COURT OF APPEAL FOR ONTARIO
CITATION: Peter B. Cozzi Professional Corporation v. Szot, 2020 ONCA 397
DATE: 20200617
DOCKET: C66741 & C67463
Gillese, Brown and Jamal JJ.A.
DOCKET: C66741
BETWEEN
Peter B. Cozzi Professional Corporation
Applicant (Appellant)
and
Jerzy Szot
Respondent (Respondent)
DOCKET: C67463
AND BETWEEN
Peter B. Cozzi Professional Corporation
Applicant (Appellant)
and
Jerzy Szot
Respondent (Respondent)
D. Jared Brown, for the appellant
Dennis Ong, for the respondent, Jerzy Szot
Diane Gillies, for the respondent, the Public Guardian and Trustee, Litigation Guardian for Quoc Nguyen
Heard: May 27, 2020 by videoconference
On appeal from the order of Justice Sandra Nishikawa of the Superior Court of Justice, dated February 22, 2019, with reasons reported at 2019 ONSC 1274, 90 C.C.L.I (5th) 282 (C66741), and from the order dated August 29, 2019, with reasons reported at 2019 ONSC 5071 (C67463).
By the Court:
A. overview
[1] The central question in these two appeals is whether the appellant, a lawyer practising through a professional corporation, is entitled to the proceeds of a $100,000 after-the-event legal protection insurance policy (the “ATE Policy”) of his client, Mr. Quoc Nguyen. After-the-event insurance, sometimes known as “adverse costs insurance”, insures a plaintiff against the risk of an adverse costs award in litigation or provides coverage for disbursements incurred by a plaintiff’s lawyer. The appellant claims the proceeds of Mr. Nguyen’s policy for disbursements for representing him in a motor vehicle personal injury action.
[2] The judge at first instance (the “application judge”) ruled that the appellant was not entitled to the insurance proceeds under a written contingency fee agreement with Mr. Nguyen dated April 6, 2016 (the “CFA”). She ruled that because Mr. Nguyen was a person under disability represented by a litigation guardian, the CFA required court approval under s. 5 of Contingency Fee Agreements, O. Reg. 195/04, (the “CFA Regulation”), passed under the Solicitors Act, R.S.O. 1990, c. S.15, which was never obtained and which she declined to provide.
[3] The application judge also dismissed the appellant’s later motion for a charging order over the insurance proceeds to secure his legal fees and disbursements under s. 34 of the Solicitors Act. She held that the motion was precluded by the rule against collateral attack, issue estoppel, and the doctrine of abuse of process. In any event, she ruled that the appellant failed to meet the test for a charging order because his work had not been instrumental to the recovery or preservation of the property at issue; he had simply served as an insurance intermediary to sell his client the ATE Policy.
[4] The appellant now appeals both orders of the application judge.
[5] At the conclusion of the oral hearing of the appeals, we dismissed both appeals, with reasons to follow. These are our reasons.
B. Background
[6] The detailed procedural history of these proceedings is provided in the two decisions of the application judge: Peter B. Cozzi Professional Corporation v. Szot, 2019 ONSC 1274, 90 C.C.L.I. (5th) 282, and Peter B. Cozzi Professional Corporation v. Szot, 2019 ONSC 5071. The essential background is as follows.
(i) The motor vehicle action
[7] On January 14, 2003, Mr. Jerzy Szot’s car rear-ended Mr. Nguyen’s car. In May 2007, the appellant commenced a motor vehicle personal injury action on Mr. Nguyen’s behalf against Mr. Szot, the respondent. Mr. Nguyen’s spouse at the time, Ms. Hoan Phan, was his litigation guardian. In October 2006, Ms. Phan had been appointed as Mr. Nguyen’s guardian of property, and in November 2011 was appointed as his guardian of the person.[^1]
(ii) The CFA and ATE Policy
[8] On April 6, 2016, Mr. Nguyen, his social worker, and a Vietnamese translator met with the appellant at his law office. Ms. Phan was not present.
[9] At the meeting, Mr. Nguyen entered into the CFA with the appellant. He also signed a “Retainer Agreement Addendum” (the “Addendum”), which authorized the appellant to provide information about Mr. Nguyen’s file to DAS Legal Protection Insurance Company Limited (“DAS”) to obtain after-the-event insurance. The same day, the appellant concluded a business agreement with DAS that authorized him to serve as its insurance intermediary.
[10] The CFA provided that Mr. Nguyen agreed to pay all disbursements incurred by the appellant on his behalf, without regard to the success of his claim for damages, and that Mr. Nguyen assigned all proceeds from his litigation protection insurance to the appellant as security for those disbursements.
[11] On Mr. Cozzi’s advice, Mr. Nguyen bought the ATE Policy from DAS. The policy provided: “Your policy attaches to your Contingency Fee Agreement and operates for the duration of that Agreement.” Although it was completed in 2016, the start date for the ATE policy was October 14, 2005.
(iii) The order for costs and disbursements against Mr. Nguyen
[12] In May 2017, Mr. Nguyen’s motor vehicle action proceeded to a jury trial. The jury found Mr. Szot liable for the collision and awarded Mr. Nguyen general damages and damages for past loss of income, but at an amount below the applicable statutory deductible at the time.
[13] On June 22, 2017, Archibald J. granted Mr. Szot’s threshold motion for a declaration that Mr. Nguyen was not entitled to any non-pecuniary damages. After deducting from the jury award the income replacement benefits that Mr. Nguyen had received, Archibald J. found that Mr. Nguyen’s net damages for loss of income were reduced to zero, and that Mr. Nguyen’s total damages were also reduced to zero. He granted judgment for Mr. Szot and ordered Mr. Nguyen to pay Mr. Szot costs of the action in the amount agreed to between the parties of $90,790, inclusive of HST, and disbursements of $71,000, for a total of $161,790: see Nguyen v. Szot, 2017 ONSC 3705, 69 C.C.L.I. (5th) 222.
(iv) The ATE Policy proceeds are paid to the appellant in trust
[14] Over the next few months, a dispute arose between the appellant and Mr. Szot’s insurer, Aviva Insurance Company of Canada (“Aviva”), as to who was entitled to the proceeds of the ATE Policy.
[15] On July 19, 2017, the appellant applied to DAS for payment of the policy proceeds on behalf of Mr. Nguyen. He included a copy of Archibald J.’s costs judgment and claimed $37,858.91 for his own disbursements.
[16] Shortly afterwards, Aviva wrote to DAS seeking payment of its costs. DAS responded that amounts under the ATE Policy were payable to Mr. Nguyen.
[17] On August 9, 2017, Mr. Nguyen signed a direction authorizing the appellant to pay $68,636.73 from the ATE Policy proceeds towards his disbursements and HST, with the balance to be applied to the costs ordered by Archibald J. When Mr. Nguyen signed this direction, neither Ms. Phan nor a Vietnamese interpreter was present.
[18] On August 10, 2017, DAS paid the funds from the ATE Policy to the appellant, in trust for Mr. Nguyen.
[19] On September 25, 2017, each of Mr. Nguyen (attending with his Vietnamese interpreter) and Ms. Phan separately obtained independent legal advice about, and signed an authorization confirming, the CFA and Addendum.
[20] When Aviva learned that the appellant had moved the policy proceeds from his trust account to his general account, it brought an urgent motion for a direction that they be returned to and held in the trust account pending the determination of entitlement to the funds. On September 12, 2017, Monahan J. granted Aviva’s motion.
(v) The first ruling: [2019 ONSC 1274](https://www.minicounsel.ca/scj/2019/1274)
[21] On February 22, 2019, the application judge dismissed the appellant’s application and Aviva’s cross-application for declarations as to their entitlements to the proceeds of the ATE Policy.
[22] The application judge ruled that the appellant was not entitled to the proceeds because the CFA was unenforceable. She ruled: (i) the CFA did not have the court’s approval as required by s. 5 of the CFA Regulation; (ii) the appellant never obtained instructions from Ms. Phan to conclude the CFA, and Mr. Nguyen lacked the capacity to do so; and (iii) the CFA did not comply with the Solicitors Act and the CFA Regulation in other respects. She also ruled that Mr. Nguyen could not have made an informed decision about the direction he signed on August 9, 2017, because neither Ms. Phan nor his Vietnamese interpreter was present. Lastly, she determined that the independent legal advice obtained by Mr. Nguyen and Ms. Phan and their approval of the CFA and Addendum in September 2017 were after-the-fact and ineffective.
[23] The application judge also ruled that Aviva was not entitled to the proceeds of the ATE Policy. The only beneficiary under the ATE Policy was Mr. Nguyen; Aviva was neither a party to the ATE Policy nor a named beneficiary; and none of the exceptions to the doctrine of privity of contract applied.
[24] Because neither Mr. Nguyen nor Ms. Phan participated in the proceedings before the application judge, the application judge was concerned that neither fully understood the potential consequences to them. She therefore directed Ms. Phan and the Public Guardian and Trustee (the “PGT”) to attend before her on April 24, 2019, to determine whether Ms. Phan would continue to act as Mr. Nguyen’s guardian of property, or whether it was necessary to appoint the PGT as Mr. Nguyen’s litigation guardian. She also ordered the proceeds of the ATE Policy to be held in the appellant’s trust account pending further order of the court.
[25] In March 2019, the appellant filed a notice of appeal from the order of the application judge dismissing his application. Aviva did not appeal the order dismissing its cross-application.
(vi) The application judge appoints the PGT as Mr. Nguyen’s litigation guardian and orders the insurance proceeds paid into court
[26] Neither Ms. Phan nor the PGT attended before the application judge on April 24, 2019.
[27] On May 28, 2019, the application judge appointed the PGT as Mr. Nguyen’s litigation guardian. She also ordered the amounts being held in trust by the appellant to be paid into court.
[28] On June 7, 2019, the appellant brought a motion for leave to appeal to the Divisional Court the order requiring payment of the proceeds into court. When the motion was scheduled to be heard, the appellant asked the Divisional Court to adjourn the motion pending the determination of the two appeals before this court. We were advised that the motion for leave to appeal remains pending before the Divisional Court.
(vii) The second ruling: [2019 ONSC 5071](https://www.minicounsel.ca/scj/2019/5071)
[29] On August 29, 2019, the application judge dismissed the appellant’s motion for a charging order over the proceeds of the ATE Policy to secure the appellant’s outstanding disbursement account of $80,689.06 and outstanding fee accounts of $19,310.94 and $11,872.22, for a total of $111,872.22.
[30] She ruled that the motion sought essentially the same relief as the appellant’s earlier application – that the proceeds of the ATE Policy be applied to the appellant’s disbursements – though now through the mechanism of a charging order. She held that the motion was an impermissible collateral attack on her earlier decision and was also precluded by the doctrines of issue estoppel and abuse of process.
[31] She also held that, in any event, the appellant did not meet the test for a charging order under s. 34(1) of the Solicitors Act. She found that there were no “fruits of the litigation” over which the appellant could claim a charging order, noting that “Mr. Nguyen recovered nothing in the litigation and is more indebted after the litigation than before it. Since no property was recovered or preserved in the proceeding, there can be no charging order.” She also rejected the suggestion that the appellant was instrumental in the “recovery or preservation” of the asset over which the charging order was sought. She found that the appellant simply sold the ATE Policy to Mr. Nguyen as an insurance intermediary. Finally, she agreed with the PGT that the appellant “should not be rewarded for brokering a contract between Mr. Nguyen and DAS when he knew that Mr. Nguyen had a litigation guardian and was incapable of entering into a contract.”
[32] The application judge rejected the suggestion that the appellant’s claim for a charging order was an access to justice issue. She held that the appellant had shown no reason for the court to grant him quantum meruit as equitable relief, and to the contrary, had “provided ample grounds for concern” about his conduct in relation to Mr. Nguyen.
[33] Lastly, the application judge rejected the applicant’s contention that the court should nevertheless determine his fees and disbursements under s. 19 of the Solicitors Act. She ruled that because this issue could and should have been raised on the appellant’s original application, she declined to address it now. She also stated that it would be inappropriate to assess the appellant’s fees and disbursements on a quantum meruit basis as the appellant’s entitlement to the proceeds of the ATE Policy was under appeal.
C. analysis
[34] The appeals raise two main issues:
Did the application judge err in finding the CFA to be unenforceable?
Did the application judge err in dismissing the motion for a charging order?
[35] As we will elaborate, our answer to both questions is “no”.
(1) Did the application judge err in finding the CFA to be unenforceable?
[36] Section 5 of the CFA Regulation provides:
- (1) A solicitor for a person under disability represented by a litigation guardian with whom the solicitor is entering into a contingency fee agreement shall,
(a) apply to a judge for approval of the agreement before the agreement is finalized; or
(b) include the agreement as part of the motion or application for approval of a settlement or consent judgment under rule 7.08 of the Rules of Civil Procedure.
[37] Mr. Nguyen was a person under disability throughout the action and was represented by a litigation guardian, Ms. Phan. Still, the appellant concluded the CFA and Direction with Mr. Nguyen directly, not with Ms. Phan. As the PGT notes in its factum, the appellant’s instructing client was Ms. Phan, as litigation guardian, not Mr. Nguyen.
[38] Nor did the appellant comply with s. 5(1)(a) of the CFA Regulation, which required him to apply to a judge for approval of the CFA before it was finalized.
[39] And the appellant does not contend that s. 5(1)(b) applies. As the application judge noted, the appellant did not apply for approval of a settlement under r. 7.08 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.
[40] The appellant now asserts that the application judge erred by not enforcing the CFA under s. 24 of the Solicitors Act. He says that s. 24 permits a court to enforce a contingency fee agreement that breaches s. 5(1)(a) of the CFA Regulation, if the court finds that the contingency fee agreement is “fair and reasonable”. Section 24 provides:
24 Upon any such application, if it appears to the court that the agreement is in all respects fair and reasonable between the parties, it may be enforced by the court by order in such manner and subject to such conditions as to the costs of the application as the court thinks fit, but, if the terms of the agreement are deemed by the court not to be fair and reasonable, the agreement may be declared void, and the court may order it to be cancelled and may direct the costs, fees, charges and disbursements incurred or chargeable in respect of the matters included therein to be assessed in the ordinary manner.
[41] We reject the appellant’s argument, for two reasons.
[42] First, as conceded by counsel for the appellant during oral argument, this argument was not raised before the application judge. It therefore cannot be raised on appeal. As a general rule this court will not entertain entirely new issues on appeal: see, e.g., Kaiman v. Graham, 2009 ONCA 77, 245 O.A.C. 130, at para. 18.
[43] Second, in any event, even if we assume that s. 24 could apply to a contingency fee agreement entered into by a person under disability without the participation of their litigation guardian, the application judge declined to approve the CFA. Based on the findings she made, we conclude that the CFA was not fair, reasonable, and in Mr. Nguyen’s best interest. As a result, we would not enforce it under s. 24.
[44] The fairness requirement of s. 24 concerns “the making of the fee agreement and whether the client fully understood and appreciated the nature of the agreement that he executed”: Chrusz v. Cheadle LLP, 2010 ONCA 553, 272 O.A.C. 1, at para. 31. The application judge’s findings confirm that this standard was not met:
• The CFA was executed by Mr. Nguyen, not by Ms. Phan, who was not present. The appellant “was aware of this and ought to have ensured that Ms. Phan was present when he asked Mr. Nguyen to enter into the CFA.” Once Ms. Phan was appointed litigation guardian, the appellant “was required to obtain instructions from her.” It was not open to the appellant “to disregard” Ms. Phan’s role as litigation guardian. Given the appellant’s relationship with Mr. Nguyen, Mr. Nguyen “might have signed anything” that the appellant requested.
• A capacity assessment ordered by the Superior Court found that Mr. Nguyen “had little understanding” of his civil action. He “lacked the capacity to instruct his lawyer and to make decisions concerning the financial and legal matters involved in his litigation.”
• The timing of the signing of the CFA “suggests that it was entered into solely for the purpose of obtaining the ATE Policy.”
[45] The appellant has advanced no basis to impugn any of these findings of the application judge, which are entitled to appellate deference: Chrusz, at paras. 13, 37. Based on these findings, we decline to approve the CFA under s. 24 of the Solicitors Act.
[46] The appellant also asserts that Mr. Nguyen’s agreement to pay disbursements under the CFA is severable and should be enforced, even if the CFA is invalid. He also relies on s. 9 of the CFA Regulation, which he says provides him with a first charge on the proceeds of the ATE Policy. Section 9 provides:
- (1) If the client is responsible for the payment of disbursements or taxes under a contingency fee agreement, a solicitor who has paid disbursements or taxes during the course of the matter in respect of which services were provided shall be reimbursed for the disbursements or taxes on any funds received as a result of a judgment or settlement of the matter.
(2) Except as provided under section 47 of the Legal Aid Services Act, 1998 (legal aid charge against recovery), the amount to be reimbursed to the solicitor under subsection (1) is a first charge on the funds received as a result of the judgment or settlement.
[47] Once again, these arguments were not raised before the application judge, and therefore cannot be raised on appeal.
[48] In any event, on these facts, we would not order the payment of disbursements under the CFA: the CFA was concluded with a person under disability and was found to be unenforceable. As explained above, we would not enforce it either.
(2) Did the application judge err in dismissing the motion for a charging order?
[49] The appellant’s second appeal seeks to overturn the application judge’s order dismissing his motion for a charging order. The application judge held that the motion was a collateral attack on her earlier decision, precluded by issue estoppel, and an abuse of the court’s process. She also held that, if she was wrong in these conclusions, the appellant failed to meet the test for a charging order.
[50] Because we conclude that on these facts it was fully open to the application judge to find that the appellant failed to meet the test for a charging order, it is unnecessary to address whether the motion was precluded by the doctrines of collateral attack, issue estoppel, and abuse of process.
[51] The appellant sought a charging order under s. 34(1) of the Solicitors Act:
34 (1) 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.
[52] The principles governing the granting of a charging order under s. 34(1) were summarized by this court in Weenan v. Biadi, 2018 ONCA 288, 141 O.R. (3d) 276, at paras. 14-15:
• To obtain a charging order on the monies in issue, the onus is on the solicitor to demonstrate that a charging order is warranted;
• The decision is discretionary. In deciding whether to exercise that discretion, the court must “balance the circumstances and equities of each case and client”; and
• To obtain a charging order, the solicitor must demonstrate that:
i. the fund or property is in existence at the time the order is granted;
ii. the property was “recovered or preserved” through the instrumentality of the solicitor; and
iii. there must be some evidence that the client cannot or will not pay the lawyer’s fees.
[53] The appellant asserts that the motion judge erred in concluding that the appellant had not established that his work was instrumental to the recovery or preservation of the property. Repeating the argument he made before the application judge, he contends that he arranged for the ATE Policy and performed the work on Mr. Nguyen’s civil action that led to payment of the policy proceeds.
[54] The application judge rejected these arguments. She found that the appellant “simply sold Mr. Nguyen the ATE Policy” as an insurance intermediary. She agreed with the submission of the PGT that the appellant “should not be rewarded for brokering a contract between Mr. Nguyen and DAS when he knew that Mr. Nguyen had a litigation guardian and was incapable of entering into the contract.” She also found that the ATE Policy proceeds were not the “fruits of the litigation” because “Mr. Nguyen recovered nothing in the litigation and is more indebted after the litigation than before it. Since no property was recovered or preserved in the proceeding, there can be no charging order.”
[55] We see no error in the application judge’s findings or in her exercise of discretion based on the evidence before her.
[56] We also agree with the submission of the PGT in its factum that “the facts of this case are nothing less than shocking”, and that it would offend the principles of fairness and justice to reward the appellant, through the payment of fees and disbursements, for entering into the CFA with Mr. Nguyen, brokering an insurance contract between him and DAS, and having Mr. Nguyen sign a direction to him, when he knew that Mr. Nguyen was incapable of making these decisions and had a litigation guardian from whom the appellant was supposed to take instructions.
D. Disposition
[57] The appeals are dismissed. The appellant is ordered to pay costs of $20,000 to the respondent Mr. Szot and $11,000 to the PGT, inclusive of disbursements and taxes.
Released: June 17, 2020 (“E.E.G.”)
“E.E. Gillese J.A.”
“David Brown J.A.”
“M. Jamal J.A.”
[^1]: In December 24, 2015, Mr. Nguyen’s claim for statutory accident benefits in an arbitration at the Financial Services Commission of Ontario was dismissed: Nguyen v. TD Home and Auto Insurance Co., 2015 CarswellOnt 20301. A statutory appeal and an application for judicial review of this decision brought by the appellant on Mr. Nguyen’s behalf were also dismissed: Nguyen v. TD Home and Auto Insurance Co., 2017 CarswellOnt 2650; Nguyen v. TD Home and Auto Insurance Company, 2018 ONSC 7166 (Div. Ct.).