Evans Sweeny Bordin LLP v. Zawadzki et al.

[Indexed as: Evans Sweeny Bordin LLP v. Zawadzki]

Ontario Reports

Court of Appeal for Ontario,

Gillese, Lauwers and D.M. Brown JJ.A.

November 9, 2015

127 O.R. (3d) 510 | 2015 ONCA 756

Case Summary

Professions — Barristers and solicitors — Fees — Assessment — Assessment officer lacking jurisdiction to consider fairness and reasonableness of contingency fee agreement.

Professions — Barristers and solicitors — Fees — Contingency fees — Contingency fee agreement providing that clients would pay solicitors bonus of $500,000 if their appeal from final foreclosure order was allowed — Bonus equivalent to 2.5 per cent of value of property at issue — Assessment officer lacking jurisdiction to consider fairness and reasonableness of contingency fee agreement — Motion judge on motion to oppose confirmation of assessment officer's report not erring in finding that agreement was fair and reasonable.

The parties entered into a contingency fee agreement which provided that the clients would pay the solicitors a bonus of $500,000 if their appeal from a final foreclosure order was allowed. The appeal was successful, and the solicitors submitted an account which included the $500,000 bonus. The clients obtained an order for assessment. The assessment officer disallowed the billing of the bonus on the basis that the bonus was not fair and reasonable. Both parties moved to oppose confirmation of the assessment officer's report, the clients seeking a further reduction of the invoiced amounts, and the solicitors' seeking payment of the bonus. The motion judge dismissed the clients' motion, granted the solicitors' motion and varied the report accordingly. The clients appealed.

Held, the appeal should be dismissed.

The motion judge correctly found that the assessment officer did not have jurisdiction to consider the fairness and reasonableness of the contingency fee agreement.

The record before the motion judge enabled him to fairly assess the agreement, and there was no basis for appellate intervention in his conclusion that the agreement was fair and reasonable.

Price v. Sonsini (2002), 2002 41996 (ON CA), 60 O.R. (3d) 257, [2002] O.J. No. 2607, 215 D.L.R. (4th) 376, 162 O.A.C. 85, 22 C.P.C. (5th) 1, 115 A.C.W.S. (3d) 334 (C.A.), distd

Other cases referred to

Bales Beall LLP v. Fingrut, [2013] O.J. No. 1917, 2013 ONCA 266 (C.A.), affg [2012] O.J. No. 4762, 2012 ONSC 4991, 356 D.L.R. (4th) 103, 220 A.C.W.S. (3d) 637 (S.C.J.); [page511] Cookish v. Paul Lee Associates Professional Corp., [2013] O.J. No. 1947, 2013 ONCA 278, 305 O.A.C. 359; Henricks-Hunter (Litigation Guardian of) v. 814888 Ontario Inc., [2012] O.J. No. 3207, 2012 ONCA 496, 294 O.A.C. 333; Rabbani v. Niagara (Regional Municipality), [2012] O.J. No. 1868, 2012 ONCA 280, 2 M.P.L.R. (5th) 23, 106 L.C.R. 235

Statutes referred to

Solicitors Act, R.S.O. 1990, c. S.15, s. 3 [as am.]

Rules and regulations referred to

Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rules 54, 54.09(5)

APPEAL from the order of Ramsay J., [2015] O.J. No. 961, 2015 ONSC 869 (S.C.J.) granting the respondents' motion to oppose confirmation of the assessment officer's report and dismissing the appellants' motion to oppose confirmation of the report.

William L. Roland, for appellants.

Michael Bordin, for respondents.

The judgment of the court was delivered by

D.M. BROWN J.A.: —

I. Overview

[1] This appeal involves the enforceability of a contingency fee agreement entered into between the appellants, the owners and developers of lands in Fort Erie worth about $20 million, and the respondent solicitors. Under the agreement, the appellants agreed to pay the respondents a bonus of $500,000 in the event their appeal from a final order of foreclosure over their lands was granted. Their appeal was granted, and the respondents rendered an account for the bonus. The appellants obtained an order to assess that and two other accounts before an assessment officer.

[2] The assessment officer held that the contingency fee agreement was not fair or reasonable. On competing motions to oppose confirmation of the assessment officer's report, the motion judge held that the assessment officer lacked the jurisdiction to consider the fairness and reasonableness of the contingency fee agreement. He also held that the agreement was fair and reasonable.

[3] The appellants appeal from that order. They seek to restore the decision of the assessment officer or, alternatively, an order directing the assessment of the contingency fee agreement before a judge of the Superior Court of Justice. [page512]

[4] I would dismiss the appeal. The motion judge correctly found that the assessment officer lacked jurisdiction to consider the fairness and reasonableness of the contingency fee agreement. The record before the motion judge enabled him to assess fairly the agreement, and there is no basis for appellate intervention in his conclusion that the agreement was fair and reasonable.

II. Facts

[5] Joseph Zawadzki is the principal of Frenchmen's Creek Estates Inc. and 550075 Ontario Inc. Those corporate appellants owned vacant development lands in Fort Erie which were subject to two mortgages. They defaulted on the mortgages. A settlement was reached under which the appellants consented to foreclosure in the event they did not perform the terms of the settlement. In 2006, the mortgagee obtained ex parte final orders of foreclosure against the properties. The appellants applied for relief from foreclosure. By judgment dated March 14, 2007, Lofchik J. dismissed their application (the "judgment").

[6] The appellants thereupon retained the respondent solicitors, Evans Sweeny Bordin LLP, to appeal the judgment. In a May 8, 2007 letter to Zawadzki, the respondents estimated that the costs of the appeal would be around $35,000.

[7] In June 2007, Zawadzki raised the prospect of paying the respondents a bonus of $500,000 in the event the appellants were able to sell the properties. Negotiations ensued, including the exchange of draft contingency fee agreements. In the result, the parties entered into an October 17, 2007 contingency fee retainer agreement (the "agreement") governing the appellants' retainer of the respondents to represent them in an appeal of the judgment.

[8] Under the agreement, the appellants agreed to pay the respondents "the full sum of all legal fees and all disbursements incurred by the Law Firm". The agreement went on to provide for the additional payment of a bonus to the respondents, setting out how to calculate the bonus in the event the appeal was granted or in the event the appeal was settled. Section 5 of the agreement provided that, "In the event that the appeal is granted, the Law Firm shall be paid $500,000 . . . The above amounts shall be due and payable to the Law Firm within 60 days of the granting . . . of the appeal."

[9] The appeal was granted by order of this court dated February 6, 2008. The respondents rendered an August 7, 2008 account to the appellants for $700,307.96, which included the $500,000 bonus. [page513]

[10] Subsequent proceedings ensued between mortgagor and mortgagee that ultimately resulted in a July 2008 judgment discharging the two mortgages from title, the appeal from which this court dismissed in January 2009. On July 9, 2009, the respondents delivered two further accounts to the appellants for the additional work performed in the amounts of $96,524.42 and $15,711.53.

[11] On August 11, 2009, Zawadzki obtained an order for assessment. As a result of an inquiry from the assessment officer, the parties obtained, on consent, an amended assessment order dated December 14, 2010 (the "assessment order"), which included the corporate appellants as client parties and identified the three bills "as the subject matter of the assessment".

[12] A ten-day assessment hearing was held in late 2011 and early 2012. Some 17 months following the completion of the hearing, the assessment officer released reasons dated September 27, 2013. He released supplementary reasons on costs together with his report and certificate (the "report") on December 10, 2013. The assessment officer assessed the respondents' bills for time and disbursements at $268,354.13 -- a reduction of $44,179.78 from the invoiced amount of $312,533.91 -- and disallowed the respondents' billing of the bonus on the basis that the bonus, "as it was imposed on the Clients and as it was applied in the bill, is neither fair nor reasonable, in all or in part".

[13] Both parties moved to oppose confirmation of the report: the appellants sought a further reduction of the invoiced amounts; the respondents did not object to the fee reduction, but sought payment of the $500,000 bonus.

[14] By order dated February 6, 2015, the motion judge dismissed the appellants' motion to reduce the amount payable, granted the respondents' claim to a bonus of $500,000, and varied the report accordingly. In reaching that result, the motion judge made two main findings: (i) the assessment officer lacked the jurisdiction to consider the fairness and reasonableness of the agreement; and (ii) even if the assessment officer had possessed such jurisdiction, the motion judge would have set aside the assessment officer's conclusion that the agreement was not fair and reasonable.

III. Issues on Appeal

[15] The appellants appeal the order of the motion judge, seeking to set it aside and reinstate the report. Alternatively, they seek an order directing a trial of an issue as to whether the [page514] agreement is fair and reasonable in all the circumstances. The appellants raise two main grounds of appeal. They submit that

(i) the motion judge erred in holding the assessment officer had no jurisdiction to consider the enforceability of the agreement. They argue that the respondents raised no objection to his jurisdiction prior to the issuance of the report, and the respondents therefore condoned and acquiesced by their conduct in the jurisdiction of the assessment officer; and

(ii) the motion judge erred in holding that the agreement was fair and reasonable because he failed to give proper deference to the findings of fact made by the assessment officer and lacked an adequate record to make such a determination.

IV. The Jurisdiction of the Assessment Officer

[16] A contingency fee agreement is enforceable only if it is both fair and reasonable: Henricks-Hunter (Litigation Guardian of) v. 814888 Ontario Inc., [2012] O.J. No. 3207, 2012 ONCA 496, 294 O.A.C. 333, at para. 13.

[17] In Cookish v. Paul Lee Associates Professional Corp., [2013] O.J. No. 1947, 2013 ONCA 278, 305 O.A.C. 359, this court considered the jurisdiction of assessment officers (who are not masters) to consider issues concerning contingency fee agreements. This court held, at paras. 39 and 43, that issues involving the enforceability of contingency fee agreements, including whether they are fair and reasonable, should be resolved by judges. The Solicitors Act, R.S.O. 1990, c. S.15 does not authorize assessment officers to consider such issues: at para. 43. Although a judge can refer issues to an assessment officer for determination pursuant to the reference procedure in Rule 54 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, a judge should not refer issues concerning the enforceability of a contingency fee agreement; at most, a judge may refer to an assessment officer the calculation of the quantum of a contingency fee under a valid contingency fee agreement: at paras. 44 and 47. Where a judge orders a reference to an assessment officer, the assessment order must contain clear language of delegation -- language that simply refers a bill to an assessment officer for assessment is insufficient to vest in the assessment officer jurisdiction to determine disputes arising under a contingency fee agreement: at paras. 51, 53 and 54.

[18] In the present case, the assessment order did not refer to the assessment officer any questions about enforceability of the [page515] agreement. Applying the decision in Cookish, the motion judge understandably held that the assessment officer lacked the jurisdiction to decide whether the agreement was fair and reasonable because the assessment order had not referred to him any issue concerning the enforceability of the agreement.

[19] The appellants submit that the motion judge should not have applied Cookish in the circumstances of this case because the respondents were estopped from relying on Cookish to oppose confirmation of the report. The assessment hearing concluded in April 2012. Cookish was released in April 2013. The assessment officer released his reasons in September 2013 and his report in December 2013. The respondents did not raise any issue about the assessment officer's jurisdiction in the period after the release of Cookish, but before the release of the report. In those circumstances, the appellants argue, the motion judge erred in applying the principle in Cookish. Instead, they contend, he should have followed the decision in Price v. Sonsini (2002), 2002 41996 (ON CA), 60 O.R. (3d) 257, [2002] O.J. No. 2607 (C.A.), where this court held, at para. 17, that the solicitor's failure to make a timely objection to the assessment procedure used to obtain the order for assessment was fatal to his opposition to the assessment officer's report.

[20] I do not accept that submission. An assessment officer either has jurisdiction or he does not. It is unfortunate that neither the parties nor the assessment officer were aware of the Cookish decision before the report was released. Nevertheless, the motion judge correctly applied the principles in Cookish to conclude that the assessment officer lacked jurisdiction to consider the enforceability of the agreement.

[21] Moreover, the decision in Price is distinguishable. In that case, this court held that the assessment officer had jurisdiction on the basis that s. 3 of the Solicitors Act permits a client to move for an assessment of an interim account within one month of delivery of the final account. The motion judge correctly held that the facts in Price differed from those in the present case when he stated, at para. 14:

[In Price], it was a question of the procedure by which the assessment officer did that which was clearly within his jurisdiction. Here the assessment officer did something that is not within his jurisdiction.

[22] Accordingly, the motion judge did not err in concluding that the assessment officer lacked jurisdiction to consider the enforceability of the agreement. [page516]

V. The Fairness and Reasonableness of the Agreement

[23] As an alternative argument, the appellants submit that if the assessment officer lacked jurisdiction to consider the fairness and reasonableness of the agreement, then the motion judge should not have engaged in his own consideration of the agreement on the motions to oppose confirmation because he lacked an adequate record to determine its fairness and reasonableness. Instead, he should have referred the issue of the fairness and reasonableness of the agreement to another judge of the Superior Court of Justice for an assessment hearing. The appellants further submit that in considering the agreement, the motion judge failed to give proper deference to the findings of fact made by the assessment officer.

[24] In deciding the competing motions to oppose confirmation of the report, the motion judge was entitled to consider the fairness and reasonableness of the agreement. Rule 54.09(5) of the Rules of Civil Procedure provides that a judge hearing a motion to oppose confirmation of a report "may confirm the report in whole or in part or make such other order as is just". If a judge hearing a motion to oppose finds that an assessment officer committed an error in principle, the judge may either correct the error or refer the matter back for correction: Bales Beall LLP v. Fingrut, [2012] O.J. No. 4762, 2012 ONSC 4991, 356 D.L.R. (4th) 103 (S.C.J.), at para. 7, affd [2013] O.J. No. 1917, 2013 ONCA 266. Having concluded that the assessment officer lacked the jurisdiction to consider the fairness and reasonableness of the agreement, the motion judge possessed the jurisdiction to consider that issue.

[25] That said, should the motion judge have exercised his jurisdiction to consider the enforceability of the agreement in the circumstances of this case? The answer to that question turns on whether the record before the motion judge was adequate to conduct a consideration of the agreement that was fair to both parties. I conclude that it was, for several reasons.

[26] First, the appellants knew that the issue of the fairness and reasonableness of the agreement would be argued before the motion judge because the respondents, in their cross-motion to oppose confirmation, specifically sought an order that they were entitled to be paid the $500,000 bonus under the agreement.

[27] Second, although the parties did not place before the motion judge the entirety of the record created before the assessment officer, they agreed that it was open to each party to file whatever part of the evidence it considered relevant. As [page517] a result, the motion judge was able to review all the pertinent documentation concerning the negotiation and execution of the agreement.

[28] The appellants submit that the motion judge lacked an adequate evidentiary record because the transcripts of the assessment hearing were not before him. Given that the respondents had put the appellants on notice that they intended to argue before the motion judge the fairness and reasonableness of the agreement, it was open to the appellants to include some or all of the transcripts of the assessment hearing in their motion record. They chose not to do so. Consequently, it is not now open to the appellants to complain about the absence of the transcripts.

[29] In my view, the record before the motion judge was adequate to determine the fairness and reasonableness of the agreement.

[30] The appellants next submit that the motion judge failed to accord proper deference to the findings of fact made by the assessment officer about the circumstances that gave rise to the agreement. The assessment hearing considered two issues: the enforceability of the agreement and the reasonableness of the amounts billed by the respondents in the three accounts on a time and disbursements basis. The assessment officer made findings of fact on both issues. However, given that the assessment officer lacked the jurisdiction to consider the fairness and reasonableness of the agreement, his findings of fact on that issue were not entitled to any deference by the motion judge. Nevertheless, the motion judge extensively canvassed the key findings made by the assessment officer, and he gave detailed reasons why the assessment officer's criticisms of the solicitors' work were the product of palpable and overriding errors of fact: paras. 24 to 33.

[31] The motion judge considered the fairness of the agreement as of the date it was entered into: Henricks-Hunter, at para. 13. Based on his review of the documents recording the negotiation of the agreement between the parties, the agreement itself, and the broader factual matrix, the motion judge concluded, at para. 23:

The evidence showed negotiations involving different positions by the parties, and a final, signed agreement that contained a compromise. There is no question that Mr Zawadzki is a sophisticated businessman. On the evidence, including the factual matrix, the written contract must be what the parties agreed to. They did not agree to the negotiating positions of the parties. The assessment officer erred by making the contract something he thought it should be, instead of deciding what the parties agreed to.

I see no error in that conclusion. [page518]

[32] The motion judge also properly informed himself about the factors relevant to determining the reasonableness of the agreement as of the date of the assessment hearing: Henricks-Hunter, at para. 13. He reviewed them in detail: paras. 25 to 34. In the circumstances of the case, he placed the greatest weight on the value of the property in question -- $20 million -- and the risk of the solicitors not getting paid. In so doing, the motion judge did not commit an error of law, misapprehend the evidence, or make a palpable and overriding error on a factual matter which would justify appellate intervention: Rabbani v. Niagara (Regional Municipality), [2012] O.J. No. 1868, 2012 ONCA 280, 2 M.P.L.R. (5th) 23, at para. 6.

[33] Nor was his allowance of the $500,000 bonus so unreasonable as to constitute an error in principle. When the appellants first approached the respondents, they were on the brink of losing their lands worth $20 million because they were subject to a final foreclosure order. As a result of the respondents' success on the appeal and further motions, the appellants re-gained their lands free and clear of the two mortgages. Under those circumstances, a bonus equivalent to 2.5 per cent of the value of the property in issue was not unreasonable.

VI. Disposition

[34] For those reasons, I would dismiss the appeal.

[35] The parties agreed on costs of the appeal of $11,000, inclusive of disbursements and HST. I would order the appellants to pay the respondents costs in that amount.

Appeal dismissed.

End of Document