On June 9, 2017, the Supreme Court of Canada addressed the issue of the start date of the prescription period of lawyers' claims for professional fees in the matter of Pellerin Savitz LLP v. Guindon, 2017 SCC 29.
In this matter, a law firm (the "Firm") issued five invoices to its client, the last one having been sent on March 1, 2012. The services were performed by the Firm between September 2011 and February 2012. The client had terminated the contract with the Firm on March 21, 2012. Other than his initial deposit and a subsequent partial payment, the client never paid the invoices in full.
The Firm and the client had entered into a fee agreement (the "Agreement") pursuant to which all invoices were payable within thirty (30) days. If the client did not pay within that deadline, interests would start to run on the thirty-first (31st) day.
The first three (3) invoices stated that they were payable upon receipt, and the last two allowed a 30-day grace period. The highest court in the land did not address the issue of the incongruity between the first three (3) invoices and the Agreement. For the purposes of its analysis, it focused instead on the terms of the Agreement.
The Firm instituted the action against its client on March 12, 2015, claiming payment of the five (5) invoices. The Court of Quebec ruled in favour of the client's exception to dismiss, holding that the action was prescribed. The Court of Appeal allowed the appeal solely with respect to the final invoice, given that, under the Agreement, it had not become due and payable until thirty (30) days after it was sent, which was less than three (3) years before the claim was filed.
The Supreme Court dismissed the Firm's appeal, which argued that in the case of claims for lawyers' professional fees, prescription always runs from the termination date of the mandate. In the Court's opinion, the beginning of the prescription period with regard to claims for lawyers' professional fees is to be determined on the basis of the facts of each case. In this case, the terms of the Agreement and the fact that the invoices were sent prior to the end of the mandate were crucial factors in the Court's determination.
Role and calculation of extinctive prescription
The Supreme Court noted that extinctive prescription plays the important role of avoiding legal disputes that are marked by confusion and uncertainty due to the passage of time, as well as sanctioning negligence on the part of a rights holder:
The Supreme Court also stressed that in contract cases, extinctive prescription is dependant on the date when the right of action arose, a factual element which will vary according to the circumstances and, more specifically, on the terms of the contract between the parties. [1]
Accordingly, there is no uniform starting point for calculating the extinctive prescription period with regard to recovering lawyers' professional fees:
Deferral of the obligation's due and payable date
A contractual clause that defers the due and payable date until thirty (30) days after the invoices are issued means that the prescription period begins on the thirty-first (31st) day after the invoices are issued:
The Firm's argument that payments were owed but not due and payable was rejected by the Court:
A contract between a lawyer and a client is not a contract of enterprise
The systematic deferral of the starting point of the prescription period provided under article 2116 of the Civil Code of Québec is not applicable to a contract between a lawyer and his or her client. Indeed, the lawyer is not creating a work ("un ouvrage") for the client, but rather providing services for a specific period of time:
Because there are no specific rules governing contracts between lawyers and clients, such contracts are subject to the general rules of prescription and the time when prescription begins to run with respect to this type of contract is based on the applicable circumstances. Therefore, if the invoices are sent after the services are performed or at the end of the mandate, the prescription begins to run when the invoices are issued:
The Court also rejected the Firm's argument that the ethical obligations arising out of the lawyer-client relationship make it impossible in fact for the lawyer to act against a client for overdue accounts as long as the lawyer is acting on behalf of the client. This situation creates a dilemma that is not easy for the lawyer to resolve, but it does not make it impossible for the lawyer to act:
It follows from the Supreme Court's analysis that lawyers must ensure that their fees are paid on a regular basis. In the event such fees are not paid, a lawyer must choose between (1) letting prescription run while continuing to represent the client, despite the client's failure to pay, or (2) filing a court action to claim the fees owed and cease representing the client.
This Supreme Court decision will have a definite impact on the legal services industry and also on companies and professionals who are service providers and bill their clients on a regular basis.
Footnotes
1 Pellerin Savitz LLP v. Guindon, 2017 SCC 29, para.
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