Date: Tue, 8 Apr 2008 16:53

From: David Cheifetz

Subject: Contract, Consideration and Tort Duties

John,

On the measure of damages, and solicitors' foul-ups, by coincidence:

Newton v. Marzban, 2008 BCSC 328 (CanLII) - it's very long. Most of it is recitation of facts.

[1]  In the spring of 2000, the plaintiff separated from her husband, Lyle Newton. A matrimonial proceeding ensued to deal with division of family assets and spousal support. A central issue was the valuation of the family logging business comprised of a group of companies collectively referred to as the Alliford Bay Group (the “ABG”), in which the plaintiff and Mr. Newton were directors, officers, and equal shareholders. The action was ultimately settled in October 2001 on the basis that Mr. Newton paid the plaintiff $1.771 million. $1.6 million of that represented the value of the plaintiff’s shares in the ABG. Other relatively minor family assets were essentially split equally, and the plaintiff released her claim for spousal support.

[2] In the course of reaching this settlement, the plaintiff received advice and assistance from the defendants in this action.  Mr. Gordon F. Hubley, a chartered accountant and partner in Hubley Bestwick & Partners, provided early support to the plaintiff, and ultimately became the principal negotiator of the settlement. Mr. D. Jeffrey Harder, a chartered accountant and chartered business valuator, and a partner in BDO Dunwoody LLP, did a valuation of the ABG. Mr. Dinyar Marzban, a matrimonial lawyer and a partner in Jenkins Marzban Logan, was retained by the plaintiff as her lawyer in the proceeding.  In the balance of these Reasons, I use the names of the personal defendants as representative of both the individuals and their partnerships.

[3]  The plaintiff now brings this action against these advisors and their professional firms, claiming damages for breach of contract and negligence. She says that their advice and representation fell below the required standard of care in that they failed to develop her best position, fully advise her of her options, and warn her of the risks of settling without further investigation. She maintains that, as a result, she accepted an improvident settlement and lost the benefit of a materially more favourable outcome at a trial, which she estimates would have been in the range of $3 million to $4 million more than the amount for which she settled.

[4]  In response to the plaintiff’s claims, the defendants mounted a united defence, arguing that she received a high standard of professional services from each of them ...

The trial judge found the lawyers negligent but held that the plaintiff would have settled for what she was offered even if he'd given her the proper advice on one aspect : see paragraphs 784, 803 and 845.

So, the judge then said

[846]  I conclude that the plaintiff has failed to establish on a balance of probabilities that Mr. Marzban’s failure to meet the standard of care caused her to accept the settlement and forego the option of proceeding to trial. The claim against Mr. Marzban and Jenkins Marzban Logan in negligence is accordingly dismissed. As the claim in contract is not dependent on a finding of causation, I find those defendants liable to the plaintiff for breach of contract.

The award was $1,000 for "nominal damages" (paras. 847-850).

No, you weren't cited in para 847. Somebody else up the street was.

David

----- Original Message ----
From: John Swan
To: Robert Stevens
Sent: Tuesday, April 8, 2008 11:26:53 AM
Subject: RE: ODG: Contract, Consideration and Tort Duties

Robert,

Isn't the more interesting problem that of the measure of damages. Suppose that a client goes to a solicitor to have her act in the client's purchase of property. The solicitor does her job badly and, as a result, the client gets less land than he expected — we can assume that the vendor thought it owned more land than it really did and the solicitor failed to discover this fact.

Suppose, to take the exact facts of an Ontario case, the land, i.e., the smaller parcel that the vendor actually owned and which the client bought, is worth what the client paid. Assume also, though this fact was not proved in the Ontario case, that had the client got all the land that he thought he was buying, he could have sold it for a profit of, say, $100,000.

What is the correct measure of damages?

A tort approach might suggest that the damages are zero (and that’s what the court held); what would a contract approach suggest? It seems to me that the question is not tort or contract simpliciter but the nature of the solicitor’s promise. Did she promise that, if the client used her services, he would not suffer a loss or did she promise that, if the client used her services, he would make what he would have made, had he got what he expected to get? Since the contract will have been made in a conversation which, stripped to its essentials, probably takes the form: “Will you act for me in the transaction?” “Yes”. There is, of course, consideration for either promise in the fee paid to the solicitor.

If the damages are determined to be zero, we can infer that the court thought — though whether it actually thought about the problem in the terms I have stated is another matter altogether — that the solicitor made what I can call the lesser promise. In this case, it does not matter whether the client sues in contract or tort. Only if one sues in contract and only if the court infers that the solicitor made the greater promise, do the damages for breach of contract approach the “ordinary” contract measure.

Canadian cases on this point are not consistent. A naval architect has been held to have made the greater promise; solicitors have generally been held to have made the lesser promise though in some cases the damages are the same regardless of the undertaking made or inferred. (This result typically occurs when land is sold as an investment and not for speculation.)

In the dentist case a question might be whether the dentist simply promises to relieve the pain or, in the case of the greater promise, to give her patient the pleasure and satisfaction of a bright, white smile. It does not seem to me to be too clear for argument that there are not (at least) two possible promises.

I think that, at least in the case of professionals, the possible existence of alternative promises is more important than whether there is or is not concurrent liability since it seems now to be well established that such concurrent liability exists.

An interesting parallel is the case of Esso v. Mardon. While Lord Denning M.R. says he’s giving tort damages, if you do the calculations carefully, it is not at all clear that he is not in fact awarding contract (warranty) damages, i.e., at the expectation level and what the defendant would have got had the plaintiff made a promise of the gas station’s — sorry, petrol station’s — potential profitability.

<<<< Previous Message  ~  Index  ~  Next Message >>>>>