Paul M. Johnston Personal Law Corp. v. Carroll

2016 BCSC 1949 Paul M. Johnston Personal Law Corp. v. Carroll

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Paul M. Johnston Personal Law Corp. v. Carroll, 2016 BCSC 1949 Date: 20161019 Docket: 9971 Registry: Prince Rupert Between: Paul M. Johnston Personal Law Corp. Appellant And Kluane Dawn Carroll and Kuane Dawn Carroll, Executrix of the Estate of Cecille Marie Carroll, Deceased Respondents Before: The Honourable Mr. Justice Kent On appeal from: An order of the Provincial Court of British Columbia, dated March 4, 2016, Paul M. Johnston Personal Law Corp. v. Kluane Dawn Carroll and Kuane Dawn Carroll, Executrix of the Estate, of Cecille Marie Carroll, Deceased, Prince Rupert Registry SCD9538. Oral Reasons for Judgment Counsel for the Appellant: Paul M. Johnston Appearing for the Respondents: Kluane Carroll Place and Date of Hearing: Vancouver, B.C. October 19, 2016 Place and Date of Judgment: Vancouver, B.C. October 19, 2016 Table of Contents INTRODUCTION. 3 APPEALS OF SMALL CLAIMS COURT JUDGMENTS. 4 THE LAW REGARDING INTEREST ON LAWYERS' BILLS. 5 APPLICATION TO THE PRESENT CASE. 7

INTRODUCTION [1] The claimant sued its former client in the Provincial Court of British Columbia seeking judgment in debt for the amount of three legal bills, including interest thereon, in accordance with the interest provisions of the retainer agreement signed by the client. The matter came before the Honourable Judge Struyk in Prince Rupert on March 3, 2016. The judge rendered judgment in favor of the claimant for the net principal amount of the bills after deduction for amounts already paid and reductions reflecting his assessment of the reasonableness of the fees in accordance with the factors set out in Yule v. Saskatoon (City), [1955] S.J. No. 65 (Sask. Q.B.) and which are also codified in s. 71(4) of the Legal Profession Act, S.B.C. 1998, c. 9 (the "LPA"). [2] With respect to interest, Judge Struyk declined to apply the formula specified in the retainer agreement. He stated that the specified rate of 15% "though not as high as credit card interest, is very high in the current interest rate climate". He refused to compound the interest, as the retainer agreement required, but did not expressly provide reasons for that refusal. He then purported to calculate simple interest on the outstanding bills at 15% arriving at the figure of $2,754. He then stated: I find those interest claims in light of the total value of the estate and the work required quite high, and in my view

out of proportion to the nature of the original work required. Though there is no written estimate of fees, I accept that the defendant was under the impression, whether wrong or right, the total cost to complete the file would be substantially less than it was. I am allowing $1,300 in prejudgment interest. [3] The amount awarded was a little under 50% of the simple interest calculated by the judge. [4] On appeal, the appellant accepts the finding of the Provincial Court respecting the principal amount due under the bills, however, challenges the findings and determinations respecting interest. Among other things, the appellant argues: 1. the claim was and is for debt due under a contract and the Provincial Court was bound to apply the interest formula specified in that contract; 2. the calculations failed to account for interest due on the first bill for the period before payments were made on account and were, in any event, mathematically incorrect by a very wide margin; and 3. in the circumstances of the case, the amount charged for interest was fair and reasonable and should have been awarded in full. [5] The respondent is self-represented on this appeal and, unfortunately, is ill-equipped to address technical arguments based on the law of contract, the law of interest, and the principles applicable to any review of the lawyer's account for professional services. She was

somewhat rambling in her submissions to this Court. Ultimately, however, while she acknowledges that she signed the retainer agreement, that she was aware of the 15% interest provision, and even that some interest should be payable on the bills, she says the Provincial Court judge, "Got it right" in the result. Her over-arching theme was that she was simply charged too much for the services rendered in this case.

APPEALS OF SMALL CLAIMS COURT JUDGMENTS [6] Part two of the Small Claims Act, R.S.B.C. 1996, c. 430, provides the process for appealing a judgment rendered in the small claims division of the Provincial Court of British Columbia. Section 13 of that Act provides: 13(1) On an appeal, the Supreme Court may do one or more of the following: (a) make any order that could be made by the Provincial Court; (b) impose reasonable terms and conditions in an order; (c) make any additional order that it considers just; (d) by order award costs to any party to the appeal in accordance with the Supreme Court Rules. (2) There is no appeal from an order made by the Supreme Court under this section. THE LAW REGARDING INTEREST ON LAWYERS' BILLS [7] British Columbia lawyers are governed by a Code of Professional Conduct promulgated by the Law Society of British Columbia. Article 3.6-1 of that Code provides that "a lawyer must not charge or accept a fee or disbursement, including interest, unless it is fair and reasonable and has been disclosed in a timely fashion" (emphasis added). [8] The LPA also provides dissatisfied clients with a mechanism for reviewing both a retainer agreement and a lawyer's bill. The test for reviewing a retainer agreement is set out in s. 68(5) of that Act. It requires confirmation of the agreement unless it is "unfair or unreasonable under the circumstances existing at

the time the agreement was entered into". The test for reviewing a lawyer's bill is set out in s. 71 of the LPA. Among other things, that section provides: · fees, charges and disbursements must be allowed for services that were "reasonably necessary and proper to conduct the proceeding or business to which they relate"; · however, there is discretion to determine the reasonable amount for the bill, having regard to the various codified Yule v. Saskatoon factors; and · that this discretion is not limited by the terms of any retainer agreement between the lawyer and client. [9] The LPA contemplates that any review of a lawyer's bill will be undertaken by the Registrar of the B.C. Supreme Court. That Act requires that any appointment for a bill review by a dissatisfied client must be obtained within 12 months after the bill was delivered or within three months after the bill was paid, whichever occurs first. If, as here, the lawyer sues the client and obtains judgment for the amount of the bill, the LPA expressly forbids review of the bill unless the Supreme Court finds "special circumstances" exist to justify such a review. [10] The question of interest on lawyers' bills, whether specified by the retainer agreement or not, is a subject matter that falls within the jurisdiction of a Registrar to review. One example is Sokolowski v. Lorne N. MacLean Law Corporation, 2016 BCSC

1035, where the Registrar confirmed the lawyer's entitlement to charge the 18% per annum interest rate stipulated in the signed retainer agreement and applied it to the unpaid accounts under consideration in that case. Another example is Harper Grey LLP v Calimbas, 2014 BCSC 961,where the Registrar found that the interest provision in the retainer agreement did not comply with s. 4 of the (Canada) Interest Act, R.S.C. 1985, c. I-15, and therefore applied s. 3 of that Act to award 5% interest on outstanding accounts. [11] In Sokolowski, the court stated:

INTEREST [47] The client takes issue with the 18% per annum interest rate stipulated in the signed retainer agreement and applied to the lawyer's unpaid account. The issue of interest rates charged by law firms on unpaid accounts often arises in the context of a review under the LPA. The common complaint is that the rate of interest charged by a law firm typically far exceeds that charged by a bank. Another argument often advanced is that lawyers are well compensated in their hourly rate and ought not to make additional profit through the levy of interest rates far in excess of that charged by banks. [48] Law firms are not banks, and for the most part, do not want to be treated like a bank. The smaller the firm, the more difficult it is to carry a client's unpaid fees, particularly if the firm is faced with a number of clients who are not paying their bills in a timely fashion. This can put a strain on the firm's line of credit. [49] An interest rate on unpaid accounts in excess of the rate provided by a bank is meant, in part, to encourage the client to borrow from a financial institution to cover the cost of fees, rather than relying on the law firm to carry the unpaid account. A financial institution is in a better position to underwrite debt, assess and assume financial risk, or absorb a loss occasioned by a bankruptcy. [50] Section 73(3)(c) of the LPA provides: Remedies

that may be ordered by the registrar 73(3) If a registrar gives a certificate under subsection (2), the registrar must add to the amount certified an amount of interest calculated (c) at the rate agreed to by the parties at the time the lawyer was retained or, if there was no agreement, at the same rate the registrar would allow under the Court Order Interest Act on an order obtained by default. [51] Given the legislative direction in s. 73(3)(c) the question arises concerning whether the registrar has jurisdiction to depart from the rate of interest agreed to by the client as set out in the retainer agreement. [52] Section 71(5) of the LPA specifically provides that the registrar's discretion is not limited by the terms of an agreement between the lawyer and the client. A provision for interest on unpaid accounts is a common term in an agreement between the lawyer and the client. [53] Section 71(2) of the LPA directs the registrar, subject to sections 71(4) and 71(5), to " allow fees, charges, and disbursements" for those services reasonably necessary and proper to the conduct of the proceeding or business to which they relate and those authorized by the client or subsequently approved by the client, whether or not they were reasonably necessary and proper to the conduct of the proceeding. [54] The term "charges" in s. 71(2) of the LPA is defined by s. 64(1) and provides that

"charges" include " interest on fees and disbursements". [55] In my view, the determination of what constitutes a proper fee equally applies to "charges" which includes interest. Consideration must be had to whether the rate of interest payable under an agreement needs to be adjusted to maintain the integrity of the legal profession. If so, the term of the contract regarding interest would have to be varied to ensure that the client pays no more than what is proper in all the circumstances. [12] I agree with this conclusion, and find that it is open to a court confronted with a lawyer's debt action on outstanding accounts to vary any contractual term regarding interest in the retainer agreement and, indeed, to award interest at a lesser rate, or none at all, should the appropriate circumstances exist.

APPLICATION TO THE PRESENT CASE [13] It follows from the above that I do not agree with the appellant's submission that the Provincial Court was bound to apply the interest formula specified in the retainer agreement. That retainer agreement and interest provision is subject to an overarching requirement that it be fair and reasonable in the circumstances of the case. [14] It should be noted that the respondent suffers from dyslexia. As indicated, her entire presentation in court caused me some concern whether she fully understood the issues involved, not only on this appeal, but also in the proceedings below. Certain disabilities can provide a defence to claims in contract but I am satisfied by the respondent's own admission that, in this case, she was well aware of the nature of the retainer agreement she was signing and she was expressly aware of both the hourly rate being charged by the lawyer and the provision for 15% annual interest, compounded annually, on outstanding accounts. Her problem with the accounts was correctly identified by the Provincial Court judge: based on an early conversation she had with Mr. Johnston, she was under the impression that the total cost on the file would be in the vicinity of $4,000-$5,000. In these circumstances, I have no difficulty in concluding that the interest provision in the retainer agreement is enforceable as a matter of contract

law. [15] The question, then, becomes whether in the circumstances of this particular case, it is fair and appropriate for the specified formula to be applied. The Provincial Court gave two reasons for declining to do so, namely, that the rate was very high in the current interest rate climate and that the amount of interest was disproportionate to the nature and value of the work required on the file. In my view, it was open to the Provincial Court judge to make these findings on the evidence before him, and I cannot say that his conclusions were incorrect, unreasonable or unfair. [16] It is clear, however, that the Provincial Court judge did make some serious arithmetical errors in calculating the interest payable. I entirely agree with Mr. Johnston's submissions on this point. Correctly applying the formula specified by the retainer agreement produces compounded interest in the amount of $5,958.99 on the first account, $796.50 on the second account and $427.60 on the third account up to the date of the Provincial Court trial. The aggregate amount of interest so calculated is $7,183. Applying the same approach adopted by the judge below, i.e., awarding roughly 50% of the calculated interest, it is arguable (and Mr. Johnston actually acknowledges) a "fair" sum for interest in this case might thus be $3,600. [17] It should be noted that the outstanding fee accounts in this case

still remain unpaid. The legal services rendered by the law firm related to the estate of the respondent's mother following her death. The only major asset in the estate was the deceased's house in Queen Charlotte City. Although that house is now transferred into the name of the respondent, it has not been sold. In other words, while the respondent has received the benefit of the law firm's services, the debt she owes for those services has not been paid. The first account was rendered over five years ago and the third account is now over two years old. It is entirely fair and reasonable that the law firm be entitled to interest on these long outstanding accounts. The only question is how much. [18] The Provincial Court judge allowed $1,300 as pre-judgment interest on these accounts. He thought he was effectively awarding roughly 7% interest, which he evidently considered to be fair. In my view this is far too low in the circumstances of this case. 7% is simply not sufficient to address the concerns identified in Sokolowski, referred to above. That case, it will be recalled, endorsed 18% per annum without compounding. [19] In the result, I hold that $3,600 is indeed a fair sum to be awarded to the appellant for interest on the principal amounts outstanding on the fee bills as reduced by the Provincial Court. The appeal is therefore allowed to the extent that the sum of $3,600 is substituted for the interest amount awarded below. The appellant is also entitled to its costs for this appeal on Scale A. "KENT J."