Court File and Parties
COURT FILE NO.: 17-63140-A1
DATE: 2018-09-10
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: LYNN TISI, Plaintiff
AND:
ALAIN RABY and ADVANTAGE REAL ESTATE INC., carrying on business as COLDWELL REAL ESTATE BROKER and COLDWELL BANKER ADVANTAGE REAL ESTATE, Defendants
AND
DEREK A. SCHMUCK and SIMPSON WIGLE LAW LLP, Third Parties
BEFORE: D.A. Broad
COUNSEL: Harry Perlis, for the Defendants Michael R. Kestenberg, for the Third Parties
HEARD: September 5, 2018
ENDORSEMENT
Background
[1] The plaintiff (“Tisi”) entered into a form of Agreement of Purchase and Sale (“Purchase Agreement”) to purchase a parcel of land from Claude St.-Amand (the “Vendor”) in Welland, Ontario with the intention of having the Vendor build a new home for her on the parcel.
[2] The Defendant Alain Raby (“Raby”) is a real estate agent employed or associated with the Defendant Advantage Real Estate Inc. (the “Broker”). Raby prepared the Purchase Agreement and acted as agent for both Tisi and the Vendor on the transaction.
[3] During the course of construction of the new home on the parcel, Tisi and the Vendor became engaged in a dispute in the course of which the Vendor took the position that the Agreement was not binding and in the result the transaction did not close.
[4] The Vendor brought an Application for a declaration that the Agreement was null and void and Tisi brought an Application for an order for specific performance of the Purchase Agreement, or in the alternative, for damages for breach of contract, implicitly seeking a declaration that the Purchase Agreement was a valid contract between the parties.
[5] The third party Derek A. Schmuck (“Schmuck”) of the firm of Simpson Wigle LLP acted for Tisi in respect of both Applications.
[6] The reciprocal Applications were argued before Justice T. Maddalena on April 21, 2017. Justice Maddalena rendered judgment on May 19, 2017, granting a declaration in favour of the Vendor that there was no valid agreement of purchase and sale between the Vendor and Tisi, directing the Vendor to return the $10,000 deposit paid by Tisi plus interest and requiring Tisi to discharge the Certificate of Pending Litigation registered on title to the parcel.
[7] In her Reasons, Justice Maddalena found that Tisi had made certain interlineations and amendments to Schedule “D” to the Agreement which were not agreed to and initialed by the Vendor and which were not disclosed to the Vendor and, as a result, Tisi and the Vendor were not ad idem on the essential elements of the Purchase Agreement.
[8] By Statement of Claim issued November 1, 2017, Tisi brought an action against the defendants seeking damages alleging that they were negligent and breached their contractual and fiduciary duties to her. The particulars of the defendants’ alleged breaches set forth in the Statement of Claim included, inter alia:
(a) failing to advise Tisi, when she was presented with the Purchase Agreement, that she should sign one particular page in addition to the other signatures she placed on the documents;
(b) not giving a copy of the Purchase Agreement to the Vendor immediately after she had signed and initialed changes to it;
(c) not obtaining the Vendor’s initials to the amendments to the Purchase Agreement made by her; and
(d) not advising the Vendor that she had made certain deletions to the offer the Vendor had signed earlier.
[9] Tisi pleaded that, as result of the defendants’ defaults, she lost her right to purchase the parcel and incurred substantial damages including legal costs, moving costs and the loss of the increased value of the property.
[10] The defendants issued a Third Party Claim against Schmuck and his firm on December 5, 2017, claiming contribution, indemnity and other relief over for any amounts which the defendants may be found owing to Tisi in the main action. The defendants alleged in the Third Party Claim that, as litigation counsel for Tisi, Schmuck had a duty to take the necessary steps to obtain the evidence of the defendants in advance of the hearing of the reciprocal Applications, but he made the decision not to obtain the evidence of the defendants. The defendants alleged that, had the necessary steps been taken by Schmuck to obtain the evidence of the defendants, the court would have known that the Vendor was aware of the contents of the Purchase Agreement at the relevant time and that this would have led to a different decision on the Applications.
[11] The defendants further alleged in the Third Party Claim that third parties owed a duty of care to exercise knowledge, skill, care and expertise in providing reasonable and appropriate advice relating to Tisi’s litigating of the reciprocal applications. The defendant pleaded that if Tisi has incurred any damages for which the defendants have any liability, then any such damages were caused or contributed to by the actions, omissions and negligence of the third parties. Various particulars were provided in a Third Party Claim of the alleged negligence of the third parties, including that they failed to ensure that all appropriate evidence, including the evidence of the defendants, was before the court at the hearing of the reciprocal applications and failed to cross-examine the Vendor with respect to his affidavit evidence in advance of the hearing.
Nature of the Motion and Grounds
[12] The third parties have brought a motion pursuant to rule 21.01(1)(b) for an order striking out the Third Party Claim on the grounds that it discloses no reasonable cause of action. They argue that a third party claim will not lie against another person with respect to an obligation belonging to the plaintiff, which the defendant can raise directly with the plaintiff. They also submit that the plea of the defendants is for a failure to mitigate which arises after the loss had been suffered and relates to conduct unrelated to the cause of the initial loss. The defendants have no claim in law against the third parties for advice given to their client as to how to mitigate the loss caused by the defendants’ own wrong. There cannot therefore be any joint and several liability by the defendants and the third parties for the plaintiff’s loss.
[13] Moreover, the third parties submit that, as lawyers for Tisi, they do not owe any common law duty of care to the defendants, and that, if the defendants have a claim, it could only arise under the Negligence Act R,S,O, 1990, c. N.1, s. 1, of which provides that “where damages have been caused or contributed to by the fault or neglect of two or more persons” a claim for contribution or indemnity may arise. The third parties state that any alleged fault on their part is related to the reduction of the impact of the loss after it was suffered, and not to causing or failing to avoid the loss when it did occur, and accordingly, they are not liable to make contribution and indemnity to the defendants.
Approach to Motions to Strike
[14] The parties do not disagree with respect to the nature of the analysis to be conducted by the court on a motion to strike a pleading under rule 21.01(1)(b). The court must ask whether it is plain and obvious that the claim has no reasonable prospect of success. If so, the claim will be struck. The court must take the facts pleaded as true, unless they are patently ridiculous or manifestly incapable of being proven. The approach must be generous, erring on the side of allowing a novel, but arguable, claim to proceed. (see Paton Estate v. Ontario Lottery and Gaming Corporation, 2016 ONCA 458 (C.A.) at para. 12).
Application of the Negligence Act
[15] The defendants take the position that the third parties are the sole cause of any damages suffered by Tisi and accordingly, pursuant to sections 1 and 5 of the Negligence Act they are wholly responsible for the damages claimed by Tisi and are properly third parties to the action.
[16] Sections 1 and 5 of the Negligence Act provide as follows:
Where damages have been caused or contributed to by the fault or neglect of two or more persons, the court shall determine the degree in which each of such persons is at fault or negligent, and, where two or more persons are found at fault or negligent, they are jointly and severally liable to the person suffering loss or damage for such fault or negligence, but as between themselves, in the absence of any contract express or implied, each is liable to make contribution and indemnify each other in the degree in which they are respectively found to be at fault or negligent.
Wherever it appears that a person not already a party to an action is or may be wholly or partly responsible for the damages claimed, such person may be added as a party defendant to the action upon such terms as are considered just or may be made a third party to the action in the manner prescribed by the rules of court for adding third parties.
Position of the Defendants
[17] The defendants rely upon the case of 478649 Ontario Ltd. v. Corcoran, 1994 CanLII 219 (ON CA), [1994] O.J. No. 2103 (C.A.) in which the Court of Appeal overturned the motions court judge’s decision to strike a third party claim against the solicitors who acted for the plaintiff on the purchase of a parcel of real property. In that case, the plaintiff purchased the property based upon certain representations, which led it to believe that it had a certain value and could be commercially developed, whereas the property was worth significantly less and could not be developed as represented. The plaintiff sued the vendor as well as his real estate agents for misrepresentation. The real estate agents issued a third party claim against the plaintiff’s solicitor, alleging that the solicitor had an opportunity to review the agreement of purchase and sale before it was executed and that he should have taken steps to protect the plaintiff and that, by his negligence, he contributed to any losses for which the real estate agent may be liable to the plaintiff.
[18] The defendants submit that the court in Corcoran found that, if the defendants established at trial that the plaintiff’s damages were caused or contributed to by its solicitors, then under section 1 of the Negligence Act the third party solicitor would be liable to make contribution or indemnity in favour of the defendants. They argue that the third party claim in the present case is analogous to the events described in Corcoran.
Analysis
[19] The resolution of the third parties’ motion to strike depends upon a determination of whether the principles derived from Corcoran apply, or whether a competing line of authority represented by Adams v. Thompson, Berwick, Pratt & Partners, 1987 CanLII 2590 (BC CA), [1987] B.C.J. No. 1388 (B.C.C.A.) and Davy Estate v. Egan (2009) 2009 ONCA 763, 97 O.R. (3d) 401 (C.A.), and cases which follow them, apply.
[20] In Davy, the plaintiff sued the defendants, who were financial advisors to her late father, alleging that they were negligent in accepting her late father’s instructions to transfer certain shares into a joint account that he had with his wife, and in accepting his wife’s instructions to transfer the shares into an account in her own name. The defendants alleged that the plaintiff failed to mitigate her damages as she failed to move for a court order freezing the account after her father’s shares were transferred into the joint account, and in not moving for a freezing order, she acted on the advice of her solicitor. The defendants commenced third-party proceedings against the solicitor alleging that he breached his fiduciary duties and duties of care to the plaintiff by advising her not to obtain a freezing order. Court of Appeal upheld the motions judge’s decision to allow the motion striking the third party claim.
[21] Sharpe, J.A., writing for the court, followed Adams in which the plaintiff property owners claimed in negligence against the defendant engineers for damages flowing from the development of the proposed subdivision of the plaintiffs’ lands. The defendant engineers brought a third party claim against the plaintiffs’ solicitors alleging that they had provided the plaintiffs with negligent advice, and in particular, that they failed to advise the plaintiffs of their duty to mitigate their losses by selling the property at a certain point. McLachlan, J.A. (as she then was), writing for the court, upheld an order striking out the third party claim on the principle that “a third party claim will not lie against another person in respect to an obligation belonging to the plaintiff which the defendant can raise directly against the plaintiff.”
[22] Sharpe, J.A. offered the following observations at paragraph 17 and 18 of Davy:
I agree with the respondent that there is a clear distinction to be drawn between a plea of mitigation in defence to the plaintiff's claim and a claim against a third party who was implicated in the initial loss and is thereby jointly and severally liable for the same loss that the plaintiff claims against the defendant. In the latter situation, the fault of the third party does not have the effect of reducing the damages that the plaintiff may claim against the named defendant. The defendant and the third party are each liable to the plaintiff for the full amount of the loss.
A plea of failure to mitigate is of an entirely different character. Such a plea arises after the loss has been suffered and relates to events or conduct unrelated to the cause of the initial loss. In my view, the defendant has no claim in law against the plaintiff's solicitor for advice given to the plaintiff as to how to mitigate the loss caused by the defendant's own wrong.
[23] At para 20, Sharpe, J.A. stated that, even if the plaintiff relied upon advice from a solicitor that was negligent or given in breach of the solicitor’s fiduciary duty, the solicitor’s fault with respect to mitigating the loss cannot trigger a claim on the part of the defendant under the Negligence Act, for having jointly caused the loss, as the damages have not been “caused or contributed to by the fault or neglect of two or more persons.”
[24] Laskin, J.A. in Corcoran (which was decided before Davy) distinguished Adams on the basis that the pleadings in Corcoran raised the possibility of a claim against the third party for which the plaintiff may not be responsible. Laskin J.A. stated at para 18:
This may not be a case where the fault alleged against the third party is in fact the fault of the plaintiff, but rather a case where the plaintiff may not be responsible for the negligence alleged against this solicitor. While the plaintiff was, as the motions court judge points out, responsible for completing the transaction, what has been put against the solicitor is that he was negligent in failing to give proper advice concerning the agreement of purchase and sale and that his negligence contributed to his client's loss. The plaintiff may be able to say that it acted reasonably in retaining the third party to advise it on the terms of the agreement and accordingly should not be responsible for any negligence on the part of its solicitor.
[25] Sharpe, J.A., in Davy, distinguished Corcoran on the basis that where third party claims are allowed to proceed they, as was the case in Corcoran, involve claims for contribution and indemnity against the party alleged to have been implicated in the events giving rise to the initial loss. At paras. 22 and 23 he stated as follows:
The decision of this court in 478649 Ontario Ltd. v. Corcoran (1994), 1994 CanLII 219 (ON CA), 20 O.R. (3d) 28 (Ont. C.A.), where a third party claim against the plaintiff's solicitor was allowed, is distinguishable. In Corcoran, the plaintiff sued the vendor and a real estate agent for negligent misrepresentations in relation to the purchase of a commercial property. In their third party claim against the plaintiff's solicitors, the defendant alleged that the solicitors had been negligent in reviewing the agreement of purchase and sale and failing to protect the interests of the plaintiff. That was not a plea in mitigation of damages that the defendants could advance against the plaintiff but rather an allegation that the solicitors were implicated in the very events that gave rise to the loss and were jointly and severally liable to the plaintiff for any loss suffered. As the plaintiff had not sued the solicitors, the only way the defendants could protect their position and avoid being held liable for the entire loss was to claim contribution and indemnity from the solicitors.
The cases cited by the appellants where third party claims were allowed to proceed, like Corcoran, involve claims of this nature. That is, they are claims for contribution and indemnity against a party alleged to have been implicated in the events giving rise to the initial loss and who is thereby jointly and severally liable with the defendant for the entire loss.
[26] Sharpe J.A. went on to make reference to the Court’s decision in Macchi S.P.A. v. New Solution Extrusion Inc., 2008 ONCA 586 (C.A.) in which the distinction between Adams and Corcoran was affirmed.
[27] The fact that the principles in Corcoran allowing third party claims to stand, are restricted to situations where the third-party is alleged to have participated in the events giving rise to the initial loss and where there is the possibility of a claim against the third party for which the plaintiff may not be responsible was recently reaffirmed in Hengeveld v. The Personal Insurance Company, 2018 ONSC 4712 (S.C.J.).
[28] At paragraph 24 of Hengeveld, McArthur, J. noted that, in situations where the plaintiff is responsible, third-party claims are unnecessary since the defendant could plead those matters in defence and, if the plaintiff was found at fault, damages would be reduced. Any neglect on the part of the solicitors would be attributable to the plaintiff and make a third party proceeding unnecessary.
[29] At paragraph 31 McArthur, J. stated as follows:
In this case, neither of the third party defendants as counsel were persons involved in the initial loss to the plaintiffs. Any the (sic) conduct by the third party defendants, as counsel, falls within the scope of counsels' retainer. The pleadings do not and could not disclose events involving the third party defendants giving rise to the initial loss. Any allegation by the defendant against these counsel amounts to a failure to protect the interests of the plaintiffs. The obligation to act to protect plaintiff only belongs to the plaintiff. This makes the Third Party Claim unnecessary in this case.
[30] To similar effect, Master Short, in distinguishing Corcoran in Ureten Consulting Inc. v. Ureten, 2009 CarswellOnt 7010 (Ont. Master), stated as follows at para. 30:
While a master must be very cautious in appearing not to follow the guidance of the Court of Appeal, I believe that Corcoran can be distinguished by virtue of the fact that it was the solicitor that, being one of the participants in the transaction at the time, the damages were incurred, who was permitted to be added as a third party. In the case before me, the solicitor's alleged negligence flows from an entirely separate event - his provision of litigation services.
[31] I am unable to accept the position of the defendants that the initial loss for the purpose of the analysis in the present case, was the finding by Maddalena, J. that the parties had not entered into a binding Purchase Agreement and that therefore the third parties were implicated in the initial loss. In my view, the initial loss arose from the fact that the transaction did not close due to issues with the Purchase Agreement. The damages claimed by Tisi in the Statement of Claim flow from the failure of the transaction to close, not from the disposition of the reciprocal applications.
[32] Contrary to the defendant’s submissions, the third parties were involved in attempting to mitigate the impact on Tisi of the initial loss, being the failure of the transaction to close, by providing litigation services to her in prosecuting her application for specific performance of the Purchase Agreement or damages in the alternative. “Mitigate” for this purpose has its ordinary meaning of “make less severe, serious or painful” (see Concise Oxford English Dictionary (11th ed. Revised)).
[33] It is noted that the defendants, in the Statement of Defence, alleged that the plaintiff Tisi was responsible for the decision of litigation counsel (the third parties) not to obtain the evidence of the defendants and is therefore contributorily negligent. They also pleaded that Tisi failed to take proper or adequate steps to mitigate any damage which she may have suffered.
[34] On the basis of the foregoing, I find that the principles in Adams and Davy apply, rather than the principles in Corcoran. The third parties cannot be implicated in the events giving rise to the initial loss and the plaintiff is responsible for the manner in which the subsequent litigation was conducted. The third-party claim is unnecessary, as the defendants could plead, and have pleaded, those matters in defence to the action.
Disposition
[35] The motion is therefore allowed and the third party claim is struck for failure to disclose a reasonable cause of action.
Costs
[36] In accordance with the agreement of counsel, the defendants shall pay costs, jointly and severally, to the third parties in the sum of $7,500.00 all inclusive, within 30 days hereof.
D.A. Broad
Date: September 10, 2018