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SOLICITOR’S LIENS I. T HE CLIENT OR THE NEW LAWYER WANTS THE FI LE, BUT THE CLIENT STILL OWES ME FOR

UNPAID FEES. DO I HAVE TO DELIVER THE FILE? CAN I REFUSE TO RELEASE THE FILE UNTIL MY FEES ARE PAID? CAN I ASSERT A “SOLICITOR’S LIEN”?

Although documents for which the client has paid, belong, and should be released to, the client, the converse is not always true. In some circumstances, the lawyer may have to deliver documents prepared for the benefit of the client, for which the client is properly liable to pay, but for which the client has not paid. LEGAL CONSIDERATIONS, SOLICITOR’S LIENS At common law, a solicitor has a right to two liens. The first is the ‘general retaining lien’. The general retaining lien is the solicitor’s right to retain client property already in the solicitor’s possession until he or she is paid costs due to him or her in a professional capacity. In the context of file transfers, the lawyer is asserting his or her right to a general retaining lien. The second lien, sometimes referred to as a ‘particular lien’ or ‘special lien on the fruits of the action’, is the solicitor’s right to ask the court to direct that personal property recovered under a judgment and obtained through the solicitor’s exertions stand as security for the solicitor’s costs. In addition, pursuant to subsection 34(1) of the Solicitors Act,1 a lawyer has the right to apply to the court for a charging order on property recovered or preserved through his or her instrumentality.2

Our discusssion will deal only with the common law gerneral retaining lien. T HE GENERAL R ETAINING L IEN, GENERAL PRINCIPLES

3 When does the lien arise? Generally, the lawyer’s authority to hold client documents terminates with the retainer. The lawyer’s authority to claim a solicitor’s lien - his authority to hold back client documents - ariseswhen, at the termination of the retainer, some or all of the lawyer’s accounts remain unpaid.

1Solicitors Act, R.S.O. 1990, c. S.15.

2Morris/Rose/Ledgett v. Sivitilli, (1993), 22 C.P.C. (3d) 83 (Gen. Div.) at para. 7, Bapoo v. Co-operators, (1998), 36 O.R. (3d ) 616, Vlahosotiros v. Total Credit Recovery Ltd., [1997] O.J. No. 4617, Pino v. Vanroon, [1998] O.J. No. 4354. For a further discussion on liens and charging orders and additional case law on all types of liens or charging orders, see Rodica David, Q.C., “Liening On Your Client and Getting a ‘Charge’ Out Of It” (Lone Stars: Surviving and Thriving in Sole Practice and Small Firms, Department of Continuing Education, The Law Society of Upper Canada, March 5, 1998) (1998) The Law Society of Upper Canada; and also, Michael J. Herman, Elizabeth A. Carman, Michael A. Hardy and Stephen E. Travis, “Solicitors’ Liens” (March 1985) 19:1 L. Soc. Gaz. at 91.

3The discussion that follows draws from the papers of Rodica David, and Michael J. Herman et al. at ibid.

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Last Reviewed: September 2007

What is the nature of the lien? This lien gives the lawyer the right to retain and restric t access to the client’s documents and personal property in the lawyer’s possession until all of his or her outstanding accounts due for professional services are paid. The lien is ‘general’ in the sense that it may be used to enforce all accounts due on all matters, including the lawyer’s costs incurred in recovering payment of outstanding amounts. The lien is also passive. The solicitor’s right is only to withhold property and documents. The lawyer has no right to sell the property in his or her possession. Courts can also order the release of documents held pursuant to a lien. What property is covered by the lien? The common law lien attaches to all deeds, papers and other personal property that, with the client’s approval, is received by the solicitor in his or her capacity as solicitor during the course of the professional relationship. There are exceptions. No lien attaches to original court records nor to money that the solicitor holds in the capacity of stakeholder. Where documents are delivered to the solicitor for the purpose of raising money or where money is paid to the solicitor for a particular purpose so that the solicitor becomes the trustee of the money, the lien does notattach to those documents or that money unless they are allowed to remain in the solicitor's handsfor general purposes with the client’s express or implied consent after the particular purpose hasbeen fulfilled or has failed.

4 The Ontario Superior Court of Justice has now clarified that an original will cannot be differentiated from any other document in the lawyer's possession, over which the lawyer can properly assert a solicitor's lien. In other words, a lien may properly attach to an original will. 5

Note that books, records and articles of incorporation of a corporation may be required by statute to be kept at the head office of the corporation. In Ontario, the Business Corporations Act 6 provides that a corporation shall maintain at its registered office, or at such other place in Ontario designated by the directors, the following records: the corporation’s articles, by-laws, any amendments thereto and a copy of any unanimous shareholders agreement known to the

4A. Cordery, Cordery on Solicitors, 9th ed. (United Kingdom: Butterworths, 1995) at E [692]. The

court in Aggio v. Rosenberg (1981), 24 C.P.C. 7 (H.C.J.) adopts as law the principles set out in Cordery,

6Business Corporations Act, R.S.O. 1990, c. B.16, s. 140.

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directors; minutes of meetings and resolutions of shareholders; records of minutes of meetings and resolutions of directors and any committees thereof; registers of directors and of securities issued by the corporations; and, in certain circumstances, adequate accounting records. TheCanada Business Corporations Act 7 states that corporate records, including the articles, by-laws, all amendments thereto, a copy of any unanimous shareholders agreement, minutes of

7Canada Business Corporations Act, R.S.C. 1985, c. C-44, ss. 20(1) and (2). Note that pursuant to s. 20(1)(5.1), many of these federal corporate records and documents may in fact be maintained anywhere outside Canada, so long as they are also available for inspection by means of a computer terminal or other technology during regular office hours at the registered office or any other place in Canada designated by the directors.

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5See Szabo Estate v. Adelson (2007), 39 C.P.C. 6th 147 (ON S.C.), O.J. No. 636, 2007 Carswell Ont 933.

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meetings and resolutions or shareholders, records containing minutes of meetings and resolutions of directors and any committees thereof, copies of certain notices, a record of securities issued by the corporation and, in certain circumstances, adequate accounting records, are to be maintained at the registered office or at any other place in Canada designated by the directors. In instances where the head office is not the same as the lawyer’s office, the lawyer may be prohibited from keeping the documents in his or her actual possession pursuant to the lien. In cases where the corporate head office is or has been designated as the solicitor’s office, and the documents are in the solicitor’s possession, a valid lien may attach, subject to access by corporate designates to facilitate corporate transactions.8 The lawyer’s right to retain the liened documents is no greater than the client’s. If, therefore, a third party has an interest or right superior to that of the client, the lawyer’s ability to retain the documents is subject to those superior rights or interests.9 An interesting question is raised where the solicitor-client relationship is terminated neither by the lawyer nor by the client, but by a court order at the request of a third party. A court had to deal with just that question in Metrin Mechanical Contractors Ltd. v. Big H. Construction Inc .10 In that case, another party to the action successfully moved to remove the later lien claiming law firm on the basis of conflict of interest. The firm’s account had not been fully paid and it had asserted a lien. Master Haberman analysed the rationale behind a solicitor’s lien, concluding it is often a mechanism intended to prevent a client from “lawyer shopping” after running up an account with a prior lawyer. Given such a rationale, the lien mechanism should only be available in circumstances where the client not only initiated the lawyer shopping process voluntarily, but also unjustifiably. In the result, Master Haberman held the firm was not entitled to a solicitor’s lien since the process was not initiated by the client whose files were being detained, but rather by another party to the action. Since “the mischief that a solicitor’s lien is aimed at preventing” was not present, there was no basis for supporting its availability. Who is entitled to claim the lien? The right to the lien depends not only on the status of the account, but on who terminated the retainer and why. A lawyer will be entitled to the lien if the following conditions are met:

• the retainer is terminated, either by the client or by the lawyer for just cause; and

• the lawyer’s accounts for legal services or costs incurred to collect the accounts remain unpaid.

Note that the client has an absolute right to terminate the retainer, the lawyer does not. If the

8 See Kingswood Explorations 1985 Ltd. v. Elkind, [1988] C.L.D. 1495 (Ont. H.C.) for a case on point.

9 Michael J. Herman, et. al., “solicitors’ Liens”, supra note 2 at 94. See also Re Gladstone, [1972] 2 O.R. 127 (C.A.).

10 Mertin Mechanical v. Big H, [2001] O.J. No. 1319 (Ont. S.C.J.)

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lawyer terminates the retainer without just cause, the lawyer will not be entitled to claim the lien. For purposes of professional conduct, rule 2.09 of the Rules of Professional Conduct, “Withdrawal from Representation,” sets out the circumstances in which a lawyer’s termination of the retainer is justified and those in which it is mandatory. Presumably, in a court proceeding, when entitlement turns on the issue of termination for just cause, the circumstances justifying withdrawal of services in the Rules of Professional Conduct will apply. When is the lien discharged or lost? The solicitor’s lien is discharged when all accounts or costs due to the solicitor are paid. Subsection 6(6), of the Solicitors Act implicitly recognizes the general retaining lien and clarifies the lawyer’s obligation to return to the client, if required, the client’s documents once payment is received. A lawyer loses his or her lien when he or she loses possession. The general retaining lien, like other possessory liens, depends on the lawyer properly obtaining and retaining the documents or property in question. The transferring lawyer will not lose possession if:

• possession of the documents is lost as a result of trickery or wrong doing; or,

• the recipient of the documents expressly or impliedly agrees to hold the documents or property for the lawyer’s use.

The transferring lawyer may not lose possession if, when the file is transferred, the lawyer asserts a unilateral reservation of lien even though the recipient does not accept the documents ‘subject to the lien’. The basis for justifying a reservation of the lien is that the lawyer has no intention of abandoning the lien or parting with legal possession of the liened documents or property.11 Lastly, the lawyer may lose possession by waiver.

12 What are the limits to enforcement of the lien? A lawyer’s right to enforce the lien on client documents may be restricted if to do so would prejudice the client. In determining whether to permit a lawyer to enforce his or her lien, courts look to client interests. The ‘interests of the client must be given great weight’.

13 Where client interests can be preserved by allowing access to the file, courts have upheld the lien, subject to the client’s right to inspect the documents at the lawyer’s office. 14

11Michael Herman et.al, ”Solicitors’ Liens”, supra note 2 at 94.

12Jacqueline Morris, Felicia S. Folk & John Vamplew, “Whose File is It Anyway?” (January 1994) 51:1 Advocate. 87 at 96.

13Appleton v. Hawes (1990), 47 C.P.C. (2d) 151 (Gen. Div.), additional reasons at 2 W.D.C.P. (2d) 154.

14Ibid.

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PROFESSIONAL RESPONSIBILITY CONSIDERATIONS, SOLICITOR’S LIENS The Commentary to subrule 2.09(9) of the Rules of Professional Conduct specifically addresses the issue of liens for unpaid fees. This subrule provides that ‘generally speaking, the lawyer should not enforce a lien for unpaid fees and disbursements if to do so would prejudice materially the client’s position in any uncompleted matter’. In responding to the question “Can I refuse to release the file until my fees are paid?” the lawyer must assess the prejudice to the client, particularly in uncompleted matters. If the prejudice to the client is “material”, then the lawyer should take steps to ensure the client’s interests are not compromised. II. I AM HAVING DIFFICULTY OBTAINING THE CLIENT FILE FROM MY CLIENT’S FORMER SOLICITOR.

WHAT CAN I DO TO OBTAIN THE FILE? The Commentary to subrule 2.09(10) of the Rules of Professional Conduct, provides that “it is quite proper for the successor lawyer to urge the client to settle or take reasonable steps towards settling or securing any outstanding account of the former lawyer, especially if the latter withdrew for good cause or was capriciously discharged.” The successor lawyer should encourage the client to settle the account or to agree to terms that allow for some measure of security that the account will be paid. If a compromise solution cannot be reached, an application for delivery of the file may be made to the court. The following avenues may be available: 1. Application When Account Assessed - Section 13 of the Solicitors Act Section 13 of the Solicitors Act enables clients to bring an application “for the delivering up of deeds, documents and papers” either alone or in conjunction with an application for the assessment of their lawyers’ accounts. The court may direct payment of any amount found to be due, and enforce payment “according to the practice of the court in which the reference” for assessment of the lawyer’s bill is made. 2. By Motion Brought Within the Substantive Action In Green v. F. W. Woolworth Co.,

15 Master Clark held that motions for delivery of client documents may be brought within the substantive action. A motion under rule 37.02 of the Rules of Civil Procedure may be brought within the substantive action to compel delivery of the client’s file. Master Clark refused to follow 94272 Canada Ltd. v. 566501 Ontario Inc. et al.

16 In that case, Master Sandler refused to order delivery within the substantive action. He was of the view that masters had no jurisdiction to make such orders. 3. Commence Action for Recovery for Personal Property Against the Former Solicitor In 94272 Canada Ltd., Master Sandler suggested that, apart from an application pursuant to the

15Green v. F. W. Woolworth Co. et al. [1992] O.J. No. 2254 (Gen. Div.) online:QL.

1694272 Canada Ltd. v. 566501 Ontario Inc. et al. (1988), 66 O.R. (2d) 58.

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Solicitors Act, the only other method of compelling delivery of client documents is for the client to commence a separate action against the solicitor for recovery of personal property. Once the action is commenced, a motion under the Rules of Civil Procedure could be made either for:

• summary judgment under rule 20, or

• recovery of personal property held as security under rule 45.03. SUGGESTIONS FOR RESOLVING FILE TRANSFER DISPUTES Members should consider having a transfer meeting between counsel to allow the new lawyer to examine the file. The successor lawyer may find that some or all file contents are not needed to continue with the client’s matter. The successor lawyer may give an undertaking that the outstanding bill will be paid personally, or from the proceeds of litigation. Note, however, that such undertakings will only be valid so long as the successor lawyer has the file in his or her possession. Ensure that all undertakings are provided in writing and that they clearly stipulate how the successor lawyer is to secure or protect the account. Subrule 6.03(8) of the Rules of Professional Conduct, “Responsibility to Lawyers and Others”, provides that a lawyer should give no undertaking that cannot be fulfilled and that lawyers should fulfill all undertakings given. As indicated, retaining liens are of limited value when clients’ interests are at stake. Ideally, billing procedures should eliminate the need to resort to liens. The following are some suggestions to ensure that lawyers are paid - and paid when due - for services provided:

• obtain a written retainer for every matter;

• obtain a money retainer at the outset;

• insist that the retainer is replenished as the matter proceeds;

• if the client cannot provide a money retainer, suggest that the client obtain financing from either a lending institution or family member; clarify in writing that the lawyer will not finance the client’s matter;

• if the client does not have funds to provide a money retainer, but the lawyer is

nevertheless prepared to take the matter on, consider (after independent legal advice has been obtained by the client) having the client provide: • a third party guarantee of the account, or • other appropriate security;

• insist on payment of all interim accounts when due;

• subject to the lawyer’s professional obligations regarding withdrawal of services,17 insist

17 Rule 2.09, “Withdrawal from Representation”, Rules of Professional Conduct.

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that non payment of accounts, or failure to replenish the retainer, will result in termination of the retainer;

• insist that clients pay for all disbursements before incurred;

• bill frequently and consistently (monthly at least) and consider bimonthly;

• docket all time spent on the client’s file;

• send work in progress letters to advise of status of billing and work in progress;

• advise clients immediately of any unexpected developments effecting the initial fee

estimate;

• confirm all developments with the client in writing. In the current business environment, where exceptional client service fuels business success, in a profession where most business originates from referrals, lawyers should take every opportunity to demonstrate - to clients and colleagues - their ability to maintain excellent client relations and to deliver outstanding client service. Indeed, when files must be transferred and accounts remain outstanding, the opportunity to demonstrate professionalism and exceptional client service is particularly important.

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Please note that this information is not a substitute for the member’s own research, analysis and judgment. The Law Society of Upper Canada does not provide substantive legal advice or opinions.