SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: CV-20-639973-

DATE: 20220117

RE: FOODINVEST LIMITED, Plaintiff

-and-

GERALD MATLOFSKY, Defendant

BEFORE: FL Myers J

COUNSEL: Glenroy K. Bastien, for the Plaintiff

Gavin J. Tighe and Scott K. Gfeller, for the Defendant

HEARD: January 17, 2022

ENDORSEMENT

[1] The plaintiff sues the defendant for professional negligence. The plaintiff claims that but for the neglect of its lawyer, it would have succeeded in a prior lawsuit against the Royal Bank of Canada.

[2] The defendant moves to strike the claim on the basis that it cannot succeed as pleaded.

[3] For the brief reasons that follow, I agree with the defendant and grant the motion with leave to amend as discussed below.

[4] The basic facts are not in dispute. The plaintiff was defrauded into sending numerous wire transfers to fraudsters abroad. The plaintiff’s bank received some information from the foreign receiving bank that the accountholders there may be conducting illegal activities. The bank did not pass that information on to the plaintiff or warn it.

[5] Morgan J. heard the bank’s motion for summary judgment. With reasons reported at 2018 ONSC 7742, he agreed with the bank that, under the explicit terms of its contract with the plaintiff, the bank had no duty except to carry out the wire transactions as instructed by the plaintiff.

[6] Morgan J. also found that even if there had been a duty of care, the plaintiff did not adduce any of the necessary expert evidence to show that the bank failed to act in accordance with prevailing banking practices i.e. that it breached the relevant standard of care.

[7] With an endorsement reported at 2020 ONCA 665, the Court of Appeal upheld the decision of Morgan J. and agreed that under the banking contract, the bank did not owe a duty to tell the plaintiff about the information it had received from the foreign bank. The Court of Appeal determined that, in light of that holding, the appeal would be dismissed and it was not necessary to go on to consider whether Morgan J. was correct in finding that the absence of an expert report was also fatal to the claim.

[8] In this action, the plaintiff sues its former lawyer for breach of contract, negligence, and breach of fiduciary duty, arising from his carriage of the litigation against the bank.

[9] The particulars are pleaded in the Statement of Claim as follows:

BREACH OF CONTRACT

17. The plaintiff entered into a contract for legal services with the defendant. The defendant was responsible for the day-to-day particulars of moving the plaintiff's file forward.

18. The plaintiff pleads that the defendant breached the terms of his retainer, and the contract to perform legal services for his client in a competent and professional manner; or alternatively breached his duty owed to the plaintiff as the plaintiff's lawyer. By reason of such actions, the plaintiff has suffered substantial damages for which the defendant is responsible.

19. The plaintiff pleads that it received no value for the amounts paid to the defendant for legal services and advice, and claims repayment of such amounts.

NEGLIGENCE AND BREACH OF FIDUCIARY DUTY

20. The plaintiff states, and the fact is, that the defendant was negligent in failing to retain an expert to provide an expert report to advise the court on the duty of care owed by RBC to the plaintiff.

21. The plaintiff pleads that the defendant was negligent as barristers and solicitors while he represented the interests of the plaintiff, and that he breached the fiduciary duty owed to the plaintiff, and in particular the defendant:

a. failed to prepare and file an adequate and sufficient Statement of Claim on the merits;

b. failed to retain an expert;

c. failed to properly advise the plaintiff;

d. failed to provide and adequate reply to RBC's motion for summary judgment;

e. failed to put the plaintiff's best foot forward to defend against the Summary Judgment Motion;

f. Failed to aggressively pursue the plaintiff's claim;

g. Failed to follow the plaintiff's instructions;

h. Failed to properly advise the plaintiff;

i. Placed his own financial interests and consideration ahead of his duty to the plaintiff,

j. He knew or ought to have known that an expert report was required to reply to RBC's Summary Judgment Motion;

k. he made little to no effort to advance the Plaintiff's claim, and, that this was completely at odds with the fiduciary duty and duty of care owed by the defendant to the plaintiff as its Barristers and Solicitor; and,

1. such further and other negligence as counsel may advise and this honourable court my permit. [Emphasis added.]

[10] It is clear from the pleading that the breach of contract alleged is concurrent with the claim of negligence. It is also clear that the breach of fiduciary duty pled in para. 21 (i) is not supported by any allegations of material facts in the pleading.

[11] Para. 20 of the Statement of Claim presents a problem. The plaintiff claims that the lawyer was negligent in failing to adduce expert evidence on the duty of care owed by the bank to the plaintiff.

[12] Both courts found the duty of care arose (or, here, was negated) by the wording of the contractual documents agreed between the parties. No other evidence was considered.

[13] The expert evidence commented upon by Morgan J. was a report to establish a breach of the relevant standard of care rather than the existence of a duty of care.

[14] The duty of care is a question of law for the judge that is a prerequisite for any discussion of the standard of care. See: Canadian Imperial Bank of Commerce v Deloitte & Touche, 2015 ONSC 7695, at para. 19. See also: Ryan v. Victoria (City), 1999 706 (SCC), at para. 21, [“Thus, a discussion of duty centres around its existence, while the standard of care clarifies what the content of the duty is. Where there is no duty there is no negligence.”]

[15] Mr. Tighe submits that Mr. Matlofsky cannot be found to have been negligent for failing to file expert evidence on the standard of care when the case was decided on the absence of any duty of care owing from the bank to the plaintiff. Had Mr. Matlofsky filed expert evidence on the standard of care, the case would have been dismissed just the same but the plaintiff would have incurred more cost.

[16] The defendant is effectively pleading that because of the binding holding made by the Court of Appeal, the plaintiff cannot prove that anything done by the defendant lawyer caused the plaintiff to suffer loss. It was going to lose as a matter of law in any event. The elements of the argument come from the pleading and the law and therefore are open for review under Rule 21.

[17] In addition, the defendant submits that he cannot be sued for failing to win the prior case because the lawsuit is predicated on an unjust result having been reached by Morgan J. and the Court of Appeal. In Ontario, a plaintiff who is dissatisfied with her counsel’s performance in litigation cannot sue if part of the claim is that the lawyer led the court to make the wrong conclusion. That argument must be made on appeal either on the merits or as a form of “ineffective assistance of counsel” argument. Otherwise, the correctness of a decision of the court cannot be challenged by collateral attack.

[18] In Arconti v. Fenton, 2020 ONCA 489 the Court of Appeal held,

[17] The appellants argue that because the conduct of counsel is assessed on the Archer test when raised on an appeal from conviction, relitigation should be permitted in a solicitor’s negligence case. We reject that argument. A person who is concerned that ineffective representation by counsel has led to a wrongful conviction must pursue that issue by way of appeal from the conviction: Folland v. Reardon (2005), 2005 1403 (ON CA), 74 O.R. (3d) 688 (C.A.). When that has not been done, or when, as here, it is done unsuccessfully, the result is the same. The decision that cannot be collaterally attacked in a civil proceeding is the correctness of the conviction. A civil claim that depends on showing that the conviction would not have occurred but for the lawyer’s conduct is exactly that kind of improper collateral attack: see Harris, at paras. 5-8.

[18] The appellants’ argument that it is unclear what use they may make of various complaints they want to advance against the respondents is unavailing. We see no lack of clarity. The motion judge stated in his reasons: “[the] plaintiffs are precluded…from making any further claims against [the] defendants based on the assertion that the defendants’ neglect, conflicts, and/or misconduct caused them to lose the hearing.” That is what the appellants may not do, and it is perfectly consistent with the motion judge’s decision to dismiss certain claims. [Emphasis added.]

[19] Arconti involved an administrative tribunal decision rather than a criminal or civil case. I do not see how it makes any difference in principle. Mr. Bastien submits that the burden to establish ineffective assistance on appeal is much higher than the burden to prove lawyers’ negligence. That is true. But this reflects the importance of bringing finality to litigation.[^1]

[20] In argument, Mr. Tighe accepted that there may be cases in which the search for foreseeability and proximity that underpin a duty of care may involve some facts. It may not be impossible for evidence to bear on a duty of care in some cases. In this case however, the duty was circumscribed by the express term of a contract. I do not agree with Mr. Bastien’s submission that an expert might have been able to assist the court or the Court of Appeal in this case with how to interpret the plain words of the contract. Evidence to that effect would not have been admissible.

[21] It is perfectly clear that the Court of Appeal has found that the bank did not owe the plaintiff a duty of case in this case. That issue has been decided with finality. It can only be challenged if the court were to exercise its discretion to refrain from imposing the doctrines of issue estoppel and abuse of process.

[22] In Arconti, the Court of Appeal referred to the decision of the Supreme Court of Canada in Penner v. Niagara (Regional Police Services Board), 2013 SCC 19 at para. 42 concerning the issues relevant to the court’s exercise of its discretion to allow re-litigation of an issue.

[41] Many of the factors identified in the jurisprudence, including the procedural safeguards, the availability of an appeal, and the expertise of the decision maker, speak to the opportunity to participate in and the fairness of the administrative proceeding. These considerations are important because they address the question of whether there was a fair opportunity for the parties to put forward their position, a fair opportunity to adjudicate the issues in the prior proceedings and a means to have the decision reviewed. If there was not, it may well be unfair to hold the parties to the results of that adjudication for the purposes of different proceedings.

(b) The Fairness of Using the Results of the Prior Proceedings to Bar Subsequent Proceedings

[42] The second way in which the operation of issue estoppel may be unfair is not so much concerned with the fairness of the prior proceedings but with the fairness of using their results to preclude the subsequent proceedings. Fairness, in this second sense, is a much more nuanced enquiry. On the one hand, a party is expected to raise all appropriate issues and is not permitted multiple opportunities to obtain a favourable judicial determination. Finality is important both to the parties and to the judicial system. However, even if the prior proceeding was conducted fairly and properly having regard to its purpose, injustice may arise from using the results to preclude the subsequent proceedings. This may occur, for example, where there is a significant difference between the purposes, processes or stakes involved in the two proceedings. We recognize that there will always be differences in purpose, process and stakes between administrative and court proceedings. In order to establish unfairness in the second sense we have described, such differences must be significant and assessed in light of this Court’s recognition that finality is an objective that is also important in the administrative law context. As Doherty and Feldman JJ.A. wrote in Schweneke v. Ontario (2000), 2000 5655 (ON CA), 47 O.R. (3d) 97 (C.A.), at para. 39, if courts routinely declined to apply issue estoppel because the procedural protections in the administrative proceedings do not match those available in the courts, issue estoppel would become the exception rather than the rule.

[23] Mr. Bastien submits that neither Morgan J. nor the Court of Appeal considered whether Mr. Matlofsky was negligent. It would not be a fair use of their decisions then to determine if he handled the proceeding properly. I do not agree. Litigation in court has to end. Mr. Matlofsky was not counsel for the plaintiff on the appeal from Morgan J. That was the time to assert that the judge came to the wrong decision.

[24] But, that does not address fully the claim before the court. I agree with Mr. Tighe that with the decision that there is no duty of care owing by the bank to the plaintiff, the claim for failing to deliver an expert report on the standard of care cannot succeed. The claim currently in para. 20 – that the lawyer failed to adduce evidence on the duty of care - is barred by issue estoppel/abuse of process too. It is based on the courts having come to the wrong decision because they did not have the proper evidence.

[25] The plaintiff provides no basis to exercise the court’s discretion to allow the matter to be re-litigated. The plaintiff had the fullest of fair process in court and it had an expectation that the matters between itself and the bank would be resolved finally in that case.

[26] However, the Statement of Claim is not limited to the one particular set out in para. 20. It seems to me that there are claims that could be stated by the plaintiff that are not predicted on the wrong decision being made. Perhaps the plaintiff was not adequately advised about the strength of the lawsuit? Perhaps it was and the claim was brought for bargaining leverage. I cannot speculate either way. Perhaps the plaintiff has particulars to support a claim of breach of fiduciary duty? I cannot say that there is no claim, no matter how drafted, that could possibly succeed against Mr. Matlofsky.

[27] Therefore, I strike the claims in paragraphs 17 through 21 of the Statement of Claims with leave to amend within 45 days to plead claims that are not predicated on the decisions made by Morgan J. and the Court of Appeal being incorrect or that the bank owed a duty of care to the plaintiff.

[28] Counsel agreed that costs fixed at $17,000 all-inclusive should be awarded to the successful party. The plaintiff will therefore pay the defendant costs of $17,000 within 45 days.

FL Myers J

Date: January 17, 2022

[^1]: At the conclusion of the hearing, the principal of the plaintiff asked to speak. She went on for several minutes providing unsworn evidence of the many failures that she lays at Mr. Matlofsky’s feet. She was very emotional and was not open to direction from the court or her counsel. It seems to me though, that her need to tell me the things that she said may well reflect her dissatisfaction with the fact that Mr. Bastien did not do so. He cannot be faulted as none of the client’s allegations was admissible evidence on this motion. But this highlights the importance of finality so that a dissatisfied client cannot keep re-litigating an unsuccessful claim by launching successive claims against her lawyer and then the next lawyer or others.