



COURT OF APPEAL FOR ONTARIO

CITATION: Mauldin v. Cassels Brock & Blackwell LLP, 2014
    ONCA 641

DATE: 20140916

DOCKET: C52912/M43992

Strathy C.J.O. (In Chambers)

BETWEEN

Fred Mauldin, Dan Meyers, Robert Blomberg,

Theodore Landkammer, Lloyd Chelli, Stephen Yee,

Marvin Cleair, Carolyn Cleair, Richard Hanna,

Douglas Laird, Charles Ivans, Lyn White and Athena Smith

Plaintiffs

(Moving Parties)

and

Cassels Brock & Blackwell LLP,

Gregory Jack
    Peebles and Robert Hryniak

Defendants

(Responding Parties)

R. Douglas Elliott and Ruzbeh Hosseini, for the moving
    parties

Sarit Batner, for the responding party, Robert Hryniak

Luisa Ritacca, for the responding party, Cassels Brock
    & Blackwell LLP

Jonathan Rosenstein, for the responding party, Gregory
    Jack Peebles

Heard: July 15, 2014

ENDORSEMENT

[1]

This is the end of a piece of the protracted
Combined Air
litigation.
[1]
The successful plaintiffs, the Mauldin Group, seek payment of about $1
    million in funds posted by the defendant, Robert Hryniak, to the Accountant of
    the Superior Court of Justice pursuant to a prior order of this court. This
    money would partially satisfy their judgment. The motion is opposed by Hryniak.
    He says the majority of the money should be paid to his lawyers, McCarthy Tétrault
    LLP (McCarthys).

[2]

Hryniak claims that McCarthys outstanding fees of about $825,000 should
    be paid fully and in priority to the Mauldin Group. He relies upon:

a)

an order of this court in 2011, requiring that he post a letter of
    credit in the amount of $950,000 as a condition of granting his request for an
    extension of time to perfect his appeal;

b)

the assertion by McCarthys of a solicitors lien under s. 34(1) of the
Solicitors
    Act
, R.S.O. 1990, c. S.15; and

c)

case law in the
Mareva
injunction context that suggests a party
    should not be deprived of the means to mount a legal defence.

[3]

For the reasons that follow, I would not give effect to any of Hryniaks
    submissions.

background

[4]

The Mauldin Group is made up of elderly American investors. They brought
    an action against Hryniak, alleging that he had defrauded them of some $1.2
    million. They also sued Hryniaks law firm, Cassels Brock & Blackwell LLP
    (Cassels), and a lawyer at Cassels named Gregory Peebles (Peebles).

[5]

In May 2010, the Mauldin Group brought a motion for summary judgment
    against all three defendants. It was heard along with a motion for summary
    judgment against the same defendants in a companion action, referred to as the
    Bruno Action.

[6]

The motions judge granted summary judgment against Hryniak, finding that
    he had engaged in fraud. He was ordered to pay damages of approximately $1.2
    million USD to the Mauldin Group and $1 million USD to the Bruno Action plaintiffs:
Bruno Appliance and Furniture Inc. v. Cassels Brock & Blackwell LLP
,

2010 ONSC 5490, [2010] O.J. No. 4661.

[7]

The motions judge dismissed the motions for judgment against Cassels and
    Peebles on the basis that there were issues requiring a trial.

[8]

Hryniak filed notices of appeal dated November 8, 2010, staying the
    judgments against him.

[9]

Shortly thereafter, it was discovered that Hryniak had taken steps to
    encumber his only known asset in favour of his wife  his interest in the
    matrimonial home.

[10]

As
    Hryniak failed to perfect his appeals within the required time, he brought a
    motion for an extension of time.

[11]

At
    the same time, the Mauldin Group and the plaintiff in the Bruno Action brought
    a motion for: (1) an order lifting the automatic stay on enforcement pending
    appeal; (2) an order that Hryniak post security for costs; and (3) an order
    requiring Hryniak to pay the amounts awarded by summary judgment.

[12]

In
    December 2010, Rosenberg J.A. adjourned the motions and lifted the automatic
    stay pending appeal: (1) to permit the plaintiffs in the two actions to
    register judgments against Hryniaks home; and (2) to allow them to examine Hryniak
    in aid of execution.

[13]

In
    January 2011, the motions came before Weiler J.A. She granted Hryniaks motion
    for an extension of time but imposed conditions, including that he post an
    irrevocable letter of credit with the Accountant in the amount of $950,000:
Bruno
    Appliance and Furniture Inc. v. Cassels Brock & Blackwell LLP
,

2011
    ONCA 67, 274 O.A.C. 353.

[14]

After
    the motion before Weiler J.A., Hryniak retained McCarthys to pursue his appeals
    since his original lawyers had removed themselves from the record as a result
    of a conflict of interest.

[15]

Between
    January 2011 and June 2011, Hryniaks wife, Suzanna Mandryk, paid his legal
    bills. Since then, McCarthys has essentially gone unpaid.

[16]

In
    February 2011, Doherty J.A. varied Weiler J.A.s order:
Bruno Appliance and
    Furniture Inc. v. Cassels Brock & Blackwell LLP
,

2011 ONCA
    126, [2011] O.J. No. 1507. His order:

·

permitted a bank to put a charge in the amount of $1 million on Hryniaks
    home for the purpose of providing to Mr. Hryniak the funding necessary to
    obtain a letter of credit;

·

postponed the judgments of the Mauldin Group and the Bruno Action
    plaintiff, which were registered on title, in favour of the banks charge;

·

postponed Mandryks charge to third position behind the banks
    charge and the plaintiffs judgments;

·

ordered Hryniak to post an irrevocable letter of credit in the
    amount of $950,000 with the Accountant by February 22, 2011, which was to be
    held pending further order of this court; and

·

ordered Hryniak to provide an undertaking not to encumber or
    dispose of any assets pending the outcome of his appeals, in accordance with
    Weiler J.A.s reasons.

[17]

At
    para. 10 of his reasons, Doherty J.A. commented that should Hryniaks appeal be
    dismissed, the plaintiffs would presumably apply for an order directing that
    the proceeds of the letter of credit be paid out to them in partial
    satisfaction of the trial judgments.

[18]

Instead
    of a letter of credit, Hryniak deposited a $950,000 bank draft with the
    Accountant. With interest, this deposit is now worth just over $1 million.

[19]

In
    December 2011, this court dismissed Hryniaks appeal in the Mauldin Group
    action; it granted his appeal in the Bruno Action:
Combined Air Mechanical
    Services Inc. v. Flesch
, 2011 ONCA 764, 108 O.R. (3d) 1. This court
    requested submissions on costs of the appeal. In his costs submissions, Hryniak
    proposed for the first time that some of the funds that were paid into court be
    released to him to pay for his legal fees.

[20]

This
    court released its reasons on costs in May 2013:
Mauldin v. Cassels Brock
    & Blackwell LLP
, 2013 ONCA 307, 361 D.L.R. (4th) 646. Hryniak had
    since sought leave to appeal from this courts decision in the Mauldin Group
    action. As a result, this court deferred the question of how to deal with the
    amount paid into court until after the release of the Supreme Court of Canadas
    decision.

[21]

In
    January 2014, the Supreme Court granted leave but dismissed Hryniaks appeal:
Hryniak
    v. Mauldin
, 2014 SCC 7, [2014] 1 S.C.R. 87. Hryniak brought a motion for
    rehearing by the Supreme Court, which that court dismissed on May 1, 2014.

[22]

Following
    the dismissal, the Mauldin Group demanded payment of all the amounts owing by Hryniak
    in this action. It was told that Hryniak had no funds to pay, other than the
    amount posted with the Accountant.

[23]

It
    is estimated that the outstanding judgments and orders against Hryniak in both
    the Mauldin Group action and the Bruno Action amount to over $1.9 million.

[24]

There
    are also outstanding costs orders against the Mauldin Group, including costs
    payable to Cassels in the Bruno Action. The Mauldin Group undertakes to satisfy
    the outstanding amounts from funds held by the Accountant, if those funds are
    released to it.

[25]

Cassels
    and Peebles also make a claim on the funds held by the Accountant to satisfy an
    outstanding partial Sanderson order, dated March 11, 2011, against Hryniak.

[26]

The
    Mauldin Group, Cassels and Peebles have reached an agreement whereby they will
    share any funds paid out of court.

analysis

[27]

I
    will examine the three alternative grounds relied upon by Hryniak in support of
    his motion.

(1)

The Order of Weiler
    J.A.

[28]

Hryniak
    submits that the order of Weiler J.A. is dispositive and requires that
    McCarthys fees be paid in full, in priority to all other claims. The
    submission is based on the assertion that Weiler J.A. knew that the $950,000
    was Hryniaks only asset and that if he was to continue with the appeal he
    would necessarily incur legal fees that he would have to pay out of these
    funds. Hryniak attaches significance to the fact that the funds were not
    payable to the credit of the action but only to the Accountant.

[29]

There
    is nothing in the express terms of the order that supports this conclusion. Nor
    is there anything in Weiler J.A.s reasons to suggest that there was any
    concern for Hryniaks ability to pay his legal fees in order to pursue his
    appeal. It is apparent that the overriding concern behind the order was to
    protect the Mauldin Groups interest in ensuring that they may enforce the
    motion judges court order if Hryniak loses his appeal (at para. 41). The
    purpose of the order was, quite obviously, to preserve the asset and to prevent
    its dissipation.

[30]

Moreover,
    it is incorrect to state that Weiler J.A. knew that the funds were Hryniaks
    only assets. She adverted to the possibility that he had other assets (at paras.
    37, 40) and noted that the funds were his only
known
asset (para. 39).

[31]

Nor
    does the fact that the letter of credit was to be paid to the Accountant
    support the inference Hryniak advances. The issue of his legal fees was not
    raised before Weiler J.A. and no inference can be drawn from the manner in
    which the funds were to be provided.

[32]

In
    considering the order of Weiler J.A., it needs to be remembered that Hryniak
    came to the court seeking an indulgence. He had failed to perfect his appeal in
    time and he was seeking an extension. The Mauldin Group discovered that he was
    attempting to encumber his interest in the matrimonial home, presumably to
    avoid paying their judgment. They wanted to enforce their judgment. It would
    have been open to Hryniak to raise the issue of his legal fees at that time,
    but he did not do so.   Had he done so, the Mauldin Group may have requested
    additional security.

(2)

Solicitors Lien

[33]

Hryniak
    submits that McCarthys has a charge on the funds held in court pursuant to s.
    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 solicitors fees, costs,
    charges and disbursements in the proceeding.

[34]

Hryniak
    submits that it was only by virtue of McCarthys efforts on the contested
    motion before Doherty J.A. that he was able to mortgage his home and post the
    funds with the Accountant. Counsel characterizes these actions as
    instrumental in preserving the funds.

[35]

Generally,
    courts have been predisposed to exercise their discretion in favour of charging
    orders. In
Taylor v. Taylor
(2002), 60 O.R. (3d) 138, this court explained
    why, at para. 29:

Historically, courts have exercised their discretion liberally
    in favour of charging orders, which are said to benefit both the lawyer and the
    client, since they encourage lawyers to represent clients who are unable to pay
    as their cases progress.

[36]

In
    my view, however, McCarthys is not entitled to a solicitors charge under s.
    34(1) in the circumstances of this case.

[37]

First,
    the amount held by the Accountant was not property recovered or preserved
    through the instrumentality of the solicitor for the purposes of s. 34(1).

[38]

Here,
    what McCarthys accomplished in having Weiler J.A.s order varied was to permit Hryniak
    to comply with a pre-condition for obtaining an extension of time.  Had he not
    complied, he would have been precluded from bringing his appeal. In those
    circumstances, it is difficult to see how McCarthys motion to vary Weiler
    J.A.s order amounts to the recovery or preservation of property through the
    instrumentality of McCarthys. Rather, the property was preserved through Weiler
    J.A.s order.

[39]

Second,
    an order under s. 34(1) is discretionary. In
The Law

of Costs
,
    loose-leaf (Rel. August 2010), 2d ed. (Toronto: Canada Law Book, 1998), Mark M.
    Orkin discusses this aspect of s. 34(1) at p. 3-99:

As appears from the wording of s. 34 the order is
    discretionary.  A court will determine firstly whether the property was subject
    to a solicitors lien, that is, whether it was preserved through the
    instrumentality of the solicitor, and then whether in the circumstances of the
    case a lien should attach.  In exercising its discretion a court should balance
    the equities. [Citations omitted.]

See also:
Taylor v. Taylor
, at para. 34.

[40]

In
Foley v. Davis
(1996), 93 O.A.C. 114 (Ont. C.A.), at para. 2, this
    court also noted the discretionary nature of s. 34 (1):

We have considered s. 34 of the Solicitors Act, and cases cited
    to us by the appellant. We can find no per se rule that, absent improper
    conduct, the solicitor is always entitled to a charge in first priority on
    funds "salvaged" by the efforts of the solicitor. In our view, while
    the solicitor will be entitled to a first charge on such funds in the normal
    course, the court retains a discretion to order otherwise.

[41]

The law firm in
Foley
was denied a charge in priority to
    an earlier order granting support to the appellants ex-spouse.

[42]

In
    my view, the equities in this case are overwhelmingly
against
granting
    a charge. McCarthys says Hryniak told it from the outset that his interest in
    the matrimonial home was his only asset. Thus, McCarthys accepted a risk of
    non-payment from the very beginning.  While Hryniaks wife did initially pay
    his bills for the months of January to May and part of June 2011, she stopped
    paying his bills after that point, other than a few small amounts. As of June
    2011, the risk of non-payment became a reality. Still, McCarthys kept working
    without seeking directions or seeking to amend Weiler J.A.s order to provide
    for the payment of Hryniaks legal fees from the amount paid into court.

[43]

Another
    important factor in weighing the equities is the original purpose of Weiler
    J.A.s order. It was meant to protect the Maudlin Groups ability to collect on
    its judgment if successful on appeal. However, if McCarthys is successful in
    obtaining a priority charge on the full amount of its claim, the Mauldin Group
    will get very little or nothing, even though it was successful on the summary
    judgment motion, on the appeal to this court, on the appeal to the Supreme
    Court and on the motion for rehearing before the Supreme Court. The equities
    weigh against such an unjust result.

(3)

Mareva
Jurisprudence

[44]

Hryniak
    submits that
Mareva
jurisprudence confirms that defendants are
    entitled to access to their own funds in order to pay legal expenses. In
    particular, he points to
Canadian Imperial Bank of Commerce v. Credit
    Valley Institute of Business and Technology
, [2003] O.J. No. 40 (S.C.), at
    para. 26, in which Molloy J. discusses the test for varying the terms of an
    injunction to permit payment of various expenses from frozen assets.

[45]

There
    are several answers to Hryniaks submission. First, a
Mareva
order may
    provide for the payment of legal fees. If it does not, the defendant will
    generally bring a motion to permit payment of fees: Robert J. Sharpe,
Injunctions
    and Specific Performance
, loose-leaf, (Rel.
    November, 2013) (Toronto: Canada Law Book, 2012+) at pp. 2-93 to 2-94. No such
    request was made at the time of Weiler J.A.s order or on the motion for variation
    before Doherty J.A.

[46]

Second,
    the order is generally made while the litigation is ongoing, not after a
    judgment has been rendered:
B& M Handelman Investments Ltd. v. Curreri
,
    2011 ONCA 395, 278 O.A.C. 199. I was referred to no case in which payment of
    legal fees on a full indemnity basis has been authorized after the fact.

[47]

Third,
    there is no unfairness to Hryniak. Payment of his legal fees at this time is
    not required to permit him to proceed with the litigation. To the extent there
    is unfairness, it falls on McCarthys which will be unpaid for much of its work.
    However, McCarthys accepted that risk in continuing to work when it was no
    longer being paid, without any assurance that it would be paid. That it
    continued to work, presumably out of a sense of professional responsibility in
    an important case, is commendable. The potential unfairness to the Mauldin
    Group, which would recover almost nothing, far outweighs any unfairness to
    either Hryniak or McCarthys.

disposition

[48]

For
    these reasons, the motion is
allowed
,
with costs. The Accountant
    is directed to release the funds deposited to counsel for the Mauldin Group, to
    be distributed, pro rata, to the Mauldin Group, Cassels and Peebles.

[49]

There
    were no submissions as to costs. If the parties are unable to reach agreement
    on costs within 15 days, they may make written submissions, not to exceed five
    pages in length (excluding costs outlines). The moving party shall file its
    submissions within 30 days of the release of this endorsement and the
    respondent shall have 15 days within which to reply.





[1]
See:
Combined Air Mechanical Services Inc. v. Flesch
, 2011 ONCA 764, 108
    O.R. (3d) 1.


