IN THE SUPREME COURT OF BRITISH COLUMBIA

Date: 20150324

Docket: 141950

Registry:
Victoria

Between:

Johns Southward
Glazier Walton & Margetts

Plaintiff

And

Susen Rotto and
Rotto Law Corp.

Defendants

Before:
The Honourable Madam Justice Fitzpatrick

Oral Reasons for Judgment

In
Chambers

[1]            
THE COURT:

Introduction

[2]            
The plaintiff, Johns Southward Glazier Walton & Margetts, is a local
Victoria law firm. I will refer to it simply as "the law firm" in
these reasons. The defendant, Susen Rotto, was an associate of the law firm for
approximately two years, from June 2010 to June 2012. She practiced mainly in
personal injury law, where most of her cases, if not all, were subject to
contingency fee agreements with the clients.

[3]            
Ms. Rotto left the law firm to start her own firm. As usually
happens when a lawyer leaves a law firm, the clients were asked whether they
wished to stay with the law firm or have their files transferred to Ms. Rotto’s
new law firm, the defendant Rotto Law Corp. In this case, some clients decided
to stay with the law firm, but many clients, some 31, decided to have their
files transferred to Ms. Rotto.

[4]            
The dispute that is the subject of this action is whether there was an
agreement between the law firm and Ms. Rotto as to what compensation would
be paid to the law firm for legal services provided before the transfer of the
files, upon settlement or disposition of the actions commenced by the clients. The
law firm alleges that there is a binding and enforceable agreement as to how
the contingency fee payable by the client would be allocated between the law
firm and Ms. Rotto. Ms. Rotto contends that there was no such
agreement and that the matter stands to be determined on a quantum meruit
basis. Since no quantum meruit claim was pled, Ms. Rotto contends
that the action should be dismissed.

Background Facts

[5]            
The contingency fee agreement signed by all the subject clients provided:

IF I ELECT to change lawyers
before the settlement or trial of this matter, I agree to pay Johns Southward
Glazier Walton & Margetts the higher of Johns Southward Glazier Walton
& Margetts’ account at an hourly rate of $195.00, plus applicable Government
Taxes, or its pro rata share of the total legal fees owed by me, based on
each lawyer’s recorded time, plus all disbursements incurred on my behalf,
applicable Government taxes, and interest charges as set out herein. At no time
will the fee payable exceed 33.3% of the total settlement or judgment. I
ACKNOWLEDGE my lawyer’s right to advance a claim of solicitor’s lien over my
entire file until such time as the fees and disbursements are paid.

[Emphasis added]

[6]            
There is no suggestion here that Ms. Rotto was not fully aware of
the terms of this standard form of contingency fee agreement used by the law
firm since she had been the lawyer at the law firm who arranged for the
execution of these agreements.

[7]            
Before the clients’ files were released to Ms. Rotto, she was required
to sign a letter prepared by the law firm, which I will call the "Letter
Agreements". The Letter Agreements provided:

We enclose the contents of the file with respect to the above-noted
matter and confirm that you will be continuing with conduct of this file under
your new practice, Rotto Law, on the following terms, conditions, and
undertakings:

1.         Pursuant
to the rules of the Law Society of British Columbia, we have retained all
"accounting documents" in our office and if we are required to
produce any other portions of the file for any reason, including a Law Society
audit, you will deliver the file to us.

2.         We
enclose a copy of a draft statement confirming the "work-in-progress"
outstanding on this file as at June 15, 2012. You will see it simply sets
out the time recorded to the credit of the file. We would understand that upon
resolution of the file, or at the time an advance on account of the client’s
claim is made, that we would discuss and reach with you an agreement as to
appropriate fee allocation.

3. Upon
settlement or judgment, and accord as provided for in paragraph two of this
letter, being obtained in a particular matter you undertake to forthwith
provide our firm with a cheque representing the payment of the outstanding fees
owing to Johns, Southward, Glazier, Walton & Margetts in accordance with
the terms of the Contingency Fee Agreement and our agreement. In addition,
these fees will be taken into consideration on any advance payments which may
be received by the client prior to settlement or judgment.

4.         We
enclose our account for disbursements only paid to date on this file, on your
understanding to pay this account within 30 days of receipt of same. With
respect to any further disbursements incurred on this file (i.e., for items previously
requested by you which may arrive after your departure on June 15, 2012), you
will attend to payment forthwith upon receipt of same.

5.         We
confirm that there were no monies being held in trust on this file.

6.         You will be solely responsible
for any Directions to Pay and/or Assignments of Funds which were signed by you
and the client(s) under our firm name.

 [Emphasis added]

[8]            
Ms. Rotto signed such Letter Agreements for each of the files that
she took away, by which she "acknowledged and agreed" to these terms.

[9]            
In mid‑February 2013, Ms. Rotto advised the law firm by email
that 11 files had settled, but no details were provided. Some cheques were
provided to the law firm which they refused to cash. On February 28, 2013, the
law firm wrote to Ms. Rotto expressing significant concern about the lack
of notice regarding the settlements. The law firm requested details at that
time.

[10]        
On March 27, 2013, Ms. Rotto provided timesheets for the 11 files. She
also provided at that time a trust sheet or calculation for each of those files.
In accordance with the contingency fee agreement, that calculation was based on
an allocation of the time spent respectively by the law firm and Ms. Rotto
on the files. However, what was also included by Ms. Rotto was a 10% "risk"
allocation to her credit. This was the first time that the law firm became
aware that Ms. Rotto was claiming such a credit. Ms. Rotto had
included cheques for each of the 11 files based on her calculations, and this
included new cheques for two files where she had earlier sent cheques to the
law firm without any details as to how those figures had been arrived at.

[11]        
As with the earlier cheques, the law firm refused to cash these cheques.
In April 2013, the law firm requested that Ms. Rotto forward the client files
so that they could review the matter of the allocation of the fees based on
time spent. Ms. Rotto objected to that, and the law firm does not seek any
relief in that respect. At this time, however, the law firm did express some
difficulty with the "risk fee", which they considered, quite
correctly in my view, Ms. Rotto had unilaterally imposed on the law firm.

[12]        
There were further communications between the law firm and Ms. Rotto
during the ensuing months. Unfortunately, the parties were not able to resolve
the issue.

[13]        
As matters now stand, it is my understanding that there are some 13
files that have since been resolved or disposed of in some way by Ms. Rotto’s
law firm under the terms of the arrangements between the parties.

The Issues

[14]        
The law firm brings the matter forward by way of summary trial. Ms. Rotto
agrees that a disposition by summary trial is appropriate. The nub of the issue
is one of contract interpretation. The law firm seeks a declaration that there
is a binding agreement between the parties that the fees would be allocated
based on a pro rata or proportionate basis with respect to time spent on
legal services by the law firm and Ms. Rotto respectively. Essentially,
the law firm agrees to the original proposal of Ms. Rotto, but without the
introduction of the "risk" fee.

[15]        
The law firm agrees that Ms. Rotto has provided them with
appropriate documentation concerning the files that have already settled or
gone to trial. The law firm also seeks an order that, with respect to future
settlements or dispositions of files, Ms. Rotto provide particulars of the
settlement or judgment and also her time records of legal services provided. Ms. Rotto
does not object to this.

[16]        
Finally, the law firm seeks a reference to the registrar for the purpose
of determining the correct amount of time spent by Ms. Rotto on the files,
failing agreement between the parties. This is said to be necessary because the
law firm takes the position that some of the legal services provided by Ms. Rotto
were excessive or not properly characterized as legal services and, therefore,
were to her benefit under the fee-sharing arrangement or agreement.

Discussion

[17]        
The central issue is whether there is an agreement between the parties
as to fee sharing and, if so, what is that agreement? I have been referred to
various authorities which confirm the trite statement of law that an
"agreement to agree" is not a contract and is unenforceable: Gichuru
v. Ash Estate, 2010 BCSC 849, at para. 21; Nixon v. Trace at
paras 23, 39.

[18]        
Other authorities cited by the parties inform the court as to whether an
agreement will be considered unenforceable or not. In Arnott v. Tundra Steel
Products Ltd., (4, 14 May 1999, Cranbrook Registry, Action 8706), the court
applied an objective “reasonable” standard as to whether there was a firm
agreement, or whether there was discretion in terms of executing a later or
more formal agreement: para. 31.

[19]        
Ms. Rotto relies on Gichuru, where the court addressed a
dispute concerning the sharing of legal fees. I do not find that case of
particular assistance, as the facts were quite different from those here,
particularly as to the clarity of the contract which the court found lacking in
that case.

[20]        
However, other comments of the court in Gichuru are of assistance
here in terms of the general approach of the court to this type of dispute:

[23]      However, the requirement of certainty of terms does
not preclude the parties intentionally leaving gaps in the terms of an
agreement to provide for future accommodations. In those circumstances, the
Court should not apply the doctrine of certainty so rigidly that the intentions
of the parties are thwarted: Frolick at para. 31. Further,
an uncertain term must be “essential” to the agreement before it will lead to
unenforceability:  First City Investments Ltd. v. Fraser Arms
Hotel Ltd. (1979), 13 B.C.L.R. 107 at 116, 104 D.L.R.
(3d) 617 (C.A.).

 . . .

[27]      It follows that a
contract will not be uncertain if it contains a mechanism for determining
compensation (as in Klemke);  nor will a contract be uncertain
if a term requiring reasonable compensation can be implied (as in British
Bank for Foreign Trade Ltd. v. Novinex Ltd.). But where, as in this case,
the parties have turned their minds to compensation and put in place a formula
that leads to uncertainty, it is not open to the Court to rewrite the contract
by replacing the flawed term with a workable formula.

[21]        
The principles of contract interpretation are well known. In the seminal
case of Eli Lilly & Co. v. Novapharm Ltd., [1998] 2 S.C.R. 129, the
court stated:

54        The trial judge appeared to take Consolidated-Bathurst
to stand for the proposition that the ultimate goal of contractual
interpretation should be to ascertain the true intent of the parties at the
time of entry into the contract, and that, in undertaking this inquiry, it is
open to the trier of fact to admit extrinsic evidence as to the subjective
intentions of the parties at that time. In my view, this approach is not quite
accurate. The contractual intent of the parties is to be determined by
reference to the words they used in drafting the document, possibly read in
light of the surrounding circumstances which were prevalent at the time. Evidence
of one party’s subjective intention has no independent place in this
determination.

55        Indeed, it is unnecessary to consider any extrinsic
evidence at all when the document is clear and unambiguous on its face. In the
words of Lord Atkinson in Lampson v. City of Quebec (1920), 54 D.L.R.
344 (P.C.), at p. 350:

…the intention by which the deed is to be construed is that
of the parties as revealed by the language they have chosen to use in the deed
itself …. [I]f the meaning of the deed, reading its words in their ordinary
sense, be plain and unambiguous it is not permissible for the parties to it,
while it stands unreformed, to come into a Court of justice and say: “Our
intention was wholly different from that which the language of our deed
expresses…”.

56        When there is no ambiguity in the wording of the
document, the notion in Consolidated-Bathurst that the interpretation
which produces a “fair result” or a “sensible commercial result” should be
adopted is not determinative. Admittedly, it would be absurd to adopt an
interpretation which is clearly inconsistent with the commercial interests of
the parties, if the goal is to ascertain their true contractual intent. However,
to interpret a plainly worded document in accordance with the true contractual
intent of the parties is not difficult, if it is presumed that the parties
intended the legal consequences of their words. This is consistent with the
following dictum of this Court, in Joy Oil Co. v. The King, [1951]
S.C.R. 624, at p. 641:

…in construing a written document, the question is not as
to the meaning of the words alone, nor the meaning of the writer alone, but the
meaning of the words as used by the writer.

[22]        
Having considered the two controlling documents, being the contingency
fee agreement and the Letter Agreements, I have concluded that the terms of the
agreement between the law firm and Ms. Rotto were sufficiently clear in
terms of how they would each share in any recovery by the clients with respect
to the transferred files.

[23]        
Firstly, the contingency fee agreement clearly sets out that it is to be
based on the higher of the hourly rate of $195.00 or a "pro rata share of
the total legal fees owed by me, based on each lawyer’s recorded time". The
law firm states that, in some instances, the hourly rate is the higher amount
but it only seeks to enforce the pro rata allocation. As I have said,
there is no doubt that Ms. Rotto was well aware of that agreement by the
client and the law firm.

[24]        
Secondly, in my view, the terms of the Letter Agreements are also clear.
Ms. Rotto argues that the reference in paragraph 2 as to parties
discussing and reaching an agreement “as to an appropriate fee allocation"
is indicative of a lack of clarity and an "agreement to agree". I
disagree. In my view, what it means is that the parties will consider and agree
on what time has been properly recorded to the files for the purpose of making
the allocation.

[25]        
That there was an agreement on these terms is also reinforced in
paragraph 3 of the Letter Agreements, which refers to the requirement of Ms. Rotto
to pay the law firm" in accordance with the terms of the contingency fee
agreement and our agreement". I reject Ms. Rotto’s argument that,
since this phrase comes after the reference to settlement or judgment and
"accord" between the parties in paragraph 2, one cannot reference the
contingency fee agreement in terms of understanding the import of the
agreement.

[26]        
It is trite law that the court must discern the intention of the parties
by looking at the terms of the agreement as a whole, including the surrounding
circumstances, as applicable, in terms of giving meaning to the words used and
giving effect, if possible, to those words. When considered in the context of
both the contingency fee agreement and the Letter Agreements as a whole, the
meaning is clear that the contingency fee agreement is the basis upon which the
calculation is to be made. Per Gichuru at para. 27, this is the
"mechanism" by which the fee allocation was to be made.

[27]        
I do not consider that any ambiguity in the Letter Agreements arises
that would, per the submissions of Ms. Rotto, give rise to any application
of the contra preferentem rule. In addition, I would not accept the
vague suggestion by Ms. Rotto that she was somehow taken advantage of by
the circumstances in which she picked up the files and, in so doing, signed the
Letter Agreements. Ms. Rotto, by all accounts, was a practicing lawyer at
the time and would have been fully aware that she had an option; either take
the files and sign the Letter Agreements, or do neither.

[28]        
Submissions were made by Ms. Rotto in relation to certain post-contractual
conduct by both parties as supporting her position that there was only an “agreement
to agree". She refers to the law firm’s letter of February 28, 2013, which
refers to the parties determining how much was owing under the agreement and
having to "settle on the fee allocation". However, this letter was
sent prior to Ms. Rotto even sending the detailed information on her time
records in late May of 2013, so it is understandable that the law firm would
only generally refer to settling the allocation issue without specific
reference to any pro rata allocation.

[29]        
Ms. Rotto also refers to her own conduct in terms of her efforts to
settle the matter. In particular, she refers to her May 2, 2013 letter where
she states that the agreement by which the files were transferred included
"at resolution of the file, the firms will discuss and agree to
appropriate fee allocation." What I find odd about this argument is that Ms. Rotto’s
conduct, from the outset, was directly contrary to any approach that would see
a discussion and agreement on the fee allocation.

[30]        
As I pointed out during argument, in February 2013, Ms. Rotto’s
approach was to simply forward two cheques to the law firm without any
accompanying documentation at all. Still later, in March 2013, she did not
initiate any discussions with the law firm towards an agreement but simply sent
over a calculation which, inexplicably and without explanation, included a 10%
"risk" fee. Rather than inviting discussion on the point, she
considered the matter as a fait accompli, in that she enclosed the
cheques and indicated to the law firm that she trusted the matter to be
"in order".

[31]        
In other words, Ms. Rotto herself used the time-spent allocation as
the basis of the calculation but with her unilateral imposition of the "risk"
fee. In addition, she herself refers to an "agreement" between the
parties in her letter of May 2, 2013, although she clearly references a
disagreement on the allocation issue which, of course, arose from imposition of
the "risk" fee.

[32]        
Ms. Rotto’s evidence on this application does not even directly
address how she came to impose this "risk" fee. I take it to be
uncontroverted that, even accepting that such a fee could be imposed on the law
firm, each file would attract different considerations. Her own counsel
conceded as much and that this was a “rough justice figure" and was
intended to only generally address the extra risk that Ms. Rotto took on
with the file.

[33]        
Ms. Rotto also says that she would not have transferred all the
files that she did if she was bound to a pro rata allocation for fees. It
is highly questionable whether such evidence is even admissible on the issue of
the interpretation of the agreement. The long line of Canadian cases, following
the leading case of Prenn v. Simmonds, [1971] 3 All E.R. 237, at 240-241,
make clear that evidence as to a party’s understanding or subjective intention
of the terms of an agreement are unhelpful and of little assistance. This same
point was emphasized in Eli Lilly at para. 54, where the court
stated:

…Evidence of one party’s
subjective intention has no independent place in this determination.

[34]        
The final argument raised by Ms. Rotto was that the law firm is
not, in any event, in a position to compel payment from her. She argues that
the Legal Profession Act, S.B.C. 1998, c. 9, applies. Ms. Rotto
argues that she is a "person charged", as that is defined in s. 64(1)
of the Act:

"person charged"
includes a person who has agreed to pay for legal services, whether or not the
services were provided on the person’s behalf;

[35]        
She says that pursuant to s. 69(1), the law firm was required to have
delivered to her a "bill" and must not sue on any "bill"
until 30 days after the bill was delivered. She takes the position that the law
firm’s time sheets do not constitute a “bill”.

[36]        
I see no merit in this argument. Ms. Rotto did not agree to pay for
legal services provided from the law firm. Indeed, she was the one providing
the legal services at the relevant time, albeit as an associate of the law firm.
The proper characterization is that Ms. Rotto has agreed on the mechanism
by which she and the law firm would share in the recovery of legal fees properly
chargeable to the clients under the various contingency fee agreements. This
situation is not addressed at all by the Legal Profession Act in that
the provisions above only refer to requirements between the lawyer or law firm
and the clients.

Conclusion

[37]        
I find that there is an enforceable agreement between the law firm and Ms. Rotto,
such that they agreed on the method of calculation by which fees collected on
the transferred files would be allocated between them. I reject Ms. Rotto’s
position that this was only an "agreement to agree", such that the
allocation would be subject to a quantum meruit analysis. I also find
that the method of allocation is such that it is to be based on the proportion
or pro rata time spent and recorded by the respective law firms only,
and without regard to any "risk" fee.

[38]        
Accordingly, the relief sought in paragraph 2 of the notice of
application is granted.

[39]        
The relief sought in paragraph 3 of the notice of application is to
require Ms. Rotto to provide details of any settlement or judgment and
records of time spent. This request is consistent with the reasons of this
court in Herman v. Ian Sisett Law Corporation, 2012 BCSC 605, at para. 21,
although I would note that Ms. Rotto has provided such detail already in
respect of those files in that category. In any event, the order is granted on
the terms sought.

[40]        
I am also persuaded that issues may remain between the parties as to
whether the time recorded by Ms. Rotto is appropriate, as I have noted
above. Accordingly, the relief sought at paragraph 4 of the notice of
application is also granted which will allow the law firm to have the issue as
to what are the proper legal fees considered by the registrar. The results of
such inquiry and assessment are to be certified by the registrar in accordance
with Supreme Court Civil Rule 18-1(2).

[41]        
There will also be an order that Ms. Rotto bring the client file to
any such inquiry and assessment, although that will be subject to any privilege
issues being raised and addressed at that time, if necessary.

[42]        
Finally, there will be an order per paragraph 5 of the notice of
application that Ms. Rotto forthwith pay to the law firm any amount owing
under the contingency fee agreement and the Letter Agreements, either by
agreement or upon assessment by the registrar.

[43]        
I will now hear both parties on the matter of costs.

[SUBMISSIONS ON COSTS]

[44]        
THE COURT:  I have now heard submissions on the matter of costs, having
found in favour of the law firm with respect to the relief sought on this
summary trial.

[45]        
The law firm’s counsel has referred me to two offers to settle which
were delivered to Ms. Rotto.

[46]        
The first is a letter dated September 2, 2014, which referenced an offer
to settle in that the law firm would accept the pro rata allocation
without any risk premium and without any contest as to what was properly
included as “legal services”. The fees were to be paid within 30 days and the
parties were to bear their own costs. That offer was not accepted by Ms. Rotto
in that she sought clarification as to how this offer varied from what she had
already offered.

[47]        
The second offer to settle is a letter dated September 15, 2014. This
offer also referred to the agreement as to the allocation of the fees based on
the proportionate or pro rata allocation between the law firm and Ms. Rotto,
again without any adjustment for the risk premium. This offer also referred to Ms. Rotto
paying the legal fees within 30 days and also costs of the law firm to the date
of acceptance.

[48]        
What is apparent from both offers is that the law firm was withdrawing
any attempt to proceed before the registrar to test the appropriateness of the
time recorded by Ms. Rotto, as I referred to in my reasons for judgment.

[49]        
After September 15, 2014, the activities on the file would essentially
include the law firm providing an update to its list of documents and also, of
course, the preparation and attendance today on the summary trial.

[50]        
In accordance with Supreme Court Rule 9-1(5)(b), the law firm now seeks
an award of double costs after September 15, 2014. Counsel has referred me to
the various factors that are to be considered in making such a costs award:
Rule 9-1(6). At the end of the day, however, the matter is one of discretion,
taking into account all relevant considerations, including those listed in the Rule.

[51]        
Ms. Rotto is opposed to the double costs award. She raises some
issue concerning the relative financial status of the parties, although, as I
pointed out, there is no evidence that she is, in fact, in any less
advantageous position financially than that of the law firm. Accordingly,
without evidence, I am simply not in a position to use that as a relevant
consideration in terms of the costs award.

[52]        
The purpose of the Rule is obviously to focus parties on the issues at
hand and to require that they make a critical assessment of the merits of their
position. The delivery of an offer to settle potentially increases the penalty
that they might face if they are wrong in their assessment.

[53]        
I consider that this was a fairly easily-resolvable issue, based on the
evidence that was put before me today. In addition to having the benefit of
counsel, Ms. Rotto’s qualifications as a lawyer allowed her to consider
the issue from that perspective and also consider the costs consequences.

[54]        
I see no reason to depart from the Rule that allows me to exercise my
discretion to grant double costs under the Rule. Accordingly, costs are granted
to the plaintiff law firm on the normal scale, Scale B, up to and including
September 30, 2014, which would have allowed Ms. Rotto a reasonable
opportunity to assess the matter. Double costs are awarded from October 1,
2014, forward. Needless to say, that is only in respect of the fees, and the disbursements
simply follow, as a matter of course, along with the taxes. Anything further?

[55]        
MR. AIYADURAI:  My Lady, earlier you had made an order with respect
to sealing affidavits, and I have instructions from my client. The concern they
have is that some allegations were made in Ms. Rotto’s affidavit about
being let go with a month’s notice and the retort to that, the reply to that,
is going to be sealed, so that anyone who takes a look at that file is not
going to see the real circumstances that occurred. What my client is asking is
that we be able to file those same affidavits redacted, and an order be that
the existing ones be destroyed.

[56]        
THE COURT:  You tried to redact them already and that did not work, did
it? So I suppose you would have to do a better job of it this time, right? You
want what destroyed?

[57]        
MR. AIYADURAI:  The originals that were already — the one that was
filed — one was filed in person, so the original is in the court file. The
other one was electronically filed, it exists on, I guess, the server. If we
could refile those two affidavits.

[58]        
THE COURT:  Well, I am not going to destroy anything, because it has
already been filed. I will grant you the sealing order with respect to those
two affidavits and I will also give you leave to refile the affidavits. But I
want you to put that right on the top, right in the affidavit, that this is a
refiling of an affidavit filed at the earlier dates. Then you can refile them
with the redaction hopefully done properly this time.

[59]        
MR. AIYADURAI:  Okay, thank you. And that, of course, is not going
to need to be re-sworn. It would not need to be re-sworn, because we are
altering it to redact.

[60]        
THE COURT:  That is true, yes. But that is not part of the costs award
against Ms. Rotto. Obviously, I do not expect her to bear that cost.

“Fitzpatrick
J.”