Archive for July, 2008

Legal Aid / Costs in Lawsuits

Monday, July 28th, 2008

The Toronto Star ran an article on Saturday about a report from a University of Toronto law professor that sought more funding for the province’s legal aid system.  The problem as described in the report is that litigation is said to only be available to the very rich who can afford it and to the very poor who cannot affort it but are eligible for legal aid.

This story was followed up by a letter to the editor in today’s paper from a well-known personal injury lawyer in Toronto who said that the real problem is not with legal aid, but with the costs system in Ontario by which the loser pays a portion of the winner’s costs.  The letter suggests that otherwise good cases are not pursued out of the fear that if one loses, the costs award against him/her/them could result in loss of the family home and not just the lawsuit.

With respect to the issue of the availability of legal aid, the reality is two-fold for small businesses.  The first is that even if legal aid is ever increased in its scope, it will almost certainly never be available for small busineses.  The second reality is that small businesses should not fear the opposite – that an increase in legal aid funding will suddenly lead to more lawsuits by individuals against small businesses.  The reason for this is the current reality that the present funding for legal aid does not satisfy the needs of the poorest of our society to pay for lawyers for criminal or family matters.  There is no money now for poor people to conduct civil litigation and when you throw more money into the system and then open it up to the middle class, again, the middle class will use the money for criminal and family proceedings.

On the costs issue, I disagree with the suggestion that the costs system is a source of problems.  It has to be remembered that over 95% of lawsuits in this province settle.  More importantly, in the area of personal injury litigation, many lawyers take the matters on a contingency basis.  Therefore, litigants have a 95% or higher chance that they will be able to litigate and settle – and if they settle it is usually with part of their costs being paid or else without them having to pay any costs.  The writer of the letter to the editor acknowledged that the current costs regime helps to weed out claims that completely lack merit, but his belief was that it did so at the expense of many more otherwise valid claims not being pursued.  Given the statistics and the reality of the situation, I’m not sure if his belief isn’t a little exaggerated.

In any event, small businesses shouldn’t feel any need to rush out and pump up their insurance coverage (or fear that their premiums are about to jump) even if the professor’s call for more funding for legal aid to the middle classes is heeded by the provincial government.


What to do About Default Judgments

Wednesday, July 23rd, 2008

In my July 10 post I added my voice to those trying to correct the wrongful impression that frightened ostriches bury their heads in the sand when that isn’t the case.  Just as ostriches cannot do it, neither can you when you get sued.

A common approach for people when they get sued is to ignore it and hope that it goes away.  The problem, though, is that if you do not defend against the lawsuit within 20 days (usually), then the plaintiff can have you “noted in default” and obtain judgment against you.

Default judgments are not easy to have set aside.  You must meet a three part test:

a)  Do you have a valid reason for why you did not defend?  And saying “I just froze and thought it wasn’t really serious” usually doesn’t cut it;

b)  Did you move as quickly as possible to set aside the default judgment when you learned about it?; and

c)  Do you have a valid defence.  In this case, you do not have to have a guaranteed winning defence, but the court wants to make sure that you are not just wasting its time.

So, in a recent case, which is quite short, a bank sued a customer and the customer did nothing about it.  The bank obtained a default judgment but the customer did nothing until the bank started to have his wages garnished (ie. part of his paycheque went to the bank to pay off part of the judgment).  At this point the customer immediately took notice of the bank and what it was doing.  Typically, this is when defendants start to care.  Unfortunately for this customer, however, he waited over a year to request that the default judgment be set aside and he also did not deny that he owed the money but was just asking for more time to pay – and therefore, he had no defence.  Not surprisingly, the end result was that the Court denied his request and the judgment stands.

The lesson to be learned is that if you are faced with a lawsuit, the best approach would be to contact a lawyer and defend against the claim.  But even if you do not go with a lawyer, you cannot ignore the lawsuit because it will not go away.


Financing via Mortgage

Monday, July 21st, 2008

In today’s Financial Post section on Small Business there is a comment by Tony Wanless who decries the recent demise of the 40 year mortgage.  In a nutshell, Mr. Wanless’ position is that the 40 year mortgage allowed for flexible financing because entrepreneurs could obtain a mortgage at lower rates with lower payment that could be made during the “lean” months and then could make higher payments during the good months.

Perhaps.  I have two difficulties with the use of mortgages to support your business.  The first is that, as a legal matter, you may not be able to make higher payments.  The terms of your mortgage may state that either you are not allowed to make any “pre-payments” or else can only make pre-payments up to a specified amount per year.  As such, your ability to make the higher payments during the good times may be limited.

The second difficulty is that obtaining financing via mortgages on your personal home is less than optimal.  For example, I personally have a line of credit that is used for my law firm.  More importantly, though, is the fact that my line of credit is unsecured.  If I default on the line of credit the bank cannot go after any specific assets.  I have some flexibility to deal with the bank on the repayment terms.  I do not have to worry about the added pressure of “losing the house” and my family going out on the street.  If my business’ line of credit had been secured with a mortgage, this would become an added worry in a time of already significant stress if my business is failing.

Just as I advise my clients to try their best to avoid giving personal guarantees on business loans, it is always best to try and avoid financing your business through mortgages on your personal home.  While I fully appreciate that the 40 year mortgage made life easier for entrepreneurs to finance their businesses through mortgages on their homes and that this is no longer easy, it seems to me that the more important question is whether you should be raising financing for your business this way at all.  From a legal standpoint, you should be looking at ways to reduce your personal liabilities for the business - for example, incorporating your business – rather than increasing them, which is what you are doing if you give a mortgage over your home.

In some instances this may be the only way of financing the business.  If that is the case, you should seriously consider whether the reward potential outweighs the definite liability risk.


Disputes – What is the True Problem?

Saturday, July 19th, 2008

I was driving home today when traffic got snarled up.  So, I took a shortcut through a part of Toronto known as “Flemingdon Park” that is known for a few things: (a) it’s a quite rough part of town and (b) there aren’t many white people that live there.

I was driving along doing nothing wrong when I passed by a police car in a driveway.  The police car pulled out behind my car and immediately started to flash its lights and pulled me over across the street where about 20 residents were standing outside.  The two white police officers came out and when I asked “Is there a problem officer?” the response was “No, we’re just doing a routine check of license, ownership and insurance.”  Um, yeah, sure – I’ll buy that one.  OK, so were there reasonable grounds for them to stop my car?  Hell no.  But, since I hadn’t done anything wrong and I knew that my license, registration and insurance were all proper, I just gave them my papers and they went back to their police car, sat there for a minute while they checked me out and then they came back and said “That’s fine, thank you very much.”

One of the residents across the street immediately yelled out “Boy, it’s a good thing to be a white guy around here.”  The one officer chimed back “It has nothing to do with whether he’s white or not.”  The resident said “Yeah, right, if it was one of us there would be at least eight of you guys and he [meaning me] wouldn’t be going free.”

I have absolutely no doubt that, number one, I was being used as a pawn for the police to show “see, we stop white guys too.”  I also have no doubt that if I had so much as an unpaid parking ticket they would have likely put me in the back of their police car and made a big deal out of it.  I fully understand what these two officers were trying to do and why they were doing it.  Not that I appreciate or condone it, but at least I understand it.

However, I also realize that instead of the residents focusing on the “we stop white guys too” aspect, they focused on the “we let white guys go” aspect.  In my case, I hadn’t done anything, so the police had no choice but to let me go.  But the point I want to make is that the officers here tried to deal with a dispute resolution problem (the police versus the residents) by trying to address the wrong issue.  Clearly, the police and the residents were focusing on different things.  Did the police do anything to resolve or even minimize the dispute?  In the end, I highly doubt it.  I similarly don’t think they made things worse BUT their goal was to improve the situation and in that regard they failed.

The same concept should be kept in mind as you deal with disputes with your customers, suppliers, etc.  It’s not a question of if, but only a question of when you will have disagreements with these people.  If you truly wish to resolve your dispute with them, you cannot do so by trying to deal with what you perceive their problem to be.  Instead, you have to ask them what is their complaint and address it head on.  If you do not do this, you will either be seen as simply spinning your wheels or you be seen as ignoring or denying the issue.  Either result will do damage to your business relationship.  Just like the police officers today, if you are lucky you won’t harm the situation, but you certainly won’t help it.


Neighbour Disputes – Adverse Possession

Sunday, July 13th, 2008

As you know from my post on June 23, 2008 and other posts and the web site generally, part of my practice includes property-related disputes.  These can be fights over rights of way, boundary line disputes, fence disputes, adverse possession claims, etc., etc.

I therefore read with interest a piece on the front page of today’s Sunday Star that deals with these issues.  Generally, it is a good article, but I did want to comment on two matters.

The first is the mention of the website and the apparent use by one neighbour in Oshawa to make comments and the other neighbours.  Disputes among neighbours are nasty enough at the “best” of times.  One recent example of such a dispute that was not mentioned was when a 40 year old neighbour got into an argument with his 80 year old neighbour and pushed him through a door and was charged with assault – if not worse (the 80 year old’s condition was bad but I never saw if he recovered).  Less dramatic, but just as problematic, would be posting items on the website.  U.S. libel and slander laws are more relaxed than in Canada and any neighbour posting “bad statements” about the other neighbour(s) may well face not only the lawsuit over the property dispute, but also claims relating to defamation.  So I urge caution to my readers if they are considering saying anything about their neighbours – you just might make it worse.

The second item deserving comment is the following statement in the article:  “Under Ontario’s newer Land Title system, to which all properties are being converted, these rights [to adverse possession] do not exist.”  This statement is correct, but it is not complete.  Section 51 of the Ontario Land Titles Act does state that adverse possession claims are not permitted for property registered under that system.  BUT, it only applies to claims which arise AFTER the property has been registered in that system.  So, if Owner A and Owner B are neighbours, and they each bought their property in 1960, and a fence was put up and it wasn’t on the boundary line so that Owner A was adversely possessing 2 feet of Owner B’s property.  Suppose that Owner B sold his home in 2000 to Owner C and on the sale the property went from being registered under the old registry system to being registered under the newer land titles system.  A year later, Owner A sold his property to Owner D.  Suppose that this year Owner D wanted to do something with the fence and Owner C said “that’s fine, but you now have to put it back on the property line where it belongs.”  Owner D responds by saying “no, I own the 2 extra feet now, it’s been more than 10 years of adverse possession.”  Owner C replies by saying “tough luck, my house is in Land Titles, so no adverse possession claims allowed.”  The answer: sorry Owner C.

If rights under adverse possession existed prior to the registration of property in the land titles system, then the owner of the property takes the title subject to the adverse possession claim.  So, if I have made use of your property without your permission and in a way known to you (for which you did not object) for 10 years or more AND the 10 years expired BEFORE your property became registered under the land titles system, then I still have a claim for adverse possession.

Given that some parts of Ontario have only recently been converted over to the land titles system, and that other parts (including Toronto) will involve pieces of property that have been owned by people for years prior to the conversion to land titles, adverse possession claims are still a real possibility and the exception to the general rule that no such claims can be made for land titles properties should be known.


In Defence of Ostriches

Thursday, July 10th, 2008

You never know what you’re going to learn when you read legal cases.

Suppose your buddy asks you to meet him at a certain place at a certain time to give him a ride in your car.  You get there and a minute later, he jumps into the car with a gun, a mask, a cloth bag with “Main Street Bank” printed on the side and he yells at you “Step on it!”  When the police later arrest you and charge you with being an accessory after the fact, you reply by saying “Oh no! I just showed up and he jumped in.  I don’t know what he did.  I never knew that he robbed the bank.  I never asked him what he did and he never said anything other than ‘Step on it’.”

In Canada you would still be convicted on the basis of the concept of “wilful blindness”.  Yes, it’s true that you didn’t ask what was going on.  But the reasonable person would know enough that a robbery probably took place – or at least would have asked.  The concept of “don’t ask, don’t tell” doesn’t apply in this situation.

In the U.S. the concept of wilful blindness is known as an “ostrich instruction”.  This instruction was part of the Seventh Circuit Court of Appeal’s decision in U.S. v. Conrad Black and others.  In giving the decision for the Court, former law professor (and a founder of the economic analysis of the law school of thinking) Justice Richard Posner, made an interesting comment on the basis for the “ostrich instruction” being named as such.  He wrote:

“The reference of course is to the legend that ostriches when frightened bury their head in the sand.  It is pure legend and a canard on a very distinguished bird.  Zoological Society of San Diego, Birds: Ostrich, (visited June 12, 2008) (“When an ostrich senses danger and cannot run away, it flops to the ground and remains still, with its head and neck flat on the ground in front of it.  Because the head and neck are lightly colored, they blend in with the color of the soil.  From a distance, it just looks like the ostrich has buried its head in the sand, because only the body is visible.”).”

So there you go.  Funny what you learn each day, eh?  Not that any of this has any application to your small business, but it might be an interesting fact to work into your next networking opportunity.


Human Rights Complaints – A New Day has Dawned

Tuesday, July 8th, 2008

Last week the human rights regime in Ontario changed.  Under the old system, complaints were made to the Human Rights Commission and then things took forever to get processed (due to backlog and inadequate resources) and eventually sometime in the next year a mediation (which was mandatory to a certain extent) was held.  If a settlement wasn’t reached at the mediation, then the investigation stage occurred and this could take another year or so (again due to backlog and inadequate resources).  If the investigation confirmed in the investigator’s view that discrimination occurred, then the matter would go forward to a hearing – again, with a delay before the hearing actually occurred.

As of June 30, the sytem has now been replaced and streamlined.  Any human rights complaints made on or after June 30 will now be under the new regime.  The new regime is quite simple.  A complaint is made, if it is a valid complaint (ie. one which is truly a human rights complaint as opposed to some other type of complaint) then it is processed and a copy of the complaint is given to the person against whom the complaint is made.  That person then has the right to file a response.  Once the response is filed, if both parties agree (so only voluntary, not mandatory) to a mediation it is held.  If a mediation is not agreed upon, then the matter goes for a hearing before the Human Rights Tribunal.

The saying is that “justice delayed is justice denied”.  Well, this ought to speed up the process – although you can expect that there will be initial delays as the current complaints in the old system get moved over to the new system and the backlog is dealt with.

For more information regarding the new process or for taking your complaint out of the old process and moving it into the new process and the various forms required to do all of this, you can go to the Human Rights Tribunal’s web site.


Legal Fees – What’s the Going Rate?

Saturday, July 5th, 2008

I received my latest copy of Canadian Lawyer magazine yesterday and took a few minutes to skim through it.  The magazine’s annual survey of legal fees has returned (it took a couple of years hiatus) and it is interesting to see what “the going rate” is for a couple of different areas of legal practice of interest for small businesses.

Before I give the numbers, I should explain what they represent.  The magazine polled law firms across the country and hundreds replied.  For each area three sets of numbers were created: the minimum fee, the maximum fee and the average fee.  However, each of these numbers is itself an average of all the answers given by the law firms that responded to the survey.  As well, the answers were broken down into two areas: national averages by size of law firm and regional / provincial averages.  So, I will give you the averages based on law firm size (but please bear in mind that these averages will include numbers from everywhere – and the overhead costs of Toronto are more than the overhead costs of, say, Oromocto, New Brunswick) as well as the average costs for Ontario law firms (which is not broken down by law firm size).

I will share with you four sets of numbers: civil lawsuits – trial level; civil appeals; simple incorporations and commercial lease agreements.

One of the first questions I am asked is “how much is this going to cost me?”  Sometimes I can give a fixed fee answer.  Sometimes I cannot.  The purpose of these numbers is to provide some guidance – although they cannot be “hard and fast” numbers.

More importantly, there is the old saying that there are lies, damned lies and statistics.  That is true here because in some cases we are comparing apples to oranges.  For example, in many instances, the larger the law firm, the higher the fees.  That is not always the case – for example, on commercial leases the opposite is true for the all-round average costs.  In some instances, though, you are paying more money for the larger firm, but you do so as a “premium” for the ability to show that you have hired “the big guns”.  That is not to say that the big firm lawyers are any better or worse than their smaller firm counterparts, but sometimes you are paying for the perception.  As well, you have to remember that each case is different.  For example, I had a recent commercial lease file where the landlord said to my client at the very outset “we’re not changing a darned thing, so don’t bother trying to renegotiate the terms of our standard lease – take it or leave it.”  In that instance, I charged the client a few hundred dollars to review the lease and let the client know where the pitfalls were located so that the client knew to avoid them.  This should be compared to another client for whom I was involved in long negotiations to get a more fair lease.  The landlord was willing to do this to have a long-term lease with a relatively happy client.  I charged that client a lot more money.  Looking at these two files, they were both “commercial lease agreements” but they really aren’t comparable in terms of the type of work performed.  So, please realize that these are not completely straight-line comparisons.

Finally, please remember also that these are only the amounts for fees.  What you might be billed will be not only the fees, but also any disbursements (ie. out-of-pocket expenses such as government filing fees) and any applicable taxes such as the GST.

1.  Civil lawsuit – from start to finish of a two day trial:

For firms with 1 to 4 lawyers, the average minimum cost is $13,850; the average maximum cost is $34,480 and the all-round average is $19,340.

For firms with 5 to 25 lawyer, the average minimum cost is $16,520; the average maximum cost is $69,140 and the all-round average is $34,150.

For firms with 26 or more lawyers, the average minimum is $31,500; the average maximum cost is $75,000 and the all-round average is $47,250.

For Ontario, the average minimum is $15,440, the average maximum is $56,250 and the all-round average is $27,450.

2.  Civil Appeals:

For firms with 1 to 4 lawyers, the average minimum cost is $12,370; the average maximum cost is $48,580 and the all-round average is $22,780.

For firms with 5 to 25 lawyer, the average minimum cost is $13,720; the average maximum cost is $60,400 and the all-round average is $23,050.

For firms with 26 or more lawyers, the average minimum is $14,500; the average maximum cost is $62,500 and the all-round average is $31,880.

For Ontario, the average minimum is $13,250, the average maximum is $55,310 and the all-round average is $21,100.

3.  Simple, Small Business Incorporation:

For firms with 1 to 4 lawyers, the average minimum cost is $1,010; the average maximum cost is $2,380 and the all-round average is $1,420.

For firms with 5 to 25 lawyer, the average minimum cost is $800; the average maximum cost is $1,490 and the all-round average is $950.

For firms with 26 or more lawyers, the average minimum is $710; the average maximum cost is $5,450 and the all-round average is $890.

For Ontario, the average minimum is $810, the average maximum is $1,680 and the all-round average is $990.

4.  Commercial Lease Agreements:

For firms with 1 to 4 lawyers, the average minimum cost is $1,740; the average maximum cost is $5,230 and the all-round average is $4,670.

For firms with 5 to 25 lawyer, the average minimum cost is $2,520; the average maximum cost is $10,020 and the all-round average is $2,900.

For firms with 26 or more lawyers, the average minimum is $1,050; the average maximum cost is $75,750 and the all-round average is $1,750.

For Ontario, the average minimum is $1,670, the average maximum is $10,170 and the all-round average is $1,740.