Ontario: the limitation of claims arising from solicitor’s undertakings

Lofranco v. Azevedo considers the limitation period applicable to claims arising from solicitor’s undertakings.

The plaintiff’s new personal injury lawyer undertook to protect the former lawyer’s reasonable account.  The limitation period for the claim to remedy the breach of the undertaking (that is, the failure to pay out the reasonable account) would commence only when the undertaking was revoked:

[40]           In my view, it is not open to the Estate to argue that the limitation period runs against the applicant.  Given my finding that there was a valid undertaking given on behalf of Mr. Pereira, as recently discussed by Quigley J. in Cozzi, at para. 62, the limitation period stops running once the undertaking is given, unless the undertaking is revoked:

63     First, Mr. Cozzi tries to counter that proposition by noting that Kilian D.J. correctly adopted the law that a personal undertaking from a solicitor is not discharged by notification. I agree. Moreover, I agree with the appellant on the general proposition that a solicitor’s undertaking and a client’s undertaking will continue to be enforceable without the interference of a limitation period: Sokoloff v. Mahoney. The Deputy Judge specifically recognized this in para. 17 when he quoted from para. 15 of Sokoloff as follows:

15 There is also clear case law that a solicitor’s undertaking as well as a client’s undertaking is enforceable, can be relied upon, and stops the clock running for the purpose of a limitation defence unless revoked. In Tembec Industries Inc. v. Lumberman’s Underwriting Alliance(2001) 2001 CanLII 28252 (ON SC)52 O.R. (3d) 334[2001] O.J. No. 72 at paras 21-22, Ground J. held that an undertaking to pay a specified amount in damages gives rise to promissory estoppel where the recipient of the undertaking relied on it. Such reliance is expressly contemplated by a solicitor who gives an undertaking, as Wilton-Siegel J. held in Bogoroch & Associates v. Sternberg[2005] O.J. No. 2522 at para 38.

The former lawyer also had “a charging lien” under the Solicitor’s Act to which no limitation period applied:

[42]           Another basis on which I would find that the limitation period does not run against the applicant is the nature of its interest in the funds held by the Azevedo Firm.  In Thomas Gold Pettinghill LLP, at paras. 88 and 89. Perell J. explained that, besides charging orders that can be made under the Solicitor’s Act, the Court has inherent jurisdiction “to charge assets recovered or preserved through the instrumentality of a lawyer for a client”.

[43]           Perell J. also noted, at para. 101, that, in circumstances where the Court is satisfied that the preconditions are met for a charging lien, the limitation periods in the Limitations Act, 2002, do not apply:

For present purposes, the three points to note from Justice Henry’s decision in Re Tots and Teens Sault Ste. Marie about a charging lien made under the court’s inherent jurisdiction are: first, the charging lien creates the proprietary interest of a secured creditor; second, subject to being declared, the charging lien is an inchoate interest that pre-dates the court’s declaration; and third, the charging lien is intrinsically declaratory in nature. The last point supports Cassel Brock’s argument that a charging lien comes within s. 16 (1) (a) of the Limitations Act, 2002 and is not subject to any limitation period.

[44]           I am satisfied that the applicant is entitled to a charging lien.  In Thomas Gold Pettinghill LLP, at para. 88, Perell J. explained that the preconditions for a charging lien are that “(a) the fund, or property, is in existence at the time the order is granted; (b) the property was recovered or preserved through the instrumentality of the lawyer; and (c) there must be some evidence that the client cannot or will not pay the lawyer’s fees”.

[45]           In this case:

(a)   the funds held in trust by the Azevedo constitute the fund;

(b)   the Lofranco Firm did some work on Mr. Pereira’s file.  While there is a dispute about the extent of the work done, there is no dispute that the firm was involved in moving the matter forward; and

(c)   It is evident from the position taken by the Estate on this application that it will not agree to pay the fees claimed by the Lofranco Firm.

[46]           Looking at the matter from a different perspective, both the Solicitor’s Act and the common law provide special protection to lawyers in recovering their fees in circumstances in which a plaintiff is successful, either through a settlement or by obtaining judgment. The undertaking Mr. Azevedo gave on Mr. Pereira’s behalf and the fact that Mr. Pereira consented to the money being held in trust by the Azevedo Firm once settlement was reached, in my view, constitute an acknowledgement by Mr. Pereira that he understood the Lofranco Firm’s proprietary interest in the funds. However, as discussed below, given that the undertaking was subject to the fees being reasonable and Mr. Pereira’s ability to assess the account, the issue remains whether the applicant is entitled to payment of its full account or whether the Estate is entitled to assess the account.

I’m not familiar with the jurisprudence cited for this conclusion.  A charging lien may well be declaratory, but surely here it would result in the consequential relief of the former lawyer being entitled to the disputed funds?

A declaration that results in consequential relief doesn’t fall within s. 16(1)(a).