Negligence Claim against Law Firm Allowed to Proceed after Court of Appeal Reverses Summary Judgment

7 January 2019

By Uri Snir

In a recent decision of the Ontario Court of Appeal, the Court found that a motion judge erred in awarding partial summary judgment and dismissing a professional negligence claim against a law firm.

The Court of Appeal made clear that partial summary judgment is not a preferred procedural mechanism in Ontario and should be used sparingly.

Background: The appellant retained a lawyer, Mr. Chambers, to help with his divorce proceedings. As settlement discussions intensified, Chambers realized that the appellant would require tax advice with respect to any settlement, and particularly with respect to the appellant’s purchase of shares in the family business from his wife. Chambers retained the services of a tax lawyer, Mr. Perras, on behalf of the appellant (Mr. Perras and his firm, Perras Mongenais, are collectively referred to as “Perras”).

The appellant needed the services of Perras to understand the most tax effective way to structure the share purchase. Perras made it clear to Chambers that any settlement that resulted in the appellant buying shares from his wife would be inefficient and would lead to a tax liability of at least $1.25 million. Perras proposed an alternative, more efficient approach to structure the share purchase, in which the appellant’s wife would transfer her shares to a holding corporation.

The final settlement agreement did not include Perras’ recommended approach, because the wife would not agree to it. Instead, Chambers sent Perras a copy of the draft minutes of settlement, asking for advice on a particular paragraph relating to a rollover of the family corporations’ shares. Perras explained how the tax attribution rules would apply to the revenue earned on the transferred shares in the appellant’s hands.

As a result of the share transfer, the appellant incurred a tax liability of approximately $1.3 million. He alleges that he was not made aware of the potential tax consequences, and as a result, brought this claim against both law firms, and Chambers personally.

The defendant law firm, Perras, brought a motion for summary judgment on the basis that it provided the correct advice.

The Superior Court Decision: The motion judge awarded partial summary judgment and dismissed the claim against Perras. According to motion judge, Perras had given the correct tax advice, and the concern about whether the appellant understood the advice was up to Chambers.

The Court of Appeal Ruling: The Court of Appeal found that the motion judge erred in principle by granting partial summary judgment. It held that a determination of whether Perras failed to meet the standard of care of a lawyer in these circumstances could not be made summarily.

The Court of Appeal previously advised of the risks involved in granting partial summary judgment. In Butera v. Chown, Cairns LLP,  2017 ONCA 783, the Court held:

A motion for partial summary judgment should be considered to be a rare procedure that is reserved for an issue or issues that may be readily bifurcated from those in the main action and that may be dealt with expeditiously and in a cost effective manner.

The Court found that the potential liability of Perras was not an issue that could be readily bifurcated from the rest of the appellant’s claim. The arrangement between the appellant and the two defendant law firms was a tripartite arrangement. The terms of Mr. Perras’ retainer and whether he fulfilled his professional obligations are questions that are inextricably linked to the dealings that took place between all three parties. These are issues that should be the subject of evidence from all three participants.

Importantly, the Court found that the appellant was Perras’ client. It was Perras’ obligation to ensure that the advice given was understood by the client. It remained open for a court to determine how far that obligation went, but the motion judge erred by concluding that the appellant’s understanding was solely Chambers’ responsibility.

According to the Court, Perras’ professional obligations were two-fold: one was to ensure his advice was correct (there does not appear to be any dispute that Perras’ tax advice was correct); the second was to ensure that the advice was communicated to, and properly understood by, his client.

Finally, the Court also found that an award of partial summary judgment in this matter would conflict with the “interest of justice” element of the summary judgment approach laid out in Hryniak v. Mauldin, 2014 SCC 7. Specifically, partial summary judgment may run the risk of duplicative proceedings or inconsistent findings of fact. A partial summary judgment here would not advance the action as a whole. In fact, partial summary judgment often results in delay, added expense, the unproductive use of scarce judicial resources, and the reality of a limited record.

The Takeaway: This decision is interesting for two reasons: (1) it emphasizes that partial summary judgment is extremely hard to get in Ontario; and (2) it calls into question how far a lawyer’s professional obligations go when providing advice through a conduit lawyer.

It will be interesting to see how the trial judge deals with the latter issue. What steps does a lawyer need to take to ensure that advice given through a conduit lawyer is properly communicated and understood by the client?

 


Back To Blog

HIGH STAKES LITIGATION