Canadian Lawyer InHouse

MARCH 2016 30 INHOUSE L a w D e p a r t m e n t M a n a g e m e n t CANADIAN IN-HOUSE counsel often enjoy trusting relationships with their exter- nal counsel. When the two enter into a re- tainer agreement, neither party is generally worried the deal will end in a litigious fracas. "We negotiate upfront . . . we clarify what has to be done," says Maria Tesla, vice presi- dent and general counsel for Cannon Can- ada Inc. "We try to get a budget upfront. Nothing should be a surprise." But if something does turn out to be a surprise and the relationship goes awry, say, due to a fee dispute or something more ne - farious, the damage may show up in more places than just the litigation tab. Going to court is going public, and for most compa- nies, that's not ideal. "Most companies who have internal coun- sel retaining external counsel would certain- ly not want any dispute becoming public — either the fact that there's a dispute and then whatever the dispute relates to," says Michael Hassell of Hassell Arbitration in Toronto. "The amount of confidential informa - tion in [an] invoice or a retainer agreement is fairly extreme and could be prejudicial, especially in the context of proprietary in- formation or litigation," he adds. "Nobody wants to have their lawyers' invoice put out there for the other side to find." Hassell says that's why in-house counsel should "drive the bus" when it comes to in - cluding arbitration clauses in their retainer agreement with their external counsel. "We haven't seen a great deal of inter- est for external counsel to add such clauses because they don't want to generally create too many forums for clients to challenge or question their fees," Hassell says. "But the relationship between in-house counsel and external counsel is a fairly mature one with sophisticated parties, and it will have to be in-house counsel driving the need for ar - bitration clauses. There's a whole lot more at stake for in-house counsel in terms of things becoming public." If the dispute is about fees, for example, dockets become part of the public record, says Renato Pontello, legal counsel to Solan - tro Semiconductor Corp., adding that some external counsel provide a lot of detail about the work that's been done in those dockets. "It may simply say, 'One-hour discussion concerning hostile takeover,' whereas oth - ers would say, 'We discussed the relative advantages and risks involved in you being taken over by XYZ,'" Pontello says. "The latter could be best kept between the par- ties. Depending on the situation, it could put one party or another at a disadvantage because they may not want to use that infor- mation in an open court," he adds. "From in-house counsel perspective, by keeping the information confidential, it al- lows solicitor-client privilege to be main- tained," Pontello adds. Going to an open court to sue former counsel also mars a company's reputation among other law firms, Pontello contin- ues. "No one really wants to make it pub- licly known that they're suing a former legal representative, a firm," he says. "It's just bad public relations because if there is a falling- out with the firm, then in-house counsel will be trying to find another firm, and if it's a well-known fact that they turned around and sued and wrote that account, then other firms might be reluctant to take [them] on. "From a PR perspective, it's best dealt with behind closed doors." WORDING MATTERS Including arbitration clauses in retainer agreements is much more common south of the border. Malcolm Mercer, partner at McCarthy Tétrault LLP, says his firm has had American clients who proposed includ - ing such clauses in retainers. Those clients sought to arbitrate outside of Canada, some- thing to which his firm couldn't agree. "We pushed back forcefully in respect to that because we think it's inappropriate to be judged with respect to Canadian le- gal work other than in the Canadian legal context," Mercer says. "I would not have difficulty with arbitration by someone who is competent to judge legal work in Canada, but I'd have real concern about somebody outside of Canada judging Canadian legal standards and maybe legal ethics issues." Part of the reason why arbitration clauses are so rare in Canada is because most dis - agreements with in-house counsel are gen- erally negotiated and resolved around a table, Mercer says. "With respect to fee disputes, arbitration could be very attractive, but it's a very rare case where you end up with a fee dispute with a client where in-house counsel is in - volved and you don't sort it out," he says. American case law suggests that when- ever lawyers and clients enter into retainer agreements that include arbitration clauses, there tends to be a lot of hang-up on how it is to be interpreted. The wording of the clause is critical, Pontello says. "It can be written very narrowly, so it's Should retainer agreements include fee arbitration clauses? Canadian in-house counsel are reluctant to introduce the idea more widely used in the United States, but some see the potential benefit. BY YAMRI TADDESE

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