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Civil Litigation

OCA slams billable-hour model

A Court of Appeal decision, where the judge had strong words for a receiver's legal fees, could have significant implications for other trials involving large legal fees, says Toronto civil litigator Patricia Virc

“This will be an important case when it comes time for court approval of the massive legal bills relating to the Nortel cross-border trial," says Virc, lawyer with Steinberg Title Hope & Israel LLP.

Bank of Nova Scotia v. Diemer, 2014 ONCA 851 (CanLII), released earlier this week, involved court approval of the fees of the court-appointed receiver of a cattle farm near London, Ont.  

"This appeal involves a motion judge’s refusal to approve legal fees of $255,955 that were requested by a court-appointed receiver on behalf of its counsel in a cattle farm receivership that spanned approximately two months," the decision reads.

The motion judge, in reducing the legal bill by about $100,000, held that the fees were disproportionate to the size of the receivership and described them as “nothing short of excessive.”

Justice Sarah E. Pepall for the Court of Appeal dismissed the receiver’s appeal, and held that “there is something inherently troubling about a billing system that pits a lawyer’s financial interest against that of its client and that has built-in incentives for inefficiency. The billable hour model has both of these undesirable features.”

For example, the court pointed to senior counsel charging $600+ an hour to perform tasks that didn't require senior-level application of skill. The court also stated that dockets in blocks of time provided little insight into the value provided.

"Moreover, each hour is divided into 10 six-minute segments, with six minutes being the minimum docket," Pepall wrote. "So, for example, reading a one line email could engender a six minute docket and associated fee. This segmenting of the hour to be docketed does not necessarily encourage accuracy or docketing parsimony."

Virc tells AdvocateDaily.com the court was troubled by the largesse of the legal fees charged where the people instructing counsel were spending other peoples’ money.

"Basically what the court is saying is don't just expect to be paid for time spent, you must deliver value, particularly when the stakeholders, who are paying your account, are not being consulted," she says. "When you're spending somebody else's money, you have to make sure you deliver value."

Virc points to a similar case, Echo Energy Canada Inc. v. Lenczner Slaght Royce Smith Griffin LLP, 2010 ONCA 709 (CanLII). 

"That was an important feature of the Echo v. Lenczner Slaght case that I argued, where the court directed an assessment of paid accounts for legal fees, even though they had been approved by outgoing management," she says.

In Lenczner, the court held “It cannot be forgotten that it was the appellant, a public company, that was paying the bills, not the directors." The court also commented on the amount of the fees in relation to the corporation’s financial condition, says Virc.

Another interesting aspect of Bank of Nova Scotia, Virc says, is that the principles described in its reasons may be applicable to areas of practice other than insolvency.

"There may be lawyers who aren't happy about this decision, but those of us who aren't charging those rates are saying it's about time," says Virc. "I think this is an important decision for both lawyers and clients.

"The comments of the Court of Appeal were so strong, a lot of writers and journalists have said that about legal fees, but now the court of appeal has said it," she says. "This means much more."

 

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