COURT FILE NO.: 503/10

DATE: 20150824

ONTARIO

SUPERIOR COURT OF JUSTICE

B E T W E E N:

CARL DeGROOT

Appearing in person

Plaintiff

• and -

FAY McFARLANE, FAY A. McFARLANE & ASSOCIATE PROFESSIONAL CORPORATION

A. Pantel, for the Defendant

Defendant

HEARD: March 16-18, 20, 2015

REASONS FOR JUDGMENT

Wein, J.

OVERVIEW

1This is a solicitor’s negligence action arising from Ms. McFarlane’s representation of Mr. DeGroot in an action which arose from a dispute in connection with a mortgage loan that Ms. McFarlane prepared for Mr. DeGroot.

2Much of the evidence concerning the activity that occurred during the negotiations regarding the lawsuit that arose in connection with the mortgage loan is not contested, and is well supported by documents filed by both parties. What is contested is what occurred with respect to offers to settle proposed in court on a motion on April 8, 2008, and a settlement reached in October 2008, just prior to a hearing date set for a long motion.

THE FACTS

I. THE LOAN

3On November 16, 2007, Mr. DeGroot agreed to advance a private purchase and construction renovation loan to a numbered company, and its principal, Paul Violo, for the purpose of renovating a house.

4The written loan agreement prepared by Ms. McFarlane provided that $180,000.00 was to be advanced on closing, and $40,000.00 was to be advanced subsequently by way of construction draws. The loan was secured by a first mortgage on the home that Mr. Violo was renovating, and a collateral mortgage on a second property owned by Mr. Violo.

5The transaction closed on February 12, 2008.

6The total advanced by Mr. DeGroot to Mr. Violo was $186,469.63. On closing, $178,177.56 was advanced by Mr. DeGroot to Mr. Violo: the $180,000 minus an interest payment. Subsequently, on March 12, 2008, an additional $8,292.07 was advanced by Mr. DeGroot after an inspection.

II. DISPUTE AND EARLY OFFERS TO SETTLE

7In March 2008 a dispute arose between Mr. DeGroot and Mr. Violo as to the terms of the loan agreement.

8Mr. DeGroot declined to approve the advance of further amounts under the loan agreement. Mr. Violo deemed Mr. DeGroot to be in breach of the loan agreement.

9Mr. Violo stopped payment on the next mortgage payment, and on March 19, 2008, commenced an action against Mr. DeGroot for breach of the loan agreement.

10He sought damages in the amount of $300,000 and also sought a discharge of the mortgages registered in favour of Mr. DeGroot.

11Ms. McFarlane, who had drafted the loan agreement, was retained by Mr. DeGroot to defend Mr. DeGroot in the action commenced by Mr. Violo.

12Only days after issuing the underlying action, Mr. Violo made an offer to settle the underlying action by proposing to immediately repay Mr. DeGroot a total of $183,871.25 on account of principal, interest and partial costs, in exchange for a dismissal of the underlying action and a discharge of the mortgages.

13The first offer was therefore almost three thousand dollars short of the amount advanced.

14Ms. McFarlane recommended to Mr. DeGroot that he accept this offer. Ms. McFarlane advised Mr. DeGroot that because there were risks inherent in all litigation, and because the amount of costs awarded by judges is discretionary and are never awarded on a full indemnity basis, he should accept the offer.

15Mr. DeGroot rejected the offer on the basis that the proposed payment was insufficient to cover the $186,469.63 he had advanced, his lost interest, and his legal fees.

16On March 28, 2008, Mr. DeGroot made a counter-offer to settle the underlying action in exchange for a payment of $202,682.02, which included interest, penalties and legal fees on a full indemnity basis.

17On April 1, 2008, Mr. Violo rejected that offer, but countered with an offer to immediately pay Mr. DeGroot $197,350.12 to settle the underlying action: almost $11,000 more than the amount advanced. This second offer was also rejected by Mr. DeGroot.

18On April 1, 2008, Mr. DeGroot made a counter-offer to settle the underlying action for $201,682.02. Mr. Violo rejected this offer on the basis that the amount for costs being sought by Mr. DeGroot was unreasonable.

19By letter dated April 2, 2008, Ms. McFarlane stressed to Mr. DeGroot that he should accept the offer, since the difference between what he sought from Mr. Violo and Mr. Violo’s last offer was only about $2000. Mr. DeGroot again decided not to alter his settlement position.

III. MOTION TO DISCHARGE ON APRIL 8, 2008

20Mr. Violo was arranging for other financing, and wished to obtain a discharge of the mortgages.

21Because he and Mr. DeGroot had been unable to agree on the amount of the payout, Mr. Violo brought a motion for an order discharging the mortgages. In his Notice of Motion, Mr. Violo offered to pay into court the amount of the loan that had been advanced, pending a final resolution of the underlying action.

22The motion was heard before Justice Clarke in Guelph on April 8, 2008. Mr. DeGroot and his wife attended with Ms. McFarlane. What happened off the record is disputed between Mr. DeGroot and Ms. McFarlane. Ms. McFalane’s recollections are supported by Mr. Violo’s recollections. Unfortunately, Mr. DeGroot’s wife has since passed away so the Court does not have the benefit of her recall.

23What occurred at the hearing is central to the issues in this case. Mr. DeGroot testified that he was not in the courtroom for the entire time that the motion proceeded and was thus not aware of an offer to settle, proposed with judicial assistance during the hearing. Pressed by the Court to pay out undisputed amounts, Mr. Violo agreed to pay the undisputed amounts owing under the mortgage directly to Mr. DeGroot. Only the disputed funds, consisting of penalties and legal fees of the underlying action, in the approximate amount of $9,300, would be paid into court.

24Mr. DeGroot has testified that he would have accepted that offer to settle had he known about it. Ms. McFarlane has testified that Mr. DeGroot was in the courtroom and rejected the offer with a shark of his head. The transcript is available but is on the face of it unclear as to who was present at critical times¹. Both Ms. McFarlane and Mr. Violo gave evidence at this trial that Mr. DeGroot was in the courtroom throughout the entire proceeding on April 8, 2008 and therefore was in court at the critical time.

25During a recess, directed by the Court to attempt to resolve the amount not in dispute, Ms. McFarlane testified that she shuttled back and forth between Mr. Violo and Mr. DeGroot, who was downstairs in the hallway at a table, in an effort to negotiate a resolution. She testified that Mr. DeGroot refused to settle for anything less than immediate payment of the full amount of principal, interest and penalties owing to him under the mortgage, and his full indemnity legal costs.

26When Ms. McFarlane returned to court following the recess, she advised Justice Clarke that Mr. DeGroot was unwilling to agree to discharge the mortgage in exchange for immediate payment of the undisputed amount owing under the mortgage and payment of the disputed amount into court.

27During an exchange with Justice Clarke, Mr. Violo agreed to repay Mr. DeGroot $193,224.57 on account of principal and interest, and to pay $9,356.47 into court on account of Mr. DeGroot’s legal fees and penalties (for a total of $202,581.04). However, as Ms. McFarlane testified, at an exchange a minute later, she told the judge that Mr. DeGroot would not accept the amounts. She testified that Mr. De Groot was in court, heard the offer, and instructed her to refuse it.

28In the end, the parties did not agree to a settlement on April 8, 2008, and Justice Clarke’s endorsement dated April 8, 2008 refers to his failed efforts “to broker a settlement”.

29On April 9, 2008, one day after the April 8, 2008 motion date Mr. DeGroot acknowledged in an email to Ms. McFarlane that “it’s always those last few dollars that make or break a deal”.

30In the same email, Mr. DeGroot proposed to settle the action in exchange for a direct payment by Mr. Violo of $203,417.42, inclusive of interest, penalties and legal fees. He did not wish to leave any amounts paid into court.

IV. ONGOING LITIGATION AND SUBSEQUENT OFFERS TO SETTLE

31On April 17, 2008, Mr. DeGroot filed a statement of defence in the damages action, seeking to recover his costs of defending the action on a full indemnity basis. On or about the date the statement of defence was filed, Mr. DeGroot instructed Ms. McFarlane to commence power of sale proceedings against Mr. Violo.

32On April 18, 2008, in accordance with Mr. DeGroot’s instructions, Ms. McFarlane served a Notice of Sale and a Statement of Claim on behalf of Mr. DeGroot.

33On May 30, 2008, Mr. Violo offered to settle the underlying action by paying $196,172.24 directly to Mr. DeGroot.

34Mr. DeGroot instructed Ms. McFarlane to reject this offer to settle.

35On June 2, 2008, Mr. DeGroot made a counter-offer of $214,000.17, on the understanding that no monies would be paid into court. This offer was not accepted by Mr. Violo.

36The litigation continued through the summer of 2008. The motion was eventually adjourned to October 27, 2008 for a long motion date, to deal with the discharge motion.

V. THE BRITISH COLUMBIA COMMUNICATIONS

37On or about October 21, 2008, Mr. Violo made an offer to settle the discharge motion. Mr. DeGroot was away in British Columbia visiting his daughter at the time.

38After further concessions increasing the amount to be paid into court, as evidenced by Ms. McFarlane’s records, Mr. Violo proposed that Mr. DeGroot discharge the mortgages in exchange for a payment of $203,130.55, on account of principal, interest and penalties, and a further payment of $20,000.00 into court on account of legal fees, leaving the action and counterclaim outstanding.

39In a telephone call from British Columbia, Mr. DeGroot instructed Ms. McFarlane to attempt to negotiate a larger amount to be paid into court. Ultimately, he agreed that if she could successfully negotiate a larger amount to be paid into court, she could conclude the settlement on the terms proposed by Mr. Violo but at a slightly revised amount of $204,263.22 to be paid directly to Mr. DeGroot, this amount being calculated under the terms of the mortgage.

VI. EVENTS FOLLOWING THE SETTLEMENT

40Mr. DeGroot instructed Ms. McFarlane to accept the reoffer with the newly calculated mortgage amount. She indicated that he should contact her if he thought of anything else. The following day, Mr. DeGroot emailed Ms. McFarlane, changing his mind and wanting more funds paid into court. Ms. McFarlane testified that she did not see Mr. DeGroot’s email before having confirmed the settlement with Mr. Violo’s lawyer.

41Mr. DeGroot, after having initially instructed Ms. McFarlane to accept the proposal, accused Ms. McFarlane of concluding the settlement without his instructions.

42Mr. DeGroot now wanted to recover his full indemnity costs from Mr. Violo and have this amount paid into court, as opposed to the amount he had previously instructed Ms. McFarlane to accept to be paid into court, that is $20,000.00.

43When Mr. DeGroot returned from British Columbia, he attended Ms. McFarlane’s office for a meeting that took place in the presence of a member of Ms. McFarlane’s staff. It is undisputed that at the meeting Mr. DeGroot specifically instructed Ms. McFarlane to continue to represent him.

44On November 17, Ms. McFarlane wrote a long letter to Mr. DeGroot setting out her version of the events, with an emphasis on how the October 23, 2008 settlement agreement was concluded, and highlighting her continuing advice that he should not expect to recover 100% of his litigation costs.

45However, by January 2009, Ms. McFarlane formed the view that the solicitor-client relationship had broken down. By this time Mr. DeGroot had taken most of his file to another lawyer.

46In June 2009, a trial between Mr. DeGroot and Mr. Violo was scheduled to take place, with costs being the only outstanding issue.

47At a pretrial hearing, Mr. DeGroot agreed to settle the costs by splitting the amount paid into court, so he and Mr. Violo each received $10,000.

THE ALLEGATIONS OF NEGLIGENCE

48The allegations of negligence raised by Mr. DeGroot are narrow but significant.

49The first allegation relates to the offer to settle discussed in open court on April 8, 2008.

50The second allegation relates to the acceptance of an offer in October 2008, when Mr. DeGroot was in British Columbia.

51Underlying both of these allegations is an argument that Ms. McFarlane should not have closed the mortgage transaction without Mr. Violo having clearly and personally agreed to the terms set by Mr. DeGroot. Although Mr. Violo’s lawyer had signed with Mr. DeGroot’s proposed terms intact, the terms were not those initially proposed by Mr. Violo and he apparently was not aware of the change in terms. This misunderstanding led to the initial dispute concerning the second construction draw down, and in that sense underlay the lawsuit.

52While the allegation concerning the terms of the underlying mortgage transaction was not pleaded by Mr. DeGroot, it forms an essential background to his claim of negligence concerning the court appearance on April 8, 2008. He feels that it was because Mr. Violo did not understand the terms that were in the final draft of the mortgage that the misunderstanding between them arose. This is logically the case.

53However, it is clear that the mortgage was registered on Mr. DeGroot’s instructions and it complied with the terms desired by Mr. DeGroot.

54The essence of Mr. DeGroot’s claim in this regard is that he was not apprised of the fact that Mr. Violo had wanted different terms. If there was a lapse, it would have been with Mr. Violo’s counsel.

55As a separate claim, this part of Mr. DeGroot’s argument has no merit.

56The determination of the primary issue, of whether or not the plaintiff was in the courtroom for the entire proceeding on April 8, 2008, and was therefore aware of the offer to settle, turns on credibility.

57Fact finding where credibility is in issue requires an assessment not just of honesty, but also of reliability. Honest witnesses may be mistaken, and even witnesses who are unshaken in their belief about a fact may be shown to be incorrect. Events may become more certain in memory if repeated, and even important events may become confused in memory if they are similar to like events occurring on another occasion.

58While there were distinct problems with the evidence of each of the primary witnesses in this case – Mr. DeGroot and Ms. McFarlane – in the final analysis, each of them remained convinced that their own memory is correct, concerning whether or not Mr. DeGroot was in the courtroom at the critical juncture, when Mr. Violo agreed to pay out at least one month of the interest penalty. This factor was key to the reduction of the amount to be paid into court.

59Ms. McFarlane testified that Mr. DeGroot was in the courtroom the entire time. Her evidence was unequivocal on this point. Her evidence is supported by three factors: the transcript, the evidence of Mr. Violo, and Mr. DeGroot’s subsequent actions.

60The transcript of April 8, 2008 is not conclusive but strongly supports Ms. McFarlane’s recollection.

61The court records show that the motion was dealt with in three segments: from 12:30 p.m. to 1:00 p.m., from 3:05 p.m. to 3:10 p.m., and from 3:25 p.m. to 4:00 p.m. An examination of the transcript indicates that the first period, before lunch, is Page 1 to Page 20, where the transcript indicates “other matters dealt with”. It follows that the second segment from 3:05 to 3:10 occurred from Page 21 to 25 of the transcript, down to “Recess”. The final portion from 3:25 to 4:00 p.m. would be from after the Recess indicated on Page 25 to the end of Page 47.

62It is apparent that Mr. DeGroot was in the courtroom, as he acknowledges, for the first segment. There is an indication on page 1 by Ms. McFarlane that ‘my client is in the courtroom’, and at Page 15 the judge indicates, “Your client wants to speak to you”. At the end of that segment, at Page 19, the judge indicates that he wants Ms. McFarlane to talk with Mr. Violo: “I want you to talk with him and you can keep your client in the background. You can consult with your client, of course, consult with your client…but see if you can come to some accommodations so your client is fully protected…’.

63The next segment, after the lunch hour recess and the discussions in the hall, commences with Ms. McFarlane stating, “The parties are still far apart…a lot of it has to do with some costs of Mr. DeGroot [Mr. Violo] is not agreeing to pay, so we couldn’t finalize the matter.”

64After a brief discussion of the basis of the dispute, the court indicates that, “Mr. DeGroot can have all his money that’s not in controversy but the amount that is in controversy should be paid into court”. It is at that stage that Ms. McFarlane indicates that Mr. DeGroot shook his head in the negative. The judge then asked Ms. McFarlane and Mr. Violo to step outside the figure out the amount that was in dispute. There is another recess and Ms. McFarlane on resuming says, “They (Mr. Violo) have proposed what needs to be paid into court but my client is not agreeable to what they want to pay into court”.

65Mr. Violo agreed with the court decision that one month penalty be paid out as well as the mortgage amount: “No, I can’t argue with that either”.

66While there is no direct confirmation in the transcript that Mr. DeGroot was in Court for the final parts of the motion, the discussion does suggest that he was being informed throughout, because Ms. McFarlane repeatedly refers to his position in rejecting the interim solution proposed by Justice Clarke, with an increased amount to be paid out, as agreed to by Mr. Violo at this final stage in court..

67Mr. Violo also testified that Mr. DeGroot was there throughout the proceeding: he indicated that even when he agreed to the extra amount to be paid out, Mr. DeGroot shook his head against agreeing to it, and he was “shocked”.

68Finally Mr. DeGroot’s subsequent actions, particularly in his email of April 9, confirm that he was unwilling to agree to even a small portion, the disputed amounts, being paid into court.

69Consequently, while I do not in any way dispute the sincerity of Mr. DeGroot’s testimony, I conclude that he is mistaken. It may be that he was confused this date with events on a subsequent court date, or that he simply is incorrect in his recall. But I find that he gave instructions to reject the settlement offer ‘brokered’ by Justice Clarke because he was adamant that no money be paid into court, even the small disputed amount.

70The second part of the negligence allegation is founded in the allegation that Ms. McFarlane’s acceptance of an offer in October 2008 was done without instructions, or made on instructions that she knew had been withdrawn. The position of Ms. McFarlane concerning the timing of the events in October is well documented from her file. In addition to the reasonableness of the offer, there is simply no basis to find that Ms. McFarlane would have proceeded to advise Mr. Violo’s solicitor of the acceptance if she had by then received his email rescinding his previous acceptance. On this evidence I find that she proceeded on the basis of his instructions previously given, and that he rescinded them too late.

LAW AND ANALYSIS

71In order to succeed in an action for solicitor’s negligence, it must be proved:

(i) that the solicitor fell below the standard of care; and,

(ii) the solicitor’s conduct was the proximate cause of the loss.

72A solicitor is required to bring reasonable care, skill and knowledge to the professional service being performed: the standard of the reasonably competent solicitor. Central & Eastern Trust Co. v. Rafuse, 1986 29 (SCC), [1986] 2 SCR 147, and Dinevski v. Snowdon, 2010 ONSC 2715.

73Clearly, the solicitor must advise the client of any offers to settle provide advice and follow the client’s instructions with regard to these.

74In this case, I find that Mr. DeGroot was aware of the offers on April 8, but somewhat stubbornly refused Ms. McFarlane’s advice to accept them, as evidenced by later actions asking for more. In October, I find she was acting on clear instructions to settle when she renegotiated and accepted Mr. Violo’s offer.

75In these circumstances she cannot be said to have been acting negligently.

DAMAGES

76Even in the event that Mr. DeGroot had proved that Ms. McFarlane fell below the standard of care by failing to advise the plaintiff about the proposal made with Court assistance on April 8, 2008 and/or that she settled the mortgage discharge issue in October without the plaintiff’s clear instructions, he would in addition have to prove damages, that is, that the actions of Ms. McFarlane caused a loss.

77His subsequent offers made immediately after April 8 strongly suggest that even if he had known of the proposal, he would not have agreed to it.

78As well, in respect of the October 2008 settlement, it is unlikely that he could have obtained more than $20,000 paid into court.

79His overall insistence that he receive every cent of his lost opportunity and complete recovery of costs result in his taking unreasonable settlement positions throughout the litigation.

80While Ms. McFarlane advised the plaintiff that it was unlikely that he would recover his full legal fees, the plaintiff’s response to that advice was “that was Fay’s opinion, but it would be up to a judge to order costs”.

81The plaintiff’s refusal to accept the very first offer made which would have meant less than full recovery of the advance he had made shortly before was not necessarily unreasonable, but by the time of the motion on April 8, his recovery would have been full, and his costs limited to partial legal costs and, possibly, lost opportunity costs.

82In the end, as I understand the settlement, he did receive full indemnity including interest in the settlement. Even if full interest was not received, there is no evidence to suggest a higher amount of interest could have made if he had settled on April 8.

83He agreed to split the $20,000 paid into court so that $10,000 given back to Mr. Violo can only be attributed to his undisputed agreement on that date. At best, even on the highly unlikely basis of costs payable on a full recovery, he would have been out $6,000 of his actual costs. In the context of this litigation it cannot be said he would have received that level of costs. On any realistic anaIysis, his proven damages were nil, even if he had been successful on the issue of liability.

RESULT

84The action of the plaintiff is dismissed.

COSTS

85If the parties are unable to agree on costs, I will receive written submission of a maximum of 5 pages each, from the defendant Ms. McFarlane within 20 days of the release of this judgment, and from the plaintiff Mr. DeGroot within 20 days thereafter.

Footnotes

1. 1Because a review of the audiotape of the transcript indicated that some comments were not transcribed, the Court has had the Reporter review the tape and transcript to see if enhancements to what was said by the presiding judge could clarify certain passages, causing a delay in the release of these reasons, but no clarifications resulted.