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Focus: Judge gives solicitor’s charging order priority

Focus on: Restructuring & Insolvency Law
A judge’s decision to give a solicitor’s charging order priority over a perfected Personal Property Security Act security is good for access to justice, according to a Toronto commercial litigator.

In Dalcor Inc. v Unimac Group Ltd., et al., a specialty insurer with a registered security over the entire inventory, accounts and assets of Unimac, a general contractor business based in Markham, Ont., asked a judge to give it first call on bonds posted into court for the company’s benefit.

However, in his Feb. 8 decision, Ontario Superior Court Justice Phillip Sutherland sided with Unimac’s former counsel, BPR Litigation Lawyers, ruling that any charging order it qualifies for related to its work to recover and preserve the bonds would have to be paid out first.  

Had the result gone the other way, Tanya Walker, the principal at Toronto litigation firm Walker Law, says it would have deterred lawyers from working in future for clients who do not have the ability to pay upfront.

“If it wasn’t for the lawyer’s efforts, the money wouldn’t be there and nobody would be able to collect on anything,” she says. “What you notice with courts nowadays is that they are moving away from strict technical interpretations and looking at what’s fair.

“We have an issue with access to justice right now, so what they don’t want to do is render a decision that will prevent a lawyer enabling someone to have access to justice. If a lawyer feels they can do all the work, but at the end of the day, they won’t get paid for what they’ve done based on a technicality, it’s going to put them off accepting a retainer.”

The case relates to a plan to add three storeys on to a seniors apartment building in Mount Albert, Ont., about an hour’s drive north of Toronto. Unimac was the general contractor on the project, while Trisura Guarantee Insurance Company was its surety insurer. The owner of the land posted a $1-million bond with the court to clear a number of construction liens and assigned what was left to Unimac.

BPR obtained a charging order against the bond without notice for almost $900,000, but that was set aside by Sutherland in an earlier decision after he found Trisura should have been warned, given its own interest in the bond funds.  

Although Sutherland decided BPR would have an opportunity to bring a new motion for a charging order, this time with notice, the parties agreed to settle the matter of priority first.

Trisura argued that its perfected PPSA security, registered in 2010, should take precedence because charging orders, unlike liens, are not explicitly excluded from the security interest mandated by the act.

While acknowledging Trisura’s argument was at first blush “compelling,” Sutherland concluded the purpose and nature of a solicitor’s charging order, which includes a charging lien aspect, “takes it out of the explicit wording of the PPSA.

“If the legislature intended to interfere with the common law, law of equity or statutory right of a solicitor’s charging order, it would have provided explicit language that it intended to do so. Absent such explicit language, it is presumed that the legislature did not intend to interfere with the common law, law of equity or statutory right to solicitors’ charging orders,” Sutherland added.

Even so, Trisura claimed its security should maintain priority thanks to the “first in time” common law rule, since its PPSA registration was made before BPR came on the scene in its work with Unimac. However, Sutherland said the rule could not “practicably” apply, since there is no mechanism for registering a solicitor’s charging order.

“Furthermore, the purpose of solicitors’ charging orders, in equity, mandates that the “first in time” rule does not apply. Solicitors’ charging orders are a unique right granted to solicitors by statute, common law and law of equity to protect solicitors’ services and to encourage and facilitate legal representation of persons who cannot necessarily afford to pay for legal services as these services are incurred,” the judge wrote.

Finally, Trisura tried to convince the court that an indemnity agreement between itself and Unimac’s principal Leon Hui assigned the company’s interest in the bond to its insurer. But Sutherland found that would mean granting Trisura the benefit of Unimac’s legal action that preserved the funds without them paying for the legal services that delivered them.

“I do not accept that Trisura can lay in the weeds, do nothing, have the funds posted in court recovered and preserved, and then rely on terms of the Indemnity Agreement to oust any payment for the preservation and recovery of these funds that may have occurred through the efforts of BPR,” Sutherland wrote.

Justin Baichoo, a lawyer at BPR who argued the case on the firm’s behalf, says he was pleased with Sutherland’s decision.

“It confirms the place of solicitors’ liens in a priority position as opposed to secured creditors,” Baichoo says. “You can’t expect a lawyer to do all the work on a file to create or preserve monies and then not have the lawyer paid. . . . [E]ssentially, the secured creditor wanted to ride off the back of the lawyer who was prosecuting the work.”

James MacLellan, a partner in the construction group at Borden Ladner Gervais LLP, represented Trisura in court and said in a statement that he “can’t comment at this time.

“The file is ongoing and we have further hearings before Justice Sutherland to deal with the charging order,” he said.

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