How to repudiate a contract and end up ahead…

Repudiation

In contract law, the concept of Repudiation was developed where one of the parties to a contract by actions, words, or inaction expresses to the other party its intention to no longer be bound by the contract to which they are a party.

A repudiation of a contract is a form of termination of the contract, however, it goes further in that a party that repudiates the agreement is signaling to the innocent party their intention to no longer be bound by the contract and to no longer perform.

The innocent party faced with a repudiation, can demand continued performance and then bring a court claim for damages or specific performance (ie. compelling the offending party to do the things they promised to do in the contract) if performance does not follow, or they can accept the repudiation, at which point all parties are relieved of further performance, however rights accruing under the contract prior to the repudiation remain.

Recently however, the Ontario Court of Appeal ruled in a way that would appear to be rewarding a repudiating party (in this case a law firm).  In the case of Miller, Canfield, Paddock and Stone, LLP v. BDO Dunwoody LLP, the Court of Appeal considered a contingency fee retainer agreement contract (the “Agreement”) between a law firm (MCPS) and the client (BDO).  The Agreement would call for BDO to pay an agreed percentage of funds recovered in a matter to MCPS as fees.  If MCPS was unsuccessful in recovering funds, there would typically be reduced or no fees at all.  The Agreement in this case contained an early termination clause requiring BDO to pay certain fees to MCPS in the event BDO were to terminate MCPS’s services prior to completion of the matter or recovery of funds by MCPS.

An early termination provision is common in contingency fee matters as it acts as a disincentive for clients to switch law firms prior to recovery of funds, and ensures that the law firm recovers some of its costs incurred in representation to the date of an early termination.

In this case, MCPS declined to retain (and pay) a third party appeal counsel to conduct an appeal of the matter.  BDO took the position that this refusal was in fact a repudiation of the Agreement by MCPS and BDO then accepted the repudiation which ended the relationship.

At the lower level court, the court found that BDO was entitled to accept the repudiation of the Agreement by MCPS and was relieved from further performance under the Agreement, and particularly the early termination provision requiring BDO to pay MCPS fees to the date of termination.

The Court of Appeal however went a very different direction and determined that while MCPS may have repudiated the Agreement, and BDO was entitled to accept the repudiation, BDO would still have to pay fees to MCPS to the date of acceptance of the MCPS’s repudiation because the act of accepting the repudiation was in fact a termination of the Agreement as contemplated by the early termination provision in the Agreement.

The way I see it (and I am no doubt swimming against the tide of old contract law on this one), is that if MCPS repudiates the Agreement, and the repudiation is accepted by BDO, the Agreement is being terminated by MCPS, not BDO.  Accordingly, the early termination provision that acts to compensate MCPS if BDO terminates early, ought not to be applied.  Essentially, MCPS as the breaching party ought not to be able to enforce a termination provision of the very Agreement they declined to abide by (in effect they terminated first).

It seems to be a very odd result that the offending party MCPS ought to be able to repudiate its own Agreement (that they likely drafted), refuse to perform, and effectively terminate the Agreement, and then in the result find an entitlement to fees from the innocent party for purporting to trigger a termination.

While I understand basic contract law concepts, I sometimes find myself in situations like this on the sidelines scratching my head at how a repudiating party ended up ahead on this.  While the result may be legally correct, it leaves something to be desired in the justice department.

Published by D. Jared Brown – Lead Counsel – Brown Litigation

Progress – our approach to litigation

This re-think is occurring at many levels, and is being directed to some extent top down by the court.
At Brown Litigation our tagline is “Progress”.  We believe this word captures our approach to litigation which puts value on strategic thinking, defining objectives, attaining outcomes, returning value to the client, efficiency, and only employing process where it can directly improve client outcomes.  We also believe that our approach to litigation does away with unnecessary process thereby allowing us to progress our client’s case rapidly towards client valued outcomes.
I have come across a well written article published in the Advocate’s Society Journal by a colleague Mr. Allan Rouben.  Mr. Rouben is a lawyer in Toronto http://www.allanrouben.com/, and I believe his article could use some light from our direction.
In its important decision in Hryniak v. Mauldin, 2014 SCC 7, the Supreme Court of Canada signalled the need for lawyers and judges to re-think their approach to the civil justice system in order to provide timely and affordable access to the courts. This “culture shift” entailed simplifying pre-trial procedures and “moving the emphasis away from the conventional trial in favour of proportional procedures tailored to the needs of the individual case.”While the statements were made in the context of summary judgment, it is apparent the Court intended them to apply to the system as a whole. As with all general pronouncements, their application was left to judges to adapt to the circumstances of individual cases. With a month now having passed since the decision was rendered, we are beginning to see the stirrings of what this culture shift might mean on the ground.TheTrustees of the Drywall Acoustic Lathing and Insulation Local 675 Pension Fund v. SNC-Lavalin Group Inc., 2014 ONSC 660, involved a motion related to preparation of a discovery plan in a complex class action. As civil litigators know, our current documentary and oral discovery processes are exhaustive, and account for much of the associated expense and delay in the system.In his January 29, 2014 decision, Justice Paul Perell referred to the mind-set of counsel to request every document and look under every rock during the discovery process. He said:

[88]           Proportionality recognizes that perfection is the enemy of the good. Naturally enough, a litigant wants to know everything that might possibly be known to prove his or her case and a litigant wants to know everything about their opponent’s case so as to not be taken by surprise and to be ready to disprove the opponent’s case. But what a litigant wants is not necessarily what he or she needs, and the development and settling of a Discovery Plan should be approached by needs not wants.

[89]          And what goes for discovery and disclosure needs must be approached having regard to the proportionality principle that means that a litigant – and more precisely his or her advocate – must be re-cultured to accept that the adversary system needs far less in procedure than a perfectionist and sometimes obsessed advocate might wish for.

Garner v. Bank of Nova Scotia, 2014 NSSC 63, involved a motion to adjourn a trial for purposes of obtaining additional discovery. Associate Chief Justice Deborah Smith said:

[34]         During the hearing of this motion, I referred counsel to the recent Supreme Court of Canada decision in Hryniak v. Mauldin, 2014 SCC 7 (CanLII), 2014 SCC 7.  In that case, the court, which was speaking in the context of a summary judgment motion, discussed a culture shift that must take place in relation to civil justice in Canada.  It recognized that our civil justice system is premised upon an adjudication process that must be fair and just.  The court went on to say, however, that undue process and protracted trials, with unnecessary expense and delay, can prevent the fair and just resolution of disputes (see ¶ 24).  It further stated that a fair and just process is illusory unless it is also accessible, proportionate, timely and affordable. The proportionality principle means that the best forum for resolving a dispute is not always that with the most painstaking procedure (see ¶ 28).  While these comments were made in the context of a summary judgment motion, in my view, they are applicable to all civil cases in Canada.

[35]         I am fully satisfied that if the Plaintiff’s first three motions were to be granted, this case would have to be adjourned once again.  The trial, which has been scheduled for over a year, will be further delayed while additional pre-trial steps are taken.  Delay will be warranted in situations where it is necessary to do justice between the parties.  In this case, however, I am satisfied that the Plaintiff’s solicitor is fully capable of dealing at trial with the new information that has come forward and I am further satisfied that it is neither appropriate nor necessary to embark upon further pretrial procedures.

Based on these early insights, a culture shift entails slimming down the process such that: (1) litigants obtain access only to the information they actually need to deal fairly with the claim; (2) pre-trial procedures are discouraged; and (3) there is a recognition that perfection is not needed to ensure a fair process.

Lawyers are paid to exercise judgment. That requires them to make decisions on what the client really needs to advance or defend the claim. It also requires them to make decisions on what procedures are really needed without compromising the client’s interests. If that becomes part of the culture shift we end up with, the justice system and public will be the beneficiaries.

– See more at: http://www.allanrouben.com/uncategorized/hryniak-v-mauldin-an-update-on-culture-shift/#sthash.Ikjm43Rc.dpuf”

Posted by:  D. Jared Brown – Lead Counsel

OUR APPROACH TO COLLECTIONS

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At Brown Litigation, we are trial lawyers, and our Commercial Litigation group regularly advises businesses and individuals on collection matters. We recognize that in order for our clients to be able to make the business decision to pursue an outstanding account, they require cost certainty, and some assurance that the total costs of proceeding will remain proportionate to the amount of money at issue.

In order to achieve these objectives, we offer the following:

1) Preliminary Collectability Assessment

Brown Litigation reviews the details of the account, the debtor, and the client objectives and provides an opinion on whether the account remains collectable;
Brown Litigation undertakes a variety of searches on the debtor (bankruptcy filings, PPSA registrations, Execution Act – prior judgments) to assess if the debtor has assets against which to collect, and further, if a voluntary payment from the debtor is likely after commencement of litigation;
Brown Litigation delivers an informal report to the client containing our search results, opinion, and assessment on whether the account remains collectable.

2) Assessment/Cost/Outcomes

Brown Litigation delivers a comprehensive engagement email with an overview of the collectability assessment, collection/litigation strategies to be employed, estimated timelines, fee estimates, and likely outcomes.

3) Ongoing Assessment

– upon being engaged to pursue the account, Brown Litigation delivers regular electronic reporting on the status of the matter, any interaction or correspondence with the debtor, and Brown Litigation’s continual assessment of the collectability of the account.

Throughout this process, Brown Litigation aims to assist the client in making sound, timely, and cost effective business decisions with all available information prior to and during the collection process.

GENERAL OVERVIEW OF COLLECTIONS

While every account can be unique, and each debtor brings unique challenges in collection, we can still offer the following insights into how we pursue these matters:

Claims under $25k

These fall under the jurisdiction of the Small Claims Court.

Small Claims Court procedures involve less time than general litigation. In terms of rough estimates, in Small Claims Court matters there is approximately 1 – 2 hours in reviewing the account and conducting an initial assessment of collectability, 2 – 5 hours to prepare the claim, 2 – 4 hours in preparation for and attendance at Settlement Conference, and 2 days of preparation time for every 1 day in trial (most Small Claims matters do not exceed 1 day of trial).

In order to keep fees proportional, we have developed a tiered flat-fee structure for Small Claims Court litigation whereby we charge a fixed flat fee depending upon the quantum of the claim:

A) Claims under $5,000.00.

B) Claims over $5k and under $10,000.00.

C) Claims over $10k and under $25,000.00

Disbursements and HST are charged to the client in addition to fees. In Small Claims matters the disbursements are generally less than $500.00 total.

The flat fee structure for Small Claims include the initial written demand letter through to a 1 day trial. In the event that a matter is resolved at some point prior to trial, either by way of a settlement or determination not to pursue further, Brown Litigation typically revisits the fee structure and reduces the charge accordingly to ensure proportionality in fees.

Brown Litigation uses flat-fee arrangements as hourly rate structures in Small Claims matters generally result in fees becoming out-of-proportion to the amount at issue in the litigation.

Claims $25k to $100k

For any collection amount which is greater than $25k but less than $100k, the claim would proceed under the Simplified Rules of Procedure for litigation. This procedure eliminates much of the oral discovery process (and attendant time and fees) inherent in general litigation, and is best suited to collections matters.

For collections matters under the Simplified Rules, we typically offer to undertake the process identified at 1, 2, and 3 above, and commence the claim before the courts through to a 1 day trial, or summary judgment motion (if appropriate) at an agreed hourly rate, in addition to HST on fees, and disbursements. In addition, where appropriate, we offer an alternative billing arrangements’ including agreeing to cap our hourly rate charges at a fixed amount in addition to a success fee reflecting a percentage of the total amount recovered including principal, interest, and legal costs.

Disbursements in Simplified Rules matters increase as the matter proceeds.

Claims exceeding $100k

For claims exceeding $100k it is still possible to commence the action under the Simplified Procedure, however if the debtor objects in a Defence to the claim, the claim must proceed under the Ordinary Procedure. The Ordinary Procedure results in higher overall fees. Out-of-court examinations for discovery typically exceed 1 to 2 days.

At any point on any claim exceeding $25k, a party can bring a motion for summary judgment. This process is effective in standard collection/breach of contract matters, even where there is a counterclaim. The summary judgment motion is labour intensive, and the fees can be significant, however, they can assist in bringing matters before the court in a more timely fashion and are well suited to collections matters.

For matters exceeding $100k, Brown Litigation provides services based on our agreed hourly rate, and at the outset prior to our retainer, we provide a full Litigation Cost Estimate setting out the process and anticipated legal fees and disbursements from which the client can make a determination if they wish to proceed.

ENFORCEMENT

Enforcement of judgments requires some creativity and customization of the process for each matter. Brown Litigation develops enforcement processes to maximize recovery while minimizing legal fees.

Typical enforcement activities after judgment include garnishment of bank accounts and contracts, registry of writs, and undertaking examinations in aid of execution. Further, Brown Litigation uses the services of investigators for locating assets, and banking locations in situations where a debtor may try to obscure its assets or defeat enforcement.

We are experienced in bringing motions to reverse fraudulent or credit-proofing transactions where the situation requires.

With any enforcement action, we provide an overview of the intended strategy to be pursued along with a cost estimate prior to commencing these proceedings.

GENERAL

Very few collections matters actually proceed to trial, and the majority are resolved well before to that point, and in most circumstances, the actual fees incurred are likely to be less than the fee cap or estimate.

Our corporate clients find that our billing structures and litigation cost estimates assist them in obtaining the cost certainty they seek, while still maintaining proportionality to the amount of the account.

Our commercial lawyers are more than happy to meet or discuss the specifics of your business and any questionable accounts or breach of contract matters generally, and to discuss how our firm could assist you in these matters.

At Brown Litigation, we remain willing to discuss alternative billing arrangements, and to work with your business to fashion a collection process and billing structure that helps you achieve your specific objectives.

Posted by D. Jared Brown – Lead Counsel