Top court won’t hear firms’ appeal over fees

The Supreme Court of Canada today denied a leave to appeal application from a pair of Toronto law firms over a disputed $837,000 legal bill.

The decision follows the Ontario Court of Appeal’s October 2010 majority decision in Echo Energy Canada Inc. v. Lenczner Slaght Royce Smith Griffin LLP, which overturned a lower court ruling and allowed an assessment of fees paid to Lenczner Slaght and Voorheis & Co. LLP. The main issue in the case was whether the firms’ legal bills were checked for reasonableness by Echo Energy’s senior leadership team, which had been embroiled in a bitter power struggle.

The company sought legal representation in relation to a glut of litigation that followed a November 2007 dispute between one if its directors and others including the company’s president, over Echo Energy’s reported gas reserves. The reserves were eventually downgraded to $12 million from $44 million.

patricia vircA new management team in September 2009 sought an assessment of fees paid to Lenczner Slaght, which collected $520,000, and Voorheis, which took in $317,000. Superior Court Justice David Brown denied that request, saying it had not been established that the previous Echo Energy directors had failed to act in the best interests of the company.

However, the appeal court majority led by Justice Marc Rosenberg said Brown failed to properly consider evidence suggesting Echo Energy president Gary Conn was spending the company’s money “without regard for the impact on the appellant.” In a dissenting opinion, Justice Stephen Goudge suggested organizations involved in intra-corporate litigation could struggle to find counsel if accounts could be reviewed simply because “the lawyers provided legal services to the losing side.”

Patricia Virc, formerly in-house counsel to Echo Energy who now acts for it as a sole practitioner, says the company has gone into receivership. She says its natural gas assets were to be sold together with the litigation assets, and the new owner will have to decide whether to go through with the assessment of the lawyers’ accounts.

While Virc believes the appeal court ruling is based on a specific set of facts and is unlikely to impact other similar cases, Steinberg Morton Hope & Israel LLP’s Antonin Pribetic has told Law Times that intra-corporate litigators must change their approach to retainers in light of it.

Counsel for the law firms, Benjamin Zarnett of Goodmans LLP, said he would not comment on the SCC’s decision denying leave.

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