Counsel:

K.N. Affleck, Q.C.: Counsel for the Appellant A.J. Luoma

G.B. Rush: Counsel for the Respondent (Plaintiff) J.M. Esser

L.D. Johnston: Counsel for the Respondent Attorney General of B.C.

       [Editor's note:  Reasons for judgment were delivered by Newbury J.A. and concurred in by Esson J.A.. Dissenting reasons were delivered by Saunders J.A. (See para. 45).]

¶ 1      NEWBURY J.A.:— This is one of those cases in which at least two innocent persons have been duped by a fraudster, and - subject to the possibility of a claim against the Assurance Fund established under the Land Title Act, R.S.B.C. 1996, c. 250 - the court is asked to decide which innocent person must bear the resulting loss. The trial judge concluded that the defendant, a notary public practising in Vancouver, should bear the loss, on the basis that she owed a duty of care to the plaintiff Ms. Esser, a person she had never met and for whom she did not act.

Factual Background

¶ 2      Ms. Esser was the joint owner of a ranch property near Kamloops with a man known as "Jay Raymond Brown", with whom she had lived for some years in a common-law relationship that ended in 1984. Some years later, Ms. Esser agreed in writing with Mr. Brown that she would transfer her share to him in consideration of $15,000 and his arranging for her to be released from all liabilities relating to the property, including two mortgages, the second of which I shall refer to as the "Desrosier mortgage". Mr. Brown paid her the $15,000 but was unable to obtain a release in favour of Ms. Esser from the Desrosier mortgagees. Consequently, she never signed any document to transfer her interest. Several years passed without any further arrangements being made, despite some effort by Mr. Brown to contact Ms. Esser in 1997.

¶ 3      Mr. Brown carried out his fraud in late 1997. Earlier that year, he had used the notarial services of the defendant Ms. Luoma in connection with an unrelated property transaction. Their dealings had been unexceptional. In July, he again appeared at her office, this time accompanied by a Mr. Graydon, whom the notary had known for many years and believed to be honest. On this occasion, Mr. Brown brought with him a computer-generated title search of the ranch property showing himself and Ms. Esser as the owners as tenants-in-common. Mr. Brown told Ms. Luoma that his ex-wife had signed a written agreement with him for the sale of her interest to him for $15,000 and that he had paid her some time ago - a statement that was true as far as it went. When Ms. Luoma asked to see the agreement, Mr. Brown said he did not have it with him; but Mr. Graydon confirmed that he had seen the agreement and that Ms. Esser had been paid the $15,000. (In fact, he said, he had lent Mr. Brown the $15,000 at the time.)

¶ 4      Mr. Brown requested the notary to prepare a transfer of the ranch property, but instructed her to leave the name of the purchaser and the purchase price blank. He said that Ms. Esser lived in Kamloops, that he was going there the following week to have her sign the document and that she was represented by a lawyer named Roger Plested. (Mr. Plested was a lawyer practising in Kamloops and indeed, he had acted for the purchaser in the previous transaction in which Ms. Luoma had acted for Mr. Brown.) In December 1997, Mr. Brown reappeared, again with Mr. Graydon. Mr. Brown provided the notary with a contract of sale for the ranch for $280,000, signed by himself as vendor and a Mr. Forgaard as purchaser. He also provided a "Freehold Transfer (Form A)" apparently signed by Ms. Esser and apparently witnessed by the Kamloops lawyer, Mr. Plested. The document appeared to bear the lawyer's stamp, which Ms. Luoma checked by comparing the stamp on another document she had received from him earlier.

¶ 5      At Mr. Brown's request, Ms. Luoma inserted the $280,000 purchase price and Mr. Forgaard's name, occupation and address. (Evidently, she also received a Transfer Form A from Mr. Forgaard's solicitor with the name of the transferor left blank, but this document was not adduced into evidence.) The trial judge found:

¶ 6      The solicitors for Mr. Forgaard, Messrs. Janowsky and Associates in Kamloops, prepared and forwarded to Ms. Luoma a statement of adjustments (showing Mr. Brown as the sole vendor), but it did not reflect the transaction as Mr. Brown had described it to Ms. Luoma - i.e., that the first mortgage was to be paid out and that the Desrosier mortgage was to be assumed by Mr. Forgaard. Accordingly, the completion was delayed until the Janowsky firm had prepared a corrected statement, and Mr. Brown had signed it. Ms. Luoma prepared what the trial judge referred to as a statement of adjustments (but which counsel for the respondent preferred to call a "direction to pay") for her own purposes, which contemplated that the cash owing to the vendor, some $131,000, would be "payable to Jay Raymond Brown only. No funds due to Janie Esser under Divorce Settlement." When Mr. Brown signed this document, he added an amendment directing that $31,713.85 of the balance be paid to "Ray Balan". Ms. Luoma noted on the document that her client would advise her later where to pay the remaining $100,000. Some weeks later, Mr. Brown instructed her to pay $50,000 to Mr. Balan and the rest to Mr. Graydon, which she did. Throughout, Ms. Luoma made no attempt to contact Mr. Plested, again assuming that his "client" had been paid out earlier.

¶ 7      In fact, it now turns out that Mr. Brown's real name was "Ray Balan" and that the signature of Ms. Esser and the signature of Mr. Plested witnessing it on the Form A transfer document were forgeries. In accordance with s. 297 of the Land Title Act, however, once title had issued in the name of Mr. Forgaard, that title was indefeasible and could not be attacked by Ms. Esser as the fruit of a forgery. Accordingly, she sued for damages. In her Statement of Claim, she sought the sum of $117,616.48 against the defendants Mr. Brown, Ms. Luoma and the Attorney General, who was named as a defendant in order to enable the plaintiff to pursue her claim against the Assurance Fund if that became necessary. $117,616.48 represented one-half of the assessed value of the property ($353,000), less the funds used to pay out the first mortgage and the amount assumed by the purchaser under the Desrosier mortgage.

¶ 8      It bears emphasizing as well what was not claimed as damages:  although there was evidence to the effect that Ms. Esser was sued on her personal covenant on the Desrosier mortgage when Mr. Forgaard defaulted and the mortgage was foreclosed, it appears there was ultimately no shortfall and the claim therefore did not proceed. She did incur costs in defending, but those costs were not claimed in the present action and the trial judge declined to make an award in respect thereof.

The Trial Judgment

¶ 9      The trial judge's Reasons are reported at (2003) 14 B.C.L.R. (4th) 273. She found Ms. Luoma not to be a credible witness. She characterized the notary's evidence as "self-serving", since inter alia, Ms. Luoma testified she had either not noticed or paid attention to various things the trial judge found should have raised "red flags" in the notary's mind - the fact the title search Mr. Brown brought to her office had the name of the 'searcher' blacked out on the second page thereof; the fact Mr. Plested was said to have been involved in both real estate transactions in which Ms. Luoma had acted for Mr. Brown; the fact the Desrosier mortgage was shown as registered in 1982 whereas the certificate of title showing Mr. Brown and Ms. Esser as owners had been registered in 1990; and the fact Mr. Brown did not provide Ms. Luoma with a copy of the Desrosier mortgage. As well, there was the fact Ms. Luoma had been asked to prepare a "blank transfer" and that "contrary to normal conveyancing practice" the notary had assumed the responsibility of preparing the transfer and advising the purchaser's lawyer that she was doing so. Having done so and not having provided the documents to Mr. Plested, the trial judge said she had "purported to act for both vendors, including the plaintiff." (Para. 70.) As well, the trial judge observed:

¶ 10      The trial judge began her analysis of the law with the question of whether Ms. Luoma had owed a duty of care to Ms. Esser. She noted the two-stage test enunciated in Anns v. Merton London Borough Council [1978] A.C. 728 (H.L.) and recently confirmed by the Supreme Court of Canada in Cooper v. Hobart [2001] 3 S.C.R. 537. Chief Justice McLachlin summarized it as follows:

¶ 11      In considering whether this case fell within or was analogous to cases where a duty of care has already been found to exist, the trial judge noted instances in which a solicitor has been found liable for economic loss to a person who is not his or her client. In particular, she noted Tracy v. Atkins (1979) 16 B.C.L.R. 223 (B.C.C.A.), where a solicitor acting for a purchaser of real estate had also undertaken to do work normally done by a vendor's solicitor and was found to have "placed himself in the position of dealing with the plaintiffs' interests at a time when he knew or ought to have known that the plaintiffs were or might be relying on him to protect those interests." In the circumstances, he was found to have been in "a sufficient relationship of proximity" to have incurred a duty of care to the plaintiffs. As well, the trial judge noted Wittingham v. Crease & Co. (1978) 88 D.L.R. (3d) 353 (B.C.S.C.), an example of the "disappointed beneficiary" cases brought against solicitors who fail to draw up wills as instructed by their clients. (See also Ross v. Caunters (a firm) [1979] 3 All E.R. 580 (Ch. Div.), Earl v. Wilhelm (2000) 183 D.L.R. (4th) 45 (Sask. C.A.), Hall v. Bennett Estate (2003) 64 O.R. (3d) 191 (Ont. C.A.), Smolinski v. Mitchell (1995) 10 B.C.L.R. (3d) 366 (B.C.S.C.), Philp v. Woods (1985) 66 B.C.L.R. 42 (B.C.S.C.), Hodgson v. Evans & Rice [1983] A.J. No. 576 (Alta. Q.B.), and White v. Jones [1995] 1 All E.R. 691 (H.L.).)

¶ 12      In the latter case, their Lordships considered the "conceptual problems" that arise where a claim is made in tort but "must necessarily have contractual features which cannot ordinarily exist in the case of an ordinary tortious claim." (At 704.) Lord Goff observed:

After exploring other approaches to the problem, Lord Goff concluded that the solution lay in the law of tort, although not along the lines suggested by Megarry V.-C. in Ross v. Caunters. Lord Goff concluded that the House of Lords should:

This approach was seen as producing "practical justice as far as all parties are concerned". Being founded upon the assumption of responsibility, it could include both acts of commission and omission, and it was not seen as likely to involve indeterminate liability; again in Lord Goff's analysis:

¶ 13      Lord Browne-Wilkinson wrote concurring reasons in White v. Jones, emphasizing the fiduciary nature of the relationship between the solicitor and client. From this, it was appropriate to infer a "special relationship" between the solicitor and the intended beneficiary of the client's will. He also commented that it would be "unacceptable" if, "because of some technical rules of law, the wishes and expectations of testators and beneficiaries generally could be defeated by the negligent actions of solicitors without there being any redress." (At 718.) Lord Nolan, also concurring, echoed this reasoning, stating that it would be "astonishing" if the solicitor were found to owe a duty of care to his client alone, to the exclusion of other members of the client's family, with whom the solicitor could not have stood in a closer degree of proximity. (At 736.) Lord Mustill dissented, writing lengthy reasons explaining that he could find no principled basis on which to impose liability on a solicitor who "did not do something which the beneficiary never asked him to do." (At 725.) (See also Earl v. Wilhelm, supra.)

¶ 14      As the trial judge noted, the defendant in the case at bar relied on Kamahap Enterprises Ltd. v. Chu's Central Market Ltd. (1990), 40 B.C.L.R. (2d) 288, a decision of this court. It concerned advice given by a firm of solicitors to their client. In reliance on that advice, the client had declined to follow through with the sale of certain property to another party, the defendant by counter-claim. The purchaser filed a third party notice asserting a claim in negligence against the solicitors. The law firm applied to have the notice struck out on the ground that it disclosed no cause of action against them. The Chambers judge at first instance dismissed the application, saying the duty of care described in Anns v. Merton might possibly arise and that the allegations made against the firm "are not irrelevant and although they are novel, they might succeed."

¶ 15      This court allowed the appeal. Taylor J.A. for the Court began his Reasons by emphasizing that there was no allegation that the purchaser had at any time relied on the solicitors, and that the case was not one in which the solicitors had been retained to confer a gift or benefit on the plaintiff, as in the "disappointed beneficiary" cases. He regarded the claim as based essentially on "proximity" and noted that where a person has suffered personal injury or damage to property as a result of the carelessness of another, reliance on the carefulness of that person was normally to be expected. But, he continued:

¶ 16      The Court rejected the proposition that the law should impose a general duty of care to avoid the infliction of purely economic loss, since such a law would "greatly hamper the conduct of commercial and private business and would probably interfere fundamentally with the operation of that economic system." (At 293.) Thus "something more" was needed to impose a duty of care on one party the purely economic interests of another. (As will be seen below, the Supreme Court of Canada echoed this comment in Cooper v. Hobart, supra, at para. 29.) In many cases, that "something more" took the form of reasonable reliance by one party on another, and in others (such as Ross v. Caunters) it took the form of the assumption of a contractual duty by one person to do something for the benefit of a third. In Taylor J.A.'s analysis, the facts in Kamahap did not support, as between the purchaser and the appellant law firm, "the relationship of 'proximity' or neighbourhood on which, as Lord Atkin said, the creation under our law of the duty on one person in tort to care for the interests of another is founded." (At 294.)

¶ 17      The Court also saw clear policy reasons militating against imposing a duty of care on a lawyer to the party with whom his or her client deals in a commercial transaction. Again in Taylor J.A.'s analysis:

¶ 18      The trial judge in the case at bar found Kamahap to be distinguishable on the basis that this case did not involve a vendor and purchaser who were acting at arm's length and whose business dealings and duties to each other were found in a contract between them. (Para. 57.) Here, the plaintiff and Mr. Brown had owned the property as tenants-in-common and their interests were, the trial judge said, not clearly distinguishable. Both had an interest in having the mortgage paid off so that any personal covenants they had given would be discharged. Further, unlike the vendor-purchaser cases, a duty of care was owed by the client, Mr. Brown, to the plaintiff.

¶ 19      The final case noted by the trial judge was Midland Mortgage Corp. v. Jawl & Bundon (1999) 62 B.C.L.R. (3d) 239, and 64 B.C.L.R. (3d) 1. There, Southin J.A. for the Court contemplated a possible exception to the general rule that no duty can be imposed on A to B in circumstances where the duty, if it were to be carried out, would require A to be in breach of his antecedent duty, in contract and tort, to C. Southin J.A. continued:

¶ 20      In considering whether there was a "sufficiently close relationship" between Ms. Luoma and the plaintiff such that Ms. Luoma ought to have reasonably contemplated that carelessness on her part might cause harm to the plaintiff, the trial judge noted that because the plaintiff was a co-owner of the property, it was reasonably foreseeable that she could be harmed if Ms. Luoma was careless in carrying out the transfer. (Para. 61.) She rejected the notary's argument that she had reasonably believed the plaintiff was represented by counsel and that accordingly, Ms. Luoma did not owe a duty to the plaintiff. The trial judge said that "even if" she accepted Ms. Luoma's argument that she had reasonably believed that Ms. Esser had been represented by Mr. Plested in the transaction:

¶ 21      The trial judge also concluded that policy considerations militated in favour of a finding of liability. She formulated the policy question as whether a notary public or solicitor should "be allowed to ignore unusual circumstances which are indicia of the possibility of a fraud being committed." (Para. 65.) Having framed it thus, she proceeded to find that Ms. Luoma had been careless and 'turned a blind eye' to obvious signs of potential fraud. From that finding, the trial judge moved to a finding that Ms. Luoma had owed a duty of care to Ms. Esser. Failing such a duty, the trial judge said, there would be "no remedy for the notary public's negligence and [there] would be a lacuna in the law which needs to be filled. White, supra". (Para. 68.) The Court made no reference in this context to the plaintiff's right of action against Mr. Brown or the Assurance Fund.

¶ 22      The trial judge then continued:

¶ 23      The trial judge awarded damages against each of Mr. Brown and Ms. Luoma in the amount of $81,116.47 (plus pre-judgment interest and costs) on the basis that the plaintiff should receive "half of the net proceeds of the sale to the purchaser Mr. Forgaard." (Para. 76.) (This amount was net of the amounts of the two mortgages.) The Court rejected Ms. Luoma's plea that the $15,000 paid by Mr. Brown to the plaintiff under the 1989 agreement should be credited in some manner against the proceeds of sale in computing the damages awarded to Ms. Esser. The trial judge stated:

With respect to the costs Ms. Esser had incurred in defending (successfully) the action brought on her personal covenant by the Desrosier mortgagees, the trial judge noted that no claim therefor had been pleaded and that particulars thereof had not been provided at trial. Thus as mentioned earlier, she made no award for such costs.

¶ 24      According to the (second) order filed in this matter in the Supreme Court, judgment went against Mr. Brown and Ms. Luoma jointly and severally in the amount of $81,116.47 plus interest, for a total of $98,067.98 and costs.

THE ACTION AGAINST THE ATTORNEY GENERAL

¶ 25      The trial judge went on to state at para. 89 of her Reasons that since Ms. Luoma had been found liable to the plaintiff for the full amount of the damages being claimed, Ms. Esser had no claim against the Assurance Fund. Thus she dismissed the action (Supreme Court file No. C985560) against the Attorney General with costs. In this court, counsel agreed that it was likely the trial judge had acted inadvertently in this aspect of her judgment, since if Ms. Luoma were successful on her appeal in CA030645, Ms. Esser's action against the Assurance Fund should remain open. Accordingly, Ms. Johnston on behalf of the Attorney General acknowledged that the appeal against the dismissal of Ms. Esser's claim against the Attorney General should be allowed. An order to that effect will therefore go by consent.

ON APPEAL

¶ 26      On the main appeal, Ms. Luoma submits that the trial judge erred in finding as a matter of law that she owed a duty of care to Ms. Esser. However, since the trial judge's finding of a duty of care seems to have arisen largely from her finding that Ms. Luoma's suspicions should have been aroused in the circumstances, the appellant also challenges that conclusion, which is closer to an inference of fact, or mixed fact and law. (See Housen v. Nikolaisen [2002] 2 S.C.R. 235, at paras. 26-27.) The appellant argues indeed that each of the "warning signs" pointed out by the trial judge was irrelevant to the question of fraud, or at worst, consistent with an innocent view of the transaction. These include the fact that the source of the title search given to Ms. Luoma by Mr. Brown had been "blacked out" on the second page - when in fact the searcher or "source" (Revenue Canada) was in plain view on the first page and there was no particular reason why, if Mr. Brown were about to carry out a fraud, he would have hidden Revenue Canada's name. The search was an authentic one. As for Ms. Luoma's "confusion" (commented upon adversely by the trial judge) about Mr. Brown's name (whether it was "Jay" or "Ray"), the evidence is that Mr. Brown's name as given to Ms. Luoma was "Jay Raymond Brown". (Whether Ms. Esser was aware of her former husband's true name was apparently not in evidence.)  As the appellant contends, unless Ms. Luoma knew that Ray Balan and Jay Raymond Brown were the same person, her confusion between the two names was essentially meaningless. Similarly, unless Ms. Luoma was aware of the fraud, the fact that Mr. Plested had apparently acted in both real estate transactions in which Ms. Luoma had acted for Mr. Brown in a six-month period can hardly be said to be suspicious. Mr. Plested practises in Kamloops, the ranch property was near Kamloops and Ms. Luoma was told by Mr. Brown that Ms. Esser lived in Kamloops.

¶ 27      The trial judge also found that an indicator of "possible fraud" lay in the fact that although Ms. Esser and Mr. Brown had (Ms. Luoma was told) separated 10 to 15 years earlier, the date of issuance of the certificate of title was shown to be February 1990. Yet counsel for Ms. Esser was unable to provide an explanation for the 'discrepancy', if such it was. There was a suggestion that perhaps the Kamloops Land Title Office had changed over to a computerized system in 1990 and that a new title may have issued at that time. In any event, the later registration date has not been shown to have any significance to the fraud and the fact that Ms. Luoma did not regard it as suspicious can hardly be counted against her.

¶ 28      The more important "red flags" cited by the trial judge may be considered together. They are that Ms. Luoma had been instructed to prepare a blank transfer; that she was told one vendor had disposed of her interest in the land, that she (as opposed to the purchaser's solicitors) was instructed to prepare the transfer document "contrary to normal conveyancing practice", and that she "failed to pay out the Desrosier mortgage, although she had the funds to do so." Aside from the fact that Ms. Esser did not plead any loss arising as a result of the non-payment of the Desrosier mortgage, such payment would have been in direct contravention of her instructions from Mr. Brown that the purchaser was to assume that mortgage, as the agreement with Mr. Forgaard expressly contemplated. The Court's inference that Ms. Luoma "purported to act" for Mr. Brown and Ms. Esser is puzzling and, with respect, it cannot be correct. Absent a finding that Ms. Luoma was a party to Mr. Brown's fraud (a finding not made by the trial judge), the evidence is clear that the notary believed Ms. Esser was represented by Mr. Plested, that Ms. Esser had been paid years ago for her interest in the property, and that Mr. Plested had not imposed any undertakings on her - all of which were consistent with Mr Brown's instruction that his ex-wife was simply to "sign off" as a co-owner and had no continuing interest in the property. Mr. Brown's fraud was frustratingly clever: his providing a signed transfer deed with the supposed signatures of his ex-wife and Mr. Plested, combined with his story (which was half-true and corroborated by Mr. Graydon) that he had paid out his ex-wife, appeared to provide a complete answer to any questions that might have arisen in Ms. Luoma's mind concerning the aspects of the transaction that were out of the ordinary. From Ms. Luoma's point of view, the "story" negatived any reliance by Ms. Esser on the notary and appears to have allayed any concern that Ms. Esser's interests were not being protected by her own solicitor.

¶ 29      As for Ms. Luoma's "reliance" on Mr. Graydon when he was, in the trial judge's words, "going to profit by the transaction", it must be noted that Mr. Brown's direction to pay part of the proceeds to Mr. Graydon was not made until several weeks after the transaction had closed.

¶ 30      As I have already mentioned, the trial judge seemed to hold that Ms. Luoma owed the plaintiff a duty of care because of her finding that in the circumstances, Ms. Luoma was careless in ignoring the "red flags" described by the trial judge. With respect, the existence or non-existence of "red flags" seems related more closely to the question of carelessness or standard of care than to the duty of care, which must be considered as a separate question of law. In other words, it is not correct, in my respectful opinion, to say that the notary owed a duty of care because there were "red flags". This conflates the question of whether there was carelessness on the defendant's part - i.e., a failure to comply with a reasonable standard of conduct - with the question of duty of care. Standard is generally considered after a duty of care has been found and involves determining whether there were any established rules of her profession, or customary practices, that she failed to follow; or whether the 'warning signs' adverted to by the trial judge should reasonably have aroused her suspicion. If on examination the court is satisfied that the defendant's actions fell below that of a competent notary, then (assuming both a duty of care and a causal link between her conduct and the plaintiff's loss), liability will be imposed. As Professor Fleming states in The Law of Torts (9th ed., 1998), at 117-18:

¶ 31      As I emphasized in quoting from Cooper v. Hobart, the question of duty of care involves the two-stage analysis formulated in Anns v. Merton - i.e., whether the harm (in this case, economic loss) was the reasonably foreseeable consequence of the defendant's conduct, and if so, whether there are reasons why "tort liability should not be recognized here." The Court in Cooper v. Hobart confirmed that the first stage of this test requires "something more" than reasonable foreseeability of harm to the plaintiff. That "something more" is proximity. In this regard, Chief Justice McLachlin stated:

The Chief Justice went on to note various categories of cases in which proximity has been recognized, including those involving "[r]elational economic loss (related to a contract's performance)", such as where the claimant has a possessory or proprietary interest in property. (Para. 36.) Thus Ms. Luoma, being in a contractual relationship with Mr. Brown, also obviously owed him a duty of care which, if breached, could also be the subject of liability in negligence. Ms. Esser also was the registered owner of an interest in property, but Ms. Luoma had been told that Ms. Esser had agreed to sell that interest and had received payment therefor.

¶ 32      As has been seen, where liability for purely economic loss is sought to be imposed on a solicitor vis à vis a person other than his or her client, courts have trod carefully, realizing that, as Taylor J.A. stated in Kamahap, supra:

As has also been seen, two "established categories" of cases in which liability has been imposed for pure economic loss on a solicitor for harm to a person other than his or her client are those in which proof of reasonable reliance on the part of the third party is shown, and those in which the solicitor assumed a contractual duty to one person to do something for the benefit of the third party. Like Kamahap, the facts of this case do not fall into either of these classes.

¶ 33      Nor did the notary in this case purport to act for the "third party", as occurred in Penn v. Bristol and West Building Society [1995] 2 F.L.R. 938, [1996] Fam. Law 28 (Ch. Div.), a case that also involved real estate fraud. In Penn, a husband and wife were joint tenants of a property. Unbeknownst to the wife, the husband entered into an arrangement to sell the house in order to raise money, and in collusion with the purchaser, forged the wife's signature to a conveyance and contract of sale. The solicitor ("Brill") retained by the husband to act for him and his wife, failed to ascertain that he had Mrs. Penn's authority to proceed with the sale on her behalf as well as that of her husband, in contravention of rules of the Law Society which required that the solicitor either obtain written instructions from the client or "take other appropriate steps to confirm instructions". The Court therefore found that Brill had owed a duty of care to the wife and that he had breached that duty when he proceeded to assume he had the authority of both to act - even though he had had some suspicions about the husband. Kolbert J. stated:

¶ 34      The reference to White v. Jones brings us back to their Lordships' solution in that case, which it will be recalled, was to "fashion a remedy to fill a lacuna in the law and so prevent the injustice which would otherwise occur on the facts of cases such as the present." The solution was to:

¶ 35      Again, the case at bar may be distinguished in that no lacuna exists in the law in British Columbia in the circumstances of this case. But for the Torrens system of indefeasibility of title, Ms. Esser would (setting aside for the moment her previous agreement with Mr. Brown) clearly have succeeded in having the forged document declared void and recovering her interest in the ranch property - as Mrs. Penn was able to do in Penn, supra. (See p. 18.) In British Columbia, that remedy is not available, because s. 297 of the Land Title Act protects the interest of a purchaser in whose name a title has issued - in this case, Mr. Forgaard.

¶ 36      However, s. 296(3) of the Act provides a claim in damages to any person who is deprived of an estate or interest in land because of the conclusiveness of the register, provided the plaintiff sues the fraudster and the Attorney General "as a condition of recovering damages and costs from the assurance fund". If the Court certifies to the Minister of Finance that the plaintiff has taken all reasonable steps to recover the amount of her damages and costs from the fraudster but has been unable to recover all or part of them, s. 296(5) requires that the Minister pay the amount of the damages and costs so awarded, or the unrecovered balance thereof, and charge that amount to the Assurance Fund. This remedy, it seems to me, was intended for cases like the present one, and substantially negates in this case the persuasiveness of the rationalization of liability offered by the House of Lords in White v. Jones. In terms of the Supreme Court of Canada's formulation of the "test" for duty of care, the policy reason advanced in White v. Jones for imposing liability notwithstanding admittedly weak doctrinal underpinnings is simply not present. To the contrary, it appears the Legislature has recognized that the most appropriate way of compensating victims of fraud in these circumstances is by means of a public fund.

¶ 37      Returning to the two-stage analysis described in Cooper v. Hobart, I do not see the kind of "close and direct" relationship said to be necessary to ground a duty of care by Ms. Luoma to Ms. Esser. A property interest was involved, but Ms. Esser had no expectations of Ms. Luoma and did not rely upon her, and Ms. Luoma made no representations to her. To the contrary, Ms. Luoma proceeded, reasonably in my view, on the belief that Ms. Esser's interests had been taken care of by her solicitor. The trial judge also relied on policy reasons to ground liability, which she summarized by asking the rhetorical question, "Should a notary public or solicitor be allowed to ignore unusual circumstances which are indicia of the possibility of a fraud being committed"? This question of course assumes that indicia of fraud existed, when (as will be apparent) in my view that was not the case. One might just as validly ask whether a notary public or solicitor should be required to go behind the representations and instructions given by his or her own client and "check out" the authenticity or validity of every signed document one receives, notwithstanding that it appears to have been witnessed by a lawyer. Looked at this way, the imposition of liability could lead to liability in an indeterminate amount to an indeterminate class, or at least "hamper the conduct of commercial and private business" unduly. (Kamahap, at 6.) As has been seen, the law already provides a remedy in the form of the Assurance Fund established under the Land Title Act. (See Cooper v. Hobart, supra, at para. 37.) It is therefore not necessary, as it was in White v. Jones, supra, to extend the net of negligence to conduct that would not otherwise be negligent, in order to do "practical justice" between the parties.

¶ 38      I conclude, then, that Ms. Luoma and Ms. Esser were not in a sufficiently close relationship of proximity to meet the requirement for "something more" in addition to reasonable foreseeability of harm. The constellation of factors described by Chief Justice McLachlin in Cooper v. Hobart - the "expectations, representations, reliance, and the property or other interests involved" - were simply not sufficient in my view to support a conclusion that it is just and fair, having regard to the "relationship", to impose a duty of care in law upon the defendant. On this basis, I find that the trial judge erred in law in imposing a duty of care.

¶ 39      Even if I were wrong in my conclusion regarding duty of care, I would also allow the appeal on the basis that the trial judge erred in concluding (implicitly) that the notary in this case failed to comply with a reasonable standard of conduct. (Ms. Luoma did not contend that the standard applicable to a notary is any different from that of a solicitor, citing Dorndorf v. Hoeter (1981) 29 B.C.L.R. 71 (B.C.S.C.).) I accept that the standard of review here may be one of "palpable and overriding error" since it is difficult to distinguish between a finding of carelessness resulting from the "application of a legal standard to a set of facts" and a purely factual inference. On this point, I note the comments of the majority in Housen v. Nikolaisen, supra:

The Court concluded at para. 30 that the standard of "palpable and overriding error" applies to findings of negligence, which are traditionally the province of the finder of fact.

¶ 40      For the reasons given at paras. 26-29 above, I am of the view that the trial judge made a clear and palpable error in drawing from the "warning signs" she described, the inference that Ms. Luoma did not live up to a reasonable standard of care. I say this notwithstanding the expert evidence adduced in this case by the plaintiff in the form of a letter of opinion and testimony of an experienced solicitor, Mr. Youngson. He opined that in carrying out the transfer, Ms. Luoma should have confirmed with Mr. Plested that Ms. Esser had been paid. He added that "This type of inquiry is not a counsel of perfection, but something a prudent notary should not think twice about doing. That these steps are prudent is evidenced by the fact that had they been taken, the scam would have been foiled."

¶ 41      With respect, this amounts essentially to a statement that 'Because an additional step would have foiled the scheme, Ms. Luoma was negligent in failing to take that step.' This cannot be the correct standard, or a legally correct inference. The question is what a reasonably competent notary would have been expected to do in the circumstances in which Ms. Luoma found herself. Further, I must say that Mr. Youngson's evidence reminded me of the comments of Oliver J. in Midland Bank Trust Co. Ltd. v. Hett, Stubbs & Kemp (a firm) [1978] 3 All E.R. 571 (Ch. Div.), who said:

As I stated in Marbel Developments Ltd. v. Pirani (1994) 18 C.C.L.T. (2d) 229 (B.C.S.C.), I do not go so far as to conclude that Mr. Youngson's opinion was inadmissible, but like Oliver J., I suggest that a publication or checklist widely circulated in the legal profession, indicating a standard "sanctioned by common usage", would have been more useful and more persuasive. (See also Clark v. P.O.J.E. (1989) 38 B.C.L.R. (2d) 110 (B.C.C.A.), at 117; De Yong v. Weeks (1984) 33 Alta. L.R. (2d) 338, [1984] A.J. No. 2518 (Alta. C.A.), at para. 47.)

¶ 42      Although this is a "close" case in terms of standard, ultimately I am not persuaded either that the test for the existence of a duty of care was met, or that the notary fell below a reasonable standard when her suspicions were not aroused in the circumstances. It was not unreasonable for her to accept the word of her client, corroborated by Mr. Graydon, that Ms. Esser had been paid for her interest and that the documents Mr. Brown produced had been signed by the persons they appeared to be signed by.

¶ 43      Finally, I also disagree with the trial judge's finding at para. 88 of her Reasons that "but for" Ms. Luoma's negligence, Ms. Esser would have been entitled to one-half of the net proceeds of the sale of the ranch property. Even if the earlier agreement between Ms. Esser and Mr. Brown had "lapsed", I would have thought Ms. Esser should have to account to Mr. Brown in some way for the $15,000 she received from him on account of his purchase of her interest. Arguably, there would be no juridical reason for her to retain that amount. (The trial judge here relied on the fact that when the couple had acquired the ranch, Ms. Esser supplied the down payment, but this surely carried less moral suasion than the agreement the parties reached years later.) As between Ms. Luoma and Ms. Esser, there was clearly no justification for doing so. I would have reduced Ms. Esser's damages accordingly had liability been imposed.

¶ 44      In the result, I would allow the appeal, leaving it open to the plaintiff to proceed under s. 296(5) of the Land Title Act with her claim against the Assurance Fund.

NEWBURY J.A.
ESSON J.A.:— I agree.

       The following is the judgment of

¶ 45      SAUNDERS J.A.:— I have had the privilege of reading in draft the reasons for judgment of my colleague Madam Justice Newbury. I have reached a different conclusion on both the question of existence of a duty of care by Ms. Luoma to Ms. Esser, and breach of the standard of care, and would dismiss the appeal.

¶ 46      The test for a duty of care is, as noted by my colleague, set out in Cooper v. Hobart, [2001] 3 S.C.R. 537, applying Anns v. Merton London Borough Council, [1978] A.C. 728 (H.L.).

¶ 47      I agree with her that one cannot step from the existence of "red flags" to a conclusion that a duty of care exists. The questions in the determination of the existence of a duty of care are whether there is a sufficiently proximate relationship between the parties such that the harm that occurred was "reasonably foreseeable" and whether there is a reason that tort liability should not be recognized here.

¶ 48      The claim here is for the loss of the entire asset, real property. Rather than damage to an asset, Ms. Esser has been deprived entirely of the land by the fraud of Ms. Luoma's client, Mr. Brown, in circumstances in which Ms. Esser was a registered owner of the land. The problems that can arise from imposition of a duty of care for pure economic loss, referred to by Mr. Justice Taylor in Kamahap Enterprises Ltd. v. Chu's Central Market Ltd. (1990), 40 B.C.L.R. (2d) 288 (C.A.) and replicated by Madam Justice Newbury at her para. 32, do not arise here, both because the loss is deprivation of the asset itself and the class of persons who can claim is restricted to Ms. Esser. The Land Title Act, R.S.C.B. 1996, c. 250, creates a register that provides a true reflection of the state of the legal interest in property. That Ms. Esser appeared on the register as holding some interest in the land and that the land at issue could not pass to the purchaser without a transfer of the interest attributed on the register to Ms. Esser is, I consider, enough to establish a relationship of sufficient proximity between herself and Ms. Luoma.

¶ 49      I am reinforced in this view by consideration of s. 18 of the Notaries Act, R.S.B.C. 1996, c. 334, giving a notary the power to draw instruments relating to property. It seems to me that where the Legislature gives a small class of citizens special powers, it is expected that an individual whose interest is conclusively dealt away by that citizen, and whose interest would be in the contemplation of that citizen, will be in a sufficiently proximate position to attract potential liability for failure to meet a standard of care in the exercise of that power.

¶ 50      I conclude, therefore, that the parties had such proximity that the ensuing harm was "reasonably foreseeable" so as to meet the first part of the Anns test.

¶ 51      The next question is the second of the Anns tests, whether there is a reason that tort liability should not be recognized here. In this the role of the assurance fund is the main question. I conclude there is no such reason.

¶ 52      It is true that absent the Torrens system Ms. Esser could have sued the purchaser and the loss would fall on the purchaser as the butt of the fraud:  caveat emptor. But it is that very indefeasibility dealt with by notaries on a daily basis that has created the harm here. The fact that the Torrens system has an assurance fund is not a reason, I think, to absolve a notary of liability of his or her negligence. The risk of liability is a powerful deterrent to persons in the position of Ms. Luoma from failing to take prudent steps to ensure the person whose interest must be transferred is in accord with the transaction. The risk of liability, in my view, will help to elevate notary practice and encourage notaries and others in similar positions to be watchful.

¶ 53      For these reasons I conclude that this is a case in which a duty of care was owed by Ms. Luoma to Ms. Esser.

¶ 54      The second issue then is whether there has been a breach of the duty of care. Although some of the reasons of the trial judge for finding that the standard was not met are insufficient to ground liability, in my view Ms. Luoma's actions were sufficiently deficient in several aspects that, considering the evidence on the standard of a prudent notary that was before the trial judge, I would not interfere with the conclusion that Ms. Luoma did not meet the standard of care. These deficiencies, as I see them, are:

¶ 55      For these reasons, I would dismiss the appeal. While I agree with my colleague that some adjustment to the damages awarded would have been required had the appeal failed, there is no need, given the result, to address that issue in detail.

SAUNDERS J.A.

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