Following our last blog post on decision of Peter B. Cozzi Professional Corporation v. Szot, 2019 ONSC 1274 (CanLII) (read my analysis of the original decision here), the appellant subsequently brought a motion seeking a charging order over the proceeds of the After the Event (ATE) policy, a policy of insurance which insulates a plaintiff from an adverse cost award when unsuccessful in litigation, which were the subject of the original application.
The application judge ruled that the relief sought through the motion was essentially the same relief as the earlier application. As such, the motion was dismissed as an impermissible collateral attack, precluded by the issue estoppel and abuse of process. Additionally, the application judge found that, in any event, the appellant did not meet the test to obtain a charging order.
The appellant appealed both the application and motion orders to the Court of Appeal.
The issues on appeal were as follows:
1. Did the application judge err in finding the CFA to be unenforceable?
2. Did the application judge err in dismissing the applicant’s motion for a charging order?
Writing for a panel including Justices David Brown and Mahmud Jamal, Justice Eileen Gillese of the Court of Appeal upheld the application judge’s decision that the CFA was unenforceable, confirming that the CFA was not fair, reasonable or in the plaintiff’s best interest where his litigation guardian was not present when he entered into it.
Secondly, the Court agreed with the application judge in that the appellant had failed to meet the test for a charging order.
In order to obtain a charging order, a lawyer 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 lawyer’s fees.
The Court confirmed that the ATE Policy proceeds were not the “fruits of the litigation” as the plaintiff had actually recovered nothing. Since no property was recovered or preserved in the proceeding, there could be no charging order. Additionally, the appellant was not instrumental in the recovery of the proceeds where he simply acted as an intermediary to sell his client an insurance policy.
As the plaintiff is the only beneficiary to an ATE policy, it is their decision how the proceeds are paid. Typically, where a plaintiff executes a contingency fee agreement (CFA), the terms of an ATE policy will attach to it. Although the plaintiff executed a CFA assigning the proceeds of the policy to his lawyer, the plaintiff clearly lacked capacity rendering the CFA unenforceable. As a result, the appellant lawyer had no entitlement to the proceeds. The Court of Appeal was critical of the appellant, noting that it would offend the principles of fairness and justice to reward him for entering into a CFA and brokering an insurance contract where he did not act fairly or reasonably.
It is also important to note that, although the cross-application of the defendant’s insurer was not appealed, the application decision confirms that defendants and/or their insurers have no entitlement to the proceeds of an ATE policy, even where there is a costs award in their favour.