1824120 Ontario Limited v. Matich

COURT FILE NO.: 13446/21

DATE: 2021-12-21

SUPERIOR COURT OF JUSTICE – ONTARIO

RE: 1824120 Ontario Limited, plaintiff

AND: Joseph George Matich, Kelly Anne Smith and Anne Marie Matich, defendants

BEFORE: Mr Justice Ramsay

COUNSEL: Scott McGrath and Alexander Soutter for the plaintiff; Johanna McNulty for the defendants

HEARD: December 20, 2021 at Welland by teleconference

ENDORSEMENT

[1] The plaintiffs are suing for specific performance of an agreement for purchase and sale of a farm owned jointly by the three defendants, who are husband, wife and daughter, on the basis that the defendants acted in bad faith by relying on a solicitor approval condition to annul the deal. The plaintiffs now move for a ruling that privilege with respect to certain advice given the defendants by their real estate solicitor has been lost and that the advice should be disclosed to them.

[2] On December 21, 2021 I gave the defendants leave to amend their statement of defence [1824120 Ontario Limited v. Matich, 2021 ONSC 8389]. They plead two main defences:

a. There was no valid agreement of purchase and sale because the purported counteroffer was only signed by the two parents, not the daughter.

b. They did not act in bad faith. They acted in good faith on the advice of their solicitor.

[3] The defendants Mr and Mrs Matich are an octogenarian couple who, with their daughter Kelly Anne Smith, own 37 acres of property right across the street from Niagara College in Welland. It is what is left of the original grant. The rest was severed years ago, and the College was built on it. Mr Matich is severely ill with cancer.

[4] Mr Matich is a retired metallurgist. Mrs Matich is a housewife. Mrs Smith is a sales and marketing executive. None of them knows much about real estate.

[5] The Matiches did not seek out a real estate broker. A broker named Caravaggio approached them and got them to sign a listing agreement. Mrs Smith was not a party to this agreement. It was signed on February 9, 2021. The listing price was $18,500,000.

[6] The Matiches next heard from Caravaggio on March 11, 2021. He said that he was collecting offers and would come by to review them. On March 14 he called and asked to come the following day. The Matiches resisted because Mr Matich had a doctor’s appointment at 11 am. Caravaggio said he would come at 9. He came at 950 am. One offer, he said, was for $16,500,000 but he did not think it worthwhile to show them. The other was from the plaintiff. It offered $16,050,000 but was said to be the better offer because of the other conditions.

[7] The Matiches were not happy with the offer, but Caravaggio suggested that they counteroffer $16,500,000. He wrote in the new figures and Mr and Mrs Matich initialled them. At Mrs Smith’s insistence, he included a solicitor approval clause, which was worded as follows:

This Offer is conditional upon the approval of the terms hereof by the Seller’s Solicitor. Unless the Seller gives notice in writing delivered to the Buyer or to the Buyer’s address as hereinafter indicated personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule hereto not later than Three days (3) from the date of acceptance of this offer, that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. This condition is included for the benefit of Seller and may be waived at the Seller’s sole option by notice in writing to the Buyer as aforesaid within the time period stated herein.

[8] The plaintiff accepted the counteroffer.

[9] The defendants took the agreement of purchase and sale to their solicitor, Mr Ikola. He gave them a written opinion in an email dated March 18, 2021, and he discussed this opinion with them by telephone later that day. The contents of the email and the telephone call have not been disclosed. Communications ensued between Mr Ikola and the plaintiff’s lawyer. The plaintiff threatened to sue if the deal was annulled.

[10] On March 18 the defendants, through their solicitor, extended the condition “until tomorrow” to allow Mr Ikola time to draft a written response to the plaintiff. On March 19 Mr Ikola conveyed the defendants’ final decision not to waive the condition as follows:

As I am sure you are aware, our advice to our clients is privileged. Consequently, we have no obligation to share said advice with you. This agreement was conditional upon our approval. As such, we reviewed the agreement and the circumstances surrounding it with out clients in great detail. After this review, we cannot advise our clients to waive this condition and our position is that our clients are well within their rights to choose not to do so. We can confirm that there was no bad faith dealing on the part of our clients and they do not owe your client any right to remediate the terms of the offer.

[11] The defendants did not accept any other offers.

Waiver of solicitor and client privilege

[12] Where a litigant relies on legal advice as an element of his claim or defence, the privilege which would otherwise attach to that advice is lost: S&K Processors Ltd v Campbell Ave Herring Producers Ltd., 1983 CanLII 407 at para. 6 (BCSC, McLachlin J.). It would not be fair to allow a litigant to use his lawyer’s advice in evidence and at the same time shield that evidence from all scrutiny by claiming privilege.

[13] I adopt the reasoning of Gray J. in Leggat v. Jennings, 2015 ONSC 237 (emphasis supplied):

32 It is clear that a party may impliedly waive privilege where it has put reliance on legal advice in issue.

33 The mere fact that a party's state of mind is in issue is not sufficient. For example, merely alleging that the other party has acted in bad faith cannot defeat solicitor and client privilege: see Davies v. American Home Assurance Co. (2002), 2002 CanLII 62442 (ON SCDC), 60 O.R. (3d) 512 (Ont. Div. Ct.). However, when a party directly raises the issue of reliance on legal advice as an explanation for his or her conduct or state of mind, privilege is impliedly waived: see R. v. Shirose, 1999 CanLII 676 (SCC), [1999] 1 S.C.R. 565 (S.C.C.).

34 The issue in this case is whether a litigant, having put its own state of mind in issue, has opened up an inquiry as to whether legal advice has affected that party's state of mind, and if so, whether any privilege in legal advice has thereby been waived. In my view, the answer in most cases is no.

[14] It is not enough for the receipt of legal advice to be material. As Perell J. said in Creative Career Systems Inc. v. Ontario, 2012 ONSC 649 para. 29, the waiver of privilege occurs when the party uses the receipt of legal advice as a material fact in his or her claim or defence.

Application

[15] The first point that must be made is that the requested order should not be made now. Edwards J. did not rule on this point when he scheduled the motions. The defendants have brought a motion for summary judgment on the ground that there was no valid agreement of purchase and sale because one of the three owners of the property did not sign the purported agreement. It would not be in the interest of justice to order disclosure of solicitor client communications that are said to be relevant to one issue when the action may soon be decided on a separate issue on which they have no bearing.

[16] The second point is that the defendants are not basing their defence on their state of mind. They have simply answered the plaintiff’s claim that they acted in bad faith. I do not accept the plaintiff’s argument that there is a distinction between pleading lack of bad faith and pleading good faith, at least not for present purposes. The wording of the solicitor clause says nothing about good faith or even about approval not being unreasonably withheld. All the defendants need to show is that they spoke to their lawyer and he did not approve the terms, that is, the conditions, of the sale. That he did not approve can scarcely be in doubt. The defendants have disclosed the lawyer’s decision. They are only withholding his reasons. The clause requires the solicitor’s approval. If he does not approve, that says nothing about the defendants’ state of mind, whatever his reasons.

[17] The clause is unambiguous. It presumes that the sale will be “null and void” unless the seller waives the solicitor approval condition in three days. It makes clear to the buyer that the seller is reserving the absolute right to cancel after consultation with the solicitor. This makes sense in the factual matrix. On its face, this is a document which two unsophisticated sellers would find complicated and with respect to which they would want to reserve the right to a second look without accountability for a change of mind.

[18] The deal called for the plaintiffs to pay a total of $16,500,000, consisting of $500,000 in deposits before closing, $7,750,000 on closing and a mortgage in the amount of $8,250,000 taken back by the vendors for two years with no interest for one year, and then 3% annual interest thereafter. The document incorporated schedule B, which contained mortgage terms and which itself incorporated standard mortgage terms. It also had pages of conditions that were given for the benefit of the buyer.

[19] The seller’s state of mind is not the real issue. The plaintiff wanted to buy the defendants’ property for less than asking price and wanted them to finance half the purchase for him interest-free for a year and with low interest for another year. What lawyer would approve? Who would recommend to an 80-year-old man with cancer to wait two years to realize half the proceeds of the sale? Time to wait is one thing Mr Matich did not have.

[20] There is evidence of another offer that Caravaggio did not show the defendants. And there is hearsay evidence from Joe Montesano, the principal of the plaintiff, that Caravaggio told him that a better offer “was presented to [the defendants]” on March 18. This shows that Caravaggio’ loyalty did not lie with the defendants and that if other offers are relevant, Caravaggio would be the logical source of such evidence. At trial it will also tend to support the defendants’ contention that Caravaggio was allied with the plaintiff and their evidence that he pressured them.

Conclusion

[21] The motion is dismissed.

[22] The parties may make written submissions to costs not exceeding three pages in length, to which a bill of costs and any offers to settle may be appended, the defendants by January 14, 2022 and the plaintiffs by the following January 21.

J.A. Ramsay J.

Date: 2021-12-21