ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
Cindy Hoang
Leon Wickham, for the Plaintiff
Plaintiff
- and -
Tang Trang Nguyen
Jane E. Sirdevan, for the Defendant
Defendant
- and -
Stewart Title Guaranty Company
Clarence Lui, for the Third Party
Third Party
REASONS FOR JUDGMENT
K. van Rensburg J.
Introduction
1The plaintiff claims damages from the defendant solicitor as a result of alleged negligence in the provision of legal services in connection with the plaintiff’s purchase of a business. It is alleged that the defendant failed to complete all necessary searches and to discover and to advise the plaintiff of the consequences of a pre-existing work order issued by the City of Toronto Building Department. The defendant third parties Stewart Title Guaranty Company (“Stewart Title”), asserting a duty to defend the solicitor, and for contribution and indemnity.
2There were only two witnesses at trial – the plaintiff Cindy Hoang and the defendant Tang Trang Nguyen. There were also two sets of agreed facts – one as between the plaintiff and the third party and the other as between the defendant and the third party.
3These reasons for decision will address both the main action and the third party action. For the reasons that follow, the plaintiff’s action is dismissed, and the defendant shall have judgment against the third party on the third party claim.
Brief Overview of the Proceedings
4The defendant was retained to act for the purchasers of a restaurant business and the condo unit in which the business was carried on. The purchasers had agreed to a purchase price of $215,000, and they were anxious to close the deal, because the restaurant was busy and profitable. The purchase price was allocated by the vendors’ lawyer $100,000 for the condo, and $115,000 for the business. Title insurance was obtained for a value of $100,000.
5After closing it was discovered that there was a work order against the property issued by the City of Toronto. Several years later, and after she had retained her present counsel in this action, the plaintiff settled her claim under the Stewart Title policy, releasing Mr. Nguyen, but reserving her rights to pursue a claim against the lawyer for matters not covered by the policy. She also agreed not to pursue a claim against anyone for matters covered by the policy.
6The plaintiff claims that the defendant lawyer was negligent in not having conducted a search that would have revealed the work order. She asserts that the title insurance applied only to the condo purchase, and that her settlement with Stewart Title, and her release of the lawyer related only to her claim for the purchase of the condo. She claims as damages the amount paid for the business.
7The defendant denies that there was any negligence. After discussing the matter with his original clients, Ms. Hoang’s husband and his friend and the friend’s wife, he had been instructed to proceed without conducting the searches that would have revealed the work order. There was insufficient time to make the inquiries necessary to reveal a work order, and the clients were unwilling to delay the transaction. Mr. Nguyen also relies on the plaintiff’s settlement with Stewart Title as a bar to the action, and in any event denies that the plaintiff has proven any damages. There was also a limitations defence, which was abandoned during the trial.
8It is the defendant’s position that the plaintiff’s claim in this action falls squarely within the coverage under the title insurance policy. Accordingly, the defendant third partied Stewart Title, asserting that there was a duty to defend, arising under the indemnity agreement between the Law Society of Upper Canada and Stewart Title dated March 9, 2005, and claiming contribution and indemnity.
9In its defence to the third party claim, Stewart Title pleaded that the claims of the plaintiff do not arise under the policy. In the alternative, if the claims arise under the policy, Stewart Title relies on the settlement agreement and claims against the plaintiff its costs of defending the proceeding on a full indemnity basis.
10In the course of the proceedings the third party brought a motion to stay the main action and/or the third party claim, relying on the settlement and asserting that the claim was covered under the policy. The motion was dismissed. The motion judge concluded that, based on a review of the statement of claim and reply, he was uncertain as to whether the damages caused were covered by the policy in question. Accordingly, the matter had to be determined at trial. Leave to appeal this decision was refused.
11By the time of the trial however, there was an Agreed Statement of Facts between Stewart Title and the plaintiff in which they agreed, among other things, that “the plaintiff claims against the defendant in the proceeding damages for certain business losses arising from a Bulk Sales Act transaction” and “the plaintiff does not claim against the defendant in the within proceeding damages for work that the defendant performed in connection with the Policy, in respect of her claim for coverage under the Policy, or with respect to any matters arising under the Policy.” Accordingly, the primary position of Stewart Title at trial was that the plaintiff’s claim was for matters not covered by the title insurance policy.
Relevant Facts
12The plaintiff immigrated to Canada from Vietnam in 1986. She has a high school education and worked as a machine operator until 2003. In 2002, her husband, Khanh Van Ha, who was unemployed, identified the opportunity to acquire, with a friend, Xuyen Heynh, a restaurant business known as “New Huong Phu Deli Shop”. The business was operated at 750 Oakdale Road, Unit 37, in Toronto. The two men saw the business advertised in a local Vietnamese language newspaper, and went with their spouses to look at the restaurant. Cindy Hoang recalled that the restaurant was quite busy, and the kitchen was well-equipped. It was the only restaurant in the particular district. After obtaining information on the revenues from the business, they considered the purchase price of $215,000 to be very fair. Ms. Hoang acknowledged that the purchase price had been agreed upon with the vendor before meeting with the lawyer.
13The two men found the defendant lawyer by looking in the Vietnamese language newspaper. Initially the two men and Mr. Heynh’s wife Man Le Lieu attended to meet with Mr. Nguyen. Ms. Hoang could not recall how many meetings she attended, but it is clear that she became involved as a named purchaser only in the final days before closing. She recalled attending at the lawyer’s office to sign documents, after it had been decided that title should be taken in her name and that of Man Le Lieu.
14Mr. Nguyen was retained on October 21, 2002. According to Mr. Nguyen, by the time the clients attended at his office they had agreed upon the terms of the purchase and the purchase price, as well as a closing date of November 5, 2002. In fact, the vendors’ lawyer, Quoc Toan Trinh, under cover of a letter dated October 21, 2002, sent Mr. Nguyen copies of two offers, one for the purchase of the condo for $100,000, and the other for the purchase of the business, for $115,000. Both offers had been signed by Khanh Van Ha and Man Le Lieu.
15When he met with the clients Mr. Nguyen told them that the timing was too tight, but the clients were concerned about offending the vendors and losing the deal. He told them to blame it on his own schedule and he wrote to opposing counsel the day he was retained, suggesting a new closing date of December 5, 2002. The letter also proposed additional conditions to be incorporated into the agreement.
16In response, the closing date was moved to November 15, 2002. Mr. Nguyen understood that his clients had again negotiated directly with the vendors to agree to a new closing date, which was still too short to permit any inquiries that would reveal work orders against the property.
17Mr. Nguyen acknowledged that he had not discussed the need for searches with Ms. Hoang. She did not attend the initial meeting, and by the time the decision was made to take title in her name the agreement was firm. If she had decided not to proceed, the purchasers would have been in default.
18Mr. Nguyen did recall however speaking with Ms. Hoang’s husband and his friend and Ms. Le about the timing and searches. In his experience with other similar transactions, it was not unusual to find a problem such as an outstanding work order, that might provide the basis for a reduction in the purchase price. He told the purchasers that this could happen and that they could perhaps negotiate a better price, however they instructed him to proceed because they thought they had a very good price and did not want to upset the vendors and lose the deal.
19Ultimately Mr. Nguyen inserted in the agreement a provision that warranties would survive closing, which was accepted by the vendors, and he recommended the purchase of title insurance. His clients agreed. At the time, title insurance was relatively new, and he was aware that if title insurance was obtained, the need to conduct searches was waived.
20A title search was performed, as well as searches for writs of execution. A letter of requisition was sent on November 1, 2002, including a requisition for evidence that there were no work orders outstanding, and that the lands and premises and all structures erected thereon complied with all by-laws, etc. The response to the requisition was that the purchasers were to satisfy themselves.
21While the agreement of purchase and sale was signed by Khanh Van Ha and Man Le Lieu, a Direction re Title was signed by the plaintiff’s husband and Ms. Le on November 11, 2002, directing the deed or transfer to be engrossed in the names of Cindy Hoang and Man Le Lieu as tenants in common each as to a 50% interest.
22The plaintiff denied that she had any discussions with the lawyer about searches because “[she] did not know these things”. She did recall that the lawyer asked her if she wanted to buy insurance and she agreed. She understood that the insurance meant that she would not be liable if the previous owner did not pay water, gas and other utilities.
23Ms. Hoang did not originally intend to leave her factory job; rather the plan was for her husband and his friend to work in the restaurant and to hire other people. Shortly after the closing however Man Le Lieu decided to sell her interest, which was purchased by Ms. Hoang. At that point, Ms. Hoang left her factory job to work in the restaurant.
24Ms. Hoang testified that she attended at Mr. Nguyen’s office again in March 2003, as the lawyer was handling the sale of her home. She was given what appeared to be a reporting letter from Mr. Nguyen on the purchase of the business. She testified that she did not read the letter, which was dated March 12, 2003. The letter does not contain the correct unit number and is addressed to a Ms. Dong. There are references in the letter to a lease and sublease and something called the “Cleary Agreement” which are clearly not relevant to Ms. Hoang’s transaction.
25Mr. Nguyen testified that the letter was an unsigned draft of a reporting letter, and was based on a precedent letter relating to another matter. He acknowledged that the letter contained many references to a different transaction and should not have been released to Ms. Hoang in that form.
26A Commercial Owner Policy of Title Insurance dated November 15, 2002 was issued by Stewart Title. The insureds were Cindy Hoang and Man Le Lieu, and the insurance covered their fee simple interest in the condo property in the amount of $100,000.
27The Stewart Title policy provided coverage for loss or damage not exceeding the amount of insurance, for, among other things, “any defect in or encumbrance on the title” and (pursuant to an endorsement) “any outstanding municipal work orders against the land”. The coverage was subject to exclusions, exceptions and conditions that are not material here.
28The plaintiff and her husband began operating the business in May 2003. A few weeks later, they received a visit from a City inspector who gave Ms. Hoang two copies of an “Order to comply – Work No Permit” (the “work orders”). The first was dated July 19, 2002, and the second was dated May 8, 2003. Both were addressed to Thieu Vinh. Ms. Hoang told the City employee that this was not her name and that she had bought the business from Thieu Vinh. He gave her a business card, and, after several weeks she contacted Mr. Nguyen.
29The work orders provided that work at the subject location was in contravention of the Building Code Act provision requiring a building permit, because certain work had proceeded prior to obtaining a permit. The orders stated:
You are hereby ordered to obtain a building [permit] or remove the illegal work. In the interim cease all further construction until the necessary permit has been issued.
30The infraction was identified as “new restaurant”. The work order also required the recipient “to comply by submitting drawings/specification/ documentation and obtaining a permit for the subject work or to remove the unauthorized construction IMMEDIATELY.”
31Ms. Hoang told Mr. Nguyen that the City person informed her that it was illegal to have a restaurant at that location. She gave the lawyer the phone number and let him contact the City person. She testified that because it was the former owner’s name on the work order and not her own, she didn’t consider the letter to be directed to her. The lawyer did not tell her what the letters meant, and she didn’t ask him to explain. Mr. Nguyen told her that he would contact Stewart Title, which he did without delay.
32Ms. Hoang testified that she has never received another order directed to her personally and that there have been no further visits to the restaurant from the City. She also claimed that she did not understand what was required to comply with the order and that she had no intention of doing the work herself or paying for the work to be done. The work required by the orders has not been completed, and as such the work orders remain outstanding.
33There is some question as to what specifically occurred during the next five years. Ms. Hoang testified that between 2003 and 2009, Mr. Nguyen contacted her about something to do with parking and a required payment of $6,500. The title insurance people had told her that they would handle everything for her. At some point an engineer was sent by the insurance company to take pictures and measurements, and talked with Ms. Hoang about plans, however Ms. Hoang claimed that she didn’t really understand the discussion. At one point around 2006 the engineer came to the restaurant with a lot of people, including someone from the City and a North York councillor. Ms. Hoang understood that had the councillor signed off, everything would be fine, but he was unwilling to do so.
34Ms. Hoang claimed that she did not know what the title insurance company was doing to solve her problem. No one told her to close the restaurant or that she personally needed to apply for a building permit. The engineer told them that they were very lucky they purchased title insurance so they didn’t have to worry, and that the insurance would handle it for them.
35It appears that, at least at the outset, Mr. Nguyen communicated with the title insurer on behalf of Ms. Hoang. There are several letters in which Mr. Nguyen responded to Stewart Title’s requests for information. He testified that he did not charge Ms. Hoang for his services, and ultimately, after he was satisfied that they were responding to the claim, he told the insurer to deal with her directly. I note that there was no claim in this action that Mr. Nguyen was negligent in his dealings with the title insurer on Ms. Hoang’s behalf.
36By early 2009, Ms. Hoang was informed that Stewart Title had reached the end of its role and was prepared to enter into a settlement with her. By letter dated January 15, 2009, Stewart Title offered her the sum of $25,000 in order to close their file. She said she was not satisfied, and asked, “what about my business?” Ms. Hoang testified she was told that the title insurance did not insure her business, and that she should find a lawyer.
37The plaintiff then retained her present counsel, Leon Wickham, who put Mr. Nguyen on notice of a claim, and entered into negotiations with Stewart Title.
38By letter to Stewart Title dated May 15, 2009, Mr. Wickham stated:
I am in possession of a copy of your offer to Ms Hoang that was made several months age (sic); however, I have seen none of the underpinnings that generated your offer. I am also concerned that Ms Hoang cannot realize on her investment in the business and on her years of promoting its growth, unless she is able to sell the unit with the business as a going concern. It is therefore likely that she would have to secure a building permit in the near future. For this reason, I would very much like to receive all of the information you have regarding your inspection of the premises, so that I can provide appropriate advice to my client.
39Karen Valentine, claims counsel on behalf of the insurer, responded:
The offer that we made to Mrs. Hoang in a letter dated January 15, 2009 is based upon our determination of her loss in value of the land. We have estimated this loss to be $20,000 based on our experience with similar circumstances. The additional $5,000 was a gratuitous effort to dispense with the matter, which has been ongoing since 2003. We have not obtained an appraisal to support the offer. If Mrs. Hoang disagrees with our offer, she can provide us with proof of her loss, at her expense…by providing an appraisal to indicate the difference in value as insured and the value of property subject to the defect as at August 6, 2003 (the date of discovery of the loss)….
Lastly, you expressed concern that Mrs. Hoang cannot realize on her investment in the business and on her years of promoting its growth, unless she is able to sell the unit with the business. This is a concern that is outside the purview of the policy coverage. We have told Mrs. Hoang on several occasions that she is not restricted from trying to sell the Property if she so desires. Moreover, the policy amount is limited to $100,000. There is no evidence that she will not be able to sell the Property for greater than the policy amount. It is our position that if Mrs. Hoang is able to sell the Property for an amount greater than the policy amount then she has suffered no loss under the Policy.
40Mr. Wickham responded that he anticipated that his client would proceed to hire a duly qualified building inspector to prepare a report on what is required in order to secure a building permit for the work that has already been done on the premises and to specify whether or not the premises can support an eat-in restaurant business (the existing use was for take-out food). No such report was produced at trial.
41Ultimately, Mr. Wickham sent a letter to the insurer dated June 25, 2009 in which Ms. Hoang offered to accept the full amount of the face value of the insurance policy plus her reasonable legal costs, without prejudice to her claiming the balance of any losses from her former solicitor, Mr. Nguyen. Stewart Title counter-offered, with the offer that was ultimately accepted (a cash payment of $75,000 to Ms. Hoang plus $7,500 forwarded to the City in lieu of parking, to finalize the application for minor variance, and $7,911.38 that had been paid in engineering fees for the preparation of as-built drawings and plans required to apply for the permit). Ms. Valentine stated:
In connection with your request that your client retain the right to be able to proceed against her former solicitor for the balance of her related business losses, please be advised that we have amended our standard Settlement Agreement to allow your client to retain the right to commence proceedings against her former solicitor for matters which are not covered under the Policy. We will require a full and final release of Stewart Title and the lawyer of any issues covered under the Policy. We will also require that your client indemnify Stewart Title for any and all costs incurred should Stewart Title be brought into any proceeding commenced by your client against her former solicitor.
42The Settlement Agreement and Release dated July 10, 2009 and signed by Ms. Hoang, provided in part:
For and in consideration of the total sum of Ninety Thousand, Four Hundred, Eleven Dollars and Thirty-Eight Cents ($90,411.38) the sufficiency of which is hereby acknowledged, Cindy Hoang (the “Insured”) does hereby fully and forever release and discharge STEWART TITLE GUARANTY COMPANY… from any and all claims, including but not limited to claims for negligence, breach of contract, and wilful misconduct, and all causes of action and demands of any kind or nature, whether known or unknown, arising from, related to, or connected in any way, whether directly or indirectly with all issues contained within an Order to Comply issued by the City of Toronto on July 19, 2002 and May 8, 2003 at/or in connection with the property known as 750 Oakdale Road, Unit 37, Toronto, Ontario, (the “Property”), as well as any claim which she may have, incur, or could possibly assert against Stewart with respect to these issues under the Title Insurance Policy Number 0-7761-17967.
The Insured does hereby fully and forever release and discharge Trang Nguyen (the “Lawyer”) from all matters covered under the Policy…
It is agreed and understood that the Insured will not make any claim or take any proceedings against any other person or corporation who might claim, in any manner or forum, contribution or indemnity in common law or in equity, or under the provision of any statue (sic) or regulation, from Stewart in connection with the matters outlined above. If the Insured commences such an action, or take such proceedings, and Stewart is added to such proceeding in any manner whatsoever, whether justified in law or not, the Insured will immediately discontinue the proceedings and/or claims, and the Insured will be jointly and severally liable to Stewart for the legal costs incurred in any such proceeding…[Emphasis added.]
43The plaintiff then commenced this action.
Analysis
1. Was the solicitor negligent?
44The plaintiff was careful to limit her claim against the solicitor to damages for negligence in the services he provided with respect to the purchase of the business. There is no mention in the statement of claim of the purchase of the condo unit, and only a passing reference to the title insurance. The plaintiff asserted that Mr. Nguyen failed to complete searches of the fire, health and building departments that would be considered routine in a purchase transaction of the type for which he was retained. At trial, Mr. Wickham emphasized that there were two separate transactions. He asserted that the purchase of title insurance, while obviating the need for searches in the context of the condo purchase, did not absolve the solicitor of the responsibility for conducting the same searches in connection with the purchase of the business.
45Mr. Wickham accepted that it was possible for the purchasers to waive the need for searches, but he urged the court not to accept the evidence of Mr. Nguyen that he had discussed the issue with his clients (at least with Ms. Hoang’s husband and Ms. Le and her husband) and that they had insisted on proceeding with a closing date that did not permit the search for work orders to occur. He also contended that, even if there were such discussions, any waiver was not binding on Ms. Hoang.
46There were only two witnesses at trial. Ms. Hoang could only testify with respect to her own dealings with Mr. Nguyen, and Mr. Nguyen’s testimony about what he discussed with Ms. Hoang’s husband and the other two individuals was essentially unchallenged. In any event, I believed Mr. Nguyen’s testimony about what he told his purchaser clients about the need to conduct searches and what might happen if searches were not conducted. Although he did not make any detailed file notes, his actions in relation to the transaction are consistent with providing this advice. He told the purchasers that the closing date they had negotiated with the vendors was too short to permit the searches to be conducted. Their response, according to Mr. Nguyen, and consistent with Ms. Hoang’s own sentiment at the time, was that they were anxious to complete the deal and did not want to upset the vendors.
47The fact that the discussions took place with Ms. Hoang’s husband in her absence, is in my view irrelevant. While Mr. Nguyen agreed with the proposition that Cindy Hoang was his client, in fact she only became involved in order to take title shortly before closing. She was not a disinterested third party, but someone who was willing to step into a transaction that had already been negotiated.
48When Ms. Hoang became involved in the transaction, it was only days before the closing. There was already a binding agreement of purchase and sale, and she had become involved in order to take title. The business transaction was, however, essentially unchanged; that is, that the two males would be operating the restaurant business. Even if Mr. Nguyen had gone through all the same discussions with Ms. Hoang as he had undertaken with the other three, there would have been no ability to back out of the deal, which was now firm. There was no time to undertake any search that might reveal a Building Code violation. If Ms. Hoang had told Mr. Nguyen that she did not want to proceed in the absence of searches, the purchasers would have been in default under the agreement.
49Ms. Hoang’s evidence was not reliable, including her statement that, if she had known of the existing work order, she would not have proceeded with the purchase. Throughout her evidence she was uncertain about dates, saying that she thought the transactions had closed in October, and that she had met with the lawyer several days before the closing date (when the date on the documents she signed is November 13, 2002). At discovery she stated that she had received the draft reporting letter from Mr. Nguyen’s office before she received the work orders. At trial, she testified that she had received the draft letter after the work orders, but never read it. Most importantly, however, the plaintiff was vague and uncertain about her understanding of the work orders and what, if anything, was required to be done to comply with their terms.
50There was nothing to suggest that the solicitor, who at the time had seven years of experience in a mixed practice that included commercial real estate, lacked relevant experience or expertise, or that he adopted any practices or procedures that were inconsistent with the appropriate standard of care. There was, in fact, no evidence as to the appropriate standard of care. I am not prepared to simply accept Mr. Wickham’s submission that in all cases it is negligent for a solicitor, notwithstanding whatever instructions have been given or the fact that title insurance has been obtained, to fail to conduct a search which might reveal a work order in the context of the purchase of a business. No evidence or authority was provided to support that proposition. Paraphrasing Epstein J.A. in Krawchuk v. Scherbak, 2011 ONCA at paras. 130 to 135, in general it is inappropriate for a trial court to determine the standard of care in a professional negligence case in the absence of expert evidence, except when the court is faced with nontechnical matters of those of which an ordinary person may be expected to have knowledge, or where the impugned actions are so egregious that it is obvious that the professional’s conduct has fallen short of the standard of care, even without knowing precisely the parameters of that standard.
51I am also not prepared to infer negligence from what were deficiencies in Mr. Nguyen’s file management practices at the time. His failure to take detailed notes and the obvious mistakes in the draft reporting letter that was given to Ms. Hoang, may have made it more difficult for him to defend the action, but are ultimately irrelevant to the question of negligence. As Harris J. noted in Dinevski v. Snowdon, 2010 ONSC 2715, at para. 129, the failure to follow a recommended practice guideline is not conclusive of a breach of the standard of care for negligence.
52For all of these reasons, I conclude that the plaintiff has not established that Mr. Nguyen was negligent in failing to conduct the inquiries that would have revealed the existing work order.
2. Did the plaintiff prove her claim for damages?
53In her statement of claim, the plaintiff claimed damages of $250,000, “equivalent to the amount of her original investment in the business plus the additional increase in value that would have accrued therefrom.” She alleged that, because of the outstanding work orders, she has been unable to sell the business. At trial her claim for damages was limited to $115,000, the amount she paid for the business.
54There is simply no established damage or loss to the plaintiff in this case. She has continued to operate the deli business without interruption since its purchase. She has not applied any of the funds she received from Stewart Title to rectify the work orders, and notwithstanding the work already undertaken through the insurer to correct the problems, she contends that she has no plans to complete any work. She did not lead any evidence at trial as to the work that remains to be completed in order to satisfy the work orders. Ms. Hoang testified that she did not want to shut down her business in order to complete any work that might be required, however under cross-examination she admitted that she has no knowledge as to what work needs to be done and whether such work would require the closure of the business for any period of time.
55Mr. Wickham argued that there would be many contingencies surrounding the issuance of a building permit, however he advanced no evidence at all to suggest that the remedial work remaining after Stewart Title’s involvement, would be difficult, impossible or expensive.
56In support of his argument that the court should award Ms. Hoang the full value of her lost investment in the business, Mr. Wickham referred to in McLean v. Shedden, [2012] O.J. No. 5769 (C.A.), a recent decision of the Court of Appeal affirming a judgment at trial. The case involved a solicitor who was negligent in failing to advise his clients in their purchase of a pub, of the need to obtain a transfer of the vendor’s liquor license. The trial judge had assessed as damages, one half of the plaintiff’s initial investment in the purchase. The Court of Appeal, while affirming the decision, did not endorse the approach to damages, but simply held that there was evidence to support the assessment of the trial judge. At trial, the plaintiff had sought to prove that the restaurant was economically viable, which was not accepted by the trial judge. Nevertheless, there was evidence that the restaurant had some resale value if it had maintained a valid liquor license, and this was the basis for the award of damages based on one half of the plaintiff’s original investment.
57Unlike the plaintiff in McLean v. Shedden, Ms. Hoang has offered no evidence at all that her business or her investment has suffered any damage or loss as a result of the alleged negligence of the defendant. Her counsel is asking the court to assess as damages the entire purchase price of the business, which she continues to operate, without any proof of damage or loss.
58The case law is clear that a plaintiff must prove her damages by leading evidence at trial, and that it is not up to the court to simply find a number that would “make the plaintiff whole.” In Martin v. Goldfarb (1998), 41 O.R. (3d) (C.A.), leave to appeal ref’d, [1998] S.C.C.A. 516, the Court of Appeal overturned a significant award of damages to a plaintiff who had established a breach of fiduciary duty by the defendant. Finlayson J.A. concluded that the plaintiff had failed to prove his losses through appropriate evidence, and that the trial judge’s award of damages was speculative at best. In Wood v. Grand Valley Railway Company (1915), 51 S.C.R. 283, the Supreme Court of Canada held that, although the plaintiff has the burden of adducing evidence as to the damages suffered, where it is impossible to calculate damages with mathematical certainty, due to the existence of contingencies in the control of a third party, or otherwise, the court can nevertheless “do the best it can” to assess damages. According to Finlayson J.A. in the Martin case, this does not mean that a plaintiff is relieved from the obligation to prove damages.
59In SEP Holdings Ltd. v. Cambridge (City), [2013] O.J. No. 2320 (S.C.), at para. 106, Flynn J. summarized the applicable legal principles as follows:
Where damages in a particular case are by their inherent nature difficult to assess, the court must do the best it can in the circumstances. But that doesn't mean that a litigant is relieved of his or her duty to prove the facts upon which the damages are estimated. As the Court of Appeal said in Martin v. Goldfarb 1998 CarswellONT 3319 (Ont. C.A.) this does not justify counsel dumping on the trial judge the responsibility of pulling a figure out of the air. The distinction drawn in the various authorities is that where the assessment is difficult because of the nature of the damage proved, the difficulty of assessment is no ground for refusing substantial damages even to the point of resorting to guesswork. However, where the absence of evidence makes it impossible to assess damages, the litigant is entitled to nominal damages at best.
60There are other problems with the plaintiff’s damages claim in this action. While the plaintiff testified that she believed that she was unable to sell the business with the work orders in place, there was no evidence at all about any efforts to sell the business. There was no evidence of a valuation of the business with or without the work order. There were no financial statements that might have established some loss or damage to the business; in fact the production of financial statements was refused by the plaintiff. In the absence of any evidence, the court cannot simply conclude that the plaintiff has lost her investment.
61Finally, to the extent that the plaintiff’s claim is for loss or damage to her business, her failure to take any steps to remove the work order is a failure to mitigate and her claim for damages can be dismissed for this reason only.
3. Did the plaintiff release her claim against the defendant?
62I have concluded that the plaintiff’s claim in this action is in respect of matters covered by the Stewart Title policy, for reasons explained below in addressing the third party claim. As such, the release signed by the plaintiff releases her claims against Mr. Nguyen in this action.
63The claim for negligence in relation to the work order is a risk that was covered under the title insurance policy. The work order relates to an alleged Building Code violation in relation to the condo property. Even if the plaintiff asserted that the solicitor owed a duty to conduct a search that would have revealed the work orders in the context of the business purchase, the defect existed in relation to the occupation and use of the condo property.
64While her counsel may have intended to secure for the plaintiff the ability to pursue a claim for her business losses arising out of the failure to conduct a search, the fact remains that the work order was a defect that was covered by the policy, and the insurer did not agree to the broad reservation of rights against the solicitor that Mr. Wickham was seeking. The wording the insurer added to the release simply permitted the plaintiff to assert a claim for matters that were not covered by the policy, without stating what those matters were.
65The correspondence between the title insurer and the plaintiff’s counsel, which could be interpreted as an acknowledgment that the plaintiff was free to pursue her claims against the solicitor for her related business losses, is of course not binding on the defendant. Similarly, the agreement between the plaintiff and the third party in their Agreed Statement of Facts at trial that “the plaintiff does not claim against the defendant in the within proceeding with respect to any matters arising under the Policy,” is of course not binding on the defendant and the court, and has no effect on the proper characterization of the plaintiff’s claims in this action.
Third Party Claim
66In the third party claim, the defendant claims against Stewart Title contribution and indemnity for any amount the defendant may be required to pay the plaintiff and for his defence costs. The indemnification obligation arises not under the title insurance policy, but pursuant to the terms of an agreement dated March 9, 2005 (the “Indemnity Agreement”) between Stewart Title and the Law Society of Upper Canada (“LSUC”).
67The Indemnity Agreement provides that, where a title insurance policy was issued in favour of all of the transferees…obtaining an interest in the land which was the subject of a real estate transaction, Stewart Title, in favour of all members of LSUC, agrees to:
i. indemnify and save harmless the member of LSUC and the member’s law firm (“the member”) acting as solicitor for the transferee(s)… from and against any claims arising under the title insurance policy(ies), except for the member’s gross negligence or wilful misconduct…
68The Indemnity Agreement, by its terms, applies inter alia to “all transactions completed on or after January 1, 1998 to November 18, 2004, except where it is shown that a real estate transaction levy surcharge was paid,” and accordingly governs the issues between the defendant and the third party in these proceedings.
69The Indemnity Agreement was considered and interpreted in Stewart Title Guarantee Co. v. Zeppieri, [2009] O.J. No. 322 (S.C.). In that case, Brown J. noted that the Indemnity Agreement is a commercial contract, that provides not only a duty to indemnify the lawyer in respect of claims covered by a title insurance policy but also a duty to pay for the ongoing costs of the lawyer’s defence. The obligation means that a lawyer should never have to put his hand in his own pocket in respect of a claim covered by the terms of the indemnity agreement (at paras. 17 and 30). Brown J. also held that the obligation to pay defence costs exists even if LAWPRO retains control over the lawyer’s defence (at paras. 26 and 27).
70The Indemnity Agreement has been considered in three other reported cases, which have followed Zeppieri: Freedman v. Toronto (City), [2009] O.J. 4790 (S.C.), Nakhuda v. Stewart Title Guaranty Co., [2010] O.J. No. 6170 (S.C.) and Charlebois v. Stewart Title Guaranty Co., [2011] O.J. No. 5392 (S.C.). In each case, the court considered an application for the payment of ongoing defence costs in respect of claims against a lawyer where a policy of title insurance had been obtained. In each case, certain allegations against the lawyer were admittedly covered by title insurance, while others were not. In Zeppieri, Nakhuda and Charlebois, Stewart Title was required to fund ongoing defence costs, subject to a retroactive adjustment upon the settlement or final disposition of the matter, while in Freedman, the court granted a declaration that defence costs were to be funded only for the claims covered by the title insurance policy.
71In the present case, as in Zeppieri, there is no question that a claim was made and accepted under the title insurance policy. The question is whether Stewart Title has a duty to pay Mr. Nguyen’s defence costs, which depends on whether the claims asserted by Ms. Hoang in the main action are claims “arising under the title insurance policy.”
72The defendant’s position is simple, as paraphrased from the Third Party Claim: The Indemnity Agreement was intended to apply in circumstances in which a member of the LSUC is named in an action as a result of a claim made by the beneficiary of a title insurance policy in connection with a claim arising as a consequence of the discovery of a work order. Mr. Nguyen acted as the plaintiff’s solicitor when the policy was issued. He has been named as a defendant in an action in connection with the work order. The action is therefore a claim “arising under the policy”, and the solicitor is entitled to his defence costs.
73Stewart Title contends that the claims do not arise under the insurance policy because the statement of claim limits the claim to the plaintiff’s business transaction, and not the purchase of the condo which is covered by the title insurance policy. Stewart Title urges the court to consider the terms of the release, and the fact that the intention was for the plaintiff to sue for what was not covered under the policy. Since there is no possibility of indemnity for damages (because of the type of damages claimed or because of the plaintiff’s settlement with Stewart Title), there is no duty to pay defence costs.
Analysis
74The Zeppieri line of cases applies principles from insurance cases involving the “duty to defend” in interpreting the indemnification provisions under the Indemnity Agreement. Generally, whether there is a duty to defend does not depend on the final outcome of the proceedings; rather the court must consider the substance or “true nature of the claim,” which is discerned from the pleadings: Monenco Ltd. v. Commonwealth Insurance Co., 2001 SCC 49, [2001] 2 S.C.R. 699 at paras. 33 to 35.
75In Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33, [2010] 2 S.C.R. 245, the applicable principles were summarized by Rothstein J. at paras. 19 and 20 as follows:
An insurer is required to defend a claim where the facts alleged in the pleadings, if proven to be true, would require the insurer to indemnify the insured for the claim…It is irrelevant whether the allegations in the pleadings can be proven in evidence. That is to say, the duty to defend is not dependent on the insured actually being liable and the insurer actually being required to indemnify. What is required is the mere possibility that a claim falls within the insurance policy. Where it is clear that the claim falls outside the policy, either because it does not come within the initial grant of coverage or is excluded by an exclusion clause, there will be no duty to defend…
76In the present case, the wrong alleged by the plaintiff is the failure to conduct a search that would have revealed an existing work order. She claims damages “as a result of the said [work order],” and alleges that she is unable to sell the business because of the work order.
77It is obvious from the statement of claim that the allegation against the solicitor is the same allegation that Stewart Title accepted as a claim arising under the insurance policy. It is a claim respecting a work order issued by a municipality, that has been referred to as a title defect, by all counsel in this case.
78In her statement of claim the plaintiff attempted to characterize the claim differently, in order to remove the claim from the scope of the settlement she negotiated with the title insurer. She pleaded that the plaintiff was notified that the policy of title insurance “did not in any way cover the transaction that involved her purchase of the business.” Mr. Lui, counsel for Stewart Title, suggested that the court should have regard to this paragraph in the statement of claim, to assist in determining the true nature of the claim, as well as the external evidence of the release that the plaintiff signed. The plaintiff’s intention was to assert a claim that was outside the settlement she had reached with Stewart Title and this is how it should be interpreted.
79I disagree with this approach. In determining the true nature of the claim, the allegations that are relevant are those that comprise the cause of action – that describe the wrong that is alleged to have occurred. Ms. Hoang’s allegations as to what she was told by the insurer about the effect of the policy, and the terms of the release, are irrelevant to her claim of negligence against the lawyer. As Iacobucci J. noted in the Monenco case, citing Wallace J. in Bacon v. McBride (1984), 5 C.C.L.I. 146 (B.C.S.C.), “the pleadings govern the duty to defend – not the insurer’s view of the validity or nature of the claim or by the possible outcome of the litigation”. Further, it is the essence of the claim, not the labels used by the plaintiff or her bare assertions that are determinative. “The parties to an insurance contract are not defenceless against inaccurate or manipulative pleadings.”: Non-Marine Underwriters, Lloyd’s of London v. Scalera, 2000 SCC 24, [2000] 1 S.C.R. 551, at paras. 79 and 84.
80The true nature of the plaintiff’s claim is that she sustained damage as a result of the discovery of a work order that had been issued in respect of the condo property. She claims that the solicitor was negligent in not conducting a search that would have revealed the work order. This is a claim that falls squarely within the scope of the title insurance policy.
81The fact that there were two transactions – a business purchase and a condo purchase – does not affect the analysis. There is one wrong alleged against Mr. Nguyen – the failure to identify a work order – which is specifically covered under the title insurance policy. It is artificial and absurd to suggest that, notwithstanding the purchase of title insurance that covered the specific risk of work orders, and obviated the need to conduct searches, the solicitor owed a separate duty to the plaintiff to perform the searches in the context of the purchase of the business.
82Stewart Title referred to cases which recognize that there is no duty to defend after a policy’s limits have been exhausted: Boreal Insurance Inc. v. Lafarge Canada Inc., [2004] O.J. No. 1571 (S.C.) and Dominion of Canada General Insurance Co. v. Kingsway General Insurance Co., 2011 ONSC 1249, [2011] O.J. 811 (S.C.). In these cases, which involved a contest between insurers, an insurer that tendered its limits had no ongoing duty to defend.
83Stewart Title also argued that there could be no obligation to indemnify for costs of defending a claim for a type of damage or loss that would fall outside the scope of the title insurance policy, such as lost profits.
84It is beyond the scope of this decision to attempt to determine the outer limits of Stewart Title’s duty to indemnify for a solicitor’s defence costs, to determine what would have occurred if Stewart Title had tendered its policy limits, or if the plaintiff sued for and was awarded a type of damages that was not covered by the title insurance policy. As Brown J. noted in Zeppieri, the Indemnity Agreement is a commercial contract. There is nothing in the agreement or in the policy that was issued to the plaintiff in this case, that would obviate the requirement to pay defence costs where the allegation was a failure to search for a work order, a risk that was specifically covered under the title insurance policy.
85Stewart Title also argued that there is no obligation to pay defence costs because the settlement and the release that the plaintiff signed are a defence to her claim. Since there was from the outset no possibility of indemnification, there was no obligation to pay defence costs. This argument is equivalent to the argument that was rejected by Brown J. in Zeppieri, that there was no duty to defend because there was in fact no Planning Act problem. The fact that the plaintiff released the defendant lawyer from claims arising under the policy provides the lawyer with a defence to the action, and is relevant to the merits of the plaintiff’s claim, but not the duty to defend the claim.
86I am satisfied that the third party is obliged to indemnify the defendant for all of his reasonable defence costs with respect to Ms. Hoang’s claims, as well as the costs of pursuing the third party action. This is not a case where an apportionment of defence costs is warranted. In Zeppieri, Charlebois and Nakhuda, it was acknowledged that certain allegations of the plaintiff were in relation to matters covered by the title insurance policy while others were not, and that as such, some apportionment would be required after judgment or settlement of the action. In the present case, there is only one alleged negligent act – the failure to conduct a search that would have revealed the existing work order. As such, there is no basis for an apportionment of defence costs as between the defendant and the third party.
87If the plaintiff had proven damages beyond the limits of the title insurance policy, or of a type not covered by the policy, an apportionment of defence costs may have been in order, however I am not certain that this result would necessarily follow from a reading of the Indemnity Agreement. In any event, in the circumstances of this case, Stewart Title’s direct settlement with the insured which left open the possibility that she could still bring an action against her lawyer, which occurred without prior consultation with the lawyer, appears contrary to the obligation under the Indemnity Agreement to “save harmless” the lawyer against any claims arising under the title insurance policy.
88If the defendant and third party are unable to agree on the indemnification amount, I will receive written submissions on this issue.
89I will also receive written submissions on the costs of the main action. Without prejudging the question of costs, I would observe that the defendant, having successfully defended the main action, would ordinarily be entitled to his costs against the plaintiff; that Stewart Title, in indemnifying the defendant, would be subrogated to the defendant’s claim for costs against the plaintiff; and that Stewart Title, having aligned itself with the plaintiff at trial, should not expect to recover from the plaintiff its costs of defending the main action.
90All submissions respecting the amount of indemnification and costs shall be collected by the defendant’s counsel and submitted together for my consideration within 30 days.
K. van Rensburg J.
Released: October 7, 2013
COURT FILE NO.: CV-09-3835
DATE: 20131007
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
Cindy Hoang
Applicant
- and –
Tang Trang Nguyen
Respondent
- and –
Stewart Title Guaranty Company
Third Party
REASONS FOR JUDGMENT
K. van Rensburg J.
Released: October 7, 2013