JD1H1 v Budden, 2020 NUCA 3

ᓄᓇᕘᒥ ᐅᓐᓂᓗᖅᓴᖅᑐᓄᑦ ᐃᖅᑲᖅᑐᐃᕕᒃ Nunavunmi Apiqhuidjutainut Uuktuffaarutit Nunavut Court of Appeal Cour d'appel du Nunavut Citation: JD1H1 v Budden, 2020 NUCA 3 Date: 20200415 Docket: 08-18-007-CAC Registry: Iqaluit Between: JD1HI, JD2HI, JD3HI, JD4HI, JD5HI, JD6HI, JD7HI, JD8HI, JD9HI, JD10HI, JD11HI, JD12HI, JD13HI, JD14HI, JD15HI, JD16HI, JD17HI, JD18HI, JD19HI, JD20HI, JD21HI, JD22HI, JD23HI, JD24HI, JD25HI, JD26HI, JD27HI, JD28HI, JD29HI, JD30HI, JD31HI, JD32HI, JD33HI, JD34HI, JD35HI, JD36HI, JD37HI, JD38HI, JD39HI, JD40HI, JD41HI, JD42HI, JD43HI, JD44HI, JD45HI, JD46HI, JD47HI, JD48HI, JD49HI, JD50HI, JD51HI, JD52HI, JD53HI, JD54HI, JD55HI, JD56HI, JD57HI, JD58HI, JD59HI, JD60HI, JD61HI, JD1HII, JD2HII, JD3HII, JD4HII, JD5HII, JD6HII, JD7HII, JD8HII, JD9HII, JD10HII, JD11HII, JD12HII, JD13HII, JD14HII, JD15HII, JD16HII, JD17HII, JDI8HII, JD19HII, JD20HII, JD21HII, JD22HII, JD23HII, JD24HII, JD25HII, JD26HII, JD27HII, JD28HII, JD29HII, JD30HII, JD31HII, JD32HII, JD33HII, JD34HII, JD35HII, JD36HII,JD37HII, JD38HII, JD39HII, JD40HII, JD41HII, JD42HII, JD43HII, JD44HII, JD45HII, JD46HII, JD47HII, JD48HII, JD49HII, JD50HII, JD51HII, JD52HII, JD53HII, JD54HII, JD55HII, JD56HII, JD57HII, JD1HIII, JD2HIII, JD3HIII, JD4HIII, JD1HIV, JD2HIV, JD1A, JD2A, JD3A, JD4A, JD1HUK, JD2HUK, JD3HUK, JD4HUK, JD5HUK, JD6HUK, JD7HUK, JD8HUK, JD9HUK, JD10HUK, JD11HUK Not Parties to Appeal (Plaintiffs) - and - Geoffrey E.

Budden and Stuart A. Morris and Geoffrey E. Budden and Stuart A. Morris cob. as Budden Morris Law Offices, “Budden Morris”, or “Budden, Morris Barristers & Solicitors,” or “Budden, Morris Law Offices of Mount Pearl, Newfoundland and Labrador” Respondents (Defendants) - and - Ahlstrom Wright Oliver & Cooper LLP Appellant (Third Party)

Restriction on Publication By court order, information identifying the plaintiffs shall not be published or broadcast or transmitted in any way _______________________________________________________ The Court: The Honourable Mr. Justice Frans Slatter The Honourable Madam Justice Jolaine Antonio The Honourable Mr. Justice Kevin Feehan _______________________________________________________ Memorandum of Judgment Appeal from the Order by The Honourable Mr. Justice P.

Bychok Dated the 12th day of June, 2018 Filed on the 25th day of July, 2018 ( 2018 NUCJ 15 , Docket: 08-15-754-CVC) _______________________________________________________ Memorandum of Judgment _______________________________________________________ The Court: [ 1 ] The issue on this appeal is the validity of a Third Party Notice issued by the defendants, which names the plaintiffs’ lawyers as a third party. The case management judge dismissed an application to strike the Third Party Notice, leading to this appeal: JD1HI v Budden , 2018 NUCJ 15 . Facts

[ 2 ] The approximately 139 plaintiffs in this action were sexually assaulted many years ago by employees of the Government of the Northwest Territories. A number of civil actions for damages were commenced on their behalf, and the Budden Morris Law Offices negotiated settlements on their behalf. “Millions of dollars in settlement monies” were distributed by Budden Morris to the plaintiffs, bringing an end to that litigation. [ 3 ] The plaintiffs came to the conclusion that Budden Morris was in some respects negligent in the way it had negotiated the settlements or disbursed the settlement funds.

In particular, they alleged that Budden Morris had deducted Harmonized Sales Tax from the settlement funds, and had remitted those funds to the Canada Revenue Agency, even though residents of Nunavut are not subject to HST. They retained the law firm of Ahlstrom Wright Oliver & Cooper, which issued a statement of claim against Budden Morris on December 2, 2015. [ 4 ] Budden Morris filed a statement of defence denying the allegations, and in 2016 it issued a Third Party Notice naming Ahlstrom Wright as a third party.

The Third Party Notice alleges that the time for claiming a refund of any improperly deducted HST had not expired when Ahlstrom Wright was retained, and that if Ahlstrom Wright had acted diligently the plaintiffs would not have suffered any loss. It claimed contribution from Ahlstrom Wright, which denies this allegation. [ 5 ] As the case management judge noted, the issuance of the Third Party Notice not only brought a further party into the litigation, it had a practical effect on the plaintiffs’ ability to pursue their claim: 14 The filing of the Third Party Notice had an immediate impact on this action.

Because the applicant [Ahlstrom Wright] had been added as a party, the applicant could no longer represent the plaintiffs in the main action. That is because a party to an action cannot also represent another party on the same action.

This scenario raises a conflict of interest between the applicant and the plaintiffs as their interests are opposite to each other. . . . 17 This Court was not prepared to entertain the application until I could be assured of three things: first, the plaintiffs were made aware of the application which directly affected their interests; second, the plaintiffs were advised of their right to get independent legal advice to protect their interests; and third, the plaintiffs were told they had the right to be present in person or represented by counsel and to be heard at the application.

After some delays, I took the extraordinary step of having the Court itself send an explanatory letter to each plaintiff. After some further delay, the application to strike the Third Party Notice was heard on the merits. [ 6 ] The case management judge dismissed the motion to strike the Third Party Notice. He concluded that it disclosed a cause of action against Ahlstrom Wright. If Ahlstrom Wright could have claimed HST refunds if it had acted promptly, then Budden Morris was entitled to claim contribution under the Contributory Negligence Act , RSNWT 1988, c. 188.

Alternatively, all issues about responsibility for claiming the HST refund should be decided in the same action under R. 142(1)(c), which permits a third party notice when: “any question or issue relating to or connected with the original subject matter is substantially the same . . . as between the plaintiff and the defendant and the third party, or between any of them”. [ 7 ] This appeal followed. Since the Third Party Notice naming the plaintiffs’ lawyers made the prosecution of this appeal more complicated, an amicus curiae was appointed to represent the interests of the plaintiffs on the appeal.

The Claim for Contribution [ 8 ] The resolution of this appeal does not involve any findings of fact or responsibility. This appeal must be resolved on the assumption that the allegations in the pleadings can be proven: R. v Imperial Tobacco Canada Ltd. , 2011 SCC 42 at para. 23 , [2011] 3 SCR 45. It is not necessary to decide whether Budden Morris or Ahlstrom Wright acted appropriately with respect to the HST refunds. It is not necessary to decide whether HST was payable, whether it was deducted from settlement funds, or when or whether it could be claimed back from the Canada Revenue Agency.

It is not necessary to prove the exact scope of Ahlstrom Wright’s retainer, or whether it was instructed in time to do anything about the HST refunds. [ 9 ] The primary relationship between the plaintiffs and Budden Morris was in contract. The plaintiffs would also have a concurrent claim in the tort of negligence. There is an overlap, because the fundamental covenant in such a contract is that “legal services will be provided in a non-negligent manner”.

The relevant paragraphs in the statement of claim allege that Budden Morris “breached legal and fiduciary duties, by negligently deducting monies for HST”. [ 10 ] There may be differences between the measure of damages for breach of contract, negligence, and breach of fiduciary duty, but one element is common: each plaintiff must mitigate his damages.

A plaintiff cannot recover from the defendant any damages that were not reasonably mitigated. [ 11 ] The key to this appeal is that the plaintiffs are responsible in law for any failure to mitigate their damages, whether that occurred by their direct actions, or by the actions of their agents and solicitors. The case management judge held at paragraph 53 that he was not “. . . persuaded that the applicant [Ahlstrom Wright] may hide behind the assertion that it was acting merely as the plaintiffs’ agent”. That, however, views the issue from the wrong end.

The plaintiffs, like all principals, are answerable for the conduct of their agents. When it comes to mitigation of damages, the defendant Budden Morris is not concerned with the relationship between the principal and the agent Ahlstrom Wright, nor with which one of them actually failed to mitigate. [ 12 ] In this case the plaintiffs claim that Budden Morris improperly withheld HST. Budden Morris defends, saying that even if it was negligent, if the plaintiffs had acted properly they would have suffered no damage.

Having failed to mitigate, they cannot recover that portion of their damages that could have been avoided. Since the plaintiffs cannot recover from Budden Morris any avoidable damage, Budden Morris can have no claim over against Ahlstrom Wright. The case management judge held:

15 In this case, the conflict of interest is clear. If HST was remitted wrongly to Canada Revenue Agency, and if the applicant [AhlstromWright] knew about the issue and failed to seek refunds for its clients, then the applicant may be partly responsible for the plaintiffs’loss. In such a case, the plaintiffs would have a right to recover that loss from the applicant as well as from the defendants. (emphasisadded) This passage discloses a reviewable error.

If the plaintiffs failed to mitigate, they might have a claim against Ahlstrom Wright, but theydo not have a claim for that part of their damage against the defendant Budden Morris. [13] The underlying principle was summarized in Adams v Thompson, Berwick, Pratt & Partners (1987), (BCCA), 15 BCLR (2d) 51, 39 DLR (4th) 314 (CA): It thus may be stated with confidence, in my view, that a third party claim will not lie against another person with respect to an obligationbelonging to the plaintiff which the defendant can raise directly against the plaintiff by way of defence.

Where the only negligencealleged against the third party is attributable to the plaintiff, there is no need for third party proceedings since the defendant has his fullremedy against the plaintiff. In the Adams case, a developer sued an engineer for negligence. The engineer unsuccessfully attempted to third party the developer’slawyers, arguing that if the lawyers had given the developer proper advice its losses could have been avoided. But if the developer hadfailed to properly mitigate its damages, that could be raised directly by the engineers as a defence.

The engineers could never be liablefor avoidable damage, and so could not have any claim for contribution against the lawyers. [14] Adams identified two general situations where a third party notice could not be maintained. The first was when the acts of thethird party fell within the scope of the agency between the proposed third party and the plaintiff.

The second situation was where theallegation was a failure to mitigate: Another situation where a third party claim cannot be raised because the obligation is essentially that of the plaintiff is where the claim isone that the proposed third party should have advised or assisted the plaintiff to mitigate his damages. In that situation, like the situationof agency, third party proceedings are redundant because the defendant can obtain any relief to which he may be entitled by reduction ofthe plaintiff's claim if he makes out the defence of failure to mitigate.

In this particular case, the proposed liability of Ahlstrom Wright would be covered by both the agency and the mitigation branches of therule. [15] Laidar Holdings Ltd v Lindt & Sprungli (Canada) Inc., 2012 BCCA 22 at para. 1, [2012] 6 WWR 506 followed Adams. Atenant sued its landlord with respect to misrepresentations respecting the lease, and the tenant’s real estate agent was added as a party.The real estate agent unsuccessfully attempted to fourth party the tenant’s lawyers. There was no head of damages for which the realestate agent might claim contribution.

If the law firm was negligent in its advice to the tenant, the real estate agent would have acomplete remedy by way of reduction of the tenant’s damages for which the real estate agent could be liable. [16] The rule has recently been confirmed in Hengeveld v Personal Insurance Co., 2019 ONCA 497, 146 OR (3d) 182. Theplaintiffs were injured in a motor vehicle accident, and sued the tortfeasor. When they discovered that their vehicle, which might havebeen valuable evidence, had been destroyed by their insurer, they commenced a separate action against the insurer.

The insurer attemptedto third party the plaintiffs’ lawyers, arguing that the lawyers should have taken steps to preserve evidence.

The third party pleading wasstruck, because when the negligence alleged against the lawyers is attributable to the plaintiffs, no claim for contribution can arise.Where the negligence alleged against the lawyers arises out of its retainer with the plaintiff, then the lawyers are acting as the agent ofthe plaintiff, and the plaintiff is identified with its negligence. [17] The respondent relies on 478649 Ontario Ltd. v Corcoran (1994), (ON CA), 20 OR (3d) 28 (CA), but thatcase is distinguishable. In Corcoran the third party claim against the lawyer was allowed to stand.

While the court accepted that theclaim was novel, it concluded that this might be a case where the plaintiff was not responsible for the negligence alleged against itssolicitor. Corcoran was distinguished in Davy Estate v CIBC World Markets Inc., 2009 ONCA 763 at para. 22, 97 OR (3d) 401, andHengeveld at paras. 43-4, on the basis that it was a case where the lawyer was potentially jointly responsible for the initial loss, not afailure to mitigate, and the lawyer was not acting as the agent of the plaintiff at the relevant time.

Corcoran, in other words, waspotentially a case of concurrent tortfeasors, and is not applicable in this appeal. [18] The case management judge distinguished Adams on the basis that there was a “power imbalance” between the plaintiffs andAhlstrom Wright. That may be so, but it does not change the fact that Budden Morris cannot be found liable for any damage that couldhave been mitigated. The law of mitigation is the same in Nunavut as in the rest of Canada, and it does not vary depending on therelationship between the plaintiffs and their agent.

To the extent that there is a power imbalance, that will define the scope of thefiduciary and contractual duties that are owed by Ahlstrom Wright to the plaintiffs, but it does not diminish or enlarge the obligations ofBudden Morris. Further, the plaintiffs, with the assistance of plaintiffs’ counsel, suffer no power imbalance when the plaintiffs arelitigating against Budden Morris, who is the main adverse party. [19] In

summary, this appeal is governed by the principles set out in Adams, Laidar Holdings and Hengeveld. The claim againstAhlstrom Wright arises from events that happened after the initial damage was allegedly caused by the conduct of Budden Morris. It is aclaim for failure to mitigate. The Third Party Notice does not disclose a valid claim for contribution, and it could not be sustained on thatbasis. The Common Issue Principle [20] The Nunavut third party rule is widely worded:

(1) A defendant may serve a third party notice on any person, whether or not the person is already a party to the action, where the defendant claims against that person that (

a) he or she is entitled to contribution or indemnity; (

b) he or she is entitled to any relief or remedy that is related to or connected with the original subject matter of the action and that is substantially the same as some relief or remedy claimed by the plaintiff; or (

c) any question or issue relating to or connected with the original subject matter is substantially the same as some question or issue arising between the plaintiff and defendant and should properly be determined, not only as between the plaintiff and the defendant, but also as between the plaintiff and the defendant and the third party, or between any of them. Since there can be no claim for contribution with respect to damage that could have been mitigated, the Third Party Notice must be sustained, if at all, under R. 142(1)(c). [ 21 ] Rule 142(1)(

c) encourages a single resolution of multiple claims where the subject matter of the various claims is substantially the same. There would be some advantages to deciding at one time the responsibility of all the parties (the plaintiffs, Budden Morris, and Ahlstrom Wright) with respect to the HST refunds, but that general concept must yield to other values. Overlapping claims need not be tried together where that would result in substantive or procedural prejudice to one of the individual claims: O’Connor Associates Environmental Inc v MEC OP LLC , 2014 ABCA 140 at paras. 26 , 32, 95 Alta LR (5th) 264, 572 AR 354.

Here, the Third Party Notice runs the risk of derailing the main proceeding. Adding another party to the litigation, to engage one narrow issue, will complicate and delay the entire action. [ 22 ] The case management judge was justified in being concerned about possible conflicts of interest between counsel and their clients. In this case, however, it must be remembered that the real antagonists are the plaintiffs and Budden Morris. Those are the parties that are truly adverse in interest, and “in conflict”.

At one level the interests of the plaintiffs and Ahlstrom Wright are common and not in conflict: as against Budden Morris they both are motivated to prove that the plaintiffs properly mitigated their damages. An adversity has clearly risen between Ahlstrom Wright and the plaintiffs with respect to ultimate responsibility for the HST refunds, but any solution to the conflict must protect the plaintiffs’ interests. [ 23 ] The practicalities of the litigation cannot be ignored. The plaintiffs are a vulnerable group, widely dispersed in the North: reasons at para. 58.

They have limited access to legal resources and means of communication, and may lack the formal education that would enable them to navigate litigation without assistance. The issuance of the Third Party Notice has undermined the relationship between the plaintiffs and their counsel. The amicus took no position on the outcome of the appeal, but noted: 18. However, as amicus I have been contacted by many of the Plaintiffs who have uniformly expressed their concern that the legal process from the beginning of their respective cases has been confusing and obtuse.

I ask that this Court in its approach to this Appeal be mindful that clear direction to the parties will go a long way to afford these Plaintiffs a fair and just resolution. The courts are always suspicious of attempts by litigants to sue the opposing party’s lawyers: Davy Estate at para. 28 . Apart from the merits of such allegations, there is inevitably a tactical component to those claims. [ 24 ] The HST refunds are only a small part of the overall claim.

There is a danger that adding another defendant to address this small issue will undermine or delay the entire action, which can ultimately only prejudice the plaintiffs. It appears that no progress has been made in advancing the main claim since the Third Party Notice was filed on August 29, 2016. Deferring further consideration of the liability of Ahlstrom Wright may consume more resources, but it will not prejudice Budden Morris, which can mount a full defence to the claims against it. This is not an appropriate case to permit third party proceedings just because there in one similar issue involved.

Conclusion [ 25 ] In conclusion, the appeal is allowed. The Third Party Notice is struck. Budden Morris does not have a viable claim for contribution, and this is not a situation where third party proceedings should be allowed because of commonality of issues. [ 26 ] The only issue before this Court is the application to strike the Third Party Notice. The issue of whether Ahlstrom Wright should continue to represent the plaintiffs, and if so on what terms, is not resolved by this decision.

The answer may depend on the availability of other counsel prepared to take on the conduct of the action, and whether appropriate safeguards can be developed to protect the plaintiffs while deferring the contingent claim they may have against Ahlstrom Wright, in the event that Budden Morris is successful in proving a failure to mitigate. Waiver of limitation periods, approval of settlements by the court, and other techniques may be available to mitigate the effect of any secondary conflict of interest. Those issues are left for the case management judge.

Appeal heard on February 11, 2020 Memorandum filed at Iqaluit, Nunavut this 15 th day of April, 2020

Slatter J.A. Authorized to sign for: Antonio J.A. Feehan J.A. Appearances: T. Kruger for the Respondents J.P. Rossall, Q.C. for the Appellant M.H. Penner Amicus Curiae