COURT FILE NO.: C-1023-07

DATE: 2012-03-05

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Erwin Arthur, Plaintiff

AND:
Ernest J. McMillan, Peter Fallis, Fallis, Fallis & McMillan and Michael J. McGarry, Defendants

BEFORE: The Honourable Mr. Justice G. E. Taylor

COUNSEL:
James Bennett, Counsel, for the Defendants Ernest J. McMillan, Peter Fallis, Fallis, Fallis & McMillan (Moving Parties)

Gary Petker, Counsel, for the Plaintiff (Responding Party)

Christopher Moore, Counsel the Defendant Michael J. McGarry

HEARD: January 19 & 23, 2012

ENDORSEMENT

Introduction

[ 1 ] This is a motion by the defendants, other than Michael J. McGarry, for summary judgment dismissing the plaintiff’s claim against them on the basis that it is statute barred pursuant to the Limitations Act, 2002, S.O. 2002 c. 24 Sch. B . Counsel for McGarry took no position on the motion.

[ 2 ] Ernest J McMillan of the law firm of Fallis, Fallis and McMillan ("McMillan") acted for both purchaser and vendor in a real estate transaction which aborted as of March 31, 2004. The plaintiff was the purchaser in that transaction. The plaintiff alleges that McMillan was negligent. The Statement of Claim in this action was issued on October 1, 2007.

Facts

[ 3 ] Berverly Mothersell, together with his wife Francis, owned a farm property in the Township of Normanby in the County of Grey. On the Mothersell property were located a dwelling, a barn and some outbuildings. The Mothersells lived in the residence and for several years prior to 2004 they rented the remainder of the 80 acre farm, including the barn and outbuildings, to Erwin Arthur. In February 2004 Beverly Mothersell, on belhalf of himself and his wife, entered into an agreement with Arthur to sell the Mothersell property to Arthur for $265,000.

[ 4 ] Both Mothersell and Arthur considered Ernest McMillan of the firm of Fallis, Fallis and McMillan to be their lawyer. They jointly retained McMillan to prepare a formal Agreement of Purchase and Sale. Mothersell and Arthur agreed that McMillan would act for both of them on the transaction.

[ 5 ] McMillan prepared the Agreement of Purchase and Sale which was executed on February 24, 2004. The Agreement contained a clause which stated:

The parties hereto undertake and agree to arrive at a mutually acceptable allocation of the purchase price of $265,000, as between the residence, the land, and all out buildings, and on closing to execute an Acknowledgment confirming the said breakdown of the purchase price, and which said allocation shall be agreed upon on or before March 31, 2004.

[ 6 ] The parties failed to agree on the allocation of the purchase price before March 31, 2004. According to Arthur, the price allocation clause had not been discussed with him before he signed the Agreement. Arthur says that he asked McMillan about the price allocation clause and was told it had nothing to do with him because he was the buyer and he was assured it was a standard term. Arthur heard nothing further from McMillan between the date on which the Agreement was signed and March 31, 2004.

[ 7 ] Arthur says that he and Mothersell met on March 21, 2004 to discuss the allocation of the purchase price. Arthur had previously discussed the issue of the price allocation with his accountant. Mothersell would not agree to Arthur's proposed price allocation. Accordingly, Arthur advised Mothersell that he would agree to the price allocation being demanded by Mothersell. Arthur says there was a further meeting between he and Mothersell on March 30, 2004 at which time he confirmed that he would agree with Mothersell's price allocation.

[ 8 ] Arthur acknowledges that he had a telephone conversation with McMillan about the transaction with Mothersell being in difficulty but he is not certain that it occurred on March 31, 2004. He thinks it might have occurred on a later date. In any event, if Arthur and McMillan spoke on March 31, 2004, according to Arthur, McMillan did not make any suggestion to him about what to do to make sure that the transaction did not abort. Specifically, Arthur has no recollection of McMillan suggesting an extension of the time to agree on the price allocation.

[ 9 ] Arthur says that he met with McMillan at his office on April 6 or 7, 2004. At that time Arthur made it clear to McMillan that he had agreed with Mothersell's price allocation when they met on March 30, 2004. McMillan suggested that Arthur submit a new offer to purchase the Mothersell property which contained the price allocation demanded by Mothersell. McMillan prepared a new offer and gave it to Arthur. Arthur then telephoned Mothersell and asked him to come to McMillan's office. They met outside McMillan's office and Arthur handed the new offer to Mothersell who said he would consider it.

[ 10 ] On the following day, Arthur spoke to Mothersell about the new offer. At that time Mothersell told him he thought the property was worth more than $300,000. Upon hearing this, Arthur went to McMillan's office. In the Arthur's presence, McMillan telephoned Mothersell as result of which, Arthur learned for the first time that Mothersell was taking the position that the Agreement was that an end because of the failure to agree on the price allocation on or before March 31, 2004.

[ 11 ] Mothersell has a somewhat different version as to what caused the failure to agree on the purchase price allocation. Mothersell says that he told Arthur on February 23, 2004 that he needed at least $190,000 of the purchase price allocated to the residence. On March 20, 2004, Arthur advised Mothersell of his proposal that $60,000 of the purchase price be allocated to the residence and the balance allocated to the land, barn and outbuildings. No further negotiations took place up to March 31, 2004.

[ 12 ] Mothersell is of the opinion that Arthur intentionally declined to agree on the purchase price allocation on or before March 31, 2004 because he had not sold his then current residence. Mothersell says that he and Arthur met on April 1, 2004 and agreed that the Agreement of Purchase and Sale was at an end because of the failure to agree on the purchase price allocation. Arthur asked to extend the Agreement of Purchase and Sale but Mothersell refused. On April 2, 2004 Arthur advised Mothersell that he could now complete the purchase because he had accepted an offer to sell his home.

[ 13 ] On April 6, 2004, as result of receiving a telephone call from McMillan, Mothersell attended at McMillan's office. Arthur was present. Arthur and Mothersell had a conversation outside McMillan's office during which Arthur said he had another offer to present to purchase the Mothersell property in which he had agreed to accept Mothersell's proposed allocation of the purchase price. Arthur delivered a new Agreement of Purchase and Sale to Mothersell at that time. The new Agreement of Purchase and Sale was never accepted.

[ 14 ] McMillan's evidence is that Arthur and Mothersell attended together at his office and jointly provided him with instructions to prepare an Agreement of Purchase and Sale for the purchase by Arthur of the Mothersell property. They provided him with a sheet of paper containing typewritten terms that they wished to be included in the Agreement. McMillan says he told Arthur and Mothersell at the time of their initial meeting that they would need to agree on an allocation of the purchase price as between the residence, the land and the farm buildings. Arthur and Mothersell agreed that it would be appropriate for McMillan to draft a clause to insert into the Agreement making it conditional for a period of one month while they negotiated the issue of the price allocation.

[ 15 ] McMillan says that he received a telephone message from Mothersell on March 31, 2004 indicating that he and Arthur had been unsuccessful to date in agreeing on an appropriate price allocation. He then telephoned Arthur who confirmed that he and Mothersell had been unable to agree on the price allocation. McMillan says he told Arthur that if they were unable to reach an agreement it would be necessary to agree to an extension of the Agreement while they continued to negotiate the issue of the price allocation.

[ 16 ] According to McMillan, he heard nothing further from Arthur or Mothersell until April 6, 2004 when Arthur arrived at his office and requested that he prepare a new Agreement of Purchase and Sale containing a specific breakdown of the allocation of the purchase price. Pursuant to those instructions McMillan prepared a new Agreement which he provided to Arthur. The next day Arthur advised that the purchase and sale of the Mothersell property was that an end because Mothersell had refused to accept the new Agreement when it was presented to him.

[ 17 ] Arthur subsequently met with a lawyer by the name of Bob Janzen for advice with respect to the proposed purchase of the Mothersell property. According to Janzen, that meeting took place on April 12, 2004. At that meeting, Janzen told Arthur that in his opinion, the original Agreement dated February 24, 2004 remained a valid and enforceable contract. Janzen did not suggest to Arthur that McMillan had made any error that might have caused Arthur damage.

[ 18 ] Also on April 12, 2004, Arthur met with a lawyer by the name of Michael McGarry. McGarry is also a defendant in this lawsuit. Arthur consulted and retained McGarry for the purpose of initiating litigation against the Mothersell's arising out of the aborted Agreement of Purchase and Sale.

[ 19 ] In an affidavit sworn July 12, 2011 made in response to the present motion, Arthur stated:

Mr. McGarry told me early in our relationship that Mr. McMillan put me in the position I was in. When he said that to me, Mr. McGarry did not tell me what error or errors were made by Mr. McMillan. He did not say I could sue Mr. McMillan or that what Mr. McMillan had done was so severe that it amounted to a failure to properly represent me.

In that same affidavit, Arthur also deposed:

I do acknowledge receiving a vague suggestion to [sic] from Mr. McGarry in May 2006, just as I was terminating my relationship with him that McMillan was at fault. ... Mr. McGarry did not tell me what Mr. McMillan did wrong that would allow me to sue him.

[ 20 ] At his examination for discovery, Arthur gave the following evidence:

Q 409: Okay. What discussion do you remember having with Mr. McGarry about whether you could sue Mr. McMillan for anything he did or didn't do on your behalf?

A: All I can remember about Mr. McMillan was when we went to Mr. McGarry's office he told me that Mr. McMillan put me in the position that I was in. There was never anything mentioned about suing until the last day that I talked to Mr. McGarry.

Q 415: Did Mr. McGarry tell you that that you should do that when you first went to see him?

A: He never told me to sue him no, it was never brought up.

Q 416: But he told you that you have a legitimate complaint and that Mr. McMillan was the cause of why you're in the problem, correct?

A: He did yes.

Q 423: All right. So even though he told you it was a 50/50 case and that Mr. McMillan had put you in that position you didn't want to pursue an action at that time against Mr. McMillan, correct?

A: Not until that last night.

Q 424: Okay. That's the only time he told you it was 50/50?

A: No he told me it was 50/50 on the start.

Q 425: Okay. And when he told you that you had a, that Mr. McMillan put you in that position was that only on the last night that you saw him or was that...

A: No.

Q 426: ... at the beginning?

A: The very first.

Q 427: The very first, okay. But it was only the last night that he says that he used, you say he used the words you could sue Mr. McMillan?

A: Correct.

[ 21 ] The transcript of the examination for discovery of McGarry was filed as part of the evidence on the present motion. McGarry testified that in his initial meeting with Arthur, which was in mid April, 2004, he informed Arthur that he should consider suing McMillan. He told Arthur that in his opinion he had a claim against McMillan based on the way the price allocation clause in the February 24, 2004 Agreement was drafted. But McGarry says he also told Arthur that he would have to retain another lawyer if he wanted to sue McMillan. McGarry said he would not sue another lawyer practicing in Bruce or Grey Counties.

[ 22 ] On April 20, 2004, McGarry on behalf of Arthur, issued a Statement of Claim against the Mothersells seeking specific performance of the February 24, 2004 Agreement and damages for breach of contract. The Mothersells delivered a Statement of Defence and Counterclaim dated February 7, 2005. The Mothersell's plead in the Statement of Defence the following:

11. On February 25, 2004 the Mothersells entered into a conditional agreement with Erwin Arthur for the purchase of the Farm (the "CPSA"). The purchase price was $265,000.00.

12. It was a material term of the CPSA that the allocation of the purchase price between the Farm House and Arable Land be agreed upon before March 31, 2004.

13. The parties did not agree upon allocation of the purchase price prior to March 31, 2004 and accordingly, the CPSA expired.

[ 23 ] The action commenced by Arthur against the Mothersells was resolved in October 2006 on the advice of Steven Pettipiere, the lawyer retained by Arthur after he terminated the services of McGarry. In an affidavit filed on this motion, Pettipiere deposed that he advised Arthur to "cut his losses by settling his claims against the Mothersell's". Subsequently, Pettipiere referred Arthur to another lawyer for the purpose of obtaining advice as to whether there was a potential claim available to Arthur against either or both of McMillan or McGarry.

[ 24 ] As stated previously, the Statement of Claim in this action was issued on October 1, 2007.

Analysis

[ 25 ] Sections 4 and 5 of the Limitations Act, 2002 provide as follows:

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.

5. (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). 2002, c. 24 , Sched. B, s. 5 (1).

(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.

(3) For the purposes of subclause (1) (a) (i), the day on which injury, loss or damage occurs in relation to a demand obligation is the first day on which there is a failure to perform the obligation, once a demand for the performance is made.

(4) Subsection (3) applies in respect of every demand obligation created on or after January 1, 2004.

[ 26 ] In Combined Air Mechanical Services Inc. v. Flesch , 2011 ONCA 764 , [2011] O.J. No. 5431, the Ontario Court of Appeal gave direction as to the approach to be followed when dealing with motions for summary judgment under the amended rule 20 which came into effect on January 1, 2010. At paragraph 50, the Court stated that the judge hearing a motion for summary judgment must ask the following question: "Can the full appreciation of the evidence and issues that is required to make dispositive findings be achieved by way of summary judgment or can this full appreciation only be achieved by way of a trial?"

[ 27 ] The damage suffered by Arthur arising out of the alleged negligence on the part of McMillan occurred on April 1, 2004 when the Agreement of Purchase and Sale between Arthur and the Mothersells came to an end as a result of the failure to agree on an allocation of the purchase price. Arthur's position is that it was the negligence of McMillan that permitted the Mothersell's to refuse to complete the Agreement.

[ 28 ] Arthur's position is that it was not until October 2006, at the earliest, that he became aware of his potential claim against McMillan. Arthur focuses on what he actually knew. He says that none of the lawyers who he consulted, including McMillan, suggested to him that McMillan had been negligent and that he should be suing McMillan for damages arising out of the failure to complete the Agreement of Purchase and Sale with the Mothersells.

[ 29 ] McMillan’s position is that the initial meeting between Arthur and McGarry is critical. Emphasis is placed on the evidence of Arthur admitting that McGarry told him that McMillan was the one who put him in the position he was in. McMillan's counsel emphasizes the response to question 416 of Arthur's examination for discovery wherein he agreed with the suggestion that at their initial meeting McGarry told him that he had a legitimate complaint that McMillan was the cause of why he was in the problem that he was in. However, in other parts of the evidence on this motion, it is clear that Arthur's position is that it was not until May 2006 that he first became aware of the possibility that he had a basis for a legal claim against McMillan.

[ 30 ] In my opinion, if the issue to be decided is Arthur's actual knowledge of whether McMillan had been negligent and whether that negligence caused damage to Arthur, then there are sufficient discrepancies on the evidence between Arthur, Mothersell, McMillan, Janzen and McGarry which can only be resolved at trial. However, in my view, that is not the critical issue. Rather, the issue is whether section 5 (1) (b) of the Limitation Act, 2002 applies. What is 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 [section 5 (1) (a)]?

[ 31 ] In Kenderry – Esprit (Receiver of) v. Burgess, MacDonald, Martin and Younger , 2001 28042 (ON SC) , [2001] O.J. No. 776, Molloy J of the Ontario Superior Court held that the limitation period for a claim of solicitor’s negligence commenced when it was reasonably clear to the client that there was a problem with the drafting of a legal document. In Kenderry , the alleged negligence was in relation to an addendum to an agreement of purchase and sale with respect to two units of a condominium. The purchasers of the condominium took the position that the addendum to the agreement permitted them to treat the agreement as at an end. The condominium developer disagreed and sued the purchasers. The action was dismissed. At paragraph 20, Molloy J stated:

The first letter from the Purchaser taking the position that it would not close because of the provisions of the Addendum might not have been enough to raise the problem clearly. However, it should and did cause Kenderry to inquire about the matter. The commencement of the litigation by the Purchasers was an even stronger indication that there was a problem with the wording of the Addendum. In my opinion, by the time Kenderry was filing its statement of defence and counterclaim it had to be aware that, if it was wrong in its interpretation of the Addendum and the Purchasers were right, then it had a potential claim in negligence against the solicitors who drafted the Addendum. Kenderry must also be taken to have been reasonably aware of the possibility that the Purchasers would be successful in their claim. The Addendum was not a complex document and it did state clearly that the agreement would close on the earlier of two dates (one of them being September 6, 1991).

[ 32 ] The correctness of the decision in Kenderry has not been challenged in any subsequent decision.

[ 33 ] In Ferrara v. Lorenzetti, Wolfe Barristers and Solicitors , 2012 ONSC 151 , [2012] O.J. No. 135 Allen J of the Ontario Superior Court expressed the onus on a plaintiff responding to a motion for summary judgment based on a limitations defence in the following words at paragraph 15:

Therefore, on a motion for summary judgment brought by a defendant relying on a limitations defence, the plaintiff seeking to defeat the operation of the limitation period has the onus to rebut the presumption that the limitation period is operative by showing through the record that there is a genuine issue as to when a claim arose.

[ 34 ] In this case, a reasonable person in Arthur's position would have known, at the very latest, by February 2005, when the Mothersell's Statement of Defence was delivered that there was a potential problem arising out of the price allocation clause in the February 24, 2004 Agreement. It would have been apparent to Arthur that the Mothersells were taking the position that the price allocation clause made the Agreement conditional until March 31, 2004. Arthur's position was that the Agreement was an unconditional, binding agreement. Nevertheless, he was put on notice that if his position was found to be incorrect, it would be because of McMillan's drafting of the price allocation clause. In my view, this was precisely the position in which the plaintiff in Kenderry found itself and it was held that the limitation period commenced on that date, and not the date on which the court ruling about the interpretation of the legal document was released.

[ 35 ] In my opinion, on the facts of this case, a trial is not required in order to obtain a full appreciation of the evidence and the issues in order to make dispositive findings. A reasonable person with the abilities and in the circumstances of Arthur first ought to have known that he had a potential claim against McMillan no later than February 2005. The Statement of Claim in this action was issued more than two years after that date. It is incumbent upon Arthur to prove that a reasonable person in his position would not have realized that he had a potential claim against McMillan as of February 2005. On the evidence presented on this motion, he has not done so. In my opinion, the circumstances would not change if the evidence were to be presented at a trial.

[ 36 ] Accordingly, I find that this action was commenced after the expiry of the limitation period and it is therefore dismissed.

Costs

[ 37 ] At the conclusion of oral argument counsel advised me that they had both come to court with Costs Outlines as required by rule 57.01 (6). Accordingly, both Costs Outlines were placed in a sealed envelope to be opened after my ruling on the substantive issue on the motion. When I open the sealed envelope, it was obvious that the Costs Outlines only dealt with the motion for summary judgment. In light of this ruling, McMillan is entitled not only to the costs of the motion but also costs of the action.

[ 38 ] Therefore, if counsel are unable to agree on an appropriate disposition for costs of the action including costs of the motion for summary judgment, they may make written submissions. The written submissions on behalf of McMillan are to be delivered within 14 days of the release of this Endorsement, not to exceed three pages exclusive of a Bill of Costs. The responding submissions on behalf of Arthur are to be delivered within 28 days of the release of these reasons, not to exceed three pages.

G. E. Taylor J.

Date: March 5, 2012