Law Times

Law Times • March 23, 2015 Page 11 www.lawtimesnews.com Counsel warned about fees in insolvency matters BY MICHAEL McKIERNAN For Law Times Toronto lawyer who frequently acts for creditors has wel- comed a recent spate of judicial interventions to cut the legal fees of court-appointed of- ficers. In a decision that included a headline-grabbing assault on the billable hour, the Court of Ap- peal for Ontario upheld a Lon- don, Ont., judge's decision to slice 40 per cent off the fee charged by counsel to the receiver in Bank of Nova Scotia v. Diemer late last year. That decision followed another Superior Court case, Re TNG Ac- quisition Inc., in which the judge reduced professional fees to the monitor and its counsel by more than 50 per cent. "I think it's a trend for judges to look more carefully at what lawyers are charging and it's one I certainly welcome," says Kevin Fisher, a litigation partner at Bas- man Smith LLP. "In the past, you could sometimes get the sense that things were simply rubber stamped in court." He adds: "It's always been a sore point for me that, in mid- size or smaller insolvency mat- ters, you see professionals being compensated to a much greater extent than the parties whose interests they are supposed to be there to protect." Fisher says receivers he has spoken to also appreciate the extra judicial scrutiny and hopes the shock of a few denials will prompt a renewed focus on ef- ficiency and effectiveness from bankruptcy professionals ap- pointed by the court. "This puts everyone on no- tice that they really have to make sure what they're bringing be- fore the court is appropriate in connection with the type and size of the receivership they are dealing with," says Fisher. On the creditor side, Fisher says client demands provide a natural check on fees since most of the people he represents have already suffered a large loss and have a very simple measure for the value of the work provided to them: the amount recovered. Things aren't so simple in the case of court-appointed officers and their counsel where there's no client to apply pressure or assess the quality of the work done. Ac- cording to David Ullmann, a part- ner in the financial services group at Toronto law firm Minden Gross LLP, publicity surrounding the massive sums paid in professional fees in the Nortel Networks Corp. bankruptcy has focused a lot of at- tention on the issue. And in an era of steadily rising hourly rates, he says it's inevitable the courts will push back periodically. "Because a lot of these fees are subject to review, we get an oppor- tunity, unlike other areas of the law, to routinely discuss whether our billing practices are appropri- ate or not, which I think is a good thing," says Ullmann. Diemer involved a dairy farm valued at about $8 million near London that went into receiver- ship in late 2013 with the owner's consent. When the bill for the re- ceivership hit $300,000 over two months, the debtor asked for and got a replacement receiver. How- ever, a motion judge refused to approve the fees requested by the receiver's counsel, reducing its claim to $158,000 from $256,000 and calling the amount of work done by the law firm "excessive" for a "relatively straightforward receivership." In its Dec. 1 decision, the Court of Appeal rejected some of the motion judge's criticisms of counsel but found his conclusion on the unreasonableness of the fees should stand. Appeal court Justice Sarah Pepall, writing on behalf of a unanimous three- judge panel, also used the deci- sion to express her concern about the billable hour as the determin- ing factor for counsel fees in the passing of receivers' accounts. "There is something inher- ently troubling about a billing system that pits a lawyer's finan- cial interest against that of its cli- ent and that has built-in incen- tives for inefficiency. The billable hour model has both of these undesirable features," she wrote. According to Pepall, "value provided should pre-dominate over the mathematical calcula- tion reflected in the hours times hourly rate equation. Ideally, the two should be synonymous, but that should not be the starting as- sumption. . . . The focus of the fair and reasonable assessment should be on what was accomplished, not on how much time it took." In TNG Acquisition, Justice David Brown, then of the On- tario Superior Court, considered the fees of the monitor and its counsel in relation to proceed- ings surrounding an insolvent computer hardware and software retailer. The lawyers had charged $9,000 for about 10 hours of work on legal advice related to privi- leged e-mails. In his May 3 deci- sion, Brown reduced the fee to $3,000, concluding the requested fee was "disproportionately high when measured against the sim- plicity of the request." Brett Kenworthy, a lawyer in the financial services group at Aird & Berlis LLP in Toronto, says both cases have lessons for law firms on how to get their accounts passed when acting for court-ap- pointed officers. "The language of the decisions focuses very much on value for money," he says. "The way that professionals can show that is by providing careful and precise information in fee affidavits and by ensuring that you have the appropriate person at the appropriate skill level and billing rate. You should be looking at delegating tasks down from senior to more junior levels where it is appropriate." Ullmann says the decisions could also give a boost to mid- market law firms if receivers begin searching for value in simpler matters. "I would hope it has an effect on where certain files are assigned by receivers and trustees in the mid-market categories," he says. LT FOCUS CHOOSE FROM CANADA'S TOP MEDIATORS AND ARBITRATORS adrchambers.com | 1.800.856.5154 W.A. Derry Millar Derry is a skilled and dedicated advocate who has conducted arbitrations and mediations in commercial, oppression, intellectual property, real estate and environmental matters and in domain name disputes for CIRA. He has chaired and served on panels for numerous Law Society discipline matters. 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Untitled-2 1 2015-03-19 11:05 AM A Kevin Fisher hopes the shock of a few fee denials will prompt a renewed focus on efficiency from bankruptcy professionals appointed by the court.

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