In this important decision released 1 December 2014 the Court of Appeal for Ontario upheld a motions judge’s refusal to approve a court appointed receiver’s fees, and comments on the undesirable features of the billable hour model.
The motions judge held the legal fees charged were “disproportionate ” to the size of the receivership, that the usual or standard rates were too high, and that excessive work was done by senior counsel on routine matters. The judge found the fees charged “greatly exceed” what he viewed as fair and reasonable.
Relying on its inherent supervisory jurisdiction over a receiver’s requests for payment, and placing the onus for proving fees as reasonable (including the compensation claimed by its counsel) squarely on the receiver, the ONCA dismissed the appeal, emphasizing that fairness and reasonableness are the lynchpins of the analysis of the fees of a receiver and its counsel.
With specific reference to the billable hour Pepall J.A. wrote for the court at para 36:
“A person requiring legal advice does not set out to buy time. Rather the object of the exercise is to buy services. Moreover, 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 billable hour model has both of these undesirable features.”
Value provided should trump mathematical calculation reflected in hours multiplied by hourly rate.
Time billed and value should be synonymous, but that must not be the starting assumption, the court held. The focus must be on what was accomplished, not on how much time it took.
Although the initial order appointing the receiver stated counsel shall be paid at “standard rates”, this does not oust the need for the court to later consider whether the fees claimed are fair and reasonable. This should dominate the analysis.
Although this decision focussed on professional fees in the context of court-supervised insolvency, the court stated at para 41: “…many of the principles described in these reasons may also be applicable to other areas of legal practice…”.