Court File and Parties
COURT FILE NO.: CV-15-525806 DATE: 20170615 ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
Aird & Berlis LLP Plaintiff/Defendant by Counterclaim – and – Oravital Inc. and Alliance H. Inc. Defendants/Plaintiffs by Counterclaim
COUNSEL: Michael R. Kestenberg and Marc Kestenberg, for the Plaintiff/Defendant by Counterclaim Geoff R. Hall and Anu Koshal, for the Defendants/Plaintiffs by Counterclaim
HEARD: November 14, 2016
BEFORE: Stewart, J.
Nature of the Motion
[1] Aird & Berlis LLP, a law firm, moves for summary judgment for payment for legal fees and disbursements in the amount of $182,569.63 incurred on behalf of its former clients, Oravital Inc. and Alliance H. Inc. (“Oravital”) and for an order dismissing the Counterclaim brought against it by Oravital.
[2] Oravital asserts that due to deficiencies in the quality of the services provided to it there are no amounts owing. It also claims that it is entitled to judgment in excess of $600,000.00 on the Counterclaim which alleges negligence in the provision of legal advice and representation to it by Aird & Berlis.
[3] Despite the significant amount of money at issue and nature of the professional negligence issues raised, all parties take the position that this entire dispute may be determined on a motion for summary judgment on this paper record in accordance with Rule 20 and the principles set forth in Hyrniak v. Mauldin, 2014 SCC 7. They are in agreement that all issues, including those involving any required credibility assessments, are sufficiently straightforward to be submitted for consideration and final decision on this motion.
Evidence
[4] The parties tendered evidence by way of affidavits and cross-examination thereon. The following is an outline of what I consider to be the most relevant evidence and commentary as to the inferences that may be drawn from it.
[5] In May of 2010, Oravital’s Chief Executive Officer, Michel Hart, and its Chief Financial Officer, Robert Isaacson approached Aird & Berlis to discuss retaining counsel to pursue potential litigation on behalf of the company.
[6] Hart and Isaacson advised that Joshua Gofman, Oravital’s former Chief Executive Officer, had resigned in November 2009 as a result of allegedly conspiring to take over Oravital with the help of his associate in this endeavor, Stephen Small.
[7] Hart and Isaacson believed that Gofman and Small also had misappropriated Oravital’s proprietary and confidential information in order to launch and operate a competing business in the dental health industry. This competition from Small and Gofman had placed Oravital’s financial viability in question and had even pushed Oravital to consider insolvency options.
[8] Prior to commencing any litigation, the principals of Oravital also believed that Small was a litigious individual, would likely be highly difficult to deal with and would be expected to try to delay and thwart the progress of the action.
[9] Hart and Isaacson advised Sanji Sood, a partner in the litigation group at Aird & Berlis, that they were primarily focused on their goal of shutting down all of Small’s competitive activities. In particular, although Hart and Isaacson believed Small had the financial ability to satisfy any judgment obtained, their main goal was to eliminate Small’s existing operations and to prevent other operations in which he was involved or might become involved from competing with Oravital in the future by utilizing the proprietary and confidential information that they believed had been misappropriated from Oravital by Gofman and Small.
[10] Sood explained to Hart and Isaacson that the conduct Oravital wished to allege in its Statement of Claim would be a challenge to prove.
[11] Oravital ultimately decided to retain and instruct Aird & Berlis to commence proceedings and to launch a court action against Small, among others.
[12] Aird and Berlis’ retainer letter to Oravital confirmed the advice given, and provided as follows:
We have discussed this proceeding in some length. As you are aware, this proceeding is not a simple one and is one that you must be committed to in terms of time and expense. The expense could be considerable.
[13] On June 18, 2010 the action was commenced as instructed. The Statement of Claim contained allegations against three groups of defendants which included Small and businesses controlled by him, Novora Biomedical Corporation (“Novora”), and National Microbiology Lab Inc. (“National Lab”). Among various other kinds of relief, damages in the amount of $5,000,000.00 were claimed.
[14] As anticipated, the action was acrimonious and protracted. The defendants to Oravital’s action made it difficult for Oravital to advance the litigation expeditiously by repeatedly refusing to comply with their obligations under the Rules of Civil Procedure.
[15] Specifically, those defendants failed to agree to a discovery plan, serve affidavits of documents, or attend at examination for discovery.
[16] The defendants in the Oravital action further delayed the proceeding by failing to agree to the protective order requested by Oravital. They changed counsel on several occasions. They also brought a motion for security for costs, and failed to respond promptly to Oravital’s counsel’s communications.
[17] Hart and Isaacson communicated regularly with Sanj and were closely involved in every step in the action. They were aware that the defendants’ conduct left Oravital with two primary options. Oravital either could do very little or nothing and hope that the defendants would eventually comply with their obligations, or it could bring all necessary motions to compel the defendants to comply with their obligations under the Rules.
[18] Hart and Isaacson instructed Aird & Berlis to continue to pursue the action in an aggressive fashion. They specifically requested that motions be brought if and when the defendants should default on their obligations. They knew that this approach would be costly. Indeed, accounts for legal services were rendered to them regularly and paid.
[19] On November 15, 2013, Hart wrote to the Aird & Berlis’ partner with supervisory responsibility for the case, stating:
Jim, Robert, Anne and myself agree to continue working with Sanj Sood in this litigation with closer supervision from yourself especially in the assumption that the other side will default at every opportunity. In such cases, we should be ready to file a motion in the first day of default. We believe the addition of a “junior” on the case will expedite the administration process and adherence to deadlines…
[20] It is evident that Oravital was prepared to invest significant financial resources in the process in order to achieve a result in its favour and in accordance with its goals.
[21] Between October 2011 and July 2014, and in furtherance of Oravital’s desired aggressive litigation strategy, Aird & Berlis obtained a series of orders to force procedural compliance by the defendants in the action.
[22] An expert on damages had been consulted by Sood on behalf of Oravital fairly early in the litigation. As examinations for discovery approached, Hart and Isaacson (with advice from Sood) decided to hold off obtaining an expert opinion or report on damages so that there would be no risk that the findings, opinions and conclusions of the expert would have to be disclosed to the other side. It was agreed that an assessment and report would be obtained and disclosed after examinations and prior to mediation which at that time had been scheduled for March of 2015.
[23] I conclude from this scenario that Oravital knew that their actual damages would need to be proven in order to succeed at trial. They also appear to have been aware that an expert report containing an opinion as to the quantum of their actual damages might not necessarily be helpful to them.
[24] On this motion for summary judgment, Oravital argues that the closure of Novora and National Lab in March 2011 meant that Oravital’s damages were effectively crystalized and the strategy in the proceeding against Small should have been revisited and re-focused. This is also the thrust of the expert opinion of Clifford Lax expressed in his report and affidavit.
[25] Lax, an experienced litigation counsel in Toronto, expressed an opinion critical of Aird & Berlis in this particular respect. In his report dated June 23, 2016, he expressed his opinion as follows:
I have concluded that once Aird became aware of the closure of the wrongly competing businesses, namely Novora Biomedical Corporation (“Novora”) and National Microbiology (“National Lab”), the appropriate standard of professional care demanded that Aird undertake a complete reassessment of this claim, including an analysis of the costs of proceeding versus the benefit to be obtained. The apparent failure to engage in such reassessment, was in my opinion, a breach of the applicable standard of care for a reasonably competent barrister.
[26] Although counsel for Aird & Berlis objected to the admissibility of Lax’s affidavit and opinion on this motion, I consider it to be properly-stated expert opinion evidence of the expected standard of care and is thus relevant to the issues raised on this motion.
[27] Aird & Berlis has not provided an opinion from a qualified expert contradicting or taking issue with Lax’s opinion as stated. However, it argues that this general statement of what is expected of litigation counsel in managing a lawsuit and advising clients must be assessed in light of the particular facts of this case and the characteristics and objectives of the people involved.
[28] Despite the closure of Small’s companies, Hart and Isaacson on behalf of Oravital nevertheless chose to continue proceedings against Small. Indeed, Small tried to persuade Oravital to abandon the action against him, arguing that their damages were bound to be negligible. Oravital remained unmoved.
[29] In my view, the evidence adduced, including that of Sood, supports a conclusion that the Oravital action was largely fuelled by the bitter animosity of its principals toward Small. It was personal.
[30] In early December 2014, examinations for discovery of the defendants in the claim against Small were completed. Prior to examination of its own representative, Oravital requested that carriage of its file be transferred to Barbra Miller, another litigation partner at Aird & Berlis. Oravital also asked Aird and Berlis to reduce its outstanding account.
[31] Aird & Berlis was willing to transfer carriage of the file to Miller at the clients’ request, but was not prepared to reduce its outstanding account to the extent demanded and so advised Oravital.
[32] On March 4 2015 Oravital informed Aird & Berlis of its decision to appoint McCarthy Tetrault LLP as counsel to “finalize its claim” against Small.
[33] Although the action was placed on the Commercial List for closer case management and speedier progress, it still took close to a year to get to mediation.
[34] An expert report addressing the issue of damages was prepared for the mediation on behalf of Oravital at the request of its new counsel. Neither the report nor its contents were produced to Aird & Berlis by Oravital in these proceedings. A request for its production was refused.
[35] In February, 2016 a mediation was conducted. The proceeding against Small was settled shortly thereafter.
[36] The settlement agreement resolving the proceeding against Small provided, among other things, for a payment of approximately $300,000.00 in compensation to Oravital, and the provision of restrictive covenants restricting competition with Oravital by Small and certain other defendants for a further period of two years. Oravital also agreed as part of the settlement to pay $37,500.00 to Gofman for his shares in the company.
Issues and Discussion
[37] There is no dispute that Aird & Berlis performed the work, invoiced for its time and disbursements, and has not been paid.
[38] There also is no issue with the hourly rates charged, or any challenge to the fact that Aird & Berlis acted on instructions at each step of the litigation.
[39] Further, Oravital does not appear to take any serious issue with the proposition that most of the legal fees it incurred were as a result of the protracted procedural history caused by the conduct and delay tactics of the defendants to it, together with Oravital’s decision to pursue to litigation in an aggressive way.
[40] As a result, the main issue for determination on this motion is: did Aird & Berlis breach the standard of care expected of it by failing to re-assess the strategy for the litigation after Novora and National Lab closed and by failing to properly advise Oravital regarding the likely assessment of its damages?
[41] If the answer to that question is “yes”, the question that follows is: did Oravital sustain any damages as a result of this failure by Aird & Berlis? Or, as Aird & Berlis frames the question, would Oravital have instructed Aird & Berlis to proceed as it did even if it knew its case was not worth significant damages and had been specifically so advised by counsel?
[42] Simply put, this characterization raises a fundamental issue of causation which is critical to whether there is any liability on the part of Aird & Berlis. Is there any causal link between its alleged negligence and any damages sustained by Oravital?
[43] Oravital argues that, if it had been properly advised by its counsel on the likely quantum of damages it could recover, it would never have invested in this protracted litigation. Oravital therefore defends the claim by asserting that it did not get value for the money it paid its lawyers or from the amounts said to be owing for legal services, and should therefore not be required to pay its outstanding account.
[44] In addition, Oravital advances a sizeable Counterclaim for damages arising out of its alleged loss of business due to funds paid to its lawyers that could have been instead invested in the company and suffered financial losses as a result. It has tendered an expert report containing ambitious calculations in an effort to support that argument.
[45] Oravital advances the position that it only pursued the litigation because Aird & Berlis led it to believe that it was worth significant damages. It appears to be saying that, it should have been told by an expert and counsel that provable damages were low and, had this been done, it would have altered its strategy and settled or dropped the case. I do not accept that evidence, for the following reasons.
[46] Hart and Isaacson are very well educated and highly sophisticated businessmen with extensive experience both in the dental health industry and finance.
[47] Hart and Isaacson were very involved in all aspects and at all stages of the litigation from the commencement of the proceedings through to the discoveries. No one understood the value of Oravital’s claim for damages better than they did.
[48] Both Hart and Isaacson were easily able to calculate the general financial impact, if any, of Small’s alleged misappropriation and use of Oravital’s proprietary and confidential information on Oravital’s business.
[49] Similarly, Hart and Isaacson were very well able to understand and appreciate the economic implications of the closure of Small’s ventures.
[50] Sood had advised Hart and Isaacson that Oravital’s claim for punitive damages, designed to “get the attention of” Small, was unrealistic and unlikely to succeed. Sood had also advised Hart and Isaacson about the difference between an entitlement to a paper judgment for damages and problems in any actual collection of damages, a distinction they understood.
[51] Hart and Isaacson, being sophisticated business people, understood that Oravital would not necessarily be able to recover a judgment, even for significant damages, from Small.
[52] The reasonableness of a lawyer’s conduct is to be judged in light of surrounding circumstances, including the experience and sophistication of his or her client. Lawyers are entitled to assume that sophisticated clients will use their knowledge and experiences to reasonably interpret aspects of their business and their related legal rights (see: Singer v. Lipman Zener Waxman LLP, 2014 ONSC 4521; Rider v. Grants, 2015 ONSC 5456).
[53] Considering the facts of this case in light of Hart and Isaacson’s sophistication, business expertise and experience, I do not accept that Oravital had no appreciation of the true likely value of its claim and the risks of proceeding with the litigation.
[54] It is evident from the correspondence between the parties that Oravital did start to press Sood many times to obtain a formal written report on damages. However, when viewed in context, I consider that desire for a report was less in aid of educating them as to the value of their claim and more in the nature of a strategy to strengthen Oravital’s bargaining position and improve its chances of success at mediation or trial.
[55] It is also significant that the damages report that was ultimately obtained by new counsel for Oravital for use at mediation was refused by Oravital to be produced. What may be inferred from that refusal?
[56] In my view, an inference may be drawn that such report probably provided some support for Oravital’s damages claims for use at mediation. Such an inference is not supportive of Oravital’s position on this motion and that explains its refusal to produce it to Aird & Berlis.
[57] I also note that Oravital’s new counsel continued pursuing the action for close to a year following its retainer, and took the proceedings right through to mediation. This fact, in my opinion, is also inconsistent with Oravital’s present position that they should have been told at a much earlier stage that their chances of recovery of significant damages were poor and then everything would have been different. I do not accept their position in that regard.
[58] For these reasons, I do not find any causal link between the failure of Aird & Berlis to obtain a formal damages assessment at an earlier stage (accepting for this purpose Lax’s uncontradicted opinion that this is the expected standard of practice of a barrister) and the continuation of the proceedings by Oravital.
[59] As a result, the services provided by Aird & Berlis are ones for which it should be paid.
[60] Aird & Berlis shall therefore have summary judgment against Oravital in the amount sought, plus pre-judgment interest in accordance with the Courts of Justice Act, R.S.O. 1990, c. C. 43.
Counterclaim
[61] For these same reasons, the Counterclaim is dismissed.
[62] I nevertheless will address the issue of damages should I be found to be wrong in my conclusion on liability.
[63] Part of the Counterclaim seeks compensation for unnecessary legal expense. As discussed above, that position has been rejected.
[64] The remainder of the Counterclaim seeks to recover damages for economic losses said to have been suffered by Oravital as a result of what Aird & Berlis failed to do. However, as I have found, Aird & Berlis did not cause Oravital’s alleged losses.
[65] For a lawyer to be held liable for professional negligence it is not enough that he or she breached a duty of care. It also must be proven that the conduct caused the client’s loss and that the client has suffered damaged as a result. The general test for causation is the “but for” test on a balance of probabilities: the plaintiff must show that the injury would not have occurred “but for” the negligence of the lawyer.
[66] A plaintiff therefore must demonstrate on a balance of probabilities that, if properly advised, he or she would have acted in a different manner and thereby would have avoided the damages suffered (see: Pilotte v. Gilbert, 2016 ONSC 494).
[67] Oravital has adduced no evidence that it would have expanded its business and generated higher profits but for the continuation of the action against Small. In particular, there is no evidence that funds were not readily available from other sources for Oravital to invest in its business (had that been its true plan) or that any delay in obtaining a valuation of Oravital’s damages caused Oravital to experience any loss of profit.
[68] Oravital relies on expert opinion and related calculations in support of its position that it incurred damages. The expert evidence in that regard is predicated upon the assumption that if the money invested in the Small proceeding were instead invested in Oravital its business would have grown. The opinion implicitly and incorrectly assumes that there were no other sources of funds for Oravital’s business.
[69] However, it is evident that the principals of Oravital had the financial means to make such investment or could have raised funds from third parties to fund Oravital’s business and the litigation simultaneously. Conversely, it has not been proven that they did not.
[70] Indeed, it has not been proven that Oravital was ever required to make a choice between investing in Oravital’s expansion and continuing the litigation. The continuation of the litigation therefore cannot be shown to have caused Oravital to suffer lost profits.
[71] Accordingly, I would conclude that in these circumstances Oravital has not proven any actual or recoverable damages as a result of any conduct or failure of Aird & Berlis.
Costs
[72] If the parties cannot agree on the subject of costs, written submissions may be delivered by Aird & Berlis within 30 days and by Oravital within 30 days thereafter.
Stewart, J. Released: June 15, 2017
Reasons for Decision
COURT FILE NO.: CV-15-525806 DATE: 20170615 ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
Aird & Berlis LLP Plaintiff/Defendant by Counterclaim – and – Oravital Inc. and Alliance H. Inc. Defendants/Plaintiffs by Counterclaim
REASONS FOR DECISION