Court of Appeal for Ontario
Laskin, Pardu and Brown JJ.A.
BETWEEN
Hasan Abuzour and Samira Abuzour
Respondents on Appeal
(Applicants)
and
Javad Heydary and Heydary Hamilton Professional Corporation
Respondents
COUNSEL:
Brian N. Radnoff and Louise F. Moher, for the appellants
Arnold Zweig, for the respondents
HEARD: June 25, 2015
On appeal from the order of Justice Michael A. Penny of the Superior Court of Justice, dated January 29, 2015.
Reasons for Decision
1This appeal deals with the continuing devastation caused by a lawyer, Javad Heydary, who appears to have disappeared with his clients’ money. Heydary Hamilton Professional Corporation, Heydary’s firm, owes the Abuzours, the respondents, more than $3.6 million. Heydary and Heydary Hamilton’s LawPro liability insurance policy limits are only $1 million. The appellants are lawyers formerly employed by Heydary Hamilton. Although the appellants had no control over the trust account and played no part in the disappearance of the funds, the respondents have threatened to sue the appellants. The appellants want to resort to the liability insurance policy for their defence costs. If the policy limits are paid out in partial satisfaction of the respondents’ claims, the appellants will be left without coverage to defend themselves. They appeal from the motion judge’s refusal to set aside or vary an order enforcing the garnishment issued by the respondents against LawPro, which exhausts the policy’s limits.
2The procedural history here is unusual. A dispute arose between Heydary and the Abuzours about whether the Abuzours were entitled to money deposited to Heydary’s trust account in settlement of an oppression action with a third party. The respondents did not obtain a judgment against Heydary Hamilton or Javad Heydary for negligence, fraud, error or omission in the provision of professional services, matters which are covered by the insurance policy. Rather, the Abuzours brought motions in the oppression proceeding which resulted in two orders dated November 14 and December 17, 2013, ordering payment of $3.6 million from the Heydary Hamilton trust account to the Abuzours. Heydary and Heydary Hamilton did not comply with the orders. In reasons released on December 4, 2013, Heydary and Heydary Hamilton were found in contempt of court for their failure to comply with orders for release of $2.1 million to the Abuzours.
3On March 6, 2014, counsel for the Abuzours sent a demand letter to the appellants, writing that counsel had “instructions to commence legal proceedings against each of you unless a resolution is reached on behalf of our clients in the next short while.”
4Counsel for the Abuzours concluded the demand letter by warning that he was instructed to proceed with legal action without further notice if the parties could not negotiate a resolution.
5The Abuzours served a notice of garnishment upon LawPro and brought a motion returnable October 9, 2014 to enforce the garnishment. LawPro unsuccessfully opposed the motion. The appellants were not served with notice of the motion. The motion judge granted the garnishment order on the following grounds:
(a) LAWPRO's obligations to indemnify Heydary and Heydary Hamilton under the Heydary policy constitute a debt subject to garnishment by the Abuzours under rule 60.08 (at para. 29);
(b) LAWPRO has a duty to investigate and to defend other claims against other lawyers associated with Heydary Hamilton, but, despite the Abuzours’ threats, no such claims yet exist (at para. 32);
(c) The Heydary policy does not require LAWPRO to consider the cost of claims which have not been made and to weigh those potential obligations against its obligation to pay claims finally determined (at para. 35); and
(d) The “first past the post” principle applies to the Abuzours’ judgment. The Abuzours should not have to share the proceeds of the Heydary policy with parties who have yet to call on the policy and may not call on the policy (at para. 36).
6The appellants then brought a motion to set aside or vary the garnishment order of October 9, 2014.
7As outlined by the motion judge, they advanced four arguments in support of their position that the garnishment order should not issue:
(1) [The orders of November 14 and December 17, 2014] are not covered by the Policy because they do not involve damages arising out of a claim where the liability of the insured is the result of an error, omission or negligent or fraudulent act in the performance of or the failure to perform professional services for others;
(2) [T]he March 6, 2014 demand letter was a claim under the Policy. The notice of garnishment was delivered well after the applicants’ “claim.” The moving parties therefore say that, under the ‘first past the post’ principle, their rights as insureds under the Policy come before any rights of the applicants arising by way of notice of garnishment;
(3) [G]arnishment is an equitable remedy. In the circumstances of this case the equities favour the moving parties; and
(4) [I]n the alternative, if the Order is not set aside, it should be varied to provide that, in exchange for payment of the proceeds of the Policy to the applicants, the applicants must provide a release of all claims against the moving parties.
8The motion judge rejected each of these arguments.
9For the purposes of this appeal, it is not necessary to decide whether the motion judge was correct to reject the first two arguments.
10All parties agree that a decision on whether to enforce a garnishment is discretionary: see 20 Toronto Street Holdings Ltd. v. Coffee, Tea or Me Bakeries Inc. (2001), 2001 CanLII 28048 (ON SC), 53 O.R. (3d) 360 (S.C.), at para. 5; Noble China Inc. v. Lei, [1999] O.J. No. 5030 (S.C.), at para. 24; Wayfarer Holidays Ltd. v. Hoteles Barcelo (1993), 1993 CanLII 8571 (ON SC), 12 O.R. (3d) 208 (Gen. Div.), at p. 212.
11The motion judge rejected the argument that the equities favoured the appellants. He held that payment out of the Abuzours’ claim should not be delayed because of the speculative possibility that an action might be commenced against the appellants. He recognized that the Abuzours’ claims against the appellants might be weak, noting that “[i]f the moving parties are right, then the Abuzours would be foolish indeed to spend the limited recovery they may [gain] from LawPro’s Policy in fruitless litigation. But [the merits of that litigation] must be for another day.” The motion judge also concluded that there was no legal basis to attach a condition to the order enforcing garnishment requiring the Abuzours to execute a release in favour of the appellants.
12As observed by the motion judge, application of the “first past the post principle” will allow a successful plaintiff to enforce a judgment against the defendant’s insurer where the policy covers the acts underlying the judgment, even where other potential claims may be adversely affected by a reduction of insurance proceeds available to satisfy the claims.
13This situation is unusual in that the initial orders for payment out of the Heydary Hamilton trust accounts were not based on negligence, omissions, errors or fraud covered by the policy. It is the failure to comply with these orders which arguably gives rise to an insured loss.
14Most significantly for the purposes of this appeal, the respondents at oral argument were unable to articulate any basis upon which the respondents might advance a claim against the appellants relating to the money which has vanished. I am left with the impression that the respondents’ refusal to execute a release in favour of the appellants is a tactical one, designed to extract funds from innocent parties who do not have the means to defend themselves. The losses suffered by the respondents must be devastating, but there is no basis shown to visit Heydary’s misconduct on the appellants.
15As enforcement of a garnishment is a discretionary decision, in my view, contrary to the decision of the motion judge, the appellants should provide a release as a condition of the payment to them of the garnished insurance policy limits. In the unusual circumstances of this case, where the respondents cannot articulate any substance to a claim against the appellants, a release condition narrowly tailored to the apparent theft of the trust funds is appropriate.
16Accordingly, the appeal is allowed to the extent of varying the order of the motion judge by adding the following term to the order:
By the payment of any insurance proceeds relating to LawPro insurance policies held by Javad Heydary or Heydary Hamilton Professional Corporation to Hasan Abuzour or Samira Abuzour, Hasan Abuzour and Samira Abuzour hereby release any claims that they may have against Jeff Landmann, Darren Smith and Yan Wang relating to the application in Court File No. CV-12-9960-00CL, including any claims relating to or in any way connected with monies held at any time in trust for Hasan Abuzour or Samira Abuzour.
17Costs are awarded in favour of the successful appellants in the agreed sum of $10,000, inclusive of disbursements and taxes.
18In this event, the respondents do not pursue their cross-appeal, and this appeal is dismissed with costs to the appellants fixed at $1,500 all inclusive.
Released: (JL) July 30, 2015
“G. Pardu J.A.”
“I agree John Laskin J.A.”
“I agree David Brown J.A.”