The discovery principle and limitation of actions for solicitor’s negligence:Ferrara v. Lorenzetti, Wolfe Barristers and Solicitors (Ont. C.A)

Today’s decision of the Court of Appeal for Ontario in Ferrara v. Lorenzetti, Wolfe Barristers and Solicitors, 2012 ONCA 851 deals with the discoverability principle and limitation of actions for solicitor’s negligence.

The underlying dispute involved a breach of contract claim arising out of an agreement of purchase and sale of a one-half interest in co-tenancy lands (the “subject-property”), held in trust by King Line Investments. The appellant, Cesan Mechanical Limited, with other co-tenants, owned shares in the subject-property.   In July 2004, Cesan assigned its offer to purchase the subject-property to the appellant, 973976 Ontario Limited (“973″). The appellant, Antonio Ferrara, is the principal and owner of both corporate appellants.  In August 2004, another co-tenant assigned its matching offer to Gason Investments, resulting in proportional offers to buy 50% interest in the subject-property.

 Problems arose in efforts to reduce the land transfer tax on 973’s purchase: King Line and 973 agreed that in the statement of adjustments, King Line would credit 973 with an amount equal to 600% OF the value of one unit of the co-tenancy (the “Rollover Credit”).

Due to Greenbelt legislation enacted adversely affecting the subject-property’s development potential, both 973 and Gason refused to close.  On May 9, 2005 King Line brought an action against 973 and Gason (the “Breach of Contract Action”), which was ultimately settled by Minutes of Settlement in June 2005 that provided that 973 would purchase the entire subject-property in two transactions: one on the same terms as 973’s February 2005 offer, (the “First Transaction”), and the other on terms similar to the Gason offer.

A disagreement arose post-closing over the Minutes of Settlement and the parties’ intention concerning the Rollover Credit, which King Line argued caused an error in the statement of adjustments resulting in 973 owing King Line $432,926.27.  On September 19, 2006, King Line sued  973 for judgment in the amount of $432,926.27, and against King Line’s real estate solicitors in the First Transaction (the “Cosman firm”) for damages based on professional negligence (the “Deficiency Action”). 973 defended the Deficiency Action on the basis that there was no error; the statement of adjustments accurately reflected the transaction incorporated into the Minutes of Settlement.  973 counter-claimed against King Line for damages arising from a lien King Line registered against the subject-property. In its reply and defence to counterclaim, King Line alleged that the statement of adjustments did not accurately reflect the agreement recorded in the Minutes of Settlement.

The appellant, Ferrara reviewed documentation surrounding the Deficiency Action with his lawyer and respondent in this action, Stephen A. Schwartz, during which time it became apparent that King Line’s position was that statement of adjustments had been improperly prepared, which, if correct, would mean that the appellants would suffer a loss.

 The appellants changed trial counsel three times, before the Deficiency Action began on June 22, 2009, before Belobaba J.  who in a decision released on July 2, 2009, granted King Line’s action and held that the Rollover Credit was not a “term and condition” of the agreement: King Line Investments Inc. v. 973976 Ontario Ltd., [2009] O.J. No. 2747. This decision was upheld by the Court of Appeal on May 12, 2010: King Line Investments Inc. v. 973976 Ontario Ltd., 2010 ONCA 345, [2010] O.J. No. 1984.

On June 28, 2011, the appellants, represented by a new firm, commenced an action based on the respondents’ negligence in acting for them in the preparation of the Minutes of Settlement and in ensuring that the settlement agreement was properly implemented in the First Transaction, claiming damages in the amount of the judgment against them in the Deficiency Action and related costs.

The respondent law firm then brought the summary judgement motion on the grounds that the appellants’ claim in solicitor’s negligence is statute-barred by the Limitations Act, 2002, c. 24 as amended (the “Act“).

In a 2-1 split decision, Laskin J.A. (Sharpe J.A. concurring) allowed the appeal,  dismissed Schwartz’s motion for summary judgment, and granted Ferrara’s cross-motion, by declaring that his action was not barred by the Limitations Act, 2002. The majority held the claim against Schwartz was not discoverable before July 2, 2009, the date of Belobaba J.’s decision in the deficiency action.  Accordingly, Ferrara’s action against Schwartz was neither barred by the Limitations Act, 2002,  nor was the action an abuse of process.

Justice Laskin emphasizes the following facts in his reasons:

[68]       My colleague has concisely summarized the relevant facts.  Several of these facts deserve emphasis.  They are as follows:

(1)         As my colleague points out, Ferrara was a relatively unsophisticated client.  He was 60 years old, worked as a plumbing contractor and had little formal education.

(2)         The solicitor-client relationship between Schwartz and Ferrara was long-standing.  Schwartz had acted for Ferrara for over 20 years.

(3)         Schwartz continuously and repeatedly assured Ferrara that he, Schwartz, was right, and that Ferrara was entitled to a rollover credit.  Schwartz gave Ferrara these assurances not only before the deficiency action began but, as well, throughout the course of that action.

(4)         Schwartz never once advised Ferrara that he may have been wrong or may have made a mistake.

(5)         Schwartz did not fulfill his professional obligation to inform his client, Ferrara, of his possible error.  Rule 6.09 of the Law Society of Upper Canada’s Rules of Professional Conduct requires that when a lawyer discovers an error that may be damaging to the client, the lawyer shall promptly inform the client of the error.  Schwartz did not comply with Rule 6.09.

(6)         Ferrara gave evidence that none of the three litigation lawyers he retained in the deficiency action recommended suing Schwartz.  Ferrara was not cross-examined on his evidence and Schwartz filed no contradictory evidence.

(7)         Ferrara maintains that Schwartz participated actively in the deficiency litigation and helped to direct the defence.  At the very least, Schwartz testified in support of his position that the minutes of settlement authorized the rollover credit in favour of his client, Ferrara.

(8)         Ferrara’s action against Schwartz was commenced less than two years after the decision of Belobaba J.

Laskin J.A. cites with approval Molloy J.’s comment in Kenderry-Esprit (Receiver of) v. Burgess, MacDonald, Martin and Younger(2001), 53 O.R. (3d) 208, at para. 19: “The date upon which the plaintiff can be said to be in receipt of sufficient information to cause the limitation period to commence will depend on the circumstances of each particular case.” The learned justice concludes:

[72]       I agree with this comment.  In the present case, two “circumstances” in combination support my conclusion that Ferrara’s claim against Schwartz was not discoverable before July 2, 2009: Schwartz’s repeated assurances that he was right; and Ferrara’s uncontradicted evidence that no one told him otherwise.  The combination of these two circumstances distinguishes this case from the other cases relied on by Schwartz.

[73]       First, Schwartz’s assurances.  Schwartz repeatedly told Ferrara, even during the deficiency action itself, that Ferrara was entitled to a rollover credit.  Never once did he tell Ferrara that he may have been wrong.  So, Schwartz’s position comes down to this:

I told you all along that I was right and that you were entitled to the rollover credit; I never told you that I may have made a mistake; and I never complied with my professional obligation under r. 6.09 of the Rules of Professional Conduct to inform you of my possible error.  However, you should still have known that you had a claim against me once the deficiency action started. 

Respectfully, it ill lies for Schwartz to take this position.  I doubt any lawyer would have been justified taking this position against his own client, but certainly not a lawyer who had acted for his client for over 20 years and no doubt gained the complete trust and confidence of the client during that long relationship: see Sheeraz v. Kayani (2009), 99 O.R. (3d) 450, at paras. 48-49; Charette v. Trinity Capital Corp., 2012 ONSC 2824, 2012 D.T.C. 5100, at paras. 97-102.

[74]       Second, Ferrara’s uncontradicted evidence.  Ferrara gave evidence, unchallenged, that no one – not Schwartz and not any of the three litigation lawyers he retained in the deficiency action – told him that he had a potential claim in negligence against Schwartz.  Nonetheless, Schwartz, the motion judge and my colleague give Ferrara’s evidence virtually no weight because it is not buttressed by the evidence of the three litigation lawyers.

[75]       Schwartz says that Ferrara’s evidence is “self-serving” and an adverse inference should be drawn because of the absence of affidavit evidence from the three litigation lawyers.  The motion judge, at para. 48 of her reasons, said that Ferrara’s evidence is a “bald assertion” and does not comply with his obligation to “put his best foot forward”.  Similarly, Epstein J.A. says that “[Ferrara’s] assertion is difficult to accept…without clear and convincing evidence” and that “[b]ut for Ferrara’s ‘bald assertion’ there was no such evidence.”

[76]       I would make two points in response.  First, I think it unfair to criticize Ferrara for a “bald assertion”.  The assertion of a negative, that something did not occur, is necessarily “bald”.  Invariably the person making the assertion can say little more than that it did not happen.

[77]       Second, I do not accept that to meet his obligation to put “his best foot forward”, Ferrara was obliged to file the affidavits of his three litigation lawyers.  He gave sworn evidence that “none of the said litigation counsel recommended that any action be taken against Schwartz either by way of third party action against Schwartz or otherwise.”  By giving this evidence he impliedly waived the right to claim solicitor-client privilege for any advice his litigation counsel may have given him about suing Schwartz in negligence.

In dissent, Epstein J.A.  would have dismissed the appeal on the basis that the appellant’s action was time-barred and constituted an abuse of process based upon the prospect of inconsistent judgments. While Justice Epstein disagreed with the motions judge that the cause of action accrued when the Deficiency Action was commenced in 2006, the intervening retention of three sets of litigation counsel was sufficient to trigger the discoverability rule:

[45]       However, in my view, the reasonableness of the appellants’ forbearance to sue the respondents changed when they retained litigation counsel to represent them – Goodmans in November of 2006, followed by Sherkin in 2008 and Pape, just prior to trial.

[46]       Ferrara says in his affidavit that these lawyers did not suggest to him that the appellants had a claim against the respondents. This assertion is difficult to accept.  First, it begs the question of why these lawyers and their firms have not been named as defendants in this action.  Second, given the issues raised in the Deficiency Action and the way in which they were described by Belobaba J., the implication being that it should have been relatively easy for Schwartz to have identified his error, and the level of experience of these lawyers, it is a difficult assertion to accept without clear and convincing evidence.

[47]       If Ferrara’s assertion is not accepted then he has no explanation as to why, after seeking the counsel of not one but three other senior lawyers, it remained reasonable for him not to appreciate that he had a claim against the respondents until the decision of Belobaba J. was released.

[48]       But for Ferrara’s “bald assertion” there was no such evidence.  As mentioned, there was nothing in the record from the lawyers.  No affidavits were filed.  No documents were produced.  No explanation for this lack of evidence was provided. By failing to adduce any further evidence the appellants asked the motion judge to make a finding critical to their defence to the motion that was not supported by the quality of evidence mandated by the rule and by the jurisprudence.

In my view, Justice Laskin’s analytical approach to Rule 20 summary judgment motions in the wake of Combined Air Mechanical Services Inc. v. Flesch, 2011 ONCA 764, 108 O.R. (3d) 1,  is the more persuasive. In considering the responding party’s obligation to put “his best foot forward” and the implications of Ferrara’s implied waiver of solicitor-client privilege, Laskin J.A. concludes:

[79]       Ferrara voluntarily disclosed that in his communications with his three litigation lawyers he was not advised he had a potential claim against Schwartz.  This disclosure made his knowledge of whether he could sue Schwartz a relevant issue.  His disclosure, thus, showed an implied intention to waive his solicitor-client privilege.

[80]       Schwartz, therefore, could have cross-examined Ferrara on the advice he received.  But Schwartz chose not to do so.  Schwartz could have subpoenaed the litigation counsel and examined them to obtain their evidence for the motions.  Schwartz chose not to do so.  And Schwartz could have sought to file their affidavit evidence in reply.  Again, he chose not to try to do so.  In my view, Ferrara’s evidence that no one told him he had a negligence claim against Schwartz is entitled to considerable weight.

[81]       The combination of Schwartz’s repeated assurances that he was right and had not made a mistake, and Ferrara’s unchallenged evidence that no one told him about a potential negligence claim against Schwartz, support my conclusion that the claim was not discoverable before July 2, 2009.

Justice Laskin understands the practical significance of a long-standing client’s reliance and trust in his or her solicitor. The subtext is two-fold:

(1) why did Schwartz not alert Ferrara that he had a potential claim in negligence? and

(2) Is Ferrara’s three prior counsels’ reticence in suing Schwartz (or not warning Ferrara about the expiry of the limitation period) an example of confirmation bias and deformation professionelle?

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