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Negligence Manual

Posted on October 1, 1996 | Posted in Lawyers' Issues

The solicitor’s conduct in the following case was nigh well unbelievable. Jaoen-Malgorn v. Irani, a Dec./1995 unreported decision of Mr. Justice Sedgwick out of Ottawa, gives a text-book guide of what not to do in a real estate transaction.

In 1983 Clients purchased from their tax advisor, Persaud, two properties (the “Elm Properties”) that were  adjoining parts of a lot in a plan of subdivision. In 1984, Clients were to purchase another property from Persaud. Persaud suggested that they all use his lawyer (the “Solicitor”) for this purchase (Mistake 1).

Clients and Persaud entered into an agreement whereby Clients would purchase the additional property, conditional on the completion of the sale of the Elm Properties. Clients  entered into two agreements with two unrelated purchasers to sell the Elm Properties. Each agreement stated that it was conditional to April 15, 1984 on Clients completing the severance of the properties. The condition was for the benefit of Clients to be waived at their option. The usual Planning Act clause was in each agreement.

Solicitor prepared the severance application for which a hearing was scheduled on March 15, 1994. Solicitor did not inform Clients about the hearing (Mistake 2). The Committee of Adjustments granted the severance, conditional on Clients providing separate sewer and water connections. The decision date was March 15, 1984 and the appeal date was April 14, 1984. On March 22, 1984, without getting instructions from clients, Solicitor informs the purchasers that severance was obtained (Mistake 3). On April 11, 1984 solicitor finally notifies Clients that severance was obtained and that agreements are firm and would close April 30, 1984. He made no mention of the severance condition (Mistake 4). Because he did not appreciate significance of the severance condition, he did not advise Clients of their right to take advantage of the conditions precedent contained in their agreements (Mistake 5).

At the request of one purchaser, with the concurrence of the other, the closings were postponed three times to May 19, 1984. Solicitor never obtained Clients’ instructions for the postponements (Mistake 6).

Solicitor had obtained a certificate from a plumber, dated May 1, 1984, certifying that the existing water and sewage situation already met the severance condition. The City did not accept the certificate and, by early May, Solicitor knew that compliance with the severance condition would cost approximately $22,000 per property. Solicitor only told Clients then that there was a “small problem” with the severance (Mistake 7).  

By the final date for closing the purchasers knew of the “small problem” and tendered. The purchasers sued on May 14, 1984 and May 24, 1984. The statements of claim were served on Solicitor. He attempted to negotiate a solution, but did not advise Clients of the actions (Mistake 8). In September 1984 Solicitor decided to take a long overdue voluntary leave of absence from the practice of law and passed the litigation files to another solicitor. It was only when the other solicitor contacted Clients that they knew of the actions.

Clients then retained their own counsel who settled the actions with the purchasers for $56,000. The Clients sold the unsevered Elm Properties in 1989 for $26,000 more than the aggregate of the sale prices of the two aborted sales.

In addition to the litany of Solicitor’s mistakes, the following items were discussed:

1. Solicitor claimed that he gave information to Persaud, who was the agent of Clients. The judge discounted this defence completely, given that Persaud was a client of Solicitor and had his own interest in the closing of the transactions. There was nothing in Solicitor’s file to even support his assertions of communication with Persaud. The judge stated that “the solicitor’s evidence that he did not keep notes of his activities in real estate transactions is neither comforting nor credible”.

2. Solicitor’s counsel argued that the negligence of Solicitor resulted in no damages to Clients. Even if Solicitor had informed Clients of the severance conditions, the conditions precedent in the agreements did not entitle Clients to terminate. The judge disagreed.

3. Clients, as a result of being kept in the dark, lost the following options:

  a) Appeal the decision of the Committee of Adjustments.

  b) Investigate the cost of compliance with the severance condition to make an informed decision to terminate or not.

4. Solicitor is not exonerated from his failure to inform Clients by the actions of third parties, such as the plumber and Persaud.

The judge awarded Clients the cost of defending and settling the actions with the purchasers and refused to reduce those damages by the profit made by Clients on the ultimate sale of the Elm Properties. He did not really give reasons why not. I suspect this defence was one of the main reasons why the case was not settled before trial. Another reason was to obtain judgments against the plumber and Persaud in third party proceedings.

Moral: Keep written records of what you do and say. Keep your client informed and obtain instructions. Do not act for the purchaser and vendor on the same transaction. 



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