Top 5 Civil Appeals From The Court Of Appeal (December 2013)

1. ACE INA Insurance v. Associated Electric & Gas Insurance Limited 2013 ONCA 685 (Gillese, Juriansz and Strathy JJ.A), November 14, 2013
   
   
2. Smith v. Inco Limited, 2013 ONCA 724 (MacPherson, Watt and Pepall JJ.A.), November 29, 2013
   
   
3. Versailles Convention Centre Inc. (2074874 Ontario Inc.) v. William Ross Gilmour (Gilmour Barristers), 2013 ONCA 674 (Weiler, Gillese and Lauwers J.J.A.), November 5, 2013
   
   
4. Western Larch Limited v. Di Poce Management Limited, 2013 ONCA 722 (Gillese, Tulloch and Lauwers JJ.A.), November 29
   
   
5. Zavarella v. Zavarella, 2013 ONCA 720 (Gillese, Juriansz and Strathy JJ.A.), November 28, 2013

1.  ACE INA Insurance v. Associated Electric & Gas Insurance Limited 2013 ONCA 685 (Gillese, Juriansz and Strathy JJ.A), November 14, 2013

In this decision, the Court of Appeal considered whether the principle of equitable contribution extends to a case where an excess insurance policy contains no duty to defend and defence costs erode the policy limit.

This dispute arose from lawsuits brought against Toronto Hydro Corporation with respect to a 2008 explosion. ACE INA Insurance was the primary insurer for Toronto Hydro under a general liability policy, with a limit of $1 million per occurrence. The policy contained a "duty to defend" clause and covered unlimited defence costs without eroding the policy limit. Associated Electric & Gas Insurance Services Limited was Toronto Hydro's excess liability insurer under an umbrella policy with a limit of $45 million in excess of the primary policy. That policy, which contained no duty to defend but held that AEGIS had the right to participate in the defence of any proceedings against the insured, provided that the insurer was liable for defence costs only where they were not included in other valid and collectible insurance. Payment of defence costs under the AEGIS policy eroded the policy limit.

The actions against Toronto Hydro, which included a class action, claimed more than $50 million in damages against the corporation. As of September 2012, ACE had paid all of Hydro's defence costs, in excess of the $1 million liability limit in its policy.

ACE brought an application for a declaration that AEGIS has a duty to contribute to defence costs incurred on behalf of Toronto Hydro. ACE argued that there was no practical distinction between an excess policy that contains a duty to defend and a policy, like the AEGIS one, that contained a duty to indemnify for defence costs. It claimed that the same equitable considerations ought to apply to both obligations and, where insurers share exposure to liability, they should share defence costs equally. ACE argued that it is inequitable to require it to pay to defend claims it will never be able to cover while protecting AEGIS from defence costs when it faces forty-five times the risk. ACE's application was dismissed.

ACE's appeal required the Court of Appeal revisit the principle of equitable contribution, which it addressed in Alie v. Bertrand & Frère Construction Co. (2002), 62 O.R. (3d) 345 (C.A.), leave to appeal to S.C.C. refused, [2003] S.C.C.A. No. 48. In that case, the Court held that in insurance contracts not governed by statute, the obligation of an excess insurer to contribute to defence costs must flow from a duty to defend or must be explicitly expressed in the policy. Importantly, the Court also noted in that case that a "duty to indemnify does not automatically impose a duty to defend."

Writing for the Court of Appeal, Strathy J.A. agreed with the application judge that contribution only arises when insurance policies cover the same risk. Strathy J.A. noted that there was no duty to defend under the AEGIS policy. Both policies contained a duty to pay defence costs; however, the AEGIS policy expressly excluded liability for these costs to the extent that they were covered by another policy. The liability for defence costs did not overlap: each insurer was responsible for different risks associated with the defence of their common insured. Because the ACE and AEGIS policies did not cover the same risk, the doctrine of equitable contribution did not apply.

Citing Trenton Cold Storage v. St. Paul Fire and Marine Insurance Co. (2001), 199 D.L.R. (4th) 654 (Ont. C.A.), Strathy J.A. held that the Court cannot invoke equitable principles where each party's respective liability is in accordance with what each had bargained for. While there is "some attraction" to the premise that the excess insurer be brought to the settlement table, Strathy J.A. held that it is not up to the Court to change the agreements made between the insurers and the insured. Moreover, these contracts were entered into by sophisticated parties through a large international insurance broker. The premiums suggested that Toronto Hydro wanted to be fully insured but did not want to spend more than necessary and therefore did not intend to purchase two insurance policies covering identical risks. Strathy J.A. also agreed with the application judge that requiring ACE to contribute to defence costs would erode the limits of the AEGIS policy, to the prejudice of Toronto Hydro.

The appeal was dismissed.

2.  Smith v. Inco Limited, 2013 ONCA 724 (MacPherson, Watt and Pepall JJ.A.), November 29, 2013

In this decision, the Court of Appeal considered a number of submissions made with respect to a costs award in a class action proceeding.

The underlying action, which was certified by the Court of Appeal as a class proceeding in Pearson v. Inco Ltd. (2006), 78 O.R. (3d) 641, was brought on behalf of thousands of property owners in and around Port Colborne, who claimed that the value of their homes had been negatively affected by nickel emissions from Inco's Rodney Street refinery. In Smith v. Inco Limited, 2011 ONCA 628, 107 O.R. (3d) 321, the Court of Appeal set aside the trial judge's finding that Inco was liable to the class members in private nuisance and pursuant to Rylands v. Fletcher in the amount of $36 million. Doherty J.A. remitted the matter back to the trial judge to assess costs with "regard to the decisions of this court." Henderson J. awarded Inco costs in the amount of $1,766,000.

Inco appealed from this order, arguing that costs should have been awarded to it in the amount of $5,340,563. In its submissions before the Court of Appeal, Inco identified eight alleged errors in Henderson J.'s decision.

Writing for the Court, MacPherson J.A. noted that pursuant to the Supreme Court's decision in Hamilton v. Open Window Bakery Ltd., 2004 SCC 9, [2004] 1 S.C.R. 303, a court should set aside a costs award on appeal only if the trial judge has made an error in principle or if the costs award is plainly wrong. He also emphasized that the Court of Appeal has accorded the same deference to costs awards in class proceedings, citing the decision of the Court in McNaughton Automotive Ltd. v. Co-operators General Insurance Co., 2008 ONCA 597, O.R. (3d) 365.

Addressing each of the alleged errors in turn, MacPherson J.A. first considered Inco's submission that the trial judge failed to take proper account of Doherty J.A.'s reasons in allowing the appeal when addressing the matter of costs. MacPherson J.A. rejected this claim, finding that Henderson J. was "scrupulously faithful" to the Court of Appeal's endorsement returning the costs issue to him. Contrary to Inco's submission, there was nothing in the trial judge's costs decision to suggest that he was trying to retroactively justify his trial decision. MacPherson J.A. similarly dismissed the appellant's argument that the trial judge erred in failing to accord weight to the denial by the Supreme Court of the plaintiffs' motion for leave to appeal the Court of Appeal decision allowing the appeal from the trial judge's decision. He agreed with Henderson J. that while granting leave would have made it clear that the Supreme Court felt that the case involved a matter of public importance or an important issue of law, its denial of leave does not mean that it found the case to be lacking in public importance. The leave application could have been dismissed for any number of reasons and, in accordance with the Supreme Court's practice, none were provided. Therefore, contrary to the appellant's assertion, the Supreme Court's decision was not determinative of the issue.

Turning to the appellant's claims that Henderson J. erred in determining that the case raised a novel point of law and involved a matter of public interest pursuant to s. 31(1) of the Class Proceedings Act, MacPherson J.A. agreed with the trial judge that there is not always a bright line between settled and novel points of law. As MacPherson J.A. explained, "[n]ovelty exists on a continuum". It was open to the trial judge to determine that while the case was grounded in nuisance, trespass and the Rylands v. Fletcher doctrine, it was novel in its attempt to apply these traditional causes of action to environmental issues.  The trial judge could not be faulted for structuring the costs award accordingly. On the matter of public interest, MacPherson J.A. rejected the appellant's claim that the case was simply about private citizens seeking compensation from a corporation. In many cases, there is a mix of public and private interest. In this case, the public interest element was not undermined by the fact that the class plaintiffs sought to vindicate their own interests. MacPherson J.A. also noted that the facts underlying this case caused widespread concern among the public, which supported the determination that the case involved an element of public interest.

With respect to the appellant's claim that the trial judge erred in lowering its claimed fees from $2.9 million to $2 million and in applying the s. 31(1) discount to its disbursements, MacPherson J.A. held that the trial judge's analysis of the fees was "methodical, logical and reasonable" and that his application of the discount reflected the type of costs analysis undertaken in several leading class action cases.

Prior to trial, both parties made offers to settle. Inco submitted before the Court of Appeal that Henderson J. ought to have exercised his discretion to award costs on a substantial indemnity basis for fees and disbursements incurred after its offer to settle. MacPherson J.A. noted that the trial judge did recognize that he could have considered Inco's settlement offer but, in accordance with the Court of Appeal's decisions in Scapillati v. A. Potvin Construction Ltd. (1999), 44 O.R. (3d) 737 and Davies v. Clarington (Municipality), 2009 ONCA 722, 100 O.R. (3d) 66, declined to award costs on a substantial indemnity basis because he did not find that the Class Proceedings Committee conducted itself in a manner justifying an enhanced costs award in Inco's favour. MacPherson J.A. declined the appellant's invitation to revisit Scapillati and Davies, finding that it is settled law which was applied correctly.

Finally, MacPherson J.A. addressed Inco's submission that the trial judge erred by considering the financial impact of a costs award on the Law Foundation of Ontario. The LFO administers the Class Proceedings Fund, from which funds may be granted to groups who wish to pursue a class proceeding, to facilitate access to justice. MacPherson J.A. held that the trial judge, in his costs analysis, took a balanced approach to considerations he was entitled to address. Citing McCracken v. Canadian National Railway Co., 2012 ONCA 797, MacPherson J.A. noted that the Court of Appeal has recognized that requiring the fund to absorb steep costs awards would have an undesirable chilling effect on class proceedings.

The appeal was dismissed.

3.  VersaillesConvention Centre Inc. (2074874 Ontario Inc.) v. William Ross Gilmour (Gilmour Barristers), 2013 ONCA 674 (Weiler, Gillese and Lauwers J.J.A.), November 5, 2013

This appeal concerns a request for an assessment of a lawyer's accounts.

The appellants appealed the dismissal of their application for an assessment of accounts issued by the respondent lawyer Gilmour to his client, Padda. Gilmour represented Padda, a minority shareholder in Versailles Convention Centre Inc., in an oppression action against the corporation and the two majority shareholders and directors of the company, Taggar and Khakh. In the course of that proceeding, Padda successfully brought a motion to have a supervisor appointed for Versailles. The motion judge's order appointing Paddon & Yorke as supervisor to Versailles provided that P&Y was authorized to pay accounts issued by Gilmour Barristers from the corporation's funds. 

Gilmour submitted an invoice which was paid by P&Y, but it was $39,034.05 more than what was set out in Gilmour's full indemnity costs outline submitted at the motion. Taggar and Khakh requested copies of the accounts but they were never sent.

Padda settled his oppression action against Versailles by minutes of settlement which provided that the defendants "shall be entitled to pursue any right they have to assess the accounts" that Gilmour provided to P&Y. Padda provided Taggar and Khakh with copies of the accounts but, due to redactions, it appeared to them that Gilmour had been paid twice for portions of the accounts, first by Padda and again by Versailles.

Two months after it received the redacted accounts - but two and a half years after the accounts were paid - Versailles sought an assessment of Gilmour's costs on the basis of "special circumstances" pursuant to s. 4(1) of the Solicitors Act, R.S.O. 1990, c. S.15 and Price v. Sonsini, [2002] O.J. No. 2607 (C.A.). The application judge held that there were no special circumstances to warrant an exception to the rule that no assessment will be ordered after one year from the delivery of an invoice.

The Court of Appeal noted that a finding of "special circumstance" is a matter of judicial discretion and that, pursuant to its decision in Guillemette v. Doucet, 2007 ONCA 743, 88 O.R. (3d) 90, it will defer to a lower court's exercise of that discretion "absent an error in principle or a clearly unreasonable result." It held, however, that in this case, a number of errors made by the application judge led to an unreasonable result that warranted intervention.

The Court found that the application for an assessment of Gilmour's costs was not, as the trial judge concluded, a challenge to the costs order. Rather, the appellants challenged the quantum of the lawyer's costs, as the supervision order expressly entitled them to do. 

The Court also held that the application judge erred in finding that Versailles was in possession of the information contained in Gilmour's accounts for two years before commencing the application. The Court noted that P&Y - as supervisor, and responsible for paying the accounts - had the information at that time. It was clear on the record, however, that Versailles did not receive them until two months before it brought its application. The application judge erred in imputing the knowledge of P&Y to Versailles. In fact, Versailles was subject to the control of the supervisor and, at the time payment was made by P&Y from Versailles' accounts, the corporation's directors were unaware of the details of the accounts and were not consulted about payment. The Court emphasized that the supervision order barred Taggar and Khakh from compelling an accounting in the absence of a court order or the supervisor's consent.

The Court noted that Taggar and Khakh nonetheless took reasonable steps to obtain the accounts from P&Y and from Gilmour directly. The Court pointed out that the application judge himself found that Gilmour's refusal to comply was unreasonable, but went on to allow Gilmour to benefit from that conduct.

The Court held that the application judge's failure to address other factors, such as the significant discrepancy between the costs outline Gilmour prepared for the motion and the total amount paid, justified a review of the accounts. Moreover, Gilmour had not demonstrated that he would be prejudiced by an assessment.

The Court concluded that there were special circumstances to warrant an exception to the twelve-month assessment limitation and that errors made by the application judge led to an unreasonable decision. The appeal was allowed and the appellant's request for the assessment of Gilmour's accounts was granted.

4.  Western Larch Limited v. Di Poce Management Limited, 2013 ONCA 722 (Gillese, Tulloch and Lauwers JJ.A.), November 29

This case arose from a dispute over the exercise of a shotgun buy-sell provision in a partnership agreement.

The respondent Alpa Partnership was governed by a 1997 Amended Restated Partnership Agreement (the "Partnership Agreement"). Pursuant to the Partnership Agreement, there were two ways by which a partner could be required to leave the partnership: the death of a shareholder partner, or through the operation of the shotgun buy-sell provision. The death of a shareholder partner in 2009 set off a series of events which culminated in three of the partners delivering a shotgun buy-sell offer to partner Western Larch. 

This offer contained two approaches to debt, both of which were acceptable to Western Larch and its associated shareholder Donald MacIver.  Alternative two would have repaid the partnership's debt to Western Larch on closing as required by s. 6.11(a) of the Partnership Agreement, while alternative one provided for the repayment of half of the debt on closing, with the balance to be paid over four years with interest. The offer also provided that if the appellants did not select one option and did not reverse the offer, they would be deemed to have chosen alternative one.

The appellants tried unsuccessfully to reverse the offer and buy out the respondents. They then challenged the validity of the buy-sell offer by issuing the Statement of Claim in this proceeding early in 2010. A few months later, they moved unsuccessfully to restrain the respondents from implementing the buy-sell offer. The forced acquisition of the appellants' interest in the partnership was carried out in accordance with alternative one in June of 2010.

The respondents moved for summary judgment to dismiss the action. D.M. Brown J., sitting as a judge on the Commercial List, found that while the respondents' buy-sell offer did not comply perfectly with the shot-gun buy-sell provision in the Partnership Agreement, it was valid as a whole and enforceable. Concluding that there was no genuine issue requiring a trial with respect to the appellants' claims concerning the validity of the offer, he granted partial summary judgment in favour of the respondents and directed a trial on the appellants' claims for damages for three breaches of contract. 

On appeal, the appellants submitted that the respondents' buy-sell offer did not strictly comply with the shotgun buy-sell provision in the Partnership Agreement and was therefore invalid and unenforceable. They argued that the inclusion of alternative one - which was not compliant with the Partnership Agreement-rendered the offer unenforceable, as did the imposition of alternative one upon them at closing. The appellants claimed that the motion judge erred in accepting the buy-sell offer despite the fact that it did not comply perfectly with the shotgun buy-sell provision of the Partnership Agreement. They also argued that the motion judge erred in setting the measure of damages for breaches of the shotgun buy-sell provision.

Writing for the Court, Lauwers J.A. began by noting that while the "draconian" nature of a shotgun buy-sell provision requires that a buy-sell offer comply strictly with the provision in the authorizing agreement in order to be enforceable, "[s]trict compliance is not perfect compliance." Acknowledging that the members of the partnership are sophisticated parties who were assisted by legal counsel and other advisors, Lauwers J.A. held that the court should determine whether compliance with the shotgun buy-sell provision is sufficiently strict, "given the vagaries and complexities of commercial arrangements and commercial life, which the parties have plainly accounted for in their contractual arrangements."

Considering the inclusion of the non-compliant alternative one in the offer, Lauwers J.A. noted that the appellants conceded that alternative two was compliant with the shotgun buy-sell provisions, and held that the offer was enforceable by virtue of alternative two, which the appellants were free to accept or not. It was open to the respondents to include an alternative for the appellants' consideration, even if the Partnership Agreement did not contemplate an additional option. The offer was valid because it contained one compliant alternative; the inclusion of alternative one did not invalidate the buy-sell offer or render it unenforceable.

With respect to the respondents' purported imposition of alternative one on the appellants, Lauwers J.A. wrote that, pursuant to the Partnership Agreement, the appellants were required to either accept the offer or reverse it and buy out the offerors. By doing neither, they were deemed to have chosen alternative one. The motion judge found that the forcing of the sale based on the non-compliant alternative did not invalidate the offer or render it unenforceable. Lauwers J.A. explained that the court will find compliance to be sufficiently strict, and will enforce a shotgun buy-sell offer containing elements of non-compliance that are, on the facts of the case, commercially insignificant and which can be fully and fairly remedied by damages. He agreed with the motion judge's conclusion that compliance would be best effected through damages.

Turning to the appellants' claim that the motion judge erred in setting the measure of damages not on the fair market value of the Partnership but on the basis that the parties were bound by alternative two, Lauwers J.A. noted that the motion judge found that there was no requirement in the Partnership Agreement that the buy-sell offer be valued at fair market value. Lauwers J.A. held that fixing the measure of damages as the appellants' compliance with alternative two was consistent with the commercially reasonable expectations of the parties in this particular context.

The appeal was dismissed.

5.  Zavarella v. Zavarella, 2013 ONCA 720 (Gillese, Juriansz and Strathy JJ.A.), November 28, 2013