Executive Summary: Key Legal and Evidentiary Issues

• Motion to strike tested whether the Statement of Claim disclosed any reasonable cause of action under rule 21.01(1)(b) of the Rules of Civil Procedure.
• Privity of contract barred the plaintiff’s breach of contract claims because she was not a party to the construction mortgage agreement with the lender.
• Alleged professional negligence and breach of fiduciary duty against the lender’s solicitor failed as the lawyer owed duties only to her own client, not to an opposing or non-client party.
• The narrow “lawyer’s duty to non-clients” exception did not apply, since the solicitor had no actual knowledge of the plaintiff’s alleged interest and there was no pleaded reliance.
• The plaintiff’s reliance on the size and construction nature of the mortgage as “special circumstances” was rejected as having no legal foundation and leading to illogical consequences.
• Fundamental pleading defects were found to be incurable, leading to dismissal without leave to amend and costs awards totaling $22,000 in favour of the defendants.

Background and parties

This case arises from a construction mortgage transaction relating to a residential property at 27 Dempsey Crescent in Toronto. The property was later destroyed by arson and was allegedly under-insured at the time of the loss. The plaintiff, Jugini Anthonipillai, claimed to have an interest in the property and brought an action after the fire, asserting that the mortgage funds were mishandled and that adequate insurance had not been secured. The lender on the mortgage transaction was 1956596 Ontario Limited, operating as Synergy Capital. Synergy retained lawyer Azin Ghorbankhani, through AG Professional Corporation, to act as its counsel on the mortgage. It was common ground that Ms. Ghorbankhani acted only for Synergy, not for the borrower and not for Ms. Anthonipillai. The borrower—the person actually obtaining the mortgage—had separate legal representation, and Ms. Anthonipillai herself appears to have had her own lawyer, against whom she launched a separate negligence and breach of contract action.

The underlying allegations and claims

The plaintiff’s lawsuit asserted three main categories of claims. First, she sued Synergy, the lender, for breach of contract. Second, she sued Ms. Ghorbankhani and AG Professional Corporation for breach of contract. Third, she alleged that Ms. Ghorbankhani and her professional corporation were liable in negligence and for breach of fiduciary duty. All these claims stemmed from how the mortgage funds were advanced and how the insurance on the property was handled. The claims in contract were framed on the theory that the mortgage agreement had been breached because the defendants allegedly released, or permitted the release of, mortgage funds to the borrower and guarantor for purposes other than the construction of the property, and failed to ensure that there was sufficient insurance in place when the mortgage was registered. The negligence and breach of fiduciary duty claims similarly alleged that the lawyer and her professional corporation owed duties to the plaintiff in relation to the registration of the mortgage on title, the adequacy of insurance, and the manner in which the mortgage funds were advanced. The plaintiff pleaded that the lawyer was “contracted to be skillful” and to protect interests in respect of the mortgage, and that she knew or should have known the possible consequences of a loss exceeding the insured value.

Procedural posture and motions to strike

Instead of delivering defences on the merits, all three defendants moved to strike the Statement of Claim under rule 21.01(1)(b) of the Rules of Civil Procedure, which allows a court to strike a pleading that discloses no reasonable cause of action. The lender, Synergy, also sought alternative relief based on the existence of a prior proceeding and on the grounds that the action was frivolous, vexatious, and an abuse of process. For their part, Ms. Ghorbankhani and AG Professional Corporation likewise moved, in the alternative, to dismiss the action as vexatious and abusive under rule 21.01(3)(d). The central question before the court was whether, assuming the facts pleaded could be proven and reading the Statement of Claim generously, it was plain and obvious that the plaintiff had no reasonable prospect of success in her action against any of the defendants.

Legal test for striking a pleading

The court restated the familiar test governing motions to strike under rule 21.01(1)(b). A statement of claim will be struck if, even when read generously and on the assumption that its material facts can be proved at trial, it is plain and obvious that the action cannot succeed. The court emphasized that the facts pleaded form the “firm basis” upon which the possibility of success must be evaluated, and that a plaintiff must plead all material facts necessary to establish a cause of action. While allegations of fact are generally assumed to be true on such a motion, that assumption does not extend to patently ridiculous or manifestly incapable-of-proof allegations, nor does it extend to bald, conclusory statements unsupported by specific material facts. Vague references to causes of action, where a defendant would have no idea what conduct is being alleged, can be struck. At the same time, courts are directed to read impugned pleadings generously to account for drafting imperfections and a plaintiff’s lack of access to full documentation at the early stage. Finally, if a pleading is found deficient and struck, a further step is required: the court must consider whether leave to amend should be granted, and leave is to be denied only in the “clearest of cases” where no tenable cause of action exists on the alleged facts and there is no realistic prospect that an amendment could cure the defect.

Breach of contract claims against the lawyer and her professional corporation

Turning first to the breach of contract claim against Ms. Ghorbankhani and AG Professional Corporation, the court observed that, read as liberally as possible, the allegation was that the lawyer and her corporation breached obligations under the mortgage agreement by permitting the mortgage funds to be released for improper purposes and by failing to ensure that sufficient insurance was in place when the mortgage was registered. The difficulty for the plaintiff was fundamental: as a matter of basic contract law, only parties to a contract may sue under it or be sued upon it. The mortgage agreement existed between Synergy, as lender, and the borrower. Neither Ms. Ghorbankhani nor Ms. Anthonipillai were parties to that contract. The court relied on the doctrine of privity of contract, which holds that a stranger to a contract cannot enforce it or be bound by its terms. As the plaintiff was not a party to the mortgage agreement, she had no contractual rights to assert against anyone on that instrument. Equally, the lawyer and her firm, being non-parties, could not be sued on it. On that basis alone, the court held that the breach of contract claim against Ms. Ghorbankhani and AG Professional Corporation was untenable and had to be struck.

Negligence and breach of fiduciary duty claims against the lawyer

The negligence and breach of fiduciary duty claims against the lawyer were examined next. These claims were premised on the same underlying conduct as the contract allegations—the handling of the mortgage registration, the adequacy of insurance, and the advance of funds—but were framed in tort and equitable terms. The plaintiff alleged that the lawyer and her corporation owed her a duty of care, and also a fiduciary duty, in relation to the mortgage, and that they failed to protect her interests “competently and properly.” The court began with the settled principle that, in Ontario, a lawyer’s duty of care is owed to their client, not to the adverse party or other non-clients who are represented by independent counsel. This principle reflects the potential harms and conflicts that would arise if a lawyer for one party were simultaneously required to consider and protect the interests of an opposing party. The jurisprudence has repeatedly underscored that imposing a duty of care to non-clients in adversarial or transactional settings would disrupt the solicitor–client relationship, compromise loyalty, and create untenable conflicts. Against that backdrop, the court noted that it was uncontested that Ms. Anthonipillai was not and had never been the client of Ms. Ghorbankhani. As a result, the lawyer presumptively owed her no duty of care. The plaintiff then sought to rely on an exceptional line of authority recognizing that, in limited circumstances, a lawyer may owe a duty to a non-client third party. The court set out the narrow test: a duty to a non-client may arise where the solicitor has actual knowledge, based on a relationship of sufficient proximity, that the third party is relying on the solicitor’s skill; where that third party in fact relies on the solicitor’s guidance; and where such reliance is reasonable. The court held that none of these criteria were met. The record, and indeed the plaintiff’s own allegations, were clear that the lawyer did not know of the plaintiff’s alleged interest in the property at the time of the mortgage transaction. There was no pleading that the plaintiff relied on the lawyer’s advice or assumed her to be acting to protect her interests. Without actual knowledge of the non-client’s reliance and without pleaded reliance, the exceptional duty could not arise. The negligence claim was therefore found to be incapable of success. A similar conclusion followed for the allegation of breach of fiduciary duty. The court reaffirmed that a lawyer acting for one party does not owe a fiduciary duty to the adverse party in a proceeding or transaction. Fiduciary duties rest on loyalty, confidentiality and an obligation to act solely in the client’s interests, which would be fundamentally inconsistent with duties owned to an opposing party. Because these core elements could not be satisfied, the breach of fiduciary duty claim against the lawyer and her professional corporation was also struck as untenable.

Rejection of “special circumstances” based on mortgage size and construction nature

The plaintiff attempted to justify the imposition of duties on the lawyer irrespective of client relationship by pointing to what she characterized as “special circumstances.” She argued that the mortgage was unusually large (approximately $5.5 million) and that it was a construction mortgage, factors which, in her view, meant there were “more people depending on” the transaction and so justified imposing obligations to protect her interests. The court rejected this argument outright. No case law was cited to support the notion that the quantum of a mortgage, standing alone, could generate a duty of care between a lawyer and a non-client third party. The court found the proposition illogical and warned that such a rule would have “absurd” commercial and ethical consequences, potentially extending a lawyer’s duties to an undefined circle of individuals with indirect interests in any substantial transaction. The same reasoning applied to the fact that the loan was a construction mortgage; that feature did not create duties “where they otherwise do not exist.” The alleged special circumstances, therefore, could not overcome the lack of a client relationship or the absence of the elements required for the narrow non-client duty exception.

Breach of contract claim against the lender, Synergy

The court then addressed the breach of contract claim against the lender, Synergy. The claim, as pleaded, closely mirrored the contract allegations against the lawyer: that Synergy breached the mortgage agreement by releasing, or allowing the release of, funds without ensuring they were used for construction purposes and by failing to confirm that adequate insurance had been obtained. Once again, the court identified a decisive problem of privity. The plaintiff was not a party to the mortgage agreement between Synergy and the borrower. Although she claimed to have had an interest in the property, mere beneficial or practical interest does not make a person a party to a contract. Because she was a stranger to the mortgage instrument, she possessed no contractual rights under it and could not sue Synergy for its alleged breach. On this basis, the court held that it was plain and obvious that the contract claim against Synergy could not succeed.

Absence of policy wording or insurance clauses in issue

Although the factual matrix involved an allegedly under-insured property that was later destroyed by arson, the decision does not turn on any particular insurance policy wording or on the interpretation of specific clauses. There is no detailed analysis of insurance policy terms such as coverage grants, exclusions, conditions or limits. The references to insurance are at a high level: the plaintiff asserts that there should have been “sufficient” or “adequate” insurance, and that the defendants failed to ensure this, but the court’s reasoning never reaches the stage of construing policy language. Instead, the action is resolved entirely at the pleading stage based on principles of contract privity and the scope of a lawyer’s duties. As a result, there are no identified policy clauses, endorsements, or coverage disputes forming a discrete legal issue in this decision.

Denial of leave to amend and final outcome

Having found that none of the pleaded causes of action against the moving defendants—whether in contract, negligence or breach of fiduciary duty—disclosed a tenable claim, the court then considered whether to grant the plaintiff leave to amend. The governing principle is that pleadings should not be struck without leave to amend unless it is plain and obvious that no amendment could cure the defects. In this case, the judge concluded that the deficiencies were fundamental and incapable of being remedied by re-drafting. No amendment could retroactively create a solicitor–client relationship or otherwise impose a duty of care or fiduciary duty on the lawyer in circumstances where, as a matter of law, no such duty arises. Nor could any amendment transform the plaintiff or the lawyer into parties to the mortgage agreement to overcome the barrier of privity of contract. For these reasons, the court denied leave to amend and granted the motions of all three defendants to strike the Statement of Claim under rule 21.01(1)(b), thereby disposing of the action against them at this preliminary stage.

Costs ruling and successful party

The court then turned to costs, exercising its discretion under section 131 of the Courts of Justice Act and guided by the factors in rule 57.01, including the result achieved, the complexity and importance of the issues, the amounts claimed and recovered, the principle of indemnity, and the reasonable expectations of the unsuccessful party. The defendants were entirely successful, having secured dismissal of the claim against them. The court found the costs claimed by the defendants to be reasonable in light of the motions’ demands and the substantive nature of their materials. After reviewing the amounts sought, the judge fixed costs in the sum of $14,000 to Ms. Ghorbankhani and AG Professional Corporation and $8,000 to Synergy, inclusive of fees, disbursements and taxes, payable by the plaintiff within 30 days. In the result, the successful parties were the defendants—Synergy, its counsel Ms. Ghorbankhani and AG Professional Corporation—who obtained dismissal of the plaintiff’s action on a motion to strike and a total costs award of $22,000 in their favour.