Georgian Properties Corporation v. Robins Appleby LLP

COURT OF APPEAL FOR ONTARIO

DATE: 20220328 DOCKET: C69443

Simmons, Pardu and Brown JJ.A.

BETWEEN

Georgian Properties Corporation Plaintiff (Appellant)

and

Robins Appleby LLP, Leor Margulies and Anthony Romanelli Defendants (Respondents)

Counsel: Milton Davis and Ronald Davis, for the appellant Peter Wardle and Evan Rankin, for the respondents

Heard: February 9, 2022 by video conference

On appeal from the judgment of Justice Grant R. Dow of the Superior Court of Justice, dated May 6, 2021, with reasons reported at 2021 ONSC 1591.

REASONS FOR DECISION

[1] The appellant, Georgian Properties Corporation, appeals from a summary judgment dismissing its negligence action against the respondent lawyers as statute barred under s. 4 of the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B (the “Act”).

[2] The negligence claim arose from the respondent lawyers’ work in preparing disclosure documents, two mortgages and a promissory note for the developer of a condominium project that was registered in 2010. Once the condominium was turned over to the unit holders, the condominium corporation refused to pay the two mortgages and the promissory note. Litigation ensued. The condominium corporation attacked the adequacy of the disclosure documents in a factum delivered in June 2017. On July 7, 2017, a judge declined to strike the factum. In May 2018, the same judge held that the disclosure documents were insufficient, that the two mortgages and the promissory note were oppressive and that the promissory note also violated the Condominium Act, 1998, S.O. 1998, c. 19 (the “Condominium Act”). She accordingly reduced the principal amount of the two mortgages and held the promissory note was void.

[3] Georgian Properties commenced its negligence action against the respondent lawyers in November 2019. On a summary judgment to address the limitation issue, the motion judge concluded that the appellant knew or ought to have known no later than July 7, 2017, when a judge declined to strike the condominium corporation’s factum, that it had a claim against the respondent lawyers for which a proceeding was an appropriate remedy.

[4] For the reasons that follow, we allow the appeal.

Background

[5] Georgian Properties is the successor [1] to a developer that, in 2010, completed development of a Scarborough residential condominium.

[6] The condominium was registered as Toronto Standard Condominium Corporation No. 2051 (“TSCC 2051”) on February 1, 2010. On April 12, 2010, the original developer-controlled TSCC 2051 board of directors was turned over to an elected unit holder’s board of directors (the “Board turnover”).

[7] The respondent lawyers acted for the developer in relation to the development of the condominium project and the sale of individual units.

[8] As part of their retainer, the respondents drafted various documents relating to the condominium project, including: disclosure documents for distribution to potential unit purchasers; agreements of purchase and sale for unit purchasers; and the following two vendor-take-back mortgages and a promissory note from TSCC 2051 to the developer that were entered into prior to the Board turnover:

• a multi-year mortgage in the amount of $2,122,000 plus 10% annual interest for the cost of HVAC system components sold by the developer to TSCC 2051 to be installed in individual residential units but form part of the common elements (the “HVAC mortgage”);
• a multi-year mortgage in the amount of $1,026,375 plus 10% annual interest relating to surplus parking spaces and storage units sold by the developer to TSCC 2051 (the “parking unit mortgage”); and
• a promissory note for $90,034.26 plus 12% annual interest to cover the cost of land transfer tax paid by TSCC 2051 when the developer transferred the condominium to TSCC 2051 (the “promissory note”) (the foregoing will be collectively referred to as the "debt instruments”).

[9] Following the Board turnover, TSCC 2051 refused to make payments to the developer or its successors on account of the debt instruments.

[10] On September 20, 2011, TSCC 2051 sued the developer and its principals and successors (hereafter, collectively the “developer”). TSCC 2051 advanced several claims, including negligence, breach of contract and breach of warranty relating to construction deficiencies. In addition, TSCC 2051 requested declarations that the HVAC mortgage, the parking unit mortgage and the promissory note were null and void, alleging overpricing, oppression [2] and failure to comply with the Condominium Act. In a statement of defence and counterclaim, the developer counterclaimed for enforcement of the debt instruments. Among other things, in relation to the enforceability of the debt instruments, the developer asserted it had made proper disclosure as required under the Condominium Act.

[11] Prior to the developer’s 2016 bankruptcy, an agreement was reached under which:

• the claim for construction deficiencies was settled;
• the debt instruments were assigned to Georgian Properties;
• Georgian Properties was entitled to pursue the counterclaim for enforcement of the debt instruments and would be bound by the decision in the action concerning their validity and enforcement; and
• the claims and counterclaim concerning the debt instruments would be dealt with by summary judgment motion.

[12] Prior to the scheduled summary judgment motion, TSCC 2051 sought leave to amend its statement of claim to add, among other things, claims that the condominium disclosure documents were inadequate. On May 3, 2016, a master permitted the amendments. On December 15, 2016, a Superior Court judge overturned the master’s decision regarding the disclosure documents and disallowed those amendments.

[13] The parties subsequently exchanged factums addressing the validity and enforceability of the debt instruments for the summary judgment motion. In its factum seeking judgment for payment of the debt instruments, Georgian Properties claimed the debt instruments had been properly disclosed under the Condominium Act. In a responding factum, TSCC 2051 attacked the adequacy of the disclosure documents.

[14] On July 5, 2017, Georgian Properties moved to strike TSCC 2051’s factum. On July 7, 2017, Akbarali J. declined to strike the TSCC 2051 factum paragraphs alleging inadequate disclosure. She ruled that as Georgian Properties was relying on the adequacy of its disclosure documents, it “would be unfair to preclude TSCC [2051] from joining in those issues.”

[15] In November 2017, Georgian Properties rejected an offer to settle from TSCC 2051 for $3,500,000.

[16] The summary judgment motion was argued before Akbarali J. on April 3-4, 2018.

[17] While the decision on the summary judgment motion was under reserve, Georgian Properties offered to settle the action for $6,000,000.

[18] Subsequently, on May 31, 2018, Akbarali J. found the developer’s disclosure with respect to the debt instruments insufficient. She held that the HVAC mortgage was oppressive based on the reasonable expectations of the purchasers concerning what was included in their purchase. She reduced the principal amount from $2,122,000 to $652,050.

[19] Based on expert opinion concerning the value of unsold parking spaces and storage units, Akbarali J. also found the parking mortgage oppressive and reduced the principal from $1,026,375 to $73,000.

[20] Finally, Akbarali J. found the $90,034.26 promissory note oppressive and contrary to s. 56(3) of the Condominium Act and set it aside in its entirety.

[21] In the result, Akbarali J. found TSCC 2051 owed Georgian Properties approximately $1,625,000 for principal and accrued interest in relation to the debt instruments out of roughly $7,000,000 that had been claimed. This court upheld her decision on January 24, 2019.

[22] On November 19, 2019, the appellant issued its statement of claim alleging the respondent lawyers were negligent in preparing disclosure documents for the condominium project and in providing advice concerning the debt instruments.

Relevant Provisions of the Act

[23] Section 4 of the Act sets out the basic limitation period of two years from the date a claim was discovered:

4. Unless this Act provides otherwise, a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered.

[24] “Claim” is defined in s. 1 to mean, “a claim to remedy an injury, loss or damage that occurred as a result of an act or omission.”

[25] Sections 5(1) and (2) set out the basic principles governing discovery of a claim:

(1) A claim is discovered on the earlier of ,

(a) the day on which the person with the claim first knew,

i. that the injury, loss or damage had occurred,

ii. that the injury, loss or damage was caused by or contributed to by an act or omission,

iii. that the act or omission was that of the person against whom the claim is made, and

iv. that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it; and

(b) the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a).

(2) A person with a claim shall be presumed to have known of the matters referred to in clause (1) (a) on the day the act or omission on which the claim is based took place, unless the contrary is proved.

The Motion Judge’s Decision on the Limitation Issue

[26] The parties agreed that the limitation issue could be disposed of by way of summary judgment motion.

[27] The motion judge rejected Georgian Properties argument that it did not suffer a loss until Akbarali J.’s May 2018 decision. He found that Georgian Properties was suffering a loss as of April 2010 when TSCC 2051 refused to make payments under the debt instruments. He further held that Georgian Properties knew or ought to have known it had a claim against the respondent lawyers for which a proceeding was the appropriate remedy no later than July 7, 2017, when Akbarali J. refused to strike portions of TSCC 2051’s factum alleging inadequate disclosure.

The Appellant’s Position on Appeal

[28] On appeal, Georgian Properties submits the motion judge erred in holding it was suffering a loss when TSCC 2051 refused to make payments on the debt instruments. It contends that mere default on a fully secured mortgage or debt instrument does not give rise to “injury, loss or damage” under s. 5(1) (a)(i) of the Act. It reiterates its position in the court below that it suffered no injury, loss or damage until Akbarali J.’s May 2018 decision. Moreover, it asserts it would have no cause of action until that finding. Nor would a proceeding be an appropriate means to seek a remedy under s. 5(1)(a)(iv) of the Act until that finding was made.

The Respondents’ Position on Appeal

[29] The respondent lawyers argue that injury, loss or damage within the meaning of s. 5(1) (a)(i) of the Act occurred when the debt instruments were first given or, in the alternative, when TSCC 2051 refused to make payments under the debt instruments. They point to Central Trust v. Rafuse, [1986] 2 S.C.R. 147, involving a mortgage that was found to be void ab initio. However, the court noted, at p. 219, that the usual date for damage to occur in a solicitor’s negligence case is at the time of the solicitor’s breach of duty. See also Hamilton (City) v. Metcalfe & Mansfield Capital Corporation, 2012 ONCA 156, at para. 49, where this court observed that the determination in Central Trust as to when damage occurred was premised on the mortgagee receiving something less valuable than what it had transacted for as a result of the solicitor’s negligence.

[30] In this case, Akbarali J. found the debt instruments oppressive. The respondent lawyers submit the debt instruments were thus worth less than their true value from the outset and that is when Georgian Properties suffered injury, loss or damage. Accordingly, the real question is when Georgian Properties discovered, or ought reasonably to have discovered, that injury, loss or damage had occurred.

[31] Relying on Grant Thornton LLP v. New Brunswick, 2021 SCC 31, at para. 42, the respondent lawyers submit that Georgian Properties’ negligence claim against them was discoverable when it had “knowledge, actual or constructive, of the material facts upon which a plausible inference of liability on [the respondent lawyers’] part [could] be drawn.”

[32] The respondent lawyers submit the motion judge found as a fact that the loss or damage was discoverable on July 7, 2017 when Akbarali J. declined to strike TSCC 2051’s factum alleging insufficient disclosure. Moreover, they assert that finding, as set out below, is subject to deference on appeal:

Clearly, as of the Endorsement of Justice Akbarali on July 7, 2017, [Georgian Properties] was specifically made aware a reason for the dispute was the prospect that the disclosure to unit holders was inadequate and the Promissory Note was void. Equally clear, the loss it was facing could be the result of an act or omission of the individuals or law firm that drafted the documents [Georgian Properties] was relying on. That is, if TSCC 2051’s defence and allegations were correct, [Georgian Properties] had a claim against [the respondent lawyers] for any shortfall in its recovery.

[33] Further, once Georgian Properties’ claim was discoverable, it was not entitled to wait and see the result of the summary judgment motion concerning the enforcement and validity of the debt instruments. A proceeding was “appropriate” under s. 5(1) (a)(iv) of the Act once Georgian Properties knew the material facts upon which a plausible inference of liability could be drawn.

Discussion

[34] We accept Georgian Properties’ position that the motion judge erred in law in holding it had suffered a loss when TSCC 2051 failed to make payments under the debt instruments.

[35] The injury, loss or damage at issue under s. 5(1) (a)(i) of the Act must be caused by or contributed to by an act or omission of the defendant in the action: s. 5(1)(b) and (c) of the Act.

[36] In an action for solicitor negligence, the question whether injury, loss, or damage has occurred within the meaning of s. 5(1) (a)(i) will not generally turn on compliance by third parties with their obligations under documents or instruments prepared by the solicitor. The fact that the mortgages in this case were fully secured illustrates the point. Had the mortgages in this case been valid and fully enforceable, Georgian Properties could have recovered the full amount owing to it by enforcing its security. No loss would have occurred even though the mortgages had remained unpaid for many years. [3]

[37] In a solicitor negligence case such as this, the question of whether injury, loss or damage has occurred must turn on matters such as the validity and enforceability of the documents and instruments that were prepared.

[38] However, even assuming the respondent lawyers’ position that injury, loss or damage occurred when the debt instruments were given is correct, we are satisfied that the motion judge’s erroneous finding that Georgian Properties was suffering a loss when TSCC 2051 failed to pay skewed his analysis of when Georgian Properties ought to have discovered its injury, loss or damage.

[39] It is well-established that the question when a party has, or ought to have, discovered a claim under s. 5 of the Act requires a fact-based analysis dependent on the circumstances of each case: Kaynes v. BP p.l.c., 2021 ONCA 36, at para. 56; Ferrara v. Lorenzetti, Wolfe Barristers and Solicitors, 2012 ONCA 851, 113 O.R. (3d) 401, at paras. 71-2; Lipson v. Cassels Brock & Blackwell LLP, 2013 ONCA 165, 114 O.R. (3d) 481, at paras. 76-77, 84.

[40] Here, a predominant feature of the motion judge’s discoverability analysis was his finding that Georgian Properties had suffered a loss by virtue of TSCC’s non-payment of the debt instruments. Examined through that lens, given that the loss had crystalized and was obvious, the motion judge moved easily to a conclusion that Georgian Properties ought to have discovered its claim, at the latest, when Akbarali J. refused to strike TSCC 2051’s factum attacking the sufficiency of the disclosure documents, which had been prepared by the respondent lawyers.

[41] However, once it is recognized the motion judge’s finding that Georgian Properties suffered a loss when TSCC 2051 failed to pay the debt instrument is incorrect, the discoverability analysis must become more nuanced. Even assuming the respondent lawyers are correct that loss occurred when the debt instruments were given because they were ultimately found to be oppressive, the loss had not crystalized as of July 7, 2017 when Akbarali J. declined to strike TSCC 2051’s factum. Considered in that context, the issue of Georgian Properties’ reasonable expectation of success on its counterclaim to enforce the debt instruments takes on greater significance. Even if the respondent lawyers breached the standard of care in relation to disclosure, no injury, loss, or damage would be caused by their conduct if the debt instruments remained valid and enforceable.

[42] The principals of Georgian Properties gave unchallenged evidence that they expected to be successful on their counterclaim to enforce the debt instruments. No issue of implied waiver of privilege was raised and there is no indication in the record that anyone advised them otherwise. Their stance in rejecting an offer to settle for $3,500,000 and offering to settle for $6,000,000 supports the credibility of their claim.

[43] Further, the circumstances of this case are unusual. TSCC 2051 did not raise the issue of inadequate disclosure in its original 2011 statement of claim. When it attempted to amend its pleadings to add that claim in 2016, its request was denied. Nonetheless, it was permitted to raise the issue in a 2017 factum. However, inadequate disclosure was only one facet of TSCC’s arguments in the factum and Georgian Properties advanced arguments in response.

[44] Given the overall circumstances of this case, we are not persuaded the record demonstrates Georgian Properties, or a reasonable person with its abilities and in its circumstances, had all the material facts necessary to draw a plausible inference of liability with respect to any potential negligence claim against the respondent lawyers prior to November 19, 2017.

[45] In general, the mere fact that allegations are made in a proceeding that could trigger a claim for solicitor negligence if successful should not automatically signify that the requirements of s. 5(1) of the Act are met and that the party with the potential claim must immediately commence action against the solicitor(s). Further investigation and assessment may be required. To hold otherwise could lead to costly and unnecessary litigation.

[46] Here, the allegations were made in a factum delivered many years after the proceeding had been commenced, had previously been foreclosed on appeal and were only one facet of the arguments advanced. To conclude that Georgian Properties ought to have drawn a plausible inference that it had suffered a loss and recognized that a proceeding was an appropriate remedy between July 7, 2017 and November 18, 2017 would, in our view, be unreasonable. In our view, the motion judge’s conclusion that the appellant knew or ought to have known no later than July 7, 2017 that it had a claim against the respondent lawyers for which a proceeding was an appropriate remedy was tainted by his incorrect conclusion that loss occurred when TSCC 2051 stopped paying the debt instruments. There is no suggestion on this record that there was any tactical reason for not starting the action earlier, or that proceeding in this manner inappropriately fragmented the resolution of the issues, by litigating in installments.

Disposition

[47] Based on the foregoing reasons, the appeal is allowed, the motion judge’s order dismissing the action is set aside and summary judgment is granted to Georgian Properties dismissing the respondent lawyers’ limitation defence.

[48] Costs of the appeal are to Georgian Properties on a partial indemnity scale fixed in the amount of $50,000 inclusive of disbursements and HST.

“Janet Simmons J.A.”

“G. Pardu J.A.”

“David Brown J.A.”

Footnotes

[1] The developer and a successor company declared bankruptcy in 2016. Georgian Properties is an assignee of the debt instruments forming the subject matter of the negligence claim against the respondent lawyers. It is also a bankruptcy creditor of the developer and its successor.

[2] The oppression claim was added by an October 31, 2011 amendment.

[3] We would observe that the prescription periods for an action by a mortgagee against a mortgagor generally are governed by the Real Property Limitations Act, R.S.O. 1990, c. L.15, not the Limitations Act, 2002.