Breach of contract in a legal fees context (issue: inducing breach of a retainer agreement), The Lawyers Weekly, November 29, 2013, Civil Litigation Focus

Breach of contract in a legal fees context (issue: inducing breach of a retainer agreement), The Lawyers Weekly, November 29, 2013, Civil Litigation Focus

By Nikolay Y. Chsherbinin

Unlike other torts, economic torts have as their primary function the protection of a plaintiff ’s economic interests. They include, among others, the torts of inducing breach of contract and intentional interference with economic relations. In Heydary Hamilton PC v. Muhammad [2013] O.J. No. 3601, Justice Edward Morgan grappled with the issue of whether a lawyer who represents a client that disputes the fees of his former lawyer can be held liable in the above-referenced torts. The court re-affirmed that these torts are not viable causes of action against the succeeding lawyer.

In Muhammad, the Muhammad Group sought legal advice from Alfred Schorr with respect to its previous lawyers Heydary Hamilton PC’s retainer agreement and fees. Having reviewed the retainer agreement and other aspects of the relationship, Schorr advised the Muhammad Group to sue and launched an application seeking to challenge Heydary Hamilton’s retainer and assess its fees. In response, Heydary Hamilton slapped its former client and its new counsel with a lawsuit, pleading a slew of causes of actions against Schorr, including inducing breach of contract, interference with economic relations, and civil extortion. Schorr successfully argued a Rule 21 motion that the claims against him are frivolous and vexatious. As part of its claim, Heydary Hamilton asserted Schorr influenced the Muhammad Group to terminate its retainer.

However, it did not know any particulars of what transpired. Arguably, this factor alone is fatal to its claim for inducing breach of contract against Schorr. Given that this tort is the tort of intention, in order to find liability Heydary Hamilton must be able to demonstrate that Schorr intended to induce the Muhammad Group to breach its retainer agreement. Without knowing whether Schorr created a reason to procure the termination of the retainer or merely pointed out a reason, the element of intention necessary cannot be made out.

While the court decided that “the questions and advice flowing between Schorr and his clients could not be subject of a tort action by Heydary,” it could be argued that if it can be demonstrated that a lawyer’s reason for giving advice to a client intended to procure a breach of the client’s existing retainer agreement, there seems no reason why the lawyer should evade prima facie liability under the tort of inducing breach of contract, sub ject to a defence of justification.

This proposition is weakened by the solicitor-client privilege concept. In this regard, Justice Morgan noted: “Even if Heydary could establish that Schorr contributed to its having been ‘deprived’ of something (which given the privilege is highly unlikely), all it would have been ‘deprived’ of is the benefits of the retainer.” Heydary Hamilton sought to persuade the court that Schorr deprived it of an economic interest it had in the retainer agreement.

This begs a question: is a retainer agreement a species of property that deserve special protection?

In Heydary Hamilton Professional Corp. v. Baweja [2010] O.J. No. 5545, the Ontario Court of Appeal endorsed the lower court’s decision in Manning v. Epp [2006] O.J. No. 2904, which explained that lawyers do not have ongoing economic interest in a retainer agreement beyond payment of reasonable fees. Consequently, in Muhammad, Justice Morgan concluded Schorr could not have deprived Heydary Hamilton of the benefit of the retainer agreement because neither an ongoing economic interest nor economic loss existed.

Heydary Hamilton’s approach amounted to a collateral attack on the Muhammad Group’s right to “an absolute and unfettered right to discharge a lawyer” without having to justify or explain its decision. The effect of its claims is to indirectly challenge the decision of the Muhammad Group to end its retainer, thereby placing both Schorr and the Muhammad Group in the position of providing reasons to contradict those advanced by Heydary Hamilton. Since there is nothing unlawful about advising a client to assess its former lawyer’s fees and to challenge the enforceability of its retainer agreement, Justice Morgan determined no action rooted in either economic tort can succeed “in the circumstances pleaded against Schorr.”

Heydary Hamilton’s persistence in Muhammad and Baweja is appealing, because it clarifies the law of third party interference in the context of the legal profession. One cannot help but wonder, had Heydary Hamilton framed and properly pleaded its cause of action against Schorr in the tort of causing loss by unlawful means, it might have qualified it as the “novel cause of action,” and consequently explored whether Schorr used unlawful means when it arguably frustrated Heydary Hamilton’s economic expectation to generate more legal fees from the Muhammad Group.

This complex tort does not demand the existence of economic loss, and frustration of economic expectations will suffice.

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