Gentra Canada Investments Inc. v. Lipson, 2011 ONCA 331

DATE: 20110429

DOCKET: C51903

COURT OF APPEAL FOR ONTARIO

Laskin, Armstrong and Juriansz JJ.A.

BETWEEN

Gentra Canada Investments Inc. and 1327622 Ontario Limited

Plaintiffs (Respondents)

and

Norman B. Lipson and Fogler Rubinoff

Defendants (Appellants)

Chris G. Paliare and Tina H. Lie, for the appellants

Ronald G. Slaght, Q.C. and Anne E. Posno, for the respondents

Heard: October 26, 2010

On appeal from the order of Justice E. Frank of the Superior Court of Justice dated March 5, 2010, with reasons reported at 93 R.P.R. (4th) 24.

ARMSTRONG J.A.:

INTRODUCTION

[1] Is a cause of action for solicitor’s negligence assignable? The respondent, Gentra Canada Investments Inc., was the assignee of two mortgages from Royal Trust. The mortgages were prepared for Royal Trust by the appellant law firm, Fogler, Rubinoff. The principal issue before the court is whether an alleged cause of action for solicitor’s negligence in the preparation of the mortgages was included in the assignment to Gentra Canada.

[2] On a motion for partial summary judgment, the motion judge held that the alleged claim for solicitor’s negligence was assigned to Gentra Canada. The appellants appeal that finding.

[3] The appellants also seek leave to appeal the costs award of $130,000.

THE FACTS

[4] In 1990, Royal Trust advanced $21.5 million to the lessee of the Park Towers apartment complex located at 400 Walmer Road in Toronto. The monies were secured by a second mortgage in the amount of $11.5 million and a third mortgage in the amount of $10 million, which were registered against a ground lease held by the borrower of the funds. Fogler, Rubinoff acted for Royal Trust. Mr. Lipson was the partner with responsibility for these transactions.

[5] The mortgages went into default in January 1992 and enforcement proceedings were subsequently commenced. During the course of the enforcement proceedings, Fogler, Rubinoff brought to the attention of Royal Trust certain problems including the insufficiency of the enforcement protection provided in the mortgage documentation.

[6] On September 1, 1993, as a result of a court-approved plan of arrangement, the Royal Bank of Canada (“RBC”) and Gentra Inc. (the parent company of Royal Trust) entered into an agreement pursuant to which RBC purchased the shares of Gentra Inc.’s subsidiaries, including the shares of Royal Trust. Also, as part of the plan of arrangement, Royal Trust assigned a loan portfolio of approximately 300 under-performing loans to Gentra Canada. Gentra Canada was a newly created subsidiary of Gentra Inc. As a result of this arrangement, RBC received the shares of Royal Trust and Royal Trust’s good loans.

[7] The respondent 1327622 Ontario Limited (“132”), a subsidiary of Gentra Canada, was incorporated for the purpose of purchasing the leasehold interest in the Park Towers property from the receiver.

[8] Fogler, Rubinoff did not act in the above transactions pursuant to the plan of arrangement. Its participation was limited to the enforcement proceedings in respect of the two mortgages.

[9] The mortgages were assigned to Gentra Canada on an “as is” basis for their book value, which was about one-half their face value.

[10] The assignment was effected through a series of documents including the Restated Excluded Assets Agreement (the “Agreement”). The excluded assets included the “Canadian Excluded Loans”, which included the two mortgages and were defined as follows:

“Canadian Excluded Loans” means all present and future indebtedness and liability in respect of moneys owing or payable and to become owing or payable by the Obligors under or by virtue of or otherwise in connection with the loan, lease and other credit facilities referred to in Schedule 1.1(g) as such credit facilities may be amended, modified, supplemented, extended, renewed or replaced at any time or from time to time, and all other rights, titles, interests and claims from time to time existing or arising under or in connection with the Excluded Loan Documents relating thereto, including interests in real or personal property securing liabilities or obligations, and all other benefit and advantage to be derived therefrom, and including the proceeds arising from any disposition of such indebtedness and liability.

[11] The Agreement contained a provision pursuant to which Gentra Canada acknowledged that there were no representations, warranties or other assurances as to the collectability, legality, validity or enforceability of the two mortgages. Gentra also acknowledged that it had made its own independent investigations and determinations in connection with all such matters and accepted full responsibility therefor.

[12] Gentra Canada was aware of the alleged deficiencies in the two mortgages prior to the assignment. Fogler, Rubinoff acted for Gentra Canada in the enforcement proceedings after the assignment until December 1993. Indeed, Fogler, Rubinoff reported to the same person at Gentra Canada as they had at Royal Trust. It was not until April 1997 that Fogler, Rubinoff was advised by the successor counsel for Gentra Canada that a claim may be made against them. In July 1997, Gentra Canada and the appellants entered into a standstill agreement.

[13] This action was commenced in 2000. Gentra Canada claims damages against the appellants for negligence and breach of contract in the amount of $35 million and 132 claims damages in the amount of $5 million for loss of profits.

[14] The respondents allege in para. 30 of the Amended Amended Statement of Claim that the appellants breached their duties to them as follows:

Negligence and Breach of Contract of Foglers and Lipson

Although the Second and Third Leasehold Mortgages were mortgages of a leasehold interest, in preparing the security documents, no one from Foglers:

a) reviewed the Ground Lease in detail, or at all, with Royal Trust prior to the execution of the Leasehold Mortgages;

b) obtained a Ground Lease Acknowledgement/Assumption Agreement, Non-Disturbance Agreement or other similar protection from the landlord thereby creating saving provisions which would enable Royal Trust/Gentra to cure defaults by the lessee under the Ground Lease and protect its secured position in the event of breaches of the borrower’s obligations;

c) obtained an estoppel certificate from the landlord that the Ground Lease was in good standing and that there were no defaults, in particular repair defaults;

d) advised Royal Trust/Gentra of the risks inherent in lending on the security of a leasehold interest without the benefit of an estoppel certificate and protective language in the documents.

THE MOTIONS IN THE SUPERIOR COURT

[15] On a motion heard in February 2010, the respondents moved for partial summary judgment. They sought confirmation of the right to pursue the action and that all necessary plaintiffs had been named. They also sought a determination of the extent of the damages they could pursue. The defendants brought a cross-motion for summary judgment dismissing the action on the ground that the alleged cause of action had not been assigned to Gentra Canada and that it had not sustained any damages. In respect of 132, they submitted that it had not been an assignee under the Agreement and therefore had no status in the action at all.

[16] Judgment was delivered on March 5, 2010. The motion judge granted partial summary judgment to the respondents and dismissed the motion of the appellants. She found that the assignment of the two mortgages included the assignment of the cause of action against the appellants. She concluded that Gentra Canada could recover the same damages that Royal Trust would have been entitled to as if there had been no assignment. Although Gentra Canada had not complied with s. 53 of the Conveyancing and Law of Property Act, she found that it did not preclude it from bringing the action in its own name. Finally, she concluded that Gentra Canada’s damages and the status of 132 to pursue the action should be left to the trial judge.

THE APPEAL

[17] There are five issues in this appeal:

(i) Is a claim for solicitor’s negligence or breach of contract assignable?

(ii) If such a claim is assignable, was Royal Trust’s claim validly assigned to Gentra Canada?

(iii) If Royal Trust’s claim was validly assigned, does Gentra Canada have a claim for damages?

(iv) Can Gentra Canada bring the action in its own name?

(v) Does 132 have status to sue?

ANALYSIS

(i) Is a claim for solicitor’s negligence or breach of contract assignable?

[18] The appellants submit that the cause of action for solicitor’s negligence is fundamentally incapable of assignment as a matter of public policy. In support of this submission, the appellants cite American authority and, in particular, Can Do, Inc. et al. v. Marnier et al., 922 S.W. 2d 865 (Tenn. Sup. Ct., 1996). The court, in that case, reviewed several American cases and concluded that the assignability of legal malpractice actions is contrary to public policy. The court summarized the public policy rationale at p. 868 as follows:

The many public policy reasons underlying these courts’ rejection of assignability of legal malpractice claims was perhaps best summarized by the California appellate court in [Goodley v. Wank & Wank Inc., 62 Cal.App.3d 389 (1976)], which was the first to flatly confront the issue. There, the court focused on the unique character of legal services, the personal nature of the attorney’s duty to the client, and the confidentiality of the attorney-client relationship.

[19] The appellants emphasize that assigning a solicitor’s negligence claim to a stranger would undermine the confidential relationship between solicitor and client. They cite Picadilly, Inc. v. Raikos, 582 N.E.2d 338 (Ind. Sup. Ct., 1991) at p. 343:

So long as the client retains control over the suit, the scope of the disclosure can be limited by the client’s power to drop the claim. Once the client assigns the claim, however, the client’s control over the litigation is lost, but the attorney’s right to defend himself or herself by revealing client information survives. The client is relegated to observing from the sidelines as the assignee pursues the attorney.

[20] Finally, the appellants cite Brickenden v. London Loan & Savings Co., 1934 CanLII 280 (UK JCPC), [1934] 3 D.L.R. 465 (J.C.P.C.), aff’g 1933 CanLII 7 (SCC), [1933] 3 D.L.R. 161 (S.C.C.), for the proposition that the courts in Canada have concluded that a claim against a lawyer for breach of duty arising from the lawyer-client relationship cannot be assigned. In that case, a solicitor acted for both parties to a mortgage loan and did not disclose to the mortgagee loan company his personal interest in the transaction. The loan company subsequently transferred all its assets and all rights of action capable of assignment to two other companies. Both the Privy Council and the Supreme Court of Canada held that the cause of action for solicitor’s negligence was not assignable. However, neither the Supreme Court nor the Privy Council provided any explanation as to why this was the case.

[21] Today, the leading Canadian case on the assignability of a cause of action in tort is Fredrickson v. Insurance Corporation of British Columbia (1986), 1986 CanLII 1066 (BC CA), 28 D.L.R. (4th) 414 (B.C.C.A.). McLachlin J.A. (as she then was), in reasons unanimously adopted by the Supreme Court at 1988 CanLII 38 (SCC), [1988] 1 S.C.R. 1089, held that while a bare cause of action was not assignable, a pre-existing property interest or a legitimate commercial interest would make assignable a cause of action for a non-personal tort.

[22] Mr. Fredrickson was an insured owner of a car that was involved in an accident. The issue was whether Fredrickson as an insured person could validly assign to a person claiming against him for injuries suffered in the accident, a cause of action against the insurance company for failure to properly defend and negotiate a settlement of the action on his behalf. The cause of action in Fredrickson was pleaded alternatively in tort and contract.

[23] In Fredrickson, the analysis begins at p. 420 with “the assumption that, as a general rule, causes of action in tort are not assignable”. However, it is noted that there are a number of exceptions to the rule and that the categories of exceptions are not closed.

[24] In her review of the exceptions to the general rule, McLachlin J.A. said at p. 420:

In each case the court must ask itself whether the assignment can fairly be seen as prompted by a desire to advance the cause of justice rather than as intermeddling for some collateral reason: Fleming, The Law of Torts, 6th ed. (1983), p. 593.

[25] According to Fredrickson at p. 420, the first exception is “that the fruits of an action, as opposed to the action itself, are assignable.” A second exception (at p. 421) involves:

[C]ases where the assignee has either a pre-existing property interest or a legitimate commercial interest in the enforcement of the claim. An assignment where the assignee possesses such an interest will be valid, provided the action in tort is not based on a personal wrong, such as assault, libel or personal injury. The reason for the latter stricture appears to be that in cases of personal torts, the assignee can have no legitimate property or commercial interest in recovery: Trendtex Trading Corp. et al. v. Credit Suisse, [1980] 1 Q.B. 629 at pp. 656-7, per Lord Denning M.R.; affirmed [1981] 3 All E.R. 520 at p. 530 [(H.L.)].

[26] In summarizing the law on this issue, the reasons in Fredrickson state at pp. 423-24:

An assignment of a cause of action for a non-personal tort is generally valid if the assignee has a sufficient pre-existing interest in the litigation to negate any taint of champerty or maintenance. In determining if this test is met, the court should look at the totality of the transaction: Trendtex, supra, per Lord Roskill at p. 531. A property interest ancillary to the cause of action assigned is sufficient to support an assignment, but not essential. A genuine pre-existing commercial interest will suffice. The term “commercial interest” is used in the sense of financial interest; it need not arise from commercial dealings in the narrow sense. Assignment of a cause of action to a stranger will not be permitted, nor will the court uphold an assignment made for the purpose of obtaining more than what the assignee is legally entitled to.

[27] What did the court mean when it used the word “pre-existing” in pp. 420-21 of Fredrickson? If pp. 423-24 are read with pp. 420-21 of the reasons, it is not clear to me whether the court was saying that the property interest or legitimate commercial interest or both must be “pre-existing” and whether it is the assignment or the cause of action in relation to which the interest must pre-exist. The English authorities cited by the court do not appear to require that the property or commercial interests pre-exist the assignment.

[28] Indeed, Lord Roskill in Trendtex at p. 530 said:

The court should look at the totality of the transaction. If the assignment is of a property right or interest and the cause of action is ancillary to that right or interest, or if the assignee had a genuine commercial interest in taking the assignment and in enforcing it for his own benefit, I see no reason why the assignment should be struck down as an assignment of a bare cause of action or as savouring of maintenance.

The underlined portion of the above passage was cited with approval in Fredrickson at p. 422.

[29] Lord Roskill also cited Ellis v. Torrington, [1920] 1 K.B. 399 (C.A.) for the proposition that “[w]here the assignee has by the assignment acquired a property right and a cause of action was incidental to that right, the assignment was held effective”.

[30] Canadian texts support the above interpretation. S.M. Waddams, The Law of Contracts, 6th ed. (Toronto: Canada Law Book, 2010) says at para. 278: “[i]f the right of action is incidental to a transfer of property an assignment will be valid.” See also G.H.L Fridman, The Law of Contract in Canada, 5th ed. (Toronto: Thomson, 2006) at pp. 693-694. Both Waddams and Fridman cite Ellis, which states at p. 411:

[E]arly in the development of the law the Courts of equity and perhaps the Courts of common law also took the view that where the right of action was not a bare right, but was incident or subsidiary to a right in property, an assignment of the right of action was permissible, and did not savour of champerty or maintenance.

[31] There is a paucity of Canadian cases since Brickenden that addresses the specific issue of whether a cause of action for solicitor’s negligence is assignable.

[32] In Caisse Populaire Vanier Ltee v. Bales (1991), 1991 CanLII 7294 (ON SC), 2 O.R. (3d) 456 (Gen. Div.), a lawyer and his client gave promissory notes to the plaintiff to secure loans and the client later defaulted on his note, declaring bankruptcy after the plaintiff obtained default judgment against him. The plaintiff requested the trustee to assign to it the claim the client allegedly had against the lawyer in negligence for advice given regarding the promissory note. Chadwick J. held, in brief reasoning, that the plaintiff had a legitimate commercial interest and so the assignment was valid. The plaintiff did not stand to profit but was trying to recoup the loss it suffered when the client filed in bankruptcy. The lawyer and client were business partners to both of whom the plaintiff had loaned money. The holding in this case seems to focus on the relationship between the lawyer and client as business partners and has little to do with the fact that the specific cause of action at issue was solicitor’s negligence.

[33] In Wilkinson v. Stafford T. Gorsalitz Professional Corp. (2009), 2009 ABQB 657, 481 A.R. 152 (Q.B.), Miller J. held that an assignment of the claim by the administratrix of an estate against the lawyer of the deceased was not valid. There was no reference in the reasons to Fredrickson or other authorities on the assigning of causes of action. The judge merely referred to the American position that such an assignment is inconsistent with the personal nature of the lawyer-client relationship. Miller J. also quoted from Trendtex regarding public policy reasons involving champerty, but only from the decision of the Court of Appeal, and only to the section of that decision dealing with specific reference to personal torts, i.e. not those related to property but those “like damages for libel or slander, or for assault, or for personal injury”, as opposed to other torts or to contract.

[34] In Lau v. Ogilvie, 2010 BCSC 1589, two joint venture partners sued a lawyer for negligence in respect of a failed real estate deal. One of the partners died and his executrix assigned the estate’s 50 per cent interest in the litigation to the other partner. The motion judge rejected the defendant’s argument that the assignment was champertous and said at para. 27:

It is apparent that in the circumstances, [the assignee] possesses “a sufficient interest in the action assigned to support the assignment”, consistent in the manner set out in Fredrickson v. Insurance Corporation of British Columbia….

[35] In my view, Fredrickson is the authority that governs the analysis in the case at bar and, to the extent that Brickenden stands for the proposition that a cause of action in solicitor’s negligence is not assignable, it is no longer good law. I can find nothing in Fredrickson which leads to the conclusion that a cause of action for solicitor’s negligence is fundamentally incapable of assignment. If an assignee can show a legitimate commercial interest in the cause of action against a lawyer, such an assignment does not savour of champerty or maintenance. If the assignment meets the Fredrickson test, the fact that the claim arose out of a solicitor-client relationship does not render the assignment invalid as contrary to public policy. I note that in the case at bar, solicitor-client privilege is irrelevant as the appellants have produced their entire file in the litigation.

[36] In my view, if the language of the assignment in this case supports the inclusion of the cause of action in solicitor’s negligence against the appellants, such an assignment is valid. I agree with the finding of the motion judge that Gentra Canada clearly has a legitimate commercial interest in such cause of action. I am also of the view that the cause of action is ancillary to Gentra Canada’s property interest in the two mortgages. I am satisfied, as well, that the alleged tort in this case is not a personal tort as described by the court in Fredrickson.

[37] In respect of the assignability of claims based in contract, the court in Fredrickson referred to the rule against the assignment of personal contracts (relied upon by the appellants) and concluded that it did not apply to the assignment of causes of action for damages. However, the court went on to say at p. 428:

The authorities in England and Canada offer little assistance on the question of whether a cause of action for damages for breach of contract can be assigned. Clearly a cause of action in debt can be assigned, even though the debtor denies liability: Fitzroy v. Cave, [1905] 2 K.B. 364 (C.A.); County Hotel & Wine Co. v. London & North West Ry. Co., [1918] 2 K.B. 251 at p. 258. However, the assignability of unliquidated claims admits of more doubt. Treitel, The Law of Contracts, 5th ed., after noting the different views on the question, concludes at p. 523 that “[t]he best approach is to avoid generalisation and to ask in each case whether this assignment savours of maintenance”.

The court concluded in Fredrickson that the cause of action for breach of contract against the insurance company “does not savour of maintenance”. I am of the same view in respect of the cause of action in contract so far as it relates to this case. I see nothing that savours of maintenance.

(ii) Was Royal Trust’s claim validly assigned to Gentra Canada?

[38] The answer to the above question involves the interpretation of the language of the assignment and, in particular, the definition of “Canadian Excluded Loans” that I have referred to above in paragraph 10. The motion judge concluded: “that on the plain wording of the assignment it includes the cause of action against the defendants”. In so finding, she focused on the word “claim”, in the above definition, which she considered to be sufficiently broad to include the cause of action against the appellants.

[39] A consideration of the motion judge’s conclusion on this issue raises the question of the appropriate standard of review. In Bell Canada v. The Plan Group (2009), 2009 ONCA 548, 96 O.R. (3d) 81, Blair J.A. (Goudge J.A. concurring) described contractual interpretation as a question of mixed fact and law for which the standard of review is close to correctness, although the factual context and extrinsic evidence are questions of fact that are reviewed on a standard of palpable and overriding error. Blair J.A. put the issue this way at paras. 30 and 31:

The exercise of interpreting a contract is not essentially a fact-finding exercise, however. As the authorities cited above have noted, there may be questions involving the determination of the factual context in which the contract was negotiated, or considerations of extrinsic evidence, that evoke the fact-finding functions. Those decisions are to be addressed from the palpable and overriding perspective. In substance, though, the exercise of interpreting a contract is a legal exercise, calling upon the learning and training that judges and lawyers acquire over years of experience. Apart from the truly factual aspects that may underlie the task, trial judges have no particular advantage over appellate judges in the art of contractual interpretation.

In my view, certainty in contract is an important policy value underlying the construction of contracts. This factor alone is sufficient to push the standard of review in such cases towards correctness and away from deference. At the very least, contractual interpretation is an exercise that generally falls much more towards the error of law end of the Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235] spectrum, once the factual issues referred to above have been resolved or if – as is the case here – they are not in dispute.

[40] The appellants submit that the motion judge committed several errors in concluding that Royal Trust’s cause of action against the appellants was actually assigned to Gentra Canada:

(a) She failed to recognize that there was no express assignment of the cause of action;

(b) She failed to accept that the definition of “Canadian excluded loans” does not include Royal Trust’s claim against the appellants;

(c) She failed to appreciate that Royal Trust and Gentra never contemplated assigning Royal Trust’s claim against the appellants; and

(d) She failed to recognize that there was no consideration.

(a) There was no express assignment of the cause of action.

[41] The appellants submit that explicit language is required to validly assign a future chose in action. They rely on Cowichan Native Heritage Society (Trustee of) v. Toronto Dominion Bank (1993), 1993 CanLII 1141 (BC CA), 106 D.L.R. (4th) 126 (B.C.C.A.) at p. 131 where the court quoted from Lord Watson in Tailby v. Official Receiver (1888), 58 L.J.Q.B. 75 (H.L.) at p. 79, including the following:

There is but one condition which must be fulfilled in order to make the assignee’s right attach to a future chose in action, which is, that, on its coming into existence, it shall answer the description in the assignment, or, in other words, that it shall be capable of being identified as the thing, or as one of the very things, assigned. Where there is no uncertainty as to its identification, the beneficial interest will immediately vest in the assignee.

[42] I take from the above that although there may not be an explicit reference to the claim said to be assigned if one can construe the language of the assignment as capable of identifying it as one of the things assigned, then that is good enough.

[43] The factual context is important for this issue. The motion judge found that the object of the transaction between RBC and Gentra Inc. was to shift the good assets of Royal Trust to RBC while leaving the underperforming loans (i.e. the Canadian excluded assets) with Gentra Inc. through its wholly owned subsidiary, Gentra Canada. Simply put, in respect of the two mortgages in issue, Gentra Canada took over the position of Royal Trust. This finding of the motion judge is not challenged. There is no palpable and overriding error.

(b) The definition of Canadian Excluded Loans does not include Royal Trust’s claim against the appellants.

[44] I now turn to the language of the definition of “Canadian Excluded Loans”. The key words are “and all other rights, titles, interests and claims from time to time existing or arising under or in connection with the Excluded Loan Documents”.

[45] I agree with the motion judge that the words “claim” and “in connection with the Excluded Loan Documents” are sufficiently broad so as to be capable of including the cause of action against the appellants.

[46] The appellants submit that the “claims” that were assigned by the agreement with Royal Trust were only those “in connection with the Excluded Loan Documents”, which are defined to mean all documents containing the terms of the loans as between the lender and “Obligor”, i.e. the person liable to pay the loans. The appellants further submit that a solicitor’s negligence claim against the appellants is unrelated to the lender-obligor relationship and it is therefore not a claim in connection with the Excluded Loan Documents.

[47] The appellants rely on the judgment of the Florida Supreme Court in Law Office of David J. Stern, P.A. v. Security National Servicing Corp., 969 So.2d 962 (2007), where the court held at p. 969 that “the right to sue for legal malpractice is not ‘connected with or growing out of’ the relationship between the mortgagor and mortgagee”. By analogy, the appellants argue that they acted for Royal Trust in the preparation of the mortgage documents but those documents covered only the relationship between the mortgagor and mortgagee. If the documents are read as the appellants contend, then they say it is obvious that the parties intended that the words “claims” and “in connection with the Excluded Loan Documents” mean the enforcement claims against the obligors and no more.

[48] In my view, the motion judge properly distinguished Stern from this case at para. 31 of her reasons:

In Stern, the lawyer had been retained to enforce the mortgage. The claim against him arose out of his alleged negligence in handling the foreclosure proceedings. That distinguishes Stern from this case. Here, the lawyer client relationship was inherent in the mortgage instruments themselves and, therefore, the right to sue for legal malpractice is “connected with or growing out of” the relationship between the mortgagor and the mortgagee. On that basis, the plaintiffs’ position is consistent with the reasoning in Stern.

[49] The appellants further submit that the motion judge erred in focusing on the literal meanings of the words “claims” and “in connection with” in that she failed to take into account the entire contract. They rely on the judgment of the Supreme Court of Canada in Consolidated-Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co., 1979 CanLII 10 (SCC), [1980] 1 S.C.R. 888 at p. 901:

[T]he normal rules of construction lead a court to search for an interpretation which, from the whole of the contract, would appear to promote or advance the true intent of the parties at the time of entry into the contract. Consequently, literal meaning should not be applied where to do so would bring about an unrealistic result or a result which would not be contemplated in the commercial atmosphere in which the insurance was contracted. Where words may bear two constructions, the more reasonable one, that which produces a fair result, must certainly be taken as the interpretation which would promote the intention of the parties.

[50] As the motion judge observed in her analysis, the purpose of the transaction that led to the assignment was to put Gentra Canada in the same position as Royal Trust in respect of the underperforming loans, which included the two mortgages. When viewed from this perspective, it is not difficult to conclude that Gentra Canada has a legitimate commercial interest in the prosecution of the cause of action against the appellants. Given this approach, I am not persuaded, as submitted by the appellants, that because Gentra Canada expressly gave up any recourse against Royal Trust in regard to the deficiencies in the mortgages, it is commercial absurdity to argue that it can maintain an action against the appellants without an explicit provision in the assignment.

[51] The appellants submit that under the motion judge’s interpretation of the word “claims” any and all potential causes of action that Royal Trust had against anyone who may have had any involvement in the loans were assigned to Gentra Canada. This is a “flood gates” submission. What we have before us is a claim in respect of two mortgages out of some 300.

[52] In my view, the trial judge’s analysis of the definition of “Canadian Excluded Loans” and, in particular, the word, “claims”, is a correct analysis.

(c) Royal Trust and Gentra Canada never contemplated assigning Royal Trust’s claim against the appellants.

[53] The appellants submit that at the time of the assignment, no specific claim had yet been raised as an issue and that the parties had not turned their minds to the assignment of the potential cause of action. They rely on Jannock Industries Ltd. v. Acadia Forest Products Ltd. (1979), 1979 CanLII 3263 (NB CA), 26 N.B.R. (2d) 185 (C.A.) at para. 31 for the proposition that where there is “no meeting of the minds as to the disposal of an asset”, the asset cannot form part of an assignment. In my view, the motion judge correctly distinguished Jannock. In that case, neither the plaintiff nor the defendant was aware of the asset in issue at the time they entered into an agreement of purchase and sale and therefore, the court held that it was not included in the assets purchased. In this case, on the other hand, because the directing minds of both the assignor and assignee were the same, both parties were fully aware of the potential claim. Such a conclusion is obvious and I do not see that the motion judge in so finding ignored the fact that Royal Trust and Gentra were separate legal entities.

(d) There was no consideration for the assignment of Royal Trust’s claim against the appellants.

[54] The appellants argue that Gentra Canada purchased the loan portfolio for its book value and that there was no separate price allocation to the assignment. The assignment therefore fails for lack of consideration. I see no merit in this argument. How the purchase price was calculated does not dictate what was or was not included in the assignment. The terms of the assignment make it clear what was assigned. The motion judge has correctly found that those terms include the claim against the appellants.

(iii) If Royal Trust’s claim was validly assigned, does Gentra Canada have a claim for damages?

[55] The appellants submit that Royal Trust had suffered no damages attributable to the alleged negligence at the time of the assignment. To the contrary, they argue that the loan portfolio assigned to Gentra Canada turned out to be extremely profitable.

[56] I agree with the submissions of counsel for Gentra Canada that the damages of Gentra Canada are those losses that would have been suffered by Royal Trust had there been no assignment. I also agree that Gentra Canada is entitled to damages for losses that were suffered in respect of the two mortgages and not on the assigned portfolio as a whole. Any potential profit on the portfolio is irrelevant.

[57] The appellants contend that the motion judge erred in relying on a judgment of the English Court of Appeal in Technotrade Ltd. v. Larkstore Ltd., [2006] E.W.C.A. Civ. 1079. I do not accept that the motion judge erred in her application of the damages principles discussed in Technotrade. In Technotrade, as in the case at bar, at the date of the assignment, no damages had been suffered, but the alleged breach of contract had occurred and the alleged negligence had taken place.

[58] Finally, the appellants argue that Royal Trust and Gentra Canada were two sophisticated commercial parties who dealt with the mortgages on an “as is” basis. Royal Trust made no representations with respect to their legality, validity or enforceability and Gentra Canada was aware of the deficiencies in the mortgages and agreed it would have no recourse against Royal Trust. In the result it is submitted that Gentra Canada “contracted away its right to pursue damages”. I disagree. While there is no recourse against Royal Trust, Gentra Canada did not give up its claim as an assignee in respect of any action against the appellants.

(iv) Can Gentra Canada bring the action in its own name?

[59] This issue concerns the applicability of the Conveyancing and Law of Property Act, R.S.O. 1990, c. C.34, (“CLPA”) s. 53(1) which provides:

Any absolute assignment made on or after the 31st day of December, 1897, by writing under the hand of the assignor, not purporting to be by way of charge only, of any debt or other legal chose in action of which express notice in writing has been given to the debtor, trustee or other person from whom the assignor would have been entitled to receive or claim such debt or chose in action is effectual in law, subject to all equities that would have been entitled to priority over the right of the assignee if this section had not been enacted, to pass and transfer the legal right to such debt or chose in action from the date of such notice, and all legal and other remedies for the same, and the power to give a good discharge for the same without the concurrence of the assignor.

[60] The motion judge held at para. 89 of her reasons that Royal Trust was not a necessary plaintiff. She held that although s. 53 of the CLPA had not been complied with and so the assignment was an equitable and not legal one, in the circumstances of the case the requirement that the assignor be joined as a party did not apply.

[61] The motion judge at para. 88 was correct that “the purpose behind the requirement that the assignor be a party... is to bind the assignor so as to save the debtor from the possibility of another action against it for the same debt”. This principle is supported by the case discussed by the motion judge, Bercovitz Estate v. Avigdor, [1961] O.J. No. 20 (C.A.) at para. 11, and by another case she cited, DiGuilo v. Boland, 1958 CanLII 92 (ON CA), [1958] O.R. 384 (C.A.). In DiGuilo, Morden J.A. for the court at p. 395 quoted with approval this passage from Re Steel Wing Co., [1921] 1 Ch. 349 at p. 357:

The main reason why an assignee of a part of a debt is required to join all parties interested in the debt in an action to recover the part assigned to him is in my opinion because the Court cannot adjudicate completely and finally without having such parties before it. The absence of such parties might result in the debtor being subjected to future actions in respect of the same debt, and moreover might result in conflicting decisions being arrived at concerning such debt.

[62] Morden J.A. in DiGuilo recognized at pp. 397-98 two situations where the assignor did not need to be a party: “where the defendant does not raise the point as a matter of defence ... or where it is clear that the assignor, a company, had no interest in the chose and had ceased to exist” (citations omitted). The latter situation was that in Bercovitz Estate.

[63] However, Morden J.A. cited these two situations as examples and not as an exhaustive list. For this reason, I cannot accept the submission of the appellants that the motion judge was wrong to rely on Bercovitz Estate in this case because Royal Trust has not ceased to exist. The limitation period has clearly run on any claim by Royal Trust against the appellants with regard to the alleged negligence. In these circumstances, it is just as clear that, as the court stated in Bercovitz Estate at para. 25, “there can therefore be no conceivable interest remaining in the assignor”. To the extent that the precise holding in that case does not cover this situation, the underlying principle should be extended.

[64] I note that although the parties and the motion judge did not refer to r. 5.03 of the Rules of Civil Procedure, it provides in part:

(3) In a proceeding by the assignee of a debt or other chose in action, the assignor shall be joined as a party unless,

(a) the assignment is absolute and not by way of charge only; and

(b) notice in writing has been given to the person liable in respect of the debt or chose in action that it has been assigned to the assignee.

[65] However, in my view, the same reasoning applies to the exercise of the court’s discretion under r. 5.03(6) to relieve against this requirement of joinder in these circumstances.[^1] This is in keeping with the general principle of interpretation in r. 1.04(1) that “[t]hese rules shall be liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits.”

(v) Does 1327622 Ontario Limited have status to sue?

[66] 132 is not a party to the assignment. It is a subsidiary of Gentra Canada and no more. It is a separate legal entity. It was incorporated for the purpose of purchasing the leasehold interest in the Park Tower’s property from the receiver. There is no suggestion of a solicitor-client relationship between 132 and the appellants which could give rise to any cause of action against the appellants in either tort or contract. I would allow the appeal in respect of 132.

LEAVE TO APPEAL THE COSTS AWARD OF THE MOTION JUDGE

[67] In Brad-Jay Investments Ltd. v. Szijjarto (2006), 2006 CanLII 42636 (ON CA), 218 O.A.C. 315 (C.A.) at para. 21, leave to appeal to S.C.C. refused, [2007] S.C.C.A. No. 92, this court held that leave to appeal a costs order requires strong grounds upon which an appellate court can find that the judge erred in the exercise of his or her discretion. As to the grounds upon which an appellate court may interfere with a costs award Arbour J. said in Hamilton v. Open Window Bakery Ltd., 2004 SCC 9, [2004] 1 S.C.R. 303 at para. 27:

A court should set aside a costs award on appeal only if the trial judge has made an error in principle or if the costs award is plainly wrong.

[68] The appellants submit that the motion judge made three errors in her costs award. First, the appellants argue that because of the novelty of the case there should be no award of costs. The motion judge, in refusing to recognize the novelty of the case, erred in saying that she simply applied the law as articulated in Fredickson. Second, the motion judge erred in awarding costs for a February 2005 motion that was dismissed on consent. Third, the award of $130,000 was not fair and reasonable taking into account the factors set out in r. 57.01. The appellants also allege that the hourly rates of counsel were well in excess of the usual partial indemnity rates and that it was inappropriate to be charging for two senior counsel.

[69] In my view, this case can properly be described as “novel” since there was so little relevant case law and the case that governs, Fredrickson, is not a solicitor’s negligence case. That said, I am not persuaded that this is the kind of novel case that would justify a no costs order. The case cited for the proposition is Elliott v. Canadian Broadcasting Corp. (1995), 1995 CanLII 244 (ON CA), 25 O.R. (3d) 302 (C.A.). Elliott was a group libel case involving veterans of the Second World War who had served in the Bomber Command. The case at bar is a complex commercial case involving sophisticated parties who, in my view, would expect that costs follow the event.

[70] In respect of the 2005 motion for which the motion judge awarded costs, I see no error. According to the original endorsement, counsel for the respondents was entitled to move for costs:

The dismissal is likewise without prejudice to the right of any of the parties to bring the matter of costs back before the Court for determination if same cannot be agreed upon or to seek costs of today’s attendance [and] this motion following trial. The motion for costs, if any, and any fresh motion for summary judgment may be scheduled before me, if convenient, but I am not seized.

[71] As to quantum, I have no doubt that $130,000 is at the top end of the range for a two day motion of this kind. That said, the motion judge carefully reviewed the relevant principles that apply to fixing costs. While I think the award is high, I cannot conclude that it is plainly wrong.

[72] However, in respect of 132, since I would allow the appeal in respect of it, an adjustment to the motion judge’s costs award will be required. I will deal with this below.

[73] I would dismiss the application for leave to appeal costs.

DISPOSITION

[74] In the result, I would allow the appeal in respect of 132 and dismiss its action against the appellants. I would dismiss the appeal in respect of Gentra Canada.

THE COSTS OF THE APPEAL

[75] I would fix the costs of the appellants in respect of 132 in the amount of $5,000 inclusive of disbursements and applicable taxes. I would fix the costs of Gentra Canada in the amount of $30,000 including disbursements and applicable taxes.

THE COSTS OF 132 BEFORE THE MOTION JUDGE

[76] If the parties are unable to agree on what the adjustment of the costs before the motion judge should be in respect of 132, they can make brief submissions to us in writing within 10 days of the receipt of these reasons. I assume that this will be unnecessary.

RELEASED:

“APR 29 2011” “Robert P. Armstrong J.A.”

“JL” “I agree John Laskin J.A.”

“I agree R. Juriansz J.A.”

[^1]: Rule 5.03(6) provides: “The court may by order relieve against the requirement of joinder under this rule.”