CITATION: Amato v. Welsh, 2016 ONSC 1575

COURT FILE NO.: CV-10-410760

DATE: 20160304

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: David Amato and S.A. Capital Growth Corp., Plaintiffs

AND:

Peter R. Welsh, Aylesworth LLP and Julia Dublin, Defendants

BEFORE: Madam Justice Darla A. Wilson

COUNSEL: Alan Merskey, for the Plaintiffs

Peter Wardle and Alex Fidler-Wener, for the Defendants Aylesworth LLP and Julia Dublin

HEARD: 2 February 2016

ENDORSEMENT

[1] The Plaintiffs bring this motion for partial summary judgment against the Defendant Aylesworth LLP ["Aylesworth"] requesting an order that the law firm is vicariously liable for the actions of the defendant Peter R. Welsh ["Welsh"]. This action alleges professional negligence and breach of fiduciary duties by the law firm in the provision of legal services to the Plaintiffs. The action against the Defendant solicitor Welsh has settled; the action against the Defendant law firm is based on vicarious liability on the basis that Welsh was a member of the firm and Aylesworth is therefore liable for his actions, omissions, breaches and negligence.

[2] The Plaintiffs submit that the question of whether the Defendant Aylesworth is liable in fact and in law for the alleged acts and omissions of the Defendant Welsh is the fundamental issue between the parties at this juncture in the litigation and that the issue of vicarious liability does not raise any genuine issue requiring a trial, but can be fairly and justly determined on this motion for partial summary judgment.

Background

[3] Certain facts are not in dispute. The Defendant Welsh was a lawyer practicing in Oakville, Ontario as a sole practitioner. He practiced under the name "Peter R. Welsh, Barrister & Solicitor". Welsh had a counsel relationship with the Defendant Aylesworth as well as with another firm in Burlington.

[4] The Plaintiff David Amato ["Amato"] was a dentist who became involved in an investment scheme in 2007 which was orchestrated by Robert Mander ["Mander"]. S.A. Capital is Amato's company. The solicitor for the Plaintiffs advised the court that Amato and his company are synonymous so during the course of these reasons, reference will be made to Amato as Plaintiff.

[5] Amato asserts that Mander "demanded" that Amato and other investors use Welsh as their solicitor. Welsh had acted as Mander's lawyer for years and advised him on various loan and corporate structures that were used in the investment scheme. At Mander's suggestion, Amato contacted Welsh in April 2008 and Welsh commenced providing legal services to him. Notably, he handled the sale of Amato's dental practice and thereafter, he did legal work on S.A. Capital and on the loan agreements which were used in the fraudulent investment scheme. Amato invested approximately $14-16 million of his own money and that of friends and family in the investment. It is not disputed that Mander operated a Ponzi scheme; when the scam was discovered in 2010, Mander committed suicide. Amato alleges he lost approximately $14 million in the scheme.

Positions of the Parties

[6] Amato issued this action claiming Welsh was negligent in his provision of legal services. The Statement of Claim pleads that Welsh was a partner at Aylesworth or held out as a member of the firm and on that basis, Aylesworth is vicariously liable for his actions. The Plaintiffs state that Welsh held himself out as a member of the Aylesworth firm, a large "Bay Street" law firm and that this representation was a factor that Amato relied on in selecting him as his counsel. The Plaintiff asserts that the affiliation with Aylesworth gave Welsh and the scheme an air of credibility. The Plaintiffs argue that there was a close relationship between Welsh and Aylesworth and the law firm created a risk to clients who retained Welsh as counsel and as such, Aylesworth is liable for the consequences that flow from that risk.

[7] Aylesworth denies liability to the Plaintiff for the losses and submits that there is no basis for finding Aylesworth vicariously liable for Welsh's acts or omissions. It is submitted that Amato's lawyer was Welsh and he did not retain the Aylesworth firm. The meetings with Welsh took place at the Oakville office, all letters from Welsh were on his own firm's letterhead and accounts were always sent by "Peter R. Welsh Barrister & Solicitor". There is no connection, it is submitted, between the Plaintiff and Aylesworth. Furthermore, no representations were ever made to the Plaintiff by Aylesworth concerning Welsh and there is no basis for finding Welsh was an agent of Aylesworth.

Analysis

[8] This motion for partial summary judgment is brought under Rule 20.04 of the Rules of Civil Procedure, O. Reg. 193/15, which provides that the court may grant judgment where there is no genuine issue requiring a trial. In Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, the Supreme Court of Canada established a procedure governing how a motions judge should approach a motion for summary judgment. The court must first determine whether there is a genuine issue requiring a trial based only upon the evidence filed with the court and without using the new fact finding powers set out in the 2010 amendments. Summary judgment will thus be available if there is sufficient evidence to justly and fairly adjudicate the dispute, with the motion being an affordable, timely and proportionate procedure.

[9] The Plaintiffs argue that Aylesworth is liable for Welsh's actions or omissions on the basis of vicarious liability. In order to determine the issue of vicarious liability, the relationship between Welsh and the law firm must be examined and how Amato perceived that relationship and relied on it must be explored.

Vicarious Liability

[10] The Supreme Court of Canada has described vicarious liability as, "the event when the law holds one person responsible for the misconduct of another because of their relationship": see 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., 2001 SCC 59, [2001] 2 S.C.R. 983, at para. 2.

[11] In Bazley v. Curry, 1999 CanLII 692 (SCC), [1999] 2 S.C.R. 534, the Supreme Court of Canada examined when an employer should be held liable for unauthorized acts of its employees. The court stated, at para. 41:

The fundamental question is whether the wrongful act is sufficiently related to conduct authorized by the employer to justify the imposition of vicarious liability. Vicarious liability is generally appropriate where there is a significant connection between the creation or enhancement of a risk and the wrong that accrues therefrom, even if unrelated to the employer's desires. [Underlining in original; italics added].

[12] In Straus Estate v. Decaire, 2011 ONSC 1157, 84 C.C.L.T. (3d) 141, the court succinctly noted, at para. 49:

Vicarious liability is not in itself a tort. Rather, it describes a theory whereby one person may be held legally responsible for the actions of another because of the nature of the relationship between them. The liability is strict, and does not require misconduct on the part of the person subject to it…. The crux of vicarious liability, then, is the classification of the relationship between: (i) the party sought to be held vicariously liable; and (ii) the wrongdoer….

[13] I turn to a consideration of the evidence before me on the nature of the relationship between Amato and Aylesworth and whether there is a sufficient connection between the wrongdoing and that relationship. It is the total relationship that must be reviewed as opposed to a single aspect of control that may have existed.

[14] Welsh was a solicitor practicing on his own in Oakville, Ontario. Between 2000 and 2010, Welsh acted as counsel to Aylesworth. In this role, he was responsible for payment of his own disbursements, Law Society dues and insurance. As counsel, he had an email address at the firm and letterhead to be used when doing counsel work. For files opened at the firm, Welsh had to comply with the firm policies and docket all of his time to the firm. Remuneration flowed to the firm and to Welsh pursuant to the terms of the counsel agreement.

[15] The affidavit of Eric Kay sworn November 11, 2015, states that for work that Welsh carried on through his own practice, the counsel arrangements did not apply. Thus, Welsh would use his own letterhead, send out his own accounts, maintain his own dockets and, essentially, Aylesworth had no knowledge of who Welsh's clients were or what work was being done by Welsh on their files.

[16] The evidence is clear that no file was ever opened at Aylesworth related to Amato or his company. Thus, Welsh never docketed any time at Aylesworth for work done for Amato, no staff member ever worked on such a file and Welsh never reported to Kay or discussed with him the legal work he was doing for Amato: see affidavit of Eric Kay, at para. 14. Welsh never met with Amato at the Aylesworth offices to discuss business related to the investments with Mander. Further, the law firm never received any compensation from Welsh for any work done for Amato. It is not disputed that all accounts sent to the Plaintiff were sent on the Welsh Oakville office letterhead and all payments were made to Peter R. Welsh Barrister and Solicitor.

[17] The only time Welsh opened a file at Aylesworth's in relation to Amato was when the sale of the dental practice closed and the proceeds were paid into the firm trust account for a short period of time, but no lawyer's time was ever docketed and no account was ever rendered. It seems that the firm trust account was used to hold the funds from the sale for a brief time, until they were paid out. However, there was no legal work done at the Aylesworth firm for the sale of the dental business, there was never an account rendered through the Aylesworth firm and no one at Aylesworth worked on the matter.

[18] While many of the cases dealing with vicarious liability attempt to determine whether the tortfeasor was an employee or an independent contractor, in the case before me, it is difficult to categorize Welsh as either one. Clearly, the majority of his work as a lawyer was done through his own practice which he carried on in Oakville. His relationship to the firm was that of counsel, governed by the letter of Kay dated November 1, 2002. Given the factors enumerated by the court in Sagaz, I am of the view that Welsh's relationship with Aylesworth was clearly more akin to that of an independent contractor than an employee; on the evidence before me, there is no basis for a finding that Welsh was an employee of Aylesworth.

[19] Despite this finding, the cases on vicarious liability which examine the relationship between the employer and the employee are of assistance for the guidance they provide on the relevant factors the court considers. Bazley states that in determining whether an employer is vicariously liable for an employee's wrong, the court needs to be guided by a number of principles, including the opportunity that the enterprise afforded the employee to abuse his or her power and the extent to which the wrongful act may have furthered the employer's aims.

[20] In this case, Aylesworth did not afford Welsh the opportunity to abuse the power he had as Amato's solicitor. All of the work done for Amato was done through the Welsh practice in Oakville. While the law firm would benefit from work Welsh did as counsel because Aylesworth received a percentage of the fees Welsh billed to these clients, Aylesworth was not benefiting in any way from the work Welsh was doing for Amato. There is simply no evidence that supports the argument that Welsh provided legal services to Amato in his capacity as counsel for Aylesworth.

[21] This work did not emanate from Welsh's association with Aylesworth as counsel. Rather, he provided the legal services through his own firm. As a result, the work done was billed through the Oakville practice and the payments received from Amato were made out to Welsh, not Aylesworth.

[22] While the solicitor for the Plaintiffs submitted that the Aylesworth firm was "enmeshed" in the fraud perpetrated by Mander, there is no evidence to support this argument. The fact that Aylesworth acted for Mander, who created the Ponzi scheme, does not create a sufficient nexus for a finding of vicarious liability. Mander certainly directed Amato to Welsh for legal services; and Welsh may have told Amato he was counsel to the Aylesworth firm and had an office there. That, however, is not sufficient to establish the type of connection between the two that is necessary for a finding of vicarious liability.

[23] The fact that Welsh had a counsel agreement with Aylesworth does not assist the Plaintiff in the vicarious liability argument because the work that Welsh did for him was not pursuant to that agreement. The solicitor-client relationship between Welsh and Amato did not arise from Welsh's role as counsel to Aylesworth.

[24] Welsh was not directed by the Managing Partner of the firm in the work he did for Amato. Welsh did not bill any of the time to Aylesworth and he received no compensation through the firm for that work. It is clear that the counsel agreement made a distinction between the work that Welsh would do for the firm and his own independent practice that he carried out in Oakville. The firm had no involvement or control over Welsh's sole practice; they had no information about the work that he was doing as a sole practitioner.

[25] The solicitor for the Plaintiff argues that Aylesworth failed to supervise Welsh despite the fact that he was counsel to the firm. This sweeping statement makes no practical sense, in my opinion. Welsh was a solicitor practicing on his own and his counsel relationship with Aylesworth was not exclusive. It is difficult to conceive of how Aylesworth could possibly have monitored files that Welsh was running that were not opened at Aylesworth, about which Aylesworth knew nothing. The agreement that governed the counsel relationship specified certain steps that Welsh had to take in order to comply with the firm requirements. Aylesworth was able to monitor the work Welsh was doing on these counsel files through review of dockets, disbursements charged, accounts sent out, etc. Simply because Welsh was counsel to the firm did not impose on Aylesworth an obligation to supervise all legal work that Welsh was doing.

[26] It is the Plaintiff who has the onus of establishing that the relationship between Welsh and Aylesworth was sufficiently close to warrant the imposition of vicarious liability and that the nexus existed between the wrongful act and the risk created by Aylesworth. Looking at the evidence in its totality, I am not persuaded that there was the requisite nexus between the work Welsh performed for Amato and the firm that would justify a finding of vicarious liability.

[27] On the basis of my finding that Aylesworth is not vicariously liable on the traditional analysis, it is not necessary for me to embark on a consideration of the policy reasons that underpin vicarious liability. I note, however, that in the Bazley decision, at para. 40, the Supreme Court of Canada stated that in cases of vicarious liability the employer must have materially enhanced the risk of wrongdoing for which the Plaintiff seeks compensation. In the case before me, Amato alleges that the legal work done by Welsh was negligent and as a result, he suffered losses. There is no evidence that Aylesworth somehow increased the risk that Welsh would provide negligent legal services to Amato; as discussed, Aylesworth did not monitor the work Welsh did from his Oakville practice and indeed the counsel agreement permitted Welsh to run his own practice, independent from any work he did at Aylesworth's. The fact that Amato was the victim of fraud perpetrated by Mander is not because of any risk created by Aylesworth.

[28] The court undertook a similar analysis in Pritchard v. Roadknight, 2013 ONSC 1939, where a Third Party defendant brought a motion for summary judgment. In that case, the Plaintiff who suffered losses had been dealing with an employee who was working as a family friend at the time of the harmful conduct and not in the usual course of his employment. In determining there was no vicarious liability on the employer, the court noted, at para. 32, "The employer received no benefit and, not knowing about the conduct, had no opportunity to supervise or control its execution. The employer's enterprise did not contribute to the risk. There is no policy reason to extend liability…. in these circumstances." The same reasoning can be applied to the facts of the case before me. Aylesworth did not know the nature of the work Welsh was providing to Amato, or what he was telling Amato in the course of the solicitor/client relationship. Aylesworth did not know, could not have known, if the legal work that was being done was stellar or negligent. The law firm did not contribute to the risk and thus, there is no policy rationale to find vicarious liability.

Agency Argument

[29] The principal-agent relationship is an alternative way that vicarious liability may be established: see Straus Estate. The burden of proof of establishing a relationship of agency is on the Plaintiff: see Hav-A-Kar Leasing Ltd. Vekselshtein, 2012 ONCA 826. If the holding-out has been established by the principal, the Plaintiff must demonstrate that he relied on such representations to his detriment.

[30] Mr. Merskey makes the argument that the Plaintiff thought that Welsh was part of the Aylesworth firm because of the fact that Welsh made reference to his "Toronto office" or "the firm trust account". In the affidavit sworn for this motion, Amato deposes that based on Welsh's comments and the fact that the Aylesworth trust account was used for the funds from the sale of his dental practice, he thought that Welsh was a member of the law firm and that he [Amato] was a client of the firm. Amato states that Welsh's affiliation with Aylesworth was one of the reasons he hired Welsh. Welsh denies ever having led Amato to believe that he was a client of the law firm.

[31] Amato's statements concerning his assumptions are difficult to reconcile with fact that all accounts for legal services rendered by Welsh were sent by his Oakville office on the Welsh firm letterhead and Amato made his cheques out to Welsh, not to Aylesworth. He met with Welsh in Oakville, not in Toronto. All correspondence was on the Welsh firm letterhead, never on Aylesworth's. I do not accept the submission of the solicitor for the Plaintiffs that it was reasonable for Amato to conclude that Welsh and Aylesworth were one and the same; the evidence simply does not support this finding.

[32] Interestingly, when Amato was considering retaining the Defendant Julia Dublin, who was a securities lawyer with Aylesworth, he met with her at the Toronto office and she gave him a letter of engagement to sign. Although Amato did not sign the letter and did not retain Dublin, he must have known that he never signed such a retainer with Welsh, so his assertion in his affidavit filed on this motion that he believed Welsh was a member of the Aylesworth firm is difficult to accept.

[33] The Plaintiff submits that Aylesworth is vicariously liable as an agent because Aylesworth created the situation where Amato relied on the representations made by Welsh about his affiliation with the firm. Counsel argues that Welsh as agent for the firm presented himself with the apparent authority to act on behalf of the firm and Amato relied on that. It is submitted that Aylesworth had to have known that clients would rely on the fact that Welsh held himself out as counsel to the firm and that it created the situation and failed to monitor it; thus it created the risk and should bear the loss in accordance with the principles set out in Bazley. I do not accept this argument.

[34] The evidence is clear that Amato retained Welsh at the suggestion or demand of Mander. There is no evidence that Amato ever looked at the website of the Aylesworth firm which described Welsh as counsel so he could not have relied on the contents of that information. Furthermore, even if Welsh exaggerated his relationship with Aylesworth to Amato, there is no evidence that Aylesworth held Welsh out as a member of their firm to Amato. The information that Amato says he relied on came from Welsh, not from Aylesworth. There is nothing to suggest that the law firm misled Amato about Welsh. In para. 25 of his affidavit, Amato deposes that he was pleased that Welsh was part of Aylesworth and this was information that came from Welsh, not the firm. Amato does not state that he ever relied on anything Aylesworth had to say about Welsh.

[35] While the Plaintiff asserts that he thought he had hired the law firm Aylesworth and that he was their client, this is not what could be described as a reasonable belief. The case law is clear that apparent authority will be found where the words of the principal "would lead a reasonable person to believe that the agent was authorized to act, notwithstanding the fact that the principal and ostensible agent had never discussed such authority": see Straus Estate, at para. 67.

[36] Here, there is no evidence that Aylesworth held Welsh out to Amato as their agent and the cases relied on by the Plaintiffs can be distinguished on this basis. The agency argument must fail.

Conclusion

[37] This is the Plaintiffs' motion for partial summary judgment i.e. for a determination of whether there is a genuine issue requiring a trial on the issue of vicarious liability. In my view, pursuant to Hryniak, there is no genuine issue requiring a trial because I can make the necessary findings of fact on the record that has been filed and I can apply the law to the facts. There are no credibility issues that need to be determined for the purposes of this motion. In my view, summary judgment is a fair and proportionate outcome for the parties. On the record before me, I am of the view that it is proportional and expedient and in the interests of justice to proceed in this fashion at this juncture.

[38] I find that Aylesworth is not vicariously liable for the alleged acts and omissions or negligence of the Defendant Welsh.

[39] I see no reason why costs should not follow the event. The Defendant was successful and is entitled to its costs on a partial indemnity scale. I have reviewed the bills of costs submitted by counsel. Taking into account the nature of the motion, including the examination of Welsh and the cross examinations of Kay and Amato, the costs should be fixed in the sum of $35,000 for fees plus HST plus the disbursements of $2,002.10 payable by the Plaintiffs to the Defendant Aylesworth forthwith.

D.A. Wilson J.

Date: March 4, 2016