Court File and Parties

Court File Nos.: CV-15-124489-A1, CV-15-124489 Date: 2017-03-31 Ontario Superior Court of Justice

Between: The 6th Line Mofos Limited, Plaintiff

– and –

Stewart, Young, Hillesheim & Atlin Limited, The Marsiglio Group Ltd., 2234370 Ontario Limited, 2234439 Ontario Limited and 2186199 Ontario Inc. cob as a general partnership under the firm name, Defendants

– and –

James Frederick Diamond and Levine Sherkin Boussidan Professional Corporation, Third Parties

Counsel: Kevin Sherkin, Counsel for the Plaintiff Stephen Waqué and Andrew Baker, Counsel for the Defendants John Pirie and Sarah Peterson, Counsel for the Third Parties Sandra Secord, Counsel for the Proposed Third Parties, Robert J. Potts and Blaney McMurtry LLP

Heard: December 16, 2016

Ruling

MULLINS J.:

Nature of the Proceeding

[1] The parties have brought two motions:

(i) the third parties’, Diamond et al., motion to strike the third party claim, and

(ii) the defendants’ motion to amend the third party claim and to join Robert Potts and Blaney McMurtry LLP as third parties. (The law firms are joined on the basis of claims of vicarious liability).

Background

[2] The main action arises from a land dispute between the plaintiff, 6th Line Mofos Limited (“6th Line”), and Bayview-Wellington (Bradford) Inc. (“Bayview”).

[3] 6th Line and Bayview together owned approximately 85 acres of development land in Bradford, Ontario. Pursuant to the terms of a Co-Tenancy Agreement (“CTA”), 6th Line had a 25% interest in the land and Bayview 75%.

[4] On September 16, 2011, Bayview asserted that 6th Line was in default of the CTA.

[5] On November 28, 2011, 6th Line agreed to transfer its property interest at a discounted price in accordance with the appraisal process defined in the CTA. The CTA dictated that the co-tenants would each appoint an arm’s length AAIC qualified appraiser to determine the fair market value (“FMV”) of the property. If the two appraisers failed to agree on a value, the FMV would be taken as the average of the appraisers’ valuations.

[6] On January 31, 2012, 6th Line and Bayview entered into a “Side Agreement” that established additional terms for the transfer of 6th Line’s interest. The Side Agreement called for the appraisers for the two co-tenants to complete their work, meet, consult, investigate and exchange documents. If they were unable to agree on a value, the Side Agreement provided that the FMV would be taken as the average of the appraisers’ valuations. The price of 6th Line’s interest would be 25% of 85% of the FMV.

[7] The appraisers failed to agree on the FMV. Mr. Roth, on behalf of Bayview, assessed the property’s value at $199,000 per acre, while Mr. Atlin, on behalf of 6th Line, valued it at $325,000 per acre. Using the formula set out in the CTA, the average of these two appraisals set the price of 6th Line’s 25% property interest at $4,237,942.67. Bayview refused to close the sale, claiming that the Atlin Report was fundamentally flawed.

[8] On June 21, 2012, James Diamond and his firm, Levine Sherkin Boussidan Professional Corporation, were retained to represent 6th Line in the ongoing dispute with Bayview. Prior to this, Mr. Potts was counsel of record. (The (draft) Amended Third Party Claim erroneously pleads that both Messrs. Potts and Diamond were retained in August of 2011.)

[9] On July 17, 2012, Bayview commenced an arbitration via an Arbitration Statement of Claim. On August 8, 2012, 6th Line responded, seeking an order for specific performance requiring Bayview to close the transaction at the appraisers’ mid-point value, $4,237,942.67. Retired Justice John Morden presided over the ensuing 18-day arbitration, which took place between November 2012 and April 2013.

[10] In his decision, Arbitrator Morden observed that the order of specific performance sought by 6th Line was based on Bayview’s refusal to purchase 6th Line’s interest in the lands as required under the CTA and the Side Agreement. The question of whether 6th Line was entitled to specific performance was, he said, the major issue in the proceeding before him. Bayview’s major defence to the claim for specific performance was that the estimate of market value in the appraisal that had been commissioned by 6th Line from Atlin was not done in accordance with the CTA.

[11] The applicable provision of the CTA was Article 9. Article 9 called for each of the co-tenants to appoint an arm’s length appraiser. The appraiser was to be “generally recognized as a person experienced in apprising real estate and qualified, and accredited with the designation ‘AACI’”.

[12] In his analysis, Arbitrator Morden imported and, with rigour, applied a number of professional standards from the Canadian Uniform Standards of Professional Appraisal Practice and the text The Appraisal of Real Estate, 3rd Edition, Canadian Edition, published by the Appraisal Institute of Canada. He reasoned that the latter part of Article 9 was intended to make the A.I.C. Standards and principles in its text applicable to the appraisals called for under the CTA.

[13] On December 2, 2013, Arbitrator Morden released his award. He concluded that the Atlin Report did not qualify as an appraisal under Article 9 of the CTA; on the evidence there was no factual basis for estimating the value of the land using the appraisal method chosen by Atlin; and, there were errors in the inputs and/or calculations Atlin had made, as reflected in the detailed reasons given between pages 15 and 40 of his decision. Thus, Arbitrator Morden dismissed 6th Line’s claim for specific performance.

[14] In the decision he gave, Arbitrator Morden examined the “Land Residual Approach” said by Mr. Atlin to have been used to determine the fair market value of the subject property. This approach was described in the AIC text as one technique of giving effect to the income approach. In contradiction, notes the Arbitrator, the income approach was said by the appraisal not to be relevant. He rejected Mr. Atlin’s insistence that the Land Residual Approach was the same as the Subdivision Development Approach, as being inconsistent with the authoritative text. While the appraisal referred to the importance of using the Direct Comparison Analysis as a secondary or confirmatory approach to a valuation, the Arbitrator found that there was no analysis or reasoning offered in the report to explain how, or in what way, the direct comparison approach was supportive of the value arrived at using the land residual approach. Although A.I.C standards call for a reconciliation of all of the analyses and conclusions of each valuation approach, there was no basis for such in the Atlin Report. The Atlin Report purported, says the Arbitrator, to have considered lot sale evidence in support of data sourced from ‘MCAP’, but, there was no such evidence. This, the Arbitrator considered, was ‘very serious’. It was difficult, putting it mildly, he later observed, to reconcile the data explicitly referred to in the report to justify the discounting Mr. Atlin said he used, to the present value he applied. Arbitrator Morden says there were no, or only incoherent reasons. In comparing Mr. Atlin’s report and evidence to specific A.I.C. standards, Arbitrator Morden said they “… did not begin to comply” (at p. 38 of his report).

[15] After the release of the arbitration award, the co-tenants negotiated a new agreement for the transfer of 6th Line’s property interest to Bayview. Under this agreement, Bayview was credited for its legal costs of $509,869.11 and additional interest due under the CTA. The purchase price of 6th Line’s 25% interest was reduced to $2,533,487.64.

A. The Within Action

[16] In an attempt to recoup its perceived losses, 6th Line commenced the within action on April 25, 2014. The Statement of Claim named the following defendants:

(i) Mr. Atlin,

(ii) Alistair Wishart,

(iii) Stewart, Young, Hillesheim & Atlin Limited,

(iv) Marsiglio Group Ltd.,

(v) 2234370 Ontario Limited,

(vi) 2234439 Ontario Limited, and

(vii) 2186199 Ontario Inc. (collectively the “Atlin Defendants”).

The corporate defendants carry on business as a general partnership known as Integris Real Estate Counsellors (“Integris”), which conducts real estate appraisals. Mr. Atlin is a principal of Integris. Mr. Wishart is an Integris employee who worked on the impugned appraisal.

[17] Bayview and 6th Line were bound by the terms of CTA to arbitrate any dispute or question arising from the agreement. 6th Line retained the defendants and relied upon them to deliver an appraisal of the FMV of the property in accordance with generally accepted appraisal principles, the terms of the CTA and the rules and practice of the Appraisal Institute of Canada. The appraisal delivered by the defendants was certified, pleads the 6th Line, to conform with the Canadian Uniform Standards of Professional Appraisal Practice of the Appraisal Institute of Canada. By tendering a deficient appraisal, the Atlin Defendants breached their retainer agreement, the duty of care owed to 6th Line, and their fiduciary obligations, says 6th Line. For these breaches, 6th Line seeks damages of $3,500,000 and $250,000 in aggravated damages.

B. The Third Party Claim

[18] The Atlin Defendants filed a Statement of Defence, and, on June 5, 2014, issued a Third Party Claim against Mr. Diamond and Levine Sherkin Boussidan Professional Corporation (collectively “Diamond”). The Atlin Defendants seek contribution and indemnity from the Third Parties for all amounts they may be held liable to pay the plaintiff. The retainers of Messrs. Potts and Diamond were broad, pleads the defendants.

[19] By way of the proposed Amended Third Party Claim, it is alleged that Mr. Potts, and latterly Mr. Diamond, were retained to provide advice and representation in connection with a number of disputes between it and Bayview under the CTA and Side Agreement. Mr. Potts was “involved” in retaining Atlin. Bayview took the position that the report produced by Atlin was not a compliant report, because it did not meet the Canadian Uniform Standards of Professional Appraisal Practice. Mr. Diamond, it is alleged, was retained to take all steps necessary to respond to the arbitration, including preparation for the hearing, structuring the arbitration, providing strategic advice on retaining experts and additional experts, providing settlement advice, preparing the retained witnesses for the hearing, cross examining the opposing party’s witnesses, making submissions and advising on any right of appeal. Mr. Potts continued to be retained, throughout. To the extent the plaintiff claims damages, Messrs. Potts and Diamond are, plead the defendants, joint tortfeasors, who caused or materially contributed to the plaintiff’s loss. Among other particulars of their failings, they failed to challenge the accuracy and admissibility of the report of Mr. Roth, and its compliance with standards. Mr. Diamond was inadequately prepared for the hearing, failed to prepare Mr. Atlin, failed to properly cross examine, or make proper submissions. As a result of his failings, the Arbitrator made a number of unjustified findings and adverse findings.

C. The Motion to Strike and the Motion to Amend the Third Party Claim

[20] On January 6, 2015, Diamond filed its original Notice of Motion to strike the third party claim.

[21] On February 6, 2015, Mr. Diamond was appointed as a judge of the Ontario Superior Court of Justice. His former firm, Levine Sherkin Boussidan Professional Corporation, has continued to act for 6th Line throughout these proceedings.

[22] On December, 29 2015, the Atlin Defendants filed notice of its motion to (i) amend the third party claim, and (ii) join Mr. Potts and his firm, Blaney McMurtry LLP, (collectively “the Blaney Lawyers”) as third parties. The proposed amended third party claim alleges further particulars of Diamond’s alleged professional negligence. It also alleges that the Blaney Lawyers negligently represented 6th Line in its dispute with Bayview and are therefore liable to contribute and indemnify the Atlin Defendants for any damages awarded to the plaintiff.

[23] The damages claimed by the plaintiffs are set out in paragraphs 38 and 39 of the Statement of Claim. At paragraph 39, the plaintiff claims damages of $1,126,424.25, this being the loss in purchase price visited upon it.

[24] On July 14, 2016, Diamond filed its Amended Notice of Motion to strike the third party claim.

[25] The two motions were heard together on December 19, 2016.

Issues:

[26] The primary issues raised by the parties include:

1. Whether the third party claim against Mr. Diamond ought to be struck as disclosing no reasonable cause of action.

2. Whether leave is required to amend the third party claim as against Mr. Diamond.

3. Whether leave to amend the third party claim as against Mr. Diamond ought to be granted.

4. Whether leave to add the Blaney Lawyers as third parties ought to be granted.

5. Has a limitation period expired so as to preclude the third party claim as against Mr. Potts?

6. Are issues in the third party proceedings estoppel by the arbitration ruling?

7. Is the third party proceeding an abuse of process?

Positions of the Parties

A. Whether to strike the third party claim against Diamond

i. Rule 21.01(1)(b)

[27] Rule 21.01(1)(b) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 allows a pleading to be struck if it discloses no reasonable cause of action.

[28] Both the Atlin Defendants and Mr. Diamond agree that the appropriate test on a motion to strike pleadings under r. 21.01(1)(b) is laid out in Hunt v. Carey Canada Inc., 1990 CanLII 90 (SCC), at pp. 21-22:

(i) it must be “plain and obvious” that the pleading discloses no reasonable cause of action;

(ii) the material facts are to be taken as true unless they are patently ridiculous or incapable of proof;

(iii) a pleading is to be read generously, with fair allowance for drafting deficiencies; and

(iv) neither the length and complexity of the issues, the novelty of the cause of action, nor the potential for a strong defence should prevent a party from proceeding with its case.

[29] On the face of either the original or the proposed amended pleading, Diamond argues that the third party claim fails to disclose a reasonable cause of action because it is, in substance, merely a claim that Diamond failed to mitigate 6th Line’s losses. The Court of Appeal’s decision in Davy Estate v. CIBC World Markets Inc., 2009 ONCA 763, at paras. 18-20, stands for the proposition that a defendant cannot make a third party claim for contribution and indemnity against a lawyer on the ground that the lawyer failed to properly execute his duties to the plaintiff. Similarly, in Adams v. Thompson, Berwick, Pratt & Partners, 1987 CanLII 2590 (BC CA), at paras. 16 and 25, McLachlin J.A. (as she then was) held that mitigation is the obligation of the plaintiff, and should not ground a third party claim.

[30] Mr. Diamond contends that the loss at issue occurred before he was retained. It crystallized when the appraisers were retained and certainly by the time the Atlin Report was submitted on May 22, 2012. Article 9.03(f) of the CTA provides that each co-tenant was bound by their appraiser’s report. In effect, Arbitrator Morden’s findings are that the Atlin Report was so fundamentally flawed that the report was non-compliant with the CTA from the outset.

[31] Mr. Diamond cannot have caused any of the losses 6th Line says it suffered, because the Atlin Report was tendered nearly a month before he was retained, on June 21, 2012. Applying the reasoning in Davy Estate and Adams, the Atlin Defendants have no reasonable claim against Diamond and the third party claim against Diamond should be struck under r. 21.01(1)(b).

[32] The Atlin Defendants deny that the third party claim alleges only that Diamond failed to mitigate 6th Line’s losses. The alleged losses stemmed directly from Arbitrator Morden’s award, not the submission of the Atlin Report. The third party claim alleges there to be a causal relationship between Diamond’s negligent representation before, during and after Arbitrator Morden’s adverse findings. In other words, “but for” Diamond’s negligence before and during the arbitration, 6th Line’s losses would not have occurred. Further, 6th Line’s Statement of Claim seeks damages for losses that arose directly from the arbitration itself, like legal fees, that cannot be attributed to the Atlin Report alone.

[33] Invoking 478649 Ontario Ltd. v. Corcoran, 1994 CanLII 219 (ON CA), the Atlin Defendants submit that third party claims against solicitors should stand where the fault alleged relates to the solicitor’s obligations, not the plaintiff’s. The failure to provide non-negligent representation belongs to Mr. Diamond, not 6th Line. Therefore, the third party claim should stand.

[34] The Atlin Defendants also argue that this case is clearly distinguishable from Davy Estate. In Davy Estate, the claimed losses stemmed from the transfer of shares into an account where they were vulnerable to conversion. The amount of the loss was limited to the value of the shares that were the subject of the transfer, and the subsequent solicitor could not have possibly caused or contributed to the loss. Conversely, 6th Line’s claimed losses could have been minimized or avoided if not for Diamond’s negligent representation at the arbitration.

[35] The Atlin Defendants suggest that the instant case is analogous to the circumstances in Cerullo v. Transworld Realty Inc., 2000 CanLII 22324 (ON SC). In Cerullo, Shaughnessy J. dismissed a motion to strike a third party claim against the plaintiff’s solicitor. The third party solicitor acted for the plaintiff in the subject real estate transaction. In the third party claim, the defendants sought contribution and indemnity from the solicitor, claiming that he negligently advised the plaintiff during the transaction.

[36] In allowing the third party claim to stand, Shaughnessy J. held, at para. 13, that “if it is established at trial that the plaintiff's damages were caused or contributed to by his solicitor, then under s. 1 of the Negligence Act, R.S.O. 1990, c. N.1, the solicitor would be liable to make contribution and indemnity to the defendant real estate agent.” Citing Corcoran, Shaughnessy J. also clarified that the third party claim did not require that the third party solicitor owed a duty of care to the defendants (at para. 14). The Atlin Defendants contend that the third party claim against the plaintiff’s lawyers in this case should stand just as it did in Cerullo.

[37] Diamond argues that this situation is different from that in Cerullo. In Cerullo, the loss occurred over the course of the retainer, but here, Mr. Diamond was not retained until the loss crystallized upon the Atlin Report’s delivery. Further, unlike the third party solicitor in Cerullo, Mr. Diamond acted in a barrister’s role throughout the arbitration. Generally, barristers cannot be found negligent for mere errors in judgment.

ii. Rule 21.01(1)(a)

[38] To strengthen its argument for striking the third party claim, Diamond suggests that the claim is precluded from proceeding by the doctrines of issue estoppel and abuse of process. Under r. 21.01(1)(a), a judge may determine a question of law raised by a pleading where the determination of the question may dispose of all or part of the action. (The Atlin Defendants note that Diamond’s submissions on the r. 21 motion do not expressly request a determination on a question of law.)

a. Issue Estoppel

[39] In their respective submissions, both Diamond and the Atlin Defendants acknowledge that the requirements for issue estoppel are set out in Angle v. M.N.R., 1974 CanLII 168 (SCC). These are that:

(i) the same question has been decided;

(ii) the judicial decision which is said to create the estoppel was final; and

(iii) the parties to the judicial decision or their privies participated in the earlier litigation.

[40] Regarding the first branch, Diamond argues that Arbitrator Morden already decided the issues at play in the third party claim. At its foundation, the third party claim asserts that the arbitrator was wrong in finding that the Atlin Report failed to meet professional standards and the terms of the CTA. Clearly, Diamond says, the Atlin Defendants are seeking a review of these findings.

[41] Diamond argues that the second branch is also clearly made out. Citing Morawetz J. in Weisz v. Four Seasons Holdings Inc., 2010 ONSC 4456, Diamond suggests that an arbitrator’s decision is final where the evidence suggests that the parties intended it to be so. Article 11 of the CTA says that the arbitration decision is “binding and conclusive on all parties… and no appeal shall lie therefrom.” Given this explicit language, it is obvious that the parties intended for Arbitrator Morden’s decision to be final.

[42] Though the Atlin Defendants were not parties to the arbitration, Diamond notes that non-parties in the first proceeding may, in certain circumstances, be deemed privies when they are parties to the second proceeding. In Rasanen v. Rosemount Instruments Limited, 1994 CanLII 608 (ON CA), the Court of Appeal held that a non-party witness is a privy where they have sufficient participation rights and a “meaningful voice… in a proceeding which decided the very issues sought to be raised in the subsequent action.”

[43] Diamond argues that the Atlin Defendants had such a “meaningful voice” at the arbitration. The arbitration arose because of the defendants’ allegedly flawed report, the Atlin Defendants were able to review Bayview’s appraisal, and Mr. Atlin’s arbitration testimony lasted four days. Thus, Diamond says, the Atlin Defendants were privy to the arbitration.

[44] The Atlin Defendants warn that a question of law should not be decided on a motion under r. 21.01(1)(a) where material facts are in dispute. Whether the Atlin Defendants are bound by issue estoppel requires the determination of disputed material facts. Therefore, it is inappropriate to decide on the question of issue estoppel at this stage of the proceedings.

[45] Regardless, the Atlin Defendants say, the requirements of issue estoppel are not met in this case.

[46] First, the fundamental issue in the third party claim is different than the question before Arbitrator Morden. The issue before Arbitrator Morden related to the market value of the subject property, whereas the issue in the third party claim is whether Mr. Diamond’s negligent representation caused Arbitrator Morden’s conclusions.

[47] Second, the Atlin Defendants were not privies to the arbitration. The facts in this matter are clearly distinguishable from those in Rasanen. In Rasanen, the non-party witness was a claimant before an employment tribunal. The claimant was represented at the tribunal by the Ministry of Labour, which held party status. Though the claimant was not technically a party to the proceedings, there was a “clear community of interest” between the Ministry of Labour and the claimant. The Court of Appeal stated that the claimant “enjoyed, in short, the full benefits that an official ‘party’ designation would have provided”.

[48] By contrast, the Atlin Defendants were simply retained as expert witnesses at the arbitration. As independent experts, they had no “community of interest” with 6th Line and had no power over the conduct of the arbitration. Thus, they cannot be deemed privies to the arbitration.

[49] Even if the test for issue estoppel is met, the Atlin Defendants argue that the interests of justice require the court to refrain from applying the doctrine in the present circumstances. Per Danyluk v. Ainsworth Technologies Inc., 2001 SCC 44, at para. 80, and Minott v. O’Shanter, 1999 CanLII 3686 (ON CA), issue estoppel should not be applied where its application would unjustly prevent a party from litigating an issue.

[50] The Atlin Defendants argue that applying issue estoppel would result in an injustice for two reasons. First, while Arbitrator Morden found that the Atlin Report was inadequate, he did not consider the question in the context of 6th Line’s alleged losses. In Pereira v. Bank of Nova Scotia, 2007 CanLII 27759 (ON SC), at para. 37, Lederer J. suggested that it is unfair to apply issue estoppel where the initial findings of fact failed to consider the cause of action in the second proceeding.

[51] Second, the Atlin Defendants’ lack of procedural rights prevented them from defending the Atlin Report at the arbitration. To deny them the chance to defend against 6th Line’s claims, and pursue indemnity and contribution from Diamond, would be contrary to the interests of justice.

b. Abuse of Process

[52] If issue estoppel is inapplicable, Diamond argues that the third party claim should be struck as an abuse of process. Per Toronto (City) v. C.U.P.E., Local 79, 2003 SCC 63, at paras. 37, 46, and 52, it is generally an abuse of process to attempt to relitigate an issue in a different forum. Therefore, the Atlin Defendants’ pleadings should be struck insofar as they suggest that the Atlin Report qualified as an appraisal under the CTA and professional standards because of Arbitrator Morden’s earlier findings to the contrary.

[53] The Atlin Defendants deny that its third party claim constitutes an abuse of process because the issues raised in the claim are different than those before Arbitrator Morden.

[54] Even if it were an attempt at relitigating, the Atlin Defendants say that these circumstances qualify as an exception to the abuse of process doctrine. Per C.U.P.E., at para. 52, it is not an abuse of process to relitigate an issue where “fairness dictates that the original result should not be binding in the new context.” It would be unfair to bind the Atlin Defendants to Arbitrator Morden’s findings because they were not parties to the arbitration and have had no opportunity to demonstrate that Diamond caused or contributed to 6th Line’s loss.

B. Whether leave is required to amend the third party claim as against Diamond

[55] The Atlin Defendants argue that leave is not required to amend the third party claim as against Diamond. A party may, under r. 26.02(a) amend its pleadings without leave of the Court before the close of pleadings. As Diamond has yet to file a statement of defence to the third party claim, leave is not required to amend the claim against him.

[56] Diamond argues that leave is required because the motion to amend came after he filed the motion to strike the third party claim. Reading together Cosentino v. Dominaco Developments Inc. et al., 2010 ONSC 208, at para. 10, and Raghavan v. Bell Canada, 2011 ONSC 7486, 2011 CarswellOnt 15839, at para. 26, aff’d, 2012 ONCA 370, Diamond suggests that leave is required to amend a pleading when the amendment is sought after a notice of motion to strike the pleading has already been served. Since Diamond served notice of the motion to strike the third party claim nearly a year before notice of the amendment motion was served, the Atlin Defendants’ require leave to amend the claim as against Diamond.

C. Whether to grant leave to amend the third party claim as against Diamond

[57] Diamond and 6th Line make nearly identical submissions for why the motion for leave to amend the third party claim should be dismissed as against Diamond.

i. Rule 26.01

[58] Rule 26.01 sets the general test for whether to permit pleading amendments. The rule mandates that leave will be granted to “amend a pleading on such terms as are just, unless prejudice would result that could not be compensated by costs or an adjournment.”

[59] The Atlin Defendants argue that none of the parties in the within action can demonstrate that the amendment would result in non-compensable prejudice against them. Citing Steel Tree Structures Ltd. v. Gemco Solar Inc., 2016 ONSC 955, at para. 24, they note that any complications and additional legal expenses that flow from the amendments cannot amount to the type of non-compensable prejudice contemplated by r. 26.01.

[60] Neither Diamond nor 6th Line claims that the amendments will prejudice them in a non-compensable manner, but they argue that the court should dismiss the motion for other reasons.

ii. Tenable Cause of Action

[61] Despite r. 26.01’s mandatory language, the Atlin Defendants, Diamond, and 6th Line all acknowledge that the court has a residual discretion to deny an amendment where the proposed amended pleading discloses no tenable cause of action.

[62] The amendments provide further particulars of the claim against Diamond, but Diamond and 6th Line argue that simply adding particulars does not make an untenable claim tenable. Therefore, the motion to amend the third party claim as against Diamond should be dismissed for the same reasons that the third party claim should be struck under r. 21: (i) the claim alleges only that Diamond failed to mitigate 6th Line’s losses, (ii) the claim is barred by issue estoppel, and (iii) the claim is an abuse of process.

[63] Likewise, the Atlin Defendants argue that the court should allow the amendments for the same reasons that the third party claim should stand: (i) 6th Line’s alleged losses only crystalized after Mr. Diamond negligently represented 6th Line’s interests throughout the arbitration, (ii) the requirements of issue estoppel are not met because they were not privies to the arbitration and the claims raise different issues than those decided at the arbitration, and (iii) applying the abuse of process doctrine would be unjust in the circumstances.

[64] The Atlin Defendants also warn that the court must not look beyond the amended third party claim to outside evidence of the factual and evidentiary merits in determining whether it is tenable, citing Refco Futures (Canada) Ltd. v. Keuroghlian (2002), 39 C.P.C (5th) 344, 2002 CarswellOnt 5506, at para. 9 [Ont. S.C. (Master)], aff’d 2002 CarswellOnt 5505 (Ont. S.C.). Further, the court must refrain from determining the merits of an issue raised in the pleadings on a motion to amend, per Vogler v. Lemieux, 2014 ONCA 825, at paras. 2-3.

iii. Tactical Amendments

[65] Additionally, Diamond and 6th Line argue that the proposed amendments should be barred because they are brought for purely tactical reasons. Citing Ascent Incorporated. v. Fox 40 International Inc., 2009 CanLII 36994 (ON SC), at para. 35, and Allen-Vanguard Corp. v. L’abbé, 2013 ONSC 1098, at para. 16, they submit that proposed amendments may be rejected where they are made for tactical purposes. They allege that the amendments are sought solely to bolster the Atlin Defendants’ position against Diamond’s motion to strike. 6th Line also suggests that the amendments are an attempt to undermine the solicitor-client privilege between Diamond and 6th Line.

[66] Diamond and 6th Line argue that a number of surrounding factors support their conclusion that the amendments are tactically motivated:

(i) the timing of the amended third party claim is conspicuous because the Atlin Defendants circulated a proposed amended third party claim before delivering a responding record to Diamond’s outstanding motion to strike;

(ii) the affidavit in support of the amendments was given by an affiant who had insufficient knowledge of the case and inappropriately refused to answer questions on cross-examination; and

(iii) the amended third party claim suggested that Diamond was retained in August 2011, before the Atlin Report was submitted, despite the clear evidence that Diamond’s retainer commenced in June 2012.

[67] In response, the Atlin Defendants submit that the amendments must be allowed as long as they disclose a tenable cause of action and meet the test under r. 26.01, regardless of motivation. They say that the criticism of tactical amendments in Ascent Incorporated is inapplicable to the present circumstances because the proposed amendments in that case proffered new causes of action. Here, the amendments merely elaborate on the claims already made against Diamond.

[68] Regardless, the Atlin Defendants deny that the proposed amendments are “tactical”. They reply to Diamond’s and 6th Line’s allegations as follows:

(i) the delay in bringing the action was caused for a number of reasons, including Diamond’s motion to seek case management and the need to transfer the action to Newmarket;

(ii) the affiant properly refused to answer questions on cross-examination because the questions posed to her were beyond the scope of the motion to amend; and

(iii) the suggestion that Diamond was retained in August 2011 was an honest typographical error which has been corrected in the Amended Amended Third Party Claim, dated September 12, 2016.

D. Whether to grant leave to add the Blaney Lawyers as third party defendants

[69] Rule 29.02(1.2) requires the court to grant a defendant leave to commence a third party claim “unless the plaintiff would be prejudiced thereby”.

[70] The Atlin Defendants submit that the court must grant leave to add the third party unless it is proven that the addition will unduly prejudice the plaintiff beyond mere inconvenience and additional costs, citing Medeiros v. Dilworth, 2002 CanLII 49431 (ON SC), at paras. 15, 17, and 22. They argue that none of the parties to the motion can demonstrate that 6th Line would be unduly prejudiced by the addition of the Blaney Lawyers as third parties.

[71] The Blaney Lawyers suggest that 6th Line could suffer prejudice if the Blaney Lawyers are added because the proposed claim is designed to pierce 6th Line’s solicitor-client privilege. However, their arguments for dismissing the proposed claim against them are predominantly based on other grounds.

i. Tenable Cause of Action

[72] Like Diamond, the Blaney Lawyers submit that the third party claim against them discloses no legally tenable cause of action. In such circumstances, a court should bar a third party claim from proceeding, per Ureten Consulting Inc. v. Babinski, 2009 CanLII 63129 (ON SC).

[73] Blaney argues that the claim against them only suggests that they are liable for failing to properly advise 6th Line as to how to mitigate the losses stemming from the flawed Atlin Report. Nowhere in the third party claim do the Atlin Defendants suggest that the Blaney Lawyers were in any way responsible for preparing the appraisal. Therefore, it cannot be said that the Blaney Lawyers caused or contributed to the loss and, following Davy Estate, the claim is unsustainable at law.

[74] Conversely, the Atlin Defendants argue that the amended third party claim clearly alleges that Mr. Potts contributed to or caused 6th Line’s losses. For example, it alleges that the Blaney Lawyers negligently negotiated the Side Agreement, which severely disadvantaged 6th Line in its dispute with Bayview. Also, following Corcoran, the proposed third party claim should stand because the Blaney Lawyers, not 6th Line, were obliged to prepare the Side Agreement in a non-negligent manner.

ii. Abuse of Process and Issue Estoppel

[75] The Blaney Lawyers argue that the proposed third party claim as against them is an abuse of process. They allege that the Atlin Defendants bring this claim solely to discover the Blaney Lawyers. Per National Trust Co. v. Furbacher, 1994 CarswellOnt 6058, at para. 7 [Ont. Gen. Div. (Commercial List)], a claim brought for the sole purpose of obtaining discovery is an abuse of process.

[76] The Atlin Defendants contend that the third party claim against the Blaney Lawyers is brought simply to determine the liability between tortfeasors, not for any improper purpose.

[77] The Blaney Lawyers also briefly suggest that the third party claim is barred by issue estoppel because it is premised on the assertion that Arbitrator Morden’s final decision is wrong.

iii. Limitations Issues

[78] Alternatively, the Blaney Lawyers contend that the third party claim as against them is barred by the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B. They argue that the limitation period in the present case commenced the day Arbitrator Morden released his award, December 2, 2013. Therefore, the claim was brought outside the two-year limitation period set by s. 4 of the Act.

[79] The Atlin Defendants argue that the Blaney Lawyers’ conclusions are clearly contrary to s. 18(1) of the Limitations Act. Section 18(1) says that the limitation period for contribution and indemnity claims commences the “day on which the first alleged wrongdoer was served with the claim in respect of which contribution and indemnity is sought.” Therefore, the limitation period for bringing a third party claim against the Blaney Lawyers did not commence until the Atlin Defendants were served with 6th Line’s Statement of Claim, on April 25, 2014.

[80] (The Blaney Lawyers erroneously claim that the Atlin Defendants were served with 6th Line’s Statement of Claim more than two years before serving the third party claim against the Blaney Lawyers.)

iv. Affidavit Evidence

[81] Finally, Blaney argues that the third party claim against them should be struck because it is based on improper affidavit evidence. The affidavit filed in support of the Atlin Defendants’ motion was signed by a law clerk who by her own admission possessed no personal knowledge of the case’s relevant facts. Despite lacking personal knowledge, the affiant failed to disclose the source of the information and her statement of belief for numerous statements in the affidavit, contrary to r. 39.01(4).

Disposition

[82] For the purposes of the analysis as to whether a pleading discloses a reasonable cause of action, it is not disputed that the contents are to be generously interpreted and taken at face value.

[83] It is clear that there is no prejudice arising from the joinder of Mr. Potts and Blaney McMurtry LLP, or the amendments sought vis-à-vis Mr. Diamond, such that leave to amend and the amendments and the joinder sought would not be allowed, subject to what follows. So, in giving the following reasons, I am addressing myself to the Third Party Claim in the proposed amended form found at Tab 1 of the Responding Motion Record of the proposed Third Party Robert J. Potts and Blaney McMurtry LLP. I do this in the interests of economy of expression.

[84] The Court of Appeal in Davy Estate, considered circumstances where a defendant was seeking to bring a Third Party Claim as against the plaintiff’s lawyer. There, the plaintiff was seeking damages arising from the transfer of shares from an investment account. The defendant sought indemnity on the basis the plaintiff’s lawyer had been negligent in failing to have the account frozen before the shares were transferred. The Negligence Act and the reasoning in Adams were considered.

[85] The Court of Appeal observed that there is a clear distinction to be drawn between a plea of mitigation in defence of a plaintiff’s claim and a claim against a third party who was implicated in the initial loss and was, thereby, jointly and severally liable for the same loss claimed by the plaintiff. A plea of mitigation is entirely different. Mitigation arises after the loss has been suffered and related to events or conduct unrelated to the cause of the initial loss. The Court reasoned that even if the plaintiff had relied upon advice from a solicitor that had been negligently given, or given in breach of a duty, the damages were not caused or contributed to by the fault or neglect of two or more persons, only the defendant. The Court distinguished the decision given in Corcoran. There it was alleged by the defendant that the plaintiff’s solicitor had been negligent in reviewing an agreement of purchase and sale and failing to protect the interests of the plaintiff from the outset of the transaction. Hence the solicitor was implicated in the very events that gave rise to the loss and was potentially liable to the plaintiff.

[86] In the Statement of Claim here, the plaintiff claims that its loss was caused by the defendants’ breach of their retainer agreement and failure to follow, adhere, and implement generally accepted appraisal principles throughout the appraisal they were engaged to prepare and in respect of which they gave testimony at the arbitration. In the Third Party Claim, the defendants claim that the plaintiff’s losses were caused by failings of the plaintiff’s lawyers that had little to do with the content of the appraisal per se, and everything to do with the circumstances leading to the arbitration and the conduct of the arbitration itself. These latter failings led to a number of unjustified findings and erroneous conclusions by the Arbitrator following the hearing, plead the defendant in the Third Party Claim.

[87] Some of the allegations made by the defendants in the Third Party Claim do appear to fall within the ambit of mitigation, meaning they derive from the alleged, inherent failings of the Atlin Report to meet professional standards from inception. These are found at paragraphs: 24, (the last line of paragraph), 25(b), 28, 29, 36, 37, 39, 40, 42, 43, 44, 45, 46, 47, 48, 49, 50, 51, 52, and 53 of the Amended Third Party Claim. Those amendments will not be allowed and, their equivalent, if any, in the existing Third Party Claim are to be struck.

[88] At face value, the broad claims of the defendants that the plaintiff’s lawyers failed in their duty to advise and represent their client in the dispute, found in paragraphs 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24 (except the last line), 25(b), and 60-64, do not so plainly and obviously disclose no cause of action as to warrant dismissal under rule 21.

[89] Without the allegations disallowed by paragraph [87], any estoppel arising from the decision given by Arbitrator Morden should only be live in the main action. Within the context of the third party pleading, questions of whether the plaintiff’s lawyers failed in their duty of care to have prepared for the arbitration, retained more experts and how they conducted the process fall outside of the issue decided by Arbitrator Morden, which was that the Atlin report did not comply with the professional standards called for under the CTA. In any event, Arbitrator Morden’s decision, though it may prove to be determinative of the question in the main action - whether the defendants breached the standard of care owed to the plaintiff - does not determine what damages were caused. A motion for summary judgment would be better suited to determine the effects, if any, of issue estoppel.

[90] The evidence falls short, in my view, of establishing that the third party proceedings are out of time, or are an abuse of process. The complaint regarding the law clerk’s affidavit is a red herring, given the avalanche of other material filed on these motions.

[91] Order to go accordingly, granting the motion of Mr. Diamond and Levine Sherkin Boussidan Professional Corporation, in part, not to grant leave to amend the Third Party Claim so as to include the paragraphs enumerated above at paragraph [87], but allowing the motion of the defendants in part, to plead those enumerated at paragraph [88] and to join Mr. Potts and Blaney McMurtry LLP.

[92] Should the parties wish to address costs they may make brief submissions in writing within 15 days or such other period of time to which they agree.

Madam Justice A.M. Mullins

Released: March 31, 2017