General Motors of Canada Company v. Trillium Motor World Ltd.

[Indexed as: General Motors of Canada Co. v. Trillium Motor World Ltd.]

Ontario Reports

Ontario Superior Court of Justice

McEwen J.

January 22, 2019

144 O.R. (3d) 183 | 2019 ONSC 520

Case Summary

Bankruptcy and insolvency — Property of bankrupt — Costs award made in favour of bankrupt prior to bankruptcy in its capacity as representative plaintiff in class proceeding forming part of bankrupt's estate.

Civil procedure — Class proceedings — Costs — Personal Property Security Act having no application to first charge obtained by class counsel under Class Proceedings Act — Class Proceedings Act first charge taking priority over perfected security interest under Personal Property Security Act — Class Proceedings Act, 1992, S.O. 1992, c. 6 — Personal Property Security Act, R.S.O. 1990, c. P.10.

Personal property security — Priorities — First charge obtained by class counsel under Class Proceedings Act ("CPA") effectively being solicitor's lien for purposes of priority dispute with secured creditor under Personal Property Security Act ("PPSA") — PPSA having no application to first charge under CPA — CPA first charge taking priority over perfected security interest under PPSA — Class Proceedings Act, 1992, S.O. 1992, c. 6 — Personal Property Security Act, R.S.O. 1990, c. P.10.

A costs award was made in favour of the respondent in its capacity as a representative plaintiff in a class proceeding. The applicant was a secured creditor of the respondent. It brought an application for an order adjudging the respondent bankrupt, an order that the costs award be deemed the property of the respondent, and an order declaring that the applicant, as a secured creditor, had a first-ranking security interest over the costs award, and specifically ranked in priority to class counsel, who had not been paid by the respondent.

Held, the application should be allowed in part.

There was no doubt that the respondent's debts outweighed its assets and that it had ceased to meet its liabilities as they became due. The applicant was entitled to an order adjudging the respondent bankrupt. [page184]

The costs award was the property of the respondent and formed part of its estate in bankruptcy.

The first charge provided to class counsel under the Class Proceedings Act is effectively a solicitor's lien for the purposes of a priority dispute with a perfected security interest under the Personal Property Security Act. Pursuant to s. 4(1)(a) of the PPSA, the PPSA does not apply to that first charge. The language of the CPA establishes a super-priority, and so the CPA first charge should take priority over the perfected interest under the PPSA. Class counsel ranked as a secured creditor with an inchoate interest arising at the moment the costs award became available through class counsel's work.

Hislop v. Canada (Attorney General) (2009), 95 O.R. (3d) 81, [2009] O.J. No. 1756, 2009 ONCA 354, 248 O.A.C. 205, 177 A.C.W.S. (3d) 514, apld

Dalcor Inc. v. Unimac Group Ltd. (2017), 136 O.R. (3d) 585, [2017] O.J. No. 567, 2017 ONSC 945, 45 C.B.R. (6th) 56, 63 C.L.R. (4th) 298, 7 P.P.S.A.C. (4th) 174, 276 A.C.W.S. (3d) 224 (S.C.J.); Tots and Teens Sault Ste Marie Ltd. (Re) (1975), 1975 CanLII 535 (ON SC), 11 O.R. (2d) 103, [1975] O.J. No. 2549, 65 D.L.R. (3d) 53, 21 C.B.R. (N.S.) 1 (Bank. Ct.); Weenen v. Biadi (2018), 141 O.R. (3d) 276, [2018] O.J. No. 1529, 2018 ONCA 288, consd

Other cases referred to

Confederation Treasury Services Ltd. (Re), 1995 CanLII 7386 (ON SC), [1995] O.J. No. 3993, 37 C.B.R. (3d) 237, 59 A.C.W.S. (3d) 1058 (Gen. Div.); Guergis v. Hamilton, [2016] O.J. No. 3629, 2016 ONSC 4428 (S.C.J.); Husky Oil Operations Ltd. v. M.N.R., 1995 CanLII 69 (SCC), [1995] 3 S.C.R. 453, [1995] S.C.J. No. 77, 128 D.L.R. (4th) 1, 188 N.R. 1, [1995] 10 W.W.R. 161, J.E. 95-1945, 137 Sask. R. 81, 35 C.B.R. (3d) 1, 24 C.L.R. (2d) 131, 58 A.C.W.S. (3d) 182, EYB 1995-67967; Jeffery v. London Life Insurance Co., [2018] O.J. No. 4465, 2018 ONCA 716; Nantais v. Telectronics Proprietary (Canada) Ltd. (1996), 1996 CanLII 7984 (ON SC), 28 O.R. (3d) 523, [1996] O.J. No. 5386, 134 D.L.R. (4th) 470, 7 C.P.C. (4th) 189, 62 A.C.W.S. (3d) 443 (Gen. Div.); Prince Edward Island v. Bank of Nova Scotia, 1988 CanLII 8825 (PE SCTD), [1988] P.E.I.J. No. 28, 72 Nfld. & P.E.I.R. 191 (T.D.); Ryan (Re), 1998 CanLII 5308 (ON CA), [1998] O.J. No. 3753, 9 C.B.R. (4th) 107, 82 A.C.W.S. (3d) 848 (C.A.), affg [1997] O.J. No. 4521, 50 C.B.R. (3d) 60, 75 A.C.W.S. (3d) 24 (Gen. Div.); Saskatchewan (Attorney General) v. Lemare Lake Logging Ltd., [2015] 3 S.C.R. 419, [2015] S.C.J. No. 53, 2015 SCC 53; Thomas Gold Pettingill LLP v. Ani-Wall Concrete Forming Inc., [2012] O.J. No. 2109, 2012 ONSC 2182, 349 D.L.R. (4th) 431, 25 CP.C. (7th) 110, 215 A.C.W.S. (3d) 226 (S.C.J.); Trillium Motor World Ltd. v. General Motors of Canada Ltd., [2016] O.J. No. 4939, 2016 ONCA 702, 270 A.C.W.S. (3d) 722

Statutes referred to

Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, ss. 42(1)(j), 43(1), 136(1)

Canada Pension Plan, R.S.C. 1985, c. C-8

Class Proceedings Act, 1992, S.O. 1992, c. 6, ss. 31(2), 32(2), (3)

Personal Property Security Act, R.S.O. 1990, c. P.10, s. 4 [as am.], (1)(a), Part III [as am.], ss. 20(1) (a)(ii), 73 [as am.]

Solicitors Act, R.S.O. 1990 c. S.15, s. 34(1) [as am.]

Rules and regulations referred to

Bankruptcy and Insolvency General Rules, C.R.C., c. 368, s. 39 [as am.]

Authorities referred to

Ziegel, Jacob, and David Denomme, The Ontario Personal Property Security Act Commentary and Analysis, 2nd ed. (Toronto and Vancouver: Butterworths, 2000) [page185]

APPLICATION for an order adjudging the respondent bankrupt and for other relief.

Sean Campbell, Natasha MacParland and Natalie Renner, for applicant.

David Sterns, Andy Seretis, Allan Dick, Marie-Andree Vermette and Michael Statham, for respondent.

Robert Thornton and Rachel Bengino, for proposed interim receiver FTI Consulting Canada Inc.

[1] MCEWEN J.: — The applicant, General Motors of Canada Company ("GM"), brings this application seeking a number of orders as follows:

-- an order adjudging Trillium Motor World Ltd. ("Trillium") bankrupt;

-- an order that the costs award obtained by Trillium against Cassels Brock & Blackwell LLP ("Cassels") be deemed the property of Trillium;

-- an order declaring that GM as a secured creditor has a first-ranking security interest over the costs award, and specifically ranks in priority to class counsel; and

-- alternatively, if the court is not prepared to make a bankruptcy order at this time, an order that FTI Consulting Canada Inc. ("FTI") be appointed as interim receiver over all of the assets, undertakings and property of Trillium, pending the determination of the bankruptcy issue.

[2] Class counsel seek two things:

-- an order dismissing the application; and

-- an order in the alternative declaring that the costs award is made not in Trillium's personal capacity and as such does not form part of Trillium's estate or, in the alternative, an order that the costs award is payable to Trillium subject to a first charge in favour of class counsel in priority to any claims GM may have as a secured creditor.

Overview

[3] This application is essentially a contest between GM and class counsel as to who is entitled to the costs that I awarded to be paid to Trillium by Cassels together with the subsequent related costs award of the Ontario Court of Appeal, which [page186] two amounts now total $3,072,831.50 plus applicable interest (collectively, the "costs award").

[4] This costs award has now been satisfied and it is being held in trust pending the outcome of this dispute.

[5] In my earlier endorsement dated December 5, 2018, I approved the retainer agreement between class counsel and Trillium pursuant to s. 32(2) of the Class Proceedings Act, 1992, S.O. 1992, c. 6 ("CPA"). In that decision I approved the assignment of the costs award from Trillium to class counsel. As noted in the endorsement I did so without prejudice to GM's right to argue that the costs ought to be paid to it as opposed to Trillium or class counsel.

[6] As a result of my decision at trial and the subsequent decision of the Court of Appeal, Trillium owes costs to GM in the amount of $4,828,005.32. This is an unsecured debt.

[7] GM subsequently entered into an agreement with the Business Development Bank of Canada ("BDC") whereby GM obtained a secured debt BDC held with respect to Trillium. As a result, Trillium also owes $2,797,681.71 to GM on a secured basis. Trillium also has other known debts including money owed to the Canada Revenue Agency on account of unpaid GST/HST of approximately $220,000 plus interest.

[8] GM, as a secured creditor, now seeks to put Trillium into bankruptcy and collect the costs award in priority to class counsel.

[9] Essentially, GM, supported by FTI, submits that the costs award is the property of Trillium and the provisions of the Ontario Personal Property Security Act, R.S.O. 1990, c. P.10 ("PPSA"), provide that GM should have priority over Trillium's assets in a bankruptcy, including as against class counsel.

Analysis

[10] The application raises four issues and I will deal with each in turn.

There is no active paramountcy issue between the CPA and the [Bankruptcy and Insolvency Act](https://www.canlii.org/en/ca/laws/stat/rsc-1985-c-b-3/latest/rsc-1985-c-b-3.html), R.S.C. 1985, c. B-3 ("BIA")?

[11] This issue was raised in the parties' facta, which caused me some concern since GM did not serve the federal and provincial Attorneys General with a Notice of Constitutional Question. GM in its reply factum, however, clarified its position and conceded that there was no conflict between the BIA and CPA.

[12] Further, at the application, the parties agreed that there was no issue of paramountcy and that essentially the dispute [page187] involved an interpretation of the CPA, PPSA, common law and law of equity.

[13] I agree with the parties that paramountcy is not an issue on this application. I would not have found a conflict in any case.

[14] Paramountcy ought to be narrowly construed. Historically, Canadian courts have followed the course of restraint in holding valid provincial laws to be inoperative under paramountcy. In the context of co-operative federalism, paramountcy must be narrowly construed with the effect that harmonious interpretations of federal and provincial legislation should be favoured: Saskatchewan (Attorney General) v. Lemare Lake Logging Ltd., [2015] 3 S.C.R. 419, [2015] S.C.J. No. 53, 2015 SCC 53, at para. 21.

[15] I would not have given effect to the suggestion that Hislop v. Canada (Attorney General) (2009), 95 O.R. (3d) 81, [2009] O.J. No. 1756, 2009 ONCA 354 stands for the proposition that the first charge provided by s. 32(3) of the CPA is inherently suspect in bankruptcy because of our constitutional framework. Hislop considered the application of s. 32(3) of the CPA where the section conflicted with the broad prohibition against charging pension benefits under the Canada Pension Plan, R.S.C. 1985, c. C-8. In that case there was actual conflict between the federal and provincial statutes because the CPA purported to provide a charge over something which could not be charged. Dual compliance was thus impossible, but Hislop is silent about the BIA. Hislop would not substantially help this court determine what compliance with the BIA would require in the context of this application.

[16] The BIA is capable of integrating property rights created by provincial legislation. There is no inherent impossibility of dual compliance. The Supreme Court has said that the BIA is itself contingent on the provincial law of property for its operation: Husky Oil Operations Ltd. v. M.N.R., 1995 CanLII 69 (SCC), [1995] 3 S.C.R. 453, [1995] S.C.J. No. 77, at para. 31. In this application, as noted, GM, supported by FTI, itself relies upon a provincial property right under the PPSA to secure the debt it holds as a preferred secured creditor.

[17] In my view, the live conflict which I must address on this application is the one between the PPSA and the CPA, two pieces of provincial legislation which in this case provide different property rights over a single fund. I will do so below.

Trillium should be adjudged bankrupt

[18] Currently, GM is a secured creditor of Trillium. GM holds a security interest which has been perfected under Part III of the PPSA. Trillium is entitled to the costs award and as a result, pursuant to my approval of the retainer agreement, class counsel [page188] is entitled to receive as fees both the costs award plus 20 per cent of the judgment amount and interest pursuant to the provisions of the CPA.

[19] As noted, the approval of the retainer agreement was done on a without prejudice basis GM to argue the issue of priority. Counsel agreed with this method of proceeding.

[20] It is my view that it is immaterial whether I decide the bankruptcy issue before or after I decide the issues regarding entitlement to the costs award. Since GM and FTI concede that there is no paramountcy issue, the scheme of distribution under s. 136(1) of the BIA will not be disturbed in any case. It would not constitute a preference if Trillium ultimately succeeds on the priority issue; rather, the task for this court is to determine the nature of the provincial rights upon which the BIA shall be superimposed.

[21] I will first start with the issue of bankruptcy.

[22] In my view, GM is entitled to an order adjudging Trillium bankrupt. Trillium closed its dealership in June 2009. It has no ongoing operations. Its only assets appear to the honourarium that I previously awarded, its share of the damages award, and potentially the costs award, which I will discuss below.

[23] There is no question that Trillium's debts far outweigh its assets.

[24] In these circumstances s. 42(1)(j) of the BIA is met and there has been an act of bankruptcy. I am satisfied that Trillium has ceased to meet its liabilities generally as they become due: see Ryan (Re), [1997] O.J. No. 4521, 50 C.B.R. (3d) 60 (Gen. Div.), affd 1998 CanLII 5308 (ON CA), [1998] O.J. No. 3753, 9 C.B.R. (4th) 107 (C.A.).

[25] Although not dealt with in its factum, Trillium argues that a bankruptcy order is unnecessary since class counsel can distribute the funds as part of the administration of the class action settlement. I disagree. In my view, since Trillium has failed to meet its liabilities and there is evidence of significant debt, a bankruptcy order is warranted following the act of bankruptcy. Trillium's creditors are entitled to bring such an application under s. 43(1) of the BIA and I would not interfere with that entitlement.

[26] In these circumstances an interim receiver is not necessary.

[27] While GM proposed that FTI be appointed interim receiver it made no submissions as to the identity of the trustee in bankruptcy.

[28] Trillium opposed FTI being appointed as interim receiver on the basis that it took a partisan position at the application and, as a result, lacks the necessary partiality to act in this matter. [page189]

[29] In my view, the objections raised by Trillium regarding the appointment of FTI as interim receiver apply with equal force to the possibility that FTI might be appointed as the trustee in bankruptcy.

[30] Section 39 of the Bankruptcy and Insolvency General Rules, C.R.C., c. 368 states that a trustee must be "impartial". In Confederation Treasury Services Ltd. (Re), 1995 CanLII 7386 (ON SC), [1995] O.J. No. 3993, 37 C.B.R. (3d) 237 (Gen. Div.), Farley J. affirmed this rule, at para. 14: "The trustee is an impartial officer of the Court; woe be to it if it does not act impartially towards the creditors of the estate".

[31] In Confederation Treasury, Farley J. also quoted [at para. 15] with approval the words of McQuaid J. in Prince Edward Island v. Bank of Nova Scotia, 1988 CanLII 8825 (PE SCTD), [1988] P.E.I.J. No. 28, 72 Nfld. & P.E.I.R. 191 (T.D.), at p. 220 Nfld. & P.E.I.R.:

It is the duty of the trustee, who is an officer of the court, to represent impartially the interests of all creditors; he is obligated to hold an even hand as between competing classes of creditors; he must act for the benefit of the general body of creditors; he is not an agent of the creditors, but an administrative official required by law to gather in and realize on the assets of the bankrupt and to divide the proceeds in accordance with the scheme of the Bankruptcy Act among those entitled. And perhaps most importantly, he must conduct himself in such a manner as to avoid any conflict, real or perceived, between his interest and his duty.

[32] In the present case, FTI took a partisan position in favour of a single creditor at the hearing of this matter. FTI positioned itself on the side of GM as more an advocate than an administrator. FTI displayed further partiality in favour of GM when it suggested at the hearing that the choice of Trillium as a representative plaintiff was an improper tactic intended to frustrate possible creditors. I am of the view that in the circumstances it would be inappropriate to appoint FTI as Trillium's trustee in bankruptcy as FTI has aligned itself with GM. There is, at least, the appearance of a lack of independence on the part of FTI prior to any potential appointment. I will hear further submissions if GM wishes to advance an alternative trustee, if necessary.

The costs award is the property of Trillium

[33] First, class counsel submits that the costs award does not belong to Trillium and therefore does not form part of Trillium's estate.

[34] In this regard, class counsel submits primarily that a representative plaintiff is not entitled to profit from the class action beyond its share of the damages and any honourarium. They further submit that class counsel agreed to pursue this action on contingency fee basis. Trillium has not paid legal fees to [page190] class counsel and the costs award is an indemnity for the payment of legal fees.

[35] While I share class counsel's concern that a representative plaintiff ought not to profit from a class action, I disagree that such a concern is active in this case. I approved a retainer agreement which assigned the costs award to class counsel, so there is no possibility that Trillium would enjoy a windfall payment in its favour even if GM were unsuccessful in this issue.

[36] In my view, the argument advanced by class counsel is driven by hypothetical policy arguments rather than decided law. I have not been referred to any known cases that support the assertion that the class as a collective, and not the representative plaintiff has incurred or must pay, subject to court approval, the fees and disbursements in the class proceeding. This is also seemingly runs contrary to s. 31(2) of the CPA which explicitly provides that the class members, other than the representative plaintiff, are not liable for costs.

[37] The above reasoning reflects the reality of class actions in an opt-out jurisdiction. Class members often do not know anything about the litigation being carried on. It would be unfair to present them with an account for a lawsuit in these circumstances and, similarly, where class members have no liability for costs it is fairer to conclude that they also have no interest in costs received. This conclusion is supported, at least in part, by the decision of Brockenshire J. in Nantais v. Telectronics Proprietary (Canada) Ltd. (1996), 1996 CanLII 7984 (ON SC), 28 O.R. (3d) 523, [1996] O.J. No. 5386 (Gen. Div.), at paras. 26, 28, 29 and 30, wherein he held:

This entitlement to costs is clearly a property right, which would be assignable by the client, were such assignment not somehow prohibited. Section 33(1) of the Act removes the prohibitions in relation to class proceedings.

As between the parties, any party-party costs awarded are the property of the client. Under rule 59.03(6), an order for the payment of costs shall direct payment to the party entitled, and not to the party's solicitor. However, the client can, and commonly does, agree with the solicitor to assign such entitlement to the solicitor, and directs payment accordingly.

Here, under the contingency fee agreement, the entitlement of the solicitor is contingent on success at trial or by settlement. If pursuant to the client's direction or otherwise, payments of costs are received by the solicitor before judgment or settlement there would be an obligation to account, if in the end the proceedings should fail.

However, that is a matter between counsel and the client. It does not in any way affect the right of the client to claim costs or the power and authority of the court to award costs. [page191]

[38] I am in agreement with the above sentiment that costs are those of the party and not the solicitor, or in this case the class.

[39] A finding that the representative plaintiff, in this case Trillium, has an unencumbered right to costs would also preserve the integrity of the retainer agreement. Trillium cannot give what it does not have. If the proprietary interest in costs was split between all the class members it would create additional confusion for both future class counsel and representative plaintiffs. Trillium has agreed to assign the costs award to class counsel and, in my view, cannot now assert that the retainer agreement speaks to something else.

[40] I therefore conclude that the costs award is the property of Trillium and forms part of its estate in bankruptcy.

Class counsel's interest in the costs award has priority

[41] I should start by stating that GM concedes that it has no claim over the 20 per cent of the judgment amount and interest being claimed by class counsel. GM restricts its claim solely to the costs award that Trillium obtained from Cassels.

[42] GM, supported by FTI, submits that its security under the PPSA gives it priority to class counsel for the costs award. FTI made the primary submissions on this issue.

[43] I disagree with those submissions.

[44] Again, this is essentially a contest between the security granted under the PPSA and the security granted under the CPA. There are no cases directly on point.

[45] FTI submits that the "first in time" rules under the PPSA apply to the CPA charge and the CPA charge, which I have granted, is subordinated to the prior perfected secured creditor, GM.

[46] In this regard, FTI relies upon s. 4 of the PPSA which provides as follows:

Non-application of Act

4(1) Except as otherwise provided under this Act, this Act does not apply,

(a) to a lien given by statute or rule of law, except as provided in subclause 20(1)(a)(i) or section 31[.]

(Emphasis added)

[47] FTI submits that the first charge provided by the CPA is not a lien in the relevant sense of s. 4(1)(a) of the PPSA.

[48] As a result, FTI further submits that s. 20(1)(a)(ii) of the PPSA specifically provides that, until perfected, a security interest in collateral is subordinate to the interest of a person who causes the collateral to be seized through a charging order but, once perfected, the security interest is not subordinate to a seizure [page192] under a charging order. In such a case the secured creditor is perfected by registration.

[49] The relevant portions of the section read as follows:

Unperfected security interests

20(1) Except as provided in subsection (3), until perfected, a security interest,

(a) in collateral is subordinate to the interest of,

(i) a person who has a perfected security interest in the same collateral or who has a lien given under any other Act or by a rule of law or who has a priority under any other Act, or

(ii) a person who causes the collateral to be seized through execution, attachment, garnishment, charging order, equitable execution or other legal process, or

(iii) all persons entitled by the Creditors' Relief Act, 2010 or otherwise to participate in the distribution of the property over which a person described in subclause (ii) has caused seizure of the collateral, or the proceeds of such property[.]

(Emphasis added)

[50] In my view, these arguments fail by virtue of the fact that the charge that is created by s. 32(3) of the CPA should be treated as effectively a solicitor's lien which is an exception in s. 4(1)(a) of the PPSA. As a result, the PPSA does not apply and s. 20(1)(a)(ii) never takes effect to give the perfected security interest priority over seizure under a charging order.

[51] Although, as noted, there are no cases directly dealing with these issues the most useful starting point is the decision of the Court of Appeal in Hislop v. Canada (Attorney General), supra. In Hislop, at para. 32, the Court of Appeal defined the first charge provided for by the CPA as "essentially a solicitor's lien". Admittedly this is obiter, but there are no competing decisions and, in my view, the analogy is a sound one. Solicitor's liens are also more well known to the law than the first charge provided s. 32(3) of the CPA. There is instructive jurisprudence as to how one should resolve conflict between such liens and other security interests.

[52] The common law of solicitor's liens has been codified in Ontario by s. 34(1) of the Solicitors Act, R.S.O. 1990, c. S.15, which provides:

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. [page193]

[53] Henry J. in Tots and Teens Sault Ste. Marie Ltd. (Re) (1975), 1975 CanLII 535 (ON SC), 11 O.R. (2d) 103, [1975] O.J. No. 2549 (Bank. Ct.), considered the issue of whether a solicitor's lien for costs in respect of the successful defence of litigation for the client, who later becomes bankrupt, constitutes a charge upon the fund recovered by the lawyer in the litigation so as to give him status of a secured creditor in the bankruptcy.

[54] Henry J. distinguished [at para. 10] a solicitor's lien on the property of a client from a solicitor's claim on the "fruits of [the] litigation for which the solicitor has successfully expended his efforts". Henry J. called the latter a "charging lien". He went on to state that a court's charging order, with respect to the charging lien, was "declaratory" in that it gave effect to a pre-existing right.

[55] Henry J. further held that a solicitor's charging order obtained prior to a bankruptcy would create a secured creditor entitled to realize his claim out of the fund against the trustees. He concluded that he should exercise his discretion to declare an inchoate charging lien and secure the debt owed to the solicitor even after the event of bankruptcy.

[56] Perell J. in Thomas Gold Pettinghill LLP v. Ani-Wall Concrete Forming Inc., [2012] O.J. No. 2109, 2012 ONSC 2182 (S.C.J.), at para. 101, had the opportunity to review Henry J.'s decision in re Tots and Teens and held:

For present purposes, the three points to note from Justice Henry's decision in Re Tots and Teens Sault Ste. Marie about a charging lien made under the court's inherent jurisdiction are: first, the charging lien creates the proprietary interest of a secured creditor; second, subject to being declared, the charging lien is an inchoate interest that pre-dates the court's declaration; and third, the charging lien is intrinsically declaratory in nature.

[57] The recent Court of Appeal decision in Weenen v. Biadi (2018), 141 O.R. (3d) 276, [2018] O.J. No. 1529, 2018 ONCA 288 reinforces the idea that solicitor's liens should be readily found where a solicitor has risked being unpaid and has been instrumental in the recovery of a fund for their client. In Weenen, the firm had represented a client and was instrumental in the recovery of $390,000. The firm applied for a solicitor's lien under the Solicitors Act to ensure the payment of its fees in full. The firm was met with a jurisdictional challenge in the Court of Appeal, and brought an alternative claim for a common law lien pursuant to the court's inherent jurisdiction. Although the court did not grant the lien, in the particular circumstances of that case, it held that it did have jurisdiction to do so. In particular, the court held, at paras. 16-17, that: [page194]

Charging orders exist alongside, and in addition to, a court's inherent jurisdiction to grant a solicitor's lien. Although distinct, they are two sides of the same coin, and overlap significantly in purpose and effect . . .

In our view, the conceptual differences between the two orders, such as how and when they are acquired, do not justify the application of different tests. The two types of charges cover the same circumstances and have identical objectives.

[58] There seems to remain no meaningful distinction, for the purposes of this application, at least, between a solicitor's lien in the common law and by virtue of statute. It is my view, in light of Court of Appeal's dictum in Hislop that the first charge provided for in the CPA is "essentially a solicitor's lien", that the CPA first charge overlaps significantly with solicitor's liens in terms of purpose and effect. It is also appropriate to adopt a broad, purposeful approach in interpreting the CPA: Jeffery v. London Life Insurance Co., [2018] O.J. No. 4465, 2018 ONCA 716, at para. 44.

[59] I see no equitable concerns that are substantial enough to displace such a broad approach. GM submits in this regard that since class counsel chose Trillium to be its representative defendant, it has to live with the consequences of Trillium insolvency. As I discussed above, GM also raises the spectre that the selection of Trillium was a tactical decision to frustrate creditors.

[60] I disagree for two reasons.

[61] First, there is no evidence that a tactical decision was made by class counsel. Furthermore, in the circumstances of this class action litigation, it is difficult to accept that any proposed representative plaintiff would have been solvent as a result of the actions of GM which closed all of the class members' car dealerships.

[62] Second, GM had the opportunity to seek security for costs or to seek costs from a non-party. GM did so at the outset and obtained an order for security for costs, but then did not renew its request for additional security for costs until this matter was before the Court of Appeal at which time the motion was dismissed. In determining the motion, reported as Trillium Motor World Ltd. v. General Motors of Canada Ltd., [2016] O.J. No. 4939, 2016 ONCA 702, Huscroft J.A. commented, at para. 34:

GM's decision not to bring a motion for security for costs was made for tactical reasons. At the hearing of the motion, GM stated candidly that it did not bring a motion earlier because it was not willing to expose its people to cross-examination. That was GM's choice, and GM must bear the burden of that choice. It would be inappropriate for this court to relieve GM of the consequences of its tactical decisions.

Huscroft J.A. also noted, at paras. 27-29, that GM took no steps to replace Trillium as the representative plaintiff. [page195]

[63] I am therefore of the view that the CPA first charge should be viewed as a lien for the purposes of the priority dispute with the PPSA and that, pursuant to s. 4(1)(a), the PPSA does not apply.

[64] This conclusion is bolstered by the decision in Dalcor Inc. v. Unimac Group Ltd. (2017), 136 O.R. (3d) 585, [2017] O.J. No. 567, 2017 ONSC 945 (S.C.J.), in which Sutherland J., at paras. 32, 33 and 34, held:

If the legislature intended to interfere with the common law, law of equity or statutory right of a solicitor's charging order, it would have provided explicit language that it intended to do so. Absent such explicit language, it is presumed that the legislature did not intend to interfere with the common law, law of equity or statutory right to solicitors' charging orders.

The ordinary wording of the PPSA gives different consequences to liens and charging orders. The wording is contradictory in that liens are excluded under section 4(1) of the PPSA but charging orders are not. This contradictory wording makes it difficult to ascertain the intention of the legislature that, specifically, solicitors' charging orders, encompassing a lien component and statutory charging order component, are subject to a perfected security under the PPSA. It does not make logical sense to me that the legislature intended that the statutory charging order component of solicitors' charging orders is subject to the provisions of the PPSA but the lien component of a charging order is not. It seems to me that this could lead to an unjust and inequitable result, where one element being the lien component has a greater priority than that of the other element, the statutory component.

Consequently, to extinguish the inchoate right of solicitors' charging orders requires, in my opinion, explicit wording from the legislature. No such wording exits in the PPSA. It is therefore my conclusion that the PPSA does not include solicitors' charging orders and as such, a perfected PPSA security does not have priority over a solicitor's charging order.

[65] I also consider my conclusion to be in keeping with scholarly opinions on the application of s. 4(1)(a) of the PPSA. Professor Jacob Ziegel and David Denomme have written that the PPSA "only applies to consensual security interests" and that the essential characteristic of interests governed by the PPSA is their origin in an agreement between the parties: The Ontario Personal Property Security Act Commentary and Analysis, 2nd ed. (Toronto and Vancouver: Butterworths, 2000), at 78-79. Class counsel rely on an interest originating in the CPA, not an agreement between the parties. Professor Ziegel and Mr. Denomme also provide a helpful discussion on the definition of "lien" in s. 4(1)(a) of the PPSA:

The term "lien" is not a term of art. In determining whether a particular lien is excluded from the [PPSA], the emphasis should be on the lien's non-consensual character, whether arising by statute or rule of law, and not on the precise content of the lien in question. "Lien" was defined in an early Ontario case as meaning, "the right of a person having possession of the property of another to retain it until some charge upon it or some demand due to him is satisfied." This definition has been overtaken by events, since it is common [page196] for modern statutes to create non-possessory as well as possessory liens (particularly in taxation legislation) and to couple them with the right to seize and dispose of the collateral.

[66] In my view, the CPA first charge fits comfortably within the language of the PPSA. I am not persuaded by the arguments raised by GM and FTI which sought to restrict or distinguish the meaning of the words "first charge".

[67] First, I do not accept the argument that, because the common law would have considered contingency fees champertous, class counsel should not obtain the benefit of the development in the law of solicitor's liens. In my view, such an analysis is out of touch with the realities of modern practice and the development of the case law, and would subvert class proceedings. Counsel would be understandably reticent to advance claims on behalf of impecunious litigants.

[68] Second, I do not accept the argument that Dalcor is meaningfully distinguishable. Counsel for FTI submits that the "double aspect" of the charge granted under the Solicitors Act, i.e., its having both a statutory and common law aspect, does not apply to first charges under s. 32(3) of the CPA.

[69] In Dalcor, at para. 30, Sutherland J. found two aspects to a charging order because "a solicitor's charging order encompasses a statutory order and a charging lien, a declaratory order under the common law and law of equity". It was the second aspect that was determinative in Dalcor: "[t]he charging lien aspect of a charging order . . . takes it out of the explicit wording of the PPSA". FTI contends that a CPA first charge has no declaratory aspect because the common law is not applicable to this "pure creature of statute" and therefore the PPSA does apply.

[70] It is true that the CPA is a statutory regime which codifies procedures which would not have been recognized under the common law. It is not clear, however, that the law of equity does not apply with equal force to the CPA first charge provisions and require that they take on a declaratory aspect. Sutherland J. noted, at para. 45 of Dalcor, that the unique purpose of a solicitors' charging order was "to protect solicitors' services and to encourage and facilitate legal representation of persons who cannot necessarily afford to pay for legal services as these services are incurred".

[71] These concerns are the same that are embodied by the CPA. The Ontario Court of Appeal, in Hislop, recognized this affinity when it said that the CPA first charge was "essentially a solicitor's lien". Since it seems reasonable to characterize a CPA first charge as a declaratory order under the law of equity at least, it is unclear how the common law's historical antipathy to [page197] class proceedings could distinguish the present case from Dalcor, even assuming that FTI's position is correct so far as the common law goes. There are residual equitable concerns -- namely that solicitors' work should be protected in order to ensure that they continue to represent those who cannot necessarily afford a cash retainer, thus ensuring access to justice -- which counsel for FTI did not address. At para. 44 of Jeffery, supra, [the] Court of Appeal recently indicated the importance of preserving the CPA's access to justice purpose: "Second, s. 32(3) of the CPA should be interpreted generously, with a view to the overarching purposes of the CPA. The most fundamental of these is encouraging access to justice."

[72] Both GM and FTI, in submissions, also further sought to distinguish Dalcor on the basis that a distinction should be drawn between a lien and a charging order, and that since the CPA first charge is written in a statute it should be read more narrowly. Again, given the dictum in Hislop, it is difficult for me to understand why Dalcor should be distinguished on this basis. GM and FTI should not prevail because they can draw formal distinctions where there is little or no substantial difference recognized in the case law. More importantly, GM and FTI should not prevail since the CPA first charge is a non-consensual security interest to which the PPSA does not properly apply as a result of s. 4(1)(a). It little matters whether that non-consensual security interest is called a lien or a charge.

[73] Finally, FTI also submitted that class counsel could not get past the test laid out in Weenen, at para. 15, for granting a solicitor's lien because in this case there was no doubt that class counsel would be paid some money by way of the contingency fee arrangement (i.e., the 20 per cent of the damages and interest). In particular, FTI relies upon the requirement that "there must be some evidence that the client cannot or will not pay not the lawyer's fees" in order obtain a charging order.

[74] The contingency fee situation was considered previously in Guergis v. Hamilton, [2016] O.J. No. 3629, 2016 ONSC 4428 (S.C.J.), a case cited by the Court of Appeal in Weenen. In Guergis, at para. 7, Hackland J. refused to "deny the plaintiff's solicitors a charging order merely because they appear[ed] to have a contingency fee arrangement, which implie[d] an acceptance by the solicitors of a degree of risk of non-payment". In this case there is no doubt that Trillium cannot pay its fees; the mere presence of a contingency fee agreement should not constitute good reason to award class counsel less than it bargained for. This court should not safeguard class counsel's fees by awarding them an additional percentage of the judgment amount as suggested by [page198] GM and FTI as this would unfairly reduce the judgment amount available to the class.

[75] In summary, I am of the view that the PPSA has no application to the first charge obtained under the CPA. The language of the CPA establishes a super-priority, and so the CPA first charge should take priority over the perfected interest under the PPSA. Following Tots and Teens, class counsel should rank as a secured creditor with an inchoate interest arising at the moment the costs award becomes available through class counsel's work. Given my findings, I need not address the submission of GM and FTI that s. 73 of the PPSA applies to resolve any conflict between the CPA and the PPSA in favour of GM.

Disposition

[76] GM is entitled to its order adjudging Trillium bankrupt. Class counsel, however, shall receive the costs award pursuant to the first charge against that fund. The costs award is to be applied to class counsel's fees and disbursement as per the prior approval of this court. If the parties cannot agree on the issue of costs with respect to this and the other related motions, or the appointment of a trustee, I can be spoken to at a 9:30 appointment to set a schedule for submissions.

Application allowed in part.