Court of Appeal for Ontario
COURT OF APPEAL FOR ONTARIO DATE: 20220506 DOCKET: C69865
MacPherson, Paciocco and George JJ.A.
BETWEEN
Lynne Catherine Foulidis Applicant (Appellant/Respondent by way of cross-appeal)
and
George Foulidis and Jodi L. Feldman Professional Corporation Respondents (Respondent / Appellant by way of cross-appeal)
Counsel: Gary M. Caplan and Aram Simovonian, for the appellant/respondent by way of cross-appeal Sean N. Zeitz and James S. Quigley, for the respondent/appellant by way of cross-appeal
Heard: April 7, 2022
On appeal from the order of Justice Sharon Shore of the Superior Court of Justice, dated September 9, 2021, with reasons reported at 2021 ONSC 5791.
Paciocco J.A.:
Overview
[1] Lynne Foulidis (“Lynne”) appeals a September 9, 2021 charging order issued by a family court motion judge against a Toronto residence (the “Property”). The charging order was granted to secure $664,323.38 in legal fees billed by the respondent, Jodi L. Feldman Professional Corporation. The claimed legal fees arise from representation Ms. Jodi Feldman provided to Lynne in family litigation between Lynne and her husband George Foulidis (“George”).
[2] Only the charging order is at issue in this appeal. The reasonableness of the legal fees is not before us.
[3] For the reasons that follow, I am not persuaded that the motion judge erred in granting the charging order. I would dismiss the appeal.
[4] I would also dismiss the cross-appeal, since I am not persuaded that the motion judge provided insufficient reasons for the costs order.
Material Facts
[5] In December 2000, the Property that is now the subject of the charging order, was purchased by a numbered company owned by George’s brother, Danny Foulidis (“Danny”). Lynne and George moved into the Property in September 2002.
[6] In May 2006, while Lynne and George continued to live in the Property, Danny transferred title in the Property to Lynne, who acknowledged borrowing $450,000 from Danny on a demand loan for the development of the Property.
[7] Lynne and George continued to live in the Property until the breakdown of their marriage in 2015 when George moved out.
[8] In July of that year, Lynne retained Ms. Feldman to represent her interests arising from the marriage breakdown, including those relating to the Property, the only substantial asset held in Lynne’s name. A modest retainer of $5,000 was provided. The ensuing litigation was acrimonious, involving numerous court appearances.
[9] In November 2016, while the family litigation was underway, George’s brother Danny sued Lynne on the demand loan and claimed an interest in the Property. Lynne resisted Danny’s claim, alleging that she had signed the loan agreement under duress and on the understanding that it had been created for “legal reasons” and that payment would never be demanded. Ms. Feldman assisted Lynne in finding a civil lawyer who would represent her in defending Danny’s claim.
[10] In February 2018, Ms. Feldman’s retainer ended without the family law issues being settled. Three material events then transpired in short order.
[11] First, Ms. Feldman almost immediately launched a civil suit against Lynne for $664,323.38 in outstanding legal fees that she claimed to be owed (the “Civil Action”).
[12] Second, in March 2018, approximately one month after Lynne discharged Ms. Feldman, Lynne and her brother-in-law Danny settled their lawsuit as its scheduled trial date of April 12, 2018 approached. Pursuant to the minutes of settlement, Lynne registered a mortgage on the Property in favour of Danny for approximately $525,000, and Danny paid the outstanding property taxes and provided a cash advance of $40,000 to Lynne.
[13] Third, approximately three months later, in June 2018, Lynne and George resolved their family court dispute through minutes of settlement. In those minutes of settlement, Lynne agreed to transfer the Property to George, “at any time […] upon request”. The settlement provided that Lynne would receive monthly payments over the ensuing 20 years totalling approximately $1,115,000, and that she could remain in the Property until 2025, while George paid for its maintenance.
[14] In July 2018, Lynne issued a counterclaim against Ms. Feldman in the Civil Action seeking damages of $2,000,000 for negligence, breach of contract and breach of fiduciary duties.
[15] In September 2018, Ms. Feldman added Lynne’s brother-in-law Danny to the Civil Action after securing leave to do so. She also amended the claim to allege that the charge that Lynne placed on the Property in favour of Danny is void as being contrary to the Fraudulent Conveyances Act, R.S.O. 1990, c. F.29.
[16] In December 2018, Ms. Feldman obtained a certificate of pending litigation (“CPL”), which she registered against the property. She also sought a solicitor’s charging order pursuant to s. 34(1) of the Solicitors Act, R.S.O. 1990, c. S.15 and/or an “equitable lien”.
[17] In February 2021, Ms. Feldman brought a motion in Family Court for the “Charging Order and/or Solicitor’s Lien”, which led to the charging order that is the subject of this appeal.
[18] In March 2021, Lynne transferred title in the Property to George, subject to the CPL on the property.
The Orders Under Appeal
[19] On September 9, 2021, the motion judge granted the Family Court motion for a charging order against the Property in favour of Ms. Feldman.
[20] In her endorsement, the motion judge explained that she rejected Lynne’s submission that a charging order should not be granted in Family Court while there is an outstanding claim for a charging order in the Civil Action. She agreed that the motion should have been brought under the Civil Action but affirmed that the Family Court has jurisdiction to make the order. She concluded that since the matter had been fully argued before her, it would not serve the objective under r. 2(2) of the Family Law Rules, O. Reg. 114/99 of dealing with cases “justly” to incur the waste of time, money and court resources required to send the matter to be reargued under the Civil Action.
[21] The motion judge found that the test for imposing charging orders is set out in Weenen v. Biadi, 2018 ONCA 288, 141 O.R. (3d) 276, at para. 15. She noted that this test must be satisfied whether the charging order is being made pursuant to s. 34(1) of the Solicitors Act or pursuant to the court’s inherent common law and equitable jurisdiction to impose “charging solicitor’s liens”. The motion judge found that Ms. Feldman met her onus of satisfying each of the three parts of the Weenen test, which requires the applicant to demonstrate that: [1]
- the fund or property is in existence at the time the order is granted (the “existence of the property component”);
- the property was recovered or preserved through the instrumentality of the lawyer (the “preservation of the property component”); and
- there must be evidence that the client cannot or will not pay the lawyer’s fees (the “risk of non-payment component”).
[22] With respect to the existence of the property component, the motion judge found that the property was in existence, even though it was registered in George’s name. She also concluded that there is a triable issue about whether the conveyance to George was fraudulent and thus void. She found that this issue would have to be settled at the civil trial, but she was satisfied that “for the purpose of [the] motion […] [George] was not a bona fide third party without notice of the claims”. Since a charging order would be enforceable against someone who has acquired the property and who is not a bona fide purchaser, the order she was making would be enforceable against the Property.
[23] With respect to the preservation of the property component of the Weenen test, the motion judge said, “Although the Property was already in [Lynne’s] name, I find [Ms. Feldman] was instrumental to some extent in preserving the equity in the asset.” The motion judge made this finding after reciting Ms. Feldman’s submissions that she had been successful in obtaining orders that preserved the Property, including an order giving Lynne exclusive possession of the property and requiring George to pay all expenses and services on the property. Ms. Feldman had also successfully resisted efforts by a bank to sell the property.
[24] With respect to the risk of non-payment component of the Weenen test, the motion judge found that “[i]n light of the Counterclaim [in the Civil Action], and the evidence before [her], there is no dispute that [Lynne] is refusing to or will not pay the fees.”
[25] In the formal order, the motion judge directed that all future proceedings relating to the charging order or legal fees “shall be brought within the civil action”, including “[t]he quantification of the charging order, the merits of Lynne Foulidis’ negligence action [made in her counterclaim], the propriety of the quantum of the fees charged to her and a finding on the claim of fraudulent conveyance.”
[26] The motion judge also reserved the costs of the motion to the Civil Action “in the ultimate determination of the outstanding issues”.
The Issues
[27] Lynne appeals the motion judge’s decision to grant a charging order and requests that it be set aside. She raises several grounds of appeal which amount to a wholesale challenge to the motion judge’s reasoning.
[28] Ms. Feldman has cross-appealed the motion judge’s order respecting costs of the charging order motion.
[29] Although the appeal arguments are particularized below, the grounds of appeal and the cross-appeal can be expressed simply, as follows:
A. Did the motion judge err in finding that the existence of the property component of the Weenen test was satisfied? B. Did the motion judge err in finding that the preservation of the property component of the Weenen test was satisfied? C. Did the motion judge err in finding that the risk of non-payment component of the Weenen test was satisfied? D. Did the motion judge err by failing to consider the competing equities when imposing the charging order? E. (Cross-Appeal) Did the motion judge err in failing to provide sufficient reasons relating to costs?
Analysis
A. Did the motion judge err in Finding That the existence of the property component of the Weenen test was satisfied?
[30] Lynne makes several related arguments challenging the motion judge’s conclusion that the existence of the property component of the Weenen test was satisfied. All of those arguments derive from Lynne’s transfer of the property to George prior to the motion hearing.
[31] First, she argues that because the Property had been transferred to George and there were no outstanding family law claims at the time of the motion, the Property was no longer available to satisfy any indebtedness Lynne might owe. Put otherwise, the Property no longer existed within the meaning of the Weenen test. She maintains that the motion judge therefore erred in finding that the Property was still in existence.
[32] Things are not so simple. If the transfer to George is void, then Lynne’s interest in the property persists for the purpose of the charging order. The motion judge was therefore correct to consider s. 34(2) of the Solicitors Act, which provides: “A conveyance made to defeat or which may operate to defeat a charge under subsection (1) is, unless made to a person who purchased the property for value in good faith and without notice of the charge, void against the charge.”
[33] I do not accept Lynne’s suggestion that s. 34(2) is inapplicable because it applies only to transfers that occur after charging orders are in effect. I see nothing in the language of s. 34(2) that restricts it to charges already made. If a transfer is made to defeat the outcome of a pending motion for a charge, then that transfer was “made to defeat […] a charge under subsection (1)”. If the transfer to George proves to have been made to defeat the charge, it will be void.
[34] Lynne also argues that the charging order is invalid because it was made while her continued interest in the Property remains uncertain. Lynne describes the charge alternatively as a “temporary charge”, presumably because it will disappear if the transfer to George was not void, or a “floating charge”, because even if the transfer proves to be void Ms. Feldman will be unable to realize on the security until the transfer is declared to be void. Lynne argues that neither a temporary charge nor a floating charge is contemplated by the Solicitors Act.
[35] I disagree. A solicitor’s charge is “intrinsically declaratory in nature”, operating as judicial confirmation that the solicitor has the proprietary interest of a secured creditor: Thomas Gold Pettinghill LLP v. Ani-Wall Concrete Forming Inc., 2012 ONSC 2182, 349 D.L.R. (4th) 431, at para. 101. A declaration continues to speak after it is made. There is no conceptual obstacle that would prevent a declaration of a charging order from being made pending the realization of a property interest, even if the actual attachment of the security is delayed. The authority therefore makes clear that, in appropriate cases, declarations of charge may be granted in relation to amounts or property that may materialize in the future: Fancy Barristers P.C. v. Morse Shannon LLP, 2017 ONCA 82, 98 C.P.C. (7th) 219, at para. 9; Mpampas v. Steamatic Toronto Inc. (2009), 84 C.P.C. (6th) 85 (Ont. S.C.), at para. 11, aff’d 2010 ONCA 373; Pino v. Van Roon (1998), 28 C.P.C. (4th) 274 (Ont. Gen. Div.), at para. 10.
[36] Moreover, if Lynne’s submission is accepted, then an indebted client could prevent a meritorious solicitor’s charging order from being made by transferring the property pending the motion for a charging order. This is contrary to the intent and spirit of s. 34(2) of the Solicitors Act, and it would put it within the power of a fraudulent transferee to then transfer the property to a bona fide purchaser, thereby depriving the solicitor indefinitely of any security in the property that their legal work recovered or preserved. I reject this submission.
[37] In her endorsement explaining her decision to grant a charging order, the motion judge stopped short of making a final determination on the fraudulent transaction issue, appreciating that it would be better resolved in the Civil Action. Instead, she made the more cautious finding that “[f]or the purpose of this motion, [George] was not a bona fide third party without notice of the claims”. Lynne takes no issue in this appeal with the motion judge imposing a charging order while stopping short of finally resolving the fraudulent transaction issue. She does, however, take issue with the factual finding the motion judge made for the purpose of the motion that George was not a bona fide third party. She argues that this finding was made by the motion judge “[h]aving heard no evidence or argument on the point.”
[38] This complaint is without merit. Lynne has provided us with no basis for finding that the motion judge resolved this issue without argument, and there was ample evidence before her to support the finding made. It is clear from the record that it is based on the timing and nature of the transactions.
[39] Nor do I accept Lynne’s submission made in oral argument that the motion judge failed to consider the terms of the minutes of settlement between Lynne and George. Since the motion judge explicitly described the material terms of the minutes of settlement in her endorsement, I take this submission to be that the motion judge misapprehended this evidence by failing to give the minutes of settlement proper effect. In support of this ground of appeal, Lynne submits that it is not possible to make a reasonable finding that the transfer was a fraudulent transaction in the face of those minutes of settlement. Lynne rests that submission on the fact that the impugned transfer was provided for in those minutes of settlement three years before the motion for a charging order was even made. She reinforces the genuineness of those minutes of settlement by representing that its terms have been observed since settlement was achieved.
[40] I would not accept this submission. The motion judge clearly understood the argument, and just as clearly rejected it. This was a decision for the motion judge to make, and it would not be appropriate for us to retry this issue. I see no palpable and overriding error in the decision she made, and I would not interfere with the motion judge’s determination.
[41] I would therefore dismiss this ground of appeal.
B. Did the motion judge err in FINDING THAT the preservation of the property component of the Weenen test was satisfied?
[42] Lynne argues that before a finding can be made that property was “recovered or preserved through the instrumentality of the solicitor” within the meaning of s. 34(1) of the Solicitors Act, the solicitor’s contribution must be found to have performed a “substantial and integral part in the recovery or preservation of assets to which the charging order might apply”: Michael Dervin v. Manuel Suarez and Anatoie Koniouchine, 2021 ONSC 1339, 63 C.P.C. (8th) 76, at para. 6. She argues that the motion judge’s finding that Ms. Feldman “was instrumental to some extent in preserving the equity in the asset” falls short, and therefore the motion judge erred in finding that the preservation of the property component of the Weenen test had been satisfied.
[43] I take no issue with the proposition that a solicitor’s contribution to recovering or preserving property has to be “substantial and integral” before it can be found to have been instrumental to that recovery or preservation. The need for a substantial and integral contribution is inherent in the concept of instrumentality: Patton v. Patton, 54 R.F.L. (6th) 446 (Ont. S.C.), at para. 40. That being said, I am not persuaded that the motion judge erred by imposing a charging order without finding that Ms. Feldman’s contribution was substantial and integral.
[44] In coming to this conclusion, I am not troubled by the fact that the motion judge did not describe Ms. Feldman’s contribution as “substantial and integral”. A judge is presumed to know the law and is not obliged to use that phrase. Moreover, given the natural meaning of the term, if a judge finds that a contribution was “instrumental”, it can be taken as a given that the judge effectively concluded that the contribution was substantial and integral, unless there are persuasive indications to the contrary. I do not accept Lynne’s submission that the motion judge’s finding that Ms. Feldman was “instrumental to some extent in preserving the equity in the asset” is a persuasive indication that she misapprehended and misapplied the legal test. When that finding is read in context, it becomes clear that the motion judge was not expressing reservations about whether Ms. Feldman’s contribution was integral in preserving the property. She was instead expressing uncertainty about the extent to which Ms. Feldman’s integral work had preserved the equity in the Property.
[45] The first contextual point that makes this clear is that prior to using this phrase, the motion judge analysed the decisions in Booth (Re) (1985), 56 C.B.R. (N.S.) 289 (Ont. Sup. Ct.) and Morton (Re), 2014 ONSC 5438, 60 C.P.C. (7th) 111. The features of those decisions the motion judge examined were not about whether the solicitor’s work was integral to the recovery or preservation of property. Instead, they were about identifying the extent of the contribution made. In Booth, the issue of the extent of the contribution arose because most of the legal fees were incurred resolving custody issues, so only some of the legal work could have been integral to the recovery or preservation of the property. In Morton, that issue arose because prior to the litigation the former client had a half interest in the property and that half interest was apparently not contested during the litigation. That being so, it could not be said in Morton that the solicitor’s contribution was integral to the recovery or preservation of the entire equity in the property. In this context, it is plain that when the motion judge inserted the qualifier “to some extent” in her finding, she was not expressing qualms about the instrumentality of the contribution, but rather about the extent of the equity that had been preserved by her integral contribution.
[46] Moreover, immediately after making the impugned finding that Ms. Feldman’s contribution was “instrumental to some extent in preserving the equity in the asset”, the motion judge went on to say, “The quantification of this charging order will need to be determined in the civil action.” In my view, this clearly shows that when the motion judge inserted the “to some extent” qualification, she was expressing uncertainty about the extent or quantity of the equity that was preserved by Ms. Feldman’s instrumental contribution, an issue she left for determination at the civil trial.
[47] Finally, although the motion judge did not make an express finding to this effect, it is clear that she accepted Ms. Feldman’s submissions about the integral contribution she made. The motion judge referenced those submissions at the outset of the relevant discussion after asking herself correctly, “Was the Property recovered or preserved through the instrumentality of the lawyer?” She then went on to find that component of the Weenen test was satisfied, which she could only have done if she accepted Ms. Feldman’s submissions.
[48] I would therefore dismiss this ground of appeal.
C. Did the motion judge err in finding that the risk of non‑payment component of the Weenen test was satisfied?
[49] Lynne argues that the motion judge lacked evidence to find that she could not or would not pay Ms. Feldman’s fees. She submits that non-payment of the accounts is insufficient, and that until the quantum of the fees owing is known, it cannot be said that she cannot or will not pay the fees. I disagree. In her counterclaim, Lynne is claiming that rather than owing Ms. Feldman money for fees, she is owed $2,000,000 as the result of Ms. Feldman’s alleged negligence relating to the retainer. It is obvious that Lynne is refusing to pay. It was open to the motion judge to make the finding that she did.
D. Did the motion judge err by failing to consider the competing equities when imposing the charging order?
[50] A charging order is a discretionary order that “will not be granted if it would offend the principles of equity, either by reason of the conduct of the solicitor or unfairness to the creditors by allowing the charging order to have effect”: Guergis v. Hamilton, 2016 ONSC 4428, at para. 6. Lynne argues that before the motion judge granted the charging order, she should have considered a number of factors, including:
- George’s interest in the property, and that the minutes of settlement between Lynne and George that resulted in the transfer of the property had been in effect and honoured for three years;
- Ms. Feldman already had a CPL registered against the property;
- A charging order was being sought in the Civil Action;
- The family law proceedings were settled without Ms. Feldman’s involvement; and
- Lynne is suing Ms. Feldman for malpractice.
[51] I do not accept that the motion judge failed to consider relevant equities before exercising her discretion to issue a charging order.
[52] She considered George’s interest in the property and found there to be a triable issue as to whether that title was obtained by a fraudulent transfer. In the circumstances, no equities could arise from the impact of the order on George to counter the request for a charging order.
[53] The motion judge was aware of the CPL, mentioning it in her reasons. Moreover, the CPL is a notice mechanism. It does not provide the security that a charge does and is therefore not a contraindication for ordering a charge.
[54] The motion judge fully addressed why it was appropriate to order a charge despite the redundant prior prayer for relief in the outstanding Civil Action. Lynne took no issue with the explanation that Ms. Feldman offered for initiating a new application in Family Court, namely, the request for a charging order could not be advanced in the Civil Action because it would not have qualified as an emergency motion available for hearing under the COVID-19 protocol that was operating at the time for civil cases in the Ontario Superior Court of Justice. In the circumstances, the equities favoured proceeding with the motion in Family Court.
[55] The fact that the family law proceedings were settled without Ms. Feldman’s involvement is immaterial. It is obvious that when a solicitor-client relationship breaks down and ends during litigation, the litigation will be resolved without the participation of the former lawyer.
[56] As for the allegations of malpractice, at this point they are only allegations. The motion judge cannot be faulted for not wading into these issues to decide whether to grant the charging order.
[57] Therefore, we have been presented with no basis for interfering with the exercise of the motion judge’s discretion.
E. (Cross-Appeal) Did the motion judge err in failing to provide sufficient reasons relating to costs?
[58] I would dismiss the cross-appeal. The reasons provided by the motion judge relating to the costs order were not insufficient. Although the motion judge did not explain why she was not granting immediate costs to Ms. Feldman despite her success in securing a charging order, the reasons for the costs order are evident from the record as a whole. If Lynne and George are successful in the Civil Action in resisting Ms. Feldman’s claim that the transfer was not bona fide, the charge the motion judge awarded will prove to be valueless. The judge presiding over the Civil Action will be better situated to identify an appropriate costs order, given that the motion for a charging order could yet prove to have been fruitless.
Conclusion
[59] I would dismiss Lynne’s appeal.
[60] I would also dismiss the cross-appeal.
[61] The parties have agreed to a costs award on the appeal of $13,500 inclusive of HST and disbursements. I would award those costs to Ms. Feldman, notwithstanding that Lynne was successful in resisting the cross-appeal, since the cross-appeal was secondary relative to the appeal.
Released: May 6, 2022 “J.C.M.” “David M. Paciocco J.A.” “I agree. J.C. MacPherson J.A.” “I agree. George J.A.”
[1] I have assigned the labels to each leg of the test to assist in presenting these reasons.
