Among the first questions that a client tends to ask his attorney prior to instituting legal proceedings for the enforcement of a contract or a contractual right is: Who is going to pay my legal fees?
Indeed, the notion that an aggrieved party must bear the costs associated with such a law suit is a tough pill for most to swallow. It is an even tougher pill when the attorney, a member of the Quebec Bar Association, has to explain that such costs are not recoverable under Quebec law, save in certain exceptional cases (ex. abuse of proceedings or when specifically provided for by legislation).
To get around this apparent injustice, many contracts now provide for the payment of extrajudicial fees (i.e. solicitor-client fees) by the defaulting party, and since 2010, the Quebec authorities have consistently accepted a variety of such provisions (except where they appear in consumer contracts for which there is clear consumer protection legislation prohibiting such clauses).
By unanimous decision in the matter of Groupe Van Houtte inc. (A.L. Van Houtte ltée) v. Développements industriels et commerciaux de Montréal inc., 2010 QCCA 1970 (CanLII) (the "Van Houtte"), the Quebec court of Appeal put to rest any controversy that may have existed regarding the validity of provisions concerning extrajudicial fees.
Justice Bich, writing for the bench, held that such provisions will be upheld by the courts as enforceable when they are drafted in such a way that renders the underlying obligation "determinable" (determinability being an essential condition for the validity and enforceability of any obligation under Quebec civil law).
The particular provision examined by the Court reads, loosely translated: "The Tenant shall pay Landlord all costs, expenses and legal fees that the latter may incur or pay in order to enforce the provisions, conditions and obligations of the present lease".
While the amount of the "costs, expenses and legal fees" is unknown at the time of execution of the contract, the court is satisfied that the object of the obligation is determinable insofar as the parties know what must be paid and given that the amount will eventually be determined.
The Court distinguished this clause from one it judged "indeterminable", which reads, loosely translated: "Should any of the following events of default occur, the Seller shall have the right to demand immediate repayment of the debt, in addition to all fees and lawful costs".
The expression "all fees and lawful costs" was held to be too vague to bind the defaulting party. Not only is the amount unclear at the time of execution of the contract, but the scope or extent of the liability is uncertain inasmuch as the fees and lawful cost are not sufficiently qualified – it is not clear what fees and costs are covered by the provision.
Justice Bich examined a third kind of provision which provides for the payment by the defaulting party of a percentage of the total claim as compensation for the legal fees of the petitioning party. While such a provision seems to satisfy the criterion of determinability insofar as there is a clear reference to legal fees and a manner for calculating how much will be paid, it risks offending the principle of "reasonableness". Indeed, it would seem unreasonable to condemn a party to pay 15% of a $1,000,000 claim as liquidated damages for legal fees in cases where the losing party did not contest the claim and/or multiply the proceedings.
That said, Justice Bich, in her wisdom, identified several factors that help determine the reasonableness of the legal fees claimed by a petitioning party. A court called upon to adjudicate on this issue must now consider: the complexity and difficulty of the litigation; the time devoted to the case; the manner in which the prevailing party conducted the proceedings (including the utility and necessity of certain proceedings); the reasonableness of the hourly rate; the proportionality between the legal fees and the award.
In light of the Van Houtte decision, which has been followed by the lower courts ever since, the attorney drafting an extrajudicial fees clause must be particularly sensitive to the notion of determinability while the litigator must be particularly sensitive to the reasonableness of his fees.
A final thought on the topic concerns proving the legal fees incurred by the prevailing party. Quebec courts will only award legal fees that have been paid against detailed invoices produced in evidence. While some might protest that this violates notions of privilege, the Court of Appeal in Iris, Le Groupe Visuel (1990) Inc. v. 9105 Quebec Inc. et al., 2012 QCCA 1208, was categorical in its ruling that sufficiently detailed invoices are indeed necessary to make proof. As such, attorneys intending to claim extrajudicial fees on behalf of their clients must be sensitive to the implications of such burden of proof.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
