Court File and Parties
COURT FILE NO.: CV-17-569060 DATE: 2019/03/18 ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
Applicant (Respondent in Appeal): Bee Vectoring Technology Inc. Respondent (Appellant): Chitiz Pathak LLP
Counsel: James Manson for the Applicant J. Thomas Curry and Alastair J. McNish for the Respondent
HEARD: March 8, 2019
PERELL, J.
REASONS FOR DECISION
A. Introduction
[1] After originally being retained in the fall of 2013 on a transactional matter, Chitiz Pathak LLP became the corporate lawyer for Bee Vectoring Technology Inc. The law firm was also retained by Michael Collinson, the principal shareholder of Bee Vectoring and its CEO, for a personal litigation matter. In late 2015 and early 2016, the lawyer-client relationships between the law firm and Mr. Collinson soured, and then it ended. Bee Vectoring and Mr. Collinson respectively sought to have all of the law firm’s accounts referred for an assessment under the Solicitors Act. There were four matters for which Bee Vectoring sought an assessment; namely: (1) the first qualifying transaction; (2) the second qualifying transaction; (3); the financing transaction; and (4) general corporate matters. Chitiz Pathak did not object to having the financing transaction assessed, but it resisted assessment of the three other files. On a motion, Master Sugunasiri held that there was “special circumstances” for the first qualifying transaction and the second qualifying transaction, and she ordered that these files be assessed. She ruled that there were no special circumstances for the accounts for the general corporate matters.
[2] Chitiz Pathak appeals the Master’s decision. There was no-cross-appeal by Bee Vectoring.
[3] For the reasons that follow, the appeal is dismissed.
B. Facts
[4] In 2010, Mr. Collinson acquired rights to a technology that used bees to deliver biological controls to crops. He incorporated Bee Vectoring and was its majority shareholder, president, CEO, and chairman of the board of directors.
[5] In the fall of 2013, Mr. Collinson for Bee Vectoring retained Josh Arbuckle, a partner of Chitiz Pathak, to assist it in what is known as a qualifying transaction under the Securities Act. Bee Vectoring was a privately held corporation, and a qualifying transaction is a way for a privately held corporation to be transformed into a public company by its shareholders selling their shares to a “capital pool company”, which is a public corporation that is already listed on a stock exchange. CT Developers Ltd. was the proposed capital pool company.
[6] As is customary in this area of legal services, the legal fees for a qualifying transaction are paid on the closing of the transaction. Mr. Arbuckle advised Bee Vectoring’s Board of Directors that the estimated fees would be around $150,000. The firm agreed to accept $50,000 of Bee Vectoring debentures as part payment of its fees.
[7] By May 2015, it became clear that Bee Vectoring was unable to secure the financing to complete the first qualifying transaction with CT Developers. In anticipation of this contingency, the firm had already opened another file for the second qualifying transaction. This time the capital pool company was Unique Resources Corp. This transaction was successful, and it closed in June 2015. The legal fees for the first and the second qualifying transaction were paid out from the proceeds from the second qualifying transaction.
[8] Between December 31, 2013 and December 21, 2015, Chitiz Pathak issued seven invoices totaling $205,973.57 and an eighth write-off invoice for $57,681.50 with respect to the first qualifying transaction for a total billing of $148,292.07 for the first qualifying transaction.
[9] On July 2, 2015, Chitiz Pathak issued an invoice of $164,550.96 for the second qualifying transaction and on December 21, 2015, it issued a write-off invoice for $13,345.00 for a total billing of $151,205.96 for the second qualifying transaction.
[10] There is evidence that Mr. Collinson and other members of the Board of Directors expressed satisfaction and gratitude for the legal services of the firm and up until the fall of 2016. There was no suggestion of any concerns or complaints about the reasonableness of the legal fees.
[11] After its initial retainer for the first qualifying transaction, Chitiz Pathak began to provide corporate counsel legal services for Bee Vectoring. Between July 2, 2015 and November 2, 2016, Chitiz Pathak rendered 17 invoices in respect of general corporate matters.
[12] Between 2014 and 2016, Mr. Collinson also retained Daniel Chitiz, another partner of the law firm and a litigation lawyer, to act with respect to personal matters.
[13] In January 2016, Bee Vectoring gave instructions to Chitiz Pathak to act for it on a financing transaction with a Swiss investor.
[14] In September 2016, Ashish Malik replaced Mr. Collinson as president and CEO of Bee Vectoring. Mr. Collinson deposed that up until then, he was too busy in developing the Bee Vectoring’s business and technology to put his mind to the appropriateness of Chitiz Pathak’s accounts for legal services.
[15] Mr. Collinson also said he was afraid to start the process of having the law firm’s bill assessed because he did not wish to jeopardize his own ongoing and Bee Vectoring’s ongoing relationship with the law firm.
[16] In the fall of 2016, there was a dispute between Mr. Collinson and Mr. Chitiz about the concluded litigation matter. Mr. Collinson threatened to have all his personal accounts and all of Bee Vectoring’s accounts assessed if his dissatisfaction with Mr. Chitiz’s account was not resolved. Mr. Arbuckle attempted to mediate a resolution without success, and in December 2016, Mr. Collinson requested an assessment with respect to his personal matters and an assessment of all the fees charged for all Bee Vectoring matters from the beginning of the retainer with the law firm. Chitiz Pathak then resigned as Bee Vectoring’s corporate counsel.
[17] In January 2017, Chitiz Pathak sent its second and final account on the financing transaction matter. The billings for the financing transaction totaled $25,269.63.
[18] On February 6, 2017, at Bee Vectoring’s request, the Registrar ordered an assessment of all of Chitiz Pathak’s invoices.
[19] Chitiz Pathak moved to have the Registrar’s Order set aside, and on October 17, 2017, Master Sugunasiri set aside the registrar’s order save with respect to the assessment of the financing file, which she held was a timely assessment request. Further, she held that the first qualifying transaction, the second qualifying transaction, and the general corporate matters were out of time for an assessment, unless Bee Vectoring could demonstrate special circumstances under the Solicitors Act.
[20] There was a motion to determine whether there were special circumstances with respect to the three accounts, and on June 20, 2018, Master Sugunasari ordered that there were indeed special circumstances for an assessment of the first qualifying transaction and the second qualifying transaction, but not for the general corporate matters. She ordered an assessment accordingly.
[21] In her Reasons for Decision after setting out the factual background and the legal principles associated with special circumstances, the Master applied the law to the facts. The core of the Master’s reasoning for permitting the assessments is set out in paragraphs 10-11 of her endorsement, which states:
I agree with BVT that it is difficult to turn one's mind to whether or not a solicitor has overcharged or given appropriate value while in the midst of the legal-work being done. … Chitiz Pathak LLP continued to do work for BVT until its final invoice relating to the Swiss Financing came in January of 2017. It was not until then that Collinson, as a principal contact person for BVT, could reasonably turn his mind to the appropriateness of the accounts.
As Chitiz Pathak LLP points out, it is not for this court to guess at whether or not the bills rendered are exorbitant or appropriate for the complex corporate work done. Collinson admits that as a client he is unable to determine the reasonableness of the bill and looks to the assessment for assistance. Having reviewed the invoices, however, he alleges that there is duplication due to the similarity between the two qualifying transactions. I agree with BVT that all of this is better determined by an assessment officer whose role is to make these determinations.
Sometimes billing issues only become apparent in the sober light of day once the solicitor client relationship has ended. Sometimes a client's animosity leads to the threat of assessment. In this case however, BVT has been consistent in its pursuit of the assessment once all matters had come to an end. It may have started as a threat but BVT has been unwavering in its pursuit of assessment. On balance I accept Collinson's explanation as to why he delayed in challenging the accounts. I also accept that in his mind, all of the legal work was one continuous retainer that he was only able to scrutinize at the end. In my view, BVT has a bona fide concern and would not go to such great lengths (now, two contested motions) to merely pursue a grudge. The circumstances of this case warrants an independent third-party review by an assessor of Chitiz Pathak LLP's accounts with respect to the qualifying transactions. It may be that they are all determined to be reasonable. My decision should not in any way be taken a criticism of Chitiz Pathak LLP. It is simply a decision favouring the right of a client to have accounts assessed over the right of solicitors to have finality after their accounts are paid.
[22] Chitiz Pathik appeals the Master’s Order with respect to the first qualifying transaction and the second qualifying transaction. There was no cross-appeal with respect to the general corporate matters file.
C. Standard of Appellate Review
[23] A Master's decision will be interfered with on appeal, if the Master made an error of law or exercised his or her discretion on the wrong principles or misapprehended the evidence such that there is a palpable and overriding error; where the Master has erred in law, the proper standard of review is correctness. This is established in Zeitoun v. Economical Insurance Group, 91 O.R. (3d) 131 (Div. Ct.), aff'd, 2009 ONCA 415, 96 O.R. (3d) 639 (C.A.).
[24] Zeitoun v. Economical Insurance Group establishes that the standard of appellate review from a master’s order is in accordance with the standards of appellate review set out by the Supreme Court of Canada in Housen v. Nikolaisen, 2002 SCC 33, which established that there are different standards of appellate review for issues of law, issues of fact, and issues of mixed fact and law.
[25] Issues of law are about what is the correct legal test. The standard of appellate review for errors of law is correctness. The application of an incorrect legal standard, a failure to consider a required element of a legal test, or an error in principle is an error in law. It is an error in law for a judge or tribunal member to fail to provide an explanation of his or her decision that is sufficiently intelligible to permit appellate review: R. v. Sheppard, 2002 SCC 26, [2002] 1 S.C.R. 869; Law Society of Upper Canada v. Neinstein, 2010 ONCA 193.
[26] Issues of fact are about what events took place between the parties. The standard of review for findings of fact is that factual findings ought not to be reversed unless it is established that the trial judge made a palpable and overriding error. The palpable and overriding error test is met if the findings are clearly wrong or can properly be characterized as unreasonable and unsupported by the evidence: H.L. v. Canada (Attorney General), 2005 SCC 25. A "palpable" error is one that is obvious, plain to see or clear: Housen v. Nikolaisen, 2002 SCC 33. An "overriding" error is an error that goes to the root of the finding of fact such that the fact cannot safely stand in the face of that error: Schwartz v. Canada, [1996] 1 S.C.R. 254.
[27] Questions of mixed fact and law are questions about whether the facts satisfy the legal tests: Canada (Director of Investigation and Research, Competition Act) v. Southam Inc., [1997] 1 S.C.R. 748. Where the legal principle is not readily extricable, then the matter is one of mixed law and fact: Housen v. Nikolaisen, 2002 SCC 33. If fact-finding is integral to the ultimate determination of the question, the question is an issue of mixed fact and law: Ferreira v. Esteireiro, 2013 ONSC 4620. The standard of review for findings of mixed fact and law is on a spectrum between correctness and palpable and overriding error: Housen v. Nikolaisen, 2002 SCC 33.
D. Discussion and Analysis
[28] There is no dispute that the issue that the Master was required to resolve on the motion before her was whether there were “special circumstances” under sections 4 and 11 of the Solicitors Act that would justify an assessment of the law firm’s accounts for the first qualifying transaction, the second qualifying transaction, and the general corporate matters.
[29] Sections 4 and 11 of the Act provide:
No reference on application of party chargeable after verdict or after 12 months from delivery
4. (1) No such reference shall be directed upon an application made by the party chargeable with such bill after a verdict or judgment has been obtained, or after twelve months from the time such bill was delivered, sent or left as aforesaid, except under special circumstances to be proved to the satisfaction of the court or judge to whom the application for the reference is made.
Payment not to preclude assessment
11. The payment of a bill does not preclude the court from referring it for assessment if the special circumstances of the case, in the opinion of the court, appear to require the assessment.
[30] The case law about the Solicitors Act establishes that a client seeking an assessment of his or her lawyer’s account must show special circumstances if the client is seeking an assessment more than twelve months after the delivery of the bill of accounts or if the client is seeking an assessment of an account that has already been paid.
[31] “Special circumstances” are circumstances of an exceptional nature affecting the matter of costs or the liability of a client that a judge, in the exercise of his or her judicial discretion in each particular case, may consider relevant to justify ordering an assessment of the account. This principle is supported by cases such as Clatney v. Quinn Thiele Mineault Grodzki LLP, 2016 ONCA 377; Glanc v. O’Donohue & O’Donohue, 2008 ONCA 395, 90 O.R. (3d) 309 (C.A.); Plazavest Financial Corp. v. National Bank of Canada, 47 O.R. (3d) 641 (C.A.). In determining whether there are special circumstances, the court exercises a broad discretion to be exercised on a case-by-case basis and with an eye to all of the relevant circumstances: Guillemette v. Doucet, 2007 ONCA 743, 88 O.R. (3d) 90 (C.A.); Plazavest Financial Corp. v. National Bank of Canada, 47 O.R. (3d) 641 (C.A.). Special circumstances is a fact-specific inquiry: Echo Energy v. Lenczner Slaght Royce Smith Griffin LLP, 2010 ONCA 709, leave to appeal to S.C.C. refused [2010] S.C.C.A. No. 484.
[32] The factors relevant to whether there are special circumstances include but are not limited to: (a) the sophistication of the client; (b) the adequacy of communications between the client and the lawyer; (c) whether there is evidence of increasing lack of satisfaction by the client regarding the lawyer’s services; (d) whether there is evidence of overcharging; (e) the extent of the details of the bills; (f) whether the lawyer and client relationship has terminated or is ongoing; and (g) whether the payments could be characterized as involuntary: Clatney v. Quinn Thiele Mineault Grodzki LLP, 2016 ONCA 377. The payment of the account is a factor to consider in determining whether there are special circumstances: Davies, Ward & Beck v. Union Industries Inc., 48 O.R. (3d) 794 (C.A.), but the starting point is the perspective of the client, and public confidence in the administration of justice requires the court to intervene where necessary to protect the client’s right to a fair procedure for assessment of a solicitor’s bill: Clatney v. Quinn Thiele Mineault Grodzki LLP, 2016 ONCA 377; Echo Energy v. Lenczner Slaght Royce Smith Griffin LLP, 2010 ONCA 709, leave to appeal to S.C.C. refused [2010] S.C.C.A. No. 484; Andrew Feldstein & Associates Professional Corp. v. Keramidopulos, [2007] O.J. No. 3683 (S.C.J.); Price v. Sonsini, 60 O.R. (3d) 257 (C.A.).
[33] What amounts to special circumstances differs when the issue is whether an assessment should be permitted after the one-year limitation period imposed by the Solicitors Act as contrasted with the issue of whether an assessment should be permitted of a paid account. In the latter context, the special circumstances requirement reflects the inference that payment of an account implies that the client accepted the account as reasonable: Echo Energy v. Lenczner Slaght Royce Smith Griffin LLP, 2010 ONCA 709, leave to appeal to S.C.C. refused [2010] S.C.C.A. No. 484; Guillemette v. Doucet, 2007 ONCA 743, 88 O.R. (3d) 90 (C.A.). When the account has been paid, the special circumstances must tend to undermine the presumption that the account was accepted as proper or show that the account was excessive or unwarranted: Hofman v. Bennett Jones LLP, 2011 ONSC 7124. On the one hand, the court should look at the matter from the client’s perspective to determine whether the presumption that the account was reasonable is sound, but, on the other hand, in considering whether an assessment should be ordered, the court should protect lawyers from vulnerability to refunding accounts that have been paid for some considerable period of time without prior protest or objection from the client: Hofman v. Bennett Jones LLP, 2011 ONSC 7124.
[34] Generally speaking, an appeal from a master’s determination of whether there are special circumstances raises an issue of mixed fact and law. In the immediate case, Chitiz Pathak submits that the Master made an error in principle in her treatment of the law and facts associated with the principle of special circumstances. It submits that it is an error in principle to find special circumstances for no other reasons than the client was too busy to put its mind to the reasonableness of the accounts and that it was afraid to disturb the lawyer client relationship because it has ongoing matters. Chitiz Pathak submits there was no evidence before the Master to support a conclusion that special circumstances exist to justify an assessment of accounts that were accepted and paid over a year before Bee Vectoring sought an assessment. It submits that the Master's factual finding that Bee Vectoring could not reasonably seek an assessment until Chitiz Pathak's work was completed was not supported by the evidence, and her conclusion, based on that finding, that special circumstances were made out, amounts to a reviewable error of fact and law and her decision should be reversed. It submits that the Master erred in principal in accepting the alleged concern about alienating Bee Vectoring’s lawyers as a "special circumstance" to justify waiting a year-and-a-half after making payment to seek assessment of the first qualifying transaction and the second qualifying transaction.
[35] I disagree. I am unable to extract an error of principle. The Master was knowledgeable with respect to the legal principals associated with the principle of special circumstances, and she made no palpable and overriding error in her findings of fact to which she applied the legal principles. The determination of special circumstances is a highly fact-specific inquiry and the Master undertook that inquiry.
[36] I do not read her Reasons for Decision so narrowly as suggested by Chitiz Pathak. She considered the whole history of the relationship between the lawyer and client back to its beginning. She was aware of the firm’s argument that Mr. Collinson’s fears of disturbing the relationship with the law firm was a bogus excuse for not challenging the reasonableness of the accounts and that his late-arriving request for an assessment of old accounts was taken in spite because he was unhappy with what he had been charged on his personal files. The Master considered whether there was substance to Mr. Collinson’s explanation and she also considered other facts that might qualify as special circumstances that would justify or conversely not justify an assessment. In particular, she considered whether notwithstanding expressions of satisfaction with the quality of the law firm’s work for Bee Vectoring, there might be some substance to a concern that the fees charged might be unreasonably high. She saw no substance to such concern for the general corporate file and accordingly found that there was no special circumstances for that matter. She thought that there might be some substance to the concern of overbilling and without suggesting that the law firm was attempting to avoid having the matter tested and recognizing that it might ultimately be determined that all the accounts were reasonable, she felt that there was enough of a concern and enough special circumstances to justify having the assessment officer decide.
[37] I conclude that there are no grounds to overturn the Master's decision.
E. Conclusion
[38] For the above reasons, the appeal is dismissed.
[39] If the parties cannot agree about the matter of costs, they may make submissions in writing beginning with Bee Vectoring’s submissions within twenty days of the release of these Reasons for Decision followed by Chitiz Pathak’s submissions within a further twenty days.
Perell, J.
Released: March 18, 2019