BCCA Rules on Quantum Meruit Fee Issue

A five-judge panel of the British Columbia Court of Appeal decided on September 8, 2009 that law firm Nathanson, Schachter & Thompson LLP (NST) was estopped from billing its client Inmet Mining Corporation a quantum meruit fee in circumstances where the firm had sent periodic bills during the course of the litigation but had not advised its client of its intention to deliver a quantum meruit bill at the conclusion of the case. The court's ruling in Nathanson, Schachter & Thompson v. Inmet Mining Corp., 2009 BCCA 385, clarifies the obligation of lawyers to advise their clients of the basis on which they will be charging for their legal services at the outset of the retainer and the consequences of not doing so.

The case arose out of a lawsuit in which Nathanson, Schachter & Thompson represented its client Inmet in the successful prosecution of a damage claim, the defence of a very strong counterclaim in a 67-day trial in the BC Supreme Court and the successful defence of the appeal: Inmet Mining Corp. v. Homestake Canada Inc., 2003 BCCA 610. Nathanson, Schachter & Thompson recovered for Inmet one of the largest civil damage awards in the history of the province.

There had been no discussion between lawyer and client as to how fees would be charged. Nathanson, Schachter & Thompson had intended to bill on a monthly or periodic basis and then render a final account at the conclusion of the retainer. The final account was intended to reflect the considerations set out in Yule v. Saskatoon (1955), 1 D.L.R. (2d) 540, which have been codified in British Columbia in s. 71(4) of the Legal Profession Act. The client, however, did not know that. Inmet's experience in commercial litigation was that litigation counsel billed their time on a regular basis based on hourly rates. When they received monthly accounts from Nathanson, Schachter & Thompson listing the work done during that period and setting a fee for the work, they assumed that was the total fee for the work done. The monthly fee was in fact described as a “total fee” but the account was described as an “interim account.”

During the litigation, the client paid some $4.3 million in periodic accounts. At the conclusion of the case, at the request of Nathanson, Schachter & Thompson, the client paid the firm what it understood to be an ex gratia bonus of $1 million in recognition of the excellent work the law firm had done in the litigation. Nathanson, Schachter & Thompson then delivered its “final” account of $10 million, crediting Inmet for funds received, leaving a balance of just less than $5 million. Inmet refused to pay this “final” account and Nathanson, Schachter & Thompson took its bill to assessment before the registrar.

The first issue before the registrar was whether Nathanson, Schachter & Thompson was entitled to present a fee bill based on the Yule v. Saskatoon factors after billing for its work throughout. The client took the position that if the law firm intended to bill monthly but reserve its right to send a final account based on the Yule factors, it had an obligation to advise the client at the outset. If the law firm was entitled to a “fair fee” other than what had been billed and paid, the second issue arose as to how to assess the proper amount of the bill in light of all the circumstances, including the excellent result obtained in the case but also the failure of the law firm to explain its billing intentions.

The difficulty for Inmet on the first point was that it appeared to have been decided in a judgment in an earlier fee dispute, Nathanson, Schachter & Thompson v. Albion Securities Co., 2004 BCCA 515. In Albion, the Court of Appeal had confirmed the ability of a law firm to charge a final or fair fee based on the Yule factors even when it had been billing its time on a periodic basis throughout the retainer and had not advised its client of its intention to bill on the Yule factors at the end of the case when the result was known. Nonetheless, Inmet proceeded to challenge the billing practices approved in Albion.

Both sides brought experts to testify at the registrar's hearing. Jack Giles, QC, and Barry Kirkham, QC, both eminent civil counsel in British Columbia, testified in support of the Nathanson, Schachter & Thompson bill. Inmet led opinion evidence from Terrence O'Sullivan and James Tory as to standard billing practices in Ontario, where Inmet has its head office, and Nathanson, Schachter & Thompson countered with opinions from Bryan Finlay and Benjamin Zarnett. Inmet also submitted survey evidence demonstrating that most commercial litigation is conducted on an hourly bill basis in support of the reasonableness of Inmet's conclusions that this is how they were being billed.

In the end, the registrar held that the Albion judgment was dispositive of the first issue and Nathanson, Schachter & Thompson was entitled to a fair fee based on the Yule factors regardless of their pattern of billing or failure to advise their client. Somewhat surprisingly, however, the registrar concluded that in all the circumstances, Nathanson, Schachter & Thompson had been paid a fair fee by the client already and was not entitled to any of the additional $5 million claimed in the final account. The reviewing judge found no error in the registrar's approach and the issue went to the Court of Appeal.

The Court of Appeal sat in a five-judge panel to review Albion and concluded (with a dissent) that the decision should be overruled. The Yule factors set out in the Legal Profession Act represented a default position where there was no agreement as to fees, but a retainer based on this default position was an entire contract and could not be billed until the retainer had been concluded. Unless the client agrees otherwise, counsel is not entitled to any fee under an entire contract until he or she has completed the work.

The court recognized that for most commercial litigation, the days when legal services were billed in one account on completion of the work are now long past. However, a retainer is overlaid with fiduciary obligations, including an obligation of candour on all matters concerning the retainer. Where the law firm intended to bill for its services, at least partially, throughout the retainer it had an obligation to obtain the client's informed consent for this deviation from the entire contract principle. Failure to do so constituted a breach of the law firm's duty to its client, although the court expressly found it to be an innocent one. In these circumstances, Nathanson, Schachter & Thompson was estopped from claiming a fair fee under the Legal Profession Act.

On the second issue – the amount of the fair fee to which Nathanson, Schachter & Thompson would have otherwise been entitled – a majority of the court would have allowed the appeal, holding that the registrar had erred in concluding that Nathanson, Schachter & Thompson had already been paid a fair fee. As a majority of the court held Nathanson, Schachter & Thompson to be estopped from claiming a fair fee under the Legal Profession Act, however, this issue became moot.

Under the Court of Appeal's judgment, there is nothing wrong with billing a client on a periodic basis and then reserving the right to charge a fair fee at the conclusion of the retainer, but the client must agree to this procedure on a fully informed basis at the outset of the retainer. The use of a retainer letter would have resolved this problem.

Inmet was represented by John Hunter, QC, and Mark Oulton of Hunter Litigation Chambers throughout this litigation. George Macintosh, QC, and Tim Dickson of Farris, Vaughan, Wills & Murphy LLP were counsel for Nathanson, Schachter & Thompson in the Court of Appeal.