Royal Bank of Canada v Learmonth, 2014 ABQB 695

Court of Queen ’ s Bench of Alberta Citation: Royal Bank of Canada v Learmonth, 2014 ABQB 695 Date: 20141112 Docket: 1403 03752 Registry: Edmonton Between: Royal Bank of Canada Plaintiff - and - Robin Learmonth and Kami Moncrief Also Known As Kami L. Moncrief Defendants _______________________________________________________ Reasons for Judgment of S. L. Schulz , Master in Chambers _______________________________________________________ [ 1 ] This is an application for a Redemption Order and costs in a foreclosure action brought in morning chambers.

The issue before the Court was whether costs should be awarded on “a solicitor and his own client, full indemnity basis” based on the terms of the mortgage, or awarded on some other basis. Costs were awarded on a solicitor and own client basis. As a result of subsequent discussions with counsel, it was agreed that I would provide written reasons for that decision.

The Terms of the Mortgage [ 2 ] According to the Affidavit of Default, the Mortgagor covenanted to, among other things: (

c) pay all liens, taxes, rates, charges or encumbrances on the Lands which may fall due or be unpaid, and also to insure the buildings on the lands against damage by fire, in default of all or any of which the Plaintiff should have the right to do the same and add to the Mortgage all costs and expenses incurred by the Plaintiff in that regard, and in respect of all proceeds taken to realize the monies secured by the Mortgage together with all costs on the basis of solicitor as rendered to his own client with full indemnity pursuant to the terms of the Mortgage .[Emphasis added] Affidavit of Domenico Boni, sworn on June 2, 2014, paragraph 7(c) [ 3 ] The actual mortgage itself was not in evidence before the Court at the time of this application, but there was a filed copy of the Approval of Mortgage and Cost of Borrowing Statement of Disclosure which provides as follows:

(3) If your Mortgage is in default for any reason, you may have to pay some or all of these amounts, depending on many factors:... (

d) any amounts, including reasonable legal costs, that we spend to protect the property or to take action under the terms of the Mortgage; [Emphasis added]... Affidavit of Domenico Boni, sworn on June 18, 2014, Exhibit “A” Applicable Legislation [ 4 ]

Section 21 of the Court of Queen’s Bench Act provides: 21 Subject to an express provision to the contrary in any enactments, the costs of and incidental to any matter authorized to be taken before the Court or a judge are in the discretion of the Court or Judge and the Court or judge may make any order relating to costs that is appropriate in the circumstances . [Emphasis added] [ 5 ] Rule 10.9 of the Alberta Rules of Court provides: 10.9 The reasonableness of a retainer agreement and the reasonableness of a lawyer’s charges are subject to review by a review officer in accordance with these rules, despite any agreement to the contrary. [Emphasis added] Contracting Out of Consumer Protection Legislation [ 6 ] The applicable legislation is clearly consumer protection legislation designed to safeguard unsophisticated consumers (clients) when dealing with a self-regulating profession such as the legal profession.

In a foreclosure action, clients include the mortgagor as well as the mortgagee. [ 7 ] Should the parties be allowed to contract out of this protection by using words such as “full indemnity” costs in the contract?

The Court has recently considered the policy reasons behind the legislation and the ability to contract out of that protection in three cases: Steinke v Hajduk Gibbs LLP , 2014 ABQB 34 (Wakeling, J. as he then was) (“ Steinke ”); Samson Cree Nation v O’Reilly & Associés , 2014 ABCA 268 (“ Samson ”); and Stubbard v Hajduk Gibbs LLP , 2014 ABQB 632 (Germain) (“ Stubbard ”) . [ 8 ] The policy reasons and cases are reconciled by Germain, J., in Stubbard : [19] Justice Wakeling observed that solicitors have been attempting to collect accounts from disappointed clients for hundreds of years ( Steinke ).

The method of collection has varied but the self-governing legal profession has always recognized the public importance of reasonable legal fees. Since there is uneven bargaining position, between lawyer and client, special rules about collection of legal accounts developed... [20] ...[T]here are strong public policy concerns that exist when the Rules of Court which are adopted by the legislature, on the recommendation of a Rules of Court committee, and which becomes documented regulation, are contracted out, even where potential contracting out may be permitted. [21] ...[I] would resist any

interpretation that the Court of Appeal in Samson was laying down the broad-based rule that a legal contract binds: where it is contrary to express public policy regulation, where it is relating to a contract created out of an uneven bargaining position, where the client does not seek and obtain independent legal advice, where the law society code of conduct urges restraint and professionalism on the matter of legal fees, and where the Court of Appeal has not dealt with the issue of the fiduciary role between a lawyer and their own client in the context of fees.

In my respectful view it would require the clearest possible language from the Court of Appeal to oust the Court’s inherent jurisdiction to review account for fairness...Billing of fees may, contract, be based on a straight hourly rate but the Courts would still have an overarching duty (assigned in Alberta to review officers) to view the work performed through the filter of reasonableness. [24] ...Where the Court raises a public policy concern is whether the legal authorities in this province purport to permit law firms to oust in its entirety what is clearly consumer protection regulation.

I hold the respectful view that neither Steinke or [sic] Samson go that far. Instead, what they do is establish a reasonable way to interpret contracts that are otherwise sound from a public policy point of view.

[ 9 ] From the Stubbard analysis, I conclude that the Court must have regard to the following questions when considering whether the Court should retain jurisdiction to review the fees and disbursements of a solicitor in light of a term in the contract to the contrary: 1. Is there express public policy against contracting out? 2. Was the contract created out of an uneven bargaining position? 3. Did the client seek and obtain independent legal advice? 4. Does the law society code of conduct urge restraint and professionalism on the issue of legal fees? 5.

Has the Court of Appeal addressed the issue of the fiduciary role between a lawyer and his/her client in the context of fees? 6. Has the Court of Appeal, in the clearest possible language, articulated that this is a situation where the inherent jurisdiction of the Court to review fees should be ousted by the contract?

Should the Court retain the ability to review costs in this fact situation? [ 10 ] The use of the phrase “all costs on the basis of solicitor as rendered to his own client with full indemnity” effectively allows the mortgagee to collect from the mortgagor whatever the mortgagee is charged by the law firm, without oversight by the Court as to the reasonableness of what has been charged. In particular, this wording prevents the mortgagor, who is the one ultimately paying the law firm’s account for fees and disbursements, from contesting the reasonableness of the fees and disbursements charged.

This is clearly an attempt by the drafters of the document to oust the inherent jurisdiction of the Court to review the accounts rendered by the law firm. [ 11 ] In application of the Stubbard analysis to the case before me, there is no evidence that this mortgagor is a sophisticated consumer, obtained independent legal advice or chose the lawyer acting on the transaction. There is no evidence that the bargaining positions of the mortgagor and mortgagee were equal. There is no evidence to show there are any costs claimed that might fall outside solicitor and own client costs.

In short, there is no evidence that takes this situation out of the normal fact situation customarily seen in a foreclosure action where the Court customarily allows for a review by the review officer. [ 12 ] Further, I am unaware of any cases from the Court of Appeal that consider the issue of ousting the jurisdiction of the Court in a foreclosure matter or that address the fiduciary issue articulated by Mr. Justice Germain in Stubbard . [ 13 ] Public policy dictates that this is the type of situation that demands the Court retain its jurisdiction to review costs.

There are any number of fact scenarios seen by the Court in foreclosure actions that demand oversight. For example: What if the lender “downloads” its duties to collect mortgage payments (a non-legal function), to the law firm—should the mortgagor be paying for this at the rate charged by a solicitor? What if the solicitor chose to undertake an extensive review of the law on a “just in case” basis, took unnecessary steps, or involved multiple counsel when only one was needed?

What if the solicitor chose a service provider who habitually charges in excess of the “going rate” for that service, or provides that service multiple times when fewer times would be sufficient?

Is the mortgagor required to just take its chances with a solicitor not of his/her choosing and hope that the account submitted is reasonable? (See Alberta Treasury Branches v 14010507 Alberta Ltd. (Katch 22) , 2013 ABQB 748 (“ Alberta Treasury Branches ” principles 8 and 9 at para. 39-43). [ 14 ] I wish to make it clear that none of the examples of “mischief” that require oversight by the Court are directed at counsel of record in this application but rather are intended to clarify the need for oversight by the Court. [ 15 ] Creative drafting cannot be permitted to oust the jurisdiction of the Court to review the reasonableness of these fees and disbursements.

The Court must maintain its ability to comply with its overriding obligation to ensure that those who are obliged to pay for legal services are treated reasonably, taking into account all of the circumstances (principle 10, Alberta Treasury Branches at para. 44 ). Accordingly, I conclude that this is an appropriate case for the Court to retain its jurisdiction to review the accounts. How should the Court assess costs in this situation? [ 16 ] Assessing costs is an exercise of discretion by the Court as articulated in the legislation (see paragraphs 4 and 5 herein).

Guidance is provided by the ten principles of costs set out in the decision of Wakeling, J. (as he then was) in Alberta Treasury Branches . [ 17 ] Principles 6 and 7 ( Alberta Treasury Branches at para. 34 and 35 ) hold that “In the absence of a contractual term committing one party to pay the other’s costs on a full-indemnity basis, costs are awarded to a successful party on a full-indemnity basis only in exceptional cases” and “The Court may choose to hold a party to its [legally enforceable] promise”. From the context of this decision, it is clear that Mr.

Justice Wakeling is referring to solicitor client costs when he uses the term full indemnity basis, as opposed to the usage of that phrase in the documents in this case. In other words, solicitor client costs are rarely awarded unless there is a contractual term providing for same. [ 18 ] The documents in this case support an award of costs on a solicitor and own client basis.

Policy, case law and the costs principles favour enforcement of the solicitor and own client portion of the clause in this mortgage. [ 19 ] Further, the Court must use a principled approach which follows a logical framework when assessing costs (principle 3,

Alberta Treasury Branches at para. 29 ). This matter was brought in morning chambers when time is limited to 20 minutes for an application and it is difficult to deal with a detailed analysis of the costs claimed. Practice and the Rules of Court have developed a two- step process whereby the Master sets the parameters for the award of costs (such as party/party costs or solicitor and own client costs), and then the solicitor files his/her detailed statement of costs to be reviewed by the review officer.

The review officer reviews the submission in detail using the filter of reasonableness, a process that allows foreclosure matters to be addressed efficiently in morning chambers. If the review officer disallows an amount or item that the Plaintiff feels is reasonable, counsel can bring that matter back before the Court for consideration. I find this to be a logical framework within which to assess costs. [ 20 ] Accordingly, I award solicitor and own client costs with a review by the review officer using the filter of reasonableness.

As an alternative, I would be prepared to award “solicitor and own client costs on a reasonable full indemnification basis”, which again allows for a review by the Court using the filter of reasonableness. [ 21 ] In the future, there are several options available to the Plaintiff Mortgagee in this type of situation: (

a) The mortgagee can file evidence to show that all of the items and amounts claimed are appropriate, and allow the Court to review the evidence submitted at first instance. This process would result in multiple reserved decisions on the issue of costs and would undoubtedly slow the foreclosure process. (

b) The mortgagee can ask for solicitor and own client costs which allows for court overview using the current efficient process. (

c) The mortgagee can ask for costs on a reasonable indemnity basis which allows for court overview using the current efficient process. (

d) In addition to the process set out in the Rules of Court, should counsel have concerns that the amounts being allowed are not reasonable, they may avail themselves of the assistance of the Creditors and Debtors

section of the Canadian Bar Association in presenting information on “going rates” to the review officer or utilize the Town Hall Meetings held from time to time to bring their concerns to the attention of the Court. Conclusion [ 22 ] I find that the parties cannot contract out of the inherent jurisdiction of the Court to review the amounts charged in a foreclosure action in the circumstances of this case. [ 23 ] The Plaintiff is awarded costs on a solicitor and own client basis as agreed to in the mortgage.

The solicitor and own client costs shall be reviewed by the review officer in accordance with the procedure set out in the Rules of Court. Heard on the 9 th day of July, 2014. Dated at the City of Edmonton, Alberta this 12 th day of November, 2014. S. L. Schulz M.C.C.Q.B.A. Appearances: Steven Shafir Witten LLP for the Plaintiff