Canada: Former Counsel Escapes Damages Award When New Counsel Fails To Sue On Time

Last Updated: September 28 2016
Article by Paula Boutis

In June, 2016, Justice Faieta of the Ontario Superior Court of Justice awarded damages of $57,712.31 plus interest against legal counsel who failed to file a claim within the required limitation period. Missed deadline and time-management errors are the biggest cause of claims against lawyers at all sizes of firms, according to a 2008 report of the Lawyers' Professional Indemnity Company. The negligent lawyers were hired to sue the plaintiffs' prior counsel, for alleged negligence with respect to the plaintiffs' purchase of contaminated property through a share purchase in December 2004.

At trial plaintiff Ezzat Gindi represented himself as well as co-plaintiff Dobara Properties Limited. Mr. Gindi was the president and sole-shareholder of Dobara. The plaintiffs successfully sued for environmental remediation costs. The plaintiffs also unsuccessfully sued for loss of property value, commission on the failed sale of the property when they tried to sell it in 2008, the cost of replacing the property's roof, excess mortgage interests and mental distress.

The plaintiffs retained Gino Arnone and Erickson & Partners ("Arnone Defendants") to assist on the purchase of a strip mall, the sole asset of a numbered company. The Arnone Defendants acted for both the vendor and purchaser. The plaintiffs alleged that the Arnone defendants did not advise the plaintiffs of potential conflicts of interest, nor did they advise of the importance of obtaining independent legal advice. In addition, the plaintiffs alleged they did not advise the plaintiffs that a title search showed a Shell lease registered with the land registry. In 2005, a few months after closing, the plaintiffs had learned from their insurer that there had been a gas station located on the property. Shortly thereafter, the plaintiffs approached the Arnone Defendants who acknowledged they were aware of the lease, but had not disclosed it.

The plaintiffs arranged for an environmental investigation in late 2010 and early 2011, which confirmed that the soil beneath the parking lot was contaminated. By 2012, the plaintiffs had completed remediation of the site. On November 25, 2011, Hicks & Hicks ("Hicks Defendants"), on behalf of the plaintiffs, commenced an action against the Arnone Defendants, but this was after a tolling agreement had expired.

The plaintiffs alleged professional negligence against the Arnone Defendants relating to their failure to disclose the Shell lease; for their failure to recommend further investigation of the state of the property; and for failure to advise of the possible impacts on the value and marketability of the property if contaminated. The plaintiffs claimed they would not have closed the transaction if they had known about the previous use as a gas station. In 2014, Justice Lederman struck the claim against the Arnone Defendants as statute barred. However, he also concluded that the issue of negligence regarding the Hicks Defendants could not be resolved on a summary judgment motion and the matter proceeded to trial.

At trial, the Hicks Defendants admitted liability, but argued that the plaintiffs had not suffered any compensable damages. More specifically, they argued that unless the plaintiffs proved that the property was worth less than the amount that Dobara paid for the property, they had not suffered damages. During the property's ownership by the plaintiffs, the plaintiffs had profited as owners of a property which was rented to multiple tenants.

As against the Hicks Defendants, Justice Faieta concluded that the plaintiffs, even if they did not establish that they overpaid for the property, were still entitled to compensation for all reasonably foreseeable damages resulting from the loss of opportunity to avoid the consequences of the Arnone Defendants' negligence. The court concluded that the remediation expenses were a reasonably foreseeable consequence of the Arnone Defendants' negligence. The court further cited the Court of Appeal decision in Midwest Properties Ltd. v. Thordarson et al., for the proposition that the "trend is for the courts to award damages for environmental remediation costs rather than damages for diminution of property value." As a result, the plaintiffs were awarded their clean-up costs.

In summary, the court concluded that the plaintiffs lost their opportunity to make an informed choice about the purchase of contaminated land because counsel failed to disclose historical uses, and then later were able to recover clean-up costs against counsel which failed to bring a professional negligence claim on time. For real estate counsel acting on the purchase or sale of commercial lands, and even some residential lands, it's important to be wary of the environmental state of the property given past uses or nearby current or former uses – most of which can be ascertained through due diligence prior to purchase – and to properly advise clients about the risks.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Paula Boutis
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