Central Trust Company v. Rafuse
Encyclopedia
Central Trust Co. v. Rafuse, [1986] 2 S.C.R. 147 is a leading decision of the Supreme Court of Canada
on liability of solicitor
s in negligence
and breach of contract
as well as the doctrine of discoverability under the Statute of Limitations
.
Eight years later the creditor for the mortgage, Central Trust Co., initiated a foreclosure
of the mortgage. The creditor, Irving Oil
tried to prevent the foreclosure by claiming that the mortgage was invalid. The case went to the Supreme Court of Canada and in the decision of Central and Eastern Trust Co. v. Irving Oil Ltd., [1980] 2 S.C.R. 29 the mortgage was invalidated. Having lost the case, Central Trust brought an action against the lawyers for negligence and breach of contract.
In their defence Rafuse and Cordon claimed:
The issues before the Court were:
On the first issue he held that the duty in tort and in contract are two entirely separate duties and can be held concurrently by a defendant.
On the limitations issue it was held that the plaintiffs were not statute-barred from commencing an action. The commencement of the limitation period was postponed pursuant to the common law "discoverability principle": "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."
Supreme Court of Canada
The Supreme Court of Canada is the highest court of Canada and is the final court of appeals in the Canadian justice system. The court grants permission to between 40 and 75 litigants each year to appeal decisions rendered by provincial, territorial and federal appellate courts, and its decisions...
on liability of solicitor
Solicitor
Solicitors are lawyers who traditionally deal with any legal matter including conducting proceedings in courts. In the United Kingdom, a few Australian states and the Republic of Ireland, the legal profession is split between solicitors and barristers , and a lawyer will usually only hold one title...
s in negligence
Negligence
Negligence is a failure to exercise the care that a reasonably prudent person would exercise in like circumstances. The area of tort law known as negligence involves harm caused by carelessness, not intentional harm.According to Jay M...
and breach of contract
Breach of contract
Breach of contract is a legal cause of action in which a binding agreement or bargained-for exchange is not honored by one or more of the parties to the contract by non-performance or interference with the other party's performance....
as well as the doctrine of discoverability under the Statute of Limitations
Statute of limitations
A statute of limitations is an enactment in a common law legal system that sets the maximum time after an event that legal proceedings based on that event may be initiated...
.
Background
Jack Rafuse and Franklyn Cordon were solicitors hired by a company that had purchased the shares of Stonehouse Motel and Restaurant Limited. The agreement of sale required that the purchasers take out a mortgage on the property and use the assets used as part of the purchase price of the shares. The solicitors had been retained in order to complete the mortgage transaction.Eight years later the creditor for the mortgage, Central Trust Co., initiated a foreclosure
Foreclosure
Foreclosure is the legal process by which a mortgage lender , or other lien holder, obtains a termination of a mortgage borrower 's equitable right of redemption, either by court order or by operation of law...
of the mortgage. The creditor, Irving Oil
Irving Oil
Irving Oil is a gasoline, oil, and natural gas producing and exporting company. It is also one of the few energy companies in Canada to publicly support the Kyoto Accord. Irving Oil operates one large oil refinery...
tried to prevent the foreclosure by claiming that the mortgage was invalid. The case went to the Supreme Court of Canada and in the decision of Central and Eastern Trust Co. v. Irving Oil Ltd., [1980] 2 S.C.R. 29 the mortgage was invalidated. Having lost the case, Central Trust brought an action against the lawyers for negligence and breach of contract.
In their defence Rafuse and Cordon claimed:
- that their liability, if any, was in contract only and not in tort;
- that they had not been negligent, particularly in view of the conflicting judicial opinion on the question of the validity of the mortgage;
- 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;
- 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
- the appellant's action was barred by The Statute of Limitations.
The issues before the Court were:
- 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?
- Were the respondent solicitors negligent in carrying out the mortgage transaction for the Nova Scotia Trust Company?
- Was there contributory negligence on the part of the Nova Scotia Trust Company or those for whom it was responsible?
- Is the appellant prevented from bringing its action because of the illegality of the mortgage?
- Is the appellant's action barred by The Statute of Limitations?
Reasons of the court
Justice LeDain wrote the reasons for the majority.On the first issue he held that the duty in tort and in contract are two entirely separate duties and can be held concurrently by a defendant.
On the limitations issue it was held that the plaintiffs were not statute-barred from commencing an action. The commencement of the limitation period was postponed pursuant to the common law "discoverability principle": "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."