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Bulletin

No Exception Regarding the Prescription Rule Applicable to Lawyers’ Claims for Professional Fees

Fasken
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Litigation Bulletin

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:

[10] Extinctive prescription “is a means of extinguishing a right owing to its non‑use or of pleading a peremptory exception to an action” (art. 2921 C.C.Q.). It is [translation] “considered indispensable for social order” because of the two crucial roles it plays (P. Martineau, La prescription (1977), at para. 235). First, extinctive prescription makes it possible to avoid “litigation that would, because of the passage of time since the relevant facts, be marked by confusion and uncertainty” (ibid.). This is particularly important [translation] “[i]n a modern society based on the speed and stability of economic exchanges”, in which “[t]he law must, after a certain time, acquire a certainty that permits a crystallization of the legal situation and a consolidation of the rights of the parties and those of third parties” (J.‑L. Baudouin, P. Deslauriers and B. Moore, La responsabilité civile (8th ed. 2014), at No. 1‑1294). Second, extinctive prescription is a means to sanction negligence on the part of the right holder, whose silence [translation] “is equivalent to abandonment” (P.‑B. Mignault, Le droit civil canadien (1916), vol. 9, at p. 336).

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:

[13] … Contrary to the contention of the lawyer in the instant case, the beginning of the prescription period for the recovery of lawyers’ professional fees is not uniform. Rather, it depends on the date when the right of action arose, which varies from case to case depending on the circumstances.

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:

[14] In this case, the parties’ fee agreement established when the respondent’s obligation to pay was to become exigible. It provided that [translation] “[e]very invoice shall be payable within thirty (30) days” (A.R., at p. 79). As a result of that suspensive term, each payment did not become exigible, and the prescription period therefore did not begin, until the 31st day after the invoice had been sent.

The Firm’s argument that payments were owed but not due and payable was rejected by the Court:

[19] In short, the result of this approach is that a lawyer would have to remit to the government taxes corresponding to the amounts billed to his or her client despite being unable to obtain payment or to cease acting for the client before the termination of the contract. The effect of the appellant’s categorical position is that these consequences would extend to all contracts entered into by a lawyer with a client. I cannot imagine that to be the state of the law, let alone a reflection of effective and sensible management of a professional practice.

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:

[25] Therefore, the time that “work is completed” or the “termination of the mandate”, on which the appellant relies in the case at bar, is inapplicable to contracts between a lawyer and his or her client, which are not for the carrying out of a work. The nature of a lawyer’s work is the provision of services for a certain period of time, not the delivery to a client of a “finished product” that the client can use. Sometimes, the lawyer’s role is also to represent the client in court. A contract between a lawyer and a client can thus be characterized as a contract for services, a mandate or a mixed contract, depending on the nature of the services being provided (Baudouin, Deslauriers and Moore, at No. 2‑124; M.D. v. Plante, 2009 QCCS 6113, at para. 34 (CanLII); Bailey v. Fasken Martineau DuMoulin, s.r.l., [2005] R.R.A. 842 (Sup. Ct.), at p. 847; Bérocan inc. v. Masson, 1998 CanLII 9661 (QC CS), [1999] R.J.Q. 195 (Sup. Ct.), at p. 198). But it is not a contract of enterprise.

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:

[28] In fact, most of the decisions in which it was held that the prescription period began upon termination of the contract were rendered in cases in which, unlike this one, the invoices had been sent after the contract of the lawyer or professional had terminated. Because there was no agreement establishing when the obligations were to be exigible, it was open to each of the courts in question to find, on the basis of the circumstances of the case before it, that the lawyer or professional in question could sue the client as of the date when the last service was provided […].

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:

[35] However, this situation does not result in an impossibility in fact to act that suspends prescription. Rather, it forces the lawyer to make a choice: either let prescription run while continuing to act for the client despite the client’s failure to pay, or go to court to claim the fees he or she is owed while ceasing to act for the client, as the Code of Professional Conduct of Lawyers allows (s. 48). As difficult as this choice may sometimes be, it is nonetheless available to the lawyer, as evidenced by the frequency with which motions are made in the practice chambers of Quebec courts by lawyers who wish to cease acting for clients because their fees have not been paid. An impossibility in fact to act cannot result from a rational choice that a creditor has and that he or she makes freely with full knowledge of the consequences (Roy v. Fonds d’assurance responsabilité professionnelle du Barreau du Québec, 2009 QCCA 459, at para. 3 (CanLII); see also Dehkissia v. Kaliaguine, 2011 QCCA 84, at para. 36 (CanLII)).

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.


 


[1]       Pellerin Savitz LLP v. Guindon, 2017 SCC 29, para. 12.

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