Court File and Parties
COURT FILE NO: CV-17-00005165-00ES DATE: 20220503 SUPERIOR COURT OF JUSTICE - ONTARIO
RE: VALENTIN SPAROVEC, Applicant AND: NEVENKA SMITH, JENNIFER PEGG, JESSICA WOLFE, STEPHANIE SPAROVEC, NICOLAS SPAROVEC and THE CANADIAN IMPERIAL BANK OF COMMERCE
BEFORE: Kimmel J.
COUNSEL: Krystyne Rusek and Manpreet Kaur, for the Applicant Roy Wise, for the Respondent Nevenka Smith Kelly Charlebois, for CIBC, taking no position on motion and excused at outset of hearing
HEARD: April 22, 2022
ENDORSEMENT
[1] Counsel for the respondent Nevenka Smith (“Nevenka”), Wise & Associates Professional Corporation (“Wise PC”), move, with Nevenka’s consent (after having had the opportunity to seek independent legal advice), for a charging order and mortgage over property that is the subject of dispute in this application (the “property”). The property is located at 24 McMurray Avenue in Toronto. The charging order and mortgage are brought to secure legal fees due and owing and that may become payable in connection with Nevenka’s defence of this application.
[2] The dispute in the application is in relation to the estate of the parties’ late mother, Dragica Sparovec, a.k.a. Caroline Sparovec (“Dragica”), who died on May 22, 2017. Her estate is modest. She owned her own home, where she lived with Nevenka, who cared for her prior to her death. Title to the property was transferred into the joint names of Dragica and Nevenka prior to Dragica’s death by a deed dated May 10, 2011.
[3] That transfer (and the registration of Nevenka as the sole owner of the property by survivorship after Dragica’s death) is challenged by Dragica’s son, the applicant Valentin Sparovec (who refers to himself as “Wally”), as are various other transactions that took place prior to and after Dragica’s death.
[4] Under Dragica’s last will, dated March 4, 2010, after the debts of the estate and cash gifts to grandchildren totaling $80,000 in the aggregate have been satisfied, the remainder of Dragica’s estate is to be divided equally between Wally and Nevenka.
[5] The motion is predicated on both s. 34 of the Solicitors Act, R.S.O. 1990, c. S.15 and the inherent jurisdiction of the court for the granting of a lien over property recovered or preserved through a lawyer's actions, at the discretion of the court. In Weenen v. Biadi, 2018 ONCA 288, 141 O.R. (3d) 276, at paras. 14-17, the Court of Appeal for Ontario described these orders as follows:
a. Section 34(1) of the Solicitors Act: 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.
b. Inherent jurisdiction: Which exists alongside, and in addition to, the court’s statutory authority under s. 34(1) of the Solicitors Act. Although distinct, s. 34(1) and the court’s inherent jurisdiction are two sides of the same coin, and overlap significantly in purpose and effect, since the Solicitors Act is a codification of a court's “inherent jurisdiction in equity to declare a lien on the proceeds of a judgment where there appears to be good reason to believe that the solicitor would otherwise be deprived of his or her costs”: Weenen, at para. 16, quoting from Taylor v. Taylor (2002), 2002 CanLII 44981 (ON CA), 60 O.R. (3d) 138 (C.A.), at para. 28.
[6] In order to obtain a charging order or a lien on the moneys or property in issue, the onus is on the solicitor to demonstrate that a charging order or lien is warranted. The decision is discretionary. In deciding whether or not to exercise that discretion, courts must “balance the circumstances and equities of each case and client”: Weenen, at para. 14, citing Taylor, at para. 34. In Weenen, at para. 15, the Court of Appeal specified a three-part test that solicitors must demonstrate in order to obtain either a charging order or a solicitors’ lien:
a. the fund or property is in existence at the time the order is granted,
b. the property was “recovered or preserved” through the instrumentality of the solicitor, and
c. there must be some evidence that the client cannot or will not pay the lawyer's fees.
[7] Early on in this proceeding, the parties consented to a preservation and freezing order signed by McEwen J., dated October 10, 2017 (the “preservation order”). Very little has happened to advance the adjudication of the issues raised in the application on its merits since that preservation order was granted, although there have been some cross-examinations, and, lately, some procedural steps as a result of efforts by Nevenka to sell the property despite the preservation order (now the subject of a contempt motion scheduled to be heard at a later date). No decisions have been rendered on the substantive issues in dispute.
[8] Among other things, the preservation order prohibits Nevenka from registering any other loans or encumbrances against the property or using the property as security for any loan. The preservation order contains the standard language granting leave to any party to move for further directions. To register the charging order and mortgage that is sought in favour of Wise PC on this motion, leave and/or an amendment to the preservation order is also required.
Should a Solicitor’s Lien be Granted Under s. 34 of the Solicitors Act?
[9] The moving party acknowledges that the relief sought may go beyond what is expressly provided for in the Solicitors Act in at least two respects: (i) Wise PC seeks to register a mortgage containing charge terms (not just an order granting a lien or charge in favour of Wise PC) and (ii) Wise PC seeks to specify an amount in the charge that includes not only past fees due but also future fees to be incurred in this application. Counsel for Wally contends that this ties into another related and exceptional aspect of the relief sought, which is that the application has not yet been adjudicated or settled because the motion has been brought mid-way through, rather than at the conclusion of, the proceeding.
[10] Insofar as the three elements of the test for an order under s. 34 of the Solicitors Act are concerned, the property exists, so that is not an issue, although Nevenka’s exact interest in it (or in the value of the estate) remains to be determined. The property has also subsisted throughout, so it cannot be said to have been “recovered” for Nevenka. The parties disagree about whether Nevenka’s interest in the property has been “preserved” through the instrumentality of Wise PC at this state of the litigation and about whether there is evidence that Nevenka cannot or will not pay her lawyer’s fees.
Has the property been “recovered” or “preserved”?
[11] While there are some examples of cases in which a s. 34 Solicitors Act order has been made mid-way through — rather than at the end of — a proceeding, those were cases in which some step has been taken and/or an interlocutory determination has been made in the proceeding through the instrumentality of the lawyer that was associated with the recovery or preservation of property. For example:
a. In Pino v. Vanroon, [1998] O.J. No. 4354 (Gen. Div.), a plaintiff’s former lawyer was granted a charging order prior to the commencement of the trial (before there was any judgment or settlement and after new counsel had been retained to conduct the trial). The court rationalized the order on the basis that the solicitor had preserved the client’s right to sue, which it described as a chose in action (i.e., a form of property): “But for the efforts of the solicitor, the right of the client to sue would have been lost by expiry of the limitation periods”: at para. 10.
b. In Foulidis v. Foulidis et. al., 2021 ONSC 5791, at para. 43, the court found that the solicitor had previously preserved the property by obtaining several orders subsidiary to the main issue in dispute. For example, the court noted that the solicitor obtained an order for exclusive possession of the matrimonial home and prevented a sale by a mortgagee. In other words, this case involved a solicitor applying for a charging order after having previously obtained preservation orders in their client's favour. Further, there had been a settlement reached preserving the client’s interest in the matrimonial home at issue in the proceeding.
c. In Medici v. Roy, 2004 CanLII 194 (Ont. S.C.), the lawyer acting for the plaintiffs had attended on mediation and secured a settlement, which was initially accepted, but later repudiated by the plaintiffs. As a result of the repudiation, the retainer between the lawyer and plaintiffs was terminated. Following Pino, the court granted a solicitors’ lien on the ground that the lawyer’s work preserved the plaintiffs’ right to sue: at paras. 12-15.
[12] In this matter, by contrast, no steps have been taken by Wise PC on behalf of Nevenka to date that can be said to have “preserved” her interest in the property. While Wise PC’s efforts may result in the preservation of Nevenka’s interest in the property as a result of a determination or settlement at some future point in this proceeding, that point has not yet occurred. For this reason alone, it would be inappropriate to grant a charging order under s. 34 of the Solicitors Act — it is premature at this stage.
[13] The court’s inherent jurisdiction, also relied upon and referred to in Weenen, is specifically indicated to be in respect of the proceeds of a judgment, and is thus similarly tied to an outcome that has been achieved for the client. I am not inclined to exercise the court’s jurisdiction in this case in a manner that extends beyond that conceptual limitation which appears to be consistently applied under both the statutory and common law approaches to solicitors’ charges and liens, respectively.
Is there evidence that Nevenka cannot or will not pay her lawyer’s fees?
[14] Even if I had been prepared to generously interpret the requirement for some step(s) to have been taken by the solicitor to recover or preserve the property for Nevenka, the evidence tendered in support of this motion does not support a finding that Nevenka is unwilling to pay her lawyer’s fees. Quite to the contrary, the law clerk who swore the affidavit deposed that:
a. Nevenka went into default in the payment of her legal fees in April 2020, almost three years after the application was issued.
b. At her [Nevenka’s] request, our firm continued to act in the mutual expectation that payments would continue to be made, if Nevenka had the funds or that our fees would be discharged, either on settlement or following trial. [Emphasis added.]
c. Nevenka's invoiced fees outstanding are $25,317.41. Nevenka advises she has not been in a position to discharge accounts, so a record of uncharged time is maintained on PCLaw to be invoiced upon conclusion which totals approximately $54,000 to January 28, 2022. That is an approximate amount since fees add up with every step taken. [Emphasis added.]
d. Nevenka has signed an Acknowledgment and Consent by which she has agreed to provide security in the sum of $150,000 for past and future fees to be incurred in this proceeding. [Emphasis added.]
[15] In an answer to an undertaking given on the cross-examination of the law clerk, it was further confirmed that Nevenka had agreed to pay her legal fees out of the sale proceeds of the property. This evidence indicates that Nevenka is willing to pay the fees (past and future) of Wise PC.
[16] The evidence tendered in support of the assertion that Nevenka is unable to pay the fees is also indirect (from a law clerk) and inferential — the inference being that she has not paid fees since April 2020 and thus it should be inferred that she is unable to do so since she is 68 years old, only earns just above minimum wage ($17.50/hr), and is in overdraft on her line of credit.
[17] No direct evidence was tendered from Nevenka about other assets or sources of financing her legal fees going forward, one way or the other. The mere fact of non-payment of past fees is not considered sufficient evidence of a client’s inability to pay: Weenen, at para. 26. The evidence here is not much better than that, and more would be required for me to have made the finding necessary for the third prong of the Weenen framework.
Should the Preservation Order be Amended to Permit the Registration of a Mortgage?
[18] Nevenka’s counsel nevertheless argues that the court should amend the preservation order to permit the proposed mortgage that Nevenka has agreed to grant to Wise PC to be registered because, but for the preservation order agreed to early on in this proceeding (before it was known how long it would last and the fees that would accumulate), Nevenka would have been able to enter into such a private arrangement with her lawyer to secure the payment of their fees at the end of the case. They emphasize that they are prepared to limit their charge to Nevenka’s interest in the property, whatever that may be determined to be (e.g., if she only owns half of the net equity, then it could be made clear that this mortgage does not impact any share of the property that Wally is found to own), and they are prepared to permit Nevenka and any other interested person to tax their accounts at the end of the case.
[19] The argument put forward here is that Nevenka will not be able to continue to be represented by Wise PC (or any lawyer) unless she is able to grant the security Wise PC seeks by way of registration of a mortgage against her interest in the property. It is suggested that Nevenka is unable to pay for counsel and thus the court should conclude that neither Wise PC, nor any other lawyer, will be willing to represent her and protect her interest in the property — whether that interest be for 100% ownership (if the transfer is upheld) or 50% of the residual equity after various debts and obligations of Dragica’s estate have been satisfied (if the transfer is set aside) — without the registration of a mortgage against such interest to secure payment of the lawyer’s fees. The court is thus asked to find that the equities favour permitting this mortgage to be registered.
[20] In response, Wally argues that the equities are not in favour of the request for the charging order or mortgage. In addition to not satisfying the statutory test (and, in particular, the requirement for evidence of an inability or unwillingness of the client to pay her lawyer), he notes that the evidence tendered is less than satisfactory (from a law clerk without direct knowledge).
[21] Further, through Wally’s own law clerk’s affidavit, the banking records appended demonstrate a number of financial transactions between Nevenka and Dragica that are questioned and are expected to be challenged upon the passing of accounts that has been sought in this application, giving rise to potential set-offs that may, according to Wally, reduce Nevenka’s interest in the property to nil. This, in turn, gives rise to concerns about priorities that might be created over a non-existent interest in the property that could prejudice these set-offs or other claims against Nevenka’s interest. This is said to create a potential prejudice to Wally if the relief sought is granted.
[22] Nevenka disputes these assertions, intends to defend the transactions, and denies that the set-offs will be upheld or that they will reduce her interest in the property in the manner indicated. Certain limitation arguments were also raised in oral argument (although counsel for Wally pointed out that there is no limitation period for the requested passing of accounts in which many of the set-offs would be expected to arise). Nevenka’s contention is that in her worst-case scenario (i.e., if the transfer of the property is ordered to be void or voidable and if the CIBC mortgage on title is entirely attributed to her share), the net equity in the property, even after payment of the bequests under the will to the grandchildren, will still be worth in excess of $400,000. It is thus argued that there is no prejudice to Wally in the court granting the relief sought.
[23] Nevenka asked that the court strike or entirely disregard the responding law clerk’s affidavit on the basis that it simply attached the entirety of produced banking records without providing any advance notice or explanation of the purpose for which they were to be used on this motion. On the law clerk’s cross-examination, Wally’s position was that this would be disclosed in the responding factum, that, due to some timetabling delays, was only received two days prior to the hearing of the motion and without any opportunity for a reply factum. Counsel for Nevenka was asked in oral argument if there was something further that was anticipated would be included in a reply factum that had not been covered during oral argument and advised the court that there was not.
[24] I do not necessarily accept the assertion that the responding law clerk’s affidavit filed in support of Wally’s position on this motion was improper and should be struck. However, I do not need to have regard to it to decide this motion and thus decline to delve into a deep analysis of the question of whether or not that affidavit should be struck or disregarded. Not only is such analysis unnecessary given that the responding party’s evidence is not required for me to decide this motion, but there was insufficient time booked for the hearing of this motion as it was, and no time to hear oral argument or full submissions about this issue.
[25] It is not necessary for me to make a finding of actual prejudice to Wally to decide this motion. The mere existence of the set-off claims means that there is the potential for prejudice to him if the charging order/mortgage is granted since it will be in place regardless of how Nevenka fares in the ultimate result and could create a priority in favour of the solicitor over the set-off claims. The court does not need to rule upon the merits of those claims to determine that this potential for prejudice exists. Where there is potential prejudice to competing creditors, equity weighs heavily against the granting of a charging order: Morton (Re), 2014 ONSC 5438, at para. 74.
[26] In any event, the equities do not tip in favour of Nevenka’s request at this time for the existing preservation order to be amended or varied. I am not satisfied that there is no other way to provide sufficient comfort to Wise PC (or another lawyer) regarding the payment of their fees. Nevenka is willing to provide the assurance and sign agreements to that effect. There may be personal property security that can be obtained in that regard.
[27] There are also other approaches that counsel can adopt to ensure they are paid, short of the registration of a mortgage on title to property that is the subject of dispute in the litigation, some of which have been outlined in the responding factum (at paras. 77 and 87), without any indication from the moving party that they have been fully explored. Thus, even if it were relevant for the court to consider whether Nevenka had exhausted all possible avenues for securing legal representation in this matter and was unable to do so without the charging order/mortgage that is sought, the record does not support such a finding at this time.
[28] During oral argument, the court raised the analogy of the typical carve out to a Mareva injunction order for an allowance for coverage of legal fees. However, a Mareva injunction order freezes all of the worldwide assets of a respondent/defendant and such an exception is therefore necessary if the respondent/defendant is to have the opportunity to have legal representation to defend themselves. The preservation order in this case only impacts one asset of Nevenka’s, her interest in the property. In other words, none of her other assets or income, about which there is no direct (and incomplete) evidence before the court, are impacted.
Other Arguments Raised in Opposition to the Motion
[29] Counsel for Wally suggested that a charging order had to be scrutinized because of concerns about champerty and maintenance raised by the applicant. I do not consider those to be appliable to the issues to be decided on this motion. Wally’s counsel also suggested that the equities do not favour granting the relief sought given the pending contempt motion arising out of Nevenka’s attempts to sell the property in the face of the preservation order. I do not need to resort to that in order to reach the conclusion that I have on this motion, and thus decline to address any aspects of that alleged contempt, in advance of it being addressed on a complete record if and when the contempt motion is heard.
Summary of Outcome
[30] Having considered all of the submissions, and in the exercise of my discretion, I am not satisfied that it is appropriate to grant the requested charging order or mortgage. The motion of Wise PC, with support of Nevenka, is dismissed, without prejudice to it being renewed in the context of an adjudication or settlement of the issues on the merits. As the applicant has acknowledged, if Nevenka is successful in the application, the property will be available for a charging order at that time. If Nevenka is unsuccessful, the value of her interest in the estate will have been determined and would be available for a charging order.
Costs
[31] There was an earlier order giving directions that indicated that the parties might make written cost submissions after the motion was heard and/or on further terms set by the motion’s judge. I advised the parties at the conclusion of the hearing that I expected them to agree to a quantum of costs appropriate to be fixed for this motion and asked counsel to advise the court by Wednesday, April 27, 2022 of the agreed number, based upon their exchange of costs outlines/bills of costs (that not having yet fully occurred by the time of the hearing). The parties were advised that the court was not inclined to hear further cost submissions.
[32] This was reinforced after the hearing, when the parties failed to reach any agreement as to the appropriate quantum of costs and advised the court of such. The parties provided their respective Bill of Costs (applicant) and Costs Outline (respondent). The parties were again advised that the court did not intend to receive any further submissions on costs. Further submissions were not needed to determine the issue of costs, nor do the issues raised and circumstances of the parties warrant the further time and expense of further submissions. In the particular circumstances of this case, the simplest, least expensive and most expeditious process for fixing costs is for them to be determined based on the materials that the court has already received on the motion and the amounts that each side has claimed against the other. The court may, but is not required to, receive oral or written submissions on costs (r.57.01(7)).
[33] The Bill of Costs and Costs Outline have been received and considered by the court for the purpose of determining the appropriate quantum of costs to fix for this motion:
a. The applicant’s Bill of Costs (and subsequently filed Costs Outline) indicates all-inclusive partial indemnity costs of $26,814.20, substantial indemnity costs of $37,824.20 and full indemnity costs of $41,494.20 for this motion.
b. The respondent’s Costs Outline indicates all-inclusive partial indemnity costs of $9,556.25 (the full indemnity fees are indicated to be approximately $5,000 more and there would be HST on top of that).
[34] Partial indemnity costs are appropriate on this motion. There was no middle ground to the relief requested of a charging order or mortgage and the issues were not conducive to r.49-type settlement offers that might attract a higher award of costs.
[35] The difference in the amount of partial indemnity costs claimed by each side is significant. The amount of claimed partial indemnity costs of the applicant is almost $17,300 more than what is claimed by the respondent. While the court is prepared to give allowance for different hourly rates of counsel and will not penalize a party for hiring more expensive counsel, it is the number of hours and lawyers, rather than the hourly rates, that accounts for most of the differential in the amounts.
[36] The applicant was successful and is entitled to costs of this motion. Having regard to the nature of the issues and work involved in this motion, in the exercise of my discretion under s. 131 of the Courts of Justice Act, R.S.O. 1990, c. C.43 and r. 57 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, I consider an appropriate amount of costs for this motion to award to the applicant to be $15,000, inclusive of all fees, disbursements and taxes.
[37] I order these costs payable to the applicant in any event of the cause. I am not ordering them to be paid now. Counsel for Nevenka asked for the opportunity to make submissions about the deferral of costs payable by his client, but the court had already determined that to be the appropriate order. The decision to defer the payment of costs is out of concern for the implications for Nevenka, who is already facing the prospect of not being able to continue with her counsel as a result of the outcome of this motion. She may have to find alternative counsel and be facing the prospect of that financial burden and, even if she does not retain new counsel and represents herself, she still faces a financial burden of past unpaid legal fees (subject to any rights of assessment or otherwise that she may have). The costs award should not further exacerbate her situation. Deferring her obligation to pay costs until the final outcome of the application strikes an appropriate balance.
[38] This motion was brought by the lawyer for Nevenka with her support, and for her benefit, in an effort to provide the comfort that her lawyers wanted in order to continue to represent her in this proceeding despite not having been paid for some time. While the relief was not granted, I understand the logic for the request and hope that something else can be worked out between her and her counsel so that Nevenka can continue to have legal representation.
[39] In further consideration of Nevenka’s situation, and if Wise PC decides to get off the record for Nevenka in this proceeding, I am inclined to make an order under r. 57.07(1) disallowing any costs between Wise PC and Nevenka for this motion. While I have not made a finding that the lawyer acted improperly, I have found that this motion was, at best, premature. It seems unfair that Nevenka should have to pay both Wise PC and eventually (in any event of the cause) the applicant for this motion if Wise PC is no longer going to act for her. As I am required to do under r. 57.07(2), I will allow Wise PC to make further submissions to the court on this point only, if they intend to charge her for this motion and still get off the record, notwithstanding the outcome. If that is not their intention, there is no need for further submissions. They are asked to advise the court if further submissions will be required within one week of the release of this endorsement.
[40] This endorsement and the orders and directions contained in it shall have the immediate effect of a court order, without the necessity of the issuance and entry of a formal order, although either party may take out an order if so advised.
Kimmel J.
Date: May 3, 2022