Berge Horn v. Hewson et al.

2008 BCSC 675 Berge Horn v. Hewson et al IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Berge Horn v. Hewson et al., 2008 BCSC 675 Date: 20080529 Docket: S70143 Registry: Kelowna In the Matter of the Legal Profession Act S.B.C. 1996, c.9, s.70 Between: Berge Horn Solicitors And Benjamin Brock Hewson and/or Celltech Labs Inc. and/or Okanagan Leading Ventures Ltd. Clients Before: Master Taylor (As Registrar) Reasons for Decision Counsel for the Solicitors: E.C.H. Ledding Counsel for the Clients: M.F. Welsh Date and Place of Hearing: September 4 & 5, 2007, November 1, 2007 and February 22, 2008 Kelowna, B.C. Written Submissions: March 10 & 25, 2008; April 1, 2008 [1] By appointment taken out by the clients, the clients seek to have the accounts of the law firm dated February 11, April 27, December 14, 2004 and March 7, June 10 and August 12, 2005 reviewed. At the outset of the assessment, counsel for the clients indicated the primary focus would be on the last two accounts of June 10 and August 12, 2005. It was also admitted on behalf of the clients that disbursements were not in issue. [2] The central issue in this case is whether a contract for the provision of legal services existed between the solicitors and the clients, or whether the solicitors are to be paid for their services on a quantum meruit basis by applying s.71 of the Legal Profession Act, S.B.C. 1998, c.9 and therefore whether the accounts are reasonable in the circumstances. Everything turns on the determination of this and, accordingly, I will analyze it first. Was There a Retained Agreement? [3] On or about January 16, 2004, Bradley Cronquist, a lawyer working at Berge Horn in Kelowna, received a phone call from Ben Hewson. Three days later, Mr. Hewson and Mr. Cronquist had a conference at Mr. Cronquist's office. Mr. Hewson consulted Mr. Cronquist about his position as director, officer and shareholder of Celltech Labs. Inc. Also discussed were Mr. Hewson's rights and obligations under the Shareholder's Agreement between Mr. Hewson, Mr. Schroth and Mr. Penner. By February 11, 2004, Mr. Cronquist rendered an account to Mr. Hewson for a total of $1,623.28. Of that, $1,350 represented the fee component of the account. Mr. Hewson continued to consult with Mr. Cronquist and on April 27, 2004, Mr. Cronquist rendered an account to Mr. Hewson for $350 in fees, $3 in disbursements and $50.96 in taxes. Both accounts were paid from trust as Mr. Hewson had paid a $2,000 retainer to Mr. Cronquist on February 12, 2004. After the April 27, 2004 account had been rendered, a net amount of $27.24 was still owing as the retainer had been depleted. The second account rendered by Mr. Cronquist dealt with transactions between himself and Mr. Hewson up to and including April 5, 2004. [4] According to Mr. Cronquist, it was some months later when Mr. Hewson again called. Apparently matters between himself and his partners in Celltech were escalating to litigation. Mr. Cronquist introduced Mr. Hewson to Douglas Flannigan, another lawyer at Berge Horn. According to Mr. Flannigan's evidence, this meeting would have occurred somewhere around November 2004. His evidence was that he and Mr. Cronquist first spoke about Mr. Hewson's difficulties one day in November 2004 and that he actually met Mr. Hewson the following day. [5] The matter which gave Mr. Hewson so much concern was a letter he received from the law offices of Doak, Shirreff which enclosed documents in which Bernie Penner purported to call an extra-ordinary general meeting of the shareholders of Celltech Labs Inc. at which it was proposed that Mr. Hewson would be removed as the sole director of Celltech and replaced with Bernie Penner and Hans Schroth as directors. The notice was dated November 15, 2004 and purported to call the meeting for December 7, 2004 at 2:00 p.m. [6] Mr. Hewson maintains that at the first meeting with Mr. Flannigan his father attended by long distance telephone and during the course of discussion asked Mr. Flannigan how long an action for oppression would take and how much it would cost. He maintains that Mr. Flannigan responded it would take three months, with one day in court and cost $10,000. He further maintains that when asked about hourly rates, Mr. Flannigan told him his hourly rate was $350/hr. for appearing in court and $300/hr. when not in court, and that Heidi Egli (now Heidi Taylor) would be billed out at $125/hr. [7] It is submitted on behalf of Mr. Hewson that this conversation binds the firm to billing on an hourly fee basis only and, accordingly, no bonus billings or billing on a quantum meruit basis would therefore be permitted. [8] On cross-examination, Mr. Hewson agreed that Mr. Flannigan never gave him a formal quote for legal fees. Mr. Hewson also agreed on cross-examination that none of the lawyers at the firm gave an indication to him that the accounts rendered to Mr. Hewson would be based solely on a calculation of time spent multiplied by the various hourly rates of the lawyers involved on his file. In fact, Mr. Hewson specifically said that if one of the lawyers from the firm had said so, it would have been a retainer agreement. He then went on to say that there was no retainer agreement. [9] Mr. Hewson extrapolates from the two accounts rendered to him by Mr. Cronquist that, because as he later determined, the fee component of each of those bills matched the time spent by Mr. Cronquist multiplied by his hourly rate, then all further accounts rendered by the firm to him would be calculated on the same basis. [10] It has been urged upon me in the submissions on behalf of Mr. Hewson that the case of Swinton & Co. v. Perry, [1985] B.C.J. No. 2850, 69 B.C.L.R. 114 is authority for the proposition that when there is no agreement in writing between solicitor and client and the evidence of the client and lawyer is equal as to credibility, then the client's position must be accepted. [11] That case was one where after entering into an agreement to provide legal services on an hourly-fee basis, the law firm, when rendering its final account, determined that it would charge a bonus. [12] In determining that the firm was not entitled to the $25,000 bonus, Leggatt, Co.Ct.J. (as he then was) said this starting at paragraph 20: [20] A deal, in other words, is a deal. [21] Yule v. Saskatoon, supra, in these circumstances can be applied to test the solicitor's account within the bounds of the agreement, but it should not be applied to extend the agreement beyond the terms enunciated to the client. [22] A client is entitled to be given clear, specific and unambiguous information, regarding the cost of legal services. Yule v. Saskatoon, supra, is a case in which no interim billing was developed and it was only after the final bill was rendered that it was determined to be appropriate. That is not the case at bar. An hourly rate was agreed to and an hourly rate was paid as bills were rendered. If a lawyer and client agree to a fee on terms, those terms are binding and a lawyer is not free to vary by adding a bonus unless there is no question that the client was fully informed and aware that such a bonus would be charged. [25] The complexity and skill of the legal matters handled by the plaintiffs could have justified the total account rendered but the key question here is, did the defendants agree to pay a bonus? I find they did not. [13] In my view, Swinton & Co. v. Perry is distinguishable on its facts from the case at bar. In Swinton, there was a retainer agreement. In the case at bar, Mr. Hewson has conceded there was no agreement. Not only do I find there was no agreement, I further find that the two accounts rendered by Mr. Cronquist in no way binds the firm to render accounts solely on an hourly-fee basis. Accordingly, the accounts of the law firm rendered to the client on June 10 and August 12, 2005 will be assessed solely pursuant to the criteria set out in s.71 of the Legal Profession Act. [14] Section 71 of the Legal Profession Act provides as follows: (2) Subject to subsections (4) and (5), the registrar must allow fees, charges and disbursements for the following services: (a) those reasonably necessary and proper to conduct the proceeding or business to which they relate; (b) those authorized by the client or subsequently approved by the client, whether or not the services were reasonably necessary and proper to conduct the proceeding or business to which they relate. (4) At a review of a lawyer's bill, the registrar must consider all of the circumstances, including (a) the complexity, difficulty or novelty of the issues involved, (b) the skill, specialized knowledge and responsibility required of the lawyer, (c) the lawyer's character and standing in the profession, (d) the amount involved, (e) the time reasonably spent, (f) if there has been an agreement that sets a fee rate that is based on an amount per unit of time spent by the lawyer, whether the rate was reasonable, (g) the importance of the matter to the client whose bill is being reviewed, and (h) the result obtained. (5) The discretion of the registrar under subsection (4) is not limited by the terms of an agreement between the lawyer and the lawyer's client. [15] The Legal Profession Act therefore sets out the criteria which I must use to assess the bills of the law firm rendered to the clients in this matter. [16] The law firm contends that not only did it do a good job for the client in difficult circumstances and that the result was an excellent one for the client, the law firm also maintains that Mr. Hewson was a difficult client and I am entitled to take that into account when I make my determination. [17] On the other hand, the client maintains that there was a duplication of services billed that the firm added in the bonus which it was not entitled to do and the fee should be adjusted to take into account a mistake made by Ms. Egli (Taylor) when corresponding with solicitors for Mr. Hewson's estranged partners about the severance pay which would be due to Mr. Penner. The client also objects to being billed for a meeting which Mr. Flannigan and Ms. Taylor attended at the offices of Nixon, Wenger in Vernon. The Accounts Date of Bill Fees Disburse-ments GST on Disburse- Ments GST on Fees PST on Disburse-ments PST on Fees Total Bill February 11, 2004 $1,350.00 $70.70 $4.95 $94.50 $1.88 $101.25 $1,623.28 April 27, 2004 $350.00 $3.00 .21 $24.50 -- $26.25 $403.96 December 14, 2004 $7,500.00 $792.39 $55.47 $525.00 -- $525.00 $9,397.86 March 7, 2005 $4,500.00 $348.82 $24.42 $315.00 -- $315.00 $5,503.24 June 10, 2005 $34,400.00 $883.81 $60.61 $2,408.00 -- $2,408.00 $40,160.42 August 12, 2005 $26,500.00 $1,102.97 $74.06 $1,855.00 -- $1,855.00 $31,387.03 [18] It is the last two accounts rendered by Mr. Flannigan that are in issue. The total amount of the outstanding balance of $84,326.27 was paid from funds held in the law firm's trust account. Accordingly, there is nothing owing to the law firm. Discussion [19] As part of the evidence tendered by the law firm, I heard evidence from James Paterson, a partner with the law firm of Pushor Mitchell in Kelowna. Mr. Paterson was called to the Bar of British Columbia in 1996 and has been practising at Pushor Mitchell since 2000. He is a corporate commercial solicitor who is familiar with basic corporate contracts as well as complex agreements and commercial financing. [20] Mr. Paterson was tendered as an expert who could provide an opinion of a practising solicitor in the Okanagan dealing with simple and complex share purchasing transactions and the financing of those transactions, and the billing of fees in relation to those transactions. Mr. Hewson admitted Mr. Paterson's qualifications in that he agreed Mr. Paterson could provide the court with an expert opinion with respect to the share purchase transaction which the solicitors carried out for Mr. Hewson. [21] Mr. Paterson provided a letter to the solicitors on March 15, 2006 at their request with respect to an opinion they sought from him. In the first paragraph of that letter Mr. Paterson wrote: You have requested that I provide to you my opinion as to the nature and importance of the services rendered and of the matter involved and of the reasonableness of the charges made by Berge Horn (the "law firm") in relation to two accounts provided by you to Mr. Ben Hewson and Okanagan Leading Ventures Ltd. (collectively referred to herein as the "clients"). [22] Mr. Paterson stated his conclusion as follows: My conclusion is that considering the factors noted herein, the fees charged by the law firm in respect of the accounts in the amount of $60,900 are reasonable for the services rendered by the law firm. I make no opinion as to the reasonableness of the disbursements. [23] Mr. Paterson gave his evidence in a very forthright manner. He thought the transaction for which the law firm drafted documents and negotiated the terms of sale and financing for Mr. Hewson was a very, very complex matter. He thought it very difficult to quantify but thought the fees reasonable in the circumstances. In fact he thought they could have been quite a bit higher and offered the suggestion that he would likely have charged more for the same transaction than the law firm had charged for completion of this transaction. [24] I turn now to the factors set out in s.71(4) of the Legal Profession Act: (a) the complexity, difficulty or novelty of the issues involved [25] In the opinion of Mr. Paterson, the issues were complex and difficult. There were several parties, a beneficial ownership scheme which included bare trust agreements and a very comprehensive share trust agreement, difficult negotiations over a lengthy timeline, valuation issues, due diligence issues, shotgun offers, corporate governance issues, accounting and tax issues and all of the issues pertaining to the drafting and negotiating and finalizing of the share purchase agreements. The share purchase agreements included two separate share purchase agreements for beneficial share interests, with a separate cross-default side agreement, severance issues, dealings with a complex litigation funding agreement, non-competition agreements and the financing documentation and negotiations required to extend the closing of the transaction. All of these were required to complete the purchase of Celltech by Mr. Hewson. [26] Again, Mr. Paterson provided the opinion that what occurred in this transaction was in no way ordinary or within the normal ambits of negotiation and drafting for the standard share purchase agreement between two parties. (b) the skill, specialized knowledge and responsibility required of the lawyer [27] In the opinion of Mr. Paterson specialized knowledge and responsibility was required in the handling of this matter by the law firm. He was also of the opinion that a lawyer maintaining a general solicitor's practise would have difficulty dealing with the share trust agreement, the form of share purchase agreement, the litigation funding agreement and the side agreement dealing with the cross-default upon non-execution of the share purchase agreement. All the while trying not to compromise the client's position with respect to the litigation should the matter not continue to its conclusion. (c) the lawyer's character and standing in the profession [28] Mr. Paterson provided the opinion that the law firm is a well-regarded law firm in the Okanagan and that the members of the firm who performed work for the client were competent, of good character and of good standing in the profession. (d) the amount involved [29] The amount involved included the share purchase price of $1,187,667 plus the value of the shareholders' loans and the amount of money personally guaranteed by Mr. Hewson in respect of previous financing of Celltech when Mr. Hewson and his partners purchased Celltech some years before. (e) the time reasonably spent [30] After reviewing time records of the firm, Mr. Paterson reached the conclusion that the time spent on the matter was reasonable. It would also appear that he took into account the nature of the client when he referred to Mr. Hewson as "a time-intensive client". By that I take it he means the amount of time that Mr. Hewson spent either at the office of the law firm or communicating with the lawyers, in particular, Mr. Flannigan of the law firm via e-mail. In particular 90 e-mails from the client to the law firm were counted in a one-month period alone. Again, Mr. Paterson opined that if he had been retained in similar circumstances his accounts would have at a minimum equalled the accounts of the law firm. (f) if there has been an agreement that sets a fee rate that is based on an amount per unit of time spent by the lawyer, whether the rate was reasonable [31] Mr. Paterson was of the view that the hourly rates charged by the lawyers of the law firm were reasonable. In this instance Mr. Paterson noted that Mr. Flannigan's hourly rate was $275 per hour. Even if Mr. Flannigan's hourly rate had been $350 for some of the work performed for the client in these circumstances, I take the view that given Mr. Flannigan's seniority and experience an hourly rate of $350 would not have been excessive. (g) the importance of the matter to the client whose bill is being reviewed [32] I do not believe that the importance to the client can be understated. Indeed, Mr. Paterson observed that from the voluminous amounts of e-mail from the client, correspondence, conferences with the client and telephone conferences with the client that the importance of the matter to the client was more than obvious. (h) the result obtained [33] Mr. Paterson opined that the result was an exceptional result for the clients in that Mr. Hewson ended up purchasing 100% of the interest of Celltech Labs and at a greatly reduced price. [34] It is to be remembered that there were two aspects to the retainer. The first being the question of oppression of a minority shareholder which the law firm dealt with by way of a petition seeking a declaration of oppression together with Mr. Hewson's 11-page affidavit and 95 pages of exhibits. In the course of being engaged in this capacity the law firm also prevented the occurrence of a special extra-ordinary meeting scheduled by the beneficial owners of the shares of Celltech to remove Mr. Hewson as a director of Celltech. [35] The second phase of the retainer involved the creation of the documentation as well as meetings and negotiations for the purchase of all of the shares in Celltech by Mr. Hewson. The two accounts of June 10 and August 12, 2005 deal specifically with this aspect of the retainer. [36] As well, while the time keeping records of the firm record a number of inter-office meetings between Ms. Taylor and Mr. Flannigan, they are only a guide to the firm as to how much time was spent on the clients' matters. They are only one aspect of whether or not the firm's accounts were reasonable given all of the other circumstances mentioned above. [37] Lastly, while it is true Ms. Taylor did write the letter offering two month's severance, there is no evidence to suggest Mr. Penner would only have taken one month severance as suggested by Mr. Hewson. Ultimately, Mr. Penner was paid three months' severance just as Mr. Hewson had been paid when he was forced out of Celltech by his other partners. The Client's Concerns [38] Mr. Hewson had a number of concerns about the manner in which the law firm dealt with his matters. These concerns included the attendance at a meeting at the offices of Nixon Wenger in Vernon; the manner in which the law firm realized it had to prepare a separate agreement for Lorus; Ms. Taylor's alleged mistake in proposing a severance package exceeding one month's pay for Mr. Penner and to a lesser degree, the fact that some time in the internal accounting system showed a number of conferences between Ms. Taylor and Mr. Flannigan. [39] None of the client's concerns are without merit. They are but one part of the factual matrix, however, in the overall scheme of importance and the outcome obtained on behalf of the client, they pale in significance. For example, while the client says the meeting at Nixon Wenger was unnecessary, he has no proof of that beyond saying so. On the other hand, Mr. Flannigan, while conceding all six points on the agenda did not have a resolution arising from the meeting, did say that by attending the meeting on behalf of the client they showed the client's bona fides in continuing to pursue the share purchase. He also indicated in his evidence that the deal was very close to not completing at this point and fears that had they not attended the meeting and obtained agreement on at least three of the agenda items, the deal may have collapsed. [40] From my perspective, what Mr. Hewson has tried to do is recreate the work performed by the law firm on his behalf by examining in minute detail all of the law firm's time records related to the retainer by Mr. Hewson and his corporate alter ego, Okanagan Leading Ventures Ltd. [41] Mr. Hewson is a chartered accountant. No doubt, to his well-organized mind, some of the record keeping by the law firm does not satisfy his sense of order and numbers. However, at the end of the day, given the opinion of Mr. Paterson and the result obtained by the law firm on behalf of the client, there can be no adjustment of the fees charged but for the admitted wrongful charge for interest on some overdue accounts. This is because there was no contract for interest to be charged on overdue accounts. Had there been a retainer agreement, it is likely that interest on overdue accounts would have been included and agreed to in the contract. [42] By its own admission, the law firm acknowledges interest charges of $1,669.72 which were incorrectly charged to the client. Accordingly, there will be a refund to the client of that amount. [43] Section 72(1) of the Legal Profession Act provides that on review of a lawyer's bill costs must be paid by the person charged if less than one-sixth of the total amount of the bill is subtracted from it. In this case, other than the interest charge wrongly applied to the client's accounts, I have not reduced the amount charged to the client. Accordingly, the client must pay the law firm's costs of the hearing of this matter. The refund of the interest charges to the client will be stayed until such time as the law firm's costs can be calculated and the refund due to the client will be set off against any outstanding amount owing by the client to the law firm for its costs. Master G. Taylor