CITATION: Godstone Co-Ownership Inc. v. Maple Ridge Real Estate Investments Corp., 2017 ONSC 4694

COURT FILE NO.: CV-12-9934-00CL

DATE: 20170804

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: GODSTONE CO-OWNERSHIP INC., Plaintiff

AND:

MAPLE RIDGE REAL ESTATE INVESTMENTS CORP., et al., Defendants

BEFORE: HAINEY J.

COUNSEL: Joseph J. Neal, for the Plaintiff

Catherine Francis, for DUCA Financial Services Credit Union Ltd.

Sean Dewart and Jonathan Schachter, for Martin Rumack, Non-Party

HEARD: May 16, 2017

ENDORSEMENT

Background

[1] This is a motion by the plaintiff, Godstone Co-Ownership Inc. (“Godstone”), for leave to amend its statement of claim by adding Martin Rumack (“Rumack”) as a defendant in this action.

[2] Rumack is a lawyer who acted for a mortgage lender, DUCA Financial Services Credit Union Ltd. (“DUCA”), in a co-ownership conversion transaction in 2007.

[3] Godstone is a co-ownership which was converted from rental property in 2007. DUCA agreed to provide mortgage financing to purchasers buying units in Godstone’s co-ownership.

[4] During the process of incorporation of the co-ownership, Godstone was represented by its own lawyer, the defendant, Marc Lean (“Lean”). DUCA was represented by Rumack.

[5] According to Rumack and Lean, after Lean had drafted the co-ownership agreement he provided a copy to Rumack for his review, in his capacity as DUCA’s legal counsel.

[6] On July 10, 2007 the co-ownership agreement was registered on title to the co-ownership property.

[7] The action, which was commenced in 2012, seeks, among other things, a declaration that the co-ownership charges registered against units in the property have priority over mortgages registered by DUCA.

[8] In the action Godstone alleges that Lean was negligent in protecting its interests in the event that its charges do not have priority over DUCA’s mortgages.

[9] Rumack, Lean and DUCA all maintain that Rumack acted solely for DUCA in the transaction. Godstone alleges that Lean retained Rumack to act on its behalf.

[10] Godstone proposes to advance the following claims against Rumack:

(a) “As a result of the interest expressed by DUCA in financing the purchases of the co-ownership interests, and the experience of DUCA and its solicitor with financing other co-ownership projects, starting in June of 2007 until July 6, 2007 the solicitor …for the plaintiff, being Marc Lean (“Lean”), consulted with DUCA’s solicitor Martin Rumack (“Rumack”) with respect to the drafting of the co-ownership agreement, and Rumack reviewed and helped draft the Agreement…”;

(b) Rumack was retained by Lean on behalf of the plaintiff to draft the co-ownership agreement;

(c) This retainer conflicted with Rumack’s duties to DUCA;

(d) It was a term of Rumack’s retainer that he “had no conflict of interest and would…act in the best interests of the plaintiff;

(e) Rumack “owed a duty of care to the plaintiff, and breached it by never disclosing his conflict of interest in acting for both the plaintiff and DUCA”; and

(f) Rumack’s involvement in this regard “was discovered by the plaintiff” in January 2015.

[11] In support of the motion, Godstone’s representative, Ms. Ye Long swore affidavits in which she deposed as follows:

(a) Unbeknownst to Godstone, Rumack was retained to act on its behalf, and was involved in drafting the co-ownership agreement.

(b) Rumack acted on behalf of the mortgagee, DUCA, and acted contrary to the Godstone’s interests;

(c) Rumack rendered two accounts for work done for Godstone, which were sent to its own lawyer, Lean;

(d) Godstone did not discover that Rumack was retained on its behalf until January 2015, when Godstone’s counsel conducted an inspection of Rumack’s files. The existence of the retainer was discovered because the review of the file disclosed that Godstone’s name appeared on the outside of the folder in which Rumack maintained his file, and the file opening sheet reflected that Godstone would pay Rumack’s fees.

[12] Godstone served Rumack with its motion to amend its statement of claim by adding him as a party on October 26, 2016. I have already determined that this is the effective date for the commencement of the Godstone’s claim against Rumack.

Issue

[13] The issue that I must decide is whether I should grant leave to Godstone to amend its statement of claim to add Rumack as a defendant.

Positions of the Parties

[14] DUCA and Rumack submit that leave should not be granted to add Rumack as a party because:

(i) Godstone’s action against Rumack is hopeless and cannot possibly succeed; and

(ii) Godstone’s claim against Rumack is statute-barred.

[15] Godstone submits that the amendment should be permitted because its proposed pleading discloses a valid cause of action against Rumack which is not statute-barred because it was not discovered by Godstone until January 2015 when Godstone’s counsel inspected Rumack’s files at DUCA’s offices.

Analysis

[16] Godstone’s motion to add Rumack as a defendant in the action engages two rules. Rule 5.04(2) of the Rules of Civil Procedure governs the addition of parties to ongoing proceedings and Rule 26.01 governs the amendment of pleadings. I agree with the plaintiff that the applicable test on a motion under Rules 5.04(2) and 26.01 to add a party to an action is as follows:

(a) the amendment must not result in prejudice;

(b) the amendment must be legally tenable;

(c) the amendment must comply with the rules of pleading;

(d) a motion to add a party must meet all of the requirements of a motion under Rule 26.01;

(e) the addition of the party should relate to the same transaction or occurrence;

(f) the addition of the party should not unduly delay or complicate the hearing;

(g) the addition of a party will not be permitted if it is shown to be an abuse of process.

[17] The Court of Appeal for Ontario explained in Marks v. Ottawa (City), 2011 ONCA 248 at para 19 that “there is no absolute right to amend pleadings. The court has a residual right to deny amendments where appropriate”. One of the factors that must be considered in determining whether an amendment should be granted is whether the proposed amendment can be shown “to be an issue worthy of trial and prima facie meritorious.”

[18] In Acari v. Dawson, 2016 ONCA 715, the Court of Appeal for Ontario held that “Although a motion to add defendants is not a motion for summary judgment, the goal of a ‘fair process that results in just adjudication of disputes’ that is ”proportionate, timely and affordable’ is relevant in this context as well.”

[19] Rumack submits that Godstone’s claim against him cannot possibly succeed and it would therefore be more “proportionate, timely and affordable” to dismiss Godstone’s motion now rather than to permit its claim against Rumack to proceed only to have it immediately dismissed on a summary judgment motion.

[20] In my view, Godstone’s claim against Rumack cannot possibly succeed because there is no evidentiary basis to find that Rumack acted for Godstone in the co-ownership transaction in 2007. Further, Godstone’s claim is statute-barred because it discovered its potential claim against Rumack over two years before October 26, 2016, the date when Godstone’s claim against Rumack was commenced. The following are my reasons for these conclusions.

Godstone’s claims against Rumack cannot possibly succeed

[21] Godstone alleges that while Lean and Rumack were negotiating the co-ownership transaction on behalf of their respective clients, Lean retained Rumack to represent his client, Godstone, for the purpose of drafting the co-ownership agreement.

[22] Lean and Rumack both deny this and it does not make commercial sense. Further, it also makes no sense that Lean retained Rumack to represent Godstone in 2007 and that Godstone did not learn of this retainer until January 2015 when its counsel examined Rumack’s file folder.

[23] The law is clear that a lawyer representing one party in a transaction does not owe a duty of care to the other party in the transaction. This is especially the case when the other party is represented by a lawyer. [See Diamond Contracting Ltd. v. Mac Dearmid, 2006 CanLII 24444 (ON CA), [2006] O.J. No. 2962 (CA).]

[24] Godstone was at all times aware that Lean was representing it and that Rumack was representing DUCA, an adverse party in the transaction. There is no signed retainer agreement between Rumack and Godstone and it is admitted that Rumack never met or communicated with any representative of Godstone except Lean who denies that he retained Rumack to represent Godstone.

[25] Considering all of the evidence, I have concluded that there is neither the requisite proximity to Godstone nor the requisite foreseeability for a duty of care to arise on the part of Rumack in favour of Godstone. Rumack was clearly not representing Godstone but was at all times solely representing DUCA.

[26] This is particularly true in light of Ms. Long’s evidence that she understood that Rumack was protecting the interests of “the other side” in the 2007 transaction. I do not accept Ms. Long’s attempt to change this evidence through her supplementary affidavit. Her original evidence was clear that she believed Rumack was protecting the “interests of the other side.” When her counsel re-examined her on this point she testified that she understood Rumack “was protecting DUCA.” I am satisfied that she understood the question and gave a responsive and informed answer to it. In light of this evidence it is not reasonable to conclude that Rumack also owed a duty of care to Godstone as its legal counsel. Godstone’s claim against him cannot possibly succeed for these reasons.

[27] Godstone’s motion is dismissed for this reason.

Godstone’s claim is statute-barred

[28] Section 4 of the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B. (“Act”) provides that a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered.

[29] Section 5(2) of the Act provides that a plaintiff is presumed to have known of the potential claim on the day the act or omission on which the claim is based took place, unless the contrary is proved.

[30] The act or omission giving rise to Godstone’s potential claim against Rumack took place in 2007. Godstone is presumed to have known of the claim then.

[31] Godstone’s claim against Rumack was commenced on October 26, 2016, nine years after it alleges Rumack failed to protect its interests. If Godstone either had knowledge of Rumack’s representation of it in connection with the co-ownership transaction or, through reasonable diligence, ought to have known about it prior to October 26, 2014, Godstone’s claim against Rumack is statute-barred.

[32] Godstone alleges that its own lawyer, Lean retained Rumack on its behalf in 2007. Godstone is therefore imputed with Lean’s knowledge then because Lean was Godstone’s agent. It is well established that courts do not distinguish between counsel’s knowledge and the client’s knowledge in the determination of a limitation period. [See Bank of Nova Scotia v. PCL Construction Canada Inc., 2009 CanLII 56303 at paras. 78 and 79.]

[33] According to Godstone’s proposed pleading it therefore had imputed knowledge of the basis of its potential claim against Rumack in 2007, well before the limitation period began to run. This is fatal to Godstone’s motion.

[34] However, I also find that Godstone had sufficient knowledge regarding its potential claim against Rumack in June 2014 before the limitation period began to run.

[35] On June 4, 2014, the plaintiff examined DUCA’s representative, Francis Sajed, for discovery. Arnold Denton, who had instructed Rumack on behalf of DUCA, had retired by the time of the examination.

[36] The plaintiff’s counsel, Mr. Neal, asked Mr. Sajed if “DUCA [was] aware that Rumack had been engaged with Lean in drafting the actual co-ownership agreement prior to its registration on July 10, 2007?” DUCA’s counsel undertook to ask Mr. Denton if he was aware. Mr. Denton answered the undertaking on September 29, 2014 indicating that he was not aware of this.

[37] Mr. Neal also explored Rumack’s involvement in drafting the co-ownership agreement during his examination for discovery of Lean on June 3, 2014.

[38] Lean testified that “the actual drafting of the [co-ownership] agreement” was “a joint effort” between him and Rumack, because “it was important that there was some form of approval from counsel for the lender.”

[39] Mr. Neal asked Lean if Rumack had billed Godstone for his services in helping to draft the co-ownership agreement. Lean testified as follows

A. Yes.

Q. So if he’s giving you an account, is he giving you an account as an agent of yours?

A. No.

Q. Not an agent?

A. No.

Q. Would you consider him at that point to have had a solicitor-client relationship with Godstone Co-Ownership Inc.?

A. No.

Q. You didn’t?

A. No.

Q. Do you see that normally where lawyers submit bills to non-clients? Is that something you would see in your practice?

A. He expects to get paid by a prospective borrower from his clients.

[40] Lean’s answers make it clear that Rumack was not acting on behalf of Godstone. Mr. Neal’s questions in both examinations also demonstrate that he, and therefore Godstone, had sufficient knowledge of Rumack’s involvement in reviewing the co-ownership agreement and that he had billed Godstone for this work. I am of the view that Godstone’s potential claim against Rumack was clearly discoverable at that time. This was a number of months before the limitation period began to run.

[41] I do not accept that Godstone only first discovered its claim against Rumack when Mr. Neal reviewed Rumack’s file folder that had Godstone’s name on it. It is not reasonable to conclude that this was the first time that Godstone became aware of its potential claim against Rumack in light of all of the evidence to the contrary. Godstone is imputed with Lean’s knowledge in 2007 and it clearly had sufficient information about its potential claim against Rumack in June 2014 when Mr. Neal examined Francis Sajed and Lean about Rumack’s involvement in the transaction.

[42] For all of these reasons Godstone’s claim is statute-barred.

Conclusion

[43] Godstone’s motion is therefore dismissed.

Costs

[44] If counsel cannot settle costs they may schedule a 9:30 a.m. appointment with me at which time I will determine the costs issue. Counsel should bring their costs outlines to the 9:30 a.m. attendance.

HAINEY J.

Date: August 4, 2017