Appeal court strikes at the heart of 'excessive' billable hours

A precedent-setting decision at the Ontario Court of Appeal this week strikes at the heart of client concerns over the abuse of billable hours, and provides a legal framework by which clients might be able to reject law firm fees considered excessive or unreasonable.

The David-and-Goliath battle, Bank of Nova Scotia v. Diemer, pits an Ontario dairy farmer against a big bank and its expensive legal counsel.

Diemer, who could not meet the financial obligations of his farm, decided to sell it under receivership. Scotiabank hired PricewaterhouseCoopers as receiver, which in turn hired Borden Ladner Gervais LLP as legal counsel.

But when Diemer saw the final bill for receivership services — $328,000, including $255,955 for 397.60 hours of legal services — he was understandably shocked. The sale of the dairy farm was by all accounts a straightforward receivership that took about two months to complete.

Diemer’s modest means, however, didn’t stop BLG from charging the rates it always charges corporate clients: an average hourly rate of $643.75, ranging from $195 per hour for a student to $950 per hour for a senior lawyer and $330 for a law clerk.

Diemer balked at the bill and filed suit. At the Ontario Superior Court, Justice Andrew Goodman sided with Diemer, saying the legal fees “greatly exceed what I view as fair and reasonable.” The court then ordered the fees reduced to $157,500, less than half the original cost.

The appeal court decision, issued Monday, upholds the lower-court ruling, but it also goes some way to deal with the touchy subject at the heart of the dispute: the billable hour.

“. . . 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 decision states.
 
“In my view, it is not for the court to tell lawyers and law firms how to bill. That said, in proceedings supervised by the court and particularly where the court is asked to give its imprimatur to the legal fees requested for counsel by its court officer, the court must ensure that the compensation sought is indeed fair and reasonable.  In making this assessment, all the Belyea factors, including time spent, should be considered.”

The decision references a number of relevant cases, including the New Brunswick Court of Appeal’s 1983 ruling in Federal Business Development Bank v. Belyea, which lists factors that must be considered when analyzing the cost of receivership services. These factors include:

•    the nature, extent and value of the assets;
•    the complications and difficulties encountered;
•    the degree of assistance provided by the debtor;
•    the time spent;
•    the receiver’s knowledge, experience and skill;
•    the diligence and thoroughness displayed;
•    the responsibilities assumed;
•    the results of the receiver’s efforts; and
•    the cost of comparable services when performed in a prudent and economical manner.

The appeal court decision says all these factors must be considered, but the judgment makes clear that perceptions around value must take priority over calculations around billable hours.
 
“. . . value provided should pre-dominate over the mathematical calculation reflected in the hours times hourly rate equation.  Ideally, the two should be synonymous, but that should not be the starting assumption. Thus, the factors identified in Belyea require a consideration of the overall value contributed by the receiver’s counsel.  The focus of the fair and reasonable assessment should be on what was accomplished, not on how much time it took.  Of course, the measurement of accomplishment may include consideration of complications and difficulties encountered in the receivership.”

In an interview with The Windsor Star, James Cooke, the local lawyer who represented Diemer, said the appeal court’s decision could spell the beginning of the end for the billable hour.

“A lot of my clients are farmers and owners/operators of businesses in Windsor and would never in their life hire a lawyer at $750 an hour or any hourly rate like that and don’t see why they should be obligated to pay those kinds of fees just because they’re in a bit of a financial bind.”

Cooke said banks will have to think twice before hiring legal counsel on behalf of clients who can’t hope to afford corporate rates for legal services.

“I think it’s a win for people who sometimes are victims of circumstance and find themselves at the hands of the big chartered banks who immediately run off to Bay Street and hire very expensive lawyers at basically the expense of ordinary people. I think the court has said pretty clearly that that isn’t always appropriate,” Cooke told The Star.

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