A recent decision of the Court of Appeal for Ontario has filled an apparent gap in the case law, at least as far as the relevant Ontario legislation is concerned, as to when time begins to run with respect to a claim for negligence against litigation counsel relating to their conduct of a civil action. In Chuang v. Fogler Rubinoff LLP, 2022 ONCA 440, the court affirmed the decision below that the plaintiffs could not be said to have discovered that they had a claim until all appeal avenues had been exhausted.
The Underlying Facts
In 2005, the plaintiffs, an individual and the companies he controlled (collectively, “Chuang”), brought an action against Toyota Canada Inc. (“Toyota”) for the alleged unreasonable termination of a Letter of Commitment (the “LOC”) relating to the development of a Lexus dealership. Lawyers from one of the defendant law firms (“Foglers”) were initially Chuang’s trial counsel, but they were granted leave to withdraw and were replaced by lawyers from another firm (“Tayar”) who represented Chuang for the remainder of the trial. Toyota was successful at trial, principally by reason of reliance on an exclusion of liability clause contained in the LOC. This decision was upheld on appeal in 2016. A motion to reopen the appeal was dismissed in 2016, and leave to appeal to the Supreme Court of Canada was denied on March 30, 2017. Thereafter, on March 28, 2019, Chuang commenced an action in negligence against the individuals and their law firms that had represented them (collectively, the “Law Firms”) for failing to provide competent advice concerning the enforceability of the exclusion clause. Chuang claimed approximately $28 million in damages and $3 million in legal fees.
The Law Firms moved for summary judgment to dismiss the claim on the basis that it was outside the two-year limitation period provided for under the Limitations Act, 2002, SO 2002, c 24, Sch B. (the “Limitations Act”). Chuang’s position was that their claims were not discoverable until the Supreme Court of Canada refused leave to appeal, which is when they sought legal advice about the professional competence of the Law Firms. In dismissing the motion, the motion judge held that there was no genuine issue for trial on the limitations defence, as the claim was indeed not discoverable until the Supreme Court of Canada denied leave. In the alternative, if the claim was discoverable earlier, commencing an action was not an “appropriate means to seek to remedy it” within the meaning of s. 5(1)(a)(iv) of the Limitations Act until a time within the two-year period.
The Negligence Issue
It was accepted that both Law Firms assumed the same litigation strategy at trial, so that lying at the nub of the negligence claim was the allegation that the Law Firms had adopted too narrow a legal basis for circumventing the exclusion clause. More particularly, at issue was the proper application of the decision of the Supreme Court of Canada in Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4 (“Tercon”), which is the leading case on the enforcement of exclusion clauses. Tercon sets out a framework which employs three lines of inquiry: (1) does the exclusion clause apply to the facts as found? (2) if it applies, was the clause unconscionable at the time the parties entered into the agreement? and (3) if the exclusion clause applies and it was not unconscionable, should the court, for pubic policy reasons which are sufficiently strong to outweigh the public interest in the enforcement of contracts, decline to enforce the contract?
At trial, both Law Firms adopted a litigation strategy that focused solely on the first branch of the Tercon test – the exclusion of liability on the basis that the clause was not applicable on the facts of the case because Toyota acted unreasonably in terminating the LOC. And this strategy was carried forward on appeal, notwithstanding different counsel argued the appeal, as the Law Firms remained active on the file in the background. In its reasons for judgment, the Court of Appeal specifically noted that the second and third branches of the Tercon test had not been argued. Following dismissal of the appeal, and despite the comment of the Court of Appeal in its reasons, the Law Firms did not posit that they may have erred in their approach to the case and, instead, advised Chuang that the Court of Appeal had misapplied the law such that leave to appeal to the Supreme Court of Canada should be sought. The application was launched by yet another lawyer who, at the same time, sought to reopen the appeal on the basis of a new issue which was unrelated to the Tercon issue. As noted, that motion was denied.
It was not until the application for leave to appeal that the second and third branches of the Tercon test were addressed but, as noted, leave to appeal was denied. At this point, Chuang sought the opinion of their counsel on the leave application as to whether the Law Firms had been negligent in the manner in which they conducted the trial and the appeal as it related to the application of Tercon.
The Summary Judgment Motion
On the motion by the Law Firms for summary judgment dismissing Chuang’s claim as statute-barred, the Law Firms asserted that there were at least six points in time when the material facts to commence an action were known to Chuang. These were said to have occurred at various points in the litigation following the trial and the appeal. However, the greatest emphasis was placed on Chuang’s knowledge upon the filing of the application for leave to appeal to the Supreme Court of Canada, which engaged the broader application of the Tercon framework. Chuang’s position was that they did not have knowledge of the material facts until the Supreme Court of Canada denied leave to appeal.
The motion judge accepted Chuang’s position. She held that the Law Firms may have been negligent in failing to advance a position on the second and third aspects of the Tercon framework, and not telling Chuang that they may have been wrong in effectively conceding on those issues without instructions. The evidence was that Chuang relied on the representations by the Law Firms that they were highly skilled litigators who were experts in litigating complex and sophisticated corporate/commercial matters. Chuang reasonably believed that their legal interests were being fully protected and that the Law Firms had fulfilled their obligation to advance every reasonable legal argument. Their advice to appeal, together with that of counsel on the appeal, further reassured them that the Law Firms had done an excellent job and that the loss had been entirely due to errors of law made by the trial judge. The Law Firms also recommended the further appeal to the Supreme Court of Canada. It was therefore not until the Supreme Court of Canada finally disposed of the litigation, in light of their prior belief that they had received competent legal advice, that a reasonable person in Chuang’s position would have known that they had a negligence claim against the Law Firms.
On appeal, the Court of Appeal held that the motion judge had properly rejected the position that Chuang ought to have figured out that they had a claim against the very lawyers who were advising them despite their professional advice. In essence, the Law Firms purported to rely on this misplaced trust to establish earlier knowledge of a potential claim. Consequently, there was no error in the conclusion that the claim was not discoverable until after the refusal of leave to appeal, a procedural step that the Law Firms had recommended, as it was at this critical moment, when their case was irretrievably lost, that Chuang sought an opinion about the professional competence of the Law Firms.
The Court of Appeal also agreed with the motion judge’s acceptance of Chuang’s alternative submission that, if the facts material to their claim were discoverable at an earlier time, the commencement of an action was not “an appropriate means to seek to remedy it” until the issue of leave was determined. The appeal was therefore dismissed.
The case can be said to stand for two propositions. First, litigation counsel may not be able to rely on a strict application of the two-year limitation period provided for in the Limitations Act in defence of a claim of professional negligence relating to the litigation strategy employed where the underlying matter with respect to which the negligence claim relates is caught up in the litigation process. And second, the clock can only start to run when there is in fact knowledge of the material facts underlying the claim, so that where the disposition of the underlying issues is subject to appeal, and the appeal process is invoked, this cannot occur until all levels of appeal have been exhausted.