





CITATION:
Gentra
Canada Investments
          Inc. v. Lipson, 2011 ONCA 331



DATE:  20110429



DOCKET: C51903



COURT OF APPEAL FOR ONTARIO



Laskin, Armstrong and Juriansz JJ.A.



BETWEEN



Gentra Canada Investments Inc. and 1327622 Ontario
          Limited



Plaintiffs (Respondents)



and



Norman B. Lipson and Fogler Rubinoff



Defendants (Appellants)



Chris G. Paliare and Tina H. Lie, for the appellants



Ronald G. Slaght, Q.C. and Anne E. Posno, for the respondents



Heard: October 26, 2010



On appeal from the order of Justice
          E. Frank of the Superior Court of Justice dated March 5, 2010, with reasons
          reported at 93 R.P.R. (4th) 24.



ARMSTRONG J.A.:

INTRODUCTION

[1]

Is a cause of action for solicitors negligence
    assignable?  The respondent,
Gentra
Canada Investments Inc., was the assignee of two
    mortgages from Royal Trust.  The
    mortgages were prepared for Royal Trust by the appellant law firm, Fogler,
    Rubinoff.  The principal issue before the
    court is whether an alleged cause of action for solicitors negligence in the
    preparation of the mortgages was included in the assignment to Gentra Canada.

[2]

On a motion for partial summary judgment, the motion
    judge held that the alleged claim for solicitors negligence was assigned to
    Gentra Canada.  The appellants appeal
    that finding.

[3]

The appellants also seek leave to appeal the costs
    award of $130,000.

THE FACTS

[4]

In 1990, Royal Trust advanced $21.5 million to the
    lessee of the Park Towers apartment complex located at 400 Walmer Road in
    Toronto.  The monies were secured by a
    second mortgage in the amount of $11.5 million and a third mortgage in the
    amount of $10 million, which were registered against a ground lease held by the
    borrower of the funds.  Fogler, Rubinoff
    acted for Royal Trust.  Mr. Lipson was
    the partner with responsibility for these transactions.

[5]

The mortgages went into default in January 1992 and
    enforcement proceedings were subsequently commenced.  During the course of the enforcement
    proceedings, Fogler, Rubinoff brought to the attention of Royal Trust certain
    problems including the insufficiency of the enforcement protection provided in
    the mortgage documentation.

[6]

On September 1, 1993, as a result of a court-approved
    plan of arrangement, the Royal Bank of Canada (RBC) and Gentra Inc. (the
    parent company of Royal Trust) entered into an agreement pursuant to which RBC
    purchased the shares of Gentra Inc.s subsidiaries, including the shares of
    Royal Trust.  Also, as part of the plan
    of arrangement, Royal Trust assigned a loan portfolio of approximately 300
    under-performing loans to Gentra Canada.  Gentra Canada was a newly created subsidiary of Gentra Inc.  As a result of this arrangement, RBC received
    the shares of Royal Trust and Royal Trusts good loans.

[7]

The respondent 1327622 Ontario Limited (132), a
    subsidiary of Gentra Canada, was incorporated for the purpose of purchasing the
    leasehold interest in the Park Towers property from the receiver.

[8]

Fogler, Rubinoff did not act in the above transactions
    pursuant to the plan of arrangement.  Its
    participation was limited to the enforcement proceedings in respect of the two
    mortgages.

[9]

The mortgages were assigned to Gentra Canada on an as
    is basis for their book value, which was about one-half their face value.

[10]

The assignment was effected through a series of
    documents including the Restated Excluded Assets Agreement (the
    Agreement).  The excluded assets
    included the Canadian Excluded Loans, which included the two mortgages and
    were defined as follows:

Canadian
    Excluded Loans
means all present and future indebtedness and liability in
    respect of moneys owing or payable and to become owing or payable by the
    Obligors under or by virtue of or otherwise in connection with the loan, lease
    and other credit facilities referred to in Schedule 1.1(g) as such credit
    facilities may be amended, modified, supplemented, extended, renewed or
    replaced at any time or from time to time, and all other rights, titles,
    interests and claims from time to time existing or arising under or in
    connection with the Excluded Loan Documents relating thereto, including
    interests in real or personal property securing liabilities or obligations, and
    all other benefit and advantage to be derived therefrom, and including the
    proceeds arising from any disposition of such indebtedness and liability.

[11]

The Agreement contained a provision pursuant to which
    Gentra Canada acknowledged that there were no representations, warranties or
    other assurances as to the collectability, legality, validity or enforceability
    of the two mortgages.  Gentra also
    acknowledged that it had made its own independent investigations and
    determinations in connection with all such matters and accepted full
    responsibility therefor.

[12]

Gentra Canada was aware of the alleged deficiencies in
    the two mortgages prior to the assignment.  Fogler, Rubinoff acted for Gentra Canada in the enforcement proceedings
    after the assignment until December 1993.  Indeed, Fogler, Rubinoff reported to the same person at Gentra Canada as
    they had at Royal Trust.  It was not
    until April 1997 that Fogler, Rubinoff was advised by the successor counsel for
    Gentra Canada that a claim may be made against them.  In July 1997, Gentra Canada and the
    appellants entered into a standstill agreement.

[13]

This action was commenced in 2000.  Gentra Canada claims damages against the
    appellants for negligence and breach of contract in the amount of $35 million
    and 132 claims damages in the amount of $5 million for loss of profits.

[14]

The respondents allege in para. 30 of the Amended
    Amended Statement of Claim  that the
    appellants breached their duties to them as follows:

Negligence and Breach of Contract of Foglers and Lipson

Although the Second
    and Third Leasehold Mortgages were mortgages of
a leasehold
interest, in preparing the security documents, no one from Foglers:

a)

reviewed the Ground Lease in detail, or at all, with
    Royal Trust prior to the execution of the Leasehold Mortgages;

b)

obtained a Ground Lease Acknowledgement/Assumption
    Agreement, Non-Disturbance Agreement or other similar protection from the
    landlord thereby creating saving provisions which would enable Royal Trust/Gentra
    to cure defaults by the lessee under the Ground Lease and protect its secured
    position in the event of breaches of the borrowers obligations;

c)

obtained an estoppel certificate from the landlord that
    the Ground Lease was in good standing and that there were no defaults, in
    particular repair defaults;

d)

advised
Royal Trust/Gentra of
    the risks inherent in lending on the security of a leasehold interest without
    the benefit of an estoppel certificate and protective language in the
    documents.

THE MOTIONS IN THE SUPERIOR
    COURT

[15]

On a motion heard in February 2010, the respondents
    moved for partial summary judgment.  They
    sought confirmation of the right to pursue the action and that all necessary
    plaintiffs had been named.  They also
    sought a determination of the extent of the damages they could pursue.  The defendants brought a cross-motion for
    summary judgment dismissing the action on the ground that the alleged cause of
    action had not been assigned to Gentra Canada and that it had not sustained any
    damages.  In respect of 132, they
    submitted that it had not been an assignee under the Agreement and therefore
    had no status in the action at all.

[16]

Judgment was delivered on March 5, 2010.  The motion judge granted partial summary
    judgment to the respondents and dismissed the motion of the appellants.  She found that the assignment of the two
    mortgages included the assignment of the cause of action against the
    appellants.  She concluded that Gentra
    Canada could recover the same damages that Royal Trust would have been entitled
    to as if there had been no assignment.  Although
    Gentra Canada had not complied with s. 53 of the
Conveyancing and Law of Property Act
, she found that it did not
    preclude it from bringing the action in its own name.  Finally, she concluded that Gentra Canadas
    damages and the status of 132 to pursue the action should be left to the trial
    judge.

THE APPEAL

[17]

There are five issues in this appeal:

(i)     Is a claim for solicitors negligence
    or breach of contract assignable?

(ii)    If
    such a claim is assignable, was Royal Trusts claim validly assigned to Gentra
    Canada?

(iii)     If
    Royal Trusts claim was validly assigned, does Gentra Canada have a claim for
    damages?

(iv)  Can
    Gentra Canada bring the action in its own name?

(v)
Does
132 have status to sue?

ANALYSIS

(i)        Is a claim for solicitors negligence or breach of contract assignable?

[18]

The appellants submit that the cause of action for
    solicitors negligence is fundamentally incapable of assignment as a matter of
    public policy.  In support of this
    submission, the appellants cite American authority and, in particular,
Can Do, Inc. et al. v. Marnier et al.
,
    922 S.W. 2d 865 (Tenn. Sup. Ct., 1996).  The court, in that case, reviewed several American cases and concluded
    that the assignability of legal malpractice actions is contrary to public
    policy.  The court summarized the public
    policy rationale at p. 868  as follows:

The many public policy reasons underlying these
    courts rejection of assignability of legal malpractice claims was perhaps best
    summarized by the California appellate court in [
Goodley

v. Wank & Wank
    Inc.
, 62 Cal.App.3d 389 (1976)], which was the first to flatly confront the
    issue.  There, the court focused on the
    unique character of legal services, the personal nature of the attorneys duty
    to the client, and the confidentiality of the attorney-client relationship.

[19]

The appellants emphasize that assigning a solicitors
    negligence claim to a stranger would undermine the confidential relationship
    between solicitor and client.  They cite
Picadilly, Inc. v. Raikos
, 582 N.E.2d
    338 (Ind. Sup. Ct., 1991) at p. 343:

So long as the client retains control over the
    suit, the scope of the disclosure can be limited by the clients power to drop
    the claim.  Once the client assigns the
    claim, however, the clients control over the litigation is lost, but the
    attorneys right to defend
himself
or herself by
    revealing client information survives.  The client is relegated to observing from the sidelines as the assignee
    pursues the attorney.

[20]

Finally, the appellants cite
Brickenden v. London Loan & Savings Co.
, [1934] 3 D.L.R. 465
    (J.C.P.C.), affg [1933] 3 D.L.R. 161 (S.C.C.), for the proposition that the
    courts in Canada have concluded that a claim against a lawyer for breach of
    duty arising from the lawyer-client relationship cannot be assigned.  In that case, a solicitor acted for both
    parties to a mortgage loan and did not disclose to the mortgagee loan company
    his personal interest in the transaction.  The loan company subsequently transferred all its assets and all rights
    of action capable of assignment to two other companies.  Both the Privy Council and the Supreme Court
    of Canada held that the cause of action for solicitors negligence was not
    assignable.   However, neither the Supreme Court nor the
    Privy Council provided any explanation as to why this was the case.

[21]

Today, the leading Canadian case on the assignability of
    a cause of action in tort is
Fredrickson
    v. Insurance Corporation of British Columbia
(1986), 28 D.L.R. (4th) 414
    (B.C.C.A.).  McLachlin J.A. (as she then
    was), in reasons unanimously adopted by the Supreme Court at [1988] 1 S.C.R.
    1089, held that while a bare cause of action was not assignable, a pre-existing
    property interest or a legitimate commercial interest would make assignable a
    cause of action for a non-personal tort.

[22]

Mr. Fredrickson was an insured owner of a car that was
    involved in an accident.  The issue was
    whether Fredrickson as an insured person could validly assign to a person
    claiming against him for injuries suffered in the accident, a cause of action
    against the insurance company for failure to properly defend and negotiate a settlement
    of the action on his behalf.  The cause of
    action in
Fredrickson
was pleaded
    alternatively in tort and contract.

[23]

In
Fredrickson
,
    the analysis begins at p. 420 with the assumption that, as a general rule,
    causes of action in tort are not assignable.  However, it is noted that there are a number of exceptions to the rule
    and that the categories of exceptions are not closed.

[24]

In her review of the exceptions to the general rule,
    McLachlin J.A. said at p. 420:

In each case the court must ask itself whether the
    assignment can fairly be seen as prompted by a desire to advance the cause of
    justice rather than as intermeddling for some collateral reason: Fleming, The
    Law of Torts, 6th ed. (1983), p. 593.

[25]

According to
Fredrickson
at p. 420, the first exception is that the fruits of an action, as opposed to
    the action itself, are assignable.  A
    second exception (at p. 421) involves:

[C]ases where the assignee has either a
    pre-existing property interest or a legitimate commercial interest in the
    enforcement of the claim.  An assignment
    where the assignee possesses such an interest will be valid, provided the
    action in tort is not based on a personal wrong, such as assault, libel or
    personal injury.  The reason for the
    latter stricture appears to be that in cases of personal torts, the assignee
    can have no legitimate property or commercial interest in recovery:
Trendtex Trading Corp. et al. v. Credit
    Suisse
, [1980] 1 Q.B. 629 at pp. 656-7, per Lord Denning M.R.; affirmed
    [1981] 3 All E.R. 520 at p. 530 [(H.L.)].

[26]

In summarizing the law on this issue, the reasons in
Fredrickson
state at pp. 423-24:

An assignment of a cause of action for a non-personal
    tort is generally valid if the assignee has a sufficient pre-existing interest
    in the litigation to negate any taint of champerty or maintenance.  In determining if this test is met, the court
    should look at the totality of the transaction:
Trendtex
,
supra
, per Lord
    Roskill at p. 531.  A property interest
    ancillary to the cause of action assigned is sufficient to support an
    assignment, but not essential.  A genuine
    pre-existing commercial interest will suffice.  The term commercial interest is used in the sense of financial
    interest; it need not arise from commercial dealings in the narrow sense.  Assignment of a cause of action to a stranger
    will not be permitted, nor will the court uphold an assignment made for the
    purpose of obtaining more than what the assignee is legally entitled to.

[27]

What did the court mean when it used the word
    pre-existing in pp. 420-21 of
Fredrickson
?  If pp. 423-24 are read with pp. 420-21 of the
    reasons, it is not clear to me whether the court was saying that the property
    interest or legitimate commercial interest or both must be pre-existing and
    whether it is the assignment or the cause of action in relation to which the
    interest must pre-exist.  The English
    authorities cited by the court do not appear to require that the property or
    commercial interests pre-exist the assignment.

[28]

Indeed, Lord Roskill in
Trendtex
at p. 530 said:

The court should look at the totality of the
    transaction.
If the assignment is of
    a property right or interest and the cause of action is ancillary to that right
    or interest, or if the assignee had a genuine commercial interest in taking the
    assignment and in enforcing it for his own benefit
, I see no reason why the
    assignment should be struck down as an assignment of a bare cause of action or
    as savouring of maintenance.

The underlined portion of the above passage was cited with
    approval in
Fredrickson
at p. 422.

[29]

Lord Roskill also cited
Ellis v. Torrington
, [1920] 1 K.B. 399 (C.A.) for the proposition
    that [w]here the assignee has by the assignment acquired a property right and
    a cause of action was incidental to that right, the assignment was held
    effective.

[30]

Canadian texts support the above interpretation.  S.M. Waddams,
The Law of Contracts
, 6th ed. (Toronto: Canada Law Book, 2010) says
    at para. 278: [i]f the right of action is incidental to a transfer of property
    an assignment will be valid.  See also
    G.H.L Fridman,
The Law of Contract in
    Canada
, 5th ed. (Toronto: Thomson, 2006) at pp. 693-694.  Both Waddams and Fridman cite
Ellis
, which states at p. 411:

[E]arly in the development of the law the Courts of
    equity and perhaps the Courts of common law also took the view that where the
    right of action was not a bare right, but was incident or subsidiary to a right
    in property, an assignment of the right of action was permissible, and did not
    savour of champerty or maintenance.

[31]

There is a paucity of Canadian cases since
Brickenden
that addresses the specific
    issue of whether a cause of action for solicitors negligence is assignable.

[32]

In
Caisse Populaire
    Vanier Ltee v. Bales
(1991), 2 O.R. (3d) 456 (Gen. Div.), a lawyer and his
    client gave promissory notes to the plaintiff to secure loans and the client
    later defaulted on his note, declaring bankruptcy after the plaintiff obtained
    default judgment against him.  The
    plaintiff requested the trustee to assign to it the claim the client allegedly
    had against the lawyer in negligence for advice given regarding the promissory
    note.  Chadwick J. held, in brief
    reasoning, that the plaintiff had a legitimate commercial interest and so the
    assignment was valid.  The plaintiff did
    not stand to profit but was trying to recoup the loss it suffered when the
    client filed in bankruptcy.  The lawyer
    and client were business partners to both of whom the plaintiff had loaned
    money.  The holding in this case seems to
    focus on the relationship between the lawyer and client as business partners
    and has little to do with the fact that the specific cause of action at issue
    was solicitors negligence.

[33]

In
Wilkinson v.
    Stafford T. Gorsalitz Professional Corp.
(2009), 481 A.R. 152 (Q.B.),
    Miller J. held that an assignment of the claim by the administratrix of an
    estate against the lawyer of the deceased was not valid.  There was no reference in the reasons to
Fredrickson
or other authorities on the
    assigning of causes of action.  The judge
    merely referred to the American position that such an assignment is
    inconsistent with the personal nature of the lawyer-client relationship.  Miller J. also quoted from
Trendtex
regarding public policy reasons
    involving champerty, but only from the decision of the Court of Appeal, and
    only to the section of that decision dealing with specific reference to
    personal torts,
i.e.
not those
    related to property but those like damages for libel or slander, or for
    assault, or for personal injury, as opposed to other torts or to contract.

[34]

In
Lau v. Ogilvie
,
    2010 BCSC 1589, two joint venture partners sued a lawyer for negligence in
    respect of a failed real estate deal.  One of the partners died and his executrix assigned the estates 50 per
    cent interest in the litigation to the other partner.  The motion judge rejected the defendants
    argument that the assignment was champertous and said at para. 27:

It is apparent that in the circumstances, [the
    assignee] possesses a sufficient interest in the action assigned to support
    the assignment, consistent in the manner set out in
Fredrickson v. Insurance Corporation of British Columbia
.

[35]

In my view,
Fredrickson
is the authority that governs the analysis in the case at bar and, to the
    extent that
Brickenden
stands for the
    proposition that a cause of action in solicitors negligence is not assignable,
    it is no longer good law.  I can find
    nothing in
Fredrickson
which leads to
    the conclusion that a cause of action for solicitors negligence is
    fundamentally incapable of assignment.  If an assignee can show a legitimate commercial interest in the cause of
    action against a lawyer, such an assignment does not savour of champerty or
    maintenance.  If the assignment meets the
Fredrickson
test, the fact that the
    claim arose out of a solicitor-client relationship does not render the
    assignment invalid as contrary to public policy.  I note that in the case at bar,
    solicitor-client privilege is irrelevant as the appellants have produced their
    entire file in the litigation.

[36]

In my view, if the language of the assignment in this
    case supports the inclusion of the cause of action in
solicitors
negligence against the appellants, such an assignment is valid.  I agree with the finding of the motion judge
    that Gentra Canada clearly has a legitimate commercial interest in such cause
    of action.  I am also of the view that
    the cause of action is ancillary to Gentra Canadas property interest in the
    two mortgages.  I am satisfied, as well,
    that the alleged tort in this case is not a personal tort as described by the
    court in
Fredrickson
.

[37]

In respect of the assignability of claims based in
    contract, the court in
Fredrickson
referred to the rule against the assignment of personal contracts (relied upon
    by the appellants) and concluded that it did not apply to the assignment of
    causes of action for damages.  However,
    the court went on to say at p. 428:

The authorities in England and Canada offer little
    assistance on the question of whether a cause of action for damages for breach
    of contract can be assigned.  Clearly a
    cause of action in debt can be assigned, even though the debtor denies
    liability:
Fitzroy v. Cave
, [1905] 2
    K.B. 364 (C.A.);
County Hotel & Wine
    Co. v. London & North West Ry. Co.
, [1918] 2 K.B. 251 at p. 258.  However, the assignability of unliquidated
    claims admits of more doubt.  Treitel,
    The Law of Contracts, 5th ed., after noting the different views on the
    question, concludes at p. 523 that [t]he best approach is to avoid generalisation
    and to ask in each case whether
this
assignment savours of maintenance.

The court concluded in
Fredrickson
that the cause of action for breach of contract against the insurance company
    does not savour of maintenance.  I am
    of the same view in respect of the cause of action in contract so far as it
    relates to this case.  I see nothing that
    savours of maintenance.

(ii)       Was Royal Trusts claim validly assigned to Gentra Canada?

[38]

The answer to the above question involves the
    interpretation of the language of the assignment and, in particular, the
    definition of Canadian Excluded Loans that I have referred to above in
    paragraph 10.  The motion judge
    concluded: that on the plain wording of the assignment it includes the cause
    of action against the defendants.  In so
    finding, she focused on the word claim, in the above definition, which she
    considered to be sufficiently broad to include the cause of action against the
    appellants.

[39]

A consideration of the motion judges conclusion on
    this issue raises the question of the appropriate standard of review.  In
Bell
    Canada v. The Plan Group
(2009), 96 O.R. (3d) 81, Blair J.A. (Goudge J.A.
    concurring) described contractual interpretation as a question of mixed fact
    and law for which the standard of review is close to correctness, although the
    factual context and extrinsic evidence are questions of fact that are reviewed
    on a standard of palpable and overriding error.  Blair J.A. put the issue this way at paras. 30 and 31:

The exercise of interpreting a contract is not
    essentially a fact-finding exercise, however.  As the authorities cited above have noted, there may be questions
    involving the determination of the factual context in which the contract was
    negotiated, or considerations of extrinsic evidence, that evoke the
    fact-finding functions.  Those decisions
    are to be addressed from the palpable and overriding perspective.  In substance, though, the exercise of
    interpreting a contract is a legal exercise, calling upon the learning and
    training that judges and lawyers acquire over years of experience.  Apart from the truly factual aspects that may
    underlie the task, trial judges have no particular advantage over appellate
    judges in the art of contractual interpretation.

In my view, certainty in contract is an important
    policy value underlying the construction of contracts.  This factor alone is sufficient to push the
    standard of review in such cases towards correctness and away from deference.  At the very least, contractual interpretation
    is an exercise that generally falls much more towards the error of law end of
    the [
Housen v. Nikolaisen
, [2002] 2
    S.C.R. 235] spectrum, once the factual issues referred to above have been
    resolved or if  as is the case here  they are not in dispute.

[40]

The appellants submit that the motion judge committed
    several errors in concluding that Royal Trusts cause of action against the appellants
    was actually assigned to Gentra Canada:

(a)

She
    failed to recognize that there was no express assignment of the cause of
    action;

(b)

She
    failed to accept that the definition of Canadian excluded loans does not
    include Royal Trusts claim against the appellants;

(c)

She
    failed to appreciate that Royal Trust and Gentra never contemplated assigning
    Royal Trusts claim against the appellants; and

(d)

She
    failed to recognize that there was no consideration.

(a)       There
    was no express assignment of the cause of action.

[41]

The appellants submit that explicit language is
    required to validly assign a future
chose
    in action
.  They rely on
Cowichan Native Heritage Society (Trustee
    of) v. Toronto Dominion Bank
(1993), 106 D.L.R. (4th) 126 (B.C.C.A.) at p.
    131 where the court quoted from Lord Watson in
Tailby v. Official Receiver
(1888), 58 L.J.Q.B. 75 (H.L.) at p. 79,
    including the following:

There is but one condition which must be fulfilled
    in order to make the assignees right attach to a future
chose in action
, which is, that, on its coming into existence, it
    shall answer the description in the assignment, or, in other words, that it
    shall be capable of being identified as the thing, or as one of the very
    things, assigned.  Where there is no
    uncertainty as to its identification, the beneficial interest will immediately
    vest in the assignee.

[42]

I take from the above that although there may not be an
    explicit reference to the claim said to be assigned if one can construe the
    language of the assignment as capable of identifying it as one of the things
    assigned, then that is good enough.

[43]

The factual context is important for this issue.  The motion judge found that the object of the
    transaction between RBC and Gentra Inc. was to shift the good assets of Royal
    Trust to RBC while leaving the underperforming loans (
i.e.
the Canadian excluded assets) with Gentra Inc. through its
    wholly owned subsidiary, Gentra Canada.  Simply
    put, in respect of the two mortgages in issue, Gentra Canada took over the
    position of Royal Trust.  This finding of
    the motion judge is not challenged.  There is no palpable and overriding error.

(b)       The definition of Canadian
    Excluded Loans does not include Royal Trusts claim against the appellants.

[44]

I now turn to the language of the definition of
    Canadian Excluded Loans.  The key words
    are and all other rights, titles, interests and claims from time to time
    existing or arising under or in connection with the Excluded Loan Documents.

[45]

I agree with the motion judge that the words claim
    and in connection with the Excluded Loan Documents are sufficiently broad so
    as to be capable of including the cause of action against the appellants.

[46]

The appellants submit that the claims that were
    assigned by the agreement with Royal Trust were only those in connection with
    the Excluded Loan Documents, which are defined to mean all documents
    containing the terms of the loans as between the lender and Obligor,
i.e.
the person liable to pay the
    loans.  The appellants further submit
    that a solicitors negligence claim against the appellants is unrelated to the
    lender-obligor relationship and it is therefore not a claim in connection with
    the Excluded Loan Documents.

[47]

The appellants rely on the judgment of the Florida
    Supreme Court in
Law Office of David J.
    Stern, P.A. v. Security National Servicing Corp.
, 969 So.2d 962 (2007),
    where the court held at p. 969 that the right to sue for legal malpractice is
    not connected with or growing out of the relationship between the mortgagor
    and mortgagee.  By analogy, the
    appellants argue that they acted for Royal Trust in the preparation of the
    mortgage documents but those documents covered only the relationship between
    the mortgagor and mortgagee.  If the
    documents are read as the appellants contend, then they say it is obvious that
    the parties intended that the words claims and in connection with the
    Excluded Loan Documents mean the enforcement claims against the obligors and
    no more.


[48]

In my view, the motion judge properly distinguished
Stern
from this case at para. 31 of her
    reasons:

In
Stern
,
    the lawyer had been retained to enforce the mortgage.  The claim against him arose out of his
    alleged negligence in handling the foreclosure proceedings.  That distinguishes
Stern
from this case.  Here,
    the lawyer client relationship was inherent in the mortgage instruments themselves
    and, therefore, the right to sue for legal malpractice is connected with or
    growing out of the relationship between the mortgagor and the mortgagee.  On that basis, the plaintiffs position is
    consistent with the reasoning in
Stern
.

[49]

The appellants further submit that the motion judge
    erred in focusing on the literal meanings of the words claims and in
    connection with in that she failed to take into account the entire
    contract.  They rely on the judgment of
    the Supreme Court of Canada in
Consolidated-Bathurst
    Export Ltd. v. Mutual Boiler and Machinery Insurance Co.
, [1980] 1 S.C.R.
    888 at p. 901:

[T]he normal rules of construction lead a court to
    search for an interpretation which, from the whole of the contract, would
    appear to promote or advance the true intent of the parties at the time of
    entry into the contract.  Consequently,
    literal meaning should not be applied where to do so would bring about an
    unrealistic result or a result which would not be contemplated in the
    commercial atmosphere in which the insurance was contracted.  Where words may bear two constructions, the
    more reasonable one, that which produces a fair result, must certainly be taken
    as the interpretation which would promote the intention of the parties.

[50]

As the motion judge observed in her analysis, the
    purpose of the transaction that led to the assignment was to put Gentra Canada
    in the same position as Royal Trust in respect of the underperforming loans,
    which included the two mortgages.  When
    viewed from this perspective, it is not difficult to conclude that Gentra
    Canada has a legitimate commercial interest in the prosecution of the cause of
    action against the appellants.  Given
    this approach, I am not persuaded, as submitted by the appellants, that because
    Gentra Canada expressly gave up any recourse against Royal Trust in regard to
    the deficiencies in the mortgages, it is commercial absurdity to argue that it
    can maintain an action against the appellants without an explicit provision in
    the assignment.

[51]

The appellants submit that under the motion judges
    interpretation of the word claims any and all potential causes of action that
    Royal Trust had against anyone who may have had any involvement in the loans were
    assigned to Gentra Canada.  This is a
    flood gates submission.  What we have
    before us is a claim in respect of two mortgages out of some 300.

[52]

In my view, the trial judges analysis of the
    definition of Canadian Excluded Loans and, in particular, the word, claims,
    is a correct analysis.

(c)       Royal
    Trust and Gentra Canada never contemplated assigning Royal Trusts claim
    against the appellants.

[53]

The appellants submit that at the time of the
    assignment, no specific claim had yet been raised as an issue and that the
    parties had not turned their minds to the assignment of the potential cause of
    action.  They rely on
Jannock Industries Ltd. v. Acadia Forest
    Products Ltd.
(1979), 26 N.B.R. (2d) 185 (C.A.) at para. 31 for the
    proposition that where there is no meeting of the minds as to the disposal of
    an asset, the asset cannot form part of an assignment.  In my view, the motion judge correctly
    distinguished
Jannock
.  In that case, neither the plaintiff nor the
    defendant was aware of the asset in issue at the time they entered into an
    agreement of purchase and sale and therefore, the court held that it was not
    included in the assets purchased.  In this
    case, on the other hand, because the directing minds of both the assignor and
    assignee were the same, both parties were fully aware of the potential
    claim.  Such a conclusion is obvious and
    I do not see that the motion judge in so finding ignored the fact that Royal Trust
    and Gentra were separate legal entities.

(d)       There
    was no consideration for the assignment of Royal Trusts claim against the
    appellants.

[54]

The appellants argue that Gentra Canada purchased the loan
    portfolio for its book value and that there was no separate price allocation to
    the assignment.  The assignment therefore
    fails for lack of consideration.  I see
    no merit in this argument.  How the
    purchase price was calculated does not dictate what was or was not included in
    the assignment.  The terms of the assignment
    make it clear what was assigned.  The
    motion judge has correctly found that those terms include the claim against the
    appellants.

(iii)     If Royal Trusts
    claim was validly assigned, does Gentra Canada have a claim for damages?

[55]

The appellants submit that Royal Trust had suffered no
    damages attributable to the alleged negligence at the time of the assignment.  To the contrary, they argue that the loan
    portfolio assigned to Gentra Canada turned out to be extremely profitable.

[56]

I agree with the submissions of counsel for Gentra
    Canada that the damages of Gentra Canada are those losses that would have been
    suffered by Royal Trust had there been no assignment.   I also agree that Gentra Canada is entitled
    to damages for losses that were suffered in respect of the two mortgages and
    not on the assigned portfolio as a whole.  Any potential profit on the portfolio is irrelevant.

[57]

The appellants contend that the motion judge erred in
    relying on a judgment of the English Court of Appeal in
Technotrade Ltd. v. Larkstore Ltd.
, [2006] E.W.C.A. Civ. 1079.  I do not accept that the motion judge erred
    in her application of the damages principles discussed in
Technotrade
.  In
Technotrade
, as in the case at bar, at
    the date of the assignment, no damages had been suffered, but the alleged
    breach of contract had occurred and the alleged negligence had taken place.

[58]

Finally, the appellants argue that Royal Trust and
    Gentra Canada were two sophisticated commercial parties who dealt with the
    mortgages on an as is basis.  Royal
    Trust made no representations with respect to their legality, validity or
    enforceability and Gentra Canada was aware of the deficiencies in the mortgages
    and agreed it would have no recourse against Royal Trust.  In the result it is submitted that Gentra
    Canada contracted away its right to pursue damages.  I disagree.  While there is no recourse against Royal Trust, Gentra Canada did not
    give up its claim as an assignee in respect of any action against the
    appellants.

(iv)     Can
Gentra Canada bring the action in its own
    name?

[59]

This
    issue concerns the applicability of the
Conveyancing
    and Law of Property Act
, R.S.O. 1990, c. C.34, (CLPA) s. 53(1) which
    provides:

Any absolute assignment made on or after the 31st
    day of December, 1897, by writing under the hand of the assignor, not
    purporting to be by way of charge only, of any debt or other legal chose in
    action of which express notice in writing has been given to the debtor, trustee
    or other person from whom the assignor would have been entitled to receive or
    claim such debt or chose in action is effectual in law, subject to all equities
    that would have been entitled to priority over the right of the assignee if
    this section had not been enacted, to pass and transfer the legal right to such
    debt or chose in action from the date of such notice, and all legal and other
    remedies for the same, and the power to give a good discharge for the same
    without the concurrence of the assignor.

[60]

The motion judge held at para. 89 of her reasons
    that Royal Trust was not a necessary plaintiff.  She held that although s. 53 of the CLPA had not been complied with and
    so the assignment was an equitable and not legal one, in the circumstances of
    the case the requirement that the assignor be joined as a party did not apply.

[61]

The motion judge at para. 88 was correct that
    the purpose behind the requirement that the assignor be a party... is to bind
    the assignor so as to save the debtor from the possibility of another action
    against it for the same debt.  This
    principle is supported by the case discussed by the motion judge,
Bercovitz Estate v. Avigdor
, [1961] O.J.
    No. 20 (C.A.) at para. 11, and by another case she cited,
DiGuilo v. Boland
, [1958] O.R. 384 (C.A.).  In
DiGuilo
,
    Morden J.A. for the court at p. 395 quoted with approval this passage from
Re Steel Wing Co.
, [1921] 1 Ch. 349 at
    p. 357:

The main reason why an assignee of a part of a debt
    is required to join all parties interested in the debt in an action to recover
    the part assigned to him is in my opinion because the Court cannot adjudicate
    completely and finally without having such parties before it. The absence of
    such parties might result in the debtor being subjected to future actions in
    respect of the same debt, and moreover might result in conflicting decisions
    being arrived at concerning such debt.

[62]

Morden J.A. in
DiGuilo
recognized at pp. 397-98 two situations where the assignor did not need to
    be a party: where the defendant does not raise the point as a matter of
    defence ... or where it is clear that the assignor, a company, had no interest
    in the chose and had ceased to exist (citations omitted).  The latter situation was that in
Bercovitz Estate
.

[63]

However, Morden J.A. cited these two situations as
    examples and not as an exhaustive list.  For this reason, I cannot accept the submission of the appellants that
    the motion judge was wrong to rely on
Bercovitz
    Estate
in this case because Royal Trust has not ceased to exist.  The limitation period has clearly run on any
    claim by Royal Trust against the appellants with regard to the alleged
    negligence. In these circumstances, it is just as clear that, as the court
    stated in
Bercovitz Estate
at para.
    25, there can therefore be no conceivable interest remaining in the
    assignor.  To the extent that the
    precise holding in that case does not cover this situation, the underlying
    principle should be extended.

[64]

I note that although the parties and the motion judge
    did not refer to r. 5.03 of the
Rules of
    Civil Procedure
, it provides in part:

(3)
    In a proceeding by the assignee of a debt or other chose in action, the
    assignor shall be joined as a party unless,

(a)
the
assignment is
    absolute and not by way of charge only; and

(b)
notice
in writing
    has been given to the person liable in respect of the debt or chose in action
    that it has been assigned to the assignee.

[65]

However, in my view, the same reasoning applies to the
    exercise of the courts discretion under r. 5.03(6) to relieve against this
    requirement of joinder in these circumstances.
[1]
This is in keeping with the general principle of interpretation in r. 1.04(1)
    that [t]hese rules shall be liberally construed to secure the just, most
    expeditious and least expensive determination of every civil proceeding on its
    merits.

(v)       Does 1327622 Ontario Limited have status to sue?

[66]

132
    is not a party to the assignment.  It is
    a subsidiary of Gentra Canada and no more.  It is a separate legal entity.  It
    was incorporated for the purpose of purchasing the leasehold interest in the
    Park Towers property from the receiver.  There is no suggestion

of
a
    solicitor-client relationship between 132 and the appellants which could give
    rise to any cause of action against the appellants in either tort or
    contract.  I would allow the appeal in
    respect of 132.

LEAVE TO APPEAL THE COSTS AWARD OF THE MOTION JUDGE

[67]

In
Brad-Jay Investments Ltd. v. Szijjarto
(2006),
    218 O.A.C. 315 (C.A.) at para. 21, leave to appeal to S.C.C. refused, [2007]
    S.C.C.A. No. 92, this court held that leave to appeal a costs order requires strong
    grounds upon which an appellate court can find that the judge erred in the
    exercise of his or her discretion.  As to
    the grounds upon which an appellate court may interfere with a costs award
    Arbour J. said in
Hamilton v. Open Window
    Bakery Ltd.
, [2004] 1 S.C.R. 303 at para. 27:

A
    court should set aside a costs award on appeal only if the trial judge has made
    an error in principle or if the costs award is plainly wrong.

[68]

The
    appellants submit that the motion judge made three errors in her costs award.  First, the appellants argue that because of
    the novelty of the case there should be no award of costs.  The motion judge, in refusing to recognize
    the novelty of the case, erred in saying that she simply applied the law as
    articulated in
Fredickson
.  Second, the motion judge erred in awarding
    costs for a February 2005 motion that was dismissed on consent.  Third, the award of $130,000 was not fair and
    reasonable taking into account the factors set out in r. 57.01.  The appellants also allege that the hourly
    rates of counsel were well in excess of the usual partial indemnity rates and
    that it was inappropriate to be charging for two senior
counsel
.

[69]

In
    my view, this case can properly be described as novel since there was so
    little relevant case law and the case that governs,
Fredrickson
, is not a solicitors negligence case.  That said
,
I am not
    persuaded that this is the kind of novel case that would justify a no costs
    order.  The case cited for the
    proposition is
Elliott v. Canadian
    Broadcasting Corp.
(1995), 25 O.R. (3d) 302 (C.A.).
Elliott
was a group libel case involving veterans of the Second World War who had
    served in the Bomber Command.  The case
    at bar is a complex commercial case involving sophisticated parties who, in my
    view, would expect that costs follow the event.

[70]

In
    respect of the 2005 motion for which the motion judge awarded costs, I see no
    error.  According to the original
    endorsement, counsel for the respondents was entitled to move for costs:

The
    dismissal is likewise without prejudice to the right of any of the parties to
    bring the matter of costs back before the Court for determination if same
    cannot be agreed upon
or
to seek costs of todays
    attendance [and] this motion following trial.  The motion for costs, if any, and any fresh motion for summary judgment
    may be scheduled before me, if convenient, but I am not seized.

[71]

As
    to quantum, I have no doubt that $130,000 is at the top end of the range for a
    two day motion of this kind.  That said
,
the motion judge carefully reviewed the relevant
    principles that apply to fixing costs.  While I think the award is high, I cannot conclude that it is plainly
    wrong.

[72]

However,
    in respect of 132, since I would allow the appeal in respect of it, an adjustment
    to the motion judges costs award will be required.  I will deal with this below.

[73]

I
    would dismiss the application for leave to appeal costs.

DISPOSITION

[74]

In
    the result, I would allow the appeal in respect of 132 and dismiss its action
    against the appellants.  I would dismiss
    the appeal in respect of
Gentra
Canada.

THE COSTS OF THE APPEAL

[75]

I
    would fix the costs of the appellants in respect of 132 in the amount of $5,000
    inclusive of disbursements and applicable taxes.  I would fix the costs of
Gentra
Canada in the amount of $30,000 including disbursements and applicable
    taxes.

THE COSTS OF 132 BEFORE THE
    MOTION JUDGE

[76]

If
    the parties are unable to agree on what the adjustment of the costs before the
    motion judge should be in respect of 132, they can make brief submissions to us
    in writing within 10 days of the receipt of these reasons.  I assume that this will be unnecessary.

RELEASED:

APR 29 2011                                             Robert
    P. Armstrong J.A.

JL                                                                I
    agree John Laskin J.A.

I
    agree R. Juriansz J.A.





[1]
Rule
    5.03(6) provides: The court may by order relieve against the requirement of
    joinder under this rule.


