I. FACTUAL BACKGROUND

Introduction

[1] The plaintiff, Nagia Mandozai, brings a motion for partial summary judgment with respect to two outstanding loans. The kernel of her argument is that the defendant, now deceased, acted as her lawyer and breached the duty of care owed to her. She alleges that the defendant knowingly acted for her while in a conflict of interest and failed to provide material information about the loan transactions.

The Profilex Group Loan

[2] The defendant, a lawyer practising in Toronto, advised Ms. Mandozai’s husband, Mr. Rahim Khan, that there were clients seeking short-term financing for their business. Mr. Khan, acting on behalf of Ms. Mandozai, agreed to extend a series of loans to Ramon Hernandez, Marcelo Hernandez, Premium Products Inc., and Profilex Inc. (collectively, “the Profilex Group”). The first two loans were repaid with interest to the plaintiff and Mr. Khan. A further loan in the amount of $150,000 was suggested by Mr. Igbinosun. According to the plaintiff and Mr. Khan, Mr. Igbinosun agreed to act as their lawyer and to look after their interests in this transaction. As a result of those representations, on June 28, 2011, the plaintiff authorized Mr. Igbinosun to draft a promissory note from to the Profilex Group in the amount of $150,000 with an agreement that the amount of $172,500 would be repaid by August 31, 2011. To date, only $25,000 has been repaid. Subsequently, the plaintiff discovered that Mr. Igbinosun was conducting insolvency proceedings for Premium Products Inc.

The Igbinosun Loan

[3] In addition to the Profilex Group loan, the defendant requested a sum of $40,000 for a personal loan. According to the terms of the loan, the entire sum would be repaid on or before the July 31, 2012 with the accrued sum of interest of $3500. Once again, the defendant drafted and signed a promissory note for this loan. On July 31, 2012 that loan remain outstanding. On December 21, 2012, the defendant requested a further loan of $20,000. He drafted a new promissory note incorporating the past debt owed under the previous note and promised to repay the sum with an additional $9,000.00 as interest on or before March 31, 2013. Once again, the defendant failed to make the required payment.

II. THE ISSUES

The Positions of the Parties

[4] Mr. Sher, on behalf of the plaintiff argues that the defendant acted as the plaintiff’s lawyer throughout her dealings with him with respect to the loan and breached his duty of care to her by:

(a) Breaching the Law Society of Upper Canada’s Rules of Professional Conduct (“the Rules”) by placing himself in a conflict of interest by acting for both the borrower and lender

(b) Further breaching the Rules by borrowing money from her whilst he was her lawyer

(d) Failing to inform her that he was acting as counsel to Premium Products in an insolvency proceeding dealing with its inability to repay creditors

(e) Failing to register a security interest under the PPSA for the General Security Agreement (GSA) detailed in the promissory note

[5] The plaintiff alleges that the defendant should be held liable for:

(a) $147,500 with respect to the Profilex Group Loan (the $172,500 minus the $25,ooo repaid) and

(b) $69,000 with respect to the defendant’s loan (the loan plus the interest promised by the defendant).

[6] Mr. Sher further argues that if the plaintiff is successful, the Lawyer’s Professional Indemnity Company (“Law Pro”) should be liable to pay any damages awarded by this court. It is the plaintiff’s position that there is no genuine issue for trial on these matters and that this court is in a position to grant summary judgment in accordance with Rule 20.04 of the Rules of Civil Procedure and the principles enunciated by the Supreme Court of Canada in Hyrniak v. Maudlin, 2014 SCC 7, [2014] 1 S.C.R. 87.

[7] Mr. Sinclair, for the defendant, asserts that there was no solicitor-client relationship between the plaintiff and the defendant. Even if such a relationship could be established, there is no evidence that the defendant breached his duty of care to the plaintiff. He further argues that any analysis of solicitor negligence requires expert evidence which is absent from any of the materials put forward by the plaintiff. It is the defendant’s position that these matters require a trial and that the plaintiff’s motion should be dismissed.

[8] Mr. Sinclair points out that Law Pro is not a party to these proceedings and has no relationship to the plaintiff or Mr. Khan. This court therefore has no jurisdiction to order Law Pro to pay any damages that may be awarded to the plaintiff.

III. THE LEGAL PRINCIPLES

The Test for Summary Judgment

[9] Rule 20.04(2)(a) of the Rules of Civil Procedure states that:

(2) The court shall grant summary judgment if,

(a) the court is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence; or

(b) the parties agree to have all or part of the claim determined by a summary judgment and the court is satisfied that it is appropriate to grant summary judgment.

(2.1) In determining under clause (2) (a) whether there is a genuine issue requiring a trial, the court shall consider the evidence submitted by the parties and, if the determination is being made by a judge, the judge may exercise any of the following powers for the purpose, unless it is in the interest of justice for such powers to be exercised only at a trial:

Weighing the evidence.
Evaluating the credibility of a deponent.
Drawing any reasonable inference from the evidence.

[10] In Hyrniak, the Supreme Court of Canada concluded that summary judgment motions must be granted whenever there is “no genuine issue requiring a trial”. The court indicated that the test under Rule 20.04 would be satisfied if the judge could reach “a fair and just determination on the merits of a motion for summary judgment.”

[11] When faced with a summary judgment motion the court must determine whether the process:

(1) Allows the judge to make the necessary finding of fact

(2) Allows the judge to apply the law to the facts and

(3) Is a proportionate, more expeditious and less expensive means to achieve a just result.

IV. ANALYSIS

The Profilex Group Loan

(a) Was there a Solicitor-Client Relationship Between the Plaintiff and the Defendant?

[12] The plaintiff’s position is that the defendant acted as her lawyer throughout the period covering the loan transactions. As such, he owed her a duty of care and his conduct fell short of the required standard. Mr. Sher asks the court to consider the discovery evidence of Mr. Khan and the circumstances surrounding the loan transaction.

[13] Mr. Sinclair, on the other hand, points to the lack of documentary evidence such as a letter of retainer or invoice denoting a solicitor-client relationship. It is the defendant’s position that he drafted the note “as a favour” to the parties.

[14] Both parties also point to evidence elicited at the discovery hearings in this action. Mr. Khan testified that the defendant had explicitly described himself as his lawyer, making comments such as “You can trust me. You have nothing to worry about. I am taking care of your best interests. I am going to look after everybody. They are my client [sic]. You are my client.” Conversely, another witness, Janice Bolla, employed as counsel for Law Pro, testified that the defendant had informed her that he had never acted as a lawyer for the plaintiff.

[15] In my view, this aspect of the dispute does not raise a genuine issue requiring a trial. I am permitted to consider the defendant’s out of court statements pursuant to Rule 20.02 of the Rules of Civil Procedure. Both Mr. Khan and Ms. Bolla provide diametrically opposed evidence in relation to the defendant’s representations regarding his role. However, there is significant circumstantial evidence that, in my view, provides the answer to this question.

The following facts are of great significance:

The defendant was a lawyer by profession and made that known to Mr. Khan;
The defendant drafted the promissory note;
Funds were provided to the defendant in trust;
The defendant acted as a witness to the signatures of the plaintiff and Mr. Khan when they signed the documents;
The defendant placed his business address on the Profilex Group promissory note as that of “the Lender”.

[16] There was no reason for the defendant to use his business address on a promissory note drafted “as a favour” to the plaintiff. By inserting his address, the defendant was clearly holding himself out as the plaintiff’s legal representative to the borrowers. Based on the above points, and the general nature of the dealings between the parties, I conclude that a solicitor-client relationship existed between the two parties. As such, the defendant owed the plaintiff a duty of care.

(b) Is Expert Evidence Required in this Case?

[17] Having found that a solicitor-client relationship existed, I turn to the question of whether the defendant’s conduct fell below the standard of care required in his dealings with the plaintiff. Counsel for the defendant submits that the court cannot conduct this type of analysis without the benefit of expert evidence and, since none has been tendered by the plaintiff, the claim for summary judgement must be dismissed. He relies on Krawchuk v. Scherbak, 2011 ONCA 352, 106 O.R. (3d) 598 as the basis for this argument. In that case, and in the cases decided since, the courts have made it clear that, as a general rule, it will not be possible to determine professional negligence without expert evidence except in cases where:

(1) the court is faced with non-technical matters;

(2) an ordinary person may be expected to have knowledge; or

(3) the impugned actions of the defendant are so egregious that it obvious that his or her conduct has fallen short of the standard of care, even without knowing the precise parameters of the standard.

[18] More recently, in King Lofts Toronto I Ltd. v. Emmons, 2013 ONSC 6113, 234 A.C.W.S. (3d) 747 Perell J. dealt with a situation where the plaintiff had been given erroneous advice by his lawyer with respect to a laneway owned by the city located underneath a building that the plaintiff intended to buy. In a motion for summary judgement, Perell J. held that expert evidence regarding the solicitor’s conduct was unnecessary. Referring to the Krawchuk line of cases and the three exceptions outlined above, he added, at para. 76:

If necessary, I would add a fourth exception where the standard of the profession is clear that the client should be advised about a significant legal risk and it is obvious that the lawyer did not meet the standard.

[19] The Court of Appeal for Ontario agreed with Perell J, 2014 ONCA 215, 40 R.P.R. (5th) 26, and remarked at para. 12:

The appellants submit that the motion judge could not conclude that the solicitor breached the duty when expert evidence was not called to give testimony about the standard of care. We do not agree. The evidence was clear that the respondent was not warned of the risk that the city might expect payment. There was a clear duty to warn and the facts are not in dispute that there was no warning. On the contrary, there was erroneous advice that the matter could be "dealt with" by title insurance. We do not suggest that there is no need for expert opinion in solicitor's negligence matters generally. Here, there was a clear duty to warn that was not complied with and expert evidence was not required.

[20] Contrary to Mr. Sinclair’s submissions, I find this case falls within both the exceptions for non-technical matters and for the failure of a lawyer to warn of significant legal risk where the duty to warn is clear. Consequently, no expert evidence is necessary to determine this case.

(c) Did the Defendant Breach his Duty of Care to the Plaintiff?

[21] Although the plaintiff made submissions with regard to a number of failings on the part of the defendant in his role as lawyer for the plaintiff, in my view this case turns on two separate omissions.

[22] Firstly, in acting as lawyer for both borrower and lender, the defendant violated Rule 2.04(11) of the Rules of Professional Conduct. I accept Mr. Sinclair’s assertion that a violation of this nature does not, in itself, amount to a breach of the defendant’s duty of care: see Hall v. Bennett Estate, 2003 CanLII 7157 (ON CA), [2003] O.J. No. 1827, 64 O.R. (3d) 191. However, violations of the Rules may inform a court’s decision on the questions of duty and standard of care: Hall, at para. 62.

[23] Clearly, both the plaintiff and Mr. Khan knew of the dual role occupied by the defendant. Nevertheless, the defendant was under an obligation to explain the breach of the Rules to the plaintiff before the loan transaction was completed. It was an essential part of the defendant’s role to inform the plaintiff of the potential conflict that might arise, the associated risks, and the fact that in so doing, the defendant was breaching the Law Society of Upper Canada’s Rules. The obligation to explain was particularly acute, given the plaintiff’s prior disciplinary history, which included being found guilty of professional misconduct for acting in a conflict of interest in a loan situation.

[24] Secondly, and perhaps more seriously, the defendant failed to inform the plaintiff that he was involved in insolvency proceedings for one of the borrowers, Premium Products, Inc. In my view this was a breach of Rule 2.06(6)(c) of the Rules which provide that a lawyer shall not arrange loans for a client except with the skill and integrity ordinarily expected by a lawyer dealing with clients. Additionally, as in the Kings Loft case, there was a clear duty to warn the plaintiff that the money loaned was unlikely to be repaid. Not only did the defendant fail to give such a warning, he actively solicited the loan in circumstances perilous to the plaintiff.

[25] These actions and omissions standing alone are sufficient to establish the defendant breached his duty of care to the plaintiff. It is therefore unnecessary to comment on the plaintiff’s allegations that a GSA should have been registered. The relevant facts are readily apparent in the materials before the court and there is no genuine issue requiring a trial.

[26] I conclude that, in relation to the Profilex Loan the defendant’s conduct fell well below the standard of care required and that he acted negligently.

The Igbinison Loan

[27] There is no dispute that the plaintiff loaned the defendant the sum of $60,000 hoping to make a $9,000 profit in interest. However, Mr. Sinclair argues that the circumstances of this loan require a trial due to the parties’ conflicting positions the fate of the loan. Whilst the plaintiff and Mr. Khan insist that the loan was never repaid, Ms. Bolla indicated that the defendant told her that the loan had been forgiven after he had arranged another profitable transaction to Mr. Khan.

[28] I reject this submission because, other than the defendant’s word, conveyed through Ms. Bolla, there is no evidence that a profitable transaction was sent Mr. Khan’s way. In fact, Mr. Khan’s evidence is that the transaction referred to him was not profitable. His own evidence is that he never forgave the loan and that “it is not normal for somebody to forgive over $70,000”. Nor is there any documentary evidence before me to suggest that the loan was forgiven. I do not accept Mr. Sinclair’s assertions that “there is no way to reconcile the competing version of events without the benefit of seeing Khan testify in open court” as there is sufficient evidence from the materials and discovery transcript for me to make the relevant credibility findings.

[29] In arranging a personal loan from the plaintiff, the defendant committed a breach of the Rules by contravening Rule 2.06(4), which prohibits a lawyer from borrowing from a client (with narrow exceptions that do not apply here). I refer once again to the defendant’s disciplinary history for the significance it attains in his dealings with the plaintiff. It was incumbent upon the defendant to warn the plaintiff about any existing rules prohibiting the proposed loan from taking place and advise the plaintiff to obtain independent legal advice. Again, such warnings were even more significant in light of the defendant’s history of misconduct and the sum of money involved. By failing to take these steps, I find that the defendant’s action fell short of the standard of care required in a solicitor-client relationship.

Quantifying the Damages

[30] Mr. Sinclair argues that a trial is required to properly assess the quantum of damages. I reject the notion that “there is a significant contributory negligence component to the plaintiff’s claim” regarding the Profilex Loan. The negligence alleged in this case centres on the role of the defendant as the plaintiff’s lawyer. She and Mr. Khan were entitled to rely on the advice given to them by a person they entrusted as their lawyer.

[31] I disagree, however, with the amounts claimed by the plaintiff with respect to both the Profilex Loan and the loan made to the defendant. Tort law strives to put the parties back into the position that they were in prior to the tortious act being committed. As a result, the plaintiff is entitled only to her “out of pocket” loss and not the contractual award that she claims.

[32] The net result is that the plaintiff is entitled to the sums of $150,000 and $60,000 with the appropriate rate of interest.

Is Law Pro Liable to Pay any Damages?

[33] Finally, Mr. Sher advances the position that Law Pro should make the payment of any damages received as a result of this motion. I disagree. Law Pro is not a party to these proceedings and I have no jurisdiction to make such a payment order.

[34] The plaintiff’s reliance on the case of Abuzour v. Heydary, 2014 ONSC 6229, [2014] O.J. No. 5199 is misconceived. That case, as Mr. Sinclair rightly points out, dealt with the issue of a garnishment order made against Law Pro. No such order exists in this case. On this issue, the plaintiff’s claim is dismissed.

Order

[35] For the reasons above, I order that the defendant pay to the plaintiff:

(1) The sum of $125,000 plus interest in accordance with the provisions of the Courts of Justice Act, R.S.O. 1990, Chapter C.43

(2) The sum of $60,000 plus interest in accordance with the provisions of the Courts of Justice Act.

Costs

[36] If the parties are unable to agree on costs, the plaintiff shall make written submissions, limited to 5 pages, together with a costs outline, to be delivered by May 9, 2015. The defendant may respond by delivering brief written submissions by June 9, 2015.

S.A.Q. Akhtar J.

Released: April 13, 2015

CITATION: Mandozai v. Igbinosun, 2015 ONSC 2288

COURT FILE NO.: CV-13-488013

DATE: 20150413

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Nagia K. Mandozai Plaintiff

– and –

Matthew Joseal Igbinosun Defendant

REASONS FOR JUDGMENT

S.A.Q. Akhtar J.

Mandozai v. Igbinosun, 2015 ONSC 2288

Case Summary

I. FACTUAL BACKGROUND

Introduction

The Profilex Group Loan

The Igbinosun Loan

II. THE ISSUES

The Positions of the Parties

III. THE LEGAL PRINCIPLES

The Test for Summary Judgment

IV. ANALYSIS

The Profilex Group Loan

(a) Was there a Solicitor-Client Relationship Between the Plaintiff and the Defendant?

(b) Is Expert Evidence Required in this Case?

(c) Did the Defendant Breach his Duty of Care to the Plaintiff?

The Igbinison Loan

Quantifying the Damages

Is Law Pro Liable to Pay any Damages?

Order

Costs

Judge

Counsel

Parties

Areas of Law

Fact Patterns

Financial Outcomes

Issues

Statutory Provisions 2

Legal Tests 2

Legislation 1