Superior Court ruling addresses possible negligence in property search, due diligence
In a corporation’s action for negligence against Kitchener, the Ontario Superior Court dismissed a motion seeking to strike out the city’s third-party claim for negligence against a lawyer who had acted for the corporation on a property purchase.
In Cowal Chalmers Inc. v. The City of Kitchener, 2026 ONSC 1486, the plaintiff corporation bought a building in Kitchener in 2015. The third party in this case was the plaintiff’s sole shareholder, the sole proprietor of a law firm, and the employer of another lawyer, who had carriage of the plaintiff’s file.
In 2019, the defendant city issued fire inspection orders. While the plaintiff immediately addressed some flaws in the building, references and appeals arose from other deficiencies. The plaintiff alleged that the orders stemmed from pre-existing conditions at the time of the purchase.
The plaintiff sold the building in April 2021 and filed an action against Kitchener in May 2021. The plaintiff pleaded that the city negligently failed to require the prior property owner to conduct fire safety measures, causing damage and affecting its ability to sell the property.
Denying any negligence, Kitchener argued that the plaintiff failed to sufficiently investigate whether the property complied with fire safety requirements and other relevant laws before the purchase.
Filing a third-party claim for contribution and indemnity against the two lawyers, the city asserted that they negligently failed to:
- competently search the property
- perform the appropriate due diligence
- warn the plaintiff of the legal consequences and risks associated with the property acquisition
In May 2025, all parties agreed to dismiss the third-party claim against the lawyer who had carriage of the file.
The third party moved to strike out Kitchener’s third-party claim for lack of a reasonable cause of action under r. 21.01(1)(b) of the Rules of Civil Procedure.
The third party cited Adams v. Thompson, Berwick, Pratt & Partners, 1987 CanLII 2590 (BC CA), which allegedly barred the third-party claim for contribution and indemnity because any negligence pleaded against him was attributable to the plaintiff.
Third-party claim not struck
Dismissing the third party’s motion, the Ontario Superior Court of Justice awarded Kitchener costs of $10,237.47, including harmonized sales tax and disbursements. The court did not find it plain and obvious that the third party lacked a reasonable cause of action.
The court pointed out that the third-party action asserted negligence against the third party and his law firm in their capacity as the plaintiff’s advisor.
The court noted that the third-party claim did not argue that the third party was the plaintiff’s agent or that the third party and his firm dealt with others in a manner that might suggest the existence of an agency.
The court explained that the third-party claim did not assert the “nuanced exception” described in Cerieco Canada Corp. v. Mizrahi, 2024 ONSC 7001, where a lawyer's alleged negligence concerned advice regarding the plaintiff's duty to mitigate an already existing loss.
The court found that the present case did not involve an alleged failure to mitigate. Instead, the third party’s alleged fault related to events that led to the plaintiff’s loss.
Thus, if the court found Kitchener liable for damages to the plaintiff, the city could plead that the negligence and breach of duty of the third party, his employees, servants, agents, and law clerks, for whose conduct the law held him responsible, acting as the plaintiff’s lawyers in the property acquisition, caused its damages.
The court concluded that the trial could rule on whether the third party was negligent and whether the third party was the plaintiff’s agent or advisor. The court noted that the contributory negligence pleaded in the statement of defence might reduce the city’s liability to the plaintiff.
