COURT OF APPEAL FOR ONTARIO
CITATION: Mauldin v. Cassels Brock & Blackwell LLP, 2014 ONCA 641
DATE: 20140916
DOCKET: C52912/M43992
Strathy C.J.O. (In Chambers)
BETWEEN
Fred Mauldin, Dan Meyers, Robert Blomberg, Theodore Landkammer, Lloyd Chelli, Stephen Yee, Marvin Cleair, Carolyn Cleair, Richard Hanna, Douglas Laird, Charles Ivans, Lyn White and Athena Smith
Plaintiffs (Moving Parties)
and
Cassels Brock & Blackwell LLP, Gregory Jack Peebles and Robert Hryniak
Defendants (Responding Parties)
R. Douglas Elliott and Ruzbeh Hosseini, for the moving parties
Sarit Batner, for the responding party, Robert Hryniak
Luisa Ritacca, for the responding party, Cassels Brock & Blackwell LLP
Jonathan Rosenstein, for the responding party, Gregory Jack Peebles
Heard: July 15, 2014
ENDORSEMENT
[1] This is the end of a piece of the protracted Combined Air litigation.[^1] The successful plaintiffs, the “Mauldin Group”, seek payment of about $1 million in funds posted by the defendant, Robert Hryniak, to the Accountant of the Superior Court of Justice pursuant to a prior order of this court. This money would partially satisfy their judgment. The motion is opposed by Hryniak. He says the majority of the money should be paid to his lawyers, McCarthy Tétrault LLP (“McCarthys”).
[2] Hryniak claims that McCarthys’ outstanding fees of about $825,000 should be paid fully and in priority to the Mauldin Group. He relies upon:
a) an order of this court in 2011, requiring that he post a letter of credit in the amount of $950,000 as a condition of granting his request for an extension of time to perfect his appeal;
b) the assertion by McCarthys of a solicitor’s lien under s. 34(1) of the Solicitor’s Act, R.S.O. 1990, c. S.15; and
c) case law in the Mareva injunction context that suggests a party should not be deprived of the means to mount a legal defence.
[3] For the reasons that follow, I would not give effect to any of Hryniak’s submissions.
background
[4] The Mauldin Group is made up of elderly American investors. They brought an action against Hryniak, alleging that he had defrauded them of some $1.2 million. They also sued Hryniak’s law firm, Cassels Brock & Blackwell LLP (“Cassels”), and a lawyer at Cassels named Gregory Peebles (“Peebles”).
[5] In May 2010, the Mauldin Group brought a motion for summary judgment against all three defendants. It was heard along with a motion for summary judgment against the same defendants in a companion action, referred to as the “Bruno Action”.
[6] The motions judge granted summary judgment against Hryniak, finding that he had engaged in fraud. He was ordered to pay damages of approximately $1.2 million USD to the Mauldin Group and $1 million USD to the Bruno Action plaintiffs: Bruno Appliance and Furniture Inc. v. Cassels Brock & Blackwell LLP, 2010 ONSC 5490, [2010] O.J. No. 4661.
[7] The motions judge dismissed the motions for judgment against Cassels and Peebles on the basis that there were issues requiring a trial.
[8] Hryniak filed notices of appeal dated November 8, 2010, staying the judgments against him.
[9] Shortly thereafter, it was discovered that Hryniak had taken steps to encumber his only known asset in favour of his wife – his interest in the matrimonial home.
[10] As Hryniak failed to perfect his appeals within the required time, he brought a motion for an extension of time.
[11] At the same time, the Mauldin Group and the plaintiff in the Bruno Action brought a motion for: (1) an order lifting the automatic stay on enforcement pending appeal; (2) an order that Hryniak post security for costs; and (3) an order requiring Hryniak to pay the amounts awarded by summary judgment.
[12] In December 2010, Rosenberg J.A. adjourned the motions and lifted the automatic stay pending appeal: (1) to permit the plaintiffs in the two actions to register judgments against Hryniak’s home; and (2) to allow them to examine Hryniak in aid of execution.
[13] In January 2011, the motions came before Weiler J.A. She granted Hryniak’s motion for an extension of time but imposed conditions, including that he post an irrevocable letter of credit with the Accountant in the amount of $950,000: Bruno Appliance and Furniture Inc. v. Cassels Brock & Blackwell LLP, 2011 ONCA 67, 274 O.A.C. 353.
[14] After the motion before Weiler J.A., Hryniak retained McCarthys to pursue his appeals since his original lawyers had removed themselves from the record as a result of a conflict of interest.
[15] Between January 2011 and June 2011, Hryniak’s wife, Suzanna Mandryk, paid his legal bills. Since then, McCarthys has essentially gone unpaid.
[16] In February 2011, Doherty J.A. varied Weiler J.A.’s order: Bruno Appliance and Furniture Inc. v. Cassels Brock & Blackwell LLP, 2011 ONCA 126, [2011] O.J. No. 1507. His order:
• permitted a bank to put a charge in the amount of $1 million on Hryniak’s home “for the purpose of providing to Mr. Hryniak the funding necessary to obtain a letter of credit”;
• postponed the judgments of the Mauldin Group and the Bruno Action plaintiff, which were registered on title, in favour of the bank’s charge;
• postponed Mandryk’s charge to third position behind the bank’s charge and the plaintiffs’ judgments;
• ordered Hryniak to post an irrevocable letter of credit in the amount of $950,000 with the Accountant by February 22, 2011, which was to be held pending further order of this court; and
• ordered Hryniak to provide an undertaking not to encumber or dispose of any assets pending the outcome of his appeals, in accordance with Weiler J.A.’s reasons.
[17] At para. 10 of his reasons, Doherty J.A. commented that should Hryniak’s appeal be dismissed, the plaintiffs would “presumably apply for an order directing that the proceeds of the letter of credit be paid out to them in partial satisfaction of the trial judgments.”
[18] Instead of a letter of credit, Hryniak deposited a $950,000 bank draft with the Accountant. With interest, this deposit is now worth just over $1 million.
[19] In December 2011, this court dismissed Hryniak’s appeal in the Mauldin Group action; it granted his appeal in the Bruno Action: Combined Air Mechanical Services Inc. v. Flesch, 2011 ONCA 764, 108 O.R. (3d) 1. This court requested submissions on costs of the appeal. In his costs submissions, Hryniak proposed for the first time that some of the funds that were paid into court be released to him to pay for his legal fees.
[20] This court released its reasons on costs in May 2013: Mauldin v. Cassels Brock & Blackwell LLP, 2013 ONCA 307, 361 D.L.R. (4th) 646. Hryniak had since sought leave to appeal from this court’s decision in the Mauldin Group action. As a result, this court deferred the question of how to deal with the amount paid into court until after the release of the Supreme Court of Canada’s decision.
[21] In January 2014, the Supreme Court granted leave but dismissed Hryniak’s appeal: Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87. Hryniak brought a motion for rehearing by the Supreme Court, which that court dismissed on May 1, 2014.
[22] Following the dismissal, the Mauldin Group demanded payment of all the amounts owing by Hryniak in this action. It was told that Hryniak had no funds to pay, other than the amount posted with the Accountant.
[23] It is estimated that the outstanding judgments and orders against Hryniak in both the Mauldin Group action and the Bruno Action amount to over $1.9 million.
[24] There are also outstanding costs orders against the Mauldin Group, including costs payable to Cassels in the Bruno Action. The Mauldin Group undertakes to satisfy the outstanding amounts from funds held by the Accountant, if those funds are released to it.
[25] Cassels and Peebles also make a claim on the funds held by the Accountant to satisfy an outstanding partial Sanderson order, dated March 11, 2011, against Hryniak.
[26] The Mauldin Group, Cassels and Peebles have reached an agreement whereby they will share any funds paid out of court.
analysis
[27] I will examine the three alternative grounds relied upon by Hryniak in support of his motion.
(1) The Order of Weiler J.A.
[28] Hryniak submits that the order of Weiler J.A. is dispositive and requires that McCarthys’ fees be paid in full, in priority to all other claims. The submission is based on the assertion that Weiler J.A. knew that the $950,000 was Hryniak’s only asset and that if he was to continue with the appeal he would necessarily incur legal fees that he would have to pay out of these funds. Hryniak attaches significance to the fact that the funds were not payable to the credit of the action but only to the Accountant.
[29] There is nothing in the express terms of the order that supports this conclusion. Nor is there anything in Weiler J.A.’s reasons to suggest that there was any concern for Hryniak’s ability to pay his legal fees in order to pursue his appeal. It is apparent that the overriding concern behind the order was to protect the Mauldin Group’s “interest in ensuring that they may enforce the motion judge’s court order if Hryniak loses his appeal” (at para. 41). The purpose of the order was, quite obviously, to preserve the asset and to prevent its dissipation.
[30] Moreover, it is incorrect to state that Weiler J.A. knew that the funds were Hryniak’s only assets. She adverted to the possibility that he had other assets (at paras. 37, 40) and noted that the funds were his only known asset (para. 39).
[31] Nor does the fact that the letter of credit was to be paid to the Accountant support the inference Hryniak advances. The issue of his legal fees was not raised before Weiler J.A. and no inference can be drawn from the manner in which the funds were to be provided.
[32] In considering the order of Weiler J.A., it needs to be remembered that Hryniak came to the court seeking an indulgence. He had failed to perfect his appeal in time and he was seeking an extension. The Mauldin Group discovered that he was attempting to encumber his interest in the matrimonial home, presumably to avoid paying their judgment. They wanted to enforce their judgment. It would have been open to Hryniak to raise the issue of his legal fees at that time, but he did not do so. Had he done so, the Mauldin Group may have requested additional security.
(2) Solicitor’s Lien
[33] Hryniak submits that McCarthys has a charge on the funds held in court pursuant to s. 34(1) of the Solicitor’s Act:
Where a solicitor has been employed to prosecute or defend a proceeding in the Superior Court of Justice, the court may, on motion, declare the solicitor to be entitled to a charge on the property recovered or preserved through the instrumentality of the solicitor for the solicitor’s fees, costs, charges and disbursements in the proceeding.
[34] Hryniak submits that it was only by virtue of McCarthys’ efforts on the contested motion before Doherty J.A. that he was able to mortgage his home and post the funds with the Accountant. Counsel characterizes these actions as “instrumental” in preserving the funds.
[35] Generally, courts have been predisposed to exercise their discretion in favour of charging orders. In Taylor v. Taylor (2002), 2002 CanLII 44981 (ON CA), 60 O.R. (3d) 138, this court explained why, at para. 29:
Historically, courts have exercised their discretion liberally in favour of charging orders, which are said to benefit both the lawyer and the client, since they encourage lawyers to represent clients who are unable to pay as their cases progress.
[36] In my view, however, McCarthys is not entitled to a solicitor’s charge under s. 34(1) in the circumstances of this case.
[37] First, the amount held by the Accountant was not “property recovered or preserved through the instrumentality of the solicitor” for the purposes of s. 34(1).
[38] Here, what McCarthys accomplished in having Weiler J.A.’s order varied was to permit Hryniak to comply with a pre-condition for obtaining an extension of time. Had he not complied, he would have been precluded from bringing his appeal. In those circumstances, it is difficult to see how McCarthys’ motion to vary Weiler J.A.’s order amounts to the recovery or preservation of property through the instrumentality of McCarthys. Rather, the property was preserved through Weiler J.A.’s order.
[39] Second, an order under s. 34(1) is discretionary. In The Law of Costs, loose-leaf (Rel. August 2010), 2d ed. (Toronto: Canada Law Book, 1998), Mark M. Orkin discusses this aspect of s. 34(1) at p. 3-99:
As appears from the wording of s. 34 the order is discretionary. A court will determine firstly whether the property was subject to a solicitor’s lien, that is, whether it was preserved through the instrumentality of the solicitor, and then whether in the circumstances of the case a lien should attach. In exercising its discretion a court should balance the equities. [Citations omitted.]
See also: Taylor v. Taylor, at para. 34.
[40] In Foley v. Davis (1996), 1996 CanLII 1145 (ON CA), 93 O.A.C. 114 (Ont. C.A.), at para. 2, this court also noted the discretionary nature of s. 34 (1):
We have considered s. 34 of the Solicitors Act, and cases cited to us by the appellant. We can find no per se rule that, absent improper conduct, the solicitor is always entitled to a charge in first priority on funds "salvaged" by the efforts of the solicitor. In our view, while the solicitor will be entitled to a first charge on such funds in the normal course, the court retains a discretion to order otherwise.
[41] The law firm in Foley was denied a charge in priority to an earlier order granting support to the appellant’s ex-spouse.
[42] In my view, the equities in this case are overwhelmingly against granting a charge. McCarthys says Hryniak told it from the outset that his interest in the matrimonial home was his only asset. Thus, McCarthys accepted a risk of non-payment from the very beginning. While Hryniak’s wife did initially pay his bills for the months of January to May and part of June 2011, she stopped paying his bills after that point, other than a few small amounts. As of June 2011, the risk of non-payment became a reality. Still, McCarthys kept working without seeking directions or seeking to amend Weiler J.A.’s order to provide for the payment of Hryniak’s legal fees from the amount paid into court.
[43] Another important factor in weighing the equities is the original purpose of Weiler J.A.’s order. It was meant to protect the Maudlin Group’s ability to collect on its judgment if successful on appeal. However, if McCarthys is successful in obtaining a priority charge on the full amount of its claim, the Mauldin Group will get very little or nothing, even though it was successful on the summary judgment motion, on the appeal to this court, on the appeal to the Supreme Court and on the motion for rehearing before the Supreme Court. The equities weigh against such an unjust result.
(3) Mareva Jurisprudence
[44] Hryniak submits that Mareva jurisprudence confirms that defendants are entitled to access to their own funds in order to pay legal expenses. In particular, he points to Canadian Imperial Bank of Commerce v. Credit Valley Institute of Business and Technology, 2003 CanLII 12916 (ON SC), [2003] O.J. No. 40 (S.C.), at para. 26, in which Molloy J. discusses the test for varying the terms of an injunction to permit payment of various expenses from frozen assets.
[45] There are several answers to Hryniak’s submission. First, a Mareva order may provide for the payment of legal fees. If it does not, the defendant will generally bring a motion to permit payment of fees: Robert J. Sharpe, Injunctions and Specific Performance, loose-leaf, (Rel. November, 2013) (Toronto: Canada Law Book, 2012+) at pp. 2-93 to 2-94. No such request was made at the time of Weiler J.A.’s order or on the motion for variation before Doherty J.A.
[46] Second, the order is generally made while the litigation is ongoing, not after a judgment has been rendered: B& M Handelman Investments Ltd. v. Curreri, 2011 ONCA 395, 278 O.A.C. 199. I was referred to no case in which payment of legal fees on a full indemnity basis has been authorized after the fact.
[47] Third, there is no unfairness to Hryniak. Payment of his legal fees at this time is not required to permit him to proceed with the litigation. To the extent there is unfairness, it falls on McCarthys which will be unpaid for much of its work. However, McCarthys accepted that risk in continuing to work when it was no longer being paid, without any assurance that it would be paid. That it continued to work, presumably out of a sense of professional responsibility in an important case, is commendable. The potential unfairness to the Mauldin Group, which would recover almost nothing, far outweighs any unfairness to either Hryniak or McCarthys.
disposition
[48] For these reasons, the motion is allowed, with costs. The Accountant is directed to release the funds deposited to counsel for the Mauldin Group, to be distributed, pro rata, to the Mauldin Group, Cassels and Peebles.
[49] There were no submissions as to costs. If the parties are unable to reach agreement on costs within 15 days, they may make written submissions, not to exceed five pages in length (excluding costs outlines). The moving party shall file its submissions within 30 days of the release of this endorsement and the respondent shall have 15 days within which to reply.
[^1]: See: Combined Air Mechanical Services Inc. v. Flesch, 2011 ONCA 764, 108 O.R. (3d) 1.