A developer retained a law firm for the purchase of four commercial properties in downtown Toronto, for $22.5 million. Unfortunately title was owned by the City of Toronto for a strip of land in a laneway at the rear of one of the buildings, which meant a lack of egress to these lands. This was missed by the lawyer on the search of title and in any event, the lawyer felt that the laneway cutting off access was a minor issue that would be covered by title insurance or alternatively could be solved after closing for a relatively nominal cost.

After the closing, the law firm approached the city for a bylaw to convey the laneway to the plaintiff, their client. But it turned out the client would have to pay $106,000 for the laneway. Title insurance did not cover it because the title insurance company would not pay for coverage of an encumbrance of city-owned laneways or property.

Notwithstanding all these problems, the client received an unsolicited offer to purchase the properties for $31.5 million. The client paid the $106,000 to obtain the laneway.

So the client paid $22.5 million and sold the lands for $31.5 million – $9 million in profit (less the $106,000). Nevertheless, the client sued the law firm for negligence.

I believe that what really was behind it is that the law firm went on to bill the client more than $270,000 in fees for the purchase. The client felt it was excessive.

This case states that for a lawyer to be liable for professional negligence, the client must prove that the error or omission “caused” a client’s loss. This is what we call the “but for” test.

The client must show that “but for the negligence of the lawyer” he would not have sustained the injury and damages. It was quite clear in this case that the lawyer was liable. As a defense, the lawyer attempted to argue that if the existence of the laneway cutting access to the property had been caught, the client would have made an agreement with the owner of the property, which would involve a hold back or abatement of the purchase price. The court did not accept this and granted summary judgment to the client, with a trial to follow to determine the client’s total damages. (King Lofts Toronto I Ltd. v. Emmons, 2013 ONSC 6113)

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In another case, a lawyer acted for the mortgage lender as well as the mortgagor in advancing funds under the mortgage. The mortgagor who obtained those funds used the cash to purchase a bank draft. As it turned out, the mortgagor was an imposter and the injured party cashed the bank draft with an endorsement on it by the imposter.

When the imposter and a number of other parties and the lawyer were sued by the entity that cashed the bank draft from the forged mortgage proceeds, the court rejected the position that a lawyer who does a mortgage owes a duty of care to an entity who later negotiates a cheque or bank draft purchased with the proceeds on the mortgage. The lawyer in that case does not guarantee that the transaction was legitimate and the cheque or bank draft was valid and negotiable.

This finding would not stretch the duty of care to a non-client even though the lawyer was involved in the mortgage transaction and could be said to be negligent (but no duty of care to the person suing) in the following circumstances:

a) the lawyer’s independent conveyancer as well as paralegal handled the entire transaction;

b) the lawyer never met with the fraudulent mortgagor;

c) the lawyer did not make sure that all necessary declarations were signed;

d) real estate taxes on the property in question were in arrears;

e) the lawyer released some mortgage proceeds several days before the mortgage was registered.

The reasoning of the court is that the bank draft would still have been issued to the imposter mortgagor, notwithstanding the acts of the lawyer. (The Cash House Inc. v. Choy, 2013 ONSC 7181)

Full decisions are available at www.canlii.org.

Donald Lapowich, Q.C. is a partner at the law firm of Koskie, Minsky in Toronto, where he practices civil litigation with a particular emphasis on real estate litigation and mediation, acting for builders, real estate