COURT FILE NO.: CV-14-501496 DATE: 20150724

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: PETER B. COZZI, Plaintiff

AND:

WARREN JEFFERY, Defendant

BEFORE: F.L. Myers J.

COUNSEL:
Oscar Strawczynski, for the Plaintiff

Jordan D. Sobel, for the Defendant

HEARD: July 23, 2015

ENDORSEMENT

[1] This is a motion by the defendant to set aside the default judgment granted by the Honourable Mr. Justice Belobaba dated February 11, 2015.

[2] The plaintiff is a lawyer who, according to the statement of claim, was retained by the defendant to provide legal services from 2008 to June 15, 2012. Over the course of his retainer, the plaintiff delivered several accounts to the defendant. Although the plaintiff’s retainer was terminated by the defendant effective June 15, 2012, the plaintiff only delivered his last account on March 24, 2014.

[3] The plaintiff delivered an account to the defendant dated May 11, 2011 that was amended on August 9, 2011. That account was for services rendered by the plaintiff concerning the defendant’s family law proceeding. The account was in reference to all services necessarily provided up to and including April 30, 2011.

[4] That account was for total fees and disbursements of approximately $62,000. It made reference to prior outstanding accounts in the amount of approximately $47,000.

[5] The March 24, 2014 last account delivered by the plaintiff recited that it was in relation to, “attending at hearing on June 15, 2012, and to all other services necessarily incidental thereto to and including June 15, 2012.”

[6] That account was for total fees and disbursements of approximately $7,900. It recites prior account balances of approximately $113,500 for a total claim of $121,433.50. This is the amount for which the plaintiff sued and obtained default judgment with a small amount of prejudgment interest and costs.

[7] To the plaintiff’s knowledge, the defendant assigned himself into bankruptcy on June 20, 2010. Accordingly, all claims for fees prior to that date became claims in the bankruptcy. On the plaintiff’s discharge, subsection 178(2) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, as amended released the defendant from all such claims. The defendant’s discharge was granted conditionally on June 5, 2013 and became effective on March 5, 2014.

[8] The defendant claims that he is released from all claims for services provided prior to his assignment in bankruptcy regardless of when those services were billed by the plaintiff. The $47,000 in outstanding fees and some of the new services itemized in the May 11, 2011 account were rendered prior to the date of bankruptcy. However, the bulk of the $62,000 in fees and disbursements accrued after the date of bankruptcy and therefore were not claims in the bankruptcy even if the defendant is correct. The defendant paid approximately $10,000 to the plaintiff while in bankruptcy. If the payments were made toward post-bankruptcy fees and disbursements, this is unremarkable.

[9] It is not likely a coincidence that the plaintiff’s last account was rendered on March 24, 2014 although it relates to services that were provided up to June 15 2012. The plaintiff held back his last account until just after the defendant was discharged from bankruptcy. He relies on that account not only for the last $7,900 in fees and disbursements but also for the re-iteration of the outstanding amount of $113,500, much of which consists of pre-bankruptcy or otherwise quite old charges.

[10] The defendant says that he has good defences under the Bankruptcy and Insolvency Act, the Limitations Act, 2002, S.O. 2002, c. 24, Sch B, and that he is entitled to have the lawyer’s accounts reviewed either under the Solicitors Act R.S.O. 1990, c. S.15 or by analogy at common law.

[11] The defendant did not complain about his lawyer’s bills prior to the commencement of this litigation. Neither did he seek to assess the lawyer’s accounts in the year that followed the delivery of the “final” bill. To the contrary, he has repeatedly strung the plaintiff along while promising payment. In late 2013, the defendant indicated that he was hopeful to make a deal that would provide cash that he could pay to the plaintiff. In January, 2014, the defendant advised the plaintiff that he was traveling to a furniture show with his “big client” and he hoped to return “with great news.” After receiving the plaintiff’s March 24, 2014 account, by email dated April 15, 2014, the defendant wrote that he, “[c]onfirmed that account attached owing.” He said that he simply had no funds with which to pay.

[12] Once the litigation commenced, the plaintiff tried to engage the defendant in settlement negotiations. He deferred requiring a statement of defence for as long as the Rules of Civil Procedure allowed. He clearly advised the defendant that time was running out before the plaintiff would be required to take steps to note the defendant in default. On Thursday, September 25, 2014, the plaintiff wrote to the defendant to warn him that he needed to note the defendant in default by the next Tuesday. Nevertheless, the plaintiff indicated that he was still prepared to discuss settlement before or after he noted the defendant in default.

[13] The defendant’s evidence that he did not know about the default judgment until served with the Notice of Examination in March, 2015 is therefore somewhat disingenuous. He declined to participate in the litigation probably believing that he owed all of the funds sought. He either thought that he had no valid defences available or perhaps he did not wish to mount a defence against his lawyer who had stuck with him through his bankruptcy.

[14] The plaintiff argues that just as the limitation period applicable to assessments of lawyers’ accounts under the Solicitors Act does not begin to run until delivery of a lawyer’s “final” account, the limitation period under the Limitations Act, 2002, also did not begin to run until the delivery of the last account on March 24, 2014. He did not provide any case law in support of the submission. Moreover, this argument strikes me as inconsistent with the recognition that each of the lawyer’s interim accounts creates an enforceable claim. That is, lawyers expect to be paid on their interim accounts. They can sue on their interim accounts. Courts have indeed ruled that for the purposes of the special limitations rules applicable under the Solicitors Act, a client is not statute barred from seeking assessment of interim accounts. That does not mean that the interim accounts are not debts due when they are issued. The plaintiff’s cause of action on each account accrued, at the latest, when he issued each account. Moreover, each account issued prior to the defendant’s bankruptcy was properly a claim in bankruptcy.

[15] I make no finding as to whether unbilled time or time charges accrued prior to bankruptcy that are billed after bankruptcy amount to a claim in bankruptcy. This action was commenced on April 3, 2014. I make no finding as to whether the defendant acknowledged his indebtedness in writing within the limitation period under subsection 13(9) of the Limitations Act, 2002 in a manner sufficient to extend the period. No law was presented on these issues.

[16] Moreover, there is a question as to whether the March 24, 2014 account is truly a “final” account as described in the case law. It is the last account. That does not necessarily make each of the prior accounts “interim” accounts.

[17] There are therefore significant issues as to the quantum of fees and disbursements for which the plaintiff was entitled to sue under both the Limitations Act and the Bankruptcy and Insolvency Act. In addition, all lawyers understand that their accounts are reviewable. In fact, where a client raises issues concerning the assessment of a lawyer’s account, the lawyer is duty bound to assist the client to that end. This is a responsibility that flows from the benefits of professional licensure.

[18] In Ravazzolo v. Romaniuk, 2015 ONCA 542, released this week, the Court of Appeal reiterated the test applicable on a motion to set aside a default judgment:

[17] In Mountain View Farms Ltd. v. McQueen, 2014 ONCA 194, 119 O.R. (3d) 561, at paras. 48-49, this court set out five factors that a court should consider in determining whether to set aside a default judgment:

1. Whether the motion was brought promptly after the defendant learned of the default judgment;

2. Whether there is a plausible excuse or explanation for the defendant's default in complying with the Rules of Civil Procedure;

3. Whether the facts establish that the defendant has an arguable defence on the merits;

4. The potential prejudice to the moving party should the motion be dismissed and the potential prejudice to the respondent should the motion be allowed; and

5. The effect of any order the court might make on the overall integrity of the administration of justice.

[18] As stated in Mountain View, at paras. 50 and 51:

These factors are not to be treated as rigid rules; the court must consider the particular circumstances of each case to decide whether it is just to relieve the defendant from the consequences of his or her default.

For instance, the presence of an arguable defence on the merits may justify the court exercising its discretion to set aside the default judgment, even if the other factors are unsatisfied in whole or in part.

[19] As to factor one, the defendant moved expeditiously after being served with the notice of examination in aid of execution. The plaintiff says that the defendant ignored the process throughout and knew that he was being noted in default months earlier. It seems to me that this goes more to the second factor than to the first.

[20] As to factor two, it is clear that the defendant has no acceptable basis for having failed to defend. The plaintiff relies upon Schill & Beninger Plumbing & Heating Ltd. v. Amanda Kelly Rozon et al. 2001 24134 (ON CA), [2001] O.J. No. 260 (C.A.), in which the Court of Appeal endorsed:

Even if a viable defense was presented the intentional refusal to defend as recorded in the correspondence stands as a permanent bar to intervention.

[21] I do not read that one line in an endorsement as creating an inflexible and invariable rule. To the extent that it did so in 2001, it seems to me that the recognition in Mountain View as reiterated in Ravazzolo that a good defence on the merits can be reason enough to set aside a default judgment even if the other factors are unsatisfied in whole or in part, is inconsistent with such a rule. In my view, Mountain View sets out an equitable, contextual balancing that is required in each case. No one factor necessarily predominates in any given case. However, as indicated by the Court of Appeal, there may be cases in which one factor assumes a more important role than others. In Schill & Beninger the deliberateness of the defendant’s default was the dominant factor. In Ravazzolo the motion judge stressed the defendant’s deliberate choice to refrain from participating in the litigation and the Court of Appeal overruled him for failing to adequately assess all of the relevant factors. It focused on the existence of an arguable defence.

[22] As I indicated above, the defendant not only declined to participate in the litigation, he confirmed that he owed the plaintiff the fees and disbursements in the quantum sought. It is not particularly honourable for the defendant to reverse his field now. This implicates the fifth factor concerning the integrity of the administration of justice discussed below.

[23] As to the third factor, despite his prior encouragement to the plaintiff, it is clear that the defendant has an arguable defence on the merits for at least a good portion of the claim. I considered whether I should leave part of the default judgment in place as the Court of Appeal did at paragraph 27 of Ravazzolo. I do not however see a natural point where I can safely say that none of the fees charged thereafter may have been released by the bankruptcy, became statute barred, or are so clearly fair and reasonable, so as to defy any need for assessment.

[24] As to the fourth factor, both sides are prejudiced by the potential outcomes of this motion. The plaintiff will be delayed collecting the lawful portion of his fees and disbursements if I set aside the judgment. However, this is a product of his own overreaching. If I do not set aside the default judgment the defendant may be required to pay more than he was lawfully obliged to pay at the outset of this proceeding. However, this too, is the product of his own action (or inaction). He could have defended.

[25] Finally, the fifth factor is the effect of an order on the overall integrity of the administration of justice. I am not keen on allowing defendants to “game the system.” Similarly, however, plaintiffs should not be able to use default proceedings to “slide one by.” In my view, the fact that a lawyer has purported to sue a former client for amounts that appear to have been released by bankruptcy and others that are likely statute barred where he strategically withheld an invoice for almost two years in order to position an argument to do so also implicates the integrity of the administration of justice.

[26] The key policy of the BIA is to provide an honest but unfortunate debtor with a fresh start unburdened by pre-bankruptcy debt. It does violence to the goals of the statute for a lawyer to develop and implement a strategy to try to re-impose pre-bankruptcy debts on a discharged bankrupt. Moreover, it would be unfair to all other creditors who shared in the burden of losses caused by the defendant’s bankruptcy were the plaintiff to continue his own pre-bankruptcy claims for legal fees when the creditors’ claims have been released.

[27] Moreover, when the subject matter is legal fees, there ought to be and is a policy favouring transparency and accountability.

[28] In Hryniak v. Mauldin, 2014 SCC 7, at paragraph 23, Justice, Karakatsanis wrote:

Our civil justice system is premised upon the value that the process of adjudication must be fair and just. This cannot be compromised.

[29] In my view, balancing all of the factors in Mountain View, the general preference of the law for resolution of disputes on the merits, and the uncompromisable values of fairness and justice, the default judgment ought to be set aside. If the plaintiff is entitled to judgment on the merits on part of the claim, he ought to be able to move forward to summary judgment very quickly. On the other hand, there are obvious arguable defences. The answer to the defendant’s abuse of the proceedings is not for the plaintiff to sink to his level. In my view, notwithstanding the defendant having ignored this case for too long, it is fair and just for the defendant to be liable to pay his lawyer only the amounts to which the lawyer is entitled at law and no more.

[30] The default judgment is set aside. The defendant shall deliver his statement of defence on or before August 7, 2015. Both sides shall deliver sworn affidavits of documents by the end of September. Examinations for discovery shall be completed before the end of October. All undertakings are to be answered completely by November 13, 2015. The plaintiff is to set the action down for trial by December 31, 2015.

[31] The defendant is receiving a significant indulgence. He put the plaintiff to substantial expense for costs thrown away and on this motion. Costs are discretionary under s.131 of the Courts of Justice Act, R.S.O. 1990, c. C.43. Overall, costs should be fair and reasonable. Moreover, the court should consider the amount which the paying party ought reasonably to have anticipated paying in order to protect access to justice. In my view, the defendant ought to pay the plaintiff costs on a partial indemnity basis in the amount of $5,000 forthwith.

________________________________ F.L. Myers J.

Date: July 24, 2015