Law Times

October 31, 2016

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Law Times • OcTOber 31, 2016 Page 7 COMMENT Marketability of title gone wild O n Oct. 20, a panel of the Supreme Court of Canada dismissed the appeal arising out of MacDonald v. Chicago Title Insurance Company of Canada, 2015 ONCA 842. This lonely little footnote in jurisprudential history (J.S.C.C. No. 36830) may very well have ushered in a true paradigm shift in the common law of real property. This is not so much because of the ul- timate decision as to liability but more so because of the rationale adopted by the Ontario Court of Appeal in reaching its conclusion, a rationale that has now been ensconced in the common law thanks to the Supreme Court of Canada's refusal to hear the appeal. The facts in MacDonald are very sim- ple. Greatly paraphrased, the MacDon- alds purchased a house and title insured it with Chicago Title. The MacDonalds discovered, subse- quent to closing, that the house had un- dergone significant renovations by the vendor without the requisite permits, and that these renovations were improperly done, rendering the house unsafe. They claimed against their title insurer for the cost of the requisite repairs neces- sary to render the house safe for living. At trial, the Ontario Superior Court found that the title insurer was not liable un- der the title insurance policy for what was, for all intents and purposes, a latent physical defect. The Ontario Court of Appeal, how- ever, reversed the trial decision and held the title insurer liable for the cost of the repairs. Although, as is often the case in this type of in- surance litigation, the case involved a plethora of legal arguments. Of particular interest to real estate law- yers was the central tenet upon which the Court of Appeal found the title insurer liable — in other words, that a material la- tent physical defect in the property rendered the title to that property unmar- ketable, and one of the primary risks that title insurance insures against is unmarketability of title. While the ratio may be seen by some as having an equitable appeal to it, the actual conclusion runs contrary to centuries of common law underpinning marketabil- ity of title. As almost any Real Property 101 pro- fessor would teach, "marketability of title" has a long history in the common law and means something along the lines of "a title that can be forced upon an unwilling pur- chaser" (which in turn means something along the lines of "a title which is suffi- cient, free from encumbrance or adverse claim that a purchaser will have no choice but to close the deal"). More to the point, at least up until the MacDonald case, marketability of title was something altogether different than the marketability of the property or the value of the property. That is, any given property (say, a toxic waste dump, for example) may be utterly unmar- ketable in the real world (in the sense that it will have almost no buyers at almost any price) yet still have a pristine and totally marketable title (in the sense that the fee of simple ownership thereof is total- ly undisputed and the title has not a single encum- brance or other defect). The Ontario Court of Appeal's suggestion (since effectively ratified by the Supreme Court of Canada) that a house with significant latent construction defects then has an unmarketable title is a truly radical leap from the common law. Consider, for example, the real estate solicitor who opines that "X has good and marketable title to Whiteacre." Absent qualification, in the post- MacDonald era, this might very well mean that the same real estate solicitor has just opined that Whiteacre is effectively free from latent physical defects and is fully marketable in the local real estate market. Since when did solicitors become building inspectors and real estate bro- kers? Well, technically, since the Supreme Court of Canada put its imprimatur on the MacDonald case. Of course, with no opportunity to ar- gue this point before the Supreme Court of Canada, "qualification" now pretty much has to be the goal going forward. One can expect all title insurers across the board to have already qualified their title policies so that the marketability of title coverage excludes latent physical defects and does not actually scoop in by default the marketability of the property gener- ally. Likewise, one can expect prudent solicitors to follow suit, even as we speak, lest their title opinions open them up to a world of liability that they never imagined they were assuming by simply opining on marketable title. Representations and warranties in all sorts of real estate contracts will prob- ably be next on the resulting qualification block. The irony is that the title insurer may very well have been found liable on other grounds. Instead, by "intermingling concepts" (some might argue "confusing concepts") to achieve the liability they wanted to impose, the Ontario Court of Appeal has now tinkered with centuries of common law in the definition of mar- ketable title, which tinkering might have some dangerous "butterf ly effects." Alas, these types of genies, when un- bottled, require a great deal of corking power to later re-bottle. Real estate so- licitors beware. LT u Jeffrey Lem is editor-in-chief of Real Property Reports and director of titles for the province of Ontario. The opinions expressed in this article are personal to him and not attributable or referable to the Ontario government. Why the LPP should be continued BY GRANT BUCHANAN I n a recent report, a majority of an LSUC com- mittee recommended that Convocation termi- nate the Law Practice Program next spring. e majority felt that the LPP created a "two- tier system" as some would "perceive" LPP candidates as "second-tier." e majority also thought the LPP to be expensive: It is subsidized by the LSUC's members and by students in the regular articling program. In my view, the proposed termination of the pro- gram at this point is inappropriate and I hope it is voted down at Convocation. I was pleased to hear the news this week that the LSUC's Professional Develop- ment and Competence Committee has changed its recommendation about stopping the LPP next spring. I am one of the many supporters of the program, and expressed my view to the committee as to why, at a minimum, the LPP should be extended for two more years, as originally proposed. Although the views expressed here are my own, in the interests of full disclosure, I am a partner at Mc- Carthy Tétrault LLP, where we hired a wonderful LPP candidate along with our articling program candidates. I have spent half my working life as an in-house law- yer and would happily have engaged an LPP candidate without ever thinking that she was second-tier. I am a Distinguished Visiting Scholar at Ryerson University, which offers one of the LPP programs. My mother was a mature student who became an Ontario lawyer in her 40s — she articled in Ontario, Alberta and British Co- lumbia. And my daughter is a second-year law student in Ontario who hopes to become licensed here. e additional years of the LPP pilot would allow for more data gathering and, critically, the creation of a replacement — if ultimately termination is indeed the LPP's fate. is is superior to guessing that nothing would change if the LPP continues for two more years. e extra time could allow for the exploration of ideas that the majority suggested could serve to replace the LPP, rather than terminating the LPP and hoping. e rationale for the LPP was that the articling program through traditional law programs was unable to meet the ever-increasing demand for article placements. at fact remains true. e LPP and the Articling Program were never in- tended to be identical. While articling would continue to be the route through which most candidates would be licensed, the LPP, which would include both a skills training program and a co-operative work placement, would provide an alternative path to licensing. It has already done this for hundreds of candidates who com- pleted the LPP and were called to the bar. Nevertheless, the majority focused on the "percep- tion" that the LPP is a "second-tier" system while concur- rently finding that the LPP was not, in fact, second-tier or merited that perception. Rather, a report by the commit- tee noted that the LPP was "of very high quality and may, in fact, excel over articling in a number of areas." e majority also highlighted the unsurprising find- ing that: "Many respondents declared they could not find an articling placement, so enrolled in the LPP as a result." Indeed, the LPP absorbed hundreds of would- be lawyers who were unable to find other articling posi- tions, exactly as it was planned to do. Not surprisingly, many LPP candidates had applied elsewhere and been unable to secure articling positions. e fact that, even though there is no supporting evidence, some people still perceive the LPP to be second-tier ought not to be either surprising or determinative. e 2012 Articling Task Force, which first recom- mended the LPP, noted that racialized, internationally educated and older candidates were under-represented among those who were able to find traditional articling placements. e LPP has an over-weighting of candi- dates in those categories. However, the cancellation of the LPP will result in the status quo ante. e majority acknowledged that problem but recommended that "the Law Society explore the development of a fund to be used to support these priorities." It is hard to follow the logic. Although the LPP did not solve 100% of the problem, why not continue the LPP and explore the development of the fund over the next two years to see if it is actually a panacea? e LPP was de- signed to accommodate about 400 candidates and in- stead it is producing about 230 licensing candidates an- nually. e LPP's cost is borne by lawyer licensees and by an additional $1,900 paid by every candidate in both the Articling Program and the LPP. e 2012 Articling Task Force projected that the costs of the LPP spread across the candidates in both programs would be an additional $1,320 per candidate. Instead, since the LPP attracted approximately 230 can- didates per annum as opposed to the projected 400, the equalized assessment costs rose by $580 per candidate. e decision to terminate the LPP should not revolve around that $580 difference. Or if it does, the LSUC should say so and not confuse it with "perceptions." Most importantly, it should provide a new solution to the articling crisis before cancelling the LPP. e majority thinks that law firms (including Mc- Carthy Tétrault LLP), corporations and other entities that saw fit to hire an LPP candidate for 16 weeks from January to April might be willing to hire more articling students for the entire articling year. It is uncertain that attempts to scale up 16-week LPP placements (espe- cially unpaid ones) into full articling years would be successful. e focus of the LSUC's licensing process is to make sure that its member lawyers are competent. ere is no suggestion that the LPP candidates are less competent than those coming from the Articling Pro- gram, despite the apparent "perception" that the LPP is "second-tier." Indeed, the majority emphasized that successfully licensed LPP candidates are equally quali- fied to their colleagues who articled. I would extend the LPP for at least two years and use the data to make a better-informed choice instead of guessing that noth- ing in the LPP will change and that we can replace it by "exploring" and "building on the LPP's successes." u Grant Buchanan is a partner at McCarthy Tétrault LLP. LT u SPEAKER'S CORNER The Dirt Je rey W. Lem Je rey W. Lem

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