IN
THE SUPREME COURT OF BRITISH COLUMBIA

Date: 20100226

Docket:
S096204

Registry: Vancouver

Between:

Greenhouse Studios Inc.

Appellant

And

Daniel M. Harlos and

Richard C. Robinson dba Beck
Robinson & Company

Respondents

Before:
The Honourable Mr. Justice N. Smith

On
appeal from the Provincial Court of British Columbia (Small Claims)
File No. 0716173, Vancouver Registry

Reasons for Judgment

[1]            
Greenhouse Studios Inc. (“Greenhouse”) appeals
from a decision of the Provincial Court dismissing a small claims action in
which it sought to recover $17,100 from the respondent, Daniel Harlos, a
lawyer, and his firm.

[2]            
Greenhouse operates a recording studio and the
amount claimed relates to the outstanding balance of an account for studio time
and equipment used by a musician named Jason Martin. Mr. Harlos was
counsel for Mr. Martin in a personal injury action and Greenhouse understood
that its account was to be paid out of the settlement funds. That payment was
not made in the amount Greenhouse expected and Greenhouse sought to hold Mr. Harlos
and the law firm liable for the outstanding debt.

[3]            
The claim was dismissed in Reasons for Judgment
dated June 30, 2009. The Provincial Court judge held that Greenhouse likely had
a good claim against Mr. Martin (who was not a party to this action and
whose current whereabouts are apparently unknown), but that the defendant
lawyers were not liable in tort or contract for the unpaid debts of their former
client. Greenhouse appeals that result pursuant to s. 5 of the Small
Claims Act, R.S.B.C. 1996, c. 430.

[4]            
The communication between these parties began
when Mr. Harlos, at Mr. Martin’s request, confirmed to Greenhouse
that he acted for Mr. Martin in a personal injury action and that, in his
view, the claim had merit. Mr. Harlos said that if Greenhouse wanted Mr. Martin
to sign a direction to pay monies owing from the eventual settlement funds, he
would seek instructions.

[5]            
On March 25, 2005, Mr. Martin signed a
direction, which had been drafted by Mr. Harlos, instructing Mr. Harlos
to pay $10,000 to Greenhouse.

[6]            
Mr. Martin subsequently signed a further
direction to pay dated November 16, 2005. That second direction was not drafted
by Mr. Harlos. It was drafted by Greenhouse and/or Mr. Martin as part
of a Greenhouse “studio invoice”. That invoice included a handwritten note
stating:

DIRECTION TO PAY

Jason Martin has instructed Dan
Harlos to Directly pay Greenhouse Studios an additional $20,000 (over the March
21, 2005 direction to pay $10,000)

[7]            
The trial judge found that neither Greenhouse
nor Mr. Martin gave Mr. Harlos a copy of that second direction to pay
and that Mr. Harlos never saw that document until after the commencement
of this litigation.

[8]            
As Mr. Martin’s personal injury case
progressed, Mr. Harlos forwarded to Greenhouse a payment in the amount of
$3,424 and another in the amount of $700. These payments had come from counsel
for the defendants in the personal injury action in response to specific
invoices that had been provided.

[9]            
On June 22, 2006, while preparing for a
mediation in the personal injury action, Mr. Harlos sent an e-mail to Greenhouse
confirming that Mr. Martin owed $30,000 plus GST and asking for a copy of
the invoice so that he could include the amount in the injury claim. Greenhouse
provided a statement of account or an invoice in the amount of $32,100. The
personal injury claim was settled on June 27, 2006.

[10]        
On August 1, 2006, as Mr. Harlos was
preparing to pay out settlement funds, he advised Bruce Levens of Greenhouse
that he would be paying $10,000 to Greenhouse in accordance with Mr. Martin’s
direction to pay. When Mr. Levens said there was a direction to pay a
further $20,000, Mr. Harlos said he had no such instructions. He told Mr. Levens
that he was expecting to pay out settlement funds later that week and if Mr. Levens
had such a document it should be faxed to him as soon as possible. Mr. Levens testified that Greenhouse was in the process of
moving and he was unable to find the second direction at that time.

[11]        
On August 3, 2006, Mr. Harlos again told Mr. Levens
that he had only one direction to pay for $10,000, but he had received
instructions to pay another $5,000 on a without prejudice basis. A total of
$15,000 was in fact paid to Greenhouse the next day.

[12]        
During their August 3 conversation, Mr. Levens
told Mr. Harlos that he had an e-mail in which Mr. Harlos had said he
would pay out an additional $20,000. Mr. Harlos asked for a copy of that
document. No such e-mail was sent and the trial judge found that it did not
exist. The trial judge found that Mr. Levens was referring to the e-mail
of June 22, 2006, in which Mr. Harlos confirmed that Mr. Martin owed
$30,000, and that Mr. Levens mistakenly interpreted that statement as a
commitment by Mr. Harlos to pay the additional $20,000 out of the settlement
funds.

[13]        
The trial judge found that there was no
solicitor-client relationship between Greenhouse and the defendants and that Greenhouse
should have known that it could not rely on Mr. Harlos to act in
accordance with its wishes. At para. 25 he said as follows:

Mr. Harlos
was obliged to act in accordance with the instructions he received from Mr. Martin.
The first direction to pay was, in effect, written instructions to pay $10,000
to the Claimant. Mr. Harlos later received verbal instructions from his
client to pay an additional $5,000 to the Claimant. If Mr. Harlos had [paid]
out additional funds to the Claimant without Mr. Martin’s instructions he
would have been exposed to legal action by Mr. Martin and to disciplinary
proceedings by the Law Society of B.C.

[14]        
The trial judge said the second direction to pay
would only have created an obligation to pay out an additional $20,000 if a
copy was provided to Mr. Harlos before he distributed the settlement funds.
He also found that there was no representation to Greenhouse that the law firm
would be liable for Mr. Martin’s debts at paras. 26 and 29:

…While Mr. Harlos sent an e-mail
(Exhibit 5) confirming that $30,000 plus taxes was owing by Mr. Martin to
the Claimant that was to use as support for Mr. Martin’s claim for damages
and it was not an agreement or acknowledgement of any responsibility on his or
his firm’s part for Mr. Martin’s debt. It appears           that the
Claimant views that e-mail as giving rise to some contractual liability on the
part of Mr. Harlos and that is simply not the result in law.

In the end
result, the Defendants are not liable in tort nor in contract for the unpaid
debts of their former client. The Defendants did no more than acknowledge that
a debt was owing by their former client to the Claimants. That did not amount
to an assumption of liability or responsibility on their part for the debts of
their client. There is no question that Mr. Harlos knew that the Claimant
was owed more than the amount Mr. Martin paid to them from the settlement
proceeds and I believe that he encouraged Mr. Martin to pay the amount
owing. However, in the end result, Mr. Harlos did not have the necessary
authority from his client to make the payments sought by the Claimant.

[15]        
In hearing an appeal under the Small Claims
Act, I am bound to apply the same standard of review that the Court of
Appeal must apply when reviewing a decision of this Court. That standard is set
out by the Supreme Court of Canada in Housen v. Nikolaisen, 2002 SCC 33,
[2002] 2 S.C.R. 235:  pure questions of law are reviewed on a standard of
correctness but findings of fact, inferences of fact, and questions of mixed
fact and law cannot be reversed unless the trial judge has made a palpable and
overriding error.

[16]        
In explaining why appeal courts must defer to
the trial judge’s findings of fact, the majority of the Supreme Court of Canada
in Housen adopted the following statement at para. 14:

The trial judge is said to have
an expertise in assessing and weighing the facts developed at trial. Similarly,
the trial judge has also been exposed to the entire case. The trial judge has
sat through the entire case and his ultimate judgment reflects this total
familiarity with the evidence. The insight gained by the trial judge who has
lived with the case for several days, weeks or even months may be far deeper
than that of the Court of Appeal whose view of the case is much more limited
and narrow, often being shaped and distorted by the various orders or rulings
being challenged.

The Court added at para. 14:

The corollary to this recognized
advantage of trial courts and judges is that appellate courts are not in
a favourable position to assess and determine factual matters. Appellate court
judges are restricted to reviewing written transcripts of testimony. As well,
appeals are unsuited to reviewing voluminous amounts of evidence. Finally,
appeals are telescopic in nature, focussing narrowly on particular issues as
opposed to viewing the case as a whole. [Emphasis in original.]

[17]        
In Aruthavamalar v. Terhorst, 2009 BCSC
1232, and Petrick v. Lakeview Credit Union, 2002 BCSC 672, this Court
said that deference to the trial judge’s findings is of particular importance
in appeals from decisions under the Small Claims Act, the purpose
of which is to allow claims to be resolved and enforcement proceedings
concluded in a just, speedy, inexpensive, and simple manner.

[18]        
I find no palpable and overriding error in any
of the trial judge’s factual findings summarized above. All findings were
supported by the evidence before him. Some of the submissions made by
Greenhouse on this appeal relate to findings of credibility. That is precisely
the area in which the trial judge, having heard all of the evidence and seen
all of the witnesses, is entitled to the greatest deference by an appellate
court. The majority of the Supreme Court of Canada said in Housen at
para. 23:

…The appellate
court is not free to interfere with a factual conclusion that it disagrees with
where such disagreement stems from a difference of opinion over the weight to
be assigned to the underlying facts.

[19]        
The only basis on which I could allow this
appeal would be a pure error of law. Such matters are to be reviewed by
appellate courts on a standard of correctness.

[20]        
The legal question before the trial judge was
whether the defendant lawyers owed a duty to someone other than their own
client. The existence of such a duty is a question of law, but the duty arises
from the facts of the relationship between the parties: Young v. Borzoni,
2007 BCCA 16 at paras. 52 and 53.

[21]        
The trial judge correctly concluded that the
facts, as he found them, could not give rise to a contractual relationship
between these parties. The existence of a legally binding contract requires, at
its most basic level, an agreement between the parties involving an exchange of
benefits or promises (consideration) between them.

[22]        
In this case, there was an agreement under which
Mr. Martin received services from Greenhouse in exchange for his promise
to instruct Mr. Harlos to pay a further $20,000 out of the eventual
recovery in the personal injury case. The trial judge found that Mr. Harlos
was not a party to that agreement and knew nothing about it. From those facts,
the trial judge drew the unassailable conclusion of law that there could be no
contractual obligation between Greenhouse and the defendants.

[23]        
Mr. Martin was apparently in breach of his
contract with Greenhouse when he failed to provide the promised instructions to
Mr. Harlos, but that does not make Mr. Harlos liable on a contract to
which he was never a party. Even if the instructions had been provided, Mr. Harlos’
duty to forward the funds to Greenhouse would have arisen from his obligation
to follow his client’s instructions, not from any contractual obligation owed
directly to Greenhouse.

[24]        
In the absence of a contract, the trial judge
considered whether any duty could arise in tort law. There are circumstances
where a lawyer can owe a duty to someone other than his or her client, but that
liability can only arise where the lawyer acts with knowledge that he or she is
being relied upon by the non-client and the non-client in fact relies on the
lawyer: Kamahap Enterprises Ltd. v. Chu’s Central Market Ltd. (1989),
64 D.L.R. (4th) 167, 40 B.C.L.R. (2d) 288 (C.A.). It is trite law that such
reliance must also be reasonable in the circumstances.

[25]        
Such a duty might have arisen in this case if Mr. Harlos
had not only confirmed the amount Mr. Martin owed to Greenhouse, as he
did, but specifically represented that he had received instructions to pay the
amount out of the settlement funds. But that is not what happened.

[26]        
The trial judge found that Mr. Harlos’
statement confirming the full amount of Mr. Martin’s debt was not intended
as a representation that he would assume responsibility for payment of the full
amount and that Greenhouse could not reasonably have relied upon it as such. In
coming to that finding, the trial judge noted that Greenhouse was aware that Mr. Harlos
could be asked to draft a further direction to pay for Mr. Martin’s
signature, as had happened with the first direction for $10,000, but chose to
draft the second direction itself and not send it to Mr. Harlos. He found
that it “should have been clear to the claimant that it could not rely on Mr. Harlos
to act in accordance with its wishes and that Mr. Harlos’ marching orders
came from Mr. Martin” (at para. 24).

[27]        
I would add that, on the facts found by the
trial judge, Greenhouse was relying on Mr. Martin to provide the necessary
instructions to Mr. Harlos. It may be that Mr. Levens assumed those
instructions had been given and, on the basis of that assumption, read too much
into Mr. Harlos’ confirmation of the total debt. But a duty in law cannot
be created merely on the basis of one party’s subjective understanding when
that understanding is based on facts unknown to the other party.

[28]        
The trial judge found that Mr. Harlos did
not make any representation that he would be responsible for a further payment
of his client’s debt to Greenhouse, that he did not know Greenhouse would be
relying on him for that purpose, and any reliance by Greenhouse was not
reasonable in the circumstances. Those are findings of fact, supported by the evidence,
with which an appellate court cannot interfere unless the trial judge has made a
palpable and overriding error; I have found that there was no such error made. On
the basis of those facts, the trial judge concluded that Mr. Harlos could
not and did not owe any duty of care to Greenhouse, which was not his client. That
conclusion is correct in law and there is no basis for this Court to interfere
with the result.

[29]        
Greenhouse also argued that Mr. Harlos was Mr. Martin’s
agent for the purpose of dealing with Greenhouse. The trial judge found that there
was no evidence from which it could be concluded that Mr. Harlos had
either actual or apparent authority to pay any of Mr. Martin’s money to
Greenhouse except in accordance with the specific instructions of his client. Once
again, that is a finding of fact with which this Court cannot interfere; the
conclusion that no agency could arise on those facts is correct in law.

[30]        
The appeal must therefore be dismissed.

“N. Smith J.”