Central Trust Co. v. Rafuse

Central Trust Co. v. Rafuse
Collection
Supreme Court Judgments
Date
1986-10-09
Report
[1986] 2 SCR 147
Case number
17753
Judges
Dickson, Robert George Brian; Beetz, Jean; Estey, Willard Zebedee; McIntyre, William Rogers; Lamer, Antonio; Wilson, Bertha; Le Dain, Gerald Eric
On appeal from
Nova Scotia
Subjects
Contract
Professional law
Torts
Notes
SCC Case Information: 17753
Decision Content
Central Trust Co. v. Rafuse, [1986] 2 S.C.R. 147
Central Trust Company Appellant
v.
Jack P. Rafuse and Franklyn W. Cordon Respondents
indexed as: central trust co. v. rafuse
File No.: 17753.
1984: December 6; 1986: October 9.
Present: Dickson C.J. and Beetz, Estey, McIntyre, Lamer, Wilson and Le Dain JJ.
on appeal from the court of appeal for nova scotia
Barristers and solicitors ‑‑ Professional liability ‑‑ Solicitors retained to perform legal services in connection with mortgage transaction ‑‑ Mortgage later found void for non‑compliance with Companies Act ‑‑ Whether solicitors liable in tort or whether liability restricted to contract ‑‑ If liable in tort, whether or not action statute‑barred ‑‑ Whether or not solicitors negligent ‑‑ Whether or not contributory negligence ‑‑ Whether action not maintainable because based on illegal transaction ‑‑ Companies Act, R.S.N.S. 1967, c. 42, s. 96(5) ‑‑ The Statute of Limitations, R.S.N.S. 1967, c. 168, s. 2(1)(c).
Torts ‑‑ Negligence ‑‑ Duty of care ‑‑ Solicitors ‑‑ Solicitors retained to perform legal services in connection with mortgage transaction ‑‑ Mortgage later found void for non‑compliance with Companies Act ‑‑ Whether or not solicitors concurrently liable in tort ‑‑ Whether or not contributory negligence ‑‑ Whether action not maintainable because based on illegal transaction ‑‑ Whether or not action statute‑barred.
Contracts ‑‑ Solicitors ‑‑ Solicitors retained to perform legal services in connection with mortgage transaction ‑‑ Mortgage later found void for non‑compliance with Companies Act ‑‑ Whether solicitors’ liability founded solely in contract and hence statute‑barred ‑‑ Whether solicitors concurrently liable in tort, and if so, whether or not action statute‑barred.
Respondent solicitors acted for the purchasers of all the shares in the capital stock of Stonehouse Motel and Restaurant Limited. A condition of the agreement of purchase and sale was that the purchasers would obtain a mortgage on the Stonehouse property. The proceeds of the mortgage were to be paid to the vendor in part satisfaction of the purchase price of the shares. One of the purchasers on behalf of Stonehouse applied to appellant's predecessor for a mortgage loan and, in accordance with the practice in such cases, the trust company retained the respondents to perform the necessary legal services in connection with the mortgage transaction. The sale closed, a first mortgage on the Stonehouse property and a chattel mortgage on its equipment were executed and the vendor was paid with funds that included the proceeds of the mortgage loan. The mortgage on the property was certified by respondent Cordon as forming a first charge on the property.
Appellant instituted an action for foreclosure against Stonehouse following default on the mortgage. Both Stonehouse and a creditor with registered judgments intervened to oppose the action, raising the defence that the mortgage was void in that it was contrary to s. 96(5) of the Nova Scotia Companies Act. This provision made it unlawful for a company to give, whether directly or indirectly, and whether by means of a loan, guarantee, the provision of security or otherwise, any financial assistance for the purpose of or in connection with a purchase made or to be made by any person of any shares in the company.
Appellant instituted its action against the respondents for breach of contract and for negligence after this Court declared the mortgage to be void as a whole as being contrary to s. 96(5). The action was dismissed at trial where respondents were found not to have been negligent. The Court of Appeal found respondents negligent but dismissed the appeal on the ground that the action was statute‑barred.
The principal issue in this appeal was whether a solicitor is liable to a client in tort as well as in contract for the damage caused by a failure to meet the requisite standard of care in the performance of services for which the solicitor has been retained. A consequential issue, if the requisite standard of care was not met, was whether the appellant's action against the respondents is statute‑barred.
Held: The appeal should be allowed.
If the respondent solicitors were negligent in the performance of the professional services for which they were retained, they would be liable in tort as well as contract to the appellant, subject to the other defences which they raised.
The common law duty of care that is created by a relationship of sufficient proximity, in accordance with the general principle affirmed by Lord Wilberforce in Anns v. Merton London Borough Council, is not confined to relationships that arise apart from contract. Although the relationships in Donoghue v. Stevenson, Hedley Burne and Anns were all of a non‑contractual nature and there was necessarily reference in the judgments to a duty of care that exists apart from or independently of contract, nothing in the statements of general principle in those cases suggests that the principle was to be confined to relationships that arise apart from contract. The question is whether there is a relationship of sufficient proximity, not how it arose. The principle of tortious liability is a general one for reasons of public policy. A common law duty of care may be created by a relationship of proximity that would not have arisen but for a contract.
What is undertaken by the contract will indicate the nature of the relationship that gives rise to the common law duty of care, but the nature and scope of the duty of care that is asserted as the foundation of the tortious liability must not depend on specific obligations or duties created by the express terms of the contract. It is in that sense that the common law duty of care must be independent of the contract. The distinction, in so far as the terms of the contract are concerned, is, broadly speaking, between what is to be done and how it is to be done. A claim cannot be said to be in tort if it depends for the nature and scope of the asserted duty of care on the manner in which an obligation or duty has been expressly and specifically defined by a contract. Where the common law duty of care is co‑extensive with that which arises as an implied term of the contract it does not depend on the terms of the contract, and there is nothing flowing from contractual intention which should preclude reliance on a concurrent or alternative liability in tort. The same is also true of reliance on a common law duty of care that falls short of a specific obligation or duty imposed by the express terms of a contract.
A concurrent or alternative liability in tort will not be admitted if its effect would be to permit the plaintiff to circumvent or escape a contractual exclusion or limitation of liability for the act or omission that would constitute the tort. Subject to this qualification, where concurrent liability in tort and contract exists the plaintiff has the right to assert the cause of action that appears to be most advantageous to him in respect of any particular legal consequence.
These principles apply to the liability of a solicitor to a client for negligence in the performance of the professional services for which he has been retained. There is no sound reason of principle or policy why the solicitor should be in a different position in respect of concurrent liability from that of other professionals.
The basis of the solicitor's liability in tort for negligence and the client's right in such case to recover for purely financial loss is the principle affirmed in Hedley Byrne and treated in Anns as an application of a general principle of tortious liability for negligence based on the breach of a duty of care arising from a relationship of sufficient proximity. That principle is not confined to professional advice but applies to any act or omission in the performance of the services for which a solicitor has been retained.
The respondent solicitors were negligent in failing to ascertain the existence of s. 96(5) of the Nova Scotia Companies Act, to perceive that it raised a problem concerning the validity of the proposed mortgage and to advise the Nova Scotia Trust Company accordingly. Their negligence was causative of the damage suffered by the trust company.
A solicitor is required to bring reasonable care, skill and knowledge to the performance of the professional service which he has undertaken. The requirement of professional competence that was particularly involved in this case was reasonable knowledge of the applicable or relevant law. A solicitor is not required to know all the law applicable to the performance of a particular legal service but he must have a sufficient knowledge of the fundamental issues or principles of law applicable to the particular work he has undertaken to enable him to perceive the need to ascertain the law on relevant points.
While the solicitor's duty of care has generally been stated in the context of contractual liability as arising as an implied term of the contract or retainer, the same duty arises as a matter of common law from the relationship of proximity created by the retainer. In the absence of special terms in the contract determining the nature and scope of the duty of care in a particular case, the duties of care in contract and in tort are the same.
Respondent solicitors acted negligently. The fact that the capacity of a corporation to borrow and give security may be limited or subjected to certain conditions by the provisions of the applicable Companies Act is such basic knowledge that a reasonably competent solicitor must be held to possess it, whether he is a general practitioner or a specialist. It is knowledge which a solicitor who undertakes to do the legal work to obtain a mortgage or other security from a corporation must possess, and with it there is a duty to exercise reasonable care and skill to ascertain by an examination of the relevant legislation what limits or conditions it imposes upon the capacity of a corporation to give security. A reasonably competent solicitor, knowing that the mortgage was being given by Stonehouse to obtain a loan to assist in the purchase of its shares, would have recognized that s. 96(5) of the Companies Act raised a serious question concerning the legality or validity of the proposed mortgage. In the existing state of the law in 1968 the reasonably competent solicitor in Nova Scotia in 1968 would have perceived that there was a serious possibility that the mortgage might be held to be void as being contrary to s. 96(5) and would have advised his client accordingly.
The defence of contributory negligence must fail. The executive officers of the Nova Scotia Trust Company and the members of the Executive Committee of the Board of Directors did not have a duty of care with respect to the legal aspects of a transaction other than to retain qualified solicitors to perform the necessary legal services. They might well have been negligent had they relied on their own legal judgment in such a case.
A solicitor cannot raise the defence of illegality if it is only because of his negligence that the exercise of the professional services for which he was retained results in the carrying out of an illegal transaction. There was no merit in the contention that because the mortgage was illegal appellant's retainer of the respondents was also illegal and thus unenforceable as a basis of the appellant's action for breach of contract and negligence.
Appellant's action for negligence was not statute‑barred. A cause of action arises for purposes of a limitation period when the material facts on which it is based have been discovered or ought to have been discovered by the plaintiff by the exercise of reasonable diligence. That rule should be followed and applied here. There is no principled reason for distinguishing in this regard between an action for injury to property and an action for the recovery of purely financial loss caused by professional negligence. Since the respondents gave the Nova Scotia Trust Company a certificate on January 17, 1969 that the mortgage was a first charge on the Stonehouse property, the earliest that appellant discovered or should have discovered respondents' negligence by the exercise of reasonable diligence was in April or May 1977 when the validity of the mortgage was challenged in the action for foreclosure. Accordingly, appellant's cause of action in tort did not arise before that date and its action against the respondents is not statute‑barred.
Cases Cited
Considered: Nunes Diamonds (J.) Ltd. v. Dominion Electric Protection Co., [1972] S.C.R. 769; Smith (G.I.) v. McInnis, [1978] 2 S.C.R. 1357; Hedley Byrne & Co. v. Heller & Partners Ltd., [1964] A.C. 465; Elder, Dempster & Co. v. Paterson, Zochonis & Co., [1924] A.C. 522; Scruttons Ltd. v. Midland Silicones Ltd., [1962] A.C. 446; Halvorson v. McLellan & Co., [1973] S.C.R. 65; Nocton v. Lord Ashburton, [1914] A.C. 932; Groom v. Crocker, [1939] 1 K.B. 194; Esso Petroleum Co. v. Mardon, [1976] Q.B. 801; Midland Bank Trust Co. v. Hett, Stubbs & Kemp, [1979] Ch. 384; Aluminum Products (Qld.) Pty. Ltd. v. Hill, [1981] Qd.R. 33; Macpherson & Kelley v. Kevin J. Prunty & Associates, [1983] 1 V.R. 573; Steljes v. Ingram (1903), 19 T.L.R. 534; Finlay v. Murtagh, [1979] I.R. 249; Dominion Chain Co. v. Eastern Construction Co. (1976), 68 D.L.R. (3d) 385; McLaren Maycroft & Co. v. Fletcher Development Co., [1973] 2 N.Z.L.R. 100; Brown v. Boorman (1844), 11 Cl. & F. 1, affirming (1842), 3 Q.B. 511; Lister v. Romford Ice and Cold Storage Co., [1957] A.C. 555, affirming [1956] 2 Q.B. 180; Matthews v. Kuwait Bechtel Corp., [1959] 2 Q.B. 57; John Maryon International Ltd. v. New Brunswick Telephone Co. (1982), 141 D.L.R. (3d) 193; Tai Hing Cotton Mill Ltd. v. Liu Chong Hing Bank Ltd., [1985] 2 All E.R. 947, reversing [1984] 1 Lloyd's L.R. 555; Ross v. Caunters, [1980] Ch. 297; Schwebel v. Telekes, [1967] 1 O.R. 541; Sealand of the Pacific v. Robert C. McHaffie Ltd. (1974), 51 D.L.R. (3d) 702; Giffels Associates Ltd. v. Eastern Construction Co., [1978] 2 S.C.R. 1346; Messineo v. Beale (1978), 20 O.R. (2d) 49; Jacobson Ford‑Mercury Sales Ltd. v. Sivertz (1979), 103 D.L.R. (3d) 480; Surrey (District of) v. Carroll‑Hatch & Associates Ltd. (1979), 101 D.L.R. (3d) 218; Canadian Western Natural Gas Co. v. Pathfinder Surveys Ltd. (1980), 12 Alta. L.R. (2d) 135; Leigh and Sillivan Ltd. v. Aliakmon Shipping Co., [1985] 2 W.L.R. 289; Wabasso Ltd. v. National Drying Machinery Co., [1981] 1 S.C.R. 578; Thibault v. Central Trust Company of Canada, [1963] S.C.R. 312; Cartledge v. E. Jopling & Sons Ltd., [1963] A.C. 758; Kamloops (City of) v. Nielsen, [1984] 2 S.C.R. 2; Pirelli General Cable Works Ltd. v. Oscar Faber & Partners, [1983] 2 A.C. 1; referred to: Central and Eastern Trust Co. v. Irving Oil Ltd., [1980] 2 S.C.R. 29, affirming (1978), 89 D.L.R. (3d) 374, reversing (1977), 81 D.L.R. (3d) 495; Howell v. Young (1826), 5 B. & C. 259; Bean v. Wade (1885), 2 T.L.R. 157; Smith v. Fox (1848), 6 Hare 386, 67 E.R. 1216; Jarvis v. Moy, Davies, Smith, Vandervell & Co., [1936] 1 K.B. 399; Kelly v. Metropolitan Railway Co., [1895] 1 Q.B. 944; Turner v. Stallibrass, [1898] 1 Q.B. 56; Sachs v. Henderson, [1902] 1 K.B. 612; Edwards v. Mallan, [1908] 1 K.B. 1002; Jackson v. Mayfair Window Cleaning Co., [1952] 1 All E.R. 215; Clark v. Kirby‑Smith, [1964] 1 Ch. 506; Bagot v. Stevens Scanlan & Co., [1966] 1 Q.B. 197; Cook v. Swinfen, [1967] 1 W.L.R. 457; Heywood v. Wellers, [1976] Q.B. 446; Russell v. Palmer (1767), 2 Wils. K.B. 325, 95 E.R. 837; Godefroy v. Jay (1831), 7 Bing. 413, 131 E.R. 159; Batty v. Metropolitan Property Realisations Ltd., [1978] Q.B. 554; Photo Production Ltd. v. Securicor Transport Ltd., [1978] 1 W.L.R. 856; Forster v. Outred & Co., [1982] 2 All E.R. 753; Dabous v. Zuliani (1976), 12 O.R. (2d) 230; Donoghue v. Stevenson, [1932] A.C. 562; Hartman v. The Queen in right of Ontario (1973), 2 O.R. (2d) 244; Hall v. Brooklands Auto Racing Club, [1933] 1 K.B. 205; Power v. Halley (1978), 88 D.L.R. (3d) 381; Royal Bank of Canada v. Clark and Watters (1978), 22 N.B.R. (2d) 693, 39 A.P.R. 693; Anns v. Merton London Borough Council, [1978] A.C. 728; Attorney‑General of Nova Scotia v. Aza Avramovitch Associates Ltd. (1984), 11 D.L.R. (4th) 588; Consumers Glass Co. v. Foundation Co. of Canada/Compagnie Foundation du Canada (1985), 20 D.L.R. (4th) 126; Margarine Union G.m.b.H. v. Cambay Prince Steamship Co. (The “Wear Breeze”), [1969] 1 Q.B. 219; Rowe v. Turner Hopkins & Partners, [1982] 1 N.Z.L.R. 178; Flint & Walling Mfg. Co. v. Beckett, 79 N.E. 503 (1906); Arenson v. Casson Beckman Rutley & Co., [1977] A.C. 405; Junior Books Ltd. v. Veitchi Co., [1983] 1 A.C. 521; Tracy v. Atkins (1979), 105 D.L.R. (3d) 632; Hett v. Pun Pong (1890), 18 S.C.R. 290; Bannerman Brydone Folster & Co. v. Murray, [1972] N.Z.L.R. 411; Sparham‑Souter v. Town and Country Developments (Essex) Ltd., [1976] Q.B. 858.
Statutes and Regulations Cited
Bills of Lading Act , 1855, 18 & 19 Vict., c. 111, s. 1.
Civil Code, art. 1053.
Companies Act, R.S.N.B. 1952, c. 33, s. 37(1).
Companies Act, R.S.N.S. 1967, c. 42, s. 96(5).
Contributory Negligence Act, R.S.A. 1970, c. 65.
Contributory Negligence Act, R.S.B.C. 1960, c. 74.
County Courts Act, 1888, 51 & 52 Vict., c. 43, s. 66.
Limitation Act, 1939, 2 & 3 Geo. 6, c. 21, s. 26.
Limitation Act 1963, (U.K.), c. 47.
Limitations Act, S.B.C. 1975, c. 37, s. 16.
Municipal Act, R.S.B.C. 1960, c. 255, s. 738(2).
Negligence Act, R.S.O. 1970, c. 296, s. 2(1)(e).
Statute of Limitations, R.S.B.C. 1948, c. 191, s. 38.
Statute of Limitations, R.S.N.S. 1967, c. 168, s. 2(1)(c).
Tortfeasors Act, R.S.N.S. 1967, c. 307.
Authors Cited
American Jurisprudence, vol. 38, "Negligence" § 20.
American Jurisprudence, vol. 7, 2nd ed., "Attorneys at Law" § 200.
Charlesworth, John and R. A. Percy. Charlesworth and Percy on Negligence, 7th ed. Commonwealth Law Library no. 6. London: Sweet and Maxwell, 1983.
Dugdale, A. M. and K. M. Stanton. Professional Negligence. London: Butterworths, 1982.
Dwyer, John L. "Solicitor's Negligence ‑‑ Tort or Contract?" (1982), 56 A.L.J. 524.
Fifoot, Cecil H. Stewart. History and Sources of the Common Law: Tort and Contract. London: Stevens, 1949.
French, Christine. "The Contract/Tort Dilemma" (1983), 5 Otago L.R. 236.
Jackson, Rupert M. and John L. Powell. Professional Negligence. London: Sweet and Maxwell, 1982.
Mahoney, R. M. "Lawyers ‑‑ Negligence ‑‑ Standard of Care" (1985), 63 Can. Bar Rev. 221.
Prosser, William Lloyd. "The Borderland of Tort and Contract." In Selected Topics on the Law of Torts. Ann Arbor: University of Michigan Law School, 1953.
Prosser, William Lloyd. Handbook of the Law of Torts, 4th ed. St. Paul, Minn.: West Publishing, 1971.
Prosser, William Lloyd, John W. Wade and Victor E. Schwartz. Cases and Materials on Torts, 6th ed. Mineola, N.Y.: Foundation Press, 1976.
Winfield, Sir Percy Henry. Winfield on Tort, 7th ed. By J. A. Jalowicz and T. Ellis Lewis. London: Sweet and Maxwell, 1963.
APPEAL from a judgment of the Nova Scotia Court of Appeal (1983), 57 N.S.R. (2d) 125, 120 A.P.R. 125, 147 D.L.R. (3d) 260, 28 R.P.R. 185, dismissing an appeal from a judgment of Hallett J. (1982), 53 N.S.R. (2d) 69, 109 A.P.R. 69, 139 D.L.R. 385, dismissing appellant's action. Appeal allowed.
R. A. Cluney, Q.C., and R. G. Belliveau, for the appellant.
Arthur R. Moreira, Q.C., Alexander S. Beveridge and Colin D. Bryson, for the respondents.
The judgment of the Court was delivered by
1. Le Dain J.‑‑The principal question in this appeal is whether a solicitor is liable to a client in tort as well as in contract for the damage caused by a failure to meet the requisite standard of care in the performance of the services for which the solicitor has been retained. The consequential issue in the appeal is whether, if there was a failure to meet the requisite standard of care, the appellant's action against the respondents is statute‑barred.
2. The appeal is by leave of the Nova Scotia Supreme Court, Appeal Division, from the judgment of the Appeal Division on March 30, 1983 dismissing the appeal from the judgment of Hallett J. in the Trial Division on August 9, 1982, which dismissed the appellant's action in damages against the respondent solicitors for breach of contract and negligence in failing to advise their client that a mortgage might, if challenged, be held to be void, as it was later held by this Court, because of a statutory provision making it unlawful for a company to give financial assistance in connection with a purchase of its shares.
I
3. The relationship of solicitor and client arose in the following manner. The respondent solicitors were acting for persons who had agreed to purchase all the shares in the capital stock of Stonehouse Motel and Restaurant Limited (hereinafter referred to as "Stonehouse") for $315,000. It was a condition of the agreement of purchase and sale that the purchasers would obtain a mortgage on the property of Stonehouse for not less than $225,000, the proceeds of which would be paid to the vendor in part satisfaction of the purchase price of the shares. An application for the mortgage loan was made by one of the purchasers on behalf of Stonehouse to the Nova Scotia Trust Company, and in accordance with the practice in such cases the respondents were retained by the trust company to perform the necessary legal services in connection with the mortgage transaction. A letter dated December 12, 1968 from the trust company to the respondent Rafuse, which confirmed the approval of the mortgage loan to Stonehouse, said: "We would therefore ask you to kindly search the title to the property in question ensuring it is good and valid for our purposes and provide us with your Certificate." The mortgage loan was approved and the instructions given to the respondent solicitors on behalf of the trust company by persons who had had legal training.
4. At the closing of the sale on December 31, 1968 the purchasers of the shares, acting as the new officers of Stonehouse, executed a first mortgage on the real property and a chattel mortgage on the equipment of the company as security for a loan of $225,000 from the trust company. The respondent Cordon, acting for both the purchasers and the trust company, gave the solicitors for the vendor a cheque in the amount of $300,000, the funds for which included the proceeds of $225,000 from the mortgage loan, in payment for the shares. On January 17, 1969 the respondent Cordon, reporting on behalf of his firm to the trust company concerning the mortgage transaction, said: "We hereby certify that the title to the above property is free and clear of all encumbrances and that the mortgage from Stone‑House Motel and Restaurant Limited forms a first charge on the property, and that all taxes have been paid to December 31, 1969."
5. The appellant, Central Trust Company, is the successor of the Nova Scotia Trust Company. On April 21, 1977 it instituted an action against Stonehouse for foreclosure of the mortgage. Irving Oil Limited, a creditor of Stonehouse with registered judgments, intervened to oppose the action. Both Stonehouse and Irving raised the defence that the mortgage was void as being contrary to s. 96(5) of the Nova Scotia Companies Act, R.S.N.S. 1967, c. 42, which provided:
96. ...
(5) Subject to this Section, it shall not be lawful for a company to give, whether directly or indirectly, and whether by means of a loan, guarantee, the provision of security or otherwise, any financial assistance for the purpose of or in connection with a purchase made or to be made by any person of any shares in the company.
6. By judgment on November 25, 1977 in Central and Eastern Trust Co. v. Stonehouse Motel and Restaurant Ltd. (1977), 81 D.L.R. (3d) 495, the Nova Scotia Supreme Court, Trial Division (Hart J.), held that the mortgage was not void by reason of s. 96(5) and granted an order for foreclosure. On appeal from this judgment the Supreme Court of Nova Scotia, Appeal Division (Coffin, Macdonald and Pace JJ.A.), held on July 10, 1978 in Irving Oil Ltd. v. Central and Eastern Trust Co. (1978), 89 D.L.R. (3d) 374, that the mortgage was void by reason of s. 96(5) except for the amount by which the obligations of Stonehouse were to be reduced by application of the proceeds of the mortgage loan. On appeal from that judgment this Court held on April 22, 1980 in Central and Eastern Trust Co. v. Irving Oil Ltd., [1980] 2 S.C.R. 29, that the mortgage was void as a whole as being contrary to s. 96(5).
7. On October 28, 1980, following the judgment of this Court declaring the mortgage to be void, the appellant instituted its action against the respondents for breach of contract and negligence. It alleged negligence in failing to appreciate and advise the Nova Scotia Trust Company that the mortgage might be held to be void as being contrary to s. 96(5) of the Companies Act because it was given by Stonehouse to provide financial assistance in connection with the purchase of shares in the company.
8. In their defence the respondents contended: (a) that their liability, if any, was in contract only and not in tort; (b) that they had not been negligent, particularly in view of the conflicting judicial opinion on the question of the validity of the mortgage; (c) that there was contributory negligence on the part of the Nova Scotia Trust Company or those for whom it was responsible because of the approval of the mortgage loan and the instructions to the respondents by persons of legal training; (d) that the contract between the Nova Scotia Trust Company and the respondents, having as its object an illegal transaction, was itself illegal and could not therefore be the basis of an action in damages; and (e) the appellant's action was barred by The Statute of Limitations, R.S.N.S. 1967, c. 168.
9. Hallett J. in the Trial Division (1982), 139 D.L.R. (3d) 385, dismissed the appellant's action on the ground that the respondents had not been negligent. He did not deal with the other issues.
10. The Appeal Division (Cooper, Pace and Jones JJ.A.) (1983), 147 D.L.R. (3d) 260, held that the respondents had been negligent but dismissed the appeal on the ground that the action was barred by The Statute of Limitations. The Court of Appeal was of this view whether or not the appellant's action could be based on tort as well as contract, a question on which it did not express an opinion.
11. It was conceded by the appellant in this Court that if the respondent solicitors were liable in contract only the appellant's action was statute‑barred. The issues in the appeal, in the order in which I propose to deal with them to the extent necessary for the disposition of the appeal, may be summarized as follows:
1. Can a solicitor be liable to a client in tort as well as in contract for negligence in the performance of the professional services for which the solicitor has been retained?
2. Were the respondent solicitors negligent in carrying out the mortgage transaction for the Nova Scotia Trust Company?
3. Was there contributory negligence on the part of the Nova Scotia Trust Company or those for whom it was responsible?
4. Is the appellant prevented from bringing its action because of the illegality of the mortgage?
5. Is the appellant's action barred by The Statute of Limitations?
12. The parties are agreed on the quantum of damages if the respondents are liable. The terms of their agreement were noted by Hallett J. in his judgment as follows: "The defendants have agreed as to the quantum of the plaintiff's claim which consists of $424,434.04 outstanding on the mortgage for principal, interest and taxes, plus interest accruing daily after April 14, 1982, at the rate of $156.93 and legal fees of $56,759.46 incurred by the plaintiff in attempting to enforce the mortgage." This agreement as to quantum was reaffirmed by the parties in their factums in this Court.
II
13. The question whether there can be concurrent liablity in contract and in tort for negligence in the performance of professional services has been the subject of conflicting judicial opinion and a great deal of academic commentary which has been overwhelmingly in favour of the recognition of concurrent liability in such a case. Important legal consequences have turned on the differences in the rules applicable to contractual and tortious liability. The three most important areas in which these differences have been reflected in the decisions on the question of concurrent liability are limitation of actions, measure of damages and apportionment ment of liability. Although there has been an increasing judicial disposition to apply similar rules, or at least to reach similar results, with respect to these issues under the two kinds of liability, there are likely to remain differences of result in certain cases flowing from inherent differences between contract and tort. Although an assimilation of the rules or results under the two kinds of liability has been advocated as one response to the issue of concurrent liability, the question is unlikely to be rendered wholly academic by this clearly discernible development in the law. It has been the important difference of result, particularly in the three areas referred to, that has given the question of concurrent liability its policy focus and interest in the abundant judicial and academic opinion on the subject.
14. At least three major considerations are reflected in that body of opinion. The first is the view of those who oppose concurrent liability that where persons have entered into a contractual relationship their liability for an act or omission which constitutes a breach of contract should be governed entirely by the law of contract. The relationship, which would not have existed but for the contract, should not be held to give rise to a common law duty of care. It would be unfair to add a tortious liability to the contractual liability which the parties may be presumed to have contemplated. This view appears to rest on an implied contractual intent as much as on the scope of tortious liability. The second consideration that one finds reflected in the opinion on the question of concurrent liability is the view of those who favour concurrent liability that a common law duty of care is created by certain kinds of relationship, whether or not the relationship has its origin in contract. On this view, there is nothing in the leading cases affirming the conditions under which a common law duty of care arises to suggest that it is confined to non‑contractual relationships. This view recognizes that tortious liability may be limited or excluded by the express or implied terms of a contract but denies that there is any basis for reading an implied term into every contract that liability is to be governed entirely by the law of contract. This view is really an assertion of the scope of tortious liability in contrast to an assertion of the scope of contractual intention by the opposing view. The third major consideration reflected in the opinion on the issue of concurrent liability is the view, also of those who favour concurrent liability, that to deny that a retained solicitor may be liable to a client in tort as well as in contract for negligence in the performance of the professional services for which he has been retained is to place the solicitor's liability to a client in an anomalous position with resulting injustice. The question of justice, which is urged by the proponents of both views on the issue of concurrent liability, is not free from ambiguity or ambivalence. What may appear just to one party may appear unjust to the other. Take, for example, the limitation of actions, which is a measure for the protection of defendants. There are obviously considerations of justice applicable to both parties. So also with the measure of damages. Perhaps contributory negligence and apportionment of liability is the area in which the question of justice is clearest and least ambiguous: that a person who is only partially liable should not be held to be wholly liable.
15. These, it would seem, are the major policy considerations underlying the issue of concurrent liability. Consideration of the authorities on this issue must begin in this Court with the judgment of Pigeon J. on behalf of the majority in J. Nunes Diamonds Ltd. v. Dominion Electric Protection Co., [1972] S.C.R. 769, and his dissenting opinion in Smith v. McInnis, [1978] 2 S.C.R. 1357.
16. In Nunes Diamonds the issue of concurrent liability was whether the respondent, Dominion Electric Protection Company ("D.E.P."), which had undertaken to provide a burglar alarm service for the appellant diamond merchants ("Nunes"), was liable in tort to Nunes for negligent misrepresentations concerning the functioning of the alarm system despite the existence of a contract containing a limitation of liability. The contract provided that D.E.P. was not an insurer, that the rates charged were based on the probable value of the burglar alarm service, and that in the event of loss resulting from a failure to perform the service the liability of D.E.P. would be limited to $50 as liquidated damages. It also provided that no conditions, warranties or representations had been made by D.E.P., its officers, servants or agents other than those set out in writing in the contract. The alleged misrepresentations that the alarm system had not been and could not be circumvented were made several months after the contract was entered into, following a burglary at the premises of another diamond merchant, who was also using the D.E.P. alarm system. Some time later a burglary occurred at the premises of Nunes, and a large quantity of diamonds was stolen. The alarm system failed to sound because it had been circumvented. Nunes sued D.E.P. for breach of contract and negligence. The trial court, the Ontario Court of Appeal and this Court were all of the opinion that there had not been a breach of contract. The issue was whether there had been negligent misrepresentation concerning the functioning of the alarm system for which D.E.P. was liable in tort on the basis of the principle affirmed in Hedley Byrne & Co. v. Heller & Partners Ltd., [1964] A.C. 465. The trial court and the Court of Appeal were of the opinion that there had not been misrepresentation for which D.E.P. was liable. The majority of this Court appear also to have been of this view but, assuming that there had been a misrepresentation, they held that there could not be liability in tort for it because of the existence of the contract. Pigeon J., with whom Martland and Judson JJ. concurred, said at pp. 777‑78:
Furthermore, the basis of tort liability considered in Hedley Byrne is inapplicable to any case where the relationship between the parties is governed by a contract, unless the negligence relied on can properly be considered as "an independent tort" unconnected with the performance of that contract, as expressed in Elder, Dempster & Co. Ltd. v. Paterson, Zochonis & Co., Ltd. [[1924] A.C. 522], at p. 548. This is specially important in the present case on account of the provisions of the contract with respect to the nature of the obligations assumed and the practical exclusion of responsibility for failure to perform them.
It appears to have been assumed by the majority, as had been held by the trial judge, that the clause in the contract limiting liability in the case of loss to $50 did not cover negligence and also that the clause respecting representations did not apply to representations made after the contract was entered into. Pigeon J. said that if D.E.P. were to be liable in tort, despite the limitation of liability in the contract, it would effect a fundamental alteration of the contract. He also said that the representations relied on as the basis of tortious liability were not acts independent of the contractual relationship between the parties because they would not have been made had the parties not been in a contractual relationship. Spence J. dissenting, with whom Laskin J. (as he then was) concurred, held that there had been negligent misrepresentation concerning the functioning of the burglar alarm system for which D.E.P. was liable in tort on the basis of Hedley Byrne. On the question whether there could be liability in tort where there was a contractual relationship, he said at pp. 810‑11: "I cannot agree that the mere existence of an antecedent contract foreclosed tort liability under the Hedley Byrne principle."
17. In Elder Dempster, on which Pigeon J. relied for the criterion of an independent tort unconnected with the performance of the contract, the issue was whether shipowners who were sued with charterers for damage to cargo could claim the benefit of an exclusion of liability in the bill of lading for bad stowage. The plaintiff cargo owners sought to hold the shipowners liable in tort for the master's negligence and contended that they could not claim the protection of the bill of lading because they were not parties to it. The House of Lords held that the shipowners were protected by the bill of lading, although opinion differed as to the basis on which it applied to them (cf. Scruttons Ltd. v. Midland Silicones Ltd., [1962] A.C. 446). What the case decided in essence was that the contractual exclusion of liability for bad stowage in the bill of lading could not be circumvented by reliance on a liability in tort where the act or omission complained of was one connected with the performance of the contract. This appears from the speech of Viscount Finlay, cited by Pigeon J. in Nunes Diamonds, where, referring to the contention that the shipowners had a liability in tort that was unaffected by the exclusion of liability in the bill of lading, he said at p. 548:
This contention seems to me to overlook the fact that the act complained of was done in the course of the stowage under the bill of lading, and that the bill of lading provided that the owners are not to be liable for bad stowage. If the act complained of had been an independent tort unconnected with the performance of the contract evidenced by the bill of lading, the case would have been different. But when the act is done in the course of rendering the very services provided for in the bill of lading, the limitation on liability therein contained must attach, whatever the form of the action and whether owner or charterer be sued. It would be absurd that the owner of the goods could get rid of the protective clauses of the bill of lading, in respect of all stowage, by suing the owner of the ship in tort.
18. In Smith v. McInnis, however, Pigeon J. referred to the principle affirmed in Nunes Diamonds as one of general application to the question of concurrent liability. The issue turning on concurrent liability in that case was whether there could be apportionment of liability between the defendant solicitors and the third‑party solicitors, who had been joined for contribution, for the damage caused by a failure to file proofs of loss and to institute an action in time under a fire insurance policy. The third‑party solicitors had been retained by the defendant solicitors, with the approval of the client, to assist the defendant solicitors with preparation of the proofs of loss. The question was whether the third‑party solicitors had a duty to advise the defendant solicitors of the time within which to file the proofs of loss and