Court File and Parties

COURT FILE NO.: CV-19-1216

DATE: December 17, 2020

SUPERIOR COURT OF JUSTICE – ONTARIO

RE: Bertus Nieuwenhuis and Diane Neiuwenhuis, Plaintiffs

AND:

FRP Inc. cob Rico Tech and Kelly Greenway Bruce, Defendants

BEFORE: Justice James W. Sloan

COUNSEL: G. Murdoch, Counsel for the Plaintiffs (Not in Attendance) A. Lusk, Counsel for the FRP Inc. cob Rico Tech J. Bennett, Counsel for Kelly Greenway Bruce

HEARD: December 17, 2020

Endorsement

[1] There are two motions before the court, one is an interpleader action allowing the law firm, Kelly Greenway Bruce (KGB), to pay $175,000 which they hold in trust, into court to the credit of this action. This order has now been consented to.

[2] Mr. Murdoch, the lawyer for the plaintiffs, agrees the money should be paid into court, but otherwise has not taken any position on the second motion

[3] The second motion is brought by KGB under r. 21.01(1)(b) to strike out the action against it, brought by FRP on the ground that it discloses no reasonable cause of action.

[4] The facts are relatively simple and involve a real estate transaction that failed to close in August 2017.

[5] The plaintiffs entered into an agreement of purchase and sale with FRP to sell their property in Bowmanville Ontario. They retained a Mr. Raven of KGB to handle the transaction on their behalf.

[6] When the deal did not close, the plaintiffs sued FRP seeking a declaration that they forfeited the deposit of $175,000 and for unspecified damages for breach of contract. They added KGB as a defendant, only because they had the deposit of $175,000 in their trust account. They made no other claim against KGB.

[7] In response to the lawsuit, FRP filed a statement of defence, counterclaim and crossclaim. In their crossclaim against the plaintiffs’ lawyers, KGB, FRP claims for “Contribution and indemnity under the Negligence Act RSO 1990 c. N.1 for any amounts that FRP may be found liable to the plaintiffs.”

[8] Rule 25.06 (1) states that “every pleading shall contain a concise statement of the material facts on which the party relies for the claim or defence, but not the evidence by which those facts are to be proved.”

KGB’s Position

[9] KGB was not acting for FRP. FRP was a party adverse in interest to the plaintiffs and therefore KGB owed no duty of care to FRP. KGB was contractually bound to look after the best interests of the plaintiffs.

[10] This is a simple contract case and the crossclaim, claims contribution and indemnity only under the Negligence Act, but they have not set out any allegations of negligence or facts that would in any way support a crossclaim for contribution and indemnity.

[11] Many facts in the Ambrose affidavit sworn October 27, 2020, are not pleaded in the statement of defence or crossclaim. In addition, several allegations are hearsay and paragraph 27 is double hearsay.

[12] KGB relies in part on the cases of 9383859 Canada Ltd. v. Saeed, 2020 ONSC 4883, Adams v. Thompson, Berwick, Pratt and Partners, 1987 Carswell BC 177, Hengeveld v. The Personal Insurance Company, 2019 ONCA 497 and Tisi v. Raby 2018 ONSC 5284.

[13] In the 9383859 Canada case the court stated the following at paragraphs 50, 54 and 57:

[50] As regards all the claims against the opposing party lawyers, actions were commenced more than two years after they were initially discoverable. The Limitations Act creates a presumption that a claim is discovered within two years of the damage occurring unless there is evidence to the contrary. There is no such evidence to the contrary in this case. Thus, the claims as against the three opposing party lawyers are statute barred and must be dismissed.

[54] Where a claim has been struck as disclosing no reasonable cause of action or as frivolous, vexatious or an abuse of process, the plaintiff will be denied leave to amend that pleading where it contains a “radical defect” such that it could not be improved by an amendment … Further, leave to amend the claim should be denied where there is no reason to suppose that the party can improve their case by amendment, or if an entirely new cause of action would have to be set up by way of amendments that prejudice the defendants …

[57] Again, based on all the foregoing, I am satisfied that there is no reasonable cause of action to be brought as against them in their roles as lawyers adverse in interest to the plaintiff, who did have his own lawyer for purposes of the transaction, and that there is no amendment that can be made to the statement of claim to amend the radical defect, namely, the fact that no cause of action lies against the lawyers adverse in interest to the plaintiff. Accordingly, the claims and allegations in the statement of claim against the three defendant lawyers are struck without leave to amend.

[14] In the Adams case, at paragraphs 14 and 16, the court stated:

14 Where the fault alleged against the proposed third party is in fact the fault of the plaintiff, the defendant can raise the default by way of defence, making third-party proceedings unnecessary. Yemen and West Coast were such cases. In both cases the plaintiff had hired someone to act in its stead to ensure that the defendant was performing his contract. Any default was attributable to the plaintiff.

16 It thus may be stated with confidence, in my view, 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 against the plaintiff by way of defence. Where the only negligence alleged against the third party is attributable to the plaintiff, there is no need for third-party proceedings since the defendant has his full remedy against the plaintiff. On the other hand, where the pleadings and the alleged facts raise the possibility of a claim against the third party for which the plaintiff may not be responsible, the third-party claim should be allowed to stand.

[15] KBG submits with respect to the above quotations, that crossclaims are the same as third-party claims.

[16] In the Hengeveld motor vehicle accident case, an insurance company was sued for destroying the subject vehicle and in turn sued the plaintiff’s lawyers. At paragraphs 14, 17 and 19 of the case, the Ontario Court of Appeal stated;

14 The lawyers moved successfully under rule 21.01(1)(b) of the Rules of Civil Procedure … To strike out the third-party claim as disclosing no reasonable cause of action. The motion judge described the test for striking out a claim under that rule as whether it was plain and obvious that the third-party claim was certain to fail, assuming the facts alleged in it to be true. He noted that this was not a case where Personal Insurance and the lawyers were both involved in the initial loss (by which he appears to have meant the motor vehicle accident of January 2014 that is the subject matter of the personal injury action). He held, because the negligent acts and omissions alleged against the lawyers fell within the scope of their agency on behalf of the Hengevelds, they were not the proper subject of a third party claim: the Hengevelds would be responsible for anything done or not done by their lawyers acting as their agents. He stated, at para. 24:

In such 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.

17 In my view, the resolution of the issue on this appeal does not turn upon what constitutes the “initial loss”. It turns upon whether the negligence alleged against the lawyers in the third-party claim is attributable to the Hengevelds as plaintiffs. I begin by explaining why attributing the fault of a third party to a plaintiff matters to whether there is a cause of action by the defendant against that third-party. I then discuss two situations in which the negligence of the plaintiff’s lawyer is attributable to the plaintiff. Finally, I discuss how those principles apply in this case.

19 A third-party claim, like any action, must have a substantive component – it must assert a cause of action. Here the third-party claim does not rely on any duty allegedly owed by the lawyers to Personal Insurance. It relies on the contribution and indemnity provisions of the Negligence Act … To claim that the lawyer should be liable to Personal Insurance for all or part of the Hengevelds’ claim. But Personal Insurance also relies on the contributory negligence provision of the Negligence Act (s. 3) to assert that the Hengevelds themselves are responsible for all or part of their own claimed damages. The interaction of those provisions is therefore important.

[17] In the Tisi case, which involved a failed real estate transaction, the plaintiff sued in contract negligence and breach of fiduciary duty.

[18] A party cannot claim indemnity unless it is a negligence case and this case is one of contract.

[19] In essence, FRP is trying to contravene the solicitor client privilege which exists between the plaintiffs and KBG.

FRP’s Position

[20] KGB was involved in the incident leading up to the litigation because they drafted the agreement of purchase and sale and put conditions into the agreement without the plaintiffs’ knowledge.

[21] They pleaded at paragraph 19 of their statement of defence:

19 The plaintiffs allege that they were not aware that the closing of the APS was conditional on them entering into a lease for the residential house on the Property and deny that they instructed their lawyer to include the lease condition in the APS and if so KGB erred in including the lease condition in the APS.

[22] The court in Hengeveld stated the following at paragraphs 43 and 44:

43 The argument that the reasoning in Corcoran applies therefore also fails. In Corcoran, a realtor was sued for negligently misrepresenting the value and development potential of commercial property. The realtor commenced a third-party claim against the plaintiff’s lawyer on the transaction, alleging that he was negligent in advising the plaintiff about the contents of the agreement of purchase and sale. In allowing the third-party claim to stand, the court said, At p. 35:

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 its solicitor … The plaintiff may be able to say 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.

44 In Corcoran the plaintiff retained and received advice from two professionals – it’s lawyer and it’s realtor. There was no finding of the type of agency situation described in Adams, making the lawyer’s allegedly negligent conduct attributable to the plaintiff. There was no suggestion that the lawyer acted on behalf of the plaintiff in dealing with others in a manner analogous to filing a prospective (as in Adams), filing a financial statement (as in Macchi), or dealing with Personal Insurance about the preservation of evidence (as in this case). Unlike in Corcoran, Personal Insurance here has not pointed to any alleged act of negligence which the Hengevelds could say was, although committed by their lawyers, not their responsibility vis-à-vis Personal Insurance. Corcoran was distinguished in Macchi, an agency situation case, and it is similarly distinguishable here.

[23] FRP submits that the lease condition may very well therefore not be a mistake of the plaintiff. (Why is it a mistake at all?)

[24] It relies in part on paragraphs 24, 25 & 27 of the Tisi case which states:

24 Laskin, J.A. in Corcoran (which was decided before Davey) distinguished Adams on the basis that the pleadings in Corcoran raise the possibility of a claim against the third-party for which the plaintiff may not be responsible. Laskin J.A. stated at paragraph 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 Davey, distinguished Corcoran on the basis that where third-party claims are allowed to proceed, 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 paragraphs 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. (3rd)28 (Ont. C.A.) where a third-party claim against the plaintiff 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 is 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 appellant’s 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 the 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.

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 a 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 (Ont. S.C.J.)

[25] FRP was unrepresented, the agreement was drafted entirely by KGB and the plaintiffs were not aware that the closing was conditional on them entering into a lease for their residential house on the property. In addition, it is alleged that the plaintiffs deny instructing their lawyers to include such a lease condition.

[26] FRP submits that the threshold under rule 21 to determine whether or not there is a reasonable cause of action is low. They have pleaded the main events, which are capable of truth and the pleading should stand.

[27] At the very least, the facts disclosed in the crossclaim implicitly advance a cause of action against KGB. The crossclaim further contains sufficient material facts such that KGB is aware that FRP intends to establish negligence, namely by pleading KGB’s acts and/or omission with respect to preparing the agreement.

Ruling

[28] This Crossclaim alleges an unusual cause of action.

[29] There was a contract for legal services between the plaintiffs and KGB.

[30] It appears FRP made the decision to represent itself. In any event, they did not retain KGB to draft the agreement of purchase and sale.

[31] Both parties executed the agreement of purchase and sale.

[32] There is nothing in the material to suggest that they could not read it before signing it and nothing to suggest that KGB made any representations to FRP with respect to its contents.

[33] In the Statement of Claim at paragraph 9, the plaintiffs allege that the transaction did not close because FRP was unable to come up with the funds necessary to close the transaction. They further state that they were not prepared to supply financing by way of the vendor take back mortgage. In addition, they state that FRP did not tender.

[34] There is no allegation in the Statement of Claim about the transaction not closing, because a condition having to do with the lease of the subject property had not been fulfilled, or that the agreement of purchase and sale was not approved by KGB, the firm that drafted it.

[35] Despite the plain wording in the Statement of Claim, the defence of FRP is silent on the issue of whether or not they had the financing in place on the date of closing, whether they tendered and if not, why not.

[36] It appears from the material before me, from FRP’s perspective, that the real estate transaction did not close because some conditions were not fulfilled and from the plaintiffs perspective it was because the defendants simply did not have the money to close the deal. Therefore, this is a contract dispute not a case framed in negligence.

[37] Without dealing with the financing and tendering issues in their Statement of Defence, FRP now claims that the above-mentioned conditions should never have been in the agreement in the first place and submits FRP has an action against KGB for putting conditions in the contract allegedly without the plaintiffs’ instructions.

[38] Whether or not KGB had specific instructions from the plaintiffs to insert the subject conditions, the fact remains they were there and it appears on the material before me, based on FRP’s allegations, the plaintiffs availed themselves of the fact that the conditions in the contract were not fulfilled, to refuse to close the transaction.

[39] The plaintiffs would have had every right to waive the condition if they wanted to, but apparently, based on the allegations of KGB, they did not.

[40] As pointed out during submissions, this is a contract dispute not an action framed in negligence.

[41] If KGB breached its contract with the plaintiffs by putting conditions into the contract that it was not instructed to, the plaintiffs would potentially have an action for breach of contract.

[42] KGB in this case certainly owed a duty to the plaintiffs, but it is extremely difficult to see why the KBG would owe any duty to FRP, who was the party adverse in interest to its clients.

[43] It is illogical that the plaintiffs could ever be held responsible to FRP if the plaintiffs did instruct KGB to insert conditions in the agreement of purchase and sale. Likewise, where the plaintiffs availed themselves of the conditions, whether they were put in pursuant to their instructions or not, does not give FRP a right of action against KGB.

[44] This is not a case of negligent misrepresentation upon which FRB relied.

[45] Therefore, this court orders that the crossclaim of FRP Inc. be struck as against the defendant, Kelly Greenway Bruce, (KGB) without leave to amend, for failing to disclose a reasonable cause of action pursuant to rule 21.01(1)(b).

[46] If the parties are unable to agree on costs, Mr. Bennett shall forward his brief submissions on costs to me by January 6, 2021. Ms. Lusk shall forward her brief response to me by January 6, 2021. Mr. Bennett shall then forward his reply, if any, to me by January 11, 2021. Cost submissions may be sent to my attention by email, care of Kitchener.SCJJA@ontario.ca. Cost submissions, excluding bills of costs, shall be limited to 5 pages using spacing of 1.5 and 12 pitch font.

Justice James W. Sloan

Date: December 17, 2020