Brauti Thorning Zibarras LLP v. John Di Paola, 2016 ONSC 7708

Court File No.: CV-16-547099 Date: 2016-12-08 Superior Court of Justice - Ontario

Re: Brauti Thorning Zibarras LLP, Applicant/Responding Party And: John Di Paola, Indcondo Building Corporation, Robin Sloan and Phillip P. Healey and Associates, Respondents And: Trung Nguyen, Intervenor / Moving Party

Before: Mr. Justice P.J. Cavanagh

Counsel: Rocco DiPucchio and James Renihan, for the Applicant/Responding Party Gordon A. Meiklejohn, for the Respondents, John Di Paola and Indcondo Building Corporation Adam Pantel, for the Intervenor/Moving Party

Heard: November 28, 2016

Endorsement

[1] The issue on this motion brought by the Intervenor and Moving Party, Trung Nguyen (“Mr. Nguyen”) is whether an order should be made for payment into court of what is said to be a specific fund, pursuant to Rule 45.02 of the Rules of Civil Procedure. This motion is opposed by the Applicant and Responding Party, Brauti Thorning Zibarras LLP (the “Applicant”).

[2] In the underlying application, the Applicant sought an order for payment of fees and disbursements charged to the Respondent, Indcondo Building Corporation (“Indcondo”) pursuant to the terms of a Contingency Fee Retainer Agreement made between the Applicant and Indcondo dated July 7, 2008 (the “Retainer Agreement”).

[3] On this motion, Mr. and Nguyen submits that any payment received by the Applicant in relation to its charges to Indcondo of fees and disbursements under the Retainer Agreement represents a “specific fund”, that he has asserted a legal right to such payment received by the Applicant and that, pursuant to Rule 45.02, an order should be made that the fund be paid into court.

[4] The Applicant is a law firm and Mr. Nguyen is a lawyer. Mr. Nguyen was a non-equity partner at the Applicant from 2008 to 2015 and, according to his affidavit, he brought Indcondo into the firm as a client when he joined. Indcondo was trying to collect on a judgment that it had obtained in 2001 against some former business partners and it had retained Mr. Nguyen on a contingency fee basis.

[5] Mr. Nguyen joined the Applicant law firm on May 1, 2008 as a non-equity partner in accordance with the terms of an employment agreement which he accepted on March 31, 2008. On July 8, 2008, Indcondo entered into the Retainer Agreement with the Applicant.

[6] According to the affidavit of Mr. Nguyen, on August 5, 2008 he entered into an agreement with the Applicant to split any proceeds it obtained under the Retainer Agreement on terms that (a) he would work together with Mr. Zibarras, a partner at the firm, with each contributing an equal number of hours to the Indcondo file; (b) a referral fee would be paid to the referring lawyer; (c) the balance would be credited equally between Mr. Zibarras and Mr. Nguyen, (d) because his employment agreement provided that he would be paid 50 percent of any amounts collected, Mr. Nguyen would ultimately receive 25 percent of the net fee; and (e) in addition, the Applicant would credit Mr. Nguyen for his Indcondo time towards his total annual collected billings, and pay him in accordance with his employment agreement.

[7] According to the affidavit of Mr. Nguyen, he worked many hours on the Indcondo file for which he has not received compensation.

[8] According to Mr. Nguyen’s affidavit, on July 31, 2014, Indcondo was awarded judgment in one of the actions that was being prosecuted under the terms of the Retainer Agreement. The judgment has a value of approximately $2 million and, of this amount, the Applicant is claiming 30 percent under the terms of the Retainer Agreement.

[9] In early 2015, Mr. and Nguyen gave notice to the Applicant that he would be resigning to return to solo practice. According to Mr. Nguyen’s affidavit, prior to resigning, the Applicant and Mr. Nguyen agreed to continue acting on the Indcondo matters on a co-counsel basis, and the Applicant did not take any issue with the agreement that had been made to split fees in relation to the Indcondo file.

[10] Mr. Nguyen resigned from the Applicant on April 14, 2015.

[11] Legal proceedings are ongoing between the Applicant and Mr. Nguyen in which an action was brought by the Applicant against Mr. Nguyen. Mr. Nguyen has defended the action and commenced a counterclaim against the Applicant. Pursuant to the endorsement of Mr. Justice Belobaba dated September 2, 2016, Mr. Nguyen was granted intervenor status on the underlying application to file additional evidence and make submissions that amounts received by the Applicant under the Retainer Agreement should be paid into court.

[12] It has been held that Rule 45.02, which allows a court to order that a “specific fund” to be paid into court pending trial, is an “extreme” remedy that must be “exercised with caution”. The court has adopted a three-part test in deciding a Rule 45.02 request: (i) does the plaintiff claim a right to a specific fund? (ii) is there a serious issue to be tried regarding the plaintiff’s claim to that fund? and (iii) does the balance of convenience favour granting the relief sought by the plaintiff? See 3Genius Corp. v. Locationary Inc., 2016 ONSC 4092, at paras. 1-2.

[13] Counsel for Mr. Nguyen submitted that his client has satisfied the requirements for granting an order pursuant to Rule 45.02. In his submission, a “specific fund” is a “reasonably identifiable fund earmarked to the litigation issue”. Counsel submits that Mr. Nguyen asserts a propriety right to monies payable to the Applicant under the Retainer Agreement, on the basis of unjust enrichment, conversion, constructive trust, resulting trust, implied trust and expressed trust. In his submission, the monies are a specific fund, earmarked for the litigation in issue.

[14] Counsel for Mr. Nguyen submitted that his client’s claim to the fund is a serious triable issue and that, with respect to the balance of convenience, the harm to his client if the disputed funds are not paid into court will be greater than the harm to the Applicant if the monies are paid into court, for reasons expressed at para. 45 of the Factum of Mr. Nguyen.

[15] Counsel for the Applicant noted that Mr. Nguyen advances two distinct monetary claims, first, payment of money under the “split fee” provision of his employment agreement, arising from monies owing by Indcondo under the Retainer Agreement and, second, payment representing compensation on an hourly basis for time that Mr. Nguyen spent working on the Indcondo matter, including an appeal of the judgment in favour of Indcondo. Counsel for the Applicant submitted that neither of these claims can support an order under Rule 45.02 and, further, that the latter claim is not tied to the Retainer Agreement or the contingency fee that the Applicant seeks to collect from Indcondo, but is merely a claim by Mr. Nguyen to be compensated by the Applicant for hours worked.

[16] The Applicant submits that the first part of the test consists of two parts: (i) is there a readily identifiable fund of money; and (ii) is the plaintiff claiming a legal right to that fund? The Applicant concedes that Mr. Nguyen meets the first half of the test but submits that he does not meet the second half, as he does not claim a legal right to that fund. According to the Applicant, while a claim to a fund need not be proprietary in nature, it must be a claim to a legal interest in the fund itself. It cannot be a claim for damages, even if the damages are linked to a specific fund. The Applicant submits that a claim for damages for breach of contract cannot support a Rule 45.02 order.

[17] The Applicant relies upon a decision of the Ontario Court of Appeal in Sadie Moranis Realty Corp. v. 1667038 Ontario Inc., 2012 ONCA 475. In that case, at paras. 20-21 of its decision, the Court of Appeal addressed the first requirement, that the plaintiff claims a right to a specific fund, and wrote:

Framed in this way, the test will not be met where a plaintiff’s claim is for damages. That is so even if a specific fund is identifiable in the factual matrix of the litigation, because a claim for damages is not a claim to a legal right to that fund.

The Court of Appeal concluded, at paras. 29-30, that the plaintiff did not claim a legal right to the fund:

While the monies held in trust are in an identifiable fund, the appellant does not claim a legal right to that specific fund in this litigation.

I agree with the Divisional Court that the appellant’s claim is for breach of contract because of the vendor’s failure to pay the commission in accordance with the Listing Agreement.

[18] The Applicant submitted that in the counterclaim of Mr. Nguyen, he pleaded that the Retainer Agreement provided that Indcondo would pay the Applicant a contingency fee and that the balance of amounts received, after payment of a referral fee, “would be credited equally between the Nguyen and Zibarras (50/50) as ‘collected fees’, and paid out to each in accordance with their respective compensation agreement with [the Applicant]”. Counsel for Mr. Nguyen submitted that the word “credited”, as used in this pleading, means “applied”. In his counterclaim, Mr. Nguyen also pleaded that, since his employment agreement provided that he would receive half of all amounts he collected, “Nguyen’s share would equate to 25% of the BTZ Fee”.

[19] The Applicant submits that Mr. Nguyen’s claim is indistinguishable from the claim in Sadie Moranis because it is, in essence, for damages for breach of contract. The Applicant concedes that Mr. and the Nguyen’s counterclaim raises a serious issue as regards his entitlement to damages for breach of contract, but submits that he has not raised a serious issue with respect to a legal claim to the fund in issue. Counsel for the Applicant submitted that the claims by Mr. Nguyen based upon express or implied trust, resulting trust, or constructive trust are baldly pleaded without factual assertions that would support such claims.

[20] With respect to the balance of convenience, the Applicant submitted that there is no evidence to suggest that the Applicant intends to leave the jurisdiction, dissipate assets or otherwise seek to make itself judgment proof. It is submitted that, to the contrary, the evidence is that the Applicant has substantial assets in the jurisdiction.

[21] In my view, Mr. Nguyen has not satisfied the requirement of showing that he has a legal claim to a specific fund. The fees charged to Indcondo by the Applicant under the Retainer Agreement were to be paid to the Applicant, in the same way as fees charged to other clients. Mr. Nguyen has a contract with the Applicant upon which he relies to support his claim for compensation from the Applicant for the work he did on the Indcondo file and more generally. The facts in evidence, including the facts pleaded by Mr. Nguyen in his counterclaim, do not support a legal claim to amounts received by the Applicant from Indcondo in payment of charges for legal services under the Retainer Agreement. On the contrary, Mr. Nguyen’s claim is, in essence, for damages for breach of contract. Therefore, on the authority of the decision of the Court of Appeal in Sadie Moranis, the claim of Mr. Nguyen is not a claim to a specific fund.

[22] I would also have dismissed this motion on the basis that Mr. Nguyen has failed to show that the balance of convenience favours the granting of an order pursuant to Rule 45.02. There was no evidence that the Applicant intends to take steps to make execution impossible, or even more difficult. There was no evidence of any dissipation of assets, and no evidence that the Applicant intends to leave the jurisdiction. The balance of convenience does not favour granting the relief sought which, in my view, would amount to execution before judgment.

[23] For these reasons, Mr. Nguyen’s motion is dismissed.

[24] The Applicant seeks costs of this motion on a partial indemnity scale in the total amount of $14,816.54 comprised of $12,072 (plus HST) for fees, $400 for counsel fee on the hearing of the motion, and disbursements of $686 (plus HST).

[25] Fixing of costs is a discretionary decision under section 131 of the Courts of Justice Act. The discretion is to be exercised in accordance with the factors listed in Rule 57.01 of the Rules of Civil Procedure, including the principle of indemnity, the expectations of the unsuccessful party, and the complexity of the issues. Overall, the court is required to consider what is “fair and reasonable”, with a view to balancing compensation to the successful part with the goal of fostering access to justice (Boucher v Public Accountants Council (Ontario), 2004 14579, (2004), 71 O.R. (3d) 291 (Ont. C.A.), at paras 26, 37.) In addition, the principle of proportionality informs the balancing of interests in deciding whether an award of costs is “fair and reasonable”: see Strudwick v. Applied Consumer & Clinical Evaluations Inc., 2016 ONCA 520, at paras. 126-7.

[26] The affidavit evidence submitted by Mr. Nguyen in support of this motion included a 143 paragraph affidavit with many exhibits, and a reply affidavit of 22 paragraphs. There were cross-examinations, and undertakings from such cross-examinations. There was a considerable amount of evidence to be reviewed and addressed by the Applicant on this motion.

[27] Having regard to the principles set out above, including in particular the expectations of the parties and the complexity of the issues, I order that Mr. Nguyen pay costs of this motion to the Applicant, fixed in the amount of $12,000, inclusive of disbursements and HST, forthwith.

Mr. Justice P.J. Cavanagh Date: December 8, 2016