Death Knell for the Billable Hour? Bank of Nova Scotia v. Diemer ONCA
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…”.
It’s worth noting that the reduced costs award was calculated in the end by multiplying the billed hours by a reduced rate. The appeal panel distanced itself from this method but adopted the result. This decision is not just about the billable hour then, it is also about Toronto BLG rates ($950/hr. for “a senior lawyer”) versus London rates (highest rate quoted in the judgment was $500/hr.).
The appeal panel implies that it is reasonable to charge $950/hr. for some types of work, but being a senior lawyer does not make it reasonable for one to charge $950/hr. for any work one does, no matter how routine. Elaborating on that, perhaps BLG’s problem was not unreasonable billable rates or “the billable hour” in general, but just insufficient delegation which left the senior lawyer with too much busy work.
On the other hand, the motions judge may have held the opinion that $950/hr. is almost never going to be a reasonable rate. There are many reasons for the Court of Appeal to distance itself from this line of thought/calculation, but I suspect it is in the minds of many judges when making costs decisions. I would like to see more cases involving costs awards where a judge compares the instant lawyer’s rates with the market and down-grades the order accordingly if appropriate. Why should one litigant subsidize another in the form of a costs award if the other litigant has over-paid?