COURT FILE NO.: 12-CV-443677

DATE: April 12, 2012

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Thomas Gold Pettingill LLP

Applicant

• and -

Ani-Wall Concrete Forming Inc. and Cassels Brock & Blackwell LLP

Respondents

COUNSEL:

• Andrew L. Mercer for Thomas Gold Pettinghill LLP

• John Birch for Cassels Brock & Blackwell LLP

• George F. Vella for Ani-Wall Concrete Forming Inc.

HEARING DATE: April 5, 2012

PERELL, J.

REASONS FOR DECISION

A. INTRODUCTION

[1] The Respondent Ani-Wall Concrete Forming Inc., (“Ani-Wall”) did not pay the final account of the Respondent Cassels Brock & Blackwell LLP (“Cassels Brock”) for a litigation retainer that was transferred and completed by the Applicant, Thomas Gold Pettingill LLP (“TGP”). The litigation settled, and TGP has $61,351.64 from the settlement proceeds left in its trust account.

[2] In this Application, TGP applies for a declaration that Cassels Brock is entitled to the funds or, alternatively, that the funds be paid into court pursuant to an interpleader order. The Application is opposed by Ani-Wall, which claims the $61,351.64.

[3] The Application raises numerous difficult questions about the law and ethics associated with a matter of fundamental importance to the practice of law as both a business and a profession. The matter at the centre of this Application is the law and ethics of lawyers getting paid for their legal services and collecting their bills. Unfortunately, this Application and its subject matter are also a source of bitterness, resentment, and reciprocated scorn between lawyers and clients.

[4] Deciding this Application will involve considering: (a) the Solicitors Act, R.S.O. 1990, c. S.15; (b) the Limitations Act, 2002, S.O. 2002, c. 24, Schedule B; (c), the Rules of Civil Procedure, R.R.O. 1990, Reg. 194; (d) the former Rules of Practice, R.R.O. 1980, Reg. 540; (e) the Rules of Professional Practice; and (f) the law associated with undertakings, equitable assignments, directions, solicitor’s liens, charging liens, charging orders, lawyer and client assessments, and debt collection actions.

[5] For the reasons that follow, it is my conclusion that with two terms, this Application should be granted, and the funds held by TGP in its trust account should be paid to Ani-Wall. The first term is that TGP should pay Ani-Wall’s costs of this application. The second term is that within twenty days, Ani-Wall may obtain an appointment with an assessment officer for an assessment of Cassel Brock’s accounts. To avoid confusion, I note here that the two terms do not prevent the immediate payment of the funds to Cassels Brock.

B. PROCEDURAL AND EVIDENTIARY BACKGROUND

[6] TGP commenced this Application on January 10, 2012. It was supported by the affidavits of: (a) Bruce A. Thomas, Q.C., who was a partner at Cassels Brock from 1980 to June 30, 2008, when he and six other partners departed and founded TGP; and (b) Sue Baksh, an employee of Cassels Brock, who has been in charge of collecting the firm’s accounts receivable since 1997. Mr. Thomas and Ms. Baksh were cross-examined on their affidavits in February 2012.

[7] Aristides Indio, also known as Steve Indio, is the Chief Operating Officer of Ani-Wall, and he swore an affidavit in opposition to the Application. Mr. Indio was cross-examined on his affidavit in February 2012.

[8] The Application came on for a hearing on March 5, 2012, when Cassels Brock asked for an adjournment because it wished to file a revised factum to respond to an argument in Ani-Wall’s factum that Cassel Brock’s claim to the funds was statute-barred under the Limitations Act, 2002.

[9] I granted the adjournment request, and the Application was rescheduled for April 5, 2012. I remained seized of the matter. On April 5, 2012, I heard the Application. By that time, I had TGP’s factum, and two factums from each of Cassels Brock and Ani-Wall.

[10] As will become clearer from the discussion below, although Cassels Brock did not bring a cross-Application, practically speaking, its factum made a claim for declaratory and other relief, including the court granting a charging order or charging lien against the funds being held by the Applicant TGP, which openly supported the arguments advanced by Cassels Brock.

[11] Practically speaking, TGP and Cassels Brock were co-Applicants, and the hearing of the Application proceeded accordingly.

C. FACTUAL BACKGROUND

[12] In May 2003, Ani-Wall and Mr. Indio, its Chief Operating Officer, hired Cassels Brock to act for it in threatened litigation by a group of home builders who had complaints about allegedly defective foundation walls installed by Ani-Wall in housing developments in the Greater Toronto Area. Ani-Wall had claims of its own as its customers were refusing to pay $1.32 million because of the allegedly defective foundations.

[13] Bruce Thomas, a senior partner at Cassels Brock, had carriage of the file.

[14] Ani Wall signed a written retainer agreement. For present purposes, the following provisions of the agreement are relevant:

Normal Billing Practices

Our normal billing practice is to determine fees by multiplying the number of hours spent working on a matter by our regular and customary billing rates for services performed by members of the firm, billed monthly. The minimum billing increment is ordinary 1/10 of an hour. We anticipate in this matter that services will be provided by the following individuals: 1. Bruce Thomas, partner $475/hr.; 2. Stephen Morrison, partner $525/hr.; 3. Mark Smyth, associate $250/hr.; 4. Clerk $110/hr.

The services of other solicitors and clerical staff employed or associated with the firm may be enlisted from time to time, where doing so will provide Ani-Wall with the most cost-efficient service. As indicated, time charges and disbursements are billed on a monthly basis after they are incurred and recorded by our billing department. We may occasionally defer billing for a given month (or months) if the accrued fees and costs do now warrant current billing, or if other circumstances would make it more convenient to defer billing.

Our fee structure is based upon the premise that all statement are due and payable upon receipt, but in any event no later than 30 days after the date of the statement. We expect that Ani-Wall will review all bills promptly and report any questions to us within 30 days.

Rights upon Discharge by Ani-Wall

Ani-Wall has the right to discharge us as solicitors and counsel at any time, but such discharge shall not affect our right to be paid all unpaid fees, and all our previously incurred but unpaid time charges and disbursements, in accordance with this letter agreement.

[15] It is to be noted that the retainer agreement is silent about changes in the lawyers’ hourly rates.

[16] The anticipated litigation about the allegedly defective foundations did commence, with the Plaintiffs claiming in excess of $10 million from Ani-Wall.

[17] During the period between May 2003 and the end of June 2008, the nature of Cassel Brock’s retainer expanded. It expanded to encompass, among other things: (a) a dispute with Ani-Wall’s insurer AXA, which had denied indemnity coverage, but which had agreed to pay for a defence; (b) an action against the suppliers of the concrete for the foundations; (c) assistance in obtaining financing for equipment; (d) certain construction lien actions; and (e) legal services for other corporations referred by Mr. Indio to Cassels Brock.

[18] During the retainer, Cassels Brock issued bills that contained descriptions of the services, time docketed, and rates of the lawyers providing services. Approximately 75% of the amount of the accounts was paid by AXA. The bills indicated that the hourly rates of the lawyers changed from time to time.

[19] It is common ground that Mr. Indio complained about the amount of the fees. However, it is also common ground that except for the final invoice dated June 23, 2008 in the amount of $64,582.33, all of the accounts were paid and there was a partial payment of the last invoice in September 2008, leaving a net balance of $59,372.42 before interest under the Solicitors Act.

[20] There, however, is no common ground on whether Mr. Indio ever complained about the fact that from time to time Cassels Brock increased the hourly rates of the lawyers engaged for Ani-Wall. Ms. Baksh deposed that Mr. Indio never complained about the rates. This is denied by Mr. Indio, who deposed that he did complain but “did not put any complaints in writing due to the fact that Cassels Brock, Bruce Thomas and the lawyers working with him were so intricately involved in the matters, that I felt that Ani-Wall had no choice but to allow them to continue.”

[21] In any event, Cassels Brock continued to act for Ani-Wall until the end of June 2008. Around this time, Mr. Thomas told Mr. Indio that he and six other Cassels Brock partners had decided to form TGP, a boutique litigation law firm. Mr. Indio agreed to have the Ani-Wall files transferred to the new firm. To effect the transfer of the files, Mr. Indio signed a simple client direction and authorization, which stated:

Client Direction and Authorization

To: Cassels Brock & Blackwell, LLP

Re: Steve Indio

File Name – Ani-Wall Concrete Forming Inc. ….

You are hereby authorized and directed to transfer all your files and documents relating to the above matters and to forward all trust monies held for us to Thomas Gold Pettinghill LLP subject to any conditions you may impose with respect to your access to the files and documents transferred and this shall be your good and sufficient authority for so doing.

[22] Around this time, in the ongoing litigation about the allegedly defective foundations, a mediation session was scheduled for September 2008. Mr. Thomas deposed that Mr. Indio agreed that Cassels Brock’s final account would be paid from the anticipated settlement proceeds. Ms. Baksh deposed that Mr. Indio agreed that the cash-strapped Ani-Wall would pay Cassels Brock’s final account from the anticipated settlement proceeds. Ms. Baksh deposed:

I confirmed with Mr. Indio that the file was going to be taken by TGP on the understanding that the unpaid bill would be paid at the time the settlement. At no time did he advise me that he was intending to challenge the fees of Cassels. Had he done so, the file would not have been released to TGP, as it was.

[23] Mr. Indio disputed the evidence of Mr. Thomas and Ms. Baksh. In paragraphs 7 and 16 of his affidavit, Mr. Indio stated:

7. [W]hen this matter of the matters in issue and file were transferred from Cassels Brock to Thomas Gold Pettinghill LLP, I was aware that Cassels Brock had not been paid for all of the invoices rendered, but I did not agree that any outstanding amounts or that any accounts for that matter would be paid without question and I had made it clear previously to Bruce Thomas that I took issue with the amounts being charged. I stated that this earlier and on each occasion he advised me that these accounts would subsequently be covered by others and there would be little or no cost to Ani-Wall. I did not state that the amounts allegedly owing to Cassels were to be paid out of the settlement funds.

8. Ani-Wall Concrete Forming did not authorize Bruce Thomas or any other person to undertake to pay the accounts of Cassels Brock & Blackwell LLP which are in issue in this matter, our to the funds from any settlement or other otherwise and I note that the document which is Exhibit “K” to the affidavit of Bruce Thomas does not mention the accounts of Cassels, Brock & Blackwell LLP whatsoever.

[24] On his cross-examination, Mr. Thomas stated that to bring about the transfer of the files to TGP, he gave a personal undertaking to Cassels Brock that its account would be paid from the anticipated settlement proceeds. He believed that this was the honourable thing to do. During his cross-examination, Mr. Thomas, however, admitted that he did not have instructions to give any undertaking that would bind Ani-Wall. His evidence was as follows:

Q. Does that [referring to the Client Direction and Authorization] mention an undertaking or give you instructions to give an undertaking to pay Cassels Brock’s account?

A. Well, I didn’t need any authority to give an undertaking.

Q. It’s a simple …

A. I didn’t need any authority to give an undertaking, Mr. Vella. That’s the honourable thing to do. In fact, I never thought there would be any issue because one doesn’t get a file from a firm, without having some arrangement made with respect to the outstanding bills, if there are any. And we, of course, never assumed there would be a problem of this nature, and we gave an undertaking freely because that’s the -- provided by the Law Society of Upper Canada rules. That’s what you do, and I did it.

Q. Without getting any written authority from your client to do?

A. I didn’t need any authority from a client, to give an undertaking to see a bill paid. That’s not required. That’s something you do as an honourable and professional thing to do and I did it. And, of course, I had discussions with Sue Baksh, the lady who was just here giving evidence. I explained to her that we would see the files would be paid, and there was never any – this thing all came out of the woodwork, after the settlement was achieved. And Mr. Indio knew that he was getting a very substantial sum of money. Then, after all that was done, he raised the issue of these rights. ….

[25] The mediation session went forward in September 2008, and the parties agreed to settle the litigation. As part of the settlement, Ani-Wall received $345,195.69 from its insurer and $2,273,000 from other parties in the litigation. Under the settlement, Ani-Wall was only a recipient, and it did not have to pay any of the other parties.

[26] Mr. Thomas describes the $2.6 million outcome as a “very substantial” success for Ani-Wall, virtually making it whole for its losses and providing a full recovery of the legal fees paid by Ani-Wall to Cassels Brock and TGP. Mr. Indio was not nearly so happy with the outcome, and he deposed that Ani-Wall’s legal expenses were not completely covered by the settlement by a deficiency of several hundred thousand dollars and that Ani-Wall lost several hundred thousands of dollars in possible reimbursement from the insurer.

[27] In 2009, TGP received the settlement funds, and the funds were paid to Ani-Wall with a holdback for Cassels Brock’s final account. Mr. Indio’s instructions, however, were not to remit the holdback funds to Cassels Brock.

[28] On January 29, 2009, on behalf of Ani-Wall, Mr. Indio wrote Cassels Brock and demanded a refund of alleged overpayments. The letter stated:

Dear Cassels Brock,

According to your records you show that there are accounts owing.

I told Mr. Bruce Thomas in 2003 that the hourly rates were excessive. At the time Ani-Wall was being invoiced at the rates listed below ….

I mentioned that we needed a decrease in these rates. I was told that I should not worry about rates since they would be covered by others. Time has proven that they are not. Certainly, we never accepted increases to these rates. …..

I am looking forward to a refund cheque as soon as possible.

Yours truly,

Ani-Wall Concrete Forming Inc.

[29] Mr. Thomas, however, wished to honour his personal undertaking and to have Cassels Brock’s bill paid. As already noted, Mr. Indio’s instructions, however, were to the contrary. In a letter dated January 29, 2009, Mr. Indio told Mr. Thomas not to pay Cassels Brock’s outstanding account. Mr. Indio stated that he had overpaid Cassels Brock and that he had never agreed to the escalating rates in the accounts that had already been paid. On February 20, 2009 and again on May 22, 2009, Mr. Indio wrote letters to Mr. Thomas instructing him that Ani-Wall was prepared to release only $4,236.37 to Cassels Brock and stating that TGP should not hold back any funds. Mr. Indio demanded payment of the money out of trust.

[30] Meanwhile, on March 5, 2009, Ms. Baksh for Cassels Brock was pressing for payment, and she wrote Mr. Thomas as follows:

Dear Mr. Thomas,

Re: Ani-Wall

It is my understanding that this matter has been settled and that you have in your trust account sufficient funds to pay our accounts receivable in this matter.

Ani-Wall promised to pay our accounts receivable out of the settlement proceeds. When you left the firm the file was given to you on the understanding that you would pay the amount outstanding out of the settlement proceeds. Kindly remit the funds to Cassels Brock and Blackwell LLP at your earliest opportunity.

[31] Despite Cassel Brock’s request, TGP did not remit any funds, although Mr. Thomas felt the position taken by Ani-Wall was unfair. He urged Ani-Wall to pay or to have its accounts assessed. In paragraphs 36 and 37 of his affidavit, Mr. Thomas deposed:

36. I have had telephone discussions and meeting with Mr. Indio concerning the position set in his January 29, 2009 letter. I have explained my view that his position was unfair, unreasonable and wrong. I suggested that he see his regular lawyer, George Vella, and have the Cassells bills assessed. On May 22, 2009, Mr. Indio wrote me to advise that he would the Cassels bills reviewed, as I had suggested by an assessment officer. To date, no request for assessment has ever been made.

37. I have explained to Mr. Indio that his approach is inconsistent with any appreciation for the value of the services rendered and the results obtained. Mr. Indio is attempting to augment his settlement by failing to give Cassels funds that were intended to cover his legal fees. We have reached an impasse in our discussions. …

[32] It is not clear from the evidentiary record what happened between May 2009 and the end of November 2011, but on December 5, 2011 and on January 17, 2011, Ani-Wall’s lawyer, Mr. Vella wrote Mr. Thomas and demanded payment of the funds still being held in trust at TGP.

[33] As noted above, TGP commenced this Application on January 10, 2012.

D. THE ARGUMENTS OF THE PARTIES

[34] Ani-Wall’s argument is that it is the owner of the settlement funds and that Cassels Brock has no proprietary interest in the funds being held in the trust account by way of solicitors’ lien, charging lien, charging order, or otherwise. In the alternative, if Cassels Brock has a proprietary claim to the funds being held in trust, then Ani-Wall submits that Cassels Brock’s claim for payment for its final account is statute-barred.

[35] Ani-Wall also argues that TGP is not entitled to interplead the funds being held in trust, because, under rule 43.02 (1)(b)(ii), the person seeking an interpleader order must “claim no beneficial interest in the property, other than a lien for costs, fees or experts.” Ani-Wall argues that Mr. Thomas has a beneficial interest in the funds because a payment to Cassels Brock would discharge Mr. Thomas’ personal undertaking and thus TGP is disqualified from seeking an interpleader order. (I note here that because of my decision that Cassels Brock is entitled to the funds without interpleader, I will not rule on this argument.)

[36] For its part, TGP supports Cassel Brock’s position. TGP’s argument is that Ani-Wall is not entitled to the funds being held in trust, and if Ani-Wall had a grievance about the amount of the Cassels Brock accounts, it should have sought an assessment under the Solicitors Act, which, however, is no longer available because of the passage of time and the absence of extraordinary circumstances that would justify allowing an assessment.

[37] Accordingly, TGP submits that the money held in trust should be paid to Cassels Brock, or, in the alternative, the money should be paid into court pursuant to an interpleader order.

[38] Cassels Brock’s argument is that it, and not Ani-Wall, is entitled to the funds. It submits that it is the owner of the funds, i.e., it has a proprietary claim to the funds. Cassels Brock submits that its entitlement is based on the agreement among TGP, Ani-Wall, and Cassels Brock made at the time of the transfer of the files. It says that it relied on this agreement and did not assert a solicitor’s lien at the time of the file transfer.

[39] In the alternative, Cassels Brock claims a charging lien or charging order over the funds because its lawyers were instrumental in the successful outcome of the action that yielded the funds. Cassels Brock submits that these claims are not subject to any limitation period under the Limitations Act, 2002. In this regard, it advances two mutually exclusive arguments. The first argument is that a charging lien, being a manifestation of the common law court’s and the courts of equity’s inherent jurisdiction, is not subject to any limitation period. The second argument relies on s.16 (1)(a) of the Limitations Act, 2002, which provides that there is no limitation period in respect of a proceeding for a declaration if no consequential relief is sought. Cassels Brock and TGP submit that a charging lien or charging order is declaratory in nature and, therefore, pursuant to s. 16(1)(1), these claims are not subject to a limitation period.

[40] In the alternative, Cassels Brock submits that if there is a limitation period, it did not start to run until the late fall of 2011, when Cassels Brock learned about Ani-Wall’s demand for payment. Cassels Brock submits that until late 2011, it believed that the funds belonged to it, so there was no basis for it to commence any action.

[41] I also note that Cassels Brock also submitted that if it was subject to a limitation period, then so was Ani-Wall, which would produce some sort of stalemate or legal paradox of no assistance to either party. I foreshadow here to say that there will be no stalemate. As set out below, my opinion is that Ani-Wall’s claim to the settlement funds and Cassels Brock’s claim for a charging order or charging lien on the settlement funds are not statute-barred but Cassels Brock’s contract claim comes too late.

[42] In any event, Cassels Brock also submits that Ani-Wall’s complaint about the fees lacks merit since Ani-Wall received detailed accounts and had the opportunity to review the accounts that contained full details of services performed and fees charged. It submits that even to this day, Ani-Wall has not particularized any overcharging. Cassels Brock submits that there are no special circumstances that would justify ordering an assessment of its accounts. I again foreshadow to say that I will not decide the merits of Ani-Wall’s complaint about excessive fees although I will order an assessment if Ani-Wall requests one within twenty days.

E. LEGISLATIVE AND REGULATORY PROVISIONS

[43] In order to decide this matter, it is necessary to refer to legislative or regulatory provisions from the Solicitors Act, the Limitations Act, rule 43.02 (1) of the Rules of Civil Procedure, Rule 696 of the former Rules of Practice, and the Rules of Professional Conduct. The relevant provisions are set out below.

Solicitors Act

Solicitors to deliver their bill one month before bringing action for costs

2. (1) No action shall be brought for the recovery of fees, charges or disbursements for business done by a solicitor as such until one month after a bill thereof, subscribed with the proper hand of the solicitor, his or her executor, administrator or assignee or, in the case of a partnership, by one of the partners, either with his or her own name, or with the name of the partnership, has been delivered to the person to be charged therewith, or sent by post to, or left for the person at the person’s office or place of abode, or has been enclosed in or accompanied by a letter subscribed in like manner, referring to such bill.

Not necessary in first instance to prove contents of bill delivered

(2) In proving compliance with this Act it is not necessary in the first instance to prove the contents of the bill delivered, sent or left, but it is sufficient to prove that a bill of fees, charges or disbursements subscribed as required by subsection (1), or enclosed in or accompanied by such letter, was so delivered, sent or left, but the other party may show that the bill so delivered, sent or left, was not such a bill as constituted a compliance with this Act.

Charges in lump sum

(3) A solicitor’s bill of fees, charges or disbursements is sufficient in form if it contains a reasonable statement or description of the services rendered with a lump sum charge therefor together with a detailed statement of disbursements, and in any action upon or assessment of such a bill if it is deemed proper further details of the services rendered may be ordered.

Order for assessment on requisition

3. Where the retainer of the solicitor is not disputed and there are no special circumstances, an order may be obtained on requisition from a local registrar of the Superior Court of Justice,

(a) by the client, for the delivery and assessment of the solicitor’s bill;

(b) by the client, for the assessment of a bill already delivered, within one month from its delivery;

(c) by the solicitor, for the assessment of a bill already delivered, at any time after the expiration of one month from its delivery, if no order for its assessment has been previously made.

No reference on application of party chargeable after verdict or after 12 months from delivery

4. (1) No such reference shall be directed upon an application made by the party chargeable with such bill after a verdict or judgment has been obtained, or after twelve months from the time such bill was delivered, sent or left as aforesaid, except under special circumstances to be proved to the satisfaction of the court or judge to whom the application for the reference is made.

Directions as to costs

(2) Where the reference is made under subsection (1), the court or judge, in making it, may give any special directions relative to its costs.

Payment not to preclude assessment

11. The payment of a bill does not preclude the court from referring it for assessment, if the special circumstances of the case, in the opinion of the court, appear to require the assessment.

Solicitors’ Charging Orders

Charge on property for costs

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.

Conveyance to defeat is void

(2) 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 as against the charge.

Assessment and recovery

(3) The court may order that the solicitor’s bill for services be assessed in accordance with this Act and that payment shall be made out of the charged property.

Limitations Act, 2002

Definitions

1. In this Act,

“claim” means a claim to remedy an injury, loss or damage that occurred as a result of an act or omission;

Basic limitation period

4. Unless this Act provides otherwise, a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered.

Discovery

5. (1) A claim is discovered on the earlier of,

(a) the day on which the person with the claim first knew,

(i) that the injury, loss or damage had occurred,

(ii) that the injury, loss or damage was caused by or contributed to by an act or omission,

(iii) that the act or omission was that of the person against whom the claim is made, and

(iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it; and

(b) the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a).

Presumption

(2) A person with a claim shall be presumed to have known of the matters referred to in clause (1) (a) on the day the act or omission on which the claim is based took place, unless the contrary is proved.

16.(1) There is no limitation period in respect of,

(a) a proceeding for a declaration if no consequential relief is sought;

Rules of Civil Procedure

CHANGE IN REPRESENTATION BY PARTY

Notice of Change of Lawyer

15.03 (1) A party who has a lawyer of record may change the lawyer of record by serving on the lawyer and every other party and filing, with proof of service, a notice of change of lawyer (Form 15A) giving the name, address and telephone number of the new lawyer.

Claim for Lawyer’s Lien

(4) A party may move, on notice to the party’s former lawyer of record, for an order determining whether and to what extent the lawyer has a right to a lawyer’s lien.

(5) In the order, the court may impose such terms as are just in connection with the lien and its discharge.

43.02 (1) A person may seek an interpleader order (Form 43A) in respect of property if,

(a) two or more other persons have made adverse claims in respect of the property; and

(b) the first-named person,

(i) claims no beneficial interest in the property, other than a lien for costs, fees or expenses, and

(ii) is willing to deposit the property with the court or dispose of it as the court directs.

Rules of Practice

Rule 696

696 (1) Where a solicitor has been employed to prosecute or defend any cause or matter, the court may, upon a summary application, declare such solicitor, or his personal representatives, to be entitled to a charge upon the property recovered or preserved through the instrumentality of such solicitor, for his costs, charges and expenses of or in reference to such cause, matter or proceeding, and all conveyances and acts done to defeat, or which may operate to defeat, such charge or right are, unless made to a bona fide purchaser for value without notice, absolutely void and of no effect as against such charge.

(2) The court may make an order for taxation of such costs, charges and expenses and for the raising and payment of the same out of the property.

Rules of Professional Conduct

2.09 WITHDRAWAL FROM REPRESENTATION

Manner of Withdrawal

(8) When a lawyer withdraws, the lawyer shall try to minimize expense and avoid prejudice to the client and shall do all that can reasonably be done to facilitate the orderly transfer of the matter to the successor legal practitioner.

(9) Upon discharge or withdrawal, a lawyer shall

(a) subject to the lawyer’s right to a lien, deliver to or to the order of the client all

papers and property to which the client is entitled, …,

(d) promptly render an account for outstanding fees and disbursements, and

(e) co-operate with the successor legal practitioner so as to minimize expense and avoid prejudice to the client.

Commentary

The obligation to deliver papers and property is subject to a lawyer's right of lien. In the event of conflicting claims to such papers or property, the lawyer should make every effort to have the claimants settle the dispute. ….

Where upon the discharge or withdrawal of the lawyer, the question of a right of lien for unpaid fees and disbursements arises, the lawyer should have due regard to the effect of its enforcement upon the client's position. Generally speaking, the lawyer should not enforce the lien if to do so would prejudice materially the client's position in any uncompleted matter.

Duty of Successor Licensee

(10) Before agreeing to represent a client, a successor licensee shall be satisfied that the former licensee approves, has withdrawn, or has been discharged by the client.

Commentary

It is quite proper for the successor licensee to urge the client to settle or take reasonable steps towards settling or securing any outstanding account of the former licensee, especially if the latter withdrew for good cause or was capriciously discharged. But if a trial or hearing is in progress or imminent or if the client would otherwise be prejudiced, the existence of an outstanding account should not be allowed to interfere with the successor licensee acting for the client.

6.03 RESPONSIBILITY TO LAWYERS AND OTHERS

Undertakings

(10) A lawyer shall not give an undertaking that cannot be fulfilled and shall fulfill every undertaking given.

Commentary

Undertakings should be written or confirmed in writing and should be absolutely unambiguous in their terms. If a lawyer giving an undertaking does not intend to accept personal responsibility, this should be stated clearly in the undertaking itself. In the absence of such a statement, the person to whom the undertaking is given is entitled to expect that the lawyer giving it will honour it personally. The use of such words as “on behalf of my client” or “on behalf of the vendor” does not relieve the lawyer giving the undertaking of personal responsibility. ….

F. DISCUSSION

1. Introduction

[44] The purpose or point of TGP’s Application is to use the funds in its trust account to discharge Mr. Thomas’ personal undertaking to have Cassels Brocks’ final account to Ani-Wall paid. Thus, the essential question to be determined in the Application is whether these funds belong to Cassels Brock or to Ani-Wall. A review of several legal concepts; namely, undertakings, the obligations of a successor lawyer on the transfer of a file, assessments under the Solicitors Act, solicitor’s liens, charging liens, and charging orders, and then a chronological, event by event analysis is required to answer that question.

2. Undertakings

[45] Lawyer’s undertakings are of two types. The first type of undertaking is an undertaking given by the lawyer acting as an agent of his or her client; the lawyer makes it clear that the principal, i.e. the client, is the party responsible for the satisfaction of the undertaking. This type of undertaking does not expose the lawyer to liability: Re Jost and Solicitors (1978), 7 C.P.C. 303 (N.S.S.C.); Wakefield v. Duckworth & Co., [1915] 1 K.B. 218 The second type of undertaking, which does expose the lawyer to liability, is the personal undertaking of the lawyer acting in his or her professional capacity as a lawyer.

[46] In the case at bar, I conclude that Mr. Thomas made the second type of undertaking, a personal undertaking, not an undertaking made as agent for his client Ani-Wall.

[47] Sometimes the exposure of a lawyer for liability for breach of a personal undertaking may be explained as a matter of the law of contract. This explanation will follow if the rules of contract formation are satisfied for the promise or undertaking. The case of Frankel Structural Steel Ltd. v. Goden Holdings Ltd., 1971 CanLII 6 (SCC), 16 D.L.R. (3d) 736 (S.C.C.), revg. (1969), 1969 CanLII 27 (ON CA), 5 D.L.R. (3d) 15 (Ont. C.A.), is an example. In this case, a law firm’s undertaking to pay funds to a manufacturer was a binding contract.

[48] More often, however, the enforcement of the undertaking cannot be explained as a matter of contract because, for example, the element of consideration may be missing. The enforcement of these undertakings is then explained as an incident of the court’s inherent jurisdiction to supervise its officers and to secure their honest conduct: Re Hilliard, Ex. P. Smith (1845), 2 Dow. & L. 919; Watton v. Parsons (1977), 1977 CanLII 1702 (NL SC), 80 D.L.R. (3d) 297 (Nfld. Dist. Ct.); Regatta Investments Limited v. Haig, 1985 CanLII 3670 (MB QB), [1985] 6 W.W.R. 635 (Man. Q.B.).

[49] The court’s summary jurisdiction to enforce lawyers’ undertakings is rooted in the idea that the court should secure high standards of conduct, honesty, and integrity from its officers. Because this jurisdiction is a matter of the honour of the profession, it follows that, for the court to exercise its jurisdiction, the lawyer must give the undertaking while he or she is acting in a professional capacity. For example, if a lawyer borrows money in his or her personal capacity and promises to repay, that promise is not an undertaking in his or her capacity as a lawyer that is enforceable summarily by the court: Silver & Drake v. Baines, [1971] 1 Q.B. 396 (C.A.).

[50] When the terms of the undertaking are clear, the beneficiary of the undertaking may apply in a summary way to the court for an order that the lawyer comply with his or her undertaking or pay compensation if unable to do so: United Mining and Finance Corporation Ltd. v. Becher, [1910] 2 K.B. 296 (C.A.); Re Williams v. Swan. & Gray Coach Lines, 1942 CanLII 304 (ON CA), [1942] 4 D.L.R. 488 (Ont. C.A.) Re Solicitor (1916), 1916 CanLII 553 (ON CA), 37 O.L.R. 310 (C.A.); Watton v. Parsons (1977), 1977 CanLII 1702 (NL SC), 80 D.L.R. (3d) 297 (Nfld. Dist. Ct.); Bank of British Columbia v. Mutrie (1981), 1981 CanLII 405 (BC CA), 120 D.L.R. (3d) 177 (B.C.C.A.); John Fox v. Bannister, King & Rigbeys, [1988] 1 Q.B. 925 (C.A.); Witten v. Leung (1983), 1983 CanLII 1028 (AB KB), 148 D.L.R. (3d) 418 (Alta. Q.B.).

[51] If a lawyer fails to honour his or her undertaking, then he or she may also be punished for contempt. Cain v. Genereux (1981), 21 R.P.R. 156 (Ont. H.C.J.) is an example. In this case, the lawyer for the vendor undertook to a first mortgagee to use closing funds to discharge the existing first mortgage. The lawyers for the mortgagee successfully moved to have the vendor’s lawyer committed for contempt for his failure to honour the undertaking. See also Domfab Limited v. Ross, Viner (1976), 1976 CanLII 2467 (NS SC), 22 N.S.R. (2d) 185 (N.S. T.D.).

[52] In my opinion, in the case at bar, Mr. Thomas gave a personal undertaking to pay Cassel Brock’s account and this undertaking is enforceable by Cassels Brock.

[53] From the discussion in the next section of these reasons, I conclude that Mr. Thomas breached his undertaking to Cassels Brock.

3. The Obligations of a Successor Lawyer on the Transfer of a File.

[54] Although he gave an undertaking to pay Cassel Brock’s outstanding account receivable out of the proceeds of the anticipated settlement payable to Ani-Wall, Mr. Thomas had no professional obligation to Cassels Brock to give this undertaking. Unfortunately, the duties of a successor lawyer on the transfer of a file are not clear and there are different arrangements that are possible, some of which may prove problematic if the client does not support the undertaking.

[55] The Honourable John Morden discussed the ethical duties of a successor lawyer in J.W. Morden, “A Succeeding Solicitor’s Duty to Protect the Account of the Former Solicitor” (1971), 4 Law Society of Upper Canada Gazette 257, and he stated at p. 258:

It is my view that no rule of professional conduct can be laid down to cover the situation respecting unpaid accounts where a client moves from one solicitor to another. It is quite clear that it is the client’s absolute right to terminate his relationship with his solicitor at any time. In many cases a rule that a superseding solicitor was obliged to make arrangements to “protect the account” of the former solicitor would unjustly interfere with this right. In some cases there undoubtedly will be good grounds for the client leaving his former solicitor and it may that his liability to pay any fee at this point would be questionable. It would be wrong to create the impression by a formal rule that the members of the legal profession have a concerted or collective position against clients desiring to change their legal advisers – a rule which works to the benefit of individual members of the profession.

[56] More recently, Justice Rawlins of the Alberta Court of Queen’s Bench addressed the question of the successor lawyer’s duties to his or her predecessor in Merchant Law Group v. McLeod & Co., supra at para. 53, where he stated:

In my view, while solicitors are duty-bound to extend reasonable courtesies to one another, there is no such duty to ensure payment of another solicitor's account absent some intervention by the Court. I am supported in this view by Chapter 14 of the Law Society of Alberta's Code of Professional Conduct, which deals with withdrawal by and dismissal of a solicitor. Commentary 3 to Rule 3 of that Chapter provides, in part, as follows:

A withdrawing lawyer should not enforce a solicitor's lien for non-payment of fees if the client is prepared to enter into an arrangement that reasonably assures the lawyer of payment in due course. Successor counsel may also be requested to undertake to pay an outstanding account from the monies ultimately recovered by that counsel. Where the matter in question is subject to a contingency agreement, the lawyers may agree to divide the contingent fee on the basis of apportionment of total effort required to effect settlement.

Further, Commentary 5 to Rule 5 provides, in part, as follows:

Both the withdrawing and successor lawyer must cooperate in facilitating a smooth transition with as little inconvenience and expense to the client as possible. A successor lawyer has no general duty to ensure that the previous lawyer has been paid, but it is appropriate to encourage the client to resolve an outstanding account.

[57] In Bogoroch & Associates v. Sternberg, [2005] O.J. No. 2522 (S.C.J.), Justice Wilton-Siegel discussed the problems associated with the various different arrangements to “protect a lawyer’s account.” In this case, Richard Campbell was injured in a motor vehicle accident, and he retained Bogoroch & Associates to act for him to make tort claims and statutory accident benefit claims. The firm acted for a time, but Mr. Campbell decided to retain a different lawyer, Gerald Sternberg, to assume carriage of his claims. In order to obtain the file, Mr. Sternberg gave an undertaking to Bogoroch & Associates to protect its account, which was understood to mean that Mr. Sternberg would ensure that the account would be paid out of any arbitration or settlement proceeds after payment of Sternberg's account. There, however, was no complementary undertaking or acknowledgement from Mr. Campbell.

[58] Mr. Sternberg assumed carriage of the matter, and he negotiated a $75,000 settlement with Mr. Campbell’s accident benefits insurer. Mr. Campbell demanded that the settlement proceeds be paid directly to him and not to Mr. Sternberg in trust. Mr. Sternberg understood that Mr. Campbell wanted a direct payment to prevent Mr. Sternberg from using the funds to pay Bogoroch & Associates’s account. Mr. Sternberg advised Bogoroch & Associates that it was probable that Campbell would be paid directly and thus he would be unable to honour the undertaking.

[59] Meanwhile, Bogoroch & Associates issued an account for $31,435.97 and sent a copy to Mr. Sternberg, but before it could obtain a charging order, Mr. Campbell received the settlement proceeds. Subsequently, Bogoroch & Associates sued Mr. Sternberg on his undertaking to protect the account.

[60] Justice Wilton-Siegel noted that there was no uniform practice among lawyers with respect to the actions, if any, that should be taken at the time of the transfer of a client's file and thus the obligations of a solicitor giving an undertaking were unclear. At paragraphs 57 and 58 of his judgment, Justice Wilton-Siegel set out a list of actions that a lawyer giving an undertaking to protect his or her predecessors account might take. He stated:

57. First, there are a number of actions that a lawyer giving an undertaking to protect another lawyer's account might take at the time of giving the undertaking. These include the following, some of which are alternatives:

58. obtaining an acknowledgement from his client that the client is aware of the solicitor's undertaking and agrees to abide by it;

59. obtaining a direction from the client to have all proceeds paid to the solicitor in trust in order to pay the first solicitor's legal account out of the proceeds;

60. providing the first solicitor with an undertaking from the client to have all proceeds paid in trust to the solicitor with carriage of the matter;

61. providing a solicitor's undertaking and advising the client of this commitment; and

62. providing a solicitor's undertaking without advising the client of this commitment.

63. In addition, the first solicitor may provide an account for his services up to the time of transfer to the client or to the solicitor assuming carriage of the action. In that event, the solicitor assuming the matter may discuss the account with the client and obtain either his agreement to the quantum or an indication that the client requires an assessment of the account.

[61] Justice Wilton-Siegel stated that since the successor lawyer’s undertaking was a continuing obligation that included the implied promise not to assist the client in frustrating the lawyer’s performance of the undertaking, the manner in which the lawyer gave the undertaking could later create a conflict of interest between the lawyer and his or her client and also place the lawyer in circumstances where he or she might breach his or her obligations to comply with the Rules of Professional Conduct. He described the problems and paradoxes at paragraphs 61 to 67 of his reasons, where he stated:

61. The parties addressed the operation of the Rules of Professional Conduct in the context of Camp-bell's decision to require payment of the settlement proceeds directly to himself. By doing so, Sternberg was placed in a position of conflict of interest. While the operation of the Rules of Professional Conduct in these circumstances was not thoroughly canvassed, the following observations are relevant for these Reasons.

62. First, the plaintiff properly describes the conflict of interest as a conflict between the obligations of the solicitor to perform the solicitor's personal undertaking in favour of the first solicitor and the obligation of the solicitor to fulfill his or her professional responsibilities to the client by acting in accordance with the client's instructions. As discussed further below, the undertaking in favour of the first solicitor is a continuing obligation and carries an implied covenant to refrain from actions that would assist the client in frustrating its performance.

63. Second, at least three different Rules of Professional Conduct address the position of a solicitor who, having given an undertaking to a former solicitor of record, learns that the client is seeking to frustrate performance of the undertaking. Rule 2.04(3) provides that a lawyer shall not act or continue to act in a matter where there is or is likely to be a conflicting interest unless, after disclosure adequate to make an informed decision, the client consents. I note, however, that this Rule only addresses the relationship between the solicitor and the client and not the relationship between the two solicitors. Second, Rule 2.09(7) of the Rules of Professional Conduct requires a lawyer to withdraw from representation of a client if it becomes clear that the lawyer's continued employment will lead to a breach of the rules. This rule could come into play if the solicitor who has assumed carriage of the action finds himself in a conflict of interest because it has become impossible to honour both the client's instructions and the solicitor's personal obligations under the undertaking. Lastly, having undertaken to represent the client, a solicitor is not permitted to withdraw that representation without justifiable cause. Justifiable cause includes a loss of confidence by the solicitor resulting from deceit or other improper behaviour of the client. To the same end, Rule 4.01(2)(b) of the Rules of Professional Conduct also provides that a solicitor shall not knowingly assist or permit a client to do anything that the lawyer considers to be dishonourable or dishonest. However, justifiable cause does not extend to a conflict of interest arising solely as a result of the solicitor's actions.

64. Third, whether or not the conflict can be resolved without risk of liability to, or disciplinary sanction of, the solicitor depends upon whether the solicitor can demonstrate a justifiable cause permitting his or her withdrawal from the action. In circumstances similar to those contemplated in this decision, the issue of whether or not justifiable cause exists depends on whether or not the solicitor who gave the undertaking has taken some action to make the client aware of the undertaking and to obtain the client's express or implied consent thereto.

65. If the solicitor has done so, Rule 4.01(2)(b) articulates a positive obligation to withdraw from the action and provides a "safe harbour" from any disciplinary action. Similarly, in these circumstances, public policy prevents claims by the client against the solicitor for any loss resulting from the withdrawal of services. In addition, in these circumstances, if the solicitor has received funds in his or her trust account, the funds may be interpleaded, also without legal exposure to the solicitor.

66. Conversely, in the absence of such consent, the solicitor faces an insoluble conflict between two courses of action. If the solicitor withdraws from the action without the consent of the client, there is the potential for a claim by the client for any loss resulting from the withdrawal of his services. If the solicitor continues to represent the client, the solicitor breaches the continuing obligations of the undertaking, with the potential for a claim by the first solicitor for any loss resulting from the failure to perform the undertaking. In addition, each course of action appears to contravene the Rules of Professional Conduct and carries the potential for disciplinary sanctions.

67. Lastly, the foregoing analysis demonstrates that a solicitor who gives an undertaking and does not take some course of action at the time of doing so to avoid the potential for a conflict of interest runs the risk of a contravention of the Rules of Professional Conduct if the client subsequently takes actions which would frustrate the undertaking. However, the Rules of Professional Conduct do not mandate any specific actions or procedures to be taken or followed by either party when a solicitor gives an undertaking in the circumstances contemplated by this action.

[62] Moving from the lawyer’s ethical or professional responsibilities to the law’s enforcement of undertakings, Justice Wilton-Siegel concluded that although there were good practical and professional reasons for doing so, there was no legal requirement that a lawyer give an undertaking to the predecessor lawyer or any obligation to ensure that any undertaking was acknowledged by the client or to ensure that funds are payable to the lawyer. Lawyers were free to come to their own arrangements.

[63] There are obligations, however, if a lawyer does give an undertaking. The undertaking will include a continuing obligation of the solicitor to refrain from actions that would frustrate the performance of the undertaking. The lawyer who gives an undertaking is expected to provide timely notification of circumstances coming to the lawyer’s attention that may prevent the lawyer from honouring his or her undertaking. The former lawyer must be advised of all facts necessary to permit him or her to protect his or her account.

[64] The notice obligations under an undertaking could give rise to a breach of confidentiality obligations to the client by the lawyer who gave the undertaking, and this could only be addressed by express permission from the client. As a practical matter, in most situations, this permission will only be given, if at all, at the time the file is transferred, and thus, as a practical matter, the lawyer giving the undertaking must address the issue. The solicitor takes the risk of legal exposure to his or her client if the lawyer does not obtain permission to give this disclosure prior to the conflict arising.

[65] Finally, the undertaking requires the lawyer to cease acting on behalf of the client from the time when the lawyer learns that the client proposes to take actions that would frustrate the undertaking. Whether the obligation to withdraw conflicts with the solicitor's professional responsibilities to the client will depends upon the particular circumstances of a case.

[66] Justice Wilton-Siegel concluded that Mr. Sternberg breached his obligations by continuing to act for Mr. Campbell. By failing to take any steps at the time of taking over this litigation, Mr. Sternberg took on himself the risk of exposure to his client after any future withdrawal from the action, as well as the risk of exposure to any claim for breach of confidentiality.

[67] The above discussion leads me to the conclusion that Mr. Thomas was under no obligation to give an undertaking to have Cassels Brock’s account paid from the proceeds of the settlement but having given the undertaking, Mr. Thomas breached it when Ani-Wall gave instructions that the settlement funds not be paid to Cassels Brock and Mr. Thomas did not himself honour the undertaking by paying the account.

4. Equitable Assignment

[68] In my opinion, Mr. Thomas needed instruction from Ani-Wall to bind it to an agreement to use the settlement funds to pay Cassels Brock’s final account. For Mr. Thomas to have made an undertaking without personal liability but binding on Ani-Wall, he would have had to implement instructions from Ani-Wall to make an equitable assignment or direction of the settlement proceeds. This approach is one of the possibilities mentioned in Bogoroch & Associates v. Sternberg, supra.

[69] Under the law of equitable assignments, if a debtor, to repay a debt, gives his or her creditor an order upon a person who holds a specific fund for the debtor that the fund be used to repay the debt, there is an equitable assignment of the fund. There must be both an agreement to pay out of a specific fund and the intent to create a property interest in that fund: Burn v. Carvalho (1839), 4 My. & Cr. 690; Rodick v. Gandell (1852) 1 D.M. & G. 763; Palmer v. Carey, [1926] A.C. 703 (P.C.); Family Trust Corp v. Morra (1987), 1987 CanLII 4191 (ON SC), 60 O.R. (2d) 30 (Div. Ct.); Rawlings, Sumner, Tilson Electric Ltd. v. Commercial Courts of London Ltd. (1980), 1980 CanLII 1846 (ON SC), 32 O.R. (2d) 377 (H.C.J.); Bilek v. Salter (Estate), [2009] O.J. No. 4454 (S.C.J.).

[70] An irrevocable direction for a valuable consideration requiring that funds shall be applied to the debt owing to a creditor, creates a beneficial property interest in favour of the creditor. Such a direction, followed by receipt of the funds on closing, makes a solicitor liable for failure to honour the equitable assignment, provided there is consideration for the direction: Family Trust Corp. v. Morra, supra; Van Melle v. Muir, [2000] O.J. No. 5717 (S.C.J.).

[71] A leading case about equitable assignments and about lawyers’ undertakings is Frankel Structural Steel Ltd. v. Goden Holdings Ltd., supra. In this case, the Defendant Goden Holdings was a lender. It was owned by the law firm Gotfrid & Dennis. Goden Holdings agreed to lend funds to Hyacinthine Properties for the construction of a building, the advances to be secured by a mortgage of the land being improved. The mortgage, however, did not absolutely oblige Goden Holdings to make advances. The plaintiff Frankel Structural Steel Ltd. agreed to supply steel to Hyacinthine Properties and obtained a direction from Hyacinthine Properties to Goden Holdings and to Gotfrid & Dennis to pay the Plaintiff from the mortgage advances. The Plaintiff also obtained a personal assurance from a partner in the law firm that the Plaintiff would be paid from the advances. In the result, the Plaintiff was paid in part only and it sued Goden Holdings and the law firm for the balance of $48,3000 owed to it by Hyacinthine Properties.

[72] Both the Ontario Court of Appeal and the Supreme Court of Canada held that the Plaintiff could not succeed on the basis of an equitable assignment. This claim failed because the lender’s discretion to advance or not advance funds meant that no fund ever came into existence, and so there was no subject matter which could be equitably assigned. The Plaintiff, however, was entitled to succeed on an alternative ground. The Court of Appeal held that the Plaintiff could succeed in contract against Goden Holdings because the partner’s assurance of payment was a unilateral contract to pay for steel delivered to Hyacinthine Properties.

[73] For the case at bar, in my opinion, it would have been possible to establish an equitable assignment of the proceeds from the settlement once that fund came into existence but no equitable assignment was created at the time of the transfer of the file because the fund did not exist and might never have come into existence. Moreover, at the time of the transfer, Ani-Wall did not agree to pay out of a specific fund and it did not have any intent to create a property interest in that fund to pay an account that it was disputing.

5. Assessments under the Solicitors Act

[74] Under the Solicitors Act, where the retainer is not in dispute, a client may requisition a local registrar of the court for an order for the assessment of any solicitor’s account, unpaid or paid, within one month of the delivery of the account: Enterprise Rent-a-Car Co. v. Shapiro, Cohen, Andrews, Finlayson, 1998 CanLII 1043 (ON CA), [1998] O.J. No. 727 (C.A.). If the client acts within one month of the delivery of the lawyer’s bill, no court intervention is required for the assessment to be scheduled.

[75] After the one-month period, the court may order an assessment if there are “special circumstances:” Guillemette v. Doucet, 2007 ONCA 743, [2007] O.J. No. 4172 (C.A.); Brusby v. Flak, 2011 ONSC 4917.

[76] Subject to the client establishing special circumstances, the client’s claim for an assessment is also subject to the two-year limitation period prescribed for claims under the Limitations Act, 2002. In other words, the two-year period of the Act applies, unless the one-year limitation period of the Solicitors Act is extended by operation of the special circumstances doctrine: Guillemette v. Doucet, supra.

[77] In Guillemette v. Doucet, supra at para. 35, the Court of Appeal held that a superior court has an inherent jurisdiction to review lawyers' accounts entirely apart from any statutory authority and that inherent jurisdiction is not subject to a time limit.

[78] “Special circumstances” includes any circumstances of an exceptional nature affecting the matter of costs or the liability of a client that a judge, in the exercise of his or her judicial discretion in each particular case, may consider to justify an assessment of the account: Glanc v. O’Donohue & O’Donohue, 2008 ONCA 395, [2008] O.J. No. 1946 (C.A.); Rooney v. Jasinski, 1952 CanLII 115 (ON CA), [1952] O.J. No. 426 (C.A.); Minkarious v. Abraham, Duggan, 1995 CanLII 7253 (ON SC), [1995] O.J. No. 3494 (Gen. Div.); Plazavest Financial Corp. v. National Bank of Canada, 2000 CanLII 5704 (ON CA), [2000] O.J. No. 1102 (C.A.); Ling v. Naylor, [1998] O.J. No. 5263 (Gen. Div.).

[79] In determining whether there are special circumstances, the court exercises a broad discretion to be exercised on a case-by-case basis and with an eye to all of the relevant circumstances: Plazavest Financial Corp. v. National Bank of Canada, supra; Guillemette v. Doucet, supra; Minkarious v. Abraham, Duggan, supra.

[80] Special circumstances is a fact-specific inquiry, but the starting point is the perspective of the client, and public confidence in the administration of justice requires the court to intervene where necessary to protect the client's right to a fair procedure for assessment of a solicitor's bill: Echo Energy v. Lenczner Slaght Royce Smith Griffin LLP, 2010 ONCA 709 at para. 36; Andrew Feldstein & Associates Professional Corp. v. Keramidopulos, [2007] O.J. No. 3683 at para. 63 (S.C.J.); Price v. Sonsini, 2002 CanLII 41996 (ON CA), [2002] O.J. No. 2607 (C.A.).

[81] In my opinion, in the case at bar, there are special circumstances including the imperfect way in which the transfer of the file was handled, and it is not too late for the court to order that Cassels Brock’s accounts be assessed.

6. Solicitor’s Liens

[82] When a client discharges a lawyer without just cause, the lawyer may exercise a lien for fees over the documents in his or her possession, and the lawyer may retain the file material until he or she is paid, subject to the court’s jurisdiction to interfere with the exercise of the lien, without actually nullifying it, to protect the interests of third parties: Collison v. Hurst, 1946 CanLII 310 (ON CA), [1946] O.J. No. 212 (C.A.); Re Gladstone, 1971 CanLII 500 (ON CA), [1971] O.J. No. 1881 (C.A.); Maricic v. Stancer, Sidenberg, [1992] O.J. No. 1540 (Gen. Div.); 1271122 Ontario Inc. v. Shutam Canada Inc., [2003] O.J. No. 1638 (Master); Medici v. Roy, [2004] O.J. No. 2789 (S.C.J.); Szabo Estate v. Adelson, [2007] O.J. No. 636 (S.C.J.); Kupnicki v. Macerola, [2007] O.J. No. 2541 (Master); Goodmans LLP v. Ferrara, [2009] O.J. No. 2425 (S.C.J.).

[83] In the case at bar, Cassels Brock had a right to a solicitor’s lien but it did not exercise that right because it accepted Mr. Thomas’ personal undertaking. Had it exercised its right to a solicitor’s lien, under rules 15.03 (4) and (5) of the Rules of Civil Procedure, the court has the jurisdiction to determine whether and to what extent the lawyer has a right to a lawyer’s lien and the court may impose such terms as are just in connection with the lien and its discharge.

7. Charging Orders and Charging Liens

[84] A charging order is a statutorily-based proprietary right of a lawyer to claim property owned by a client or former client when the lawyer’s acts were instrumental in recovering the property. A charging order is similar to a charging lien, which is a manifestation of the common law court’s and the court of equity’s inherent jurisdiction.

[85] Pursuant to s. 34 (1) of the Solicitors Act, a lawyer has a right to a charging order to encumber any property recovered or preserved by the instrumentality of the lawyer in a proceeding: Bilek v. Salter Estate, [2009] O.J. No. 4454 (S.C.J.); Re Tots and Teens Sault Ste. Marie, 1975 CanLII 535 (ON SC), [1975] O.J. No. 2549 (H.C.J.); Siskind, Cromarty, Ivey and Dowler v. Ross, Bennett & Lake, [1994] O.J. No. 1807 (Gen. Div.).

[86] Section 34 is the successor of Rule 696 of the former Rules of Practice and was added to the Solicitors Act by the Courts of Justice Act, 1984, S.O. 1984, c. 11, s. 214 and not continued as part of the Rules of Civil Procedure.

[87] For a charging order or for a charging lien, property includes choses in action and proceeds that will become available in the future: Pino v. Vanroon, [1998] O.J. No. 4354 (Gen. Div.); Medici v. Roy, [2004] O.J. No. 2789 (S.C.J.).

[88] The charging order or charging lien is for the lawyer’s fees, costs and disbursements in the proceeding. To obtain a charging order or charging lien, a lawyer must demonstrate that: (a) the fund, or property, is in existence at the time the order is granted; (b) the property was recovered or preserved through the instrumentality of the lawyer; and (c) there must be some evidence that the client cannot or will not pay the lawyer’s fees:” Bilek v. Salter Estate, [2009] O.J. No. 4454 ( S.C.J.); Langston v. Landen, [2008] O.J. No. 4936 (S.C.J.); Kushnir v. Lowry, [2003] O.J. No. 4093 (C.A.); Higgott v. Higgott, [1989] O.J. No. 1290 (Gen. Div.); Blue Resources Ltd. v. Sheriff, [1996] O.J. No. 1175 (Gen. Div.); Budinsky v. The Breakers East Inc., 1993 CanLII 5442 (ON SC), [1993] O.J. No. 1984 (Gen. Div.).

[89] As already noted above, in addition to the statutory charging order under the Solicitors Act, common law courts and courts of equity have an inherent jurisdiction to charge assets recovered or preserved through the instrumentality of a lawyer for a client: Re Cochard, 2005 ABQB 679 at paras. 60 to 86 (Alta. Q.B.); Pino v. Vanroon, supra at para. 11; Re Tots and Teens Sault Ste. Marie, supra; Merchant Law Group v. McLeod & Co. 2005 ABQB 875.

[90] For present purposes, it is important to note the legal nature of the charging lien, which is modestly different from a statutorily-based charging order. A charging lien is an inchoate right that immediately arises by operation of law the moment property has been recovered or preserved by the lawyer’s instrumentality: Bell v. Wright, [1895] S.C.J. No. 45 (S.C.C.). Charging liens can be claimed only on the fruits of the proceeding in which recovery was made: The London Mutual Fire Insurance Co. v. Jacob, [1889] O.J. No. 22 (C.A.).Thus, a charging lien is pre-existing right that is confirmed by order of the court: Pino v. Vanroon, supra, at para. 11.

[91] In Re Tots and Teens Sault Ste. Marie, supra at paras. 15 and 17, Justice Henry described the charging lien as follows:

15. [T]he Courts have always had an inherent jurisdiction to declare that the solicitor's claim for his costs was a charge upon the fund representing the fruits of his diligence on behalf of his client. ….

16. It is to be observed that the order made is declaratory and this presupposes that there is a pre-existing right at common law or in equity, so that the order of the Court merely declares and gives effect to that right. The inherent jurisdiction of the Court, however to apply its equitable jurisdiction in favour of the solicitor remains.

[92] A subtle point that is worth noting is that the charging lien or charging order binds the client from the time of its creation but notice of the charging lien is required to bind a successor lawyer who otherwise could disburse the funds to a bona fide third party without notice of the charging order or charging lien. Charging orders or charging liens are not enforceable against bona fide purchasers for value without notice of the lawyers' claim for payment of his costs and expenses for the litigation.

[93] In Franklin Services Co. Ltd. v. City of Halifax (1977), 20 N.S.R. (2d) 306 (N.S.T.D.), Chief Justice Cowan stated that the Court will exercise its jurisdiction where the solicitor has given the opposite party or his or her solicitor notice of the lien against settlement proceeds, in which case the opposite party and his or her solicitor will, at his or her peril, pay the client or release the lawyer’s claim to a share of the recovery. See also Mix v. Murphy 2003 NBQB 395.

[94] This subtle point is not a factor in the immediate case because TGP was aware that Cassels Brock was asserting a right to be paid from the settlement proceeds that TGP was holding.

[95] For the circumstances of the case at bar, the circumstance that the common law charging lien is an aspect of the court’s inherent jurisdiction is particularly significant because of the Court of Appeal’s holding in Guillemette v. Doucet, supra that a superior court has an inherent jurisdiction to review lawyers' accounts entirely apart from any statutory authority and that the inherent jurisdiction is not subject to a time limit.

[96] The significance to the case at bar is that the charging lien is not subject to a limitation period. This was also the holding of Justice Veit of the Alberta Court of Queens’ Bench in Re Cochard, supra at para. 70. Similarly, in Merchant Law Group v. McLeod & Co., supra at para. 50, Justice Rawlins stated:

It is clear from the authorities, including Atkinson, that the charging lien is not subject to any statute of limitations. Nevertheless, the equitable nature of the Court's intervention means that equitable defences may be raised. For example, if there has been excessive delay in bringing the application, the defence of laches may apply.

[97] These authorities thus support Cassels Brock’s first argument that its claim to a charging order is not statute-barred. These authorities also support Cassels Brock’s second argument that relies on s. 16 (1) of the Limitations Act, which, to repeat, provides that there is no limitation period in respect of a proceeding for a declaration if no consequential relief is sought.

[98] Re Tots and Teens Sault Ste. Marie, supra is authority that a charging order is intrinsically declaratory relief. The facts of the case were that Mr. Lang successfully defended two clients who had been sued for damages. The action was dismissed, and the clients were awarded costs of $852.70, which were recovered by the sheriff levying execution. However, Mr. Lang’s clients became bankrupt, and the moneys recovered for costs were assigned to their trustee in bankruptcy and not paid to Mr. Lang. He applied under former Rule 696, and the issue was whether the charging order would give Mr. Lang the status of a secured creditor in his clients’ bankruptcies. Justice Henry answered that question yes.

[99] Justice Henry reasoned that there were two kinds of charging order: (1) the statutory charging order prescribed by what was then Rule 696 of the Rules of Practice and what is now s. 34 of the Solicitors Act; and (2) the charging lien that was a manifestation of the inherent jurisdiction of common law courts and courts of equity.

[100] Justice Henry reasoned that Mr. Lang’s Application, although procedurally under Rule 696, did not substantively rely on Rule 696, but rather relied on the court’s inherent jurisdiction. It was undoubtedly the case that before his clients’ bankruptcies had Mr. Lang applied for a charging order (under either the statutory or the court’s inherent jurisdiction), he would have been entitled to an order of the court. However, this did not occur because the funds recovered by the sheriff did not come into existence until after the bankruptcies. By the time Mr. Lang notified the trustee of his claim and initiated proceedings, the question became: “What then is the situation where the fund comes into existence as property of the bankrupt subsequent to the bankruptcy, and that property comes into the hands of the trustee?” Justice Henry provided his answer at para. 26, where he stated:

… I have reached the conclusion that the fund at the time it was created in the hands of the Sheriff was impressed with the inchoate right of the solicitor to apply to the Court and have a declaration that it is charged as security for his costs. This was an inherent right to invoke the equitable jurisdiction of the Court to exercise its discretion in his favour by way of declaring that the fund is charged as security for his claim. As I see it, the role of the Court is to declare, not to create, the security and even though the bankruptcy has occurred, it is in my opinion still open to the proper Court, in the exercise of its discretion, as I have said, to decide if the lien shall or shall not be recognized. If the Court makes such a declaration it has the effect, as I see it, of holding that the lien attached to the fund at the moment it was created. If it had been created prior to the bankruptcy, there would be no question that the fund would stand charged; the fund having been created after the bankruptcy may, in my opinion, in the same way be made the subject of a charge by way of security, unless of course the Court comes to the conclusion that it would offend the principles of equity, either by reason of the conduct of the solicitor or unfairness to the creditors, to refuse to exercise the discretion in the solicitor's favour. On the view that I take of the matter, the lien in law attached to the fund as an inchoate right, the crystallization of the lien requiring only the pronouncement of the Court to reveal it.

[101] For present purposes, the three points to note from Justice Henry’s decision in Re Tots and Teens Sault Ste. Marie about a charging lien made under the court’s inherent jurisdiction are: first, the charging lien creates the proprietary interest of a secured creditor; second, subject to being declared, the charging lien is an inchoate interest that pre-dates the court’s declaration; and third, the charging lien is intrinsically declaratory in nature. The last point supports Cassel Brock’s argument that a charging lien comes within s. 16 (1) (a) of the Limitations Act, 2002 and is not subject to any limitation period.

[102] Applying the above analysis, I, therefore, conclude for the case at bar, that Cassels Brock would be entitled to a charging lien or a charging order and thus it has a proprietary interest in the funds being held by TGP. I also conclude that the claim to a charging order or charging lien is not statute-barred under the Limitations Act, 2002.

8. Chronological Analysis

[103] Turning to a chronological analysis of the facts of the case at bar and beginning with the final account dated June 23, 2008, it created a debt or contractual claim that Cassels Brock could have enforced by action or by assessment under the Solicitors Act. Ani-Wall could have had the account assessed under the Solicitors Act.

[104] However, in June 2008, rather than suing to have the account paid or having the account assessed under the Solicitors Act, Cassels Brock agreed to accept Mr. Thomas’ personal undertaking that the account would be paid from what was anticipated to be a successful mediation producing a settlement. Relying on Mr. Thomas’ personal undertaking, Cassels Brock gave up the opportunity to assert a solicitor’s lien against Ani-Walls’ file material.

[105] Mr. Thomas was incorrect in his belief that he had a professional obligation to give his personal undertaking. TGP’s professional responsibilities as the successor lawyer was only to be satisfied that Cassels Brock had withdrawn or been discharged by Ani-Wall, which was the case.

[106] Mr. Thomas may have felt honour bound out of loyalty to his former firm to collect Ani-Walls’ outstanding invoice, and it may be - but I do not know from the record for this Application – that he had an obligation as a departing partner of Cassels Brock to collect his receivables under his partnership agreement, but these moral or contractual obligations were not matters of the Rules of Professional Conduct and Mr. Thomas was under no obligation to give a personal undertaking to his former firm.

[107] As for binding Ani-Wall to an agreement to pay the outstanding bill from the anticipated settlement funds, Mr. Thomas was incorrect in his belief that he could unilaterally bind Ani-Wall to pay the Cassels Brock account from the anticipated settlement proceeds. Mr. Thomas, and Cassels Brock for that matter, would need a signed or confirmed direction from Ani-Wall to bind it to an equitable assignment.

[108] The settlement moneys were the property of Ani-Wall, and Mr. Thomas had no unilateral right to allocate his clients’ property. While there was nothing improper in Mr. Thomas giving a personal undertaking, which was a matter personal to him, absent instructions and a clear indication that Ani-Wall and not Mr. Thomas were to be responsible, his personal undertaking could not bind Ani-Wall.

[109] If a written direction had been given by Ani-Wall to Cassels Brock, it might have constituted an equitable assignment of the proceeds from the settlement once they came into existence, but this did not occur in the case at bar. Ani-Wall’s direction was simply to transfer the file from one firm to another and no equitable assignment could have been created at the time of the file’s transfer.

[110] I appreciate that in the case at bar Cassels Brock gave up its solicitor’s lien in exchange for Mr. Thomas’ undertaking, but that was its decision, and the decision did not create a contract or equitable assignment with Ani-Wall. If Cassels Brock wished an equitable assignment giving it a proprietary interest in the settlement funds, then it ought to have obtained a written direction signed by Ani-Wall and not an oral undertaking from Mr. Thomas.

[111] Thus, in the spring of 2009 when the settlement funds were received by TGP, there was no equitable assignment but Cassels Brock had an outstanding account receivable and claim for payment in contract. However, in my opinion, Cassels Brock’s claim in contract is now statute-barred under the Limitations Act, 2002. Nevertheless, for the reasons set out above, its claim for a charging lien or charging order is not statute-barred.

[112] In other words, with respect to its contract claim, I disagree with Cassel Brock’s argument that the law firm did not discover its claim until the fall of 2011, and it is my view that the elements of s. 5 of the Act (Discovery) were satisfied around March 2009 with respect to any action to enforce payment of the final account.

[113] However, I agree with both of Cassel Brock’s arguments that its entitlement to a charging lien or a charging order are not subject to any limitation period. I am further satisfied that Cassels Brock is entitled to a charging lien or charging lien in the circumstances of this case. It was never disputed that Cassel Brock’s work was instrumental in recovering the settlement proceeds.

[114] Putting Cassels Brock’s claim for a charging lien or charging order aside, for what it is worth, I do disagree with Cassels Brock’s “what’s bad for the goose is bad for the gander” argument that if its contractual claim is statute-barred, so is Ani-Wall’s claim to the funds being in trust. In my opinion, Ani-Wall’s circumstances or situation under the Limitations Act, 2002 claim is different from Cassels Brock’s circumstances with respect to its contract claim. Ani-Walls’ claim to the funds is not statute-barred. Ani-Wall has a proprietary interest in the settlement funds and it did not know, that is, it did not discover that TGP would absolutely refuse to follow instructions to release those funds to Ani-Wall, until TGP brought this Application in 2012. In contrast, Cassels Brock knew or ought to have known that it should enforce its contract claim by March 2009, and its contract claim (but not its charging lien or charging order claim) is statute- barred.

[115] Ani-Wall’s claim, however, is subject to the charging lien or charging order. The result of this long analysis is that Cassels Brock is entitled to the funds being held by TGP.

G. CONCLUSION

[116] For the above reasons, I conclude that Cassels Brock has a charging lien against the funds being held by TGP and its claim for a charging lien or charging order is not statute-barred. Therefore, this Application should be granted.

[117] However, as noted in the introduction there are two terms to granting this Application.

[118] The first term is that TGP should pay Ani-Walls’ costs of this Application, because Mr. Thomas should not have purported to bind Ani-Wall to an equitable assignment of the settlement funds without having obtained instructions to do so. Had he obtained instructions, then Ani-Wall and Cassels Brock would have addressed Cassels Brock’s claim to a solicitor’s lien and Ani-Walls’ claim that it had been overcharged. This acrimonious Application would not have been necessary.

[119] If the parties cannot agree, I will fix the scale of costs and the amount of them by receiving written submissions beginning with Ani-Wall’s submissions within 20 days of the release of these Reasons for Decision followed by TGP’s submissions within a further 20 days.

[120] As noted above, I am satisfied that there are special circumstances that would justify ordering an assessment now that Ani-Wall will be paying the final account from the funds being held by TGP. Had the transfer of the file been managed properly and if there still was a genuine dispute about the fees being charged by Cassels Brock, then Ani-Wall would have had an unfettered right to have the final account assessed. It is commonly the case that a charging order is coupled with an assessment of the lawyer’s account. In the case at bar, there should be an assessment, if Ani-Wall wishes to pursue the matter further. Therefore, I order that within twenty days, Ani-Wall may obtain an appointment with an assessment officer for an assessment of Cassel Brock’s accounts.

[121] Order accordingly.

Perell, J.

Released: April 12, 2012