Law Times

Page 10 October 28, 2013 Law Times • FOCUS Case demonstrates dangers of communication failures with clients BY CHARLOTTE SANTRY Law Times C ommunication breakdowns with clients account for a large proportion of complaints about lawyers. In King Lofts Toronto I Ltd v. Emmons, confusion over a titles issue cost a client about $106,000 in unexpected fees. It was arguably a relatively modest amount given he had paid $22.5 million for properties sold three years later for $31.5 million, but it was enough of an unpleasant surprise for the client to launch a successful action against the lawyer and his firm. In an Ontario Superior Court of Justice decision on Sept. 30, 2013, Justice Paul Perell dismissed a motion by defendants Martin Emmons and Fraser Milner Casgrain LLP for summary judgment seeking to toss the negligence claim. At the same time, he granted a motion by client King Lofts for partial summary judgment. "I begin this account of the factual and procedural background by foreshadowing that in the FourPointLearning_LT_Sep30_14.indd 1 discussion section of this judgment, I shall include that Mr. Emmons and his law firm were professionally negligent," wrote Perell. "However, as the discussion of the facts will reveal, like many professional negligence cases, the lawyer's error does not show incompetence, unskillfulness, lethargy or inattention. Like many negligence cases, the error is a failure in communication." Bryton Capital had retained Emmons to act on its purchase of four commercial properties in downtown Toronto near King and Bathurst streets for $22.5 million. The lands included a Richmond Street West property that contained a laneway belonging to the City of Toronto. A few months later, Bryton Capital assigned its agreement of purchase and sale to King Lofts, which was to be incorporated for the purpose of completing the transaction. King Lofts was unaware at this point that the City of Toronto owned the laneway. After the assignment, King Lofts retained Emmons and FMC, where he had been working at the time, to continue with and complete the deal. Before the closing date of Jan. 26, 2006, Emmons told King Lofts president Alex Henry about the laneway but said this was a minor issue covered by title insurance. Further correspondence from the law firm outlined some of the options available to Henry. However, Henry claimed he didn't know King Lofts might have to buy the laneway. He thought he could resolve the problems by applying to convert the lands to the land titles system after closing for a few thousand dollars. He also said he didn't know the title insurance policy had exclusions. The communications over the insurance policy "are a source of confusion and misunderstanding," wrote Perell. No holdback regarding the purchase price had been obtained from the vendors in relation to the laneway. After the sale closed, Emmons billed King Lofts for more than $270,000. King Lofts saw this as excessive and ended the business relationship. In February 2008, King Lofts received an unsolicited offer for the properties on the condition it obtain a conveyance of the laneway. The city said it expected payment for the conveyance, something that "came as a surprise" to Henry, according to the decision. Henry paid $106,000 for the conveyance after learning his insurance wouldn't cover it. In May 2009, he sold the lands for $31.5 million. In January 2011, King Lofts commenced the action against Emmons and his firm as well as the insurance company, First Canadian Title Co. Ltd., for breach of contract. Emmons argued the action was statute-barred; that he met the standard of care of a competent real estate practitioner; that there was no admissible evidence that he failed to meet those standards; and that the client hadn't proven it had suffered a loss. He failed on all four arguments, according to Perell. "In my opinion, a reasonably competent real estate practitioner would have alerted his client to the prospect that it was not likely going to obtain ownership of the city's land for free," wrote Perell. He similarly would "not have assured the client that the laneway was a minor matter that the client should be comfortable about until it could be dealt with after closing." The $106,000 and accompanying legal expenses "are not minor matters even in the context of a multimillion-dollar transaction," he added. There should be a trial to assess the damages, Perell concluded. Emmons and his firm are appealing the decision and were therefore unavailable for comment, as was King Lofts' counsel Melvyn Solmon. Steven Pearlstein, who sits on the Ontario Bar Association's real property section executive, says the King Lofts case highlights the importance of clarifying all potential costs to a client and being certain of exactly what title insurance covers. "There's no doubt in my mind that . . . they wanted this property. If someone had come to them and said, 'There's a title deficit. Do you still want the property for $22.6 million [instead of $22.5 million],' what do you think they would've said?" Pearlstein says lawyers often misunderstand title insurance. At the same time, communication issues account for a large portion of the claims dealt with by LawPRO at 779 in 2011 out of about 2,500. A PracticePRO publication aimed at real estate lawyers recommends those using title insurance "take the time to communicate directly with clients." The report says: "Often the lawyer fails to ask clients about possible future uses of the property that the client might have in mind, and as a result fails to get a title insurance endorsement that would protect the clients. "Similarly, lawyers sometimes fail to discuss whether a client wants a survey or a particular search done." It also recommends documenting instructions in writing and taking the time to meet clients in person. LT 13-09-26 5:41 PM CANADIAN LAW LIST 2013 YOUR INSTANT CONNECTION TO CANADA'S LEGAL NETWORK Inside you will find: of more than 58,000 barristers, solicitors and Quebec notaries, corporate counsel, law firms and judges in Canada; for the Supreme Court of Canada, the Federal Court of Canada, Federal Cabinet Ministers, departments, boards, commissions and Crown corporations; Untitled-2 1 related to each province for the Courts of Appeal, Supreme Courts, County and District Courts, Provincial Courts, law societies, law schools, Legal Aid, and other law-related offices of importance. MORE THAN A PHONE BOOK www.lawtimesnews.com Prices subject to change without notice, to applicable taxes and shipping & handling. Visit carswell.com or call 1.800.387.5164 for a 30-day no-risk evaluation 13-10-22 7:47 AM

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