DSM v KLS, 2021 ABQB 1024

Court of Queen’s Bench of Alberta Citation: DSM v KLS, 2021 ABQB 1024 Date: 20211223 Docket: FL03 02798 Registry: Edmonton Between: DSM Applicant - and - KLS, GLO and MLF Respondents/Cross Applicants _______________________________________________________ Memorandum of Decision of the Honourable Mr. Justice Donald Lee _______________________________________________________ Introduction [ 1 ] The nonlawyer Parties have now resolved their respective disputes amongst each other in (the “Agreement”), and a Consent Order with respect to the Agreement has now been entered by the Court.

The Lawyer Respondent is aware of the Agreement. This Court is only required to deal with the Application as against the Lawyer Respondent for the return of certain trust monies, and the Lawyer Respondent’s Application for a charging order over those monies. [ 2 ] Rule 10.4 allows the lawyer to apply to the Court to get a charging order over the remaining monies being held in trust by him in this case. It is a secured claim which prevails over unsecured claims and other agreements, but under Rule 10.4 a charging remedy only applies in the following circumstances:

a) The lawyer’s charges are unlikely to be paid without a charging order;

b) The lawyer ran or defended litigation;

c) The lawyer’s efforts in the suit of recovery was preserved the property sought to be charged;

d) The charges limited to fees and disbursements incurred in the suit; and

e) Notwithstanding these conditions having been met, the Court need not give this charge if it seems unfair. [ 3 ] The primary issue in this case is whether or not the Court should grant a charging order or charging lien to the Lawyer Respondents. Background [ 4 ] Commencing in 2006, the nonlawyer Parties litigated over retroactive and on-going child support in this Action (the "Dispute"), after a very short relationship. In 2007, DSM was represented by the Lawyer Respondents with respect to the Dispute. In 2007, DSM sold his principal place of residence.

From the sale proceeds, $25,000 was provided from Witten LLP (the "Funds"), who were the real estate solicitors at the time, to the Lawyer Respondents. [ 5 ] At the time, the Lawyer Respondent states that DSM was "experiencing financial difficulties and knew he had some claims that were about to come to judgment". He discussed "options" with DSM on what he could do with the Funds and "how to protect those funds" (the "Creditor Advice").

As part of the Creditor Advice, the Lawyer advised DSM to hold the Funds in his trust account and enter into a consent order with KLS to hold those funds as security for the Dispute. On October 5, 2007, the Parties entered into a Consent Order to that effect (the "Consent Order"). It was a term of the Consent Order that the Funds would be held "pending resolution of the aforesaid [D]ispute, whether amicably or by hearing in Special Chambers". [ 6 ] The Lawyer then withdrew as counsel on Record on or about October 17, 2007 (Termination Date”).

Subsequent to the Termination Date, the Lawyer Respondents were served on January 8, 2008 with a Garnishee Summons from Witten LLP with respect to a purported $22,407.33 debt owed by DSM (the "Garnishee Summons"). The particulars of the underlying debt with respect to the Garnishee Summons are unknown. [ 7 ] After the Termination Date, DSM did not receive any correspondence from the Lawyer Respondents until June 9, 2021 when he received a message from the lawyer’s assistant, on Facebook advising him that their firm had a "development on the [Funds]" and to contact them via email.

Up until that point, DSM had forgotten about the Funds, which had been in lawyer's trust account for 14 years. DSM reached out to the firm and received a letter from the lawyer, dated June 10, 2021. The letter advised him of an outstanding account in the sum of $892.24, dated January 25, 2008, for services rendered between August 29, 2007 and October 15, 2007 (the "Account") that the Lawyer was expecting payment of.

The Lawyer Respondents are now claiming a charge on the Funds pursuant to r 10.4 of the Alberta Rules of Court based on an underlying solicitors' lien with respect to the Account. [ 8 ] After discussions between counsel:

a) The nonlawyer Parties became aware of the Funds and applications were filed between them arguing over the Funds and whether an "amicable" resolution had been reached between the parties back in 2010 over the Dispute; b) $24,132.76 of the Funds was transferred to DSM’s new lawyer, pending the resolution of the applications; and

c) The Parties agreed to leave the remaining $892.24 of the Funds in the lawyer Respondent’s trust account pending resolution of the charging claim. Issue [ 9 ] The issue to be determined at this Hearing is should the Lawyer Respondents be granted a charge on the Funds? Analysis [ 10 ] Rule 10.4(1) allows a lawyer to apply to declare certain property be subject to a charge as security for payment of the lawyer's charges. However, subrule (5) states that such an order must not be made if in all circumstances the Court considers that to make the order would be "unfair".

The client submits that under these circumstances it would be manifestly unfair for the Court to grant the charge or recognize the underlying lien. [ 11 ] The lawyer said that he was not providing DSM with creditor enforcement legal advice, however, he advanced various reasons for advising him to enter into the Consent Order and holding the Funds for as long as he did. [ 12 ] DSM was arguing with his ex-spouse about the quantum of maintenance arrears.

He was aware that other creditors "were knocking at the door", and he wanted to make sure that if he was forced into bankruptcy, that maintenance debt would be covered. [ 13 ] The Lawyer advised DSM to enter into the Consent Order with KLS as a means to ensure that there would be money to pay any child support arrears should he be forced into bankruptcy. However, DSM was unemployed from November 2006 to September 2008, and his Line 150 income for 2017 was NIL. The child support arrears that were subject of the Dispute were accumulated during

that period of time, and were later completely waived byKLS.

Further, any debt or liability by way of a judicial decision respecting support or maintenance of a child would likely have survived any personal bankruptcy. [ 14 ] In his June 2020 Letter, the Lawyer wrote that he made "the decision that it was in [DSM’s] best interest that [he] do nothing until the garnishees either take action, or hopefully they wouldn’t, and ultimately the funds would be secured for [DSM]." The plan was to hold the money in the Lawyer's trust accounts until any judgments against DSM expired (the "Decision"). [ 15 ] A Judgment is in force for 10 years and may even be renewed.

When asked what "action" he was referring to the garnishees taking, the Lawyer advised that he was referring to any creditor applying to renew their judgments and writs after 10 years.

During the August 24, 2021 Questioning on his Affidavit, her confirmed that he made the Decision after he received the Garnishee Summons in January 2008 (after the Termination Date), without seeking DSM’s instructions, and under the stated belief that he did not "owe [DSM] any duty" after the Termination Date. [ 16 ] As a result of the Decision, and because the parties forgot about the Funds, the Funds sat in abeyance for 14 years until the Lawyer decided to deal with it “in 2020 because [he] realized at that point, [he's] looking at retiring in a year, and these things that are lingering have to be dealt with." The Lawyer also deposed that he did not know DSM’s personal situation during the 14 years he was holding the Funds and at the time of the Facebook Message. [ 17 ] The Lawyer acknowledges that he did not provide a copy of the Garnishee Summons to DSM as he was served with it after the Termination Date.

He did, however, prepare a Response to Garnishee Summons and forwarded it to the Clerk of the Court. The lawyer deposed that, but for his efforts, the "result would have been that all of those funds would have been disbursed to creditors". He does not explain why that would have happened, given that the Funds came from the sale of DSM’s principal place of residence and he could have received a $40,000 exemption on the proceeds.

Delay [ 18 ] DSM now argues that there is no justifiable reason why the Lawyer would terminate the solicitor-client relationship but continue to hold onto the Funds for 14 years without seeking instructions, or taking any steps to: 1.

Locate him; 2. or have the money paid into Court; 3. or apply after two years under s 117 of the Legal Profession Act to pay the money to the Law Society who would assist in locating him and getting instructions. [ 19 ] DSM apparently had the same cell phone number that the Lawyer Respondents had on file until 2010, and he has also had the same Facebook account that he had back in 2007. During the Questioning, the lawyer acknowledged that he made no efforts to locate DSM after January 2008 “until 2020”.

The lawyer deposed that after the Termination Date, he would "periodically" do PPR and Motor Vehicle searches on DSM (the "Searches"), the first of those searches being on June 17, 2010. Conclusion Charging order for payment of lawyer’s charges [ 20 ] Rule 10.4(1) states that on application by a lawyer, the Court may declare property specified in its order, including property that may be subsequently recovered in an action, to be subject to a charge as security for payment of the lawyer’s charges. [ 21 ] In sub-rule (2)(

a) the lawyer must establish to the Court’s satisfaction that the lawyer’s charges will not be or are unlikely to be paid unless the order is made. In this regard, the Court concludes that sub-rule 10.4 (2)(

a) has clearly been made out in the case given the obvious hostility between the lawyer and the client that presently exists. [ 22 ] However, sub-rule 2(

b) requires that the property to be the subject of the charge is associated with: (

i) the action conducted by the lawyer on the client’s behalf, and (ii) the lawyer’s services result in the recovery or preservation of the client’s property. [ 23 ] With respect to r 10.4(2)(b)(

i) and (ii), there is a tenuous connection, between the advice given, and the eventual successful resolution of the matter. As analyzed earlier, the Creditor advice given may not have been entirely accurate or complete, but the Decision to hold the monies in trust lead in part to the successful outcome. [ 24 ] However, the problem for the Respondent Lawyer is the 14-year delay in this matter was not necessary to obtain the successful outcome.

The matter could have and should have been resolved much earlier and more diligently. [ 25 ] In the context of common law charging liens based on underlying solicitor's liens or Rule 10.4, it is clear that a court “may refuse to exercise its equitable interference on behalf of a lawyer if the lawyer has delayed excessively in bringing forward a claim for the lien".

A lawyer cannot be dilatory, for where his delay has been excessive, and the rights of other people have suffered in consequence, the Court may refuse to exercise its equitable interference on his behalf. [ 26 ] The Court fully appreciates that the Lawyer in question is an experienced family law lawyer whose heart was in the right

place in attempting to assist DSM, and that his efforts were successful. However the manner in which he proceeded was not completely correct with respect to DSM’s creditor rights protection, and most problematic is the 14-year delay in locating DSM while $25,000 sat in his trust account. [ 27 ] Undoubtedly, the Lawyer is not only a very experienced family law lawyer but is a very busy practitioner.

While it is very surprising that these parties who appear to be of modest means would have forgotten about the $25,000 being held in trust on the sales proceeds, the Lawyer had a specific responsibility to deal with these funds before he ultimately did.

Waiting until one’s approaching retirement from practice to review this matter fully while somewhat understandable, is not reasonable in this case. [ 28 ] Accordingly then while it is understandable in many respects why the Lawyer acted as he did, the Court has concluded that it cannot give him a charging order over the remaining monies being held in trust by him because it would be “unfair” in these circumstances to grant such a charging order. [ 29 ] Furthermore a charging lien (which is the common-law equivalent of a charging order under r 10.4 of the Rules ) would still run afoul with the exemptions on the sale of his principal residence that DSM was entitled to, and would not grant the Lawyer priority over the funds in question. [ 30 ] Accordingly the Lawyer Respondent’s application for a Rule 10.4 charging order or a common law charging lien are dismissed, with costs awarded to DSM.

The remaining monies in the Lawyer’s trust account held on behalf of DSM will be returned to him immediately Heard on the 14 th day of October, 2021. Dated at the City of Edmonton, Alberta this 23 rd day of December, 2021. Donald Lee J.C.Q.B.A. Appearances: George Samia and Billal Saleem of Forum Law LLP for the Applicant The Lawyer Respondent appeared on his own behalf