COURT FILE NO.: CV-17-569976
DATE: 2019-08-22
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: JOHN FORMOSA and STEFFEN NIELSEN, Plaintiffs
AND:
DORIAN PERSAUD and GARDINER ROBERTS LLP, Defendants
BEFORE: Sossin J.
COUNSEL: Julian Binavince and Alisha Burby, Counsel for the Plaintiffs
John Campbell, Counsel for Defendant Dorian Persaud
Michael Kestenberg and David Lipkus, Counsel for Defendant Gardiner Roberts LLP
HEARD: April 25, 2019
REASONS FOR JUDGMENT
OVERVIEW
[1] The plaintiffs in this action, John Formosa (“Formosa”) and Steffen Nielsen (“Nielsen”) (collectively, “the plaintiffs”) are former senior managers of TSI International Group (“TIG”), whose employment was terminated in January 2015. TIG is a company engaged in business of development, sometimes referred to as “land banking.”
[2] On February 11, 2015, TIG commenced an action against the plaintiffs (and others) alleging breach of contract and fiduciary duties in addition to allegations that the plaintiffs stole confidential and proprietary information (the “TIG litigation”).
[3] On February 12, 2015, TIG served the plaintiffs with materials for a motion, returnable on February 17, 2015, seeking an Anton Piller order and an injunction enjoining the plaintiffs from competing against TIG. On Friday, February 13, 2015, Dorian Persaud (“Persaud”) was retained by the plaintiffs to respond to this motion.
[4] TIG prevailed on the motion and the injunction and Anton Piller order were granted. The plaintiffs then terminated their retainer with Persaud.
[5] Gardiner Roberts LLP (“GR”) was subsequently retained by the plaintiffs in late February 2015 and represented the plaintiffs in the TIG litigation until December 2016. GR undertook a number of steps in this regard, including delivering a statement of defence and counterclaim, responding to a motion to strike these pleadings, and bringing a motion for directions around TIG’s compliance with the terms of the injunction. These efforts were largely unsuccessful.
[6] After terminating their retainer with GR in December 2016, the plaintiffs represented themselves for a period and then retained Dewart Gleason LLP to act in this litigation.
[7] On February 17, 2017, the plaintiffs launched this action, with a statement of claim against Persaud and GR (collectively, “the defendants”), seeking $2,000,000.00 in damages against Persaud and $600,000.00 in damages against GR, among other remedies, for breach of contract based on solicitor’s negligence. The plaintiffs allege that the defendants made errors in judgment that a reasonably competent lawyer in similar circumstances would not make, and that the defendants failed to advise the plaintiffs, so they could make informed decisions relating to the litigation.
[8] Persaud delivered a statement of defence dated September 18, 2017.
[9] GR delivered a statement of defence dated October 5, 2017.
[10] In July, 2018, the plaintiffs and TIG settled the TIG litigation.
[11] The defendants bring motions for summary judgment in this action to dismiss the claims against them, alleging there is no genuine issue requiring a trial with respect to the claims made by the plaintiffs. The defendants argue that the plaintiffs were advised of the risks involved in the TIG litigation, and that in any event, no damages flowed from their representation of the plaintiffs.
[12] For the reasons that follow, the defendants’ motions are granted.
FACTS
[13] In order to put the claim by the plaintiffs against Persaud and GR in context, it is first necessary to review the course of the TIG litigation.
[14] The plaintiffs worked at TIG for approximately 10 years when their employment was terminated in January 2015.
[15] After their employment ended, on February 11, 2015, TIG commenced legal proceedings against the plaintiffs, and on February 12, 2015, TIG served them with materials for a motion returnable five days later (over the February long weekend), seeking an Anton Piller order and an injunction (the “injunction motion”).
[16] The next day, February 13, 2015, the plaintiffs retained Persaud to represent them. Persaud sought unsuccessfully to adjourn the motion. TIG would only do so on interim terms incorporating the relief they sought, and such terms were a “non-starter” for the plaintiffs. Persaud was thus left with the task of putting together materials to respond to the motion over the long weekend. He did so, and the plaintiffs’ four responding affidavits were served on February 16, 2015.
[17] The injunction motion came before Justice Ricchetti on Tuesday, February 17, 2015. Justice Ricchetti adjourned the matter to the following day to allow TIG to serve reply materials to the responding materials which the plaintiffs had filed.
[18] The motion was heard by Justice Ricchetti on February 18, 2015, and TIG was successful on the motion. He found (at para. 91 of his endorsement) “based on the evidence before me, it is difficult to ascertain what, if any, defence could possibly succeed.” In his costs endorsement, Justice Ricchetti added, “on the record before me, the actions of the Defendants are reprehensible and outrageous.”
[19] TIG sought substantial indemnity costs against the plaintiffs in the amount of $176,854.77. By this time, in February 2015, the plaintiffs had terminated their retainer with Persaud and had commenced their retainer with GR. GR responded to the cost submissions on behalf of the plaintiffs. On March 31, 2015, Justice Ricchetti awarded costs against the plaintiffs in the amount of $100,652.45, plus HST.
[20] During the period from February 24, 2015 to December 5, 2016, GR was asked to prepare the plaintiffs’ statement of defence and counterclaim, in addition to representing the plaintiffs in other steps in the litigation, including a response to a motion by TIG challenging the plaintiffs’ pleadings under Rules 21 and 25 of the Rules of Civil Procedure (the “pleadings motion”) and a motion seeking compliance with the injunction motion (the “compliance motion”).
[21] GR’s strategy was to be aggressive in defending the TIG litigation as the hope that this would motivate TIG to settle.
[22] With respect to the pleadings motion, TIG was largely successful. Justice LeMay dismissed Formosa and Nielsen’s defence of unclean hands and the counterclaim for abuse of process and struck a number of paragraphs without leave to amend, pursuant to Rule 21, though he dismissed TIG’s motion with respect to Rule 25.11.
[23] On July 8, 2016, GR filed leave to appeal of the pleadings motion.
[24] On July 11, 2016, Justice LeMay awarded costs to TIG for the pleadings motion in the amount of $30,000.00.
[25] TIG was also successful in its response to the compliance motion
[26] Justice LeMay awarded costs of $70,000.00 against Formosa and Nielsen for the compliance motion.
[27] The plaintiffs ceased paying their accounts to GR in October, 2016, ended their retainer with GR in December, 2016.
[28] In March, 2017, the Court of Appeal granted the plaintiffs appeal of the pleadings motion, in part, holding that the plaintiffs were entitled to have leave to amend the pleadings, though the Court neither awarded the plaintiffs any costs, nor altered the costs’ decision of Justice LeMay on the motion.
POSITION OF THE PARTIES
The Position of the Plaintiffs
[29] In launching this litigation against their former lawyers for breach of contract as a result of professional negligence, the plaintiffs detail several areas where they argue the representation provided by Persaud and GR was deficient. These allegations are summarized below.
The Allegations Against Persaud
[30] First, with respect to Persaud, the plaintiffs argue that Persaud failed to note that the restrictive covenant in the plaintiffs’ employment contract with Formosa covers only four named regions in southwestern Ontario and failed to marshal evidence on this point. The plaintiffs argue that the injunction could have been geographically limited in line with this contract had this strategy been pursued.
[31] Second, the plaintiffs allege that Persaud failed to mention any authority that the employment contract was not binding “for want of consideration” even though the relevant principle was confirmed by the Ontario Court of Appeal several months prior to the injunction motion.
[32] Third, Persaud’s strategy failed to reflect the only issue which the plaintiffs expressed a concern on the adjournment of the injunction motion, which was the competition restriction.
[33] Fourth, Formosa advised Persaud that TIG had represented to the Ontario Securities Commission (“OSC”) that it did not carry on a land banking business but instead merely provided management services to such a business.
[34] Fifth, Persaud advised John Masih, an independent IT support provider for TIG (“Masih”) that there was “no chance” that TIG would obtain the injunction and search and seizure order. Persaud neglected to ask Masih questions about any affidavit sworn for the injunction motion, neglected to obtain relevant information for the injunction motion and discontinued his interview of Masih.
[35] Sixth, Persaud failed to consider attacking TIG’s undertaking with respect to damages in the injunction motion.
[36] Seventh, Persaud failed to rely on the fact, as confirmed by Masih, that all TIG customer information was stored in the cloud on a software platform which could only be accessed through approved IP addresses.
[37] This is not exhaustive of the claims that the plaintiffs have raised.
The Allegations Against Gardiner Roberts
[38] With respect to GR, the plaintiffs allege deficient representation in relation both to the pleadings motion and the compliance motion.
The Pleadings Motion
[39] First, Timothy Duncan (“Duncan”) and Evert Van Woundenberg (“Van Woundenberg”), the GR lawyers responsible for the plaintiffs’ case, formulated an “unclean hands” and abuse of process defence and the proposal for a counterclaim, after Dunan interviewed Formosa and Neilsen about their experience with TIG. The plaintiffs allege that the GR lawyers did not explain the elements of the “unclean hands” and abuse of process strategy they had proposed, or the likelihood of success of this strategy. For example, Duncan is alleged not to have discussed the test the pleadings would have to meet. The plaintiffs further allege that Duncan did not carefully research this doctrine before pursuing it on the pleadings motion.
[40] After the defence and counterclaim were served, TIG moved to strike the pleadings, Duncan recommended that the plaintiffs contest the motion, stating in an email, “Although there are consequences to doing so, we believe the strategy here is not to back down but to demonstrate you are serious about defending the lawsuit and proving the allegations you have made if necessary. This may mean fighting a motion along the way but it remains the position of strength from which to most likely achieve some sort of settlement.” On the pleadings motion, the plaintiffs allege that Duncan provided “bad advice” that no reasonably competent lawyer in similar circumstances would have recommended.
[41] Justice LeMay released his judgment on the pleadings motion on June 8, 2016 and dismissed the abuse of process and “unclean hands” pursuant to Rule 21 of the Rules of Civil Procedure.
[42] In his reasons, Justice LeMay concluded by observing that the record could not support the abuse of process allegation, for which the plaintiffs would have had to establish that the predominant purpose of TIG’s litigation was a collateral and improper one.
[43] With respect to the appeal materials on the pleadings motion, the plaintiffs allege that GR failed to claim the alternative relief of leave to amend, and that as a result, the plaintiff were denied costs of the appeal. They allege that GR has offered no evidence that a reasonably competent lawyer in similar circumstances would have made this omission.
The Compliance Motion
[44] With respect to the compliance motion, Duncan recommended a strategy of targeting Deloitte, who was retained pursuant to Article 8 of the Ricchetti Order to search the plaintiffs’ computers for confidential information of TIG. The searches appear to have brought back too many documents; the key-word search in particular brought back approximately a million documents. TIG took steps to try to pare down these results, which appeared to include documents not relevant to the litigation.
[45] In an email dated January 15, 2016, Duncan stated that “your tactical move should be to press on the failure of Deloitte to comply with the terms of the Order of Justice Ricchetti.” Formosa replied on January 18, 2016, “Can you explain how this process is going to stop them from litigating us to death.”
[46] Duncan responded that “We are of the view that Deloitte is not in compliance with the terms of the Order … We want to expose that and the way to do so is to threaten a motion to review the manner in which the injunction has been carried out. In the process, we may be able to demonstrate that the highly intrusive searches were ultimately disproportionate and unnecessary.”
[47] In the result, Justice LeMay dismissed the motion, and in his endorsement with respect to costs, stated:
[21] In short, the case before me can be summarized as follows:
i. [Formosa and Nielsen] took a position that they should have known would have been unsuccessful
ii. The effect of the [Formosa and Nielsen’s] position would have been to impose retroactive obligations on both the Plaintiff and Deloitte that were unfair and unreasonable.
iii. [Formosa and Nielsen’s] positions were advanced in such a way as to call into question the ethics of Plaintiff’s counsel (in that he was telling his expert to ignore Court Orders) and the behaviour of the expert retained by the Plaintiffs.
[48] The plaintiffs allege that GR offered no evidence that a reasonably competent lawyer would have taken the position on the compliance motion that GR recommended.
[49] The plaintiffs further allege that GR is liable for additional breaches of their professional duties, including that by failing to advise them on the merits of an appeal of the injunction based on its geographic scope.
The Defendants’ Position
[50] The defendants deny there is sufficient evidence to show professional negligence in their representation of the plaintiffs in the TIG litigation. Further, even if there were such evidence, the defendants argue that there is no evidence damages flowed from these actions or omissions. In other words, even if the defendants did not pursue the strategies they did in the TIG litigation, or if they pursued other strategies, there is no evidence that the result would have been different for the plaintiffs.
[51] Persaud and GR both point to a number of occasions where the plaintiffs were advised that litigation generally included no guarantees, and that the specific motions in which each represented the plaintiffs carried specific risks.
[52] Persaud stated in his affidavit (sworn April 10, 2018) that he told the plaintiffs they had an “uphill battle” but also appeared to have a “strong case on the facts.”
[53] According to Persaud, the plaintiffs reviewed drafts of the affidavits, suggested changes and suggested other people who could provide responding affidavits.
[54] Persaud reported to the plaintiffs after the first court appearance on the injunction motion resulting in a one-day adjournment that the judge had indicated their case based on the affidavit evidence filed “doesn’t look good,” but Persaud once again received instructions to continue with the strategy.
[55] GR references a meeting on April 30, 2015, where they allege that the plaintiffs were advised that if the matter proceeded to trial and they were unable to prove allegations of fraud against TIG, they could be exposed to a higher adverse costs award.
[56] GR alleges that the plaintiffs “explicitly understood” that TIG intended to bring the pleadings motion and the potential cost consequences. GR filed the statement of defence and counterclaim only after receiving explicit instructions from the plaintiffs to do so.
[57] With respect to GR, the executed retainer agreement includes language which makes clear GR gave no representations as to result, which the plaintiffs acknowledged, and that adverse results may give rise to costs against the unsuccessful party.
[58] GR additionally relies on the evidence that Formosa made significant edits to the statement of defence and counterclaim.
[59] GR alleges that the compliance motion was brought only upon instructions from the plaintiffs, who were advised that a key rationale for such a step was an attempt to convince TIG to enter into settlement negotiations.
ANALYSIS
[60] The parties agree on the test for summary judgment under Rule 20.04(2)(a) of the Rules of Civil Procedure. The question I must address is whether there is a genuine issue for trial. There is no genuine issue for trial where, as set out by Karakatsanis J. in Hryniak v. Mauldin, 2014 SCC 7 at para 66:
A 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.
[61] As the moving party, the defendants have the burden to show there is no genuine issue for trial.
[62] Parties are required to put their “best foot forward” on a motion for summary judgment, and cannot rely on the fact that additional evidence may be able to substantiate their position; McPeake v. Cadesky & Associates, 2018 ONCA 554 at para. 11; and Mahoney v. Sokoloff, 2015 ONCA 390, at para. 5.
[63] The plaintiffs argue that because the documentary discovery process is not yet complete, and because there remain credibility conflicts between the plaintiffs and Persaud with respect, for example, on whether the adjournment was needed, the matter should proceed to trial.
[64] To succeed in this action, the plaintiffs will have to prove a breach of a duty of care by the defendants that caused damages.
[65] It is clear that the plaintiffs’ case will turn on the standard of care for lawyers, and whether based on the evidence, that standard was met by Persaud and GR. The plaintiffs argue that expert evidence will be needed to establish whether the conduct of the defendants in this case met the general standard of a reasonable and prudent lawyer in the circumstances. The plaintiffs rely on Stephen Grant, Linda Rothstein & Sean Campbell, Lawyers’ Professional Liability, 3rd ed. (Markham, Ont: LexisNexis, 2013) at para. 2.50, p. 54 for the view that it is generally not appropriate for a trial court to determine the standard of care in professional negligence cases absent expert evidence.
[66] The plaintiffs argue that since the defendants have failed to adduce any expert evidence with respect to whether the conduct in this case met the lawyers’ standard of care, their motion for summary judgment should be dismissed.
[67] GR argues that since the plaintiffs have an obligation to put “their best foot forward” and have not proffered any expert evidence, there is no genuine issue for trial as to whether the defendants fell below the standard of a reasonably competent lawyer in the circumstances.
[68] While the defendants as the moving party have a burden to show that there is no genuine issue for trial, it is the plaintiffs who bear the burden of providing evidence to substantiate their claim that the defendants fell below the standard of care of a reasonably competent lawyer. Given that the plaintiffs have not provided an expert opinion on the application of the standard of care in this case, it is open to me to draw an adverse inference against the plaintiffs’ case; Jacobson v. Skurka, 2018 ONSC 4483 at paras. 66-67; and Hedley v. Irving, 2011 ONSC 1645 at paras. 14-15.
[69] The absence of an expert opinion does not mean that the application of the standard to the case at bar constitutes a genuine issue for trial – as Justice Gomery observed in Mac v. Wong, 2019 BCSC 902, at para. 58:
[58] In this case, the plaintiffs did not tender expert evidence of the standard of care. Expert evidence is often useful, especially where there is an accepted standard of conduct, normal practice or common usage that represents the standard of care for a reasonably competent lawyer in the circumstances of the case at hand. It is not invariably required, especially where it would only amount to one lawyer’s opinion, in hindsight, as to what the defendant ought to have done in unique circumstances
[70] There does not appear to be any dispute between the parties that the standard of care for lawyers in representing their clients is that of a reasonably competent lawyer in similar circumstances; Central Trust Co. v. Rafuse, 1986 CanLII 29 (SCC), [1986] 2 S.C.R. 147 at para. 58.
[71] The reasonably competent standard of care for lawyers in representing clients in litigation is a question of law. As Doherty J.A. for the Court of Appeal stated in Folland v. Reardon (2005), 2005 CanLII 1403 (ON CA), 74 O.R. (3d) 688 (C.A.), at para. 44:
[44] In accepting the reasonably competent lawyer standard, I do not detract from the often repeated caution against characterizing errors in judgment as negligence. Lawyers make many decisions in the course of a lawsuit. Those decisions require the exercise of judgment. Inevitably, some of those decisions, when viewed with the benefit of hindsight, will be seen as unwise. The reasonable lawyer standard does not call for an assessment of the sagacity of the decision made by the lawyer. The standard demands that the lawyer bring to the exercise of his or her judgment the effort, knowledge and insight of the reasonably competent lawyer. If the lawyer has met that standard, his or her duty to the client is discharged, even if the decision proves to be disastrous.
[72] Folland dealt with lawyers in the criminal law context, and the Court found a genuine issue for trial as to whether the lawyer breached the standard of care in the circumstances of that case. The motions judge in that case had applied an “egregious error” standard and finding no mistake rising to that level, saw no genuine issue for trial. Doherty J.A. concluded that the motions judge had failed to apply the correct standard of care, at para. 45:
[45] Plaintiffs who sue their lawyers should not be required to show their claims of negligence are any stronger than any other claims of negligence before they are allowed to proceed to trial. The motion judge's reference to "egregious errors" and "the clearest of cases" tells me that he erroneously demanded something more than a departure from the standard of a reasonably competent lawyer defending a criminal case.
[73] In this case, the question is not the gravity of any errors in advice or strategy but rather whether the defendants acted as reasonably competent lawyers in the circumstances. In the absence of expert evidence from the plaintiffs to the contrary, they must rely solely on the record of the exchanges between the parties, the affidavit evidence and the judicial decisions in the TIG litigation to meet this threshold.
[74] The record discloses that each of the steps Persaud and GR took was communicated to the plaintiffs, considered by them, and resulted in instructions to Persaud and GR to take a certain course of action. The record further discloses that the plaintiffs knew there were legal fees associated with these actions, and the risk of adverse cost awards if they were not successful.
[75] The plaintiffs do not argue that either Persaud or GR acted without instructions; rather, they point to case law which establishes that if those instructions were based on inadequate advice by the lawyer, or where the lawyer failed to warn the client of the risk involved in a course of action, the lawyer may be liable; Major v. Buchanan, 1975 CarswellOnt 451, at para 58.
[76] Further, the plaintiffs argue that while lawyers will not be liable for errors in judgment, this applies only where a reasonably informed and competent lawyers could have made the same error in similar circumstances; Marques v. Alexander, 2000 CarswellOnt 15553, at para. 40.
[77] In my view, the evidence cumulatively shows on a balance of probabilities that Formosa and Neilsen were advised of the risks both inherent in litigation generally and arising in the TIG litigation specifically both by Persaud and GR.
[78] In the case of Persaud, there were significant time constraints in developing an understanding of the litigation and a strategy to address the injunction motion all within a matter of days over a long weekend.
[79] In the case of GR, there were constraints in the paths available to contest the TIG litigation so as to create a more favourable environment for a settlement.
[80] The plaintiffs are seasoned business professionals with a significant degree of sophistication in their sphere of expertise. They were active participants in the development both of litigation materials and litigation strategy. The plaintiffs have failed to provide sufficient evidence that they were not informed of risks in the TIG litigation.
[81] While there may be shortcomings in the advice given, questionable strategies pursued and certainly understandable disappointment in the results of the litigation, I find that the conduct of the defendants individually and cumulatively do not rise to the level of professional negligence so as to create liability on the part of the lawyers involved.
[82] While the absence of a breach of a duty owed by the defendants is enough to dispose of the motion and dismiss the claim, I will also deal with the defendants’ argument that the plaintiffs have not suffered damages.
[83] In their statement of claim, the plaintiffs claim damages to compensate them for cost awards, legal fees and disbursements and delay in the resolution of the TIG litigation. The plaintiffs have not adduced evidence which shows these damages flowed from the advice and strategies of the defendants, or that different advice and different strategies could have changed the result of the litigation, or steps within the litigation, to their benefit.
[84] There is no evidence in the record that if different steps were taken, that TIG would have settled with the plaintiffs earlier or on more favourable terms, nor evidence that the plaintiffs would not have had to spend legal fees or would not have incurred cost awards against them but for the defendants’ advice and strategies.
[85] In Folland, the Court of Appeal concluded the “but for” test was appropriate in cases of professional negligence (at paras. 60-61), but that a trial was required to determine if the accused in that case would have been acquitted but for the errors of his counsel. There was also a clear basis in the evidence in Folland to suggest an acquittal could have been justified, flowing both from an expert report from another criminal defence lawyer, and the fact that the Court of Appeal had overturned the conviction of the accused by the time of the litigation involving the accused’s lawyer reached the Court.
[86] The findings and judicial commentary relied on by the plaintiffs may criticize the submissions made on behalf of the plaintiffs, but do not suggest pathways were available which would have avoided liability or avoided the need for legal expenses and cost awards, or which would have brought about a settlement sooner and on more favourable terms. For example, in the pleadings motion, Justice LeMay makes clear the plaintiffs did not meet the test for the “unclean hands” defence and could not prevail with the abuse of process argument in their counterclaim. The alternative if these strategies were not pursued, however, could well have been a summary judgment motion from TIG resulting in liability against the plaintiffs before any opportunity to conclude settlement negotiations.
[87] Unlike Folland where the damage flowing from the conduct of counsel was clear (a conviction as opposed to an acquittal), in this case, it is impossible to evaluate whether taking steps with a poor outcome left the plaintiffs better off or worse off than taking different steps, or no steps in the litigation. Given the ultimate strategy of the plaintiffs was not necessarily to prevail in the litigation, but rather to minimize their liability and gain leverage through the litigation for a favourable settlement, it is entirely likely that the plaintiffs would have incurred legal expenses and costs whatever strategy was pursued, and all the plausible alternative strategies which could have been pursued, would have given rise to other risks as well.
[88] In these circumstances, there is insufficient evidence that the defendants caused the plaintiffs’ damages, to the extent they suffered any.
[89] The circumstances of this case, in my view, do not raise genuine issues which require a trial. Not only is there no expert who has cast doubt on the advice or strategy of the defendants, but there also has been no finding or judicial commentary to suggest the plaintiffs could have prevailed in their litigation with TIG.
[90] For these reasons, the motion for summary judgment is granted, and the plaintiffs’ action against the defendants is dismissed.
COSTS
[91] If the parties cannot come to an agreement with respect to costs, brief, written submissions of no more than five pages, together with a bill of costs, may be submitted by the defendants within 20 days, with submissions from the plaintiffs within 20 days following that date.
Sossin J.
Date: 2019-08-22