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Pandion Mine Finance Fund LP v. Otso Gold Corp., 2022 BCSC 1923

What is a reasonable rate to charge for a junior insolvency lawyer?

Otso Gold Corp. owned mineral rights in British Columbia and, through subsidiaries, a gold mine in Finland.  It was the subject of receivership proceedings in British Columbia, which have now come to an end. The receiver sought to enter into agreements by which Otso’s assets have been sold to third parties at a loss.  In conjunction with the second application, the receiver applied for an order approving its fees and those of its counsel.  The Court approved the receiver’s fees, but reserved judgment on the application to approve the fees of its counsel.

The vast majority of the fees pertained to the work performed by two lawyers, a 15-year partner and a first-year associate.  Of the total fees of roughly $172,000 charged by the law firm, approximately $134,000 was attributed to 263.1 hours of services provided by the partner, and approximately $21,000 to 56.3 hours of services provided by the associate.

The receiver was satisfied that the legal fees were fair and reasonable and its application to approve them was unopposed.  The secured creditor (“Pandion”) bore the economic burden of the fees, and likewise, considered them reasonable.  Otso joined in that position.  All parties argued that the fees were justified because they were in respect of necessary legal services competently rendered at hourly rates consistent with those charged by similar firms of lawyers experienced in insolvency litigation.

The Court was satisfied that the fees reflected necessary services that were competently rendered. It did not doubt that the lawyers recorded time as indicated in the materials, or that the work was efficiently done. It accepted that the hourly rates attributed to the lawyers in the accounts were consistent with those charged by similar firms engaged in insolvency litigation in Vancouver.

However, the Court did not accept that the hourly rate attributed to the first-year associate was reasonable. The Court made clear that it was not criticizing the associate’s professional abilities. The problem was in the discrepancy between the hourly rates charged for the 15-year partner and the first-year associate’s services.

The partner was an established insolvency lawyer.  She was called to the bar in Alberta in 2007 and in British Columbia in 2009.  Her standard hourly rate was $605, and her discounted rate was $568.83. The associate was called to the bar in 2021. Her standard hourly rate was $395 and her effective hourly rate in these accounts was $365.54.

The law firm was valuing the associate’s services by the hour at roughly 2/3 (64%) of the value of the partner’s services.  The Court found that this was neither sensible nor reasonable.  The partner had 15 years of experience as a lawyer in a specialized field, and the associate had but a single year. The partner was the lead lawyer on the file and the primary client contact. She did most of the work.

The Court noted that lawyers learn by experience.  Through experience in drafting materials, they become more efficient.  Through experience in litigation, they refine their judgment.  These qualities of efficiency and informed judgment make their services more valuable. There is also the consideration that, very often, increased experience brings with it increased responsibility in the direction and management of a case.  The greater the degree of responsibility undertaken by the lawyer, the more valuable the service provided.  Where two lawyers work together as the primary lawyers on a file, the more experienced lawyer commonly serves as the leader or senior, and the less experienced takes on the role of a junior.

The fact that Pandion, Otso, and the Receiver were untroubled by the discrepancy did not affect the Court’s conclusion.  The Receiver was an officer of the court, and was obliged to pass its accounts and to satisfy the court that the amounts paid to its counsel were fair and reasonable. On the passing of accounts, it is the role and obligation of the court to make an independent and objective assessment of the fees claimed, taking into account, among other considerations, “the degree and skill of the lawyers involved”. The fact that insolvency lawyers in Vancouver have adopted a billing practice that insolvency practitioners such as the receiver have accepted does not make that practice reasonable.  It is relevant to an assessment of the reasonableness of the practice, but it cannot be determinative.

In this case, the billing practice whereby the time spent by a newly called lawyer is valued at two-thirds of the time spent by a lawyer of 15 years’ experience practicing in a specialized field and who is leading the file was unreasonable. There was no reason to believe that the partner’s standard hourly rate was unreasonably low. Accordingly, the Court inferred that the associate’s effective hourly rate was unreasonably high, because the accounts did not adequately reflect the substantial gulf in the experience possessed by the two lawyers and their respective roles in this matter.

The Court held that the accounts should be referred to the Registrar for assessment. The registrar is usually “the court officer best placed to conduct an assessment” being one “whose knowledge and experience in assessing legal bills is extensive and seldom matched by that of a trial judge”. At a hearing before the Registrar, the receiver and the law firm may tender evidence that could possibly tend to explain and justify the narrow premium for legal experience reflected in these accounts.  The Registrar would be in a better position to determine a fair and reasonable fee for the services provided by the associate.

Judge: Justice Gomery

Counsel: Lisa Hiebert and Jennifer Pepper of BLG for Deloitte as receiver; Jared Enns of Cassels for the Petitioners; Tevia Jeffries of Farris for the Respondent

Fullcase: https://canlii.ca/t/jssj5

By Matilda Lici