ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: 11-CV-417574
DATE: September 30, 2013
BETWEEN:
KING LOFTS TORONTO I LTD. and KING LOFTS TORONTO II LTD.
Plaintiffs
– and –
P. MARTIN EMMONS, FRASER MILNER CASGRAIN LLP and FIRST CANADIAN TITLE INSURANCE COMPANY LTD.
Defendants
Melvyn L. Solmon and Matthew Valitutti for the Plaintiffs
Anne E. Posno and Lindsay N. Beck for the Defendants P. Martin Emmons and Fraser Milner Casgrain LLP
HEARD: September 23, 2013
PERELL, J.
REASONS FOR DECISION
A. INTRODUCTION
[1] The Defendants P. Martin Emmons and Fraser Milner Casgrain LLP move for summary judgment dismissing the solicitor’s negligence claim of King Lofts Toronto I Ltd. and King Lofts Toronto II Ltd. (collectively “King Lofts”).
[2] In the alternative, Mr. Emmons and Fraser Milner Casgrain LLP seek security for costs from King Lofts.
[3] The Defendant First Canadian Title Insurance Company Ltd. takes no position with respect to this motion.
[4] Although it has not formally brought a cross-motion for summary judgment, King Lofts seeks a partial summary judgment against the Defendants Emmons and Fraser Milner Casgrain LLP.
[5] For the reasons that follow, the Defendants’ motion is dismissed and King Lofts’ request for a partial summary judgment is granted.
B. FACTUAL AND PROCEDURAL BACKGROUND
[6] I begin this account of the factual and procedural background by foreshadowing that in the discussion section of this judgment, I shall include that Mr. Emmons and his law firm were professionally negligent. However, as the discussion of the facts will reveal, like many professional negligence cases, the lawyer’s error does not show incompetence, unskillfulness, lethargy, or inattention. Like many negligence cases, the error is a failure in communication. Thus, the critical facts are what was said, what was not said, what was described, what was misdescribed, what was clear, what was opaque, what was understood, and what was misunderstood.
[7] In the summer of 2005, Bryton Capital retained Mr. Emmons, a senior real estate lawyer and partner at Fraser Milner Casgrain LLP, to act on its purchase of four commercial properties in downtown Toronto near King and Bathurst. The purchase price was $22.5 million. The scheduled closing date was November 28, 2005. The lands being purchased included 860-862 Richmond Street West. On the Richmond Street Property, there was a laneway. The laneway was under a building built in 1919.
[8] The law firm’s search of title revealed that the City of Toronto owned a strip of land, the “Part 5 Strip” and a laneway, the “Part 2 Laneway” that were under the rear of the building on the Richmond Street Property. To address this problem, the firm’s requisition letter asked that the vendor convert the vendor’s property from the Registry Act system to Land Titles Conversion Qualified.
[9] Mr. Alex Henry is the president of the King Lofts, and on October 12, 2005, Bryton Capital assigned its agreement of purchase and sale to King Lofts, which was to be incorporated for the purpose of completing the sale transaction. Mr. Henry, who is an experienced businessman and investor in real estate, acted without a lawyer in arranging the assignment from Bryton Capital. Bryton Capital and King Lofts are unrelated corporations, and before King Lofts assumed the purchase agreement, King Lofts was unaware that the City of Toronto owned the Part 2 Laneway.
[10] After the assignment was effected, King Lofts retained Mr. Emmons and his law firm to continue and complete the purchase transaction for King Lofts as the purchaser.
[11] For a variety of reasons, the closing of the transaction was rescheduled several times, and it was ultimately set for January 26, 2006. Before the closing, Mr. Emmons did advise Mr. Henry that the City owned a laneway under a portion of the Richmond Street property but that the lands had not yet been converted into the Land Titles System. He also advised that this was a minor issue that was covered by title insurance that was being obtained. Mr. Emmons said that the conversion could be completed after closing for a couple of thousand dollars, but that there was not sufficient time to complete the conversion into the Land Titles system before closing.
[12] Before the closing, on January 5, 2006, Jenette Boycott, a lawyer who was assisting Mr. Emmons, advised King Lofts by email that it had two options to deal with the City’s ownership of lands. The email message to Mr. Henry stated:
Marty and I previously discussed with you the ownership conflict regarding 860-862 Richmond Street as a result of the building being built on a lane owned by the City. As you are aware, the Land Titles Office will not convert these lands from the Registry system to the Land Titles system at this time. As indicated, we have arranged with First Canadian Title to provide insurance coverage to deal with this issue in the interim in order to provide you with some comfort. In our last meeting, you expressed that you would like us to arrange for the conversion of the lands post- closing to rectify the issue. Please note that on further review, there are two options for dealing with this issue. One, we can approach the City and request that a by-law be passed to have the lane conveyed to the Purchaser. Two, in the event that the City will not accept our request, we can attempt to obtain a court order based on the length of time the building has been on the lane. We would be happy to discuss these options with you in further detail following closing.
[13] Mr. Henry says that he was not told that King Lofts might have to purchase the City’s laneway; i.e. although he was aware that the City owned the laneway, he did not appreciate that the City would request payment for conveying a laneway that apparently had been under a building for some 86 years. He apparently thought that the problems would be resolved by the application to convert the lands to the Land Titles system after closing for an anticipated expense of a few thousand dollars.
[14] Further, Mr. Henry says that he was not told that the title insurance policy had exclusions. In this regard, as set out below, the policy endorsement provides that full insurance coverage does not extend to the City-owned laneway. The policy states that coverage is for any loss relating to the forced removal of the building encroaching upon the City-owned laneway. To be more precise, the policy states:
This policy does not insure against loss or damage (and the company will not pay costs, legal fees or expenses) which arise by reason of: ...
- Absence of title to Part 5, Plan 63R-2538 [the "Laneway"] or any part thereof as a result of the expropriation thereof by Expropriation plan registered as No. CA53889.
Notwithstanding the exception set out on Schedule "B" hereto, the Company hereby insures the insured against loss or damage sustained or incurred by the insured by reason of the enforced removal of the 3 storey brick building which encroaches onto the public lane being described as Part 2 on Plan 63R-2538 [the "Laneway"], as shown on the above-noted plan of survey. Provided however that loss or damage shall not extend to a claim for loss of use, income or profits.
Notwithstanding exception no. 4 set out on Schedule "B" hereto, the Company hereby insures the insured against loss or damage sustained or incurred by the insured at any time during the insured's period of ownership of the land by reason of any party asserting a right over Part 5 on Plan 63R-2538 [the "Laneway"] as a result of the absence of title to Part 5, Plan 63R-2538.
[15] I pause here to say that the communications about the insurance policy are a source of confusion and misunderstanding. It appears that Mr. Henry understood that the insurance was designed to address the problem that the City owned the laneway. However, there is no evidence that full or better title insurance coverage for the laneway was available. The title insurance was purchased to deal with a possible consequence of the City’s ownership of the laneway but not to deal with the ownership as such; i.e., the problem was that because the City owned the laneway, it could require the building to be removed from its land, but the insurance policy did not address the issue of the City’s ownership of the laneway as such. How the title insurance addressed the laneway problem was to prove a continuing source of miscommunication and misunderstanding.
[16] Returning to the narrative, before the closing, King Lofts entered into a holdback and escrow agreement to address several deficiencies that the vendor agreed it would rectify after closing. Thus, $47,125.67 was held back from the purchase price. There was, however, no holdback with respect to laneway.
[17] Although the Defendants said that the evidence was self-serving, Mr. Henry says that he would have insisted on a holdback for the laneway, if there was a risk that the Richmond Street Property might have cost King Lofts a significant amount of money in the future. He says that had he known that the title insurance would not cover the cost of purchasing the laneway from the City, he would have insisted on a holdback of the purchase price. However, Bryan McWatt of Bryton Capital, the original purchaser, who advised Mr. Henry during the City Lofts transaction, testified that it was highly unlikely that a holdback would have been successfully negotiated with the vendor, who apparently was notoriously difficult to deal with.
[18] Because it was connected to the hotly-contested issue of causation, there was considerable contestation about Mr. Henry’s and Mr. McWatt’s evidence about the likelihood that a holdback for the laneway was or was not likely forthcoming from the vendor. I will return to this topic below, but for present purposes, I simply note that King Lofts was, at least, in a strong position to demand a holdback about the laneway, because the title requisition about the laneway was a valid and strong requisition, and the vendor might lose the sale or possibly be sued for specific performance with an abatement for refusing to answer the requisition about the laneway in good faith.
[19] In any event, a holdback for the laneway was never discussed, and the transaction closed on January 26, 2006.
[20] After the closing of the transaction, Mr. Emmons billed King Lofts in excess of $270,000.00 for the transaction. King Lofts regarded the bill as excessive, and it ended its business relationship with Mr. Emmons and his firm.
[21] Months after the closing, in July 2006, Mr. Emmons delivered a reporting letter. The reporting letter stated, among other things:
Prior to Closing, we determined that the Richmond Street Property could not be easily converted into the Land Titles system. In order to convert the Richmond Street Property, the City would need to transfer the Lane and Part 5 to the Purchaser. In order to provide you with some comfort, we arranged for First Canadian Title to provide insurance coverage to deal with the above noted ownership issues. As discussed with you prior to Closing, we would be pleased to assist you in approaching the City to request the transfer of both the Lane and Part 5 to the Purchaser to clear up the ownership conflict. Upon such transfer, we would be in a position to make an application for the conversion of the Richmond Street Property into the Land Titles system.
[22] The sale having closed and King Lofts having discharged Mr. Emmons, it appears that nothing was done about the City’s laneway under the building on the Richmond Street Property, and several years passed.
[23] About two years after the closing, in February 2008, King Lofts received an unsolicited offer from Allied Properties REIT Acquisition Corporation to purchase the downtown properties. King Lofts signed back the offer without referencing the title issue about the Laneway.
[24] King Lofts retained Marc Lean from Aylesworth LLP to close the transaction, and on March 31, 2008, Mr. Lean received Allied’s requisition letter, which contained a requisition that King Lofts obtain a conveyance of the laneway.
[25] I pause here to say that, in my opinion, Allied’s requisition was a better requisition than the requisition originally made for Bryton Capital on the original purchase transaction. The original requisition dealt with the laneway title problem by requesting that the vendor’s lands be transferred into the Land Titles system. In contrast, the Allied requisition was better because it was a clear and not an opaque way of addressing the title problem and it was specific about what needed to be done to solve the title problem.
[26] In any event, Mr. Lean attempted to obtain a conveyance of the laneway from the City, but on April 22, 2008, the City indicated that it expected to be paid for the conveyance. That the City would not convey the lands without consideration came as a surprise to Mr. Henry.
[27] On April 22, 2008, Mr. Lean contacted First Canadian Title Insurance Company Ltd. to ask about its position about insurance coverage, and on April 23, 2013, First Canadian indicated that its answer - which it would later retract - was that the laneway problem was covered under the policy.
[28] On December 18, 2008, the City advised that the purchase price for the laneway was $106,000.00, and on the same day, Mr. Lean was advised by First Canadian Title that it remained to be determined whether there was coverage for this sum and that the matter had to be further investigated.
[29] On January 8, 2009, First Canadian Title denied coverage because of the wording of the policy that covered only a situation in which the City forced King Lofts to tear down a portion of the building on the property.
[30] On or about May 6, 2009, King Lofts purchased the laneway from the City of Toronto for $106,000.00, and the sale of the King Lofts’ lands closed in May 2009 at a price of $31.5 million.
[31] On January 5, 2011, King Lofts commenced an action against Mr. Emmons, his law firm, for solicitor’s negligence, and against First Canadian Title for breach of contract.
[32] On July 29, 2011, Mr. Emmons delivered his Statement of Defence.
[33] In late 2012, Mr. Emmons and his law firm brought a motion for summary judgment.
[34] In March 2013, Mr. Emmons delivered an affidavit setting out an independent expert opinion from real estate lawyer, Louis Radomsky. Mr. Radomsky’s opinion was that Mr. Emmons’ legal advice accorded with the expected standards of practice of a real estate lawyer in the same circumstances. Mr. Radomsky opined that: (a) Mr. Emmons identified the issues raised by the plaintiffs in the statement of claim in a detailed and professional manner, including the title defect relating to the Richmond Street Property due to the encroaching building; (b) in the requisition letter to the seller's lawyer, Mr. Emmons requested the best possible solution of this defect, and requested a conversion of the Richmond Street Property into Land Titles; (c) King Lofts accepted the title defect and purchased the Richmond Street Property, subject to the title flaw; (d) the communication with Mr. Henry, the plaintiffs' principal, shows that King Lofts knew that the City-owned lands associated with the title defect would not be included in and that the defect would have to be rectified post-closing; (e) the e-mail communication between the defendants and Mr. Henry sets out two potential post-closing solutions to rectify the title defect on the Richmond Street Property, and indicates that insurance coverage on the Richmond Street Property (i.e. the limited marketability endorsement) was to provide "some comfort" in the "interim"; and (f) the limited marketability endorsement against the Richmond Street Property provided insurance for loss or damage sustained on the removal of the three storey brick building encroaching on the City laneway.
[35] Hard upon the hearing date Mr. Emmons’ summary judgment motion, King Lofts retained William Friedman to provide an expert opinion as to whether Mr. Emmons had been professionally negligent. Mr. Friedman’s opinion was that Mr. Emmons failed to meet the standard of practice for real estate law in Toronto. Mr. Friedman prepared a written argument of fact and law as the basis for his expert opinion that was delivered to the Defendants on September 19, 2013.
[36] Mr. Lean from Aylesworth LLP, who swore an affidavit for the summary judgment motion, was also critical of Mr. Emmons’ handling of the real estate transaction.
C. DISCUSSION AND ANALYSIS
1. Introduction
[37] Because of the way Mr. Emmons framed the issues on this motion for summary judgment, it is not necessary for me to discuss the test for a summary judgment at any length. Put shortly, I am satisfied that this is an appropriate case for a summary judgment.
[38] All the evidence that the court needs is before the court, and the full appreciation provided by a trial is not necessary. Pursuant to Combined Air Mechanical Services Inc. v. Flesch (2011), 2011 ONCA 764, 108 O.R. (3d) 1 (C.A.), I am convinced that I can grant a summary judgment with a full appreciation of the issues and evidence based on the record before the court and without the forensic advantages afforded by a trial.
[39] The motion of a summary judgment can be determined on the straightforward basis of deciding whether Mr. Emmons is correct in any of the following four arguments: namely: (1) that King Lofts’ action is statute-barred; (2) that Mr. Emmons met the standard of care of a reasonable competent real estate practitioner; (3) that King Lofts has no admissible evidence that Mr. Emmons failed to meet the standard of care; and (4) that King Lofts has not proved that Mr. Emmons’s negligence caused it suffer a loss (the causation issue).
[40] To succeed on this motion, Mr. Emmons need only succeed on any one of these four arguments. However, for the reasons that follow, in my opinion, Mr. Emmons fails on all of the arguments, and accordingly, his motion for summary judgment should be dismissed.
[41] As will be seen below, a by-product of my findings about the four arguments is my conclusion that Mr. Emmons was professionally negligent and his negligence or his firm’s negligence caused a loss, and, accordingly, King Lofts should be granted a partial summary judgment. The amount of the loss remains to be proven as does the claim against First Canadian Financial.
[42] Since there is a partial summary judgment, it is unnecessary to consider Mr. Emmons’ request for security for costs.
[43] By way of methodology, I shall consider Mr. Emmons four arguments, and then I shall explain why King Lofts is entitled to a partial summary judgment.
2. Is King Lofts’ Action Statute-Barred?
[44] Mr. Emmons argues that King Lofts’ action is statute-barred because the notice of action was issued more than two years after King Lofts’ new real estate lawyers in April 2008 had an opportunity to review and consider the scope of the coverage under the First Canadian Title insurance policy, and, thus, it is submitted that King Lofts would or should have known that a payment to the City of Toronto for a conveyance of the laneway was not covered by the insurance policy.
[45] This argument, however, fails because I agree with King Lofts’ counterargument that its claim was timely.
[46] King Lofts’ counterargument is as follows. A proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim is discovered or ought to have been discovered: Limitations Act, 2002, S.O. 2002, c. 24. It is submitted that King Lofts did not know that the City of Toronto would demand compensation for a conveyance of the laneway until April 22, 2008, and it did not learn that the insurance policy would not cover this payment until January 8, 2009, when First Canadian Title denied coverage. King City’s Notice of Action was issued on January 5, 2011, which it submits is less than 2 years after it first discovered or ought to have discovered that it had a solicitor’s negligence claim against Mr. Emmons. Accordingly, King Lofts’ claim was timely.
[47] I agree with King Lofts’ argument. Having regard to what Mr. Emmons and his associates had said about the title insurance being the solution to it the problem of a laneway being owned by the City, it was reasonable for Mr. Henry to not bring an action against Mr. Emmons until it was known whether there would be a significant expense in obtaining title to the laneway and whether the insurer would deny coverage. It is informative that the insurer did not immediately deny coverage and did not formally do so until it knew that City Lofts was seeking in excess of $106,000.00.
[48] Section 5 of the Limitation Act, 2002 codifies when a claim is discovered. Section 5 states:
Discovery
- (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). s. 5(1).
[49] Section 5(2) of the Act admits of the possibility that a person with a claim may be able to rebut the discovery of the claim; i.e., under s. 5(2) discoverability is established “unless the contrary is proved”. Subsection 5 (2) states:
Presumption
(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.
[50] In my opinion, until King Lofts had knowledge of the formal positions of both the City of Toronto and also First Canadian Title, it cannot - to use the language of s. 5 (1)(a)(iv) – be said that “having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it.”
[51] Because of the confusing and opaque communications of the defendants, up until King Lofts learned that it would not cost just a few thousands of dollars to resolve the laneway title problem, it would not have known that it had suffered damage or that having regard to that damage a law suit would be an appropriate means to seek to remedy the damage.
[52] Further, in my opinion, having regard to the confusion and misunderstandings caused by the communications from Mr. Emmons and his associates, in accordance with s. 5(2) of the Act, King Lofts has proved that it had not discovered the matters referred to in s. 5(1)(a).
[53] I conclude, therefore, that King Lofts’ claim is not statute-barred.
(Decision continues exactly as above through paragraph 89.)
Perell, J.
Released: September 30, 2013
COURT FILE NO.: 11-CV-417574
DATE: September 30, 2013
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
KING LOFTS TORONTO I LTD. and KING LOFTS TORONTO II LTD.
Plaintiff
‑ and ‑
P. MARTIN EMMONS, FRASER MILNER CASGRAIN LLP and FIRST CANADIAN TITLE INSURANCE COMPANY LTD.
Defendants
REASONS FOR DECISION
Perell, J.
Released: September 30, 2013.