Court File and Parties

COURT FILE NO.: 63406/09 DATE: 2020-10-06 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: PASQUALE SCETTO by his litigation guardian Benito Scetto, Plaintiff -and- MICHELE ANTONIO SCETTO, Defendant

BEFORE: The Honourable Justice M. L. Lack

COUNSEL: Kelli Preston and Sara Mosadeq, Counsel for the Plaintiff Michele Antonio Scetto, not represented, not appearing Phillip Kuye and Rob Moubarak, Counsel for Sutherland Law Kim Larsen, Counsel for Esterina Scetto

HEARD: September 18, 2020

Endorsement

[1] These are my rulings in connection with two motions brought in this proceeding:

(i) A motion brought by Sutherland law firm (the law firm), former counsel for the defendant Michele Antonio Scetto (Mike Scetto), for a charging order; and

(ii) A motion brought on behalf of the plaintiff Pasquale Scetto for directions on matters arising out of the Judgment in this case.

The History of the Proceeding

[2] In this action, Pasquale Scetto sought a declaration that his son Mike Scetto held 814 Brand Road, Uxbridge in trust for him. The matter was tried before me. On March 20, 2019, I released the Judgment in the case. I found that Pasquale did not gift the property to Mike Scetto. I found that Mike Scetto held the property in trust for Pasquale Scetto and made the declaration sought. I found that Mike Scetto was entitled to be reimbursed for his contributions to the property by way of equitable set-off. I made findings about what Mike Scetto had contributed (paragraphs 121 to 149 of the Judgment). I left it to counsel to calculate the amount that Mike Scetto had contributed to the property in accordance with my factual findings (paragraph 150 of the Judgment). I ordered the property sold and provided a formula for the division of the proceeds based on Mike Scetto’s reasonable expectations at the time of the transfer of the property from Pasquale to Mike. The formula is set out in paragraphs 153 to 156 of the Judgment. The Judgment provided that if the parties were unable to agree respecting the arrangement or terms, either could apply for directions.

[3] On February 7, 2020 I heard a motion for directions and ordered inter alia that the net proceeds of the sale were to be held pending a determination of the calculations of Mike Scetto’s share of the proceeds in accordance with the provisions of the March 20, 2019 Judgment. I also ordered that if the parties were unable to agree on the calculations they were to appear before me for directions. I adjourned the motion sine die for that purpose.

[4] Mike Scetto’s appeal of the Judgment was abandoned.

[5] Mike Scetto transferred the property to Pasquale, as ordered.

[6] The sale of the property took place. The net proceeds were and are held in trust.

[7] In March 2020, the law firm, which acted as counsel for Mike Scetto at trial, obtained an order removing it as counsel of record for Mike Scetto.

[8] The law firm billed Mike Scetto $201,718.91 for its legal services in the action. Mike Scetto’s bill has not been paid.

The Motion for a Charging Order

[9] The law firm brought a motion on September 16, 2020 for a charging order for its fees and disbursements billed to Mike Scetto against the funds ordered to be paid to Mike Scetto under the Judgment and an order that the charging order has priority over any amount owed to Pasquale Scetto and all third parties. The amount to be charged is alleged by the law firm to be $185,502.20, or alternatively $184,607.18, or alternatively $84,077.83.

[10] The plaintiff and defendant had not agreed upon the calculations arising from my findings, as I asked them to do in paragraph 150 of the Judgment.

[11] Counsel for Pasquale argued that there were no funds payable to Mike as a result of the Judgment.

[12] I found that the amount or even the existence of a fund payable to Mike Scetto was an issue and I ruled, referring to Weenan v. Biadi, 2018 ONCA 288, that the motion could not proceed until the existence of the fund was determined one way or the other. I adjourned the motion to September 18, 2020 to be heard contemporaneously with the motion for directions brought on behalf of the plaintiff, Pasquale Scetto, to determine Mike Scetto’s share of the proceeds of the sale, calculated in accord with the Judgment.

Appearances on Motions

[13] Both motions were heard on September 18, 2020. There was no issue about the teleconference format for the hearing of the motions, necessitated by the constraints on in-court hearings because of the Covid-19 pandemic. A court registrar and court reporter were on both calls. The plaintiff Pasquale Scetto’s counsel filed materials and was on the calls and made submissions. Mike Scetto had notice of both motions. He did not file materials and was not present on either call, but he consented in writing to the law firm’s claim to an order charging his share of the proceeds. The law firm had filed materials and Mr. Kuye was on the calls and made submissions on its behalf.

[14] There is a continuing family law proceeding between Pasquale Scetto and his spouse Esterina Scetto. Mrs. Scetto alleges that Pasquale’s share in the proceeds of the sale form part of his net family property. I permitted Mrs. Scetto’s counsel, Kim Larsen also of the Sutherland law firm, to join the September 18th call to make representations on Pasquale Scetto’s motion for immediate payment out of trust to Pasquale of his share in the sale proceeds from trust. Pasquale Scetto’s counsel and Mrs. Scetto’s counsel agreed to an order that Pasquale’s share in the proceeds of the sale shall be held in trust by Pasquale’s lawyer and the issue of payment out of those funds to Pasquale shall be adjourned for adjudication in the family law proceeding.

The Amount Calculated – Paragraph 150 of March 20, 2019 Judgment

[15] Calculating the amount that Mike Scetto had contributed to the property, as I asked the parties to do in paragraph 150 of the Judgment, was a very easy thing to do. It simply entailed going through paragraphs 121 to 149 of the Judgment and checking my figures in the Judgment against the exhibits for typographical errors and for duplications and adding up the figures. It was simply time-consuming because there were approximately 160 entries. Since the parties had not agreed on the amount and it was an issue, I did the actual calculations in preparation for the September 18th motion. It was not until that hearing that the parties agreed that my factual findings resulted in a figure of $63,936.23 that Mike Scetto had contributed to the property.

The Legal Framework for a Charging Order

[16] Section 34(1) of the Solicitors Act, R.S.O. 1990, c.S.15 provides:

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.

[17] In Weenen v. Biadi, 2018 ONCA 288 the Ontario Court of Appeal set out the test for a charging order under s. 34 of the Solicitor’s Act:

(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.

[18] The Court noted that charging orders under s. 34 of the Solicitor’s Act and the court’s inherent jurisdiction to grant a solicitor’s lien are two sides of the same coin. To obtain a charging order or lien, the onus is on the solicitor to demonstrate that a charging order or lien is warranted. The decision is discretionary.

The Charging Order Sought

[19] The law firm’s position is that it is entitled to a charging order over Mike’s share in the sale proceeds. In referring to amounts, the law firm based the figures it put forward on the erroneous position that Mike’s contributions to the property were $78,252.20. They were not. His contributions, calculated in accordance with the findings in the Judgment, were $63,936.23, as the law firm agreed on the motion. Because of that error, the numbers that the law firm used, including the percentage in the net proceeds, were skewed. I amended the law firm’s figures - see Schedule attached.

[20] The law firm’s first position is that Mike Scetto is entitled to a return of his contributions plus his percentage interest in the sale price of $650,000 after deduction of his percentage share of the real estate commission and legal expenses. (The law firm abandoned at the hearing its original position that there should be no deduction for the expenses of sale.) According to the attached amended calculations, the law firm’s position is this results in Mike’s share being $153,651.05.

[21] In advocating position one, the law firm is submitting that the charging order it seeks should have priority to the payment of the remainder of the expenses of sale (after Mike’s percentage share), payment of the municipal taxes and the mortgage and Pasquale’s contribution to the property.

[22] The law firm’s alternate position is that Mike Scetto is entitled to a return of his contribution plus his percentage interest in the sale price of $650,000 after deduction of 100% of the real estate commission and legal expenses. Then the amount required to pay off the CIBC mortgage and municipal taxes come out of his share. According to the attached amended calculations, the law firm’s position is this results in Mike’s share being $54,840.27.

[23] In advocating the alternate position, the law firm is submitting that the charging order it seeks should have priority over Pasquale’s contribution to the property.

The Plaintiff’s Position

[24] The plaintiff’s position is that Mike Scetto is not entitled to any funds being held from the sale, when the provisions of the March 20, 2019 Judgment are properly applied.

[25] The plaintiff’s calculations of Mike’s entitlement under the Judgment follow (supplemented by revisions plaintiff’s counsel made in oral submissions).

[26] To apply the formula in the Judgment, it is necessary first to determine the sale price, the real estate commission, the legal expenses and the usual expenses of the sale. The sale price was $650,000. There was a deposit of $20,000 held by the real estate broker and a small tax adjustment, which made the balance due on closing $628,132.75. The minor tax adjustment on the statement of adjustments is of no consequence. When the balance of the real estate commission in the amount of $11,216.25 ($31,216.25 less deposit of $20,000 equals $11,216.25) and the legal expenses of $1,402.42 and the outstanding taxes of $6,396.75 were paid, the amount remaining was $609,117.33. That amount is the “gross proceeds” of the sale, referred to in the Judgment.

[27] According to paragraph 153 of the Judgment, Pasquale Scetto’s share in the gross proceeds, calculated in accordance with the findings in the Judgment, is $396,000. Mike Scetto’s share is his contributions of $63,936.23. According to paragraph 153 the amount that remains after deduction of those shares is the “net proceeds”. The net proceeds are $149,181.10 ($609,117.33 minus $396,000 minus $63,936.23 equals $149,181.10).

[28] Paragraph 154 of the Judgment provides that Mike’s share in the net proceeds is the percentage that his contributions to the property is of the combined contributions of Pasquale and himself. The percentage is 13.9% as follows:

63,936.23 (Mike) 459,936.23 (combined) X 100% = 13.9%

[29] The net proceeds are $149,181.10. Mike’s share of the net proceeds is 13.9% of $149,181.10 or $20,736.17. Mike’s contributions plus his share in the net proceeds total $84,672.40 ($63,936.23 plus $20,736.17). However, paragraph 154 also provides that from Mike’s share the amount required to pay off and discharge the existing CIBC mortgage on the property was to be paid. Paragraph 156 of the Judgment provides that pending sale of the property, Mike could remain in occupation of the property provided he continued to pay the occupation costs, which included the municipal taxes. He did remain in occupation, but he did not pay the taxes. The amount required to pay off the mortgage was $88,479.58 and the amount of municipal taxes for which Mike was responsible during his occupation, and did not pay, was $6,396.75. These two amounts totalled $94,876.33. They exceeded his share by $10,203.93.

[30] Based on these calculations, the plaintiff’s position is that Mike Scetto is not entitled to any of the funds being held from the sale and consequently the law firm’s motion for a charging order is moot.

Analysis

[31] To the extent that it is implicit in the arguments of the law firm that provisions of the Judgment are erroneous, I reject those arguments. The law firm has no standing to attack the Judgment. It no longer acts for Mike Scetto, and more importantly, the Judgment has not been appealed.

[32] For that reason, I reject the submission that Mike Scetto should only pay a percentage of the expenses of the sale. The Judgment clearly states that the expenses of the sale should be paid off the top of the sale price before arriving at the “gross proceeds” of sale in the formula.

[33] The assertion that Mike Scetto has recovered $153,651.05 or even $54,840.27 in these proceedings turns the Judgment on its head. The law firm has committed the cardinal error of looking at the Judgment piecemeal and failing to consider it as a whole. The law firm’s calculations do not apply the formula set out in the Judgment.

[34] Both alternatives advocated by the law firm give Mike’s contributions to the property priority to Pasquale’s contributions. There is no basis in the Judgment for doing that. Both sets of contributions were part of the formula to determine the “net proceeds” or profits and percentage participation in the profits and ultimately the amount awarded to each party.

[35] The first position advocated by the law firm gives Mike Scetto’s share priority to the mortgage. The mortgage was never contested at trial. It was never contested that Mike Scetto placed the mortgage on title. He alone incurred the mortgage debt. He used the proceeds to fund his contributions to the property. If Mike’s share has priority to the mortgage for purposes of the solicitor’s lien, that would result in Pasquale being responsible to pay off the mortgage and thereby fund Mike’s contributions to the property. It makes no sense in the context of the Judgment because the contributions were the underlying basis of Mike’s entitlement to relief. Moreover, it flies in the face of the provision in the Judgment that the amount required to pay off the CIBC mortgage was to be deducted from Mike’s share.

[36] I find that Pasquale Scetto’s counsel has properly applied the provisions of the Judgment to arrive at Mike Scetto’s ultimate entitlement under the Judgment. I accept the plaintiff’s calculations. I find that Mike Scetto is not entitled to any of the funds from the sale.

[37] Under the criteria in Weenen, there is no fund in existence in Mike Scetto’s favour to be charged. Consequently, I dismiss the law firm’s motion for a charging order.

Conclusion

[38] For these reasons,

(i) Sutherland Law’s motion for a charging order is dismissed;

(ii) Pasquale Scetto’s share in the proceeds of the sale of 814 Brand Road, Uxbridge, calculated in accordance with the Judgment herein dated March 20, 2019 is $609,117.33, which is the amount currently held in trust by the law firm of Devry Smith Frank, and Pasquale Scetto is entitled to that amount under the said Judgment;

(iii) Michele Antonio Scetto’s share in the proceeds of the sale of 814 Brand Road, Uxbridge, calculated in accordance with the Judgment herein dated March 20, 2019 is nil;

(iv) On consent of Pasquale Scetto and Esterina Scetto, Pasquale Scetto’s motion for immediate payment out of trust by Devry Smith Frank to him of his share in the proceeds of the sale is adjourned sine die for adjudication in the family law proceedings. Pending such adjudication, the funds shall continue to be held in trust for Pasquale Scetto by the law firm of Devry Smith Frank.

Costs

[39] The law firm seeks costs of its motion for the charging order.

[40] The law firm insisted on the motion being heard before the plaintiff’s motion for directions. For that reason, the motion for the charging order was set for September 16 and the motion for directions was set for September 18.

[41] The law firm took the position throughout that the plaintiff was not an interested party to its motion. It insisted that the issue of whether the charging order would be granted was a threshold issue, which would determine the law firm’s standing to make submissions on the plaintiff’s motion for directions.

[42] In my view, the position the law firm took was clearly wrong. It should have been apparent to it that the amount that Mike Scetto was entitled to under the Judgment was relevant to the issue of whether a charging order could issue; that the amount that Mike Scetto was entitled to was an issue; that the plaintiff was clearly interested in the issue, which directly impacted the plaintiff, as the draft calculations showed. The law firm maintained its position even after plaintiff’s counsel prepared material setting out the plaintiff’s position and objected to counsel for the plaintiff making any submission on September 16.

[43] After hearing argument on September 16, I adjourned the motion for the charging order to September 18 to be heard contemporaneously with the motion for directions. The law firm ultimately was unsuccessful in obtaining a charging order. It is clearly not entitled to any costs.

[44] The plaintiff seeks his costs against the law firm for the appearance on September 16, 2020.

[45] Plaintiff’s counsel had agreed that the law firm was entitled to a charging order if there was a fund to which the defendant was entitled. Because the calculations under the Judgment and priorities were an issue, it was counsel’s position that both motions should be heard together. Because the law firm failed to agree, it was necessary for plaintiff’s counsel to prepare material for and attend on the return date of September 16. She seeks costs on a substantial indemnity basis of $5,673.73 or alternatively $4,608.01 on a partial indemnity basis.

[46] I agree with the position of counsel for the plaintiff that the appearance on September 16 was unnecessary and added to the complexity of the matter. The position taken by the law firm was unreasonable. The plaintiff’s bill of costs is reasonable. The plaintiff is entitled to his costs from the law firm on a substantial indemnity basis fixed at $5,673.73.

[47] The plaintiff also seeks costs from the defendant of the motion for directions heard on September 18, 2020.

[48] Counsel for the plaintiff seeks costs on a substantial indemnity basis of $12,578.02 or alternatively on a partial indemnity basis of $11,379.60 for the motion for directions.

[49] I have taken into account that the defendant did not appear on the motion for directions and contest it. However, the calculations had to be finalized before this matter could be completed. The materials which counsel for the plaintiff prepared and filed were voluminous. They reflect the position that the plaintiff had presented to the defendant’s counsel, while still counsel of record, long before the motion for directions was brought. The defendant rejected that position. Ultimately, I accepted the plaintiff’s position on calculations. The time shown on the bill of costs spent by counsel for the plaintiff was reasonable. Since I reviewed all material and did all calculations, I know how long preparation must have taken. The rates charged are reasonable. I have, however, deducted $1,000 which, in my view, is attributable to the family law matter and the portion of the motion dealing with payment out, which was settled.

[50] The plaintiff should have his costs of the motion for directions from the defendant on a partial indemnity basis fixed at $10,300 (all inclusive).

Conclusion

[51] For these reasons,

(i) I order Sutherland Law to pay the plaintiff Pasquale Scetto his costs of the motion for a charging order fixed at $5,673.73 (all inclusive).

(ii) I order the defendant Michele Antonio Scetto to pay the plaintiff Pasquale Scetto his costs of the motion for directions fixed at $10,300 (all inclusive).

Justice M. L. Lack Released: October 6, 2020