In re Evans Sweeny Bordin LLP, CITATION: 2015 ONSC 869

COURT FILE NO.: 12166/09

DATE: 2015-02-06

SUPERIOR COURT OF JUSTICE – ONTARIO

RE: Evans Sweeny Bordin LLP, solicitors

AND: Joseph Zawadzki, Frenchmen’s Creek Estates Inc. and 550075 Ontario Inc., clients

BEFORE: Mr Justice Ramsay

COUNSEL: Mr Michael Bordin for the solicitors; Mr William L. Roland for the clients

HEARD: 2015-02-05 at Welland

ENDORSEMENT

[1] Three invoices for legal services were referred to an assessment officer by order of a judge. The assessment officer made a report on December 10, 2013. Both the solicitors and the clients make a motion under Rule 54.09 opposing confirmation of the report.

[2] The assessment officer allowed $268,354.13 of $812,543.91 in fees. He added pre-judgment interest of $29,333.87. He deducted $4,691.86 for fees already paid and $47,870.62 for costs of the assessment. His final certificate, then, required the clients to pay $245,125.52.

[3] The clients submit that the fees should be further reduced.

[4] The solicitors accept the $268,354 for fees, but submit that the assessment officer should not have disallowed the $500,000 bonus that was provided for in a written contingency agreement.

The assessment of fees

[5] Aside from the bonus, the assessment officer reduced the fees by about $45,000. The clients submit that he should have gone farther, but they do not suggest a specific amount.

[6] The applicable principles are set out by C. Brown J. in Bogoroch & Associates v. Girao, 2012 ONSC 2495.

The Court will not interfere with the decision of the Assessment Officer unless there has been an error in principle, the decision of the assessment officer is so unreasonable as to suggest an error in principle or the decision is clearly wrong in the amount allowed: Re: Knipfel, 1982 CanLII 3319 (ON CA), [1982] 133 DLR (3d) 662 at p. 665 (Ont. C.A.); Bhatnager v. Canada, (M.E.I.), 1991 41 (SCC), 1991 CanLII 41 (SCC), [1991] 3 S.C.R. 317 at 318 (S.C.C.); Jordan v. McKenzie (1987), 26 C.P.C. (2d) 193 (HCJ) aff’d.

Pursuant to Rule 54.09(5) of the Rules of Civil Procedure, a judge hearing a motion to oppose confirmation may confirm the report in whole or part, or make such other order as is just. The motion is in the nature of an appeal and not a new trial or a rehearing. The judge hearing the motion should not retry the matter or interfere with the decision unless the reasons demonstrate some error in principle, there has been some absence or excess of jurisdiction or some patent misapprehension of the evidence. Where the judge may have a difference of opinion regarding the quantum of costs allowed, this is not sufficient to interfere with the decision of the Assessment Officer. The evidence and documentation to be considered is that which was before the Assessment Officer at the time of the hearing.

[7] The clients submit that the assessment officer erred by awarding so much in the face of his findings that dilatory conduct of the solicitors had cost the client money. With respect, the officer made scathing criticisms of the management of the file by the solicitors and gave effect to those findings by reducing the bill by about $45,000. It is not for me to second guess his numbers, particularly in the absence of any submissions as to what the right numbers might have been.

The contingency fee agreement

[8] Of the approximately $800,000 in fees submitted for assessment, $500,000 were payable under a contingency fee agreement. By the terms of that written agreement, a bonus of $500,000 was payable if the appeal from an order of Lofchik J. was granted. The appeal was granted and the solicitors claim the bonus.

[9] The bills came to be referred for assessment in the following way. First, the client requisitioned an appointment for the assessment of two bills in his own name. When the matter came to the attention of the assessment officer, the officer noted the lack of any reference to the corporate clients. The officer directed the parties to settle the question of who the clients were before a Superior Court judge. Accordingly, on December 14, 2010, Tucker J. on consent named three particular bills and ordered that the individual and corporate clients are liable to pay them, “subject to assessment.” The order did not mention the contingency fee and nothing in the record suggests that referral of the contingency fee as such was contemplated.

[10] At the hearing, the clients questioned the contingency fee. The assessment officer interpreted it and decided that it was not fair and reasonable.

[11] The hearing took place over ten days in November and December 2011 and March and April 2012. Written submissions by the parties were made by the solicitors on April 13, 2012 and the clients on May 17, 2012. The hearing officer reserved his decision until December 10, 2013.

[12] In the mean time, the Court of Appeal (on April 30, 2013) released its decision in Cookish v. Lee Associates, 2013 ONCA 278. That decision makes it clear that an assessment officer can decide the validity of a contingency fee arrangement only if the question is referred to him, and that an assessment officer has no jurisdiction to decide whether such a contract is fair and reasonable. In the case at bar, nothing to do with the contingency fee arrangement was referred to the assessment officer. He acted without jurisdiction.

[13] The clients argue that the solicitors are estopped from objecting to the assessment officer’s jurisdiction on the basis of another decision of the Court of Appeal, Price v. Sonsini, 2002 CanLII 41996 (ON CA), [2002] O.J. No. 2607. Price is the case in which the Court made it clear that the 30-day limitation for issuing an assessment as of right counts from the final bill even if interim bills have been rendered. The Court also held that the clients were not entitled to object to the validity of the order for assessment on the ground that the solicitor had proceeded by application instead of requisition when they had not objected for five years, by which time the assessment had been completed. The Court said (at paragraph 21):

An assessment officer has jurisdiction to assess solicitors' accounts. The Solicitor's Act sets out the procedures to initiate assessments. Fairness and the orderly administration of justice require that solicitors raise procedural objections in a timely manner. To allow such objections to be raised years later, after a lengthy and costly hearing on the merits, would be to invite chaos. Accounts long settled could be reopened because of overlooked or long forgotten procedural shortcomings. It follows that the respondent is now precluded in law from raising his procedural objections.

[14] Price is distinguishable from the case at bar. There, 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.

[15] There is a principle of common law that a party cannot object to the jurisdiction of an authority when it has consented to have that authority decide the matter. That principle has no application here. The client questioned the contingency fee arrangement before the assessment officer and the solicitor defended it, before the Cookish decision was known. That does not amount to consent by the solicitor to submit the question to the assessment officer.

[16] The assessment officer acted without jurisdiction in disallowing the contingency fee. That part of his order is set aside, and the report is varied accordingly. Under the order of Tucker J., the entire amount is now payable.

Construction of the contingency fee agreement

[17] In case I am wrong on the jurisdiction point, I wish to deal with the assessment officer’s handling of the contingency fee agreement.

[18] The assessment officer misconstrued the agreement. He said that it was meant to apply to extra-legal work and that it was intended to depend on the solicitor achieving success in the appeal from the order of Lofchik J. Those findings were not open to him on the evidence. At this juncture a review of the facts is appropriate.

[19] The clients were registered owners of several pieces of property. One such property was worth $20,000,000. They gave a first mortgage and a second mortgage. An outfit called Tuckernuck held the second mortgage and then bought the first mortgage. The clients defaulted. They came to a settlement that was later amended. Under the settlement they made payments. They also gave a written consent to foreclosure on the first mortgage, to be held by the mortgagee “just in case.” The clients took the position that the payments they had made were on account of the first mortgage, with the result that the first mortgage was paid in full by March 6, 2006. The mortgagee attributed the payments differently with the result that it thought that it could foreclose on the first mortgage pursuant to the consent. It did so. Using the consent it got an ex parte order for foreclosure from Echlin J. without making adequate disclosure. The clients, represented by their previous solicitor, moved before Lofchik J. to set aside Echlin J.’s order. They did not produce the record that had been before Echlin J. and they were unsuccessful. They then consulted Mr Evans with a view to retaining him to appeal Lofchik J.’s decision to the Court of Appeal.

[20] The clients suggested the $500,000 bonus. There was extensive negotiation. It was clear that Mr Evans wanted the bonus to be payable if the appeal was allowed. Mr Zawadzki for the clients wanted the bonus to depend on how much money he was able to recover by selling the property. The written agreement provided that the solicitors would be paid all legal fees and disbursements and, in addition, a “bonus” as follows: “In the event that the appeal is granted, the Law Firm shall be paid $500,000.” It said, “granted”, not “successful.”

[21] The agreement went on to express that there would be no bonus if the appeal is “not granted.”

[22] If the appeal were settled, payment of the bonus would depend on the success of the clients in recovering money from the sale of the real property in question. It set out two sample calculations in that event.

[23] The assessment officer held that the agreement contemplated a $500,000 bonus if the appeal resulted in success at realizing $5,000,000 from the sale of the property. It was not open to him to do so. 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.

Whether the contingency fee agreement was fair and reasonable

[24] The assessment officer found the contingency fee agreement to be unfair based on a number of criticisms of Mr Evans’s work. I think that these criticisms were all the product of palpable and overriding errors of fact, combined with his misinterpretation of the agreement in the first place.

[25] The appeal from the order of Lofchik J. was allowed. The foreclosure was set aside. Although the solicitor asked for a declaration that the first mortgage had been paid, the Court of Appeal was not prepared so to order. The solicitors cannot be blamed for that. The solicitors then moved before Carpenter-Gunn J. for the declaration the clients needed, and they got it. An appeal by the mortgagee from the order of Carpenter-Gunn J. was successfully defended by the solicitor. In the time between the granting of the first appeal and the dismissal of the second appeal, a time limited offer to buy the property for $11,000,000 expired and the buyer decided not to go ahead.

[26] The assessment officer criticised Mr Evans for not getting the record that was before Echlin J. sooner and filing it with the Court of Appeal. The sufficiency of the record that had been before Echlin J. was not the only issue in the appeal. The motion for fresh evidence was filed a few weeks before the hearing, as is usual. The matter was factually complex, (“convoluted” in the words of the assessment officer) and Evans Sweeny Bordin came in after an inadequate performance by previous counsel. There no foundation for the conclusion that earlier resort to the record before Echlin J. would have produced better results. In fact, Mr Evans’s memo of March 2007 shows that he immediately picked up the key point: the sufficiency of the record before Echlin J., a point his predecessor had overlooked. Within a year he had filed an appeal to the Court of Appeal, including an application for fresh evidence, and had been successful in overturning the foreclosure. There is nothing remarkable about this time frame. By way of comparison, the complexity of the assessment required the assessment officer to reserve his decision for 17 months.

[27] The solicitors were criticised for taking three months to take out the order of the Court of Appeal. The record shows that Mr Evans made constant efforts, but the terms were complicated and the opposite party would not consent. Mr Evans made an appointment to settle the order and got it settled within this relatively short time.

[28] The solicitors were criticised for not asking Carpenter-Gunn J. to grant relief from the 18% interest rate on the second mortgage. The assessment officer does not say on what ground such relief might have been obtained. As far as the record shows, no subsequent solicitor has succeeded in this respect.

[29] The assessment officer criticised Mr Evans for not knowing that an appeal does not stay an order for an accounting. It is not apparent how that might have made a difference. The clients owed money. They were not in a position to demand an accounting and pay off the mortgages.

[30] The assessment officer criticised Mr Evans for not enforcing cost orders. Again, moving to enforce costs against someone who has the right to foreclose on a second mortgage might not always be the best idea. It is a judgment call which ought not to be second guessed in these circumstances.

[31] The assessment officer noted that neither Mr Evans nor Ms Hill had experience in municipal or planning law. This is true. The written record shows that Mr Evans told the clients so and recommended that they retain a lawyer with such experience. Mr Evans also retained an expert for the proceedings before Carpenter-Gunn J. whose evidence was very effective. The assessment officer used this evidence to review the solicitors’ involvement in the Fort Erie file and say, “From the evidence before me it is unclear what the Solicitors were attempting to do other than to involve themselves in an aspect of Zawadszki’s affairs which might prove profitable.” This wounding and inflammatory observation is entirely unfounded. It was very unfair to Evans Sweeny Bordin for the assessment officer to make it.

[32] The assessment officer’s ultimate conclusion is expressed in these terms:

While the evidence before me relates to property values and mortgages in millions of dollars, there is no evidence that the services resulting in over $800,000 in billings by the Solicitors had any substantial tangible benefit for the Clients.

[33] The clients were in trouble because they defaulted on their obligations, they consented to foreclosure and they made a settlement that did not clearly attribute payments as between their various obligations. Then the mortgagee acted unfairly before Echlin J. Since the clients’ previous lawyer did not pick it up, they lost the motion before Lofchik J. Once the clients hired Evans Sweeny Bordin, they won an appeal in the Court of Appeal to reverse Lofchik J. and set aside the foreclosure, they won a motion before Carpenter-Gunn J. to restore their title and they succeeded in defending that order on appeal. The result of the solicitors’ work was to restore title to property worth not millions, but tens of millions. This string of successes took longer than was convenient for the client, but that in no way makes the contingency fee unfair or unreasonable. The solicitors were simply a convenient place for the clients to place the blame for their woes. Unfortunately the assessment officer went along.

[34] The factors to consider in determining the fairness of a contingency fee agreement are the same as those which are relevant to establishing a fair and reasonable fee. They are listed by Roccamo J. in Williams v. Bowler (2006), 2006 CanLII 19466 (ON SC), 81 O.R. (3d) 209, paragraph 33. The weightiest ones in the case at bar are the value of the property in question and the risk of not getting paid. The solicitors have, in fact, not been paid in all these years. The clients were asset rich but cash poor. That might be overstating their resources, because their land empire rather resembles a house of cards. The assessment officer’s conclusion was unreasonable. I would have set it aside on that ground if I had thought that he had jurisdiction.

Conclusion

[35] The report of the assessment officer is varied as follows:

Fees claimed

$812,543.91

Fees awarded

$768,354.13

Less fees paid

$ 4,691.86

Subtotal payable by client

$763,662.29

Add: costs of assessment

Add: costs of motion

Add: pre-judgment interest

Total payable by clients

[36] If the parties are unable to settle costs of the assessment, prejudgment interest to date and costs of the motion, they may make written submissions, the solicitors within 7 days of release of this endorsement and the clients within 7 days thereafter.

J.A. Ramsay J.

Date: 2015-02-06