THE COURT OF APPEAL FOR SASKATCHEWAN Citation: 2013 SKCA 22 Date: 2013-03-01 Between: Docket: CACV2359 Larry Philip Fontaine, et al. Non-Parties (Plaintiffs) and The Attorney General of Canada Prospective Respondent (Defendant) and The Presbyterian Church in Canada, et al. Non-Parties (Defendants) and Merchant Law Group LLP Prospective Appellant (Non-Party) Before: Lane J.A. (in Chambers) Counsel: Gordon J. Kuski, Q.C., and Amanda Quayle for the prospective appellant Sean Hern for the prospective respondent Application: From: 2012 SKQB 517 (CanLII) Heard: February 13, 2013 Disposition: Leave denied Written Reasons: March 1, 2013 By: The Honourable Mr. Justice Lane Lane J.A. [1] The prospective appellant, Merchant Law Group LLP (“MLG”), seeks leave to appeal an order of Gabrielson J. in Chambers dated December 11, 2012. The Chambers judge was acting in his capacity as an Administrative Judge appointed pursuant to the Court Administration Protocol (the “CAP”) established as part of the settlement of the Indian Residential Schools litigation. As part of the overall settlement, Verification Agreement (the “VA”) dated November 20, 2005 was entered into between Canada and MLG respecting verification of MLG’s legal fees and disbursements. The parties are disputing MLG’s obligations under the VA and each had made an application to the Administrative Judge for directions. [2] In issue is approximately $20 million in legal fees, disbursements and interest which MLG is claiming, and the prospective respondent (“Canada” or the “Government”) seeks verification of the claim. [3] MLG challenges the Administrative Judge’s order ordering MLG to contact ESI Software, Inc. (“ESI”) and arrange for ESI to re-create the redacted electronic billing records as whole from the “live data” in MLG’s present billing program. [4] The parties agree on the criteria to be considered in leave applications as articulated in Rothmans, Benson Hedges Inc. v. Saskatchewan, 2002 SKCA 119 (CanLII), 227 Sask. R. 121 and succinctly put they are; firstly, is the proposed appeal of sufficient merit to warrant the attention of the Court and, secondly, is the proposed appeal of sufficient importance to the proceedings, or the field of practice or the state of law, or to the administration of justice generally such as to warrant determination by the Court of Appeal. Canada also argues the impugned order was discretionary one attracting deferential standard of review. [5] There have been several judgments of the Administrative Judge dealing with the verification of MLG’s legal fees and disbursements, all of which provide more extensive background to the issue before me. Suffice it to say the judgments recognize that in order to ensure an efficient administration of the verification dispute, the parties are allowed to apply to the Administrative Judge for directions as specific issues arise, and he is authorized to make such orders or directions as are appropriate within the framework of the verification agreement: July 2, 2008, 2008 SKQB 271 (CanLII), 321 Sask. R. 285; December 30, 2009, 2009 SKQB 512 (CanLII), 347 Sask. R. 238; February 8, 2012, 2012 SKQB 68 (CanLII), 390 Sask. R. 283. [6] restatement of the context in which the claims and the verification process arose has two aspects. Firstly, the reasons for the verification process in the overall scheme of the Residential Schools litigation; and secondly, the verification process itself. The leave application arises in the context of the verification process but it will be helpful to look at the reasons for the process. I. THE REASONS FOR THE VERIFICATION PROCESS [7] The background to the process is set out by the Administrative Judge in his decision of July 2, 2008, at para. 32 In determining whether the first step of the VA has been completed, the purpose of the verification process must be considered. Canada submits that its purpose was as set out in an affidavit of Iacobucci, sworn June 15, 2006. Iacobucci’s statements as to the purpose of the verification were not contested by MLG in its material. Paragraphs 1, 2, 26 and 32 of Iacobucci’s affidavit are the relevant sections which refer to the purpose of the verification process: 1. Since May 30, 2005, have served as the Federal Representative leading negotiations with interested parties toward the resolution of the legacy of Indian Residential Schools. These negotiations, which resulted in Settlement Agreement as described below, included long and complex discussions respecting legal fees. Indeed, legal fees were central element of the negotiations and there would have been no Settlement Agreement without an agreement on legal fees. therefore have knowledge of the matters to which depose herein. 2. The discussions of legal fees with Tony Merchant, Q.C., representing the Merchant Law Group (‘MLG’), were particularly long and complex. As described in detail at paragraph 26 of this affidavit, had and continue to have number of very serious concerns about the information put forward by MLG to justify its position on legal fees. These concerns include: (a) uncertainty about the number of former residential schools students who had retained MLG; (b) lack of evidence or rationale to support the MLG’s claim that it had Work-in-Progress of approximately $80 million on its residential school files; and (c) an apparent discrepancy between the amount of class action work MLG represented it had carried out and the amount of class action work it had actually done. 26. required this verification process as part of our fee agreement with MLG because had very serious concerns about the information put forward by MLG to justify its position on fees. These concerns included the following: (a) Actual number of retainers. MLG represented during the legal fees negotiations that it had entered into Retainer Agreements with 7,000 to 8,000 former students, but was unable to offer any evidence as to how many of these Retainer Agreements existed as of May 30, 2005. (b) The number of retainers that MLG represented existed changed frequently during the negotiations and appeared not to make allowances for cases that had settled or determined by trial, former clients who had died, and those who were represented by other law firms. (c) (redacted) (d) Actual amount of Work-in-Progress. MLG represented that it had Work-in-Progress outstanding on these files of approximately $80 million, but was unable to offer any evidence to support this amount or to explain how and why these costs were incurred. have recently been shown copy of an article that appeared in the Leader Post on August 9, 2004 in which Mr. Merchant was reported to have stated that MLG carried approximately $12 million in unpaid work .... (e) Actual amount of class action work. MLG represented that it should be paid substantial fees in respect of the class actions it had brought but, unlike the National Consortium, MLG appeared to have expended very limited resources on these class actions. 32. The verification process agreed to by MLG is essential to provide me with sufficient information to determine the reasonableness of the fees to be paid to MLG. The Merchant Fees Verification Agreement requires me to satisfy myself that the amount of fees to be paid to MLG is reasonable and equitable ‘taking into consideration the amounts and basis on which fees are being paid to other lawyers in respect to this settlement’. The basis on which fees are being paid to other lawyers in respect of this settlement is to compensate them for outstanding Work-in-Progress, capped at $4,000, in respect of each Retainer Agreement existing as of May 30, 2005 and to provide an appropriate multiplier for class action work. To apply these principles to the MLG fees, Canada needs to have reliable information respecting, among other things: (a) the number of Retainer Agreements that MLG had with its clients as of May 30, 2005; (b) the amount of MLG’s Work-in-Progress in respect of each Retainer Agreement, bearing in mind the $4,000 cap for each Retainer Agreements; and (c) the amount and nature of the class action work that MLG says it carried out. [emphasis added] [8] It is clear from the affidavit of Mr. Iacobucci, who was Canada’s representative in the settlement negotiations, that it is incumbent on MLG to satisfy the concerns he raised and that the fees to be paid are reasonable and equitable. In order to allow MLG to verify its claims, the VA was signed. [9] The relevant provisions of the VA are as follows: Agreement Between the Government of Canada and the Merchant Law Group Respecting the Verification of Legal Fees The Government of Canada and the Merchant Law Group agree that in addition to the requirement to provide an affidavit as set out in Article of the Agreement in Principle, the Merchant Law Group’s fees shall be subject to the following verification process. 1) The Merchant Law Group’s dockets, computer records of Work in Progress and any other evidence relevant to the Merchant Law Group’s claim for legal fees shall be made available for review and verification by firm to be chosen by the Federal Representative the Honourable Frank Iacobucci. 2) The Federal Representative shall review the material from the verification process and consult with the Merchant Law Group to satisfy himself that the amount of legal fees to be paid to the Merchant Law Group is reasonable and equitable taking into consideration the amounts and basis on which fees are being paid to other lawyers in respect of this settlement, including the payment of to 3.5 multiplier in respect of the time on class action files and the fact that the Merchant Law Group has incurred time on combination of class action files and individual files. 3) If the Federal Representative is not satisfied as described in 2) above, he and the Merchant Law Group shall make all reasonable efforts to agree to another amount to be paid to the Merchant Law Group for legal fees. 4) If the Federal Representative and the Merchant Law Group cannot agree as described in 3) above, the amount to be paid to the Merchant Law Group for legal fees shall be determined through binding arbitration, but that amount shall in no event be more than $40 million or less than $25 million. The arbitration shall be by single arbitrator who shall be retired judge: [10] When the final Settlement Agreement (the “SA”) was executed on May 8, 2006, it made provision for the determination of the legal fees payable to MLG as follows: (2) The fees of the Merchant Law Group will be determined in accordance with the provisions of the Agreement in Principle executed November 20, 2005, and the Agreement between Canada and the Merchant Law Group respecting verification of legal fees dated November 20, 2005 attached hereto as Schedule ‘V’, except that the determination described in paragraph of the latter Agreement, will be made by Justice Ball, or, if he is not available, another Justice of the Court of Queen’s Bench of Saskatchewan, rather than by an arbitrator. (4) In the event that the Federal Representative and either the National Consortium or the Merchant Law Group cannot agree on the amount payable for reasonable disbursements incurred up to and including November 20, 2005, under s. 13.08(1) of this Agreement, the Federal Representative will refer the matter to: (b) The Saskatchewan Court of Queen’s Bench, or an official designated by it, if the matter involves the Merchant Law Group; to fix such amount. ... All legal fees payable under Section 13.08 will be paid no later than 60 days after the Implementation Date. Schedule which was attached to the SA was identical to the VA. [11] The parties see the implementation of the VA as at Step (para. of the VA) with MLG arguing it has satisfied its obligations to make its records available for review and verification by Canada’s auditors (“Deloitte”) and the auditors must now file its report and, as agreed upon, send copy of its report to MLG. Having completed Step 1, according to MLG, once MLG receives the auditors’ report the parties can commence negotiating settlement (Step 2) and failing an agreement, pursue trial determination. Canada says MLG has not completed Step of the verification process. The Administrative Judge agreed and made the impugned order. II. BACKGROUND TO THE IMPUGNED ORDER [12] Earlier in the process an issue arose with regard to the need to protect solicitor client privilege during the review of MLG’s files and records. In the Administrative Judge’s order of July 2, 2008 he directed the parties to determine how verification process could be completed without breaching solicitor client privilege. protocol was established and MLG retained ESI which was able to develop the redacted electronic billing records with the solicitor client privileged information removed. MLG had been using ESI software for its own electronic billing program. [13] The governing protocol contained the following definitions: “Settlement Agreement” means the May 10, 2006 Settlement Agreement approved by the court in this proceeding. “Client Files” means the records and documents, in hard-copy and electronic form, which comprise all of MLG’s work product for which MLG claims fees and disbursements pursuant to Article 13.08(2) of the Settlement Agreement. “Electronic Billing Records” means MLG’s electronic billing records relating to the Client Files. “Redacted Electronic Billing Records” means the Electronic Billing Records from which information that is solicitor-client privileged, as specified in this order, has been removed. [14] It is to be noted the electronic billing records which were to be provided by MLG were the electronic billing records relating to the files which “comprise all of MLG’s work product for which MLG claims fees and disbursements …”. [emphasis added] [15] In September of 2010 MLG delivered the redacted electronic billing records. The second part of the verification process, which was physical file review at MLG’s offices, was scheduled for April 2011. Shortly before the commencement of the physical review, Canada learned the redacted electronic billing records which had been produced were not accurate. [16] The Administrative Judge explained the issue in his February 8, 2012 fiat: On April 6, 2011, counsel for MLG wrote letter to counsel for Canada in which it raised the issue which then gave rise to the application for directions currently before the Court. In this letter, counsel for MLG stated: This issue of different effective dates for consideration, and MLG’s preparation for the April audit has caused MLG to identify time entries on some of the files which the firm will not seek to bill or appear to be misdescribed. MLG may update or amend residential school accounts and continues to amend time recorded on its files as required. In the result, the Esilaw data provided by MLG to your client will not entirely match live data or future submissions. Counsel for Canada took exception to this letter and in responding letter of April 7, 2011, questioned whether the electronic billing records provided were in compliance with the Court’s December 30, 2009 order if further amendments would be required. Further correspondence ensued between the parties in which counsel for MLG stated that MLG had complied with the order, but that it could further update or amend such records subject to its final account. [17] Canada would later learn, as it sought to determine how many entries were “misdescribed” or for which MLG would “not seek to bill”, that 57,468 entries were inaccurate or for which MLG was not seeking to bill which totalled approximately $4 million in fees. [18] MLG’s response was to provide additional information in format which could not be reconciled with the initial redacted data prepared by ESI. MLG is now using different software from different supplier for its internal billing. Canada’s auditors said that significant number of the entries and deletions provided by MLG could not be reconciled with the redacted electronic billing records created by ESI. [19] However, MLG says it cannot now use ESI because they are in dispute over an account of approximately $9,100 and ESI will not assist MLG with any work until the account is paid. [20] MLG advised the Administrative Judge that it could not provide the now requested information in form which could be reconciled with the earlier data relying on advice from its internal technology personnel. [21] Canada contacted ESI which responded by an e-mail stating it believed it could reconcile the information. It was, of course, the software provider which came up with the earlier solution to protect solicitor client privilege. [22] This impasse, with Canada seeking the information to reconcile the data it had received and MLG saying it has complied with Step of the verification process and demanding that Canada’s auditors now prepare and forward its report so the parties can proceed to Step 2, led each party to make an application for directions. As stated earlier, the Administrative Judge’s order is the basis for the leave application now before me. [23] The Administrative Judge said it appeared that both parties agreed there was need for one comprehensive database for the purpose of the verification process. He was satisfied, based on the information before him, it was possible for ESI to provide the information which was necessary to allow Canada’s auditors to continue with the verification process. He said the dispute between ESI and MLG over the accounts from previous work done by ESI for MLG should not be allowed to prevent this from happening. He suggested there were avenues which MLG could take to allow ESI to proceed. He ordered: 17 (1) That MLG contact ESI Software, Inc. and arrange for ESI to re-create the redacted electronic billing records as whole from the “live data” for the residential schools litigation. This arrangement should be in accordance with the proposed directions attached as Appendix to my fiat of December 30, 2009, with such further terms as the parties may agree to. Upon creation of the redacted electronic billing records, copy shall be delivered to Canada and/or its agent Deloitte so that it might complete the audit required for the verification process. III. POSITIONS OF THE PARTIES A. THE PROSPECTIVE APPELLANT [24] MLG argues the Administrative Judge exceeded his jurisdiction by requiring MLG to pay the disputed account of non-party relating to matters wholly unconnected to the action. Further, he did so on his own motion without notice and either without evidence, or on evidence not properly before him. MLG argues judge performing an administrative function pursuant to contract cannot order party to pay disputed account without due process as precondition to achieving the balance of his directions. It argues that to allow such an overreaching authority substantially enlarges and changes the law of contract interpretation and could affect the thousands of pending Indian Residential School compensation applications which are being dealt with under the overall rubric of the IRS settlement. It says the order was, in substance, mandatory injunction. [25] MLG takes issue with the Administrative Judge’s finding both parties agreed there was need for common database. MLG says it is not their position and that Canada’s auditors have enough information to prepare its report. [26] MLG further argues the Administrative Judge based his decision on e-mails which were not evidence. This, it continues, is an error of law and the Administrative Judge was incorrect. The document referred to on this issue is copy of letter to ESI and an e-mail response referred to in para. 11 of the Administrative Judge’s fiat. These were attached to an affidavit deposed by legal secretary for the law firm acting for Canada. This is the only information the Administrative Judge had which indicated ESI could do the work proposed and it should not have been admitted. MLG argues it is “extremely important to the profession and to the administration of law generally that judges adhere to rules of evidence in hearing and determining disputes between parties” (para. 76, Brief of Law). If not addressed this establishes an important precedent. [27] MLG goes on to say the impugned order added further terms and requirements to his order dated February 8, 2012 and this constituted, in effect, an appeal of his prior order which was of itself unsound and extended beyond what Step of the verification process required of MLG. The Administrative Judge’s actions constitute, in effect, litigation by instalment. [28] Finally, MLG says the Administrative Judge erred in failing to require Deloitte to complete its report and then requiring Canada to deliver the report to MLG; further erred in concluding MLG had not complied with the February 8, 2012 order by delivering the redacted electronic billing records to Canada; and finally, erred by failing to conclude the process set out in para. of Schedule was completed. B. THE PROSPECTIVE RESPONDENT [29] Canada says MLG’s overall position is that Canada has been delaying the verification process while MLG has been diligent in complying with it. It says the exact opposite is happening. [30] MLG agreed to the verification process and in his July 2, 2008 fiat the Administrative Judge specifically set out what was required of MLG in order to allow Canada to calculate the fees payable to MLG. It says fundamental premise of the verification process was that MLG would “provide firm and final representation of what work product MLG says supports its claim for $40 million in fees” (para. 13, Memorandum of Argument). This requirement was set out in the earlier referred to definition of “Redacted Electronic Billing Records” as set out in the order of December 30, 2009. Further, MLG was ordered to provide accurate information in the fiat of February 8, 2012. [31] As result of that order, MLG produced 1,270 page hardcopy list of the 57,468 time entries to be deleted or changed which Canada estimated to approximate $4 million in unwarranted time. That information was provided in different format from that of the original redacted electronic billing records. MLG has made it impossible to reconcile the latter information with the records previously supplied. Any allegations of delay by MLG are simply unfounded and in applying the test for the granting of leave, the Administrative Judge made discretionary order clearly within his jurisdiction. [32] Contrary to the argument of MLG, the Administrative Judge did not err by requiring MLG to pay the alleged accounts of ESI without sufficient information and without due process. In fact, clear reading of the fiat was direction which simply required MLG to provide the redacted electronic billing records as required by the order of December 30, 2009. Given the mandate to attempt to get verification of MLG’s accounts, the Administrative Judge was not going to allow relatively small bill to stand in the way. The Judge simply made suggestion as to how MLG should deal with the matter. [33] With regard to the alleged error in finding MLG agreed with Canada that there was need for one comprehensive database for the purpose of completing Step of Schedule V, in fact it was MLG which stated in its Prayer For Relief in the Request for Directions application that there should be one database. The order sought by MLG required the Government to immediately deliver copy of the auditors’ report to MLG with any supporting data which should include “inter alia, the merger of MLG’s revised billing data with the redacted electronic billing data provided to Deloitte by ESI Software Inc. (“ESI”) prior to Deloitte’s physical inspection of MLG’s files”. Further, the judge only stated there “appeared” to be an agreement on this point, this does not constitute firm finding on the point. In any event, it was not necessary for his decision. [34] With regard to the issue of hearsay evidence, such evidence has been tendered during the course of the process. Indeed MLG tendered the hearsay evidence of its Executive Director. Further, the judge did not need to rely on the evidence in any event because it was clear ESI could accomplish the required task because it had already done so. [35] Replying to MLG’s argument that the Administrative Judge erred by adding further terms and requirements to his previously issued order dated February 8, 2012; and that MLG had complied with that order because the order did not specify the form of revisions and it was therefore open to MLG to provide new information in format which could not be reconciled with previous data, it is clear, says Canada, that at the time of the February 8, 2012 order neither Canada nor the court had any idea there were some 57,000 time entries which were misdescribed or would not form part of the claim. If it had been known at the time of that order, it is very likely the order would have specified that the new data should be compatible with data previously provided. Further, it is open in the process for the court to give further directions from time to time to ensure that the process is properly concluded. [36] Finally, there was no error by failing to require Deloitte to complete its report and order the report delivered to MLG. It was open to the Administrative Judge to find that Step of the verification process was not yet completed and Deloitte cannot complete its report without the reconciled electronic billing data. [37] In summary, it says this was discretionary order procedural in nature and each of the grounds of MLG is bound to fail. An appeal will unduly delay the proceedings and will unnecessarily add to the cost of proceedings. There are no issues of importance to the administration of justice to warrant consideration by the Court. Decision [38] I am in agreement with the argument of the prospective respondent and leave to appeal is denied. The order appealed from was simply a discretionary order designed to move the verification process along and ensure the process meets its overall objective of determining if the amount of MLG’s fee is reasonable and equitable. This is precisely what the Administrative Judge is required to do. The prospective appellant is overstating the effect of the order. The Administrative Judge could simply have ordered MLG to supply the new information in form that is compatible with the redacted electronic billing records. He was obviously attempting to be helpful by suggesting to MLG what it might do to resolve its issue with ESI and obtain the compatible electronic records. He was correct to not allow such small monetary dispute to stand in the way of multimillion dollar claim. do not see this issue warranting the attention of the Court. [39] The Administrative Judge made no error when he said the parties were agreed on common database because that is exactly what MLG requested in its Prayer for Relief. Further, see no issue of importance requiring the attention of the Court on the issue of the evidence or information upon which the Administrative Judge relied. Both parties relied on hearsay evidence and an application for directions is simply an informal procedural step to ensure the verification process moves along. [40] The prospective appellant fails to establish there is a matter of sufficient importance to the proceedings before the Court, or to the field of practice or the state of law, or to the administration of justice generally to warrant a determination by the Court. [41] agree with the prospective respondent an appeal will further delay and add to the cost of proceedings. [42] Leave to appeal is denied. The prospective respondent shall have its costs in the usual manner. DATED at the City of Regina, in the Province of Saskatchewan, this 1st day of March, 2013. “Lane J.A.”
The prospective appellant applied to leave to appeal an order made in Chambers. The Merchant Law Group and the Crown had been involved in protracted negotiations regarding the manner in which Merchant would bill the Crown for legal fees regarding their representation of Indian residential school claimants. The parties eventually reached a 'Verification Agreement', respecting the verification of Merchant's legal fees and disbursements. In order to protect solicitor-client privilege, Merchant's software company was able to develop redacted electronic billing records with the privileged information removed. When Merchant did submit a bill, it was discovered that the electronic billing records were inaccurate. The parties then became involved in a dispute regarding the Merchant's obligations under the Agreement. They had each made an application to a Chambers judge acting in his capacity as an administrative judge for the purposes of the Agreement for directions. The judge ordered (see: 2012 SKQB 517) that Merchant should contact its former software company and arrange for them to re-create the redacted electronic billing records as a whole from the 'live data' in the appellant's present billing program. Before the software company would perform this task, the Court ordered Merchant to pay the outstanding fees. Merchant had disputed these fees and had refused to pay them. Merchant took the position that the administrative judge had exceeded his jurisdiction by requiring the law firm to make this payment: the judge had over-reached his authority. In addition, the judge had based his decision on emails that were not evidence.HELD: The Court noted that leave to appeal under Court of Appeal Rule 11 is granted in accordance with the criteria established in Rothmans, Benson &amp; Hedges Inc. v. Saskatchewan. Leave to appeal was denied. The order appealed from was simply a discretionary order designed to move the verification process along and ensure the process met its overall objective of determining if the amount of Merchant's fee was reasonable and equitable. The prospective appellant failed to establish that there was a matter of sufficient importance to the proceedings or to the field of practice, the state of law or the administration of justice to warrant a determination by the Court.