Date: 19980209 Docket: C.A. 141738
NOVA SCOTIA COURT OF APPEAL
Cite as: MacDonell v. M&M Developments Ltd., 1998 NSCA 49
Freeman, Hallett and Bateman, JJ.A.
BETWEEN:
JOSEPH A. MacDONELL ) Appellant in Person
)
Appellant ) Michael S. Ryan, Q.C.
Respondent by Cross Appeal ) for the Respondent
)
- and - )
) Robert W. Wright, Q.C.
) for the Third Parties
M & M DEVELOPMENTS LIMITED )
) S. Bruce Outhouse, Q.C.
Respondent ) for the Cross-Respondent
Appellant by Cross Appeal ) on costs
)
) Appeal Heard:
) January 13, 1998
)
- and - )
) Judgment Delivered:
) February 9, 1998
McINNES COOPER & ROBERTSON, a )
registered partnership and MICHAEL I. KING )
)
Third Parties )
)
)
)
THE COURT: Appeal allowed per reasons for judgment of Hallett, J.A.; Freeman and Bateman, JJ.A. concurring.
HALLETT, J.A.:
This appeal and cross-appeal arise out of a trespass action in which the appellant (MacDonell) claims part of the lands the respondent (M&M) considers it owns. In 1981 M&M acquired the Monte Vista Farm property at Grand Lake, Halifax County. In 1982 it acquired an abutting property from Woods Contracting Limited. The lands in dispute are referred to by Justice Saunders, the trial judge, in his decision, as islands A, E and F.
MacDonell’s action was started in 1995. He traces his title back to a Deed to his great-grandfather, E.C. MacDonell in 1877. In 1994 and 1995 he obtained deeds from relatives who he asserts would have inherited, through wills or intestacies, interests in the islands conveyed to E.C. MacDonell.
M & M claims title to the lands in dispute through the 1982 warranty deed from Woods Contracting Limited and through adverse possession by M&M and its predecessors in title.
M&M claims that E.C. MacDonell did not acquire any interest in the lands in dispute through the Deed in 1877, and claims further that if he did acquire an interest, and thus his successors acquired some interest, they were dispossessed by the adverse possession of M&M and its predecessors in title.
MacDonell claims that M&M did not acquire any paper title as Wood’s predecessors had no paper title to the lands in dispute and, therefore, conveyed nothing to Woods.
From 1991 until June of 1995 MacDonell acted as solicitor for M&M. The principal shareholder in M&M would appear to be a Mr. Menger who lives in Germany and comes to Nova Scotia several times a year. MacDonell, until he resigned on September 21st, 1994, was a director of M&M and its president. In that capacity he acted on instructions from Mr. Menger. He resigned at that time because he had decided to assert title to part of M&M’s lands as, by that time, he had formed the opinion that the lands were owned by the MacDonells, one of whom was his father. Rather than call Mr. Menger at that time, he decided to wait until Mr. Menger’s scheduled visit to Nova Scotia on November 4th, 1994, to advise him that he was asserting a title to the land and that because of the conflict he could not continue to act as a director and president of M&M or as its solicitor. On November 4th, he so advised Mr. Menger. Nevertheless, Mr. Menger asked him to act for M&M on two unrelated pending property transactions and on November 8th Mr. Menger executed a power of attorney in favour of MacDonell so that he could sign the deeds. These transactions were completed in early 1995.
On November 21st, 1994, MacDonell wrote Mr. Menger as follows:
Further to our conversation on November 4, and November 8, 1994 whereby I informed you that M&M Developments Limited did not have title to the Islands that were purchased from Mr. Feetham’s Company - Woods Contracting Limited.
I am enclosing a copy of the correspondence that I have forwarded to Mr. King dated November 25, 1994 together with copies of the Deeds and plans reviewed by us on November 4, 1994.
I must again advise that because I represent M&M Developments Limited on other matters this puts me in a conflict of interest and you are advised to seek other counsel to advise you further on this matter.
I trust you will find everything in order.
The Mr. King referred to, in the above-noted excerpt, is one of the respondents; he was a partner in the law firm McInnes, Cooper & Robertson and had acted for M&M when it purchased the lands from Woods Contracting Limited.
Upon receipt of MacDonell’s statement of claim asserting that M&M is trespassing on MacDonell’s land, Michael Ryan, counsel for M&M, filed a defence in which M&M asserts that the Deed to E.C. MacDonell in 1877, through which the plaintiff traces his title, did not include the lands in dispute and, therefore, the appellant had acquired nothing under the Deeds he obtained from members of the MacDonell families. M&M also asserts that it has good title in fee simple to the lands; or, alternatively, has colour of title and has acquired possessory title through its predecessors taking possession of the land adverse to that of MacDonell’s predecessors in title.
M&M also counterclaimed against MacDonell, asserting that he breached his fiduciary duty of loyalty to M&M as its solicitor and as a director and president of the company in actively asserting and acquiring deeds to the disputed lands. M&M asserts that MacDonell was in a conflict with his client and failed to disclose this to Mr. Menger. There is a further claim that MacDonell acquired his interest by breaching his fiduciary duty and that any interest he may have acquired in the lands is impressed with a trust in favour of M&M.
M&M also claims that MacDonell, in August and September of 1994, having entered the lands, was a trespasser. At that time MacDonell did not have any deeds in his name. MacDonell subsequently acquired deeds from his father and other persons who, if MacDonell’s legal position is sound, would appear to have acquired interests in the lands.
M&M pleads that MacDonell’s claim to title be dismissed with costs as between solicitor and client. M&M claims a wide assortment of other remedies, including an accounting, a declaration that MacDonell’s interest is impressed with a trust in favour of M&M, aggravated and punitive damages for breach of fiduciary duty by MacDonell as well as solicitor and client costs.
M&M joined McInnes Cooper & Robertson and Michael King as Third Parties. M&M claims indemnity for any loss or damages it might suffer as a result of MacDonell’s action against M&M.
At a pre-trial conference heard on March 5th, 1997, a number of matters relevant to the upcoming trial were discussed. Following the conference Justice Saunders wrote to counsel for MacDonell, M&M, the Third Parties and Mr. S. Bruce Outhouse, Q.C., (who was acting for MacDonell in connection with M&M’s counterclaim that MacDonell breached his fiduciary duties to M&M). The three page letter opens as follows:
This will confirm our pre-trial conference held earlier this morning. We had a full discussion concerning the 14 items listed on my Agenda.
We will start Monday, March 17 at 10:00 a.m. and continue Tuesday - Thursday, March 18-20 at 9:30 a.m. You say it is realistic to suppose that we will have concluded the evidence by then although we may have to find another day for final argument.
You will each be in attendance at trial. As part of his case-in-chief Mr. Jessome intends to call two witnesses, the plaintiff Joseph A. MacDonell and his expert Charles W. MacIntosh, Q.C. There is an issue of adverse possession between the plaintiff and the defendant. Mr. Ryan will be calling evidence to address it. Consequently Mr. Jessome will be calling the following rebuttal witnesses:
Brian King
Katherine White
Mort MacDonell
Elizabeth Schwartz
For the case-in-chief Mr. Ryan expected to call Mr. Menger, the principal of the corporate defendant M&M Developments Limited and two other witnesses. That should take half a day. Mr. Menger’s English is poor and with the consent of all parties Mr. Ryan will arrange for a translator.
The trial proceeded as scheduled with MacDonell taking the stand. Through him an enormous number of title documents were introduced and commented upon by MacDonell. These documents had been contained in a joint exhibit book. MacDonell was extensively cross-examined by counsel for M&M, principally on the matters asserted in the counterclaim relating to breach of fiduciary duties by MacDonell.
Counsel for MacDonell closed his case at which time counsel for M&M made a non-suit motion on the ground that the appellant and his predecessors in title had failed to assert a claim to the lands in question for over 100 years and, therefore, the appellant’s action ought to be found barred by application of the doctrine of equitable estoppel by laches which counsel submitted was preserved by s. 31 of the Limitation of Actions Act, R.S.N.S. 1989, c. 258.
In support of the motion, counsel for M&M relied on a decision of Tidman, J. in Nemeskeri v. AGNS and Meisner (1992), 115 N.S.R. 271 (affirmed 125 N.S.R. (2d) 67). In that decision Tidman, J. had reviewed the competing chains of title of the parties with respect to the lands in dispute in that case and had concluded that the defendants claim was barred pursuant to the provisions of ss. 11 and 20 of the Limitations of Action Act. As an obiter comment Justice Tidman stated:
Even if I had not found that the defendants claim is barred by s. 20 of the Limitations of Actions Act I would find it barred by the equitable doctrine of estoppel by laches. Estoppel by laches is defined in Black’s Law Dictionary (4th Ed.), as follows:
‘A failure to do something which should be done or to claim or enforce a right at a proper time.’
This equitable doctrine is not affected by the Limitation of Actions Act which provides by s. 31:
‘Nothing contained in this Act shall be deemed to interfere with any rule of equity in refusing relief on the ground of acquiescence, or otherwise, to any person whose right to bring an action is not barred by virtue of this Act. R.S., c. 168, s. 30.’
This doctrine was applied by Grant, J., in Zinck v. Attorney General of Nova Scotia, Hatt et al. (1978), 34 N.S.R. (2d) 23; 59 A.P.R. 23 (T.D.), at p. 31, where he found that the defendants were estopped from exercising any rights which were not barred by the Statute of Limitations.
In the case at bar, a claim to the lands should have been made within a reasonable time of 1925 when Benia Moland conveyed away the remaining one-half interest in the lands or at latest 1930 when Kenneth Moland conveyed the whole of the lands by warranty deed. A claim advanced in 1990 is not advanced within a reasonable time.
Justice Saunders then adjourned for approximately an hour and a half to consider the non-suit motion. On his return to the court room he granted the motion. After referring to the obiter comment of Justice Tidman, Justice Saunders stated:
.....I allow the Defendant’s motion for non-suit. My reasons include the following. First, I adopt the reasons of Justice Tidman on the doctrine and its applicability to the circumstances of this case. Two, there is no evidence that M & M is disentitled on account of any improper conduct on its part. Three, it is uncontradicted that the Plaintiff had no interest in these lands until he went about acquiring deeds without covenants, as he described them, in the fall of 1994. Up until then, he had no interest. The MacDonell descendants did nothing to assert any claim of title for more than one hundred years. Their extraordinary delay to enforce a right or assert a claim constitutes laches and, in these circumstances, would amount to an absolute bar to relief. The doctrine of laches survives the Limitations of Actions Act. I note, in particular, the Plaintiff’s admissions during trial that he had no personal knowledge whatsoever that his father or his grandfather ever walked upon A, E, or F. The Plaintiff admitted knowing that structures were built on the lands or portions of these subject lands, that utilities were supplied to certain of these lands, that M & M and its predecessors in title had openly and -- had openly used and occupied portions, if not all, of these lands, and that Adolph Menger, principal of the Defendant, had paid one hundred and forty thousand dollars ($140,000) Canadian for these lands and apparently had a potential purchaser for one of these parcels back in 1994. I find that the heirs of Edward MacDonell, who died in 1908, or their successors in title should have acted long ago in asserting their claims to an interest in A, E, and F. Their failure to do so within a reasonable time constitutes laches and they are now barred from asserting such a claim. Applying the test of the Court of Appeal, as indicated earlier in these reasons, I am satisfied that no jury, properly instructed on the law of laches, could find in the Plaintiff’s favour based on the evidence adduced. For all of those reasons, the Plaintiff’s action against M & M Developments Limited is dismissed, with costs to the Defendant. I propose that we spend a few minutes, counsel, now discussing who remains in this litigation and whether counsel would wish to be heard now on the subject of costs on the basis of the non-suit just granted. (emphasis added)
It is apparent on the face of this ruling that the learned trial judge misdirected himself on the law. I will review the facts and then the law.
Although we were not called upon to analyse the competing chains of title, a brief review of the background of title warrants comment. However, I make no ruling on title. It would appear from the documents in the Joint Exhibit Book and from MacDonell’s evidence, that MacDonell claims under an 1812 Crown grant to the Uniackes. The Grant appears to include the land in dispute. In the Grant to the Uniackes the lands in dispute are described and shown on the plan attached to the Grant as islands. These Islands are on the west side of Grand Lake opposite the Crown grant to Hugh McDuffie.
The McDuffie Grant consisted of 200 acres and seems to form the foundation, along with a 200 acre Crown grant to James Miller of the title to the Monte Vista Farm and the claim by M&M to the lands in dispute. M&M says the lands are not islands but formed part of the McDuffie grant.
MacDonell asserts that by a deed into his great-grandfather E.C. MacDonell in 1877 his great-grandfather obtained title, and that his interest passed to his heirs on his death in 1908.
Having reviewed the instruments that are on record with respect to the transfer of the interests from the time of the Uniacke Grant in 1812 and the deed into E.C. MacDonell in 1877, it would appear that there is a real question of interpretation of those deeds to determine if the lands in dispute were included in the conveyance to E.C. MacDonell. This might also entail a review of the competing title that may flow through the Grants to McDuffie and Miller.
In 1978 MacDonell’s father obtained an opinion from A.G. MacDonald, Q.C. of Windsor, Nova Scotia, that was unfavourable to the MacDonell’s view that his grandfather, E.C. MacDonell, had acquired title to the islands. However, in 1994 MacDonell concluded, based on his review of the title documents, that E.C. MacDonell did obtain title to the islands.
MacDonell asserts that on the death of his great-grandfather in 1908, the lands in dispute then devolved to his children which would be correct if E.C. MacDonell had acquired title by the 1877 deed and had not sold the lands or been dispossessed.
MacDonell acquired the interest he claims in late 1994 and early 1995 by Deeds from his father and other heirs, some of whom live outside the Province of Nova Scotia. MacDonell asserts that he has acquired from these heirs something like a 50 or 60 percent interest in the lands in dispute and that M&M has no title.
As noted, it would appear from the abstract in the Exhibit Book that M&M’s title purports to start with the adjacent Crown grants to McDuffie and Miller in 1812. The plans attached to these Grants seem to indicate that the islands granted to the Uniackes would not have been included in either the Grant to McDuffie or Miller. However, the deed into M&M in 1982 and several prior deeds purport to convey the lands in dispute. M&M claims it has good paper title, or alternatively, that it has a colour of title and has acquired title by adverse possession.
With respect to the trial judge’s finding that MacDonell admitted knowing of possession of parts of the lands in dispute by M&M, the evidence shows that MacDonell knew of the fact that a structure was built on the island and power poles were constructed but this knowledge would not appear to have pre-dated 1977 as that is when the structure on island A was apparently built.
The trial judge did not find that M&M or his predecessors were in exclusive possession of the lands in dispute for a period of 20 years prior to the action being started in 1995.
To come to a decision on the title question, a careful analysis of the title documents of the competing chains is clearly required, as is a careful analysis of the evidence with respect to M&M’s claim to have acquired title by possession for the required statutory period if, in fact, the deed into E.C. MacDonell in 1887 included A, E and F.
The law is abundantly clear that if MacDonell’s predecessors in title were the true owners of the lands in dispute, there was no obligation on them to assert a claim until someone adverse to them went into possession. It is only then that the clock starts to run pursuant to the provisions of the Limitation of Actions Act so as to bar an action for trespass unless the action is started within the time limits prescribed by s. 10 and 20 of the Limitation of Actions Act. There is no requirement on a true owner to assert a claim to lands from which he has not been dispossessed; at law he can leave the land vacant without being considered to be out of possession (see Wood v. LeBlanc, [1904] 34 S.C.R. 627).
In Conrad v. N.S.A.G. et al (1995), 136 N.S.R. (2d) 170 Justice Jones, for this Court, at p. 177 quotes with apparent approval from the decision of Henry, J. in Wood v. LeBlanc, [1904] 34 S.C.R. 637 at p. 639:
Evidence that a party claims land by possession either with or without colour of title is not sufficient when it merely establishes that the claimant used the lands in the same way and for the same purposes as an ordinary owner would. A true owner of lands is not bound to use them in any way. He may prefer to leave them vacant. While they are vacant he still retains the legal possession, and he only ceases to be in legal possession when and during the time that he is ousted from it by a trespasser or squatter, who has acquired and maintained what the law holds to be an actual possession. If the squatter claims to have ousted him by constructive possession he must prove a continuous, open, notorious, exclusive possession of at least part of the lands the whole of which he lays claim to under his colourable deed.
While the rules of equity preserved by s. 31 of the Act allow a court to refuse relief on the grounds of acquiescence or otherwise to any person whose right to bring an action is not barred by virtue of the Limitation of Actions Act, the equitable doctrine of laches cannot be applied so as to bar an action for trespass to land before the applicable statutory limitation period as provided for in the Limitation of Actions Act, ss. 10 and 20 has fully run its course. In the text, Limitation of Civil Actions, James C. Morton, Carswell, 1988, the author states at p. 40:
...it is clear that equitable limitations based on delay cannot abridge or shorten any limitation period provided for by statute. Where there is a statutory period of limitation in an action, mere delay will not affect the rights of a plaintiff who comes within the statutory period. The reasoning behind this is obvious - all equitable defences based on delay are founded on the concept that once an unreasonable amount of time has passed an action can no longer be prosecuted. Where a statute has determined that a length of time within which an action can be prosecuted, that period of time is, by legislative fiat, reasonable. In Nat. Trust Co. v. Barcelona Traction Co., [1950] O.R. 864 at 876 (H.C.), Mr. Justice Shroeder writes:
[I]f there is a statutory bar operating either expressly or by way of analogy, in equity the plaintiff is entitled to full statutory period before his claim becomes unenforceable.
A similar statement is found at Title 87 of The Canadian Encyclopedic Digest (Ontario) which states at p. 63:
The limitations Acts specifically preserve equitable limitations. Nevertheless, the equitable doctrine of laches and application of the statute by analogy cannot be applied so as to bar an action before the applicable statutory limitation has fully run.
Justice Saunders had not been referred to any of these authorities by counsel at trial. In both Nemeskeri, supra and in Hatt v. Zink, referred to by Justice Tidman in the Nemeskeri decision, the trial judge’s reasons disclose that the application of the doctrine of estoppel to bar a claim was only made after Justices Tidman and Grant had determined that the title claims in issue were barred by the Statute of Limitations. An appeal to this Court from Justice Grant’s decision was dismissed. This Court, like Justice Grant, was satisfied that the appellant’s claim was barred by reason of the adverse possession of the respondent and others in excess of the statutory period prescribed in the Limitations Act. With respect to Justice Grant’s view that the appellant was estopped from claiming the lands apart from the Statute of Limitations, Cooper, J.A. for this Court stated at p. 22 (34 N.S.R. (2d)):
I should add that Mr. Justice Grant found that, if the appellants had any rights to the land which were not barred by the Limitation of Actions Act, they were estopped from exercising any such rights. It is not necessary for me to refer to the doctrine of estoppel and I express no opinion upon that aspect of the trial judge’s decision.
A review of Justice Grant’s decision in Zinck v. Hatt et al shows that there was no analysis of the doctrine of estoppel made. As previously mentioned, Justice Grant’s comments were only an alternative ground for rejecting the appellant’s claim to the lands. In Nemeskeri Justice Tidman’s comments were obiter having found the claim was barred by application of the provisions in the Statute. I know of no case in Nova Scotia involving a claim based on adverse possession which has been decided by other than the application of the relevant provisions of the Statute of Limitations.
Fundamental to any finding that a true owner of land is barred from bringing an action for trespass, is a finding by a court that the true owner has been dispossessed for a period in excess of that period which is permitted by the Limitation of Actions Act for the bringing of the action (Sections 10, 11 and 20 of the Act).
The Law Applicable to Non-Suit Motions
On a non-suit motion, the trial judge has to consider all of the circumstances, including the issues of fact and law raised by the pleadings (J.W. Cowie Enrg. Ltd. v. Allen (1982), 52 N.S.R. (2d) 321).
The general test for a non-suit motion is whether or not a prima facie case was made out by the plaintiffs. It is sometimes expressed as whether a jury, properly instructed on the law could, on the facts adduced, find in favour of the plaintiff. If not, the motion will succeed. (Turner-Lienaux v. Nova Scotia A.G. (1993), 122 N.S.R. (2d) 119).
In Wentzell v. Spidle (1987), 81 N.S. R. (2d) 200 this Court implicitly accepted the opinion expressed in Sopinka, The Law of Evidence, that the assessment of the sufficiency of the evidence before a trial judge on a non-suit motion is a question of law and it is, therefore, subject to appellate review.
When a trial judge is found to have erred in granting a non-suit motion, the general rule is that the proceedings are remitted to the trial judge with the parties restored to their position before the non-suit motion was granted. The trial then proceeds as if the non-suit motion had not been granted (Barrett v. Gaudet (1995), 138 N.S.R. (2d) 178).
Conclusion
The essence of the trial judge’s reasons for barring MacDonell’s claim is that MacDonell and his predecessors had not done anything to assert a claim for 100 years. This was a fundamental legal error.
To grant the motion, the trial judge would have to have made a finding that either (i) M&M or others were in possession adverse to MacDonell and his predecessors in title for in excess of the applicable statutory period, either 20 or 40 years, if the predecessors through whom MacDonell claims were under the disabilities referred to in s. 20 of the Act, when the right to bring an action for trespass first accrued; or (ii) have found, based on a review and interpretation of the relevant title documents, wills and the law respecting the devolution of real property on intestacy, that MacDonell did not have title.
The trial judge made no such findings. He merely concluded that the heirs of Edward C. MacDonell, who died in 1908, should have acted long before 1995 to assert a claim and that their failure to do so within a reasonable time constituted laches that barred MacDonell’s claim.
The trial judge misdirected himself on a principle of law in concluding that the plaintiff and his predecessors were barred because they had not asserted a claim within a reasonable time. He erred in granting the non-suit motion in that he did not consider and determine whether MacDonell’s predecessors had been ousted by adverse possession of others for a period that exceeded the time in which an action was required to be commenced under the Limitation of Actions Act.
Therefore, the order dismissing MacDonell’s claim framed in trespass and for a declaration of title to the lands in dispute must be set aside and the matter remitted to the trial judge for the trial to be continued as if the motion had not been granted. The learned trial judge can then hear M&M’s evidence on title and adverse possession and any rebuttal evidence MacDonell wishes to adduce with respect to M&M’s claim based on adverse possession. The trial judge will then have the benefit of counsel’s submissions on title based on a review of the competing claims. He will then be in a position to determine if E.C. MacDonell acquired an interest in the islands. If he determines that the appellant’s predecessors had an interest in the disputed lands and that MacDonell acquired an interest then he will have to determine if the MacDonells were dispossessed for in excess of the relevant statutory periods so as to bar MacDonell from bringing the action. The burden to prove adverse possession would be on M&M.
Counsel for M&M, during oral argument, submitted that we should decide the title issue on the basis of the evidence that was before the trial judge and, in particular, that we should find, based on two 1970 statutory declarations by George Peter Horne, that M&M and its predecessors in title were in exclusive possession of the disputed lands since 1920. Mr. Ryan submits that counsel for MacDonell should have called his rebuttal witnesses on the adverse possession issue following Mr. Ryan advising the Court that M&M would not call evidence on the counterclaim but rely on the evidence already before the Court. Having failed to do so, Mr. Ryan submits that MacDonell cannot now complain. I disagree; this would be unfair to MacDonell.
But more importantly, having been non-suited on the trespass action, had counsel for MacDonell sought to adduce the rebuttal evidence with respect to the assertion by M&M in its pleadings that it had acquired possessory title, I am reasonably certain that such evidence would not have been received by the Court as MacDonell’s claim to ownership was then moot as a result of the non-suit motion having been granted. I would also note that the relief sought by M&M in its pleadings does not include a request for a declaration that M&M has title to the lands in dispute although, clearly, from the body of the defence and counterclaim, it makes the assertion that it has fee simple title or, alternatively, has acquired title by possession.
Furthermore, given the issue raised by the pleadings and the evidence adduced to this point, we are being asked to decide an issue without having all the facts and without the benefit of counsel’s submission on the title issues which I have identified.
While this Court, pursuant to Civil Procedure Rule 62.23, has the power to give judgment or make any order which might have been made by the court appealed from, the issues outstanding in this lawsuit ought to be determined by a trial judge upon hearing all the relevant evidence and submissions by counsel. Therefore, I would not be prepared to decide the ownership issue.
Counsel for the Third Parties argued that we should dismiss MacDonell’s appeal on the ground that MacDonell should not be entitled to the equitable remedy of a declaration as to title because equity does not afford remedies to those persons who do not come to court with clean hands. He relies on a decision at the Supreme Court of Canada in Hong Kong Bank of Canada v. Wheeler Holdings Ltd. (1993), 148 N.R. 1, paragraphs 32 to 47. In that decision Sopinka, J., for the Court, reviews the case law with respect to declaratory relief and then states at paragraphs 38-40 as follows:
While the above decisions all seem to have been based, expressly or impliedly, on the view that declaratory relief was equitable in nature, it appears that even if the remedy is seen to be sui generis, equitable principles such as clean hands can play a role in the exercise of the court’s discretion whether or not to grant the remedy. As Zamir states in The Declaratory Judgment (1986), at p. 191:
‘This discretion is employed, as discretion was originally employed in respect of all equitably remedies, primarily to do justice in the particular case before the court. It is wide enough to allow the court to take into account virtually all objections and defences possible in equitable proceedings.’
Zamir goes on to cite various English cases in which the motives of the plaintiff were taken into account, the claim was dismissed on the basis of laches, and inequitable behaviour on the part of the plaintiff was considered to be a defence to a declaratory judgment.
Some other authors take a different approach. In Equity - Doctrines and Remedies (2nd Ed. 1984), at p. 466, Meagher, Gummow and Lehane review a number of decisions and conclude that on both authority and principle, the traditional equitable barriers to relief do not apply to declaratory relief. Likewise, Zamir, supra, at p. 216, states that “there has yet to appear a serious proposal that the exercise of discretion on declaratory proceedings be confined to the general principles governing equity.”
While it may be that certain equitable restrictions such as the requirement that legal remedies be insufficient and that there be a probability of irreparable or at least very serious damage should not be applied to declaratory remedies, I would conclude that in the exercise of the discretion whether or not to grant a declaration, the court may take into account certain equitable principles such as the conduct of the party seeking the relief. In the context of this case, then, the allegation that the 1988 purchasers have unclean hands should be addressed.
In my opinion, the relief sought by MacDonell is not limited to equitable relief but is a claim in trespass which is the standard method of challenging the title of another in a property dispute; this is not an equitable claim. Furthermore, considering the findings of the trial judge that he was not prepared to characterize the conduct of MacDonell in the highly critical light urged upon him by counsel for M&M and counsel for the Third Parties, coupled with the understanding that MacDonell would have an opportunity to adduce rebuttal evidence to challenge the claim to possessory title asserted by M&M, it would be inequitable to dismiss MacDonell’s claim.
I will deal more specifically with the matter of MacDonell’s conduct in the period between August, 1994, and November, 4th, 1994, in the next section of this judgment relating to the second issue raised on the appeal.
Second Issue
MacDonell asserts the trial judge erred in finding that he was in breach of his fiduciary duties to M& M.
I have already mentioned how matters proceeded at trial following the granting of a non-suit motion. Counsel for M&M advised the Court that he would not call evidence on the counterclaim but would rely on the evidence that was extracted from the mouth of MacDonell during cross-examination. Justice Saunders then heard submissions from the parties on M&M’s counterclaim.
Justice Saunders’ Decision on the Counterclaim
In his decision, the learned trial judge did an accurate review of the evidence. He then reviewed the position taken by M&M that MacDonell’s conduct ought to “shock the conscience of the court”; that MacDonell’s conduct amounted to deceit and, further, that his conduct warranted an award of solicitor and client costs against MacDonell. M&M also asserted that MacDonell should be liable for general damages for his trespass on the land in August of 1994 as well as aggravated or punitive damages for breach of fiduciary duties.
The learned trial judge then reviewed the submission of MacDonell’s counsel on M&M’s counterclaim; he stated:
Mr. Jessome (in his reduced role on account of my having dismissed Mr. MacDonell’s claim following M&M’s successful motion for non-suit) argued that Mr. MacDonell’s claim was not taken frivolously. He engaged an expert, Charles W. MacIntosh, Q.C. He relied upon that expert’s opinion. He thought he had a legitimate claim based on paper title. There are no grounds to award costs against Mr. MacDonell on a solicitor and client basis. It ought to follow standard procedure, limiting costs to a determination on a party and party basis, Landymore et al v. Hardy et al (1992), 112 N.S.R. (2d) 410. Finally, Mr. Jessome argued that Mr. MacDonell should be treated as any other litigant. He “enjoyed no special privilege or protection as a lawyer” (sic). Neither should he bear any unusual burden or treatment.
Mr. Outhouse, now taking the lead as counsel to Mr. MacDonell in defending M&M’s counterclaim, argued that M&M had failed to prove any loss and, since damages must always be compensatory, M&M had failed to make out a case for entitlement to general damages, exemplary damages, punitive damages or aggravated damages.
While conceding that in law nominal damages may be awarded when trespass has been proved, even in cases where actual damage has not occurred, it was argued that M&M had failed to prove an actual trespass on the subject lands.
Relying upon the same arguments and authorities canvassed by Mr. Jessome, Mr. Outhouse argued that nothing in the circumstances of this case bring it within the spectre of awarding solicitor/client costs. But for the fact that Mr. MacDonell acted for M&M, Mr. Outhouse described this litigation as nothing more than a “garden variety property dispute” in Nova Scotia. In his submission the fact that Mr. MacDonell continued to act for M&M has been blown out of all proportion in the attacks levelled by the counterclaimant.
The learned trial judge then set out his reasons for judgment as follows:
After much reflection I am not persuaded that M&M has established the essence of its counterclaim, that is, deceit, of manufacturing a false claim, or of deliberately setting out to advance his own greedy land grab at the expense of his client’s interest. Such allegations call for conclusions that would, arguably, threaten the lawyer’s career. These serious accusations demand cogent proof enabling me to feel confident in arriving at such an unhappy result. While of course the civil standard of proof is always the balance of probabilities, the standard of proof I require in this case is on a strong balance of probabilities, commensurate with the occasion.
After analyzing all of the evidence and the submissions of counsel I find that Mr. Outhouse has succeeded in persuading me that I ought not to draw the inferences urged upon me by Mr. Ryan. On balance I find that it would be neither fair nor safe to do so.
In the result some of M&M’s counterclaim is allowed but not entirely for the reasons urged by its counsel. I will now address each of the more substantive claims pursued by M&M .....
The learned trial judge then considered the so-called “disgorgement remedy” sought by M&M. He stated:
In its defence and in its counterclaim M&M sought an order for an accounting pursuant to CPR 45; a declaration that any interest which the plaintiff might have be impressed with a trust in favour of M&M as beneficiary; and an order that any such interests be conveyed by the plaintiff to M&M. Obviously those pleas were framed on the premise that Mr. MacDonell might have some interest in the subject lands. After succeeding in its motion for a non-suit, the basis or premise for M&M’s assertions was extinguished. Those three claims for relief became irrelevant.
In view of my conclusion that the non-suit motion ought not to have been granted, the disgorgement remedies, depending on the findings of the trial judge at the resumed trial, are resurrected. What relief the trial judge will provide, should he find for MacDonell on the title issue, would have to take into account findings by him as set out in his decision on M&M’s counterclaim. For example, his finding that MacDonell did not acquire his interest in the lands through information obtained as a result of his fiduciary relationship with M&M but, rather, through information he already had with respect to the lands in dispute. Another example would be the trial judge’s conclusion that the activities undertaken by MacDonell in August, September and October with respect to checking title to the land and contacting heirs were not “part of a scheme to profit at the expense of M&M while still its lawyer” even though the trial judge concluded such activities constituted a clear breach of fiduciary duties.
The learned trial judge then dealt with M&M’s request for general damages on the counterclaim. Justice Saunders’ decision discloses that this remedy was not sought when the counterclaim was filed but that upon realizing the omission at the end of trial counsel for M&M asked to amend its pleadings to include it. The learned trial judged denied the request for leave to amend the counterclaim to include the claim for general damages but went on to state that even if he had granted leave the claim for general damages would have been rejected.
On this issue counsel for M&M had submitted that there was some evidence “of lost opportunity” by Mr. Menger in the fall of 1994 in that he had a potential purchaser for a portion of the disputed lands but that MacDonell had directed him on November 4th, 1994, not to sell. The trial judge rejected this argument on the basis of answers by Mr. Menger to interrogatories in which Mr. Menger stated that he had not taken any steps to market the property in dispute after November 4th, 1994, but that he had received an unsolicited offer to purchase what Mr. Menger referred to as the peninsula which would include part of the disputed lands. He was also asked by the interrogatories to quantify any loss he suffered. Mr. Menger swore that he was unable to itemize the losses other than legal fees. These answers had been sworn to in Germany on January 24th, 1997. He also found that Mr. Menger had not made any effort to market the properties and was not able to particularize any loss. The trial judge, therefore, refused the claim for general damages.
The learned trial judge then dealt with M&M’s claim that there was a trespass. He concluded that MacDonell, having entered the lands without the permission of Mr. Menger in August, September and October of 1994 with respect to the Island A, and in February of 1995 with respect to E, was a trespasser; he fixed nominal damages of $500.00.
Justice Saunders then dealt with M&M’s claim for aggravated damages. He concluded that having found there was no entitlement to general damages, there would be no entitlement to aggravated damages. In addition, he concluded that a corporate defendant like M&M could not sustain a claim for aggravated damages on the basis of being aggrieved, humiliated or made a victim of increased anxiety.
Justice Saunders then dealt with M&M’s claim for punitive damages. He made reference to Cory, J.’s comments in Hill v. Church of Scientology of Toronto, [1995] 2 S.C.R. 1130 at p. 1208:
Punitive damages may be awarded in situations where the defendant’s misconduct is so malicious, oppressive and high-handed that it offends the court’s sense of decency.
The learned trial judge then stated:
Despite Mr. MacDonell’s lapses and poor judgment, I am not able to find that his conduct was so malicious, oppressive or high-handed as to offend the Court’s sense of decency thereby entitling M&M to punitive damages as a way to punish Mr. MacDonell and to deter him and others from acting as he did.
Rather, I think that costs will provide suitable relief to M&M in the circumstances of this case.
The learned trial judge then dealt with the allegation that MacDonell breached fiduciary duties owed to M&M by MacDonell. The first paragraph of his decision on this subject states:
A whole litany of improper actions were cited by Mr. Ryan. There can be no doubt that the evidence did disclose several incidents of sloppy business practice that can hardly be excused. Whether such practices and conduct will attract the attention of the Nova Scotia Barristers’ Society is not before me. I will restrict my review to those that do draw the sanction of this Court.
The trial judge then stated:
I find that certain specific fiduciary obligations arose as a matter of fact out of the specific circumstances of the relationship between Mr. MacDonell, Mr. Adolph Menger, and the company that Mr. Menger controlled. Mr. Menger sought out Mr. MacDonell and asked him to be his lawyer in Nova Scotia. He asked him to serve his company as its president and recognized agent. Mr. Menger was not fluent in English. He was out of the province for lengthy periods of time. He trusted Mr. MacDonell implicitly. He was his friend. He gave Mr. MacDonell a general power of attorney. He opened a bank account in Nova Scotia and gave Mr. MacDonell access to his funds. They and their wives socialized. Mr. MacDonell acted as lawyer, recognized agent, director, secretary, and president of this company, a closely held corporation whose sole shareholder lived thousands of miles away, a man who had every reason to expect that he could count on Mr. MacDonell’s loyalty and could rely upon him to look after the company’s best interests. As a lawyer, and officer of this Court, Mr. MacDonell must be taken to know the fiduciary duties he owed to his client together with those other fiduciary obligations that arose from his position as sole director, president and secretary of M&M.
The Supreme Court of Canada has described a fiduciary’s duty as one of loyalty encompassing two central obligations: the avoidance of conflict between duty and personal interest, and a duty not to profit at the expense of a beneficiary. International Corona Resources Ltd. v. LAC Minerals Limited (1989), 35 E.T.R. 1 (S.C.C.). See also Hodgkinson v. Simms et al (1995), 171 N.R. 245 (S.C.C.).
The learned trial judge then went on to state that quite apart from the duty to avoid conflicts of interest, there is a duty of strict disclosure and that this duty is particularly important in circumstances where the fiduciary has a solicitor/client relationship with the beneficiary. He quoted the Ontario Court of Appeal decision in Cassey v. Morrison (1993), 15 O.R. (3d) 223 at p. 244 in which the Court stated:
The law holds solicitors to a high standard of disclosure even when they do not have a personal interest in the enterprise involved. When they do have a personal interest, they must be meticulous in matters of disclosure. (underlining by Saunders, J.)
After concluding that the law required a solicitor with a personal interest in a matter to be meticulous in matters of disclosure, Justice Saunders then referred to another rule with respect to the position of a fiduciary that he cannot profit as a direct result of his position as a fiduciary.
Justice Saunders then stated that he would apply these rules and principles to the evidence before him. He stated that MacDonell conduct was sloppy with respect to the preparation and execution of important legal documents, including a general power of attorney, deed transfer tax affidavits, corporate minute books and resolutions. He then stated:
Despite these shortcomings, I accept Mr. Outhouse’s submission that such did not constitute a breach of any fiduciary duty owed to M&M nor cause any loss or injury to the counterclaimant. I will now address those actions taken or omitted by Mr. MacDonell which, in my judgment, do constitute a breach of fiduciary duty and a breach of trust.
The trial judge then stated that MacDonell failed “in a timely fashion” to disclose to M&M that he intended to and, in fact, set out in August, September and October, 1994, to acquire an interest in lands which M&M, to his knowledge, claimed as its own. The learned trial judge then stated that MacDonell ought to have resigned immediately (presumably in August or September 1994) and made full disclosure to his friend and client Mr. Menger as to the reasons for his resignation and what he was doing to advance his own interests. Justice Saunders found it extraordinary that MacDonell did not telephone or fax Mr. Menger in Germany (presumably in August or September) of his intent to assert a claim to the lands M&M considered its own rather than awaiting the return of Mr. Menger to Nova Scotia for a planned visit on November 4th, 1994, to tell him of the conflict that would prevent him from acting for M&M.
After commenting on the fact that MacDonell (i) did not disclose to Mr .Menger, prior to November 4th, that he had concerns about M&M’s title; (ii) that he had formed the view that his family had title to these lands; (iii) that he had trespassed on the lands in August and September, 1994; (iv) that he had hired a title searcher in September of 1994 to investigate title; and, (v) that he had contacted some heirs of his great-grandfather with a view to acquiring quit claim deeds the trial judge then stated:
I am unable to conclude that all of this was part of a scheme to profit at the expense of M&M while still its lawyer. But it does constitute a clear breach of fiduciary duties.
He summarized his views of MacDonell’s conduct as follows:
As lawyer, corporate officer and director he was in breach of his fiduciary duties of trust and of loyalty. He failed to avoid conflict when such ought to have been apparent, and failed to make full, fair and timely disclosure to his beneficiary. At the moment he formed an intention to pursue any interest in these lands he should have immediately declined to serve M&M in any manner or capacity. He should have made full disclosure. He should have obtained the informed consent of his client to permit him to resign without causing any hardship or prejudice to M&M. Only then would Mr. MacDonell have been free to pursue his own interests.
The learned trial judge then dealt with an issue that troubled him with respect to certain assertions MacDonell made in his statement of claim and amended statement of claim. At the pre-trial conference MacDonell was allowed to amend his statement of claim by the deletion of the paragraph in which he stated that he had entered the lands for the purpose of exercising title. Counsel for M&M cross-examined him on the original assertion. The transcript shows the following questions put to him by Mr. Ryan and his answers:
Q. I don’t understand that. You were on the land in August.
A. I was on the land in August.
Q. Well, you entered the land.
A. Well, I entered the land, but I didn’t enter the land in August for the purpose of exercising title as an entry is considered. And I never did at any time after as an entry is considered, but I did enter the land. But the entry for the purposes of exercising title, my understanding was that I had to take some action to either dispossess Mr. Menger, tell Mr. Menger he couldn’t come back and use the property, lock the gate, post it or do something. And I never did those things.
Q. Well, did you take an ax with you or an aerosol can with paint? Did you blaze any lines?
A. I never. I did nothing, no.
Q. Did you put any signs on the property?
A. No.
Q. Then would you please tell me why you put that in the pleading?
A. Because I think at the time I felt that perhaps the entry that I had made by going and looking at it might have been considered that way, but my view is I -- that I did not enter it for the purpose of exercising title.
In his decision, the learned trial judge stated that MacDonell’s explanation under cross-examination made no sense to him; he continued:
... It is a sad fact, based upon the admissions made by Mr. MacDonell during his cross-examination, that when he first drew this pleading in June, 1995 and repeated it when amending his statement of claim in November, 1995 he knew that his assertion could not be proved and was not true. This is an astounding admission for a lawyer to be forced to concede. To me it is one of the most disturbing features of this case. Whether pleadings are, in this jurisdiction, accorded the sanctity of “promises to the Court” (a description attributed by Mr. Ryan to the late Chief Justice Berger of the United States Supreme Court) is not something I have to decide. But at the very least pleadings are assertions of fact vouched for by the proponent as being meritorious and capable of proof and made with the knowledge that they will be relied upon by those opposed in interest and by the Court. What possessed Mr. MacDonell to write such a thing, or whether it was done to rebut notions of adverse possession or color of right, I will not venture to guess.
While counsel for M&M made much of this matter before Justice Saunders and again on appeal, Justice Saunders did not make a finding that MacDonell was not credible as a witness nor would he draw the inferences urged upon him by counsel for M&M that MacDonell was deceitful in his dealings with M&M or that he was deliberately untruthful in preparing his pleadings.
The drawing of evidentiary conclusions is for the trial judge as stated by the Supreme Court of Canada in Toneguzzo-Norvell et al v. Savein and Burnaby Hospital, [1994] 1 S.C.R. 114 at p. 121:
It is by now well established that a Court of Appeal must not interfere with a trial judge’s conclusions on matters of fact unless there is palpable or overriding error. In principle, a Court of Appeal will only intervene if the judge has made a manifest error, has ignored conclusive or relevant evidence, has misunderstood the evidence, or has drawn erroneous conclusions from it: see P. (D.) v. S. (C.), [1993] 4 S.C.R. 141, at pp. 188-89 (per L’Heureux-Dubé J.), and all cases cited therein, as well as Geffen v. Goodman Estate, [1991] 2 S.C.R. 353, at pp. 388-89 (per Wilson J.), and Stein v. The Ship “Kathy K”, [1976] 2 S.C.R. 802, at pp. 806-8 (per Ritchie J.). A Court of Appeal is clearly not entitled to interfere merely because it takes a different view of the evidence. The finding of facts and the drawing of evidentiary conclusions from facts is the province of the trial judge, not the Court of Appeal.
In my opinion, the trial judge did not err in refusing to draw the adverse inferences against MacDonell urged upon him by counsel for M&M and the Third Parties. As stated by the Supreme Court of Canada, the drawing of evidentiary conclusions is the province of the trial judge. Having reviewed Justice Saunders reasons, there is no basis to interfere with his conclusion that he would not venture a guess as to why MacDonell made the assertion in the pleadings that he entered the land for the purpose of exercising possession. I suspect that MacDonell was of the opinion that the technicality of pleading in a trespass action may have required him to state that he entered for the purpose of exercising title. At the pre-trial conference he withdrew this allegation in the pleadings. In my opinion, apart from the issue of credibility, nothing of significance turns on the manner in which the pleading was drawn. It is clear from his evidence that he admitted going on the land. Whether he went on the land at all or why he went on the land is of no significance with respect to his claim against M&M. This is so because there was no need for him to go on the land in 1994 in order to bring the action in trespass as, if he acquired an interest by obtaining deeds from the relatives in 1994-95, and if he has title his action was started within time if the first acts of possession by M&M or its predecessors occurred in 1977 when a structure was built. The action was started in 1995, less than 20 years from this observable act of possession. I hasten to add that there may be other evidence of possession (in addition to that contained in the Horne declarations) that will be adduced by M&M when the trial resumes.
Section 13 of the Limitation of Actions Act provides:
13 No person shall be deemed to have been in possession of any land, within the meaning of this Act, merely by reason of having made an entry thereon.
One might surmise that MacDonell stated in his pleading that he entered for the purpose of exercising title to show that he was not merely making an entry but was exercising an act of possession. Even if the statement in the pleadings was made for such purpose, it does not seem to me to warrant the attention given to it by counsel and the trial judge.
Justice Saunders observed MacDonell testify. He was not prepared to draw the inference that MacDonell was dishonest in drafting the pleading. Nor am I. In my view, the drafting of the pleadings indicates no more than confusion on MacDonell’s part in drafting a claim in a trespass action. On the facts, it is irrelevant (other than as to credibility) for what purpose he entered the land in August, 1994, or subsequent thereto, having started this action within 20 years from what, according to his pleadings, would be the first observable act of possession by M&M or its predecessors, the construction of a building in 1977.
Justice Saunders went on to find that MacDonell obtained his deeds as a result of his familial relationship and not by virtue of any information gained through any of the fiduciary positions he held either as lawyer, director or president of M&M. The learned trial judge concluded that while M&M had shown several significant breaches of fiduciary duties, M&M had failed to prove that any of those breaches caused loss or damage to M&M.
The learned trial judge then dealt with the issue of costs. I will review this issue later as the failure of the trial judge to award M&M solicitor and client costs is the subject of M&M’s cross-appeal.
The Law on Fiduciary Duties
In International Corona Resources Ltd. v. LAC Minerals Ltd., [1989] 2 S.C.R. 574, a case involving the relationship between two commercial entities, the Supreme Court of Canada held that in answering the question whether a fiduciary relationship exists, the issue is whether, having regard to all the facts and circumstances, one party stands in such a relationship to another that the other could reasonably expect that the party would act or refrain from acting in a way contrary to the interests of the other.
In Hodgkinson v. Simms et al, [1994] 3 S.C.R. 377 the majority of the Supreme Court of Canada held that a fiduciary duty is one of a species of a more generalized duty by which the law seeks to protect vulnerable people in transactions with others. The concept of vulnerability is an important, but not a necessary, indicator of the existence of such a relationship. The majority held that the existence of a fiduciary duty in a particular case will depend on the reasonable expectations of the parties and these expectations will in turn depend on factors such as trust, confidence, complexity of subject-matter and community and industry standards.
A review of the above-noted cases would indicate that the judges of the Supreme Court of Canada are divided on the question as to whether or not “vulnerability” is essential to a court finding a fiduciary relationship exists. We do not have to consider this question as it is assumed that the relationship of solicitor/client gives rise to fiduciary duties (Fiduciary Duties in Canada, Ellis, (Carswell) at p. 9-1). The question this appeal raises is what those duties consist of and whether the trial judge erred in finding there was a breach of fiduciary duties.
In Cordery on Solicitors, 1995, Butterworths, Issue 5, the authors stated under the heading “Fiduciary Duties”:
The confidential relationship between solicitor and client, having been described as ‘one of the most important fiduciary relations known to our law’, gives rise to a range of fiduciary duties owed by a solicitor to his client. These duties are quite separate from obligations in contract or duties in tort: .......
Fiduciary duties include the duty not to take any secret advantage whether or not any dishonesty is involved; to make full disclosure of any interest in the transaction for which he is retained; not to disclose confidential information unless there is a clear obligation overriding this duty and not to make a representation which he knows or must be taken to have known to be false, to one of two clients and he must act in good faith in the interests of each of the two and not act with the intention of furthering the interests of one to the prejudice of those of the other. Intentional conduct in breach of fiduciary even if not dishonest, will found liability, but an unconscious or inadvertent omission (even if negligent) does not constitute breach of fiduciary duty.
For a more exhaustive treatment of the duties arising from a fiduciary relationship see generally Bowstead on Agency (15th edn, 1985) ch. 5. In the particular context of the position of a solicitor, Millett LJ in Bristol & West Building Society v. Mothew [1996] 4 All E.R. 698 at 711 said-
‘A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single-minded loyalty of his fiduciary. This core liability has several facets. A fiduciary must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal. This is not intended to be an exhaustive list, but it is sufficient to indicate the nature of fiduciary obligations. They are the defining characteristics of the fiduciary.
As pointed out in Fiduciary Duties in Canada, the potential areas of fiduciary breach are as myriad in scope as the circumstances of each solicitor-client relationship. Certain areas can be specifically identified. It is clear that when a solicitor-client relationship exists there is a duty of full disclosure. Thus, the absence of any personal gain to the solicitor resulting from non-disclosure will not exonerate the lawyer from liability for having failed to make full disclosure. (see Jack v. Davis, [1983] 1 W.W.R. 327 (B.C.C.A.)). In that case the lawyer who was acting for a purchaser of real property knew that the vendor was making a profit on a flip of the property but when asked by the purchaser whether a profit was being made the lawyer was evasive in his response and did not disclose the secret profit being made by the vendor. The Court found that the lawyer’s failure to fully disclose material facts constituted a breach of his fiduciary duties to his client and made him liable for damages.
In Cassey v. Morrison (1993), 15 O.R. (3d) 223, a solicitor and his wife entered into a business partnership with his clients, the Casseys. The partnership was to own and operate a restaurant. The solicitor did not disclose to the Casseys that the leasehold improvements and chattels in the restaurant were subject to a mortgage. The trial judge found that the solicitor had breached his fiduciary duties to his clients by failing to disclose this important financial detail and in failing to advise them to obtain independent legal advice. It is in the context of these facts that the Ontario Court of Appeal made the statement quoted by the trial judge that a solicitor must be meticulous in his disclosure.
On the subject of conflicts of interest, the author of Fiduciary Duties in Canada states that it is quite clear that a solicitor:
when entering into any activity which may be seen to conflict with his penultimate, undivided duty to his client, will be required to justify his activity through the uninfluenced, voluntary consent of his client, such consent being premised upon complete disclosure of all information material to the client’s decision to accept or reject the conflict. The presumption of influence is - and should be - a powerful deterrent to a lawyer entering into a conflict situation regardless of the client’s consent.
Further, on the subject of conflict of interest, Ellis states:
Where a solicitor involves himself in a business transaction with a client, that solicitor must act in a circumspect manner so as to place the client in a position that enables that client to act meaningfully, voluntarily and with an independent and informed judgment: Brown v. Premier Trust Co., [1947] O.R. 50 (H.C.); Zamet v. Hyman, [1961] 1 W.L.R. 1442; Malicki v. Yankovich (1981), 33 O.R. (2d) 537 (H.C.); affirmed (1983), 41 O.R. (2d) 160 (C.A.).
In Canadian Encyclopedic Digest, Ontario Third Edition, Volume 3, at p. 16-93 the authors state that:
The fiduciary relationship between a solicitor and client forbids the solicitor from using any confidential information obtained by the solicitor from the client for the benefit of the solicitor or a third party or to the disadvantage of the client. .....the onus is on the solicitor to prove that he or she acted reasonably and that no personal use was made of confidential information (Szarfer v. Chodos (1986), 54 O.R. (2d) 663 (H.C); affirmed (1988), 66 O.R. (2d) 350 (C.A,)).
Although MacDonell owed fiduciary duties to M&M as a director and its president, those duties could not be higher than the duties owed by MacDonell to M&M in relation to his position as M&M’s solicitor.
Disposition of this Ground of Appeal
The essence of Justice Saunders finding that MacDonell breached his fiduciary duty to M&M is the failure of MacDonell in August of 1994 or no later than September, 1994, to have disclosed his conflict to Mr. Menger in Germany. The evidence is quite clear that he did not make such a disclosure by telephone or fax but chose to await Mr. Menger’s anticipated visit to Nova Scotia on November 4th. The evidence is equally clear that on November 4, 1994, he advised Mr. Menger that he was pursuing a family interest in the property and that Mr. Menger would have to engage another counsel as in MacDonell’s opinion M&M did not own the lands in dispute.
This was followed up by MacDonell’s letter of November 25th, 1994, to Mr. Menger in which he reiterated what he had disclosed to Mr. Menger on November 4th that he was of the opinion M&M did not have title to the lands in dispute, that he was claiming title and being in a conflict with M&M on this issue he could no longer act for the company and, therefore, M&M should seek other counsel.
A letter of the same date to Mr. King, a copy of which was enclosed with MacDonell’s letter to Mr. Menger, outlines to Mr. King the basis upon which MacDonell was asserting title to the lands that M&M considered it owned.
The evidence supports the trial judge’s finding that, as a result of MacDonell’s decision to assert title to the islands there existed a conflict between the duty owed to M&M and MacDonell’s personal interest, the issue being the timeliness and fullness of the disclosure of the conflict.
The trial judge’s finding, is to the effect, that MacDonell obtained his deeds as a result of his being “a MacDonell” and not by virtue of any information gained by any of the fiduciary positions he held, vis-a-vis M&M, is clearly supported by the evidence. As a consequence, if MacDonell has an interest in the lands in dispute he did not breach his fiduciary duty not to profit at the expense of the beneficiary based on information obtained as a result of his fiduciary relationship.
The evidence supports the learned trial judge’s finding that he could not conclude that MacDonell’s conduct in going on the lands, hiring a title searcher, etc. was part of a scheme to profit at the expense of M&M while still its lawyer. MacDonell’s father apparently considered that he had an interest in the land. MacDonell and his father attended at A.G. MacDonald’s office in 1978 when the unfavourable opinion was obtained. Whether or not MacDonell has an interest, he had every right to assert a claim to the land. The fact that he is asserting a claim to the land ought not to be characterized as a “scheme” to profit at M&M’s expense. However, MacDonell clearly had a duty to disclose the conflict to Mr. Menger.
The essence of Justice Saunders reasons for finding a breach of fiduciary duty was Justice Saunders’ opinion that the disclosure was not full but, more importantly, was not timely.
It is clear from the evidence that MacDonell was not only M&M’s president and solicitor but that MacDonell and his wife had developed a social relationship with the Mengers. MacDonell testified that because of this relationship he felt, at the time, that he should tell Mr. Menger of the conflict situation in person on November 4th, 1994, when Mr. Menger was scheduled to arrive at his Monte Vista farm. That is what MacDonell did.
The evidence discloses that by mid September or October, 1994, MacDonell knew he would be asserting a claim to islands A, E and F which his client considered it owned. I infer that is why, on September 21st, 1994, MacDonell purported to resign as a director by filing a notice of resignation at the company’s office. He knew he would be or was then in a conflict situation. As noted, he decided that he would advise his client when he came to Nova Scotia on November 4th. In the meantime, he contacted two heirs to inquire if they would execute a conveyance to him of any interest they might have in the lands in dispute. Obviously he had not advised Mr. Menger that he would be soliciting heirs in order to obtain conveyances of any interests they may have in the lands as he had not contacted Mr. Menger.
MacDonell argues that he had not been retained by M&M as solicitor with respect to any matter relating to the disputed lands. That is correct. He argues that accordingly there was no duty owed to M&M other than to disclose the conflict which he did. He submits that there was no breach of duty, particularly in view of the trial judge’s finding that in acquiring deeds he was not acting on the basis of information obtained as a fiduciary of M&M but through his existing knowledge about the land in dispute.
In assessing whether the trial judge erred in finding MacDonell breached his fiduciary duty to M&M, it might be helpful to look at what is not involved in this case and what MacDonell did not do: (i) he did not make a secret profit at the expense of his clients such as in the well-known case of Nocton v. Lord Ashburton, [1914] A.C. 932. In that case the solicitor had advised his client to release a part of mortgage security held by the client. The client did so and when it came time to realize on the mortgage he held there was a shortfall. The evidence disclosed that the solicitor was holding a subsequent mortgage on the property that was released and, therefore, benefitted by the advice he had given his client; (ii) he was not involved in a transaction with his clients such as in Cassey v. Morrison, supra; (iii) he was not retained by M&M in connection with the title to Monte Vista Farm or the title to the lands M&M acquired from Woods Contracting Limited. Therefore, the breach of fiduciary duties did not arise in connection with a matter that MacDonell was expressly retained on; (iv) he did not acquire confidential information from his relationship with M&M that enabled him to acquire deeds which might constitute an interest in the lands in dispute. His knowledge of the title to the lands in dispute was as a result of his being a MacDonell; (v) this was not the usurpation of a business opportunity that rightfully belonged to his client such as occurred in International Corona v. LAC Mineral, supra; (vi) as the trial judge found he was not involved in a scheme to profit at the expense of M&M when he engaged a title searcher and sought to acquire deeds from the MacDonell heirs in 1994-95; (vii) as the trial judge found, he did not deceive his client as was found in the case of Canson Enterprises Ltd. v. Boughton & Company, [1991] 3 S.C.R. 534; (viii) he did not fail to disclose to his client that he had a conflict of interest nor failed to advise M&M that it should therefore retain other counsel; (ix) this was not a case in which his fiduciary duties ought to continue for a period beyond his advising M&M to obtain counsel as he had not obtained any information from M&M that enabled him to abuse his position of trust as he already had the information respecting title to the lands in dispute.
The above situations that I have referred to are the sort that have attracted equity’s sanctions in finding that a solicitor has breached fiduciary duties to his client. The facts of this case do not fit with any of these conventional sets of circumstances. However, as stated in Fiduciary Duties in Canada, every set of circumstances must be looked at and there are a myriad of situations that can give rise to the existence of fiduciary duties and as a consequence the possibility of their being breached.
Under all the circumstances, considering that MacDonell was M&M’s solicitor and its president, I am satisfied that Justice Saunders did not err in concluding that MacDonell had a duty to immediately disclose to M&M, that is, to Mr. Menger, in September, 1994, that he was pursuing a claim to an asset owned by M&M; there was a breach of his fiduciary duty to make full and timely disclosure to his client of his interest in acquiring title to part of M&M’s lands. However, I would not characterize his failure in this respect as a “miserable” failure of duty as did the trial judge. It would seem to me that MacDonell’s decision to delay advising his client, while a breach of fiduciary duty under the circumstances, was not so serious as found by the trial judge. MacDonell either has an interest in the lands or he doesn’t. This is not a case of usurping a business opportunity of a client and, therefore, profiting at the client’s expense. But it is a case where a conflict arose that required immediate disclosure.
From a review of Justice Saunders decision as a whole, it is apparent that he was not prepared to accept M&M counsel’s characterization of MacDonell as deceitful. As a consequence, Justice Saunders dismissed M&M’s main contention, that MacDonell manufactured a false claim and deliberately set out to advance a greedy land grab at the expense of his client’s interests.
In my opinion, having reviewed the evidence and having considered the trial judge’s decision and the submissions of counsel before us, Justice Saunders’ unwillingness to draw the inferences against MacDonell urged upon him by counsel for M&M was an exercise of sound judgment. Mr. Outhouse, Q.C., representing MacDonell on the counterclaim, stated to this Court that, in his opinion, the seriousness of the assertions against MacDonell were overblown by counsel for M&M and that many of the matters raised by cross-examination of MacDonell were red herrings. I agree. This was a property dispute upon which was superimposed a counterclaim that M&M’s solicitor breached his duties to his client. Many assertions of misconduct by MacDonell were scattered about which had no relevancy to the question whether or not MacDonell was in breach of his duty of loyalty to his client in relation to MacDonell’s conduct in August, September and October of 1994. The learned trial judge was correct in characterizing many of the deficiencies exhibited by MacDonell in his practice of law to be sloppy practice rather than breaches of fiduciary duties. I am equally satisfied that the evidence supports the trial judge’s finding that the failure to make a more timely and complete disclosure to Mr. Menger under all the circumstances was a breach of fiduciary duty issue.
In summary, I would not interfere with the trial judge’s conclusion that there was a breach of fiduciary duty owed by MacDonell to M&M. I would dismiss this ground of appeal.
If the trial judge were to decide at the conclusion of the resumed trial that MacDonell ought to succeed in his claim to title and, therefore, find that M&M is a trespasser on MacDonell’s land, I doubt if an award of damages would flow from the breach of fiduciary duty as the breaches would not appear to be causative of M&M’s loss of the land when one considers the trial judge’s findings on the counterclaim. On the other hand, the trial judge might, under all of the circumstances, feel the situation demands a restitutionary remedy for breach of fiduciary duties. However, I wish to expressly state that I make no finding on these questions as it is better left to the trial judge after hearing all of the evidence and submissions of counsel following the resumed trial. Nor do I express an opinion on whether or not a claim by M&M for damages or for restitution for breach of fiduciary duty is res judicata should the trial judge decide that MacDonell is the owner of the lands in dispute. We did not have the benefit of any submissions from counsel on these issues. At the present time the issues are hypothetical as MacDonell may not be able to prove he has title.
Third Ground of Appeal
MacDonell asserts that the trial judge erred in finding that he had trespassed on M&M’s lands. In my opinion, the trial judge having erred in granting the non-suit motion, by reason of his not having properly determined by the application of correct legal principles whether or not MacDonell had acquired an interest in the land, erred in finding that MacDonell trespassed on M&M’s land. The issue of legal ownership, and therefore of trespass, remains to be determined. As a consequence, this finding of the trial judge must be set aside as well as the damage award of $500.00.
The trial judge will be in a position to decide these issues at the conclusion of the resumed trial. I would allow this ground of appeal.
The Cross-Appeal
M&M asserts that the trial judge erred in not awarding solicitor and client costs to M&M.
Such costs are only awarded in rare and exceptional circumstances (Brown v. Metropolitan Authority et al (1996), 150 N.S.R. (2d) 43 (N.S.C.A.)).
The scope of appellate review on costs is narrow. See this Court’s decision in Conrad et al v. Snair et al (1996), 150 N.S.R. (2d) 214 in which Flinn, J.A. stated at paragraph 5:
Since orders as to costs are always in the discretion of the trial judge, this appeal is subject to a clearly defined standard of review. This court has repeatedly stated that it will not interfere in a trial judge’s exercise of discretion unless wrong principles of law have been applied, or the decision is so clearly wrong as to amount to a manifest injustice. (See Exco Corp. v. Nova Scotia Savings & Loan Co. et al. (1983), 59 N.S.R. (2d) 331; 125 A.P.R. 331 (C.A.); Turner-Lienaux v. Nova Scotia (Attorney General) et al. (1993), 122 N.S.R. (2d) 119; 338 A.P.R. 119 (C.A.); and Hawker-Siddeley Canada Inc. v. Superintendent of Pensions (N.S.) et al. (1994), 129 N.S.R. (2d) 194, 362 A.P.R. 194 (C.A.)); see also Elsom v. Elsom (1989), 96 N.R. 165 (S.C.C.)).
I have reviewed the trial judge’s reasons for refusing to order solicitor and client costs. I am satisfied that he applied the correct principles. I am more than satisfied that his decision to award party and party costs is not clearly wrong nor does it amount to a manifest injustice. The trial judge was not prepared to find that M&M had been deceitful nor was he prepared to order that MacDonell pay aggravated or punitive damages as sought by M&M. None of these aspects of the trial judge’s decision were appealed by M&M. The trial judge did not make a finding that MacDonell was not credible.
In my opinion, the delay in not advising Mr. Menger until November 4th, 1994, of his conflict and the failure to make a full disclosure that MacDonell was attempting to obtain deeds did not warrant an order for solicitor and client costs.
There is no basis to interfere with the trial judge’s exercise of his discretion to award party and party costs. It must be remembered that M&M did not succeed on its main contention in its counterclaim. The award of party and party costs to M&M was fair and just under the circumstances.
Mr. Outhouse made an interesting observation when he stated that if anyone had reason to object to the cost award, it would be MacDonell rather than M&M. MacDonell did not appeal the award of party and party costs.
While I grant leave to M&M to cross-appeal the trial judge’s award of costs, I would, nevertheless, dismiss the cross-appeal.
Conclusion
I would remit to the trial judge: (i) MacDonell’s claim in trespass and to ownership of the lands in dispute; (ii) M&M’s claim to ownership; and (iii) its claim against the Third Parties for indemnity if MacDonell succeeds on his claim.
The effect of my decision on the appeal and cross-appeal as it relates to costs
Counsel have properly expressed concern about the costs of this litigation. They might want to consider submitting to the trial judge as a question of law whether or not E.C. MacDonell acquired any interest in the lands in dispute under the 1877 Deed. If he did not, there would not appear to be any need to hear further evidence as the foundation of MacDonell’s claim never existed. If the trial judge concludes that E.C. MacDonell did acquire an interest in the lands in dispute, then the Court could then hear M&M’s evidence to support its claim and any rebuttal evidence adduced by MacDonell.
MacDonell has, in the main, succeeded on his appeal and has successfully opposed M&M’s cross-appeal on costs.
Following the trial judge’s decision, an order was taken out in which it is recited that MacDonell and the Third Parties agreed to costs payable by MacDonell to the Third Parties as a result of the non-suit motion having been granted. Costs agreed upon were $10,000.00. We have been advised by counsel that these were paid by MacDonell to the Third Parties.
The operative part of the trial judge’s order is as follows:
IT IS ORDERED that:
1. The claims of the plaintiff herein be and hereby are dismissed.
2. The defendant by counterclaim shall pay to the plaintiff by counterclaim nominal damages for trespass in the amount of $500.00, save for which the counterclaim be and hereby is dismissed.
3. The plaintiff shall pay to the defendant its costs as between party and party in defending the claims of the plaintiff, which costs are hereby fixed in the amount of $16,645.83, inclusive of disbursements and GST/HST.
4. The defendant by counterclaim shall pay to the plaintiff by counterclaim its costs on the counterclaim as between party and party, which costs are hereby fixed in the amount of $9,213.81, inclusive of disbursements and GST/HST.
The trial judge’s order ought to be set aside. I would make the following order to give effect to this decision:
IT IS ORDERED THAT (i) the Order of the trial judge is set aside; (ii) the appeal from the granting by the trial judge of M&M’s non-suit motion and the trial judge’s finding of trespass by MacDonell on M&M’s lands is allowed; (iii) MacDonell’s claim to ownership of the disputes lands, the claim of M&M that it owns the lands in dispute and M&M’s claim against the Third Parties are remitted to the trial judge; (iv) the cross-appeal from the trial judge’s refusal to award solicitor and client costs is dismissed; (v) money paid by MacDonell to M&M and to the Third Parties, by way of costs, shall be repaid to MacDonell forthwith with interest at the rate of 5% per annum for the period between the date of payment and repayment; (vi) M&M and the Third Parties shall forthwith pay appeal costs to MacDonell of 40% of $18,000.00, namely, $7,200.00 plus G.S.T. and disbursements; (vii) if M&M and the Third Parties cannot agree on the portion to be paid by
them respectively, the Court shall hear submissions from them; (viii) costs of the trial will be determined by the trial judge following a determination by him of the issues remitted to him.
Hallett, J.A.
Concurred in:
Freeman, J.A.
Bateman, J.A.
C.A. No. 141738
NOVA SCOTIA COURT OF APPEAL
BETWEEN:
JOSEPH A. MacDONELL
)
Appellant )
Respondent on Cross Appeal )
- and - ) REASONS FOR
) JUDGMENT BY:
M & M DEVELOPMENTS LIMITED )
) HALLETT, J.A.
)
Respondent )
Appellant by Cross Appeal )
)
- and - )
)
McINNES COOPER & ROBERTSON )
a registered partnership and )
MICHAEL I. KING )
)
Third Parties )