LSUC ordered to pay $1.3M to partners

Two former Torys LLP partners, who endured an 11-year-long battle with the Law Society of Upper Canada to clear their names of wrongdoing, have won $1.3 million in costs from the provincial regulator.

The law society tribunal appeal division ordered the LSUC to pay $650,000 each to Darren Sukonick and Beth DeMerchant, after the lawyers successfully fought allegations they had acted in a conflict of interest while working on the sale of Conrad Black’s Hollinger group of companies. Both have since retired.

The two lawyers were accused of acting in a conflict of interest in six transactions between 2000 and 2003, but after 138 days of hearings, a panel found that there was no evidence to find the pair had engaged in professional misconduct.

The hearing panel awarded the two lawyers with $250,000 in 2014, but the law society appealed the decision.

In Law Society of Upper Canada v. DeMerchant, released Jan. 20, the appeal panel found that the law society should cover the cost of 110 days of hearings.

The panel also increased the amount each lawyer would receive to $650,000 — costs lawyers say are the largest ever retrieved from the LSUC.

Lawyers say it is rare enough for lawyers to retrieve any costs from the law society after having cleared their name in the regulator’s disciplinary tribunals.

“It’s an outlier in terms of getting costs. Certainly, it’s heartening from my perspective to see that in the right situation a significant amount of costs can be awarded in favour of the lawyer,” says Brian Radnoff, a lawyer who represents other legal professionals in law society disciplinary proceedings.

Radnoff was not involved in the DeMerchant proceedings.

Under the Rules of Practice and Procedure, the law society can only be ordered to pay costs in disciplinary proceedings if it is deemed “unwarranted” or if the regulator has “caused costs to be incurred without reasonable cause or to be wasted by undue delay, negligence or other default.”

Radnoff says these rules do not give the law society good incentive to settle discipline matters.

“A lot of matters probably go to trials or hearings that shouldn’t,” he says.

“This is probably a pretty good example of one that shouldn’t have gone to trial, but that wasn’t the basis on which the appeal panel awarded costs. It was because of the conduct during the trial.”

The hearing panel found the proceedings were not unwarranted at the beginning, and that it only became so after the law society failed to provide expert evidence to contradict an expert witness brought by the lawyers, who provided testimony that they were following standard practice in the corporate bar.

The appeal division agreed that the proceedings were not unwarranted at the outset, but it found that the lawyers were owed costs for 110 days of the hearings that it said were unwarranted. The appeal panel also awarded an additional $17,500 in costs to each lawyer for the appeal.

“The hearing should never have taken nearly 140 days. The Law Society bears the lion’s share of the responsibility of that,” said the decision of the panel.

The panel included David Wright, chairman of the tribunal, as well as benchers Marion Boyd, Howard Goldblatt and Heather Ross.

“Its definition of the issues, its approach to cross-examination, and its lack of focus on the legal test for conflicts of interest were the largest factors in a hearing whose time and cost were grossly disproportionate to the issues at stake,” said the decision.

Radnoff says that while the decision is heartening, he does not expect it will make it easier to get costs against the law society, as the appeal panel affirms well-established law.

“It made some very significant findings about how the law society conducted the hearing and how that conduct unnecessarily lengthened the hearing and wasted costs,” he says.

“That situation is not always going to arise.”

In its decision, the appeal panel noted the toll the proceedings took on Sukonick and DeMerchant.

“Costs under our system can only compensate for legal fees,” the decision said.

“However, we think it important that our reasons explicitly acknowledge the stress these proceedings put on Ms. DeMerchant and Mr. Sukonick, given the pall that hung over their careers for longer than it should have, the months they spent in the hearing room dealing with these allegations and the evident strain of so many days on the witness stand under cross-examination.”

Ian Smith, the lawyer who represented Sukonick in the matter, says the decision puts an end to what he says has been a difficult ordeal for his client.

The matter lasted a span of 11 years, he says, from the initial investigation to the appeal decision that was rendered on Jan. 20.

The hearings themselves took place between 2010 and 2012.

“It certainly reflects a fairly serious failing on the part of the law society to conduct this prosecution in a way that was reasonable and timely,” says Smith.

Sukonick no longer works for Torys, as he left the firm in 2015.

Philip Campbell, the lawyer representing DeMerchant, said in an email statement, “[I]t’s gratifying that the Appeal Division recognized the extraordinary human costs of this case while writing its ruling on the financial costs.”

A spokeswoman for the law society said the regulator is reviewing the decision.

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