COURT FILE NO.: CV-16-566641

DATE: 20180528

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 368230 Ontario Limited, Plaintiff

AND:

Bernard Feintuch Professional Corporation C.O.B. as Feintuch Law, Murarilal Thapliyal and Prashant Rai, Defendants

BEFORE: Carole J. Brown, J.

COUNSEL: P. H. Griffin and S. N. Roy, for the Plaintiff/Responding Party

G. J. Tighe and Alexander Melfi, for the Defendants/Moving Parties

HEARD: April 30, 2018

ENDORSEMENT

[1] The defendants, Murarilal Thapliyal and Prashant Rai (“the defendant lawyers”) bring this motion to dismiss the action as against them pursuant to Rules 21.01(1)(b) and/or 21.01(3)(d) of the Rules of Civil Procedure on the ground that the claim as against them discloses no reasonable cause of action.

[2] The defendants are real estate lawyers practicing in the law firm of Thapliyal & Rai Professional Corporation. At all times, they were the lawyers for Asif Azeez, the registered owner of property municipally known as 180 University Avenue, Suite 1910, Toronto.

[3] The plaintiff, 386230 Ontario Limited, the beneficial owner and director of which is Dr. Stanley Bernstein, was, from 2014, represented by the defendant, Bernard Feintuch (“Feintuch”). In January 2015, Feintuch represented 368 regarding a second mortgage transaction. On January 16, 2015, Feintuch approached 368 with a private second mortgage loan transaction proposal he had received in relation to the subject property, owned by Azeez. Feintuch advised the plaintiff that the property was worth approximately $1,750,000, was leased by the O’Shaughnessy Education Foundation Limited for $8,500 per month and that there was an existing first mortgage in favour of TD Bank in the amount of $825,777. He further provided his client, 368 with several documents including an appraisal report, and agreement to lease between Azeez and OEFL and an acknowledgement of the terms of the lease executed by OEFL on the basis of which 368 instructed Feintuch to proceed with the proposed mortgage loan in the principal amount of $430,000 on a one year term at an annual interest rate of 11%. Pursuant to the amended statement of claim, it is alleged that certain of the mortgage documents were provided to 368 by the defendant lawyers, although it is not indicated which documents were allegedly provided.

[4] The pleading alleges that in reliance on the documents and Feintuch’s advice, 368 advised Feintuch that it would advance the second mortgage loan. Feintuch represented to 368 that an independent appraisal was not necessary given the November 2014 appraisal provided to 368 by Feintuch.

[5] After the transaction closed, the second mortgage was registered on title by Feintuch on January 29, 2015, along with a Notice of Assignment of Rents-General. The second mortgage went into default on September 1, 2015, and, on behalf of 368, Feintuch took steps to have the rent owing to Azeez paid to 368. As a result, he discovered an alleged fraud committed by Azeez. On September 25, 2015, the TD Bank, the first mortgagee on the property, delivered a Notice of Sale for the property to 368, which indicated that the outstanding balance on the first mortgage was $845,930.55. On September 30, 2015, Feintuch forwarded correspondence to the principal of OEFL, enclosing a notice of assignment of rents, requesting confirmation that OEFL continued to be in possession of the property and requesting that all outstanding and future rents be paid to Feintuch on behalf of 368.

[6] On October 8, 2015, Thapliyal wrote to counsel for 368 (Feintuch) requesting a copy of the mortgage statement and advising that Azeez would be listing the property for sale. Counsel further advised Feintuch that the delay on the mortgage payments was due to Azeez’s medical issues. Thapliyal further wrote to counsel for 368 advising that Azeez was in the process of arranging for a private sale of the property and had obtained an appraisal for 1.39 million, which was sufficient to cover the second mortgage. It is the position of the plaintiff that it would not have advanced the second mortgage had it known (i) the true value of the property and (ii) that the property was not leased to OEFL.

[7] On December 22, 2016, the plaintiff, 368, issued a claim against, inter alia, its counsel, Feintuch, Azeez and counsel for Azeez, Thapliyal and Rai. As against Thapliyal and Rai, the plaintiff claims damages in the amount of $430,000 for professional negligence. The plaintiff alleges that Thapliyal and Rai owed it a duty of care which was breached by, inter alia, failing to conduct adequate due diligence with respect to the mortgage transaction and failing to properly advise and protect its interests. More particularly, the allegations are that the defendant lawyers failed to take reasonable steps to verify the accuracy of the information provided to them with respect to the second mortgage transaction; failed to ensure that the documentation with respect to the second mortgage transaction was provided to them by the appraiser; failed to conduct any or, alternatively, adequate due diligence with respect to the proposed mortgage transaction and/or the mortgage documents; failed to obtain full disclosure of all material facts relating to the mortgage transaction and/or the mortgage document; and failed to properly advise and protect 368 Ontario’s interests. Further, 368 pleads in its statement of claim, that the defendant lawyers knew or ought to have known that 368 was relying upon the mortgage documents they provided. In fact, they allege that the defendant lawyers provided 368 with information that they knew or ought to have known was critical to 368’s decision to advance a second mortgage. As a result, 368 alleges that the defendant lawyers owed a duty of care to 368 Ontario and were obliged to use reasonable care to see that the information provided was correct. 368 alleges that the defendant lawyers’ conduct fell below the standard of care that a reasonably competent solicitor would exercise in the circumstances.

[8] The relevant paragraphs of the plaintiff’s amended statement of claim are as follows:

1. [21] In reliance on the mortgage assurances, the mortgage documents (including those provided by Thapliyal and Rai), and the Feintuchs’ advice, on or about January 27, 2015, 368 Ontario advised the Feintuchs that it would advance the second mortgage loan.

2. [37] Azeez provided 368 Ontario with the mortgage documents which contained material misrepresentations which Azeez knew to be false. Azeez knew or ought to have known that 368 Ontario would rely on these misrepresentations in advancing the second mortgage.

3. [44] At all material times, Thapliyal and Rai owed a duty of care to 368 Ontario. Thapliyal and Rai knew or ought to have known that 368 Ontario was relying upon them in the provision of certain mortgage documents. In fact, Thapliyal and Rai provided 368 Ontario with information that they knew or ought to have known were [sic] be critical to 368 Ontario’s decision to advance the second mortgage. In breach of that duty, Thapliyal and Rai:

i. failed to take reasonable steps to verify the accuracy of the information provided to them with respect to the transaction;

ii. failed to ensure that the documentation with respect to the transaction was provided to them by the appraiser;

iii. failed to conduct any or, alternatively, adequate due diligence with respect to the proposed mortgage transaction and/or the mortgage documents;

iv. failed to obtain full disclosure of all material facts relating to the mortgage transaction and/or the mortgage documents; and

failed to properly advise and protect 368 Ontario’s interests.

4. [45] Thapliyal and Rai knew or ought to have known that 368 Ontario would rely on them when providing various of the mortgage documents. Thapliyal and Rai were under a duty of care to use reasonable care to see that the information they provided was correct. Their conduct fell below the standard of care a reasonably competent solicitor would exercise in the circumstances.

5. [46] Thapliyal and Rai are liable to 368 Ontario for damages suffered as a result of their negligence.

Positions of the Parties

Position of the Defendants

[9] It is the position of the moving party defendants, Thapliyal and Rai, that the plaintiff’s claim as against them should be dismissed as disclosing no reasonable cause of action pursuant to Rule 21 of the Rules of Civil Procedure. It is the position of the moving party defendants that the law is well-established that a lawyer in the position of the defendants acting for a client against an opposing party represented by its own lawyer does not owe the opposing party a duty of care. Accordingly, there can be no claim against them in negligence or breach of fiduciary duty.

[10] It is the position of the defendant lawyers that the plaintiff’s pleading has failed to establish the requisite elements of the tort of negligence as against the defendant lawyers, that the plaintiff’s pleading is deficient and that the facts pleaded do not disclose a reasonable cause of action as against the moving parties. The defendant lawyers maintain that the plaintiff was not in a relationship sufficiently proximate to them to give rise to a duty of care or a fiduciary duty and, as a result, the pleading discloses no reasonable cause of action and should be struck. They maintain that, at law, Thapliyal and Rai, who represented the borrower in the mortgage transaction did not owe a duty of care to the opposing party plaintiff lender who was represented by its own, independent lawyer.

[11] The defendant lawyers note that the plaintiff has, in its factum, relied on jurisprudence which involves cases of negligent misrepresentation. However, the plaintiff in this case has not, in its amended pleading, pleaded negligent misrepresentation.

[12] The moving parties acknowledge that there are a limited number of cases in which an opposing lawyer can be held liable to a non-client, and the specific factual circumstances in which liability can be found are not supported by the plaintiff’s pleadings in this case.

Position of the Plaintiff

[13] It is the position of the plaintiff that it is not plain and obvious that the defendant lawyers did not owe a duty of care to 368 and that 368 has pleaded all of the requisite elements of a claim in negligence as against the defendant lawyers. In this regard, the plaintiff’s rely on the cases of Hercules Managements Ltd.v Ernst & Young 1997 345 (SCC), [1997] 2S. C. R. 165; Gerling Global General Insurance Co. v Siskind Cromarty Ivey & Dowler , 2002 49480 (ON SC), [2002] O. J. No. 2107; Scott v Valentine, 2012 ONSC 6349 at para 23 ; Normark Investments Ltd.v Belciug, 2015 BCSC 700 at paras 2, 6-8.

[14] The plaintiff maintains that 368 reasonably relied upon the defendant lawyers and the defendant lawyers knew or ought to have known of this reliance such that a duty of care arose. Further, they allege that it is not plain and obvious that the defendant lawyers did not owe a duty of care to 368, such that the action as against them should not be dismissed.

The plaintiff, in its factum, further alleges a separate tort of negligent misrepresentation, which is not pleaded in the statement of claim, nor are the necessary facts to support this separate tort pleaded in the statement of claim. It is the position of the defendant lawyers that the plaintiff was represented by its own lawyer, retained to protect the plaintiff’s interests in the mortgage transaction, and that the plaintiff expressly pleads that it relied on the advice of its own counsel in making the advance regarding the mortgage transaction. The plaintiff has now sued its own lawyer in the within action. The plaintiff’s lawyer makes no allegation in his defence that he relied on the co-defendant lawyers, Thapliyal and Rai.

The Issues

[15] The issue before this Court is whether the claim as against the defendant lawyers should be struck pursuant to Rule 21.01(1)(b), on the ground that it discloses no reasonable cause of action.

The Law

Rule 21.01

[16] Rule 21.01(1)(b) provides that a party may move before a judge to strike out a pleading on the ground that it discloses no reasonable cause of action or defense, and the judge may make an order or grant judgment accordingly.

[17] The purpose of Rule 21.01(1)(b) is to enable a judge to strike from the pleadings, claims and defenses that do not, in law, have a chance of succeeding. While a court will be reluctant to strike out a claim, the claim should be struck where it is clear and obvious that no cause of action is disclosed. The pleading should not be struck if there is a chance of success. In determining whether a claim should be struck, the court is required to give a generous reading to the pleadings. The issue is whether, assuming the alleged facts to be true, the action is nevertheless certain to fail.

[18] While evidence is generally inadmissible in a motion under Rule 21.01(1)(b), the claim incorporates, by reference, any document pleaded in the pleadings and the court is entitled to read and rely on the terms of such documents as if they were fully quoted in the pleadings.

[19] The novelty of the cause of action will not militate against the party pleading. A novel claim of negligence should not be struck for absence of reasonable cause unless it can be established that the claim is clearly unsustainable.

Analysis

[20] In this case, the transaction was a private mortgage, which is highly regulated in Ontario. The regulations require, inter alia, that each party be represented by its own lawyer, which was the case here.

[21] It is clear that the opposing parties, 368 and Azeez, were each represented by their own counsel, Feintuch representing 368 and Thapliyal & Rai representing Azeez. Based on the evidence before this Court, as pleaded in the amended statement of claim, all correspondence and documentation as regards the mortgage transaction was undertaken between the opposing parties’ counsel. Based on the evidence before the Court, no correspondence was sent between one counsel and an opposing party, which would, in any event, have been in breach of the Rules of Professional Conduct, or between opposing parties.

[22] The concept of reliance is a key issue. Where two parties are represented, the client relies on its own lawyer and not on an opposing lawyer. In this case, the plaintiff, indeed, alleges reliance on its own lawyers and the advice they gave the plaintiff.

[23] While the plaintiff’s amended statement of claim alleges that he would not have advanced the second mortgage had he known the property was worth less than $1,750,000, the plaintiff also alleges that its own lawyer had advised the plaintiff that the property was worth $1,750,000 (paragraph 18b). The plaintiff further alleges that the defendant, Azeez, provided 368 with the mortgage documents containing the misrepresented value and that Azeez should have known the plaintiff would rely on the representation (paragraph 37). There does not appear to be any indication, nor is it pleaded, that the defendant lawyers provided that information to 368, but rather that it was provided by the plaintiff’s lawyers and Azeez. Based on the amended statement of claim, the conduit of information was between lawyers; in other words the correspondence as regards the mortgage transaction was between the plaintiff’s lawyers and the defendants’ lawyers, and indeed correspondence between one party’s lawyers and the opposing party directly would be in breach of the Rules of Professional Conduct.

The Tort of Negligence

[24] As regards the plaintiff’s claim of negligence against the defendant lawyers, the tort of negligence requires a four-part conjunctive test to be met in order to establish liability including: (i) a duty of care owed by the defendants; (ii) that the defendants failed to meet the standard of care; (iii) that the plaintiff suffered damages; and (iv) that the defendant’s impugned conduct caused the plaintiff’s damages, in fact and in law: Mustafa v Culligan of Canada Ltd., 2008 SCC 27, [2008] 2 S.C.R. 114 at para 3.

Did the defendant lawyers owe the plaintiff a duty of care.

[25] The factual allegations in the amended statement of claim must be assumed to be true.

[26] As regards whether the defendant lawyers owe the opposing party a duty of care where the opposing party is represented by its own lawyers, Ontario jurisprudence holds that the general rule is that a lawyer owes no duty of care to the clients of opposing counsel in litigation or commercial matters. A lawyer acting in his or her professional capacity owes a duty of care to his or her client, not to the clients represented by opposing counsel: Diamond Contracting Ltd. v McDermid, 2006 24444 (ON CA), 2006 CarswellOnt 4490 (C.A.) para 3; and see Bay Park Investments Inc. v Royal Bank, 2002 49402 (ON SC), 2002 CarswellOnt 39 (S. C. J.).

[27] In Boldt v the Law Society of Upper Canada, 2010 CarswellOnt 3568 (S.C.J), Penny J held as follows:

The allegations against Trenker and Wallace appear to be that Trenkler and Wallace acted on behalf of co-defendant Linda Labbe in the contempt proceedings and in a Small Claims Court action involving Labbe and Boldt. Amongst other things, Boldt alleges that the Small Claims Court action was improperly commenced against her. The statement of claim also alleges that Trenkler and Wallace breached duties alleged to be owed to Boldt and engaged in an abuse of process through the Law Society’s prosecution of Boldt.

The statement of claim asserts a claim against Trenkler and Wallace for an alleged breach of duty of care owed by Trenkler and Wallace to Boldt while Trenkler and Wallace were acting as counsel for parties adverse in interest to Boldt. Such claims have consistently been dismissed on the basis that lawyers do not hold duties to parties with whom there is no solicitor-client relationship. Such claims are not tenable in law, due to the absence of a duty of care and for reasons of public policy…

Trenkler and Wallace acted for Labbe, a party adverse in interest to Boldt, and therefore owed no duty of care to the plaintiff. In addition, based upon public policy considerations, lawyers are protected from claims by a client’s adversary in litigation for alleged negligence, breaches of ethical or professional standards and other matters related to the conduct of litigation. It is therefore plain and obvious that the claims in negligence against Trenkler and Wallace cannot succeed.

[28] Thus, opposing counsel do not, generally, owe a duty of care to the opposing party. Further, opposing counsel are precluded from directly communicating with an opposing party.

[29] In a commercial mortgage transaction in which the lender and borrower are represented by separate independent counsel, the lawyers for the parties are required, pursuant to the LSUC, to communicate with one another and not with the opposing parties directly. As indicated previously, in a private mortgage transaction, which is highly regulated, both parties are required to have independent counsel, as was the case here.

[30] While the responding party has cited a number of cases in which counsel for the opposing party has been found liable as against the other opposing party, these cases are distinguishable. All involve allegations of negligent misrepresentation, which is not pleaded as against the defendant lawyers in this case.

[31] In Hercules, supra, negligent misrepresentation was in issue, which has not been pleaded here in the amended statement of claim. The Supreme Court of Canada held that, in order to identify a duty of care in a claim for negligent misrepresentation, the court must apply the two-part test set forth in Anns v Merton London Borough Counsel, [1978] A.C. 728. Based on Hercules Management, they argue that in cases of negligent misrepresentation, a prima facie duty of care based on a “special relationship” will arise where there is sufficient proximity between the parties. Such proximity may be found where the following two criteria can be said to exist on the facts: (i) the defendant ought reasonably to have foreseen that the plaintiff would rely on his or her representation; and (2) reliance by the plaintiff would, in the particular circumstances of the case, be reasonable.

[32] Where a prima facie duty of care is established, based on a special relationship, the court must consider whether there are policy considerations that militate against the recognition of such a duty. The court must consider whether recognizing a duty of care would raise concerns of indeterminate liability in an indeterminate amount to an indeterminate class.

[33] In the case of Chegancas v Gaudio, 2017 ONSC 3384, negligent misrepresentation was pleaded as against the lawyer. The lender was not represented by a lawyer, but was represented by a paralegal, and a direct representation was made by the lawyer to the opposing party lender, which ultimately caused damages. In the case before this Court, there was no direct representation by the moving parties to 368, and this was not pleaded in the amended statement of claim.

[34] In this case, I do not find there to be sufficient proximity between the defendant lawyers and 368. Based on all of the allegations and the seminal correspondence referred to in the pleadings, there was no direct communication between the defendant lawyers and 368. The correspondence was between counsel for the opposing parties. I do not find there to be any reasonable reliance by the plaintiff, 368, on the defendant lawyers representing Azeez, or any reasonable foreseeability that such would arise, given that 368 had, and was required to have, its own counsel in this private mortgage transaction, and, indeed, pleads that it relied on its counsel, Feintuch. I do not find, based on the pleadings, that the defendant lawyers made any promises or undertakings to the opposing party, 368, upon which a duty of care could be founded. There was no allegation in the pleadings that the defendant lawyers communicated directly with 368. These facts distinguish the present action from the cases relied upon by the plaintiff.

[35] Based on the pleadings, the documents were provided to the plaintiffs by their counsel, through the defendant lawyers. The plaintiff received advice regarding the documents from its own counsel. The defendant lawyers cannot be held to be guarantors for the opposing party as regards the accuracy of all documents which come from or through their clients.

[36] It has long been recognized that a lawyer owes an undivided duty to his or her own client and not to the opposing client. Otherwise, there would be a conflict of interest on all cases. The cases upon which the plaintiff relies for the proposition that a lawyer representing an opposing party may be found to owe a duty of care to an opposing party in certain very defined and circumspect circumstances are not applicable here, for the reasons above-noted.

[37] Claims such as this are not tenable in law, due to the absence of a duty of care and for reasons of public policy.

[38] In the circumstances of this case, I do not find any special circumstances which would lift this case from the normal proposition that a lawyer owes a duty of care to his or her own client and not to an opposing client, particularly in circumstances where that opposing party is represented by its own counsel.

[39] Accordingly, I grant the motion of the defendant lawyers, Thapliyal and Rai, and order that the plaintiff’s pleadings against them be struck, with costs.

Costs

[40] I would urge the parties to agree upon costs, failing which I would invite the parties to provide any costs submissions in writing, to be limited to three pages, including the costs outline. The submissions may be forwarded to my attention, through Judges’ Administration at 361 University Avenue, within thirty days of the release of this Endorsement.

Carole J. Brown, J.

Date: May 28, 2018