At today’s weekly firm meeting, Matthew Umbrio addressed the Ontario Court of Appeal decision of Peter B. Cozzi Professional Corporation v. Szot, 2020 ONCA 397.
The appellant in this decision was the solicitor for Mr. Nguyen, the plaintiff in a motor vehicle personal injury action. The Court of Appeal was tasked with determining whether the appellant was entitled to the proceeds of a $100,000 after-the-event legal protection insurance policy (ATE policy). The appellant solicitor claimed the proceeds of this policy for disbursements for representing Mr. Nguyen in the personal injury action.
Mr. Nguyen had entered into a contingency fee agreement at a meeting with the appellant solicitor. Mr. Nguyen was a person under a disability and was represented a litigation guardian, but his litigation guardian was not present at this meeting. He also signed a retainer agreement addendum which authorized the appellant solicitor to obtain the ATE policy and to serve as the insurance intermediary.
The contingency fee agreement required Mr. Nguyen to pay all disbursements incurred by the appellant on his behalf, without regard to the success of his claim for damages, and all proceeds from the ATE policy were assigned to the appellant as security for those disbursements.
At trial, Mr. Nguyen was awarded an amount that fell below the applicable statutory deductible at the time. The defendant’s threshold motion was granted and Mr. Nguyen’s total damages awarded was reduced to zero. As a result, costs were awarded to the defendant.
The insurer for the defendant argued that they were entitled to the proceeds of the ATE policy, while the appellant solicitor argued the same. The insurer brought an urgent motion for a direction that the policy proceeds be held in trust pending the determination of the entitlement to the funds.
The application judge ruled that the appellant solicitor was not entitled to the insurance proceeds under the written contingency fee agreement with Mr. Nguyen. As contingency fee agreements concerning persons under a disability require court approval under section 5 of the Contingency Fee Agreements Regulation passed under the Solicitors Act, and since court approval was not provided, the application judge held that the agreement was unenforceable.
The Public Guardian and Trustee was appointed to act as Mr. Nguyen’s litigation guardian at this time as Mr. Nguyen and his previous litigation guardian did not attend at the hearing.
Following the above application, the appellant solicitor brought a motion for a charging order over the policy proceeds. The application judge ruled that the motion was essentially the same relief as the earlier application – that the proceeds be applied to the disbursements – but through a different mechanism. As a result, the motion was dismissed as an impermissible collateral attack that was precluded by the doctrines of issue estoppel and abuse of process.
In the event that the motion was not considered an impermissible collateral attack, the application judge held that the appellant solicitor did not meet the charging order test anyhow, finding that there were no fruits of the litigation that the appellant could claim a charging order over.
As Mr. Nguyen had recovered nothing and was more indebted after the litigation, the application judge held that the appellant solicitor simply sold the ATE policy to Mr. Nguyen as an insurance intermediary and that he was not instrumental in the recovery or preservation of property in the proceeding.
The Court of Appeal reviewed the two above decisions and ultimately dismissed both appeals. Firstly, with respect to whether the contingency fee agreement should have been enforced, the Court of Appeal agreed with the application judge that section 5 of the Contingency Fee Agreements Regulation was clear that the agreement must be judicially approved where the solicitor has made an agreement with a person under a disability with a litigation guardian.
The Court also declined to enforce the contingency agreement based on section 24 of the Solicitors Act, noting that, even if section 24 did apply in this scenario, the appellant solicitor had not acted fairly nor reasonably.
The appellant solicitor failed to consult the litigation guardian, or even involve her in the process of negotiating the agreement. The Court also held that the timing suggested that the agreement was entered into solely for the purpose of obtaining the ATE policy.
The Court of Appeal then reviewed whether the motion for the charging order should have been granted. Noting that the application judge held that the appellant solicitor had failed to meet the test for the charging order, the Court felt it unnecessary to address the doctrines of issue estoppel and abuse of process.
To obtain a charging order, a solicitor must demonstrate that the fund or property is in existence at the time the order is granted, that 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 Court of Appeal held that the application judge’s analysis was correct – the appellant solicitor simply sold the policy and there were no fruits of the litigation over which the charging order could attach.
As a result, the appeals were dismissed.