Firm must pay $400,000 legal bill, even if contract nixed

Accountancy firm BDO Dunwoody faces a $400,000 legal bill after Ontario’s top court ruled it must pay its former lawyers the fees run up under a contingency agreement, even if the law firm ultimately repudiated the contract.

BDO hired lawyers from the Windsor, Ont. office of international law firm Miller Canfield Paddock and Stone LLP back in 2007 to sue the Canada Revenue Agency and the federal Department of Justice for wrongful prosecution on behalf of two employees who fought off criminal charges related to their work.

The retainer provided for a contingency fee to the law firm of up to 25 per cent of any recovery.
Alternatively, if BDO decided “to cancel” the law firm’s services for any reason, it agreed to pay for all the law firm’s billings to that point. 

However, solicitor-client relations deteriorated when the claim was largely struck out on a motion by the defendants in 2012, and Miller Canfield informed BDO it was incapable of carrying out the appeal. The law firm recommended appellate counsel, but neither it nor BDO wanted to carry the cost of hiring him.

A superior court judge found the law firm’s refusal to conduct the appeal amounted to repudiation of the contingency agreement, and it absolved BDO from its responsibility to pay for Miller Canfield’s fees to that point, which amounted to $427,892.

“I do not believe it can be said that BDO ‘cancelled’ MCPS’s services. Rather, MCPS refused to provide the services it had contracted to provide. BDO accepted the refusal, and the contract was at an end,” wrote Ontario Superior Court Justice Pamela Hebner in her Aug. 7 decision last year.

But in its April 21 judgment, the Ontario Court of Appeal ordered BDO to pay up, ruling that even if Hebner was right about the repudiation, the termination clause was still engaged.

“Assuming, without deciding, that the Law Firm’s refusal to pay the fees of outside appeal counsel amounted to a repudiation of the retainer agreement, in our view the motion judge did not apply the proper principle of law to her interpretation of that contract. A repudiatory breach of a contract does not, in itself, bring an end to a contract. Rather, it confers upon the innocent party, such as BDO, the right of election to treat the contract at an end,” wrote Ontario Appeal Court Justice John Laskin on behalf of a unanimous three-judge panel.

“When BDO accepted the Law Firm’s repudiation of the retainer agreement and told it to take no further steps in the proceeding, BDO cancelled the Law Firm’s services within the meaning of the agreement’s termination provision,” Laskin added, referring to an e-mail from BDO’s lawyer to Miller Canfield. That was a very expensive e-mail, according to Sarah O’Connor, a lawyer with Toronto litigation boutique O’Connor Richardson PC.

“It looks like one more example of appellate courts sticking to the fundamental tenets of contract law, and it’s that one e-mail that they’re hanging it all on,” she says.

Despite the favourable result for the law firm, she sees the decision as a lesson to lawyers not to bite off more than they can chew in contingency fee matters.

Miller Canfield’s agreement committed the firm to representing BDO’s employees in “any and all proceedings” related to the alleged wrongful prosecution.

Myron Shulgan, a partner at Sutts Strosberg LLP in Windsor, acted for Miller Canfield on its appeal and said both he and his client were “pleased with the result.”

In the wake of the appeal court decision, he said law firms would be “prudent” to look again at the provisions of their contingency agreements relating to “the client’s payment obligation” on termination.

BDO’s counsel, James Thomson of Bersenas Jacobsen Chouest Thomson Blackburn LLP said in a statement that his client is considering an appeal to the Supreme Court of Canada due to the “wide ranging implications” of the case for contingency fee agreements.

“Parties rely on contingency fees for certainty because it’s ‘no win no fee’. The Court of Appeal decision removes that certainty by allowing one party to force the arrangement back to a regular fee structure,” Thomson said.