Present: La Forest, Sopinka, Gonthier, Cory, McLachlin, Iacobucci and Major JJ.
on appeal from the court of appeal for manitoba
Torts ‑‑ Negligence ‑‑ Professions ‑‑ Mortgages ‑‑ Mortgage to be first charge ‑‑ Appellant lending institution retaining respondent lawyers to obtain first charge ‑‑ Although respondents not specifically asked to protect appellant's interest, appellant relying on respondents to ensure mortgage a first charge ‑‑ Respondents aware of outstanding judgments against mortgagor ‑‑ Appellant not advised of potential problems arising from existing judgments ‑‑ No action taken to postpone judgments ‑‑ Whether or not special relationship existing between appellant and respondents ‑‑ Whether or not respondents liable for damages flowing from breach of their duty.
Professions ‑‑ Barristers and solicitors ‑‑ Negligence ‑‑ Mortgages ‑‑ Mortgage to be first charge ‑‑ Appellant lending institution retaining respondent lawyers to obtain first charge ‑‑ Although respondents not specifically asked to protect appellant's interest, appellant relying on respondents to ensure mortgage a first charge ‑‑ Respondents aware of outstanding judgments against mortgagor ‑‑ Appellant not advised of potential problems arising from existing judgments ‑‑ No action taken to postpone judgments ‑‑ Whether or not special relationship existing between appellant and respondents ‑‑ Whether or not respondents liable for damages flowing from breach of their duty.
APPEAL from a judgment of the Manitoba Court of Appeal (1992), 78 Man. R. (2d) 241, 93 D.L.R. (4th) 268, [1992] 5 W.W.R. 1, 24 R.P.R. (2d) 185, 6 B.L.R. (2d) 192, allowing an appeal from a judgment of Dureault J. (1990), 68 Man. R. (2d) 241, 50 B.L.R. 284. Appeal allowed.
W. S. Gange, for the appellant.
Richard W. Schwartz, for the respondents.
The judgment of the Court was delivered orally by
Cory J. ‑‑ The appellant is a mortgage company and the respondents are members of a law firm.
The appellant was requested to lend money on a mortgage to be given by Mr. Smith, a client of the respondents. The appellant agreed to lend the money. It confirmed this in a letter to the respondents setting out some nine conditions to the disposition of the mortgage funds particularly that the mortgage would be a first charge on the property of Smith.
We agree with the finding of the trial judge that the respondents were retained by the appellant to act on its behalf to obtain a first charge. There was ample evidence to properly support that finding.
There was clearly a special relationship existing between the appellant and respondents. Indeed this was conceded by the respondents. It follows that the respondents were required to exercise their special skills on behalf of the appellant.
The respondents argue that the appellant did not rely upon them. This contention cannot be accepted. It is true that the appellant did not specifically request the respondents to protect their interest. Nevertheless, the correspondence makes it clear that the appellant was relying upon the respondents to ensure that their mortgage was a first charge on the property. The respondents did not do so. They were thus negligent and in breach of their duty to the appellant.
In the circumstances presented by this case, the respondents as lawyers had clear options open to them. They could have attempted to secure a first charge for the appellant by obtaining postponement of the judgments against their client Smith. They were well aware at all material times of these outstanding judgments. If they could not obtain a postponement they should have advised the appellant. Alternatively, they could have refused to act for the appellant so that it could have retained other solicitors to act on its behalf.
What was not open to the respondents was to act for the appellant and fail to advise them of the potential problems that could arise from the existing judgments against Smith.
The respondents are then liable to the appellant for the damages flowing from the breach of their duty. Those damages included the costs incurred in the law suits brought by the appellant seeking to maintain the priority of their charge. These were the only damages seriously contested by the respondents.
In light of these conclusions it is not necessary for us to consider the issue of fiduciary duty although the trial judge may well have been correct in finding that there was as well a fiduciary duty owed by the respondents to the appellant.
In the result, the appeal will be allowed, the order of the Court of Appeal set aside and the judgment at trial restored. The appellant will have its costs of these proceedings throughout.
Judgment accordingly.
Solicitors for the appellant: Thompson, Dorfman, Sweatman, Winnipeg.
Solicitors for the respondents: Wolch, Pinx, Tapper, Scurfield, Winnipeg.
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