Court File No: 281/05

Date: 20071005

SUPERIOR COURT OF JUSTICE - ONTARIO

DIVISIONAL COURT

Re: BOGOROCH & ASSOCIATES Plaintiff (Appellant)

• and -

GERALD STERNBERG Defendant (Respondent)

Before: JENNINGS, GANS and COATS JJ.

Counsel: Melvyn L. Solmon & Matthew Valitutti, for the Plaintiff (Appellant) Allan Sternberg, for the Defendant (Respondent)

Heard at Toronto: September 21, 2007

THE COURT:

ENDORSEMENT

[1] This is an appeal from the judgment of the Honourable Mr. Justice Siegel dated June 20, 2005 and Costs award dated January 10, 2007. The appellant law firm, Bogoroch & and Associates (“Bogoroch”), brought an action against the respondent lawyer, Gerald Sternberg (“Sternberg”) for damages as a result of Sternberg’s breach of an undertaking given by Sternberg to Bogoroch to protect the latter’s account.

[2] The trial judge dismissed the claim and awarded costs of the trial to Sternberg. The Appellant asks that the judgment be set aside and that it receive judgment in the amount of $24,209 and costs on a partial indemnity basis or alternatively, that no costs be ordered of the trial, if leave to appeal costs be granted.

[3] The appellant advanced several grounds of appeal more particularly described in its notice of appeal and in its supplementary notice of appeal. Having regard to the manner in which this appeal was argued, we do not intend to revisit but those matters that formed the focus of argument by counsel in this endorsement.

[4] We agree with the trial Judge’s finding that Sternberg breached his undertaking to the appellant in continuing to act for the client and ‘facilitating’, as a minimum, the payment of the settlement funds to the client directly, even though we agree that Sternberg was well-advised, as he did, in putting the appellant on notice that the client intended to do an ‘end-run’ on the payment of his obligation to Bogoroch.

[5] The issue that then arises is whether or not Sternberg’s breach of undertaking caused the damages that Bogoroch ultimately sustained or whether that is even an issue that was properly considered by the trial Judge.

[6] It was the appellant’s first argument that a solicitor’s undertaking - in distinction to a “contract” - does not carry with it an obligation on the Appellant to establish that a breach of undertaking “caused” the damage of which the recipient of the undertaking now complains. (See the Appellant’s factum at paragraphs 66-67). Put otherwise, it was the Appellants position that once it established the breach of undertaking, damages followed, almost as a matter of right. We do not agree with this proposition, which is unsupported, in any event, by the cases to which reference was made in the Appellant’s factum. Indeed, an argument can be made in support of a contrary conclusion. (See the decision of the Court of Appeal in 642947 Ontario Limited v. Fleischer 2001 ONCA 8623, at para. 47-57 and the discussion of solicitors’ liens and undertakings found in the article by John W. Morden, A Succeeding Solicitor’s Duty to Protect the Account of the Former Solicitor, The Law Society Gazette (1971)).

[7] As an alternative position, the Appellant asserted that the trial Judge erred in finding that Sternberg did not cause the loss sustained by Bogoroch. This determination arose from certain findings of fact, with which the appellant takes issue.

[8] For the Appellant to succeed in impugning findings of fact, he must establish that the trial Judge made a “palpable and overriding error”. (See the decision of the S.C.C. in Housen v. Nikolainsen (2002), 2002 SCC 33, 211 D.L.R. (4th) 577 at para. 10.)

[9] The trial Judge made certain findings of fact on the evidence, which, in our opinion remain unassailable, namely that the client intended to settle directly with the insurer and intended to do an “end run” on his obligation to Bogoroch in respect of an account, which had not yet been rendered. Furthermore, the trial judge found as a fact that Sternberg put Bogoroch on notice on or about December 11th, 2000 about the client’s intentions and that because he, himself, would not be in possession of the settlement funds he could and would not be able to honour the undertaking previously given.

[10] The trial Judge made two other findings of fact, which lead him to his conclusion that Sternberg’s actions did not cause Bogoroch the damages sought:

(i) that the principle cause of the loss was the client’s insistence that he be paid directly by the insurer, without discharging his obligation to Bogoroch;

(ii) that in any event, Bogoroch failed to take appropriate action, quickly, or at all, to protect his account either at the time of the file transfer to Sternberg or at the moment that the firm was put on notice of the client’s intentions.

[11] The trial Judge made a further, perhaps gratuitous, but clearly unnecessary, observation in the same paragraph in which he made the above findings, namely that he was satisfied on the evidence that Sternberg would or could have given the client his file and the insurers documents, in any event, to permit the client to conclude the settlement on his own, without Sternberg’s assistance. It is with respect of this observation that the Appellant seeks to overturn the trial Judge’s conclusion on causation.

[12] To proper analyze this issue, we believe the decision of the Court of Appeal about “palpable and overriding errors found in Waxman v. Waxman, 2004 ONCA 39040, [2004] O.J. No. 1765 at paras. 296-97, 300 (C.A.), to be most instructive:

The "palpable and overriding" standard addresses both the nature of the factual error and its impact on the result. A "palpable" error is one that is obvious, plain to see or clear: Housen at 246. Examples of "palpable" factual errors include findings made in the complete absence of evidence, findings made in conflict with accepted evidence, findings based on a misapprehension of evidence and findings of fact drawn from primary facts that are the result of speculation rather than inference.

An "overriding" error is an error that is sufficiently significant to vitiate the challenged finding of fact. Where the challenged finding of fact is based on a constellation of findings, the conclusion that one or more of those findings is founded on a "palpable" error does not automatically mean that the error is also "overriding". The appellant must demonstrate that the error goes to the root of the challenged finding of fact such that the fact cannot safely stand in the face of that error: Schwartz v. Canada, 1996 SCC 217, [1996] 1 S.C.R. 254 at 281.

[13] In our opinion, the findings of fact about the actual actions of the client and Bogoroch during the relevant time period, described above, do not constitute palpable errors, as those terms were described in Waxman, supra, and are clearly supported by the evidence, including but not limited to, Mr. Bogoroch’s testimony.

[14] That having been said, we are of the view that the further comment about what might have happened with the file had it been given to the client, rather than returned to Bogoroch, who still retained a solicitor’s lien, constituted conjecture on the part of the trial Judge and was wrong at law. We do not believe, however, that this observation amounted to an overriding error, which “…goes to the root of the challenged finding…” of facts upon which the trial Judge based his conclusion.

[15] We hasten to observe that we do not in any respect countenance Mr. Sternberg’s conduct in facilitating the client’s settlement, about which more will be said in this endorsement. However, that conduct, as unprofessional as it might be, does not detract from the proposition that it was not the immediate cause of the Appellant’s loss or the causa causans for which liability should necessarily attach.

[16] The appeal on the merits is therefore dismissed.

Costs

[17] By motion returnable before us, the appellant sought leave to appeal the costs awarded to the respondent solicitor. The necessity of leave was not argued before us, but if leave is required, it is granted.

It is conceded that:

a) as a general rule, costs follow the event and

b) costs are in the discretion of the trial judge, whose award can only be reversed on appeal if it is demonstrated that the discretion was exercised wrongly on incorrect principles.

[18] There are numerous cases where judges in the exercise of their discretion have awarded costs against the successful litigant because of that party’s conduct, particularly, conduct which might bring the administration of justice into disrepute (Wysmer v. Javelin International Limited (1982), 1982 ONSC 1891, 38 O.R. (2d) 26).

[19] In the recent case of Ristimacki v. Cooper (S.C.J.) (November 16/04), Stinson J. denied costs claimed of about $414,000 by a solicitor who successfully defended a professional negligence action where the trial judge found that his acts of negligence had not caused the plaintiff’s loss. Stinson J. helpfully reviewed decisions in other cases on this issue, culminating with the decision of the Court of Appeal in Mirembe v. Tarskis, [2003] O.J. 4753, where it held that the trial judge erred in failing to deprive a negligent defendant doctor who was successful on the issue of liability of his costs of the trial.

[20] Here, after acknowledging that the facts in Ristimacki, (supra) were similar to those in this case, the trial judge attempted to distinguish that case by stating at paragraph 6 of his endorsement:

… the case law suggests that, unless the proceedings involved issues of public interest, abusive behaviour, or practice likely to reflect adversely on the administration of justice, a finding of negligence or misconduct on the part of the professional has only been taken into consideration where solicitor client or other professional client/patient relationship was involved.

(Emphasis added)

[21] He went on to hold in that paragraph that as the breach of undertaking occurred in the context of a relationship between two professionals of equal sophistication, a costs sanction was not warranted.

[22] We are of the opinion that in arriving at this conclusion the trial judge made an error in principle.

[23] Solicitors’ undertakings are matters of utmost good faith. They are traditionally given to expedite and facilitate the furtherance or conclusion of matters upon which solicitors are engaged on behalf of their clients. These efficiencies result in savings of lawyers’ time that can be passed on to clients. Time is spent more efficiently and work is done more smoothly. Because of that, solicitors must be able to rely upon undertakings, which are promises given by one solicitor to another to do or to refrain from doing an act.

[24] In our opinion, sanctioning the misconduct of the solicitor with an award of costs in his favour would not only clearly approve of a “practice likely to reflect adversely on the administration of justice”, but, would send a strong signal to the Profession that undertakings can be ignored.

[25] By failing to give effect to his finding of a breach of undertaking by the successful party in the circumstances we have described and seeking to minimize the breach as something which had occurred between professionals of equal sophistication, the trial judge in our opinion erred in principle requiring appellate intervention.

[26] Given the nature and importance of solicitors’ undertakings the fact that it had occurred “between two professional parties of equal sophistication” exacerbates, rather than minimizes the seriousness of the breach.

[27] In the result we allow the appeal with respect to the costs order and the judgment will be amended to provide that there will be no order for the costs of the trial.

[28] Success on this appeal being equally divided, we make no order as to the costs of it.

Jennings J.

Gans J.

Coats J.

Released: October 5, 2007