NEWMARKET COURT FILE NO.: FC-14-45130-00

DATE: 20150904

ONTARIO
SUPERIOR COURT OF JUSTICE
FAMILY COURT

BETWEEN:

Evelyn Sgrignuoli
Applicant

– and –

Ernie Sgrignuoli, and
Judith Holzman

Respondents

Ronald Sleightholm, for the Applicant

Brian Bellmore, for the Trustees of the Estate of the Respondent, Ernie Sgrignuoli
Susan Sack, for the Respondent, Judith Holzman

HEARD: June 30, 2015

RULING ON COSTS

NELSON J.:

Overview

[1] This is a motion brought by the estate trustees of Ernie Sgrignuoli for an order for costs, jointly and severally, against Evelyn Sgrignuoli and her former lawyer, Judith Holzman. As Evelyn Sgrignuoli is judgment proof, the order, if granted, would only be effective if Judith Holzman was ordered to pay it.

[2] The costs sought are $60,257.92 on a full recovery basis, and $40,830.39 on a partial recovery basis.

[3] I shall refer to the parties in this case as follows:

(a) The estate trustees of Ernie Sgrignuoli as “the applicants”;

(b) Ernie Sgrignuoli as “Ernie”;

(c) Evelyn Sgrignuoli as “Evelyn”; and,

(d) Judith Holzman as “Holzman”.

Background Facts

[4] Ernie and Evelyn lived together in a common-law relationship for two separate periods of time. The first period of cohabitation lasted from 1990 to 1996 or 1997. This was followed by a separation. The second period of cohabitation lasted from 1999 to 2003 when the couple finally separated. Ernie and Evelyn signed two cohabitation agreements (the “Cohabitation Agreements”), together with two waivers and releases. These documents obligated Ernie to pay funds and transfer an automobile to Evelyn in return for Evelyn’s release of support.

The First Cohabitation Agreement

[5] The first cohabitation agreement was entered into between Ernie and Evelyn on February 5, 1992 (the “First Cohabitation Agreement”). Certificates of independent legal advice, also dated February 5, 1992, were attached to the First Cohabitation Agreement.

[6] Ernie and Evelyn separated in late 1996 or early 1997. On September 26, 1997, Ernie and Evelyn signed a “Settlement and Release”. Pursuant to this document, Ernie paid Evelyn $40,000 together with a further $5,000 for legal costs, and also transferred ownership of a 1993 automobile to Evelyn.

The Second Cohabitation Agreement

[7] Around the time that Ernie and Evelyn resumed cohabitation in 1999, they signed the second cohabitation agreement. This agreement is dated April 9, 1999 (the “Second Cohabitation Agreement”). This Second Cohabitation Agreement also contained certificates of independent legal advice dated April 8 and 9, 1999.

[8] Ernie and Evelyn separated for the second and final time in 2003. On March 22, 2003, Evelyn also signed a Waiver and Release. Evelyn received $50,000 from Ernie pursuant to the Second Cohabitation Agreement. The Waiver and Release is undated, however, Holzman signed an Affidavit of Execution sworn March 24, 2003.

The Agreements

[9] Each agreement and companion documents contains the usual release clauses with respect to spousal support that one would expect to find in agreements of this nature. I need not set them out here as this particular motion is not about the wording of these clauses. It is sufficient, at this stage, simply to note that in return for lump sum payments and certain property, Evelyn signed documents containing releases of spousal support.

Holzman’s Involvement

[10] In 2003, Holzman was retained by Evelyn for legal advice with respect to the Waiver and Release. Holzman canvassed the history of the earlier agreement with Evelyn.

[11] It is Holzman’s evidence that she advised Evelyn about her entitlement to spousal support. It was Holzman’s further evidence that the First Cohabitation Agreement would be overturned by a court as there had not been “any financial disclosure”. This advice was given even though both the First and Second Cohabitation Agreements contained the usual clauses in such agreements setting out the fact that each party to the agreement had received proper financial disclosure. As well, the waivers also contained clauses covering the completeness and adequacy of financial disclosure. There was also a letter from Evelyn to the lawyer acting for her during the negotiation of the Second Cohabitation Agreement acknowledging that she (Evelyn) had received financial disclosure from Ernie.

[12] Holzman, in her affidavit filed on this motion for costs, states that her advice to Evelyn was that the Second Cohabitation Agreement was unfair, as Evelyn had given up a good income from her job with the Ontario Government and had settled for a reduced pension in order to spend more time with Ernie who had been successful in the construction business and was retired.

[13] Notwithstanding Holzman’s legal advice, Evelyn signed the Waiver and Release. Holzman signed the attendant certificate of legal advice and affidavit of execution.

[14] In the summer of 2013, Evelyn sought out Holzman once again. According to Holzman, Evelyn was in dire straits. She had recently undergone cancer surgery and was on the verge of bankruptcy. A special medical treatment was recommended but Evelyn could not afford to pay for it.

[15] Holzman told Evelyn that it was unlikely she would be able to act for her given her earlier involvement in the case, but that she (Holzman) would try to obtain some support for her.

[16] Holzman contacted Ernie’s previous lawyer but made no progress. When Holzman threatened legal action, she was told clearly that Ernie would defend any proceeding brought for spousal support.

[17] It continued to be Holzman’s view that the Second Cohabitation Agreement and the Waiver and Release signed in 2003 were improper because of lack of financial disclosure. In addition, Holzman felt that the Second Cohabitation Agreement had now placed Evelyn in a very difficult financial position. Holzman also questioned the circumstances around the signing of the First Cohabitation Agreement as she was concerned about lack of adequate financial disclosure around its negotiation. Her efforts to explore this road were unsuccessful because the lawyer who rendered independent legal advice with respect to the Second Cohabitation Agreement had disappeared.

[18] All efforts to negotiate the issue of spousal support with Ernie were unsuccessful. Even though Holzman thought that she could not continue to act as counsel for Evelyn and discussed this with Evelyn, Evelyn instructed Holzman to begin a lawsuit for spousal support.

The Lawsuit for Spousal Support

[19] On February 6, 2014, Holzman, as Evelyn’s counsel, instituted a lawsuit against Ernie for spousal support. Holzman’s evidence was that she agreed not to charge Evelyn fees (disbursements only) but made a claim for costs on Evelyn’s behalf.

[20] By February 2013, Ernie, who had been in ill health for a long time, took a turn for the worse; he died on February 8, 2014. His estate (the applicants) continued defending the application and was eventually served.

[21] The applicants delivered an answer to the lawsuit on May 2, 2014 and raised the issue of Holzman’s previous involvement with a view to having her removed as counsel of record for Evelyn.

[22] The applicants served a motion for summary judgment which was made returnable on January 7, 2015. On October 22, 2014, Evelyn served a notice of intention to act in person. On December 29, 2014, Evelyn served a notice of withdrawal of her claim for spousal support. The summary judgment motion brought by the applicants was adjourned to June 30, 2015 in order to deal with the issue of costs.

[23] On this motion for costs submissions were made on behalf of the applicants, Evelyn and Holzman.

Position of the Applicants

[24] The applicants submit that Holzman and Evelyn should be jointly and severally responsible for the costs of the estate.

[25] Rule 12(3) of the Family Law Rules, O. Reg. 114/99, states as follows:

COSTS PAYABLE ON WITHDRAWAL

(3) A party who withdraws all or part of an application, answer or reply shall pay the costs of every other party in relation to the withdrawn application, answer, reply or part, up to the date of the withdrawal, unless the court orders or the parties agree otherwise.

[26] As a result of Rule 12(3), the applicants submit that Evelyn is prima facie responsible for costs because she withdrew her case. Counsel for the applicants submits that the court must award costs against her unless persuaded otherwise. Where the court is unable to discern whether it was Evelyn or Holzman who was responsible for costs, then it should be the court’s decision to divide costs between them. The applicants, however, accept the fact that Evelyn is impecunious.

[27] The applicants seek costs against Holzman for two principal reasons. Firstly, it is the applicants’ view that the lawsuit for spousal support was both frivolous and vexatious. Secondly, Holzman knew that she was in a conflict of interest position and should never have acted for Evelyn.

[28] The applicants argue that the court has a duty to control its process and must supervise a lawyer’s conduct, especially in cases where it appears that the lawyer has over-stepped her oath as a solicitor. That oath embodies the concept of not using litigation for an ulterior purpose to create unnecessary strife.

[29] The conflict of interest arises, the applicants submit, because Holzman clearly knew, prior to instituting the application for spousal support, that it was highly probable that she (Holzman) would be called as a witness in the proceeding. This would likely place her in a conflict of interest with her own client. As well, there is a basic rule of advocacy which prohibits an advocate for a party from advocating and also testifying as a witness in a proceeding.

[30] With respect to the contention that the lawsuit was frivolous the applicants point out that Holzman, having given independent legal advice on the “Waiver and Release”, knew or should have known that Evelyn would have no chance of success in obtaining spousal support.

[31] With respect to the fact that the spousal support lawsuit was vexatious, the applicants rely not only on the fact that Holzman had been inextricably involved in giving Evelyn previous legal advice, but also in a letter dated, April 14, 2013, which was written by Holzman to Evelyn, after unsuccessfully attempting to negotiate with Ernie’s lawyer. The letter, in part, reads as follows:

Dear Ms. Sgrignuoli,

Re: Matrimonial

Please find attached a copy of a letter received from Michael Caruso.

I have tried to talk to Mr. Caruso into telling his client that he is better off avoiding a war by “coughing” up some money, but if we get any money, it’s going to be very little and I don’t think that there is any way that a court is going to order him to give you more money than what he already gave in 2003. I am basically trying to say to them to give “Evelyn” a little money and she will go away, otherwise we are going to cause a lot of trouble.

The likelihood that I can even act on this given I acted on the Release, is unlikely given that they could immediately move to get me removed. I don’t know who you would have them to work on this because clearly, there is almost no case. The only thing you have going for you is that Binsky destroyed his file and that Julie Caughran has disappeared. Even that and given what they have in their file, (Mr. Caruso has in his file), there is little chance. Did you sign the attached acknowledgment and if so, what were the circumstances. If this goes to court, you will have little chance, but I am trying to get you something. Please recall I said, do not sign the Release.

Yours very truly,

Judith Holzman

[32] To put some of the names used in the letter in proper context, it should be noted that Binsky’s law firm and, specifically, Julie Caughran, acted for Evelyn during the negotiation of the Second Cohabitation Agreement. The applicants, in their counsel’s submission, stressed that if the destruction of the file and disappearance of Evelyn’s lawyer was all she had going for her then her case clearly had no chance of success.

[33] As well, a point raised by Evelyn was that she recalled signing the Second Cohabitation Agreement in Ernie’s lawyer’s office. While this fact was not proven, it was pointed to by the applicants as an example of Evelyn’s grasping at straws.

[34] The applicants submit that not only should the lawsuit never have been initiated, given the signed agreements and waivers, but that it (the lawsuit) was being used simply to gain a financial advantage for Evelyn. This is, they argue, what makes the lawsuit vexatious.

[35] The applicants spent a great deal of time in their submissions parsing the entire letter to demonstrate that Evelyn had no chance of success. They also pointed out that the lawsuit would have been frivolous and vexatious even had the letter not come to light, as Evelyn had no chance of success to obtain a spousal support order in the face of all the legal advice she obtained and the legal documents she had signed. The letter, it was submitted, simply demonstrated the truth of the fact that Holzman knew Evelyn had no chance of success and yet was willing to institute a lawsuit to gain financial advantage. The threat to “cause a lot of trouble”, the applicants submit, makes Holzman’s plan very clear.

[36] If costs are not awarded against Holzman and Evelyn, then why, the applicants wonder, is it necessary to have lawyers involved in the negotiation of these types of agreements at all? A retained lawyer who then institutes what the applicants say is a frivolous and vexatious case, as well as one in which the lawyer may be in a conflict of interest situation, is an affront to the oath taken by every lawyer as an officer of the court. That is why costs are sought against Holzman on a full recovery basis.

[37] The applicants’ counsel appreciates that a lawyer must represent her client fearlessly, but submits that there is a balancing act that the lawyer must be aware of in assisting the court in controlling its own process. The applicants submit that the letter quoted above makes it patently obvious that Holzman did not engage in that necessary balancing act. If the best evidence Holzman had in advancing Evelyn’s cause was that the file and lawyer on the Second Cohabitation Agreement had disappeared, that is sufficient to show that Holzman knew she did not have a case.

[38] In addition, the applicants stress that a lawyer should not start a case that is frivolous and vexatious for a litigant who is judgment proof. That lawyer should exercise a great degree of caution before beginning a court process.

[39] According to the applicants, Holzman had a duty to her own client as a fiduciary to give the best advice she could under the circumstances. The best advice in this case, according to the applicants’ counsel, was to refrain from starting a lawsuit for spousal support.

[40] The applicants do not accept as an excuse that Holzman was acting pro bono for an impecunious client. They point to the fact that the court should draw a reasonable inference that the arrangement Holzman had with Evelyn was not pro bono because Holzman requested costs. It was likely, therefore, that Holzman would look to a costs award for some compensation.

[41] Finally, the applicants point out that the estate has been put to great expense and, therefore, deserves compensation. There is no punitive motive behind the applicants’ motion for costs. When a lawyer institutes a case without any expectation of a favourable result, costs should be awarded against that lawyer. The applicants submit that if the court does not “call her on this” then the court is sending a “sea change” of a signal to all counsel and their role in the litigation process.

Holzman’s Position

[42] Holzman asks that the court consider five questions:

(a) As a matter of law, does the existence of a prior agreement oust the jurisdiction of the court?

(b) Can this court reach the conclusion that Evelyn’s spousal support case was completely devoid of merit?

(c) Does Holzman’s letter dated April 14, 2013 definitively determine the possibility of success?

(d) Did Holzman’s five month involvement in the spousal support case actually cause costs to be run up without cause?

(e) As an exercise of judicial discretion, is it proper to order that Holzman pay costs in this case?

a) Existence of Prior Agreement

[43] Holzman submits that a prior agreement is not a full estoppel of the right of a party to have a court review its payment terms, including a waiver of support, if the agreement or waiver of support has placed the support recipient or the person that was entitled to support in unconscionable circumstances.

[44] Holzman also agrees that a lack of full, frank, and fair financial disclosure could affect the validity of an agreement.

b) Devoid of Merit

[45] Closely related to the points raised above, Holzman submits that this court should not and cannot find Evelyn’s case devoid of merit. Evelyn should not be precluded from attempting to prove that her circumstances have become unconscionable due to the terms of the agreements. She should also not be precluded from attempting to demonstrate that she did not have the requisite disclosure necessary to validate the agreements she signed. Only if the court is certain that the issues raised by Evelyn have no merit, should it preclude her from proceeding.

c) Holzman’s Letter Dated April 13, 2014

[46] Holzman argues that this letter, which on its face, gives Evelyn discouraging advice about her case, does not definitively indicate that Evelyn had no chance of success in a lawsuit for spousal support. Holzman asks the court to review the language of the letter in the context of a lawyer giving advice to her own client.

d) Holzman’s Involvement

[47] Holzman submits she did not “run up” costs in the case. She submits further that she acted upon instructions from Evelyn. She argues that she initiated matters and stayed involved in the case so that Evelyn’s position and interests could be protected while both she (Holzman) and Evelyn tried to find another lawyer to take over the file.

e) Exercise of Judicial Discretion

[48] Holzman argues that, ultimately, the awarding of costs in any legal proceeding involves the exercise of judicial discretion. She maintains that her action in starting a lawsuit for Evelyn was undertaken in the spirit of demonstrating generosity and compassion for Evelyn’s predicament. The lawsuit for spousal support was not consistent with a “shakedown” which is what the applicants are saying by calling it vexatious. The lawsuit was instituted to assist a client in need and that represents the high standard to which the legal profession should aspire.

Costs Claimed

[49] Holzman argues that, if the court awards costs, the range of costs claimed of between $40,000 and $60,000 is grossly inappropriate to her involvement in the case. She submits that, after instituting the case, she did very little in the ensuing five months until Evelyn’s withdrawal, to cause the applicants to spend the fees they claim.

Evelyn’s Position

[50] Evelyn’s position is straightforward. She points out that she is 73 years old, suffers from cancer, and earns a minimum wage. She has almost no assets of value. Her lack of funds, she argues, speaks to the issue of quantum. This position recognizes that the applicants would, prima facie, be entitled to their costs because Evelyn withdrew her application for spousal support.

[51] Evelyn also submits that the costs claimed are disproportionate to the issue raised, especially when one considers that the applicants take the position that her case was frivolous from the outset. She asks that the court exercise its discretion and refuse to order costs against her.

Discussion

[52] Rule 24(9) of the Family Law Rules states as follows:

COSTS CAUSED BY FAULT OF LAWYER OR AGENT

(9) If a party’s lawyer or agent has run up costs without reasonable cause or has wasted costs, the court may, on motion or on its own initiative, after giving the lawyer or agent an opportunity to be heard,

(a) order that the lawyer or agent shall not charge the client fees or disbursements for work specified in the order, and order the lawyer or agent to repay money that the client has already paid toward costs;

(b) order the lawyer or agent to repay the client any costs that the client has been ordered to pay another party;

(c) order the lawyer or agent personally to pay the costs of any party; and

(d) order that a copy of an order under this subrule be given to the client.

[53] The applicants obviously wish to engage the operation of Rule 24(9)(c) of the Family Law Rules. It is that rule and the court’s inherent jurisdiction to control abuse of process which gives it the jurisdiction to award costs against Holzman personally.

[54] With respect to Evelyn, the applicants’ rely upon Rule 12(3) of the Family Law Rules. That rule reads:

COSTS PAYABLE ON WITHDRAWAL

(3) A party who withdraws all or part of an application, answer or reply shall pay the costs of every other party in relation to the withdrawn application, answer, reply or part, up to the date of the withdrawal, unless the court orders or the parties agree otherwise.

[55] In assisting the court in its decision, both the applicants and Holzman have produced case books of the authorities they urge the court to rely upon.

Cases Relied Upon by the Applicants

[56] The applicants cite Young v. Young 1993 34 (SCC), [1993] 4 S.C.R. 3 for the proposition that costs are compensatory and not punitive in nature. That case established that any member of the legal profession might be subject to a compensatory order for costs if it is shown that repetitive and irrelevant material, and excessive motions and applications characterized the proceedings in which they were involved, and that the lawyer acted in bad faith by encouraging this abuse and delay. It is clear that the courts possess jurisdiction to make such an award, under statute, and, in any event, as part of their inherent jurisdiction to control abuse of process and contempt of court. Courts must be extremely cautious in awarding costs personally against a lawyer, given the duties upon a lawyer to guard confidentiality of instructions and to bring forward, with courage, even unpopular causes. A lawyer should not be placed in a situation where his or her fear of an adverse order of costs may conflict with these fundamental duties of his or her calling.

[57] The Young case appears to engage two important lines of enquiry for the court to consider. The first is the lawyer’s manner of conduct of the case. As set out in Rule 24(9)(c) of the Family Law Rules there must be an enquiry as to whether the lawyer caused costs to be incurred by running them up. The second enquiry explored in Young is counsel’s gatekeeping role. This is the issue that is engaged in this case by the assertion that Holzman instituted a frivolous and vexatious case. The issue of running up costs by the actions envisaged in Young was not seriously advanced.

(Decision continues exactly as above through paragraph [119].)

Justice C.S. Nelson

Released: September 4, 2015