Alberta – decision to initiate litigation rather than mandatory arbitration qualifies as “injury” – #317

In HOOPP Realty Inc v. Emery Jamieson LLP, 2020 ABCA 159, Alberta’s Court of Appeal underlined the importance of initiating arbitration instead of litigation when bound by a mandatory arbitration agreement.  In considering appeals from motions for summary disposition of actions filed by a client against two (2) law firms, the Court held that a lawyer’s omission to serve the notice to arbitrate qualified as an “injury” to the client within the meaning of section 1(e) of the Limitations Act, RSA 2000, c L-12.  The Court further held that the current law firm’s knowledge of the omission by the former law firm could be imputed to the client in order to trigger the commencement of the limitation period and that the Limitations Act focused on knowledge of facts and not applicable law or chances of success.

A.G. Clark Holdings Ltd. and Giebelhaus Developments Ltd. dba in partnership as Clark Builders (“Clark Builders”) signed a June 1999 Design-Build Agreement (“Agreement”) with HOOPP Reality Inc. (“HOOPP”) pursuant to which Clark Builders undertook to design and build a warehouse for HOOPP as owner.

The Agreement’s “General Conditions” at Part 8 entitled “Dispute Resolution” contained different stages aimed at resolving disputes, ranging from the appointment of a consultant, negotiation, mediation and then arbitration.  GC 8.2.6 provided the following for arbitration:

8.2.6 All disputes, claims and differences not settled as herein provided, arising out of or in connection with the Contract or in respect of any defined legal relationship associated with it or derived from it, shall be referred to and finally resolved by arbitration in accordance with the Alberta Arbitration Act”.

Following completion of the warehouse, HOOPP alleged that construction of the warehouse floor disclosed deficiencies. HOOPP filed a February 2002 Statement of Claim in the Queen’s Bench.

That choice of court instead of arbitration as the venue would prove to be unfortunate. 

Little activity took place in the litigation. Clark Builders did not file a Statement of Defence and but did serve a January 2005 application to stay the action and to proceed to arbitration.  Clark Builders served its January 2005 application but provided no supporting evidence and adjourned the matter sine die. HOOPP and Clark Builders negotiated for some time and even entered into a November 2006 tolling agreement which eventually expired in October 2009.

Over the life of the dispute between HOOPP and Clark Builders, HOOPP had two (2) law firms: DC and EJ.  At the onset of the dispute, DC represented HOOPP until a conflict arose in the Fall of 2000.  That conflict required HOOPP to change law firms, switching to EJ.  EJ served as counsel to HOOPP from Fall of 2002 until Fall of 2004 at which time the conflict was resolved and DC returned as counsel to HOOPP.

EJ represented HOOPP at the time HOOPP filed its February 2002 Statement of Claim.  After the action was filed, the limitation period in which to initiate arbitration expired.  The expiry of the limitation period and knowledge of the relevant facts would become key facts in HOOPP’s claims.

After replacing EJ, DC received notice given on October 30, 2009 by Clark Builders to DC that Clark Builders would apply to strike the February 2002 Statement of Claim filed when EJ was counsel to HOOP.  Clark Builders argued that the February 2002 action should be struck or stayed on the basis that the proper forum was arbitration and the limitation period to commence arbitration had expired. As advised, Clark Builders did apply on November 13, 2009 to strike HOOPP’s action. 

Clark Builders’ application was dismissed when first presented but, on appeal, the Court of Appeal reversed, determining that the arbitration clause was mandatory and HOOPP was not entitled to maintain an action against Clark Builders.  See A.G. Clark Holdings Ltd. v HOOPP Realty Inc., 2013 ABCA 101 reversing A.G. Clark Holdings Ltd. v. HOOPP Realty Inc., 2012 ABQB 567.

In its 2013 decision, the Court of Appeal remitted the matter back to the chambers judge for further consideration of the limitation issue.  Upon reconsideration, the chambers judge granted Clark Builders’ application and dismissed HOOPP’s action. See A.G. Clark Holdings Ltd v. HOOPP Realty Inc., 2013 ABQB 402.  The chambers judge relied on the 2005 decision of the Court of Appeal in Agrium Inc. v. Babcock, 2005 ABCA 82 which updated the approach to mandatory arbitration clauses and limitation periods.  The chambers judge held that it was plain and obvious that HOOPP’s claim against Clark Builders would not succeed because arbitration of the dispute was mandatory and the limitation period for arbitrating the dispute had expired before any party had taken steps to commence arbitration. The Court of Appeal upheld that decision in HOOPP Realty Inc. v. A.G. Clark Holdings Ltd., 2014 ABCA 20.

Despite the lengthy period over which the dispute resolution spanned, the key dates fell within a few days in the Fall of 2009:

(i) October 30, 2009 – DC knew of Clark Builders’ intention to dismiss the action filed for HOOPP by EJ when Clark Builders advised DC that it would apply to dismiss;

(ii) November 2, 2009 – DC conducts research and concludes that Clark Builders’ dispute ought to have been undertaken by arbitration, not litigation, and that the limitation period to do so had expired;

(iii) November 4, 2009 – DC consulted with EJ about the mandatory arbitration and limitation period;

(iv) November 12, 2009 – DC disclosed to HOOPP the problem of the mandatory arbitration and the limitation period;

(v) December 2, 2009 – DC advised HOOPP to seek independent legal advice; and,

(vi) November 11, 2011 – HOOPP sued EJ, just under two (2) years from the date on which DC disclosed the problem to HOOPP.

HOOPP’s claims against EJ alleged negligence, breach of contract and breach of fiduciary duty which HOOPP claimed caused it to (i) not be apprised of its legal position or (ii) not be provided with appropriate/competent legal advice in a timely manner.  HOOPP alleged that, but for those breaches, it could have considered other avenues of conduct including directing EJ to pursue arbitration.  HOOPP claimed $12.85 million in damages, equivalent to its claim against Clark Builders, plus “wasted legal fees” paid to EJ.  See paras 12-14.

HOOPP also sued DC.  It claimed similar amounts and framed its claim in similar terms plus recovery of the legal fees HOOPP paid to both EJ and to DC.  The allegations were complicated by attempts to address the role EJ’s intervening services played in DC’s mandate. 

HOOPP’s claims alleged DC’s failure to (i) advise or consult with HOOPP regarding Clark Builders’ application to dismiss, (ii) adequately protect HOOPP’s interest by advising HOOPP to consider consenting to the relief sought by Clark Builders in a January 2005 application to stay the action and proceed to arbitration, (iii) advise HOOPP to seek relief by arbitration rather than continuing with litigation, and, (iv) advise HOOPP of the possibility of claims against either or both of DC or EJ regarding the mandatory arbitration clause. See paras 15-17. 

EJ and DC each applied for summary dismissal of HOOPP’s litigation.  EJ prevailed.  DC did not.

In HOOPP Realty Inc v. Emery Jamieson LLP, 2018 ABQB 276, the Master granted HOOPP’s application, determining that it was suitable for summary disposition, but held that the claims made against DC were “multi-faceted” and required expert evidence for both sides.  HOOPP and DC each appealed the Master’s decisions to a chambers judge.  In an oral decision, the chambers judge held that the Master’s decisions were correct in fact and in law, adopting much of the reasons.  Both HOOPP and DC appealed to the Court of Appeal.

HOOPP’s appeal – The Court of Appeal reasons address, among other issues, (i) whether the omission to serve the notice to arbitrate qualified as an “injury” within the meaning of section 1(e) of the Limitations Act (it did) and (ii) whether counsel of record’s knowledge could be imputed to HOOPP in order to trigger the commencement of the limitation period (it could).

The Court of Appeal held that knowledge of the facts, not the legal consequences, triggered the start of a limitation period and affirmed that failure to file the notice of arbitration is an “injury”:

[57] HOOPP’s arguments focus on the legal consequences of the facts known by the [DC], not the facts. Discovery relates to the facts, not the applicable law or any assurances of success: Weir-Jones at para 56. Similarly, discoverability does not require perfect knowledge or certainty that the claim will succeed: Weir-Jones at para 58.

[58] HOOPP sued [EJ] in contract as well as tort and breach of fiduciary duty. The failure to serve the notice to arbitrate is a non-performance of an obligation and constitutes the “injury” under the legislation. As it relates to the claim against [EJ], all other losses flowed from that injury. Additionally, there was much more than merely a suspicion that an injury occurred by November 4, 2009 at the latest. There was no doubt that the arbitration notice had not been served by then.

[59] Finally, HOOPP has not put forward any personal circumstances which are serious, significant and compelling that made it unfeasible to initiate an action earlier. Waiting until the Clark Builders action was actually struck focuses on the strength of the claim against [EJ].  These are tactical concerns that have no place in the “warrants bringing a proceeding” analysis”.

The Court also affirmed that imputed knowledge from a solicitor to a client can trigger the start of a limitation period, as expressly mentioned at section 3(2)(b) of the Limitation Act.  See paras 69-78. 

The Court also accepted that, on the facts, DC’s knowledge of the problem as of October 30, 2009 was imputed to HOOPP, thereby rendering the November 11, 2011 action against EJ out of time.

[80] The rule that solicitor’s knowledge is imputed to the client is founded upon the rebuttable presumption that this knowledge will be communicated to the client because it is the duty of the solicitor to do so: Cameron v Hutchison, 1869 CarswellOnt 121 at paras 11, [1869] OJ No 257 (QL). This presumption has since been held to be so strong that it cannot be rebutted: St. John & Quebec at 561. Furthermore, in 2009 the Code of Conduct imposed an express obligation upon a solicitor to inform a client as to the progress of the client’s matter (Chapter 9, Rule 14)”.

DC’s appeal – The Court of Appeal disagreed with how DC framed the question.  DC submitted that the issue on the summary disposition motion was: when should new legal counsel be liable for a mistake made by a predecessor counsel that caused the loss of the client’s claim.

The Court of Appeal commented that framing the issue as such “fundamentally misstates the issue and fails to give any meaning to the numerous alleged breaches of contract, tort and fiduciary duty set out the in the statement of claim that primarily relate to omissions”.  The Court held that to succeed on its tort claim against DC, HOOPP need only prove that DC was “a” cause of the loss and not “the” cause.

urbitral note – First, the Court of Appeal was not called upon to determine the merits of HOOPP’s allegations against DC.  Rather, the issue on appeal was limited to whether the claims could be determined with confidence on a motion for summary disposition.  The Court did not comment on the strength of the claims or their likely result, limiting itself to reviewing the chambers judge’s exercise of discretion.  DC was not counsel of record when the Statement of Claim was filed but was of record later when the other side raised it as an issue.

[103] As set out in [Weir-Jones Technical Services Incorporated v. Purolator Courier Ltd, 2019 ABCA 49] at paragraph 47, in order to grant summary disposition, the presiding judge must be left with sufficient confidence in the state of the record such that he or she is prepared to exercise judicial discretion to summarily resolve the dispute. The master was alive to the multi-faceted nature of the claim against the Dentons defendants and the interrelationship between the claims against both law firm parties. With all the unknowns and possibilities, he could not fairly resolve the dispute on a summary basis. The chambers judge was similarly satisfied that the record raised triable issues and prevented summary dismissal. The Dentons defendants have not identified a reviewable error in this conclusion”.

Second, the Court of Appeal’s analysis on imputed knowledge and the Limitations Act, the duty to communicate and duty to inform client about errors at paras 62-90

Third, for a decision on costs involving the related litigation between HOOPP and Clark Builders, see HOOPP Realty Inc v. AG Clark Holdings Ltd, 2019 ABQB 140.