Davy Estate v. CIBC World Markets Inc.

Davy Estate v. CIBC World Markets Inc. Collection Decisions of the Court of Appeal Date 2009-11-04 Neutral citation 2009 ONCA 763 Docket numbers C50108 Judges Laskin, John Ivan; Sharpe, Robert J.; MacFarland, Jean Louise Subject Civil Decision Content CITATION: Davy Estate v. CIBC World Markets Inc., 2009 ONCA 763 DATE: 20091104 DOCKET: C50108 COURT OF APPEAL FOR ONTARIO Laskin, Sharpe and MacFarland JJ.A. BETWEEN Deborah Marie Davy as Estate Trustee of the Estate of James Edward Davy also known as Ted Davy Plaintiff and Joan Egan also Known as Joan Davy, CIBC World Markets Inc., and Grant Neuber Defendants (Appellants) and Robert Henry Third Party (Respondent) Laura Paglia and Gillian Dingle, for the appellants J. Brian Casey and R. Murtha, for the respondent Heard: August 25, 2009 On appeal from the order of Justice D.M. Brown of the Superior Court of Justice dated January 29, 2009, striking out a third party claim. Sharpe J.A.: [1] A defendant pleads that the plaintiff failed to mitigate her damages. The plaintiff asserts that she relied on the advice of her solicitor as to the steps the defendant alleges she should have taken in mitigation. Is it open to the defendant to bring third party proceedings against the plaintiff’s solicitor alleging that the solicitor’s advice in relation to mitigation was negligent? [2] The motion judge held that there is no such claim in law and accordingly struck out the third party claim under Rule 21 as disclosing no cause of action. The defendants CIBC World Markets Inc. (“CIBC WM”) and Grant Neuber appeal that order, arguing that it is not plain and obvious that they have no claim against the proposed third party solicitor. [3] For the following reasons, I would dismiss the appeal and affirm the motion judge’s order striking out the third party claim. FACTS [4] As this appeal involves a motion to strike a claim at the pleading stage under Rule 21 as disclosing no cause of action, the facts as pleaded in the third party claim must be taken as true. Those facts, with some amplification from the statements of claim and defence, are as follows. [5] The plaintiff Deborah Marie Davy is the estate trustee for her father, Ted Davy, who had an account with CIBC World Markets Inc. The appellant Grant Neuber was his CIBC WM investment advisor. The plaintiff’s claim against CIBC WM and Neuber arises from their handling of shares Ted Davy owned in Canada Life Financial Corporation (“the shares”). The plaintiff alleges that, despite their knowledge of Ted Davy’s mental incapacity, the appellants accepted his instructions to transfer the shares into a joint account that Ted Davy had with his wife, Joan Egan, and then accepted Joan Egan’s instructions to transfer the shares into an account solely in her name. [6] In their statement of defence, the appellants deny any knowledge of Ted Davy’s lack of mental capacity and assert that Joan Egan acted in accordance with the terms of the joint account and a power of attorney she held in relation to Ted Davy’s property. The appellants plead that they committed no wrong in following the instructions they received. [7] After the shares were transferred by CIBC WM into the joint account, the plaintiff’s solicitor wrote to CIBC WM to request that the account be frozen. CIBC WM advised the plaintiff that a court order would be required to freeze the account and refused to freeze the account without such an order. The plaintiff did not move for a court order and Joan Egan transferred the shares, first from the joint account to an account in her own name, and subsequently to an account she held with another financial institution. [8] The plaintiff claims damages for conversion and breach of fiduciary duty, alleging that the wrongful actions of CIBC WM and Neuber diminished the value of her father’s estate. [9] In their amended statement of defence to the plaintiff’s claim, the appellants deny liability but also plead that to the extent they are liable, the plaintiff failed to mitigate the losses claimed by failing to move for a court order freezing the joint account. The plaintiff does not respond specifically to that allegation in her reply, but on oral discovery, when asked why she did not move for a freezing order, she stated that she relied on the advice or her solicitor, the respondent and proposed third party, Robert Henry. [10] Armed with that information, the appellants applied for and obtained leave to commence third party proceedings against Henry. In their third party statement of claim, the appellants allege Henry breached his fiduciary duties and duties of care to the plaintiff, inter alia, by advising the plaintiff not to obtain a court order freezing Egan’s account and by failing to advise the plaintiff to otherwise take reasonable steps to preserve the shares. The respondent moved to strike out the third party claim on the ground that it disclosed no valid cause of action. POSITIONS OF THE PARTIES [11] The appellants argued before the motion judge and before this court that it is possible that the trial judge will find that the plaintiff acted reasonably in relying upon Henry’s advice not to seek a court order even if that advice was negligent. The appellants submit that if the trial judge were to find that it was reasonable for the plaintiff to rely on the advice, the plaintiff would not be found to have failed to mitigate. This, say the appellants, leaves open the possibility that the plaintiff would recover full damages against them and that they therefore have a third party claim for contribution and indemnity against Henry pursuant to the Negligence Act, R.S.O. 1990, c. N.1. [12] The respondent relies on the decision of McLachlin J.A. in Adams v. Thompson, Berwick, Pratt & Partners et al. (1987), 39 D.L.R. (4th) 314 (B.C.C.A.) holding that because mitigation is the plaintiff’s obligation, any fault alleged against a solicitor in advising a client is wholly attributable to the plaintiff. The respondent submits that this is to be distinguished from situations where the proposed third party was implicated in the events provoking the loss and where the appellants and the proposed third party were jointly and severally liable to the plaintiff for the entire loss. Here, by contrast, the alleged negligence of the proposed third party relates to events that took place after the breach that caused the loss, and relates to the plaintiff’s post-breach obligation to take reasonable steps to reduce, not avoid, the loss caused by the appellant’s breach. The appellants can raise contributory negligence and failure to mitigate in defence to the plaintiff’s claim to reduce the quantum of damages to which the plaintiff is entitled, but they cannot claim indemnity. LEGISLATION [13] The relevant provisions of the Negligence Act are as follows: Extent of liability, remedy over 1. Where damages have been caused or contributed to by the fault or neglect of two or more persons, the Court shall determine the degree in which each of such persons is at fault or negligent, and, where two or more persons are found at fault or negligent, they are jointly and severally liable to the person suffering loss or damage for such fault or negligence, but as between themselves, in the absence of any contract express or implied, each is liable to make contribution and indemnify each other in the degree in which they are respectively found to be at fault or negligent. Recovery as between tortfeasors 2. A tortfeasor may recover contribution or indemnity from any other tortfeasor who is, or would if sued have been, liable in respect of the damage to any person suffering damage as a result of a tort by settling with the person suffering such damage, and thereafter commencing or continuing action against such other tortfeasor, in which event the tortfeasor settling the damage shall satisfy the Court that the amount of the settlement was reasonable, and in the event that the Court finds the amount of the settlement was excessive it may fix the amount at which the claim should have been settled. Plaintiff guilty of contributory negligence 3. In any action for damages that is founded upon the fault or negligence of the defendant if fault or negligence is found on the part of the plaintiff that contributed to the damages, the Court shall apportion the damages in proportion to the degree of fault or negligence found against the parties respectively. Adding parties 5. Wherever it appears that a person not already a party to an action is or may be wholly or partly responsible for the damages claimed, such person may be added as a party defendant to the action upon such terms as are considered just or may be made a third party to the action in the manner prescribed by the rules of court for adding third parties. REASONS OF THE MOTION JUDGE [14] In his careful and detailed reasons for judgment, the motion judge concluded that the third party claim should be struck out as disclosing no cause of action. He followed Adams and explained, at para. 26, if the trial judge determines that [the plaintiff’s] failure to obtain a court order constituted a failure to mitigate damages, then a reduction of damages may be made to reflect the extent of her contributory fault: Negligence Act, s. 3. The plaintiff’s judgment against CIBC WM having been reduced to reflect that contributory fault, what amount remains for which CIBC WM could claim contribution and indemnity from Henry? ISSUE [15] Did the motion judge err by striking out the third party claim as disclosing no cause of action? ANALYSIS [16] While there is no Ontario case specifically on point, I agree with the motion judge that the decision of McLachlin J.A. in Adams should be followed. In Adams , the plaintiff property owners claimed damages for negligence against the defendant engineers for damages flowing from the development of a proposed subdivision of the plaintiffs’ lands. The defendant engineers brought a third party claim against the plaintiffs’ solicitors alleging that the solicitors had provided the plaintiffs with negligent advice in relation to the development. The main allegation against the solicitors was that they failed to advise the plaintiffs of their duty to mitigate their losses by selling the property at a certain point. Writing for the court, at p. 318, McLachlin J.A. upheld an order striking out the third party claim at the pleading stage on the principle 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”. [17] I agree with the respondent that there is a clear distinction to be drawn between a plea of mitigation in defence to the plaintiff’s claim and a claim against a third party who was implicated in the initial loss and is thereby jointly and severally liable for the same loss that the plaintiff claims against the defendant. In the latter situation, the fault of the third party does not have the effect of reducing the damages that the plaintiff may claim against the named defendant. The defendant and the third party are each liable to the plaintiff for the full amount of the loss. [18] A plea of failure to mitigate is of an entirely different character. Such a plea arises after the loss has been suffered and relates to events or conduct unrelated to the cause of the initial loss. In my view, the defendant has no claim in law against the plaintiff’s solicitor for advice given to the plaintiff as to how to mitigate the loss caused by the defendant’s own wrong. [19] The plaintiff’s solicitor owes the defendant no common law duty of care; if the defendant has a claim, it could only arise under the Negligence Act. A claim for contribution or indemnity under s. 1 arises “where damages have been caused or contributed to by the fault or neglect of two or more persons”. The Negligence Act does not diminish the amount that the plaintiff can recover from either wrongdoer on account of the fault of the other, but allows the wrongdoer named as a defendant to claim contribution by way of third party proceedings against the other wrongdoer based upon their respective degrees fault. A plea that the plaintiff failed to mitigate is not embraced by this provision. It is a defence to the plaintiff’s initial claim that reduces the amount that the plaintiff may recover from the defendant by shifting some portion of the responsibility for the wrong to the plaintiff. [20] Even if the plaintiff relied upon advice from a solicitor that was negligent or given in breach of the solicitor’s fiduciary duty, I fail to see how the solicitor’s fault with respect to mitigating the loss can trigger a claim on the part of the defendant under the Negligence Act for having jointly caused the loss. The damages have not been “caused or contributed to by the fault or neglect of two or more persons”. The damages were caused solely by the defendant. The defendant’s complaint is that the plaintiff failed to take post-loss steps to reduce the loss. As the fault of the proposed third party related to the reduction of the impact of the loss after it was suffered, and not to causing or failing to avoid the loss when it did occur, the proposed third party is not, in the words of s. 1 of the Negligence Act, “jointly and severally liable to the person suffering loss or damage” and not “liable to make contribution and indemnify” the defendant. [21] Likewise, no claim arises under s. 2. This is not a claim by one tortfeasor who has settled with a plaintiff and, in any event, the solicitor is not a “tortfeasor who is, or could if sued have been, liable in respect of the damage” (emphasis added) for which the appellants are allegedly liable. Finally, s. 5 is purely procedural in nature and deals with the right to contribution created by s. 1. It does not create a right to contribution and confers no substantive rights: HSBC Securities (Canada) Inc. v. Davies, Ward & Beck (2005), 74 O.R. (3d) 295, at para. 62. [22] The decision of this court in 478649 Ontario Limited v. Corcoran (1994), 20 O.R. (3d) 28 (C.A.), where a third party claim against the plaintiff’s 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 was 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. [23] The cases cited by the appellants 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 a 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: see e.g. Cardar Investments Ltd. v. Thorne Riddell (1989), 71 O.R. (2d) 29 (Divl. Ct.); Pentland v. Anderson [2001] O.J. No. 1386 (S.C.J.). I note as well that the distinction between Adams and Corcoran was recently affirmed by this court in Macchi s.p.a. v. New Solution Extrusion Inc. 2008 ONCA 586, at paras. 1-2: On the pleadings as they stand, any negligence alleged against the proposed third party is attributable to the plaintiff. The statement of claim shows that Macchi has not distanced itself from responsibility for, or the consequences of, any negligence on the part of its counsel. In the circumstances therefore, the principle in Adams v. Thompson, Berwick, Pratt & Partners (1987), 39 D.L.R. (4th) 314 at 319, rather than that in 478649 Ontario Limited v. Corcoran (1994), 20 O.R. (3d) 28 applies. [24] I now turn to the appellants’ argument that their plea of mitigation may fail even though the proposed third party’s advice to the plaintiff was negligent or in breach of his fiduciary duty. [25] When considering a solicitor’s advice on the steps to be taken by way of mitigation, the solicitor will have to be accorded considerable latitude. A plaintiff is required only to act reasonably in mitigation. To this effect, Lord Macmillan noted in Banco de Portugal v. Waterlow & Sons Ltd., [1932] A.C. 452, at p. 506, that “[t]he law is satisfied if the party placed in a difficult situation...acted reasonably in the adoption of remedial measures and he will not be held disentitled...merely because the party in breach can suggest...other measures less burdensome”. The standard for reasonableness articulated in the case law is relatively low, described by James L.J. in Dunkirk Colliery Co. v. Lever, [1912] A.C.673 as not requiring the plaintiff to do anything other than in the ordinary course of business. As Prof. Waddams puts it in The Law of Damages (Toronto: Canada Law Book, 2008), at para. 15.140, “[i]n case of doubt, the plaintiff will usually receive the benefit, because it does not lie in the mouth of the defendant to be over-critical of good faith attempts by the plaintiff to extricate himself from difficultly caused by the defendant’s wrong.” [26] As those statements of principle suggest, a plaintiff whose rights have been violated is not required to undertake burdensome or risky measures to mitigate the loss he or she has suffered. No doubt, a solicitor would take that into account when advising a plaintiff and indeed, a solicitor who failed to do so would be negligent. [27] I acknowledge that those statements of principle also suggest that it is possible that a plaintiff who relies on a solicitor’s advice might be found to have acted reasonably for the purposes of satisfying the duty to mitigate, even where the solicitor’s advice was negligent. However, for the reasons I have explained, I see no basis in law for allowing the defendant to assert a claim against the plaintiff’s solicitor even in such a circumstance. [28] I would add that there appears to me to be strong underlying policy reasons that support this result. The defendant is, after all, a wrongdoer who caused the plaintiff loss, and a plea of mitigation does not excuse or justify the wrong, nor does it rest on the attribution of partial responsibility for the wrong to some other party. Obvious mischief arises from allowing one party to sue another party’s solicitor. Such claims invade the sanctity of the solicitor-client relationship. The solicitor’s loyalty to the client is undermined. Difficult issues regarding solicitor-client privilege are bound to arise in relation to the solicitor’s defence. These policy reasons cannot prevail in cases like Corcoran where the defendant has a valid legal claim against solicitor for contribution and indemnity, but in a case such as the present one, the policy coincides with the strict letter of the law. CONCLUSION [29] For these reasons, I would dismiss the appeal with costs to the respondent fixed in the amount agreed by the parties, namely $7500 inclusive of disbursements and GST. “Robert J. Sharpe J.A.” “I agree John Laskin J.A.” “I agree J. MacFarland J.A.” RELEASED: November 4, 2009