Court File and Parties
Court File No.: CV-16-00564977 Date: 2017-05-18 Ontario Superior Court of Justice
Between: JOHN CARDILLO AND MEDCAP REAL ESTATE HOLDINGS INC. Applicants – and – AIRD & BERLIS LLP Respondent
Counsel: Jeffrey Radnoff, for the Applicant Pamela Miehls and Danielle Muise, for the Respondent
Heard: May 16, 2017
Endorsement
DIAMOND J.:
[1] On this motion, the respondent seeks a declaration that three Releases signed by the applicants as part and parcel of various agreements (to be defined hereinafter) forever preclude the assessment of various legal accounts rendered by the respondent to Sun Life Assurance Company of Canada (“Sun Life”).
[2] A brief summary of the relevant facts on this application is as follows:
- On or about October 13, 2006, Sun Life entered into a Loan Agreement with the applicant Medcap Real Estate Holdings Inc. (“Medcap”, formerly known as Cardillo Corp.). The loan was secured with (a) a mortgage over real property, (b) a general security agreement and (c) a personal guarantee signed by the co-applicant John Cardillo (“Cardillo”).
- By late January 2016, Medcap was indebted to Sun Life in the aggregate of over $1,500,000.00 (inclusive of principal, interest, realty taxes, fees, interests and costs). Pursuant to Clause 14(c) of the Loan Agreement, Medcap (and Cardillo as guarantor) had agreed to pay all of Sun Life’s legal costs relating to the loan including any and all enforcement or realization costs.
- The respondent was retained by Sun Life to take necessary steps to enforce the security and collect the amounts due under the Loan Agreement. On February 1, 2016, Sun Life entered into a Forbearance Agreement with the applicants wherein the parties agreed that the total amount owed to Sun Life included, inter alia, the respondent’s legal fees incurred to date.
- Pursuant to Clause 2.1(b) of the Forbearance Agreement, the applicants acknowledged, confirmed and agreed that the amounts due to Sun Life, including the respondent’s legal fees, were “unconditionally owing…without any right of set off, defence, counterclaim or reduction of any kind, nature or description whatsoever”, and that each of the applicants were “estopped from disputing” the amount owing.
- Pursuant to Clause 6.3 of the Forbearance Agreement, the applicants covenanted and agreed to reimburse Sun Life for all reasonable expenses, including without limitation “actual legal and other professional expenses” that Sun Life had incurred or would incur arising out of its dealings with the applicants and in the preservation and enforcement of Sun Life’s security, including without limitation the respondent’s actual fees and expenses.
- Pursuant to Clause 8.6 of the Forbearance Agreement, the applicants released Sun Life and its “attorneys, advisors and other representatives” (i.e. the respondent) from any and all demands, actions, causes of action, suits, covenants, sums of money, accounts, bills, damages and claims, counterclaims or demands in any way in connection with the Forbearance Agreement or the Loan Agreement.
- The deadline for the applicants to pay the amount due to Sun Life was subsequently extended from February 23, 2016 to March 4, 2016 pursuant to a Forbearance Extension Agreement. Clause 10 of the Forbearance Extension Agreement contained a further, second Release from the applicants in favour of Sun Life and the respondent in essentially the same terms as the Release set out in clause 8.6 of the Forbearance Agreement.
- Contemporaneous with payment of the amounts due to Sun Life, the parties entered into an Assignment Agreement dated March 4, 2016, which assigned the Loan Agreement and underlying security to 2503866 Ontario Ltd. (“250”). Schedule “A” to the Assignment Agreement set out a summary of the total indebtedness owed to Sun Life, which amount included $89,065.68 of legal fees and disbursements (part and parcel of the principal balance owing under the Loan Agreement) and further legal fees and disbursements incurred in connection with enforcement efforts. That Schedule further indicated that the said amounts did not “include any future costs of whatever nature in time that may be incurred by Sun Life to bring the matter to a close…and all such future costs shall unconditionally be included in the final mortgage payout statement.”
- Pursuant to Clause 11 of the Assignment Agreement, the applicants executed a third Release in favour of Sun Life and the respondent using, essentially, the same terms set out in the first two Releases.
- The applicants had an opportunity to review and consider the terms of the Assignment Agreement and to obtain independent legal advice in respect of same. There is no dispute that the applicants executed the Assignment Agreement (and for that matter all previous Agreements) voluntarily.
- The respondent issued a total of four accounts to Sun Life. All of the accounts were ultimately paid to Sun Life by April 14, 2016.
- On July 16, 2016, the applicants obtained a Registrar’s Order which required the production and assessment of the respondent’s accounts relating to the enforcement of the Loan Agreement and underlying security. The Registrar’s Order was delivered to the respondent on July 18, 2016.
- In response to being served with the Registrar’s Order, the respondent advised the applicants that the respondent took the position that the three executed Releases precluded any assessments of the respondent’s accounts, and that if the applicants insisted upon proceeding with the assessment, the respondent would bring a motion to strike out the assessment.
- On August 8, 2016, the applicants advised the respondent of their position that the Releases were contrary to the relevant jurisprudence and were unenforceable. The respondent did not take any steps at that time to bring its contemplated motion to strike, nor did the respondent produce the accounts requested by the applicants as per the terms of the Registrar’s Order.
- On or about November 7, 2016, the applicant served a motion returnable January 16, 2017. That motion sought an order finding the respondent in contempt of the Registrar’s Order, and a term permitting the respondent to purge its alleged contempt by complying with the Registrar’s Order within 10 days.
- In response to the applicants’ motion, the respondent advised that it would provide the accounts “on a without prejudice basis to its position that the applicants are not entitled to an assessment of the accounts”. The respondent then forwarded the accounts to the applicants on that basis, and the only outstanding issue left for the Court to determine on the applicants’ motion was that of costs.
- The parties attended before Justice Matheson on January 16, 2017 to argue the issue of costs. Justice Matheson released a brief Endorsement which stated: “The only real issue is costs. Bearing in mind all submissions regarding costs, I order that the respondent pay $500.00 for costs.”
- On February 1, 2017 a preliminary appointment was held before an assessment officer. The assessment was scheduled to proceed on June 6-7, 2017 subject to the possibility that those dates would be vacated if the respondent was successful on the within motion.
[3] On their face, the three Releases preclude the applicants from proceeding with an assessment of the respondent’s accounts. The applicants opposed the relief sought on this motion on two primary grounds: (a) the three Releases (and the various governing clauses in the Forbearance Agreement, Forbearance Extension Agreement and Assignment Agreement) are unenforceable as they amount to contracting out of the protections provided in the Solicitors Act, R.S.O. 1990 c. S.15, and (b) the respondent is precluded by reason of the doctrines of res judicata or issue estoppel from striking out the Registrar’s Order as they ought to have done so before Justice Matheson on January 16, 2017.
[4] Dealing with the first ground, the applicants rely upon the decision of the Court of Appeal for Ontario in Jean Estate v. Wires Jolley LLP 2009 ONCA 339, and in particular the following passage: “The case law supports the respondent's position that a client cannot contract out of the protections in the Solicitors Act for reasons of public policy. For example, this court has held that an agreement to raise any disputes concerning accounts within 15 days as opposed to the 30 days provided for under the Act was held to be unenforceable: Javornich v. McCarthy, 2007 ONCA 484, [2007] O.J. NO. 2532, 225 O.A.C. 201 (C.A.). Similarly, in Andrew Feldstein & Associates Professional Corp. v. Keramidopulos, [2007] O.J. No. 3683, 160 A.C.W.S. (3d) 724 (S.C.J.), Murray J. held, at para. 60, that "[t]o permit contracting out of the provisions of the Solicitors Act would defeat the whole purpose of those legislative provisions enacted in the public interest and designed to allow a client protection against unwarranted or unreasonable legal fees". Also, in Plazavest Financial Corp. v. National Bank of Canada (2000), 47 O.R. (3d) 641, [2000] O.J. No. 1102 (C.A.), at para. 14, Doherty J.A. quoted a passage from the judgment of Adams J. in Borden & Elliott v. Barclays Bank of Canada (1993), 15 O.R. (3d) 352, [1993] O.J. No. 1946 (Gen. Div.), at pp. 357-58 O.R., to the effect that the legal profession's monopoly status, coupled with the obligations on the profession in the Solicitors Act, make it clear that the rendering of legal services is not simply a matter of contract. He rejected the submission that an agreement between a client and a lawyer could preclude the client from resorting to the Solicitors Act or the inherent power of the court to conduct an assessment of the lawyer's fees.”
[5] In Jean Estate, a solicitor and his client agreed to have their contiguity fee dispute determined by an arbitrator rather than an assessment officer as provided for in the Solicitors Act. The Court of Appeal expressly held that for public policy reasons, the parties were precluded from contracting out of the statutory protections contained in the Solicitors Act. Those public policy concerns are premised upon the inherent powering imbalance between a solicitor and his/her client, as a client may not always be cognizant of his/her rights due to the potential vulnerability found within the relationship.
[6] In the case before me, the applicants were at all material times represented by counsel, and there was no solicitor/client relationship between them and the respondent. The applicants were and remain sophisticated commercial parties.
[7] Neither the applicants nor the respondent were ever seeking to contract out of the Solicitors Act. On the contrary, they negotiated a term in the Forbearance Agreement (and both the Forbearance Extension Agreement and the Assignment Agreement) which ensured that in consideration of the forbearance itself, the applicants would be forever precluded from questioning, challenging or avoiding payment of the indebtedness owed to Sun Life. That indebtedness included the respondent’s legal fees, which were of course an expense that the applicants were required to pay pursuant to the original Loan Agreement.
[8] There is no doubt that Sun Life, and in turn the respondent, relied upon the inclusion and execution of the three Releases as part of Sun Life’s decision to hold off on its enforcement efforts.
[9] In my view, the rationale behind Jean Estate is not present here. The Releases form part of a series of commercial transactions between two sophisticated parties. The applicants had the benefit of independent legal advice, something which the client in Jean Estate never had. The Forbearance Agreement, the Forbearance Extension Agreement and the Assignment Agreement are, effectively, evidence of a settlement of Sun Life’s potential claims upon the loan. This is not a case where the respondent issued an account for services rendered to the applicants. On the contrary, this is a case where the applicants agreed to pay the respondent’s fees, something which the applicants had already agreed to do under the original Loan Agreement. In other words, payment of the respondent’s fees was a prior, existing obligation on the part of the applicants in its original contractual arrangements with Sun Life.
[10] I therefore reject the applicants’ first ground of opposition to the respondent’s motion.
[11] Dealing with the issues of res judicata and issue estoppel, the applicants submit the respondent’s motion is, in effect, an abuse of process as the respondent is attempting to litigate the same issues that were or ought to have been placed before Justice Matheson. In particular, the applicants submit that the validity of the Registrar’s Order was an issue that could (and should) have been raised before Justice Matheson on January 16, 2017.
[12] In a related submission, the applicants also argue that by failing to bring a cross-motion before Justice Matheson on January 16, 2017, and subsequently participating in the preliminary assessment for the Registrar, the respondent has “attorned” to the jurisdiction of the assessment and is now estopped from challenging the Registrar’s Order.
[13] I disagree. When the respondent delivered the requested accounts, they had an independent obligation to do so in any event. The applicants had purchased the indebtedness and were entitled to production of the accounts over and above the terms of the Registrar’s Order. However, the respondent made it clear that in the context of the pending assessment, the accounts were being delivered on a without prejudice basis as the respondent reserved its right to bring the within motion to strike out the Registrar’s Order and the assessment.
[14] The issue as originally framed on the applicants’ motion before Justice Matheson was whether the respondent was in contempt of the Registrar’s Order. That issue was never argued before Justice Matheson, as the parties agreed to focus solely upon both entitlement and quantum of costs of the applicants’ motion. The applicants were aware well prior to the service of their motion of the respondent’s position that the Releases precluded the Registrar’s Order and assessment. I do not find that the respondent ever “acquiesced” to the validity of the Registrar’s Order or the applicants’ purported right to proceed with an assessment. What the applicants originally sought on their motion before Justice Matheson was, in reality, production of the accounts. They received those documents, and based upon Justice Matheson’s brief Endorsement, were apparently entitled to payment of their associated nominal costs.
[15] I do not find that the issue of the validity of the Registrar’s Order was joined, or needed to be joined, at the return of the applicants’ motion before Justice Matheson. As such, the doctrines of res judicata and issue estoppel do not apply.
[16] I therefore reject the applicants’ second grounds in opposition to the respondent’s motion, and grant the relief sought by the respondent on its motion.
Costs
[17] With respect to costs, the respondent was the successful party on its motion, and there is no reason to depart from the general rule that costs ought to follow the event. I have reviewed the Bills of Costs submitted by both parties. The applicants submit that some of the time charged by the respondent was duplicated as a result of the respondent’s failure to bring a cross-motion before Justice Matheson on January 16, 2017. For the reasons given above, I have already rejected that submission.
[18] In my view, and the circumstances of this case, having reviewed the hours and rates charged by the respondent, I award the respondent its costs of the motion payable by the applicants on a partial indemnity scale in the all-inclusive amount of $7,500.00.