McLeod & Company LLP v., 2011 ABQB 708

Court of Queen ’ s Bench of Alberta Citation: McLeod & Company LLP v. 1247089 Alberta Ltd., 2011 ABQB 708 Date: 20111116 Docket: 1101 02424 Registry: Calgary Between: McLeod & Company LLP Appellant/Third Party - and - 1247089 Alberta Ltd. Respondent/Plaintiff - and - Cameron Horne Law Office LLP Appellant/Defendant Corrected judgment: A corrigendum was issued on November 23, 2011; the corrections have been made to the text and the corrigendum is appended to this judgment. _______________________________________________________ Reasons for Judgment of the Honourable Madam Justice B. L. Veldhuis _______________________________________________________

Appeal from the Judgment by The Honourable Judge B.K. O’Ferrall Dated the 12 th day of January, 2011 Filed on the 14 th day of January, 2011 ( 2011 ABPC 16 , Docket: P0890102888) I. Introduction [ 1 ] This is an appeal from the decision of the Honourable Judge B.K. O’Ferrall, as he then was. The Appellant and Third Party are two law firms: Cameron Horne Law Office LLP (“Cameron”) and McLeod & Company LLP (“McLeod”). The Respondent, 1247089 Alberta Ltd. (“1247089”), is a private corporation, the principals of which are two individuals, Mr. Jason Roberge and Mr. Brett Wightman. Mr. Roberge and Mr.

Wightman appeared on behalf of 1247089, which was not represented by counsel. [ 2 ] Both law firms assert that the learned trial judge made errors of law. It is well-established that the standard of review for questions of law is correctness; see, for example, Schoff v. Royal Ins. Co. of Canada , 2004 ABCA 180 , 348 AR 366. II. Facts [ 3 ] The facts in this case are not in dispute, but it will be useful to summarize them here. The Respondent, 1247089, wished to purchase a house from Aspen Land Development Inc. (“Aspen”). 1247089 was represented in the transaction by Cameron, with legal services provided by Mr.

Alexander Cameron. Aspen, as vendor in the transaction, was represented by McLeod, with legal services provided by Mr. Robert Fooks. [ 4 ] The partially-built house that was the subject of the real estate transaction was subject to a mortgage and three builders’ liens. Two of the liens, totalling $27,262.00, were by Lumber King Building Materials Ltd. (“Lumber King”) and the third was by Lux Windows & Glass Ltd. (“Lux”). [ 5 ] On June 15, 2006, Mr. Fooks wrote to Mr. Cameron, giving an undertaking to discharge the encumbrances from title.

That letter stated as follows: Once we are in receipt of all monies due to the Vendor including interest, in releasable form, we undertake to ensure that the following encumbrances are discharged from the title and to forward to you a certified copy of the Certificate of Title evidencing registration of such discharges at our earliest opportunity: G.N.P. Consulting Ltd. Instrument No. 061 056 518 Lumber King Building Materials Instrument No. 061 087 260 Lumber King Building Materials Instrument No. 061 147 599 Lux Windows and Glass Ltd. Instrument No. 061 187 004

[ 6 ] Mr. Fooks then wrote to the lienholders asking them to provide registerable discharges which he would hold in trust until payment had been made. Both Lumber King and Lux provided such discharges. [ 7 ] Mr. Fooks received the cash to close on June 30, 2006, but did not requisition cheques to pay the lienholders until July 12, 2006. At trial, he explained that the delay arose because G.N.P.

Consulting Ltd. had a blanket mortgage over a number of properties owned by Aspen and it took some time to negotiate what portion of the sale proceeds would be required to secure a discharge of the mortgage over this particular property. [ 8 ] On July 13, 2006, Mr. Fooks called Lumber King’s counsel to advise that payment was on its way. However, he was told at that time that Lumber King had received payment of its account and that he was free to use the previously provided discharge. Neither Mr. Fooks nor Aspen understood why the account was no longer outstanding. Therefore, Mr.

Fooks asked for, and received, written confirmation from Lumber King’s counsel that he was free to use the discharge. [ 9 ] The reason the Lumber King account was no longer outstanding was that 1247089 had already paid it. Mr. Roberge and Mr. Wightman testified at trial that Lumber King had refused to sell any further building materials until it had been paid what was owed on the lien. As they were anxious to complete construction before the summer ended, Mr. Roberge and Mr. Wightman instructed1247089 to pay $27,262.00 to Lumber King. However, both gentlemen admitted that they told neither Mr. Cameron nor Mr.

Fooks about the payment. They understood that this payment would mean Lumber King would be paid twice - once by them and once by Mr. Fooks. However, they believed that this would result in a credit with Lumber King that 1247089 would draw down on as construction progressed. [ 10 ] On July 27, 2006, Mr. Fooks forwarded the $27,262.00 to Aspen. He learned what had happened on August 1, 2006, when he was contacted directly by 1247089. [ 11 ] On June 30, 2006, 1247089 issued a civil claim in the Provincial Court of Alberta against Cameron.

On July 22, 2008, Cameron issued a third party notice against McLeod, Aspen and Lumber King. The claim against Lumber King was dismissed before trial and Lumber King is not a party to this appeal. [ 12 ] Aspen is no longer a subsisting corporation, did not defend at trial and did not participate in this appeal. It is common ground that, although Aspen was noted in default, there is no real possibility of enforcement of judgment against it.

The judgment has not been appealed and it remains in force notwithstanding these proceedings. [ 13 ] The question before me is whether the learned trial judge made an error of law. As noted above, the standard of review for questions of law is correctness. As the claims against Cameron and against McLeod are founded upon different principles, I will consider them separately. III. Analysis A. Cameron [ 14 ] The learned trial judge found that there had been no negligence on the part of Cameron. He held that Mr. Cameron had taken all the steps reasonably expected of a competent real estate practitioner.

Therefore, he found no liability in tort. [ 15 ] However, the trial judge went on to say that, quite apart from negligence, Mr. Cameron was contractually obligated to use his clients’ funds to provide them with clear title and that he failed to discharge that contractual obligation. He made these comments at

paras. 30 and 32: The essence of the contract between a purchaser and his lawyer is that the purchaser provides the lawyer with the funds which arerequired to complete the transaction and the lawyer undertakes to use those funds to secure title for his client. As counsel for Mr.Cameron correctly argued, the purchaser’s lawyer does not guarantee that he will obtain title for the client. But he does guarantee that ifhe doesn’t obtain title, he will return the purchaser his money (less any fees earned). ... Mr. Cameron failed to get his clients title with the funds they forwarded to him. That is, Mr.

Cameron failed to ensure that the lienholderwas paid the funds which his clients instructed him to pay to that lienholder. His failure was not his fault, but a breach of contract neednot involve negligence. Contractual liability can be strict. As Justice Le Dain stated in Central Trust Co. v. Rafuse (SCC), [1986] 2 S.C.R. 147, sometimes the common law duty of care falls short of the specific obligation or duty imposed by contract. [16] With great respect to the learned trial judge, I find that he erred in law in arriving at this conclusion.

While I agree that thestandard imposed upon a solicitor by contract can be stricter than the standard of care for tort purposes, I am of the view that a morestringent standard can be imposed only where agreed under the terms of the contract. [17] The trial judge found that the “essence” of the contract was that the solicitor guaranteed either to provide clear title or to returnthe clients’ funds, less fees. I agree with Cameron that the essence of the contract was that the solicitor would provide competent legalservices in respect of the real estate transaction. As the trial judge found, Mr.

Cameron met this standard. The trial judge’s view of thecontract effectively makes Cameron a guarantor of the real estate transaction; in my view, this cannot be so unless it is a term of thecontract. Cameron argues that the trial judge implied such a term. In this case, there is no express term of the contract providing such aguarantee. [18] The law with respect to implying terms into a contract was succinctly stated by Iacobucci J. in M.J.B. Enterprises Ltd. v.Defence Construction

(1951) Ltd., (SCC), [1999] 1 SCR 619 at para. 27: The general principles for finding an implied contractual term were outlined by this Court in Canadian Pacific Hotels Ltd. v. Bank ofMontreal, (SCC), [1987] 1 S.C.R. 711.

Le Dain J., for the majority, held that terms may be implied in a contract: (1)based on custom or usage; (2) as the legal incidents of a particular class of contract; or (3) based on the presumed intention of the partieswhere the implied term must be necessary “to give business efficacy to a contract or as otherwise meeting the ‘officious bystander’ testas a term which the parties would say, if questioned, that they had obviously assumed” ... [19] None of these criteria is satisfied. It is clear that neither of the first two is applicable.

First, there is no evidence before me thatthe kind of guarantee contemplated by the trial judge is customarily considered to form part of the contract for the services of a real estatesolicitor. Indeed, Cameron disputes that this is part of such a contract and I agree that there is not such a custom. Second, while the trialjudge characterized the guarantee as the “essence” of the contract, I cannot agree that this term is essential to this “class” of contract. [20] Based on the trial judge’s reasoning, there is some attraction to the third criterion.

Naturally, a real estate purchaser retains asolicitor hoping, and indeed expecting, that the transaction will proceed smoothly and that his funds will not be lost. I cannot agree that aguarantee by the solicitor that no such loss will occur is necessary to give business efficacy to the retainer contract. Certainly, I do notthink that any solicitor would say, if questioned, that he assumed he was giving such a guarantee. [21] In its brief, Cameron makes reference to strict liability. I would take this a step further. In my view, the trial judge’s analysisof the contract gives rise to absolute liability.

Strict liability leaves open the possibility of a defence of due diligence; see, for example, R.v. Sault Ste. Marie (City) (SCC), [1978] 2 SCR 1299. To hold that liability may be imposed even in the absence ofnegligence raises the bar to the level of absolute liability. In the absence of a clear contractual term, this cannot be sustained. [22] For these reasons, I am satisfied that the trial judge erred in law in his

interpretation of the contract of retainer between1247089 and Cameron.

B. McLeod [23] Clearly, there was no contract between 1247089 and McLeod. The trial judge, however, found that McLeod was liable toindemnify Cameron on the grounds that Mr. Fooks had breached his undertaking to Mr. Cameron. He made these comments at para. 35: Now, the vendor’s lawyer, Mr. Fooks, argues that he complied with his undertaking. The encumbrances were, after all, discharged,before he released the purchase monies to his client. But, in my view, Mr. Fooks’ undertaking, viewed in context, was not simply to attend to the discharge of the liens.

It was also to forward a portion of the purchase monies to thelienholders. That undertaking was not complied with. [24] In this respect, the learned trial judge’s decision was based on his approach to the role of lawyers in a real estate conveyancingtransaction. His comments at paras. 36, 37 and 40 set out that approach: One must keep in mind to why purchasers and vendors go to lawyers. They go to lawyers to have them facilitate their real estatetransactions. Typically, the purchaser and the vendor of residential real estate go to different lawyers.

Sometimes they go to the sameone; although this practise is discouraged. The purchaser says to his lawyer, “Here’s my money. Get me the title the vendor agreed toconvey to me. But whatever you do, don’t lose my money.” The vendor says to his lawyer, “Here’s my title transfer. Get me my money.But whatever you do, make sure I don’t lose my title without getting my money.” [Emphasis in original.] A statement of adjustments is prepared and both sides know how the purchase price is to be adjusted and where purchase monies are tobe disbursed. This is not an adversarial process.

It is a facilitation service which the legal profession renders. ... The vendor’s lawyer’s role in a routine residential real estate transaction is to be a facilitator or expeditor of the transaction. It is this rolewhich permits the inexpensive and expeditious transfer of residential properties on a daily basis throughout the province of Alberta. TheTorrens system is there to expedite this process. The Law Society’s conveyancing protocol is there to expedite the process. And thelawyers are there to expedite the process.

The real estate purchase contract which the parties sign requires them to act “cooperatively,reasonably and diligently in good faith”. The lawyers acting for them must do likewise. It is not an adversarial role which lawyers play inmost residential real estate transactions and it was not an adversarial role which Mr. Fooks played in this one. The role of a vendor’slawyer in a real estate transaction is not one where the lawyer’s duty to his own client could be compromised or fettered by a finding thatthere was also a duty owed to the other side, as Justice D.C. McDonald found in Abacus Cities (trustee of) v.

Bank of Montreal (1986) (AB KB), 48 Alta. L.R. (2d) 247, at para. 19. [25] With respect, I cannot accept the learned trial judge’s finding that the role of the lawyers in a real estate transaction is notadversarial, but merely a facilitation service. While a real estate transaction does not involve the overt conflict that typifies litigation, it remains the case that vendors and purchasers have divergentinterests and that each looks to its own solicitor to safeguard those interests. [26] I find support for my conclusion in the following commentaries. First, in Stephen M. Grant and Linda R.

Rothstein, Lawyers’Professional Liability, 2d ed. (Toronto: Butterworths, 1998), the authors say this at p. 81: Outside of the litigation context, courts have exhibited considerable reluctance to find that a solicitor owes a duty of care to someonewho is adverse in interest to her client. The third party adverse in interest need not be adverse in the sense of being on the “other side” ofthe transaction. For example, in normal circumstances, a solicitor acting for a corporation does not owe a duty to individual officers,

directors and shareholders to protect their individual legal interests. [ 27 ] In this case, it legitimately can be said that vendors and purchasers are on the “other side” of a real estate transaction. This, as McLeod points out in its brief, is reflected in the commentary to

Chapter 6, Rule 2 of the Law Society of Alberta’s Code of Professional Conduct : “Conflict” means the situation where parties are prima facie different in interest but there is no dispute amongst the parties in fact. Examples include vendor and purchaser , mortgagor and mortgagee, insured and insurer, lessor and lessee and estranged spouses. [Emphasis added.] [ 28 ] In addition, in his

article “The Real Estate Lawyer’s Duties: Defining the Duty with Reference to Elements of Proximity and Reliance” in Special Lectures of the Law Society of Upper Canada, Real Property Law: Conquering the Complexities (Toronto: Irwin Law, 2002), Andrew A. Sanfilippo says at p. 470: The common law duty of care in tort is owed by the lawyer to anyone with sufficient proximity to the lawyer’s discharge of his or her duty of care, provided that person reasonably relied on the lawyer, and provided further that the lawyer was reasonably aware, or ought to have been aware, of the reliance.

The exception to this general statement is that a lawyer will not be imposed with a duty to a non- client, when the interests of the non-client are in conflict with the interests of the lawyer’s client. ... Lawyers have been found to owe common law duties of care in tort to non-clients where the essential elements of proximity and reliance have been established.

In defining the requisite elements of reliance, the courts have taken into consideration the interest or role of the lawyer in the transaction, the background and skill level of the lawyer, whether the advice or omission complained of was given or not given in the conduct of the lawyer’s profession, and whether the act or omission was in relation to a particular request for assistance. [ 29 ] Mr. Sanfilippo, at p. 472, quotes from 347671 B.C. Ltd. v.

Heenan Blaikie , 2000 BCSC 1714 , 83 BCLR (3d) 120 at para. 91 , aff’d. 2002 BCCA 126 , 98 BCLR (3d) 205: The circumstances in which a lawyer, acting on behalf of one client, will be found to owe a duty of care to a party who was, at the time the representations were made, engaged in, or proposing to engage in, a commercial transaction with the lawyer’s client must indeed be rare.

A lawyer’s duty to his own client must be treated as paramount, and will generally preclude a finding that the lawyer also owed a duty to another whose interests could be considered to be in conflict with the interests of the lawyer’s own client. Reliance by one party to a transaction on representations made by a legal advisor of another party will, I would suggest, usually be considered to be unreasonable. In general, it would appear inimical for a lawyer acting for a borrower to owe a concurrent duty to a lender. This point was made in Kamahap Enterprises Ltd. v.

Chu ’s Central Market Ltd. [ 30 ] I realize that the trial judge distinguished Kamahap from this case on the grounds that the lawyer’s client had decided not to proceed with the transaction. The trial judge stated this at para. 38: The issue was not one of whether there is some sort of general duty owed by a vendor’s lawyer to the purchaser. The vendor’s solicitor’s obligation to facilitate the real estate transaction arose out of his own client’s instructions. ...in the absence of evidence that Mr.

Fooks’ instructions were to assist his client in breaching the contract, it must be presumed that his instructions were to be consistent with the terms of the real estate purchase contract his client signed and, in particular, with clauses 4.1 to 4.12 of that contract in which the parties expressly agreed on the instructions they would give their lawyers.

And one of the instructions which the parties agreed would be given to the vendor’s lawyer was contained in clause 4.7 which stated that if the purchaser did not withhold a portion of the purchase price to pay out the seller’s financial obligations (which was an option Mr. Cameron might have chosen), the seller’s lawyer was to pay them out.

[ 31 ] I cannot accept the trial judge’s characterization of Mr. Fooks’ obligation. In my view, McLeod is correct in its assertion that Mr. Fooks’ obligation was to do precisely what he undertook to do - namely, to deliver clear title with the various encumbrances discharged. This he did. I do not think it is proper to hold that his obligation was to pay out the liens irrespective of the circumstances. For example, had 1247089 made Mr.

Fooks aware that it had paid Lumber King and requested return of that portion of its funds, it would not have been reasonable for him to insist on paying Lumber King a second time on the grounds that his instructions were to pay out the liens. [ 32 ] The trial judge held that at para. 38 that it was not appropriate to “parse the undertaking contained in the solicitor’s trust letter and then strictly interpret it”. However, it is well-known that trust conditions and undertakings are strictly enforced against solicitors.

A corollary to that strictness is that those trust conditions and undertakings must not be enlarged beyond what the solicitor agreeing to them accepted. I do not think this constitutes “parsing”. [ 33 ] The system of trust conditions and undertakings that forms part of the standard real estate conveyancing protocol in Alberta serves not only to facilitate real estate transactions, but also to safeguard the rights of vendors and purchasers, who are inherently adverse in interest. It is precisely because neither party wishes to be disadvantaged that this system has developed.

While, as the trial judge suggested, a non-lawyer third party could be used to accomplish the exchange of purchase funds and title, the seriousness with which solicitors’ undertakings and trust conditions are enforced makes retaining lawyers a logical choice. [ 34 ] Clearly, as this case illustrates, the system in Alberta is not perfect and things still can go wrong. But that is so in respect of any business transaction and it does not follow that the lawyers involved must be responsible, even in the absence of negligence. Certainly, in this case, it would have been prudent for Mr. Fooks to contact Mr.

Cameron to inquire about the Lumber King lien prior to forwarding the balance of the funds to his client. Had he done so, Mr. Cameron could have communicated with 1247089 and the problem could have been averted. However, his failure to do so does not amount to a breach of his undertaking to Mr. Cameron. [ 35 ] The learned trial judge also found that Mr. Fooks breached his undertaking to attend to the discharge of the liens “at our earliest opportunity”. However, I find that Mr. Fooks provided a reasonable explanation for the delay.

Had he paid out the other lienholders without ascertaining what was necessary to discharge G.N.P. Consulting Ltd.’s mortgage, that party might have refused to provide the discharge without payment of more funds than were in Mr. Fooks’ possession. He then might have found himself unable to provide clear title after having dispersed some of the funds. He would then have been in breach of his undertaking. [ 36 ] I find that the learned trial judge erred in law in extending Mr. Fooks’ undertakings beyond what was set out in his letter of June 15, 2006 and in finding liability on the part of McLeod. C.

Purchaser ’s Conduct [ 37 ] I have reached the above conclusions with some reluctance as I recognize that the result will be to impose the loss on 1247089. I wish to emphasize, as the trial judge did, that there was nothing improper in the conduct of Mr. Roberge and Mr. Wightman. They made the payment directly to Lumber King in order to expedite completion of the construction on the property, fully expecting to end up with a credit which they could continue to draw down on. As I am sure they now realize, they ought to have advised Mr.

Cameron of the payment immediately, but clearly there was no bad faith on the part of 1247089. It is most unfortunate that Aspen’s insolvency means that the burden of the loss will fall on 1247089. Nevertheless, I must correctly apply the law even in the face of that unfortunate result. D. McLeod as Third Party

[ 38 ] As noted above, McLeod was named in this action as a Third Party. The learned trial judge held that even if he had not found Cameron liable to 1247089, he would have found McLeod directly liable to 1247089 on the basis of the breach of Mr. Fooks’ undertaking. McLeod argued that the trial judge erred in law in so holding. [ 39 ] As I have found that neither Cameron nor McLeod is liable to 1247089, I need not consider this issue. E. Conclusion and Costs [ 40 ] In

summary, the appeals of Cameron and McLeod are allowed. The judgment against Aspen remains, although, unfortunately, it is very unlikely that 1247089 will be able to collect from Aspen. [ 41 ] Awards of costs are within the Court’s discretion. In this case, although the Respondent was unsuccessful, the questions raised were of importance not just to these parties, but to the real estate bar as a whole. Therefore, I find that this is an appropriate case for all parties to bear their own costs. Heard on the 16 th day of September, 2011. Dated at the City of Calgary, Alberta this 16 th day of November, 2011 . B. L.

Veldhuis J.C.Q.B.A. Appearances: G. Stephen Panunto Peacock Linder & Halt LLP for the Appellant, Cameron Horne Law Office LLP Jason Roberge & Brett Wightman

for the Respondent, 1247089 Alberta Inc. Jennifer M. Blanchard Macleod Dixon LLP for the Third Party, McLeod & Company LLP _______________________________________________________ Corrigendum of the Reasons for Judgment of The Honourable Madam Justice B. L. Veldhuis _______________________________________________________ The spelling of “ McLeod & Company LLP ” and the style of cause have been corrected.