Court of Appeal for Ontario

Date: 2019-04-30 Docket: C66047 Judges: Doherty, Paciocco and Zarnett JJ.A.

Parties

Between

Canadian National Railway Company Plaintiff

and

Crosslink Bridge Corp., Andrew Penuvchev, Zoran Cocovski, also known as Zoran Cocov and the law firm of Thompson Dymond Defendants (Appellants)

Counsel

For the appellants: Geoff R. Hall and Adam Goldenberg

For the third party respondent Philip Thompson: Michael R. Kestenberg and David S. Lipkus

For the third party respondent McMillan LLP: Peter J. Osborne and Jessica Starck

Hearing and Appeal

Heard: April 17, 2019

On appeal from: The order of Justice Dietrich of the Superior Court of Justice, dated November 21, 2018, reported at 2018 ONSC 5475.

Reasons for Decision

Background

[1] In October 2008, the appellant, Crosslink Bridge Corp. ("Crosslink"), purchased a tract of railway land in Niagara Falls from CDN Railway Co. ("CN"). CN took a mortgage back as part of the purchase price. The appellant, Dr. Andrew Penuvchev, one of the owners of Crosslink, provided a personal guarantee on the mortgage. In November 2012, Crosslink defaulted on the mortgage and CN sued on the mortgage and on the guarantees.

[2] The appellants responded to CN's lawsuit by bringing an application for an order under s. 197 of the Environmental Protection Act, R.S.O. 1990, c. E-19 ("EPA") for an order voiding the sale of the railway lands. The appellants claimed that CN had failed, as required by s. 197(1) of the EPA to provide the appellants, prior to the sale, with a copy of the Director's order, issued under s. 18 of the EPA that had been registered on title prior to the sale. The application judge found that Crosslink, or its solicitors, had received a copy of the Director's order and dismissed the application. This court affirmed that decision: Crosslink Bridge Corp. v. Canada National Railway, 2013 ONSC 6540, aff'd 2014 ONCA 247.

[3] The appellants also defended CN's claim and commenced a third party action. In the third party claim, the appellants sued McMillan LLP, Philip Thompson and Marssa Giahi (the "respondents") for solicitor's negligence in respect of Crosslink's purchase of the railway lands from CN. The respondents successfully moved for summary judgment, dismissing the third party claim.

[4] This is an appeal from the dismissal of that claim as against all of the respondents.

[5] Crosslink retained McMillan to provide advice in respect of a draft agreement for the purchase of the property prepared by CN in January 2007. Crosslink retained Mr. Thompson and Ms. Giahi about 18 months later to close a transaction involving the purchase of the same land. The negligence claims against all three respondents relate essentially to their failure to properly advise the appellants of the Director's order that was registered on title on the land as of December 21, 2006, and the failure to advise Crosslink of the ramifications of that order. The analysis of the claims, however, requires a separate consideration of the claim against McMillan LLP on the one hand, and the claims against Mr. Thompson and Ms. Giahi on the other.

Grounds of Appeal

[6] The grounds of appeal fall into two categories. First, the appellants submit that the motion judge erred in her application of the principles governing rule 20 and in her understanding of the fact-finding powers available under that provision. Second, the appellant submits that even if the motion judge properly understood and applied the rule 20 principles, she erred in finding that there was no genuine issue for trial. Counsel contends that the nature and scope of the duty owed by the respondents to the appellants in the particular circumstances could only be determined at a trial. Counsel further submits that crucial questions of fact, such as whether the appellants were made aware of the Director's order, required a trial. Finally, counsel contends that various factual issues relating to causation also required a trial.

The Applicable Rule 20 Principles

[7] The motion judge expressly identified the operative principles (paras. 45-51). She then engaged in the rule 20 analysis by addressing those principles in the context of the case. In doing so, she identified the essential elements of the claim (para. 55), the position of the appellants in respect of the claim (para. 53), and the appellants' ultimate legal burden in respect of the issues (para. 57). All of those considerations properly inform a determination of whether, as the motion judge said at para. 50:

The third parties [respondents] have met their burden to prove there is no genuine issue to be tried on liability.

[8] We do not accept the appellants' argument that the motion judge misplaced the burden of proof on a summary judgment motion, when in para. 57 she referred to the appellants as having "not met their burden". That reference must be read along with the analysis in the previous seven or eight paragraphs. The motion judge was satisfied that the respondents had demonstrated that this was an appropriate case to use the fact-finding powers under rule 20.04(2.1) and that the evidence demonstrated no genuine issue for trial. The reference in para. 57 comes after an overview of the appellants' case and is, in our view, a finding that the appellants had not rebutted the case for summary judgment put forward by the respondents.

[9] There is no error in the motion judge's exercise of her fact-finding powers under rule 20.04(2.1). She drew inferences that were crucial to her determination of the motion (see paras. 60, 85). She identified the primary facts from which she drew those inferences. The inferences were within the range of reasonable inferences available. For example, her finding that Mr. Weber, a lawyer at McMillan, discussed environmental due diligence concerns with the appellants and was told not to do any due diligence himself, is a reasonable inference from the documentation presented on the motion and from the evidence of Mr. Cocov, the person who was effectively driving the transaction on behalf of Crosslink at the time.

[10] Some motion judges may not have drawn the inferences that this motion judge chose to draw. However, the fact-finding power in rule 20.04(2.1) describes a range of acceptable fact-finding. It is not surprising, nor is it error, that different motion judges may engage in that fact-finding power somewhat more or less aggressively in any given situation. The question for the appeal court is whether a particular motion judge stayed within the range provided by the rule in making his or her factual findings. The findings of fact made by this motion judge were well within the range contemplated by rule 20.04(2.1).

[11] The appellants further submit that the motion judge went beyond the limits of her fact-finding capability when she rejected outright the uncontradicted evidence of the appellants' expert. That expert had opined that all of the respondents failed to meet the standard of care expected of a reasonable solicitor in their dealings with the appellants as they related to the CN railway lands.

[12] The motion judge considered the expert's evidence (paras. 91-94). She did not, as counsel for the appellants argued, declare the evidence inadmissible. Rather, she decided that the evidence was not helpful for several reasons. In particular, the motion judge observed that the expert had not seen many of the relevant documents before advancing his opinion, and was unaware of various factors that the motion judge considered to be central to a proper determination of the nature of the duty of care owed by the respondents in the circumstances of the case. All of the factors identified by the motion judge are properly taken into account in assessing the probative value of an expert's opinion. Nothing in the language of rule 20 prevents resort to those factors on a summary judgment motion as long as doing so is consistent with a "fair and just determination on the merits".

The Case Against McMillan

[13] The appellants were aware that the land was contaminated from the outset of the negotiations. Mr. Cocov, who with Mr. Penuvchev controlled Crosslink, was an experienced real estate developer. He had prior experience with contaminated railway lands and was the driving force behind this negotiation. Mr. Penuvchev, who was a dentist, relied on Mr. Cocov throughout the negotiations.

[14] The appellants' complaint is not that McMillan did not inform them of possible contamination problems, but that McMillan did not inform them that there was a Director's order on title as of December 21, 2006. The appellants claim that the respondents had a duty to bring this fact to the appellants' attention and explain its potential impact on the proposed purchase of the land.

[15] Crosslink retained McMillan in January 2007 in respect of their first attempt to purchase the railway lands. In January and February, Mr. Weber commented on an initial draft of a purchase agreement that had been prepared by CN. Mr. Weber proposed various changes to the draft. These changes included one which would give Crosslink a period of environmental due diligence before the deal closed, and another which would not have required Crosslink to take title, subject to a Director's order, as that order would not fall within Mr. Weber's proposed definition of "permitted encumbrance".

[16] Mr. Weber specifically cautioned the appellants in a note on the amended draft that matters of environmental due diligence required further discussion. Mr. Weber also confirmed that he had not conducted any due diligence in connection with the property. The motion judge found that:

Mr. Weber discussed environmental due diligence, including the related encumbrance on title, with the client and that he was instructed to proceed to amend the CN template agreement provided to him without conducting any due diligence himself.

[17] After receiving Mr. Weber's input in February 2007, Crosslink, and in particular Mr. Cocov, continued negotiations with CN. McMillan had no involvement in any of these negotiations and no knowledge of the materials being exchanged by Crosslink and CN. An agreement between Crosslink and CN finalized in July 2007 without any input from McMillan.

[18] The documents provided to Crosslink by CN in March 2007 included documents that contained or referred to the Director's order. After receiving this material, and without any contact with McMillan, Crosslink advised CN in April 2007 that it had approved the environmental reports provided by CN. Crosslink received similar environmental disclosure in August 2007. Once again, it did not advise or consult McMillan about anything arising from this material.

[19] In March 2008, after extensions, the July 2007 agreement between Crosslink and CN expired. It never closed. McMillan's only involvement in the agreement arose out of the comments Mr. Weber had made on a draft agreement about a year earlier.

[20] Crosslink, without any input from McMillan, continued to pursue the purchase of the land. After receiving advice from a planning consultant retained by Crosslink that the environmental status of the land would not foreclose its use for commercial purposes, Crosslink's intended purpose, Crosslink once again negotiated with CN for the purchase of the land.

[21] Crosslink, without McMillan's involvement, pursued a new and different agreement with CN. In May 2008, without any involvement by McMillan, Crosslink entered into an unconditional agreement to purchase the land. Crosslink had chosen to pursue a new and radically different agreement. That agreement did ultimately close. That agreement contained the vendor take-back mortgage and the personal guarantees, which ultimately provided the basis for CN's lawsuit against the appellants.

[22] Having regard to the motion judge's factual findings, she was justified in finding there was no issue for trial in respect of the claim against McMillan. Her finding that McMillan's role in relation to the first agreement did not extend to the investigation of any risks flowing from the Director's order effectively brought an end to any negligence claim in relation to McMillan's involvement. Further, the finding that McMillan had absolutely no involvement in the negotiation or closing of the very different agreement that actually led to the purchase of the property at a point in time well after the appellants had received CN's environmental disclosure, compelled the conclusion that there was no causal link between anything McMillan did and the closing of the transaction or any loss that flowed from it.

The Claim Against Mr. Thompson and Ms. Giahi

[23] Crosslink entered into an unconditional agreement to purchase the property in May 2008. Mr. Thompson and Ms. Giahi were not retained until October 2008. They were retained to do the work involved in closing the transaction that the parties had agreed upon months earlier. Pursuant to that agreement, Crosslink was taking the property on a "as is" basis.

[24] The motion judge found that Ms. Giahi, despite the very limited nature of the retainer, performed a more comprehensive title search. That search revealed the Director's order on title. The motion judge found that Ms. Giahi raised this issue with Crosslink and Crosslink expressly told her not to obtain a copy of the order, and to close the transaction. This finding by the motion judge is consistent with the evidence that Crosslink had knowledge of the Director's order no later than March 2007, had knowledge of the potential contamination problems in respect of the property, and had an opinion from their own expert that those problems would not interfere with the commercial development of the property.

[25] The motion judge was entitled to find that Mr. Thompson and Ms. Giahi were under no further duty to warn about the potential effects of the Director's order. Crosslink had entered into an agreement to take the property "as is" several months earlier. Ms. Giahi was told not to investigate potential environmental concerns, even after she raised the issue of the Director's order. In light of the limited nature of the retainer, and the specific instructions given with respect to the Director's order, there was no case to be made against Mr. Thompson and Ms. Giahi. The motion judge did not err in granting summary judgment as regards to Mr. Thompson and Ms. Giahi.

[26] There were other issues raised on the motion, including whether the claims were barred by the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B, and whether any of the respondents acted for anyone other than Crosslink. We need not address those issues as we are satisfied that the claims against the respondents were properly dismissed for the reasons set out above.

Conclusion

[27] The appeal is dismissed. Counsel have agreed that the successful party should have their costs on the appeal. McMillan is entitled to costs in the amount of $30,000 "all in". Mr. Thompson and Ms. Giahi are entitled to costs of $30,000 "all in".

"Doherty J.A."

"D.M. Paciocco J.A."

"B. Zarnett J.A."