Judge cites 'discrepancy' in hourly rate charged by senior lawyer and junior associate
A BC Supreme Court judge has asked the registrar to reassess legal fees charged in an insolvency case, saying he is “not satisfied” the hourly rate attributed to one of the associate lawyers involved is “reasonable” compared to her more senior colleague.
“I reluctantly conclude that I should refer the accounts to the registrar,” Justice Geoffrey Gomery said in a ruling released earlier this month, adding the registrar is usually the court officer “best placed to conduct an assessment” on the reasonableness of legal fees charged.
Justice Gomery ordered an assessment of fees despite the receiver appointed to oversee the insolvency of Otso Gold Corp. being “satisfied that the legal fees are fair and reasonable and its application to approve them is unopposed.” The secured creditor, Pandion Mine Finance Fund LP, also considered them reasonable and urged that the fees be approved. Otso took the same position.
In the Nov. 3 decision, Justice Gomery acknowledges that “all parties say that the fees are justified because they are in respect of necessary legal services competently rendered at hourly rates consistent with those charged by similar firms of lawyers experienced in insolvency litigation.” An affidavit submitted by the receiver in October expresses satisfaction “that the rates charged in this matter . . . are consistent with fees charged by other firms for work of a similar nature and complexity in British Columbia.”
However, Justice Gomery reserved judgment on the application to approve the legal counsel fees, ordering the registrar to assess the fees based on the officer’s knowledge and experience in evaluating legal bills.
While insolvency lawyers contacted by Canadian Lawyer were not willing to go on the record, a couple noted that the lawyers involved, along with the Deloitte insolvency trustee acting on this file, are all women, somewhat of a rarity. They said that the fees, if anything, were “below market” for the type of work involved. It is also “highly unusual” for a judge to challenge fees without any other party opposing.
Otso Gold owned mineral rights in British Columbia and, through subsidiaries, a gold mine in Finland. In December 2021, Otso sought and was granted protection from its creditors under the Companies Creditors Arrangement Act.
Otso later abandoned its request for creditor protection and appointed the receiver in January 2022. Gomery subsequently confirmed the receivership, with the judge noting the circumstances have been “contentious” with parallel proceedings in Sweden and Finland.
The receivership proceeding in British Columbia ended with Justice Gomery authorizing the receiver to enter into agreements that would see Otso’s assets sold to third parties at a loss. The receiver then applied in October for an order approving its fees and those of its counsel.
He noted the “vast majority” of the fees in question deal with work performed by two lawyers at Borden Ladner Gervais LLP. Of the total $172,000 charged by the firm, approximately $134,000 went to the senior lawyer and roughly $21,000 to the associate lawyer. The fees were fixed based on time spent at the firm’s standard hourly rates for these lawyers, minus discounts applied across the board regarding some of the accounts.
The senior lawyer’s standard hourly rate is $605, with discounts bringing that down to $568.83. The hourly rate for the associate lawyer called to the bar in 2021 is $395, with applied discounts reducing that to $365.54.
“Having reviewed the accounts and affidavits submitted in support of the application, I am satisfied that the fees reflect necessary services that were competently rendered,” Justice Gomery wrote. “I do not doubt that the lawyers recorded time as indicated in the materials or that the work was efficiently done.”
He added that he accepted that the hourly rates attributed to the lawyers in the accounts “are consistent with those charged by similar firms engaged in insolvency litigation in Vancouver.”
An affidavit submitted by the senior lawyer says: BLG “assesses the hourly rates of its professionals annually, and based on this annual review and on my experience in insolvency matters, I believe that the hourly rates for each of the timekeepers and BLG professional over the accounts period are consistent with those charged by similar firms in the Vancouver market for insolvency and restructuring work with similar levels of experience and expertise, and with the capacity to handle a file of similar size and complexity.”
Nevertheless, Justice Gomery says he was “not satisfied” that the hourly rate attributed to the associate is reasonable. “I say this without intending any criticism of [the associate’s] professional abilities in light of her experience.” The problem, he wrote, lies in a discrepancy between the hourly rates charged for the two lawyers.
The senior lawyer is a partner and an established insolvency lawyer, called to the bar in Alberta in 2007 and British Columbia in 2009. The associate lawyer was called to the bar in 2021.
“In a nutshell, the law firm is valuing [the associate’s] services by the hour at roughly two-thirds (64 percent) of the value of [the partner’s] services.
“I do not think that this is sensible or reasonable,” he wrote, adding that it appears the partner was the lead lawyer and the primary client contact who did most of the work.
“Lawyers learn by experience. Through experience in drafting materials, they become more efficient. Through experience in litigation, they refine their judgment. These qualities of efficiency and informed judgment make their services more valuable.”
Justice Gomery also wrote that increased experience brings increased responsibility in the direction and management of a case. “The greater the degree of responsibility undertaken by the lawyer, the more valuable the service provided.”
He added: “Where two lawyers work together as the primary lawyers on a file, the more experienced lawyer commonly serves as the leader or senior, and the less experienced takes on the role of a junior.”
The judge also wrote that it doesn’t “make a difference” that Pandion, Otso and the receiver are “untroubled” by the fee schedule. However, he said it is the “role and obligation” of the court to make an independent and objective assessment of the fees claimed, considering the “degree and skill” of the lawyers involved.
“The fact that insolvency lawyers in Vancouver have adopted a billing practice that insolvency practitioners such as the receiver have accepted does not make that practice reasonable. It is relevant to an assessment of the reasonableness of the practice, but it cannot be determinative.” In this case, Justice Gomery wrote that he thinks “the billing practice in question, whereby the time spent by a newly called lawyer is valued at two-thirds of the time spent by a lawyer of 15 years experience practising in a specialized field and who is leading the file, is clearly unreasonable.”
There is no reason to believe the senior lawyer’s standard hourly rate, in this case, is unreasonably low, Justice Gomery said. He said he, therefore, must infer the associate’s hourly rate is unreasonably high “because the accounts do not adequately reflect the substantial gulf in the experience possessed by these lawyers and their respective roles in this matter.”
As a result, he said, he wrote that he is “not sure that the record before me is adequate to justify a final determination in this matter.” The affidavits for the hearing address hourly rates for insolvency lawyers globally in the Vancouver market. “They do not explain why the market would value the services of a newly called lawyer so highly [compared] to those of an experienced lawyer.”
He added: “At a hearing before the registrar, the receiver and the law firm may tender evidence that could possibly . . . explain and justify the narrow premium for legal experience reflected in these accounts.
In any event, Justice Gomery concluded, “the registrar will be in a better position than I am to determine a fair and reasonable fee for the services provided.”