Peter B. Cozzi Professional Corporation v. Szot, 2020 ONCA 397

Full Decision

Entitlement to After-The-Event Legal Protection Insurance Policy funds Awarded to Aviva

MATERIAL FACTS
This Appeal arises from a motor vehicle accident occurring on or about January 14, 2003. The Respondent, on this appeal, Mr. Szot, rear-ended the Plaintiff’s motor vehicle. The Plaintiff was represented by a Litigation Guardian at this time. On April 6, 2016, The Plaintiff and a Vietnamese interpreter met at the Plaintiff’s law office without the Litigation Guardian present. At this time the Plaintiff executed a Contingency Fee Agreement (CFA) with his Solicitor, and an addendum to provide information to a legal protection insurance company. A policy was purchased from the legal protection company by the Plaintiff thereafter.

In May of 2017, Mr. Nguyen’s motor vehicle action proceeded to a Jury trial. While Mr. Nguyen was successful in the result, he lost the threshold motion and the balances of net damages was reduced to zero after the statutory accident benefit deduction of benefits paid. The Court ordered Mr. Nguyen to pay costs of $161,790 inclusive of disbursements. see Nguyen v. Szot, 2017 ONSC 3705, 69 C.C.L.I. (5th) 222.

Thereafter a dispute arose between Aviva and the Plaintiff about the proceeds of the legal protection policy of $100,000. The legal protection insurer refused to issue payment to Aviva and instead indicated they were payable to the Plaintiff per the Policy, issuing payment in trust, to the Plaintiff.

On September 25, 2017, the Plaintiff, and their Litigation Guardian executed an authorization confirming the initial Contingency Fee Agreement and addendum. Aviva brought an urgent motion for the return of funds into a trust account when it learned that the Plaintiff’s lawyer moved the insurance funds form his trust account into his general account, on September 12, 2017.

The first decision reported at 2019 ONSC 1274, decided that the Plaintiff was not entitled to the proceeds of the insurance funds as the Contingency Fee Agreement did not have the Court’s approval as required by s. 5 of the Regulations and was therefore non-compliant with the Solicitor’s Act. This was a result of the Litigation Guardian not being present and Mr. Nguyen lacking capacity to execute such an agreement when he did. In addition, that Aviva was not entitled to the insurance funds as Aviva was neither a party to the policy nor a beneficiary under it; none of the exceptions to the doctrine of privity of contract applied. The Application Judge ordered the proceeds paid into court and the PGT appointed for Mr. Nguyen on May 28, 2019.

The second decision reported at 2019 ONSC 5071, decided that a charging Order brought by the Plaintiff for $80,689.06 in disbursements, and $19,310.94 + $11,872.22 in fees, over the proceeds of the insurance funds was dismissed. The Court ruled that the motion was essentially the same relief as the earlier application. It was an impermissible collateral attack on the earlier decision. Moreover, there were no ‘fruits of the litigation’ to satisfy a charging Order pursuant to s. 34(1) of the Solicitor’s Act.

ISSUES

  1. Whether the Appellant, a lawyer practicing through a professional corporation, is entitled to the proceeds of a $100,000 after-the-event legal insurance protection policy of his client, Mr. Nguyen?

a. Either as a charging Order or via the Contingency Fee Agreement?

BRIEF ANSWER
In short, no.

ANALYSIS

CFA Enforceability
The Court of Appeal turned to the language contained within the Solicitor’s Act s. 5(1) at [36] of their decision to assess the merit of the Contingency Fee Agreement. The requirements of a valid CFA, when a client is a person under a disability and represented by a litigation guardian, are the approval of the CFA by a Judge prior to the agreement being finalized; and include the agreement as part of the motion or application for approval of a settlement or consent Judgment under Rule 7.08. Neither of which was complied with.

Importantly, the Court of Appeal noted at [37] that this specific CFA was entered into absent the Litigation Guardian being present. The PGT noted in their factum, the instructing client was the Litigation Guardian, not the Plaintiff.

The Plaintiff argued that s. 24 of the Solicitor’s Act permits the court to enforce a CFA, even where s. 5(1)(a) breaches are live issues. The Court of Appeal rejected this argument at [41]. On its merits, the CFA was neither fair nor reasonable, as required by the language of s. 24. Enforcing a CFA entered into by a party under a disability, absent their Litigation Guardian is not in the best interests of the party under a disability.

Citing Chrusz v. Cheadle LLP, 2010 ONCA 553, 272 O.A.C. 1, at [31]: The fairness requirement of s. 24 concerns ‘the making of the fee agreement and whether the client fully understood and appreciated the nature of the agreement that they executed’.

Charging Order
The Court of Appeal concluded that it was open the for Application Judge to find that the Plaintiff failed to meet the test for a charging Order at [50]. Therefore, it was unnecessary to address whether the motion was precluded by the doctrines of collateral attack.

On its merits, the Court of Appeal assessed the principles governing charging Orders as summarized in Weenan v. Biadi, 2018 ONCA 288, 141 O.R. (3d) 276 at [14-15]:

  1. To obtain a charging order on the monies in issue, the onus is on the solicitor to demonstrate that a charging order is warranted;
  2. The decision is discretionary. In deciding whether to exercise that discretion, the court must “balance the circumstances and equities of each case and client”; and
  3. To obtain a charging order, the solicitor must demonstrate that: 
    • the fund or property is in existence at the time the order is granted;
    • the property was “recovered or preserved” through the instrumentality of the solicitor; and
    • there must be some evidence that the client cannot or will not pay the lawyer’s fees.

The Plaintiff argued that, with respect, the application Judge erred in concluding that he had not established that his work was instrumental to the recovery or preservation of property, reiterating his argument before the application Judge.

The Court of Appeal concluded there was no error, at [55]. As found by the application Judge, the Appellant, herein, simply sold Mr. Nguyen the insurance policy, as an insurance intermediary. In accepting the submissions of the PGT, she agreed that the Appellant should not be rewarded for brokering a contract between Mr. Nguyen and the after-the-fact insurer, when he knew that Mr. Nguyen was incapable and had a Litigation Guardian. Moreover, that the policy proceeds were not the ‘fruits of the litigation’ because Mr. Nguyen recovered nothing in the litigation and is more indebted after the litigation than before it.

The Court of Appeal confirmed at [54] that, Since no property was recovered or preserved in the proceeding, there can be no charging Order.

CONCLUSION
The appeals are dismissed. The Appellant was Ordered to pay costs of $20,000 to the Respondent, and $11,000 to the PGT inclusive if disbursements and taxes.

The court of Appeal took notice, and expressed within the Decision at [56], that:    

“the facts of this case are nothing less than shocking”, and that it would offend the principles of fairness and justice to reward the appellant, through the payment of fees and disbursements, for entering into the CFA with Mr. Nguyen, brokering an insurance contract between him and DAS, and having Mr. Nguyen sign a direction to him, when he knew that Mr. Nguyen was incapable of making these decisions and had a litigation guardian from whom the appellant was supposed to take instructions.

Written by

Antonio is a litigator with Lemieux Law. His practice focuses on motor vehicle accidents, accident benefits, occupiers’ liability, personal injury, long-term disability, wrongful & constructive dismissal, CPP disability, human rights, general litigation and WSIA Appeals. When Antonio is not practicing law, he enjoys playing hockey, working on cars, and visiting family in southern Italy.