SUPERIOR COURT OF JUSTICE - ONTARIO

COMMERCIAL LIST

COURT FILE NO.: CV-12-9924-00CL
DATE: 20130807

RE: The Companies’ Creditors Arrangement Act. R.S.C. 1985, c. C-36 as amended

AND RE: A Plan of Compromise or Arrangement of Farley Windoor Ltd. and Farley Windows, U.S.A. Inc.

COUNSEL:
Katherine McEachern for CIBC/Blakes

Neil Wilson for Farley et al

HEARD: August 6, 2013

BEFORE: MESBUR, J

ENDORSEMENT

[1] The applicants in this CCAA proceeding, Farley Windoor Ltd. and Farley Windows, USA Inc. (“Farley”), applied under the CCAA to restructure. Wilton-Siegel J made the Initial Order which ordered, among other things, that Farley pay “the reasonable fees and disbursements” of counsel and financial advisor to CIBC, Farley’s secured lender. The order stated that they were to be paid “at their standard rates and charges … as part of the costs of these proceedings.”[^1] Blakes is CIBC’s counsel.

[2] In January of 2013, Wilton-Siegel J ordered a protocol for the payment of fees during the proceedings. The order specifically stated, however, that it was “without prejudice to any position the applicants may wish to take in respect to the reasonableness of any fees (inclusive of disbursements and taxes) of CIBC’s professional advisers.”

[3] In February of 2013 the applicants’ assets were sold, and Wilton-Siegel J made the approval and vesting order. In order to complete the sale, Farley was obliged to pay Blakes’ fees, which formed part of the secured debt under its loan agreement with CIBC. Farley, however, paid the fees under protest, taking the position they were excessive.

[4] The essential issue on this motion is to decide the best forum to determine whether Blakes’ fees are reasonable, and, if not, to decide what reasonable fees would be.

[5] Blakes takes the position Justice Wilton-Siegel is the most appropriate person to adjudicate the issue since it was he who dealt with most of the issues in the CCAA and he has the knowledge and expertise to know first, what was involved in the CCAA itself, and second, what constitutes reasonable and appropriate fees in CCAA proceedings. If Wilton-Siegel J is not available, then Blakes suggests another judge of the Commercial List would be equally appropriate. Blakes points to the fact that the initial order provided the fees would form part of the costs of the CCAA proceeding. It therefore takes the position that it is the CCAA court that has the jurisdiction to deal with the issue, as part of the costs of the proceeding.

[6] Farley says the fees should be assessed by an assessment officer as a solicitor/client assessment. Although there were initial procedural skirmishes at the outset of this motion, both parties concede that the assessment officer would have jurisdiction to assess the fees, as would a judge on the Commercial List.

[7] Farley looks at the issue from the position of a “client”. It says that because it has to indemnify CIBC for its professional advisors’ fees, it is essentially in CIBC’s shoes vis a vis Blakes, and should have the same advantages of an assessment before an assessment officer as CIBC would if it objected to Blakes’ fees. Farley suggests an assessment is far better from a client’s perspective for the following reasons:[^2]

a) There is a fundamental difference between a judge fixing costs of a litigant, and an assessment officer assessing fees of a litigant’s counsel. The former decides what the losing party should pay. The latter decides what is reasonable for a client to pay;

b) In an assessment, the solicitor bears the onus to show the fees are fair and reasonable;

c) Assessment officers apply a series of well-established factors with which they are familiar and experienced;

d) Assessments are supposed to provide a speedy and inexpensive process for settling lawyers’ accounts outside ordinary litigation;

e) With an assessment, a party has the right to oppose confirmation of the certificate of assessment before a judge of the Superior Court. This is akin to an automatic right of appeal. In contrast, a judge’s order would require leave to appeal; and,

f) The costs consequences of assessments are designed to favour clients, in order to avoid discouraging them from challenging their lawyers’ bills.

[8] This motion began before me on June 21. At that time, after Blakes had completed its argument, it was revealed the parties already had a preliminary appointment with the assessment officer with a view to mediating a solution to their conflict. As a result, I adjourned the motion to today’s date to give them an opportunity to do so.

[9] The parties did meet with the assessment officer. Unfortunately, there was no one available to assist in mediation at that time. The parties have, however, booked an assessment for 5 days in December. The fees in question are about $360,000. Blakes, on a with prejudice basis, has offered to reduce them by $20,000. Farley has not agreed.

[10] I am struck by the notion that an assessment before the assessment officer would require a five day hearing. I wonder at the proportionality of a hearing of that length in relation to the quantum of the fees at issue.

[11] Farley suggests an assessment before the assessment officer is the appropriate process because it is designed to protect the interests of clients. It says that a judge of the Commercial List would be more likely to favour the interests of the solicitors. It has nothing to support this broad (and somewhat insulting) proposition. It seems to me that whatever process is used, it will be an impartial and fair process.

[12] While Farley says there is a different purpose between a judge fixing the costs of a litigant, and assessing a reasonable fee for a client’s lawyer, this case is somewhat different in that the court has already made an order that says the payment of Blakes’ reasonable fees are part of the costs of the CCAA proceeding. Since they are part of the costs of the proceeding, absent exceptional circumstances a judge should decide them.[^3]

[13] It is true, as Farley says, that on an assessment, the solicitor bears the onus of showing the fees are fair and reasonable. There is nothing to suggest, however, that a judge of the Commercial List would proceed in any other fashion. Counsel always must show the reasonableness of their fees. Judges generally show no hesitation in reducing excessive fees, even in fixing costs for one of the parties to pay the other.

[14] While assessment officers may well apply a series of well-established factors with which they have familiarity and experience, judges of the Commercial List are not devoid of that experience. They scrutinize and approve fees of all kinds of professionals on a daily basis. More importantly, judges of the Commercial List have a particular understanding of and expertise in the issues underlying CCAA proceedings, and particularly the rights and obligations of debtors and their secured lenders. These special rights and obligations must inform the reasonableness of the fees charged, in the overall context of the CCAA proceedings themselves.

[15] Farley describes assessments as providing “informality and affordability”. The proposed assessment will involve witnesses testifying, cross-examination of witnesses, and submissions, over a five-day hearing. I would hardly describe this process as either informal, or affordable. With the Commercial List, the court can craft whatever process will best suit this particular case.

[16] As to the availability of an appeal, I do not see this as a determinative factor in deciding which process is best.

[17] Last, on the issue of costs of an assessment itself, a judge of the Commercial List has the broad discretion under s. 131 of the Courts of Justice Act to make any appropriate costs order. That no doubt includes broad discretion to make whatever costs order is just when the issue is a costs adjudication.

[18] Blakes takes the position that referring the fees and disbursements to an assessment officer is inconsistent with the Initial Order and Wilton-Seigel J’s endorsement of January 10, 2013. That is the order that referenced the protocol for paying fees. It specifically provided “or on further order of this court” in relation to paying of fees under the protocol. Thus, Blakes argues costs would be paid under the protocol, or by further order. Costs have been paid under the protocol; dealing with whether any sum should be repaid surely falls under the ambit of “further order”. As I see it, the court reserved to itself the jurisdiction of dealing with the ultimate payment of Blakes’ fees.

[19] I agree with Blakes’ position that first, referring fees and disbursements to an assessment officer is inconsistent with the Initial Order. The fees and disbursements were specifically made part of the costs of the proceeding. As such, they are in the jurisdiction of a judge, unless there are exceptional circumstances.

[20] I also agree with Blakes’ position that adjudicating appropriate fees here will be informed by both the Initial Order and the security documents Farley executed in favour of CIBC. It is these security documents that gave rise to the requirements that first, Farley would have to pay CIBC’s professional advisors, and second, those fees would be added to the secured debt. Questions of interpretation may arise which are outside the jurisdiction of the assessment officer.

[21] Blakes also points out that having a judge determine the reasonableness of the fees is consistent with the practice of the Commercial List in CCAA proceedings. As I have said, the Commercial List routinely reviews and assesses the reasonableness of a whole range of professional fees – from Monitors, Trustees and Receivers, to lawyers and their staff. Blakes points out that the Initial Order in this case required both the Monitor and its legal counsel to pass their accounts. The order requires them to refer their accounts to a judge of the Commercial List for that purpose. Blakes argues a similar process should be applied to its accounts. I agree. In my view, the Commercial List has greater experience and expertise than does an assessment officer in determining an issue such as this.

[22] I am also concerned about the time and expense the proposed assessment will take. It seems to me there could be a more expeditious process on the Commercial List. The Commercial List has the advantage of 9:30 appointments, case conferences and settlement conferences to address the conflict and narrow the issues between the parties. These appointments are generally available on reasonably short notice. That kind of process is more efficient and cost-effective than the proposed assessment.

[23] An order will therefore issue directing that the question of the reasonableness of Blakes’ fees will be decided by Wilton-Siegel J, or another judge of the Commercial List, on the following terms:

a) The parties will arrange a case conference/settlement conference at the first mutually convenient date available from the Commercial Office. They need not attend a 9:30 appointment to schedule the conference;

b) The purpose of the conference is to narrow the issues between the parties and to attempt to resolve them;

c) To that end, at least 10 days before the conference Farley will deliver a written brief setting out the particulars of its objections to Blakes’ accounts;

d) At least 5 days before the conference, Blakes will deliver its response to the objections, setting out its justification for the fees charged in relation to those to which Farley objects;

e) Those who have authority to settle the issues will be available for the conference in order to instruct their counsel;

f) If the case is not resolved at the conference, the conference judge will set a timetable and fix a summary process for the contentious issues to be adjudicated. The outstanding contentious issues will be specifically identified. It is those specific issues, and those only, that will be adjudicated.

g) The process will be based on the premise that Blakes bears the onus of justifying its fees, and Farley must have a reasonable opportunity to oppose those fees;

h) If fees are to be repaid, the judge adjudicating the issue can determine to whom they will be repaid. This issue arises because Farley Group Inc., who is advancing the claim for assessment is the assignee of the applicants, who are the actual entities that paid the fees in question.

[24] Blakes suggests there should be no costs of this motion. I agree. There will therefore be no order as to costs.

MESBUR J.

Released: August 7, 2013

[^1]: Paragraph 37, Initial Order dated November 30, 2012
[^2]: Paragraph 37 of Farley’s factum
[^3]: Subrule 57.01(3.1) says costs should only be referred to assessment in exceptional circumstances.