Canada: Top 5 Civil Appeals From The Court Of Appeal (June 2014)

Last Updated: June 30 2014
Article by Peter W. Kryworuk and Yola S. Ventresca

1. Rajmohan v. Norman H. Solmon Family Trust, 2014 ONCA 352 (Juriansz, Tulloch and Strathy JJ.A.), May 5, 2014

2. Virc v. Blair, 2014 ONCA 392 (Cronk, Pepall and Strathy JJ.A.), May 14, 2014

3. Boucher v. Wal-Mart Canada Corp, 2014 ONCA 419 (Hoy A.C.J.O., Laskin and Tulloch JJ.A.), May 22, 2014

4. Mandeville v. The Manufacturers Life Insurance Company, 2014 ONCA 417 (Gillese, Blair and Strathy JJ.A.), May 22, 2014

5. Bulut v. Carter, 2014 ONCA 424 (Juriansz, Epstein and Pepall JJ.A.), May 23, 2014

1. Rajmohan v. Norman H. Solmon Family Trust, 2014 ONCA 352 (Juriansz, Tulloch and Strathy JJ.A.), May 5, 2014

In this brief decision, the Court of Appeal considered the doctrines of fraudulent concealment and special circumstances.

The appellant, the assignee of mortgages granted by Rajmohan to the late Norman Solmon, brought a third party claim against the estate trustee of Chandran, a solicitor who acted for Solmon as well as the mortgagors on the transaction. On a motion for summary judgment, the motion judge dismissed the appellant's claim on the basis that it was time-barred by s. 38(3) of the Trustee Act, R.S.O. 1990, c. T.23, which provides that an action against an executor or administrator of a deceased person shall not be brought more than two years after the death of the deceased. The appellant filed its claim alleging solicitor's negligence more than two years after Chandran's death.

The parties agreed at the motion that the Trustee Act would bar the appellant's third party claim unless either the doctrine of fraudulent concealment or the doctrine of special circumstances applied.  The motion judge determined that neither applied.

The Court of Appeal found that the motion judge made no reversible error in concluding that the doctrine of fraudulent concealment did not apply in the circumstances of the case. The motion judge carefully considered the elements which must be established in order to satisfy the doctrine, which the Court defined in Giroux Estate v. Trillium Health Centre, (2005), 74 O.R. (3d) 341 (C.A.), aff'g (2004), 69 O.R. (3d) 689 (S.C.J.) as preventing "unscrupulous defendants who stand in a special relationship with the injured party from using a limitation provision as an instrument of fraud." While she found that the solicitor-client relationship between Solmon and Chandran qualified as a "special relationship" within the meaning of Giroux and that Chandran's omissions amounted to concealment of the plaintiff's right of action, the motion judge concluded that the unconscionability requirement was not met. In her view, Chandran's conduct was negligent, but fell short of being unconscionable.<[/p>

The appellant submitted on appeal that Chandran's negligent conduct was a breach of his fiduciary duties to Solmon, notably his failure to obtain Solmon's written consent to the dual retainer and to the advancement of the mortgage funds despite the conditions not being met. This breach of fiduciary duty rendered Chandran's conduct unconscionable. The Court found that this claim failed in light of the motion judge's conclusion that Solmon likely gave verbal approval to both the dual retainer and the advancement of the funds. Having made these findings - which were based on an established working relationship between Chandra and Solmon and on Solmon's familiarity with these types of transactions - it was open to the motion judge to characterize Chandran's conduct as negligent but not unconscionable and, by extension, to conclude that the doctrine of fraudulent concealment did not apply.

Citing the recent decision of the Supreme Court in Hryniak v. Mauldin, 2014 SCC 7, the Court emphasized the principle that deference be afforded a motion judge's findings of fact and findings of mixed fact and law made on summary judgment.

The appellant also argued that pursuant to the doctrine of special circumstances, it should be permitted to bring its third party claim against the respondent after the expiration of the limitation period because the plaintiff's action was commenced within two years of Chandran's death. The Court rejected this submission. The Court noted that the applicable limitation period was not found in the Limitations Act, 2002, S.O. 2002, c. 24, Sch. B, but was proscribed by the Trustee Act. In any event, a third party claim is characterized as an action under the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, s. 1.03(1) and, pursuant to its decision in Joseph v. Paramount Canada's Wonderland, 2008 ONCA 469, 90 O.R. (3d) 401, the doctrine of special circumstances does not allow a party to commence a third party claim after the expiration of a limitation period.

2. Virc v. Blair, 2014 ONCA 392 (Cronk, Pepall and Strathy JJ.A.), May 14, 2014

Michael Blair brought a summary judgment motion seeking to dismiss an application brought by his former wife Patricia Anne Virc to set aside their separation agreement. The motion judge granted the motion and dismissed Virc's application. Virc's appeal raised issues concerning the enforceability of domestic contracts in the face of insufficient financial disclosure, undue influence and duress. Perhaps most interesting, this appeal prompts consideration of the scope of a judge's power on a summary judgment motion and whether the expanded powers given a judge on a Rule 20 motion ought to be available in the family law setting.

Virc challenged the validity of the separation agreement on several grounds, most notably that Blair's financial disclosure contained errors and omissions. Citing the imbalance in their financial bargaining power, she also claimed that Blair exercised undue influence over her and that she executed the agreement under duress. In addition, she argued that the agreement was unenforceable because her signature was not witnessed when she executed the agreement but rather two days later by a co-worker of the respondent who claimed to recognize her signature.

On the respondent's motion, the judge proceeded by applying Rule 16 of the Family Law Rules, O. Reg. 114/99, which governs summary judgment motions in family law matters. She determined that, unlike Rule 20 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, which concerns civil proceedings generally, Rule 16 precluded her from assessing credibility, weighing the evidence, or drawing factual conclusions. She then turned to s. 56(4) of the Family Law Act, R.S.O. 1990, c. F.3 as amended, which provides that a court may set aside a domestic contract if a party failed to disclose significant assets, significant debts or other liabilities existing when the contract was made, if a party did not understand the nature or consequences of the contract, or otherwise in accordance with the law of contracts. She noted the two-step process outlined by the Court of Appeal in LeVan v. LeVan, 2008 ONCA 388, 90 O.R. (3d) 1, whereby the court must determine first whether one of the circumstances in s. 56(4) applies and then whether it ought to exercise its discretion to set aside the contract.

The motion judge found that the question of whether Blair's misrepresentations were deliberate could not be determined on summary judgment based on the constraints on her ability to evaluate credibility. She therefore accepted the facts advanced by the appellant for the purposes of the motion, proceeding on the assumption that Blair had deliberately and materially misrepresented the value of his date of marriage property and that Virc's equalization payment may have been substantially less than her entitlement. Nonetheless, she concluded that there was no genuine issue for trial relating to the setting aside of the separation agreement because, despite having access to and knowledge of her husband's financial records and affairs, the appellant signed the agreement without questioning his disclosure. The motion judge relied on the Court of Appeal's decisions in Armstrong v. Armstrong, (2006), 32 R.F.L. (6th) 244 (Ont. C.A.), Butty v. Butty, 2009 ONCA 852, 99 O.R. (3d) 228 and Farquar v. Farquar (1983), 43 O.R. (2d) 423 (C.A.), finding that they impose an onus on the recipient of information to question it if she does not accept its veracity. The motion judge held that a reasonable person would have questioned Blair's disclosure, and concluded that the appellant failed to demonstrate that her application to set aside the separation agreement had a real chance of success at trial.

The motion judge similarly found that there was no genuine issue requiring a trial on the matter of whether the separation agreement should be set aside on the grounds of undue influence, duress, unconscionability and lack of independent legal advice or whether the agreement should be altered to provide for an order for spousal support. The motion judge also held that despite the requirement of s. 55(1) of the FLA that a domestic contract be witnessed, there was no genuine issue requiring a trial on the formal validity of the agreement. The appellant conceded that she signed the agreement and the witness was able to identify her signature. Moreover, while the appellant benefitted from her execution of the agreement, she did not raise the issue of compliance with the witness requirement for nearly two years.  The motion judge therefore granted the respondent's motion for summary judgment, dismissing most of the appellant's claims.  

Virc argued on appeal that the motion judge improperly shifted the respondent's disclosure obligation onto her, freeing the respondent from his obligation to make full and accurate disclosure. She also claimed that the motion judge erred in determining that the witness requirement had been satisfied.

Writing for the Court, Pepall J.A. found that the motion judge recognized the test for setting aside a separation agreement, but erred in its application.  The motion judge had found that the appellant should have questioned her husband's disclosure, and that her failure to do so precluded her from setting aside the agreement, even if the respondent had deliberately made a false disclosure. Once the motion judge assumed that there had been deliberate material misrepresentations, she erred in shifting the onus onto the appellant to inquire into their truthfulness. Pepall J.A. emphasized that in the case of a deliberate material misrepresentation, the onus is not placed on the recipient, but rather on the disclosing party to establish that the recipient had actual knowledge of the falsehood. Each of the cases relied upon by the motion judge in support of her conclusion was distinguishable from the facts at bar.

Pepall J.A. further found that the motion judge erred in granting summary judgment when relevant factors that required a determination were left unresolved.  The motion judge acknowledged that she could not make a finding as to whether the respondent's inaccurate disclosure was deliberate given the limits on her ability to evaluate credibility on a Rule 16 motion. Pepall J.A. noted that a clear finding of actual knowledge of misrepresentation is required: "a mere suspicion of lack of veracity does not absolve a fraudster of responsibility." There was insufficient evidence to determine whether the appellant had knowledge of the respondent's misrepresentations. Therefore, there were genuine issues requiring a trial concerning the extent of the appellant's knowledge of the respondent's misrepresentations at the time she executed the agreement. Pepall J.A. further held that the allegations of undue influence, duress and unconscionability and the matter of spousal support should also be determined by the trial judge on a full factual record.

Turning to the matter of the witness requirement, Pepall J.A. rejected the appellant's claim that the motion judge erred in determining that the requirement is satisfied if the witness merely verifies the signature. Pepall J.A. compared the language of s. 55(1) of the FLA to that of the Succession Law Reform Act, R.S.O. 1990, c. S.26, which also addresses formal execution, and found that the former allows for a less strict application of the witness requirement than the latter. Because the appellant admitted signing the agreement and benefitted from it for almost two years prior to asserting non-compliance with s. 55(1), Pepall J.A. held that the motion judge was correct in determining that this was not a genuine issue requiring a trial.

The Court allowed the appeal, setting aside the summary judgment dismissing the appellant's application. The Court ordered that the application proceed to trial on all issues with the exception of the appellant's claim of invalidity of the separation agreement based on s. 55(1) of the FLA.

Neither party challenged the motion judge's finding that the court's expanded powers under Rule 20 are not available under Rule 16 of the Family Law Rules. Pepall J.A. therefore assumed the motion judge's conclusion was correct for the purpose of the appeal, noting that a decision on this issue should await a case where it is fully argued. It will be interesting to observe whether, when faced with such an opportunity, the court will choose to import the expanded power of Rule 20 into the realm of family law.  

3.  Boucher v. Wal-Mart Canada Corp, 2014 ONCA 419 (Hoy A.C.J.O., Laskin and Tulloch JJ.A.), May 22, 2014

A jury awarded Boucher over $1 million in damages arising from a constructive dismissal action against Wal-Mart, an unprecedented award in Canadian employment law. In this decision, the Court of Appeal addressed the exceptional compensatory and punitive damages awarded to her.

Meredith Boucher began working for Wal-Mart when she graduated from high school in 1999. A good employee for nearly twenty years, she was eventually promoted to the position of assistant manager at the Wal-Mart store in Windsor. While she initially had a positive working relationship with her supervisor, Jason Pinnock, he became abusive toward her following an incident in 2009, when Boucher refused to falsify a temperature log. Wal-Mart investigated Boucher's complaints against Pinnock but determined that they were unsubstantiated and that Boucher should be disciplined for making them.  Following continued abuse from Pinnock, Boucher quit. She sued Wal-Mart and Pinnock for constructive dismissal and for damages.

A jury found that Boucher had been constructively dismissed and awarded her damages equivalent to twenty weeks' salary in accordance with her contract of employment. The jury also awarded her damages of $1,200,000 against Wal-Mart, consisting of $200,000 in aggravated damages for the manner in which she was dismissed and $1,000,000 in punitive damages. Boucher was also awarded damages of $250,000 against Pinnock, for which Wal-Mart was vicariously liable. This award consisted of $100,000 for intentional infliction of mental suffering and $150,000 in punitive damages.

Wal-Mart and Pinnock both appealed, challenging their liability for and the amount of damages awarded. Boucher cross-appealed, seeking damages for future income loss beyond the twenty weeks specified in her employment agreement.  

Pinnock challenged the jury's award for intentional infliction of mental suffering, submitting that the trial judge incorrectly instructed the jury on the proper elements of the tort and that no reasonable jury could have found him liable. Writing for the Court, Laskin J.A. agreed that the trial judge misstated the second element of the tort as set out in Prinzo v. Baycrest Centre for Geriatric Care (2002), 60 O.R. (3d) 474 (C.A.) - namely that the defendant's conduct was calculated to harm the plaintiff - improperly importing an objective test into the determination of whether the harm suffered by the plaintiff was intentional. Nonetheless, Laskin J.A. determined that the trial judge's error was of no consequence, noting that neither Pinnock's nor Wal-Mart's counsel objected to the charge, and that the error caused no injustice.

Laskin J.A. rejected Pinnock's submission that no jury acting reasonably could have found him liable for intentional infliction of mental suffering, finding that the evidence reasonably supported each of the three elements of the tort as outlined in Prinzo. Pinnock "belittled, humiliated and demeaned Boucher continuously and unrelentingly", in public, for nearly six months, conduct which was clearly "flagrant and outrageous". His conduct was calculated to harm: he intended to cause Boucher such distress that she would quit, and expressed his satisfaction when she did. Further, Pinnock's ill-treatment caused Boucher to suffer a "visible and provable illness". She experienced symptoms similar to those suffered by the plaintiff in Prinzo, which her family physician attributed to the stress caused by Pinnock's conduct. The jury's finding of liability for intentional infliction of mental suffering was reasonable.

Pinnock submitted in the alternative that the amount awarded for intentional infliction of mental suffering was excessive, if not unreasonable. Laskin J.A. rejected this claim, noting that while the award of $100,000 was high, and in fact higher than any other award against an individual employee in an employment law case, it was not so plainly unreasonable that it should be set aside. The harm Boucher suffered due to Pinnock's conduct was severe and it was open to the jury - representing the "collective conscience of the community" - to demonstrate their outrage through their award of damages.

Pinnock also challenged the jury's award of $150,000 in punitive damages, claiming that it ought to be set aside because it was not rationally required to punish him for his conduct. Laskin J.A. differentiated the compensatory nature of tort damages from those designed to punish a defendant for conduct which, in the words of the Supreme Court in Whiten v. Pilot Insurance Co., 2002 SCC 18, [2002] 1 S.C.R. 595, "represents a marked departure from the ordinary standards of decent behaviour".  He found that, when added to the large compensatory award, the award of punitive damages was so "inordinately large" that it exceeded what was rationally required to punish Pinnock for his conduct. The magnitude of the award of tort damages carried a strong punitive component. With that award upheld, an additional $150,000 was not required for the purposes of retribution, denunciation and deterrence. Laskin J.A. therefore allowed Pinnock's appeal of punitive damages and reduced the award to $10,000.

Wal-Mart appealed the aggravated damages awarded against it, claiming that the award of $200,000 should be set aside because the trial judge failed to caution the jury against double recovery. Wal-Mart argued that Pinnock's intentional infliction of mental suffering grounded both the tort award against him and the aggravated damages award against it; therefore, the aggravated damages award compensated Boucher a second time for a single wrong. The company argued in the alternative that the award was excessive and should be reduced. Laskin J.A. rejected these submissions, finding that the trial judge correctly instructed the jury on the purpose of aggravated damages and on the standard for awarding them, noting that in a wrongful dismissal claim they may be awarded against an employer who has engaged in conduct during the course of the dismissal that was unfair or in bad faith. Laskin J.A.. noted that Wal-Mart's counsel failed to request a caution at trial, but emphasized that a caution was unnecessary in any event because the tort award against Pinnock and the aggravated damages award against Wal-Mart vindicate different interests in law. While Pinnock's conduct caused Boucher's suffering, the way in which Wal-Mart dealt with that conduct and Boucher's complaints about it led to her dismissal. Wal-Mart's failure to address Pinnock's conduct, to take Boucher's complaints seriously and to enforce its workplace policies and, most egregiously, its threats against Boucher for making her complaints, justified a separate and substantial award for aggravated damages.

Turning to the quantum of the award, Laskin J.A. held that while the award was very high, it, like the tort award against Pinnock, reflected the jury's disapproval of its conduct. Given Wal-Mart's conduct, the jury's award was not so plainly unreasonable that it ought to be reduced.  

Hoy A.C.J.O. dissented on the issue of the aggravated damages award against Wal-Mart, finding that both the trial judge's charge to the jury and the quantum of damages awarded demonstrated that the jury incorrectly considered Pinnock's conduct in addition to that of the company. Already vicariously liable for the damages awarded against Pinnock to compensate Boucher for her suffering due to his conduct, Wal-Mart was effectively required to compensate Boucher twice for same tort. While Hoy A.C.J.O agreed with Laskin J.A. that Wal-Mart's own conduct justified an award of aggravated damages against it, she held that $25,000 would be sufficient to compensate Boucher for any additional distress it might have caused.  

Wal-Mart also sought to set aside or substantially reduce the $1 million award of punitive damages, claiming that the trial judge erred in her charge and that its conduct was not so reprehensible as to warrant punitive damages. In the alternative, the company argued that the award was not rationally required to punish it. While Laskin J.A. agreed that the trial judge erred in her instructions to the jury on the requirement of an "independent actionable wrong", he found that the error was ultimately of no effect. Laskin J.A. also rejected Wal-Mart's claim that its conduct was not so reprehensible as to warrant punitive damages. He did, however, agree that an additional award of $1,000,000 was not rationally required to meet the punitive objectives of retribution, deterrence and denunciation. As with the tort damages awarded against Pinnock, the substantial aggravated damages award itself sends "a significant denunciatory and punitive message and likely will have a deterrent effect." In addition, Wal-Mart was liable for damages for constructive dismissal and vicariously liable for the tort award against Pinnock. Moreover, while Wal-Mart's conduct was sufficiently reprehensible to warrant an award of punitive damages, Laskin J.A. noted that its misconduct fell short of the severity of the misconduct in cases that have attracted high punitive damages awards. Laskin J.A. concluded that in light of all of these considerations, a punitive damages award of $100,000 would be sufficient to penalize Wal-Mart.

Finally, Laskin J.A. addressed Boucher's cross-appeal against Wal-Mart, in which she claimed that the trial judge erred by instructing the jury that she could not recover future income loss beyond the period specified in her employment contract. She argued that trial judge ought to have applied the principle that an injured party must be restored to the position she would have been in but for the wrongdoer's conduct and, because she had intended to stay at Wal-Mart for the remainder of her working years, she was entitled to an additional $726,601 to compensate her for her loss of income until retirement. Laskin J.A. rejected Boucher's submissions, finding that the trial judge correctly identified the principle that an award for future loss of income is designed to compensate a plaintiff for loss of earning capacity. While Boucher had been unable to find a new job, this was not due to a lack of earning capacity. In fact, she had fully recovered from Pinnock's conduct less than two months after she left Wal-Mart. Because she had not suffered a loss of earning capacity, the trial judge correctly limited Boucher's loss of future income to the amount provided for in her employment contract. The cross-appeal was dismissed.

4. Mandeville v. The Manufacturers Life Insurance Company, 2014 ONCA 417 (Gillese, Blair and Strathy JJ.A.), May 22, 2014

In this decision, the Court of Appeal considered a novel duty of care: whether a mutual insurance company owed a duty to its participating policyholders.

Manulife transferred its Barbados life insurance business to Life of Barbados Limited, a Barbadian insurance company. The policies of eight thousand Barbadians were transferred as part of the sale. Manulife then demutualized, converting from a mutual insurance company into a stock company. Its participating policyholders were paid the value of Manulife in the amount of $9 billion. Since they were no longer Manulife participating policyholders, the Barbadians whose policies had been transferred to LOB were ineligible to share in the value of the company.

The appellants brought a class action on behalf of the Barbados policyholders, in which they claimed against Manulife for negligence and breach of fiduciary duty. They alleged that Manulife knew that it was going to demutualize and should have structured the transfer of its Barbados business to LOB in a way that protected the class members' rights to share in the value of the company on demutualization. The appellants sought damages equal to the amount that the class members would have received had they been treated as eligible policyholders on demutualization. The proceeding was certified as a class action in Mandeville v. Manufacturers Life Insurance Co. (2002), 40 C.P.C. (5th) 182 (Ont. S.C.).

After a trial on common issues, the trial judge dismissed the action, finding that the causes of action asserted against Manulife failed. Although he found a prima facie duty of care based on the foreseeability of harm and proximity, he refused, for policy reasons, to recognize that Manulife owed the class members a duty of care. The trial judge noted that had he found Manulife liable, he would have ordered the company to pay damages of approximately $82 million.

The appellants submitted before the Court of Appeal that the trial judge erred in failing to find that Manulife was negligent in its treatment of the class members by not protecting their right to participate in a future demutualization. Manulife cross-appealed, arguing that the trial judge erred in concluding that if it were negligent, this negligence caused the Barbados policyholders to suffer damages.

Writing for the Court, Gillese J.A. distilled the appellants' submissions to a single issue: whether Manulife owed the class members a duty of care at the time of the transfer.  Gillese J.A. noted that the duty of care analysis turns on the nature of the appellants' claim. The appellants defined their claim as one for a loss of a property right: the proprietary right to share in the value of Manulife when it demutualized. Gillese J.A. disagreed, however, finding that at the time of the transfer of their policies, they had no legally recognized right or interest in respect of a possible demutualization. Their claim was not for loss of a property right but one for pure economic loss. This finding is significant because, as the Supreme Court held in Martel Building Ltd. v. Canada, 2000 SCC 60, [2000] 2 S.C.R. 860, a claim for pure economic loss invites greater scrutiny when the court is considering whether to recognize a duty of care.

The appellants did not argue that their claim fell within any of the five categories of negligence claims outlined in Canadian National Railway Co. v. Norsk Pacific Steamship Co., [1992] 1 S.C.R. 1021. It therefore fell to the Court to apply the two-stage test in Anns v. Merton London Borough Council, [1978] A.C. 728 (H.L.), to determine whether a new category of pure economic loss ought to be established, recognizing a duty of care between a mutual insurance company and its participating policyholders. The Anns test requires a court to inquire (i) whether the harm that occurred was the reasonably foreseeable consequence of the defendant's act and, if so, (ii) whether there are reasons, notwithstanding the proximity between the parties, that tort liability should not be recognized.

The trial judge found that the first stage of the Anns test was satisfied and that a prima facie duty of care arose. As a result of policy considerations at the second stage, however, he declined to recognize the duty. Gillese J.A. agreed with the trial judge that policy considerations defeated the recognition of a duty of care, but she differed in finding that those considerations negated the duty of care at both stages of the test. The Supreme Court restated the Anns test in Cooper v. Hobart, 2001 SCC 79, [2001] 3 S.C.R. 537, making it clear that  policy considerations arise at both stages of the analysis:

The proximity analysis involved in the first stage focuses on factors arising from the relationship between the plaintiff and the defendant. These factors include questions of policy ... At the second stage of the Anns test, the question still remains whether there are residual policy considerations outside the relationship of the parties that may negative the imposition of a duty of care.

At the first stage of the Anns test, Gillese J.A. held that it was open to the trial judge to find that it was reasonably foreseeable that the class members would suffer harm as a result of Manulife's transfer of their policies. However, she found that the relationship between the parties was not sufficiently proximate that a prima facie duty of care arose. At the time of the transfer, the class members had only "an extremely tenuous interest" in sharing in the value of Manulife in the event of a future demutualization. Moreover, Manulife was entitled to transfer the Barbados policies pursuant to the Insurance Companies Act, S.C. 1991, c. 47 and the relevant Barbadian legislation. The transfer was lawful and approved by regulators in both jurisdictions.

With the proximity requirement unsatisfied, no duty of care arose; therefore, it was unnecessary to consider whether residual policy considerations would negate the imposition of a new duty of care. In any event, Gillese J.A. noted that two such considerations reinforced her view that no duty of care arose. First, imposing a duty of care on a mutual insurance company in respect of participating policyholders' mere hope of receiving a future financial benefit "raises the spectre of indeterminate liability". Not only would it encourage a "multiplicity of inappropriate lawsuits", it could have "significant and uncertain implications for corporate law more generally." Second, the law of negligence seeks to remedy the destruction of value, rather than address grievances about the way in which value is distributed.

Turning to Manulife's cross-appeal, Gillese J.A. agreed with Manulife that its claim became irrelevant in light of her finding that no duty of care arose. Nonetheless, she considered the trial judge's conclusion that had he found that Manulife owed the appellants a duty of care, he would have found that it breached its standard of care. Gillese J.A. agreed with the trial judge's general definition of the standard of care, notably the taking of reasonable steps to avoid the harm that the class members suffered as a result of the transfer. She also accepted his findings that Manulife knew at the time of the transfer that it would demutualize and that it could have protected the Barbados policyholder's rights to share in the benefits of demutualization. She disagreed, however, that the standard of care required Manulife to structure the transfer to LOB in a way that preserved the class members' voting rights and that Manulife breached that standard by failing to do so. Gillese J.A. held that requiring Manulife to structure the transfer to protect the class members did not meet the reasonableness standard in Ryan v. Victoria (City), [1999] 1 S.C.R. 201. The harm suffered by the class members was not reasonably foreseeable at the time of the transfer; moreover, requiring the transfer to be structured so as to maintain the class members' voting rights had no precedent in the mutual insurance industry. Gillese J.A. also held that even if Manulife breached the standard of care, the requisite causal connection between the breach and damages was not made out.  

5. Bulut v. Carter, 2014 ONCA 424 (Juriansz, Epstein and Pepall JJ.A.), May 23, 2014

Bulut and Carter did business together. In April, 2006, Carter, on behalf of his family's company, Carter's Printing of London Ltd., signed a promissory note in the amount of $300,000 in Bulut's favour. He personally guaranteed the note. Carter's wife and children, a director and shareholders of the company respectively, also executed the guarantee.

Later that year, Bulut made demand under the note and guarantees. Shortly thereafter, Carter's Printing went bankrupt.

Bulut commenced an action seeking payment from Carter and his wife and children through the enforcement of their guarantees. The defendants relied on the defence of non est factum and also argued that there was no consideration for the promissory note.

The trial judge awarded judgment against Carter in his capacity as guarantor of the note but held that the other Carter family members had satisfied the test for non est factum and therefore were not liable as guarantors. She dismissed the action against them.

Bulut appealed the dismissal of the action against the Carter family members, submitting that the defence of non est factum was not pleaded and that the trial judge erred in allowing the respondents to rely on it. He further argued that, in any event, the defence was not supported by the evidence. Carter cross-appealed, seeking to set aside the judgment against him on the basis that there was no consideration for the promissory note.

The Court of Appeal noted that the defence of non est factum was not explicitly referenced in the respondents' amended statement of defence and counterclaim, but found that the defence was nonetheless sufficiently set out in the pleadings. The respondents claimed that they were unaware that they had personally guaranteed the company's debt to the appellant. They pleaded that the document was not explained to them and that they were not given an opportunity to read it and in fact signed the guarantee without reviewing it, only to discover later that they had personally guaranteed the company's debt. In the Court's view, these assertions formed the defence of non est factum and were adequate to enable the appellant to respond in accordance with Rodaro v. Royal Bank of Canada (2002), 59 O.R. (3d) 74 (C.A.), which confirmed the principle that "lawsuits be decided within the boundaries of the pleadings" and that a party "has the right to know the case it has to meet and to have the opportunity to meet it."

Moreover, the Court noted that the record demonstrated that "battle was joined" on the issue of whether the respondents understood the nature of the guarantee. The appellant clearly knew the case he had to meet and had the opportunity to meet it.  The Court held, therefore, that the trial judge did not err in allowing the respondents to raise the defence of non est factum.

While the Court rejected the appellant's submission on the availability of the defence, it agreed with him that the Carter family members failed to establish it. As the Supreme Court concluded in Marvco Colour Research Ltd. v. Harris, [1982] 2 S.C.R. 774, the defence of non est factum is available to "someone who, as a result of misrepresentation, has signed a document mistaken as to its nature and character and who has not been careless in doing so." In the view of the Court, the Carter family members established neither that they signed the guarantee as a result of misrepresentation, nor that they took care in executing it.

In accordance with Dorsch v. Freeholders Oil Co. Ltd., [1965] S.C.R. 670, misrepresentation is essential to a plea of non est factum: in order to rely on the defence, Carter's wife and children had to demonstrate that they signed the guarantee as result of misrepresentation as to its nature. The Court noted that not only did they fail to meet that burden, they in fact testified that they were told nothing about the document other than to sign it. In the absence of any misrepresentation, the defence of non est factum was not open to them.  

Further, Carter's wife and children failed to demonstrate that they were not careless in executing the guarantee. While they claimed that they did not understand that they were personally guaranteeing the company's debt to Bulut, they did not read the one page document, nor did they ask any questions about it or ask for an opportunity to seek legal advice. In the Court's view, the trial judge erred in finding that the Carter family members were not careless in signing the guarantee, when their testimony confirmed that their conduct was, precisely, careless. For this reason as well, they were precluded from relying on the defence of non est factum.

The Carter family members relied on their alternate submission, as advanced by Carter on his cross-claim, that the promissory note was given without consideration. As at trial, Carter and his wife and children acknowledged that Bulut advanced funds to the company in 2004 when the parties agreed upon the promissory note, but claimed that this advance was made pursuant to a prior contract and therefore that the note was based on past performance. The Court rejected this submission, writing that the trial judge found, based on the evidence of Bulut, Carter, and the Carter family members, that funds were advanced to Carter's Printing and the promissory note given in order to allow the company to remain in business.  The evidence supported a finding of consideration.

The Court allowed the appeal, setting aside the trial judge's dismissal of Bulut's action against the Carter family members and granting judgment against them. The cross-appeal was dismissed.

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Peter W. Kryworuk
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