CITATION: Ramsarran et al. v. Assaly Asset Management Corp. et al., 2017 ONSC 7191
COURT FILE NO.: 16-69767
DATE: 2017/12/06
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Calvin Ramsarran, Gloria Ramsarran, Trisha Ramsarran, Tennelle Ramsarran and Renee Ramsarran
Plaintiffs/Respondents
– and –
Brent Timmons and Brazeau Seller LLP
Defendants/Moving Parties
- and –
Assaly Asset Management Corporation aka 2225394 Ontario Ltd. Corp., Thomas Assaly, Paul Howard, Howard Kelford & Dixon, Toronto-Dominion Bank and TD Waterhouse Canada Inc.
Defendants/Respondents
Leonard Max, Q.C. for the Plaintiffs/Respondents
Stephen Cavanagh for the Defendants/Moving Parties
Atrisha Lewis for the Defendants/Respondents Toronto-Dominion Bank and TD Waterhouse Canada Inc.
Calvin Hancock for the Defendants/Respondents Paul Howard and Howard Kelford & Dixon
HEARD: October 5, 2017
REASONS FOR DECISION
JUSTICE SALLY GOMERY
Introduction
[1] When can someone sue a lawyer who acted for the other side in a commercial transaction?
[2] Brent Timmons represented Assaly Asset Management Corporation (“AAMC”), the purchaser of shares owned by Calvin, Gloria, Trisha, Tennelle and Renee Ramsarran. The Ramsarrans are now suing Timmons and his law firm, Brazeau Seller LLP (“Brazeau”), for damages arising from the sale. They say that Timmons told their lawyer, Paul Howard, that part of the purchase price for the sale had been placed in a trust account with a bank. The Ramsarrans allege that this statement was untrue, that they relied on it, and that they would not have closed the sale if they had known that the money had not been deposited. Whether Timmons lied, or was simply mistaken about the account, the Ramsarrans say that he and Brazeau should be liable for their damages.
[3] The Ramsarrans are suing other parties aside from Timmons and Brazeau. They are suing AAMC. They say, among other things, that AAMC gave Timmons the inaccurate information about the trust account that he in turn passed on to Howard. They are suing Howard and his firm Howard Kelford & Dixon. They say that Howard did not take steps to find out whether Timmons’ statement was true or false, and should also be liable for their damages. Finally, the Ramsarrans are suing Toronto-Dominion Bank and TD Waterhouse Canada Inc. (referred to together as “TD”). They allege that, if an account was created, TD had legal obligations towards them as a trustee and fiduciary, which it failed to respect.
[4] Brazeau and Timmons are asking the court to strike the Ramsarrans’ claim against them. They argue that the Ramsarrans cannot sue them for negligent misrepresentation, because they were acting for AAMC, and not them, on the sale of the shares. They concede that they could be liable if the Ramsarrans can prove that Timmons intentionally misled their lawyer Howard. They argue however that the Ramsarrans have not made all of the allegations necessary for a claim for intentional misrepresentation, and need to amend their statement of claim before proceeding. Finally, Brazeau and Timmons ask the court to dismiss a cross-claim against them by TD.
What are the Ramsarrans claiming?
[5] Since this is a motion under Rule 21.01(1)(b) of the Rules of Civil Procedure, I must assume for the purpose of this decision that all of the facts alleged in the statement of claim are true.[^1] Accordingly, before considering the orders that Brazeau and Timmons are seeking, I must take a closer look at the Ramsarrans’ allegations.
[6] The Ramsarrans were shareholders in a company that owned and operated a retirement home in Smith Falls, Ontario. On December 12, 2009, they signed a Share Purchase Agreement with AAMC. In this Agreement, the Ramsarrans agreed to sell their shares to AAMC for $1,000,000.
[7] Both the Ramsarrans and AAMC had lawyers who helped them negotiate the agreement and complete the sale. The Ramsarrans were represented by Howard. AAMC was represented by Timmons.
[8] As part of the sale agreement AAMC was supposed to deposit $109,000 in a trust account. On April 29, 2010, Timmons sent an e-mail to Howard that said:
The purchaser has deposited $109,000 with TD Waterhouse to be held in trust pending determination of the tax liability of the Corporation. The determination will be completed by the end of May. Once the tax liability is determined by an assessment of the CRA, the balance will be returned immediately to the Vendors. [Emphasis added.]
[9] The sale of the shares by the Ramsarrans to AAMC closed, but they never got the money mentioned in Timmons’ e-mail. They allege that no money was ever deposited into a TD Waterhouse trust account. They say that Timmons’ statement about the deposit was either a negligent or intentional misrepresentation, and that they would not have completed the sale of the shares to AAMC had they known that it was untrue. As a result, they seek over $1,000,000 in damages and repayments from Timmons and Brazeau.
[10] The Ramsarrans are also suing their own lawyer, Howard, and his firm. At paragraph 34 of the statement of claim, they allege that he acted negligently or recklessly in relying on Timmons’ statement without doing any due diligence, “such as requesting additional information and/or evidence establishing the existence of the Trust”, and in failing to obtain, prior to closing, a solicitor’s undertaking regarding the funds in trust or confirmation with details from TD Waterhouse that $109,000 had actually been deposited in trust.
[11] The allegations against AAMC are more complex. At paragraph 37 of the statement of claim, the Ramsarrans say that AAMC breached its obligations under the Share Purchase Agreement by not depositing $109,000 in a trust account for them, and then telling Timmons that they had. At paragraph 38, the Ramsarrans say that, alternatively, AAMC did create a trust account, but refused to provide them with any information about it, and then had the money transferred out of the account at some later date.
[12] Finally, the Ramsarrans’ allegations against TD are found at paras. 41 and 42 of the statement of claim:
Pursuant to the SPA and Amendments, TD was designated as the Trustee for the Trust. If the Trust was indeed created and the funds deposited with TD, TD would owe the Plaintiffs a duty of care and a fiduciary duty as the Trustee.
TD’s refusal to provide the Plaintiffs with information pertaining to the Trust and accordingly release the funds to the Plaintiffs would therefore constitute a breach of its duty of care, its fiduciary duty and a breach of trust.
[13] The Ramsarrans’ claim against TD therefore presupposes that an account was created.
Can the Ramsarrans sue Brazeau and Timmons for negligent misrepresentation?
[14] Under Rule 21.01(b), a party may ask a judge to strike out a pleading on the ground that it discloses no reasonable cause of action. A claim will only be struck if it is “plain and obvious, assuming the facts pleaded to be true, that the pleading discloses no cause of action”.[^2] If there is a reasonable chance that the claim could succeed, the plaintiff should be allowed to proceed. The judge who is asked to strike pleadings must read the statement of claim generously, to allow for drafting deficiencies. A cause of action should not be struck simply because it is novel.[^3]
[15] This is not, on its face, a novel cause of action. Other plaintiffs have tried to sue lawyers who represented parties adverse in interest to them. Ontario courts have consistently ruled that lawyers, absent exceptional circumstances, do not owe a duty of care to such plaintiffs.[^4] As a result, usually a solicitor cannot be sued for negligence by someone contracting with their client, even if the solicitor gave that person bad advice and they suffered damages as a result.
[16] The Ramsarrans argue that this case is exceptional. They say that the statement of claim contains all of the elements necessary for a claim for negligent misrepresentation as established by the Supreme Court of Canada.[^5] In his e-mail to Howard, Timmons stated, without qualification, that AAMC had deposited $109,000 in a TD Waterhouse trust account. He must have intended that Howard and the Ramsarrans would rely on this statement. As a result, the plaintiffs say that a trial court could conclude that Timmons owed a duty of care to them and that it was reasonably foreseeable that they would rely on his statement.
[17] In support of their position, the Ramsarrans rely on 347671 B.C. Ltd. et al. v. Heenan Blaikie.[^6] In Heenan Blaikie, the plaintiffs lent a promoter $50,000 to finance a concert by the singing group “The Three Tenors”. The concert was a financial failure and the loan was not repaid. The plaintiffs alleged that, in making the loan, they relied on advice from Heenan Blaikie, the law firm representing the promoter.
[18] The trial judge allowed the action. In her decision, she noted that a lawyer would rarely owe any legal duty to a party on the opposite side of a client’s transaction:
The circumstances in which a lawyer, acting on behalf of one client, will be found to owe a duty of care to a party who was, at the time the representations were made, engaged in, or proposing to engage in, a commercial transaction with the lawyer’s client, must indeed be rare. A lawyer’s duty to his own client must be treated as paramount, and will generally preclude a finding that the lawyer also owed a duty to another whose interests could be considered to be in conflict with the interests of the lawyer’s own client. Reliance by one party to a transaction on representations made by the legal advisor of another party will, I suggest, usually be considered to be unreasonable.[^7]
[19] Justice Baker nonetheless concluded that Heenan Blaikie did owe a duty of care to the lenders in this particular case. The lenders did not have their own lawyer. A Heenan Blaikie partner met personally with them, at the instructions of his client, and advised them on the risks associated with the proposed loan. In these circumstances, the judge concluded that the firm voluntarily assumed responsibility for the accuracy of these representations.[^8]
[20] Based on Heenan Blaikie, a lawyer could owe a duty of care to the party on the other side of a transaction in exceptional circumstances. Does this case present such a circumstance?
[21] The facts in this case are different from those in Heenan Blaikie in two important ways. One of these differences helps the Ramsarrans and the other does not.
[22] The first difference is the nature of the misrepresentations made in each case. In Heenan Blaikie, the plaintiffs sued based on negligent statements made by a lawyer during a meeting. The statements included the lawyer’s interpretation of the terms of the proposed loan agreement. He effectively gave them legal advice.
[23] Here, the Ramsarrans did not rely on Timmons’ legal advice. They relied on a statement of fact that turned out to be untrue. As a result, they argue that their claim against Timmons is stronger than the claim in Heenan Blaikie. Although a lawyer might not generally have a duty of care to someone adverse in interest to his client, such a duty could and should exist for the purpose of communicating facts, as opposed to opinion.
[24] I agree that this element of this case strengthens the argument for recognizing a potential duty of care on Timmons towards the Ramsarrans. Reliance on advice or opinion provided by a lawyer representing the other side in a commercial transaction would be, absent special circumstances, unreasonable. But reliance on a fact conveyed by that same lawyer arguably might not be.
[25] The second difference is that, unlike the Heenan Blaikie plaintiffs, the Ramsarrans were represented by their own lawyer, Howard. Timmons was clearly representing AAMC’s interests, not theirs, in the share purchase. This argues against the existence of a duty of care by Timmons to the Ramsarrans. His duty was towards his own client. That duty was a fiduciary duty, which required Timmons to put AAMC’s interests above any other interests. This is incompatible with a competing duty towards the Ramsarrans, unless AAMC specifically instructed him to assist them (as occurred in the Heenan Blaikie case).
[26] Timmons furthermore did not, through his actions, voluntarily assume responsibility for the accuracy of his statements to the plaintiffs. He did not make any statements to them. He communicated with their lawyer Howard, and would have expected Howard to advise them about the risk of closing the share purchase agreement without taking any steps to independently verify the existence of the trust account.
[27] This is the very basis for the Ramsarrans’ claim against Howard and his firm. In the statement of claim, they say that, as their lawyer, Howard should not have assumed that Timmons’ statement was true. They point out that he could have asked Timmons for additional information or evidence that an account had been created, or obtained a formal undertaking from him about the deposit. They relied on him to take steps to protect their interests before they took the final steps to sell their shares to AAMC. These allegations appear inconsistent with the theory that the Ramsarrans were relying on Timmons rather than their own lawyer.
[28] The fact that the Ramsarrans had their own lawyer advising them on their transaction with AAMC weighs heavily against allowing them to proceed with their claim for negligent misrepresentation against Timmons and Brazeau. Ontario courts have expressed strong concerns about permitting such claims to go forward.
[29] In Mantella v. Mantella, a husband and wife entered into a separation agreement after their marriage broke down.[^9] They each had a lawyer. Each lawyer certified that they had provided independent legal advice to their client, and had explained the meaning and legal implications of the separation agreement to them.
[30] A year after signing the agreement, Ms. Mantella applied to set the agreement aside on the grounds that it was unconscionable and signed under duress. Mr. Mantella opposed the application and made a third party claim against his wife’s lawyer. He contended that the lawyer was liable to compensate him for any additional amounts he had to pay if the agreement were set aside, because she had negligently certified having explained it to his wife.
[31] Justice Corbett struck the third party claim. He found that it is well-settled law that there is no duty of care between a lawyer and an opposing party, and that there are strong policy reasons for this.[^10] He wrote:
A lawyer may not lie on behalf of a client, and the lawyer who does so may be liable for her deceit. But the lawyer is not a guarantor of the client’s information, and has no duty to inquire into the facts advanced by the client. It is the opposing party that conducts its own due diligence.[^11] [Emphasis added]
[32] Justice Corbett concluded that Ms. Mantella’s lawyer did not undertake any duty on behalf of Mr. Mantella when she signed a certificate of independent legal advice.[^12] Her only duty was to her own client.
[33] In Hamid v. Milaj, the president of a union sued other union officers for defamation.[^13] In their defence, the officers said they based their statements on information from their lawyer, who in turn received it from the employer’s lawyer. They issued a third party claim against the employer’s lawyer, alleging that, if the information was incorrect, he had been negligent in communicating it.
[34] The solicitor moved to strike the third party claim as disclosing no reasonable cause of action. The defendants argued that the employer’s lawyer knew or ought to have known that their lawyer would repeat the information to them and that they would rely on it. They emphasized that the statements at issue were not legal or professional advice but facts. These are the same arguments that the Ramsarrans are advancing in this case.
[35] Justice Carole Brown struck the third party claim against the employer’s lawyer. She held that “a lawyer, acting for one party in a proceeding, does not owe a duty of care or a fiduciary duty to the opposite party”.[^14] She further found that the union officers’ reliance on information provided by the employer’s lawyer was neither reasonable nor foreseeable, because they had their own lawyer.[^15]
[36] In reaching these conclusions, Justice Brown expressed concern about imposing a duty of care on a lawyer vis-à-vis a party adverse in interest to their client. She cited this passage from an earlier decision of the court, upheld by the Ontario Court of Appeal, striking a claim in negligence against a lawyer in such circumstances:
It is quite clear, in my view, that because of the absence of a duty to the opposite party and for reasons of public policy inherent in the nature of the adversary process, an action in negligence against the solicitor for one’s adversary in litigation is not tenable in the law of Ontario. (...)
There would be a temptation, which many would find irresistible, to re-litigate in actions against their opponent’s counsel the issues which they have lost in the main litigation, or to attempt to handicap the other side by eliminating experienced and knowledgeable counsel from the case.[^16]
[37] These policy concerns continue to be relevant today, and are a powerful argument against recognizing that Timmons and Brazeau could have any duty of care to the Ramsarrans.
[38] Taking these factors into account, I conclude that the situation in Heenan Blaikie is distinguishable from the situation in this case. We do expect lawyers to take care not to mis-state relevant facts. But not every inaccurate statement gives rise to potential liability in negligence. In determining whether any person could owe a duty of care, we look to their relationship with the plaintiffs and the circumstances of the act giving rise to the claim. In this case, the Ramsarrans had their own lawyer. They were relying on him to protect their interests. They did not have a relationship with Timmons. He owed no duty to them. His duty was to AAMC, the company negotiating with them for the purchase of their shares.
[39] I conclude that there is no reasonable prospect that the Ramsarrans can succeed in their claim for negligent misrepresentation against Timmons and Brazeau. As discussed below, if they can prove that he intentionally lied about the trust account in his e-mail, he and Brazeau could be liable to them for fraudulent misrepresentation or deceit. But that is a different issue.
[40] As a result, I order that the following allegations be struck from the statement of claim:
• Paras. 25, 26 and 30(a) in their entirety;
• the words “or ought to have known”, “either” and “and/or inaccurate” in the first sentence of para. 29;
• the words “and/or negligently” in the second sentence of para. 29;
• the words “and/or negligent misrepresentation” in para. 30;
• the word “”inaccurate” in para. 30(b); and
• the words “ought to have known” in para. 30(c).
Have the plaintiffs pleaded all of the necessary elements of intentional misrepresentation?
[41] As already noted, “a lawyer may not lie on behalf of a client, and a lawyer who does so may be liable for her deceit”.[^17] Timmons and Brazeau agree that they may be liable to the Ramsarrans if he intentionally misrepresented the existence of a trust account.[^18] They argue however that the plaintiffs have failed to plead all of the necessary elements of an intentional misrepresentation claim.
[42] A claim may be struck if the plaintiff fails to plead the necessary legal elements of an otherwise recognized cause of action.[^19] Courts have recognized that plaintiffs who accuse a defendant of intentional wrongdoing must allege detailed facts in support.[^20]
[43] The required elements of a claim of intentional or fraudulent misrepresentation are that:
a. The defendant made a representation;
b. The representation was false;
c. The defendant knew it was false, or made it recklessly without knowing whether it was true or false; and
d. The representation induced the plaintiff to act to his prejudice.[^21]
[44] Brazeau and Timmons concede that the plaintiffs do not have to use magic words such as “fraud” or “deceit”, so long as they plead these required elements. One author suggests that the representation must be made with the intent to deceive, that is, for the purpose of inducing the plaintiff to act on it.[^22] This point is not however emphasized in the recent caselaw, and I conclude that a specific allegation that the defendant intended to deceive is not strictly required.
[45] At paragraph 30 of the statement of claim, the Ramsarrans recite the facts that they rely on in support of their claim of intentional misrepresentation against Timmons. They allege that he represented the existence of the TD trust account in his April 29, 2010 e-mail; that this representation was untrue; that Timmons knew the representation was untrue, or was reckless as to whether it was true or false; and that the misrepresentation induced the plaintiffs to close the sale of their shares. I conclude that they have pleaded all of the requisite elements of fraudulent or intentional misrepresentation.
Should TD’s cross-claim against Brazeau and Timmons be dismissed?
[46] TD has served a statement of defence denying that they were a party to the Share Purchase Agreement or even aware of it until late 2016. They deny that they were ever asked by the Ramsarrans or AAMC to create a trust account pursuant to the Agreement, or that any such account was ever created. They deny any liability to the plaintiffs. If they are liable, however, they have cross-claimed against the other defendants for contribution and indemnity.
[47] Timmons and Brazeau ask this court to strike TD’s cross-claim. If no account was created, then TD could not have any liability to the Ramsarrans and no basis for a third party claim. If funds were placed in trust with TD, it would have a fiduciary obligation to the Ramsarrans. In that case, according to Brazeau and Timmons, TD could not seek contribution from any other party, because it is not available where a defendant is liable for a breach of fiduciary duty.
[48] In support of their argument that a breach of a fiduciary duty cannot support a third party claim, Brazeau and Timmons rely on the Divisional Court’s decision in Johnston v. Sheila Morrison Schools.[^23] In that case, the Court held that fiduciary duty is not subject to apportionment and therefore does not give rise to a right of contribution and indemnity.
[49] After this motion was argued, the Court of Appeal released its decision in J.K. v. Ontario.[^24] In J.K., the Court declined to strike a third party claim by the Crown in an action where it was alleged to have breached its fiduciary duty. It noted that the Divisional Court did not cite any authority on point in Sheila Morrison Schools and that, in an earlier decision, the Court of Appeal had apportioned liability between defendants liable for breach of fiduciary duty and a defendant liable for negligent misrepresentation.[^25] The right to contribution under s. 1 of the Negligence Act has furthermore been held to apply not only to negligence, but to other fault-based causes of action.[^26] As a result, the Court concluded in J.K. that it was not plain and obvious that the Crown’s claim for contribution would fail.
[50] Adopting this same reasoning, I find that it is not plain and obvious that TD’s cross-claim against Brazeau and Timmons will fail, and decline to strike it.
Costs
[51] If the parties are unable to agree on costs, they may make written submissions to me within 10 days. Submissions should not exceed three pages plus a cost outline.
Justice Sally Gomery
Released: 2017/12/06
CITATION: Ramsarran et al. v. Assaly Asset Management Corp. et al., 2017 ONSC 7191
COURT FILE NO.: 16-69767
DATE: 2017/12/06
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Calvin Ramsarran, Gloria Ramsarran, Trisha Ramsarran, Tennelle Ramsarran and Renee Ramsarran
Plaintiffs/Respondents
– and –
Brent Timmons and Brazeau Seller LLP
Defendants/Moving Parties
- and –
Assaly Asset Management Corporation aka 2225394 Ontario Ltd. Corp., Thomas Assaly, Paul Howard, Howard Kelford & Dixon, Toronto-Dominion Bank and TD Waterhouse Canada Inc.
Defendants/Respondents
REASONS FOR DECISION
Justice Gomery
Released: 2017/12/06
[^1]: R. v. Imperial Tobacco, [2011] 2 S.C.R. 45 at para. 17; Trillium Power Wind Corporation v. Ontario (Natural Resources), 2013 ONCA 683 at para. 31. Wherever I refer to the statement of claim in these reasons, I am referring to the Fresh as Amended Statement of Claim dated September 23, 2016.
[^2]: Imperial Tobacco at para. 17; see also Trillium Power at para. 31.
[^3]: Trillium Power at para. 30, citing Paul Perell and John Morden, The Law of Civil Procedure in Ontario, 1st ed. (Markham: LexisNexis Canada Inc., 2010) at p. 446.
[^4]: Diamond Contracting Ltd. V. MacDearmid et al., 2006 24444 (ONCA) at para. 3; Schuman v. Ontario New Home Warranty Program, 2001 CarswellOnt 3666 at para. 25; Baypark Investments Inc. v. Royal Bank, 2002 49402 (ON SC), 2002 CarswellOnt 39 (S.C.) at para. 33; Nobili v. Economical Mutual Insurance Company, 2014 ONSC 6333 at para. 22.
[^5]: Queen v. Cognos Inc., 1993 146 (SCC), [1993] 1 S.C.R. 87.
[^6]: 2000 BCSC 1714, 2000 B.C.S.C. 1714, aff’d 2002 BCCA 126, 2002 BCJ No. 347 (QL).
[^7]: Heenan Blaikie at para. 91.
[^8]: Justice Lederman recently dismissed a motion to strike in similar circumstances; see Chegancas v. Godo, 2017 ONSC 3384.
[^9]: 2006 CarswellOnt 2204 (ONSC).
[^10]: Mantella at para. 46.
[^11]: Mantella at para. 48.
[^12]: Mantella at para. 49.
[^13]: Hamid v. Milaj, 2013 ONSC 2104, 2013 CarswellOnt 6290.
[^14]: Hamid at para. 29.
[^15]: Hamid at para. 33.
[^16]: Brignolio v. Desmarais, Keenan, [1995] O.J. No. 3499, appeal dismissed [1996] O.J. No. 4812, leave to appeal denied, [1996] S.C.C.A. No. 326.
[^17]: Mantella at para. 48.
[^18]: The statement of claim originally alleged that Timmons’ e-mail was a fraudulent misrepresentation. In the fresh as amended statement of claim, it is characterized as an intentional misrepresentation. I conclude that the constituent elements of the cause of action are the same whatever label is used.
[^19]: Aristocrat Restaurants Ltd. v. Ontario, 2003 CarswellOnt 5331 (SCJ) at para. 18.
[^20]: Corfax Benefits Systems ltd. v. Fiducie Desjardins Inc. (1997), 1997 12195 (ON SC), 37 O.R. (3d) 50 (Gen. Div.) at para. 32; Farrell v. General of Salvation Army, 2011 ONSC 317, 2011 CarswellOnt 278 at para.12.
[^21]: Farrell at para. 13.
[^22]: Lewis Klar, Tort Law, 3d ed. at p. 606.
[^23]: 2012 ONSC 1322, 20 C.P.C. (7th) 103.
[^24]: 2017 ONCA 902.
[^25]: Ault v. Canada (Attorney General), 2011 ONCA 147.
[^26]: J.K. at para. 31, citing Pet Valu Inc. v. Thomas, [2004] O.J. No. 497, 2004 23785 (ON SC), 2004 23785, at para. 24, citing Bell Canada v. Cope (Sarnia) Ltd. (1980), 11 C.C.L.T. 170 (Ont. H.C.), at 179-80, affirmed (1981), 1980 1868 (ON CA), 119 D.L.R. (3d) 254 (Ont. C.A.).