CITATION: Whirlpool Canada Co. v. Chavila Holdings Limited, 2015 ONSC 58
COURT FILE NO.: 14-45942
DATE: 20160205
CORRIGENDA: 2016, ONSC 58
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
WHIRLPOOL CANADA CO.
Applicant
– and –
CHAVILA HOLDINGS LIMITED, OUTRIGGER INVESTMENTS LIMITED and 863880 ONTARIO LIMITED
Respondents
Jennifer Danahy and Gary Graham, for the Applicant
Allan Sternberg and Joseph Figliomeni, for the Respondents
HEARD: December 2, 2015
G. DOW, J.
REASONS FOR DECISION
[1] The applicant, Whirlpool Canada Co. (“Whirlpool”) formerly known also as Inglis Limited seeks a variety of orders that require revision to terms in agreements made that transferred control over property in what is now called Liberty Village on the west edge of downtown Toronto. As part of the agreement to dispose of the property, Whirlpool obtained and agreed to terms that indemnified them from claims relating to contamination or remediation of the lands in the vicinity. The agreements which set out the terms and provisions for the indemnity are with 921424 Ontario Limited (“921”) and 941600 Ontario Limited (“941”) in which David Moscovitz, a lawyer, is the acknowledged sole officer and director. 921 and 941 become the respondents Chavila Holdings Limited (“Chavila”) and Outrigger Investments Limited (“Outrigger”).
[2] The respondent 863880 Ontario Limited (“863”) is also a land owner in the Liberty Village area and also has David Moscovitz as the sole director and officer.
[3] In January, 2004 (and amended in June, 2010), 863 issued a Statement of Claim against Canadian Pacific Railway Company (“Canadian Pacific”) and Oxford Properties Group Inc. (“Oxford”) as owners of property in the Liberty Village area. That litigation includes actions of breach of contract, fraudulent or negligent misrepresentation, nuisance, unjust enrichment and restitution seeking compensation for the contamination of land in the area which continues and continues to be monitored.
[4] In 2012, after pleadings had closed (and rather than seeking leave to reopen pleadings to issue third party claims), Canadian Pacific and Oxford issue Statements of Claim against Whirlpool for contribution and indemnity which triggers the application of the indemnity clauses.
[5] A motion is heard by Master Short for consolidation with reasons pending. In addition, Master Short hears and rejects a request for intervener status in this application by Canadian Pacific and Oxford. The consolidation motion raises the prospect Whirlpool will become defendants in the 836 action and that David Moscovitz will be instructing both the plaintiff and the defendant, Whirlpool, in that litigation.
[6] In this application, Whirlpool seeks to enforce the Indemnity Agreement, but have themselves defended at Chavila and Outrigger’s expense, by counsel who will take instructions from Whirlpool rather than Chavila and Outrigger. Counsel for Chavila and Outrigger oppose this modification to the agreement.
Conflict of Interest
[7] Whirlpool relies on the Law Society of Upper Canada’s Rules of Professional Conduct that govern all lawyers in Ontario. The rule cited is 3.4-3 (incorporated into the rules as of October, 2014). That is, a lawyer “shall not represent opposing parties in a dispute”. The argument is focused on the fact David Moscovitz, a lawyer, is also the sole officer and director of 863, Chavila and Outrigger, the latter two of whom are obliged to defend and indemnify (the soon to be defendant), Whirlpool in the action commenced by 863.
[8] A review of the documentation surrounding the history of this matter indicates Mr. Moscovitz, as he deposes, was intimately involved in the purchase transaction, acting as counsel to the corporations. However, it is also clear that Mr. Moscovitz, despite being the sole officer and director, is not the beneficial owner of the corporations and, to that end, is not the directing mind of the corporations. Similarly, he is not counsel “representing” any of the respondents in this application or the related litigation.
[9] In April, 1991, 921 resiled from an agreement to purchase the land from Whirlpool for $25.6 million after the results of an environmental assessment disclosed elevated levels of a carcinogenic solvent, trichloroethylene (TCE) in the soil and groundwater, a chemical generally no longer used after the 1970s. The deal was resurrected in 1997 with the purchase price dropping to $4 million and the vendor, Whirlpool and Inglis, agreeing to the indemnification by 921 and 941 in a specifically drafted Assumption of Liability and Indemnity Agreement (“Indemnity Agreement”). This agreement contemplated an action by or against the railway companies and their land companies with regard to the cause, contamination and cleanup of the land in the area.
[10] Inglis and Whirlpool bargained for and with legal advice received complete indemnity from such claims. Importantly (for the Court) one view of this agreement is that 921 and 941 were reducing the number of involved parties to this issue of cause, cleanup and cost of remediating contaminated land in the area.
[11] Whirlpool complains it may not be made completely whole under the agreement it entered into citing reputational damage and/or the potential inability of 863 to fund the indemnity. However, it did not have any specific evidence in support of that submission. Further, in my view, it is not an issue relevant to the determination to be made in this matter.
[12] Counsel for Whirlpool also relies on the Supreme Court of Canada decision in Canadian National Railway Co. v. McKercher LLP, 2013 SCC 39, [2013] S.C.J. No. 39, where the Court held the McKercher law firm, having acted for Canadian National Railways Co. (“CNR”) in a variety of matters prior to 2009, was not able to act for a new client in a large class action case against CNR which was unrelated to any of the previous matters. The Court, at paragraph 13, held there is inherent jurisdiction to supervise litigation brought before them and lawyers are officers of the Court and bound to conduct their business as the Court may direct. I would emphasize the next sentence “When issues arise as to whether a lawyer may act for a particular client in litigation, it falls to the Court to resolve those issues.” The purpose of the Court’s supervising power is to protect clients from prejudice and to preserve the repute of the administration of justice, not to discipline or punish lawyers.
[13] In my view, there is an important distinction in the circumstances at hand. Mr. Moscovitz is not directly acting as counsel for any of the parties to this litigation. Rather, at its strongest, Whirlpool’s argument is he is a lawyer with involvement giving instructions to counsel as the sole officer and director. However, as stated, my understanding is he is receiving and implements instructions from another, the beneficial owner of the various corporations which is a sufficient distinction given the other circumstances detailed below.
[14] The Canadian National Railway Co. v. McKercher LLP decision develops the bright line rule where a lawyer or firm cannot act for a client whose interests are adverse to those of another client unless both consent. This was also part of the rule of professional conduct prior to October, 2014. At paragraph 41 of the decision, it is acknowledged the rule is limited in scope and applies only where the immediate interests are directly adverse in the matters on which the lawyer is acting. Such is not the situation at hand. As stated by the Court, commercial, strategic or tactical interests are excluded. The Indemnity Agreement is or ought to be known to the parties that negotiated it and disclosed to the defendants CPR and Oxford as part of proper productions in its action against Whirlpool.
[15] I have no difficulty with the position of counsel for Chavila and Outrigger that the intent and effect of its Indemnity Agreement with Whirlpool is, as acknowledged by counsel for 836, to forebear collection of any award it receives against CPR and/or Oxford for which Whirlpool is required to indemnify CPR and/or Oxford.
[16] The situation is not substantially or significantly different than a Pierringer Agreement where liability is severed between “joint and several” to merely several. The interests of Mr. Moscovitz on behalf of Chavila and Outrigger and Whirlpool are not directly adverse as the issue between them has been resolved and it is still open for a resolution to be determined to the benefit of CPR and Oxford.
Insurance Law Context
[17] Counsel for Whirlpool argued the circumstances are comparable to insurance law matters where an insurer and its insured may be represented by the same counsel with their interests in the matter diverging to where a “reasonable apprehension of a conflict of interest arises” citing the decision of Brockton (Municipality) v. Frank Cowan Co., 2002 CanLII 7392 (ON CA), [2002] O.J. No. 20 (C.A.). While the Court of Appeal concluded the insurer has the right to control the defence, it is not an absolute right and may be limited or reversed when there is a reasonable apprehension of conflict of interest on the part of counsel appointed.
[18] Here, Mr. Moscovitz replied to the June 27, 2013 letter from counsel appointed by Whirlpool to represent its interests (some seven plus months and $68,767.92 of legal work as of September 4, 2013 after it ought to have done so). Unfortunately, Mr. Moscovitz refers the response to counsel representing 836 rather than dealing with it directly. However, that did lead to counsel for 836, also acting on behalf of Chavila and Outrigger to confirm in writing on September 12, 2013 the intention to honour the Indemnity Agreement and declining the offer that the counsel for Whirlpool assume carriage of the defence. To that end, separate counsel was retained and, in my view, his letter to counsel for Whirlpool October 31, 2013 confirms implicitly, as an officer of the Court, his obligation to act in the best interests of Whirlpool pursuant to and fulfilling the Indemnity Agreement.
[19] The concern raised is that counsel appointed by Chavila and Outrigger to represent Whirlpool may, as stated in Coakley v. Allstate Insurance Co. of Canada, 2009 CanLII 22549 (ON SC), [2009] O.J. No. 1832 “steer the defence of the action in order to obtain a result in its favour” thus raising a conflict. In the absence of any limitation to the indemnity negotiated and agreed upon between Whirlpool and the predecessor of Chavila and Outrigger, (or, in the case of Coakley a finding for which there would be no coverage), I see no basis for a conflict to arise. There are no instructions I can foresee being given by Chavila and Outrigger appointed counsel that would harm Whirlpool to the benefit of 836. The most basic example would be to maximize liability on Whirlpool which is precisely what CPR and/or Oxford intend to do and what the beneficial owner of 836, Chavila and Outrigger seeks to avoid.
[20] Counsel for Whirlpool raises the non-pursuit of a limitation defence as the conflict of interest. In my view, if the claim is out of time against Whirlpool and not pursued, I fail to see how it is of consequence to Whirlpool given the Indemnity Agreement. The more Whirlpool is liable, the less CPR and Oxford can be liable. This is not even a situation where Whirlpool has an exposure over and above a certain monetary amount as can occur in insurance cases (with the coverage having monetary limits).
Implied Term to Indemnity Agreement
[21] Counsel for Whirlpool submitted the Indemnity Agreement did not address the situation at hand. Both parties agree the Court has the power to read into the agreement or interpret the existing terms so the rationale for the contract is not undermined. In my view, the Indemnity Agreement does exactly what was intended. Whirlpool sold the land in question and all of its prospective liability for the contamination contained therein to Chavila and Outrigger. In return, it gave up its right to direct the litigation retaining only the right to, as included in clause 5, be kept “informed from time to time on the status of each such legal or administrative proceeding, mediation or arbitration as Inglis and Whirlpool might reasonably require”. The only not stated but implicit clarification required is to acknowledge Whirlpool has a duty to cooperate with the counsel retained by Chavila and Outrigger such as providing documents and appropriately informed individuals or employees of the corporation to give evidence whether at discovery or trial.
[22] It may be relevant to consider if this minimal clarification to the Indemnity Agreement to guide the parties on their respective obligations to each cannot be met. The alternative to contemplate would be to allow the agreement to be declared void. The result would be Whirlpool could defend the action at its own expense and without a right to indemnity. In my view, interpreting the contract in the (former) manner above is the more favourable result to Whirlpool given the reduction in price for the land which occurred before the Indemnity Agreement was negotiated and entered into as part of the sale.
Incurred Costs
[23] The final aspect of this application is the claim of payment to Whirlpool of the $77,976.77 for legal fees incurred and set out in the letter of counsel for Whirlpool, Mr. G. Graham to counsel selected by Chavila and Outrigger to represent Whirlpool in the CPR/Oxford action. This presumably totals the legal expenses incurred after service of the statements of claim and before issuance of this application. In my view, the accounts forwarded to counsel for Chavila and Outrigger contain vast amounts of time and expense not related to the simple effort required to locate the source documents including the Indemnity Agreement and forward the statement of claim to Chavila and Outrigger requesting confirmation they respond in accordance with the Indemnity Agreement. The parties contemplated some amount of time and expense in clauses 4 and 5 and, in my view, the 14 days referred to and the initial account summarizing work between January 8, 2013 – February 12, 2013 in the amount of $2,395.74 is sufficient.
Costs
[24] The respondents have been successful and the application is dismissed save the clarification referenced in paragraph 22 of this decision and the need to reimburse Whirlpool $2,395.14. The Cost Outline of the respondents at partial indemnity rates total $24,649 for fees, $3,204.37 for HST and $2,236 for disbursements for a total of $30,089.37. This compares to the $45,117.50 for partial indemnity fees, $5,865.28 for HST and $2,933.77 for disbursements in the Costs Outline of the applicant. Counsel for the respondents submitted some time had been excluded from their outline but, in my view, includes some time with respect to responding to and identifying Chavila and Outrigger’s choice of counsel which I have indicated ought to have been done by Mr. Moscovitz directly. As a result, I would fix costs in the amount of $30,089.37, all inclusive, payable by the applicant to the respondents forthwith.
[25] This is a fair and reasonable amount within the contemplation of the parties and in accordance with the principles set out in Boucher v. Public Accountants Council for the Province of Ontario et al., [2006] O.J. No. 2634 and Rule 57.
Mr. Justice G. Dow
Released: February 5, 2016
CORRIGENDA
Note: the neutral citation number has been changed from 2015 ONSC 7732 to 2016, ONSC 58.
CITATION: Whirlpool Canada Co. v. Chavila Holdings Limited, 2015 ONSC 58
COURT FILE NO.: 14-45942
DATE: 20160205
CORRIGENDA: 2016, ONSC 58
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
WHIRLPOOL CANADA CO.
Applicant
– and –
CHAVILA HOLDINGS LIMITED, OUTRIGGER INVESTMENTS LIMITED and 863880 ONTARIO LIMITED
Respondents
REASONS FOR JUDGMENT
Mr. Justice G. Dow
Released: February 5, 2016