Court File and Parties

Court File No.: CV-18-611434 Date: 2019-08-29 Superior Court of Justice - Ontario

Re: Peter Cozzi, Plaintiff And: Kingston Cato, Defendant

Before: Nishikawa J.

Counsel: Jordan Sobel, for the Plaintiff Kate Barretto, for the Defendant

Heard: August 14, 2019

Endorsement

Factual Background

[1] The Plaintiff Peter Cozzi brings a motion for a charging order over settlement funds received by his former client, the Defendant Kingston Cato, in a settlement of Mr. Cato’s claim against him. Mr. Cato brings a cross-motion for an order directing an assessment of Mr. Cozzi’s accounts.

[2] Beginning in June 2010, Mr. Cozzi represented Mr. Cato in an action against Mr. Cato’s son Kingsley Cato (“Kingsley”) and an entity controlled by Kingsley (the “First Action”). Mr. Cato had unknowingly transferred his house to Kingsley’s corporation and sought its return. In November 2014, Mr. Cato agreed to settle his claim for $175,000.00. An order enforcing the settlement was granted by Corkery J. on April 25, 2015.

[3] On May 4, 2015 Mr. Cozzi sent a letter (the “May 2015 Letter”) advising Mr. Cato that he had received the settlement amount, with interest and costs, for a total of $177,524.28. He enclosed the balance of the settlement amount, $84,455.55, after deducting $93,068.73 for his legal fees.

[4] The May 2015 Letter also stated the following:

• Further to a verbal agreement made between Messrs. Cozzi and Cato at the courthouse in November 2014, Mr. Cozzi would collect $65,000.00 in legal fees for the First Action, plus HST and disbursements, from the settlement amount;
• Mr. Cozzi had incurred a further $10,396.84 to enforce the settlement, which was also deducted from the settlement amount; and
• Mr. Cato had agreed that the outstanding legal fees on the First Action would be paid from a judgment or settlement in an action to be commenced against Grzregorz Wojcik, the lawyer who had provided Mr. Cato with independent legal advice in connection with the sale of his house (the “Wojcik Action”);

[5] The May 2015 Letter enclosed the following documents:

• Mr. Cozzi’s accounts dated March 11, 2015 and April 23, 2015;
• An “Account Summary” dated March 11, 2015 showing a balance of $150,199.18 in legal fees on the First Action and $948.00 for a family law matter;
• A draft statement of claim in the Wojcik Action;
• A direction dated March 14, 2015 that directed that the judgment and settlement funds in the First Action be paid to Mr. Cozzi; and
• A direction dated March 16, 2015 irrevocably directing that any judgment or settlement proceeds in the Wojcik Action be paid to Mr. Cozzi in trust (the “Direction”).

[6] While the May 2015 Letter also referenced an irrevocable direction that the outstanding balance of Mr. Cozzi’s accounts in the First Action were to be paid from a judgment or settlement in the Wojcik Action, only the two directions described above were enclosed. I also note that Mr. Cozzi states that he entered into a contingency fee agreement with Mr. Cato in relation to the Wojcik Action, but no such agreement was in the record.

[7] On May 8, 2015 Mr. Cozzi, on Mr. Cato’s behalf, commenced a claim against Mr. Wojcik.

[8] In February 2018, Mr. Cato became aware of a potential limitation issue in the Wojcik Action. He retained Darryl Singer of Diamond and Diamond Lawyers LLP to represent him in both the Wojcik Action and in a professional negligence claim against Mr. Cozzi.

[9] In May 2018, Mr. Singer, on Mr. Cato’s behalf, commenced a negligence claim against Mr. Cozzi, alleging that Mr. Cozzi had failed to commence the Wojcik Action within the statutory limitation period (the “Cozzi Action”).

[10] On June 27, 2018 McArthur J. granted summary judgment dismissing the Wojcik Action due to the expiry of the two-year limitation period. In her endorsement, McArthur J. found that as of November 2010 at the latest, Mr. Cato knew or ought to have known that he had a claim against Mr. Wojcik: Cato v. Wojcik, 2018 ONSC 3983, at para. 34, 294 A.C.W.S. (3d) 394. McArthur J.’s conclusion was based in part on the fact that Mr. Wojcik’s file, which was the basis for Mr. Cozzi’s cross-examination of Mr. Wojcik at the trial of the First Action, had been received by November 2010. McArthur J. subsequently ordered costs of $30,000.00 against Mr. Cato.

[11] In December 2018, Mr. Cato reached a settlement with Mr. Cozzi’s insurer LawPro for $85,000.00. Mr. Cato signed a release on December 14, 2018. The settlement amount, after the deduction of Mr. Singer’s legal fees, was $52,915.24 (the “Settlement Funds”). Mr. Cozzi seeks a charging order over these funds.

[12] On December 21, 2018 Mr. Cozzi commenced a claim against Mr. Cato for outstanding legal fees in the amount of $57,627.29 (the “Balance”). On the same date, Mr. Cozzi sent an email to Mr. Singer stating that the Settlement Funds should not be released until his motion for a charging order was dealt with. Mr. Singer later undertook to continue to hold the Settlement Funds in trust until resolution or further order of this court.

[13] For the reasons that follow, I dismiss the motion for a charging order and grant the cross-motion for an assessment.

Issues

[14] The issues raised by the motion and cross motion are as follows:

(i) Has Mr. Cozzi met the test for a charging order?; and

(ii) Has Mr. Cato demonstrated special circumstances justifying an assessment of Mr. Cozzi’s accounts?

Analysis

Has Mr. Cozzi Met the Test for a Charging Order?

[15] 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:” Thomas Gold Pettingill LLP v. Ani-Wall Concrete Forming Inc., 2012 ONSC 2182, at para. 84, 349 D.L.R. (4th) 431 [“Thomas Pettingill”]. A lawyer’s entitlement to a charging order is governed by s. 34(1) of the Solicitors Act, R.S.O. 1990, c. S.15 (“Solicitors Act”), which states:

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.

[16] A charging order is a discretionary remedy: Weenan v. Biadi, 2018 ONCA 288, at para. 14, 141 O.R. (3d) 276 [“Weenan”]. There is no right to a charging order, and the court will order one only if there is evidence that the lawyer was instrumental in securing the judgment and will likely not be paid without the order. Further, courts are required to balance the circumstances and equities of each case and client: Taylor v. Taylor (2002), 60 O.R. (3d) 135, at para. 34, O.J. No. 2313 (C.A.).

[17] In determining whether to award a charging order, the following three-part test applies:

(i) The fund or property is in existence at the time the order is granted;

(ii) The property was “recovered or preserved” through the instrumentality of the solicitor; and

(iii) There must be some evidence that the client cannot or will not pay the lawyer’s fees.

Weenan, at para. 15.

[18] Charging orders exist alongside the court’s inherent jurisdiction to declare a lien on the proceeds of its own judgments when a solicitor would otherwise be deprived of their costs: Weenan, at para. 16. Charging liens can be claimed only on the fruits of the proceeding in which recovery was made: Thomas Pettingill, at para. 90.

[19] In determining whether it is equitable to grant a charging order, the court will consider two factors: (i) whether the solicitor’s work was related to the preservation of the asset, and, if it is related, (ii) whether it would offend the principles of equity, either by reason of conduct of the solicitor or unfairness to the creditors, to allow the charging order to have effect: Menzies Lawyers P.C. v. Salewski, 2014 ONSC 5438, at para. 52, 244 A.C.W.S. (3d) 494.

[20] On the first element, Mr. Cato disputes that the Settlement Funds are a “fund” over which a charging order may be granted. Since this issue is related to the question of whether Mr. Cozzi was involved in the proceeding in which the Settlement Funds were recovered, I prefer to consider this issue under the second element of the test. The Settlement Funds are a “fund” for the purposes of the test.

[21] The third element is not significantly in dispute. Mr. Cozzi has demonstrated that he is unlikely to recover the fees: Cozzi v. Wright, 2016 ONSC 2596, at para. 27, 265 A.C.W.S. (3d) 504.

[22] Mr. Cozzi’s ability to satisfy the test thus comes down to the second element: whether he was instrumental in the recovery or preservation of the asset. While Mr. Cozzi argues that a lawyer’s work does not have to be directly related to the preservation or recovery of the property in issue, this court has required that “the solicitor’s efforts played a substantial and integral part in the recovery or preservation of an asset or assets to which the charging order might apply:” Patton v. Patton, 2008 CanLII 731 (ON SC), 2008 CarswellOnt 131, at para. 40, 54 R.F.L. (6th) 446.

[23] In Cozzi v. Wright, at para. 31, Gilmore J. found that in order to be entitled to a charging order, a lawyer must demonstrate the following three preconditions:

(i) The solicitor was at some time employed to prosecute or defend the proceeding;

(ii) The property was recovered or preserved in that proceeding; and

(iii) The solicitor was instrumental in the recovery or preservation of that property.

[24] The reference to “a proceeding” and “the proceeding” in s. 34(1) thus mean the same proceeding. When a solicitor has prosecuted a proceeding, he or she may be entitled to a charge on the property recovered or preserved through their efforts for their fees, costs, charges and disbursements in that proceeding.

[25] Mr. Cozzi nonetheless maintains that he was instrumental to the recovery or preservation of the Funds in the following manner. After Mr. Cozzi represented Mr. Cato in the First Action, Mr. Cato had an outstanding account of $57,627.29. Relying on the May 2015 Letter and the Direction, Mr. Cozzi submits that Mr. Cato agreed that the Balance would be paid from his recovery in the Wojcik Action. In exchange, Mr. Cozzi agreed to forbear the collection of the Balance. In Mr. Cozzi’s view, since the Wojcik Action was dismissed, Mr. Cato’s liability for the Balance remained. Mr. Cozzi submits that in the Cozzi Action, Mr. Cato sought recovery of the fees paid and owing to Mr. Cozzi, thus recognizing an outstanding debt. Mr. Cozzi submits that Mr. Cato relied on the Balance in order to procure a settlement from LawPro.

[26] Mr. Sobel, counsel for Mr. Cozzi, argues that by instituting the Wojcik Action, Mr. Cozzi was instrumental in Mr. Cato’s entitlement to a settlement in the Cozzi Action, because there would have been no settlement if Mr. Cozzi had not brought the Wojcik Action.

[27] This position is without merit. Mr. Cato had a claim against Mr. Wojcik whether Mr. Cozzi commenced it on his behalf or not. The only link between the Wojcik Action and the Settlement Funds is that Mr. Cozzi’s failure to commence that action in time gave rise to the settlement. This cannot be the type of instrumentality contemplated by s. 34(1).

[28] Under the circumstances, I find that Mr. Cozzi was not in any way, directly or indirectly, instrumental in the preservation or recovery of the Settlement Funds. He did not prosecute or defend the Cozzi Action, which was against him. Mr. Cozzi played no role, let alone a substantial or integral part, in the recovery of the Settlement Funds. Mr. Cato had to commence a proceeding against Mr. Cozzi to recover those funds. Mr. Cozzi is not entitled to a charging order over the Settlement Funds received by Mr. Cato in the Cozzi Action for his work in the First Action.

[29] Not only does Mr. Cozzi’s claim to a charging order lack a legal basis, the evidence does not support his theory. As noted above, Mr. Cozzi relies upon the May 2015 Letter as memorializing an oral agreement in which Mr. Cato agreed that the Balance would be paid from any judgment or settlement of the Wojcik Action. This assertion is problematic for two reasons. First, the Direction was nothing more than a direction to pay any judgment or settlement in that proceeding to Mr. Cozzi in trust. The Direction is silent as to any outstanding debt or ability to apply monies received in the Wojcik Action to the Balance. Second, there was no second direction directing that a judgment or settlement in the Wojcik Action be applied to the Balance.

[30] In addition, Mr. Cozzi’s affidavit states that Mr. Cato recovered from LawPro the payment of the Balance, and that “in the Defendant’s action against me, no other damage claims apart from my outstanding legal fees were made by the Defendant against me and no other claims, apart from costs, were paid by LawPro to the Defendant.” This statement is incorrect. The Statement of Claim in the Cozzi Action specifically seeks damages for the loss of value in Mr. Cato’s house and damages for breach of contract, breach of trust, breach of fiduciary duty and professional negligence, in addition to $160,000.00 for legal fees.

[31] In any event, Mr. Cozzi cannot overcome the fact that, due to the claim having been commenced out of time, there was no settlement or judgment in the Wojcik Action. In fact, the Wojcik Action resulted in a $30,000.00 costs award against Mr. Cato. Mr. Cozzi’s Reply Factum states that LawPro waived its entitlement to the costs award. There is no evidence to support this and other statements in the Reply Factum and I do not consider them.

[32] The idea that the settlement constitutes a recognition of a debt owing to Mr. Cozzi or that it created any entitlement on Mr. Cozzi’s part is fanciful. Mr. Cozzi’s position is based upon a fundamental misapprehension that “the plaintiff’s outstanding unpaid account with the defendant was the defendant’s factual basis for his damages in the Cozzi action” (Plaintiff’s Reply Factum, at para. 18). The factual basis for Mr. Cato’s claim in the Cozzi Action was not that he owed money to Mr. Cozzi; rather, the basis was Mr. Cozzi’s failure to commence the Wojcik Action in time. The Settlement Funds were paid to resolve Mr. Cato’s negligence claim against Mr. Cozzi, not to pay for Mr. Cozzi’s Balance.

[33] In determining whether to make a charging order, the court must also consider the equities of the situation. For the reasons given above, I find that even if Mr. Cozzi met the test for a charging order, which he does not, equitable considerations would weigh heavily against making a charging order in these circumstances. To give effect to Mr. Cozzi’s position would result in the highly perverse outcome of allowing a lawyer to claw back the settlement of a former client’s negligence claim against him through the mechanism of a court-ordered charging order. Needless to say, it would offend the principles of equity to grant Mr. Cozzi a charging order in this situation.

Has Mr. Cato Demonstrated Special Circumstances Justifying an Assessment?

[34] Courts have inherent jurisdiction as well as jurisdiction under ss. 3, 4 and 11 of the Solicitors Act to order lawyers’ accounts to be assessed. Both sources of jurisdiction “respond to the public interest component of the rendering of legal services and lawyers’ compensation, and the importance of maintaining public confidence in the administration of justice:” Clatney v. Quinn Thiele Mineault Grodzki LLP, 2016 ONCA 377, at para. 77, 399 D.L.R. (4th) 343 [Clatney].

[35] Section 11 of the Solicitors Act states:

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.

[36] In Echo Energy Canada Inc. v. Lenczner Slaght Royce Smith Griffin LLP, 2010 ONCA 709, at paras. 30-31, 104 O.R. (3d) 93, the Court of Appeal stated: “[I]n the context of s. 11, those special circumstances relate to the underlying principle that payment of the account implies that the client accepted that the account was proper and reasonable… Thus, special circumstances will tend to undermine the presumption that the account was accepted as proper or show that the account was excessive or unwarranted.”

[37] The existence of special circumstances is a fact-specific inquiry to be made on a case-by-case basis: Bui v. Alpert, 2014 ONCA 495, at para. 7, 241 A.C.W.S. (3d) 970. In determining whether special circumstances exist, the following circumstances are relevant:

• The sophistication of the client;
• The adequacy of communications between solicitor and client concerning the accounts;
• Whether there is evidence of increasing lack of satisfaction by the client regarding the services relating to the accounts;
• Whether there is overcharging for services provided;
• The extent of detail of the bills;
• Whether the solicitor/client relationship is ongoing; and
• Whether payments can be characterized as involuntary.

Clatney, at para. 87, citing M. Orkin, The Law of Costs (Toronto: Canada Law Book, 2015) (loose-leaf 2nd ed) at para. 306.3.

[38] A number of the above circumstances exist in this case. First, the Statement of Claim in the Wojcik Action, which Mr. Cozzi prepared, alleges that Mr. Cato was not a sophisticated client. Mr. Cozzi’s evidence is that Mr. Cato is over 70 years old, retired and estranged from his family. The factual circumstances underlying the First Action also suggest that Mr. Cato was not a sophisticated client.

[39] Second, I find that there was insufficient communication from Mr. Cozzi regarding the accounts. Mr. Cato’s affidavit states that he does not recall receiving bills other than the two statements of accounts that were attached to the May 2015 Letter. The Account Summary shows that Mr. Cozzi issued only three accounts in relation to the First Action: an account dated June 20, 2011 for $24,260.79, an account dated March 11, 2015 for $124,990.39, and an account dated April 23, 2015 for $10,396.84. Despite allegedly incurring over $124,000.00 in legal fees from June 2011 to March 2015, Mr. Cato was not provided with a single account during this period. This is far from adequate over the course of a five-year period.

[40] The Account Summary reflects that Mr. Cato was making periodic payments toward the legal fees, in amounts ranging from $200.00-$1000.00 at a time. By the time the deduction from the settlement took place, Mr. Cato had paid $9,900.00 in legal fees. This suggests that Mr. Cato was not able to pay a substantial amount at one time. Irrespective of his ability to pay, Mr. Cato should have been advised periodically of the significant fees he was incurring by retaining Mr. Cozzi to prosecute the First Action.

[41] More significantly, it does not appear from the evidence that Mr. Cato knew what Mr. Cozzi’s total legal fees were when he agreed to settle the First Action in November 2014. The last bill that Mr. Cato received before settling his claim was in June 2011. Mr. Cato agreed to settle the First Action for $175,000.00, when the legal fees would have been almost $150,000.00. He should have been apprised of the legal fees in order to make an informed decision about the settlement.

[42] Relatedly, when Mr. Cato purportedly agreed, also in November 2014, to pay the balance of Mr. Cozzi’s account from the proceeds of the First Action and the Wojcik Action, he had no information as to what the total account was. The Account Summary was not provided until six months later, in May 2015. I note in passing that there are discrepancies between the Account Summary dated March 11, 2015 and the Account Summary attached to Mr. Cozzi’s Statement of Claim, which is dated December 19, 2018.

[43] Third, on whether there is evidence of overcharging, Mr. Cozzi’s account in the First Action of approximately $160,000.00 seems grossly disproportionate to Mr. Cato’s recovery of $175,000.00. In addition, the accounts in evidence lack the level of detail that would be expected for such significant amounts. On the March 11, 2015 statement of account, there is a single paragraph describing all the steps in the proceeding in general terms as it advanced over four years.

[44] Fourth, other than the $9,900.00 made in periodic payments, Mr. Cato’s payments cannot be characterized as voluntary. In the May 2015 Letter, Mr. Cozzi advised Mr. Cato that he was deducting his fees for the First Action pursuant to a verbal agreement made at the courthouse six months earlier. Based on the evidence, Mr. Cozzi made no attempt to confirm or memorialize the agreement when it was made, nor was there any communication referencing the agreement or the amount billed in the interim period. I question whether Mr. Cato could have agreed to anything without knowing the amount owing for legal fees. Also, it is clear that Mr. Cato did not voluntarily pay the April 2015 account for $10,396.84, which did not form part of the oral agreement and was simply deducted from the settlement. There can be no presumption that Mr. Cato accepted the Balance as proper because he did not pay it.

[45] Fifth, Mr. Cato concedes that he did not express dissatisfaction with the services he received in relation to the accounts. However, Mr. Cato would have been hard-pressed to express dissatisfaction at any time between June 2011 and May 2015, because he received no accounts during that time. Moreover, Mr. Cato could not be expected to seek an assessment while Mr. Cozzi was still acting for him and while he was unaware of the problems with the Wojcik Action.

[46] In his Reply Factum, Mr. Cozzi argues that the release precludes Mr. Cato from making statements or commenting on the quality of his legal services. The release, however, relates to the Cozzi Action, which was based on the missed limitation period in the Wojcik Action. It does not preclude Mr. Cato from seeking an assessment of Mr. Cozzi’s account in the First Action. There is no evidence that Mr. Cozzi sought to be paid on the Balance at any time between 2015 and the commencement of this proceeding. Mr. Cato did not know that Mr. Cozzi was still seeking the Balance, and he lacked this information when he agreed to the settlement and signed the release. Mr. Cozzi’s Statement of Claim for the Balance was issued one week later. Mr. Cozzi’s commencement of a claim against Mr. Cato after the release was signed is also a special circumstance that weighs in favour of an assessment.

[47] Based on the foregoing, I find that Mr. Cato has demonstrated special circumstances demanding an assessment. The public interest in lawyers’ services and compensation, as they relate to the importance of maintaining public confidence in the administration of justice, further supports this result.

Conclusion

[48] Accordingly, the Plaintiff’s motion for a charging order is dismissed. The Defendant’s motion directing an assessment of the Plaintiff’s accounts is granted.

[49] There is no basis for Mr. Sobel’s submission that since neither party sought the release of the Settlement Funds in their respective notices of motion, the court could not order their release without a further motion or material from Mr. Singer. Mr. Singer’s email makes clear that his undertaking was to hold the Settlement Funds in trust until a resolution or court order. The Settlement Funds are to be released to Mr. Cato.

[50] At the outset of the hearing, Mr. Sobel sought to adjourn the portion of the motion seeking a Mareva injunction sine die. Based on Mr. Singer’s undertaking, that portion of the motion should have been withdrawn as it was moot.

Costs

[51] Both parties provided costs outlines. Mr. Cato seeks costs on the motion and cross-motion of $13,551.53 on a substantial indemnity scale. His costs on a partial indemnity basis are $9,034.35. By comparison, Mr. Cozzi’s costs outline shows costs as $11,600.58 on a full indemnity basis and $7,769.88 on a partial indemnity scale. All amounts include disbursements and HST.

[52] Substantial indemnity costs may be warranted where a party has engaged in reprehensible, scandalous or outrageous conduct in the proceeding: Davies v. Clarington (Municipality) (2009), 2009 ONCA 722, at paras. 28-29, 100 O.R. (3d) 66. While Mr. Cozzi’s motion was lacking in merit, and he should not have insisted that the Settlement Funds not be released, this conduct does not warrant an award of substantial indemnity costs.

[53] Pursuant to the Courts of Justice Act, R.S.O. 1990, c. C.43, s. 131(1), the court has broad discretion when determining the issue of costs. The overall objective of fixing costs is to determine an amount that is fair and reasonable for the unsuccessful party to pay in the circumstances, rather than an amount reflective of the actual costs incurred by the successful litigant: Boucher v. Public Accountants Council for the Province of Ontario et al. (2004), 2004 CanLII 14579 (ON CA), 71 O.R. (3d) 291 (C.A.). Rule 57.01(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg 194 [Rules], sets out the factors to be considered by the court when determining costs. I have considered these factors, as well as the principle of proportionality in R. 1.01(1.1) of the Rules, while keeping in mind that the court should seek to balance the indemnity principle with the fundamental objective of access to justice.

[54] Mr. Cato was entirely successful in this matter. The motion for a charging order was devoid of merit and ought not to have been brought. Plaintiff’s counsel did not withdraw the portion of the motion seeking a Mareva injunction even when it was clear that it would not be necessary. This necessitated an attendance at Civil Practice Court to schedule the motion.

[55] Based on the foregoing, I fix total costs on a partial indemnity basis at $9,034.35, inclusive of disbursements and HST.

Nishikawa J.

Date: August 29, 2019