Court File and Parties

COURT FILE NO.: CV-13-483510-00A1 DATE: 2018 0925 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

CANADIAN NATIONAL RAILWAY COMPANY Plaintiff – and – CROSSLINK BRIDGE CORP., ANDREW PENUVCHEV, ZORAN COCOVSKI ALSO KNOWN AS ZORAN COCOV and the law firm THOMPSON DYMOND Defendants/Responding Parties

No one appearing for the Plaintiff Milton A. Davis, Ronald D. Davis and Samantha Green, for the Defendants/Responding Parties Crosslink Bridge Corp. and Andrew Penuvchev No one appearing for the Defendants Zoran Cocovski and Thompson Dymond

– and –

MCMILLAN LLP, PHILIP THOMPSON and MARSSA GIAHI Third Parties/Moving Parties

Peter Osborne, for the Third Party/Moving Party McMillan LLP Michael Kestenberg and David Lipkus, for the Third Parties/Moving Parties Philip Thompson and Marssa Giahi

HEARD: April 17, 18 and 23, 2018

REASONS FOR JUDGMENT

DIETRICH J.

Overview

[1] The third party solicitors McMillan LLP, Philip Thompson and Marssa Giahi bring this motion seeking a dismissal of the claims brought against them by the defendants Crosslink Bridge Corp. (“Crosslink”) and its director and shareholder Andrew Penuvchev.

[2] These defendants claim negligence on the part of McMillan, and of Mr. Thompson and Ms. Giahi, while acting consecutively, as solicitors for the defendant Crosslink in a real estate transaction involving contaminated former railway lands. In particular, it is alleged that each of McMillan and the other lawyers owed their client, Crosslink, a duty to warn of the risk associated with closing the transaction. The defendants seek damages equal to the whole of the costs associated with the purchase of the subject property including all expenses paid following the purchase.

[3] McMillan was retained on the transaction from May 2006 until June of 2008. Mr. Thompson and Ms. Giahi were retained, on the closing of the transaction, from September 2008 to November 2008.

[4] The solicitors deny that they were negligent and submit that their respective retainers did not give rise to a duty to warn in the unique circumstances of the retainer. In addition to their denials of negligence, the solicitors also pleaded that the applicable limitation periods had expired before these third party claims were brought against them.

[5] The subject property was a 44-acre former railway yard in Niagara Falls, Ontario, formerly owned by Canadian National Railway (“CN”). There is no dispute that CN disclosed to the two principals of Crosslink, namely Dr. Penuvchev and Zoran Cocov, the fact that the soil was contaminated. This disclosure was made from the time of their first inquiries of CN about the property.

[6] There is also no dispute that a Certificate of Requirement, referring to an order of the director of the Ministry of the Environment, was registered on title to the property as Instrument Number SN 148138 on December 21, 2006. The director’s order required CN to make potential purchasers aware of environmental contaminants on the property. CN made full disclosure to Crosslink by providing to it all relevant existing reports and studies in its possession pertaining to the property.

Issues

[7] The issues in this matter are as follows:

1. Is a motion for summary judgment appropriate in this case?
2. If so, were the solicitors negligent in the services they provided to Crosslink?
3. Is so, are the third party claims made by Crosslink and Dr. Penuvchev barred by the expiration of the applicable limitation periods?

Factual Background

McMillan’s retainer

[8] McMillan was retained by Crosslink to represent it in a proposed purchase of the property from CN. For Crosslink’s purposes, the property would need to be rezoned from industrial to commercial.

[9] Dr. Penuvchev and Mr. Cocov were the directors of Crosslink. Mr. Cocov was a licensed real estate agent with experience in property development including the purchase of contaminated railway lands. Dr. Penuvchev was a dentist with no property development experience. He relied throughout on Mr. Cocov and his real estate development experience.

[10] When Crosslink retained McMillan, its principals had already had discussions and negotiations with representatives of CN regarding the proposed purchase. The CN representatives had provided them with a template agreement of purchase and sale. The template contained clauses reflecting the purchasers’ agreement to accept the property on an “as is” basis in respect of the contaminants.

[11] An associate at McMillan, James Weber, conducted a title search and reviewed and commented on the template agreement provided by the clients. On January 21, 2007 he sent Dr. Penuvchev an email enclosing proposed black lined amendments to the agreement. He drew to the client’s attention a number of “notes to draft” that required discussion, including one on environmental due diligence. He asked the client to call to discuss those matters. In his email, Mr. Weber also confirmed that McMillan had not conducted any due diligence in connection with the property and recommended that all encumbrances be reviewed prior to executing the agreement.

[12] In reply to Mr. Weber’s email, Mr. Cocov provided comments on the draft agreement. A subsequent call was held among Dr. Penuvchev, Mr. Cocov and Mr. Weber, following which Mr. Weber sent a revised draft of the agreement to the client on February 20, 2007. All the notes to draft had been removed. McMillan had no further involvement in making comments or changes to any draft agreement to purchase the property.

[13] During the period that McMillan was retained, Crosslink conducted its own due diligence on the property unbeknownst to McMillan. On March 23, 2007, after CN and Dr. Penuvchev signed a non-disclosure agreement, CN delivered to Dr. Penuvchev a letter and a box of documents containing environmental reports on the property. A copy of the Certificate of Requirement, referring to the director’s order, was included in the disclosure. The disclosure also included a Record of Site Condition dated August 2, 2002, which clearly stated that environmental restoration was required in order to meet industrial commercial land use requirements. A “Preliminary Generic Risk Management Plan”, which outlined several potential remediation options and indicated that remediation was necessary in order to utilize the property for commercial purposes, was also included. This report described the option of encapsulating all of the contaminated soil on the property. None of these disclosure documents were ever provided to McMillan by Dr. Penuvchev or Mr. Cocov.

[14] On April 3, 2007, Mr. Cocov sent an email to CN confirming that the environmental reports had been approved.

[15] Between April and July 2007, Crosslink continued to negotiate the purchase of the property directly with CN. McMillan was not involved in or copied on any of the correspondence relating to the negotiations.

[16] On July 16, 2007 Dr. Penuvchev signed an agreement of purchase and sale on behalf of Crosslink, which came to be known as the first agreement. The first agreement was materially different than the black line draft agreement which McMillan had provided to Crosslink. Crosslink had negotiated the first agreement with CN directly and McMillan had provided no advice on it.

[17] Following the execution of the first agreement, CN provided the environmental disclosure to Mr. Cocov a second time.

[18] In January 2008, Crosslink obtained a copy of a report from RCI Consulting regarding the use of the property by the City of Niagara Falls. It stated that the property was not feasibly capable of being remediated to the level required for residential use.

[19] Crosslink and CN entered into a number of extension agreements to the first agreement to allow more time for due diligence. McMillan had no involvement with these agreements. When the final extension agreement expired on March 21, 2008, and CN declined to offer a further extension, the first agreement expired because the conditions were never fulfilled.

[20] Crosslink was keen to acquire the property and on March 31, 2008, Mr. Cocov wrote to CN offering to waive all of the conditions and to close on June 5, 2008.

[21] In mid-April 2008, Mr. Cocov contacted Mr. Opashinov of McMillan and let him know that CN had refused to extend the time for closing the first agreement and that Crosslink had discovered problems with the property that made it more difficult to develop. Specifically, the property was not capable of being remediated to the level required for residential use.

[22] As part of its own due diligence, Crosslink provided the environmental disclosure to its planning consultant in Niagara Falls, Rick Brady. Mr. Brady reviewed and approved the environmental disclosure and advised Crosslink that the property was suitable for its intended purpose, being commercial development.

[23] Crosslink was then focused on rezoning the property from industrial to commercial and not on environmental issues. At this time, Mr. Cocov was seeking McMillan’s advice regarding CN’s alleged bad faith and its ability to get out of the deal.

[24] Mr. Cocov contacted McMillan again on April 23, 2008 to ask David Slan of that firm to find out whether CN had listed the property for sale. In this email request he referred to Crosslink’s latest offer from CN but told Mr. Slan that it was irrelevant and not necessary for him to review at that time because there was no executed agreement. Apart from this reference, McMillan had no knowledge of a potential fresh offer from CN or a subsequent agreement, which came to be known as the second agreement.

[25] Unbeknownst to McMillan, on May 21, 2008, Crosslink had entered into the second agreement: a binding, unconditional purchase and sale agreement, which was subsequently amended. This agreement was materially different than the draft reviewed by McMillan. The second agreement included a vendor take back mortgage in favour of CN, personal guarantees of Dr. Penuvchev and Mr. Cocov and Crosslink’s agreement to indemnify CN in respect of all costs and claims arising from the condition of the property, among other things.

[26] Crosslink paid CN a non-refundable deposit of $2 million in advance of closing the second agreement.

[27] Schedule B of the second agreement emphasized that the vendor, CN, gave no warranty covering use of the property; the purchaser had received full disclosure of the environmental issues and had fully satisfied itself; and the purchaser was accepting the property on an “as is” basis.

[28] In June 2008, Dr. Penuvchev and Mr. Cocov objected to the ongoing cost of McMillan’s services and terminated Crosslink’s retainer of McMillan.

[29] Subsequently, Mr. Opashinov of McMillan did, from time to time, advise or communicate with Crosslink with respect to other matters, including a unanimous shareholders’ agreement and a possible acquisition of land adjacent to the property and a bridge.

Mr. Thompson and Ms. Giahi’s retainer to close the transaction

[30] Having terminated its retainer with McMillan, Crosslink decided to retain Mr. Thompson to close the deal made by the second agreement. The initial written communication to Mr. Thompson’s office came from Dr. Penuvchev’s spouse, Vera Penuvchev, on September 24, 2008. To her email, Mrs. Penuvchev attached a copy of the second agreement. Mrs. Penuvchev expressed some concern about CN having an “out clause” and “street access???” She also requested an estimate of the “closing costs on this agreement.”

[31] Mr. Thompson provided an estimate of $5,000 to do the conveyancing work to close the transaction. He advised that the work would be performed by an associate, Ms. Giahi. The retainer was agreed on this basis on or about October 9, 2008.

[32] Ms. Giahi conducted a title search to determine if there were any new registrations going to the root of the title since the agreement had been executed and found none. She did, however, detect the Certificate referring to the director’s order on title.

[33] On October 29, 2008, Ms. Giahi emailed Dr. Penuvchev and Mr. Cocov confirming that the title search had been done and that a notice of contaminants had been registered on title pursuant to the director’s order. She specifically inquired as to whether Crosslink had received a copy of the order from CN. She got no reply.

[34] On October 30, 2008, Ms. Giahi wrote to CN’s lawyer Joseph Debono and asked that a copy of the director’s order be sent to her office if it had not already been provided to Crosslink. Ms. Giahi sent a copy of her letter addressed to Mr. Debono to Dr. Penuvchev and Mr. Cocov the same day. She got no response from the client. Mr. Debono responded by email on November 17, 2008 to ask whether Crosslink had received a copy of the director’s order.

[35] On November 4, 2008, Ms. Giahi followed up with the client again seeking a reply to her October 29, 2008 email, to no avail. On November 12, 2008, Ms. Giahi sent an email to Dr. Penuvchev seeking a response to her October 29, 2008 email. Dr. Penuvchev forwarded Ms. Giahi’s email to Mrs. Penuvchev. Ms. Giahi got no response and followed up with Mrs. Penuvchev directly seeking a reply to the October 29, 2008 email.

[36] On November 28, 2008, Ms. Giahi closed the deal on behalf of Crosslink and title to the property was registered to Crosslink.

Events following the closing

[37] Following the purchase, Crosslink was successful in rezoning the property from industrial to commercial. In December 2009, it obtained a report from Frontier Engineering that outlined and listed the contaminants on the property. Crosslink’s efforts to obtain financing from the Business Development Bank of Canada to develop the property failed owing to environmental concerns raised in the Frontier Engineering report.

[38] The events subsequent to the closing of the second agreement gradually worsened for Dr. Penuvchev. By December 2010, a shareholders’ dispute had arisen between Mr. Cocov and him. He would come to regret the fact that he had never read the environmental disclosure provided to Crosslink by CN in 2007.

[39] By 2012, Dr. Penuvchev was the sole director and shareholder of Crosslink and he tried to sell the property. In the course of doing so, he read the director’s order. When a potential purchaser, Metrolinx, was provided with the environmental disclosure, it retained its own expert who opined that remediation of the property to pristine “residential” condition, which they required (as opposed to “commercial” condition), would cost between $12.4 and $19.1 million.

[40] Dr. Penuvchev then decided that Crosslink “no longer wished to hold the property” and it defaulted on its vendor take back mortgage with CN.

[41] In February 2013, Crosslink brought a rescission application in this court pursuant to s. 197(4) of the Environmental Protection Act, R.S.O. 1990, c. E.19 on the basis that CN had failed to provide Crosslink with a copy of the director’s order.

[42] The application was dismissed on October 24, 2013: Crosslink Bridge Corp. v. Canadian National Railway Co., [2013] O.J. No. 4855, 2013 ONSC 6540. The following findings of fact regarding Crosslink’s knowledge of the environmental issues underpinned the dismissal:

(a) Dr. Penuvchev was provided with the environmental disclosure by CN in March 2007 including information on the environmental condition of the property and the director’s order; (b) The director’s order refers to six environmental reports, all of which were included in the March 2007 disclosure by CN to Crosslink; (c) Dr. Penuvchev and Mr. Cocov did not read the environmental disclosure; and (d) In the second agreement that closed, Crosslink acknowledged that CN had delivered all environmental reports in its possession relating to the property and Crosslink had conclusively waived all requisitions concerning any matters relating to the property and accepted full responsibility for it.

[43] Crosslink appealed and in Crosslink Bridge Corp. v. Canadian National Railway Co., [2014] O.J. No. 1504, 2014 ONCA 247 (Ont. C.A.) ( Crosslink Appeal ), the Court of Appeal upheld the dismissal ruling, in part, at paras. 11–13, that:

… the [environmental disclosure] contained very detailed information relating to the environmental problems for this property. It would have been apparent to Crosslink from the documents it admits receiving that there were serious problems with the property.

… In our view, it was open to the trial judge to consider all of the evidence from which it could be inferred that CN had, at some point prior to the transfer of title, given Crosslink a copy of the Director’s Order …

In our view, those facts provided a sufficient evidentiary record to support the application judge’s finding that CN had given Crosslink a copy of the Director’s Order.

[44] During the course of Crosslink’s appeal, CN commenced the within action against Crosslink, Dr. Penuvchev and Mr. Cocov on the vendor take back mortgage payments, the personal guarantees and the indemnities. The third party actions were commenced by the defendants Crosslink and Dr. Penuvchev in May 2014.

Issue 1: Is a motion for summary judgment appropriate in this case?

[45] Rule 20.04(2)(a) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 provides that the court shall grant summary judgment if it is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence. The Supreme Court in Hryniak v. Mauldin, 2014 SCC 7 held at para. 49:

There will be no genuine issue requiring a trial when the judge is able to reach a fair and just determination on the merits on a motion for summary judgment. This will be the case when the process (1) allows the judge to make the necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to achieve a just result.

[46] A responding party may not rest solely on the allegations or denials in its pleadings, but “must set out, in affidavit material or other evidence, specific facts showing that there is a genuine issue requiring a trial.” Each side must “put its best foot forward” with respect to the existence or non-existence of material issues to be tried. A court is entitled to assume that the record contains all the evidence that the parties would present if the matter proceeded to trial: Sweda Farms Ltd. v. Egg Farmers of Ontario, 2014 ONSC 1200 (ONSC) at paras. 26-27; aff’d 2014 ONCA 878 (Ont. C.A.).

[47] The court should first determine if there is a genuine issue requiring trial based only on the evidence in the motion record, without using the fact-finding powers set out in rule 20.04(2.1) and (2.2). The analysis of whether there is a genuine issue requiring a trial should be done by reviewing the factual record and granting summary judgment if there is sufficient evidence to fairly and justly adjudicate the dispute and summary judgment would be a timely, affordable and proportionate procedure.

[48] If there appears to be a genuine issue requiring a trial, then the court should determine if the need for a trial can be avoided by using the fact-finding powers under rule 20.04. Their use will not be against the interest of justice if it will lead to a fair and just result and will serve the goals of timeliness, affordability and proportionality in light of the litigation as a whole.

[49] Many of the essential facts in this case are undisputed. Where an issue is contested, I am satisfied that, from the record and the submissions of counsel, the court is able to make the necessary findings of fact, apply the law to the facts and achieve a just result without the need for a trial.

[50] In this case, the third parties have met their burden to prove that there is no genuine issue to be tried on liability. The particular circumstances of each retainer make it quite clear that the defendants did not rely on either McMillan or Mr. Thompson and Ms. Giahi in their decision to accept the environmental risk associated with the property. Furthermore, the claims against the third parties are statute barred.

[51] Based on the record and the fact-finding powers available to the court, there is sufficient evidence before it to fairly and justly adjudicate the dispute. Summary judgment is a timely, affordable and proportionate procedure in this case.

Issue 2: Were the solicitors negligent in the services they provided to Crosslink?

[52] The record shows that the respective retainers of McMillan, initially, and of Mr. Thompson and Ms. Giahi, subsequently, with respect to the purchase and closing of the property, were with Crosslink, the corporation. The lawyers were not retained by either Dr. Penuvchev or Mr. Cocov, personally, and no duty of care was owed to either of them personally.

[53] Crosslink and Dr. Penuvchev submit that McMillan, Mr. Thompson and Ms. Giahi were negligent and breached their duty of care to their client. Specifically, they submit that none of the lawyers advised Crosslink of the environmental risk associated with the property; and, had they done so, Crosslink would not have purchased it. Crosslink and Dr. Penuvchev include in this duty of care a further and distinct duty to warn the client purchaser of the consequences of closing the transaction. In the case of Mr. Thompson and Ms. Giahi, it is alleged that the duty to warn arises notwithstanding that the second agreement had already been fully negotiated by Crosslink and the lawyers were retained to simply close the transaction.

[54] Crosslink and Dr. Penuvchev rely on the expert reports of Reuben Rosenblatt Q.C. to support of their claims that each of the third parties was negligent. He prepared a report regarding McMillan’s services and a second report regarding the services of Mr. Thompson and Ms. Giahi.

[55] To prove negligence on the part of the lawyers, Crosslink must demonstrate that: i) there was a duty of care; ii) there was a breach of the duty of care; iii) damages flowed from the breach; and iv) the breach caused the damages: Pilotte v. Gilbert, Wright & Kirby Barristers and Solicitors, 2016 ONSC 494 ( Pilotte ). In the case at bar, the burden is on Crosslink and Dr. Penuvchev to prove that the lawyers were retained to perform the services alleged and that they failed to meet the standard of care of a reasonable lawyer in those circumstances: Danos v. BMW Group Financial Services Canada et al., 2014 ONSC 2060 at paras. 21-23.

[56] The surrounding circumstances particular to each case are crucial in the determination of a solicitor’s standard of care and his or her corresponding liability. In evaluating the standard of care, courts consider factors such as the specific task for which the solicitor was retained and the client’s instructions to the solicitor in fulfilling that task: Brockville Investments Ltd. v. Kertzer, [2004] O.J. No. 3769 at para. 52.

[57] For the reasons that follow, I find that Crosslink and Dr. Penuvchev have not met their burden.

Liability of McMillan

[58] The court takes notice that an environmental issue regarding a parcel of land would be top of mind and of utmost concern to a purchaser’s solicitor in almost any retainer. A duty to advise the client on such an issue and to seek instructions in that regard would be considered elementary, and a failure to do so would constitute solicitor’s negligence.

[59] The difficulty with the submissions of Crosslink and Dr. Penuvchev is that the duty to warn of the consequences presupposes that the solicitor is provided with the tools and instructions which would enable him or her to take steps to measure and define the scope of the risk. A careful review of the facts of this case clearly demonstrates that none of McMillan, Mr. Thompson or Ms. Giahi was given instructions or resources to attempt to measure or define the scope of the remediation costs. Indeed, the CN disclosure documents, which had been provided to Crosslink, were never provided to any of them.

[60] Mr. Weber, of McMillan, searched the title to the property on January 2, 2007 and the registration of the Certificate of Requirement from the Ministry of the Environment was reflected on the parcel register. On January 22, 2007, well before the first agreement was signed, Mr. Weber specifically cautioned the client in a “note to draft” on the amended draft agreement he sent to Crosslink that the matter of environmental due diligence required further discussion. He also recommended that all permitted encumbrances be reviewed prior to executing the agreement and confirmed that McMillan had not conducted any due diligence in connection with the property. The record shows that following Mr. Weber’s advice, a conference call was held among Mr. Weber, Dr. Penuvchev and Mr. Cocov to discuss Mr. Cocov’s comments on Mr. Weber’s draft. Subsequent to that call, on February 20, 2007, Mr. Weber sent the client a revised draft of the agreement, containing no notes to draft. It is reasonable to infer that Mr. Weber discussed environmental due diligence, including the related encumbrance on title, with the client and that he was instructed to proceed to amend the CN template agreement provided to him without conducting any due diligence himself.

[61] This conclusion is consistent with Mr. Cocov’s evidence that his primary concern was to lock up the property with CN to deter other potential purchasers. The terms, other than price, were not important so long as Crosslink had a conditional period to conduct its due diligence. Mr. Cocov deposed that he had experience with commercial purchase agreements and understood that Crosslink was buying the property “as is”, including the condition of the soil.

[62] There is no evidence before the court to suggest that Crosslink ever authorized McMillan to take any step to measure the environmental risk. It is undisputed that none of the disclosure documents provided by CN were ever provided to McMillan by Dr. Penuvchev or Mr. Cocov.

[63] Dr. Penuvchev deposed that he never read any of the disclosure documents and that he relied on Mr. Cocov to interpret and approve the disclosure. Mr. Cocov deposed that he had provided the reports to his planning consultant, Rick Brady, and that he did not read the disclosure documents. Notwithstanding that Dr. Penuvchev and Mr. Cocov testified that they had not read the documents, I am bound to defer to the Court of Appeal’s finding that they had been given a copy of the director’s order prior to the transfer of title: Crosslink Appeal at para. 13. Mr. Cocov deposed that he had signed off on the environmental disclosure knowing that Dr. Penuvchev had not read the reports and without even consulting McMillan.

[64] Mr. Cocov admitted on cross-examination that he did not rely on McMillan for advice regarding the contamination because representatives of CN, namely, Richard Paton and Andris Baders, had told him the extent of the contamination and the need for remediation. He deposed that it was not an important factor to him at the time the agreement was being negotiated.

[65] Dr. Penuvchev deposed that following Mr. Weber’s involvement, material changes were made to the agreement that Mr. Weber had proposed and that CN and Mr. Cocov were negotiating those changes directly. These changes resulted in the first agreement that was ultimately signed by Dr. Penuvchev. He deposed that due to pressure from CN and fear of losing the property, on July 16, 2007, he signed the first agreement that contained none of the provisions that had been recommended by McMillan on behalf of Crosslink, including a scaling back of the indemnity that Crosslink would give CN. It is Dr. Penuvchev’s evidence that McMillan did not comment on the first agreement before he signed it. He deposed that he had reviewed the first agreement with Mr. Cocov only.

[66] The first agreement did not close. McMillan never saw any drafts of or provided any advice on the second agreement with CN, which was executed on May 21, 2008, and eventually closed with the assistance of Mr. Thompson and Ms. Giahi.

[67] Crosslink ended its retainer of McMillan in June of 2008, weeks after the second agreement had been executed and in respect of which McMillan played no part. Subsequently, Mr. Opashinov of that firm did, from time to time, advise or communicate with Crosslink with respect to other matters. It did not, however, have any further involvement regarding the purchase of the 44-acre property from CN, generally, or the second agreement, specifically. Based on the record, the only communication after June 2008 regarding the property involved a valuation of it for the purposes of drafting a shareholders’ agreement.

[68] Mr. Opashinov denies having anything to do with the second agreement, but Crosslink submits that he did receive a signed copy of it. Crosslink concedes that Mr. Opashinov did not negotiate the second agreement. Based on the record, I find that Mr. Opashinov did receive a copy of the second agreement, once it had been signed, but McMillan had no part in its negotiation. The agreement was provided to McMillan to assist Mr. Opashinov in his work relating to the potential purchase by Crosslink of adjacent property and to a shareholders’ agreement for Crosslink. Neither the second agreement nor the environmental disclosure from CN were ever provided to McMillan. In the result, I conclude that McMillan was never consulted or asked to advise on the director’s order on title or any of the provisions of the second agreement.

[69] The facts in this case are remarkably similar to the facts found in 6038212 Canada Inc. v. 1230367 Ontario Ltd., 2013 ONSC 3022; aff’d 2014 ONCA 415. In that case, the purchaser of commercial land brought a third party claim against its solicitor, claiming that it was unaware of the extent of the contamination of the purchased land and that its solicitor failed to warn it of the contamination. The Court of Appeal held, at para. 9, that in in the face of the finding that the purchaser knew about the contamination, there was no basis for its claim against its solicitor. Further, the solicitor argued that it was the purchaser’s decision not to obtain an environmental assessment and to incorporate the contamination as a factor in the purchase price. The purchaser knew that obtaining an assessment was its obligation under the agreement but never instructed its solicitor to undertake the environmental searches. In that case, it was evident that the client’s decision to go ahead with the purchase was a business decision and not one that relied upon the solicitor’s advice. Based on the evidence before the court, the same conclusion can fairly be reached in the case at bar.

[70] The matter of client instructions to a solicitor was reviewed in Duncan v. Cuelenaere, Beaubier, Walters et al, [1986] S.J. 780, [1987] 2 W.W.R. 379 (Sask. Q.B.). There, the court noted, at para. 7, that the test for solicitor’s negligence involves consideration of such circumstances as the form and nature of the client’s instructions, the specificity of those instructions, the nature of the assignment and the sophistication of the client. In the case at bar, the client’s omission, in failing to provide to McMillan the environmental disclosure given to it by CN, and failing to give McMillan any instructions in that regard, is in my view fatal to the claim on its own. Without access to this information, a duty to warn cannot reasonably be imposed on the solicitors.

[71] McMillan was not included in discussions that Crosslink continued to have directly with CN on the environmental issues and had no knowledge of those discussions. In Lau v. Ogilvie, 2010 BCSC 1589 ( Lau ), the court placed significant weight on the fact that the plaintiff was experienced in buying and selling real estate for development purposes in finding that the solicitor was not negligent in drafting an agreement to effect a deal cut by the parties through their own bargaining (see para. 49).

[72] In Pilotte, it was noted, at para. 49, referring to the statement by Brown J. in Singer v. Lipman Zener Waxman LLP, [2014] O.J. No. 4538, that a lawyer’s conduct is adjudged in light of circumstances such as the nature of the client’s instructions and the sophistication of the client. Mr. Cocov’s sophistication is manifest. He was a real estate agent with a wealth of experience in land development, including contaminated former railway lands, which he had purchased in the past. His own evidence is that he did not consult McMillan on the environmental issues relating to the property and that these issues were not important to him when the agreements were being negotiated.

[73] In short, McMillan fulfilled its initial duty of care to advise of the encumbrance relating to environmental issues and the need to review all permitted encumbrances (which included the Certificate of Requirement) prior to executing an agreement of purchase and sale. Instructions to proceed to measure the risk, which would presumably have moved the duty to advise forward to a duty to warn of the consequences of closing, were simply never given.

[74] The claim against McMillan sounds in negligence. Crosslink and Dr. Penuvchev argue that McMillan breached its duty of care by not warning its client legal of the risk in purchasing the property subject to a remediation order. Crosslink and Dr. Penuvchev take the position that had the warning been given the property would not have been purchased. The court finds this position to be without foundation. McMillan was never tasked with preparing an opinion on such a risk. Crosslink acted on its own in direct communication with CN and, intentionally and expressly, did not involve McMillan in these discussions.

[75] In the result, I find that throughout McMillan’s involvement as solicitors for Crosslink on the purchase of the property their role did not extend to investigation of the risk inherent in the environmental remediation order. Moreover, the client pursued the purchase without following McMillan’s advice on other aspects of the initial draft agreement of purchase and sale. McMillan’s services were terminated in June 2008 without any involvement whatsoever in the drafting or execution of the second agreement of purchase and sale. Without any legal role in the matter of the second agreement no duty of care can arise.

Liability of Mr. Thompson and Ms. Giahi

[76] The retainer of Mr. Thompson and Ms. Giahi was restricted to closing an already executed agreement. Crosslink sought no advice from them with regard to any environmental issue. No mention of any environmental concern was made by Crosslink during the retainer process. This is not surprising given that Crosslink had months earlier agreed to purchase the property on an “as is” basis.

[77] Mr. Thompson testified that he was advised by Dr. Penuvchev in a telephone call, at the outset of the retainer, that all due diligence had been previously completed. The only required work was: handling the conveyance to transfer title to Crosslink; determining whether there were any subsequent registrations on title following the second agreement; handling the mortgage to be arranged by Crosslink; and handling any required amendments to the second agreement.

[78] The record shows that a telephone conversation did take place between Mr. Thompson and Dr. Penuvchev on September 24, 2008 when Crosslink first contacted Mr. Thompson about the retainer. What was discussed between them was not memorialized by either, according to the record. However, what is clear is that the second agreement had been negotiated by Crosslink and signed by them before they ever retained Mr. Thompson. There was no longer any opportunity for due diligence because the second agreement did not provide for any due diligence period.

[79] The evidence is compelling that Mr. Thompson and Ms. Giahi had a limited retainer. They had no retainer to investigate, measure or define the risk associated with the director’s order registered on title. Crosslink’s submission that they nevertheless had a duty to warn has no support in the facts.

[80] The evidence is overwhelming that Crosslink was well aware of the level of contamination of the property by 2007 and that this awareness was not a deterrent to purchasing the property. Both Dr. Penuvchev and Mr. Cocov were aware of the contamination because CN had apprised them of it. Mr. Cocov had previously purchased contaminated railway lands from Canadian Pacific and he understood that remediation was required to develop the property.

[81] Even if Mr. Cocov and Dr. Penuvchev had never read the director’s order themselves, they had sought the advice of their environmental consultant, Mr. Brady, to whom they provided the disclosure documents given to them by CN. They relied on Mr. Brady’s advice that the land was suitable for their intended purpose.

[82] When Mrs. Penuvchev first contacted Mr. Thompson, she expressed concern that the second agreement may offer CN a means to get out of the deal. Crosslink was not then looking for an out itself. On the contrary, Crosslink was focused on zoning and financing and moving toward a closing. In the case of Gunraj v. Cyr, [2012] O.J. No. 1057 (ONSC), on which Crosslink and Dr. Penuvchev seek to rely, it was found that the clients who were parties to the transaction did not understand that they had options other than to close. However, in the case at bar, Crosslink had negotiated and signed a binding agreement. It was not looking to resile from the agreement that it had negotiated without the benefit of legal advice and it was not seeking advice on options to avoid a closing.

[83] The evidence is fully consistent that Mr. Thompson and Ms. Giahi were hired on a limited and specific retainer to close the transaction. Like McMillan, they were not given the environmental reports provided by CN or any other tools that would allow them to warn Crosslink of the risk associated with the environmental condition of the property. Further, they were not hired to give legal advice on the done deal or the environmental issues affecting the property. The agreement of purchase and sale had been fully negotiated and executed by Crosslink long before its retainer of Mr. Thompson and Ms. Giahi. The client had accepted the property, including all registrations on title prior to executing the second agreement, having had full disclosure of the environmental problems associated with the property.

[84] Notwithstanding that the limited retainer did not require her to do so, Ms. Giahi prudently conducted a more comprehensive title search and discovered the director’s order, which had been registered on title since December 21, 2006. Ms. Giahi brought this matter to the attention of the client and was persistent in her follow up for instructions on the point. In an effort to ensure that the client had been made aware of the director’s order, she followed up with the client no less than four times between October 30, 2008 and November 12, 2008.

[85] It is Ms. Giahi’s evidence that she was finally contacted by Crosslink by phone and was instructed not to obtain a copy of the director’s order. She deposed that she then made a note of “ok” on her checklist next to this item, which action was consistent with her standard practice for acknowledging receipt of client instructions. Crosslink and Dr. Penuvchev challenge Ms. Giahi’s testimony on this point as she could not recall exactly to whom she allegedly spoke when she was told not to pursue the director’s order. I have no hesitation in accepting Ms. Giahi’s evidence on this point. It is completely consistent with the position taken by Dr. Penuvchev and Mr. Cocov throughout their dealings with CN. That is, they had satisfied themselves on the environmental risk. The reason that Dr. Penuvchev gives for not responding to Ms. Giahi’s requests for instructions is that they were focused on other things, namely, financing. The environmental issues were never top of mind for Crosslink.

[86] In Lau, the plaintiff alleged that the solicitor’s negotiating, drafting and settling of an agreement was negligent. The defendant solicitor argued that he was not instructed to do anything other than document the business deal that the parties had independently negotiated. The court found, at para. 39, that “in the absence of evidence that [the solicitor] did anything other than what he was instructed to do to effect the deal cut by the clients through hard bargaining … the plaintiffs cannot succeed in their claim that the defendant negligently drafted the agreement.” The court placed significant weight on the fact that the plaintiff was experienced in buying and selling real estate for development purposes. In the case at bar, it is undisputed that Mr. Cocov was experienced in land development, including environmental issues. He had purchased contaminated railway lands twice before. Mr. Cocov deposed that he negotiated the agreement with CN and that he did not rely on lawyers. He was a sophisticated purchaser. Dr. Penuvchev deposed that he relied on Mr. Cocov and his real estate experience throughout. Dr. Penuvchev also did not rely on the lawyers for advice.

[87] It was Mr. Thompson’s evidence that he was told by Dr. Penuvchev that all due diligence had been completed and that Mr. Cocov was a sophisticated developer. Mr. Thompson testified that he was not asked to review any environmental report and that if he had been asked to do so, he would have referred the client to environmental experts. Mr. Thompson’s approach would have been correct. As was held in Accurate Fasteners Ltd. v. Gray, [2005] O.J. No. 4175, at para. 11, the lawyer’s role is to provide legal services. Molloy J. states: “It should not be extended to providing advice to the client as to the nature of enquiries the client needs to make about non-legal matters and ensuring that the client has acted wisely and thoroughly in making their inquiries.”

[88] The second agreement was negotiated by Crosslink. Its principals had done their own due diligence for at least a year with no assistance from the lawyers and the record shows that the lawyers were aware of this fact. The agreements of purchase and sale negotiated by the client explicitly referred to the purchaser’s acceptance of the property “as is” and recognized that the purchaser had expressly waived any defect arising out of its environmental condition. The case of Wong v. 407527 Ontario Ltd., [1999] O.J. No. 3377, 125 O.A.C. 101 (Ont. C.A.) is instructive on the point. In that case, the lawyer, Mr. Hui, was retained after an agreement of purchase and sale had been signed by both sides. His instructions were to close the deal, which he did. While the trial judge was critical of what Mr. Hui failed to do, the Court of Appeal stated, at para 43, that a lawyer’s duty to a client will vary depending on the client’s instructions and the limits on the lawyer’s retainer. Mr. Hui was given an executed agreement of purchase and sale and instructed to close it. The agreement warranted the rental income on the building for a year after closing, but the warranty was given only by the vendor, a numbered company; thus, if the rent was not as warranted, the purchasers could only look to the numbered company for relief. The Court of Appeal noted that ordinarily a warranty by a numbered company would cause a prudent lawyer to warn the client of the risk of non-recovery should the warranty be breached. However, the Court of Appeal found that because the clients did not retain Mr. Hui until after they had signed the agreement of purchase and sale, they believed that they had made a good deal, and they were not wanting to get out of the transaction, it was doubtful that Mr. Hui owed a duty to them to improve the deal they had negotiated without him. Ultimately, the Court of Appeal found that Mr. Hui was not liable for the clients’ damages under the warranty for a shortfall in rental income.

[89] Crosslink and Dr. Penuvchev take the position that Mr. Thompson and Ms. Giahi, hired specifically to close the deal, also had a duty of care to warn the client of the risk inherent in the purchase of land encumbered with an environmental remediation order, and that Crosslink would have elected to refuse to close the transaction, if so warned. I find this position radically opposed to the client’s behavior throughout and therefore must reject it. By the time Crosslink had retained Mr. Thompson, it had already made a $1 million non-refundable deposit and was on the verge of making a second $1 million non-refundable deposit. Crosslink had expressed no serious concerns about the environmental condition of the property. The concerns it expressed related to zoning and the ability of CN to walk away from the deal, not contamination of the soil and its own ability to walk away from the deal.

[90] Crosslink, as purchaser, had expressly accepted all risk associated with the environmental notice. It is simply not credible that the legal work undertaken by the conveyancing solicitors included a duty to warn of a risk that had been clearly accepted by Crosslink. I find that Mr. Thompson and Ms. Giahi were not tasked with any attempt to renegotiate the executed agreement of purchase and sale. Further, they could not have improved the purchaser’s legal position and were expressly instructed to close the transaction in any event. Rescission was not an available option to the purchaser. I therefore find that the limited retainer, the sophistication of the purchaser, its knowledge of the contamination and the express acceptance of the environmental condition preclude a finding of negligence by Mr. Thompson and Ms. Giahi.

Expert evidence

[91] Crosslink relies on the reports of Mr. Rosenblatt, a senior practitioner at Minden Gross LLP experienced in real property law, to argue that each of McMillan, Mr. Thompson and Ms. Giahi fell below the standard of care expected of them. The court is urged by the third parties to reject the reports as unnecessary to assist the trier of fact in this case. They submit that the court is fully capable of understanding the issues and evidence regarding whether the lawyers met their standard of care: R v. Mohan, [1994] S.C.J. No. 36 at paras. 17-22. I agree that Mr. Rosenblatt’s reports offer no guidance on technical matters.

[92] It is Mr. Rosenblatt’s opinion that each of the third parties fell below the standard of care and skill of a reasonably competent solicitor in failing to explain the risks and consequences of acquiring contaminated land with the intention to develop, especially in light of the acceptance of the property on an “as is” condition. However, Mr. Rosenblatt’s report does not cover environmental issues, out of which Crosslink and Dr. Penuvchev allege the duty to warn arises. Under cross-examination, Mr. Rosenblatt confirmed that his expertise does not extend to environmental law and that he has never acted on a transaction involving contaminated land. It is also clear from the record that Mr. Rosenblatt did not have all the relevant documents and facts (e.g., Dr. Penuvchev’s reliance on Mr. Cocov’s expertise; Mr. Cocov’s sophistication as both a real estate agent and land developer; and Crosslink’s consultation with experts to investigate the environmental suitability of the property) when he prepared his opinions. His opinions are also silent on the issue of causation.

[93] Mr. Rosenblatt’s report on McMillan fails to consider that it did not have the opportunity to advise of the risk associated with the second agreement. McMillan had never seen it in draft and was never asked to advise on it.

[94] Accordingly, I find that Mr. Rosenblatt’s reports do not assist Crosslink and Dr. Penuvchev in their claims against McMillan, Mr. Thompson and Ms. Giahi.

Issue 3: Are the third party claims made by Crosslink and Dr. Penuvchev barred by the expiration of the applicable limitation periods?

[95] I find that the claim against McMillan is barred by the expiry of the limitation period in June of 2010, being two years from Crosslink’s termination of its retainer of McMillan. This date is almost four years before the third party claims were commenced. Crosslink brought its claim against McMillan in May 2014 after its rescission application was dismissed and in the midst of its appeal of that decision. Crosslink brought this claim notwithstanding that it had received full disclosure of the CN materials in March 2007 and recklessly negotiated an agreement of purchase and sale, expressly accepting the environmental risk in full, without reviewing the disclosure documents from CN and without legal advice.

[96] It is abundantly clear from the evidence that McMillan’s role as solicitor for Crosslink in the acquisition of the property was terminated in June 2008. Its advice was not sought or given on the second agreement, which closed in November 2008 with the assistance of other lawyers. Counsel for Crosslink argued strenuously that because McMillan was consulted by Crosslink after June 2008, regarding a shareholder agreement for Dr. Penuvchev and Mr. Cocov and other potential land acquisitions, the two-year limitation period under the Limitations Act, 2002, S.O. 2002, c. 24, Sched B had been extended. I find no merit in this submission. Even if it could be argued that Crosslink did not discover its claim against the third parties until December 2009, when it received the Frontier Engineering report (which, Dr. Penuvchev deposed, confirmed the extent of the contamination and listed the same contaminants that had been listed in the reports provided to Crosslink by CN), the claim against McMillan would have been statute barred two years later in December 2011.

[97] I note that the pleadings filed on behalf of Mr. Thompson and Ms. Giahi included the defence of the Limitations Act, 2002. While their counsel did not press this argument at the hearing, the court cannot completely ignore its application. After the closing, there was continued communication between Crosslink and their conveyancing solicitors regarding the development and possible sale of the property. However, in my view, there was no further retainer or instructions that could operate to extend the limitation period to assist Crosslink in this third party claim. I find that the limitation period relating to the limited retainer to close the transaction expired on November 28, 2010, being two years from the date of closing. As noted above, even if it could be said that Crosslink did not discover its claim against Mr. Thompson and Ms. Giahi until it obtained the Frontier Engineering report in December 2009 (when it was denied financing owing to environmental concerns), the limitation period would have expired well before Crosslink brought its third party claim against Mr. Thompson and Ms. Giahi in May 2014.

Damages

[98] I have found that McMillan, Mr. Thompson and Ms. Giahi were not negligent in their advice to the defendants Crosslink and Dr. Penuvchev on the acquisition and closing of the property. Accordingly, it is not necessary for the court to consider the defendants’ claim for damages in respect of all of their costs and expenses flowing from the acquisition of the property.

Disposition

[99] Summary judgment is granted to the third parties McMillan, Mr. Thompson and Ms. Giahi. The claims brought against them by the defendants Crosslink and Dr. Penuvchev are dismissed.

[100] The parties are encouraged to agree on costs. If they are unable to do so the third parties shall make written submissions on costs within 15 days of this judgment and the defendants Crosslink and Dr. Penuvchev shall make their written submissions within 15 days thereafter. Submissions shall not exceed three pages plus a costs outline. The third parties may submit a short reply, not exceeding two pages, within five days of receipt of the defendants’ submissions if so advised.

Dietrich J.

Released: September 25, 2018