The Ontario Superior Court has awarded Windsor lawyer Douglas Lawson more than $2 million in a counterclaim over unpaid consulting fees and a buyout payment after it threw out a claim from former clients alleging Lawson charged criminal interest rates.
The case, which involved the trial of two actions, centres around a 1997 loan agreement for Windsor Raceway Inc. between former owner Bruce Thomas Joy as borrower and lawyer Lawson and two defendant corporations that acted as lenders.
Lawson acted for Joy’s company, Windsor Raceway Inc. (WRI), for 10 years and served on its board of directors until 2003.
The agreement involved a $2-million loan from the defendants to Joy, which he was required to repay at eight-per-cent interest a year. Court documents note that the loan was repaid before the court actions were started.
The contention surrounds part of the agreement, which provided that Lawson and the representatives of the defendant corporations, Windsor lawyer Arthur Barat and developer Alphonso Fanelli, be retained as consultants and advisers for the duration of the agreement. In consideration of this advice and counsel, they were entitled to a share of the gross video lottery terminal revenue received by WRI.
The plaintiffs, the executors of the estate of Bruce Thomas Joy and WRI, alleged that the agreement was void, and that the defendants violated s. 347 of the Criminal Code as the “consulting arrangement provided for in the agreement was a ruse to disguise an illegal rate of interest.”
During the trial last year, an actuary testifying on behalf of the racetrack said the effective annual rate of return on the loans - if the consulting fees were included - was 134 per cent for Barat and Fanelli, and 78 per cent for Lawson.
The three defendants stressed the agreement was in fact two agreements, a loan and a contract, for consulting services.
While the plaintiffs claimed that Lawson had never performed any consulting services for the raceway that he did not bill through his law firm, the decision notes, “Lawson absolutely denied that the consulting arrangement was a ruse to disguise usurious rates of interest. According to Mr. Lawson, he had to do something for the consulting fees and he performed those services.”
Seeking the return of the consulting fees paid, the plaintiffs also alleged that Lawson’s involvement in the agreement constituted a situation of “self-dealing,” which was rejected by the judge.
In addition to a declaration that the agreement was valid, Lawson counterclaimed for a damages award for breach of the agreement and the amount that he would have been paid if he had been bought out when the company came under new ownership.
In her reasons, Justice Lynne Leitch found that the agreement did not violate the Criminal Code and was not a ruse, concluding that the consulting arrangement was a distinct agreement.
“At all relevant times, Mr. Lawson complied with his fiduciary obligations owing to WRI. There has been no violation of [s.] 132 of the OBCA or self-dealing on behalf of Mr. Lawson.”
“The position of the plaintiffs was that the terms of the agreement required consulting fees to be paid for services that were either not performed or not required by WRI. I have found that valuable services were provided.”
Lawson was awarded $2,697,668, including nearly $285,000 for unpaid consulting fees and just over $2.4 million for a buyout payment.
Paul Pape of Pape Barristers Professional Corp., who represented Lawson, told Law Times, “This was an extremely difficult piece of litigation for [the defendants], because their name was dragged through the mud in Windsor. The accusations of misconduct were baseless, without any foundation, and they’re thrilled that the trial judge vindicated them.
“Particularly with Mr. Lawson, this judgment is a complete vindication of his conduct as the lawyer for the company and for Tom Joy,” he says.
Pape says he thinks there will be an appeal in the case but that, as the judge found two independent contracts, “It will be very difficult to convince any other tribunal that the consulting fees should be considered as part of the interest on the loan.”
Milton Davis, of Toronto firm Davis Moldaver LLP and counsel for Fanelli and Barat, says that as a matter of law, the case is important: “It goes to show that people can make consulting arrangements, they can do deals which can be in the nature of equity and they will not offend any criminal rule.”
While Davis says it is possible that the case will go to the Court of Appeal, he adds, “It wouldn’t be a complete surprise if it went all the way to the Supreme Court of Canada.”
Ken Prehogan of WeirFoulds LLP, counsel for the plaintiffs, says the decision raises several issues that will be of interest if the case goes to appeal, including the court’s interpretation that there were two agreements, which he says is controversial.
He says a decision hasn’t been made yet on whether to appeal the ruling.