The Ontario Court of Appeal has raised the bar for lawyers wishing to avoid negligence allegations when they recommend settlements in family law proceedings.
"Ristimaki v. Cooper reminds practitioners that it is very difficult in hindsight to judge whether a settlement recommendation is reasonable and that lawyers who wish to minimize their liability should carefully advise their clients of the risk associated with any settlement they do recommend no matter how sure they are that the settlement is a reasonable one," says Milton Davis of Toronto's Davis Moldaver, who with Tom Curry of Toronto's Lenczner Slaght Royce Smith Griffin LLP represented plaintiff Leah Ristimaki.
But Paul Pape of Toronto's Pape Barristers Professional Corp., who with colleague Susan Chapman represented defendant Gregory Cooper, is concerned that lawyers will become more restrained in recommending settlements, prompting more litigation.
"Recommending a settlement is an art, not a science," he said. "It's a very difficult thing to do and even more difficult when the courts start looking over lawyers' shoulders the way the court in Ristimaki did," he told Law Times.
The involvement of a number of top-tier members of the Toronto bar in the case suggests that the stakes for the profession in this case were very high indeed: Burke Doran of Toronto represented Cooper at trial; Tom Bastedo of Toronto's Bastedo Stewart Smith represented Leah Ristimaki's husband, Ron, in the divorce proceedings; Philip Epstein of Toronto's Epstein Cole LLP attempted to mediate the dispute; Malcolm Kronby of Epstein Cole LLP and Alfred Mamo of London's Mamo & Associates appeared as experts for the defence; and Gerald Sadvari of McCarthy T?trault LLP's Toronto office and Harold Niman of Toronto's Niman Zemans Gelgoot were experts for the plaintiff.
In the result, Justice Robert Armstrong, writing also for justices Eleanore Cronk and Eileen Gillese, ruled that Superior Court Justice David Stinson erred in dismissing a negligence claim against Gregory Cooper of Toronto's Cooper Kleinman, a senior member of the family bar. The error, Armstrong concluded, necessitated a new trial.
The case arose in November 1993 when Ron summarily advised Leah that he was leaving her and terminating their 33-year marriage. Ron was a successful businessman who owned 51 per cent of Auto-Trans Holdings Ltd. (ATH), the largest car transporter in Canada.
Leah retained Cooper, a family law specialist. From the outset, Leah warned Cooper that her husband was planning to sell his business and leave the country. She also told Cooper that Ron habitually moved funds offshore.
In April 1994, Cooper requested financial statements from Bastedo. When he did not receive them by June, he threatened proceedings.
Less then a month later, Ron told Leah he was selling ATH. In mid-July, news of the sale became public. On July 26, Bastedo produced an unsworn financial statement valuing Ron's interest in ATH at $12.75 million as of the date of separation.
In mid-August, Cooper served a divorce petition together with a motion seeking particulars of the ATH sale. He retained a business valuator to appraise the business.
The evidence at trial demonstrated that Cooper considered Ron a flight risk and realized he had to protect his client against that risk.
On Sept. 26, the day before the disclosure motion, Cooper's appraiser reported that Leah was entitled to an equalization payment of $7 million. He recommended that the sum be secured to ensure its payment.
On that same day, the parties agreed to settle the motion for particulars on the following terms:
- Ron would pay Leah $2.5 million from the proceeds of ATH's sale;
- Ron would put a further $1.5 million from the sale proceeds into trust pending the outcome of the proceedings;
- Ron would transfer his interest in a Florida property to Leah; and
- Leah would bring no further motion to secure monies owing to her.
Cooper did not tell Leah about the appraiser's recommendation regarding security, the advisability of a preservation order, and the fact that the settlement prohibited her from giving any further claim for security before trial.
The ATH sale closed in November 1994 and Leah received the $2.5 million as agreed. Ron told Leah he had placed his money offshore and told her to do the same. Leah told Cooper of the conversation but he did nothing.
Apart from two support motions, Cooper did not advance the case to trial between October 1994 and June 1996. In June 1996, Cooper became aware that Ron owed the government tax arrears that exceeded the total of the cash payment to Leah and the amount in trust.
Ron offered to settle by paying $500,000 of the monies in trust to Leah. She rejected the offer but instructed Cooper to make a counter-offer of $1 million, to which Ron did not respond.
Revenue Canada filed a $7-million certificate against Ron in January 1997. The certificate effectively gave the Crown priority over other creditors. Revenue Canada then claimed the $1.5 million in trust funds. Leah contested the claim and eventually settled in December 2000 by accepting $493,000.
In June 1998, Leah had retained a new lawyer. By this time, Ron had absconded and his pleadings had been struck. In September, Leah obtained a default judgment totalling over $6 million, which represented the balance of the equalization payment plus interest.
Leah sued Cooper. Stinson dismissed the action after a 16-day trial. He found that Cooper was negligent in various ways but that the negligence had not caused Leah's loss. He reasoned that even if Leah had obtained a preservation order in the amount of the default judgment, the matter would not have been settled and the monies would still have been in court and available to Revenue Canada. He also ruled that there was no evidence that Cooper would have refused the settlement had she been properly advised by Cooper.
As Armstrong saw it, Stinson had properly articulated the standard of care that then existed, which held that a lawyer recommending a settlement was negligent only if he had made an "egregious error."
Since the trial, however, the Court of Appeal had held in Folland v. Reardon that lawyers must be held to the same "reasonableness" standard as other professionals. This meant that Stinson had erred through no fault of his own.
Whether Cooper's advice to settle the disclosure motion met the standard of reasonableness engaged the following factors:
- The case was only six weeks into litigation;
- Cooper had not received a financial statement or affidavit of documents;
- Discoveries had not occurred;
- No action had been taken toward a preservation order;
- The offer accepted was the first, and it would "be unusual for this offer to be the last";
- A preservation motion would have strengthened Cooper's bargaining position;
- Ron's "appetite" for settlement might have increased had Cooper proceeded with the motion instead of settling to the extent that he perceived that the litigation would put the sale of ATH at risk; and
- Had the sale been concluded, a judge might have ordered that a significant part of the proceeds be paid into court.
Pape argued that courts have shown a reluctance to second-guess a lawyer who recommends a settlement to his client except in clear and exceptional cases. This, he submitted, was an application of the principle that a solicitor should not be liable for a mere error in judgment. Analyzing the factors that went into Cooper's recommendation in such a minute way risked offending these principles.
But the Court of Appeal did not agree. Stinson should have taken these principles into account. But the court was not in a position to determine the outcome had these factors been considered and the proper standard applied. The case therefore required a new trial.
Armstrong also made it clear that a new trial judge should approach the question of Cooper's delay in a different way than Stinson had. Stinson had split the time grid into three portions by way of determining whether Cooper's inaction constituted negligence. Armstrong acknowledged that analyzing the delay by dividing up the time periods might have been a useful way to proceed. But he concluded that Stinson should also have examined Cooper's conduct as a whole "rather than solely in segmented time compartments."