C.A. Upholds Dismissal of Third Party Claim Against Plaintiff’s Lawyer

In Macchi S.P.A. v. New Solution Extrusion Inc., the Court of Appeal (Justices Rosenberg, Gillese and Blair) upheld the dismissal, by Mr. Justice Herman Wilton-Siegel, of a third party claim brought by the plaintiff against the defendants’ former lawyer. (The decision of Mr. Justice Wilton-Siegel can be accessed here.)

The Court of Appeal’s reasons are very brief. For a complete understanding of the case, it is important to read the reasons of Justice Wilton-Siegel as well as those in Adams v. Thompson, Berwick, Pratt & Partners (1987), 39 D.L.R. (4th) 314 and in 478649 Ontario Limited v. Corcoran (1994), 20 O.R. (3d) 28 (C.A.) (No links available, unfortunately.)

In this action, the plaintiff sought payment for a packaging machine that it had sold to one of the defendants on a deferred payment basis. It instructed Farb, its solicitor and the proposed third party, to register a security interest under the PPSA. The registration named the wrong entity (“New Solution Extrusion Inc.” instead of “New Solutions Extrusion  Corporation”). By the time the error was discovered, another security interest had been registered, naming the purchaser correctly. The holder of that security interest took the position that its registration had priority over that of the plaintiff.

The plaintiff did not sue Farb but the defendants brought a third party action against him under s. 1 of the Negligence Act. They took the position that Farb’s negligence had been the proximate cause of the plaintiff’s loss.

Farb moved to dismiss the third party claim against him on the basis that it disclosed no cause of action. The motion succeeded before Justice Wilton-Siegel, whose order was upheld by the Court of Appeal.

The defendant relied on a decision of Mr. Justice Laskin in the Corcoran case, supra, where Laskin J.A. had refused to strike a third party claim in somewhat similar circumstances. He held that the plaintiff in that case might be able to say that he had acted reasonably in retaining a solicitor to review an agreement and that, for that reason, was not liable for the solicitor’s negligence.

The plaintiff in the present case, on the other hand, relied on the Adams decision of the B.C. Court of Appeal. There, McLachlin J.A. (as she then was), said that “Generally speaking, all acts falling within the scope of an agency between the proposed third party and the plaintiff fall into the category of acts for which the plaintiff is responsible and hence are not the proper subject to third party claims.”

 Justice Wilton-Siegel said that Adams, not Corcoran, applied here and the Court of Appeal agreed. The reasoning of Wilton-Siegel J. was that Farb had not been retained to advise the plaintiff but to carry out a task on its behalf (registration of the security interest). Further, the Corcoran principle would only apply where the plaintiff “had a pre-existing duty, the performance of which can be said to be discharged by retaining qualified legal counsel to advise it”. In Corcoran, that duty was to complete the transaction. But in the present case, the plaintiff owed no duty to anyone to register a security interest; it did so entirely for its own benefit. Thus, in retaining Farb as its solicitor, it could not be said to have been discharging a duty owed to anyone else.

Justice Wilton-Siegel ruled that all of the allegations sought to be made against the third party solicitor were attributable to the plaintiff and that therefore, third party proceedings were unnecessary.

Thus, the two factors that Justice Wilton-Siegel weighed were: (1) that the solicitor had not been retained to give advice; and (2) that he had also not been retained to discharge the plaintiff’s performance of a duty owed by it. But what if we were to change the facts of this case slightly, such that the plaintiff retained Farb to counsel it about the advisability of registering its interest under the PPSA before actually doing so? That would satisfy the first criterion but not the second because there would still not have been any independent duty owed by the plaintiff to which the retainer of the solicitor related. Would the result be different?

Unfortunately for the legal profession, the net result of this decision will probably be that out of an abundance of caution, plaintiffs will sue their lawyers whenever the other defendant relies on the solicitor’s actions as part of its defence.

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