Court File and Parties

COURT OF APPEAL FOR ONTARIO

DATE: 20220606 DOCKET: C69911

Gillese, Trotter and Harvison Young JJ.A.

BETWEEN

Dr. Sylvester Chuang, HSC Holdings Inc., Transoriental Fine Cars Ltd., 1405768 Ontario Limited and Ontasian Enterprises Inc. Plaintiffs (Respondents)

and

Fogler Rubinoff LLP, Nina Perfetto, Ian Katchin, David Levangie, Fred Tayar & Associates Professional Corporation, Fred Tayar and Colby Linthwaite Defendants (Appellants)

Counsel: Peter Wardle and Evan Rankin, for the appellants Fred Tayar & Associates Professional Corporation, Fred Tayar, and Colby Linthwaite Michael Kestenberg, for the appellants, Fogler Rubinoff LLP, Nina Perfetto, Ian Katchin and David Levangie Timothy S.B. Danson and Marjan Delavar, for the respondents

Heard: May 24, 2022

On appeal from the order of Justice Andra Pollak of the Superior Court of Justice, dated September 13, 2021, with reasons reported at 2021 ONSC 5942.

Reasons for Decision

Introduction

[1] This case involves a solicitor negligence claim. The respondents have sued their former litigation counsel. The appellants (former counsel) moved for summary judgment alleging that the action was brought more than two years after the claim was discoverable and was, therefore, time-barred. The motion judge dismissed the summary judgment motion, held that the limitations defence be dismissed, and directed that the case proceed to trial on the merits. The following reasons explain why we dismiss the appeal from this decision.

Overview

[2] Dr. Chuang and the companies he controlled (the respondents) entered into a Letter of Commitment (“LOC”) with Toyota Canada Inc. (“Toyota”) to build and operate a Lexus dealership in downtown Toronto. Toyota terminated the LOC after the respondents failed to meet certain deadlines set out in the agreement.

[3] The respondents commenced an action against Toyota, alleging that the termination was unlawful. They were unsuccessful. The trial judge found that although Toyota acted unreasonably in terminating the agreement, an exclusion of liability clause shielded Toyota from liability to pay damages: see Chuang v. Toyota Canada Inc., 2015 ONSC 885. An appeal to this court was dismissed (Chuang v. Toyota Canada Inc., 2016 ONCA 584), as was a motion to reopen the appeal (Chuang v. Toyota Canada Inc., 2016 ONCA 852). The Supreme Court of Canada refused leave to appeal ([2016] S.C.C.A. No. 568).

[4] Following the dismissal of the leave application, the respondents commenced an action in negligence against the appellants for failing to provide competent advice concerning the enforceability of the exclusion of liability clause. They claim a loss of approximately $28 million in damages and $3 million in legal fees.

[5] There are two sets of appellants. Fogler Rubinoff LLP, Nina Perfetto, Ian Katchin, and David Levangie (“the Fogler Rubinoff appellants”) represented the respondents until mid-trial, when they were permitted to withdraw. The trial was adjourned until new counsel came on board.

[6] The second set of appellants, Fred Tayar and Associates Professional Corporation, Fred Tayar, and Colby Linthwaite (“the Tayar appellants”), represented the respondents for the remainder of the trial. The Tayar appellants assumed the same litigation strategy at trial as the Fogler Rubinoff appellants. As discussed in more detail below, in their representation of the respondents, both sets of appellants attempted to circumvent the exclusion of liability clause in the LOC, but only on a single and narrow basis. This is the nub of the respondents’ negligence claim.

[7] The appellants moved for summary judgment. They claimed that the respondents’ claims were discoverable before the Supreme Court of Canada refused leave to appeal on March 30, 2017, and within the two-year limitation period in s. 4 of the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B. The respondents advanced the position that their claims were not discoverable until the Supreme Court of Canada refused leave to appeal; this is when they sought legal advice about the professional competence of their previous counsel.

[8] In dismissing the summary judgment motion, the motion judge found that there was no genuine issue for trial on the limitations defence. She held that the claim was not discoverable until the Supreme Court of Canada refused leave to appeal. In the alternative, she held that, if the claim was discoverable earlier, and outside the two-year limitation period, commencing an action was not “an appropriate means to seek to remedy it” within the meaning of s. 5(1)(a)(iv) of the Limitations Act. Even though the respondents did not bring a cross-motion for a determination that their claim was timely, the motion judge found it appropriate to grant summary judgment in favour of the respondents and dismissed the limitations defence.

The Enforceability of the Exclusion of Liability Clause

[9] The facts relating to the underlying litigation are set out comprehensively in this court’s judgment in Chuang v. Toyota Canada Inc. In that decision, Doherty J.A. described the nature of the negotiations between the parties and the setbacks experienced by the respondents in meeting deadlines prescribed by the original LOC. This eventually led to a renegotiated LOC which included the exclusion of liability clause at the heart of the underlying litigation. The clause provides:

In the event of the termination of this LOC and/or the Lexus Dealer Agreement, Lexus and its directors, officers and employees shall not be liable for any losses, damages and/or expenses of any kind whatsoever suffered or incurred by you directly or indirectly in connection with this LOC and/or your Lexus Dealer Agreement.

[10] To understand the dispute in the underlying litigation, it is necessary to consider the leading case on the enforcement of exclusion clauses – Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, [2010] 1 S.C.R. 69. Writing for the Court on this issue (but in dissent in the result), Binnie J. at paras. 122-123 set out the framework for determining when exclusion clauses are enforceable. It involves the following three lines of inquiry: (a) does the exclusion clause apply on the facts as found?; (b) if it applies, was the clause unconscionable at the time the parties entered into the agreement?; and (c) if the exclusion clause applies and it was not unconscionable, should the court for public policy reasons which are sufficiently strong to outweigh the public interest in the enforcement of contracts, decline to enforce the contract?

[11] At trial, both sets of appellants adopted a litigation strategy focused solely on the first branch of Tercon – i.e., the exclusion of liability clause was not applicable on the facts of the case because Toyota acted unreasonably in terminating the LOC. At the end of the trial, when the respondents were represented by the Tayar appellants, Tercon was not cited in the plaintiffs' trial factum. Nonetheless, the trial judge applied Tercon and found that Toyota acted unreasonably, but it was still entitled to rely upon the exclusion of liability clause. At paras. 111-112 of his reasons, the trial judge made the following observations:

[111] Toyota submits that in Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), the Supreme Court of Canada confirmed that exclusion clauses are ordinarily to be enforced in accordance with their terms. If a party wishes to escape the effect of an exclusion clause, it can only do so in two circumstances: (i) if “the exclusion clause was unconscionable at the time the contract was made”; or (ii) “because of the existence of an overriding public policy”.

[112] It was not contended that either of these conditions is met in this case. Neither condition is met. [Footnote omitted.]

[12] In the present action, the motion judge accepted that, upon the respondents’ own review of the trial judgment, the comments about the second and third branches of Tercon were of no moment to them. She also accepted the appellants’ admissions that they did not discuss the second and third branches of Tercon with the respondents because they believed they were irrelevant to the case. Indeed, in his evidence on this motion, Mr. Tayar acknowledged that he did not consult with the respondents about the applicability of Tercon because he did not believe he required instructions on the issue, it being within his exclusive authority as counsel to determine. The appellants advised the respondents that the trial judge had erred in law and that they should appeal, which they did.

[13] For the purposes of the appeal to this court, the appellants recommended that a different lawyer argue the case. Nonetheless, the appellants remained active on the file in the background. Once again, counsel on the respondents’ behalf submitted that the exclusion clause did not apply because Toyota had acted unreasonably in terminating the LOC. At para. 25 of his reasons, Doherty J.A. observed the following:

The argument in this case, both at trial and on appeal, focussed exclusively on the first step described in Tercon. Dr. Chuang did not suggest that the exclusion clause was unconscionable, or that public policy should override the enforcement of the exclusion clause. He argued that the exclusion clause did not apply in the circumstances where Toyota acted unreasonably in terminating the agreement.

[14] The court held that the trial judge did not err in his interpretation of the exclusion clause. The clause was not restricted to reasonable terminations; it was enforceable notwithstanding that the termination was unreasonable.

[15] Following the dismissal of their appeal, the respondents received a copy of this court’s judgment, which their in-house counsel reviewed. Paragraph 25 of the reasons, quoted above, did not signal negligence on the part of their trial counsel. To the contrary, the appellants did not posit that they had erred in their approach to the case; instead, they advised the respondents that this court had erred in the application of the law. The respondents were advised to seek leave to appeal, advice which they accepted. Again, the applicability of Tercon was not discussed with the respondents.

[16] The application for leave to appeal was launched by yet another lawyer recommended by the Tayar appellants. At the same time, this lawyer brought an application to re-open the appeal to this court, based on a new issue that had not been litigated at trial (and which was unrelated to the Tercon issue). The application was dismissed on November 10, 2016.

[17] On November 14, 2016, the respondents retained new counsel, Mr. Timothy S.B. Danson, to perfect the application for leave to appeal. The leave application was filed with the Supreme Court of Canada on December 20, 2016. In his Memorandum of Argument, Mr. Danson addressed the unconscionability and public policy branches of Tercon. An affidavit was filed in support of the application, under what was then s. 25(1)(d) of the Rules of the Supreme Court of Canada, SOR/2002-156. [1] The affidavit also addressed the second and third branches of Tercon. On March 30, 2017, the Supreme Court of Canada refused leave to appeal.

[18] In April of 2017, the respondents asked Mr. Danson whether their previous counsel had been negligent in the manner in which they conducted the trial and appeal as it related to the application of Tercon. Mr. Danson was retained to provide a legal opinion on this matter.

[19] The respondents ultimately commenced this action on March 28, 2019. They contend that the appellants were negligent in failing to advance the unconscionability and public policy branches in Tercon.

Analysis

[20] Before the motion judge, the appellants referred to at least six points in time when they say that the material facts to commence the action would have been known to the respondents. These points in time were said to have occurred at various points in the litigation following the trial and the appeal to this court. However, the appellants placed their greatest emphasis on the respondents’ knowledge upon the filing of the application for leave to appeal to the Supreme Court of Canada, which engaged a broader application of the Tercon framework, and which was accompanied by an affidavit fleshing out these considerations. They take the same approach in this court.

[21] The respondents’ position was that they did not have knowledge of the material facts until the Supreme Court of Canada denied leave to appeal, and after they sought a legal opinion from Mr. Danson.

[22] The motion judge found that the respondents did not discover their claim until after the Supreme Court of Canada refused leave to appeal. She rejected the appellants’ position that there were earlier points in time when the respondents would have been aware of the material facts necessary to ground their claim. Her critical factual findings are found at paras. 41-44 of her reasons:

[41] The evidence of the Plaintiffs is that they relied on the representations of the Defendants that they were highly skilled litigators, who were experts in litigating complex and sophisticated corporate/commercial matters. The plaintiffs’ evidence is that they relied upon the defendants’ superior knowledge, skill, expertise and experience, believing that the Defendants would keep them fully informed of all relevant matters touching upon the litigation in order to enable meaningful discussions and to allow the Plaintiffs to provide proper instructions. I find that the Plaintiffs reasonably believed that their legal interests were being fully protected and that the defendants had fulfilled their obligations to advance every reasonable legal argument.

[42] It is important to note that both the Defendant Ms. Perfetto and the Defendant Mr. Tayar agreed that Justice Spence’s decision should be appealed. Ms. Perfetto recommended that John Adair argue the appeal. Their advice to appeal together with that of Mr. Adair further reassured the plaintiffs that the defendants had done an excellent job as trial counsel and that the loss had been entirely due to errors of law made by the trial judge. After the decision of the Ontario Court of Appeal, the Defendants continued to advise that the Plaintiff’s losses were due to errors of law made by Justice Spence and the Court of Appeal. The Defendants also recommended a further appeal to the Supreme Court of Canada.

[43] The evidence is that the Defendants did not tell the Plaintiffs that they may have been wrong to effectively concede steps two and three of Tercon without instructions.

[44] I agree that a reasonable person with the abilities of the Plaintiffs and, in particular, in the circumstances of this case, would not have known and that the Plaintiffs did not know that they had a claim against the Defendants until after the denial of the Supreme Court of Canada leave application, on whether the Defendants had been negligent. I find that they could not have known because of the Defendants’ consistent advice and that they had an honest and reasonable belief they had received competent legal advice. [Emphasis added.]

[23] These findings are well-grounded in the extensive record that was placed before the motion judge. We see no palpable and overriding errors in her factual determinations. They support the conclusions that she reached about the discoverability of the claim.

[24] The motion judge was right to reject the appellants’ position that, despite the professional advice they consistently received from the appellants, the respondents ought to have figured out for themselves that they had a claim against the very lawyers who were advising them. In essence, the appellants purport to rely on this misplaced trust to establish earlier knowledge of a potential claim.

[25] In Ferrara v. Lorenzetti, Wolfe Barristers and Solicitors, 2012 ONCA 851, 113 O.R. (3d) 401, Epstein J.A. (in dissent, but not on this point) recognized the “perversity” of such a position. As she explained, at para. 44:

To tell the appellants that they made the mistake of relying on their own lawyers and then allow these lawyers to use this erroneous reliance to support their position that the action was commenced out of time would reward a particularly pernicious violation of solicitor-client trust.

See also the comments of Laskin J.A., at para. 73.

[26] Consequently, we find no error in the motion judge’s conclusion that the claim was not discoverable until after the refusal of leave to appeal on March 30, 2017, a procedural step that was recommended to them by the appellants. It was at that critical moment, when their case was irretrievably lost, that the respondents sought an opinion about the appellants’ professional competence. Having commenced this action on March 28, 2019, the respondents’ claim is not statute-barred.

[27] The motion judge also accepted the respondents’ alternative submission that, if the facts material to their claim were discoverable prior to the refusal of leave to appeal, when the leave application was being prepared, the commencement of an action was not “an appropriate means to seek to remedy it” until the issue of leave to appeal had been determined: Limitations Act, s. 5(1)(a)(iv). The motion judge concluded at para. 50: “I agree that exhausting the statutory appeal route [was] consistently the most sensible, practical and cost-effective way to proceed.” Based on the findings made by the motion judge in the unique circumstances of this case, we agree with her ultimate conclusion on this issue.

Disposition

[28] The appeals are dismissed. The respondents are entitled to costs on a partial indemnity basis in the amount of $20,000, inclusive of disbursements and HST.

“E.E. Gillese J.A.”

“Gary Trotter J.A.”

“A. Harvison Young J.A.”

[1] Section s. 25(1)(d) has since been amended: SOR/2020-281, s. 2.