Garfin v. Mirkopoulos, 2009 ONCA 421
CITATION: Garfin v. Mirkopoulos, 2009 ONCA 421
DATE: 20090522
DOCKET: C49343
COURT OF APPEAL FOR ONTARIO
Doherty, Goudge and Sharpe JJ.A.
BETWEEN:
Susan W. Garfin
Applicant (Appellant)
and
Nikolaos Mirkopoulos and Julie Crossen
Respondents
Alan J. Lenczner, Q.C., for the appellant
Ronald Birken, for the respondent, Nikolaos Mirkopoulos
Heard: April 23, 2009
On appeal from the judgment of Justice Ellen Macdonald of the Superior Court of Justice dated August 19, 2008 and reported at 2008 41572 (ON S.C.).
Sharpe J.A.:
[1] This appeal involves a claim by the lawyer for one party in a matrimonial litigation to recover her fees and disbursements from both her client and the opposite party. The appellant represented the respondent Julie Crossen in a hotly contested matrimonial proceeding against the other respondent, Nikolaos Mirkopoulos. The appellant claimed the sum of $217,773.24 for unpaid fees and disbursements. Crossen terminated the appellant’s retainer and reached a settlement agreement with Mirkopoulos without any input from the appellant. That settlement agreement provided that the parties would each be responsible for their own legal costs. The appellant brought this action to recover the amount of her account from both Crossen and Mirkopoulos, alleging that the two had colluded with each other to prevent Garfin from recovering her fees.
[2] The trial judge dismissed the collusion claim but held that Mirkopoulos was liable for the appellant’s account in contract on the basis that Mirkopoulos had promised Crossen that he would pay it. The trial judge also found, however, that the fees claimed were excessive and reduced the appellant’s account to $50,000.
[3] The appellant seeks no relief in this court against Crossen but appeals the reduction of the bill as against Mirkopoulos. Mirkopoulos cross-appeals the finding that he is liable for the appellant’s account in contract. The appellant submits that if the contract finding is set aside, she is entitled to recover on the basis of collusion.
FACTS
[4] Crossen met Mirkopoulos, a man of considerable financial means, in 1998 when she was 25 and he was 57. The trial judge found that they began to live together in April 2001 and that they were married in July 2001. Crossen complained that Mirkopoulos assaulted her, and they separated in August 2002. Lengthy and acrimonious matrimonial litigation ensued. The appellant represented Crossen in that litigation for more than four years. Crossen suffered health problems and was a difficult client. There were many pretrial motions and case conferences on issues of disclosure and interim support.
[5] The appellant secured a favorable interim support order for Crossen of $4,000 per month. The matter was set down for trial, scheduled to begin in May 2007. In February 2007, Crossen suggested to Mirkopoulos that they meet with a view to settling the litigation. At the time, Crossen’s support order was being garnished for outstanding costs orders in favour of Mirkopoulos’ two brothers, who had been parties in related proceedings, and she was unable to get in touch with the appellant in order to deal with this matter. Crossen testified that Mirkopoulos encouraged her to terminate the appellant’s retainer. Mirkopoulos denied that he had done so. In any event, Crossen did terminate the appellant’s retainer in early March 2007. Following an unsuccessful mediation, Crossen and Mirkopoulos attended a trial management conference on March 30, 2007 and executed a separation agreement settling the litigation. Crossen was unrepresented at the time, while Mirkopoulos was advised by counsel who drafted the agreement. The agreement provided for a final, one time support payment to Crossen of $33,000 and provided that the parties would each be responsible for their own legal fees.
[6] At the time of the termination of the retainer, the appellant’s unpaid account was for $217,773.24. The appellant had already received approximately $58,000 for legal fees during the course of the litigation from interim payments made by Mirkopoulos to Crossen.
ISSUES
[7] I will consider the issues raised in both the appeal and cross-appeal in the following order:
Did the trial judge err by finding Mirkopoulos liable to the appellant in contract?
Did the trial judge err by rejecting the claim against Mirkopoulos based on collusion?
Did the trial judge err by reducing the appellant’s account to $50,000?
ANALYSIS
1. Did the trial judge err by finding Mirkopoulos liable to the appellant in contract?
[8] The trial judge found that “it was always Mr. Mirkopoulos’ intention that he would pay Ms. Garfin’s account after it was assessed” (para. 57) and that “Mr. Mirkopoulos always took the position that he would contribute to Ms. Garfin’s legal fees after they were assessed” (para. 62). The trial judge did not explain the evidence she relied upon to find that Mirkopoulos had agreed with Crossen that he would pay the appellant’s account.
[9] For the following reasons, I conclude that the evidence is simply not capable of supporting the trial judge’s finding of an agreement by Mirkopoulos to pay the appellant’s account, and further that as the appellant did not plead a claim in contract, the issue was not properly addressed at the trial.
[10] I turn first to the evidence relied upon by the appellant to support the trial judge’s finding.
[11] We were referred to Crossen’s examination for discovery where she stated that she was “under the understanding that [Mirkopoulos], after looking after the bills with [his counsel], was going to be taking care of [the appellant’s] bills, after it was assessed.” Crossen further stated: “we made an agreement that he would take care of [the appellant], and it wasn’t to come out of my lousy $32,000”. The appellant cross-examined Crossen on her discovery transcript at great length but did not put these passages to her. However, in an attempt to bring the lengthy cross-examination to an end, Mirkopoulos’ counsel agreed that the appellant could simply file the transcript as an exhibit.
[12] The only trial evidence cited by the appellant to support the finding are portions of Crossen’s cross-examination at trial where she testified that Mirkopoulos “never said he would not pay” the appellant’s account. Crossen also testified that she was concerned about how the account would be paid and that she did not want to leave the appellant out in the cold. She believed that Mirkopoulos would pay the account after it was assessed:
…and all I believe Mr. Mirkopoulos wanted was to be able to assess the bill properly and maybe make some type of settlement to her that wasn’t so outrageous because, you know, it would benefit everybody to just get on with their lives if we could do that, and it just didn’t seem to ever go for some reason.
[13] In my view, the evidence relied on by the appellant, taken at highest, shows that Crossen hoped or perhaps assumed that Mirkopoulos would pay the account once it was assessed. The fact that Markopoulos indicated during the various settlement discussions that the account would have to be assessed does not amount to an agreement by him to pay the account.
[14] There is nothing in Mirkopoulos’ own evidence that would support a finding that he agreed to pay the appellant’s account. Indeed, the appellant never put the allegation of an agreement to pay the account to him in cross-examination. When asked if Crossen mentioned anything about legal fees at the time the settlement agreement was concluded, Mirkopoulos testified that Crossen had mentioned that she had received a large bill despite that fact that the appellant had been deducting fees every month from her support payments. Mirkopoulos testified that he told Crossen: “Julie, I don’t want to know. I got enough in my head.” When asked if Crossen made any effort to persuade him to pay the account, he testified that he told her that he saw no consistency in the three or four accounts and that it was his opinion that the appellant had been totally paid by the money she had deducted from Crossen’s support payments.
[15] There was unequivocal evidence from the mediator, found by the trial judge to be a reliable witness, that Mirkopoulos flatly rejected the suggestion that he pay or contribute to the appellants account as part of the settlement. Finally, the settlement agreement could not be clearer: it specifically provides that the parties will be responsible for their own costs. This evidence, which the trial judge did not consider in her reasons, completely undermines her findings that “it was always Mr. Mirkopoulos’ intention that he would pay Ms. Garfin’s account after it was assessed” and that “Mr. Mirkopoulos always took the position that he would contribute to Ms. Garfin’s legal fees after they were assessed.”
[16] No doubt an important reason for the lack of evidence on the agreement is that the issue was not pleaded or argued. The statement of claim advances the following claims against Mirkopoulos:
• Mirkopoulos intentionally interfered with the contractual relationship that existed between Crossen and Garfin (para. 2)
• Mirkopoulos colluded with Crossen to deprive Garfin of her fees (para. 16)
• Mirkopoulos and Crossen are jointly and severally liable for breach of contract, fraud and conspiracy (para. 18).
[17] While the claim states in a conclusory manner that Mirkopoulos is liable for breach of contract, it does not plead facts that are capable of explaining how or why Mirkopoulos is liable for any contractual breach and there is certainly no allegation of an agreement to pay the account made in the statement of claim.
[18] The appellant argues that since Mirkopoulos admitted that he knew about the outstanding legal fees and Crossen’s financial status, the only probable defence to the collusion claim was that Mirkopoulos had agreed to pay Garfin’s fees. Accordingly, it was necessary for Mirkopoulos to adduce evidence on this issue in any event, and so the failure of the statement of claim to plead the contract does not result in any trial unfairness. The appellant’s submission on this point rests upon the untenable proposition that Mirkopoulos defeated the collusion claim by establishing that he agreed to pay the appellant’s account. That is simply not what happened at this trial. Mirkopoulos did not defeat the collusion claim by advancing an agreement. As I have already noted, the subject of an agreement simply did not come up when he gave his evidence.
[19] Because the appellant did not plead that Mirkopoulos agreed with Crossen that he would pay the appellant’s legal fees, Mirkopoulos could not be expected to know that he should be prepared to meet that allegation. The trial judge erred in awarding judgment against him on a ground not pleaded and not litigated at trial.
[20] It has been repeatedly held was held that it is inappropriate for a case to be decided on an issue not identified by the parties in the pleadings and dealt with at trial: see e.g. TSP-INTL Ltd. v. Mills (2006), 2006 22468 (ON CA), 81 O.R. (3d) 266 (C.A.), at para. 35:
The difficulty here is that the parties did not frame their lawsuit or conduct the trial on these bases. In the context of the case, the defendants were effectively deprived of knowing the case they had to meet, and of any opportunity to meet that case throughout the trial.
[21] I conclude, accordingly, that the agreement upon which the trial judge based her finding of liability against Mirkopoulos was not pleaded and that the parties simply did not join issue on any such alleged agreement at trial. In any event, the evidence does not support the trial judge’s finding. Accordingly, I would allow also the cross-appeal and dismiss the claim against Mirkopoulos.
[22] While that is sufficient to dispose of this aspect the cross-appeal, I would add that even if we were to uphold the finding that Mirkopoulos agreed with Crossen to pay the appellant’s account, I fail to see how in law such an agreement would make Mirkopoulos liable to the appellant. The appellant’s contractual rights were against her client Crossen. An agreement between Crossen and Mirkopoulos would allow Crossen to claim over against Mirkopoulos if and when sued by the appellant, but would not permit the appellant to sue Mirkopoulos directly.
[23] The only argument advanced in support of the contention that the appellant could sue on the agreement was that Crossen was acting as the appellant’s agent when she made the alleged contract with Mirkopoulos. I would reject that argument. It was not advanced at trial and there is simply no evidence to support it. In particular, there is nothing in the record to show that the purported agreement was made for the appellant’s benefit; that Crossen was acting as Garfin’s agent or that she had any authority to do so: see Dyck v. Manitoba Snowmobile Assn. (1982), 1982 3051 (MB CA), 136 D.L.R. (3d) 11 (Man. C.A.), at p. 25, aff’d 1985 27 (SCC), [1985] 1 S.C.R. 589; ITO-International Terminal Operators Ltd. v. Miida Electronics Inc., 1986 91 (SCC), [1986] 1 S.C.R. 752, at p. 784
[24] In London Drugs Ltd. v. Kuehne & Nagel International Ltd., 1992 41 (SCC), [1992] 3 S.C.R. 299, at p. 446, the Supreme Court of Canada held that the “doctrine of privity should not stand in the way of commercial reality and justice”. In Fraser River Pile & Dredge Ltd. v. Can-Dive Services Ltd., 1999 654 (SCC), [1999] 3 S.C.R. 108, Iacobucci J. indicated that the third party beneficiary rule might be relaxed where the parties to the contract intend to extend the benefit in question to the third party seeking to rely on the contractual provision and the activities performed by the third party relying on the contract are the very activities contemplated by the contract and the parties.
[25] In the present case, denying the appellant the right to sue on the purported contract between Crossen and Mirkopoulos would stand in the way of neither commercial reality nor justice. There is nothing to indicate that the purported agreement was intended to confer rights on the appellant as against Mirkopoulos, or that Mirkopoulos agreed or intended to enter into any kind of arrangement for the benefit of the appellant. The appellant certainly could not have relied on the purported agreement, as it was only entered into after her services had been performed and her fees had been incurred. She provided legal services to Crossen with full knowledge of Crossen’s financial circumstances. While the appellant no doubt hoped to secure a judgment or settlement in Crossen’s favour that would have required Mirkopoulos to indemnify Crossen for all or part of her legal costs, the appellant could not have had any expectation that she could look directly to Mirkopoulos for payment of her account.
2. Did the trial judge err by rejecting the claim against Mirkopoulos based on collusion?
[26] The trial judge found that the claims for fraud, collusion and conspiracy had not been made out. Her factual findings on these points are not challenged on appeal. The appellant argues, however, that a claim for collusion was made out on the facts that were proven, namely that (i) both Crossen and Mirkopoulos knew of the appellant’s outstanding account, and (ii) the settlement agreement between Crossen and Mirkopoulos resolving their dispute failed to provide for the payment of that account. The appellant submits that liability for collusion is made out if the effect of the agreement was to deprive the appellant of the means to recover her account.
[27] I disagree with that submission. The ingredients of collusion where dealt with by this court in Gardiner Miller Arnold LLP v. Kymbo International Inc. (2007), 2007 ONCA 648, 33 B.L.R. (4th) 34. The court held, at para. 26, that collusion requires a finding that “there was an agreement between (the parties) to deprive (the law firm) of the fees to which it was entitled”. This requires that one of the purposes of the agreement must have been to defeat the law firm’s claims (paras. 40-51). Gardiner involved a secret deal whereby a client received monies that would not be disclosed to anybody, including his solicitors. Lang J.A., writing for the court, concluded that the object of the secret payment was to defeat the solicitor’s claim and stated, at para. 56: “[i]t simply makes no sense for the [third party] to conceal its payment to [the client] unless it did so for the purpose of defeating [the solicitor’s] claim.”
[28] We were also referred to Price v. Crouch (1891), 60 L.J.N.S. Q.B. 767 where Denman J. described collusion as “an agreement between two parties with the knowledge that they are doing an unfair thing in depriving a third party of a right he had.” In that case there was evidence that the client had entered negotiations with the opposite side to settle litigation with a view to getting better terms for himself and his opponent by way of an arrangement that would cut out his solicitor. The circumstances were described as follows by Wills J., at p. 769:
It is obvious that if the plaintiff’s solicitor’s costs could be got rid of, better terms could be obtained by the defendant, and the bargain was made with that object. Both the plaintiff and the solicitors for the defendant were well aware that a considerable sum for costs was due, and their conduct shows that they desired to defeat the applicant’s claim for them. The defendant’s solicitors knew that they could get better terms for their client from the plaintiff if he left his solicitor out in the cold.
[29] Dicarllo v. McLean (1915), 1915 1047 (ON SC), 33 O.L.R. 231 (S.C. (A.D.)) is to the same effect. Collusion is made out where the court is satisfied that the object or purpose of the agreement was to deprive the solicitor of his fees. In that case, going behind the backs of both his own solicitor and that of the plaintiff, the defendant arranged for the plaintiff, an impecunious Italian labourer, to be taken to another town where he was paid a relatively small sum to settle the case. The plaintiff immediately returned to Italy. Middleton J. concluded that collusion was made out, at p. 235:
[The defendant] knew that the costs were heavy. He desired to end the litigation with the least possible expenditure of money. He knew that the plaintiff could not have paid his solicitors. He knew that the plaintiff, when given this money, would not pay his solicitors. He was ready to assist the plaintiff to leave the country without discharging his obligation. He displayed that reckless disregard for the rights of others which amounts to dishonesty, and he acquiesced in, if he did not suggest, the plaintiff’s dishonesty
[30] In my view, the appellant’s submission that collusion was made out merely by showing that the settlement that Crossen and Mirkopoulos reached failed to provide for the payment of the appellant’s account cannot be accepted. That submission is not supported by the authorities to which I have referred and I see no reason in the circumstances of this case to relax the test for collusion that is set out in those cases. Here, Crossen, the weaker party, initiated the settlement discussions. This was not a secret or back door arrangement designed to leave the appellant out in the cold but rather a settlement reached at a judge-supervised settlement conference. Crossen testified that she raised the matter of the appellant’s account with the judge who conducted the settlement conference and was told “that is something the lawyer will obviously take care of and it will come up against me.”
[31] It was clearly open to Mirkopoulos to say that he would pay $33,000 to settle the case and no more and to leave the matter of the appellant’s account to be dealt with as between Crossen and the appellant. His solicitor testified at trial that it was his opinion that given the very short duration of the marriage, Mirkopoulos had already overpaid Crossen in support and owed her nothing by way of equalization. In view of that legal advice, it is difficult to see how the manner in which Mirkopoulos settled the litigation could be described as collusive. I also agree with the submission made by counsel for Mirkopoulos that if the appellant’s submission were accepted, the effect would be to force impecunious litigants to reject any settlement that did not cover their legal costs.
[32] Accordingly, I would dismiss the appeal from the trial judge’s dismissal of the claim for collusion
3. Did the trial judge err by reducing the appellant’s account to $50,000?
[33] As I would allow the cross-appeal and dismiss the judgment against Mirkopoulos for the appellant’s account, and as the appellant seeks no further relief against Crossen, it is not necessary for me to consider whether the trial judge err by reducing the appellant’s account to $50,000. I should not, however, be taken as agreeing with the trial judge’s “blunt pencil” approach to the assessment of the account.
CONCLUSION
[34] For these reasons, I would dismiss the appeal, allow the cross-appeal and set aside paragraph one of the judgment as against Mirkopoulos. The respondent was awarded costs of the trial and I would not alter that award. The respondent is entitled to his costs of this appeal fixed at $10,000, inclusive of disbursements and GST.
“Robert J. Sharpe J.A.”
“I agree D. Doherty J.A.”
“I agree S.T. Goudge J.A.”
RELEASED: May 22, 2009