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The Constructing Principle of Joint and Multiple

January 18, 2022

Ontario

,

Canada

Issue

What is the difference between a joint retainer for legal services and a joint and several retainer for legal services?

Conclusion

The presumption is that a contract made by two or more persons is joint, express words being necessary to make it joint and several. The usual formula to create a joint and several liability is “A and B jointly and severally promise”. (Agricore Cooperative Ltd. v. Lefley)

Whether a contract is to be construed as joint, or several, or joint and several, depends on the ordinary rules of construction, and the intention of the parties as gathered from the contract as a whole, construed with reference to the surrounding circumstances. (G.W. Lankin Co., Re)

The question whether a particular promise is several or joint or both joint and several is one of construction, and depends upon the intention of the parties as expressed in the contract. Where several persons join in making a covenant, the rule is that the covenant is to be construed according to the ordinary meaning of the terms used by the parties, which is not to be departed from on considerations of hardship or inconvenience. No particular words are necessary to constitute a covenant of either kind — that is to say, either joint or several. If two persons covenant generally for themselves without any words of severance, or promise that they or one of them will do a thing, a joint liability is created; and if the covenantor's liability is to be confined to his own acts words of severalty must be added. If, however, the terms of the covenant are ambiguous it is to be construed according to the interests of the parties — that is to say, if their interests are joint the covenant is to be construed as joint, and if their interests are several it is to be construed as imposing a several liability on each of the covenantors. (G.W. Lankin Co., Re)

In Borden Ladner Gervais LLP v CBI Investments Ltd, the retainer agreement for legal services was signed by the primary client, which managed the affairs of a group of affiliates. The members of the group were listed in an exhibit to the retainer agreement. Mahoney J. found that the retainer agreement was entered into by the primary client as agent of the group, with the necessary authority. The solicitors performed services for the entire group. However, they did not bill the group as a whole but, as directed for accounting purposes, billed the entity for which the work was done. Mahoney J. rejected the argument that, just as the authorities preclude an employer from hiding behind a complex corporate family to evade paying employees, the client group should not be permitted to elude its obligations for legal services it commissioned. He noted that the solicitors’ position was not analogous to an employee who requires the protection of the common employer doctrine, because they drafted the retainer agreement and were in complete control of its terms. The solicitors would have the knowledge necessary to ensure its clients understood who was responsible for what account, and how the firm might be indemnified if those accounts were not paid. It was the clients, without independent legal advice, who were in the weaker position. Mahone J. ruled that the retainer did not create joint and several liability stating at para 47 that: “Reasonableness and fairness must be questioned when, in a commercial contract, finding joint and several liability has the effect of placing full liability on a respondent who is not at fault or only marginally so, in order to provide full compensation to a plaintiff”.

In Gardiner Miller Arnold LLP v. Kymbo International Inc., the plaintiffs, GMA, entered into a retainer agreement for legal services with the defendant, Kymbo, and its associated companies. GMA was retained to represent the group in an ongoing dispute. GMA represented the group in a counterclaim which was settled, but its fees went unpaid. GMA argued that under the retainer the principals of the companies, who were named as defendants in the counterclaim, were jointly and severally liable for GMA's fees. Morawetz J. found that there was nothing in the terms of the retainer agreement or on the record that established that the principals agreed to be liable for the legal fees, nor were they advised that they would be liable for the legal fees. However, Morawetz J. found that on an equitable basis the principals should be jointly and severally liable for 10% of GMA's legal fees since they benefited from GMA's representation in the counter-claim.

Law

In G.W. Lankin Co., Re, 1934 CarswellOnt 84, 15 C.B.R. 288, the Court discussed how to determine whether a contract is joint or several, or joint and several:

14 The rules to be applied in deciding whether a contract is joint or several, or joint and several are set out in Halsbury, 1st ed., vol. 7, p. 522:

Whether a contract is to be construed as joint, or several, or joint and several, depends on the ordinary rules of construction, and the intention of the parties as gathered from the contract as a whole, construed with reference to the surrounding circumstances. (Note) There is no rule of equity whereby a joint contract may be treated as joint and several, though in certain cases a remedy has been given against the assets of a deceased partner. (Kendall v. Hamilton (1879), 4 App. Cas. 504, 521, 48 L.J.C.P. 705).

15 See also Halsbury, 1st ed., vol. 7, at p. 338, art. 694:

The question whether a particular promise is several or joint or both joint and several is one of construction, and depends upon the intention of the parties as expressed in the contract. Where several persons join in making a covenant, the rule is that the covenant is to be construed according to the ordinary meaning of the terms used by the parties, which is not to be departed from on considerations of hardship or inconvenience. No particular words are necessary to constitute a covenant of either kind — that is to say, either joint or several. If two persons covenant generally for themselves without any words of severance, or promise that they or one of them will do a thing, a joint liability is created; and if the covenantor's liability is to be confined to his own acts words of severalty must be added. If, however, the terms of the covenant are ambiguous it is to be construed according to the interests of the parties — that is to say, if their interests are joint the covenant is to be construed as joint, and if their interests are several it is to be construed as imposing a several liability on each of the covenantors.

In Agricore Cooperative Ltd. v. Lefley, 2000 ABQB 169 (CanLII), Master Quinn accepted that there was a presumption of joint liability for a contract made by two or more persons:

[8] Glenville Williams in his book Joint Obligations says at page 24:

A joint promise by two or more persons creates a single obligation incumbent upon both or all. The theory of a joint and several promise is that it creates both a joint obligation incumbent upon all and a number of several obligations respectively incumbent upon each one; but the several obligations are none-cumulative, so that (as with purely joint obligations) performance by any one will discharge all. Joint and joint and several promises may be called generically co-promises.

The presumption is that a contract made by two or more persons is joint, express words being necessary to make it joint and several. The usual formula to create a joint and several liability is “A and B jointly and severally promise”.

In McLeod v. Wilford, 1999 CanLII 5681 (BC SC), a solicitor applied for a review of his accounts. He had been retained by two individuals to provide legal services. The Court stated that there was a presumption that liability under the agreement was joint. There was also no discussion that would have limited the liability of each client so as to allow an apportionment of fees:

[97] I do not plan an elaborate discussion of the principles contained in those decisions and the texts. It is clear that the solicitor must establish his retainer with respect to the liability of his clients and I find he has established that liability in this case as joint.

[98] There is the presumption of joint liability arising out of the clients' single retainer. Mr. McLeod was retained by both of them and in his letter he made it clear that he was looking to each client to pay his account as he did from his accounts. No objection was taken to the retainer letter nor to the accounts. The accounts were sent to the clients in the full amount.

[99] Next, there was no discussion at any time that would have limited the liability of each of the clients so as to allow an apportionment of fees.

[100] While the Law Society handbook is mandatory with respect to the allocation of fees, that does not assist the clients in these circumstances as there is no agreement between them and the solicitor with respect to any apportionment.

[101] Thirdly, we have an apparent agreement between the clients and the other shareholders of the company to apportion Mr. McLeod's fees as between themselves in accordance with their shareholdings. That agreement is not made with Mr. McLeod. He is therefore, not obligated by the terms of whatever agreement, if any, Mr. Wilford and Mr. Inkster have with their fellow shareholders to apportion his account amongst all of them in proportion to their shareholdings. Indeed, the Poloway decision would stand in his way if he had chosen that course of action.

[102] Lastly, it cannot be said that this is a case where each of the clients was an unsophisticated client. Each is an experienced businessman who had retained lawyers to act for them previously.

[103] The clients had a common purpose for the litigation and participated in it jointly throughout, from the first investigation, through the initial and continuing instructions, until the final Chambers hearing before the Honourable Madam Justice Loo.

[104] The clients are jointly liable.

In Borden Ladner Gervais LLP v CBI Investments Ltd, 2016 ABQB 220 (CanLII)("CBI Investments"), the plaintiff, BLG, a law firm, entered into a legal services retainer agreement with the defendant CBI Group, which was a collection of several affiliate corporations all owned and managed by a subset of the same shareholders, directors, and promoters that were controlled by the personal respondents, the Cadmans, as directors, officers, and as indirect shareholders. The plaintiff performed legal services for the CBI Group amounting to $700,000 and would typically, but not always, render its accounts to CBI Investments, as the primary client that managed the legal affairs of the CBI Group. In turn, CBI Investments would collect the fees from the various CBI Group affiliates to pay the BLG accounts. Sometimes BLG received payments from the different affiliates directly. BLG brought an action seeking payment from the Cadmans, who were not listed in the retainer agreement. BLG argued that the retainer created joint and several liability. Mahoney J. of the Alberta Court of Queen's Bench disagreed:

[43] BLG submits that the CBI Group, including all of the Respondents, should be found jointly and severally liable for BLG's accounts, to be assessed by the Review Officer.

[44] BLG argues that for the same reasons an employer cannot hide behind a complex corporate interrelationship to evade paying its employees, the CBI Group should not be permitted to elude its obligations to pay for legal services it commissioned BLG to provide. It further submits that this is especially so where the CBI Group representatives confirmed on multiple occasions that BLG would be paid for the services provided. Based on the common employer doctrine cited in Sinclair v Dover Engineering Services Ltd. (1987), 1987 CanLII 2692 (BC SC), 11 BCLR (2d) 176 (SC), affirmed (1988), 1988 CanLII 3358 (BC CA), 49 DLR (4th) 297 (BCCA), BLG argues that if it is unjust to curtail an employee's ability to find redress against such a group of companies, then it is equally unjust for BLG to be frustrated, even if it means piercing the corporate veil, when it helped establish the very corporate structure from which it now seeks payment.

[45] The problem with BLG’s position is that it drafted the Retainer Agreement to clarify the terms of its engagement, therefore it was in complete control of the terms of the retainer. BLG’s position is not analogous to an employee who requires the protection of the common employer doctrine. Sinclair does not apply to the facts of this case.

[46] Furthermore, the evidence indicates that none of the outstanding accounts were addressed or directed to the CBI Group, rather BLG was informed that for accounting purposes it needed to bill the entity for whom the work was done. There was no evidence, or no convincing evidence, of any joint and several liability of one entity for the obligations of another.

[47] Reasonableness and fairness must be questioned when, in a commercial contract, finding joint and several liability has the effect of placing full liability on a respondent who is not at fault or only marginally so, in order to provide full compensation to a plaintiff.

[48] BLG prepared the Retainer Agreement. As a law firm, it would have the knowledge necessary to ensure its corporate clients understood who was responsible to pay its accounts and how the firm was to be indemnified if those accounts were not paid. With the Respondents in the weaker position, without any independent legal advice, it would be unjust to find them jointly and severally liable for the BLG accounts. The application for a declaration of joint and several liability is denied.

In Homersham v New Urban (Ramsay Exchange) GP Ltd, 2017 ABQB 384 (CanLII), the plaintiff, a lawyer, worked for a group of clients made up of New Urban and several individuals, each of which was a general partner of a limited partnership established to acquire ownership and develop certain lands in Calgary. The plaintiff executed a memorandum of understanding ("MOU") with a New Urban in its capacity as agent for the limited partnerships to provide legal services for the group. For each engagement, a standard retainer was sent to the general partner of the partnerships. Invoices were addressed to New Urban in one case and to the various general partners in other cases. The plaintiff argued that the parties to the MOU, New Urban, and the limited partnerships, had joint and several liability for all of the legal work he performed for the entities. Justice Poleman, relying on CBI Investments, ruled that each client was responsible for its own legal bills and that there was no joint and several liability:

[64] New Urban and the limited partnerships are all parties to the MOU. New Urban expressly contracts “in its own capacity and as agent” for the limited partnerships listed. These clients share entitlement to be provided with Mr. Homersham’s legal services and the cap on aggregate fees, and collectively “agree to pay $300,000 per year” based on billings for services rendered.

[65] From this, Mr. Homersham urges that the clients are jointly and severally liable, although there is no express reference in the MOU to “joint and several” liability. The effect of this interpretation would be to make each of the entities responsible for the legal fees owed by others, as bills were rendered to the entity for which the work was performed.

[66] The same arguments on similar facts were addressed in Borden Ladner Gervais LLP v CBI Investments Ltd., 2016 ABQB 220. The retainer agreement was signed by the primary client, which managed the affairs of a group of affiliates. The members of the group were listed in an exhibit to the retainer agreement. Mahoney J. found that the retainer agreement was entered into by the primary client as agent of the group, with the necessary authority: para 39. The solicitors performed services for the entire group. However, they did not bill the group as a whole but, as directed for accounting purposes, billed the entity for which the work was done: para 40.

[67] Mahoney J. rejected the argument that, just as the authorities preclude an employer from hiding behind a complex corporate family to evade paying employees, the client group should not be permitted to elude its obligations for legal services it commissioned. He noted that the solicitors’ position was not analogous to an employee who requires the protection of the common employer doctrine, because they drafted the retainer agreement and were in complete control of its terms: para 45. The solicitors would have the knowledge necessary to ensure its clients understood who was responsible for what account, and how the firm might be indemnified if those accounts were not paid. It was the clients, without independent legal advice, who were in the weaker position: para 48. “Reasonableness and fairness must be questioned when, in a commercial contract, finding joint and several liability has the effect of placing full liability on a respondent who is not at fault or only marginally so, in order to provide full compensation to a plaintiff”: para 47.

[68] Respectfully, I agree with and adopt Mahoney J.’s reasoning and conclusions in this case. Further, I conclude that the words of the MOU are not made meaningless as a result.

[69] The evidence shows that New Urban and the limited partnerships were managed collectively, essentially under Mr. Van Leeuwen’s direction. Thus, the client group had the benefits of Mr. Homersham’s guaranteed availability and the cap on his fees, and each was obligated to pay for its own legal work. All of this could be coordinated by the common management of New Urban, through Mr. Van Leeuwen.

[70] I therefore conclude that each entity is responsible for its own legal bills, subject to the overall cap, and that there is no joint and several liability.

In Paulsen v Wolfson Law Professional Corporation, 2015 ONSC 5714 (CanLII), Then J. dismissed the appeal of a judgment which found that the appellants Purrfect Pages Inc. and its sole shareholder, Paulsen, were jointly and severally liable for legal fees for services performed by the respondent. Then J. emphasized that retainer agreement could be inferred from the conduct of the parties:

[6] While I agree with the Deputy Judge that Paulsen is jointly and severally liable along with Purrfect Pages for the legal fees of the respondent, in my view, actual discussion pertaining to retainer is unnecessary in the absence of a written retainer as a retainer may be inferred from the conduct of the parties.

[7] This point is made in Halsbury’s Laws of Canada on the Legal Profession Canada: LexisNexis, 2007), Jakub Adamski, at p. 304 where the author states:

No formal requirements. The retainer may be oral or, preferably, written. It may also be inferred from the parties' conduct. Thus, for example, in a case where the solicitor denied he was acting on behalf of the plaintiff mortgagee but only for the development company on the other side of the transaction, the plaintiff proved the existence of the retainer by producing a letter from the solicitor pertaining to the mortgage transaction, another letter to the plaintiff about a separate transaction and representations made by the development company in the solicitor's presence that the lawyer was acting on the plaintiffs behalf.

In this case, conduct indicated that Paulsen was individually a client since he knew Purrfect Pages was nearly insolvent and that the respondent's legal fees would have to be paid by someone. In addition, Paulsen had provided instructions to the respondent:

[8] In this case the onus was on Wolfson to point to conduct from which it could be inferred that the parties agreed Paulsen was individually a client. The evidence relied upon by the Deputy Judge included the fact that Paulsen was aware of the poor financial state of Purrfect Pages, but agreed that Wolfson’s legal fees would be paid somehow. This knowledge along with the invoices for legal fees and other communications that took place between the parties were relied on by the Deputy Judge to prove Paulsen was personally liable for the legal services.

[9] By “other communications” I refer to the instructions given by Paulsen to Wolfson at the initial meeting whereby Wolfson would send a letter to Johnston “to demand Johnston pay me my $25,000 for something bad would happen.”

[10] With respect to the significance of the instructions given by Paulsen in Halsbury’s Laws of Canada on the Legal Profession, Jakub Adamski states at pp. 453-4:

Who retained the lawyer? The test for determining who is liable for lawyers' charges is probably one of common sense. Thus, lawyers should be able to look for payment to any person who has provided instructions, whether the instructions could, when carried out, benefit the instructing "client" or not.

(See: Meredith & Co. v. Poloway, [1989] 40 B.C.L.R. (2d) 281 at 286 (B.C.C.A.)

[11] Finally, although some allowance must be made for the fact that Paulsen was not legally trained, albeit no stranger to litigation, his evidence at trial tends also to demonstrate that he personally retained Wolfson. For example:

(1) “But shouldn’t I have been warned of my risks?” (Transcript, vol. 1, p. 58).

(2) “When I engaged Wolfson I had $10,000 credit in my account in my barter account. (Transcript, vol. 1, p. 90)

(3) “I looked at the invoices and as you know, I paid – Purrfect Pages paid some of them” (Transcript, vol. 2, p. 40)

(4) “It’s my understanding and I am not a legal expert, that why I hired you.” (Transcript, vol. 2, p. 94)

[12] In my view, there is sufficient evidence to support the conclusion of the Deputy Judge that Wolfson was retained by Paulsen personally.

In Gardiner Miller Arnold LLP v. Kymbo International Inc., 2006 CanLII 6206 (ON SC), the plaintiffs, GMA, entered into a retainer agreement for legal services with the defendant, Kymbo, and its associated companies. GMA was retained to represent the group in an ongoing dispute. GMA represented the group in a counterclaim which was settled, but its fees went unpaid. GMA argued that under the retainer the principals of the companies, who were named as defendants in the counterclaim, were jointly and severally liable for GMA's fees:

Who should be liable for GMA’s legal fees under the retainer?

[92] In his submissions, Mr. Shiller, counsel for the Gura Group, referenced The Law of Costs by Mark M. Orkin (1987) and in particular section 309 concerning retainer. The learned author stated the following:

It is considered important for a solicitor to obtain a written retainer from the client. The Court has said:

It is the duty of a solicitor to obtain a written authority from his client before he commences a suit. If circumstances are urgent, and he is obliged to commence proceedings without such authority, he should obtain it as soon afterwards as he can. An authority may however be implied, where the client acquiesces in and adopts the proceedings; where the solicitor’s authority is disputed, it is for him to prove it, and if he has no written authority, and there is nothing but assertion against assertion, the Court will treat him as unauthorized, and he must abide by the consequences of his neglect.

Solicitors who do not obtain a written retainer run the risk of not being able to enforce their accounts. As has been said, lawyers who undertake legal business without written retainers do so at their peril. However, even where the evidence fails to establish the existence of a binding contract to provide legal services, the Court may consider a claim for restitution on the basis of quantum merit where the alleged client received benefit from the law firm’s work…

[93] A solicitor has the burden of proving the terms of the retainer and that the client understood its terms.

[94] Mr. Shiller also relied on Meredith & Co. v. Poloway (1989), 40 B.C.L.R. (2d) 281 (B.C.C.A.). In Meredith, Locke J.A. speaking for the Court applied the reasoning of the British Columbia Court of Appeal in Re Dickie de Beck & McTaggart and Sherman, 23 B.C.R. 538 at 514-2:

…There runs through all the cases, that which seems right and proper in the administration of justice, that if a solicitor will make an agreement with a client, then he must be able to shew what that agreement is, and if it is not in writing, then it seems to be that the client’s statement must be accepted. If he makes an agreement, then let him make it in writing as a prudent solicitor with a client, disclosing all the facts and circumstances.

[95] Locke J.A. concludes as follows:

In my view, the whole falls squarely within the principle of Re Dickie. The lawyer has not taken care to explain to the client the responsibility he may well have intended that he have when the defence of the action was undertaken. He has not discharged the burden lying on him.

Morawetz J. found that there was nothing in the terms of the retainer agreement or on the record that established that the principals agreed to be liable for the legal fees, nor were they advised that they would be liable for the legal fees. However, Morawetz J. found that on an equitable basis the principals should be jointly and severally liable for 10% of GMA's legal fees since they benefited from GMA's representation in the counter-claim:

[96] I have no doubt that in this case Arnold thought that he had been retained not only by Kymbo and its associated companies, but also by the principals. However, the written retainer agreement clearly does not cover the individuals and following the authorities noted above, there is nothing on the record which establishes that the principals agreed to be personally liable for the legal fees nor that they were advised that they would be liable for the legal fees.

[97] However, the record is also clear that Arnold defended the counterclaim on behalf of certain individuals in the Gura Group and that these individuals did receive the benefit from certain worked performed by GMA on their behalf. However, the involvement of the individuals in this lawsuit was minor compared to the corporate involvement and as well I also take into account the fact Arnold primarily dealt with Gura Sr. and Gura Jr.

[98] On an equitable basis, Gura Sr. and Gura Jr. are responsible for a portion of the account on a quantum merit basis. In arriving at an appropriate amount, I have taken into account that this is primarily a dispute between two corporate groups and this is reflected in Arnold’s dockets which described the services rendered to the various parties.

[99] In my view, Gura Sr. and Gura Jr. are jointly and severally responsible for 10% of the outstanding legal fees.

[100] With respect to the issue of whether or not Kymbo Canada Inc., VBX and Vandervoux Inc. should be considered associated companies and therefore covered by the retainer, the evidentiary record establishes that the operations of these entities were closely related to Kymbo and their financial fortunes were likewise intertwined.

[101] Kymbo’s business closely involved its associated companies. I have no hesitation in concluding that from the outset Gura Sr. and Gura Jr. knew that the associated companies would be integrally involved in the litigation involving the Teskey Group and it is reasonable to conclude that the term “Kymbo and its associated companies” was meant to include Kymbo and all of its associated companies.

[102] Under the retainer, Kymbo and its associated companies, namely Kymbo Canada Inc., VBX and Vanderboux Inc. are responsible for GMA’s accounts.

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