When are lawyers really ‘partners’? Ruling explores liability of firms for lawyer’s debts

For more than 30 years, Paul McEnery and Eric Williams practised law under the banner “Williams McEnery”

When are lawyers really ‘partners’? Ruling explores liability of firms for lawyer’s debts

What makes a firm founded by two lawyers a “partnership?” Shared expenses, a shared name — a website declaring the co-founders “partners”? 

 That was an issue before the Superior Court of Justice last month amid the dissolution of a 40-year business relationship between two Ontario lawyers.

For more than 30 years, Paul McEnery and Eric Williams practised law under the banner “Williams McEnery,” with McEnery doing solicitor’s work in corporate/commercial, real estate, and estates, and Williams focusing on civil litigation. The pair even hosted an “annual Williams McEnery client event” and holiday parties with clients from both practices.

The firm now operates as Williams Litigation Lawyers, but former clients alleged the firm was liable for outstanding debt since McEnery was “held out” as a partner in the firm. 

One plaintiff was a long-time client of McEnery’s services at the law firm, and in 2015, agreed to lend hundreds of thousands of dollars to McEnery. The loans were made to “Williams McEnery In Trust,” according to the court’s ruling, 1062484 Ontario Inc. v. Williams McEnery, 2020 ONSC 825. While $400,000 was paid toward the first loan of $420,000, a second loan of $360,000 remains outstanding, the ruling said. This money was intended to be leant to other clients of lawyers, the plaintiffs said. 

In another case, “Paul T. McEnery ‘In Trust’” was holding $241,000 for a client, but the money was never released.  Justice Robyn Ryan Bell decided that the two plaintiffs were entitled to judgments against McEnery of $380,000 and $241,000, respectively.

But was the firm, now Williams Litigation Lawyers, liable? Not according to the judge, who dismissed the claims against the firm.

McEnery did not file responding materials and he took no position on the motions, but the court heard from several lawyers who were partners at the firm: David Bertschi, Jaye Hooper, and Mark Charron.

“According to Mr. Williams, Mr. McEnery was a sole practitioner, carrying on ‘a completely different practice – corporate/commercial, real estate and estates,’ who shared space with the litigation group and nothing more,” said Ryan Bell in the ruling.

“Williams stated that the litigation group developed ‘its own separate partnership’ of which Mr. Williams was the managing partner, and that Mr. McEnery had no participation in the partnership.” 

The firm had one reception area with a single receptionist, and the website listed McEnery as a “founding partner” of a firm named Williams McEnery. The lawyers all shared email addresses with the doman “@williamsmcenery.com.”  The firm’s Facebook page also said that Williams McEnery was “founded by senior partners Eric Williams and Paul McEnery in 1979.” One plaintiff who made a loan said that “he and his wife took comfort in the fact that the loans were made to ‘the firm’ and not to an individual.” 

But Ryan Bell accepted the argument that McEnery’s legal practice was a separate business under the Partnerships Act based on “the wording of the January 2011 partnership agreement, the Law Society filings, and the evidence as to how the two legal practices were conducted.”

Drawing from the decision in Continental Bank Leasing Corp. v. Canada, 1998 CanLII 794 (SCC), Ryan Bell considered the criteria of a partnership as “the contribution by the parties of money, property, effort, knowledge, skill or other assets to a common undertaking, a joint property interest in the subject-matter of the adventure, the sharing of profits and losses, a mutual right of control or management of the enterprise, the filing of income tax returns as a partnership and joint bank accounts.”

“Section 1 of the partnership agreement describes two separate businesses,” wrote Ryan Bell, quoting the agreement: “The Firm, which has existed continuously without termination since 1978 will continue to carry on the business of barristers, solicitors, notaries public under the firm name and style of Williams McEnery.  The Parties shall carry on this business solely related to this Civil Litigation side of the business and not the business of Paul T. McEnery.” 

Ryan Bell also noted that McEnery told the law society in a 2014 annual report that he was “[a] sole practitioner, practising in Ontario with one or more lawyers in shared facilities,” while Williams’ listed his 2014 annual report status as “Partner – Prof. Bus.” 

Although the plaintiffs alleged that the law firm was  “trying to distance themselves from the actions of Paul McEnery that were causing them concern,” Ryan Bell determined that there was no likelihood that the disputed funds would have crossed the other lawyers’ desks in the ordinary course of business, since they practiced in different areas of law from McEnery. 

“First, borrowing money from clients is prohibited by the Law Society of Ontario,” Ryan Bell wrote. “Second, I find that brokering loans for clients was not within the ordinary course of business of the law firm, which practised exclusively in the area of civil litigation. . . . A finding that Mr. McEnery was represented as or held out to be a partner in the law firm is not sufficient to find the firm liable to the plaintiffs.” 

Ryan Bell concluded that the “real reason” that one of the plaintiffs retained McEnery was nothing to do with being a partner in a law firm — it was because “he saw this as an ‘opportunity to give business . . .  a friend of a friend.’” 

“There is compelling evidence that the defendants were not carrying on a business in common,” wrote Ryan Bell. “McEnery and the law firm had separate offices, separate trust accounts, separate employees and separate filing and computer systems. Mr. McEnery had his own chartered accountant.  He had his own financial statements, separate from those of the law firm. The law firm and Mr. McEnery maintained their respective trust accounts at different financial institutions.” 

Although McEnery and the law firm shared office space for many years in an office building personally owned by McEnery and Williams, McEnery paid a share of common overhead expenses, Ryan Bell noted.

“There is no evidence to support the plaintiffs’ assertion that the parties derived a ‘financial benefit’ from ‘continuing to practise under the firm name Williams McEnery,’” the judge said. “McEnery had no participation rights in the partnership and did not share in the revenues of the law firm. Mr. Williams never had any involvement in, nor did he ever see, Mr. McEnery’s financial results or billings.” 

The lawyers for the parties in the case either declined to comment or did not respond to requests for comment. 

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