DATE: 20050706

DOCKET: C42652

COURT OF APPEAL FOR ONTARIO

RE:

WOODCLIFFE CORPORATION, WOODCLIFFE DEVELOPMENT CORPORATION, PAUL OBERMAN, WOODLAWN EQUITIES LIMITED, QUEEN RICHMOND EQUITIES LIMITED, EQUIFUND YORK DEVELOPMENTS LIMITED, EQUIFUND YORK PROPERTIES LIMITED, EQUIFUND YORK 125 LIMITED, EQUIFUND YORK LEASEHOLDS LIMITED, EQUIFUND YORK EQUITIES LIMITED, EQUIFUND INVESTMENT CORPORATION, and EQUIFUND CORPORATION Plaintiffs (Appellants) -and- BARRY ROTENBERG and HARRIS SHEAFFER Defendants (Respondents)

-and- THE MUTUAL TRUST COMPANY, MCAP FINANCIAL CORPORATION, 1209011 ONTARIO INC., THORNVILLE DEVELOPMENTS INC., MALTER HOLDINGS LIMITED, PAUL BAILEY, SOMERSWORTH DEVELOPMENT CORPORATION, HERBERT GREEN and RIVER OAKS DEVELOPMENTS INC. Third Parties (Respondents)

BEFORE:

Labrosse, Sharpe and Lang JJ.A.

COUNSEL:

Milton A. Davis and Brett D. Moldaver

for the plaintiffs/appellants

Michael R. Kestenberg

for the defendants/respondents

Robert J. Howe

for the third party/respondent

Thornville Developments Inc.

Neil S. Rabinovitch

for the third parties/respondents

Herbert Green, River Oaks Development Inc. and Somersworth Development Corporation

Leah Price

for the third party/respondent

Malter Holdings Limited

Joel D. Watson and Albert A. Pelletier

for the third parties/respondents

The Mutual Trust Company and MCAP Financial Corporation

HEARD:

June 28, 2005

E N D O R S E M E N T

On appeal from the order of Justice W.J. Lloyd Brennan of the Superior Court of Justice, dated October 22, 2004.

[1] The plaintiffs/appellants (the Oberman Group (“Oberman”)) have commenced this action against the defendants/respondents, its former lawyer and law firm (“the Firm”), claiming damages for professional negligence and breaches of fiduciary duty. The Firm has brought third party proceedings against the third parties. There were four motions and a cross-motion to stay the main action or stay the third party proceedings before the motions judge.

[2] The appeal is taken against the decision of the motions judge to stay the main action. The Firm cross-appeals, arguing that if the appeal is allowed and the main action is permitted to proceed, the third party action should also be permitted to proceed.

[3] Oberman is a sophisticated land developer. Oberman purchased for development eighteen acres of land in Toronto (the “Project”). The Project gave rise to a complex series of agreements and transactions between Oberman and the third parties. The Firm acted as solicitors for Oberman and for most, if not all, the third parties involved in the Project. Many difficulties arose in the course of the purchase, development and financing of the Project, which resulted in several actions between Oberman and the third parties. The Firm was not a party in any of those actions. These other actions all settled and comprehensive mutual releases, all drafted with legal advice, were exchanged between the third parties and Oberman. In addition, the third parties and Oberman consented to judgment disposing of these earlier actions. The motions to stay arise from those releases.

[4] In the present action, Oberman’s statement of claim includes many allegations of improper conduct by the third parties. Oberman alleges this improper conduct was made possible by the conduct of the Firm. The Firm brought third party claims against the third parties, seeking indemnity for any extra fees, charges, expenses, or other damages incurred by Oberman in relation to the Project that are attributable to the third parties. The third parties submit Oberman is now attempting to litigate again what has already been litigated, settled and approved by a court judgment, and that their releases cover the matters encompassed by the present litigation.

[5] All the releases at issue include provisions prohibiting Oberman from bringing any action that might cause the releasees to be added as third parties in future litigation. All the releases include, at a minimum, provisions to the following effect:

[T]hat the Releasors shall not make any claim … with respect to any matter which may have arisen between the Releasees and the Releasors (either collectively or individually) or in which any claim could arise against the Releasees for contribution or indemnity or other relief over … and agree to fully indemnify the Releasees against the costs of any proceedings encompassed by this clause.

In the case of the third parties Somersworth Development Corporation, Herbert Green and River Oaks Development Inc., the mutual release, drafted by Oberman’s counsel, is broader and even precludes claims that could give rise to third party claims, whether justified in law or not, and states in express terms that Oberman would discontinue its claims if these third parties were added in future proceedings. Although such a request to discontinue was made, Oberman has failed to comply with the terms of this release.

[6] The motions judge made the following findings:

▪ The facts on which Oberman relies against the Firm issue out of the relations between the Firm and the third parties;

▪ The allegations in the present action are substantially the same as those dealt with in the previous actions;

▪ In the course of the earlier litigation, a motion was brought before Lane J. to determine whether Oberman was obliged to produce certain evidence for which it claimed solicitor-client privilege. Lane J. held that Oberman had chosen to make the alleged improprieties of the Firm the cornerstone of its defence to the third parties’ receivership motion, and that the allegations against the Firm were very broad and went to the root of the whole relationship regarding the Project;

▪ Oberman’s discussions with some of the third parties about suing the Firm took place well before the releases were executed and one third party specifically refused Oberman’s request to include a provision allowing for a future right of action against the Firm;

▪ The releases were not ambiguous and were executed on the advice of counsel after detailed negotiations for settlement of complex and costly litigation;

▪ It was clearly within the contemplation of Oberman when the releases were executed that it had a claim against the Firm;

▪ The potential for further litigation over Oberman’s grievances against the Firm was apparent to all parties and an exception for an action against the Firm would have had to be explicit;

▪ The substance of Oberman’s claim is that the Firm and the third parties acted in concert to damage Oberman. Accordingly, the position that the claims against the Firm stand alone and cannot give rise to a claim for indemnity or relief over cannot be accepted;

▪ It is apparent that, when the releases were given, all the parties had the intention to bring to an end all litigation over the dealings of the Project;

▪ If the previous actions had not been settled and if the releases had not been exchanged, Oberman would be asserting its claims against the third parties as well as the Firm; and

▪ But for the releases, the Firm would be entitled to have their claims against the third parties considered and, accordingly, Oberman is precluded from bringing the main action.

[7] On the basis of these findings and observations, the motions judge found that the third parties were entitled to a stay of the main action, being satisfied that allowing the main action to continue would cause an injustice to the third parties, whose reputations were at issue, and who settled the previous actions to avoid further costs. Further, the motions judge found that whether the third parties were entitled to a stay of the third party proceedings was moot in light of his conclusion that the main action would be stayed.

[8] Before this court, Oberman essentially conceded that portions of its statement of claim against the Firm arguably do make allegations that give rise to third party claims, particularly those asserting that the Firm acted in concert with the third parties against the interests of Oberman. Oberman submits, however, that there remain allegations of negligence and breach of duty by the Firm that are independent of any allegations of wrongdoing by the third parties.

[9] We do not accept this argument. Oberman’s statement of claim is replete with allegations of breaches and defaults by the third parties that were part of the earlier litigation and that have been settled. Oberman specifically pleaded that the Firm failed to advise it of its legal remedies to protect its position and to enforce its rights as a result of these same breaches and defaults by the third parties. We agree with the third parties that those alleged third party breaches and defaults were the substance of the earlier litigation, and that Oberman must first establish those alleged third party wrongs in order to prove that the Firm was negligent in protecting Oberman against such alleged wrongdoing.

[10] In our view, the motions judge did not err in concluding that, as the present action encompasses matters previously litigated and settled between Oberman and the third parties, it should be stayed. By staying the main action, rather than simply staying the third party proceedings, the motions judge properly followed the decision of this court in Sinclair-Cockburn Insurance Brokers Ltd. v. Richards (2002), 61 O.R. (3d) 105 (C.A.), leave to appeal to S.C.C. refused [2003] 1 S.C.R. xviii.

[11] As the allegations of negligence and breach of duty in Oberman’s statement of claim against the Firm are inextricably linked to allegations of wrongdoing by the third parties, they fall within the category of claims precluded by the releases. Simply put, the claims against the Firm could not be litigated without re-litigating the claims against the third parties. Third party proceedings were virtually inevitable. As stated by this court in Allan v. Bushnell T.V. Co. Ltd.; Broadcast News Ltd., Third Party, [1968] 1 O.R. 720 (C.A.):

It is not a tenable objection to third party proceedings that the main action sounds in tort and the third party issue sounds in contract…”

“What…is central to resort to third party proceedings is that the facts upon which the plaintiff relies against the defendant should issue out of the relations between the defendant and the third party.

That test is plainly met here.

[12] Further, to the extent that releases protects the third parties from claims over by the Firm on the ground that the third parties were no longer liable to Oberman, we agree with the submission that the third parties are entitled to invoke the abuse of process doctrine, a point also argued before the motions judge: See Toronto (City) v. C.U.P.E., Local 79 2003 SCC 63, [2003] 3 S.C.R. 77 at paras. 36 to 38.

[13] There is no injustice in holding Oberman to the bargain it made with the third parties when it gave releases in the previous litigation, particularly where it now has the benefit of the peace it obtained because of those settlements. The object and purpose of the releases was not only to prevent Oberman from suing the third parties, but also to ensure that the third parties would not be further disturbed by Oberman.

[14] We agree with the motions judge that it would be unfair to accede to Oberman’s alternative submission to permit the main action to proceed but uphold the stay of the third party actions. To do so would preclude the Firm from seeking remedies that it would be entitled to on the basis of agreements that it had nothing to do with. Given Oberman’s assertion that it was clear at the time the earlier litigation was settled that it intended to sue the Firm, Oberman could have refused to settle unless the Firm was excepted from the “no claims over” provisions of the releases. Having proceeded with the settlements without such an exception, and having obtained the benefits of the

settlements, Oberman should also have to assume the burden the settlements imposed in terms of precluding claims over. Given the history of this litigation and the nature of the claims Oberman now seeks to assert, the motions judge properly distinguished Owen v. Zosky (2000), 14 C.P.C. (5th) 50 (Ont. C.A.) and Holthaus v. Bank of Montreal (2000), 131 O.A.C. 119 (C.A.).

[15] It is conceded by all third parties that the claim against the Firm for an accounting of funds in paragraphs 67 to 70 of the statement of claim cannot be subject to a third party claim. Before this court, Oberman asked for leave to amend its statement of claim to assert any claims not precluded by the releases. As the claim for accounting of funds falls into that category, we grant Oberman leave to file an amended statement of claim asserting only that claim. There can be no prejudice to the Firm.

[16] Accordingly, the appeal is allowed in part, but only to the extent of permitting Oberman to file an amended statement of claim with respect to the claim for an accounting of funds now asserted in paragraphs 67 to 70 of its statement of claim. In all other respects, the appeal is dismissed. As the cross-appeal was dependent on the appeal being allowed, the cross-appeal is also dismissed. The parties are directed to exchange their submissions as to costs within ten days and to provide them to this court within twenty days.

“J.M. Labrosse J.A.”

“Robert J. Sharpe J.A.”

“S.E.Lang J.A.”