Court File and Parties

COURT FILE NO.: CV-19-617034

DATE: 2021-09-13

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Dr. Sylvester Chuang, HSC Holdings Inc., Transoriental Fine Cars Ltd., 1405768 Ontario Limited and Ontasian Enterprises Inc.

Plaintiffs

AND:

Fogler Rubinoff LLP, Nina Perfetto, Ian Katchin, David Levangie, Fred Tayar & Associates Professional Corporation, Fred Tayar and Colby Linthwaite

Defendants

BEFORE: Pollak J.

COUNSEL: Timothy S.B. Danson & Marjan Delavar, for the Plaintiffs

Michael R. Kestenberg & Aaron Hershtal, for the Defendants Fogler Rubinoff LLP, Nina Perfetto, Ian Katchin and David Levangie

Peter Wardle, for the Defendants Fred Tayar & Associates Professional Corporation, Fred Tayar and Colby Linthwaite

HEARD: March 30, 2021

ENDORSEMENT

[1] In 2005, the Plaintiffs, Dr. Sylvester Chuang, HSC Holdings Inc., Transoriental Fine Cars Ltd., 1405768 Ontario Limited and Ontasian Enterprises Inc., commenced an Action against Toyota Canada (“Toyota”) claiming damages for its alleged unreasonable termination of a Letter of Commitment (“LOC”) for the development of a Lexus dealership in downtown Toronto.

[2] The defendants, Fogler Rubinoff LLP, Nina Perfetto, Ian Katchin and David Levangie (“Fogler Defendants”), and Fred Tayar Professional Corporation, Fred Tayar and Colby Linthwaite (“Tayar Defendants”), (collectively the “Defendants”), each seek summary judgment, dismissing this Action on the ground that it is statute barred.

[3] The Fogler Defendants were initially trial counsel for the Plaintiffs, until the trial judge granted them leave to withdraw mid-trial. The trial was adjourned, and the Tayar Defendants then represented the Plaintiffs at trial.

[4] When the Defendant Tayar, assumed carriage of the trial, the Fogler Defendants informed the Defendant Tayar of the status and theory of the case and witnesses that they had intended to call. The Tayar Defendant continued the trial with the same strategy that the Folger Defendants Foglers had adopted.

[5] The Action was dismissed in 2015. The Ontario Court of Appeal dismissed an appeal in 2016 and a leave to appeal to the Supreme Court of Canada (“SCC”) was denied in March, 2017. The Plaintiffs seek an order dismissing this motion for summary judgment and allowing this Action to procced on its merits.

[6] In this Action, commenced on March 28, 2019, the Plaintiffs claim that the Defendants negligently did not argue that the applicable exclusion clause was invalid because it was unconscionable and contrary to public policy, as set out in two of the three branches of the test by the Supreme Court of Canada in Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, 2010 S.C.C. 4, [2010] 1 S.C.R. 69 (“Tercon”). The Plaintiffs further claim that the Fogler Defendants were negligent as they removed themselves as counsel mid-trial. The Plaintiffs allege that the Defendants severely prejudiced their Claim which caused a loss of approximately $28 million dollars in damages, and $3 million in legal fees.

[7] Toyota defended the Plaintiffs’ Action relying on an exclusion clause which absolved it from liability for the termination.

[8] In Tercon, the Supreme Court of Canada adopted a three-branch test for assessing the enforceability of an exclusion clause as follows:

a. Interpretation: Does the exclusion clause apply in the circumstances?

b. Unconscionability: If the exclusion clause is held to be applicable, whether the clause was unconscionable at the time the contract was formed. Unconscionability arises in situations of unequal bargaining power between the parties.

c. Public Policy: If the exclusion clause is held to be both valid and applicable, the Court will assess whether it should nevertheless refuse to enforce the valid exclusion clause because of the existence of overriding public policy.

[9] At trial, Plaintiffs’ counsel submitted that the Exclusion Clause did not apply as a result of Toyota’s alleged misrepresentation, bad faith, and waiver. As referred to above, this strategy was used by the Fogler defendants and continued by the Defendant Tayar.

[10] The Defendant Tayar did not argue the second or third branches of the Tercon test at trial, as it was his opinion was that Plaintiffs could not rely on unconscionability as a result of evidence of Dr. Chuang’s sophistication and business experience and the fact that the Plaintiffs had independent legal advice before executing the agreement.

[11] The Plaintiffs’ defence on this motion on the limitation period issue is that it was only after their leave application to the Supreme Court of Canada was denied that the limitation period started to run.

[12] The parties submit that this Action is appropriate for summary judgment.

[13] In Hryniak v. Mauldin, 2014 SCC 7, [2014] S.C.R. 87, the Supreme Court of Canada provided a roadmap to follow on a summary judgment motion. At para. 66, the court states:

"On a motion for summary judgment under Rule 20.04, the judge should first determine if there is a genuine issue requiring trial based only on the evidence before her, without using the new fact-finding powers. There will be no genuine issue requiring a trial if the summary judgment process provides her with the evidence required to fairly and justly adjudicate the dispute and is a timely, affordable and proportionate procedure, under Rule 20.04(2)(a).

If there appears to be a genuine issue requiring a trial, she should then determine if the need for a trial can be avoided by using the new powers under Rules 20.04(2.1) and (2.2). She may, at her discretion, use those powers, provided that their use is not against the interest of justice. Their use will not be against the interest of justice if they will lead to a fair and just result and will serve the goals of timeliness…”

[14] The Supreme Court of Canada in Hryniak attempted to create a procedure designed to be expeditious and affordable. However, the process must also ensure that the dispute is resolved fairly and justly.

[15] The Ontario Court of Appeal stated in Baywood Homes Partnership v. Haditaghi, 2014 ONCA 450, 120 O.R. (3d) 438, at paras. 35 and 37, that the advisability of a staged summary judgment process must be assessed in the context of the litigation as a whole. The Court noted that in a staged summary judgment process there was a risk that a trial judge would develop a fuller appreciation of the relationships and the transactional context than the motion judge. This difference in appreciation could lead to a trial decision that would be implicitly inconsistent with the motion judge's finding, even though the parties would be bound by the motion judge’s finding. This difference in appreciation could lead to inconsistent findings and substantive injustice. At paras. 44-45 the court stated:

“…Evidence by affidavit, prepared by a party's legal counsel, which may include voluminous exhibits, can obscure the affiant's authentic voice. This makes the motion judge's task of assessing credibility and reliability especially difficult in a summary judgment and mini-trial context. Great care must be taken by the motion judge to ensure that decontextualized affidavit and transcript evidence does not become the means by which substantive unfairness enters, in a way that would not likely occur in a full trial where the trial judge sees and hears it all.

Judges are aware that the process of preparing summary judgment motion materials and cross-examinations, with or without a mini-trial, will not necessarily provide savings over an ordinary discovery and trial process, and might not "serve the goals of timeliness, affordability and proportionality" (Hryniak at para. 66). Lawyer time is expensive, whether it is spent in court or in lengthy and nuanced drafting sessions. I note that sometimes, as in this case, it will simply not be possible to salvage something dispositive from an expensive and time-consuming, but eventually abortive, summary judgment process. That is the risk, and is consequently the difficult nettle that motion judges must be prepared to grasp, if the summary judgment process is to operate fairly.”

[16] The Ontario Court of Appeal considered the appropriateness of motions for summary judgment that will determine some of the issues, but will not dispose of the action as a whole. The Ontario Court of Appeal reviewed the problems associated with partial summary judgment motions.

[17] In particular, the partial summary judgment motions tend to defeat the stated objectives of proportionality, timeliness, and affordability set out in the Hryniak case.

[18] The Court of Appeal held in Butera v. Chown, Cairns LLP, 2017 ONCA 783, 137 O.R. (3d) 561, at para. 34, that a partial summary judgment motion should be considered a “rare procedure” that is reserved for issues that can be easily bifurcated from the main action and that can be dealt with expeditiously and in a cost-effective manner.

[19] The Court, at paras. 26-34, reasoned that this approach is entirely consistent with the Supreme Court’s comments in Hryniak:

“[26] The pre-Hryniak appellate jurisprudence on partial summary judgment limited its availability. At para. 3 of Corchis v. KPMG Peat Marwick Thorne, 2002 41811 (ON CA), [2002] O.J. No. 1437 (C.A.), this court applied Gold Chance International Ltd. V. Daigle & Hancock, [2001] O.J. No. 1032 (S.C.J.) to state that:

[P]atrial summary judgment ought only to be granted in the celarest of cases where the issue on which judgment is sought is clearly severable from the balance of the case. If this principle is not followed, there is a very real possibility of a trial result that is inconsistent with the result of the summary judgment motion on essentially the same claim.

[27] Since Hryniak, this court has considered partial summary judgment in Baywood homes Partnership v. Haditaghi, 2014 ONCA 450, 120 O.R. (3d) 438 and in Canadian Imperail Bank of commerce v. Deloitte & Touche, 2016 ONCA 922, 133 O.R. (3D) 561. Baywood was decided in the context of a motion for summary judgment on all claims, but where only partial summary judgment was granted. CIBC involved a motion for partial summary judgment.

[28] In both Baywood and CIBC, the court analyzed the issue from the perspective of whether (i) there was a risk of duplicative or inconsistent findings at trial and whether (ii) granting partial summary judgment was advisable in the context of the litigation as a whole. In both cases, the court held that partial summary judgment was inadvisable in the circumstances.

[29] The caution expressed pre-Hryniak in Corchis is equally applicable in the post-Hryniak world. In addition to the danger of duplicative or inconsistent findings considered in Baywood and CIBC, partial summary judgment raises further problems that are anathema to the stated objectives in Hryniak.

[30] First, such motions cause the resolution of the main action to be delayed. Typically, an action does not progress in the face of a motion for partial summary judgment. A delay tactic, dressed as a request for partial summary judgment, may be used, albeit improperly, to cause an opposing party to expend time and legal fees on a motion that will not finally determine the actions and, at best, will only resolve one element of the action. At worst, the result is only increased fees and delay. There is always the possibility of an appeal.

[31] Second, a motion for partial summary judgment may be very expensive. The provision for a presumptive cost award for an unsuccessful summary judgment motion that existed under the former summary judgment rule has been repealed, thereby removing a disincentive for bringing partial summary judgment motions.

[32] Third, judges, who already face a significant responsibility addressing the increase in summary judgment motions that have flowed since Hryniak, are required to spend time hearing partial summary judgment motions and writing comprehensive reasons on an issue that does not dispose of the action.

[33] Fourth, the record available at the hearing of a partial summary judgment motion will likely not be as expansive as the record at trial therefore increasing the danger of inconsistent findings.

[34] When bringing a motion for partial summary judgment, the motion be dealt with expeditiously and in a cost effective manner. Such an approach is consistent with the objectives described by the Supreme Court in Hryniak and with the direction that the Rules be liberally construed to secure the just, most expeditious, and least expensive determination of every civil proceeding on its merits.” [emphasis added]

[20] Having regard to these cautions, at the hearing of this motion, the Court raised the issue of propriety for this motion for summary judgment in this matter. The parties submit that the court should hear and consider the motion for summary judgment as this is the most cost effective and expeditious way to proceed. Alternatively, the Plaintiffs’ position is that this matter should be dismissed as there are genuine issues requiring a trial.

[21] The parties submit that none of the concerns expressed by the Court of Appeal in the recent decision of Butera v. Chown, Cairns LLP, 2017 ONCA 783, are relevant in this case. The parties are already before the court pursuant to the Defendant’s summary judgment motion and therefore granting partial summary judgment would not cause added delay, expense, wasted judicial resources, or lead to inconsistent findings. On the contrary, it is submitted that granting of partial summary judgment will streamline the trial process and will also avoid potentially inconsistent findings between this Honourable Court and the trial judge on the date of discoverability. I agree that this is one of these “rare” cases where the issue of the “limitation period” can be “bifurcated from the main action and that can be dealt with expeditiously and in a cost-effective manner”.

[22] Additionally, although the Plaintiffs have not brought a cross-motion for a determination that their case is timely, it is submitted that even in the absence of a cross-motion, the Court is entitled to make findings of fact pursuant to rule 20.04 of the Rules of Civil Procedure that the claim is in fact timely and is therefore may grant partial summary judgment on the discoverability issue in favour of the Plaintiffs.

[23] Applying the roadmap which I have just referred to above that the Supreme Court of Canada has given us to evaluate the evidence before the court, I consider the following: 1) On the basis of the evidentiary record alone, are there genuine issues requiring a trial? I must ask if the evidentiary record provides me with the evidence I need to “fairly and justly adjudicate the dispute”.

[24] In my view, the answer is yes. I find that there is no genuine issue requiring a trial on the limitations defence.

[25] I have considered and find that the requirements for summary judgment that are set out by our Supreme Court in the case of Hryniak v. Mauldin, 2014 SCC 7, 2014 S.C.C. 7 and most recently by our Court of Appeal in Royal Bank of Canada v. 1643937 Ontario Inc. 2021 ONCA 98, have been met.

[26] The moving Defendants argue that Dr. Chuang did not allege Foglers' removal as the Plaintiffs’ lawyers of record was inappropriate or gave rise to a cause of action against the Fogler Defendants prior to the Action.

[27] At trial Toyota argued that the Exclusion Clause absolved it of liability, regardless of whether its termination of the Letter of Credit (“LOC”) was unreasonable.

[28] The Plaintiffs argued that the Exclusion Clause was inapplicable or had not been triggered in the circumstances. They also advanced other arguments which would have had the effect of vitiating the exclusion clause, including misrepresentation, bad faith, and waiver on the part of Toyota.

[29] In particular, Tayar’s position at trial on behalf of the Plaintiffs was that:

a. As a matter of interpretation, the Exclusion Clause could not apply in circumstances where Toyota had unlawfully repudiated the LOC and the Plaintiffs had not accepted the repudiation; and

b. By repudiating the LOC, the Exclusion Clause was not triggered, since there was no termination.

[30] The Defendants also argue that the Plaintiffs knew as soon as the Foglers Defendants removed themselves from the record in 2013 of any potential claim they may have had arising from such removal.

[31] The Defendants submit that there were at least six events which would have made the Plaintiffs aware of their potential claim against the Defendants for their alleged failure to advance unconscionability and public policy arguments at trial. The Plaintiffs, it is alleged, did not exercise reasonable diligence. The six events are:

• When the trial judge released his reasons, the Tayar defendants specifically drew to their attention the fact that the trial judge had concluded that there was no unconscionability or public policy principle which would have invalidated the exclusion clause.

• The Plaintiffs’ principals, a sophisticated and experienced businessman and a senior commercial lawyer, concede that they read the trial decision, which clearly stated that the Plaintiffs had not argued unconscionability and public policy at trial. Their protestations that they “scanned” the decision and were “not qualified to appreciate the nuances of the legal analysis” are irrelevant as they could and should have informed themselves of the significance of the decision.

• Counsel retained for the appeal specifically drew to the Plaintiffs’ attention the first branch of the Tercon test. The Plaintiffs took no steps to investigate or determine what the other branches were, or why appeal counsel did not intend to argue those branches on the appeal.

• The Plaintiffs concede that they reviewed the decision of the Ontario Court of Appeal, which repeated in simple and plain language that two of the three branches of the Tercon test had not been argued at trial.

• In December 2016, when preparing their leave application to the SCC, the Plaintiffs’ counsel specifically asked them why trial counsel had conceded the second and third branches of the Tercon test at trial.

• Their counsel then submitted fresh evidence on their leave application specifically addressing the second and third branches of the Tercon test.

[32] The Plaintiffs’ position is that they did not have any knowledge of the defendants’ negligence until after the Supreme Court of Canada denied their leave application. That is when they asked for a legal opinion on whether the Defendants were negligent. The Plaintiffs trusted and relied on the repeated and consistent advice of all of the defendants, that their loss was the result of errors of law made by Justice Spence and the Court of Appeal. The Defendants consistently urged the Plaintiffs to appeal. It is submitted that, as a result, the two-year limitation began to run, at the earliest, when leave to appeal was denied. In the alternative, if the Plaintiffs had “actual” knowledge of the defendants’ negligence during their counsel’s preparation of the leave application to the Supreme Court of Canada (as alleged by the defendants, which is denied), was not appropriate to wait until all appeal routes had been exhausted. The two-year limitation period would still have commenced on March 30, 2017, the date when leave was denied. A successful appeal would have resolved the dispute between the parties and eliminated the losses sustained by the Plaintiffs. The Plaintiff’s rely on the appropriate means test set out in s. 5(1)(a)(iv) Limitations Act.

[33] The Plaintiffs submit that on the basis of the Defendants’ admissions, their summary judgment motions must be dismissed:

They admit that they did not discuss the Tercon case with them. The Defendant’s decided that steps two and three of the Tercon analysis were irrelevant and not applicable. Rather, the Defendants argued at trial that the exclusion of liability clause did not apply because Toyota’s cancellation of the agreement had been unreasonable and that it therefore could not benefit from its own wrongdoing.

[34] The main theme of the Plaintiffs’ position on this motion is that all of the Defendants consistently advised the plaintiffs that Justice Spence had erred and that his decision should be appealed. Similarly, such advice was given following the Ontario Court of Appeal’s dismissal of their appeal. The Plaintiffs trusted their lawyers throughout as they were experienced trial lawyers.

[35] On this motion, the defendants submit that certain paragraphs in the trial and appeal decisions ought to have triggered “actual” knowledge and cyrstallized the limitation period. The Plaintiffs submit they could not have known of their legal significance. The Tercon case was never brought to their attention, never discussed with them. Further, all of the defendants themselves considered to be irrelevant. If steps two and three of Tercon were considered irrelevant to the defendants and not discussed with the Plaintiffs, I agree that they can not be relevant for the purpose of establishing “actual” knowledge of the defendants’ negligence.

[36] The evidence of the cross-examination of Ms. Perfetto and Mr. Tayar is that they “refused to answer the “question”: If they never discussed steps two [unconscionability] and three [public policy] of Tercon with the plaintiffs, how could the plaintiffs have had the slightest idea of the significance or relevance of Justice Spence’s comment at paragraphs 111–112 of his decision and the Court of Appeal’s comment at paragraph 25 of its decision concerning step two and three of Tercon?.

[37] As a result, the above noted admission, I can not accept the Defendants submissions that the Plaintiff’s had six opportunities for “actual knowledge” of their loss.

[38] On this motion, the Plaintiffs emphasize their reliance on the solicitor-client relationship. The Plaintiffs trusted the defendants and fully relied on their superior knowledge, expertise, skill and experience.

[39] The Plaintiff’s rely on the Ontario Court of Appeal decision in Ferrara v. Lorenzetti, Wolfe Barristers & Solicitors, 2012 ONCA 851 wherein the Court held that:

“… To tell the appellants that they made the mistake of relying on their own lawyer and then allow these lawyers to use this erroneous reliance to support their position that the action was commenced out of time would reward a particularly pernicious violation of solicitor-client trust” … “Respectfully, it ill lies for Schwartz [the defendant] to take this position. I doubt any lawyer would have been justified taking this position against his own client”.

[40] Similarly, this court rejected such an argument in the case of Smith v. GCAT Group Inc., 2017 ONSC 7542, wherein Justice Diamond stated:

“To give effect to this argument would be tantamount to allowing the defendant to rely on their own alleged breaches and place an onus upon the plaintiffs to suspect that the defendants were not being honest or acting in good faith. While there could have been grounds for the plaintiffs to be suspicious of the defendant, in my view that does not necessarily trigger the limitation period …”.

[41] The evidence of the Plaintiffs is that they relied on the representations of the Defendants that they were highly skilled litigators, who were experts in litigating complex and sophisticated corporate/commercial matters. The plaintiffs’ evidence is that they relied upon the defendants’ superior knowledge, skill, expertise and experience, believing that the Defendants would keep them fully informed of all relevant matters touching upon the litigation in order to enable meaningful discussions and to allow the Plaintiffs to provide proper instructions. I find that the Plaintiffs reasonably believed that their legal interests were being fully protected and that the defendants had fulfilled their obligations to advance every reasonable legal argument.

[42] It is important to note that both the Defendant Ms. Perfetto and the Defendant Mr. Tayar agreed that Justice Spence’s decision should be appealed. Ms. Perfetto recommended that John Adair argue the appeal. Their advice to appeal together with that of Mr. Adair further reassured the plaintiffs that the defendants had done an excellent job as trial counsel and that the loss had been entirely due to errors of law made by the trial judge. After the decision of the Ontario Court of Appeal, the Defendants continued to advise that the Plaintiff’s losses were due to errors of law made by Justice Spence and the Court of Appeal. The Defendants also recommended a further appeal to the Supreme Court of Canada.

[43] The evidence is that the Defendants did not tell the Plaintiffs that they may have been wrong to effectively concede steps two and three of Tercon without instructions.

[44] I agree that a reasonable person with the abilities of the Plaintiffs and, in particular, in the circumstances of this case, would not have known and that the Plaintiffs did not know that they had a claim against the Defendants until after the denial of the Supreme Court of Canada leave application, on whether the Defendants had been negligent. I find that they could not have known because of the Defendants’ consistent advice and that they had an honest and reasonable belief they had received competent legal advice.

[45] Further, as I have referred to above, the Plaintiffs rely on the “appropriate means test” to determine when to start calculating the two-year limitation period under s. 4 of the Act set out in Subsection 5(1)(a)(iv) which provides as follows:

5 (1) A claim is discovered on the earlier of, (a) the day on which the person with the claim first knew … (iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it.

[46] Notwithstanding the fact that I have found that the Plaintiffs could not have had any actual knowledge of their Claim prior to the Supreme Court of Canada’s denial of the hearing Application, I will consider the alternate submission of the Plaintiffs. They submit that even if their Claim was discoverable on a specific date, that pursuant to ss. 5(1)(a)(i)–(iii) of the Act, it was not “appropriate” to commence litigation. The Plaintiffs did not know that a proceeding is a legally appropriate means to seek a remedy until the appeal, has been finally dealt with. It was not legally appropriate to commence litigation, it cannot be said that the plaintiff knows or ought to have known that a legal proceeding would be appropriate means to remedy the loss.

[47] The Plaintiffs’ claim could have been remedied by a more effective method provided for in a statute or an alternative process, deterring unnecessary litigation.

[48] In the case of Presidential MSH Corporation v. Marr Foster & Co., 2017 ONCA 325, the Defendants kept urging the Plaintiff’s to appeal. There was a possibility of eliminating the loss. Our Court of Appeal held that as long as the other process has “the potential to resolve a dispute”, it will render “a court proceeding inappropriate and unnecessary”.

[49] In the cases of Brown, Ferrara, Nelson, Lauesen, 407 ETR, Crombie, Presidential, Clarke et al, the Court of Appeal held that the motion court judge had wrongly equated knowledge that the Defendants had caused a loss, with a conclusion that a proceeding would be an appropriate means to seek a remedy for the loss.

[50] I agree that exhausting the statutory appeal route as consistently the most sensible, practical and cost-effective way to proceed.

[51] For all the above noted reasons, I find that the Defendant’s motion for summary judgment must be dismissed as they have not satisfied their burden of proving their limitation defence. To the contrary, I find, as a fact, that the Plaintiffs have satisfied their burden of proving that the Defendant’s limitation period defence must be dismissed and that this Action may proceed to trial on its merits.

Costs

[52] The parties filed costs submissions at the time of the hearing. The successful party, the Plaintiff’s are therefore awarded their costs on a partial indemnity basis in the amount of $40,000, inclusive of HST and disbursements.

Pollak J.

Date: September 13, 2021