Newell v. Sax

Newell v. Sax Collection Decisions of the Court of Appeal Date 2019-05-30 Neutral citation 2019 ONCA 455 Docket numbers C65765 Judges Feldman, Kathryn N.; Roberts, Lois B.; Fairburn, J. Michal Subject Civil Decision Content COURT OF APPEAL FOR ONTARIO CITATION: Newell v. Sax, 2019 ONCA 455 DATE: 20190531 DOCKET: C65765 Feldman, Roberts and Fairburn JJ.A. BETWEEN Eileen P. Newell Applicant (Respondent) and Lawrence Sax and Sax Lawyers Respondents (Appellants) J. David Sloan, for the appellants Robert G. Tanner, for the respondent Heard: March 5, 2019 On appeal from the order of Justice E.M. Morgan of the Superior Court of Justice, dated July 24, 2018, with reasons reported at 2018 ONSC 4517. Roberts J.A.: A. OVERVIEW [1] This appeal deals with the proper approach to be taken on a quantum meruit assessment of a solicitor’s account. [2] The appellants appeal from the order setting aside the Report and Certificate of Assessment Officer A. Palmer dated October 6, 2017, reducing the appellants’ assessed $149,635.52 account to $26,375.00. [3] For the reasons that follow, I would allow the appeal, set aside the order of the application judge, and substitute an assessment of the appellants’ impugned account in the amount of $100,000, inclusive of all amounts. B. FACTUAL BACKGROUND [4] The respondent is 93 years old and a longstanding client of the appellant, Lawrence Sax, an 87-year-old real estate lawyer. Over the course of about seventeen years, Mr. Sax had acted on several matters for the respondent. [5] The focus of the December 31, 2014 account was on the services performed by Mr. Sax in relation to the $14 million sale of the respondent’s three-storey eleven-unit commercial building at 102-104 Yorkville Avenue (“the property”) in Toronto. Mr. Sax’s account before assessment was in the amount of $187,044.40 for all fees, disbursements and taxes. Without issuing an account or seeking the respondent’s authorization, Mr. Sax paid the amount of the account in full from the respondent’s trust account held by Mr. Sax. He later provided the respondent with his account that he reconstructed from memory since he had no written retainer agreement with the respondent and kept no time dockets. (a) Assessment Officer’s Report and Certificate [6] The respondent sought an assessment of Mr. Sax’s account of fees, charges, and disbursements pursuant to the Solicitors Act, R.S.O. 1990, c. S.15, s. 3. The matter was heard over the course of three days in April of 2017. [7] The respondent did not personally appear at the hearing, although she was represented by counsel. In her reasons, under a heading titled, “Failure of the Client to Appear for Hearing”, the Assessment Officer noted that the respondent was absent from the hearing without having provided a doctor’s note. [8] The Assessment Officer confirmed with the respondent’s counsel that he and the respondent understood that his client’s absence constituted a waiver of her right to testify to the reasonableness of any evidence submitted. She referenced s. 5 of the Solicitors Act that permitted her to proceed with the assessment without further notice to the respondent who did not attend the assessment. She concluded: Accordingly, the Court will weigh any evidence submitted by the Client’s solicitor [Mr. Sax] based on its face value, as the Client failed to appear for hearing, and therefore, was unable to testify to the Court as to the reasonableness of the arguments made or evidence presented. The Client’s counsel had no personal knowledge of the facts in this case. [9] Mr. Sax was the only witness at the hearing. The Assessment Officer made a ruling that curtailed the respondent’s cross-examination of Mr. Sax. The Assessment Officer’s ruling arose in relation to an objection by Mr. Sax’s counsel, Mr. Sloan, to a suggestion from the respondent’s counsel, Mr. Tanner, that he was told to create some time records by the Assessment Officer at the preliminary hearing. The exchange and the ruling occurred as follows: Mr. Tanner: …do you recall at the preliminary hearing, it was suggested to you that you ought to create some time records by the assessment officer? Mr. Sloan: Don’t answer the question. I object. Mr. Tanner: Do you… The Court: Counsel, I believe this is cross-examination, correct? Mr. Tanner: Yes. The Court: Okay, so we’re limited to the scope of the direct that was done, right, until you can present your case in-chief, you can do what you need at that time. But you’re limited to the scope of what was brought up in examination. I don’t think we talked [about] the preliminary conference in the direct examination. Mr. Tanner: I would have thought that in cross-examination on an account where the records are insufficient, I can cross-examine the witness on why, and by what means we come to have such… The Court: Oh, absolutely, and that’s what you’ve been doing until you asked about the preliminary conference… Mr. Tanner: Yes. The Court: …was certainly not a topic in direct examination. So why don’t we just move on, thank you. [Emphasis added.] [10] The Assessment Officer accepted Mr. Sax’s evidence that he had taken on significant responsibility for and spent considerable time and effort dealing with the various complex issues that arose to ensure that the $14 million sale transaction successfully closed. However, she found the following deficiencies, at para. 72: I find that there was a deficiency in the Solicitor’s degree of responsibility in his duty owed to the Client with respect to keeping a record of the actual time being accrued and ultimately billed in rendering services to the Client; as well as, in his action of transferring fees from the proceeds of the sale being held in the Client’s trust account without first issuing a bill or getting authorization from the Client. [11] The Assessment Officer stated that she would assess Mr. Sax’s account on a quantum meruit basis. She accepted the amount billed was fair and reasonable in the circumstances of this case, but reduced it by 20% because of the deficiencies earlier noted. (b) Application Judge’s Order [12] The respondent moved to oppose confirmation of the Report and Certificate of the Assessment Officer, pursuant to s. 6(9) of the Solicitors Act. [13] The application judge agreed with the respondent that the Assessment Officer had shown “inexplicable animus” towards her. The application judge found that because the respondent did not attend the assessment hearing, the Assessment Officer made unwarranted adverse inferences against her, and felt compelled to accept Mr. Sax’s evidence without question. [14] The application judge criticized the Assessment Officer’s actions that he characterized as the admonishment of an elderly party for not testifying, the taking of the appellant’s evidence at face value because the respondent did not testify and the denial of full cross-examination. He concluded that these actions resulted in the “spectre of pre-judgment and a reasonable apprehension of bias”: citing from R. v. Villota, [2002] O.J. No. 1027, at para. 108. [15] The application judge reasoned that the Assessment Officer’s animus and bias against the respondent caused her to uphold the account as “fully payable”, notwithstanding the shortcomings of the solicitor’s account and of his evidence in support of it. [16] As a result, the application judge concluded that the Assessment Officer denied the respondent natural justice and “undermined due process of law” and that “it cannot be left to stand”. [17] In consequence, the application judge gave no deference to the Assessment Officer’s findings and undertook afresh the assessment. He reduced the account to $26,375.00. C. ANALYSIS (1) Reasonable apprehension of bias [18] I agree with the appellants that the application judge erred in finding that the Assessment Officer showed a reasonable apprehension of bias. [19] There is a very stringent standard for finding a reasonable apprehension of bias. The test asks whether “an informed person, viewing the matter realistically and practically ‒ and having thought the matter through” would conclude, whether consciously or unconsciously, that the matter was not decided fairly: Committee for Justice and Liberty et al. v. National Energy Board et al. (1976), [1978] 1 S.C.R. 369, at p. 394. The grounds for this apprehension must be substantial: Committee for Justice and Liberty, at p. 395. [20] Apposite is this court’s observation in Bales Beall LLP v. Fingrut, 2013 ONCA 266, at para. 20, in relation to a similar allegation of bias against a motion judge reviewing an assessment officer’s report and certificate: The suggestion of judicial bias – actual or perceived – is a serious allegation. It is tantamount to the assertion that a miscarriage of justice occurred. As a result, it should not be advanced lightly and without evidentiary support. [21] In my view, it is clear that the test for bias is not met in this case. [22] It is important to recall that the issue of the respondent’s absence was not raised by the Assessment Officer, but by counsel for the appellants. It arose at the outset of the hearing when counsel for the appellants expressed concern over the respondent’s absence and implied that they had been deceived as to the respondent’s intentions to appear. Counsel for the respondent rejected the allegation of any deceptive behaviour and noted that his client was not required to attend the assessment hearing. [23] The Assessment Officer then asked the respondent’s counsel a series of questions, in which it was confirmed that the respondent was alive, capable of giving instructions, and able to appear. The Assessment Officer asked the respondent’s counsel to confirm that the respondent was waiving her right to put forward evidence, including her personal knowledge of the circumstances of the solicitor-client relationship, if she failed to appear at the hearing. The respondent’s counsel indicated that would be the case. [24] The five short paragraphs in the Assessment Officer’s reasons and the brief exchange with counsel on the transcript concerning the respondent’s absence from the assessment hearing do not meet the very high threshold required to displace the strong presumption of impartiality of judicial officers: Cojocaru v. British Columbia Women’s Hospital and Health Center, 2013 SCC 30, [2013] 2 S.C.R. 357, at para. 20; Wewaykum Indian Band v. Canada, 2003 SCC 45, [2003] 2 S.C.R. 259, at para. 59. [25] I see no evidentiary basis for the application judge’s finding of animus or bias by the Assessment Officer against the respondent. The Assessment Officer drew no adverse inferences against the respondent because of her absence. Rather, as earlier noted, the Assessment Officer fairly set out in her reasons the inevitable evidentiary consequences flowing from the respondent’s absence, namely, that there would be no testimonial evidence from the respondent to challenge the appellants’ version of events. [26] The Assessment Officer’s reasons clearly demonstrate that she did not feel “compelled” to accept without question Mr. Sax’s evidence. Rather, the Assessment Officer wrote that she would “weigh any evidence submitted by the Client’s solicitor [Mr. Sax] based on its face value, as the Client [the respondent] failed to appear for hearing, and therefore, was unable to testify to the Court as to the reasonableness of the arguments made or evidence presented” (emphasis added). In other words, while Mr. Sax’s evidence was unchallenged by any testimonial evidence from the respondent, the Assessment Officer acknowledged that she still had to assess or “weigh” Mr. Sax’s evidence. To that end, the Assessment Officer detailed the deficiencies in Mr. Sax’s evidence and her recognition of its frailties led her to reduce his account by 20%. [27] The respondent submits that the Assessment Officer’s erroneous curtailment of the cross-examination of Mr. Sax demonstrated bias, violated her right to be heard, and more generally, amounted to a denial of natural justice and denied her a fair hearing, thus justifying appellate intervention by the application judge. [28] I disagree. While it is common ground that the Assessment Officer erred by making her ruling curtailing cross-examination, in my view, it did not indicate bias or animus on her part, nor did it deny the respondent a fair hearing. Moreover, the erroneous ruling did not taint the entire evidentiary record and the Assessment Officer’s findings such that no deference was owed to them. In my opinion, the effect on the respondent’s fair hearing rights and the evidentiary record was limited to the narrow issue of the accuracy of Mr. Sax’s time records. [29] For these reasons, I am of the view that the application judge misapplied the test for bias. This skewed his analysis of the Assessment Officer’s decision and erroneously caused him to reject her findings. (2) Did the application judge err in his assessment of the solicitor’s account? (i) Failure to give deference to the Assessment Officer’s findings [30] The appellants submit that the application judge erred by failing to give appropriate deference to the findings of the Assessment Officer and by retrying the assessment, rather than assessing the account based on her findings or sending the assessment back for a hearing before another assessment officer. [31] I agree that the application judge erred in rejecting the Assessment Officer’s findings on matters not affected by her curtailment error. The Assessment Officer made numerous findings about Mr. Sax’s efforts that were subject to full cross-examination and not affected by her curtailment error concerning his time records. [32] Importantly, the Assessment Officer accepted Mr. Sax’s evidence regarding the exigencies and complications of the transaction. She found that the transaction was complicated because of its size but also due to other complex issues that arose and threatened the closing of the transaction. These included the respondent’s documentation and accounting issues with the property that created other problems, as well as potential tax exposure for the respondent, and estoppel certificates required by the purchaser from each tenant of the property. In addition to creating a lot of work, these issues made the handling of the transaction more complicated, including a renegotiation of the purchase price as well as a delay in the preparation of the taxes, maintenance and insurance statements that were required for the sale. [33] As the Assessment Officer concluded, Mr. Sax’s interventions were instrumental in closing the $14 million transaction that was of undisputed importance to the respondent. It is clear from the cross-examination that did take place that the respondent was able to mount a vigorous challenge to the nature, extent and level of skill of the work carried out by Mr. Sax to complete the $14 million transaction. [34] These findings were open to the Assessment Officer and free of any error. As a result, they are owed considerable deference on appeal and should not have been rejected by the application judge: RZCD Law Firm LLP v. Williams, 2016 ONSC 2122 (Div. Ct.), at paras. 46-48. (ii) Flawed approach to the assessment [35] However, appellate intervention was and is nevertheless warranted because of the erroneous analysis undertaken by the Assessment Officer and repeated by the application judge in assessing the solicitor’s account. Specifically, they erred by taking an overly mechanical approach to the assessment of the solicitor’s account. [36] Notwithstanding the many deficiencies that the Assessment Officer found in the calculation of the solicitor’s account, she accepted its amount as “fair and reasonable” and merely applied a percentage deduction. As the application judge noted in the following passage: At para. 67 of her reasons for decision, the Assessment Officer states candidly that, “the Solicitor determined what his fees should be based on criteria that could not be demonstrated or explained to the Court.” In fact, in his testimony the respondent admitted that in calculating his fees he included “a significant amount of time” spent prior to the dates shown on the account – going back up to 10 years – on work that pre-dated and was entirely unrelated to the present transaction. None of that previous work was described or itemized in the bill. Given the magnitude of the account and its disproportion to the transaction to which it purportedly pertained and the amount of time ostensibly devoted to this file, the Assessment Officer’s comment about the inexplicability of the account appears to be an understatement. [37] The Assessment Officer erred in adopting a mathematical rather than the nuanced, contextual approach required in quantum meruit analysis. This error was exacerbated in the light of the Assessment Officer’s findings of the account’s deficiencies that significantly undermined its numerical validity. [38] While correctly highlighting the Assessment Officer’s error, the application judge nevertheless failed to undertake a proper quantum meruit approach. Like the Assessment Officer, he effectively carried out a mathematical analysis of the account: he calculated the number of hours that he found appropriate to allot to the appellants’ work, multiplied them by an hourly rate that he found was reasonable, and thus arrived at a total assessed amount. (iii) Correct quantum meruit approach to a solicitor’s assessment [39] A quantum meruit assessment is not a bookkeeping exercise or a mechanical calculation. Rather, a quantum meruit assessment is concerned with the reasonable value of services rendered and requires an assessment officer to undertake a nuanced, contextual approach having regard to all the relevant circumstances: Tri Level Claims Consultants Ltd v. Koliniotis (2005), 257 D.L.R. (4th) 297 (Ont. C.A.), at para. 34; Consulate Ventures Inc. v. Amico Contracting & Engineering (1992) Inc., 2011 ONCA 418, 334 D.L.R. (4th) 445, at paras. 46-50. [40] In solicitors’ assessments, the relevant circumstances are usually examined in reference to the well-established criteria articulated by this court in Cohen v. Kealey (1985), 10 O.A.C. 344 (C.A.), at p. 346. These criteria involve factors beyond a mathematical calculation of a solicitor’s time records and turn on the evidence underlying them: 1. The time expended by the solicitor; 2. The legal complexity of the matter dealt with; 3. The degree of responsibility assumed by the solicitor; 4. The monetary value of the matters in issue; 5. The importance of the matter to the client; 6. The degree of skill and competence demonstrated by the solicitor; 7. The results achieved; 8. The ability of the client to pay; and 9. The reasonable expectation of the client as to the amount of fees. [41] Since the purpose of a quantum meruit assessment is clearly to assess the reasonable value of a solicitor’s account, it is an error in principle for an assessment to focus principally, as was the case here, on the mechanical application of an hourly rate to a given number of hours rather than meaningfully address all relevant factors to determine the value of a solicitor’s account. To the point is Anderson J.’s oft-cited maxim from Re Kruger and Giverty and York (1981), 23 C.P.C. 3 (Ont.H.C.J.), at p. 5 that “a taxation of costs is not a matter of precision in which one arrives at a conclusion simply on the basis of a mathematical formula.” [42] For example, in Greenglass (Re) (1988), 32 C.P.C. (2d) 55 (Ont. H.Ct.J.), at pp. 59-60, where the assessment officer also listed the nine Cohen factors but “strictly applied” the solicitor’s hourly rate to the time expended, the court observed that the mechanical application of an hourly rate can lead to error. Similarly, in Hooper v. Sheehan, 2012 ONSC 4315, at paras. 20-21, where the assessment officer listed the nine Cohen factors but spent little time addressing these factors, except for the “time” set out in the solicitor’s dockets, the court found this approach to be an error in principle and set aside the certificate. [43] The quantity of time spent does not solely determine the fairness or reasonableness of the account: Solicitors (Re), [1946] 2 D.L.R. 382 (Ont. H.Ct.J.), at p. 385, citing to Lynch-Staunton v. Somerville (1918), 44 O.L.R. 575 (C.A.). Since time is only one factor to consider in determining the reasonableness of the bill, a fee, although reduced, may nevertheless be allowed even if not all time is docketed, provided there is other evidence available, as there was here, to support the fairness and reasonableness of the bill. That said, the failure of a solicitor to keep proper time dockets may justify a significant reduction in the assessed account. See, for example: 8867799 Canada Inc. v. Paul A. MacLeod Barrister Solicitor, [2016] O.J. No. 4398 (Sup. Ct.); McAllister v. Cleary (1999), 213 N.B.R. (2d) 156 (C.A.); Rouben v. Toth, [2000] O.J. No. 2514 (Sup. Ct.), aff’d, [2002] O.J. No. 2523 (Div. Ct.). (iv) Principles applied [44] Returning to the present case, the Assessment Officer considered the Cohen factors and made detailed credibility and factual findings based on Mr. Sax’s evidence of his responsibility for bringing the $14 million transaction to fruition, the complications that arose, and the time and effort that he expended that went beyond his time records. [45] However, the Assessment Officer nevertheless fell into error because she failed to analyze and apply her findings to arrive at a fair and reasonable assessment. Instead, she appears to have taken the numerical value of Mr. Sax’s account at face value, notwithstanding its many deficiencies, and simply mechanically reduced the total amount of Mr. Sax’s account by 20%. This erroneous approach led her to make an unreasonably high assessment in the circumstances of this case based on her own findings. [46] Similarly, while listing the Cohen factors, the application judge failed to engage meaningfully with them, especially the degree of the appellants’ responsibility, skill and competence, and the importance to the respondent of the significant result attained in the completion of a $14 million transaction that had run into complicated difficulties. [47] The application judge did not address these issues or analyze the evidence relevant to them in any significant way. He failed to recognize that this was not the kind of case that could be disposed of principally by a calculation of hours and hourly rates when Mr. Sax did not maintain dockets. As earlier noted, time spent and hourly rates are only two of the many factors to be considered on an assessment of the fairness and reasonableness of a solicitor’s account. [48] While it was certainly open to the application judge to make significant deductions to Mr. Sax’s account because of its serious deficiencies, the application judge’s mechanical approach did not reasonably assess the value or quantum meruit of the account and led to an unreasonably low assessment. [49] While I agree that the amount of the assessment should be altered, I reject the appellants’ submission that this matter should be sent back for reassessment. It is neither practical nor fair to do so given the advanced ages of the parties and the account. The Assessment Officer’s findings not tainted by her error allow for reassessment of the amount of Mr. Sax’s account. [50] I agree with the appellants’ submission that the amount of $26,375.00 does not properly reflect the Assessment Officer’s findings concerning the value of Mr. Sax’s work. However, I also accept the respondent’s position that even the discounted amount of $149,635.52 fails to properly take into account the deficiencies in Mr. Sax’s account in accordance with the Assessment Officer’s findings. [51] In following the correct approach on a quantum meruit analysis of a solicitor’s account, I am mindful that to avoid a mechanical application, the Cohen and other factors relevant to the assessment should not devolve to mere checklists to be applied in a rote fashion, but should “serve as triggers for analysis and not substitutes for it”: Bales Beall LLP v. Fingrut, 2012 ONSC 4991 (S.C.J.), at para. 15, aff’d, 2013 ONCA 266. [52] As earlier stated, I see no error in the Assessment Officer’s detailed findings arising from her consideration of the evidence through the analytical lens of the Cohen factors. These included the importance of the $14 million transaction, the difficulties that arose, and the skill and effort expended by Mr. Sax to bring it to a successful conclusion, as well as Mr. Sax’s failure to keep proper dockets and to substantiate the time actually spent, his hourly rate, or the basis for the calculation of the account. [53] In my view, these findings militate against merely accepting the face value of Mr. Sax’s account. However, as the Assessment Officer correctly noted, Mr. Sax is entitled to be properly compensated for the value of the important work that he performed for the respondent’s significant benefit. To put the value of Mr. Sax’s significant work over several months on an important $14 million transaction into proper perspective, one need only recall in comparison that the application judge awarded $48,535.29 in costs to the respondent for the three-day assessment and one-day application, over a disputed $187,044.40 account. [54] In the circumstances of this case, I am of the view that a fair and reasonable assessment of Mr. Sax’s account would be $100,000, inclusive of disbursement and taxes. D. DISPOSITION [55] For these reasons, I would allow the appeal, set aside the order of the application judge, and order that Mr. Sax’s account be assessed in the amount of $100,000. [56] The appellants’ costs of the appeal should reflect their limited success. I would grant the appellant their partial indemnity costs in the amount of $10,000. Released: “KF” May 31, 2019 “L.B. Roberts J.A.” “I agree. K. Feldman J.A.” “I agree. Fairburn J.A.”