Court File and Parties

COURT FILE NO.: CV-18-591971 and CV-18-592104

DATE: 20190829

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Peter Cozzi, Applicant

AND:

Jerszy Szot, Respondent

BEFORE: Nishikawa J.

COUNSEL: Jared Brown, for the Applicant D. Ong, for the Respondent D. Gillies, for the Public Guardian and Trustee

HEARD: August 14, 2019

ENDORSEMENT

Procedural History

[1] The Applicant, Peter Cozzi, brings a motion for a charging order over the proceeds (the “Proceeds”) of an after-the-event insurance policy (the “ATE Policy”) with DAS Legal Solutions (“DAS”). The Proceeds of $100,000.00 were paid to Mr. Cozzi in trust for the beneficiary, his client Quoc Nguyen. Mr. Cozzi seeks a charging order to secure an outstanding disbursement account of $80,689.06 and outstanding fee accounts of $19,310.94 and $11,872.22 for a total of $111,72.22.

[2] The factual background of this matter is contained in my decision dated February 22, 2019: Peter B. Cozzi Professional Corporation v. Szot, 2019 ONSC 1274, 302 A.C.W.S. (3d) 863 (the “Decision”). In the Decision, I dismissed Mr. Cozzi’s application to have the Proceeds applied to his disbursements (the “Application”). I also dismissed an application brought by Aviva Insurance Company of Canada (“Aviva”) for the Proceeds to satisfy a costs award of $161,790.00 to the defendant (the “Costs Award”) ordered by Archibald J. in the underlying civil action: Nguyen v. Szot, 2017 ONSC 3705, 281 A.C.W.S. (3d) 158 (the “Civil Action”).

[3] Having dismissed both applications, I remained seized of the matters because the beneficiary of the Proceeds, Mr. Nguyen, is a person under a disability whose Litigation Guardian, Hoang Phan, is no longer acting for him. By my endorsement dated May 28, 2019 (the “Endorsement”), I appointed the Public Guardian and Trustee (“PGT”) as Mr. Nguyen’s Litigation Guardian in these applications to assist Mr. Nguyen with an appropriate disposition of the Proceeds.

[4] In the Endorsement, I also ordered that the Proceeds, which were being held in trust by Mr. Cozzi pursuant to court orders, be paid into court pending a final determination as to their distribution. At the hearing, I was advised that the Proceeds have not been paid into court, and that Mr. Cozzi is seeking leave to appeal the Endorsement to the Divisional Court. Mr. Cozzi has also appealed the Decision to the Court of Appeal.

Analysis

[5] The issues in this motion are: (i) whether the motion is an improper collateral attack on the Decision; and (ii) whether Mr. Cozzi is entitled to a charging order over the Proceeds.

Is the Motion a Collateral Attack on the Decision?

[6] Mr. Cozzi’s motion raises a number of preliminary issues. Since Mr. Cozzi’s application was dismissed, I question whether it is appropriate for Mr. Cozzi to bring any further motions. The Respondent submits that the motion ought to be dismissed as an abuse of process under r. 2.1.02(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg 194.

[7] Nonetheless, Mr. Cozzi’s motion is pursuant to s. 34(1) of the Solicitors Act, R.S.O. 1990, c. S.15 (the “Act”). The Act provides the court with broad jurisdiction to address issues of fees between lawyers and their clients. Giving Mr. Cozzi the benefit of the doubt, and since I am not yet functus officio, I heard the motion on its merits.

[8] The motion seeks essentially the same relief as the Application, i.e. that the Proceeds be applied to Mr. Cozzi’s disbursements, albeit through the mechanism of a charging order. In the Application, Mr. Cozzi sought to have $68,636.73 of the Proceeds applied toward his disbursements in the Civil Action. On this motion, Mr. Cozzi seeks a charging order for disbursements of $80,689.06 and fees of approximately $30,000.00.[^1] The fees relate to the application for judicial review of the dismissal of Mr. Nguyen’s accident benefits claim.

[9] This raises the question of whether the motion is precluded by the doctrine of issue estoppel and constitutes an impermissible collateral attack on the Decision.

[10] According to the doctrine of collateral attack, “a judicial order pronounced by a court of competent jurisdiction should not be brought into question in subsequent proceedings except those provided by law for the express purpose of attacking it:” Toronto (City) v. C.U.P.E., Local 79, 2003 SCC 63, 3 S.C.R. 77, at para. 33 [C.U.P.E.], quoting Danyluk v. Ainsworth Technologies Inc., 2001 SCC 44, 2 S.C.R. 460, at para. 20 [Danyluk].

[11] In Danyluk, at para. 25, the Supreme Court outlined the three requirements for issue estoppel:

(i) The same question has been decided;

(ii) The judicial decision said to give rise to the estoppel is final; and

(iii) The parties to the judicial decision or their privies were the same persons as the parties to the proceeding in which the estoppel is raised or their privies.

[12] Even if all three requirements are met, the court still has a residual discretion not to apply issue estoppel when its application would work an injustice: Danyluk, at paras. 62-63.

[13] In my view, the doctrine of issue estoppel precludes the relitigation of Mr. Cozzi’s entitlement to the Proceeds. The same question – that is, whether the Proceeds could be applied to Mr. Cozzi’s disbursements – has already been decided. The addition of fees to his claim in this motion does not make it a new issue. The Decision was final on the question of Mr. Cozzi’s entitlement to the Proceeds. Because this motion is brought in the same proceeding, the parties are the same. The motion is thus an impermissible collateral attack on the Decision, since it brings the Decision into question.

[14] In the Decision, I dismissed the Application because, among other reasons, the contingency fee agreement (the “CFA”) and Direction pursuant to which Mr. Cozzi sought to be paid were unenforceable. Notwithstanding these findings, Mr. Cozzi’s factum on the motion submits that the CFA was fair and reasonable and that the Direction was valid. At the hearing, Mr. Brown, on Mr. Cozzi’s behalf, conceded that the Decision is res judicata on the question of whether the CFA is fair and reasonable, and advised that Mr. Cozzi seeks his fees and disbursements on a quantum meruit basis. This change in the basis for Mr. Cozzi’s claim does not alter my analysis because it is simply a different legal basis to support the same relief.

[15] In any event, if the motion is not an impermissible collateral attack, Mr. Cozzi is precluded from relitigating his entitlement to the Proceeds by the equitable doctrine of abuse of process.

[16] The doctrine of abuse of process is a discretionary principle. It derives from the inherent duty and power of the court to prevent the misuse of its procedure and maintain public confidence in the proper administration of justice, including the orderly, efficient, timely and principled resolution of civil disputes: C.U.P.E., at paras. 37-38. Abuse of process is a “flexible doctrine unencumbered by the specific requirements of concepts such as issue estoppel:” C.U.P.E., at para. 37, quoting Goudge J.A. in Canam Enterprises Inc. v. Coles (2000), 2000 CanLII 8514 (ON CA), 51 O.R. (3d) 481, 194 D.L.R. (4th) 648 (C.A.), at para. 55.

[17] It is evident that this motion is an abuse of process because a charging order in Mr. Cozzi’s favour would be inconsistent with the Decision, which held that he was not entitled to the Proceeds. This raises the concerns identified by the Supreme Court in C.U.P.E. about upholding the integrity of the legal system, avoiding inconsistent results and protecting the principal of finality, which is crucial to the proper administration of justice. An inconsistent result would simply encourage parties and their counsel to seek ways around existing decisions and court orders, wasting the resources of litigants and the judicial system.

[18] The proper route to challenge the Decision is by appeal, which Mr. Cozzi has commenced. The existence of the appeal further highlights why it would be inappropriate for me to adjudicate the issue of a charging order in the meantime. If the appeal is successful, Mr. Cozzi may be entitled to apply the Proceeds to the disbursements, and this motion will have been duplicative and unnecessary. If a charging order is granted over the Proceeds, and the appeal is eventually unsuccessful, the charging order will have prejudged the matter under appeal in a manner inconsistent with the final outcome. Inconsistency undermines the credibility of the judicial process, diminishing its authority, credibility and aim of finality: C.U.P.E., at para. 51.

[19] None of the circumstances that could justify relitigation exist here. There is (i) no suggestion that the first proceeding was tainted by fraud or dishonesty; (ii) no suggestion that fresh, new, previously unavailable evidence conclusively impeaches the original results; and (iii) no situation in which fairness dictate that the original result should not be binding in the new context.

[20] In addition, the application of the doctrine of abuse of process does not work an injustice in this case. Mr. Cozzi’s application was heard and adjudicated. He is exercising his right of appeal. The appeal will determine whether his Application ought not to have been dismissed. The injustice identified by Mr. Cozzi is that his fees and disbursements may remain unpaid. This is not an injustice resulting from the application of the doctrine of abuse of process. Rather than to bring this motion, Mr. Cozzi ought to have waited for the outcome of his appeal. There is minimal risk that the Proceeds, which remain in his trust account, will be dissipated in the meantime.

[21] Accordingly, I would dismiss Mr. Cozzi’s motion for a charging order as an improper collateral attack on the Decision or an abuse of process. Mr. Cozzi is seeking the same result through a different route. Such conduct is to be discouraged.

Is Mr. Cozzi Entitled to a Charging Order?

[22] In the event that my finding that Mr. Cozzi’s motion is an abuse of process is incorrect, I would nonetheless find that he does not meet the test for a charging order.

[23] 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, 349 D.L.R. (4th) 431, at para. 84 [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 (the “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.

[24] A charging order is a discretionary remedy: Weenan v. Biadi, 2018 ONCA 288, 141 O.R. (3d) 276, at para. 14 [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), 2002 CanLII 44981 (ON CA), 60 O.R. (3d) 138, O.J. No. 2313 (C.A.), at para. 34.

[25] 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.

[26] 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.

[27] 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, 244 A.C.W.S. (3d) 494, at para. 52.

[28] The first element of the test is satisfied. The Proceeds constitute a fund for the purposes of a charging order.

[29] Since I have previously found that Mr. Nguyen is impecunious, the third element of the test is also satisfied.

[30] The remaining issue is whether Mr. Cozzi can demonstrate that his work was instrumental to the recovery or preservation of the property. Mr. Cozzi submits that he was instrumental in the existence of the Proceeds because: (i) he arranged for the ATE Policy; (ii) he performed the work on the underlying litigation that resulted in the Proceeds being paid; and (iii) he submitted the claim to DAS for payment of the Proceeds.

[31] 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, 54 R.F.L. (6th) 446, at para. 40.

[32] A charging order rectifies the inherent unfairness in allowing a client to have the benefit of the lawyer’s work while refusing to pay the lawyer’s account. When a party is unsuccessful, there are no “fruits of the litigation” over which the lawyer can claim a charging order. Mr. Cozzi has not identified a single case in which a lawyer was able to obtain a charging order against an unsuccessful client. Unlike an asset or judgment recovered through a lawyer’s work, the Proceeds are not the “fruits of the litigation.” Mr. Nguyen was embroiled in lengthy and costly litigation that did not end in his favour. Indeed, the ATE Policy was obtained to mitigate loss in the case of this eventuality.

[33] Mr. Nguyen recovered nothing in the litigation and is more indebted after the litigation than before it. Since no property was recovered or preserved in the proceeding, there can be no charging order. If the Proceeds are considered property recovered or preserved in the proceeding, they ought to be considered in the context of the litigation as a whole, including the Costs Award.

[34] Moreover, the fact that Mr. Cozzi obtained the ATE Policy and the payment of the Proceeds for Mr. Nguyen does not make him instrumental in the “recovery or preservation” of the asset over which the charging order is sought. Mr. Cozzi simply sold Mr. Nguyen the ATE Policy as an “insurance intermediary,” as provided in the Business Agreement that Mr. Cozzi entered into with DAS. Under the terms of that agreement, Mr. Cozzi was required to offer the insurance to his qualifying clients. This was a business arrangement from which Mr. Cozzi also stood to benefit, as amply demonstrated by Mr. Cozzi’s subsequent conduct in attempting to obtain the Proceeds, including ahead of the Costs Award for which Mr. Nguyen is liable. I agree with the PGT’s submission that Mr. Cozzi should not be rewarded for brokering a contract between Mr. Nguyen and DAS when he knew that Mr. Nguyen had a litigation guardian and was incapable of entering into the contract.

[35] Mr. Cozzi argues that “but for” his efforts, the Proceeds would not exist. To some extent, the proceeds were paid in spite of Mr. Cozzi’s efforts. DAS has not sought the return of the Proceeds despite the fact that the CFA was found to be void and noncompliant with other express terms of the Business Agreement.

[36] Mr. Cozzi takes the position that his claim for a charging order raises an access to justice and equity issue, since, if lawyers are unable to recover the proceeds of after-the-event insurance, they will not take on cases like Mr. Nguyen’s. I disagree. Due to Mr. Cozzi’s current position, there was no benefit to Mr. Nguyen in pursuing the litigation or in obtaining the ATE Policy. Despite the fact that Mr. Nguyen is in a worse position now than he would have been had no action been commenced, Mr. Cozzi would take the Proceeds and leave his client liable for the entirety of the Costs Award. In addition to disbursements, Mr. Cozzi now seeks fees, to which he would not be entitled under the CFA, if it had been valid, because the claim was unsuccessful.

[37] To portray Mr. Cozzi’s entitlement to a charging order over the Proceeds as an access to justice issue is misleading. A lawyer may take on a case on a contingency fee basis for a variety of reasons, including the potential for a significant fee in the event of success. The prospect that disbursements may be covered by an ATE Policy may weigh into those considerations. However, in this case, since the proceeds could be applied to both adverse costs and disbursements, there was never any certainty that the Proceeds would be applied to the disbursements. If Mr. Nguyen was not a party under a disability, or if his Litigation Guardian had been involved, he may never have agreed to the Direction that the Proceeds be applied to the disbursements rather than to the Costs Award.

[38] My conclusion is further supported by the fact that quantum meruit is equitable relief. Not only has Mr. Cozzi failed to demonstrate any ground for this court to exercise its equitable jurisdiction, but the Decision provided ample grounds for concern regarding Mr. Cozzi’s conduct in relation to Mr. Nguyen. These grounds would militate against exercising this court’s equitable jurisdiction in Mr. Cozzi’s favour.

[39] Mr. Brown, on Mr. Cozzi’s behalf, submits that once I found the CFA void and unenforceable, it was incumbent on me, pursuant to s. 19 of the Solicitors Act, to make a determination of Mr. Cozzi’s fees and disbursements. No such relief was sought in the Application. This is an issue that could have and should have been raised in the Application, and I decline to consider it at this stage. In addition, it would not be appropriate for me to assess Mr. Cozzi’s fees and disbursements on a quantum meruit basis at this stage, since the issue of Mr. Cozzi’s entitlement to have the Proceeds to his disbursements is under appeal.

Conclusion

[40] Accordingly, I dismiss the motion for a charging order.

[41] While the Respondent seeks costs, counsel did not have a costs outline at the hearing. In any event, I do not think this is an appropriate case for costs. The Respondent no longer has an interest in this proceeding, but rather participated of its own accord. Under the circumstances, I order no costs to the Respondent.

[42] Counsel for the PGT seeks costs of her attendance at the hearing. I order $350 in costs to the PGT.

Nishikawa J.

Date: August 29, 2019

[^1]: I note in passing that Mr. Cozzi’s disbursements have climbed steadily from approximately $30,000.00 disclosed to Archibald J. at trial, to $37,858.91 submitted to DAS, to over $68,000.00 before me on the Application to the amount now claimed.