Full Decision
Bosnali v. Michaud is a recent decision of the Ontario Court of Appeal on the issue of whether or not the Plaintiff’s lawyers were entitled to a “charging order” over the Plaintiff’s damages and costs following a trial where the Plaintiff did not beat a rule 49 offer from the Defendants.
The Superior Court decision was previously summarized in an OTLA blog, which can be found here. The Court of Appeal came to the same overall conclusion as the motions Judge at first instance.
After a trial the Plaintiff was awarded general damages, housekeeping costs and medical expenses that totaled $152,500. The Defendants made a Rule 49 offer greater than the damages awarded. After applying the statutory deductible, and taking into account the Rule 49 offer, the Plaintiff ended up owing more to the Defendants in costs than he was awarded for his own damages and costs. The net outcome was that the Plaintiff owed $11,675.59 to the Defendants.
The Trial Judge ordered the Plaintiff to pay the Defendants $11,675.59.
Following the Judgment, the Plaintiffs lawyers brought a motion seeking a declaration under s. 34(1) of the Solicitors Act that they were entitled to a charging order on the damages and costs awarded to the Plaintiff. In other words, the Plaintiff’s lawyers wanted first priority over the damages and costs awarded to the Plaintiff so that they would be paid first for their hard work and the Defendants would bear the brunt of any shortfall. Similarly, the Defendants wanted their costs paid first so that the Plaintiff’s lawyers would bear the brunt of any shortfall. Who then stood in priority?
Section 34(1) of the Solicitors Act says that the court may declare on a motion that the lawyer hired to prosecute a proceeding is entitled to a charge on the property recovered through the instrumentality of that lawyer for fees, costs and disbursements.
The Court of Appeal found that the terms of the Judgment did not create any debt obligation enforceable by the Plaintiff against the Defendants. The Plaintiff could not recover any money without first satisfying the countervailing Judgment against him. This resulted in the Plaintiff being a Judgment debtor instead of a Judgment creditor.
Prior to the enactment of the Rules of Civil Procedure in 1985, rule 673 of the Rules of Practice stated that damages or costs could not be set off between the parties to the prejudice of a solicitor’s lien for costs in the particular action in which the set off is sought. This meant that Plaintiffs lawyers had first priority over any damages and costs awarded to their clients so that they could be paid before the Defendants could attempt to set off any costs awarded to them in the proceeding. But this rule was not carried forward into the Rules of Civil Procedure and could not be relied upon.
The general principle now in existence is that the mutual debt obligations created by a Judgment between Plaintiffs and Defendants are set off against each other first to determine which party can enforce the net amount against the other.
Since the net result of the Judgment meant the Plaintiff owed money to the Defendant, the Plaintiff did not recovery any property over which the Plaintiff’s could seek a charging order. The lawyers could not stand in a better position to the Defendants for payment than the Plaintiff himself.