direction that it proposed the respondents should sign as a condition of the transfer of their file to their new solicitors.

[16] Thus, from the fall of 2009 at the latest, when the respondents moved for an order compelling the release of their file by the appellant, the appellant’s maximum potential compensation claim was known and, indeed, under debate by the parties. In our view, the fact that the amount of that claim might require future adjustment downwards, depending on the outcome of the respondents’ litigation, did not prevent the delivery of an account in the full amount of the claim in accordance with the Assessment Order. The terms of the account could easily have stipulated that it was subject to adjustment, depending on the outcome of the respondents’ litigation and the assessment. But the appellant failed to deliver the June Account on a timely basis, in accordance with the Assessment Order. It also failed to appeal the Assessment Order or to seek a variation of its terms, as it was entitled to do under the Rules of Civil Procedure.

[17] We therefore agree with the motion judge, although for reasons that differ in part from his, that the June Account is not to be included among those accounts to be considered at the assessment hearing.

[18] We reach a different conclusion regarding the appellant’s challenge to the motion judge’s costs order of January 26, 2012.

[19] The motion judge awarded the respondents their full indemnity costs of the motion for directions, subject to minor adjustments that he regarded as appropriate. However, he made no finding of reprehensible conduct by the appellant and does not appear to have considered the narrow circumstances in which costs on the full indemnity scale – the maximum scale for costs – may be granted: see Toronto Star Newspapers Ltd. v. Fraleigh, 2011 ONCA 555, at paras. 34 to 39. As a result, in our view, the motion judge erred in principle and his costs award cannot stand.

[20] The respondents were successful on the motion for directions in resisting the inclusion of the June Account in the court-ordered assessment. Thus, they are entitled to their costs of the motion. We see no basis for departing from the usual, partial indemnity costs scale in respect of the motion. We fix the respondents’ costs of the motion in the amount of $8,565.00, inclusive of disbursements and all applicable taxes.

IV. Disposition

[21] For the reasons given, the appeal from the motion judge’s order dated October 31, 2011 is dismissed. Leave to appeal the motion judge’s costs order dated January 26, 2012 is granted and the appeal from that order is allowed, in accordance with these reasons. The respondents are entitled to their costs of the proceeding in this court, fixed in the amount of $9,000.00, inclusive of disbursements and all applicable taxes.

Released:

“MR” “M. Rosenberg J.A.”

“JUN 12 2012” “J.C. MacPherson J.A.”

“E.A. Cronk J.A.”