Court File and Parties

COURT FILE NO.: 03-14/11

DATE: 2012-03-23

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: GLEN SALZMAN, Applicant

AND:

SUSANNE SALZMAN and THE PUBLIC GUARDINAN AND TRUSTEE, Respondents

BEFORE: B. P. O’Marra J.

COUNSEL: Shael B. Eisen, for the Applicant Mercedes Perez, former lawyers for Susanne Salzman Debra Stephens, for Swadron Associates

HEARD: January 31, 2012

ENDORSEMENT

[1] This is a motion by Swadron Associates pursuant to Rule 75.06 of the Rules of Civil Procedure, to determine a number of preliminary and procedural issues before a costs hearing is held. Further there is a motion by Glen Salzman pursuant to Rule 57.07 seeking costs personally against Swadron Associates.

FACTS

[2] Gregory Salzman brought an application to be appointed as the guardian of property and of the person of his mother, Susanne Salzman. A lawyer from Swadron Associates, Ms. Perez, was appointed as Ms. Salzman’s counsel pursuant to s. 3 of the Substitute Decisions Act 1992, S.O. 1992, ch. 30. Ms. Perez opposed Mr. Salzman’s application.

[3] On April 29, 2011, Mr. Salzman consented to pay approximately $5,800 of Ms. Perez’s outstanding account incurred up to that point.

[4] On June 7, 2011, Justice Hoy (as she then was) allowed Mr. Salzman’s application (Salzman v. Salzman, 2011 ONSC 3555). She ordered that, inter alia, Ms. Perez’s appointment as Ms. Salzman’s counsel would terminate upon the expiry of all appeal rights and the determination of all cost issues. The issue of costs was to be determined at a future date.

[5] On June 9, 2011, Mr. Salzman informed Swadron Associates that he would object to the payment of any legal fees beyond the $5,800 already received.

[6] On July 20, 2011, Ms. Salzman passed away.

[7] From June 15, 2011 to October 18, 2011 the two parties unsuccessfully attempted to schedule a costs hearing date. The issue was postponed until September following Ms. Salzman’s death. An October hearing date initially scheduled by Mr. Salzman was vacated because it had not been set within the time required. Mr. Salzman then informed Swadron Associates that a motion would be brought to Justice Hoy to resolve the issue of costs, and that all settlement offers would be revoked.

[8] When the motion materials were not delivered by the time agreed upon, Swadron Associates brought this motion pursuant to Rule 75.01 on November 1, 2011. On December 9, 2011, Mr. Salzman also brought a motion pursuant to Rule 57.07 seeking costs personally against Swadron Associates.

[9] On December 19, 2011, Justice Whitaker set out seven issues to be determined in this Rule 75.06 motion. Those issues will be addressed here.

1. Does Swadron Associates have standing to bring its motion?

[10] Rule 75.06 states the following:

APPLICATION OR MOTION FOR DIRECTIONS

75.06 (1) Any person who appears to have a financial interest in an estate may apply for directions, or move for directions in another proceeding under this rule, as to the procedure for bringing any matter before the court. O. Reg. 484/94, s. 12; O. Reg. 24/00, s. 18 (1).

[11] Mr. Salzman submits that this rule is not available to the applicants, because they do not qualify as persons who appear to have a financial interest. A number of cases are cited in support, including Belz v. Mernick Estate, [2000] O.T.C. 103 (S.C.), L.A.W. v. Children’s Aid Society of the District of Rainy River (2005), 2005 CanLII 11812 (ON SC), 254 D.L.R. (4th) 179 (Ont. S.C.), HSBC Bank Canada v. Capponi Estate (2007), 160 A.C.W.S. (3d) 575 (Ont. S.C.), and Forbes v. Gauthier Estate (2008), 168 A.C.W.S. (3d) 1119 (Ont. S.C.).

[12] Belz is the leading case in this regard. In that case, Justice Haley did not permit a judgment creditor to bring an application for directions pursuant to Rule 75.06. The creditor claimed that it had a financial interest in an estate, because the estate trustee of that estate was one of its debtors. Justice Haley held that this did not qualify as a “financial interest in an estate” for the purposes of Rule 75.06. She stated the following at para. 14: “While it is true that the applicant as a judgment creditor may have a ‘financial interest’ in the estate … I think that interest can be more precisely expressed as an interest in the beneficial interest which [the estate trustee] has in the estate”.

[13] The court in L.A.W. followed Belz and found that the Children’s Aid Society, which claimed to have a financial interest in the estate of a minor who died while represented by the Society as his guardian, did not have a financial interest within the definition of Rule 75.06. Similarly, the court in Capponi Estate followed Belz by holding that Rule 75 was not available to the creditor bank. Lastly, the court in Gauthier Estate held that a sister of the deceased, who was not a beneficiary, could not make a motion pursuant to Rule 74. The court cited Capponi Estate as authority.

[14] I find that Swadron Associates has standing to bring this motion under Rule 75.06. The cases can be distinguished by the simple fact that none of them involve motions brought by counsel for one of the parties. Justice Hoy confirmed that Ms. Perez of Swadron Associates would remain as counsel for Ms. Salzman pursuant to the Substitute Decisions Act until the issue of costs had been determined. As such, though Swadron Associates is not a party in the strict sense, the firm remains retained by a party to the application. On that basis, Swadron Associates may bring this motion pursuant to Rule 75.06 as a person “who appears to have a financial interest in an estate”.

[15] Mr. Salzman points out that in Belz, Justice Haley seems to narrow the application of Rule 75 to issues concerning the validity of a will. Paragraph 15 states the following:

Rule 75 is directed at attacks on the validity of a will or a probate document put forward as a last will. It does not deal with the administration of the estate by the estate trustee. The issues which are referred to under rule 75.06 relate to issues concerning the validity of the will and not to determination of financial interests under the will.

[16] In my view, and with great respect to Justice Haley, there is no reason to limit the applicability of Rule 75.06 solely to issues concerning the validity of a will. I make this conclusion by looking at the content of Rule 75. Certain sub-provisions of Rule 75 do in fact pertain to issues relating to a validity of a will. For example, Rules 75.01 and 75.02 relate to proving a will. Other sub-provisions, however, do not relate to the validity of a will at all. For example, Rules 75.03 – 75.05 relate to issues regarding the issuance of a certificate of appointment of an estate trustee. Rule 75.07 governs service of documents when necessary.

[17] Most significantly, a court making directions under Rule 75.06 is free to direct “such other procedures as are just”: see 75.06(3)(g). This confers wide discretion to a court to make any procedural directions, not only those relating to the determination of a will’s validity, so long as they are just.

2. Whether the motion of Swadron Associates and the motion brought by Glen Salzman dated December 9, 2011 shall be heard together

[18] Mr. Salzman makes no submissions on this issue. I find no reason to have the two motions heard separately. They involve common facts, common transactions and occurrences, and the same parties. When possible, the avoidance of a multiplicity of proceedings is in the best interests of the administration of justice. As such, I order that the two motions be consolidated pursuant to Rule 6.01.

3. Whether there needs to be an Order to Continue as against the Estate of Susanne Salzman

[19] Rules 11.01 and 11.02 state the following:

EFFECT OF TRANSFER OR TRANSMISSION

11.01 Where at any stage of a proceeding the interest or liability of a party is transferred or transmitted to another person by assignment, bankruptcy, death or other means, the proceeding shall be stayed with respect to the party whose interest or liability has been transferred or transmitted until an order to continue the proceeding by or against the other person has been obtained. R.R.O. 1990, Reg. 194, r. 11.01; O. Reg. 14/04, s. 9.

ORDER TO CONTINUE

11.02 (1) Where a transfer or transmission of the interest or liability of a party takes place while a proceeding is pending, any interested person may, on filing an affidavit verifying the transfer or transmission of interest or liability, obtain on requisition from the registrar an order to continue (Form 11A), without notice to any other party. R.R.O. 1990, Reg. 194, r. 11.02 (1).

[20] Rule 11.01 results in a stay of the proceedings in this case because of Ms. Salzman’s death. An order to continue the proceeding must be obtained in order to lift the stay. To obtain this order, an interested party must comply with Rule 11.02 by filing an affidavit and obtaining an order to continue from the registrar.

[21] Mr. Salzman is correct in noting that Rule 11.02 requires an order to continue to be obtained from the registrar. This means that a motion to obtain an order to continue from this court is not the proper avenue.

[22] However, at this point in the proceedings, I see no benefit in requiring Swadron Associates to follow the procedure in Rule 11.02. The affidavit required under Rule 11.02 is meant to verify the transfer or transmission of interest or liability. In this case, the transmission of potential liability from Ms. Salzman to her estate in the form of legal fees is not in dispute. If costs are owed to Swadron Associates for its representation of Ms. Salzmann, then it is her estate that must bear the cost. Indeed, it was stipulated in the Management Plan submitted by Mr. Salzman and approved by Justice Hoy that Ms. Salzman’s legal fees would be taken from her assets. As such, the purpose of a Rule 11.02 affidavit has been met.

[23] I am also aware of Rule 1.04, which states, “These rules shall be liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits.” Requiring Swadron Associates to obtain an order to continue from the registrar will only delay the final resolution of the costs issue. In contrast, no injustice or prejudice is done to Mr. Salzman if I make such an order.

[24] As such, I exercise my discretion under Rule 2.03, which states, “The court may, only where and as necessary in the interest of justice, dispense with compliance with any rule at any time”: see e.g. Bruno v. Calcaterra, 2011 ONSC 1673, at para. 30, where Justice Price dispensed with strict compliance with Rule 11.02.

4. Whether there needs to be a litigation administrator appointed on behalf of Susanne Salzman’s estate

[25] Rule 10.02 states the following:

10.02 Where it appears to a judge that the estate of a deceased person has an interest in a matter in question in the proceeding and there is no executor or administrator of the estate, the judge may order that the proceeding continue in the absence of a person representing the estate of the deceased person or may by order appoint a person to represent the estate for the purposes of the proceeding, and an order in the proceeding binds the estate of the deceased person, subject to rule 10.03, as if the executor or administrator of the estate of that person had been a party to the proceeding. R.R.O. 1990, Reg. 194, r. 10.02.

[26] Swadron Associates submits that a litigation administrator must be appointed, since Ms. Salzman’s will has not been probated. They submit that the appropriate litigation administrator is Mr. Salzman.

[27] The language of Rule 10.02 is clear: a litigation administrator need only be appointed when there is no executor or administrator of the estate. Glen Salzman is a named executor in Ms. Salzman’s will. As such, it seems that there is no need to appoint a litigation administrator under Rule 10.02.

[28] The case law supports the proposition that a will need not be probated for an executor to qualify as an executor under Rule 10.02. In Carmichael v. Carmichael Estate (2000), 2000 CanLII 22320 (ON SC), 46 O.R. (3d) 630, Justice Haley noted at para. 24, “Rule 10.02 which appoints a representative to bind an estate where there is no executor or administrator contains no suggestion that an executor to be acknowledged as an executor for the purpose of that rule must be one who has obtained probate.” See also Hanton v. White, [1956] O.W.N. 775 on Rule 91, the old version of Rule 10.02.

5. Whether the estate of Susanne Salzman should undertake to preserve sufficient funds in an amount equalling the claim by Swadron Associates for its costs

[29] Rules 45.01 and 45.02 state the following:

INTERIM ORDER FOR PRESERVATION OR SALE

45.01 (1) The court may make an interim order for the custody or preservation of any property in question in a proceeding or relevant to an issue in a proceeding, and for that purpose may authorize entry on or into any property in the possession of a party or of a person not a party. R.R.O. 1990, Reg. 194, r. 45.01 (1).

(2) Where the property is of a perishable nature or likely to deteriorate or for any other reason ought to be sold, the court may order its sale in such manner and on such terms as are just. R.R.O. 1990, Reg. 194, r. 45.01 (2).

SPECIFIC FUND

45.02 Where the right of a party to a specific fund is in question, the court may order the fund to be paid into court or otherwise secured on such terms as are just. R.R.O. 1990, Reg. 194, r. 45.02.

[30] Swadron Associates requests an order under Rule 45.02 to secure or require to be paid into court an amount of funds contained in Ms. Salzman’s investment account equalling the amount of legal fees owed.

[31] The most comprehensive summary of the test for an order under Rule 45.02 was recently stated by the Divisional Court in Sadie Moranis Realty Corp. V. 1667038 Ontario Inc., 2011 ONSC 671 at para. 7:

1. The plaintiff has a claim to a specific fund referable to the litigation. That claim must be proprietary in nature.

2. There is a serious issue to be tried respecting the proprietary claim.

3. The balance of convenience favours the granting of the order. [Emphasis added.]

[32] Mr. Salzman notes that Rule 45.02 is only available to “a party”. Though Swadron Associates is retained by a party to these proceedings, it is not itself a party. I am unaware of any case in which counsel for a party obtained an order under Rule 45.02.

[33] I am also not convinced that Swadron Associates has a proprietary interest in the specific fund in question. In Assante Financial Management Ltd. v. Dixon, [2004] O.T.C. 452 (S.C.), Justice Wilton-Siegel noted, “There is a subtle but important difference between an amount that may be owing to the plaintiff and a ‘right’ of the plaintiff to a fund.” Justice Wilton-Siegel went on to conclude that an amount owing to a plaintiff does not create a right to a specific fund. Similarly, in DIRECTV INC. v. Gillot (2007), 2007 CanLII 4313 (ON SC), 84 O.R. (3d) 595 (S.C.), Justice Perell held, in examining the policy underlying Rule 45.02, that “[t]he theme is that rule 45.02 is not to be used simply as a mechanism to obtain security for a debt or potential indebtedness of the defendant.”

[34] I agree with Justice G.P. Smith’s explanation of Rule 45.02 in Stearns v. Scocchia, [2002] O.T.C. 855 (S.C.):

[Rule 45.02] orders are not merely procedural in nature and should be granted only in exceptional circumstances because they have the potential to injure a defendant before the plaintiff has proven its case at trial. Furthermore, it can place a defendant in an unfair position because it freezes a fund that would otherwise be available to the defendant and available for the purpose of operating its business. In short, such an order can appreciably tilt the scales in favour of a plaintiff on the basis of unproven allegations. Judicial discretion is therefore to be carefully exercised when considering a rule 45 order ... given the severe prejudicial consequences that can result.

[35] These cases lead me to conclude that Swadron Associates has not established a proprietary claim on Ms. Salzman’s investment account.

[36] Swadron Associates made no submissions on Rule 45.01, though the rule is cited in their factum. In short, I am not satisfied that an order under Rule 45.01 should be granted. This rule is typically “used to ensure that important documents, information or other items are preserved and available for the trial of an action where there is a strong likelihood that the defendant would destroy this evidence once notified of the proceedings”: Schuster v. Royal & Sun Alliance Insurance Co. of Canada (2009), 83 C.P.C. (6th) 365 (Ont. S.C.) at para. 16. That is far from the case here.

6. Whether the applicant shall be required to post security for the costs of this motion

[37] Rule 56.01 states the following:

WHERE AVAILABLE

56.01 (1) The court, on motion by the defendant or respondent in a proceeding, may make such order for security for costs as is just where it appears that,

(a) the plaintiff or applicant is ordinarily resident outside Ontario;

(b) the plaintiff or applicant has another proceeding for the same relief pending in Ontario or elsewhere;

(c) the defendant or respondent has an order against the plaintiff or applicant for costs in the same or another proceeding that remain unpaid in whole or in part;

(d) the plaintiff or applicant is a corporation or a nominal plaintiff or applicant, and there is good reason to believe that the plaintiff or applicant has insufficient assets in Ontario to pay the costs of the defendant or respondent;

(e) there is good reason to believe that the action or application is frivolous and vexatious and that the plaintiff or applicant has insufficient assets in Ontario to pay the costs of the defendant or respondent; or

(f) a statute entitles the defendant or respondent to security for costs. R.R.O. 1990, Reg. 194, r. 56.01 (1).

[38] Swadron Associates requests an order for security for costs in the amount of $50,000 on the basis that Mr. Salzman is ordinarily resident outside Ontario.

[39] This request does not fit within the traditional definition of costs. It is trite to note that costs typically pertain to the entitlement of the successful party to have its legal fees and disbursements paid by the unsuccessful party. In this case, Ms. Salzman, being represented by Swadron Associates, was the unsuccessful party. Swadron Associates is not entitled to receive costs from Mr. Salzman, the successful party.

[40] Swadron Associates is essentially trying to recover its legal fees from its client, Ms. Salzman. The firm is right to do so. However, it’s claim does not fit within the traditional definition of costs.

[41] An order for security for costs is discretionary. In exercising that discretion, a court must balance the underlying policies behind such rules. This balance was described by the Alberta Court of Queen’s Bench in Crocker-McEwing v. Drake, 2001 ABQB 13 at para. 33:

The fundamental policy balance is between the desire not to unnecessarily or unfairly impede access to the Courts by legitimate and bona fide Plaintiffs and the desire to ensure that the administration of justice is not perverted by encouraging risk-free and doubtful litigation claims by Plaintiffs to the harassment of, and to the imposition of practically unrecoverable cost upon, Defendants who are possessed of facially meritorious answers to such claims.

[42] It is clear that, even if Swadron Associates had the right to request an order for security for costs, such a request ought to be denied. It is unnecessary to order security for costs in order to protect the respondent party from “risk-free and doubtful litigation”, since the motion was ultimately successful.

[43] Swadron Associates may have a right to security for costs if Mr. Salzman moves for and obtains an order referring Swadron Associates’ accounts for assessment: see e.g. Kramer Henderson Sidlofsky LLP v. Monteiro (2009), 2009 CanLII 38513 (ON SC), 98 O.R. (3d) 286. However, any potential security for costs ordered would only pertain to costs incurred to participate in the assessment. There is simply no basis for any order for security for costs at this point.

7. The extent by which solicitor and client privilege and the duty of confidentiality is to be waived on behalf of Susanne Salzman in the context of the motions

[44] Mr. Salzman has brought a motion seeking costs personally from Swadron Associates pursuant to Rule 57.07(1). The success of this motion depends on the admissibility of the conversation between Mr. Swadron and Ms. Salzman on April 7, 2011.

[45] Mr. Salzman’s position is that, as executor of Ms. Salzman’s estate, he has all the rights and powers of Ms. Salzman, including the right to waive solicitor-client privilege.

[46] Swadron Associates submits that Mr. Salzman would have authority to waive solicitor-client privilege on behalf of Ms. Salzman’s estate if not for his status as a party adverse in interest to the estate. The only issue, then, is whether Mr. Salzman is adverse in interest to Ms. Salzman’s estate.

[47] To support the position that Mr. Salzman is adverse in interest to Ms. Salzman’s estate, Swadron Associates highlights paragraphs 6, 16, and 17 of Justice Hoy’s order appointing Mr. Salzman as guardian of Ms. Salzman’s person and property:

6. This court orders that Glen and Gregory may have access to personal information, including health information and records, to which Ms. Salzman would be entitled to have access if capable, and consent to the release of that information to another person, except for the purposes of litigation that relates to Ms. Salzman’s property or to Glen or Gregory’s status or powers as joint guardians of Ms. Salzman’s person.

7. This court orders that Glen be and hereby as Ms. Salzman’s litigation guardian except claims and proceedings that relate to Ms. Salzman’s property, or to Glen and Gregory’s status or powers as joint guardians of Ms. Salzman’s person and Glen’s status or powers as guardian of Ms. Salzman’s person.

8. This court orders that Glen may settle claims and commence and settle proceedings on Ms. Salzman’s behalf, except claims and proceedings that relate to Ms. Salzman’s property or to Glen and Gregory’s status or powers as joint guardians of Ms. Salzman’s person and Glen’s status or powers as guardian of Ms. Salzman’s property. [Emphasis added.]

[48] These orders were made pursuant to s. 59(2) of the Substitute Decisions Act, supra. They make it clear that Mr. Salzman, as guardian of Ms. Salzman’s property, does not have an absolute right to make all decisions relating to that property.

[49] However, I do not see how any of these orders apply to Mr. Salzman’s desire to waive solicitor-client privilege on behalf of Ms. Salzman’s estate for the purpose of seeking costs personally against Swadron Associates.

[50] It is true that Mr. Salzman was in a position adverse to Ms. Salzman in the application to be appointed as her guardian of property and of her person. That application, however, has now been resolved.

[51] The only litigious matter remaining is the issue of costs. On this issue, Mr. Salzman is not adverse in interest to Ms. Salzman’s estate. Swadron Associates wants its legal fees from Ms. Salzman’s estate, and Mr. Salzman wants his legal fees to be paid by Swadron Associates. Mr. Salzman does not make any claim on Ms. Salzman’s estate on the issue of costs. There is no conflict here between Ms. Salzman’s estate and Mr. Salzman. To use the words of s. 59(2) of the Substitute Decisions Act, this is not a claim against Ms. Salzman’s property. It is a claim against Swadron Associates.

[52] Moreover, Mr. Salzman’s motion to seek costs personally from Swadron Associates, if successful, would actually serve to benefit Ms. Salzman’s estate. Swadron Associates’ legal fees are required to be paid by the estate pursuant to the Management Plan. If the costs of the application are awarded to Mr. Salzman, those costs would come out of Ms. Salzman’s estate. But if costs are awarded against Swadron Associates personally, then those costs will not be deducted from the estate.

CONCLUSION AND ORDER

[53] In summary, the following order is made:

1. The motions brought by Swadron Associates and by Mr. Salzman shall be heard together

2. This proceeding shall continue as Glen Salzman v. The Estate of Susanne Salzman

[54] The costs of this motion are reserved for the judge presiding over the costs hearing. I note, however, that Swadron Associates was unsuccessful on the majority of the issues raised in this motion.

B. P. O’Marra J.

Date: March 23, 2012