Good evening,
Following are our summaries of the civil decisions of the Court of Appeal for Ontario released this past week.
Topics covered included:
1. A review of the conflicting case law relating to the deduction of statutory accident benefits ("SABs") paid before a trial from the amount of tort damages awarded at trial. The Court rejected the approach that requires temporal and qualitative matching of SABs to heads of tort damages (the strict matching approach), finding that that approach was based on an earlier, outdated statutory scheme and case law, the authority of which had been overtaken by amendments to the legislation. The Court instead opted for a "silo" approach, which requires the tort award only to match generally with the broad corresponding SABs categories or silos.
2. A review of the test for lifting an automatic stay pending appeal of a money judgment.
3. Several appeals from motions for summary judgment in the context of equitable set-off, agreements of purchase and sale of land, and a matrimonial proceeding.
4. Discoverability.
5. A pleadings motion regarding whether lawyers owe a duty to third parties to verify the accuracy of the information contained in affidavits they draft or commission (no).
6. Setting aside separation agreements for non-disclosure under section 56(4) of the Family Law Act.
7. The Court's consideration of a series of questions concerning successive employment contracts executed after the sale of a business partially owned by the employee.
8. We included a summary of provincial/regulatory offences decision in the environmental context. The Court made it clear that minimum fines are not to be varied by a trial judge using their sentencing discretion except in very exceptional circumstances. The decision will have broad application across all manner of regulatory offences moving forward, from environmental to workplace safety, and a whole host of other contexts.
Wishing everyone a pleasant weekend.
Blaney McMurtry LLP
416.593.2953 Email
CIVIL DECISIONS
[Lauwers J.A. (Motions Judge)]
Counsel:
R. Gilliland and C. Groper, for the moving parties
S. Cadili, for the responding parties
Keywords: Civil Procedure, Recognition of Foreign Judgments, Orders for the Payment of Money, Stay Pending Appeal, Lifting of Stay, Rules of Civil Procedure, Rule 63.01, S.A. Horeca Financial Services v Light, 2014, ONCA 811
FACTS:
This is a motion to lift an automatic stay pending appeal.
In the court below, the respondents on appeal/moving parties on this motion obtained an order recognizing and enforcing a Kentucky, USA, court judgment. In the course of her reasons, the application judge set out at length the basis for the decision of the Kentucky court, and added several of her own observations. The respondents on this motion appealed the judgment enforcing the Kentucky judgment.
On appeal, the appellants/responding parties on this motion took no issue with the application judge's recital of the facts. Of particular importance, the application judge stressed that the appellant's own testimony in the Kentucky action corroborated the allegation that he was perpetuating a fraud on the applicants and the court. Among other things, he did so by breaching a settlement agreement and depleting the value of the corporate appellants in order dissipate funds and impede the respondents from collecting amounts awarded.
ISSUE:
(1) Should the Court of Appeal lift the automatic stay of proceedings pending appeal?
HOLDING:
Motion granted.
REASONING:
(1) Yes. The Court of Appeal explained that the test for lifting an automatic stay requires review of three factors: the financial hardship to the respondent if the stay is not lifted; the ability of the respondent to repay any amounts it receives as a result of the lift of the stay or its ability to provide security for the amount; and the merits of the appeal.
The Court of Appeal swiftly disposed of the first two factors. First, if the stay were not lifted, there would be a serious risk that the funds in question would be siphoned off and the interests of the moving parties would be defeated. Second, the moving parties proposed that third parties affected by the order be obliged to hold funds covered by the order until further order of the Court of Appeal. Both of these factors therefore weighed in the moving parties' favour.
Regarding the merits of the appeal, the Court of Appeal rejected all four grounds on which the appellants alleged that the application judge erred, noting that the application judge's reasons expressly and fully addressed each of the proposed grounds of appeal.
Lastly, the Court of Appeal rejected the appellants' arguments with respect to the terms of the order lifting the stay, noting that they provided no evidence related to their operating needs or margins to assist in crafting terms for the order, and that a previous version of such an order produced little return to the moving parties.
1652620 Ontario Inc. v. Cornerstone Builders Ltd., 2018 ONCA 973
[Feldman, van Rensburg and Nordheimer JJ.A.]
Counsel:
T. Storms and C. Hammond, for the appellant
R. S. Baldwin, for corporate respondent A, respondent B and corporate respondent C
Keywords: Contracts, Debtor-Creditor, Promissory Notes, Non-competition Agreements, Breach of Fiduciary Duty, Equitable Set-Off, Civil Procedure, Summary Judgment, Stays, Striking Pleadings, Appeals, Failure to Give Reasons, Rules of Civil Procedure, Rules 21.01 or r. 25.11, Iraco Ltd. et al. v. Staiman Steel Ltd. (1986), 54 O.R. (2d) 488 (H.C.J.), aff'd (1987), 62 O.R. (2d) 129 (C.A.), Jones Collombin Investment Counsel Inc. v. Fickel, 2016 ONSC 6536
FACTS:
Corporate respondent A was the personal corporation of respondent B. In 2005, corporate respondent A became a shareholder in the appellant and a shareholders' agreement was signed which provided that upon ceasing to be a shareholder, respondent B would sign a non-competition agreement. Respondent B had been employed by the appellant since 1995. In 2011, the appellant purchased the shares held by corporate respondent A and gave a promissory note for $1,344.540. The promissory note was to be paid in monthly installments of $10,000, did not bear interest, and was not a demand promissory note. After a falling out, respondent B left his employment and established his own business, corporate respondent C. No non-competition agreement was signed. That new company was alleged to have competed with the appellant. Subsequently, the appellant stopped making the monthly payments on the promissory note. Corporate respondent A commenced this action seeking the payment of the remaining amount under the promissory note. The appellant counterclaimed alleging that respondent B, through corporate respondent C, had unfairly competed with the appellant in breach of an alleged non-competition agreement and in breach of respondent B's fiduciary duty.
Respondent A brought a motion for summary judgment which was granted by the motion judge, who found no genuine issue for trial of the monies due under the promissory note. However, in the absence of any acceleration clause he concluded he could not award judgment for the payments that were not yet due. The motion judge also struck out various allegations contained in the counterclaim that he concluded were untenable on the evidence before him. The appellant claimed an equitable set-off of the amounts under the promissory note against the damages it incurred as a result of the improper conduct of the respondents. The motion judge rejected this position and found that equitable set-off was not available where a claim is made on a bill of exchange such as a promissory note. The motion judge also decided not to stay execution of the judgment awarded pending prosecution of the counterclaim. Finally, the motion judge adjourned the claim and the motion for summary judgment for approximately six months to see if future payments would be made.
ISSUES:
(1) Did the motion judge err in finding equitable set-off was not available?
(2) Did the motion judge err in refusing to stay the execution of the judgment pending prosecution of the counterclaim?
(3) Did the motion judge err in adjourning the claim and the motion for summary judgment?
(4) Did the motion judge err in striking out part of the counterclaim in the absence of a motion to strike?
HOLDING:
Appeal allowed in part.
REASONING:
(1) No. The Court did not see any error in the motion judge's conclusion.
(2) Yes. The Court found that the failure of the motion judge to give any reasons for his decision not to stay execution of the counterclaim was an error in principle. The two claims were interrelated and both arose out of the relationship between the parties. In those circumstances, a stay ought to have been granted.
(3) Yes. The Court stated the motion judge did not have jurisdiction to keep alive a summary judgment motion that had been finally determined.
(4) Yes. The Court stated that it was not open to the motion judge to strike out portions of the counterclaim in the absence of a motion to strike. In addition, some of the struck out portions could have been seen as particulars of the appellant's breach of fiduciary duty claim, which it would be entitled to explore on discovery.
Cadieux v. Cloutier, 2018 ONCA 903
[Strathy C.J.O., Hoy A.C.J.O., Feldman, Brown and Paciocco JJ.A.]
Counsel:
D.A. Zuber and J.J.A. Henderson, for the appellant/respondent by way of cross-appeal
A. Rouben and E. Lachaîne, for the respondents/appellants by way of cross-appeal
K. Bonn, for the intervener Ontario Trial Lawyers Association
Keywords: Torts, Negligence, MVA, Several Liability, Damages, Apportionment, Statutory Accident Benefits, Pierringer Settlements, Non-Settlement Defendants, Pre-Judgment Interest, Costs, Offers to Settle, Statutory Interpretation, Insurance Act, RSO 1990, c I.8, s. 267, Carroll v McEwen, 2018 ONCA 902, Bannon v McNeely (1998), 38 OR (3d) 659 (CA), Gurniak v Nordquist, 2003 SCC 59, Gilbert v South, 2015 ONCA 712, Basandra v Sforza, 2016 ONCA 251, Cobb v Long Estate, 2017 ONCA 717, El-Khodr v Lackie, 2017 ONCA 716, Elbakhiet v Palmer, 2014 ONCA 544, Ananthamoorthy v Ellison, 2013 ONSC 4510 Hoang v Vicentini, 2014 ONSC 5893, Negligence Act, RSO 1990, c N1, s. 3, Courts of Justice Act, RSO 1990, c C43, ss. 128(1-2), Rules of Civil Procedure, Rules 49 and 53.10
FACTS:
The respondent and the appellant, both pedestrians, were involved in an altercation where the appellant pushed the respondent into the path of a truck. The respondent suffered brain damage and orthopaedic injuries, rendering him incapable of managing his own affairs. He claimed statutory accident benefits ("SABs") from the no-fault benefits insurer and commenced a civil action against the appellant and the truck driver.
Prior to trial, the respondent settled both his SABs claim and his tort claim against the truck driver. The SABs settlement was comprised of three components: (a) past and future income replacement benefits; (b) past and future medical benefits; and (c) past and future attendant care benefits. The settlement with the truck driver's liability insurer was a Pierringer settlement, whereby the truck driver's insurer settled her several tort liability without a right of contribution against the other tortfeasor. The respondent then proceeded with the tort action against the appellant. Though there were offers and counter-offers to settle, the action proceeded to trial.
A jury ruled in favour of the respondent. Although the truck driver was no longer a party, it was necessary for the jury to ascertain the degree of fault of each of the respondent, the truck driver, and the appellant. The jury apportioned liability equally: one-third against the respondent due to his own contributory negligence, and one-third against each of the appellant and the truck driver. Subject to statutory deductions and the accounting for both pre and post-trial SABs, the respondent was entitled to recover from the appellant one-third of the damages awarded.
After the verdict, the trial judge heard a motion to determine the required adjustments to the jury award and to determine costs. The issues were: 1) reduction of the jury award for statutory deductions; 2) reduction of the jury award for SABs received prior to trial and through the SABs settlement; 3) application of prejudgment interest; 4) the award of a management fee; and 5) costs of the action (including consideration of Rule 49 offers to settle).
Regarding statutory deductions, section 267.5(7) of the Insurance Act required that amounts be deducted from damage awards for non-pecuniary loss. Awards for non-pecuniary loss suffered by Family Law Act claimants are subject to a deductible, as a result of which the parties agreed that the only applicable deduction was to the FLA damages awarded to the respondent's brother.
Regarding deductions for SABs, there were several sub-issues. Since the respondent had settled his SABs claim with the accident benefits insurer, the issue was the extent to which this settlement was to be deducted from the award for loss of income and future pecuniary damages.
The first sub-issue was the basis upon which deductions should be made. The question was whether there should be 1) a strict matching of items in the jury award against the SABs benefits received, or b) three different statutory categories of SABs (income replacement benefits, health benefits, and other pecuniary benefits), regarded as silos, with deductions being made from the applicable silo, without a more precise matching of individual benefits within those silos against the identical heads of damages.
This issue arose because the jury made no award for costs of future attendant care, but made an award for a support worker. The trial judge found that the award for the support worker was for medical/rehabilitation and not attendant care. Relying on a strict matching approach, the respondent argued that the award should be set off against the portion of the SABs settlement for medical and rehabilitation benefits. The defence advocated a silo approach, arguing that both health care and attendant care benefits were properly classified as within the silo of health care and should be deducted from the jury's award for future costs of care. Relying on the Court of Appeal's decision in Basandra v Sforza, the trial judge adopted the silo approach, holding that all health care benefits should be deducted from the jury award for the support worker.
The second sub-issue was whether the appellant was entitled to set off the full amount of the SABs settlement against his portion of liability for the tort judgment, or whether his set-off was limited to 50% of the SABs amount, having regard to the appellant's proportionate liability for only one-third of the damages. The trial judge noted that the Insurance Act was silent with respect to the apportionment of deductions. There was evidence that the truck driver's insurer was aware of the SABs settlement and took it into account when settling the tort claim against the truck driver. The trial judge also found that the SABs settlement and the tort settlement with the truck driver were a "package deal", in that the respondent could not accept one without the other. He concluded that it would unjustly enrich the non-settling defendant (the appellant) if he were entitled to deduct the full amount of the SABs from his one-third share of the damages.
The third sub-issue was whether the full amount of the SABs settlement had to be deducted from the jury award, or whether the deduction could be net of the legal costs incurred by the respondent in reaching settlement. The trial judge accepted that failing to deduct these legal costs unfairly penalized and potentially under-compensated the respondent. He accepted the respondent's apportionment of the legal fees between the SABs settlement and the tort settlement in proportion to their respective amounts. The proportionate share of fees and disbursements was deducted from the SABs settlement before the SABs were deducted from the jury award.
The fourth and final sub-issue was whether all SABs received by the respondent prior to the settlement with the insurer were to be deducted from the jury award. The trial judge disallowed the deduction of certain SABs, indicating that he was not satisfied that other past payments had been received by the respondent, or matched the jury award so as to constitute double recovery.
Regarding pre-judgment interest, the trial judge addressed the operation of an amendment to the Insurance Act which ended the application of the 5% interest rate set out in s. 128(2) of the Courts of Justice Act and Rule 53.10 of the Rules of Civil Procedure. The effect of the amendment was to replace the fixed 5% rate with the variable "prejudgment interest rate", which rate and applicable time period is subject to variation at the discretion of the court.
The respondent sought interest at 5%. He contended that the amendment was a substantive change in the law and, therefore, did not have retrospective application. The appellant argued that although entitlement to interest is a substantive right, the amendments concerned only the manner of calculation of interest, thus making them procedural and meaning they should apply retrospectively.
The trial judge applied the 5% rate to this case, which pre-dated the statutory amendment. He followed the approach of the trial judge in El-Khodr, who found that the entitlement to a particular rate of prejudgment interest is substantive.
Regarding the management fee, the trial judge determined that 5% was a "conventional award". His calculation was based on 100% of the SABs settlement plus the net tort award.
Regarding costs, there was a significant difference in the parties' positions because a month prior to trial, the appellant had made what the trial judge described as a "near miss" settlement offer. Just before that offer, the respondent had made an offer to the appellant. The respondent's recovery at trial, plus the management fee, was less than the appellant's offer without accounting for the management fee, and was slightly in excess of the offer once that fee was accounted for.
The respondents claimed partial indemnity costs on the basis that the recovery exceeded the appellant's offer, while the appellant claimed costs on the basis that his offer exceeded the jury verdict. The trial judge found that the costs claimed by each party were reasonable. Referring to the Court of Appeal's decision in Elbakhiet v. Palmer, he found that it was appropriate to consider the appellant's "near miss" settlement offer in the exercise of his jurisdiction in relation to costs. The repondent's recovery, when the management fee was awarded, only slightly exceeded the appellant's offer. He therefore awarded the respondent costs amounting to about one-fifth of the amount claimed, plus the disbursements claimed.
ISSUES:
(1) Should SABs be deducted from tort damages using the silo approach?
(2) Did the trial judge err in reducing the jury's award for the support worker by the SABs received for both medical and rehabilitation benefits and attendant care benefits?
(3) Should past and future SABs be combined in each silo before deducting them from past and future tort damages?
(4) Did the trial judge err in failing to deduct certain pre-settlement SABs payments?
(5) Where a plaintiff enters into a Pierringer agreement, with the result that only one severally liable defendant remains in the proceeding, should that non-settling defendant be entitled to a deduction of 100% of all SABs from its share of tort damages?
(6) Should SABs be deducted from tort awards on a gross basis, rather than net of the plaintiff's costs?
(7) Did the trial judge err in awarding a management fee of 5%? If not, did he err in requiring the appellant to pay management fees for 100% of the SABs settlement after finding that he was only entitled to a deduction of 50% of the SABs from the damages awarded against him?
(8) Are the amendments to the Insurance Act concerning the calculation of prejudgment interest on general damages procedural in nature, so as to apply retrospectively to causes of action that arose before the amendments came into force?
(9) Were Cobb and El-Khodr correctly decided on this issue?
(10) Did the trial judge err in his award of costs?
(11) Should interest be calculated on Rule 49 offers to the date of the offer, or to the date of trial?
(12) Did the trial judge fail to account for some of the plaintiffs' disbursements?
HOLDING:
Appeal allowed in part. Cross-appeal allowed in part.
REASONING:
(1) Yes. The Court of Appeal noted first in summary that until Cobb and El-Khodr, the evolution of the treatment of accident benefits in the case law largely failed to account for the difference between the statutory schemes that have been in place at various times. The Court found that the policy rationale that supported the strict matching approach under a former statutory scheme was no longer applicable under the current legislative regime, and as a result, the silo approach should apply to both the deduction and the assignment of SABs.
Turning first to the historical treatment of SABs and the effect of Cobb and El-Khodr, the Court of Appeal noted that strict matching found purchase in the Court of Appeal decision in Bannon v McNeely, at a time when a significantly different statutory regime was in place. The Court of Appeal similarly observed that Cobb and El-Khodr addressed this inconsistency.
In Cobb, the Court of Appeal expressed serious reservations about the Bannon line of authority, finding instead that the silo approach applied in circumstances where the court was asked to determine whether a lump-sum SABs payment for past and future income loss should be deducted from the award for both past and future income loss.
In El-Khodr, the Court of Appeal addressed the same issue with respect to the assignment of future SABs payments to the tort insurer. The Court concluded that the Bannon decision no longer applied in light of amendments to the Insurance Act and the Supreme Court decision in Gurniak v Nordquist (which implicitly rejected the Bannon line of authority), but that in respect of assignment of future SABs payments, a strict temporal and qualitative match of specific sub-categories of accident benefits to the tort award would continue to apply.
Referring to this area as "imperfect" and in need of resolution, the Court concluded that the silo approach should apply to all SABs. Strict matching unnecessarily complicated tort actions by focusing on immaterial distinctions. By contrast, the silo approach would have the benefit of simplicity and ease of application, an objective endorsed by the Supreme Court in Gurniak. Referring to its concurrently-released decision in Carroll v McEwen, the Court concluded that the silo approach should apply to SABs received both before and after trial.
(2) No. Given that the silo approach applied, the trial judge did not err in deducting the SABs received for both the medical and rehabilitation benefits and the attendant care benefits from the jury award for health care expenses.
(3) Yes. As noted in its analysis under issue (1), the Court found no basis for making a temporal distinction between past and future SABs, concluding that they should be combined in each silo before deduction. The amendments to the Insurance Act since Bannon obviated the need for strict matching of past and future benefits that existed under the previous regime, and no longer required the deduction of the present value of future benefits.
(4) Yes. The Court of Appeal concluded that the SABs paid prior to the settlement should be deducted from the jury award for corresponding past and future damages within the relevant silos, since there was no basis to draw a temporal distinction between past SABs payments and future tort damages within a silo. Further, there was no reason in principle why SABs paid directly to third parties, as a matter of convenience, should not be deducted from the tort award, since in any case the amounts were available to the respondent.
(5) No. The Court of Appeal found that the last defendant remaining in the action should not be entitled to a deduction of all the SABs paid to the plaintiff; rather, it should only be entitled to a proportionate deduction. Reviewing ss. 267.8(1), (4), and (6) of the Insurance Act, the Court concluded that the ordinary and grammatical meaning of the words in these sections did no more than describe the effect of the deduction to be made. Accordingly, the appellant could not argue that his share of the damages was reduced by the full amount of the SABs settlement reached between the respondent and the other parties.
The Court observed that such an interpretation was consistent with the application of the principles of statutory interpretation (such as expressio unius and the principle of consistent expression) and considerations of practicality, fairness, and common sense. To allow otherwise would discourage settlement, under-compensate the plaintiff, and unfairly enrich non-settling defendants.
(6) Yes. SABs should be deducted from the tort award on a gross basis. The trial judge's deduction of legal costs was inconsistent with the plain wording of ss. 267.8(1), (4), and (6) of the Insurance Act, which provide that "the damages to which a plaintiff is entitled ... shall be reduced by ... all payments in respect of the incident that the plaintiff has received ... [in respect of SABs]" (emphasis added). The statute called for deduction of SABs on a gross basis, not a net basis.
However, the Court additionally noted that it may be appropriate in certain circumstances to award the plaintiff costs of recovering SABs as part of the costs of the tort action. Identifying two separate strands of Ontario jurisprudence on the topic, the Court of Appeal focused on the rationale identified by the Superior Court in Ananthamoorthy v Ellison, and Hoang v Vicentini. In these two cases, the Superior Court observed that there may be times when a tort defendant derives a clear benefit from the SABs matters by way of a deduction of the amounts from damages, and in those circumstances, a judge fixing costs in a tort action may consider it appropriate that the tort defendant pay the costs incurred by the plaintiff in securing the benefits.
(7) Yes. Although the trial judge did not err in awarding a management fee, he made an error in principle by calculating that fee on the basis of 100% of the settlement and net tort award when the appellant was only entitled to a deduction of 50% of the SABs.
(8) Yes. As MacFarland J.A. noted in Cobb, the Insurance Act amendment was intended to apply to actions such as this, commenced before the legislation came into effect but tried after. The default rate prescribed by s. 128 of the Court of Justice Act therefore applied in this case, unless it was appropriate for the court to reduce or increase the prescribed rate of interest or to disallow interest otherwise payable. As the trial judge made no findings on this point, the Court of Appeal was unable to conclude whether it would be appropriate to do so in this case and therefore invited the parties to address that issue by way of further written submissions.
(9) Yes. The Court observed that MacFarland's analysis in Cobb was correct, and that therefore the analysis in El-Khodr was correct as well.
(10) Given its findings with respect to the issues above, the Court of Appeal invited the parties to make further submissions on this issue.
(11) The Court observed that if the parties were unable to agree on the interest payable and the effect of the offers to settle having regard to the effect of this decision, they would be welcome to make further submissions.
(12) Yes. The trial judge declined to adjust his costs award since the notice of appeal had already been delivered, leaving it to the Court of Appeal to correct the error.
Carroll v. McEwen, 2018 ONCA 902
[Strathy C.J.A., Hoy A.C.J.O, Feldman, Brown and Paciocco JJ.A.]
Counsel:
G.D.E. Adair, J.Y. Obagi and E.A. Quigley, for the appellants
K.P. Nearing and E.H. Durant, for the respondents RM and CM
S.G. Ross and G. Healy-Murphy, for the respondents Aviva Canada Inc. and Pilot Insurance Company
K. Bonn, for the intervener Ontario Trial Lawyers Association
Keywords: Torts, Negligence, MVA, Damages, Apportionment, Statutory Accident Benefits, Assignment, Costs, Insurance Act, RSO 1990, c. I.8., s. 267.8, Rules of Civil Procedure, Rule 57.01(1)(e), Gilbert v. South, 2015 ONCA 712, Gurniak v. Nordquist, 2003 SCC 59, El-Khodr v. Lackie, 2017 ONCA 716, Cadieux v. Cloutier, 2018 ONCA 903, McNaughton Automotive Ltd. v. Co-operators General Insurance Company, 2008 ONCA 597
FACTS:
B.C. was catastrophically injured after being hit by a vehicle operated by R.M. The vehicle that struck B.C. was owned by R.M's wife. B.C. and members of her family (the "appellants") brought this action against R.M. and his wife.
The appellants also brought this action against Aviva Canada Inc. ("Aviva") and Pilot Insurance Company ("Pilot"). B.C.'s damages were approximately $4,000,000. R.M. and his wife carried only $1,000,000 liability insurance through Aviva. Since this was not enough to cover B.C.'s damages, the appellants claimed another $1,000,000 under B.C.'s OPCF 44R Family Protection Coverage from Pilot. Both Aviva and Pilot denied liability.
At trial, liability was apportioned 62% to R.M. and his wife, and 38% to the appellants. The appellants were awarded $2,610,774.32 in damages, a portion of which being a lump sum for B.C.'s "future care costs". They were also awarded $375,000 in costs.
The trial judge issued a conditional order to Aviva and Pilot that, in effect, reduced their total combined liability to less than $2,000,000. The trial judge's conditional order was that if Aviva and Pilot pay the judgment in full, they would get an assignment of the future statutory accident benefit's ("SABs") that B.C. was entitled to receive from Pilot under Part VI of the Insurance Act (the "Act").
The appellants appealed the trial judge's decision for three reasons. First, they claimed that the conditional order violated the matching principles as required by Gilbert v. South, 2015 ONCA 712. Second, they claimed that the conditional order was premature since the judgment had not yet been paid. Third, they sought leave to appeal the costs order because it was less than half of the amount they claimed in partial indemnity costs.
This appeal was heard together with the appeal in Cadieux v. Cloutier, 2018 ONCA 903 ("Cadieux"), because both appeals dealt with the common issue of the treatment of SABs under section 267.8 of the Insurance Act.
ISSUES:
(1) Did the trial judge err in granting the conditional order?
(2) Should leave to appeal the trial judge's cost order be granted?
HOLDING:
Appeal dismissed.
REASONING:
(1) No. Section 267.8 of the Insurance Act prevents double recovery for tort damages and SABs. One of the ways section 267.8 prevents this double recovery is through subsection 267.8(12), which grants the courts discretion to assign three broad categories of future SABs payments to the tortfeasor or the tort liability insurer. The three categories are as follows: First, "in respect of income loss or loss of earning capacity"; second, "in respect of expenses for health care"; and third, "in respect of pecuniary loss, other than income loss, loss of earning capacity and expenses for health care".
The appellants argued that the trial judge should not have ordered an assignment of SABs unless Aviva and Pilot could demonstrate that the future SABs payments would strictly match the same category of damages for health care costs as awarded, and for the same period of loss. The appellants argued that the strict matching required to order an assignment was not possible because the "future care costs" awarded were not particularized.
The Court of Appeal rejected the strict matching approach suggested by the appellants, and instead found that the silo approach should be applied to section 267.8 of the Act as a whole. The statutory language of section 267.8 of the Act did not support an interpretation permitting further subdivisions of the SABs within the three broad categories. This is consistent with the approach adopted by the Court of Appeal in Cadieux.
The future care costs and the SABs assigned by the trial judge both fell within the broad health care silo. Accordingly, the trial judge was entitled to grant the conditional assignment order to Aviva and Pilot.
The appellants further argued that the trial judge should not have ordered an assignment because it was unlikely that the judgment would be paid, and that since the judgment had yet to be paid, the assignment order granted by the trial judge was premature. The appellants based their argument on the language in subsection 267.8(12)(a) of the Act, which authorizes a judge to assign SABs from a "plaintiff who recovered damages in the action".
The Court of Appeal rejected this argument and found that requiring damages to be paid before an assignment order can be made is impractical. Allowing assignment orders to be made before payment alleviates the need for post-trial motions to obtain an assignment.
Further, the Court of Appeal added a condition to the trial judge's assignment order using their power under subsection 267.8(12) of the Act. The reason for this additional condition was because the appellants' appeal had made the assignment order decline in value. B.C. had been receiving SABs from Pilot since the order was made, and had been refusing to tell Aviva how much she was receiving. Without this information, Aviva could not know how much they owed B.C. in damages, which denied them the opportunity to fulfill the conditional assignment order by paying the judgment in full.
An unsuccessful appeal of an order should not defeat the benefit of the order. Accordingly, the Court of Appeal imposed a condition requiring B.C. to disclose amounts received in SABs since the order was made to Aviva. In addition, the Court of Appeal held that if Aviva and Pilot elect to proceed with the conditional assignment order, B.C. must assign all future payments of SABs to Aviva and Pilot.
(2) No. The trial judge's discretion as to entitlement, scale, and quantum of a costs order is to be given considerable deference. Leave to appeal is only granted in obvious cases where the judge erred in exercising discretion, and even where leave to appeal is granted, costs will only be set aside if the judge made an error in principle or the order is plainly wrong.
Leave to appeal was not granted. The trial judge reduced the costs order for three reasons: first, the behaviour of the appellants relating to a settlement offer made by the respondents; second, the lack of benefits to the appellants in pursuing the trial; and third, the behaviour of the appellants that extended the trial. This was not a case where it was obvious that the trial judge erred.
Mason v. Perras Mongenais, 2018 ONCA 978
[Watt, Miller and Nordheimer JJ.A.]
Counsel:
J. Radnoff and C. Haworth, for the appellant
M. Kestenberg and A. Hershtal, for the respondent Perras Mongenais
S. Sack and J. Bogod, for Blumberg Segal LLP and S. C.
Keywords: Torts, Professional Negligence, Lawyers, Income Tax, Family Law, Equalization of Net Family Property, Civil Procedure, Summary Judgment, Partial Summary Judgment, Hryniak v Mauldin, 2014 SCC 7, Baywood Homes Partnership v Haditaghi, 2014 ONCA 450, Butera v Chown, Cairnes LLP, 2017 ONCA 783
FACTS:
The appellant was involved in a matrimonial proceeding and retained the defendant, S.C., to act for him. As part of resolving the issue of equalization, the appellant was going to buy the shares owned by his spouse in their jointly owned company. S.C. advised the appellant to obtain tax advice from another lawyer because neither he nor his firm were qualified to provide tax advice on this transaction. S.C. sent a lawyer, P.P., at the respondent law firm an email stating that he had asked the appellant to contact P.P. to provide instructions, and explaining the settlement being discussed as well as the potential purchase of the spouse's shares. P.P. told S.C. that, if the appellant agreed to pay for the shares by way of equalization, he would incur personal tax obligations as he withdrew money from the company to fund the purchase. P.P. advised S.C. that the purchase could be carried out via redemption of the spouse's shares (the "Redemption Approach") with no adverse tax consequences to the appellant and minimal tax obligations for the spouse.
Later, S.C. sent P.P. draft minutes of settlement for review. Shortly afterwards, the appellant called P.P. and immediately put S.C. on the phone. P.P. observed to S.C. that the Redemption Approach was not used, to which S.C. responded by explaining that the spouse refused to accept that approach because she wanted to receive all cash and did not want the tax burden to be on her. S.C. advised P.P. that he negotiated a "tax discount" on the share purchase price to take into account the negative tax outcome caused by the appellant. S.C. then told P.P. that he and the appellant were in a settlement conference ready to sign the minutes of settlement, but they needed advice on a portion of the settlement that provided for a spousal rollover of the family corporation's shares. Under the settlement terms proposed, the appellant was assuming all liability for taxes on any future disposition of the shares. P.P. replied via email explaining that the parties were electing to take a tax-free rollover, explained how the tax attribution rules would apply and concluded that "from [the appellant's] perspective, this is fine".
As a result of the settlement, the appellant either had or would incur a large amount of tax. He consequently sued the respondent together with Blumberg Segal and S.C. The motion judge concluded that summary judgment should be granted dismissing the claim against the respondent. The motion judge applied the Supreme Court of Canada's decision in Hryniak v Mauldin, 2014 SCC 7, concluding that P.P. had given correct advice regarding the potential tax consequences to the appellant if the payment was made in the way it ultimately was. The motion judge also found that any concern regarding whether the appellant understood the advice was an issue between the appellant and S.C. since the appellant had directed S.C. to deal with P.P.
ISSUE:
(1) Did the motion judge err in granting partial summary judgment?
HOLDING:
Appeal allowed.
REASONING:
(1) Yes. The determination of whether or not P.P. failed to meet the standard of care as a lawyer could not be properly determined summarily. A motion judge's decision to grant summary judgment is a finding of mixed fact and law, reviewable for palpable and overriding error. However, per Hyrniak at paras 81-84, the decision will be reviewed on a correctness standard where the motion judge errs in principle or with regard to an extricable legal question. The Court of Appeal found that the motion judge made errors under both the correctness standard and the palpable and overriding error standard in this case.
First, the Court found that the motion judge erred in principle in granting partial summary judgment in the context of the litigation as a whole, and failed to consider the risks of partial summary judgment outlined by the Ontario Court of Appeal in Baywood Homes Partnership v Haditaghi, 2014 ONCA 450, and Butera v Chown, Cairnes LLP, 2017 ONCA 783. The potential liability of the respondent to the appellant was not an issue that could be readily bifurcated from the rest of the appellant's claim, because it was inextricably linked to the claim against S.C. The case raised serious issues about the duties of P.P. towards his client, and it was a crucial fact that his client was the appellant as opposed to S.C. There was an obligation on P.P. to ensure that his advice was understood by his client, yet there was no evidence P.P. took steps to obtain assurance that the advice was understood. It was an open question as to whether or not it was sufficient for P.P. to simply communicate his advice to S.C. in order to satisfy his professional obligation. It was also an open question as to whether or not P.P. made the necessary inquiries to ensure that the advice was communicated to and understood by the appellant.
Second, the Court of Appeal found that the motion judge also made a palpable and overriding error in failing to reconcile his conclusions with the evidence of an expert opinion that P.P. had breached the standard of care he owed to the appellant. The expert stated that P.P. had failed to meet his required standard of care towards the appellant because he failed to make inquiries about the tax discount and its implications as they related to his advice. The record did not reveal that P.P. had made inquiries as to whether the appellant was aware of the tax implications inherent in the proposed settlement and understood them. The Court of Appeal found that it was impossible to reconcile the motion judge's conclusion that nothing alerted or reasonably ought to have alerted P.P. that anyone was seeking his advice about the tax discount with the inquiries made of P.P. when the matter started. The sole reason that P.P. was retained was because S.C. was not qualified to provide tax advice. P.P. provided advice on the proposed settlement offers and recommended the Redemption Approach, but upon finding out that the Redemption Approach was not utilized, P.P. made no inquiry as to whether the tax discount was more or less advantageous compared to the Redemption Approach. The Court of Appeal found that it was at least arguable that P.P. had therefore not fulfilled one aspect of his professional obligations, and this conclusion was consistent with the expert opinion before the motion judge. The Court of Appeal dismissed the respondent's contention on appeal that there were two separate retainers regarding the settlement proposals and the spousal rollover respectively, noting that, if there was an issue as to the nature of the retainer, this was not an issue that ought to have been resolved via summary judgment motion in the circumstances.
Finally, the Court of Appeal stated that proceeding summarily would also not achieve the fundamental purposes of the summary judgment process, that is, to provide a "more expeditious and less expensive means to achieve a just result" per Hryniak at para. 49. The Court stated that there was a tripartite arrangement surrounding the advice to be given to the appellant, and that the result of the motion judge's conclusion is that one part of that tripartite arrangement was removed from review and consideration at trial. This appeared to directly conflict with the "interest of justice" element of the summary judgment approach laid out in Hyrniak. The Supreme Court observed that, where claims against some of the parties will proceed to trial in any event, partial summary judgment may run the risk of duplicative proceedings or inconsistent findings of fact, and therefore the use of the new fact-finding powers may not be in the interest of justice. The Court of Appeal found that these concerns loomed large in this case, given the questions regarding the terms of P.P.'s retainer and his professional obligations. The answers to those questions were inextricably connected to the dealings between the appellant, P.P., and S.C. Furthermore, there did not seem to be any advancement achieved in terms of the action as a whole by rendering partial summary judgment.
The Court of Appeal concluded by observing that the motion judge spent considerable effort describing what he believed to be a "culture shift" mandated by the decision in Hyrniak. He appeared to adopt the view that not only are trials not the preferred method for the resolution of claims, but also that they should be viewed as the option of last resort. The Court of Appeal stated that the culture shift referenced in Hryniak is not as dramatic or as radical as the motion judge described. The shift recommended by Hryniak was away from the restrictive use of summary judgement to a more expansive application. However, nothing in Hryniak detracts from the overriding principle that summary judgement is only appropriate where it leads to "a fair process and just adjudication", per Hryniak at para. 33. There is nothing in Hryniak that suggests that trials are now to be viewed as the resolution option of last resort. Put simply, summary judgment remains the exception, not the rule.
Morrison v. Barzo, 2018 ONCA 979
[van Rensburg, Brown and Miller JJ.A.]
Counsel:
J. Obagi and E. Quigley, for the appellants
Avi Sharabi, for the respondent, Cristina Edwards
M. Jones and N. Nicola-Howorth, for the respondent, Charles Murphy
A. Faith and E. Brousseau, for the respondent Susan Boulanger
Keywords: Torts, Negligence, Medical Malpractice, Civil Procedure, Adding Parties, Limitation Periods, Discoverability, Limitations Act, 2002, S.O. 2002, c. 24, Sch. B, Arcari v. Dawson, 2016 ONCA 715, leave to appeal to SCC refused, [2016] S.C.C.A. No. 522, Fennell v. Deol, 2016 ONCA 249, Lawless v. Anderson, 2011 ONCA 102
FACTS:
One of the appellants, Jeffrey Morrison (the "Main Appellant"), was allegedly injured in the course of a chiropractic treatment. The Main Appellant and his family (collectively, the "Appellants") started an action against the chiropractor on June 24, 2013. The essence of the claim was that, during a chiropractic treatment, the chiropractor forcefully "twisted" the Main Appellant's spine, causing a lumbar disc protrusion and cuada equine syndrome ("CES"), which resulted in the Main Appellant requiring emergency surgery.
The chiropractor delivered a statement of defence on May 6, 2014. On May 13, 2014, he third partied two of the three respondents on the basis that the Main Appellant's injuries stemmed from the respondents' allegedly negligent chiropractic treatment.
On May 11, 2016, just less than two years after the third party claim was issued, the Appellants brought a motion to add the three respondents as defendants to the action on the basis that their treatment of the Main Appellant was negligent. Their claims were supported by an affidavit of their counsel and one from the Main Appellant.
The Appellants took the positon that the motion judge did not properly review or assess the evidence about when the Appellants knew or ought to have known the facts that were material to their claims of negligence against each respondent. The motion judge found that the Appellants were capable of discovering any wrongful actions against the Main Appellant more than two years prior to commencing the motion to add parties and, accordingly, the motion was dismissed on the basis that the limitation period had expired against the proposed defendants.
The Appellants appeal that decision.
ISSUE:
(1) Did the motion judge apply the wrong test in dismissing the motion to add the respondents as parties to the original action?
HOLDING:
Appeal allowed.
REASONING:
(1) Yes. Under the Limitations Act, 2002, the date of "discovery" is key to assessing whether the limitation period in respect of a claim has expired. Sections 4 and 5 provide as follows:
- Unless this Act provides otherwise, a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered.
- (1) A claim is discovered on the earlier of,
(a) the day on which the person with the claim first knew,
(i) that the injury, loss or damage had occurred,
(ii) that the injury, loss or damage was caused by or contributed to by an act or omission,
(iii) that the act or omission was that of the person against whom the claim is made, and
(iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it; and
(b) the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a).
(2) A person with a claim shall be presumed to have known of the matters referred to in clause (1) (a) on the day the act or omission on which the claim is based took place, unless the contrary is proved.
Where there is a question as to whether claims covered by the basic two-year limitation period are statute-barred, such that parties cannot be added pursuant to s. 21(1) of the Limitations Act, the court must make a finding as to when the plaintiff first knew the elements of the claim listed in s. 5(1)(a). If the date of actual discovery, as determined by the court, would bring the claim within the limitation period, and the proposed defendant relies on "reasonable discoverability" to contend the claim was brought outside the prescription period, the court must go on to determine under s. 5(1)(b) when "a reasonable person with the abilities and in the circumstances of [the plaintiff] first ought to have known of the matters referred to in clause (a)". While a plaintiff's due diligence is relevant to the finding under 5(1)(b), the absence of due diligence is not a separate basis for dismissing a claim as statute-barred.
Section 5(1)(a), then, requires a finding as to when the claim was actually discovered. There is no evidence that the Appellants had any actual knowledge, prior to 2015, that the treatment provided to the Main Appellant by the respondents caused or contributed to his injuries. The only information relevant to the respondents' involvement in the Main Appellant's care that was available to the Appellants, prior to the examinations for discovery, was in their clinical notes. The Court agreed with the Appellants' contention that the full particulars of their claims against the respondents were not discoverable until examinations for discovery of the third party respondents took place. On this basis, the Court held that it was not clear that the limitation period had expired.
With respect to 5(1)(b), the motion judge did not answer when "a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a)."
Accordingly, the Court allowed the addition of the respondents to the main action, while still allowing the respondents to maintain a limitations defence in their respective pleadings.
Brahma Finance (BVI) Limited v. Datawind Inc., 2018 ONCA 1003
[Juriansz, Brown and Roberts JJ.A.]
Counsel:
K. Marciniak, for the appellant
P.-E. Veel and M. Robins, for the respondents
Keywords: Civil Procedure, Foreign Judgments, Enforcement, Reciprocal Enforcement of Judgments (U.K.) Act, R.S.O. 1990, c. R.6, Convention for the Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters, Beals v. Saldanha, 2003 SCC 72, Society of Lloyd's v. Saunders (2001), 55 O.R. (3d) 688 (C.A.)
FACTS:
On June 21, 2017, the application judge below registered against the appellant a costs order of the United Kingdom High Court of Justice, Chancery Division (the "Foreign Court"), pursuant to the Convention for the Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters (the "Convention") set out in the Schedule to the Reciprocal Enforcement of Judgments (U.K.) Act, R.S.O. 1990, c. R.6 (the "Act").
The appellant appealed the costs order on the grounds that the costs order could not be registered under the Convention as 1) it was not for a definite amount and 2) that the appellant had been denied natural justice in the third-party cost proceeding.
ISSUES:
(1) Did the motion judge err by registering the Costs Order when it was not an order for a definite and ascertainable sum of money?
(2) Was the appellant denied natural justice?
HOLDING:
Appeal dismissed.
REASONING:
(1) No. The Costs Order required that the appellant pay the respondents the "costs incurred in this action to be the subject of detailed assessment on the standard basis if not agreed", "to make an interim payment on account of the [respondents'] said costs in the sum of £87,000 by 4 PM on July 5, 2017" (the "Interim Order"), and to pay the respondents' costs of the third-party cost application "summarily assessed at £21,756 by 4 PM on July 5, 2017" (the "Third Party Costs Proceeding").
All of these orders constitute final orders for definite sums that are registrable under the Convention. Article II (3) of the Convention states that its enforcement provisions "apply only to a judgment whereby a sum of money is made payable." The Interim Payment constitutes such a judgment because its payment was due by a specified date and payment of the amount was not made conditional upon the future conduct of an assessment. Moreover, in the Third Party Costs Proceeding, the presiding officer noted that "[i]t is accepted, on behalf of [the appellant], that it is appropriate to make a payment on account of costs":
(2) No. The procedure afforded the appellant a full opportunity to respond to the respondents' materials and to make submissions - written and oral - on the application. The process under the U.K. Civil Procedure Rules met the minimum standards of fairness.
Chatha v. Johal, 2018 ONCA 990
[Sharpe, van Rensburg and Hourigan JJ.A.]
Counsel:
P. Morrison and W. Main, for the appellant
A. Speigel and T. Morgan, for the respondent
Keywords: Torts, Defamation, Negligence, Duty of Care, Proximity, Professional Negligence, Lawyers, Notaries, Civil Procedure, Striking Pleadings, No Reasonable Cause of Action, Affidavits, Odhavji Estate v. Woodhouse, 2003 SCC 69, Anns v. Merton London Borough Council, [1977] UKHL 4, Tondera v Vukadinovic, 2011 ONCA 596
FACTS:
The respondent notarized an affidavit sworn by six affiants that was later relied upon by a journalist writing an article about the appellant. As a result of the publication of the article, the appellant sued the respondent and a number of parties asserting various causes of action, including defamation. However, it soon became apparent that the appellant had missed the limitation period for a defamation claim. Consequently, the appellant amended his statement of claim (the "Amended Claim") to allege the respondent was grossly negligent in her professional duties as a licensed lawyer in notarizing the affidavit. The Amended Claim was struck without leave to amend on a Rule 21 motion on the grounds that it did not disclose a cause of action. The respondent, as a lawyer preparing and swearing an affidavit, owed no duty of care to the appellant to ensure its accuracy. The motion judge found that the negligence claim was merely a "dressed-up" version of the defamation claim that was statute-barred. Given the existence of what the motion judge considered to be incurable defects in the Amended Claim, leave to amend was not granted. The appellant appealed this order and provided the Court of Appeal with a draft amended statement of claim (the "Draft Amended Claim").
ISSUE:
(1) Did the motion judge err in striking the Amended Claim without leave to amend?
HOLDING:
Appeal dismissed.
REASONING:
(1) No. The Court of Appeal found that, in providing the Draft Amended Claim, the appellant effectively conceded that the motion judge did not err in striking the Amended Claim. The real issue, therefore, was whether the claim in negligence was so fundamentally defective that the motion judge was correct in denying leave to amend. The appellant argued that the motion judge's analysis was flawed because there was no consideration of the respondent's duties as a notary as opposed to her duties as a lawyer. The appellant argued that the respondent, in her capacity as a notary owed him a duty of care. The Court of Appeal was not persuaded by this argument because the Amended Claim contained multiple allegations against the respondent in her capacity as a lawyer, and the motion judge properly considered those allegations as part of the duty of care analysis.
The Court found that the correct analytic approach in examining the issue of duty of care was to examine each of the respondent's impugned actions to determine whether they can support a claim for negligence, and considered the allegations in turn. First, the appellant alleged that the respondent acted negligently because she prepared and notarized the Affidavit knowing it contained false evidence and that she knowingly allowed one or more imposters to execute the Affidavit. This was properly struck without leave to amend because an allegation that a party knowingly took certain actions cannot from the basis of a claim in negligence, and the appellant did not assert any claim based on an intentional tort.
Secondly, the motion judge did not err in striking without leave to amend the appellant's claim that the respondent acted negligently because the Affidavit was not in a proper format. It could not be credibly asserted that, had the Affidavit been in a proper format, the reporter would have been less inclined to accept it for use in the story. Thirdly, the appellant alleged that the respondent acted negligently in failing to verify that the contents of the Affidavit were true and accurate. However, a lawyer does not owe a duty to third parties to verify the accuracy of the information contained in an affidavit he or she drafts or commissions. This duty should not be expanded since it could potentially place a lawyer in a conflict of interest with his or her client, and would make the routine swearing of affidavits time consuming and prohibitively expensive.
The Court of Appeal found that the motion judge did not err in striking the appellant's final allegation that the respondent failed to identify the affiants before notarizing the affidavit. The appellant argued that a notary/lawyer could be held liable to a third party for not fulfilling his or her duties in verifying the identity of an affiant and/or not having the affiant present when the affidavit was executed. This was a novel cause of action, so the Court of Appeal applied the test from Anns v. Merton London Borough Council, [1977] UKHL 4, as adopted by the Supreme Court of Canada in Odhavji Estate v. Woodhouse, 2003 SCC 69 at para. 52.
The Court found that there was insufficient proximity to ground a duty of care. The Supreme Court in Odhavji at paras. 48-50 noted that when assessing proximity a court may examine, among other things, the expectations of the parties, representations, reliance, and the nature of the property or interest involved. In the present case, there was no allegation that the respondent made any representation to the appellant or that there was any reliance on the part of the appellant, and the opposite was likely true. Additionally, the appellant's plea in the Draft Amended Claim that the appellant and the respondent had an acrimonious relationship militated against a finding that they are in a relationship of proximity. Finally, the appellant's reliance on Tondera v Vukadinovic, 2011 ONCA 596, where the Court of Appeal set aside a motion judge's decision to strike a claim for negligence by affiants against a lawyer acting in her capacity as a notary, demonstrated a flaw in the appellant's argument. The Court found that it was arguable that the affiants in that case could assert a negligence claim against the respondent because their relationship had the hallmarks of proximity, and these elements were absent in the relationship between the appellant and the respondent.
[Watt, Miller and Nordheimer JJ.A.]
Counsel:
L.H. Wolfson, for the appellant
H. Hansen, S. Grant, and J. Beaton, for the respondent
Keywords: Family Law, Domestic Contracts, Separation Agreements, Setting Aside, Non-Disclosure, Equalization of Net Family Property, Spousal Support, Child Support, Family Law Act, RSO 1990, c F3, s. 56(4), Currey v Currey (2002), 26 RFL (5th) 28 (Ont SC), Bruni v Bruni, 2010 ONSC 6568, Virc v Blair, 2014 ONCA 392, Dochuk v Dochuk (1999), 44 RFL (4th) 97 (Ont Gen Div)
FACTS:
The parties were married with children. Following their separation, they reached a separation agreement, the terms of which included provisions that the respondent pay the appellant $10,000 per month in child and spousal support, pay all of the children's s. 7 expenses, and for the appellant to pay the respondent an equalization payment. Later, the appellant sought an order setting aside the agreement under s. 56(4) of the Family Law Act, on the basis that the respondent failed to disclose significant assets. The appellant sought orders equalizing net family property (NFP), imputing income to the respondent, and fixing increased spousal and child support.
The trial judge agreed that the respondent had failed to disclose interests from various sources. She concluded that the non-disclosure was blameworthy, but nevertheless dismissed the application. Although the value of the nondisclosed assets may have been considerable, the trial judge determined that they were not "significant" in the sense required by s. 56(4).
The trial judge relied on two reasons in coming to this conclusion. First, the trial judge accepted the evidence of the lawyer who negotiated the agreement on behalf of the appellant that the appellant had obtained a very favourable settlement: the respondent had agreed to provide spousal and child support far in excess of what the appellant could likely have achieved at trial. Second, the trial judge found that the respondent made substantial concessions in mediation, such that it would not be reasonable to input the value of the undisclosed assets and assess the impact on the equalization payment or support. In the trial judge's words, "too many monetary compromises were made during the mediation" for this to be a realistic approach. Additionally, the trial judge was unwilling to assume that if the parties had introduced other assets into the negotiation, all other parts of the agreement would have remained unchanged.
ISSUES:
(1) Did the trial judge err by placing the onus on the appellant to inquire as to the existence and value of the respondent's assets?
(2) Did the trial judge err in determining whether the undisclosed assets were "significant"?
HOLDING:
Appeal dismissed.
REASONING:
(1) No. While incomplete disclosure rightfully attracts the risk that an agreement might be set aside, s. 56(4) makes it clear that failure to disclose even a significant asset does not necessarily attract that consequence.
(2) No. Determining the significance of undisclosed assets is not the purely mathematical exercise of comparing the value of the non-disclosed assets against the value of the disclosed assets. Rather, the trial judge appropriately relied on case law finding that "the term 'significant' must be measured in the context of the entire relationship between the parties" and that significance "should not be considered in isolation of all of the surrounding circumstances".
The most important circumstance for the trial judge was that more disclosure would not have "changed the outcome" for the appellant. The trial judge found that the assets in question had no bearing on equalization. The undisclosed assets were also irrelevant to support because the parties had agreed to a level of support that was not based on actual income. These findings also provided a complete answer to the appellant's other complaints: namely, that the trial judge erred by considering each excluded asset in isolation rather than their collective value, and by failing to compare the value of undisclosed assets as against the value of the respondent's total assets.
In short, the Court found that the trial judge correctly stated and applied the law, and made no error in assessing the significance of the assets. She concluded that more disclosure would not have changed the outcome, and that the assets that the respondent did not disclose were not significant. Since that finding was available on the record, the Court saw no reason to interfere.
As a final note, the Court observed that the finding of significance is only the first step in a s. 56(4) analysis. Once a party seeking to set aside a separation agreement has established that s. 56(4) applies, a court must still determine whether it should exercise its discretion to set aside the agreement. Although the trial judge did not proceed to this further step, and did not need to given her findings, her conclusion on that question would be obvious. In particular, her findings concerning the absence of duress and the substantial benefits that the appellant received under the agreement indicated that the trial judge would not have exercised her discretion to set aside the agreement.
Kerzner v. American Iron & Metal Company Inc., 2018 ONCA 989
[Simmons, Huscroft and Miller JJ.A.]
Counsel:
A. Riddell and K. Van Schie, for the appellant/respondent by way of cross-appeal
P. MacTavish and B. Hinds, for the respondent/appellant by way of cross-appeal
Keywords: Contracts, Interpretation, Standard of Review, Employment Law, Wrongful Dismissal, Damages, Payment in Lieu of Notice, Restrictive Covenants, Enforceability, Employment Standards Act, S.O. 2000, SO 2000, c. 41, Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, Sylvester v. British Columbia, [1997] 2 S.C.R. 315, Payette v. Guay Inc., 2013 SCC 45, Elsley v J.G. Collins Ins. Agencies, [1978] 2 S.C.R. 916, Shafron v. KRG Insurance Brokers (Western) Inc., 2009 SCC 6, MEDIchair LP v DME Medequip Inc., 2016 ONCA 168, Bardal v. The Globe & Mail Ltd. (1960), 24 DLR (2d) 140
FACTS:
In 2008, Bakermet Inc. ("Bakermet") was sold pursuant to a share purchase agreement (the "SPA"). The appellant was a co-owner and employee of Bakermet at the time of the sale. A release (the "Release") in favour of Bakermet and its successors was executed concurrently with the SPA, which released any and all claims by the appellant up to that date. The appellant was employed pursuant to the terms of an employment agreement (the "2008 Agreement"), which recognized in its recitals that the appellant's employment would continue following the share sale and set out the terms of the agreement. It was indefinite in term, included provisions limiting notice on termination, and included non-competition and non-solicitation clauses. In 2011, another employment agreement (the "2011 Agreement") was executed between the respondent and ArcelorMittal Ottawa Inc. (ArcelorMittal Ottawa), a division of the Bakermet's purchaser. It was identical to the 2011 Agreement except that it purported to create a fixed-term contract and reduced the appellant's compensation. It reduced the amount payable to the appellant following termination without cause to six months of base salary along with basic payments and continued protection under group insurance benefits for six months. In 2014, another employment agreement (the "2014 Agreement") was executed, and its key change was that it set a two-year fixed term subject to early termination. It reduced the appellant's salary and annual bonus but was otherwise the same as the previous agreements.
In 2015, ArcelorMittal Ottawa was acquired by the respondents in an asset sale, and the appellant's employment contract was assigned to the respondent. The appellant was later terminated and offered six months' salary and continuation of benefits for six months, amounts that the respondent asserted were inclusive of his entitlement under the Employment Standards Act, S.O. 2000, SO 2000, c. 41 (the "ESA"). The appellant sued for wrongful dismissal seeking 24 to 30 months' pay in lieu of notice based on 35 years of continuous employment with the respondent or its predecessors. The respondent counterclaimed for damages based on the appellant's alleged breach of the restrictive covenants in the 2014 Agreement at his new job as well as his alleged breach of fiduciary duty.
The motion judge concluded that the SPA and the Release had the effect of releasing the respondent from all claims relating to the appellant's employment prior to the sale in 2008. Further, he interpreted the 2011 and 2014 employment agreements following the sale between the appellant and the respondent's predecessor as a series of fixed-term contracts rather than a period of continuous service. Thus, he held that the appellant's right to termination and severance pay under the ESA, was to be calculated only from 2008 forward. The motion judge found that the termination clause provided for notice that exceeded the minimum notice requirements under the ESA and was enforceable. The motion judge rejected the respondent's counterclaim, concluding that the restrictive covenants contained in the 2014 Agreement were temporally and geographically unreasonable. He also concluded that the record was insufficient to demonstrate that the appellant had breached any ongoing fiduciary obligations he may have owed to the respondent.
ISSUES:
(1) Did the motion judge err in concluding that the appellant validly waived his ESA entitlement to accrued termination and severance pay?
(2) Did the motion judge err in finding that the termination clause complied with the ESA and was therefore valid and enforceable?
(3) Did the motion judge err in finding that the appellant's employment relationship with the respondent and its predecessor was structured as a series of fixed-term contracts rather than as continuous service?
(4) Did the motion judge err in concluding that the restrictive covenants were unreasonable, and therefore unenforceable?
(5) Did the motion judge err in concluding that the appellant did not breach fiduciary duties owed to the respondent?
HOLDING:
Appeal allowed. Cross-appeal dismissed.
REASONING:
(1) Yes. The appellant's pre-2008 service could not be waived or released for the purposes of calculating his ESA entitlements. The respondent, as successor to ArcelorMittal Ottawa, was required to count the appellant's pre-2008 service in calculating his ESA entitlements upon termination. The respondent argued that the appellant waived his pre-2008 common law and statutory entitlements by signing the Release in exchange for substantial consideration as part of the SPA. They also claimed that the Release was an all-encompassing settlement agreement or "package deal" the parties were free to enter into in the context of a share sale. They also argued that the motion judge's interpretation of the Release was entitled to deference following the Supreme Court of Canada's decision in Sattva Capital Corp. v. Cresto Moly Corp. The Court of Appeal rejected that position, noting first that the interpretation of the ESA is an extricable question of law to which the correctness standard applies, per Sattva at para. 53. Regardless of whether the Release was a stand-alone agreement or part of a "package deal", it must comply with the ESA, and the ESA is designed to preclude the very thing that the respondent argued occurred in this case. There could be no valid waiver of the appellant's ESA entitlements. However, given the context in which the Release was executed and the wording of the Release, it was open to the motion judge to find that the appellant had waived his claim to common law notice based on his pre-2008 employment. His finding was entitled to deference.
(2) Yes. The Court of Appeal found that the termination provision of the 2014 Agreement was void. The motion judge held that the termination provision of the 2014 Agreement would violate the ESA only if the appellant had not released his pre-August 2008 service. Because the appellant could not waive his pre-August 2008 service for ESA purposes, it follows that the termination provision, which limits the appellant to six months' notice on termination, violates the ESA because it provides a lesser benefit than the 34 weeks' termination and severance pay to which the appellant was entitled under the ESA. In light of the conclusion that the termination clause was void, it was not necessary for the Court to determine whether the appellant's post-termination conduct disentitled him from receiving payments under the 2014 Agreement.
(3) Yes. The Court of Appeal found that the appellant was employed for an indefinite term from 2008 onwards and, as a result, was entitled to common law notice for the period of August 2008 to September 2015. The motion judge's interpretation of the 2011 and 2014 Agreements as fixed-term contracts is entitled to deference in the absence of an extricable error of law. However, in its decision in Sattva, the Supreme Court identified three extricable errors that may be made in the course of contractual interpretation: "the application of an incorrect principle, the failure to consider a required element of a legal test, or the failure to consider a relevant factor". The motion judge erred in law by failing to consider all of the relevant factors in concluding that the appellant was employed for a fixed term rather than on an indefinite basis. There was significant evidence indicating that, despite fixed-term language in the 2011 and 2014 Agreements, the appellant was employed on an indefinite basis.
The Court of Appeal found that the 2008 Agreement plainly contemplated indefinite employment. However, the 2011 and 2014 Agreements did too despite their fixed terms because both agreements specifically required the employer to provide written notice if it intended not to renew or continue the agreements. The 2011 Agreement also included recitals specifically recognizing the appellant's continued employment and stated that the parties desired to enter into the agreement for the continuation of the employment of the appellant. The motion judge failed to analyze the effects of the renewal notice provision.
The Court of Appeal found that seven months of notice was appropriate after applying the factors from Bardal v. The Globe & Mail Ltd., and that this entitlement was reduced by all amounts he received in mitigation of loss through his subsequent employment during the notice period, per the Supreme Court of Canada's decision in Sylvester v. British Columbia, at paras. 14-17. However, the appellant's ESA entitlements exceeded his common law damages, so the appellant was entitled only to his ESA termination and severance pay in addition to any amounts that may be owing in respect of unpaid benefits.
(4) No. The Court of Appeal rejected all of the respondent's arguments going to the restrictive covenants. The respondent argued that the motion judge erred in failing to assess the enforceability of the restrictive covenants in the context of the sale of Bakermet, citing the Supreme Court of Canada's decision in Payette v. Guay Inc.
In considering the non-competition clause, the Court of Appeal found that the motion judge's conclusion that both restrictive covenants were temporally disproportionate to the length of the appellant's contract was based on the erroneous conclusion that the appellant was employed pursuant to a fixed-term employment contract. However, it was not necessary to determine whether the temporal restrictions were reasonable in the context of the contract of indefinite hire that was created, since the motion judge found that the covenants were unreasonable because of the broad geographic limitations.
The Court found that the core of the non-competition clause at issue was negotiated in the context of the SPA and the accompanying 2008 Agreement, and was therefore subject to a more lenient standard applicable in the context of a sale of a business, as opposed to a pure employment contract, per the Ontario Court of Appeal in MEDIchair LP v DME Medequip Inc. at para. 33 and Payette at paras. 35 and 39. The Court of Appeal agreed with the appellant's argument that because the expanded restrictive covenants were introduced in the 2011 and 2014 agreements, their reasonableness should be subject to the more onerous employer/employee test per Elsley v J.G. Collins Ins. Agencies. The clauses allegedly breached following the appellant's termination were contained in the 2014 Agreement, which was negotiated and entered into with the appellant qua employee rather than qua seller. This was analogous to the situation in Elsley, and as such, the restrictive covenants in the governing 2014 Agreement had to be interpreted without regard to the SPA. The Court said that Payette does not apply where a subsequent, stand-alone employment contract contains its own covenants, particularly where it expressly "replace[s] and supersede[s] all the terms which were set forth under any previous arrangement and/or agreement". The motion judge's conclusion that the non-compete obligation was unreasonably broad was amply supported by the record.
The Court of Appeal found that this was not a case where any aspect of the non-compete obligation should be severed using the remedial severance tool provided by the 2014 Agreement. The Court found that "blue-pencil" severance should not be used to cross out the geographical restrictions, because this type of severance is to be resorted to "rarely", and only when the words being severed are "clearly severable, trivial and not part of the main purport of the restrictive covenant", per the Supreme Court of Canada's decision in Shafron v. KRG Insurance Brokers (Western) Inc. at para. 36. Similarly, the Court found that using "notional severance" to read down the non-compete obligation unjustifiably would amount to the Court imposing a covenant it considers reasonable, and it is not appropriate for courts to interfere with contractually-allocated risks in an employment relationship in this way, per Shafron, at paras. 39-42.
The Court considered the non-solicitation obligation, finding that it was unnecessary to determine its reasonableness because there was no breach of it. The motion judge's factual finding that the respondent presented no evidence to counter the appellant's assertion that he had refrained from soliciting the respondent's customers was entitled to deference.
In light of these conclusions, the Court of Appeal found that it was not necessary to determine whether the respondent's refusal to pay the appellant his statutory entitlements after termination released him from the non-competition clause, or whether he breached that covenant.
(5) No. The motion judge's analysis was a question of mixed fact and law and was therefore entitled to deference, and the Court of Appeal found no basis to interfere.
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