Central Trust v. Rafuse (1986), 75 N.S.R.(2d) 109 (SCC);
186 A.P.R. 109
MLB headnote and full text
Central Trust Company v. Rafuse and Cordon
(No. 17753)
Indexed As: Central Trust Co. v. Rafuse and Cordon
Supreme Court of Canada
Dickson, C.J.C., Beetz, Estey, McIntyre, Lamer, Wilson and Le Dain, JJ.
October 9, 1986.
Summary:
A mortgagee brought an action in tort and contract against its lawyers, who took a mortgage that was void and unenforceable under s. 96(5) of the Companies Act. The mortgage was prepared in 1968 and its validity was not challenged until 1977. The mortgagee’s action was commenced in 1980.
The Nova Scotia Supreme Court, Trial Division, in a judgment reported 53 N.S.R.(2d) 69; 109 A.P.R. 69; 139 D.L.R.(3d) 385, dismissed the action. The court held that the lawyers were neither negligent nor in breach of contract. The mortgagee appealed.
The Nova Scotia Supreme Court, Appeal Division, in a judgment reported 57 N.S.R.(2d) 125; 120 A.P.R. 125; 147 D.L.R.(3d) 260; 28 R.P.R. 185, dismissed the appeal. The court held that the lawyers were negligent, but the action was barred by the Statute of Limitations where the six year limitation period began to run in 1968 and not in 1977, when the invalidity was discovered. The mortgagee appealed.
The Supreme Court of Canada allowed the appeal. The court held that the lawyers were negligent and that lawyers could be concurrently liable in contract and tort for negligence in the performance of professional services for which they were retained. The court held that the action was not statute barred, because the limitation period began to run when the mortgagee discovered the problem with the mortgage and not when the void mortgage was taken. The court awarded judgment for an amount previously agreed to by the parties.
Barristers and Solicitors – Topic 2501
Negligence – Standard of care – The Supreme Court of Canada stated that a solicitor must bring reasonable care, skill and knowledge to his work – A solicitor is not required to know all the law applicable to a particular legal task without need of further research, but he must have a sufficient knowledge of the fundamental issues or principles of law applicable to the particular work he has undertaken to enable him to perceive the need to ascertain the law on relevant points – See paragraphs 58 to 59.
Barristers and Solicitors – Topic 2502
Negligence – Basis of liability – The Supreme Court of Canada held that a solicitor was concurrently liable in contract and tort for negligently performing professional services for which he was retained – The court stated that “there is no sound reason of principle or policy why the solicitor should be in a different position in respect of concurrent liability from that of other professionals” – The court also stated that the basis of a solicitor’s liability in tort was tortious liability for negligence based on the breach of a duty of care arising from a relationship of sufficient proximity; that tortious liability was not confined to professional advice, but applied to any act or omission in the performance of the services for which the solicitor was retained – See paragraphs 52 to 53.
Barristers and Solicitors – Topic 2506
Negligence – Duty of lawyer acting for client – The Supreme Court of Canada stated that “while the solicitor’s duty of care has generally been stated, for obvious reasons, in the context of contractual liability as arising as an implied term of the contract or retainer, the same duty arises as a matter of common law from the relationship of proximity created by the retainer. In the absence of special terms in the contract determining the nature and scope of the duty of care in a particular case, the duties of care in contract and tort are the same” – See paragraph 60.
Barristers and Solicitors – Topic 2588
Negligence – Particular negligent acts – Failure to acquire security for loan advances – Lawyers were retained to obtain a valid mortgage from a company – The mortgagor was using the funds to assist in purchasing its own shares, contrary to s. 96(5) of the Companies Act – The mortgage was therefore void and unenforceable – It was basic knowledge that the Act restricted a company in borrowing – The Supreme Court of Canada held that although the lawyers were not aware of s. 96(5), they were negligent in failing to examine the Act to see if it restricted the company in giving security – If the lawyers had done that, they would have perceived that s. 96(5) raised a problem concerning the validity of the proposed mortgage and would have advised their client accordingly – See paragraphs 55 to 63.
Barristers and Solicitors – Topic 2908
Negligence – Defences – Knowledge of client – That contract illegal – A mortgagee sued its lawyers in contract and tort for obtaining an invalid and unenforceable mortgage – The lawyers submitted that an action based on an illegal transaction known to the mortgagee could not be maintained – The Supreme Court of Canada held that there was no merit in the lawyer’s submission – The court stated that the retainer was separate from the mortgage transaction and did not have an unlawful purpose – The court stated that a lawyer cannot raise a defence of illegality if it is only because of his negligence that the exercise of the professional services for which he was retained results in the carrying out of an illegal act – See paragraph 66.
Barristers and Solicitors – Topic 2909
Negligence – Defences – Contributory negligence of client – Lawyers negligently obtained an invalid and unenforceable mortgage – Some of the mortgagee’s employees who approved the mortgage had legal training and experience – The lawyers submitted that the mortgagee was contributorily negligent in not knowing the mortgage was invalid – The Supreme Court of Canada held that the mortgagee was not contributorily negligent, because the employees had no duty of care concerning the legal aspects of the mortgage other than to retain lawyers to perform the necessary legal services – The employees with legal training were administrative officers, who did not and were not expected to provide the mortgagee with legal advice; their only concern was with the financial aspects of the mortgage – See paragraphs 64 to 65.
Contracts – Topic 4005
Remedies for breach – Negligent breach – Availability of tort action – The Supreme Court of Canada stated that concurrent liability in tort and contract will not permit a plaintiff to circumvent a contractual exclusion or limitation of liability for the act or omission that would constitute the tort – The court stated that subject to this qualification, where concurrent liability in contract and tort exists the plaintiff has the right to assert the cause of action most advantageous to him in respect of any particular legal consequence – See paragraph 51.
Limitation of Actions – Topic 3103
Actions in tort – Negligence – When time begins to run – In 1968, lawyers negligently obtained an invalid and unenforceable mortgage – The validity of the mortgage was first challenged in 1977 and finally found to be void ab initio in 1980 – The mortgagee sued its lawyers in 1980 – The lawyers pleaded the six year limitation period under s. 2(1)(e) of the Statute of Limitations – The Supreme Court of Canada held that the action was not statute barred – The court held that the limitation period did not begin to run when the damage occurred (1968), but only began when the negligence was discovered or ought to have been discovered (1977) – See paragraphs 67 to 77.
Torts – Topic 77
Negligence – Duty of care – Relationship required to give rise to duty of care – The Supreme Court of Canada held that the common law duty of care created by a relationship of sufficient proximity is not confined to non-contractual relationships; the question is always whether there is a relationship of sufficient proximity, not how it arose – The court stated that “what is undertaken by the contract will indicate the nature of the relationship that gives rise to the common law duty of care, but the nature and scope of the duty of care that is asserted as the foundation of the tortious liability must not depend on specific obligations or duties created by the express terms of the contract – It is in that sense that the common law duty of care must be independent of the contract” – See paragraphs 49 to 50.
Cases Noticed:
Central and Eastern Trust Co. v. Stonehouse Motel and Restaurant Ltd. (1977), 28 N.S.R.(2d) 151; 43 A.P.R. 151; 81 D.L.R.(3d) 495 (S.C.T.D.), refd to. [para. 6].
Irving Oil Ltd. v. Central and Eastern Trust Co. (1978), 28 N.S.R.(2d) 120; 43 A.P.R. 120; 89 D.L.R.(3d) 374 (C.A.), [1980] 2 S.C.R. 29; 31 N.R. 593; 39 N.S.R.(2d) 541; 71 A.P.R. 541, refd to. [para. 6].
J. Nunes Diamonds Ltd. v. Dominion Electric Protection Co., [1972] S.C.R. 769, consd. [para. 15].
Smith v. McInnis, [1978] 2 S.C.R. 1357; 19 N.R. 608; 25 N.S.R.(2d) 272; 36 A.P.R. 272, consd. [para. 15].
Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd., [1964] A.C. 465, consd. [para. 16].
Elder, Dempster & Co. Ltd. v. Paterson, Zochonis & Co. Ltd., [1924] A.C. 522, consd. [para. 17].
Scruttons Ltd. v. Midland Silicones Ltd., [1962] A.C. 446, refd to. [para. 17].
Halvorson v. McLellan Co., [1973] S.C.R. 65, consd. [para. 19].
Nocton v. Ashburton, [1914] A.C. 932, consd. [para. 20].
Groom v. Crocker, [1939] 1 K.B. 194, consd. [para. 21].
Esso Petroleum Co. Ltd. v. Mardon, [1976] Q.B. 801, consd. [para. 21].
Midland Bank Trust Co. Ltd. v. Hett, Stubbs & Kemp, [1979] Ch. 384, refd to. [para. 21].
Aluminum Products (Qld.) Pty Ltd. v. Hill, [1981] Qd. R. 33, refd to. [para. 21].
Macpherson & Kelley v. Kevin J. Prunty & Associates, [1983] V.R. 573, refd to. [para. 21].
Howell v. Young (1826), 5 B. & C. 259; 108 E.R. 97, agreed with [para. 21].
Bean v. Wade (1885), 2 T.L.R. 157, refd to. [para. 21].
Smith v. Fox (1848), 6 Hare 386; 67 E.R. 1216, refd to. [para. 21].
Jarvis v. Moy, Davies, Smith, Vandervell & Co., [1936] 1 K.B. 399, refd to. [para. 22].
Kelly v. Metropolitan Railway Co., [1895] 1 Q.B. 944, refd to. [para. 22].
Turner v. Stallibrass, [1898] 1 Q.B. 56, refd to. [para. 22].
Sachs v. Henderson, [1902] 1 K.B. 612, refd to. [para. 22].
Steljes v. Ingram (1903), 19 T.L.R. 534, refd to. [para. 22].
Edwards v. Mallan, [1908] 1 K.B. 1002, refd to. [para. 22].
Jackson v. Mayfair Window Cleaning Co. Ltd., [1952] 1 All E.R. 215, refd to. [para. 22].
Finlay v. Murtagh, [1979] I.R. 249, refd to. [para. 22].
Dominion Chain Co. Ltd. v. Eastern Construction Co. Ltd. (1976), 68 D.L.R.(3d) 385, refd to. [para. 22].
Clark v. Kirby-Smith, [1964] 1 Ch. 506, refd to. [para. 23].
Bagot v. Stevens Scanlan & Co. Ltd., [1966] 1 Q.B. 197, refd to. [para. 24].
McLaren Maycroft & Co. v. Fletcher Development Co. Ltd. (1973), 2 N.Z.L.R. 100, refd to. [para. 24].
Cook v. Swinfen, [1967] 1 W.L.R. 457, refd to. [para. 25].
Heywood v. Wellers, [1976] 1 Q.B. 446, refd to. [para. 25].
Boorman v. Brown (1842), 3 Q.B. 511, refd to. [para. 25].
Brown v. Boorman (1844), 11 Cl. & F. 1 (H.L.), refd to. [para. 25].
Lister v. Romford Ice and Cold Storage Co., [1957] A.C. 555, refd to. [para. 25].
Matthews v. Kuwait Bechtel Corporation, [1959] 2 Q.B. 57, refd to. [para. 25].
Russell v. Palmer (1767), 2 Wils. K.B. 325; 95 E.R. 837, refd to. [para. 27].
Godefroy v. Jay (1831), 7 Bing 413; 131 E.R. 159, refd to. [para. 27].
Lanphier v. Phipos, 8 C. & P. 475, refd to. [para. 27].
John Maryon International Ltd. v. New Brunswick Telephone Co. Ltd. (1982), 43 N.B.R.(2d) 469; 113 A.P.R. 469; 141 D.L.R.(3d) 193, consd. [para. 28].
Tai Hing Cotton Mill Ltd. v. Liu Chong Hing Bank Ltd., [1985] 2 All E.R. 947, refd to. [para. 29].
Batty v. Metropolitan Property Realisations Ltd., [1978] Q.B. 554, refd to. [para. 30].
Photo Production Ltd. v. Securicor Transport Ltd., [1978] 1 W.L.R. 856, refd to. [para. 30].
Ross v. Caunters, [1980] Ch. 297, refd to. [para. 32].
Forster v. Outred & Co., [1982] 2 All E.R. 753, refd to. [para. 32].
Schwebel v. Telekes, [1967] 1 O.R. 541, consd. [para. 33].
Sealand of the Pacific v. Robert C. McHaffie Ltd. (1974), 51 D.L.R.(3d) 702, consd. [para. 33].
Dabous v. Zuliani (1976), 12 O.R.(2d) 230, consd. [para. 34].
Donoghue v. Stevenson, [1932] A.C. 562, consd. [para. 34].
Hartman v. The Queen in right of Ontario (1973), 2 O.R.(2d) 244, consd. [para. 34].
Hall v. Brooklands Auto Racing Club, [1933] 1 K.B. 205, consd. [para. 34].
Giffels Associates Ltd. v. Eastern Construction Co. Ltd., [1978] 2 S.C. R. 1346; 19 N.R. 298, refd to. [para. 35].
Power v. Halley (1978), 18 Nfld. & P.E.I.R. 531; 47 A.P.R. 531; 88 D.L. R.(3d) 381, consd. [para. 36].
Royal Bank of Canada v. Clark and Watters (1978), 22 N.B.R.(2d) 693; 39 A.P.R. 693, consd. [para. 36].
Rowswell v. Pettit et al. (1968), 68 D.L.R.(2d) 202, refd to. [para. 36].
Messineo v. Beale (1978), 20 O.R.(2d) 49, refd to. [para. 36].
Jacobson Ford-Mercury Sales Ltd. v. Sivertz (1979), 103 D.L.R.(3d) 480, refd to. [para. 36].
District of Surrey v. Carroll-Hatch & Associates Ltd. (1979), 101 D.L.R. (3d) 218 (B.C.C.A.), refd to. [para. 37].
Canadian Western Natural Gas Co. Ltd. v. Pathfinder Surveys Ltd. (1980), 21 A.R. 459; 12 Alta. L.R.(2d) 135, consd. [para. 38].
Anns v. Merton London Borough Council, [1978] A.C. 728, consd. [para. 38].
Attorney-General of Nova Scotia v. Aza Avramovitch Associates Ltd. (1984), 63 N.S.R.(2d) 181; 141 A.P. R. 181; 11 D.L.R.(4th) 588, refd to. [para. 40].
Consumers Glass Co. Ltd. v. Foundation Co. of Canada Ltd./Compagnie Foundation du Canada Ltée (1985), 9 O.A.C. 193; 20 D.L.R.(4th) 126, refd to. [para. 40].
Leigh and Sillivan Ltd. v. Aliakmon Shipping Co. Ltd., [1985] 2 W.L.R. 289 (C.A.), consd. [para. 41].
Margarine Union G.m.b.H. v. Cambay Prince Steamship Co. Ltd. (The “Wear Breeze”), [1969] 1 Q.B. 219, consd. [para. 41].
Finlay v. Murtagh, [1979] I.R. 249, refd to. [para. 43].
Rowe v. Turner Hopkins & Partners, [1982] 1 N.Z.L.R. 178, refd to. [para. 44].
Flint & Walling Mfg. Co. v. Beckett (1906), 79 N.E. 503 (Ind. S.C.), refd to. [para. 46].
Wabasso Ltd. v. National Drying Machinery Co., [1981] 1 S.C.R. 578; 38 N.R. 224, consd. [para. 47].
Arenson v. Beckman Casson Rutley & Co., [1977] A.C. 405, refd to. [para. 49].
Junior Books Ltd. v. Veitchi Co. Ltd., [1983] 1 A.C. 521, refd to. [para. 49].
Tracy v. Atkins (1979), 105 D.L.R. (3d) 632, refd to. [para. 53].
Hett v. Pun Pong (1890), 18 S.C.R. 290, refd to. [para. 58].
Bannerman Brydone Folster & Co. v. Murray, [1972] N.Z.L.R. 411, refd to. [para. 59].
Thibault v. Central Trust Company of Canada, [1963] S.C.R. 312, refd to. [para. 63].
Cartledge v. E. Jopling & Sons Ltd., [1963] A.C. 758, consd. [para. 70].
Forster v. Outred & Co., [1982] 2 All E.R. 753, consd. [para. 72].
City of Kamloops v. Nielsen, [1984] 2 S.C.R. 2; 54 N.R. 1, appld. [para. 73].
Sparham-Souter v. Town and Country Developments (Essex) Ltd., [1976] Q.B. 858 (C.A.), refd to. [para. 74].
Pirelli General Cable Works Ltd. v. Oscar Faber & Partners, [1983] 2 A.C. 1, consd. [para. 75].
Statutes Noticed:
Companies Act, R.S.N.S. 1967, c. 42, sect. 96(5) [para. 5].
Statute of Limitations, R.S.N.S. 1967, c. 168, sect. 2(1)(e) [para. 68].
Authors and Works Noticed:
Dwyer, John L., Solicitor’s Negligence — Contract or Tort? (1982), 56 A.L.J. 524, p. 531 [para. 21].
French, Christine, The Contract/Tort Dilemma (1983), 5 Otago L.R. 236, pp. 262-263, 294, 296 [para. 21].
Fifoot, C.H.S., History and Sources of the Common Law: Tort and Contract (1949), p. 157 [para. 27].
Winfield on Tort (7th Ed. 1963), p. 6 [paras. 27, 34].
Prosser, W.L., Handbook of the Law of Torts (4th Ed. 1971), p. 617 [para. 46].
American Jurisprudence, vol. 38, Negligence, c. 20 [para. 46].
Prosser, W.L., The Borderland of Tort and Contract, Selected Topics on the Law of Torts (1953), pp. 450-451 [para. 46].
Prosser, W.L., Wade, J.W., and Schwartz, V.E., Cases and Materials on Torts (6th Ed., 1976), pp. 457-458 [para. 46].
Mahoney, R.M., Lawyers – Negligence – Standard of Care (1985), 63 Can. Bar Rev. 221 [para. 58].
American Jurisprudence (2nd Ed.), vol. 7, Attorneys at Law, c. 200 [para. 76].
Charlesworth and Percy on Negligence (7th Ed. 1983), pp. 577-578 [para. 59].
Jackson, R.M., and Powell, J.L., Professional Negligence (1982), pp. 145-146 [para. 59].
Dugdale, A.M., and Stanton, K.M., Professional Negligence (1982), p. 203 [para. 59].
Counsel:
R.A. Cluney, Q.C., and R.G. Belliveau, for the appellant;
Arthur R. Moreira, Q.C., Alexander S. Beveridge and Colin D. Bryson, for the respondents.
Solicitors of Record:
[None disclosed.]
This appeal was heard on December 6, 1984, before Dickson, C.J.C., Beetz, Estey, McIntyre, Lamer, Wilson and Le Dain, JJ., of the Supreme Court of Canada.
On October 9, 1986, Le Dain, J., delivered the following judgment for the Supreme Court of Canada.
