Will the court challenge administrative fees added to a professional firm’s invoices?
The Receiver’s lawyers submitted two interim statements of account for legal services rendered to the Receiver. Each account included as “Taxable Disbursements” an “Administration Charge” calculated at 5% of the total legal fees billed ($625 and $117.90, respectively). The lawyers specified that the administration charges might be for “Telephone / Fax / Photocopy / Delivery / Postage / Printing” charges but did not itemize them.
The Receiver certified both interim statements of account before submitting them to the taxing master. In May 2020, the taxing master disallowed the administration charges on each account. He found that they were “not properly chargeable as a disbursement” because the 5% levy reflected “an arbitrary percentage amount of the legal services rendered”. The lawyers appealed the taxation.
The lawyers challenged the taxing master’s decision on several grounds. First, they argued that the taxing master ignored the “contractual relationship” between the lawyers and the Receiver. The “Schedule Of Hourly Rates & Engagement Terms”, which was provided to the Receiver when it first retained the lawyers, stated the lawyers’ practice of applying administration charges. The Receiver agreed to pay the charges by certifying each of their statements of account. The lawyers also argued that the Receiver was a sophisticated entity whose freedom to agree to reasonable contractual terms must be recognized and protected.
Pursuant to the Order appointing the Receiver as receiver of the bankrupt estate, the Receiver had the authority to engage legal counsel and incur fees, expenses and disbursements for legal services rendered, and then pay those charges, both on an interim basis, as well as ultimately. However, pursuant to s. 18 of the Bankruptcy and Insolvency General Rules, the taxing master was ultimately responsible for determining the propriety of those charges. Therefore, the agreement between the Receiver and its lawyers—that the lawyers could add an administration charge of 5% of their legal fees to the bill—did not bind the taxing master.
The accounts rendered to receivers appointed under the Bankruptcy and Insolvency Act are closely scrutinized because receivers do not own the property and goods they receive and the funds they draw on to pay for legal services. That property belongs to the bankrupt estates of which they are receivers, and they are simply custodians of that property and are obliged by law to manage and dispose of it in the best interests of those entitled to the estate.
The taxing master disallowed the administration charge because it “was not properly chargeable as a disbursement”. Many of the costs covered by the administrative charge represented fixed charges attributable to the running of a law practice and were not disbursements incurred with respect to a specific file. Some of the costs may actually be allowable disbursements, depending on how they were incurred, how much they are, and if it can be said they contributed to the “furtherance of an individual file”. The Court sympathized with the challenges that law firms may encounter in tracking, billing and recovering individual expenditures, but held that unspecified disbursements are liable to close scrutiny by taxing masters.
The Court dismissed the appeal and concluded that the taxing master acted according to the principles stated or implied in the governing legislation and according to his mandate.
Counsel: Sean M. Pittman of Benson Buffett for PwC as Receiver
Judge: Handrigan J.