ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
1483677 Ontario Limited
Plaintiff
– and –
Glenn Henry Crain, Michael Joseph Quigley, Jo-Anne Helen James, John Rivington, Rick Dow, 345511 Ontario Ltd., Paul Howard and Howard Ryan Kelford & Dixon
Defendants
Stephen Victor Q.C. and Cory Groper, for the Plaintiff
Bryan A. Carroll & Dalton McGuinty Jr., counsel for the Defendants Paul Howard & Howard Ryan Kelford Knott & Dixon
HEARD: November 24, 25, 26, 27, 28, December 1, 2, 3, 4, 8, 9, 10, 11, 2014 and March 30 & 31, 2015
REASONS FOR JUDGMENT
Madam Justice D.A. Wilson
1The Plaintiff brings this action against its former solicitor alleging negligence in the provision of legal services in relation to the purchase of an apartment building in Perth, Ontario. The Plaintiff [“148”] is an Ontario corporation which was created to enable Kevin Purdy [“Kevin”] and his wife Deborah Purdy [“Deborah”] to convert apartment buildings into individual condominium units and then sell them for a profit. Deborah is the president, director and sole shareholder of 148 and Kevin was a consultant to 148 for the project. During the course of these reasons, I will refer to the Plaintiff as well as to the Purdys without articulating the difference as for all practical purposes, they are one and the same.
Background
2In the summer of 2004, Kevin Purdy [“Kevin”] and Glenn Crain, Michael Quigley and David James [“Crain Group”] began discussing the conversion of a 73 unit apartment building located in Perth, Ontario at 41 Sunset Boulevard [“the building”], into a condominium. This building was owned by the Crain Group. Kevin had experience in converting apartment buildings to condominiums and he and the Crain Group decided to enter into a joint venture agreement to convert the property to a condominium and sell the units.
3The Defendant Paul Howard [“Howard”] was and continues to be a lawyer practicing in Smiths Falls, Ontario. The Defendant Howard Ryan Kelford Knott & Dixon [“the law firm”] is the law firm where Howard practiced and was a partner.
4In August 2004 the Purdys retained Howard to handle the joint venture agreement. He was also retained by the Crain Group on the transaction. Howard drafted the joint venture agreement.
5The parties signed an agreement dated September 17, 2004 [“the joint venture agreement”] The terms of this agreement provided that the Crain Group was guaranteed $5 million, the Purdys would ensure the property was renovated at their expense, and they would be reimbursed upon the closing of the transaction. They would also do the marketing of the building to investors and other purchasers, and this included arranging financing.
6For reasons which will be elaborated upon later in this judgment, a different agreement was entered into on October 24, 2006, a purchase and sale agreement. Under the terms of the new contract, the Crain Group agreed to sell the building to the Plaintiff for $5.85 million with a closing date of March 30, 2007. This was based on a price of $80,000 per unit. The Plaintiff intended to finance the purchase through the sale of the condominium units, which agreements would close at the same time as the Plaintiff was purchasing the building from the Crain Group. The agreement with the Crain Group was not contingent on the sale of the individual units. It is not disputed by the parties that the 2006 agreement superseded the 2004 joint venture agreement.
7Agreements of purchase and sale were secured for individual units. The Purdys were acquainted with John Rivington [“Rivington”] an appraiser who had done the appraisal of the building and had worked with Kevin on other projects. Rivington and two other individuals, Dow and Hinton [“Rivington Group”] agreed to purchase 26 units in the building. The Purdys sold 6 units to the Leung group, and 5 units to the Tullis group. At the Purdy’s request, the closing date was moved from March 30 to April 30, 2007. The condominium declaration was registered on April 17, 2007.
8On April 27, through their counsel, the Rivington Group indicated there were misrepresentations made concerning the state of the building and the rental amounts and they advised they were not going to close on their purchases. The other groups followed suit.
9After various negotiations, there was a revised agreement signed on May 7, 2007 whereby the Rivington Group purchased 46 units at a reduced price per unit; instead of paying $100,000 per unit, they were to pay $85,000. The Crain Group agreed to extend the closing date and to provide a vendor take back mortgage [“VTB”] to the Plaintiff for $1,120,000 secured on the 14 unsold units. The mortgage was due on August 11, 2007. The Crain Group provided a $3.9 million VTB mortgage to the Rivington Group for a short period of time on their purchase of 46 units. The deal closed May 11, 2007.
10The Purdys sold 1 unit but 13 remained. The mortgage was reduced to $1,040,000 and the Plaintiff made 3 payments on the mortgage but failed to pay the mortgage in full by August 11, 2007. As a result, Power of Sale proceedings were commenced by the Crain Group in September, 2007. Initially, the Plaintiff brought this action against the Crain Group, the Rivington Group, as well as Howard and his law firm. The named defendants except for Howard and the law firm brought a motion for summary judgment. The claims against the other defendants were dismissed by Justice Himel in written reasons released December 11, 2009: [2009] O.J. No. 5342 (S.C.J.). The units were sold on May 31, 2014.
11The trial proceeded before me only against Howard and the law firm. No evidence was led against the law firm so I shall refer only to the claims against Howard in the course of these reasons.
Positions of the Parties
12The Plaintiff brings this action in negligence against the solicitor. It is alleged that Howard was in a real and serious conflict of interest, that he was negligent in his provision of legal services to the Purdys, and that his actions fell below the standard required. As a result, it is alleged that the Plaintiff suffered damages for loss of profits from the deal in the sum of $2,083,152.
13The Defendant denies Howard was negligent and asserts that both sides of the deal agreed with Howard’s retainer. The Purdys needed the funds from the sales of the units to close the deal. Howard assisted them with the negotiations with the Crain Group after the Rivington Group and other purchasers refused to close the deals. The Purdys needed to finalize the purchase or it would have been a financial disaster for them. The Defendant Howard asserts the Purdys were content with his legal services and he continued to act on their behalf following the closing and they financially benefited from the transaction.
The Evidence
DEBORAH PURDY
14Deborah Purdy [“Deb”] is 49 years old and has been married to Kevin Purdy [“Kevin”] since 1995. She has a grade 12 education and has worked in various capacities but primarily, she has assisted her husband with his work converting properties to condominiums. At the present time, she is working as a sales person at an Audi dealership.
15Deborah gave her evidence over the course of 4 days; she was emotional, argumentative at times, and clearly feels she and her husband were victims in this investment deal. In my view, she did not attempt to mislead the court; but her responses revealed she had little objectivity surrounding these events.
16The Plaintiff was incorporated in 2001 as a vehicle for Kevin’s business which involved buying rental buildings, converting them to condominiums and selling them for a profit. Deborah became acquainted with Paul Howard in 1999 when Kevin retained him to do a condominium conversion in Smiths Falls. She thought Howard had been their lawyer on approximately 13 similar deals in a number of cities in Ontario. Howard had also done some personal legal work for Deborah and her husband, such as their wills and the purchase of their cottage and a couple of townhouses.
17Deborah testified that she assisted Kevin with administrative and clerical functions such as typing e-mails and letters and liaising with the bank for financing. She was not present for the initial meetings between Kevin and Crain concerning the building.
18Deborah was aware that an agreement was signed in September 2004 for the conversion of the apartment building into a condominium [exhibit 1, volume 1, tab 19]. She knew that Howard was acting for her and Kevin and that he was also representing the Crain Group. Under the terms of the agreement the Crain Group was guaranteed the sum of $5 million based on $68,500 for the 73 units in the building. Deborah and Kevin were responsible for ensuring the property was converted and the units sold and the Plaintiff corporation would pay the expenses associated with this work and would be reimbursed upon the sale of the first unit.
19Deborah recalled there were no discussions with Howard about the nature of his retainer; while she knew he was acting for both sides of the deal, she was never asked to sign a written consent setting this out and she was not she asked about this orally. Neither she nor her husband signed a written retainer.
20After the 2004 agreement was signed, she and Kevin completed some renovations in the building, created a show suite, retained a surveyor to do the necessary work, hired advertising and marketing groups as well as real estate agents and met with the bank to arrange financing. By the summer of 2006, 148 had paid expenses of more than $200,000 in getting the building ready for conversion. Deborah secured purchase and sale agreements for 2 of the units from existing renters.
21Deborah testified that problems developed with the Crain Group. On July 6, 2006 there was a meeting at Howard’s office with Crain, James, Kevin, Howard and Deborah. There was a discussion about the number of vacant units in the building and the fact that some of the units were missing appliances. Deborah felt the rental of units and ensuring they were up to the appropriate standard was the responsibility of the Crain Group. These issues were not resolved at the meeting. Deborah was anxious to close the sales on the 2 units so that the expenses would be re-imbursed. By August 2006, she was getting calls from creditors who wanted payment. She was aggravated because she felt that she and Kevin had worked on the building for 2 years without pay and she wanted payment.
22Deborah felt that Howard consistently took the position of the Crain Group. It seemed that the Crain Group was demanding things which were not part of the agreement such as payment of the reserve fund and payment of the lost rents by Deborah and Kevin. When she raised these issues with Howard, he supported the position of the Crain Group.
23On August 18, 2006 she sent Howard an e-mail [exhibit 1, tab 62] indicating that his friendship with one of the members of the Crain Group, Michael Quigley, was clouding his judgment. She advised him that he was in a conflict of interest and that he was preferring the side of the Crain Group. She did not get a response to her e-mail to Howard.
24By that time, the expenses she and Kevin had incurred associated with the Sunset project totaled $260,791.21 [exhibit 1, tab 84]. It became clear that the joint venture was not going to work; Kevin asked Howard to inquire whether the Crain Group was interested in selling the building. Negotiations ensued between the Purdys and the Crain Group, primarily through Howard. Various offers were exchanged.
25A new agreement was struck and on October 2, 2006, Kevin signed the purchase and sale agreement [exhibit 1, volume 1, tab 75] which provided for payment to the Crain Group the sum of $5.85 million with a closing date of March 31, 2007. The sale price had to be paid regardless of the number of units Kevin and Deborah were able to sell. The agreement provided that the deposit of $50,000 by Deborah and Kevin was non-refundable, they had to provide for the reserve fund, and Howard would ensure the condominium would be registered prior to the closing date.
26Deborah was worried about the short time available to sell the units but she did not feel it was her responsibility to do the work to bring the building and the units up to the appropriate standard without pay.
27Kevin sent a letter to Howard [exhibit 1, tab 110] advising of the numerous problems they were encountering which were not of their creation: the building continued to have a high vacancy rate; there were problems with the elevators; and work needed to be done in the building in order to sell units. She and Kevin continued to work on selling units.
28Kevin was acquainted with John Rivington who did the appraisal of the building as they had worked together on prior conversions. Rivington and his group agreed to purchase 26 units at approximately $100,000 per unit [ex 1, tab 441]. These agreements of purchase and sale were unconditional. By April 11, 2007, she and Kevin had sold 54 units and there were 19 left to be sold [exhibit 1, tab 129]. The condominium was not registered and the closing date was extended to April 30, 2007. The condominium was registered April 11, 2007.
29As of mid-April 2007, things were moving towards the April 30 closing. On April 18, the solicitor who acted for 5 purchasers from Toronto [the Leung group] sent a letter expressing concerns about the state of the building [exhibit 1, tab 140]. These purchasers had agreed to pay approximately $83,000 per unit. During the last week of April, Leung advised that her clients were not going to close the deals so close to $500,000 in anticipated sales were lost.
30On April 27, Deborah received a call from Howard who advised that the Rivington Group had indicated there were problems with the building that had not been disclosed and incorrect information had been supplied and as a result, they were not closing on their purchase and sale agreements. Deborah and Kevin were in shock and distressed because they needed the money from the sales of these 26 units to pay the Crain Group on closing. Deborah was furious; she felt that it was ridiculous because she and Kevin had done everything they were supposed to do and for no good reason, the Rivington Group was refusing to close. She called Howard and demanded a meeting; he advised that the Rivington Group was not prepared to meet with them.
31Later that day, Howard advised the Purdys that there was an offer from the Rivington Group under which they would pay the sum of $80,000 per unit for 46 units, which was the cost to 148. Deborah was very angry because this offer provided no payment to her or her husband for the three years of work they had put into developing the building and there would be no profit. She spoke to Howard who advised her that if 148 did not accept the Rivington Group’s new offer, she and Kevin would likely be sued. She was not told that there was any other option.
32At this point, Deborah was scrambling and she received no assistance or support from Howard, even though he was her solicitor. She and Kevin instructed Howard to negotiate in the hopes of achieving a more favourable offer. She was aware that Howard sent a number of letters suggesting the deal be done at a different price per unit.
33In the same time frame, the Purdys learned that the Tullis Group, another group of purchasers who had signed 9 agreements of purchase and sale, were not prepared to go ahead with the deals.
34Howard kept telling Deborah and Kevin that they had to accept the terms offered by the Rivington Group or they would be sued. The TD bank suggested they consult with litigation counsel and gave Deborah the name of Kenneth Wright. Deborah spoke to Wright on April 30 and gave him the background information. At that point, Howard was working to try and achieve a resolution and if necessary, Wright would get involved from a litigation perspective. Peter MacDonald was a longtime friend of Kevin’s and he was an accountant. Deborah and her husband spoke to MacDonald about the situation and he attempted to assist them.
35The Purdys requested an extension of the closing date and Howard secured this from the Crain Group, making the closing date May 11, 2007. Howard met with the lawyer for the Rivington Group and told Deborah that they would only pay $85,000 per unit. According to Deborah, Howard told her that there were no other options and if they did not close, they would be sued. Macdonald signed the agreement on behalf of the Plaintiff on May 7.
36On May 11 the closing took place and Deborah attended with Howard and Macdonald. Kevin did not attend but went golfing with their son because he was so angry about what had transpired. At the closing there were further demands from the Rivington Group including a penthouse suite for Hinton and upgrades on 2 of the one bedroom units. However, the penthouse unit that Hinton wanted had been sold. Deborah felt pressured and Howard never told her she had any options or that she did not have to close the deal. When the penthouse was not available, Hinton demanded a rebate of $65,000 which Howard provided from the proceeds of the sales. At the end of the day, Deborah told Howard that she got “screwed” and he replied that it was only because of his efforts that the transaction closed, although he agreed with her description of what had transpired. Deborah conceded that the issue of the penthouse suite for Hinton had been raised a few days before the closing date so she was not surprised by his demand for it on closing day.
37Deborah signed releases in favour of the Crain Group and the Rivington Group. She asserted that Howard told her to sign the releases and did not provide an explanation. However, on cross examination she conceded that Wright told her a few days before the closing that the Rivington Group would require an executed release.
38She was given a bunch of documents to sign, which she did, even though they were not explained to her. Deborah only learned of the vendor take back mortgage provided by the Crain Group to the Rivington Group after the litigation was commenced. Had she known about this, she would never have signed the closing documents. During the closing she never called Wright for advice.
39Deborah met with Wright on May 17 along with Kevin and Macdonald and explained what had occurred on closing. He indicated he needed to review Howard’s file, which he received on May 30. Deborah and Kevin were referred to their current counsel at that point.
40After the closing there were 13 units left to be sold which were covered by the mortgage in favour of the Crain Group. From May to September 2007, Deborah attempted to sell these units but was unsuccessful. She attributed this to the fact that she and Kevin were not part of the management of the condominium and the units were not kept up to the appropriate standard.
41The Crain Group started power of sale proceedings in September 2007, and the 13 units were finally sold in September 2014. There was a shortfall on the mortgage of $711,681.01. Deborah testified that she did not feel she was responsible for paying the mortgage and she commenced an action in November 2007 for a declaration that the mortgage was null and void.
42Deborah confirmed that Howard had done work for her and her husband since 1999 and she had always been satisfied with his service and she trusted his judgment. While she asserted that she felt he did not represent her interests during the deal, she acknowledged that she and Kevin were content to have him attempt to resolve the difficulties that had arisen and try to find an agreeable solution. She denied that she wanted Howard to continue to negotiate because of his friendship with Quigley; instead, she said that was the view of her friend Macdonald.
43While Deborah was adamant that Howard was in a conflict of interest and preferred the position of the Crain Group over theirs, she conceded that Howard obtained a vendor take back mortgage for $850,000 (ultimately increased to $1,120,000) for 90 days on the 19 vacant units, despite the fact that the Plaintiff had unpaid accounts and suppliers. She agreed there was absolutely no obligation on the Crain Group to do so. Furthermore, the Crain Group agreed to extend the closing date several times at the request of the Purdys.
44One point that eventually Deborah conceded in cross examination was that she had been advised by Wright of the option to litigate prior to the closing of the deal. Wright sent letters to the lawyers acting for the different groups of purchasers advising that if they refused to close, litigation would be commenced. She also acknowledged that by closing the transaction, a huge financial disaster had been staved off for the company. After the closing and payment of expenses, she had $812,173.20 as well as 13 units. If she had not closed, the Purdys would have lost their $50,000 deposit, the payment to Princeton Capital of approximately $125,000, payment for their expenses as well as been exposed to numerous potential lawsuits.
KEVIN PURDY
45Kevin Purdy is 67 years of age and has been married to Deborah since 1995. Currently, he works as a used car salesman at a Honda dealership. Prior to the events giving rise to this litigation, Kevin worked in the area of real estate development in different cities throughout Canada. He was involved in the purchase of buildings, their development and marketing to investors both as a consultant and through his own company.
46In 1999, Kevin’s company bought 13 or 14 buildings in Smiths Falls, converted them to condominiums and marketed them to investors. Howard was his lawyer on these conversions and in addition, Howard had done other personal legal work for Kevin.
47Kevin met Crain in 1999 when he was investigating purchasing a building in Perth which was owned by Crain. He knew Rivington as he had retained him as an appraiser for the various buildings he had purchased. He was not acquainted with James or Quigley prior to the deal involving the building.
48In the summer of 2004, Crain contacted Kevin and they had lunch. Crain indicated that he and his partners owned an apartment building which they were interested in converting to a condominium and selling over a period of time. He explained that his health was deteriorating and he wanted to sell off some assets. Kevin and Crain agreed to embark on a joint venture agreement to convert, market and sell the building at 41 Sunset Blvd. in Perth. He and Crain agreed that Howard would be the lawyer on the deal for all parties, which made sense because Howard had been the solicitor on the prior condominium conversions which Kevin had undertaken.
49Kevin drafted a proposed agreement [exhibit 1, tab 16]. Rivington provided the potential values for the units. Under this agreement, the Crain Group was guaranteed $5 million; the Purdys would get the building converted in to condominiums so they could be sold and they would renovate the lobby and show suites; the Purdys were to do the marketing of the building including arranging financing for purchasers; various expenses would be paid by the Plaintiff and would be reimbursed on closing with the profit split between the Plaintiff and the Crain Group. It was anticipated that the Crain Group would make between $6.3 million and $6.6 million and the Plaintiff would clear between $1.3 million and $1.6 million. Howard drafted the joint venture agreement which was signed in September 2004. The Plaintiff did not have to pay anything to the Crain Group, as the monies would be paid from the sales.
50Kevin confirmed that all of the parties knew that Howard was acting for both sides of the deal. He could not recall any specific discussions with Howard on this point; Kevin was never provided with a consent to sign nor was he ever told that none of the information could be confidential as between the parties.
51From September 2004 through to 2006, Kevin was involved in hiring staff to undertake the work, retaining an engineer and a surveyor, meeting with real estate agents and city planners as well as arranging financing. This was a busy time and Kevin was travelling to Perth, Toronto and Brockville as well as meeting with Crain on a regular basis. Renovations were done at 41 Sunset, including the creation of a show suite and redesigning the lobby. The Plaintiff incurred expenses of approximately $248,000.
52At the same time, it seemed the Crain Group was doing nothing; certainly they were spending no money on the building. Appliances were not being fixed or replaced, painting was not being done and the building was not in an appropriate state for showing units. Disputes arose and Crain was ill and ornery.
53Kevin and his wife felt that Howard was not representing their interests and instead, the Crain Group’s concerns seemed to be getting more attention from him. By the summer of 2006, there were 2 units that could have been sold as condos but the condominium had not been registered and Crain was refusing to close on the sales of the 2 units. Kevin and Deborah wanted to be reimbursed for their expenses and they felt that the Crain Group was holding everything up.
54There was a meeting in July 2006 to discuss these issues. There were a number of disagreements: the Crain Group felt that Kevin and Deborah were responsible for the lost rental income and wanted a contribution of $1,500 per unit to the reserve fund as well as a $100,000 performance bond. According to Kevin, this was not part of the deal and it was unfair to hold up the reimbursement of expenses paid to get the building ready for conversion and sale.
55Following the meeting, Howard sent the Purdys a letter [exhibit 1, tab 58] setting out various obligations which were not part of the agreement. Kevin and Deborah were upset by the fact that Howard had met with Quigley in their absence; they felt that the Crain Group was forcing obligations on them that they had not agreed to while Howard was supposed to be their lawyer as well. Kevin and Deborah believed that Howard’s friendship with Quigley was overtaking his representation of them. Deborah sent a letter to Howard [exhibit 1, tab 62] in August 2006 advising that he was in a conflict of interest. Further, she noted that they had worked for 2 years without any remuneration and had invested a significant amount of their own money yet there was nothing being done to force the sales of the units. The Purdys did not get a response to their letter.
56Howard advised Kevin that unless the issues were resolved immediately, the Crain Group would not proceed with the deal. Kevin and Deborah did not feel that Howard was putting forth their position to the Crain Group. Howard corresponded on October 2, 2006 [exhibit 1, tab 72] with a letter of intent that included new terms. Kevin and Deborah felt that they had no choice but to agree to the new deal because they needed to get reimbursed the money they had put into the building. Instead of a joint venture agreement, the new deal [exhibit 1, tab 75] was a purchase and sale agreement for $5.85 million with a $50,000 non-refundable deposit and a closing date of March 30, 2007. Kevin and Deborah prepared a business plan [exhibit 2, tab 16] with the sale of 73 units they expected to make a profit of $2,718,953. Kevin conceded the Plaintiff paid only $25,000 of the non-refundable $50,000 deposit.
57Kevin was approached by Rivington and had a meeting with him in the fall of 2006. He and some other investors, Hinton and Dow, were interested in a multiple unit purchase. The Rivington Group agreed to buy 26 units. The Plaintiff set aside 2 penthouses, 20 2-bedroom units, and 4 1-bedroom units for the Rivington Group [exhibit 1, tab 80].
58Following the signing of the new agreement, there was much work to be done in a short period of time. There was a lack of co-operation from the Crain Group. The vacancy rate quadrupled and the bank would not provide financing for vacant units. There were problems with the elevators, appliances were not being fixed or replaced and the entry system was not functioning. In February 2007, Kevin requested Howard approach the Crain Group to provide $100,000 to remedy some of these problems [exhibit 1, tab 110]. Kevin agreed that the Crain Group agreed to provide $50,000 abatement on the purchase price to enable necessary work to be done on the building, including a repair to the entry system and work on the elevator.
59The condominium was registered on April 11. On April 27, 2007 Kevin received a telephone call from Howard, who advised that the Rivington Group’s position was that there were problems with the building and they were not prepared to close on the 26 sales. Kevin was in shock; this was the first indication there were any problems with the purchases and the deals were scheduled to close on May 11, 2007.
60The Rivington Group sent a letter on April 27 [exhibit 1, tab 157] with a new offer. This offer included a reduction in the price of the units of $25,000, plus a reserve fund and a rental guarantee and the $50,000 that had been set aside for repairs was to be turned over to them. Kevin thought this offer was ridiculous but when he discussed it with Howard, he was told they had no choice but to accept it. Kevin instructed Howard to put forth a counter offer with a price of $90,000 for each unit [exhibit 1, tab 158].
61The Rivington Group responded to the Purdys’ offer [exhibit 1, tab164] indicating they would only pay $82,000 per unit. Kevin was furious; they countered with $85,000 per unit [exhibit 1, tab 165]. They spoke to a litigation lawyer, Ken Wright, on April 30, 2007 and it was agreed that Howard would try and get resolution on closing but Wright would remain involved and available for litigation if necessary. Howard also approached the Crain Group for an extension of the closing date and a vendor take back mortgage to enable the Plaintiff to close the deal.
62There was a meeting scheduled for May 7, 2007 with Howard and the Rivington Group. Deborah sent a letter to Howard in advance of the meeting [exhibit 1, tab 188] setting out their position for the meeting. Kevin was too angry to attend so he sent Peter Macdonald with a power of attorney. Deborah called from the meeting and they discussed the offer; they were in a desperate situation and needed to close the transaction. Macdonald signed the offer on his behalf.
63Kevin did not attend to sign the closing documentation on May 11 as he was afraid he might hurt someone because of his anger. Deborah was in attendance as was Macdonald. They had to accept the deal which had been imposed on them because they had no choice. Kevin had done 50 or 60 such closings over the span of 30 years and this had never happened. Releases in favour of the Crain Group and the Rivington Group were signed although Howard never discussed this with him. It was only after the transaction closed and he received a copy of the statement of adjustments did Kevin realize that the Crain Group had provided a vendor take back mortgage to the Rivington Group for $3,910,000. Had he known this was occurring he would never have closed the deal nor would he have trusted Howard to act on behalf of the Plaintiff.
64At the time of closing, there were approximately 13 units that were subject to the mortgage in favour of the Crain Group. Kevin and Deborah tried to sell them but it was difficult because their access to the building was restricted and the fact that he and Deborah were no longer involved in the condominium made people unwilling to invest.
65Kevin agreed that pursuant to the purchase and sale agreement signed in October 2006, nothing turned on the number of units he and Deborah were able to sell; rather, they were obligated to pay to the Crain Group the sum of $5,850,000. Because of their own financial circumstances, if they did not sell sufficient units, they would not be able to pay the purchase price to the Crain Group.
66Kevin conceded that the Crain Group agreed to various requests made by Howard. Kevin reluctantly acknowledged in cross examination that the Crain Group did not exert pressure about the non-payment of the balance of the deposit, and they agreed to extend the closing date, and provided a vendor take back mortgage to assist the Plaintiff in closing the transaction.
67The first sign of a problem was in the latter part of April 2007 when the 5 investors from Toronto represented by solicitor Leung expressed concerns about the condition of the property. They had difficulty with financing and decided they would not complete the deals [exhibit 1, tab 150]. The group of 13 or 14 investors represented by solicitor McLean then indicated they might not close the deals either.
68This was compounded by the announcement that the Rivington Group was not going to complete the purchases.
69Kevin admitted that Howard told him that if he entered into litigation with the Crain Group, Howard would not be able to act for the Plaintiff. However, Kevin refused to agree that Howard told him that in such an event, Howard could not act for any of the parties.
KENNETH WRIGHT
70Mr. Wright is a commercial litigator who was called to the Ontario Bar in 1991 and works at Soloway Wright in Ottawa. Wright acknowledged that he had very little independent recollection of his meetings and conversations with the Purdys and Howard. He was contacted on April 30, 2007 by Courtney Anderson at the TD bank, who indicated he had clients with a real estate transaction issue. Wright spoke with Howard and with Kevin. He was retained that day by the Purdys for litigation advice concerning the actions of the various purchasers (the Rivington Group, the McLean Group, and the Leung Group), all of whom were seemingly resiling from the agreements of purchase and sale. Howard was trying to resolve the matters in issue. It was agreed that if resolution could not be achieved, Wright would be available to the Purdys for litigation advice and action.
71On May 2, Wright had a conference call with the Purdys and their friend Peter MacDonald. He analyzed their exposure if the deal did not close and following the conference call, he sent draft letters to the other counsel for the Purdys’ review. It was agreed that Howard would continue to negotiate resolution but that Wright’s letter would give the Purdys leverage.
72Wright was not aware that the deal was being signed May 7. He reviewed the releases the Purdys were asked to sign. He was not involved in the closings which took place May 11 and did not recall if he spoke to the Purdys on that day.
73He met with the Purdys and Peter Macdonald on May 16. Deborah had sent an e-mail to Howard after the closing requesting that all documentation be forwarded to Wright but he did not receive it in a timely fashion. He discovered that Howard had been away in Africa; he received the files on May 30. One of Wright’s partners was married to one of Howard’s partners so Wright advised the Purdys that if they intended on suing Howard, he would not be able to act on their behalf.
GAVIN MACKENZIE
74Mr. Mackenzie [“Mackenzie”] is a lawyer with an impressive curriculum vitae and defence counsel conceded his expertise in the area of conflict of interest for lawyers. He was qualified as an expert entitled to provide opinion evidence concerning the professional obligations of lawyers and conflicts of interest.
75Mackenzie was retained by the solicitor for the Plaintiff and asked to opine on whether the Defendant Howard was in a conflict of interest by acting for both sides of the transaction; whether Howard met the appropriate standard of care in his provision of legal services; and if he did not, in what ways he fell below the requisite standard of care.
76Mackenzie was provided with various materials in order to arrive at his opinions. Exhibit 9 sets out the documents that he reviewed. Of significance, he read the transcripts from the discoveries and cross examinations on affidavits from the summary judgment motion, the 2004 and 2006 agreements and Howard’s reporting letter of June 5, 2007 following the closing.
77Mackenzie understood that Howard had been retained by both sides for the joint venture agreement to convert the apartment building into condominium units. This was subsequently changed to an agreement of purchase and sale in October 2006.
78Mackenzie testified that Howard breached Rule 2.04 of the Rules of Professional Conduct when he failed to advise that he was acting for both sides of the transaction; failed to advise that there could be no confidentiality between them as a result; and he failed to advise that if their interests diverged, he could not act for any of them.
79Mackenzie concluded that Howard was in a conflict of interest and he fell below the appropriate standard of care because he failed to obtain the written/oral consent of 148; he failed to disclose the lack of confidentiality; he failed to disclose information that he obtained from the Crain Group. Mackenzie did not offer the opinion that the legal work done by Howard was negligent.
JOHN SEIGEL
80John Seigel [“Seigel”] was qualified as an expert in the area of damage quantification. He was retained by the Plaintiff to quantify the damages arising from the transaction. Using the business plan done by Deborah and Kevin [exhibit 2, tab 16] he projected the likely profit the Plaintiff would have made based on the October 2006 agreement. After deducting expenses, Seigel quantified the net profit to be $2,388,184. He calculated the actual profit on the deal to be $1,094,414, a difference of $1,293,770.
81Taking into account the concessions made on closing and the losses from the 13 units that were not sold but went under a power of sale, a further $1,631,800, Seigel quantified the total losses to be $2,083,152 [exhibit 11]. Seigel agreed that he accepted the numbers that were provided to him by Deborah and Kevin and did not do his own audit. Seigel agreed that after the closing of the transaction and before anything occurred with the 13 units, the profit to the Plaintiff was approximately $1 million.
PAUL HOWARD
82Mr. Howard [“Howard”] was called to the Bar of Ontario in 1976 and carries on a solicitor’s practice in Smiths Falls. I found Howard to be an honest, credible witness who attempted to answer questions directly. When confronted with answers that differed from his examination for discovery, he readily acknowledged the disparity in his evidence and attributed it to the passage of time.
83At the time of these events, Howard’s legal work was comprised of real estate, wills and estates and municipal work. He had assisted clients with purchases of large commercial buildings.
84Howard met the Purdys in the summer of 1999 on a referral from a bank. Kevin had purchased a building in Smiths Falls and Howard assisted him with the sale of the units. Between 1999 and 2004 Howard was the lawyer for Kevin on 13 different condominium developments. He described Kevin as a very sophisticated businessman, an expert in converting buildings to condominiums. While they did not socialize together, Howard indicated that he knew Deborah as well as she often accompanied Kevin to his office and he described his relationship with the Purdys as “pretty close”.
85Howard was acquainted with Glenn Crain as he was a successful businessman in Smiths Falls. Howard also knew David James who ran a number of businesses in Smiths Falls. He was friends with Michael Quigley [“Quigley”], who was a lawyer practicing in Smiths Falls and was later appointed to the Bench. Howard never acted as counsel for Crain, James or Quigley. He knew the members of the Rivington Group and he had acted for both Rivington and Dow on real estate transactions prior to 2004.
86In August, 2004 Kevin called Howard to advise that he was doing another transaction in the Perth area and he subsequently received a fax dated August 23, 2004 which was a letter from Kevin to Crain. Howard was asked to draft a basic agreement for the parties. In prior transactions on which Howard had acted for Kevin, the agreements were similar to purchase and sale agreements; the one with the Crain Group was somewhat different. In this deal, it was anticipated that Kevin would take the necessary steps to convert the apartment building which was owned by the Crain Group into a condominium. The units would be sold over time, perhaps 10 to 15 units per year, and the profits would be divided up according to the agreement.
87Howard drafted the agreement and it was signed September 17, 2004 [Exhibit 1, tab 19]. The agreement provided that the Crain Group was guaranteed $5 million from the sale and Kevin would be responsible for payment of the expenses involved in the creation of the condominium corporation for up to 2 years, the reserve fund and the renovation of the exterior lobby and show suites.
88Howard acknowledged that he drafted the agreement at a time when he acted for all of the parties and took instructions from both. He agreed that he did not get the written consent of the Purdys to act on both sides nor did he write to the clients to advise what would occur in the event of a conflict between them. Furthermore, he did not advise the Purdys or the Crain Group that there was nothing that could be said to him that could be treated as confidential as between the parties. Howard testified that in the summer of 2006 he advised both sides that if certain issues could not be resolved, all of the parties would have to get new lawyers. At no time did Howard refer either side to other counsel.
89In order to undertake the conversion, certain steps had to be completed including surveying the property, checking title, obtaining an engineering study, and securing the necessary approvals from the town. Howard was involved in these steps. From the time the agreement was signed until the middle of 2006, Kevin and Deborah were busy renovating the lobby, creating show suites, contacting real estate agents and marketing companies and meeting with the bank to arrange financing. Howard noted that the vendors, the Crain Group, were not obligated to do anything. Howard kept them apprised of the status of the condominium application.
90The Purdys obtained 2 offers of purchase and sale from tenants in the building. These deals were set to close August 15, 2006. The Purdys wanted the proceeds from these 2 sales to be used to pay back the approximately $248,000 they had incurred in getting the building ready to be converted and the units sold. The Crain Group, however, was not content with the fact that only 2 units had been sold.
91Howard arranged a meeting with the Crain Group and Kevin in order to work through the issues. The meeting was held July 6, 2006. Crain was very forceful and aggressive during the meeting and expressed his dissatisfaction with the fact that there were 19 empty units in the building and the Crain Group was losing a significant amount of money from the lost rent. Crain indicated that Kevin wanted the empty units to remain that way so they could be sold to investors who wanted to purchase a number of units. In addition, the Crain Group felt that the Purdys had not done the amount of work that was anticipated under the agreement.
92Kevin and Deborah believed that the Crain Group was not performing as they were expected to under the agreement. Crain sent a letter to Howard July 13, 2006 [exhibit 1, tab 55] setting out his view of the meeting and the “differences of opinion” on some issues. The Purdys responded with their views on how the funds ought to be distributed on closing the sales of the 2 units. [exhibit 1, tab 59].
93Howard was engaged in “shuttle diplomacy” during this period of time. He discussed the problems with Quigley and tried to draft an agreement to address the issues between the parties. The Crain Group was unhappy about the vacant units which had cost them in excess of $200,000 in lost rent. The Purdys felt they had worked for nothing and ought to be reimbursed for the expenses they had incurred.
94On August 18, 2006 [exhibit 1, tab 62] the Purdys sent an e-mail summarizing their position. They indicated they were demanding payment for the expenses incurred and that was not negotiable. If the Crain Group was not prepared to do this, the Purdys would “happily go to war”. Furthermore, they expressed dissatisfaction with Howard acting in the role of “facilitator”. The Purdys stated, “Your friendship with Judge Quigley has clouded your judgement [sic] as to who you are representing. If he wasn’t your friend, perhaps you would be pursuing this more aggressively on our behalf. This is a clear conflict of interest. As you have said, if this goes to court you will not be our lawyer. Where does this leave us?”
95Howard did not respond to this e-mail; in his opinion, the partners were having a disagreement which he was trying to resolve. He did not write to either side about a conflict of interest. In cross examination, Howard acknowledged there were “major concerns” between the Crain Group and the Purdys during this period of time. The Purdys were anxious to receive repayment of the $248,000 they had spent on the building and the Crain Group was not happy with the number of units sold or the loss of rental income from the vacant units. Howard described the two sides as having a brawl.
96Shortly thereafter, Kevin decided he wanted to buy the building, which was more along the lines of the previous condominium deals Howard had acted on for him. Howard thought this change made sense; it was cleaner and would give Kevin control of the situation.
97Howard sent a letter dated August 31, 2006 to the parties bringing everyone up to date about the issues [exhibit 1, tab 67]. In the same letter, he set out Kevin’s proposal to purchase the building outright, guaranteeing the Crain Group $5 million from the sale. In response to this, the Crain Group came back with a proposal that the purchase price would be $6 million with a 60 day closing. Howard took instructions from Kevin who indicated he would be prepared to pay $5.6 million with a nonrefundable $50,000 deposit and a closing date of March 31, 2007. Howard agreed that he discussed the new agreement with each side separately.
98Eventually, an agreement was reached that the Crain Group would sell the building to Kevin for $5.85 million for the 73 units, with a closing date of March 31, 2007 and a non-refundable deposit of $50,000. Kevin was responsible for the costs of registration of the condominium and the creation of a reserve fund of $100,000. Kevin would release the Crain Group from the expenses incurred, the Crain Group would release Kevin from any lost rents and Kevin agreed to take the property “as is”. Howard sent a letter of intent dated October 2, 2006 signed by Kevin [exhibit 1, tab 72].
99A new agreement was drafted by Howard and signed by the parties October 24, 2006 [exhibit 1, tab 75]. The agreement stipulated that it superseded the earlier agreement of September 2004 and that the parties released each other from any liability arising from the earlier agreement. After this new agreement was entered into, there was no criticism of Howard’s role by either party and Howard continued to act for both the Crain Group and the Purdys. There was no further discussion about a conflict from that date until May 11, 2007 when the deal eventually closed. There were no disagreements between the Purdys and the Crain Group after the new arrangement was reached.
100During the fall of 2006, and the beginning months of 2007, Howard was not involved in the purchase and sale agreements for the units. He recalled that the non-refundable deposit of $50,000 was not paid immediately; $25,000 was paid after the agreement was reached but the Crain Group did not demand the balance of the deposit.
101An issue that arose between the parties was with respect to the status of the building; Kevin and Deborah felt that it was not being kept up to a proper standard. However, Crain said there was no obligation on his group to spend money on the building. Deborah sent an e-mail [exhibit 1, tab 106] detailing the problems with vacancy, lack of appliances, the entry system and the elevators. She requested $100,000 to rectify these problems. Howard contacted Quigley and discussed this problem and eventually, the Crain Group agreed to provide $50,000 to the Purdys to be used in making improvements in the building.
102By March 2007, various offers to purchase were being obtained by the Purdys, who were also involved in securing financing through the TD bank. In March, on behalf of the Plaintiff, Howard requested that the Crain Group agree to put off the closing date, which they acceded to. As well, Kevin had realized he would be short of funds after the closings and he wanted to get some money out of the transaction, so he asked Howard to approach the Crain Group and see if they would grant a vendor take back mortgage for $850,000. Howard made the inquiry and the Crain Group agreed to provide the mortgage.
103By mid-April 2007, Howard foresaw no difficulties in closing the transaction. There were no ill feelings between the Crain Group and the Purdys at this point. There were 54 confirmed offers and 19 that were not finalized.
104Howard had first become aware of the purchases by the Rivington Group in late January or early February, 2007. There were 26 purchases and these buyers were represented by solicitor Heeley. In early April, Howard received a standard letter requesting documentation from Anita Leung, a lawyer who acted for 5 purchasers in Toronto. Howard responded to her correspondence. Another lawyer, David McLean, acted for a group of purchasers and he sent a standard letter of requisition in early April. As of April 26, everything seemed to be moving towards closing.
105On April 26, Leung wrote to Howard setting out a number of concerns, including the fact that the work that was outlined in the engineering report had not been completed. Leung was not pleased with the fact that the work had not been done and financing was a problem. Leung indicated her clients might not close on the agreements. Howard described this event as the “first major blow”.
106On the morning of April 27, Howard got a call from Heeley who advised that his clients were not pleased with some of the information they had been given by the Purdys and they were not going to close on their agreements. Heeley indicated his clients were troubled by the number of vacancies, the non-repair of the elevator, and the amount of rent that was being paid. He indicated that some of the figures that had been provided were inaccurate, specifically the rental amounts and the condominium fees. Heeley said that Kevin had advised the Rivington Group that the elevator had been repaired at a cost of $200,000, which was untrue. Howard was shocked; he had no idea what Heeley was referring to. He called the Purdys who were “blown away” by the news.
107In cross examination, Howard testified that he really did not understand what had caused the Rivington Group to resile from the agreements. There was a suggestion from Kevin that Crain had met with the Rivington Group and given them some financial information.
108Howard received a fax from Heeley [exhibit 1, tab157] setting out the position of the Rivington Group: they would purchase 46 units at a price of $80,000/unit plus some other terms. Howard immediately forwarded this offer to the Purdys and they discussed it on the phone. Rather than arguing the merits of the position taken by the Rivington Group, the Purdys decided to make a counter offer. They proposed selling for $90,000/unit for 26 units plus some other terms. Howard drafted the letter with the counter offer and sent it to Heeley. On the same day, Howard received a fax from Leung confirming that her clients were not going to proceed with the purchases.
109These events occurred on a Friday. On Monday, Howard received an e-mail from Wright telling him to continue to negotiate with the Rivington Group. Howard spoke to him and brought him up to date on the details. The 9 purchasers represented by McLean also dropped out of the deal [exhibit 1, tab 308]. As of April 30, there were serious problems because the Plaintiff did not have sufficient funds to close the purchase with the Crain Group.
110Howard received the counter offer of the Rivington Group shortly after 9:30 a.m. on April 30. He immediately sent it to the Purdys for their review and instruction. He sent a letter to the Crain Group requesting an extension on the closing date to May 2. He wrote to Heeley advising that there was an anticipatory breach of the deal. In addition, he made a further proposal to Heeley based on the instructions from the Purdys that they would sell 46 units at a price of $85,000/unit and other terms [tab 165]. Howard was trying to get a resolution for the Purdys.
111Howard testified that he did not recall specifically telling the Purdys after April 27 that they had the option of forcing the Rivington Group to close and if they failed to do so, to litigate. He was confident, however, that the Purdys knew litigation was an option but they needed to close the transaction with the Crain Group for a number of reasons. He did not discuss with Crain whether he would sue the Purdys if they did not close, but he thought it unlikely as Crain was dying.
112Howard received an e-mail from Deborah with an update on the status of the sales [tab 324]. On May 2, Howard participated in a conference call with the Purdys, Wright, and perhaps Peter MacDonald. Howard told Wright what had transpired. It was agreed that Howard would continue in his efforts to work out a deal but that Wright would send a threatening letter to Heeley. Howard knew that one of the options was not to negotiate with the Rivington Group but this exposed the Purdys to potential litigation with the other purchasers as well as with the Crain Group.
113He received instructions from the Purdys [tab 329] to make a further offer to the Rivington Group to sell the remaining 60 units at $80,000/unit with no reserve fund or rental guarantee but reimbursement of the $248,000 in expenses to get the building converted to a condominium and sold. Howard sent a draft of the letter with this new offer to Wright for his review. Wright confirmed the letter should be sent and it was [tab 334].
114The Purdys needed a vendor take back mortgage of $1,040,000 in order to close the purchase. Howard spoke to Crain on May 3 and the Crain Group agreed to provide the mortgage and to be flexible on the closing date. Deborah had sent an e-mail [exhibit 1, tab 184] asking if the Crain Group would support them in the dispute with the Rivington Group. Howard did not speak to Crain on May 3 about whether he and his partners would stand with the Purdys to enforce the original contracts; he was not thinking of this option. Rather, he was focused on getting the deal closed, which was what the Purdys instructed him to do. Howard thought that although the offers from the Rivington Group were unconditional, that did not mean that litigation would be successful, particularly if there were representations made that were not accurate.
115Howard arranged a meeting with Heeley for May 7. Kevin would not attend but he sent his friend MacDonald with his Power of Attorney. Howard and MacDonald attended in Perth at Heeley’s office and Rivington, Dow and Hinton were present as well. Eventually, it was agreed that the Rivington Group would pay $85,000/unit for 46 units and the reserve fund would be paid out of each sale. Howard thought the Purdys were pleased with the resolution; while it was not a perfect solution, it was something they could accept. He received an e-mail that evening from MacDonald [tab 346] congratulating him on his “great work”. Deborah sent a similar e-mail which indicated it had been a “good day” and that the settlement was one they could live with. The closing of the transaction was delayed until May 11.
116On May 8 or 9, Howard learned that the Rivington Group had arranged bridge financing from the Crain Group for the full amount of their purchase, $3,910,000. He was adamant that he did not know about the mortgage when he had the meeting on May 7. He was not involved in this negotiation and he was miffed because Heeley wrote directly to Crain on this issue. No-one from the Crain Group told him about the vendor take back mortgage in favour of the Rivington Group. Howard did not tell the Purdys about the vendor take back mortgage from the Crain Group to the Rivington Group as it made no difference to them and he did not put his mind to it. Howard received a release from Heeley for the Purdys to sign and he sent it to Wright for his review [tab 380].
117The closing of the deal took place May 11 at his office. Deborah and MacDonald were in attendance. Two further problems arose at the closing: the Rivington Group demanded upgrades on 2 one bedroom units; and they insisted on a penthouse as one of the units and if that was not available, they demanded a rebate of $65,000 on the price. Deborah was very frustrated because she felt that the Rivington Group was cherry-picking the best units. She asked Howard what would happen if they did not close the deal. He responded that there would likely be litigation with the Rivington Group and other purchasers but not likely with the Crain Group. Howard was angry about the penthouse issue but he felt that they were “under the gun”. Deborah gave up on the issue about the selection of the units and agreed to the rebate of $65,000 on the penthouse. The deal closed.
118At the end of the day, Deborah said she felt they had been “screwed” by the Rivington Group and Howard did not disagree on the issue of the penthouse and upgrades. He testified that the mood changed as the day progressed: initially they felt positive but as the issues arose over the 2 units and the penthouse, they felt they were being treated unfairly.
119As part of the closing documentation, mutual releases were exchanged between the Purdys and the Rivington Group. The Purdys signed a release in favour of the Crain Group and he is certain that there was one signed by the Crain Group as well, but he has not been able to locate it.
120In Howard’s view, there was never any discord between the Purdys and the Crain Group. He certainly never favoured the Crain Group over the Purdys; in retrospect he felt perhaps some of the concessions he negotiated favoured the Purdys but on the whole, things turned out the way it was intended between these two parties.
121Howard sent a letter [tab 482] confirming what had transpired at the closing. He continued to work on the closings until the end of June. He received an e-mail May 28 asking him to complete the closings that were imminent. He was advised that Wright wanted to review his files so he sent them upon his return from Africa in the latter part of May. Until this point, neither of the Purdys had voiced any criticism of the work that he had done.
MICHAEL QUIGLEY
122Michael Quigley was called to the Bar in 1970 and practiced in Smiths Falls. He was appointed a judge of the Superior Court of Justice in 2001. In 1991, Quigley, Glenn Crain [“Crain”], and David James [“James”] purchased the 73 unit apartment building at 41 Sunset Blvd. in Perth. Crain died in 2008 and James passed away in 2009.
123Quigley met Howard in 1976 when he came to Smiths Falls to practice law. Quigley admired Howard as a lawyer and his reputation was impeccable; they were competitors before Quigley became a judge. He knew Rivington as well as he ran a real estate appraisal service in Perth and had acquired a lot of property in the area. Quigley knew John Hinton [“Hinton”] very well from 1976 onwards when he established a popular car dealership in Smiths Falls. He described Hinton as a very successful businessman with the “Midas touch”.
124In the summer of 2004, Crain told Quigley and James that one of his clients, Kevin Purdy, was interested in doing a joint venture with them to convert the building to condominium units. Although the building was very profitable for them and there was no need to sell it, Crain was interested in pursuing the deal. They met with Kevin Purdy who told them that he had done other condominium conversions with Howard as the lawyer and he suggested that Howard act for all parties. Quigley confirmed that he was never asked to sign a written consent that Howard could represent all parties in the transaction. Howard did not specifically tell the parties that there could be no confidentiality of information. Everyone involved knew that Howard would act for all parties and if he had not been involved in the deal, Quigley likely would not have agreed to proceed with the joint venture. He had never met Kevin or Deborah Purdy before. Although it was Kevin who recommended Howard and who had a prior solicitor-client relationship with him, none of the Crain Group had any concerns because they knew he had a stellar reputation and would do things properly.
125After the deal was signed in September 2004, Quigley was aware that Howard was taking steps to complete the documentation to convert the building to a condominium and the Purdys were upgrading the building.
126In the fall of 2005, there were 19 units that were not rented and ready for renovations. By the spring of 2006, nothing had been done on any of them and when Crain returned from Florida and saw this, he was extremely upset. It became clear that the Purdys did not have sufficient funds to pay for the work that needed to be done. James, who was a member of the Crain Group, had supplied materials and had not been paid; and there were liens against the building.
127It became clear to the members of the Crain Group that something had to be done. They had lost $172,000 in rental revenue from the various apartments that were supposed to be renovated. Over the course of the summer of 2006, there were numerous discussions about how to resolve the issues. Howard was the individual trying to find a solution and according to Quigley, the Crain Group had no problem with him doing so. Howard was the ideal person to assume the task since he was serene and had a clear head and good judgment.
128Howard approached the Crain Group with a suggestion that they sell the building to the Plaintiff corporation outright; a sale price of $5,850,000 was arrived at after some negotiation. In October 2006, the agreement of purchase and sale was signed. There was a non-refundable $50,000 deposit that was included since the Purdys had failed to honour a number of their earlier promises. There was no obligation on the Crain Group to provide mortgage financing; they would receive cash on closing. Furthermore, the Crain Group was not involved in the renovations or sales of the units and Howard would take care of the condominium documentation.
129In February 2007, the Purdys requested an abatement of $100,000 in the purchase price on the basis that some of the units had deteriorated. The Plaintiff had not paid the second instalment of the deposit ($25,000). Although the Crain Group felt that there was no basis to accede to this request, Quigley intervened and spoke to Crain and they agreed to a reduction of $50,000 simply to close the deal.
130Howard approached the Crain Group subsequently and inquired whether they would provide a vendor take back mortgage and extend the closing date. Eventually, the Crain Group agreed to provide $840,000 for 90 days on the 19 units and to extend the closing to April 30. Quigley commented that if Howard had not requested the vendor take back mortgage and extension, the Crain Group never would have acceded to it. Furthermore, if the Plaintiff had not been able to close the deal on March 31, the Crain Group would have been content to take their deposit and the building back. There was no need to sell on their behalf.
131A few days prior to the closing date, Quigley was called by Crain who indicated that the Rivington Group was asking about the status of the elevator and also they were requesting rent rolls. It seemed that the Rivington Group had been advised that the elevator had been replaced when it had not.
132Howard asked for a further extension of the closing date to May 7 as well as an increase in the vendor take back mortgage to $1,120,000 and the Crain Group agreed. The Crain Group learned that as a result of the elevator issue, the Rivington Group negotiated a lower price on 46 units, making the existing financing from the bank inadequate . Thus, they asked for a vendor take back mortgage for the full amount of their purchase. The Crain Group agreed in order to get the deal closed.
133There were no problems between the Purdys and the Crain Group at the time of closing; things were working really well. The Crain Group acceded to all of the concessions requested by Howard on behalf of the Plaintiff.
134Just prior to closing, Howard inquired whether the Rivington Group could purchase directly from the Crain Group in order to save the Plaintiff $50,000 in land transfer tax and they acceded to that request as well. The deal closed. Quigley confirmed that the vendor take back mortgage to the Rivington Group was repaid in full within a month or so.
135At some point after the transaction closed, Quigley learned that the Purdys were suing everyone involved in the deal. Quigley was astonished; that was the first he knew that there were any issues surrounding the purchase of the building by the Plaintiff.
STEPHEN PITTMAN
136Stephen Pittman [“Pittman”] is a certified business valuator and he was qualified as an expert in the area of quantification of damages. He was retained by the defence to respond to Seigel’s report on damages. He reviewed the business plan that had been prepared by Deborah and Kevin.
137Pittman noted that Seigel had not taken into account the vendor take back mortgage of $1,040,000 which the Crain Group had extended to the Plaintiff and which had to be paid; nor did he consider the commissions that were paid to Princeton Capital who was retained to find investors to buy the units. In addition, Seigel assumed any lost profits were solely due to the dispute with the Rivington Group and nothing else.
138Pittman took into account the 13 units that 148 acquired on closing. The appraised value of these units was $1.4 million and the list value was $1.6 million. Pittman concluded that had the Plaintiff sold those units at the list price, the loss would have been $1,666,974. Had they sold them at the appraised value, the loss would have been $1,879,945.
139Pittman concluded that the profit to the Plaintiff from the deal was $945,912, which is very close to the figure calculated by the Plaintiff’s expert.
ANALYSIS
140The Plaintiff brings this action against Howard framed in negligence; it is asserted that Howard fell below the appropriate standard of care in his provision of legal services, that he was in a conflict of interest and breached his fiduciary duty to the Plaintiff and as a result, damages were suffered.
141The Defendant asserts that there was a potential conflict of interest for Howard between his 2 clients. It is conceded that Howard breached the Rules of Professional Conduct when he did not get the written consent of his clients to act on both sides of the deal, but denies any negligence or breach of fiduciary duty or that any damages were sustained to the Plaintiff.
Credibility
142During the course of the trial, the evidence of the parties differed on key points. It is the function of the court to determine a witness’s credibility and to attach the appropriate weight to it.
143As I noted in Rider v. Grant, 2015 ONSC 5456 at para. 90:
In deciding issues of credibility, it is not simply a matter of accepting the evidence of one party over another based on how the witness performed in the witness box. Rather, “the real test of the truth of the story of a witness in such a case must be its harmony with the preponderance of the probabilities which a practical and informed person would readily recognize as reasonable in that place and in those conditions.” Faryna v. Chorny, 1951 CanLII 252 (BC CA), [1952] 2 D.L.R. 354 (B.C.C.A.)
144It is abundantly clear to me that both Deborah and Kevin blame Howard for the outcome of the purchase and sale agreement with the Crain Group. The litigation arising from the transaction has been ongoing since 2007: the Statement of Claim in this action was issued in August, 2007 and Power of Sale proceedings were instituted by the Crain Group as well. The Purdys are bitter and they feel Howard is responsible for the fact that the deal did not turn out as they anticipated. It seems that when the claims against the other defendants were dismissed on the summary judgment motion and only Howard and his law firm remained, Howard was vilified by the Purdys who held him responsible for their financial situation following the closing of the purchase and sale agreement for the building. This view is not supported by any interpretation of the evidence; furthermore, it makes no sense that Howard, who had a long-standing relationship with the Purdys, would for no apparent reason, throw them to the wolves in the condominium purchase.
145Deborah remains furious about how the transaction played itself out and she blames Howard for the outcome. Her response is an emotional one; it is not well-reasoned or objective. As a witness, when confronted with evidence that contradicted her own testimony, she refused to concede that she had been mistaken or that she was incorrect.
146Perhaps the best example of this was her refusal to acknowledge that she and her husband were in financial difficulty if the agreement did not close. Deborah denied that she and Kevin were in any sort of financial problems and insisted that she had other assets and funds available to her. She maintained this position even when she was contradicted by her own sworn discovery evidence and various emails that she had sent.
147At her examination for discovery Deborah admitted that she told Howard that she was “in trouble financially if I didn’t get my money out.” While she attempted to qualify that answer during her testimony at trial, I do not find that evidence credible. I do not accept her evidence on this point as accurate; and it is significant because it makes a difference to the urgency, from the Purdy’s point of view, of having the purchase and sale agreement close.
148Kevin presented as an angry man during his testimony. When he was under cross examination, he was argumentative and hostile. He would not concede obvious points; for example, he would not agree that he had signed releases in prior litigation. It was only after Mr. Carroll took him through his evidence in a painstaking fashion that he finally agreed that he knew the meaning and effect of a release and that he had signed mutual releases and indemnities on other transactions. This was unnecessary, in my view, given his sophistication and experience as a businessman but it is just one example of Kevin refusing to answer a simple question directly.
149At times, Kevin gave evidence that was not worthy of belief. There were discrepancies between the testimony he gave at trial and his evidence at his examination for discovery. Some of his trial testimony was contradicted by documentary evidence such as emails. Kevin was unable to provide a reasonable explanation for the discrepancies in his evidence. At times, he was clearly not forthright with the court. On the whole, I did not find him to be an impressive witness. In the same way as his wife did, Kevin blames Howard for the fact that the Rivington Group played hardball and the agreement did not turn out to be as profitable as the Purdys had hoped.
150The professed dissatisfaction of the Purdys with the outcome of the deal cannot fairly be laid at the feet of Howard. It was Kevin who negotiated the terms of the 2006 deal after the joint venture agreement was not working out. By 2006 the Plaintiff had invested about $250,000 in the project and had worked on the conversion of the building for 2 years without payment had nothing to do with Howard’s legal services. That fact was referred to repeatedly during the course of Deborah’s evidence and it was clear that she felt it that was unfair; however, those were the terms of the agreement that the Purdys worked out with the Crain Group. Howard had little, if any, input into the terms of the joint venture agreement or the subsequent agreement of purchase and sale.
151The Purdys portrayed themselves as victims during their testimony and portions of their evidence was self-serving. It was clear that both of them felt that they worked hard, lived up to the terms of the joint venture agreement and the purchase and sale agreement and they were somehow taken advantage of at the end of the day. In my view, this is not an accurate depiction of what transpired. It may be the case that the Rivington Group treated the Purdys unfairly; certainly, they were tough in their negotiations with them. Perhaps the Purdys have legitimate complaints with respect to the conduct of the Rivington Group; that is impossible for me to determine as there was no evidence from the Rivington Group at the trial and the claims against them were dismissed on the Summary Judgment motion in 2009.
152I found Howard to be a forthright, honest witness who responded to questions directly even if his answer might have a negative impact on the case. He agreed without hesitation, for example, that he never told the Purdys that he became aware, just prior to closing, that the Crain Group was providing a vendor take back mortgage to the Rivington Group for a short period of time. If he did not recall something, he said so and his evidence was not challenged on cross examination. Where Howard’s evidence differs from that of Deborah and Kevin, I prefer the evidence of Howard.
153The evidence of Michael Quigley was of much assistance to the court. I found him to be objective and fair with a good recollection of the events surrounding the execution of the agreements and the closing of the transaction. Where his evidence differs from that of the Purdys, I prefer the evidence of Quigley. While Deborah clearly will not be dissuaded from her belief that Howard’s “friendship” with Quigley compromised his performance as her solicitor, I say without reservation I found no evidence to substantiate this belief.
154Quigley testified that it was Kevin Purdy who was keen to enter into a deal concerning the Sunset Blvd. property and that the Crain Group was somewhat indifferent as to whether or not the apartment building was converted because it was such a profitable investment for them. The Purdys were supposed to renovate the various units at their expense but by the spring of 2006, although the units were vacated, the work had not been done and the Crain Group had missed out on close to $200,000 in rental revenue. Pursuant to the terms of the initial joint venture agreement, there was no obligation on the Crain Group to do anything for the conversion. While I make no finding about the reason the renovations were not carried out efficiently, I make reference to this simply to illustrate that while the Purdys see themselves as victims in the deal, without a doubt the Crain Group had complaints about the conduct of the Purdys and they suffered losses as a result. The evidence of the Purdys on the alleged bias of Howard in favour of the Crain Group lacks objectivity and reality and I do not accept it.
Standard of Care
155The applicable standard of care is that of a reasonably competent solicitor: Ristimaki v. Cooper.1 A lawyer who is retained must bring “reasonable care, skill and knowledge to the performance of the professional service which he [or she] has undertaken."2 As well, “a solicitor’s conduct must be viewed in the context of the surrounding circumstances. The reasonableness of the lawyer’s impugned conduct is judged in light of the surrounding circumstances such as the time available to complete the work, the nature of the client’s instructions, and the experience and sophistication of the client."3
Does a breach of the Rules of Professional Conduct constitute negligence?
156This is not a case where the Plaintiff is alleging the solicitor was incompetent in the advice he provided; rather, the Plaintiff’s complaint is rooted in the conflict of interest allegations which the Purdys say equates with a breach of the standard of care and therefore, submit that Howard was negligent.
157Whether or not a solicitor’s actions fell below the appropriate standard of care is a determination that will be made based on all of the evidence, taking into account the particular circumstances of the situation and including expert opinion.
158Rule 2.04 of the Rules of Professional Conduct deals with situations of conflict of interest where a lawyer acts for more than one client in a transaction. It provides:
Definition
2.04 (1) In this rule
A “conflict of interest” or a “conflicting interest” means an interest
(a) that would be likely to affect adversely a lawyer's judgment on behalf of, or loyalty to, a client or prospective client, or
(b) that a lawyer might be prompted to prefer to the interests of a client or prospective client.
Avoidance of Conflicts of Interest
(2) A lawyer shall not advise or represent more than one side of a dispute.
(3) A lawyer shall not act or continue to act in a matter when there is or is likely to be a conflicting interest unless, after disclosure adequate to make an informed decision, the client or prospective client consents.
Acting Against Client
(4) A lawyer who has acted for a client in a matter shall not thereafter act against the client or against persons who were involved in or associated with the client in that matter
(a) in the same matter,
(b) in any related matter, or
(c) save as provided by subrule (5), in any new matter, if the lawyer has obtained from the other retainer relevant confidential information unless the client and those involved in or associated with the client consent.
(5) Where a lawyer has acted for a former client and obtained confidential information relevant to a new matter, the lawyer's partner or associate may act in the new matter against the former client if
(a) the former client consents to the lawyer's partner or associate acting, or
(b) the law firm establishes that it is in the interests of justice that it act in the new matter, having regard to all relevant circumstances, including
(i) the adequacy and timing of the measures taken to ensure that no disclosure of the former client's confidential information to the partner or associate having carriage of the new matter will occur,
(ii) the extent of prejudice to any party,
(iii) the good faith of the parties,
(iv) the availability of suitable alternative counsel, and
(v) issues affecting the public interest.
Joint Retainer
(6) Except as provided in subrule (8.2), where a lawyer accepts employment from more than one client in a matter or transaction, the lawyer shall advise the clients that
(a) the lawyer has been asked to act for both or all of them,
(b) no information received in connection with the matter from one can be treated as confidential so far as any of the others are concerned, and
(c) if a conflict develops that cannot be resolved, the lawyer cannot continue to act for both or all of them and may have to withdraw completely.
(6.1) Where a lawyer acts for both the borrower and the lender in a mortgage or loan transaction, the lawyer shall disclose to the borrower and the lender, in writing, before the advance or release of the mortgage or loan funds, all material information that is relevant to the transaction.
(7) Except as provided in subrule (8.2), where a lawyer has a continuing relationship with a client for whom the lawyer acts regularly, before the lawyer accepts joint employment for that client and another client in a matter or transaction, the lawyer shall advise the other client of the continuing relationship and recommend that the client obtain independent legal advice about the joint retainer.
(8) Except as provided in subrule (8.2), where a lawyer has advised the clients as provided under subrules (6) and (7) and the parties are content that the lawyer act, the lawyer shall obtain their consent.
(8.1) In subrule (8.2), "lending client" means a client that is a bank, trust company, insurance company, credit union or finance company that lends money in the ordinary course of its business.
(8.2) If a lawyer is jointly retained by a client and by a lending client in respect of a mortgage or loan from the lending client to that client, including any guarantee of that mortgage or loan, the lending client’s consent is deemed to exist upon the lawyer’s receipt of written instructions from the lending client to act and the lawyer is not required to
(a) provide the advice described in subrule (6) to the lending client before accepting the employment,
(b) provide the advice described in subrule (7) if the lending client is the other client as described in that subrule, or
(c) obtain the consent of the lending client as described in subrule (8), including confirming the lending client’s consent in writing, unless the lending client requires that its consent be reduced to writing.
(9) Save as provided by subrule (10), where clients have consented to a joint retainer and an issue contentious between them or some of them arises, the lawyer shall
(a) not advise them on the contentious issue, and
(b) refer the clients to other lawyers, unless
(i) no legal advice is required, and
(ii) the clients are sophisticated, in which case, the clients may settle the contentious issue by direct negotiation in which the lawyer does not participate.
(10) Where clients consent to a joint retainer and also agree that if a contentious issue arises the lawyer may continue to advise one of them and a contentious issue does arise, the lawyer may advise the one client about the contentious matter and shall refer the other or others to another lawyer.
159Rule 2.04(6) deals with the situation of a joint retainer, as was the case with the Plaintiff and the Crain Group. The RPC provides in this situation, the solicitor shall advise the clients that he is acting for all parties, that no information can be treated as confidential and that if a conflict develops that cannot be resolved, the lawyer cannot continue to act for both and may have to withdraw. In cases of joint retainer the RPC stipulates that after advising the parties, the lawyer shall get the written consent of the clients or oral consent, which is confirmed in writing by the lawyer.While the Purdys testified that Howard failed to advise both sides that he was acting for all parties, that position is not supported on the evidence and I do not accept it. There was never any doubt in the minds of the Purdys or the Crain Group that Howard was acting for all parties on the joint venture and later, on the purchase and sale. The Plaintiff’s expert, Mackenzie, testified that Howard breached the standard because he was in an obvious conflict of interest and he failed to obtain the consent of the clients. It is conceded that this was not done by Howard when he was retained to draft the joint venture agreement on September 17, 2004 nor was.
160Mackenzie also stated that Howard was negligent because he failed to tell both sides that it done when the purchase and sale agreement dated October 24, 2006 was executed. there could be no confidentiality of information. While Howard did not advise both sides about the lack of confidentiality, and that does not comply with the RPC, I do not accept that a breach of the RPC leads automatically to a finding of negligence.The Plaintiff submits that “by failing to comply with the Rules, Howard failed to meet the standard of care expected of lawyers practicing in Ontario” [paragraph 271 of written submissions]. However, the breach of a Rule of Professional Conduct does not automatically equate with a finding of negligence or that the legal services provided by a solicitor fell below the requisite standard of care; that is a determination to be made by the court depending on the facts of the case.
161I am guided by the comments of Justice Cromwell in Galambos v. Perez, 2009 SCC 48, [2009] 3 S.C.R. 247, where he discussed the relationship between the Law Society of British Columbia’s Professional Conduct Handbook (1993) and the law of solicitor’s negligence.
162At para. 29, Cromwell J. stated the following:
[…] there is an important distinction between the rules of professional conduct and the law of negligence. Breach of one does not necessarily involve breach of the other. Conduct may be negligent but not breach rules of professional conduct, and breaching the rules of professional conduct is not necessarily negligence. Codes of professional conduct, while they are important statements of public policy with respect to the conduct of lawyers, are designed to serve as a guide to lawyers and are typically enforced in disciplinary proceedings. They are of importance in determining the nature and extent of duties flowing from a professional relationship: Hodgkinson v. Simms, 1994 CanLII 70 (SCC), [1994] 3 S.C.R. 377, at p. 425. They are not, however, binding on the courts and do not necessarily describe the applicable duty or standard of care in negligence: see, e.g., MacDonald Estate v. Martin, 1990 CanLII 32 (SCC), [1990] 3 S.C.R. 1235, at pp. 1244-45; Meadwell Enterprises Ltd. v. Clay and Co. (1983), 1982 CanLII 657 (BC SC), 44 B.C.L.R. 188 (S.C.); S. M. Grant and L. R. Rothstein, Lawyers' Professional Liability (2nd ed. 1998), at pp. 8-10.
163This issue was addressed by Justice Smith in Grewal v. Sandhu4 and I agree with her comments at para. 60:
“A breach of professional rules does not necessarily give rise to civil liability. Professional codes of conduct are designed to serve as a guide to the profession and are typically enforced in disciplinary proceedings. They may be important evidence in determining the nature and extent of duties flowing from a professional relationship, but they are not binding on the court and do not, for example, necessarily describe the applicable duty or standard of care in negligence”
164Similarly, in the case before me, while clearly Howard did not get written consent to act for both parties and he did not tell them that any information could not be confidential, that does not equate with a finding that he fell below the appropriate standard of care. To make that determination, the actions and conduct of Howard must be examined in the context of the factual matrix in which he was retained.
165In this case, Howard had acted for the Purdys from 1999 to 2004 on 13 prior condominium conversions and there is no evidence that there was any complaint about his work or his representation of them in those transactions. He had also done personal work for the Purdys. Deborah testified that she had always been satisfied with the work done by Howard and she trusted his judgment. The Purdys clearly had confidence in his legal abilities and integrity prior to the events giving rise to this action.
166It was Kevin Purdy who suggested to the Crain Group that Howard be the lawyer for the deal and that he act for both parties. Kevin conceded in his evidence that he knew he could have insisted that Howard only act on his behalf but the members of the Crain Group, specifically Crain, did not want to hire their own lawyer. Quigley, who practiced in Smiths Falls prior to his appointment to the Bench, described Howard’s reputation as “impeccable”. Quigley testified that he had never met the Purdys and if Howard had not been involved as the solicitor on the deal, Quigley likely would not have agreed to proceed with the joint venture. Having Howard involved in the transaction gave the Crain Group a level of comfort.
167The RPC, as noted by Justice Cromwell, are designed to assist lawyers and provide guidance on how to conduct themselves in particular situations. Failure to comply with the RPC might lead to disciplinary proceedings by the Law Society of Upper Canada in certain situations. While clearly it would have been preferable if Howard had complied with Rule 2.04 and secured the written consent of the Purdys and of the Crain Group to his being retained by both of them, including an acknowledgement that there could be no confidentiality of information, I do not find that his failure to do so constitutes a breach of the standard of care. An examination of his conduct on the evidence must be undertaken to make that determination.
Did the actions of Howard fall below the requisite standard of care?
168The Purdys have many complaints about Howard. However, the following alleged failures are the most significant: once there was a dispute between the parties, their interests were divergent and Howard should have referred both clients to other counsel; he failed to advise the Purdys of their options to sue the Rivington Group or to refuse to close the deal and instead, forced them to make all the accommodations to ensure the transaction went through; he kept information from them such that it deprived the Purdys of the ability to make a fully informed decision, specifically the vendor take back mortgage provided by the Crain Group to the Rivington Group; he preferred the interests of the Crain Group over those of 148; and he made the Purdys sign releases without ensuring the other parties did so as well.
Period of time August 2004 to October 24, 2006
169In the factual matrix, it is important to note that Kevin was a sophisticated businessman; he had done 13 similar condominium conversions prior to the Sunset Boulevard deal and had done them with Howard as his lawyer so he was familiar with the process. Howard described Kevin as an “expert” in the conversion of apartment buildings to condominiums and I accept that evidence. It was Kevin who initiated the meeting with Crain in 2004 to discuss the possibility of converting the Sunset Boulevard property into condominiums as a joint venture. The evidence makes it clear that it was the Purdys, specifically Kevin, who negotiated the terms of the original joint venture agreement [exhibit 1, tab 17. While Howard drafted the actual agreement, there is no suggestion or any evidence that there was anything substandard in his work or that he included terms that were favourable to the Crain Group and unfavourable to the Purdys. After the agreement was signed in September 2004, the evidence confirms that certain work was done by the Purdys and approximately $248,000 in expenses was incurred by the Plaintiff. Howard was working towards getting the new condominium registered. By the summer of 2006, 148 had sold 2 units to existing renters and wished to close the transactions in August and get paid the amounts they had expended in doing the preparatory work.
170However, the Crain Group was not content to close the 2 transactions because there were many empty units in the building which resulted in significant loss of rental revenue to them, approximately $200,000. As well, there were liens against the building because the Plaintiff had not paid suppliers and workers. While Deborah complained bitterly at trial about the fact that she and Kevin had worked for 2 years on the conversion and had spent close to $250,000 of their own money on the project while the Crain Group had done nothing, it is important to note that these were the terms of the agreement that were negotiated by Kevin; Howard cannot be blamed for that provision.
171In the spring and summer of 2006, issues arose between the Purdys and the Crain Group. The Plaintiff submits that Howard was in an actual conflict of interest at this time and ought to have sent both parties to other lawyers. I do not accept this argument. During this time, the evidence is clear that Howard was trying to find a solution to the issues that had arisen; to use his words, he was engaged in “shuttle diplomacy”. He did so in order to see if a mutually agreeable solution could be worked out, because he was in the best position to accomplish this objective and furthermore, it was obvious that if the deal did not go forward, it would have very serious financial consequences for the Purdys. As Quigley testified, the Crain Group had no particular need to sell the Sunset property or have it converted to condominiums. It was an excellent investment for the owners and if it was not sold, that was perfectly fine.
172Howard met with Quigley to see if the issues could be resolved and then sent a letter to the Purdys [exhibit 1, tab 58]. Following receipt of this letter, the Purdys sent correspondence dated August 18, 2006 [exhibit 1, tab 63] in which they said “…your friendship with Justice Quigley has clouded your judgment as to who you are representing. If he wasn’t your friend, perhaps you would be pursuing this more aggressively on our behalf. This is a clear conflict of interest. As you have said, if this goes to court you will not be our lawyer. Where does that leave us?” It is acknowledged Howard did not reply to this letter.
173It would have been preferable, in my view, had Howard addressed the Purdy’s letter of August 18 alleging conflict of interest in writing or met with them and explained what he was doing and confirmed that meeting in writing. However, I do not find on the evidence that during this period of time Howard somehow preferred the interests of the Crain Group over those of the Purdys. He was attempting to negotiate a resolution of the differences that was acceptable to both sides.
174The Plaintiff corporation had been created as a vehicle for the condominium conversion of the Sunset Blvd. property and it had no assets. The Purdys themselves had to come up with the money to pay the expenses associated with doing the work on the building that they had undertaken to do. By Deborah’s own testimony, they had not paid contractors and suppliers and they were getting collection calls at home. Even Howard was receiving phone calls from unpaid creditors. From the perspective of the Purdys it would have been a financial disaster if the deal fell apart and they received no compensation for the 2 years of work they had done nor payment for the $248,000 of expenses incurred.
175I find that during this period of time from July to October 2006, Howard was attempting to find a solution to the problems that had arisen between the Purdys and the Crain Group. He was not preferring the position of the latter over that of the Purdys; rather, knowing that from a financial perspective it was important to the Purdys that the Crain Group not walk away from the deal, Howard was seeing what he could accomplish. The Purdys knew that Howard was well-regarded by the Crain Group and as a result, they perceived that as an advantage to them in their negotiations. While the Purdys now criticize Howard for not telling them that he could no longer act on their behalf because he was in a conflict of interest, the evidence does not support this position.
176Furthermore, it is clear that the Purdys knew they had the option of deciding that Howard would no longer represent them. Kevin acknowledged in his evidence that he could have retained another lawyer in the circumstances but he chose not to and there were good reasons for his decision, apart from the fact that he knew Howard was experienced in condominium conversions. Kevin conceded in his evidence that Howard had the “inside track” on the Crain Group and was able to negotiate with them to obtain terms and concessions which were advantageous to the Purdys.
177As I have indicated earlier, the Purdys were sophisticated clients, experienced in condominium conversions, and they knew that from a financial perspective, they could not have the Crain Group walk away from the transaction.
178Eventually, a different agreement was entered into, a purchase and sale agreement. It was Kevin who suggested that a purchase would be a better option and this was similar to the previous condominium conversion deals Howard had acted for him on. It was Kevin who came up with the proposal to purchase the building outright with a $50,000 non-refundable deposit. While the Purdys now attempt to state that they were somehow forced into the purchase and sale agreement, there is no evidence apart from their own testimony to substantiate this allegation. Both Deborah and Kevin testified that they felt they had no choice but to sign the agreement; this evidence is self-serving and lacks credibility. I do not accept this evidence; it is designed to blame Howard for the outcome of the agreement.
179Kevin and the Crain Group were sophisticated businessmen and experienced negotiators. Howard played no role is advising the Purdys about entering the new deal. In reality, the Purdys realized the joint venture agreement was not working out; they did not want the Crain Group to walk away from the deal and it was Kevin who put forward the idea of a purchase of the property, which was what he had done in similar deals in the past, with the assistance of Howard as his lawyer. The price was negotiated and the agreement was signed on October 24, 2006. The Purdys were not forced to sign the agreement; they knew Howard was acting for them and for the Crain Group. They did not ask him to remove himself from the file; nor did they seek alternate counsel.
180The Purdys knew that by signing the agreement of purchase and sale with the Crain Group, they were obligated to pay $5.85 million for the building and any profit realized by the Plaintiff would depend on the number of units sold and the price as well as the expenses which were incurred.
181I find as a fact the Purdys were content to go ahead with the new agreement because they realized it was in their best interests to do so. On their own evidence, the Purdys’ potential profit increased under the purchase and sale agreement by approximately $500,000, while the Crain Group would receive less profit than they would have likely received under the joint venture agreement. To suggest, as the Deborah and Kevin did in their testimony, that the new deal would result in an increased profit to the Crain Group of somewhere in the range of $850,000 is incorrect and not supported by the evidence.
Period of time November 2006 to May 2007
182During this period of time, 26 agreements of purchase and sale were executed by the Rivington Group. This was a significant number of purchases by one group; as experienced business people, Deborah and Kevin knew that the Rivington Group was in a position of power. As well, the Purdys knew that they needed the money from the sales of the units to close the purchase with the Crain Group. Howard was not involved in the deal between the Plaintiff and the Rivington Group; there is no evidence either Deborah or Kevin sought Howard’s advice on selling such a large number of units to one investor.
183In his capacity as solicitor for the Plaintiff, Howard worked to obtain a number of concessions from the Crain Group to the benefit of the Plaintiff. There was an agreement between the Plaintiff and the Crain Group for an abatement in the purchase price of $50,000 at the request of the Plaintiff because of certain matters the Purdys were unhappy about. The Purdys wanted a vendor take back mortgage for $850,000 secured on the 19 units left to be sold and Howard made the request of the Crain Group and it was agreed to. There were no disputes during this time between the Plaintiff and the Crain Group.
184Problems arose in late April 2007 between the Plaintiff and the various investors who had purchased units. The first occurred when the Leung Group and the Tullis Group resiled from the agreements of purchase and sale they had signed. The Leung group expressed concerns about the condition of the building and there were financing problems. Howard cannot be faulted for the decisions of these investors not to complete the purchases.
185The situation was exacerbated when, on April 27, 2007, the lawyer for the Rivington Group advised Howard that the 26 agreements of purchase and sale were not going through because of information received about the building rents and costs. Kevin and Deborah were immediately advised of this development by Howard. While the Purdys seemingly blame Howard for not “fixing” this problem, it was not of his making. The agreement with the Crain Group was a purchase and sale for a specific price and the Plaintiff needed the funds from the 26 sales to the Rivington Group to purchase the building. If the funds from the Rivington Group sales totaling approximately $2.4 million were not forthcoming, the Plaintiff would not be able to come up with sufficient funds to close the transaction.
186The Purdys instructed Howard to attempt to resolve the issues with the Rivington Group and he acted on those instructions. The closing date had to be extended and Howard approached the Crain Group for this accommodation, which was acceded to.
187While the Purdys complain bitterly about not being advised of their options after the Rivington Group resiled from the agreements, that view is not supported by the evidence. On April 30, 2007, Kevin and Deborah were referred to a litigation lawyer, Kenneth Wright, as a result of the various purchasers resiling from the agreements of purchase and sale. Kevin and Deborah spoke to Wright in order to get his recommendations about litigation if things did not work out but it was clear that Howard was expected to work on the deal to hopefully achieve a resolution of the issues between the parties and get the transaction closed. At the same time, Howard sent a letter dated April 29 advising that if the deals did not close, further proceedings would be commenced.
188Letters were sent by Wright [exhibit 4, tab 14] to the solicitors acting for the purchasers advising that if the deals did not close, the Plaintiff would sue for damages. It is clear that Kevin and Deborah were aware by the end of April, 2007, that if the agreements of purchase and sale were not completed, they had the option to sue. They conceded that they instructed Howard to work towards a resolution and if one could not be achieved, they had Wright to deal with the litigation that would arise. In fact, Wright sent a letter to the lawyer for the Rivington Group on May 3, 2007 advising that communications should continue with Howard to effect a resolution of the issues between the Plaintiff and the Rivington Group but that if none were arrived at, Wright would proceed with litigation.
189The emails between Deborah and Wright contained in exhibit 4, specifically tabs 20, 24, 25, make it clear that she was aware of her options on closing day. As she noted in her email of May 13, 2007, “I don’t want to jeopardize our pay day” [exhibit 4, tab 25].
190Deborah was very critical of the conduct of Howard during the closing and stated that Howard forced her to close the transaction. Apart from her own testimony, there is no evidence whatsoever to suggest that Howard exerted influence on Deborah the day of closing to get the deal done. Howard had learned only a few days prior to the scheduled closing that the Rivington Group intended to resile from their 26 agreement of purchase and sale. That information was immediately communicated to the Purdys. The precise reasons for the decision of the Rivington Group to resile from the deal were not provided to the court; there was a suggestion that the Purdys had somehow misrepresented the actual state of the building and its revenues. The Purdys denied making any misrepresentations and both testified that there was no basis for the Rivington Group to resile from the unconditional agreements of purchase and sale.
191Howard was not a litigation lawyer; Wright was retained to provide advice about initiating a lawsuit, if it came to that. If there was, indeed, no basis for the Rivington Group to adopt the position, just before closing, that there were misrepresentations made such that they were not prepared to close the 26 deals then perhaps the Plaintiff had a cause of action against that entity. In fact, in the original statement of claim, the Plaintiff sued the Rivington Group along with Howard and the Crain Group. The claims against both the Rivington Group and the Crain Group were dismissed at the Summary Judgment motion heard in 2009. In her written reasons dated December 11, 2009, Justice Himel noted that the position of the Plaintiff was that the Rivington Group breached the agreement to purchase the 26 units and made unlawful misrepresentations and forced the Plaintiff to close the transaction. It was the position of the Plaintiff at that time “that Kenneth Wright was consulted to provide advice on remedies against various purchasers who were refusing to close the purchase and sale transactions, and as litigation counsel for 1483677…” I agree with that description of the role of Wright.
192In the summary judgment motion, Justice Himel found, at para. 35, that “[t]here is nothing to support a conclusion that the building’s state of disrepair related to the Rivington Group’s decision to back out of the agreement.” Similarly, at trial, there was no evidence as to why the Rivington Group decided to resile from the agreements or why they then decided to purchase more units at a reduced price.
193The Plaintiff had agreed to sell 46 units to the Rivington Group for a price of $85,000 per unit. On the closing day, there was an issue about what units the Rivington Group was purchasing and the Plaintiff ended up giving a $65,000 credit because the Rivington Group was insistent. That was not the fault of Howard. If the Plaintiff thought it might be better to sue and not close, Deborah had Wright, the litigation counsel, available for advice.
194I do not accept the Plaintiff’s submission that Howard somehow “forced” the Purdys to close the transaction and accept all of the terms and conditions of the Rivington Group. Deborah stated repeatedly during her evidence that Howard told her on a regular basis that she had to close the deal or she would be sued. This was denied by Howard and nowhere in any of the volumes of documentation that were filed as exhibits is there a single email or note that corroborated the evidence of Deborah about the continued threats of litigation. I accept Howard’s testimony that he advised the Purdys that if they did not close the deal, there could be litigation as a result. That does not equate with threatening the Plaintiff that they must close the agreement at all costs. There is simply no evidence to support this allegation; it was of no particular moment to the Crain Group whether or not the building was sold to the Plaintiff. For the Purdys, however, the closing of the transaction meant that they received reimbursement of the significant monies they had put into the project, they did not lose their deposit and the enjoyed profits of close to a million dollars, evidence which was confirmed by the Plaintiff’s own expert, Siegel, as well as the defence expert Pittman.
195The truth of the matter is that as a result of their financial circumstances and the terms of the deals that they had negotiated, if the Sunset Blvd. property was not sold, the financial consequences for the Purdys would have been devastating. Kevin and Deborah had worked for 2 years without compensation getting the building ready for conversion; as well, they had invested close to $300,000 of their own money into the building and they needed to be reimbursed. They had made a $50,000 non-refundable deposit. Creditors were calling regularly as were various suppliers. Furthermore, the Purdys had 14 investors who had purchased units and if the deal did not go through, there was the possibility of litigation with those individuals as well as the Crain Group.
196Justice Himel found on the Summary Judgment motion that “the undisputed evidence is that the plaintiffs always had another option open to them: they could have refused the Rivington Group’s demands and sued them for breach of contract…” I find without hesitation on the trial evidence that the Purdys were aware that one option that was available to them was to sue the Rivington Group if they resiled from the unconditional agreements of purchase and sale. The Plaintiff chose instead to negotiate with the Rivington Group to get the deal closed because they knew from their own perspective that if it did not, it was a financial disaster for them.
197I find that the Purdys knew it was essential that the deal close, and that is what they wished Howard to accomplish on their behalf and he did. Following the closing, Deborah sent Howard an email thanking him for his participation on closing day. If she felt that he abandoned her and Kevin and failed to act on their behalf, that email never would have been sent.
198During their testimony, both Kevin and Deborah stated that Howard preferred the interests of the Crain Group over theirs. However, I found no evidence during the trial that supported this view. Howard vehemently denied such a suggestion and it would be surprising that he would “turn” on the Purdys given his history with them as his clients. There was no evidence that Howard was a friend of Glenn Crain or David James. He knew them as successful businessmen from the same small town that he resided in. Howard knew Quigley because they were both lawyers who practiced in Smiths Falls and they had a friendly relationship. There was not a scintilla of evidence at the trial that Howard preferred the interests of the Crain Group over those of the Purdys due to his relationship with Quigley.
199In fact, the evidence supports a finding that as a result of requests made by Howard on behalf of the Plaintiff there were various benefits that the Purdys received which would not have otherwise come to fruition, such as the extensions of the closing date, the vendor take back mortgage and the savings of the land transfer tax. As well, it cannot be overlooked that perhaps from the perspective of the Crain Group, the agreement they inked with the Plaintiff was not an advantageous one. Not only did the Crain Group lose out on rental income of close to $200,000, when the deal was closed, they were supposed to receive $5,850,000 at the time of closing. They did not receive that sum from the Plaintiff and the vendor take back mortgage they had extended to the Plaintiff for $1,040,000 was not paid within 90 days as agreed. In fact, the mortgage was not paid, the units were not sold and the Crain Group had to engage in lengthy and expensive litigation as a result of the actions of the Purdys.
200The Purdys state that the fact that they signed releases and the Crain Group did not is evidence of preferred treatment by Howard. I do not accept this submission. Given that Wright had written a notice letter to some of the defendants, it is not surprising that a release was requested from Deborah and Kevin when the deal closed. Furthermore, Wright confirmed that he reviewed the release, which was a standard form release, prior to its execution. The fact that the Purdys signed releases in the circumstances is not evidence that Howard preferred the interests of the Crain Group over the Plaintiff.
Was there a breach of Howard’s fiduciary duty to the Purdys?
201The Supreme Court of Canada has noted that the solicitor-client relationship is “overlaid with certain fiduciary responsibilities, which are imposed as a matter of law."5 In LAC Minerals Ltd. v. International Corona Resources Ltd.,6 Justice Sopinka set out the criteria for determining whether a fiduciary relationship exists and I am satisfied Howard had a fiduciary duty to the Purdys. However, the fact that Howard acted for both parties in the transaction does not mean that he breached his fiduciary relationship to the Purdys, as the Plaintiff suggests. The Plaintiff and the Crain Group were not adverse in interest. It was not a situation where as counsel, Howard was torn between his two clients and had loyalties and duties of good faith to both which he could not comply with in the circumstances.
202Nor was this a case where the conduct of the solicitor was dishonest or unethical or where the lawyer knowingly withheld information from a client. Whether there has been a breach of a fiduciary relationship must be determined based on the facts. As the court noted in Fraser Park South Estates Ltd. v. Lang Michener & Shaw,7 cited by counsel for the Defendants,
The cases relied on by counsel for the plaintiffs are clear cases of dishonest or unethical conduct on the part of the defendant’s solicitor. Regardless of whether the solicitor was receiving a personal benefit, in each case the solicitor knowingly withheld the information from the plaintiff. For reasons of self-interest or because he was in a conflict of interest the solicitor chose not to divulge information which he knew was material and which should have been divulged.
How can this type of behaviour, which carries with it the stigma of abhorrence, be likened to the conduct of Mr. Knight? Mr. Knight, through ignorance or lack of appreciation of environmental issues, simply failed to take a step which should have been taken, not out of propriety but out of a reasonable standard of prudence.
203I note as well that there are cases where the court has restricted liability on solicitors who breached a fiduciary duty, holding that a “solicitor must knowingly withhold information either for his own self interest or because he was in a conflict of interest…”: Threemor Enterprises Ltd. v. Parente, Borean8. There is no evidence to support the contention that Howard did not advise the Plaintiff of the mortgage arrangements between the Crain Group and the Rivington Group for his own interests or because he was in a conflict of interest. When questioned on this point, Howard said he was not involved in the mortgage and in fact, the lawyer for the Rivington Group had written directly to Crain to make the arrangements. He learned about it on May 8 or 9 and did not advise the Purdys because it made no difference to them. I accept this evidence; Howard did not find the mortgage arrangements to be material, which was reasonable in the circumstances.
204Counsel for the Plaintiff argues that Howard was in a hopeless conflict of interest because of the complexity of the transaction and relies on Waxman v. Waxman9 as support for his assertion that Howard breached the fiduciary relationship. In my view, the facts of this case are distinguishable from Waxman, because the joint venture agreement was not a particularly complex transaction, although it was different from the many condominium conversions Kevin and Howard had completed in the past.
205A fiduciary must exercise the utmost good faith and loyalty to those for whom he or she acts: Moffat v. Wetstein.10 While the Plaintiff makes many broad-brush statements about conflict of interest because Howard acted for both parties on the agreement, there is absolutely no evidence to support the allegation that Howard did not act in anything other than good faith towards the Purdys and with loyalty, consistent with his long relationship with them.
The failure to inform of the mortgage between the Crain Group and the Rivington Group
206The Plaintiff submits that they were not told that there was a vendor take back mortgage given by the Crain Group to the Rivington Group and had they been aware of this, they would not have closed the deal and instead, would have litigated against the Rivington Group. The Plaintiff argues this represents a breach of the fiduciary relationship between the Purdys and Howard and that he “failed to commit to the Plaintiff’s cause”. I do not accept this submission.
207The law is clear that a solicitor has a duty to disclose material facts, regardless of whether the lawyer is in a position of conflict. What constitutes a “material fact” must be determined based on the circumstances; the “question of materiality must be determined on some objective basis..."11 In the Commerce Capital Trust case, the Ontario Court of Appeal dealt with the issue of what constitutes material facts in a situation where a solicitor acts for both parties and owes a fiduciary duty to his client. The Court of Appeal held that the appropriate test was whether any reasonable solicitor would consider a fact material to the client’s decision; if so, the onus is on the solicitor to prove that the transaction would have been carried out in any event had full disclosure of those material facts been made.12
208In the Commerce Capital Trust case, the solicitor acted for both the mortgagor and the mortgagee with the knowledge of both parties on a placement of a mortgage. The value allocated to the property and building was less than the bank thought, and the solicitor knew this and also that the purchaser was buying the property as part of a larger transaction. This information was not disclosed to the bank by the solicitor and later, the mortgage went into default and the bank sued the lawyer. The Court of Appeal noted that the solicitor owed a fiduciary duty to their client, the bank, and ought to have disclosed all “material” facts. The court found that these facts were material and ought to have been disclosed; they were not disclosed and the solicitor failed to discharge the onus to establish that the bank would have gone ahead with the transaction in any event had full disclosure of those material facts been made.
209In Recha v. Yeamans the New Brunswick Court of Appeal noted “A solicitor is not a mere repository of relevant information which the solicitor decides shall or shall not be passed on to the client. The solicitor, on the contrary, is a receiver of and then a conduit or channel of relevant information for the benefit of the client and for final analysis and decision by the client".13 Clearly, a solicitor does not have to pass on every piece of information that he learns in the course of his work for a client; it is relevant information that the reasonable solicitor ought to give to his client [emphasis mine].
210In the case before me, the Purdys complain bitterly that Howard failed to tell them that the Crain Group was providing a vendor take back mortgage to the Rivington Group. They further assert that had they known of this information, they would have refused to complete the agreement. I do not accept this evidence nor do I agree that the information about the mortgage was material.
211The mortgage between the Rivington Group and the Crain Group was arranged between the two entities around May 7 or 8, 2007 and Howard learned of it soon after. By that point, the Plaintiff had already entered into the agreement with the Rivington Group and secured their own vendor take back mortgage with the Crain Group. The deal closed on May 11, 2007. What difference the vendor take back mortgage between the Rivington Group and the Crain Group made to the Purdys or how it would have affected how they proceeded was never articulated to the Court.
212There was no evidence at trial about the financial resources of the Rivington Group; the only information was that Rivington and Hinton were extremely successful businessmen and property owners. How that group chose to finance their purchases could not have been a relevant consideration for the Purdys, who had their own reasons for needing to close the deal with the Crain Group. The Purdys had themselves asked Howard to assist in obtaining a vendor take back mortgage from the Crain Group, which he successfully undertook.
213While it is understandable that the Purdys felt bitter about the hard-nosed manner in which they were treated by the Rivington Group, their position that had they known of the vendor take back mortgage they would have refused to close the deal is not realistic; rather, it is an emotional response that is not rooted in the evidence. Deborah repeatedly stated that had she and her husband known about the bridge financing arrangement between the Crain Group and the Rivington Group they would not have closed the deal and they blame Howard for keeping this information from them. No principled reason was provided by either of the Purdys to substantiate this position; when questioned on this point, Deborah was unable or unwilling to articulate how this knowledge would have made any difference to her when she was scrambling to salvage the deal. She had the benefit of litigation counsel when the Rivington Group advised they were not going to close the agreements; the Purdys could have played hardball in response to the position taken by the Rivington Group. They did not because, contrary to Deborah’s evidence at trial, they were in desperate financial circumstances and they were under extreme pressure to close the transaction.
214I have no hesitation in finding that even if the fact of the vendor take back mortgage from the Crain Group to the Rivington Group were found to be material, the evidence persuades me that the Purdys would have gone through with the transaction even with the knowledge of the mortgage arrangement.
215Deborah and Peter Macdonald both sent complimentary emails to Howard thanking him for his hard work which enabled the agreement to be completed.
216While Deborah was clearly angry and bitter about the manner in which the Rivington Group conducted itself at the time of closing, her email of May 13, 2007 to Wright [exhibit 4, tab 25] is enlightening about her state of mind at the time: “I only want this and other issues addressed AFTER we receive closing funds. I don’t want to jeopardize our pay day.”
217The Plaintiff alleges Howard “failed to commit to the Purdy’s cause”. This is a vague allegation made in the written submissions of the Plaintiff. It includes a shopping list of allegations such as allowing the Plaintiff to take a financial beating, failing to ensure the Plaintiff was brought out of the agreement whole, and failing to explore various options which would have enforced the agreements with the Rivington Group. In my view, there is no merit to these allegations. Howard was not responsible for the actions of the Rivington Group and there was no evidence led by the Plaintiff to suggest that the legal services provided by Howard were negligent.
218I find on the evidence that the legal services provided by Howard to the Purdys met the standard of care of a reasonably competent solicitor in the circumstances. The Plaintiff has failed to prove a breach of the standard and the claim must be dismissed.
Causation
219Although I have found there was no breach of the standard of care and that Howard was not negligent, I will deal with the issue of causation, in the event that I am wrong on the liability issue. In order to do so, I will assume that Howard was negligent in failing to advise the Purdys of the bridge financing arrangements between the Crain Group and the Rivington Group and advising them of the option not to close the agreement.
220The Plaintiff argues that “Howard’s breach of the fiduciary duty he owed to 148 deprived 148 of the opportunity to say no to the May 11, 2007 closing…Consistent with the case law, 148 is entitled to damages to compensate it fully for its lost opportunity to make a fully informed and independent choice in the circumstances.”
144The law is clear that to establish causation, the Plaintiff must demonstrate that “but for” the negligence of Howard, on a balance of probabilities, the Purdys would have proceeded in a fashion that would have avoided the damages which they say they sustained as a result of the Defendant’s negligence: Clements v. Clements.14
145As I wrote in Rider v. Grant, at para. 145, “Specifically, in an action for solicitor’s negligence, the Plaintiff must demonstrate that if properly advised, he or she would have acted in a different manner and would have avoided the damages suffered”: Marcus v. Cochrane.15
224For the reasons I have set out above, the Plaintiff has failed to satisfy me that had the Purdys been advised of the particulars of the bridge financing between the Crain Group and the Rivington Group it would have resulted in a different course of action. Instead, I am persuaded on the evidence that had they been apprised of the mortgage arrangements, they would have closed the purchase on the Sunset Blvd. building as from a financial perspective, it was in their best interests to do so.
225Thus, the Plaintiff has failed to establish causation on a balance of probabilities.
Damages
226In the event that I am incorrect on the issues of standard of care and causation, I will assess the damages based on the evidence that I heard.
227The parties agree that the proper approach to damages for breach of a fiduciary duty is restitutionary and the Plaintiff is entitled to be restored to the position he was in before the breach: Hodgkinson v. Simms.16
227The Plaintiff argues that to be put in the same position as it would have been had the breach not occurred, the Plaintiff is entitled to the difference in value between what it was to receive pursuant to the agreement of purchase and sale and what it actually received after closing. The Plaintiff relies on the evidence of John Seigel who calculated this sum to be $2,0831.52.
228The Plaintiff must prove the damages which flow from the breach of fiduciary relationship. The Plaintiff submits that they would not have closed the purchase and sale agreement had they known of the bridge financing arrangement between the Crain Group and the Rivington Group. Instead, it is submitted, they would have litigated with the Rivington Group.
229The Defendants argue that the Plaintiff has not proven any damages. In the alternative, it is submitted by the Defendants that the evidence of Pittman together with exhibits 14 and 15 sets out the proper damage assessment and that Seigel’s calculations are flawed.
230In my view, the evidence on damages was far from satisfactory and was speculative. Deborah repeated many times in her evidence that had she known of the bridge financing arrangement with the Crain Group and the Rivington Group, it would have changed her view of the purchase and sale agreement and the Plaintiff would not have closed the transaction. Instead, it is asserted, the Plaintiff would have litigated with the Rivington Group and possibly the Crain Group. On the Plaintiff’s theory of damages, it is assumed that the Plaintiff would have been totally successful in the litigation and would have been paid all of the litigation costs it incurred in doing so. Not only is this speculative, it is an unreasonable theory of damages which is unsupported by the evidence. Indeed, when the Plaintiff did launch litigation arising out of the purchase and sale agreement, it was unsuccessful against all of the Defendants save and except Howard and his law firm.
231What is clear is that at the time of closing, the Plaintiff had 13 unsold units and a vendor take back mortgage to the Crain Group in the sum of $1,040,000. The experts Seigel and Pittman concur that the Plaintiff at the time of closing on May 11, 2007 had a potential net profit of between $946,000 to $965,000, which evidence stands in stark contrast to that of Deborah who testified that the Purdys “did not make a dime” from the transaction.
232Deborah testified that she and Kevin tried to sell the units between May and September 2007, but were unsuccessful. It was unclear why the Plaintiff was unable to sell the remaining units. Deborah testified that she and Kevin advertised the units, but the building was not well managed and the condominium fees had been raised. There was no evidence of attempts to market the units, how many prospective buyers were contacted, or what the market conditions were like at the time.
233While the Purdys wish to blame Howard for their inability to sell the 13 units, there was no evidence to support this position at trial. To the contrary, when pressed on cross examination, both Deborah and Kevin conceded that after the closing, the obstacles that they allege prevented them from selling the remaining units had nothing to do with Howard.
234The vendor take back mortgage held by the Crain Group had been negotiated before anything untoward occurred and its terms provided that it was to be repaid with interest within 90 days of closing. Deborah conceded that they did not pay the vendor take back mortgage and she attributed this to the lack of rental income because of vacant units. While Deborah was adamant that she and Kevin had a significant net worth at the time of the closing of the agreement, no satisfactory explanation was provided for the failure to pay the mortgage to the Crain Group. After being pressed on the issue in cross examination, Deborah testified that the Plaintiff took the position that the mortgage was null and void and did not have to be paid. The legal basis for that position was not elucidated upon.
235Eventually, in September 2007, the Crain Group initiated Power of Sale proceedings; the Plaintiff brought a claim seeking a declaration that the mortgage was null and void. That litigation went on for years and the Plaintiff lost the equity in the units. The loss of the anticipated $950,000 in profit from the agreement with the Crain Group is not related in any way to the actions of Howard and that loss cannot be attributed to him.
236The evidence of the defence expert Pittman on damages was helpful in that he provided as exhibits 14 and 15 calculations of the damages had the Plaintiff commenced litigation against the Rivington Group. Various scenarios are put forth based on sales of $80,000/$90,000/$100,000 per unit for 46 units assuming the litigation had been settled for these amounts. If so, the range of damages according to Pittman is $479,832 to $1,155,387.
237In my opinion, the losses advanced by the Plaintiff are not only speculative, they are not attributable to any actions of Howard. For reasons which were not explored in depth at the trial, the Rivington Group chose to play hardball with the Plaintiff just prior to the scheduled closing of the agreements of purchase and sale. As a result, the Plaintiff agreed to sell more units at a lower price to the Rivington Group. That resulted in a loss to the Plaintiff. In a similar vein, other groups of investors walked away from the agreements of purchase they had signed. That resulted in losses to the Plaintiff, although no evidence was led about these losses at trial. These events were unanticipated by the Purdys and unfortunate, but they were not occasioned due to any conduct or negligence on the part of the defendant Howard.
238As I wrote in Rider v. Grant, at para. 172, “It remains the Plaintiff’s onus to prove his damages. As the Court of Appeal has pointed out, ‘…it is a well established principle that 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. That is not to say, however, that a litigant is relieved of his or her duty to prove the facts upon which the damages are estimated...'"17
239The Plaintiff has failed to persuade me that as a result of the actions of Howard damages were sustained.
Conclusion
240As I have found no breach in the standard of care in Howard’s provision of legal services to the Plaintiff and to the Purdys, the claim is dismissed. If counsel cannot agree on costs, I may be contacted.
241I would like to thank counsel for their effective advocacy on behalf of their clients, their unfailing courtesy to the court and their patience in waiting for these reasons for judgment.
D.A. Wilson J.
Released: October 09, 2015
CITATION: 1483677 Ontario Ltd. v. Howard, 2015 ONSC 6217
COURT FILE NO.: 07-CV-38944
DATE: 20151009
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
1483677 Ontario Limited
Plaintiff
– and –
Glenn Henry Crain, Michael Joseph Quigley, Jo-Anne Helen James, John Rivington, Rick Dow, 345511 Ontario Ltd., Paul Howard and Howard Ryan Kelford & Dixon
Defendants
REASONS FOR JUDGMENT
Madam Justice D.A. Wilson
Released: October 09, 2015
Footnotes
- Ristimaki v. Cooper (2006) 2006 CanLII 12415 (ON CA), 79 O.R. (3d) 648 (Ont. C.A.)
- Central Eastern Trust Co. v. Rafuse, 1986 CanLII 29 (SCC), [1986] 2 S.C.R. 147 at para 66.
- Singer v. Lipman Zener Waxman LLP, 2014 ONSC 4521 2014 Carswell Ont 13340 at para. 110.
- Grewal v. Sandhu, 2010 BCSC 1627, 2010 CarswellBC 3113, rev’d in part on other grounds, 2012 BCCA 26, 29 B.C.L.R. (5th) 28.
- Strother v. 3464920 Canada Inc., 2007 SCC 24 [2007] 2 S.C.R. 177 at para. 34 (per Binnie J.)
- LAC Minerals Ltd. v. International Corona Resources Ltd. 1989 CanLII 34 (SCC), [1989] 2 S.C.R. 574.
- Fraser Park South Estates Ltd. v. Lang Michener Lawrence & Shaw 1999 CanLII 6630 (BC SC), [1999] B.C.J. No. 150 (B.C.S.C.) at paras. 62-63.
- Threemor Enterprises Ltd. v. Parente, Borean [2000] O.J. No. 1427 (S.C.J.) at para. 140.
- Waxman v. Waxman 2004 CanLII 39040 (ON CA), [2004] O.J. No. 1765 (Ont. C.A.)
- Moffat v. Wetstein (1996) 1996 CanLII 8009 (ON SC), 29 O.R. (3d) 371 (Gen. Div).
- Commerce Capital Trust Co. v. Berk (1989), 1989 CanLII 4338 (ON CA), 68 O.R.(2d) 257 (Ont. C.A.) at para. 18.
- Commerce Capital Trust at para. 20.
- Recha v. Yeamans (1993), 1993 CanLII 15260 (NB CA), 135 N.B.R.(2d) 360 (N.B.C.A.) at para. 34.
- Clements v. Clements, 2012 SCC 32 [2012] 2 S.C.R. 181.
- Marcus v. Cochrane, 2012 ONSC 146, 2012 CarswellOnt 1472
- Hodgkinson v. Simms, 1994 CanLII 70 (SCC), [1994] 3 S.C.R. 377.
- Martin v. Goldfarb (1998), 1998 CanLII 4150 (ON CA), 41 OR (3d) 161 (Ont. C.A.) at para. 75.