Court of Appeal for Ontario

Date: 2018-02-26 Docket: C63935

Judges: Sharpe, LaForme and van Rensburg JJ.A.

Between

John Cardillo and Medcap Real Estate Holdings Inc. Appellants

and

Aird & Berlis LLP Respondent

Counsel

F. Scott Turton, for the appellants

Pamela Miehls and Danielle Muise, for the respondent

Heard: January 30, 2018

On appeal from: the order of Justice James F. Diamond of the Superior Court of Justice, dated May 18, 2017, reported at 2017 ONSC 3063.

Reasons for Decision

[1] Background and Loan Agreement

Sun Life Assurance Company of Canada ("Sun Life") entered into a loan agreement with Medcap Real Estate Holdings Inc. ("Medcap"), one of the appellants. The loan was secured by: (i) a mortgage over real property, (ii) a general security agreement; and (iii) a personal guarantee signed by John Cardillo, the other appellant.

[2] Forbearance Agreement and Release

Ten years later Sun Life retained the respondent law firm to take the necessary steps to enforce the security and to collect the amounts due. Ultimately Sun Life and the appellants entered into a Forbearance Agreement in connection with Medcap's debt, which was then in excess of $1.5 million. The appellants, among other things, agreed that Medcap would reimburse Sun Life for all reasonable expenses, including legal fees, and that they were estopped from disputing the amount owing. Further, the appellants released Sun Life and its "attorneys, advisors and other representatives" from claims in connection with the Forbearance Agreement or the original loan agreement.

[3] Forbearance Extension and Assignment Agreements

A Forbearance Extension Agreement which extended the time for payment contained an identical release. Contemporaneous with the payment of the amounts due the parties entered into an Assignment Agreement, assigning the debt, loan agreement and underlying security to 2503866 Ontario Ltd. Schedule "A" to this agreement set out a summary of Medcap's indebtedness to Sun Life, which included specific amounts for legal fees and disbursements: $89,065.68, which was capitalized and included in Medcap's debt to Sun Life, and $14,671.12 for further legal fees. The Assignment Agreement also contained a comprehensive release in essentially the same terms as the first two releases. Sun Life paid each of the four accounts that were rendered by the respondent.

[4] Motion for Assessment and Motion Judge's Decision

Subsequently, the appellants obtained a registrar's order for the delivery and assessment of the respondent's accounts. Eventually the respondent moved for an order declaring that the three releases precluded the assessment of the various legal accounts rendered to Sun Life. The motion judge granted the motion and declared "that the Releases forever preclude the assessment of, or any other matter pertaining to, the [four accounts of Aird & Berlis LLP]". This order is the subject of this appeal.

[5] Motion Judge's Analysis

The primary issue before the motion judge was whether the releases were effective to preclude the assessment of the respondent's accounts on the basis that they attempted to contract out of the Solicitors Act, R.S.O. 1990 c. S.15. The motion judge noted that in Jean Estate v. Wires Jolley LLP, 2009 ONCA 339, 96 O.R. (3d) 171 this court held that parties cannot contract out of the Act for public policy reasons. However, he held that the rationale in Jean Estate did not apply to the case at bar where the parties were sophisticated commercial parties acting with the benefit of legal advice. He concluded that the parties were not seeking to contract out of the Solicitors Act, but that they had agreed that the appellants would be precluded from challenging its payment to Sun Life, which included the legal fees.

[6] Appeal Court's Concerns

The appeal is dismissed. We have serious concerns about the correctness of the motion judge's opinion about the application of Jean Estate and the extent to which he countenanced what amounted to an attempt to contract out of the Solicitors Act. Nevertheless, we agree with his conclusion but for different reasons.

[7] Proper Legal Framework

The respondent's accounts rendered to Sun Life and reimbursed by the appellant Medcap are subject to the assessment provisions of the Solicitors Act. Because the accounts have already been paid by Sun Life and the appellant Medcap, who became liable for their payment and is not the client but a third party to the solicitor-client relationship, an order for assessment had to be obtained under s. 9(1) of the Solicitors Act, which required the appellant to demonstrate special circumstances justifying the assessment following payment pursuant to s. 11: Plazavest Financial Corporation v. National Bank of Canada (2000), 47 O.R. (3d) 641 (C.A.), at paras. 33-35.

[8] Definition of Special Circumstances

Section 11 refers to "special circumstances", which "in the opinion of the court appear, to require the assessment." And, it contemplates that in doing so, the court has a broad discretion to be exercised on a case-by-case basis and with an eye to all of the relevant circumstances: Plazavest, at para. 33. 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: Echo Energy Canada Inc. v. Lenczner Slaght Royce Smith Griffin LLP, 2010 ONCA 709, 104 O.R. (3d) 93, at para. 31. Under s. 9(2), the special circumstances to be considered include any additional special circumstances applicable to the third party who made the payment.

[9] Proper Analytical Approach

This is the analytical approach the motion judge should have followed in this case, which was also advanced by the appellants on the motion. Having considered the record in this case, and the arguments advanced by the parties on appeal, we are not satisfied that there are special circumstances that would warrant an order directing an assessment of the respondent's legal accounts. We reach this conclusion for several reasons.

[10] First Factor: Legal Representation and Negotiation

First, the appellants were at all material times represented by legal counsel. They were indebted to Sun Life, and they negotiated and concluded a commercial agreement to satisfy their debt. The appellants confirmed their obligation to pay the total indebtedness to Sun Life, including the respondent's fees and disbursements, which were disclosed at Schedule A to the Assignment Agreement, to which they were parties. They made no attempt to reserve their right to assess the accounts, nor did they request details of the legal expenses or copies of the accounts.

[11] Second Factor: Terms of Agreement and Disclosure

Second, the terms of an agreement can figure prominently in the determination of whether special circumstances exist: Plazavest, at para. 17. Here, the appellants expressly acknowledged in the Assignment Agreement that they had had an adequate opportunity to read and consider it and to obtain independent legal advice before executing it. They knew that Sun Life was entitled to its "reasonable" expenses, including legal fees. They were fully informed of the legal fees and disbursements that were included in the amount paid to Sun Life. And, they signed three documents containing a comprehensive release that by its terms extended to Sun Life's legal counsel and their accounts.

[12] Conclusion on Special Circumstances

In all the circumstances of this case, the appellants have failed to rebut the presumption that they accepted the respondent's legal accounts as reasonable when they agreed to pay them. They have also failed to demonstrate that the accounts were grossly excessive. In sum, they have not established special circumstances which, in the exercise of judicial discretion, would justify an order of assessment of the respondent's legal accounts.

[13] Disposition

The appeal is dismissed. The respondents are awarded costs in the agreed upon amount of $7,500 inclusive of disbursements and HST.

"Robert J. Sharpe J.A."

"H.S. LaForme J.A."

"K. van Rensburg J.A."