CITATION: Nicolou v. McLennan & Associates, 2013 ONSC 1622
COURT FILE NO.: DC-12-70-00
DATE: 2013 03 15
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
B E T W E E N:
ARES NICOLOU
UNREPRESENTED and no one appearing for the plaintiff/respondent
PLAINTIFF (RESPONDENT)
- and -
MCLENNAN & ASSOCIATES, 124155 CANADA INC. AND ALEC MCLENNAN
ALEC MCLENNAN, for the defendant/appellant
DEFENDANTS (APPELLANTS)
HEARD: March 15, 2013
REASONS FOR JUDGMENT
Skarica J.
INTRODUCTION
[1] The appellants hereinafter referred to as “Alec McLennan group”, and Ares Nicolaou (“Ares”) in or about June, 2009 until August, 2010 were involved in a business relationship involving two distinct transactions.
[2] The two transactions can be described as follows:
A commercial transaction where Ares paid $US 20,000 ($CAN 21,885.40) to the Alec McLennan group. The money went to Alec McLennan’s (a barrister and solicitor) American trust account after it which was transferred to US interests on behalf of 124155 Canada Inc., a numbered company owned by Mr. McLennan. There was no solicitor-client relationship involved in this transaction. The commercial transaction did not work out due to the U.S. banking crisis. The Alec McLennan group agrees that all times, they would pay this money back to Ares, if the commercial transaction did not work out. As the commercial transaction was not successful, the Alec McLennan group in the spring and summer of 2010 was attempting to get the money back from the U.S. interests. The McLennan group acknowledges that they owe Ares a debt of $US 20,000 ($CAN 21,885.40).
In May, 2010, while the Alec McLennan group was working on getting Ares’ money back on the commercial transaction, Ares retained Alec McLennan, in his capacity as a lawyer, on an estate matter. Ares and his brother were named as both the executors and beneficiaries in the will. Alec McLennan acted in the estate litigation, on behalf of Ares, at the request of Ares. The legal bill, dated August 6, 2010, amounted to $CAN 20,886.37. None of it has been paid.
[3] Accordingly, neither party has paid the debt owed to the other. In September, 2011, Ares brought suit against the Alec McLennan group for the return of the $US 20,000 ($CAN 21,885.40). The Alec McLennan group defended the claim and counterclaimed, requesting a set-off of the legal bill of $CAN 20,886.37 and further set off of $CAN 5,000 for an alleged $CAN 5,000 loan made to another individual by Alec McLennan at the request of Ares.
[4] Barycky J. conducted the Small Claims Court trial on July 5, 2012. In his reasons for judgment dated August 7, 2012, he found that the plaintiff Ares was entitled to the return of his monies on the commercial transaction. Barycky J., with reference to the counterclaim for a set-off, held at paragraph 20 that, “I specifically make no finding as to matters relating to the issues of retainer or fee quantum in that matter (the estate litigation account) …and being the subject of an assessment of costs hearing, currently proceeding at Toronto.”
[5] The effect of Barycky J.’s ruling was to give effect to the plaintiff’s claim while effectively denying the defendant/appellant’s claim for set-off. In so doing, It is my opinion that Barycky J. erred in law.
STANDARD OF REVIEW
[6] The authorities are clear that I cannot overturn the decision of the Small Claims Court judge unless at least one of two situations exist:
Findings of fact are not to be reversed unless the trial judge made a “palpable and overriding error”, or
The trial judge erred in law.
[7] In Clarksburg Contractors Ltd. v. Saks, [2012] O.J. No. 4115 (S.C.J.), Quinlan J. sets out the standard of review that the Divisional Court undertakes in appeals from Small Claims courts proceedings:
Proceedings in Small Claims Court
21 Before dealing with the standard of appellate review, it should be borne in mind that the trial at first instance was a Small Claims Court trial. The Courts of Justice Act2 provides the following overarching comments concerning proceedings in the Small Claims Court:
The Small Claims Court shall hear and determine in a summary way all questions of law and fact and may make such order as is considered just and agreeable to good conscience.
22 Housen v. Nikolaisen3 provides guidance on the standard of review for findings of fact by judges. As the court stated:
The standard of review for findings of fact is that such findings are not to be reversed unless it can be established that the trial judge made a "palpable and overriding error".
23 The Supreme Court4 quoted the comments of Laskin J.A. in Gottardo Properties (Dome) Inc. v. Toronto (City)5:
Deference is desirable for several reasons: to limit the number and length of appeals, to promote the autonomy and integrity of the trial ... proceedings on which substantial resources have been expended, to preserve the confidence of litigants in those proceedings, to recognize the competence of the trial judge ... and to reduce needless duplication of judicial effort with no corresponding improvement in the quality of justice.
Standard of Review
24 It is well-established that the test to be applied on the review of a deputy judge's decision is as follows:
a) the standard of review for findings of fact and inferences of fact is such that they cannot be reversed unless the trial judge has made a palpable and overriding error; and
b) the standard of review on pure questions of law is one of correctness.
[8] More recently, the Ontario Court of Appeal, in Collet (appeal by Szilvasy) v. Reliance Home Comfort Limited Partnership [2012] O.J. No. 555 (C.A.) set out the standard of review as follows:
44 Reliance posed three additional questions for the court: (1) what standard of review should the Divisional Court have applied when reviewing the decision of the trial judge; (2) is there is an implied warranty of fitness, apart from the CPA, on which to ground liability for consequential damages; and (3) did Reliance assume the risk of consequential damage because it retained ownership of the water heater?
45 Whether s. 9 of the CPA applied to the water heater arrangement between the parties is a matter of statutory interpretation. Accordingly, the standard of review is correctness: see Mazur v. Elias (2005), 2005 11390 (ON CA), 75 O.R. (3d) 299 (C.A.). However, to the extent that findings of fact made by the trial judge are engaged in the application of the statute, those factual findings are not to be overturned absent palpable and overriding error.
ESTATE LITIGATION LEGAL FEES
[9] Ares testified at the trial at p. 112 of the transcript that “If Mr. McLennan says that he has earned his legal fees then he can show a retainer, he can show his bill, right, and if an assessment officer says that I am personally liable to pay this bill, I will certainly pay it but these have no relevance on these proceedings that has to deal with his liability for not returning the funds from the U. S. corporation.”
[10] The legal account was entered into the trial at pages 58-62 of the transcript and it appears at Tab 11 of the appellant’s Appeal Book and Compendium at pages 228-234.
LIABILITY OF ARES FOR ESTATE LITIGATION LEGAL FEES
[11] In Bott v. Macaulay, [2005] O.J. No. 34931 (S.C.J.), Justice Cullity held:
[19] Mr. Bott, and not his mother's estate, was the Solicitor's client. Although references to an estate solicitor are deeply ingrained in estate practice in this jurisdiction, they are descriptive only of the work a solicitor is retained to perform for his client. An estate is not a juridical person and cannot retain anyone, or incur liabilities. An estate solicitor is one performing services to a personal representative acting as such.
[20] It follows that the estate trustee, and not the estate, is personally liable to the estate solicitor. Such liability exists whether [page428] or not the estate trustee is entitled to an indemnity -- or to be reimbursed -- from the estate (i.e., from its assets) for the amounts owing to the solicitor. Whether a right to indemnity or reimbursement exists is a matter between the estate trustee and the beneficiaries of the estate and is to be determined either by agreement with them, or on a passing of accounts. In itself, the existence -- or non-existence -- of such a right does not affect the liability of the estate trustee to the estate solicitor.
[21] If the estate trustee wishes to challenge the fees or disbursements charged by the estate solicitor, the appropriate procedure is by an assessment pursuant to the Solicitors Act unless, on a passing of accounts, the beneficiaries have challenged the reasonableness of the fees as an expense incurred by the estate trustee in administering the estate, or unless the estate trustee wishes to have an order approving the right to an indemnity or reimbursement. In either event, the court may order an assessment or, in some cases, may review the reasonableness of the accounts at the passing. This jurisdiction was formerly explicit in -- but its existence was not, I believe, dependent on -- the provisions of s. 62 of the surrogate court rules. Neither approach involves any recognition that the solicitor rendered services to the estate or to the beneficiaries -- or that either has rights or obligations to the other or others -- but, rather, that the estate trustee is entitled to charge the estate e only for expenses and liabilities reasonably incurred. As Leach Surr. Ct. J. stated in Re Smith, 1972 580 (ON SC), [1972] 2 O.R. 256 (Surr. Ct.) [at p. 261 O.R.]:
The solicitor is solicitor for the executor and not of the estate; and costs recoverable by him against the executor can be charged against the estate by the executor only if he shows they are necessary and proper charges against the estate.
[22] Beneficiaries of an estate do not have to insist on a passing of accounts. The fact that they do not do so -- or have not yet done so -- does not affect the right of the estate trustee to have his or her legal bills assessed pursuant to the Solicitors Act. This is obviously the case when the executor is the sole beneficiary and, in principle, the position is no different where there are several beneficiaries or, as is the case here, where the estate is to be divided between the estate trustee and another person in equal shares.
[23] The right of an estate trustee to proceed by way of an assessment under the Solicitors Act is implicit in the decisions in Re Freeburne, 1972 562 (ON SC), [1973] 1 O.R. 423 (H.C.J.) and Hardy v. Rubin, [1998] O.J. No. 2312, 20 C.P.C. (4th) 372 (Gen. Div.) where it was held that s. 8(4) [now s. 9(4)] of the Act would permit beneficiaries to do so without, or previous to, a passing of accounts. In [page429] each of these cases it was accepted that the beneficiaries could only tax a solicitor's bill "as the trustees could have done": citing Re Massey (1865), 34 Beav. 470, 6 New Rep. 195 (M.R.). In Re Freeburne -- but not in Hardy -- it was held that a defence available to a solicitor under s. 11 of the Act would also be available against the beneficiaries. In the earlier decision of Re Gilray Estates, in which the beneficiaries were not permitted to assess the fees of an estate solicitor, the court commented that the beneficiaries had not asked the estate trustee to have the solicitor's fees assessed. In Re Solicitors (1973), 1973 473 (ON SC), 2 O.R. (2d) 104 (S.C.), an assessment was conducted pursuant to a requisition by the estate solicitor and not on a passing of accounts.
[24] Absent any special agreement between the estate trustee and the solicitor, the solicitor will generally be entitled to charge only on the normal quantum meruit basis and the reasonableness of the fees can be questioned on an assessment under the Solicitors Act. The amount of an acceptable fee will then depend on factors such as the amount of time, labour and trouble involved, the degree of skill and responsibility applied, what has been accomplished, and the other matters referred to in rule 58.06 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.
[12] Accordingly, I find that Alec McLennan was the solicitor for the executor Ares and accordingly Ares was personally liable to the estate solicitor Mr. McLennan. Ares is entitled to challenge the amount of the fee by requesting an assessment. Ares has made use of this procedure and an assessment is to proceed apparently pending the completion of this appeal. I find that Ares is personally liable for the legal account fees for the estate litigation of $CAN 20,886.37, subject to any reductions that may occur by the assessment.
ALLEGED LOAN AT BEHEST OF ARES
[13] Regarding the alleged $CAN 5,000 loan made by the appellant McLennan to another individual, at the behest of Ares, the learned trial judge found, at paragraph 26 of his judgment, that there was “no evidence presented by the Defendants upon which I could make any finding of liability for damages as against Ares for monies advanced to Sean Hedmann.” Any findings of fact made by the trial judge cannot by reversed made by me unless the trial judge made “a palpable and overriding error.” I not prepared to hold that the trial judge made a palpable and overriding error and therefore this finding will not be overturned by me.
LAW OF EQUITABLE SET-OFF
[14] The law of equitable set-off is outlined in several cases which were referred to me by the appellant. In Green v. Mirtech, [2009] O.J. No. 385 (S.C.J.), Justice Belobaba, indicated:
Equitable Set-Off
15 Unlike legal set-off, the defence of equitable set-off does not require that the claims between the parties be debts or money demands that can be ascertained with certainty. Nor is there a need for strict mutuality.
16 Although the requirement of mutuality is relaxed for equitable set-off, there must still be a close connection between the claims. The connection must be sufficiently close to warrant an exercise of the equitable jurisdiction of the court. And, the remedy must not result in any form of inequity.
17 Equitable set-off arises where the is a relationship between the respective claims such that the claim of the defendant has been brought about by, or is otherwise closely bound up with, the rights that are relied upon by the plaintiff. It is said that the opposing claims must flow from the same transaction or relationship between the parties. If such is the case, there is the final requirement that it would be unconscionable to allow the plaintiff to proceed without permitting a set-off.
18 The Court of Appeal for Ontario recently endorsed a test that was first enunciated by Lord Denning and later cited with approval by Madam Justice Wilson in Holt v. Telford:
We have to ask ourselves: what should we do now as to ensure fair dealing between the parties? ... This question must be asked in each case as it arises for decision; and then, from case to case, we shall build up a series of precedents to guide those who come after us. But one thing is quite clear: it is not every cross-claim which can be deducted. It is only cross-claims that arise out of the same transaction or are closely connected with it. And it is only cross-claims which go directly to impeach the plaintiff's demands, that is, so closely connected with his demands that it would be manifestly unjust to allow him to enforce payment without taking into account the cross-claim. [Emphasis added by Court of Appeal.]
[15] In Commercial Factors of Seattle LP v. Canadian Imperial Bank of Commerce, [2010] ONSC 3516 (S.C.J.) Justice Hoy held:
21 In Holt v. Telford, 1987 18 (SCC), [1987] 2 S.C.R. 193 (S.C.C.), the Supreme Court considered and adopted the principles governing equitable set-off set out in Cobra [Coba] Industries Ltd. v. Millie's Holdings (Canada) Ltd., 1985 144 (BC CA), [1985] B.C.J. No. 1994 (B.C.C.A.):
The party relying on a set-off must show some equitable ground for being protected against his adversary's demands.
The equitable ground must go to the very root of the plaintiff's claim before a set-off will be allowed.
A cross-claim must be so clearly connected with the demand of the plaintiff that it would be manifestly unjust to allow the plaintiff to enforce payment without taking into consideration the cross-claim.
The plaintiff's claim and the cross-claim need not arise out of the same contract.
Unliquidated claims are on the same footing as liquidated claims.
[16] In Goma v. Raghunandan, 2011 ONSC 6598, Master Dash held:
18 It has been said in some cases that to establish a right to a set-off, the defendants' claim must have been brought about by, contributed to or otherwise so bound up with the plaintiff's claim that it would be unconscionable to permit the plaintiff to proceed without permitting a set-off.9 It cannot be said that the defendants' claim against Mathew for contribution for Joyce's injuries has been brought about by Mathew's claim for damages, contributed to by Mathew's claim for damages or so bound up with Mathew's claim for damages.
19 "Judges have been careful to note that not every cross-claim will give rise to an equitable set-off."10 Indeed, because of the requirement that the equitable grounds go to the very root of and be so closely connected to the plaintiff's claim before a set-off is allowed, there will not "be many cases in which a court will allow equitable set-off. The cases will be confined to those where it would be manifestly unjust to refuse the relief."11 Since the claim against Mathew for Joyce's injuries do not go to the very root of Mathew's claims for his own injuries this is not one of the rare cases where what amounts to a counterclaim can be pleaded by means of equitable set-off.
APPLICATION OF LAW TO THIS APPEAL
[17] In the present appeal, I find that the two transactions entered into by the appellant/defendant and plaintiff were between the same parties at the same time that the parties were in a business relationship to each other. The connection is sufficiently close to warrant the exercise the equitable jurisdiction of this court. The remedy of set-off will not result in any form of inequity. It is my opinion that the appellant’s cross-claim is so closely connected to the general business dealings of the parties that it would be manifestly unjust to allow the plaintiff to enforce re-payment of McLennan’s debt without taking into account the cross-claim by the appellant McLennan. The plaintiff’s claim and the cross-claim, according to the authorities, need not arise out of the same contract. These two claims are closely connected in time, in the context of business dealings between the same parties and I am of the opinion that it would be manifestly unjust to allow the cross-claim of the appellant/defendant.
[18] Accordingly, I find that the learned trial judge erred in law in not allowing the cross-claim brought by the McLennan group in respect of the legal fees billed by Alec McLennan for the Ares estate litigation.
COSTS
[19] With respect to costs, the appellant has been successful. Ares did not appear at the appeal. I find that service was affected upon him prior to the appeal by way of the ordered substituted service. Alec McLennan submitted a bill of costs in the order of approximately $5,700. I will allow costs of the appeal at $5,000.
CONCLUSION
[20] In the result, I make an order that the respective parties are liable to each other in the following amounts:
Ares Nicolaou, as plaintiff, is entitled to recover from the defendants, McLennan and Associates, 124155 Canada Inc. and Alec McLennan, $CAN 21,885.40 (for failed business transaction)
McLennan and Associates, 124155 Canada Inc. and Alec McLennan, is entitled to recover from the plaintiff Ares Nicolaou $20,886.37 minus any reductions ordered in the pending assessment brought by the plaintiff (for legal fees for the estate litigation).
McLennan and Associates, 124155 Canada Inc. and Alec McLennan, is entitled to further recover from the plaintiff Ares Nicolaou $5,000 (for legal fees for succeeding in this appeal).
The amounts outlined above will be set off against each other and after the set-off, the party with monies owing shall be entitled to recover that remaining amount from the other party.
Skarica J.
Released: March 15, 2013
CITATION: Nicolou v. McLennan & Associates, 2013 ONSC 1622
COURT FILE NO.: DC-12-70-00
DATE: 2013 03 15
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
B E T W E E N:
ARES NICOLOU
PLAINTIFF (RESPONDENT)
- and –
MCLENNAN & ASSOCIATES, 124155 CANADA INC. AND ALEC MCLENNAN
DEFENDANTS (APPELLANTS)
REASONS FOR JUDGMENT
Skarica J.
Released: March 15, 2013