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When does a client know, having regard to the nature of the injury, that an action against a lawyer in negligence would be an appropriate means to seek a remedy? Is it when the client knows that he has suffered a loss against which his lawyer ought to have protected him or when he knows that his lawyer negligently caused his loss? This issue was discussed in Sheeraz v. Kayani (2009), 99 O.R. (3d) 450 (SCJ).

Loss
The client retained a lawyer to incorporate a corporation, purchase a pub, and deal with the liquor licence necessary to operate it. Unfortunately, the new corporation was unable to obtain a transfer of the vendor’s liquor licence because of the vendor’s PST arrears. The business quickly failed (i.e. what good is a pub that cannot serve liquor?) and the client lost his investment. 

The client’s statement of claim alleged more than 26 ways in which the lawyer was negligent. The lawyer defended on two grounds: he had a limited retainer and the client commenced the action after the expiry of a two-year limitation period.

 The first defence is the obvious subject of a trial; the second defence resulted in a motion for summary judgment after the examination for discovery of the client.

Timing
Timing is everything – especially in a limitation defence.

The client issued his statement of claim more than 2 years after May 26, 2004, but within 2 years of June 10, 2004.

By May 26, 2004, the client knew that the licence agreement that the lawyer prepared did not protect him and that, consequently, he suffered a loss. He raised his concerns with the lawyer at that time and the two had a heated argument. The discussion was hot enough that the lawyer asked the client to leave the premises, premises that the client had previously shared with the lawyer’s firm. Further, by this time, the client had already obtained the opinion of another lawyer, who noted that “it might be possible to salvage this deal, although, at this point it seems unlikely.” Finally, the client admitted in discoveries that, by the third week of May, 2004, he knew that his lawyer had “dropped the ball” and had not protected his interests.

 However, after finding these facts, the motions judge also noted:

 1.  The lawyer did not advise the client that the lawyer had made an error (because the lawyer claimed that he had not), did not inform the client to obtain legal advice elsewhere (because the client had already done so), and did not advise the client that the lawyer might no longer be able to act. The comments in parentheses are ours.

2.  The lawyer wrote a letter to the vendor on June 10, 2004 (remember that date?) in which he stated that he acted for the corporation, notified the vendor of the problem in transferring the liquor licence because of unpaid PST arrears, and alleged that the vendor had misrepresented that he was properly licensed. He warned that if the vendor did not address all of these issues, then the client might sue the vendor.
Enough
This decision was made before the changes to the Rules governing summary judgment motions. Judges now have the ability to weigh evidence, evaluate credibility, and draw reasonable inferences from the evidence, powers that they did not previously have on a summary judgment motion. However, regardless of those additional powers, a motions judge still has to determine that there is no genuine issue requiring a trial. Indeed, the Ontario Court of Appeal has opined, albeit under the regime of the old Rules, that when discoverability is in issue, it is preferable to allow a trial to determine the issue.

  The judge keyed on the fact that the lawyer wrote his letter to the vendor on behalf of the client after May 26, 2004. He noted that a receiver could “drop the ball” because of his own fault or because the ball was not thrown properly (he was pushing the metaphor).

 The judge also noted that, in his letter, the lawyer mentioned the possibility of the client suing the vendor, but did not mention the possibility of the client suing the lawyer. (Why would a lawyer write a demand letter indicating that his client would sue not only the vendor but also his own lawyer?)

 The judge therefore refused to conclude that the client knew that the lawyer had breached a duty of care.

The Limitations Act also starts the limitation period running on the day that a reasonable person with the abilities of the claimant ought to have known of the cause of action. The judge found that the client, an MBA from Pakistan, was not sophisticated in commercial affairs. The client might be put in the unenviable position, the judge felt, of contemplating suing his lawyer while his lawyer was still acting for him. Why he was in this tenuous position, given that he had already sought independent legal advice, is beyond us.

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Result
The judge decided that there was a genuine issue for trial and dismissed the motion. In effect, he felt that a trial was needed to determine the discoverability issue and the knowledge that the client had or ought reasonably to have had.

Although we can stomach this decision on a summary judgment motion, we would find it to be anomalous if it were a decision at trial based on the same facts.

The client requested costs of the motion. He claimed that his solicitor-client costs were $39,275 and that his partial indemnity costs should be $22,780.00. The judge noted that, “it appeared to me both from the material filed and the argument at the hearing that the defendants had invested greater time.” Although the judge stated that this was no criticism of the client’s counsel, we interpret this to mean that the lawyer’s counsel had done the bulk of the research and put more thought into the argument. The judge fixed the client’s costs at $10,000 plus GST, less than half of the amount claimed.

 We contacted the lawyer’s counsel. He did not appeal the decision because there will still be a trial to decide the limitations issue and because the amount at stake did not warrant the cost of an appeal.
Moral
Aside from a lawyer’s obligations under Rule 6.09 of the Rules of Professional Conduct, once an obvious problem arises that would alert a client or lawyer that the lawyer may have been negligent, the lawyer should not continue to act for the client and should immediately notify LawPro and seek help. The June 10 letter that the lawyer wrote could not possibly have helped his client and might have postponed the start of the running of the limitation period.