



COURT OF APPEAL FOR ONTARIO

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

DATE: 20200617

DOCKET: C66741 & C67463

Gillese, Brown and
    Jamal JJ.A.

DOCKET: C66741

BETWEEN

Peter B. Cozzi Professional Corporation

Applicant (Appellant)

and

Jerzy Szot

Respondent (Respondent)

DOCKET: C67463

AND BETWEEN

Peter B. Cozzi Professional
    Corporation

Applicant (Appellant)

and

Jerzy Szot

Respondent (Respondent)

D. Jared Brown, for the appellant

Dennis Ong, for the respondent, Jerzy
    Szot

Diane Gillies, for the respondent,
    the Public Guardian and Trustee, Litigation Guardian for Quoc Nguyen

Heard: May 27, 2020 by
    videoconference

On appeal from the order of Justice Sandra
    Nishikawa of the Superior Court of Justice, dated February 22, 2019, with
    reasons reported at 2019 ONSC 1274, 90 C.C.L.I (5th) 282 (C66741), and from the
    order dated August 29, 2019, with reasons reported at 2019 ONSC 5071 (C67463).

By
    the Court:

A.

overview

[1]

The central question in these two appeals is
    whether the appellant, a lawyer practising through a professional corporation, is
    entitled to the proceeds of a $100,000 after-the-event legal protection
    insurance policy (the ATE Policy) of his client, Mr. Quoc Nguyen. After-the-event
    insurance, sometimes known as adverse costs insurance, insures a plaintiff
    against the risk of an adverse costs award in litigation or provides coverage
    for disbursements incurred by a plaintiffs lawyer. The appellant claims the
    proceeds of Mr. Nguyens policy for disbursements for representing him in a
    motor vehicle personal injury action.

[2]

The judge at first instance (the application
    judge) ruled that the appellant was not entitled to the insurance proceeds under
    a written contingency fee agreement with Mr. Nguyen dated April 6, 2016 (the CFA).
    She ruled that because Mr. Nguyen was a person under disability represented by
    a litigation guardian, the CFA required court approval under s. 5 of
Contingency
    Fee Agreements,
O. Reg. 195/04, (the CFA Regulation), passed under the
Solicitors
    Act
, R.S.O. 1990, c. S.15, which was never obtained and which she declined
    to provide.

[3]

The application judge also dismissed the
    appellants later motion for a charging order over the insurance proceeds to
    secure his legal fees and disbursements under s. 34 of the
Solicitors Act
.
    She held that the motion was precluded by the rule against collateral attack,
    issue estoppel, and the doctrine of abuse of process. In any event, she ruled
    that the appellant failed to meet the test for a charging order because his work
    had not been instrumental to the recovery or preservation of the property at
    issue; he had simply served as an insurance intermediary to sell his client the
    ATE Policy.

[4]

The appellant now appeals both orders of the
    application judge.

[5]

At the conclusion of the oral hearing of the
    appeals, we dismissed both appeals, with reasons to follow. These are our
    reasons.

B.

Background

[6]

The detailed procedural history of these
    proceedings is provided in the two decisions of the application judge:
Peter
    B. Cozzi Professional Corporation v. Szot,
2019 ONSC 1274, 90 C.C.L.I.
    (5th) 282, and
Peter B. Cozzi Professional Corporation v. Szot,
2019
    ONSC 5071. The essential background is as follows.

(i)

The motor vehicle action

[7]

On January 14, 2003, Mr. Jerzy Szots car rear-ended
    Mr. Nguyens car. In May 2007, the appellant commenced a motor vehicle personal
    injury action on Mr. Nguyens behalf against Mr. Szot, the respondent. Mr.
    Nguyens spouse at the time, Ms. Hoan Phan, was his litigation guardian. In October
    2006, Ms. Phan had been appointed as Mr. Nguyens guardian of property, and in
    November 2011 was appointed as his guardian of the person.
[1]

(ii)

The CFA and ATE Policy

[8]

On April 6, 2016, Mr. Nguyen, his social worker,
    and a Vietnamese translator met with the appellant at his law office. Ms. Phan was
    not present.

[9]

At the meeting, Mr. Nguyen entered into the CFA
    with the appellant. He also signed a Retainer Agreement Addendum (the Addendum),
    which authorized the appellant to provide information about Mr. Nguyens file
    to DAS Legal Protection Insurance Company Limited (DAS) to obtain
    after-the-event insurance. The same day, the appellant concluded a business
    agreement with DAS that authorized him to serve as its insurance intermediary.

[10]

The CFA provided that Mr. Nguyen agreed to pay
    all disbursements incurred by the appellant on his behalf, without regard to
    the success of his claim for damages, and that Mr. Nguyen assigned all proceeds
    from his litigation protection insurance to the appellant as security for those
    disbursements.

[11]

On Mr. Cozzis advice, Mr. Nguyen bought the ATE
    Policy from DAS. The policy provided: Your policy attaches to your Contingency
    Fee Agreement and operates for the duration of that Agreement. Although it was
    completed in 2016, the start date for the ATE policy was October 14, 2005.

(iii)

The order for costs and disbursements against Mr.
    Nguyen

[12]

In May 2017, Mr. Nguyens motor vehicle action
    proceeded to a jury trial. The jury found Mr. Szot liable for the collision and
    awarded Mr. Nguyen general damages and damages for past loss of income, but at
    an amount below the applicable statutory deductible at the time.

[13]

On June 22, 2017, Archibald J. granted Mr.
    Szots threshold motion for a declaration that Mr. Nguyen was not entitled to
    any non-pecuniary damages. After deducting from the jury award the income
    replacement benefits that Mr. Nguyen had received, Archibald J. found that Mr.
    Nguyens net damages for loss of income were reduced to zero, and that Mr.
    Nguyens total damages were also reduced to zero. He granted judgment for Mr.
    Szot and ordered Mr. Nguyen to pay Mr. Szot costs of the action in the amount agreed
    to between the parties of $90,790, inclusive of HST, and disbursements of
    $71,000, for a total of $161,790: see
Nguyen v. Szot
, 2017 ONSC 3705, 69
    C.C.L.I. (5th) 222.

(iv)

The ATE Policy proceeds are paid to the appellant
    in trust

[14]

Over the next few months, a dispute arose
    between the appellant and Mr. Szots insurer, Aviva Insurance Company of
    Canada (Aviva), as to who was entitled to the proceeds of the ATE Policy.

[15]

On July 19, 2017, the appellant applied to DAS
    for payment of the policy proceeds on behalf of Mr. Nguyen. He included a copy of
    Archibald J.s costs judgment and claimed $37,858.91 for his own disbursements.

[16]

Shortly afterwards, Aviva wrote to DAS seeking
    payment of its costs. DAS responded that amounts under the ATE Policy were
    payable to Mr. Nguyen.

[17]

On August 9, 2017, Mr. Nguyen
signed a direction authorizing the appellant to pay $68,636.73
    from the ATE Policy proceeds towards his disbursements and HST
, with the
    balance to be applied to the costs ordered by Archibald J. When Mr. Nguyen
    signed this direction, neither Ms. Phan nor a Vietnamese interpreter was
    present.

[18]

On August 10, 2017, DAS paid the funds from the
    ATE Policy to the appellant, in trust for Mr. Nguyen.

[19]

On September 25, 2017, each of Mr. Nguyen (attending
    with his Vietnamese interpreter) and Ms. Phan separately obtained independent
    legal advice about, and signed an authorization confirming, the CFA and
    Addendum.

[20]

When Aviva learned that the appellant had moved
    the policy proceeds from his trust account to his general account, it brought
    an urgent motion for a direction that they be returned to and held in the trust
    account pending the determination of entitlement to the funds. On September 12,
    2017, Monahan J. granted Avivas motion.

(v)

The first ruling: 2019 ONSC 1274

[21]

On February 22, 2019, the application judge
    dismissed the appellants application and Avivas cross-application for declarations
    as to their entitlements to the proceeds of the ATE Policy.

[22]

The application judge ruled that the appellant
    was not entitled to the proceeds because the CFA was unenforceable. She ruled: (i)
    the CFA did not have the courts approval as required by s. 5 of the CFA
    Regulation; (ii) the appellant never obtained instructions from Ms. Phan to
    conclude the CFA, and Mr. Nguyen lacked the capacity to do so; and (iii) the
    CFA did not comply with the
Solicitors Act
and the CFA Regulation in
    other respects. She also ruled that Mr. Nguyen could not have made an informed decision
    about the direction he signed on August 9, 2017, because neither Ms. Phan
    nor his Vietnamese interpreter was present. Lastly, she determined that the
    independent legal advice obtained by Mr. Nguyen and Ms. Phan and their
    approval of the CFA and Addendum in September 2017 were after-the-fact and ineffective.

[23]

The application judge also ruled that Aviva was
    not entitled to the proceeds of the ATE Policy. The only beneficiary under the
    ATE Policy was Mr. Nguyen; Aviva was neither a party to the ATE Policy nor a named
    beneficiary; and none of the exceptions to the doctrine of privity of contract
    applied.

[24]

Because neither Mr. Nguyen nor Ms. Phan
    participated in the proceedings before the application judge, the application
    judge was concerned that neither fully understood the potential consequences to
    them. She therefore directed Ms. Phan and the Public Guardian and Trustee (the PGT)
    to attend before her on April 24, 2019, to determine whether Ms. Phan
    would continue to act as Mr. Nguyens guardian of property, or whether it
    was necessary to appoint the PGT as Mr. Nguyens litigation guardian. She also ordered
    the proceeds of the ATE Policy to be held in the appellants trust account pending
    further order of the court.

[25]

In March 2019, the appellant filed a notice of
    appeal from the order of the application judge dismissing his application. Aviva
    did not appeal the order dismissing its cross-application.

(vi)

The application judge appoints the PGT as Mr.
    Nguyens litigation guardian and orders the insurance proceeds paid into court

[26]

Neither Ms. Phan nor the PGT attended before the
    application judge on April 24, 2019.

[27]

On May 28, 2019, the application judge appointed
    the PGT as Mr. Nguyens litigation guardian. She also ordered the amounts being
    held in trust by the appellant to be paid into court.

[28]

On June 7, 2019, the appellant brought a motion
    for leave to appeal to the Divisional Court the order requiring payment of the
    proceeds into court. When the motion was scheduled to be heard, the appellant
    asked the Divisional Court to adjourn the motion pending the determination of
    the two appeals before this court. We were advised that the motion for leave to
    appeal remains pending before the Divisional Court.

(vii)

The second ruling: 2019 ONSC 5071

[29]

On August 29, 2019, the application judge dismissed
    the appellants motion for a charging order over the proceeds of the ATE Policy
    to secure the appellants outstanding disbursement account of $80,689.06 and
    outstanding fee accounts of $19,310.94 and $11,872.22, for a total of $111,872.22.

[30]

She ruled that the motion sought essentially the
    same relief as the appellants earlier application  that the proceeds of the
    ATE Policy be applied to the appellants disbursements  though now through the
    mechanism of a charging order. She held that the motion was an impermissible
    collateral attack on her earlier decision and was also precluded by the
    doctrines of issue estoppel and abuse of process.

[31]

She also held that, in any event, the appellant
    did not meet the test for a charging order under s. 34(1) of the
Solicitors
    Act
. She found that there were no fruits of the litigation over which
    the appellant could claim a charging order, noting that Mr. Nguyen recovered nothing
    in the litigation and is more indebted after the litigation than before it.
    Since no property was recovered or preserved in the proceeding, there can be no
    charging order. She also rejected the suggestion that the appellant was
    instrumental in the recovery or preservation of the asset over which the
    charging order was sought. She found that the appellant simply sold the ATE
    Policy to Mr. Nguyen as an insurance intermediary. Finally, she agreed with the
    PGT that the appellant should not be rewarded for brokering a contract between
    Mr. Nguyen and DAS when he knew that Mr. Nguyen had a litigation guardian and
    was incapable of entering into a contract.

[32]

The application judge rejected the suggestion
    that the appellants claim for a charging order was an access to justice issue.
    She held that the appellant had shown no reason for the court to grant him
quantum
    meruit
as equitable relief, and to the contrary, had provided ample
    grounds for concern about his conduct in relation to Mr. Nguyen.

[33]

Lastly, the application judge rejected the
    applicants contention that the court should nevertheless determine his fees
    and disbursements under s. 19 of the
Solicitors Act
. She ruled that
    because this issue could and should have been raised on the appellants
    original application, she declined to address it now. She also stated that it
    would be inappropriate to assess the appellants fees and disbursements on a
quantum
    meruit
basis as the appellants entitlement to the proceeds of the ATE
    Policy was under appeal.

C.

analysis

[34]

The appeals raise two main issues:

1.

Did the application judge err in finding the CFA
    to be unenforceable?

2.

Did the application judge err in dismissing the
    motion for a charging order?

[35]

As we will elaborate, our answer to both questions
    is no.

(1)

Did the application judge err in finding the CFA
    to be unenforceable?

[36]

Section 5 of the CFA Regulation provides:

5.
(1) A
    solicitor for a person under disability represented by a litigation guardian
    with whom the solicitor is entering into a contingency fee agreement shall,

(a)
apply to a judge for approval of the agreement before the agreement
    is finalized; or

(b)
include the agreement as part of the motion or application for
    approval of a settlement or consent judgment under rule 7.08 of the Rules of
    Civil Procedure.

[37]

Mr. Nguyen was a person under disability throughout
    the action and was represented by a litigation guardian, Ms. Phan. Still, the appellant
    concluded the CFA and Direction with Mr. Nguyen directly, not with Ms. Phan. As
    the PGT notes in its factum, the appellants instructing client was Ms. Phan,
    as litigation guardian, not Mr. Nguyen.

[38]

Nor did the appellant comply with s. 5(1)(a) of
    the CFA Regulation, which required him to apply to a judge for approval of the
    CFA before it was finalized.

[39]

And the appellant does not contend that s.
    5(1)(b) applies. As the application judge noted, the appellant did not apply
    for approval of a settlement under r. 7.08 of the
Rules of Civil Procedure,
R.R.O. 1990, Reg. 194.

[40]

The appellant now asserts that the application
    judge erred by not enforcing the CFA under s. 24 of the
Solicitors Act
.
    He says that s. 24 permits a court to enforce a contingency fee agreement that breaches
    s. 5(1)(a) of the CFA Regulation, if the court finds that the contingency fee agreement
    is fair and reasonable. Section 24 provides:

24
Upon any
    such application, if it appears to the court that the agreement is in all
    respects fair and reasonable between the parties, it may be enforced by the
    court by order in such manner and subject to such conditions as to the costs of
    the application as the court thinks fit, but, if the terms of the agreement are
    deemed by the court not to be fair and reasonable, the agreement may be
    declared void, and the court may order it to be cancelled and may direct the
    costs, fees, charges and disbursements incurred or chargeable in respect of the
    matters included therein to be assessed in the ordinary manner.

[41]

We reject the appellants argument, for two
    reasons.

[42]

First, as conceded by counsel for the appellant
    during oral argument, this argument was not raised before the application
    judge. It therefore cannot be raised on appeal. As a general rule this court will
    not entertain entirely new issues on appeal: see, e.g.,
Kaiman v. Graham
,
    2009 ONCA 77, 245 O.A.C. 130, at para. 18.

[43]

Second, in any event, even if we assume that s. 24
    could apply to a contingency fee agreement entered into by a person under
    disability without the participation of their litigation guardian, the
    application judge declined to approve the CFA. Based on the findings she made,
    we conclude that the CFA was not fair, reasonable, and in Mr. Nguyens best interest.
    As a result, we would not enforce it under s. 24.

[44]

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 he executed:
Chrusz v.
    Cheadle LLP
, 2010 ONCA 553, 272 O.A.C. 1, at para. 31. The application
    judges findings confirm that this standard was not met:

·

The CFA was executed by Mr. Nguyen, not by Ms.
    Phan, who was not present. The appellant was aware of this and ought to have
    ensured that Ms. Phan was present when he asked Mr. Nguyen to enter into the
    CFA. Once Ms. Phan was appointed litigation guardian, the appellant was
    required to obtain instructions from her. It was not open to the appellant to
    disregard Ms. Phans role as litigation guardian. Given the appellants
    relationship with Mr. Nguyen, Mr. Nguyen might have signed anything that
    the appellant requested.

·

A capacity assessment ordered by the Superior
    Court found that Mr. Nguyen had little understanding of his civil action. He
    lacked the capacity to instruct his lawyer and to make decisions concerning
    the financial and legal matters involved in his litigation.

·

The timing of the signing of the CFA suggests
    that it was entered into solely for the purpose of obtaining the ATE Policy.

[45]

The appellant has advanced no basis to impugn any
    of these findings of the application judge, which are entitled to appellate
    deference:
Chrusz
, at paras. 13, 37. Based on these findings, we
    decline to approve the CFA under s. 24 of the
Solicitors Act
.

[46]

The appellant also asserts that Mr. Nguyens
    agreement to pay disbursements under the CFA is severable and should be
    enforced, even if the CFA is invalid. He also relies on s. 9 of the CFA
    Regulation, which he says provides him with a first charge on the proceeds of
    the ATE Policy. Section 9 provides:

9.
(1) If the
    client is responsible for the payment of disbursements or taxes under a
    contingency fee agreement, a solicitor who has paid disbursements or taxes
    during the course of the matter in respect of which services were provided
    shall be reimbursed for the disbursements or taxes on any funds received as a
    result of a judgment or settlement of the matter.

(2) Except as provided under section 47 of
the
    Legal Aid Services Act
,
1998
(legal aid charge against
    recovery), the amount to be reimbursed to the solicitor under subsection (1) is
    a first charge on the funds received as a result of the judgment or settlement.

[47]

Once again, these arguments were not raised
    before the application judge, and therefore cannot be raised on appeal.

[48]

In any event, on these facts, we would not order
    the payment of disbursements under the CFA: the CFA was concluded with a person
    under disability and was found to be unenforceable. As explained above, we
    would not enforce it either.

(2)

Did the application judge err in dismissing the
    motion for a charging order?

[49]

The appellants second appeal seeks to overturn
    the application judges order dismissing his motion for a charging order. The
    application judge held that the motion was a collateral attack on her earlier decision,
    precluded by issue estoppel, and an abuse of the courts process. She also held
    that, if she was wrong in these conclusions, the appellant failed to meet the test
    for a charging order.

[50]

Because we conclude that on these facts it was
    fully open to the application judge to find that the appellant failed to meet
    the test for a charging order, it is unnecessary to address whether the motion was
    precluded by the doctrines of collateral attack, issue estoppel, and abuse of
    process.

[51]

The appellant sought a charging order under s.
    34(1) of the
Solicitors Act
:

34
(1) 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 solicitors fees, costs, charges and disbursements in the
    proceeding.

[52]

The principles governing the granting of a charging
    order under s. 34(1) were summarized by this court in
Weenan v. Biadi
,
    2018 ONCA 288, 141 O.R. (3d) 276, at paras. 14-15:

·

To obtain a charging order on the monies in
    issue, the onus is on the solicitor to demonstrate that a charging order is
    warranted;

·

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

·

To obtain a charging order, the solicitor must demonstrate
    that:


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 lawyers fees.

[53]

The appellant asserts that the motion judge
    erred in concluding that the appellant had not established that his work was
    instrumental to the recovery or preservation of the property. Repeating the argument
    he made before the application judge, he contends that he arranged for the ATE
    Policy and performed the work on Mr. Nguyens civil action that led to payment
    of the policy proceeds.

[54]

The application judge rejected these arguments.
    She found that the appellant simply sold Mr. Nguyen the ATE Policy as an
    insurance intermediary. She agreed with the submission of the PGT that the
    appellant should not be rewarded for brokering a contract between Mr. Nguyen
    and DAS when he knew that Mr. Nguyen had a litigation guardian and was
    incapable of entering into the contract. She also found that the ATE 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. Since no property was recovered or preserved in the proceeding, there can
    be no charging order.

[55]

We see no error in the application judges findings
    or in her exercise of discretion based on the evidence before her.

[56]

We also agree with the submission of the PGT in
    its factum 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.

D.

Disposition

[57]

The appeals are dismissed. The appellant is
    ordered to pay costs of $20,000 to the respondent Mr. Szot and $11,000 to the PGT,
    inclusive of disbursements and taxes.

Released: June 17, 2020 (E.E.G.)

E.E.
    Gillese J.A.

David
    Brown J.A.

M.
    Jamal J.A.





[1]
In December 24, 2015, Mr. Nguyens claim for statutory accident
    benefits in an arbitration at the Financial Services Commission of Ontario was
    dismissed:
Nguyen v. TD Home and Auto
    Insurance Co.
,
2015 CarswellOnt 20301. A statutory appeal and an
    application for judicial review of this decision brought by the appellant on
    Mr. Nguyens behalf were also dismissed:
Nguyen v. TD Home and Auto
    Insurance Co.,
2017 CarswellOnt 2650;
Nguyen
    v. TD Home and Auto Insurance Company
,
2018 ONSC 7166 (Div. Ct.).


