Canada: Top 5 Civil Appeals from the Court of Appeal Last Month (October 2011)

Last Updated: November 29 2011
Article by Andrew C. Murray
  1. Smith v. Inco Limited ,  2011 ONCA 628 (Doherty, McFarland JJ.A., and Hoy J. ad hoc) October 7, 2011

  2. McQueen v. Echelon General Insurance Company,   2011 ONCA 649 (Gillese, Armstrong and Karakatsanis JJ.A.) October 18, 2011

  3. Dean v. Mister Transmission (International) Ltd . 2011 ONCA 670 (Sharpe, Armstrong and Karakatsanis JJ.A.) October 27, 2011

  4. United Mexican States v. Cargill Incorporated    , 2011 ONCA 622 (Rosenberg, Moldaver and Feldman, JJ.A.) October 4, 2011

  5. Attis v. Ontario, 2011 ONCA 675 (Sharpe, Epstein JJ.A. and Cunningham A.C.J. ad hoc) October 31, 2011

1.  Smith v. Inco Limited, 2011 ONCA 628 (Doherty, MacFarland JJ.A., and Hoy J. ad hoc), October 7, 2011

This appeal considered a July 2010 class action trial judgment, in which the trial judge held that the soil on the properties in Port Colborne contained nickel particles deposited by emissions from Inco's nearby nickel refinery.  The trial judge further held that concerns about the levels of nickel in the soil caused wide-spread public concern, affecting property values after September 2000.  Inco was found liable on the basis of both private nuisance and under strict liability pursuant to Rylands v. Fletcher.  Damages were awarded in the amount of $36 million to the class.

Inco had operated the nickel refinery in Port Colborne from 1918 until its closure in 1984, during which time it emitted nickel oxide into the air via a 500-foot smoke stack located on its property.  Nickel oxide had been found in widely varying amounts in the soil on many of the properties that are located within a several mile radius of the refinery.  There was no dispute that the refinery was the source of most of the nickel in the soil, even though Inco did not operate its refinery unlawfully or negligently at any time.  Indeed, the trial evidence demonstrated that Inco had complied with the various environmental and governmental regulatory schemes applicable to its refinery operation.

The class was comprised of all individuals who have, since September 2000, owned residential property within an area that takes up the majority of Port Colborne, consisting of approximately 7,000 properties.  The only claim at trial related to a diminution in property values.  Allegations that nickel deposits caused adverse health effects had been abandoned prior to trial.

In granting the appeal, the Court of Appeal analyzed the common law of nuisance, which is the means by which to balance the competing interests between one person's lawful and reasonable use of his property that may indirectly harm or interfere and another person's ability to use and enjoy his own property.  "Nuisance", unlike "negligence", does not focus on the defendant's conduct which may be quite reasonable but still cause an unreasonable interference with a neighbouring property.

The plaintiffs did not assert that the nickel particles caused any interference with their use or enjoyment of the property; rather, the sole claim was that the nickel particulars caused physical injury to the property and a subsequent adverse effect on the value of the land.

The Court of Appeal held that a mere chemical alteration in the content of the soil, without more, does not amount to physical harm or damage to the property.  The trial judge erred in finding that the nickel particles caused actual substantial physical damage to the claimants' lands.  Had the claimants shown that the nickel levels in the properties posed a risk to health, they would have established that those particles caused actual substantial physical damage.  In rejecting the claims, the Court of Appeal also noted that "the claims as advanced and as accepted by the trial judge were not predicated on any actual risk to health". 

Rylands v. Fletcher, a case learned in law school and infrequently revisited thereafter, is given thorough treatment by the Court of Appeal.  As expressed by the Court of Appeal itself, "Rylands v. Fletcher has gone largely unnoticed in appellate courts in recent years".

As a result of its analysis, the Court of Appeal pronounced that strict liability, further to a Rylands v. Fletcher analysis based exclusively on the "extra-hazardous" nature of a defendant's conduct, should not be part of the common law in Ontario.  In so finding, the Court of Appeal expressly rejected contentions put forward by Allen M. Linden and Bruce Feldthusen in their text Canadian Tort Law, 8th Edition, which had been adopted at trial. Perhaps with an eye to a possible application for leave to appeal to the Supreme Court of Canada, however, the Court of Appeal noted that, even if strict liability for extra-hazardous activities were part of the law in Ontario, the class of claimants failed to prove that Inco's refinery did constitute such an extra-hazardous activity.

A further difficulty in the plaintiffs' case was that the escape requirements in Rylands v. Fletcher connote something unintended, such as a flood, gas leak, chemical spill, sewage overflow, etc., but are not aimed at all risks associated with carrying out an activity. Inco's activities were purposeful, managed, regulated and controlled.  While presented with the opportunity to impose strict liability on certain inherently dangerous activities, the Court of Appeal refused to do so, feeling that this was fundamentally a policy decision best introduced by legislative action and not judicial fiat.

After concluding that the trial judge erred in finding that Inco was liable under either private nuisance or the rule in Rylands v. Fletcher, the Court of Appeal went on to hold that the claimants had also failed to prove their damages, which is a necessary component of either cause of action.  The Court of Appeal concluded that the trial evidence demonstrated no loss to Port Colborne's property appreciation rates, and, therefore, no damages of any kind.

2.  McQueen v. Echelon General Insurance Company, 2011 ONCA 649 (Gillese, Armstrong and Karakatsanis JJ.A.), October 18, 2011

Motorists involved in automobile accidents in Ontario are entitled to seek recovery of certain statutory accident benefits from their automobile insurers, pursuant to the standard form automobile policy.  This appeal involved a 35-year-old unemployed woman involved in a rollover motor vehicle accident on January 31, 2004.  She claimed various statutory accident benefits, many of which were denied by Echelon.  Following a seven-day trial, Echelon was ordered to pay Ms. McQueen housekeeping benefits, transportation benefits, the cost of three medical assessments, and – significantly - $25,000.00 in damages for mental distress.

Echelon appealed, raising some 50 grounds of appeal.

The appeal was dismissed, with a slight reduction in the quantum of the award for the transportation expense, with costs of the appeal to Ms. McQueen.

On appeal of the mental distress damages, Echelon argued that the case was simply about a denial of benefits and that a denial of benefits does not amount to bad faith.  However, the Court of Appeal accepted that the findings of the trial judge laid the foundation for the claim for mental distress.  In particular, as early as paragraph 12 of the trial decision, the trial judge had referred to the Supreme Court of Canada case of Fiddler v. Sun Life Assurance Company Ltd. and returned to it again in paragraphs 51 and 52 of his Reasons, noting that the court must be satisfied that:

  1. an object of the contract was a secure psychological benefit that brings mental distress upon breach, within the reasonable contemplation of the parties;  and
  2. the degree of mental suffering caused by the breach was of a degree sufficient to warrant compensation.

The trial judge repeatedly noted in his judgment that Echelon refused to provide benefits on the basis that they were not reasonable and necessary, but Echelon gave no reasons for why they were not reasonable and necessary.  The trial judge pointed out a number of claims that Echelon had denied contrary to medical recommendations.  The trial judge was also able to refer to internal notes from Echelon's file that had been placed into evidence and which contained expressions connoting an attitude that runs against the reasoning from Whiten v. Pilot Insurance Company and Fiddler.  As a result, the trial judge made the following key findings of fact:

  • Echelon had adopted an adversarial approach to the plaintiff from the start;
  • Echelon had breached its contract of insurance with the plaintiff;
  • Echelon's adversarial position poisoned the process early on, notwithstanding its duty of good faith throughout; and
  • There was a negative predisposition toward the plaintiff by Echelon.

Based on these findings, the claim of mental distress was made out, a conclusion with which the Court of Appeal did not interfere. 

This case is particularly important to the development of our understanding of peace of mind contracts and the range of damages that can be awarded.  Echelon had argued that Fiddler, which dealt with long-term disability claims, had no application to a standard automobile policy.  This argument was rejected by the Court of Appeal.  Instead, Fiddler was found to lie at the heart of the conclusion, insofar as the Court of Appeal was concerned.  People purchase motor vehicle liability policies to protect themselves from financial and emotional stress and insecurity. One object of such a contract is to secure a psychological benefit that brought the prospect of mental distress upon breach within the reasonable contemplation of the parties.  Ms. McQueen was entitled to that peace of mind and the damages she suffered through the mental distress owing to Echelon's breach.

3.  Dean v. Mister Transmission (International) Ltd., 2011 ONCA 670 (Sharpe, Armstrong and Karakatsanis JJ.A.), October 27, 2011

This decision, written by Justice Karakatsanis, appears to be her last decision at the Ontario Court of Appeal prior to her appointment to the Supreme Court of Canada.  The appeal concerns itself with a class action that had been brought on behalf of consumers who had had their motor vehicle transmissions repaired by Mister Transmission.

The claim alleged that Mister Transmission breached the statutory prohibition against charging a fee for an estimate of the cost of repairs that are authorized and carried out.  The motion judge granted summary judgment dismissing the action, holding that no consumer had been charged a fee for an estimate as defined in the legislation and that, as such, Mister Transmission had not breached the statute.  The appeal was dismissed following a thorough analysis and statutory interpretation of certain sections of the Motor Vehicle Repair Act ("MVRA") and its successor legislation, the Consumer Protection Act ("CPA").

Mister Transmission advertised an inspection service for a fee of $552.42.  The transmission is removed and dismantled to determine any necessary repairs, and then re-assembled and reinstalled.  The fee is based on an industry-wide data bank for the labour cost of removing and reinstalling the transmission.  If a Mister Transmission customer elected not to proceed with any repairs, that customer still paid the inspection fee.  Customers who did proceed with repairs would have to pay the inspection service fee as well as the additional cost of any repair.  The plaintiffs asserted that, if repairs were authorized, the $552.42 fee for the estimate should be waived, as otherwise it would breach the statutory prohibition against charging a fee for an estimate if the repairs are done. 

Justice Karakatsanis dismissed the appeal.  First, she agreed that the interpretation of the relevant provisions of the MVRA and CPA excluded the significant labour costs involved in removing and reinstalling the transmission.  These were not necessarily included in the prohibition against fees for estimates.  Any other approach would not make commercial sense.  Further, the consumer remains protected as he only pays for the total repairs if authorized.

Second, Justice Karakatsanis compared the English version and French version of s.3(2) of the MVRA.  She noted that the French version is clearly different from the English version, although the provision of the CPA accorded with the English version of the MVRA

Justice Karakatsanis held that, when interpreting bilingual statutes, the court must determine whether there is an ambiguity and, where there is an ambiguity in one version of a provision but not the other, the court should look for the meaning that is common to both versions.  Ultimately, she agreed with the motions judge that the English version of the MVRA best reflected the legislature's intentions; the interpretation urged by the appellant was not consistent with the legislative purpose of the provisions, the legislative scheme and the commercial context in which it operates.  This was another difficult outcome for the plaintiffs in a class action case.

4.  United Mexican States v. Cargill Incorporated, 2011 ONCA 622 (Rosenberg, Moldaver and Feldman, JJ.A.), October 4, 2011

This appeal related to an international trade dispute and the correct application of the North American Free Trade Agreement ("NAFTA").

Cargill is a U.S. producer of high fructose corn syrup ("HFCS").  Mexico, the world's second largest consumer of soda pop on a per capita basis, would appear to be an ideal market for HFCS, but is an equally important market for Mexico's own refined sugar industry.  After Cargill created a Mexican distribution centre and built a new production plant in Nebraska to expand its HFCS production into Mexico, Mexico enacted a number of trade barriers, all of which were found to constitute breaches of the NAFTA in an arbitration.  Cargill was awarded damages of $36 million in "downstream losses", being direct loss sales and associated costs, and $41 million in "upstream losses", representing the cost of loss sales to Cargill of products made by it in the U.S., owing to its excess capacity.  Mexico asked the Superior Court of Justice in Ontario to set aside the portion of the arbitral decision that awarded upstream damages, Ontario being an agreed upon forum for this purpose under the governing Model Law.  The appeal was dismissed in the Superior Court.

Before the Court of Appeal, two main issues were raised:

  1. The appropriate standard of review to be applied by the Superior Court when considering the jurisdiction of the tribunal;  and
  2. Whether the appropriate standard of review was misapplied in the Superior Court.

It was Mexico's position that the tribunal did not have the jurisdiction under the NAFTA to award damages to Cargill for losses that it suffered as a producer and seller of HFCS in the United States, as distinct from those losses that it sustained as an investor within Mexico.  Mexico was supported in its position by both Canada and the United States, who appeared as interveners on the appeal.

Given its involvement with NAFTA arbitral tribunals, the ADR Chambers in Toronto was also given leave to intervene to assist the court on the issue of standard of review.  ADR Chambers argued in favour of a nuanced approach to the issue.  It suggested that the domestic administrative law tests do not apply when a court reviews the decision of an international arbitration panel under the Model Law.  Traditional arbitral nomenclature is not applicable.  Rather, the proper description of the standard to be applied, in ADR Chambers' submissions, was "the highest degree of deference".

Justice Feldman, for the court, agreed that applying domestic concepts of standard of review may not be helpful to courts reviewing international arbitration awards.  She referred to multiple Canadian authorities that have held that courts should accord international arbitration tribunals a high degree of deference, and that they should interfere only sparingly or in extraordinary cases.  Justice Feldman considered United Mexican States v. Metalclad Corp., a B.C. decision also dealing with NAFTA review under the Model Law, where it was held that the standard of review on a question of jurisdiction was correctness.  Next, she considered the English Supreme Court's 2011 decision in Dallah Real Estate and Tourism Holding Company v. Ministry of Religious Affairs of the Government of Pakistan.  While labelled in different language, Dallah essentially applied a variant of the correctness standard as well.

After looking at the specific article of the Model Law under which the appeal was launched, and after informing herself by analogy to the reasoning from the Supreme Court of Canada in Dunsmuir v. New Brunswick, Justice Feldman concluded that the tribunal only had authority to make any decision in accordance with the provisions of the NAFTA as interpreted in accordance with the principles of international law.  On its own, it had no authority to expand its jurisdiction by incorrectly interpreting the submission referred for arbitration or the NAFTA.

Accordingly, Justice Feldman concluded that the standard of review of the award that the Superior Court was to have applied is a standard of correctness in the sense that the tribunal had to be correct in its determination that it had the ability to make the decision that it did make.  That being said, a standard of correctness does not create great latitude for interference.  To the contrary, courts are expected to intervene only in rare circumstances where there is a true question of jurisdiction.  Justice Feldman indicated that the cautionary approach in Dunsmuir v. New Brunswick, namely that courts should take a narrow view of what constitutes a question of jurisdiction, is magnified in the international arbitration context.

Having clarified the appropriate standard of review, Justice Feldman tackled the application of that standard to the specific facts.  She ultimately determined that the tribunal did act within its jurisdiction, and that it was unnecessary for the Superior Court to review the entire analysis from the tribunal to decide if the result was reasonable.  A review of the merits of the decision was unnecessary.

The appeal was dismissed with costs and with a lasting and helpful legacy concerning the issue of standard of review of international trade arbitration disputes.

5.  Attis v. Ontario, 2011 ONCA 675 (Sharpe, Epstein JJ.A. and Cunningham A.C.J. ad hoc), October 31, 2011

To what extent can a defendant examine the nature of solicitor and client communications for the purpose of determining whether a cost award should be made against the solicitor personally?  The answer, according to the Court of Appeal, is that a defendant has no right to inquire into the legal advice given to the plaintiff by the plaintiff's lawyer, as this is purely a matter between solicitor and client.

This case is this month's third class action-related decision.  Although not mentioned in the appeal, the class action was part of the multi-country breast implant litigation.  The certification motion in the underlying action was dismissed in 2007, at which time costs were awarded to the Attorney General against the plaintiffs in the amount of $125,000.00.  The dismissal of the certification motion was appealed to the Court of Appeal which dismissed the appeal in 2008 and awarded the AG a further $40,000.00 in costs.  In 2009, leave to appeal to the Supreme Court of Canada was dismissed, with a further modest cost award.  Later that year, the AG was informed that the plaintiffs were impecunious.

Being unable to obtain its costs from the plaintiffs, the AG brought a motion in late 2009 seeking to re-open the issue of costs, with the request that it become the responsibility of plaintiffs' counsel.  By then, one plaintiff herself had already sued the plaintiff class action lawyer for failing to advise her of the potential of being personally liable for costs.

Following four days of argument, Cullity J. ordered plaintiffs' counsel to pay the costs to the AG personally – the cost order was converted from the plaintiffs' responsibility to their lawyer's responsibility. An appeal ensued.

At the Court of Appeal, the AG argued that, because the solicitor and client relationship is dependant on counsel warning clients so they fully understand potential risks, the failure to do so resulted in the plaintiffs not being informed.  Consequently, plaintiffs' counsel were not "authorized" to commence the proceeding in the first place, and should be liable for the costs.

The Court of Appeal distinguished between being authorized to commence the proceedings at all and a failure to understand the cost implications of initiating proceedings.  The Court of Appeal held that it is for an aggrieved party to take action, which is exactly what one plaintiff did.

The AG raised a further argument to the effect that the plaintiffs' lawyer breached his warranty of authority.  This argument was moot because, since the plaintiffs were impecunious, the AG would not have recovered costs from them in any event.  To award the AG costs after the fact would be to put the AG in a better position than if the action had proceeded with authority and failed.  Accordingly, this argument was rejected.

In obiter, the court noted that, since a multiplicity of legal proceedings is undesirable, the unconventional approach taken by the motions judge of awarding costs against the solicitor personally, in the face of an existing civil action by the clients against the solicitor, was one that ought to have been avoided.  It would have been preferable, given the seriously conflicting positions, to direct a trial of the issue which could easily have taken place at the same time as the trial of the action as between solicitor and client.  For all these reasons, the appeal was allowed.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Andrew C. Murray
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