Court File No. CV-11-9532-OOCL ONTARIO SUPERIOR COURT OF JUSTICE (COMMERCIAL LIST) IN THE MATTER OF THE COMPANIES' CREDITORS ARRANGEMENT ACT, 1985, C.c-36 AS AMENDED AND IN THE MATTER OF A PLAN OF COMPROMISE OR ARRANGEMENT OF CRYSTALLEX INTERNATIONAL CORPORATION BRIEF OF AUTHORITIES OF AD HOC COMMITTEE OF SHAREHOLDERS OF CRYSTALLEX INTERNATIONAL CORPORATION (Motion of the DIP Lender) March 9, 2018 GOWLING WLG (CANADA) LLP Barristers & Solicitors 1 First Canadian Place 100 King Street West, Suite 1600 Toronto ON M5X 1G5 Tel: 416-862-7525 Fax: 416-862-7661 Clifton P Prophet (#34845K) Tel: 416-862-3509 Fax: 416-863-3509 [email protected]Nicholas Kluge (#44159T) Tel: 416-369-4610 Fax: 416-862-7661 [email protected]Delna Contractor (#68693E) Tel: 416-862-4322 Fax: 416-862-7661 [email protected]Lawyers for the Ad Hoc Committee of Shareholders of Crystallex International Corporation TO: THE SERVICE LIST
Transcript
Court File No. CV-11-9532-OOCL
ONTARIO SUPERIOR COURT OF JUSTICE
(COMMERCIAL LIST)
IN THE MATTER OF THE COMPANIES' CREDITORS ARRANGEMENT ACT, 1985, C.c-36 AS AMENDED
AND IN THE MATTER OF A PLAN OF COMPROMISE OR
ARRANGEMENT OF CRYSTALLEX INTERNATIONAL CORPORATION
BRIEF OF AUTHORITIES OF AD HOC COMMITTEE OF SHAREHOLDERS OF CRYSTALLEX INTERNATIONAL CORPORATION
(Motion of the DIP Lender) March 9, 2018 GOWLING WLG (CANADA) LLP
Barristers & Solicitors 1 First Canadian Place 100 King Street West, Suite 1600 Toronto ON M5X 1G5 Tel: 416-862-7525 Fax: 416-862-7661 Clifton P Prophet (#34845K) Tel: 416-862-3509 Fax: 416-863-3509 [email protected]
Nicholas Kluge (#44159T) Tel: 416-369-4610 Fax: 416-862-7661 [email protected]
Her Majesty The Queen in Right of Canada (Appellant / Respondenton cross-appeal) and Imperial Tobacco Canada Limited
(Respondent / Appellant on cross-appeal) and Attorney General ofOntario and Attorney General of British Columbia (Interveners)
Attorney General of Canada (Appellant / Respondent on cross-appeal) and Her Majesty The Queenin Right of British Columbia (Respondent) Imperial Tobacco Canada Limited, Rothmans, Benson
& Hedges Inc., Rothmans Inc., JTI-MacDonald Corp., R.J. Reynolds Tobacco Company, R.J.Reynolds Tobacco International Inc., B.A.T. Industries p.l.c., British American Tobacco (Investments)
Limited, Carreras Rothmans Limited, Philip Morris USA Inc. and Philip Morris International Inc.(Respondents / Appellants on cross-appeal) and Attorney General of Ontario, Attorney General of
British Columbia and Her Majesty The Queen in Right of the Province of New Brunswick (Interveners)
Proceedings: reversing British Columbia v. Imperial Tobacco Canada Ltd. (2009), 313 D.L.R. (4th) 651, 2009 BCCA 540,2009 CarswellBC 3307, 98 B.C.L.R. (4th) 201, [2010] 2 W.W.R. 385, 280 B.C.A.C. 100, 474 W.A.C. 100 (B.C. C.A.);reversing in part British Columbia v. Imperial Tobacco Canada Ltd. (2008), 2008 BCSC 419, 2008 CarswellBC 687, [2008]12 W.W.R. 241, 292 D.L.R. (4th) 353, 82 B.C.L.R. (4th) 362 (B.C. S.C.); and reversing Knight v. Imperial TobaccoCanada Ltd. (2009), 2009 BCCA 541, 2009 CarswellBC 3300, [2010] 2 W.W.R. 9, 99 B.C.L.R. (4th) 93, 313 D.L.R. (4th)695, 280 B.C.A.C. 160, 474 W.A.C. 160 (B.C. C.A.); reversing in part Knight v. Imperial Tobacco Canada Ltd. (2007),2007 BCSC 964, 2007 CarswellBC 1806, [2008] 4 W.W.R. 156, 76 B.C.L.R. (4th) 100 (B.C. S.C.)
Counsel: John S. Tyhurst, Paul Vickery, Travis Henderson for Appellant / Respondent on cross-appeal, Her Majestythe Queen in Right of CanadaPaul Vickery, John S. Tyhurst, Travis Henderson for Appellant / Respondent on cross-appeal, Attorney General ofCanadaDeborah Glendining, Nada Khirdaji for Respondent / Appellant on cross-appeal, Imperial Tobacco Canada LimitedRyan D. W. Dalziel, Daniel A. Webster, Q.C. for Respondent, Her Majesty the Queen in Right of British ColumbiaJohn J.L. Hunter, Q.C., Brent B. Olthuis for Respondent / Appellant on cross-appeal, Imperial Tobacco Canada LimitedKenneth N. Affleck, Q.C. (written) for Respondents / Appellants on cross-appeal, Rothmans, Benson & Hedges Inc.and Rothmans Inc.Jeffrey J. Kay, Q.C. (written) for Respondents / Appellants on cross-appeal, JTI-MacDonald Corp., R.J. ReynoldsTobacco Company, R.J. Reynolds Tobacco International Inc.
Craig P. Dennis, Michael D. Shirreff (written) for Respondents / Appellants on cross-appeal, B.A.T. Industries p.l.c.,British American Tobacco (Investments) LimitedChristopher M. Rusnak (written) for Respondent / Appellant on cross-appeal, Carreras Rothmans LimitedD. Ross Clark (written) for Respondent / Appellant on cross-appeal, Philip Morris U.S.A. Inc.Simon V. Potter, Michael A. Feder, Angela M. Juba for Respondent / Appellant on cross-appeal, Philip MorrisInternational Inc.Malliha Wilson, Lynne McArdle for Intervener, Attorney General of OntarioJeffrey S. Leon, Robyn M. Ryan Bell, Michael A. Eizenga for Intervener, Her Majesty the Queen in Right of NewBrunswickNancy Brown for Intervener, Attorney General of British Columbia
Subject: Public; Torts; Civil Practice and Procedure; Corporate and Commercial; Insolvency; Tax — Miscellaneous
APPEAL by Crown from judgments reported at British Columbia v. Imperial Tobacco Canada Ltd. (2009), 313 D.L.R.(4th) 651, 2009 BCCA 540, 2009 CarswellBC 3307, 98 B.C.L.R. (4th) 201, [2010] 2 W.W.R. 385, 280 B.C.A.C. 100,474 W.A.C. 100 (B.C. C.A.) and Knight v. Imperial Tobacco Canada Ltd. (2009), 2009 BCCA 541, 2009 CarswellBC3300, [2010] 2 W.W.R. 9, 99 B.C.L.R. (4th) 93, 313 D.L.R. (4th) 695, 280 B.C.A.C. 160, 474 W.A.C. 160 (B.C. C.A.),allowing defendants' claims for negligent misrepresentation and negligent design; CROSS-APPEAL by defendants fromjudgments reported at British Columbia v. Imperial Tobacco Canada Ltd. (2009), 313 D.L.R. (4th) 651, 2009 BCCA 540,2009 CarswellBC 3307, 98 B.C.L.R. (4th) 201, [2010] 2 W.W.R. 385, 280 B.C.A.C. 100, 474 W.A.C. 100 (B.C. C.A.) andKnight v. Imperial Tobacco Canada Ltd. (2009), 2009 BCCA 541, 2009 CarswellBC 3300, [2010] 2 W.W.R. 9, 99 B.C.L.R.(4th) 93, 313 D.L.R. (4th) 695, 280 B.C.A.C. 160, 474 W.A.C. 160 (B.C. C.A.), dismissing defendants' claims other thanclaims for negligent misrepresentation and negligent design.
POURVOI formé par l'État à l'encontre de jugements publiés à British Columbia v. Imperial Tobacco Canada Ltd. (2009),313 D.L.R. (4th) 651, 2009 BCCA 540, 2009 CarswellBC 3307, 98 B.C.L.R. (4th) 201, [2010] 2 W.W.R. 385, 280 B.C.A.C.100, 474 W.A.C. 100 (B.C. C.A.) et à Knight v. Imperial Tobacco Canada Ltd. (2009), 2009 BCCA 541, 2009 CarswellBC3300, [2010] 2 W.W.R. 9, 99 B.C.L.R. (4th) 93, 313 D.L.R. (4th) 695, 280 B.C.A.C. 160, 474 W.A.C. 160 (B.C. C.A.),ayant accueilli les requêtes des défenderesses faisant valoir une déclaration inexacte faite par négligence et une conceptionnégligente; POURVOI INCIDENT formé par les défenderesses à l'encontre de jugements publiés à British Columbia v.Imperial Tobacco Canada Ltd. (2009), 313 D.L.R. (4th) 651, 2009 BCCA 540, 2009 CarswellBC 3307, 98 B.C.L.R. (4th)201, [2010] 2 W.W.R. 385, 280 B.C.A.C. 100, 474 W.A.C. 100 (B.C. C.A.) et à Knight v. Imperial Tobacco Canada Ltd.(2009), 2009 BCCA 541, 2009 CarswellBC 3300, [2010] 2 W.W.R. 9, 99 B.C.L.R. (4th) 93, 313 D.L.R. (4th) 695, 280B.C.A.C. 160, 474 W.A.C. 160 (B.C. C.A.), ayant rejeté les requêtes des défenderesses faisant valoir d'autres moyensqu'une déclaration inexacte faite par négligence et une conception négligente.
McLachlin C.J.C.:
I. Introduction
1 Imperial Tobacco ("Imperial") is a defendant in two cases before the courts in British Columbia, British Columbiav. Imperial Tobacco Canada Ltd., Docket: S010421, and Knight v. Imperial Tobacco Canada Ltd., Docket: L031300. Inthe first case, the Government of British Columbia is seeking to recover the cost of paying for the medical treatment ofindividuals suffering from tobacco-related illnesses from a group of 14 tobacco companies, including Imperial ("CostsRecovery case"). The second case is a class action brought against Imperial alone by Mr. Knight on behalf of classmembers who purchased "light" or "mild" cigarettes, seeking a refund of the cost of the cigarettes and punitive damages("Knight case").
2 In both cases, the tobacco companies issued third-party notices to the Government of Canada, alleging that ifthe tobacco companies are held liable to the plaintiffs, they are entitled to compensation from Canada for negligentmisrepresentation, negligent design, and failure to warn, as well as at equity. They also allege that Canada would itself be
liable under the statutory schemes at issue in the two cases. In the Costs Recovery case, it is alleged that Canada would beliable under the Tobacco Damages and Health Care Costs Recovery Act, S.B.C. 2000, c. 30 ("CRA"), as a "manufacturer".In the Knight case, it is alleged that Canada would be liable as a "supplier" under the Business Practices and ConsumerProtection Act, S.B.C. 2004, c. 2 ("BPCPA"), and its predecessor, the Trade Practice Act, R.S.B.C. 1996, c. 457 ("TPA").
3 In both cases, Canada brought motions to strike the third party notices under r. 19(24) of the Supreme Court Rules,B.C. Reg. 221/90 (replaced by the Supreme Court Civil Rules, B.C. Reg. 168/2009, r. 9-5), arguing that it was plain andobvious that the third-party claims failed to disclose a reasonable cause of action. In both cases, the chambers judgesagreed with Canada, and struck all of the third-party notices. The British Columbia Court of Appeal allowed the tobaccocompanies' appeals in part. A majority of 3-2 held that the negligent misrepresentation claims arising from Canada'salleged duty of care to the tobacco companies in both the Costs Recovery case and the Knight case should proceed to trial.A majority in the Knight case further held that the negligent misrepresentation claim based on Canada's alleged dutyof care to consumers should proceed, as should the negligent design claims in the Knight case. The court unanimouslystruck the remainder of the tobacco companies' claims.
4 The Government of Canada appeals the finding that the claims for negligent misrepresentation and the claim fornegligent design should be allowed to go to trial. The tobacco companies cross-appeal the striking of the other claims.
5 For the reasons that follow, I conclude that all the claims of Imperial and the other tobacco companies broughtagainst the Government of Canada are bound to fail, and should be struck. I would allow the appeals of the Governmentof Canada in both cases and dismiss the cross-appeals.
II. Underlying Claims and Judicial History
A. The Knight Case
6 In the Knight case, consumers in British Columbia have brought a class action against Imperial under the BPCPAand its predecessor, the TPA. The class consists of consumers of light or mild cigarettes. It alleges that Imperial engagedin deceptive practices when it promoted low-tar cigarettes as less hazardous to the health of consumers. The class allegesthat the levels of tar and nicotine listed on Imperial's packages for light and mild cigarettes did not reflect the actualdeliveries of toxic emissions to smokers, and alleges that the smoke produced by light cigarettes was just as harmful asthat produced by regular cigarettes. The class seeks reimbursement of the cost of the cigarettes purchased, and punitivedamages.
7 Imperial issued a third-party notice against Canada. It alleges that Health Canada advised tobacco companies andthe public that low-tar cigarettes were less hazardous than regular cigarettes. Imperial alleges that while Health Canadawas initially opposed to the use of health warnings on cigarette packaging, it changed its policy in 1967. It instructedsmokers to switch to low-tar cigarettes if they were unwilling to quit smoking altogether, and it asked tobacco companiesto voluntarily list the tar and nicotine levels on their advertisements to encourage consumers to purchase low-tar brands.Contrary to expectations, it now appears that low-tar cigarettes are potentially more harmful to smokers.
8 Imperial also alleges that Agriculture Canada researched, developed, manufactured, and licensed several strainsof low-tar tobacco, and collected royalties from the companies, including Imperial, that used these strains. By 1982,Imperial pleads, the tobacco strains developed by Agriculture Canada were "almost the only tobacco varieties availableto Canadian tobacco manufacturers" (Knight case, amended third-party notice of Imperial, at para. 97).
9 Imperial makes five allegations against Canada:
1) Canada is itself liable under the BPCPA and the TPA as a "supplier" of tobacco products that engaged in deceptivepractices, and Imperial is entitled to contribution and indemnity from Canada pursuant to the provisions of theNegligence Act, R.S.B.C. 1996, c. 333.
2) Canada breached private law duties to consumers by negligently misrepresenting the health attributes of low-tar cigarettes, by failing to warn them against the hazards of low-tar cigarettes, and by failing to design its tobaccostrain with due care. Consequently, Imperial alleges that it is entitled to contribution and indemnity from Canadaunder the Negligence Act.
3) Canada breached its private law duties to Imperial by negligently misrepresenting the health attributes of low-tarcigarettes, by failing to warn Imperial about the hazards of low-tar cigarettes, and by failing to design its tobaccostrain with due care. Imperial alleges that it is entitled to damages against Canada to the extent of any liabilityImperial may have to the class members.
4) In the alternative, Canada is obliged to indemnify Imperial under the doctrine of equitable indemnity.
5) If Canada is not liable to Imperial under any of the above claims, Imperial is entitled to declaratory relief againstCanada so that it will remain a party to the action and be subject to discovery procedures under the Supreme CourtRules.
10 Canada brought an application to strike the third-party claims. It was successful before Satanove J. in the SupremeCourt of British Columbia (Knight v. Imperial Tobacco Canada Ltd., 2007 BCSC 964, 76 B.C.L.R. (4th) 100 (B.C. S.C.)).The chambers judge struck all of the claims against Canada. Imperial was partially successful in the Court of Appeal(2009 BCCA 541, 99 B.C.L.R. (4th) 93 (B.C. C.A.)). The Court of Appeal unanimously struck the statutory claim, theclaim of negligent design between Canada and Imperial, and the equitable indemnity claim. However, the majority, perTysoe J.A., held that the two negligent misrepresentation claims and the negligent design claim between Canada andconsumers should be allowed to proceed. The majority reasons did not address the failure to warn claim. Hall J.A.,dissenting, would have struck all the third-party claims.
B. The Costs Recovery Case
11 The Government of British Columbia has brought a claim under the CRA to recover the expense of treatingtobacco-related illnesses caused by "tobacco related wrong[s]". Under the CRA, manufacturers of tobacco products areliable to the province directly. The claim was brought against 14 tobacco companies. British Columbia alleges that by1950, these tobacco companies knew or ought to have known that cigarettes were harmful to one's health, and that theyfailed to properly warn the public about the risks associated with smoking their product.
12 Various defendants in the Costs Recovery case, including Imperial, brought third-party notices against Canadafor its alleged role in the tobacco industry. I refer to them collectively as the "tobacco companies". The allegations inthis claim are strikingly similar to those in the Knight case. The tobacco companies plead that Health Canada advisedthem and the public that low-tar cigarettes were less hazardous and instructed smokers that they should quit smoking orpurchase low-tar cigarettes. The tobacco companies allege that Canada was initially opposed to the use of warning labelson cigarette packaging, but ultimately instructed the industry that warning labels should be used and what they shouldsay. The tobacco companies also plead that Agriculture Canada researched, developed, manufactured and licensed thestrains of low-tar tobacco which they used for their cigarettes in exchange for royalties.
13 The tobacco companies brought the following claims against Canada:
1) Canada is itself liable under the CRA as a "manufacturer" of tobacco products, and the tobacco companies areentitled to contribution and indemnity from Canada pursuant to the Negligence Act.
2) Canada breached private law duties to consumers for failure to warn, negligent design, and negligentmisrepresentation, and the tobacco companies are entitled to contribution and indemnity from Canada to the extentof any liability they may have to British Columbia under the CRA.
3) Canada breached its private law duties owed to the tobacco companies for failure to warn and negligent design,and negligently misrepresented the attributes of low-tar cigarettes. The tobacco companies allege that they areentitled to damages against Canada to the extent of any liability they may have to British Columbia under the CRA.
4) In the alternative, Canada is obliged to indemnify the tobacco companies under the doctrine of equitableindemnity.
5) If Canada is not liable to the tobacco companies under any of the above claims, they are entitled to declaratoryrelief.
14 Canada was successful before the chambers judge, Wedge J., who struck all of the claims (2008 BCSC 419,82 B.C.L.R. (4th) 362 (B.C. S.C.)). In the Court of Appeal, the majority, per Tysoe J.A., allowed the negligentmisrepresentation claim between Canada and the tobacco companies to proceed (2009 BCCA 540, 98 B.C.L.R. (4th)201 (B.C. C.A.)). Hall J.A., dissenting, would have struck all the third-party claims.
III. Issues Before the Court
15 There is significant overlap between the issues on appeal in the Costs Recovery case and the Knight case, particularlyin relation to the common law claims. Both cases discuss whether Canada could be liable at common law in negligentmisrepresentation, negligent design and failure to warn, and in equitable indemnity. To reduce duplication, I treat theissues common to both cases together.
16 There are also issues and arguments that are distinct in the two cases. Uniquely in the Costs Recovery case, Canadaargues that all the contribution claims based on the Negligence Act and Canada's alleged duties of care to smokers shouldbe struck because even if these alleged duties were breached, Canada would not be liable to the sole plaintiff BritishColumbia. The statutory claims are also distinct in the two cases. The issues may therefore be stated as follows:
1. What is the test for striking out claims for failure to disclose a reasonable cause of action?
2. Should the claims for contribution and indemnity based on the Negligence Act and alleged breaches of duties ofcare to smokers be struck in the Costs Recovery case?
3. Should the tobacco companies' negligent misrepresentation claims be struck out?
4. Should the tobacco companies' claims of failure to warn be struck out?
5. Should the tobacco companies' claims of negligent design be struck out?
6. Should the tobacco companies' claim in the Costs Recovery case that Canada could qualify as a "manufacturer"under the CRA be struck out?
7. Should Imperial's claim in the Knight case that Canada could qualify as a "supplier" under the TPA and theBPCPA be struck out?
8. Should the tobacco companies' claims of equitable indemnity be struck out?
9. If Canada is not liable to the tobacco companies under any of the third-party claims, are the tobacco companiesnonetheless entitled to declaratory relief against Canada so that it will remain a party to both actions and be subjectto discovery procedures under the Supreme Court Rules?
17 The parties agree on the test applicable on a motion to strike for not disclosing a reasonable cause of action underr. 19(24)(a) of the B.C. Supreme Court Rules. This Court has reiterated the test on many occasions. A claim will only bestruck if it is plain and obvious, assuming the facts pleaded to be true, that the pleading discloses no reasonable cause ofaction: Odhavji Estate v. Woodhouse, 2003 SCC 69, [2003] 3 S.C.R. 263 (S.C.C.), at para. 15; Hunt v. T & N plc, [1990]2 S.C.R. 959 (S.C.C.), at p. 980. Another way of putting the test is that the claim has no reasonable prospect of success.Where a reasonable prospect of success exists, the matter should be allowed to proceed to trial: see, generally, D. (B.) v.Children's Aid Society of Halton (Region), 2007 SCC 38, [2007] 3 S.C.R. 83 (S.C.C.); Odhavji Estate; Hunt; Inuit Tapirisatof Canada v. Canada (Attorney General), [1980] 2 F.C.R. 735 (S.C.C.).
18 Although all agree on the test, the arguments before us revealed different conceptions about how it should beapplied. It may therefore be useful to review the purpose of the test and its application.
19 The power to strike out claims that have no reasonable prospect of success is a valuable housekeeping measureessential to effective and fair litigation. It unclutters the proceedings, weeding out the hopeless claims and ensuring thatthose that have some chance of success go on to trial.
20 This promotes two goods — efficiency in the conduct of the litigation and correct results. Striking out claims thathave no reasonable prospect of success promotes litigation efficiency, reducing time and cost. The litigants can focus onserious claims, without devoting days and sometimes weeks of evidence and argument to claims that are in any eventhopeless. The same applies to judges and juries, whose attention is focused where it should be — on claims that have areasonable chance of success. The efficiency gained by weeding out unmeritorious claims in turn contributes to betterjustice. The more the evidence and arguments are trained on the real issues, the more likely it is that the trial process willsuccessfully come to grips with the parties' respective positions on those issues and the merits of the case.
21 Valuable as it is, the motion to strike is a tool that must be used with care. The law is not static and unchanging.Actions that yesterday were deemed hopeless may tomorrow succeed. Before McAlister (Donoghue) v. Stevenson, [1932]A.C. 562 (U.K. H.L.) introduced a general duty of care to one's neighbour premised on foreseeability, few wouldhave predicted that, absent a contractual relationship, a bottling company could be held liable for physical injury andemotional trauma resulting from a snail in a bottle of ginger beer. Before Hedley Byrne & Co. v. Heller & Partners Ltd.,[1963] 2 All E.R. 575 (U.K. H.L.), a tort action for negligent misstatement would have been regarded as incapable ofsuccess. The history of our law reveals that often new developments in the law first surface on motions to strike or similarpreliminary motions, like the one at issue in McAlister (Donoghue) v. Stevenson. Therefore, on a motion to strike, it isnot determinative that the law has not yet recognized the particular claim. The court must rather ask whether, assumingthe facts pleaded are true, there is a reasonable prospect that the claim will succeed. The approach must be generous anderr on the side of permitting a novel but arguable claim to proceed to trial.
22 A motion to strike for failure to disclose a reasonable cause of action proceeds on the basis that the facts pleaded aretrue, unless they are manifestly incapable of being proven: Operation Dismantle Inc. v. R., [1985] 1 S.C.R. 441 (S.C.C.),at p. 455. No evidence is admissible on such a motion: r. 19(27) of the Supreme Court Rules (now r. 9-5(2) of the SupremeCourt Civil Rules). It is incumbent on the claimant to clearly plead the facts upon which it relies in making its claim. Aclaimant is not entitled to rely on the possibility that new facts may turn up as the case progresses. The claimant maynot be in a position to prove the facts pleaded at the time of the motion. It may only hope to be able to prove them.But plead them it must. The facts pleaded are the firm basis upon which the possibility of success of the claim must beevaluated. If they are not pleaded, the exercise cannot be properly conducted.
23 Before us, Imperial and the other tobacco companies argued that the motion to strike should take into account, notonly the facts pleaded, but the possibility that as the case progressed, the evidence would reveal more about Canada'sconduct and role in promoting the use of low-tar cigarettes. This fundamentally misunderstands what a motion to strike isabout. It is not about evidence, but the pleadings. The facts pleaded are taken as true. Whether the evidence substantiatesthe pleaded facts, now or at some future date, is irrelevant to the motion to strike. The judge on the motion to strike
cannot consider what evidence adduced in the future might or might not show. To require the judge to do so would beto gut the motion to strike of its logic and ultimately render it useless.
24 This is not unfair to the claimant. The presumption that the facts pleaded are true operates in the claimant's favour.The claimant chooses what facts to plead, with a view to the cause of action it is asserting. If new developments raisenew possibilities — as they sometimes do — the remedy is to amend the pleadings to plead new facts at that time.
25 Related to the issue of whether the motion should be refused because of the possibility of unknown evidenceappearing at a future date is the issue of speculation. The judge on a motion to strike asks if the claim has any reasonableprospect of success. In the world of abstract speculation, there is a mathematical chance that any number of things mighthappen. That is not what the test on a motion to strike seeks to determine. Rather, it operates on the assumption that theclaim will proceed through the court system in the usual way — in an adversarial system where judges are under a dutyto apply the law as set out in (and as it may develop from) statutes and precedent. The question is whether, consideredin the context of the law and the litigation process, the claim has no reasonable chance of succeeding.
26 With this framework in mind, I proceed to consider the tobacco companies' claims.
B. Canada's Alleged Duties of Care to Smokers in the Costs Recovery Case
27 In the Costs Recovery case, Canada argues that all the claims for contribution based on its alleged duties of care tosmokers must be struck. Under the Negligence Act, Canada submits, contribution may only be awarded if the third partywould be liable to the plaintiff directly. It argues that even if Canada breached duties to smokers, such breaches cannotground the tobacco companies' claims for contribution if they are found liable to British Columbia, the sole plaintiff inthe Costs Recovery case. This argument was successful in the Court of Appeal.
28 The tobacco companies argue that direct liability to the plaintiff is not a requirement for being held liable incontribution. They argue that contribution in the Negligence Act turns on fault, not liability. The object of the NegligenceAct is to allow defendants to recover from other parties that were also at fault for the damage that resulted to the plaintiff,and barring a claim against Canada would defeat this purpose, they argue.
29 I agree with Canada and the Court of Appeal that a third party may only be liable for contribution under theNegligence Act if it is directly liable to the plaintiff. In Dominion Chain Co. v. Eastern Construction Co., [1978] 2 S.C.R.1346 (S.C.C.), dealing with a statutory provision similar to that in British Columbia, Laskin C.J. stated:
I am of the view that it is a precondition of the right to resort to contribution that there be liability to the plaintiff.I am unable to appreciate how a claim for contribution can be made under s. 2(1) by one person against another inrespect of loss resulting to a third person unless each of the former two came under a liability to the third personto answer for his loss.
[Emphasis added; p. 1354.]
30 Accordingly, it is plain and obvious that the private law claims against Canada in the Costs Recovery case thatarise from an alleged duty of care to consumers must be struck. Even if Canada breached duties to smokers, this wouldhave no effect on whether it was liable to British Columbia, the plaintiff in that case. This holding has no bearing on theconsumer claim in the Knight case since consumers of light or mild cigarettes are the plaintiffs in the underlying action.
31 The discussion of the private law claims in the remainder of these reasons will refer exclusively to the claims basedon Canada's alleged duties of care to the tobacco companies in both cases before the Court, and Canada's alleged dutiesto consumers in the Knight case.
32 There are two types of negligent misrepresentation claims that remain at issue on this appeal. First, in the Knight case,Imperial alleges that Canada negligently misrepresented the health attributes of low-tar cigarettes to consumers, and istherefore liable for contribution and indemnity on the basis of the Negligence Act if the class members are successful in thissuit. Second, in both cases before the Court, Imperial and the other tobacco companies allege that Canada made negligentmisrepresentations to the tobacco companies, and that Canada is liable for any losses that the tobacco companies incurto the plaintiffs in either case.
33 Canada applies to have the claims struck on the ground that they have no reasonable prospect of success.
34 For the purposes of the motion to strike, we must accept as true the facts pleaded. We must therefore acceptthat Canada represented to consumers and to tobacco companies that light or mild cigarettes were less harmful, andthat these representations were not accurate. We must also accept that consumers and the tobacco companies relied onCanada's representations and acted on them to their detriment.
35 The law first recognized a tort action for negligent misrepresentation in Hedley Byrne. Prior to this, parties wereconfined to contractual remedies for misrepresentations. Hedley Byrne represented a break with this tradition, allowinga claim for economic loss in tort for misrepresentations made in the absence of a contract between the parties. In thedecades that have followed, liability for negligent misrepresentation has been imposed in a variety of situations wherethe relationship between the parties disclosed sufficient proximity and foreseeability, and policy considerations did notnegate liability.
36 Imperial and the other tobacco companies argue that the facts pleaded against Canada bring their claims withinthe settled parameters of the tort of negligent misrepresentation, and therefore a prima facie duty of care is established.The majority in the Court of Appeal accepted this argument in both decisions below (Knight case, at paras. 45 and 66;Costs Recovery case, at para. 70).
37 The first question is whether the facts as pleaded bring Canada's relationships with consumers and the tobaccocompanies within a settled category that gives rise to a duty of care. If they do, a prima facie duty of care will beestablished: see Childs v. Desormeaux, 2006 SCC 18, [2006] 1 S.C.R. 643 (S.C.C.), at para. 15. However, it is importantto note that liability for negligent misrepresentation depends on the nature of the relationship between the plaintiff anddefendant, as discussed more fully below. The question is not whether negligent misrepresentation is a recognized tort,but whether there is a reasonable prospect that the relationship alleged in the pleadings will give rise to liability fornegligent misrepresentation.
38 In my view, the facts pleaded do not bring either claim within a settled category of negligent misrepresentation. Thelaw of negligent misrepresentation has thus far not recognized liability in the kinds of relationships at issue in these cases.The error of the tobacco companies lies in assuming that the relationships disclosed by the pleadings between Canadaand the tobacco companies on the one hand and between Canada and consumers on the other are like other relationshipsthat have been held to give rise to liability for negligent misrepresentation. In fact, they differ in important ways. It issufficient at this point to note that the tobacco companies have not been able to point to any case where a governmenthas been held liable in negligent misrepresentation for statements made to an industry. To determine whether such acause of action has a reasonable prospect of success, we must therefore consider whether the general requirements forliability in tort are met, on the test set out by the House of Lords in Anns v. Merton London Borough Council (1977),[1978] A.C. 728 (U.K. H.L.), and somewhat reformulated but consistently applied by this Court, most notably in Cooperv. Hobart, 2001 SCC 79, [2001] 3 S.C.R. 537 (S.C.C.).
39 At the first stage of this test, the question is whether the facts disclose a relationship of proximity in which failureto take reasonable care might foreseeably cause loss or harm to the plaintiff. If this is established, a prima facie duty ofcare arises and the analysis proceeds to the second stage, which asks whether there are policy reasons why this prima
facie duty of care should not be recognized: Hill v. Hamilton-Wentworth (Regional Municipality) Police Services Board,2007 SCC 41, [2007] 3 S.C.R. 129 (S.C.C.).
(1) Stage One: Proximity and Foreseeability
40 On the first branch of the test, the tobacco companies argue that the facts pleaded establish a sufficiently closeand direct, or "proximate", relationship between Canada and consumers (in the Knight case) and between Canada andtobacco companies (in both cases) to support a duty of care with respect to government statements about light andmild cigarettes. They also argue that Canada could reasonably have foreseen that consumers and the tobacco industrywould rely on Canada's statements about the health advantages of light cigarettes, and that such reliance was reasonable.Canada responds that it was acting exclusively in a regulatory capacity when it made statements to the public and tothe industry, which does not give rise to sufficient proximity to ground the alleged duty of care. In the Costs Recoverycase, Canada also alleges that it could not have reasonably foreseen that the B.C. legislature would enact the CRA andtherefore cannot be liable for the potential losses of the tobacco companies under that Act.
41 Proximity and foreseeability are two aspects of one inquiry — the inquiry into whether the facts disclose arelationship that gives rise to a prima facie duty of care at common law. Foreseeability is the touchstone of negligencelaw. However, not every foreseeable outcome will attract a commensurate duty of care. Foreseeability must be groundedin a relationship of sufficient closeness, or proximity, to make it just and reasonable to impose an obligation on oneparty to take reasonable care not to injure the other.
42 Proximity and foreseeability are heightened concerns in claims for economic loss, such as negligentmisrepresentation: see, generally, Canadian National Railway v. Norsk Pacific Steamship Co., [1992] 1 S.C.R. 1021(S.C.C.); Bow Valley Husky (Bermuda) Ltd. v. Saint John Shipbuilding Ltd., [1997] 3 S.C.R. 1210 (S.C.C.). In a claim ofnegligent misrepresentation, both these requirements for a prima facie duty of care are established if there was a "specialrelationship" between the parties: Hercules Management Ltd. v. Ernst & Young, [1997] 2 S.C.R. 165 (S.C.C.). In HerculesManagement, the Court, per La Forest J., held that a special relationship will be established where: (1) the defendantought reasonably to foresee that the plaintiff will rely on his or her representation; and (2) reliance by the plaintiff wouldbe reasonable in the circumstances of the case (para. 24). Where such a relationship is established, the defendant may beliable for loss suffered by the plaintiff as a result of a negligent misstatement.
43 A complicating factor is the role that legislation should play when determining if a government actor owed a primafacie duty of care. Two situations may be distinguished. The first is the situation where the alleged duty of care is said toarise explicitly or by implication from the statutory scheme. The second is the situation where the duty of care is allegedto arise from interactions between the claimant and the government, and is not negated by the statute.
44 The argument in the first kind of case is that the statute itself creates a private relationship of proximity giving riseto a prima facie duty of care. It may be difficult to find that a statute creates sufficient proximity to give rise to a duty ofcare. Some statutes may impose duties on state actors with respect to particular claimants. However, more often, statutesare aimed at public goods, like regulating an industry (Cooper), or removing children from harmful environments (D.(B.)). In such cases, it may be difficult to infer that the legislature intended to create private law tort duties to claimants.This may be even more difficult if the recognition of a private law duty would conflict with the public authority's duty tothe public: see, e.g., Cooper and D. (B.). As stated in D. (B.), "[w]here an alleged duty of care is found to conflict with anoverarching statutory or public duty, this may constitute a compelling policy reason for refusing to find proximity" (atpara. 28; see also Fullowka v. Royal Oak Ventures Inc., 2010 SCC 5, [2010] 1 S.C.R. 132 (S.C.C.), at para. 39).
45 The second situation is where the proximity essential to the private duty of care is alleged to arise from a series ofspecific interactions between the government and the claimant. The argument in these cases is that the government has,through its conduct, entered into a special relationship with the plaintiff sufficient to establish the necessary proximityfor a duty of care. In these cases, the governing statutes are still relevant to the analysis. For instance, if a finding ofproximity would conflict with the state's general public duty established by the statute, the court may hold that no
proximity arises: D. (B.); see also Heaslip Estate v. Mansfield Ski Club Inc., 2009 ONCA 594, 96 O.R. (3d) 401 (Ont.C.A.). However, the factor that gives rise to a duty of care in these types of cases is the specific interactions between thegovernment actor and the claimant.
46 Finally, it is possible to envision a claim where proximity is based both on interactions between the parties andthe government's statutory duties.
47 Since this is a motion to strike, the question before us is simply whether, assuming the facts pleaded to be true,there is any reasonable prospect of successfully establishing proximity, on the basis of a statute or otherwise. On onehand, where the sole basis asserted for proximity is the statute, conflicting public duties may rule out any possibility ofproximity being established as a matter of statutory interpretation: D. (B.). On the other, where the asserted basis forproximity is grounded in specific conduct and interactions, ruling a claim out at the proximity stage may be difficult.So long as there is a reasonable prospect that the asserted interactions could, if true, result in a finding of sufficientproximity, and the statute does not exclude that possibility, the matter must be allowed to proceed to trial, subject toany policy considerations that may negate the prima facie duty of care at the second stage of the analysis.
48 As mentioned above, there are two relationships at issue in these claims: the relationship between Canada andconsumers (the Knight case), and the relationship between Canada and tobacco companies (both cases). The questionat this stage is whether there is a prima facie duty of care in either or both these relationships. In my view, on the factspleaded, Canada did not owe a prima facie duty of care to consumers, but did owe a prima facie duty to the tobaccocompanies.
49 The facts pleaded in Imperial's third-party notice in the Knight case establish no direct relationship betweenCanada and the consumers of light cigarettes. The relationship between the two was limited to Canada's statements tothe general public that low-tar cigarettes are less hazardous. There were no specific interactions between Canada and theclass members. Consequently, a finding of proximity in this relationship must arise from the governing statutes: Cooper,at para. 43.
50 The relevant statutes establish only general duties to the public, and no private law duties to consumers. TheDepartment of Health Act, S.C. 1996, c. 8, establishes that the duties of the Minister of Health relate to "the promotionand preservation of the health of the people of Canada": s. 4(1). Similarly, the Department of Agriculture and Agri-FoodAct, R.S.C. 1985, c. A-9, s. 4, the Tobacco Act, S.C. 1997, c. 13, s. 4, and the Tobacco Products Control Act, S.C. 1988,c. 20, s. 3 (repealed), only establish duties to the general public. These general duties to the public do not give rise to aprivate law duty of care to particular individuals. To borrow the words of Sharpe J.A. of the Ontario Court of Appealin Eliopoulos v. Ontario (Minister of Health & Long Term Care) (2006), 276 D.L.R. (4th) 411 (Ont. C.A.), "I fail to seehow it could be possible to convert any of the Minister's public law discretionary powers, to be exercised in the generalpublic interest, into private law duties owed to specific individuals": para. 17. At the same time, the governing statutesdo not foreclose the possibility of recognizing a duty of care to the tobacco companies. Recognizing a duty of care onthe government when it makes representations to the tobacco companies about the health attributes of tobacco strainswould not conflict with its general duty to protect the health of the public.
51 Turning to the relationship between Canada and the tobacco companies, at issue in both of the cases before theCourt, the tobacco companies contend that a duty of care on Canada arose from the transactions between them andCanada over the years. They allege that Canada went beyond its role as regulator of industry players and entered intoa relationship of advising and assisting the companies in reducing harm to their consumers. They hope to show thatCanada gave erroneous information and advice, knowing that the companies would rely on it, which they did.
52 The question is whether these pleadings bring the tobacco companies within the requirements for a specialrelationship under the law of negligent misrepresentation as set out in Hercules Management. As noted above, a specialrelationship will be established where (1) the defendant ought reasonably to foresee that the plaintiff will rely on his orher representation, and (2) such reliance would, in the particular circumstances of the case, be reasonable. In the cases
at bar, the facts pleaded allege a history of interactions between Canada and the tobacco companies capable of fulfillingthese conditions.
53 What is alleged against Canada is that Health Canada assumed duties separate and apart from its governing statute,including research into and design of tobacco and tobacco products and the promotion of tobacco and tobacco products(third-party statement of claim of Imperial in the Costs Recovery case, 5 A.R., vol. 2, at p. 66). In addition, it is allegedthat Agriculture Canada carried out a programme of cooperation with and support for tobacco growers and cigarettemanufacturers including advising cigarette manufacturers of the desirable content of nicotine in tobacco to be used inthe manufacture of tobacco products. It is alleged that officials, drawing on their knowledge and expertise in smokingand health matters, provided both advice and directions to the manufacturers including advice that the tobacco strainsdesigned and developed by officials of Agriculture Canada and sold or licensed to the manufacturers for use in theirtobacco products would not increase health risks to consumers or otherwise be harmful to them (pp. 109-10). Thus, whatis alleged is not simply that broad powers of regulation were brought to bear on the tobacco industry, but that Canadaassumed the role of adviser to a finite number of manufacturers and that there were commercial relationships enteredinto between Canada and the companies based in part on the advice given to the companies by government officials.
54 What is alleged with respect to Canada's interactions with the manufacturers goes far beyond the sort of statementsmade by Canada to the public at large. Canada is alleged to have had specific interactions with the manufacturers incontrast to the absence of such specific interactions between Canada and the class members. Whereas the claims inrelation to consumers must be founded on a statutory framework establishing very general duties to the public, the claimsalleged in relation to the manufacturers are not alleged to arise primarily from such general regulatory duties and powersbut from roles undertaken specifically in relation to the manufacturers by Canada apart from its statutory duties, namelyits roles as designer, developer, promoter and licensor of tobacco strains. With respect to the issue of reasonable reliance,Canada's regulatory powers over the manufacturers, coupled with its specific advice and its commercial involvement,could be seen as supporting a conclusion that reliance was reasonable in the pleaded circumstance.
55 The indices of proximity offered in Hercules Management for a special relationship (direct financial interest;professional skill or knowledge; advice provided in the course of business, deliberately or in response to a specific request)may not be particularly apt in the context of alleged negligent misrepresentations by government. I note, however, thatthe representations are alleged to have been made in the course of Health Canada's regulatory and other activities, not inthe course of casual interaction. They were made specifically to the manufacturers who were subject to Health Canada'sregulatory powers and by officials alleged to have special skill, judgment and knowledge.
56 Before leaving this issue, two final arguments must be considered. First, in the Costs Recovery case, Canada submitsthat there is no prima facie duty of care between Canada and the tobacco companies because the potential damages thatthe tobacco companies may incur under the CRA were not foreseeable. It argues that "[i]t was not reasonably foreseeableby Canada that a provincial government might create a wholly new type of civil obligation to reimburse costs incurred bya provincial health care scheme in respect of defined tobacco related wrongs, with unlimited retroactive and prospectivereach" (A.F. at para. 36).
57 In my view, Canada's argument was correctly rejected by the majority of the Court of Appeal. It is not necessarythat Canada should have foreseen the precise statutory vehicle that would result in the tobacco companies' liability. Allthat is required is that it could have foreseen that its negligent misrepresentations would result in a harm of some sortto the tobacco companies: Hercules Management, at paras. 25-26 and 42. On the facts pleaded, it cannot be ruled outthat the tobacco companies may succeed in proving that Canada foresaw that the tobacco industry would incur thistype of penalty for selling a more hazardous product. As held by Tysoe J.A., it is not necessary that Canada foreseethat the liability would extend to health care costs specifically, or that provinces would create statutory causes of actionto recover these costs. Rather, "[i]t is sufficient that Canada could have reasonably foreseen in a general way that theappellants would suffer harm if the light and mild cigarettes were more hazardous to the health of smokers than regularcigarettes" (at para. 78).
58 Second, Canada argues that the relationship in this case does not meet the requirement of reasonable reliancebecause Canada was not acting in a commercial capacity, but rather as a regulator of an industry. It was therefore notreasonable for the tobacco companies to have relied on Canada as an advisor, it submits. This view was adopted byHall J.A. in dissent, holding that "it could never have been the perception of the appellants that Canada was takingresponsibility for their interests" (Costs Recovery case, at para. 51).
59 In my view, this argument misconceives the reliance necessary for negligent misrepresentation under thetest in Hercules Management. When the jurisprudence refers to "reasonable reliance" in the context of negligentmisrepresentation, it asks whether it was reasonable for the listener to rely on the speaker's statement as accurate, notwhether it was reasonable to believe that the speaker is guaranteeing the accuracy of its statement. It is not plain andobvious that it was unreasonable for the tobacco companies to rely on Canada's statements about the advantages oflight or mild cigarettes. In my view, Canada's argument that it was acting as a regulator does not relate to reasonablereliance, although it exposes policy concerns that should be considered at stage two of the Anns/Cooper test: HerculesManagement, at para. 41.
60 In sum, I conclude that the claims between the tobacco companies and Canada should not be struck out atthe first stage of the analysis. The pleadings, assuming them to be true, disclose a prima facie duty of care in negligentmisrepresentation. However, the facts as pleaded in the Knight case do not show a relationship between Canada andconsumers that would give rise to a duty of care. That claim should accordingly be struck at this stage of the analysis.
(2) Stage Two: Conflicting Policy Considerations
61 Canada submits that there can be no duty of care in the cases at bar because of stage-two policy considerations. Itrelies on four policy concerns: (1) that the alleged misrepresentations were policy decisions of the government; (2) thatrecognizing a duty of care would give rise to indeterminate liability to an indeterminate class; (3) that recognizing a dutyof care would create an unintended insurance scheme; and (4) that allowing Imperial's claim would transfer responsibilityfor tobacco products to the government from the manufacturer, and the manufacturer "is best positioned to addressliability for economic loss" (A.F., at para. 72).
62 For the reasons that follow, I accept Canada's submission that its alleged negligent misrepresentations to thetobacco industry in both cases should not give rise to tort liability because of stage-two policy considerations. First,the alleged statements are protected expressions of government policy. Second, recognizing a duty of care would exposeCanada to indeterminate liability.
(a) Government Policy Decisions
63 Canada contends that it had a policy of encouraging smokers to consume low-tar cigarettes, and pursuant to thispolicy, promoted this variety of cigarette and developed strains of low-tar tobacco. Canada argues that statements madepursuant to this policy cannot ground tort liability. It relies on the statement of Cory J. in Just v. British Columbia, [1989]2 S.C.R. 1228 (S.C.C.), that "[t]rue policy decisions should be exempt from tortious claims so that governments are notrestricted in making decisions based upon social, political or economic factors" (p. 1240).
64 The tobacco companies, for their part, contend that Canada's actions were not matters of policy, but operationalacts implementing policy, and therefore, are subject to tort liability. They submit that Canada's argument fails to accountfor the "facts" as pleaded in the third-party notices, namely that Canada was acting in an operational capacity, and asa participant in the tobacco industry. The tobacco companies also argue that more evidence is required to determineif the government's actions were operational or pursuant to policy, and that the matter should therefore be permittedto go to trial.
65 In the Knight case, the majority in the Court of Appeal, per Tysoe J.A., agreed with Imperial's submissions,holding that "evidence is required to determine which of the actions and statements of Canada in this case were policy
decisions and which were operational decisions" (para. 52). Hall J.A. dissented; in his view, it was clear that all of Canada'sinitiatives were matters of government policy:
[Canada] had a responsibility, as pleaded in the Third Party Notice, to protect the health of the Canadian publicincluding smokers. Any initiatives it took to develop less hazardous strains of tobacco, or to publish the tar andnicotine yields of different cigarette brands were directed to this end. While the development of new strains oftobacco involved Agriculture Canada, in my view the government engaged in such activities as a regulator of thetobacco industry seeking to protect the health interests of the Canadian public. Policy considerations underlaid allof these various activities undertaken by departments of the federal government. [para. 100]
66 In order to resolve the issue of whether the alleged "policy" nature of Canada's conduct negates the prima facie dutyof care for negligent misrepresentation established at stage one of the analysis, it is necessary to first consider severalpreliminary matters.
(i) Conduct at Issue
67 The first preliminary matter is the conduct at issue for purposes of this discussion. The third-party notices describetwo distinct types of conduct — one that is related to the allegation of negligent misrepresentation and one that is not.The first type of conduct relates to representations by Canada that low-tar and light cigarettes were less harmful tohealth than other cigarettes. The second type of conduct relates to Agriculture Canada's role in developing and growinga strain of low-tar tobacco and collecting royalties on the product. In argument, the tobacco companies merged thetwo types of conduct, emphasizing aspects that cast Canada in the role of a business operator in the tobacco industry.However, in considering negligent misrepresentation, only the first type of conduct — conduct relevant to statementsand representations made by Canada — is at issue.
(ii) Relevance of Evidence
68 This brings us to the second and related preliminary matter — the helpfulness of evidence in resolving the questionof whether the third-party claims for negligent misrepresentation should be struck. The majority of the Court Appealconcluded that evidence was required to establish whether Canada's alleged misrepresentations were made pursuant toa government policy. Likewise, the tobacco companies in this Court argued strenuously that insofar as Canada wasdeveloping, growing, and profiting from low-tar tobacco, it should not be regarded as a government regulator or policymaker, but rather a business operator. Evidence was required, they urged, to determine the extent to which this wasbusiness activity.
69 There are two problems with this argument. The first is that, as mentioned, it relies mainly on conduct — thedevelopment and marketing of a strain of low-tar tobacco — that is not directly related to the allegation of negligentmisrepresentation. The only question at this point of the analysis is whether policy considerations weigh against findingthat Canada was under a duty of care to the tobacco companies to take reasonable care to accurately represent thequalities of low-tar tobacco. Whether Canada produced strains of low-tar tobacco is not directly relevant to that inquiry.The question is whether, insofar as it made statements on this matter, policy considerations militate against holding itliable for those statements.
70 The second problem with the argument is that, as discussed above, a motion to strike is, by its very nature, notdependent on evidence. The facts pleaded must be assumed to be true. Unless it is plain and obvious that on those factsthe action has no reasonable chance of success, the motion to strike must be refused. To put it another way, if there is areasonable chance that the matter as pleaded may in fact turn out not to be a matter of policy, then the application tostrike must be dismissed. Doubts as to what may be proved in the evidence should be resolved in favour of proceedingto trial. The question for us is therefore whether, assuming the facts pleaded to be true, it is plain and obvious that anyduty of care in negligent misrepresentation would be defeated on the ground that the conduct grounding the allegedmisrepresentation is a matter of government policy and hence not capable of giving rise to liability in tort.
71 Before we can answer this question, we must consider a third preliminary issue: what constitutes a policy decisionimmune from review by the courts?
(iii) What Constitutes a Policy Decision Immune from Judicial Review?
72 The question of what constitutes a policy decision that is generally protected from negligence liability is a vexed one,upon which much judicial ink has been spilled. There is general agreement in the common law world that governmentpolicy decisions are not justiciable and cannot give rise to tort liability. There is also general agreement that governmentsmay attract liability in tort where government agents are negligent in carrying out prescribed duties. The problem is todevise a workable test to distinguish these situations.
73 The jurisprudence reveals two approaches to the problem, one emphasizing discretion, the other, policy, each withvariations. The first approach focuses on the discretionary nature of the impugned conduct. The "discretionary decision"approach was first adopted in Dorset Yacht Co. v. Home Office, [1970] 2 W.L.R. 1140 (U.K. H.L.). This approach holdsthat public authorities should be exempt from liability if they are acting within their discretion, unless the challengeddecision is irrational.
74 The second approach emphasizes the "policy" nature of protected state conduct. Policy decisions are conceived of asa subset of discretionary decisions, typically characterized as raising social, economic and political considerations. Theseare sometimes called "true" or "core" policy decisions. They are exempt from judicial consideration and cannot give riseto liability in tort, provided they are neither irrational nor taken in bad faith. A variant of this is the policy/operationaltest, in which "true" policy decisions are distinguished from "operational" decisions, which seek to implement or carryout settled policy. To date, the policy/operational approach is the dominant approach in Canada: Just; Brown v. BritishColumbia (Minister of Transportation & Highways), [1994] 1 S.C.R. 420 (S.C.C.); Swinamer v. Nova Scotia (AttorneyGeneral), [1994] 1 S.C.R. 445 (S.C.C.); Lewis (Guardian ad litem of) v. British Columbia, [1997] 3 S.C.R. 1145 (S.C.C.).
75 To complicate matters, the concepts of discretion and policy overlap and are sometimes used interchangeably.Thus Lord Wilberforce in Anns defined policy as a synonym for discretion (p. 500).
76 There is wide consensus that the law of negligence must account for the unique role of government agencies: Just.On the one hand, it is important for public authorities to be liable in general for their negligent conduct in light of thepervasive role that they play in all aspects of society. Exempting all government actions from liability would result inintolerable outcomes. On the other hand, "the Crown is not a person and must be free to govern and make true policydecisions without becoming subject to tort liability as a result of those decisions": Just, at p. 1239. The challenge, torepeat, is to fashion a just and workable legal test.
77 The main difficulty with the "discretion" approach is that it has the potential to create an overbroad exemptionfor the conduct of government actors. Many decisions can be characterized as to some extent discretionary. For thisreason, this approach has sometimes been refined or replaced by tests that narrow the scope of the discretion that confersimmunity.
78 The main difficulty with the policy/operational approach is that courts have found it notoriously difficult todecide whether a particular government decision falls on the policy or operational side of the line. Even low-level stateemployees may enjoy some discretion related to how much money is in the budget or which of a range of tasks is mostimportant at a particular time. Is the decision of a social worker when to visit a troubled home, or the decision of a snow-plow operator when to sand an icy road, a policy decision or an operational decision? Depending on the circumstances,it may be argued to be either or both. The policy/operational distinction, while capturing an important element of whysome government conduct should generally be shielded from liability, does not work very well as a legal test.
79 The elusiveness of a workable test to define policy decisions protected from judicial review is captured by the historyof the issue in various courts. I begin with the House of Lords. The House initially adopted the view that all discretionary
decisions of government are immune, unless they are irrational: Dorset Yacht Co. v. Home Office. It then moved on toa two-stage test that asked first whether the decision was discretionary and, if so, rational; and asked second whether itwas a core policy decision, in which case it was entirely exempt from judicial scrutiny: X (minors) v. Bedfordshire CountyCouncil, [1995] 3 All E.R. 353 (U.K. H.L.). Within a year of adopting this two-stage test, the House abandoned it witha ringing declamation of the policy/operational distinction as unworkable in difficult cases, a point said to be evidencedby the Canadian jurisprudence: Stovin v. Wise, [1996] A.C. 923 (U.K. H.L.), per Lord Hoffman. In its most recent forayinto the subject, the House of Lords affirmed that both the policy/operational distinction and the discretionary decisionapproach are valuable tools for discerning which government decisions attract tort liability, but held that the final test isa "justiciability" test: Barrett v. Enfield LBC (1979), [2001] 2 A.C. 550 (Eng. H.L.). The ultimate question on this test iswhether the court is institutionally capable of deciding on the question, or "whether the court should accept that it hasno role to play" (p. 571). Thus at the end of the long judicial voyage the traveller arrives at a test that essentially restatesthe question. When should the court hold that a government decision is protected from negligence liability? When thecourt concludes that the matter is one for the government and not the courts.
80 Australian judges in successive cases have divided between a discretionary/irrationality model and a "true policy"model. In Sutherland Shire Council v. Heyman (1985), 157 C.L.R. 424 (Australia H.C.), two of the justices (Gibbs C.J.and Wilson J.) adopted the Dorset Yacht rule that all discretionary decisions are immune, provided they are rational (p.442). They endorsed the policy/operational distinction as a logical test for discerning which decisions should be protected,and adopted Lord Wilberforce's definition of policy as a synonym for discretion. Mason J., by contrast, held that onlycore policy decisions, which he viewed as a narrower subset of discretionary decisions, were protected (p. 500). DeaneJ. agreed with Mason J. for somewhat different reasons. Brennan J. did not comment on which test should be adopted,leaving the test an open question. The Australian High Court again divided in Pyrenees Shire Council v. Day, [1998]H.C.A. 3, 192 C.L.R. 330, with three justices holding that a discretionary government action will only attract liability ifit is irrational and two justices endorsing different versions of the policy/operational distinction.
81 In the United States, the liability of the federal government is governed by the Federal Tort Claims Act of 1946,28 U.S.C. ("FTCA"), which waived sovereign immunity for torts, but created an exemption for discretionary decisions.Section 2680(a) excludes liability in tort for
[a]ny claim based upon an act or omission of an employee of the Government, exercising due care, in the execution ofa statute or regulation, whether or not such statute or regulation be valid, or based upon the exercise or performanceor the failure to exercise or perform a discretionary function or duty on the part of a federal agency or an employeeof the Government, whether or not the discretion involved be abused.
[Emphasis added.]
Significantly, s. 2680(h) of the FTCA exempts the federal government from any claim of misrepresentation, eitherintentional or negligent: Office of Personnel Management v. Richmond, 496 U.S. 414 (U.S.S.C. 1990), at p. 430; U.S. v.Neustadt, 366 U.S. 696 (U.S. Sup. Ct. 1961).
82 Without detailing the complex history of the American jurisprudence on the issue, it suffices to say that the caseshave narrowed the concept of discretion in the FTCA by reference to the concept of policy. Some cases develop thisanalysis by distinguishing between policy and operational decisions: e.g., Dalehite v. United States, 346 U.S. 15 (U.S.Tex. 1953). The Supreme Court of the United States has since distanced itself from the approach of defining a true policydecision negatively as "not operational", in favour of an approach that asks whether the impugned state conduct wasbased on public policy considerations. In United States v. Gaubert, 499 U.S. 315 (U.S. Tex. 1991), White J. faulted theCourt of Appeals for relying on "a nonexistent dichotomy between discretionary functions and operational activities" (p.326). He held that the "discretionary function exception" of the FTCA "protects only governmental actions and decisionsbased on considerations of public policy" (at p. 323, citing Berkovitz v. U.S., 486 U.S. 531 (U.S. Pa. S.C. 1988), at p. 537(emphasis added)), such as those involving social, economic and political considerations: see also United States v. S. A.Empresa de Viacao Aerea Rio Grandense (Varig Airlines), 467 U.S. 797 (U.S. Cal. 1984).
83 In Gaubert, only Scalia J. found lingering appeal in defining policy decisions as "not operational", but only in thenarrow sense that people at the operational level will seldom make policy decisions. He stated that "there is somethingto the planning vs. operational dichotomy — though ... not precisely what the Court of Appeals believed" (p. 335). That"something" is that "[o]rdinarily, an employee working at the operational level is not responsible for policy decisions, eventhough policy considerations may be highly relevant to his actions". For Scalia J., a government decision is a protectedpolicy decision if it "ought to be informed by considerations of social, economic, or political policy and is made by anofficer whose official responsibilities include assessment of those considerations".
84 A review of the jurisprudence provokes the following observations. The first is that a test based simply on theexercise of government discretion is generally now viewed as too broad. Discretion can imbue even routine tasks, likedriving a government vehicle. To protect all government acts that involve discretion unless they are irrational simplycasts the net of immunity too broadly.
85 The second observation is that there is considerable support in all jurisdictions reviewed for the view that "true"or "core" policy decisions should be protected from negligence liability. The current Canadian approach holds that only"true" policy decisions should be so protected, as opposed to operational decisions: Just. The difficulty in defining suchdecisions does not detract from the fact that the cases keep coming back to this central insight. Even the most recent"justiciability" test in the U.K. looks to this concept for support in defining what should be viewed as justiciable.
86 A third observation is that defining a core policy decision negatively as a decision that it is not an "operational"decision may not always be helpful as a stand-alone test. It posits a stark dichotomy between two water-tightcompartments — policy decisions and operational decisions. In fact, decisions in real life may not fall neatly into onecategory or the other.
87 Instead of defining protected policy decisions negatively, as "not operational", the majority in Gaubert defines thempositively as discretionary legislative or administrative decisions and conduct that are grounded in social, economic,and political considerations. Generally, policy decisions are made by legislators or officers whose official responsibilityrequires them to assess and balance public policy considerations. The decision is a considered decision that represents a"policy" in the sense of a general rule or approach, applied to a particular situation. It represents "a course or principleof action adopted or proposed by a government": New Oxford Dictionary of English (1998), at p. 1434. When judgesare faced with such a course or principle of action adopted by a government, they generally will find the matter to be apolicy decision. The weighing of social, economic, and political considerations to arrive at a course or principle of actionis the proper role of government, not the courts. For this reason, decisions and conduct based on these considerationscannot ground an action in tort.
88 Policy, used in this sense, is not the same thing as discretion. Discretion is concerned with whether a particularactor had a choice to act in one way or the other. Policy is a narrow subset of discretionary decisions, covering onlythose decisions that are based on public policy considerations, like economic, social and political considerations. Policydecisions are always discretionary, in the sense that a different policy could have been chosen. But not all discretionarydecisions by government are policy decisions.
89 While the main focus on the Gaubert approach is on the nature of the decision, the role of the person who makes thedecision may be of assistance. Did the decision maker have the responsibility of looking at social, economic or politicalfactors and formulating a "course" or "principle" of action with respect to a particular problem facing the government?Without suggesting that the question can be resolved simply by reference to the rank of the actor, there is something toScalia J.'s observation in Gaubert that employees working at the operational level are not usually involved in makingpolicy choices.
90 I conclude that "core policy" government decisions protected from suit are decisions as to a course or principleof action that are based on public policy considerations, such as economic, social and political factors, provided they
are neither irrational nor taken in bad faith. This approach is consistent with the basic thrust of Canadian cases on theissue, although it emphasizes positive features of policy decisions, instead of relying exclusively on the quality of being"non-operational". It is also supported by the insights of emerging jurisprudence here and elsewhere. This said, it doesnot purport to be a litmus test. Difficult cases may be expected to arise from time to time where it is not easy to decidewhether the degree of "policy" involved suffices for protection from negligence liability. A black and white test that willprovide a ready and irrefutable answer for every decision in the infinite variety of decisions that government actors mayproduce is likely chimerical. Nevertheless, most government decisions that represent a course or principle of action basedon a balancing of economic, social and political considerations will be readily identifiable.
91 Applying this approach to motions to strike, we may conclude that where it is "plain and obvious" that an impugnedgovernment decision is a policy decision, the claim may properly be struck on the ground that it cannot ground an actionin tort. If it is not plain and obvious, the matter must be allowed to go to trial.
(iv) Conclusion on the Policy Argument
92 As discussed, the question is whether the alleged representations of Canada to the tobacco companies that low-tarcigarettes are less harmful to health are matters of policy, in the sense that they constitute a course or principle of actionof the government. If so, the representations cannot ground an action in tort.
93 The third-party notices plead that Canada made statements to the public (and to the tobacco companies) warningabout the hazards of smoking, and asserting that low-tar cigarettes are less harmful than regular cigarettes; that therepresentations that low-tar cigarettes are less harmful to health were false; and that insofar as consumption causedextra harm to consumers for which the tobacco companies are held liable, Canada is required to indemnify the tobaccocompanies and/or contribute to their losses.
94 The third-party notices implicitly accept that in making the alleged representations, Health Canada was acting outof concern for the health of Canadians, pursuant to its policy of encouraging smokers to switch to low-tar cigarettes.They assert, in effect, that Health Canada had a policy to warn the public about the hazardous effects of smoking, and toencourage healthier smoking habits among Canadians. The third-party claims rest on the allegation that Health Canadaaccepted that some smokers would continue to smoke despite the adverse health effects, and decided that these smokersshould be encouraged to smoke lower-tar cigarettes.
95 In short, the representations on which the third-party claims rely were part and parcel of a government policyto encourage people who continued to smoke to switch to low-tar cigarettes. This was a "true" or "core" policy, in thesense of a course or principle of action that the government adopted. The government's alleged course of action wasadopted at the highest level in the Canadian government, and involved social and economic considerations. Canada, onthe pleadings, developed this policy out of concern for the health of Canadians and the individual and institutional costsassociated with tobacco-related disease. In my view, it is plain and obvious that the alleged representations were mattersof government policy, with the result that the tobacco companies' claims against Canada for negligent misrepresentationmust be struck out.
96 Having concluded that the claims for negligent misrepresentation are not actionable because the allegedrepresentations were matters of government policy, it is not necessary to canvas the other stage-two policy grounds thatCanada raised against the third-party claims relating to negligent misrepresentation. However, since the argument aboutindeterminate liability was fully argued, I will briefly discuss it. In my view, it confirms that no liability in tort shouldbe recognized for Canada's alleged misrepresentations.
(b) Indeterminate Liability
97 Canada submits that allowing the defendants' claims in negligent misrepresentation would result in indeterminateliability, and must therefore be rejected. It submits that Canada had no control over the number of cigarettes being sold.
It argues that in cases of economic loss, the courts must limit liability to cases where the third party had a means ofcontrolling the extent of liability.
98 The tobacco companies respond that Canada faces extensive, but not indeterminate liability. They submit thatthe scope of Canada's liability to tobacco companies is circumscribed by the tort of negligent misrepresentation. Canadawould only be liable to the smokers of light cigarettes and to the tobacco companies.
99 I agree with Canada that the prospect of indeterminate liability is fatal to the tobacco companies' claims of negligentmisrepresentation. Insofar as the claims are based on representations to consumers, Canada had no control over thenumber of people who smoked light cigarettes. This situation is analogous to Cooper v. Hobart, where this Court heldthat it would have declined to apply a duty of care to the Registrar of Mortgage Brokers in respect of economic lossessuffered by investors because "[t]he Act itself imposes no limit and the Registrar has no means of controlling the numberof investors or the amount of money invested in the mortgage brokerage system" (para. 54). While this statement wasmade in obiter, the argument is persuasive.
100 The risk of indeterminate liability is enhanced by the fact that the claims are for pure economic loss. In DesignServices Ltd. v. R., 2008 SCC 22, [2008] 1 S.C.R. 737 (S.C.C.), the Court, per Rothstein J., held that "in cases of pureeconomic loss, to paraphrase Cardozo C.J., care must be taken to find that a duty is recognized only in cases where theclass of plaintiffs, the time and the amounts are determinate" (para. 62). If Canada owed a duty of care to consumers oflight cigarettes, the potential class of plaintiffs and the amount of liability would be indeterminate.
101 Insofar as the claims are based on representations to the tobacco companies, they are at first blush morecircumscribed. However, this distinction breaks down on analysis. Recognizing a duty of care for representations tothe tobacco companies would effectively amount to a duty to consumers, since the quantum of damages owed to thecompanies in both cases would depend on the number of smokers and the number of cigarettes sold. This is a flow-through claim of negligent misrepresentation, where the tobacco companies are passing along their potential liability toconsumers and to the province of British Columbia. In my view, in both cases, these claims should fail because Canadawas not in control of the extent of its potential liability.
(c) Summary on Stage-Two Policy Arguments
102 In my view, this Court should strike the negligent misrepresentation claims in both cases as a result of stage-twopolicy concerns about interfering with government policy decisions and the prospect of indeterminate liability.
D. Failure to Warn
103 The tobacco companies make two allegations of failure to warn: B.A.T. alleges that Canada directed the tobaccocompanies not to provide warnings on cigarette packages (the labelling claim) about the health hazards of cigarettes; andImperial alleges that Canada failed to warn the tobacco companies about the dangers posed by the strains of tobaccodesigned and licensed by Canada.
(1) Labelling Claim
104 B.A.T. alleges that by instructing the industry to not put warning labels on their cigarettes, Canada is liable intort for failure to warn. In the Knight case, Tysoe J.A. did not address the failure to warn claims. Hall J.A., writing forthe minority, would have struck those claims on stage-two grounds, finding that Canada's decision was a policy decisionand that liability would be indeterminate. Hall J.A. also held that liability would conflict with the government's publicduties (para. 99). In the Costs Recovery case, Tysoe J.A. adopted Hall J.A.'s analysis from the Knight case in rejectingthe failure to warn claim as between Canada and the tobacco companies (para. 89). B.A.T. challenges these findings.
105 The crux of this failure to warn claim is essentially the same as the negligent misrepresentation claim, and shouldbe rejected for the same policy reasons. The Minister of Health's recommendations on warning labels were integral to
the government's policy of encouraging smokers to switch to low-tar cigarettes. As such, they cannot ground a claimin failure to warn.
(2) Failure to Warn Imperial About Health Hazards
106 The Court of Appeal, per Tysoe J.A., held that the third-party notices did not sufficiently plead that Canada failedto warn the industry about the health hazards of its strains of tobacco. Imperial argues that this was in error, because theelements of a failure to warn claim are identical to the elements of the negligence claim, which was sufficiently pleaded.
107 Canada points out that the two paragraphs of the third-party notices that discuss failure to warn only mentionthe claims that relate to labels, and not the claim that Canada failed to warn Imperial about potential health hazards ofthe tobacco strains. Canada also argues that to support a claim of failure to warn, the plaintiff must not only show thatthe defendant acted negligently, but that the defendant was also under a positive duty to act. It submits that nothing inthe third-party notices suggests that Canada was under such a positive duty here.
108 I agree with Canada that the tort of failure to warn requires evidence of a positive duty towards the plaintiff.Positive duties in tort law are the exception rather than the rule. In Childs v. Desormeaux, the Court held:
Although there is no doubt that an omission may be negligent, as a general principle, the common law is a jealousguardian of individual autonomy. Duties to take positive action in the face of risk or danger are not free-standing.Generally, the mere fact that a person faces danger, or has become a danger to others, does not itself impose anykind of duty on those in a position to become involved. [para. 31]
Moreover, none of the authorities cited by Imperial support the proposition that a plea of negligence, without more,will suffice to raise a duty to warn: Day v. Central Okanagan (Regional District), 2000 BCSC 1134, 79 B.C.L.R. (3d) 36(B.C. S.C.), per Drossos J.; see also Elias v. Headache & Pain Management Clinic [2008 CarswellOnt 8657 (Ont. S.C.J.)],2008 CanLII 53133, per Macdonald J. (paras. 6 to 9).
109 Even if pleading negligence were viewed as sufficient to raise a claim of duty to warn, which I do not accept, theclaim would fail for the stage-two policy reasons applicable to the negligent misrepresentation claim.
E. Negligent Design
110 The tobacco companies have brought two types of negligent design claims against Canada that remain to beconsidered. First, they submit that Canada breached its duty of care to the tobacco companies when it negligentlydesigned its strains of low-tar tobacco. The Court of Appeal held that the pleadings supported a prima facie duty of carein this respect, but held that the duty was negated by the stage-two policy concern of indeterminate liability. Second,Imperial submits that Canada breached its duty of care to the consumers of light and mild cigarettes in the Knight case.A majority of the Court of Appeal held that this claim should proceed to trial.
111 In my view, both remaining negligent design claims establish a prima facie duty of care, but fail at the secondstage of the analysis because they relate to core government policy decisions.
(1) Prima Facie Duty of Care
112 I begin with the claim that Canada owed a prima facie duty of care to the tobacco companies. Canada submits thatthere was no prima facie duty of care since there is no proximity between Canada and the tobacco companies, relying onthe same arguments that it raises in the negligent misrepresentations claims.
113 In my view, the Court of Appeal correctly concluded that Canada owed a prima facie duty of care towardsthe tobacco companies with respect to its design of low-tar tobacco strains. I agree with Tysoe J.A. that the allegedrelationship in this case meets the requirements for proximity:
If sufficient proximity exists in the relationship between a designer of a product and a purchaser of the product, itwould seem to me to follow that there is sufficient proximity in the relationship between the designer of a productand a manufacturer who uses the product in goods sold to the public. Also, the designer of the product oughtreasonably to have the manufacturer in contemplation as a person who would be affected by its design in the contextof the present case. It would have been reasonably foreseeable to the designer of the product that a manufacturerof goods incorporating the product could be required to refund the purchase price paid by consumers if the designof the product did not accomplish that which it was intended to accomplish. [Knight case, para. 67]
114 The allegation is that Canada was acting like a private company conducting business, and conducted itself towardthe tobacco companies in a way that established proximity. The proximity alleged is not based on a statutory duty,but on interactions between Canada and the tobacco companies. Canada's argument that a duty of care would resultin conflicting private and public duties does not negate proximity arising from conduct, although it may be a relevantstage-two policy consideration.
115 For similar reasons, I conclude that on the facts pleaded, Canada owed a prima facie duty of care to the consumersof light and mild cigarettes in the Knight case. On the facts pleaded, it is at least arguable that Canada was acting in acommercial capacity when it designed its strains of tobacco. As Tysoe J.A. held in the court below, "a person who designsa product intended for sale to the public owes a prima facie duty of care to the purchasers of the product" (para. 48).
(2) Stage-Two Policy Considerations
116 For the reasons given in relation to the negligent misrepresentation claim, I am of the view that stage-two policyconsiderations negate this prima facie duty of care for the claims of negligent design. The decision to develop low-tarstrains of tobacco on the belief that the resulting cigarettes would be less harmful to health is a decision that constitutes acourse or principle of action based on Canada's health policy. It was a decision based on social and economic factors. Asa core government policy decision, it cannot ground a claim for negligent design. This conclusion makes it unnecessaryto consider the argument of indeterminate liability also raised as a stage- two policy objection to the claim of negligentdesign.
F. The Direct Claims Under the Costs Recovery Act
117 The tobacco companies submit that the Court of Appeal erred when it held that it was plain and obvious thatCanada could not qualify as a manufacturer under the CRA. They also present three alternative arguments: (1) that ifCanada is not liable under the Act, it is liable under the recently adopted Health Care Costs Recovery Act, S.B.C. 2008,c. 27 ("HCCRA"); (2) that if Canada is not liable under either the CRA or the HCCRA, it is nonetheless liable to thedefendants for contribution under the Negligence Act; and (3) that in the further alternative, Canada could be liable forcontribution under the common law (joint factum of Rothmans, Benson & Hedges ("RBH") and Philip Morris only).
118 Section 2 of the CRA establishes that "[t]he government has a direct and distinct action against a manufacturer torecover the cost of health care benefits caused or contributed to by a tobacco related wrong". The words "manufacture"and "manufacturer" are defined in s. 1 of the Act as follows:
"manufacture" includes, for a tobacco product, the production, assembly or packaging of the tobacco product;
"manufacturer" means a person who manufactures or has manufactured a tobacco product and includes a personwho currently or in the past
(a) causes, directly or indirectly, through arrangements with contractors, subcontractors, licensees, franchiseesor others, the manufacture of a tobacco product,
(b) for any fiscal year of the person, derives at least 10% of revenues, determined on a consolidated basis inaccordance with generally accepted accounting principles in Canada, from the manufacture or promotion oftobacco products by that person or by other persons,
(c) engages in, or causes, directly or indirectly, other persons to engage in the promotion of a tobacco product, or
(d) is a trade association primarily engaged in
(i) the advancement of the interests of manufacturers,
(ii) the promotion of a tobacco product, or
(iii) causing, directly or indirectly, other persons to engage in the promotion of a tobacco product;
The third-party notices allege that Canada grew (manufactured) tobacco and licensed it to the tobacco industry for aprofit, and that Canada "promoted" the use of mild or light cigarettes to the industry and the public. These facts, theysay, brings Canada within the definition of "manufacturer" of the CRA.
119 Canada submits that it is not a manufacturer under the Act. In the alternative, it submits that it is immune fromthe operation of this provincial statute at common law and alternatively under the Constitution.
120 For the reasons that follow, I conclude that Canada is not a manufacturer under the Act. Indeed, holdingCanada accountable under the CRA would defeat the legislature's intention of transferring the health-care costs resultingfrom tobacco related wrongs from taxpayers to the tobacco industry. This conclusion makes it unnecessary to considerCanada's arguments that it would in any event be immune from liability under the provincial Act. I would also rejectthe tobacco companies' argument for contribution under the HCCRA and the Negligence Act, and the common lawcontribution argument.
(1) Could Canada Qualify as a Manufacturer Under the Costs Recovery Act?
121 The Court of Appeal held that the definition of "manufacturer" could not apply to the Government of Canada. Iagree. While the argument that Canada could qualify as a manufacturer under the CRA has superficial appeal, when theAct is read in context and all of its provisions are taken into account, it is apparent that the British Columbia legislaturedid not intend for Canada to be liable as a manufacturer. This is confirmed by the text of the statute, the intent ofthe legislature in adopting the Act, and the broader context of the relationship between the province and the federalgovernment.
(a) Text of the Statute
122 The definition of manufacturer in s. 1 "manufacturer" (b) of the Act includes a person who "for any fiscal year ofthe person, derives at least 10% of revenues, determined on a consolidated basis in accordance with generally acceptedaccounting principles in Canada, from the manufacture or promotion of tobacco products by that person or by otherpersons". Hall J.A. held that this definition indicated that the legislature intended the Act to apply to companies involvedin the tobacco industry, and not to governments.
123 The tobacco companies respond that the definition of "manufacturer" is disjunctive since it uses the word "or",such that an individual will qualify as a manufacturer if it meets any of the four definitions in (a) to (d). Even if Canadais incapable of meeting the definition in (b) of the Act (deriving 10% of its revenues from the manufacture or promotionof tobacco products), Canada qualifies under subparagraphs (a) (causing the manufacture of tobacco products) and (c)(engaging in or causing others to engage in the promotion of tobacco products) on the facts pled, they argue.
124 Like the Court of Appeal, I would reject this argument. It is true that s. 1 must be read disjunctively, andthat an individual will qualify as a manufacturer if it meets any of the four definitions in (a) to (d). However, the Actmust nevertheless be read purposively and as a whole. A proper reading of the Act will therefore take each of the fourdefinitions into account. It will also consider the rest of the statutory scheme, and the legislative context. When the Actis read in this way, it is clear that the B.C. legislature did not intend to include the federal government as a potentialmanufacturer under the CRA.
125 The fact that one of the statutory definitions is based on revenue percentage suggests that the term "manufacturer"is meant to capture businesses or individuals who earn profit from tobacco-related activities. This interpretation isreinforced by the provisions of the Act that establish the liability of defendants. Section 3(3)(b) provides that "eachdefendant to which the presumptions [provided in s. 3(2) of the CRA] apply is liable for the proportion of the aggregatecost referred to in paragraph (a) equal to its market share in the type of tobacco product". This language cannot bestretched to include the Government of Canada.
126 I conclude that the text of the CRA, read as a whole, does not support the view that Canada is a "manufacturer"under the Act.
(b) Legislative Intention
127 I agree with Canada that considerations related to legislative intent further support the view that Canada does notfall within the definition of "manufacturer". When the CRA was introduced in the legislature, the Minister responsiblestated that "the industry" manufactured a lethal product, and that "the industry" composed of "tobacco companies"should accordingly be held accountable (B.C. Debates of the Legislative Assembly, vol. 20, 4th Sess., 36th Parl., June 7,2000, at p. 16314). It is plain and obvious that the Government of Canada would not fit into these categories.
128 Imperial submits that it is improper to rely on excerpts from Hansard on an application to strike a pleading,since evidence is not admissible on such an application. However, a distinction lies between evidence that is introducedto prove a point of fact and evidence of legislative intent that is provided to assist the court in discerning the properinterpretation of a statute. The former is not relevant on an application to strike; the latter may be. Applications to strikeare intended to economize judicial resources in cases where on the facts pled, the law does not support the plaintiff'sclaim. Courts may consider all evidence relevant to statutory interpretation, in order to achieve this purpose.
(c) Broader Context
129 The broader context of the statute strongly supports the conclusion that the British Columbia legislature did notintend the federal government to be liable as a manufacturer of tobacco products. The object of the Act is to recover thecost of providing health care to British Columbians from the companies that sold them tobacco products. As held bythis Court in British Columbia v. Imperial Tobacco Canada Ltd., 2005 SCC 49, [2005] 2 S.C.R. 473 (S.C.C.):
[T]he driving force of the Act's cause of action is compensation for the government of British Columbia's health carecosts, not remediation of tobacco manufacturers' breaches of duty. While the Act makes the existence of a breachof duty one of several necessary conditions to a manufacturer's liability to the government, it is not the mischief atwhich the cause of action created by the Act is aimed. [para. 40]
The legislature sought to transfer the medical costs from provincial taxpayers to the private sector that sold aharmful product. This object would be fundamentally undermined if the funds were simply recovered from the federalgovernment, which draws its revenue from the same taxpayers.
130 The tobacco companies' proposed application of the CRA to Canada is particularly problematic in light of thelong-standing funding relationship between the federal and provincial governments with regards to health care. Thefederal government has been making health transfer payments to the provinces for decades. As held by Hall J.A.:
If the Costs Recovery Act were to be construed to permit the inclusion of Canada as a manufacturer targeted for therecovery of provincial health costs, this would permit a direct economic claim to be advanced against Canada byBritish Columbia to obtain further funding for health care costs. In light of these longstanding fiscal arrangementsbetween governments, I cannot conceive that the legislature of British Columbia could ever have envisaged thatCanada might be a target under the Costs Recovery Act. [para. 33]
131 Imperial argues that the only way to achieve the object of the CRA is to allow the province to recover from all thosewho participated in the tobacco industry, including the federal government. I disagree. Holding the federal governmentaccountable under the Act would defeat the legislature's intention of transferring the cost of medical treatment fromtaxpayers to the tobacco industry.
(d) Summary
132 For the foregoing reasons, I conclude that it is plain and obvious that the federal government does not qualify asa manufacturer of tobacco products under the CRA. This pleading must therefore be struck.
(2) Could Canada Be Found Liable Under the Health Care Costs Recovery Act?
133 The tobacco companies submit that if Canada is not liable under the CRA, it would be liable under the HCCRA,which creates a cause of action for the province to recover health care costs generally from wrongdoers (s. 8(1)). Canadasubmits that the HCCRA is inapplicable because it provides that the cause of action does not apply to cases that qualifyas "tobacco related wrong[s]" under the CRA (s. 24(3)(b). RBH and Philip Morris respond that a "tobacco related wrong"under the CRA may only be committed by a "manufacturer". Consequently, if the CRA does not apply to Canadabecause it cannot qualify as a manufacturer, it is not open to Canada to argue that the more general HCCRA does notapply either.
134 In my view, the tobacco companies cannot rely on the HCCRA in a CRA action for contribution. While it is truethat Canada is incapable of committing a tobacco-related wrong itself if it is not a manufacturer, the underlying cause ofaction in this case is that it is the defendants who are alleged to have committed a tobacco-related wrong. The HCCRAspecifies that it does not apply in cases "arising out of a tobacco related wrong as defined in the Tobacco Damages andHealth Care Costs Recovery Act" (s. 24(3)(b)). This precludes contribution claims arising out of that Act.
(3) Could Canada Be Liable for Contribution Under the Negligence Act if It Is not Directly Liable to British Columbia?
135 RBH and Philip Morris submit that even if Canada is not liable to British Columbia, it can still be held liablefor contribution under the Negligence Act. They argue that direct liability to the plaintiff is not a requirement for beingheld liable in contribution.
136 As noted above, I agree with Canada's submission that, following Giffels, a party can only be liable for contributionif it is also liable to the plaintiff directly.
137 Accordingly, I would reject the argument that the Negligence Act in British Columbia allows recovery from athird party that could not be liable to the plaintiff.
(4) Could Canada Be Liable for Common Law Contribution?
138 RBH and Philip Morris submit that if this Court rejects the contribution claim under the Negligence Act, it shouldallow a contribution claim under the common law. They rely on this Court's decisions in Bow Valley and Blackwater v.Plint, 2005 SCC 58, [2005] 3 S.C.R. 3 (S.C.C.), in which this Court recognized claims of contribution which were notpermitted by statute.
139 I would reject this argument. In my view, the cases cited by RBH and Philip Morris support common lawcontribution claims only if the third party is directly liable to the plaintiff. In Bow Valley, the Court recognized alimited right of contribution "between tortfeasors", and noted that the defendants were "jointly and severally liable tothe plaintiff" (paras. 101 and 102). A similar point was made by this Court in Blackwater (per McLachlin C.J.), whichstated that a "common law right of contribution between tortfeasors may exist" (para. 68 (emphasis added)). There is nosupport in our jurisprudence for allowing contribution claims in cases where the third party is not liable to the plaintiff.
G. Liability Under the Trade Practices Act and the Business Practices and Consumer Protection Act
140 In the Knight case, Imperial alleges that Canada satisfies the definition of a "supplier" under the Trade PracticesAct (TPA) and the Business Practices and Consumer Protection Act (BPCPA). The TPA was repealed and replaced by theBPCPA in 2004. Imperial argues that the Court of Appeal erred in striking its claim against Canada under these statutes.
141 In my view, Canada could not qualify as a "supplier" under the Acts on the facts pled. Section 1 of the TPAdefined supplier as follows:
"supplier" means a person, other than a consumer, who in the course of the person's business solicits, offers,advertises or promotes the disposition or supply of the subject of a consumer transaction or who engages in, enforcesor otherwise participates in a consumer transaction, whether or not privity of contract exists between that personand the consumer, and includes the successor to, and assignee of, any rights or obligations of the supplier.
Section 1 of the BPCPA defines supplier as follows:
"supplier" means a person, whether in British Columbia or not, who in the course of business participates in aconsumer transaction by
(a) supplying goods or services or real property to a consumer, or
(b) soliciting, offering, advertising or promoting with respect to a transaction referred to in paragraph (a) ofthe definition of "consumer transaction",
whether or not privity of contract exists between that person and the consumer, and includes the successor to, andassignee of, any rights or obligations of that person and, except in Parts 3 to 5 [Rights of Assignees and GuarantorsRespecting Consumer Credit; Consumer Contracts; Disclosure of the Cost of Consumer Credit], includes a personwho solicits a consumer for a contribution of money or other property by the consumer;
142 The Court of Appeal unanimously held that neither definition could apply to Canada because its alleged actionswere not undertaken "in the course of business". The court held that the pleadings allege that Canada promoted the useof mild or light cigarettes, but only in order to reduce the health risks of smoking, not in the course of a business carriedon for the purpose of earning a profit (para. 35).
143 Imperial submits that it is not necessary for Canada to have been motivated by profit to qualify as a "supplier"under the Acts, provided it researched, designed and manufactured a defective product. Canada responds that its allegedpurpose of improving the health of Canadians shows that it was not acting in the course of business. This was not acase where a public authority was itself operating in the private market as a business, but rather a case where a publicauthority sought to regulate the industry by promoting a type of cigarette.
144 I accept that Canada's purpose for developing and promoting tobacco as described in the third-party noticesuggests that it was not acting "in the course of business" or "in the course of the person's business" as those phrases areused in the TPA or the BPCPA, and therefore that Canada could not be a "supplier" under either of those statutes. Thephrases "in the course of business" and "in the course of the person's business" may have different meanings, dependingof the context. On the one hand, they can be read as including all activities that an individual undertakes in his or her
professional life: e.g., see discussion of the indicia of reasonable reliance above. On the other, they can be understoodas limited to activities undertaken for a commercial purpose. In my view, the contexts in which the phrases are used inthe TPA and the BPCPA support the latter interpretation. The definitions of "supplier" in both Acts refer to "consumertransaction[s]", and contrast suppliers, who must have a commercial purpose, with consumers. It is plain and obviousfrom the facts pleaded that Canada did not promote the use of low-tar cigarettes for a commercial purpose, but for ahealth purpose. Canada is therefore not a supplier under the TPA or the BPCPA, and the contribution claim based onthis ground and the Negligence Act should be struck.
145 Having concluded that Canada is not liable under the TPA and the BPCPA, it is unnecessary to consider whether,if it were, Canada would be protected by Crown immunity.
H. The Claim for Equitable Indemnity
146 RBH and Philip Morris submit that if the tobacco companies are found liable in the Costs Recovery case, Canadais liable for "equitable indemnity" on the facts pleaded. They submit that whenever a person requests or directs anotherperson to do something that causes the other to incur liability, the requesting or directing person is liable to indemnifythe other for its liability. Imperial adopts this argument in the Knight case.
147 Equitable indemnity is a narrow doctrine, confined to situations of an express or implied understanding thata principal will indemnify its agent for acting on the directions given. As stated in Parmley v. Parmley, [1945] S.C.R.635 (S.C.C.), claims of equitable indemnity "proceed upon the notion of a request which one person makes undercircumstances from which the law implies that both parties understand that the person who acts upon the request is tobe indemnified if he does so" (p. 648, quoting Bowen L.J. in Birmingham & District Land Co. v. London & North WesternRailway (1886), 34 Ch. D. 261 (Eng. C.A.), at p. 275).
148 In my view, the Court of Appeal, per Hall J.A., correctly held that the tobacco companies could not establishthis requirement of the claim:
[I]f the notional reasonable observer were asked whether or not Canada, in the interaction it had over many decadeswith the appellants, was undertaking to indemnify them from some future liability that might be incurred relatingto their business, the observer would reply that this could not be a rational expectation, having regard to therelationship between the parties. Likewise, if Canada through its agents had been specifically asked or a suggestionhad been made to its agents by representatives of the appellants that Canada might in future be liable for any suchresponsibility or incur such a liability, the answer would have been firmly in the negative. [Costs Recovery case,para. 57]
When Canada directed the tobacco industry about how it should conduct itself, it was doing so in its capacity as agovernment regulator that was concerned about the health of Canadians. Under such circumstances, it is unreasonableto infer that Canada was implicitly promising to indemnify the industry for acting on its request.
I. Procedural Considerations
149 In the courts below, the tobacco companies argued that even if the claims for compensation against Canada arestruck, Canada should remain a third party in the litigation for procedural reasons. The tobacco companies argued thattheir ability to mount defences against British Columbia in the Costs Recovery case and the class members in the Knightcase would be severely prejudiced if Canada was no longer a third party. This argument was rejected in chambers byboth Wedge J. and Satanove J. The majority of the Court of Appeal found it unnecessary to consider the question, whileHall J.A. would have affirmed the holdings of the chambers judges.
150 The tobacco companies did not pursue this issue on appeal. I would affirm the findings of Wedge J., SatanoveJ. and Hall J.A. and strike the claims for declaratory relief.
151 I conclude that it is plain and obvious that the tobacco companies' claims against Canada have no reasonablechance of success, and should be struck out. Canada's appeals in the Costs Recovery case and the Knight case are allowed,and the cross-appeals are dismissed. Costs are awarded throughout against Imperial in the Knight case, and against thetobacco companies in the Costs Recovery case. No costs are awarded against or in favour of British Columbia in theCosts Recovery case.
Michael McCreight, Kim McCreight, John Gregory Skinner, Joan Skinnerand BDO Dunwoody LLP, Plaintiffs (Appellants) and The AttorneyGeneral of Canada Representing Her Majesty the Queen in Right of
Canada, Canada Revenue Agency, formerly The Canada Customs andRevenue Agency, Henry George Kehl, William Carter a.k.a. Bill Carter,
Gregory Mee a.k.a. Greg Mee, Ed Hooft, Anne Kamp, Ian McGuffin,Rod Mercer, Stephane Marinier, Morris Pistyner, Elaine Krivel, BruckEaston, Stephen Harvey and Damien Frost, Defendants (Respondents)
Gloria Epstein, S.E. Pepall, M. Tulloch JJ.A.
Heard: January 23, 2013Judgment: July 16, 2013
Docket: CA C55540
Proceedings: reversing in part McCreight v. Canada (Attorney General) (2012), 2012 ONSC 1983, 2012 CarswellOnt5508 (Ont. S.C.J.)
Counsel: Paul J. Pape, Nicolas M. Rouleau, for AppellantsWendy J. Linden, P. Tamara Sugunasiri, for Respondents
Subject: Civil Practice and Procedure; Torts; Family; Constitutional; Public
APPEAL by plaintiffs from judgment reported at McCreight v. Canada (Attorney General) (2012), 2012 ONSC 1983,2012 CarswellOnt 5508 (Ont. S.C.J.), striking out all but one of causes of action in their amended statement of claimfor failing to disclose reasonable cause of action.
S.E. Pepall J.A.:
A. Introduction
1 The motion judge struck out all of the causes of action in the appellants' amended statement of claim, except forthe claim of misfeasance in public office, for failing to disclose a reasonable cause of action pursuant to rule 21.01(1)(b) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. He also denied the appellants leave to amend their amendedstatement of claim.
2 The appellants appeal from this decision and ask this court to set aside the order and dismiss the respondents'motion to strike the causes of action of malicious prosecution, abuse of process, negligence, and derivative claims madepursuant to s. 61 of the Family Law Act, R.S.O. 1990, c. F.3 ("FLA").
3 In 1998, the audit department of the respondent, Canada Revenue Agency, (the "CRA"), conducted an investigationinto the use of research and development tax credits by several corporate taxpayers. The CRA's investigation extendedto a team of tax advisors at the national accounting firm BDO Dunwoody LLP ("BDO"), which included the appellants,Michael McCreight ("McCreight") and John Gregory Skinner ("Skinner"). McCreight was a chartered accountant anda BDO partner, and Skinner was a senior R&D consultant and claims preparer at BDO. The CRA's concern was that,with the help of BDO, the corporate taxpayers were applying for fraudulent preferential research and development taxcredits in the 1996, 1997, and 1998 tax years.
4 The respondent, Anne Kamp, was the lead CRA investigator. Between July 1998 and May 1999, she applied for andobtained three search warrants to search the homes and businesses of the corporate taxpayers, as well as those of theirlawyers and accountants, including McCreight. Pursuant to these search warrants, approximately 60 boxes of materialsand at least three hard drives were seized. The CRA was authorized to retain these materials until July 1999.
5 The CRA had not completed its investigation by July 1999. It applied to the Superior Court of Justice and requesteda nine-month extension to complete its investigation. This extension would also have given the suspects an opportunityto make exculpatory representations, in accordance with the provisions of CRA's Tax Operations Manual. On October27, 1999, Daudlin J. rejected the CRA's application for an extension of time to complete its investigation. Recognizingthe volume of materials and the potential need to copy at least some of them, Daudlin J. implicitly authorized the CRAto copy the materials seized but ordered it to return the original documents by 4:30 p.m. on November 9, 1999.
(2) The Charges and Their Resolution
6 On November 3, 1999, Kamp sought formal approval from the Windsor CRA office and the Department ofJustice (the "DOJ") to lay an information charging various taxpayers and tax advisors, including McCreight and Skinner,with fraud and conspiracy under the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) ("ITA"), and the Criminal Code,R.S.C. 1985, c. C-46. The DOJ provided its approval and on November 9, 1999, charges were laid. As a result, theCRA was entitled to retain all of the seized materials. Neither McCreight nor Skinner had had the opportunity to makeany exculpatory submissions to the CRA. In subsequent court proceedings, Quinn J. found that Kamp had sworn theinformation in support of the charges "primarily to retain possession of the seized documents."
7 On October 23, 2000, Kamp swore another information that alleged 23 additional offences. On November 16, 2000,all counts against McCreight that were contained in the first information were withdrawn at the Crown's request.
8 The preliminary inquiry commenced in 2001 and ended in 2005. In 2006, Momotiuk J. discharged both McCreightand Skinner. Quinn J. subsequently stayed the charges against the corporate taxpayers on the basis of unreasonabledelay pursuant to s. 11(b) of the Canadian Charter of Rights and Freedoms.
(3) Appellants' Lawsuit
9 The appellants then commenced proceedings against the Attorney General of Canada, the CRA, and ten employeesor agents of the DOJ or the CRA. In their statement of claim, the appellants pleaded that the CRA investigation hadbeen mishandled and had resulted in the laying of false charges against McCreight and Skinner. They alleged that theywere charged so that the CRA could keep the seized documents. McCreight and Skinner pleaded conspiracy, fraudulentand negligent misrepresentation, negligence, malicious prosecution, misfeasance in public office, breach of fiduciary dutyand abuse of process, as well as breaches of the Charter. Their spouses, Kim McCreight and Joan Skinner, advancedclaims under s. 61(1) of the FLA.
(4) Respondents' Motion to Strike
10 The respondents moved to strike all of the appellants' causes of action, except misfeasance in public office, pursuantto rule 21.01(1)(b) of the Rules of Civil Procedure.
11 The parties disagreed as to the documents that could be relied upon at the hearing of the motion to strike.
12 The body of the statement of claim referred to: the October 27, 1999 order of Daudlin J. (at paras. 13 and 187); thedischarge of McCreight and Skinner by Momotiuk J. and his finding that there was no evidence to support a convictionor inference of guilt (at paras. 16 and 196); the February 12, 2007 order of Quinn J. staying all of the remaining chargesthat were committed to trial based on a breach of s. 11(b) of the Charter and the adoption by the plaintiffs of the reasonsin support of the ruling (at paras. 17 and 201); and the 75-page decision of Momotiuk J. discharging both McCreightand Skinner (at para. 226).
13 At the end of their 110-page statement of claim, the appellants also listed numerous documents that they "plead[ed]and rel[ied] upon".
14 Prior to the return of the motion to strike before the motion judge, counsel attended before Cusinato J. and askedhim to address their documentary dispute. He released his reasons on May 19, 2010 [2010 CarswellOnt 16282 (Ont.S.C.J.)] and released supplementary reasons on June 17, 2011. He noted that the respondents objected to an examinationof the documents that did not form an integral part of the pleading. He concluded that the listed documents did not forman integral part of the pleading. He wrote as follows, at paras. 22 and 23 of his reasons:
[T]he listing of the Statutes, Code of Professional Conduct Report, Manuals, Guidelines, and Federal ProsecutionsService Desk books for the most part do not appear to comply with the essence of rule 25.06(7) [of the Rules ofCivil Procedure]. ...
Save for those paragraphs which specifically incorporate the document in reference to the material facts within thepleading, they should be excluded from examination by the court on a motion to strike the pleading.
15 In his supplementary reasons, at para. 17, Cusinato J. wrote that "documents properly referenced to the materialfacts pleaded on which the party relies in its statement of claim may be viewed by the court, otherwise they are to beexcluded from examination." It is clear from paras. 6 and 7 of his first reasons that Cusinato J. focused on the documentslisted by the appellants at the end of their statement of claim. He decided that it was for the motion judge to determinewhat documents, if any, were sufficiently incorporated into the pleading as material facts and could therefore be reliedupon for the purposes of the motion to strike.
16 Following the release of Cusinato J.'s first reasons, the appellants amended their pleading to refer to specificparagraphs of the CRA's Tax Operations Manual (at paras. 284 and 292).
(b) The Motion Judge's Decision
17 The motion judge treated the amended statement of claim that resulted from Cusinato J.'s order as the pleading inissue. He commenced by correctly identifying the test to be applied on a rule 21.01(1)(b) motion as that set out in Huntv. T & N plc, [1990] 2 S.C.R. 959 (S.C.C.), at p. 980: assuming that the facts as stated in the statement of claim can beproved, is it plain and obvious that the statement of claim discloses no reasonable cause of action.
18 As the appellants only seek to reinstate certain causes of action struck by the motion judge from the statement ofclaim, I shall only summarize the portions of the motion judge's reasons pertaining to those causes of action.
19 With regards to malicious prosecution, the motion judge addressed the requirements for such a claim in some detail;he particularly focused on the fourth element of the cause of action, malice. The motion judge noted that an impropercollateral purpose must be identified in the pleading, together with supporting material facts, in order to maintain thecause of action. He determined that, in essence, the pleading amounted to an allegation that the respondents wanted to
injure McCreight and Skinner for the purpose of obtaining a conviction. He determined that this pleading was a baldallegation and insufficient to support a claim of malicious prosecution.
20 He further struck the plaintiffs' claim for damages for abuse of process on the basis that it is not a stand-alonecause of action.
21 The motion judge also found the claims of negligence against the CRA investigators to consist of bald allegations.He further determined that CRA officers do not owe a duty of care to the subjects of an investigation; and, in any event,policy considerations would negate any private law duty of care. Accordingly, he struck this claim from the amendedstatement of claim.
22 He also struck out the appellant spouses' s. 61(1) FLA claims because the type of injury alleged here — namely,anxiety surrounding involvement in a criminal investigation and prosecution — was not the type of injury contemplatedby that statute. He further struck Ms. McCreight and Ms. Skinner as plaintiffs.
23 The motion judge did not grant the appellants leave to amend their pleading. The statement of claim had beenissued for three years and had already been amended on three occasions. He concluded that the appellants had had ampleopportunity to amend their pleading to address any deficiencies. A further opportunity was not justified.
24 The motion judge did not make any express ruling as to which documents were incorporated into the pleadingby reference but in his reasons, he referred to the orders of Justices Daudlin, Momotiuk, and Quinn and to the CRA'sTax Operations Manual. He therefore implicitly considered these documents to have been properly incorporated intothe appellants' pleading.
C. Grounds of Appeal
25 The appellants appeal the motion judge's decision to strike the causes of action of malicious prosecution, abuseof process, negligence, the FLA claims, and his refusal to grant leave to amend the statement of claim. They do notchallenge the striking of numerous other elements of the statement of claim. These include the pleading of negligenceagainst the Attorney General and the Crown prosecutors, the claim for breach of fiduciary duty by the Crown prosecutorsand the CRA investigators, the Charter claims, the claims of fraudulent and negligent misrepresentation, the claim forconspiracy, and the personal claims asserted against the section head of the criminal litigation branch at the TorontoRegional Office of the DOJ, the regional director of the Public Prosecution Service of Canada, and the senior counselof criminal prosecutions assigned to the Ontario Regional Office of the DOJ, all of which were struck out.
D. Issues
26 The issues to be addressed are as follows:
(1) What documents are properly considered as being incorporated into the amended statement of claim for thepurposes of this appeal?
(2) Did the motion judge err in striking out the claims for malicious prosecution, abuse of process, negligence, andthe s. 61(1) FLA claims?
(3) Did the motion judge err in refusing to grant the appellants leave to amend their pleading?
E. Analysis
(1) Documents Referred to in the Pleading
27 On this appeal, the appellants seek to rely on five documents. They submit that these documents form part oftheir pleading. The documents consist of: a transcript from the criminal proceedings; the three decisions of Justices
Daudlin, Momotiuk, and Quinn; and the CRA's Tax Operations Manual. The appellants do not seek to rely on the otherdocuments listed at the end of their pleading.
28 The respondents argue that these five documents should be disregarded because they were not included in themotion record before the motion judge; there was no argument before the motion judge that they formed part of theappellants' pleading; the documents were not considered by the motion judge, who made no ruling on this issue; and,based on the authority of Montreal Trust Co. of Canada v. Toronto Dominion Bank (1992), 40 C.P.C. (3d) 389 (Ont. Gen.Div.)), Leadbeater v. Ontario (2001), 16 C.P.C. (5th) 119 (Ont. S.C.J.), and Bird v. Ontario (Public Guardian & Trustee),[2002] O.J. No. 408 (Ont. S.C.J.), they ought not to form part of the amended statement of claim.
29 No evidence is admissible on a rule 21.01(1)(b) motion to strike out a pleading on the basis that it discloses noreasonable cause of action. On such a motion, the allegations in the statement of claim are taken as being proven, unlessthey are patently ridiculous or incapable of proof: Falloncrest Financial Corp. v. Ontario (1995), 27 O.R. (3d) 1 (Ont.C.A.), at p. 6. Therefore, no evidence is either necessary or permissible on such a motion.
30 Rule 25.06(7) of the Rules of Civil Procedure provides that:
The effect of a document or the purport of a conversation, if material, shall be pleaded as briefly as possible, butthe precise words of the document or conversation need not be pleaded unless those words are themselves material.
31 The issue is whether the documents the appellants seek to rely upon are sufficiently pleaded and therefore formpart of the amended statement of claim upon which the motion judge could make his decision.
32 As noted by Borins J. (as he then was) in Montreal Trust Co., at para. 4, a statement of claim is deemed to includeany documents incorporated by reference into the pleading and that form an integral part of the plaintiff's claim. Amongother things, this enables the court to assess the substantive adequacy of the claim. In contrast, the inclusion of evidencenecessary to prove a fact pleaded is impermissible. A motion to strike is unlike a motion for summary judgment, wherethe aim is to ascertain whether there is a genuine issue requiring a trial. On a motion to strike, a judge simply examinesthe pleading; as mentioned, evidence is neither necessary nor allowed. If the document is incorporated by reference intothe pleading and forms an integral part of the factual matrix of the statement of claim, it may properly be considered asforming part of the pleading and a judge may refer to it on a motion to strike.
33 Turning to the application of these principles to this case, the motion judge made no express ruling on the issue ofdocuments incorporated into the pleading but in my view, very little turns on this issue on this appeal.
34 Firstly, while the documents were not referred to in the record before the motion judge, this is unsurprising giventhat the motion record was that of the respondents. The appellants did provide the motion judge with a 'Document Book'that contained the documents in issue.
35 Secondly, the three orders of Justices Daudlin, Momotiuk, and Quinn are expressly pleaded in the amendedstatement of claim. In my view, these documents have been incorporated into the appellants' pleading and the motionjudge appropriately relied upon them in deciding the rule 21 motion. In contrast, the entire reasons for decision of thethree judges and a transcript of the criminal proceeding constitute evidence and are not properly considered as formingan integral part of the amended statement of claim. That said, for the most part, the requisite facts that emanated fromthese documents have been pleaded and the motion judge was therefore at liberty to rely on those elements of the pleadingin reaching his decision.
36 On two occasions, the motion judge did refer to the contents of certain documents that had not been incorporatedinto the amended statement of claim. At para. 59 of his reasons, the motion judge referred to Daudlin J.'s statement thatunder s. 490(2) of the Criminal Code, the government has a right to keep items seized when proceedings are institutedin which the thing detained may be required. This was not mentioned in the amended statement of claim. That said, the
appellants take no issue with the motion judge's reliance on this element of Daudlin J.'s reasons and it only accrued tothe respondents' benefit. That said, nothing in this appeal turns on the admission of the statement by the motion judge.
37 Also at para. 59 of his reasons, the motion judge referred to the Tax Operations Manual of the CRA in consideringwhether a duty of care was owed to McCreight and Skinner. Specifically, the Manual provides that a taxpayer would begiven an opportunity to make exculpatory submissions. Such an opportunity had not been accorded to McCreight andSkinner. The underlying facts associated with this allegation were included in the amended statement of claim and theManual could be relied upon by the motion judge for that purpose. In contrast, at para. 69 of his reasons, the motionjudge reviewed the contents of the Manual to ascertain whether a fiduciary relationship was created between the CRAand the appellants. This constituted an improper use of the Manual because the appellants had not pleaded the factualunderpinning for such reference. That said, in my view this error is immaterial in the context of this appeal as the motionjudge struck out the appellants' claim for damages for a breach of fiduciary duty and they have not appealed that elementof the motion judge's order.
(2) Causes of Action
38 The standard of review on a rule 21.01(1)(b) motion to strike is correctness: Attis v. Canada (Minister of Health),2008 ONCA 660, 93 O.R. (3d) 35 (Ont. C.A.), at para. 23, leave to appeal to S.C.C. refused, (2009), [2008] S.C.C.A.No. 491 (S.C.C.).
39 As mentioned, on a rule 21.01(1)(b) motion, a claim will only be struck if it is plain and obvious, assuming thefacts pleaded to be true, that the pleading discloses no reasonable cause of action: Knight v. Imperial Tobacco CanadaLtd., 2011 SCC 42, [2011] 3 S.C.R. 45 (S.C.C.), at para. 17. The principles that may be extracted from this and othercases, some of which I have already mentioned, are as follows:
• In the interests of efficiency and correct results, there is a need to weed out hopeless claims — this housekeepingdimension underlies rule 21: Imperial Tobacco, at paras. 19-20.
• If the cause of action pleaded has been recognized, all of its essential elements must be pleaded: AristocratRestaurants Ltd. v. Ontario, [2003] O.J. No. 5331 (Ont. S.C.J.), at para. 19.
• If the cause of action has not been recognized, this is not necessarily fatal. One must ask whether there is areasonable prospect that the claim will succeed: Imperial Tobacco, at para. 21.
• The claim should not be struck merely because it is novel: Imperial Tobacco, at para. 21.
• Unless manifestly incapable of being proven, the facts pleaded are accepted as being true for the purposes of themotion: Imperial Tobacco, at para. 22.
• The pleading forms the basis of the motion; possible future facts that have not been pleaded may not supplementthe pleading: Imperial Tobacco, at para. 23.
• No evidence is admissible on such a motion: Imperial Tobacco, at para. 22.
• The pleading must be read generously in favour of the plaintiff, with allowances for drafting deficiencies:Wellington v. Ontario, 2011 ONCA 274, 105 O.R. (3d) 81 (Ont. C.A.), at para. 14, leave to appeal to S.C.C. refused,[2011] S.C.C.A. No. 258 (S.C.C.).
• A motion to strike should not be confused with a summary judgment motion which has a different test, a differentpurpose, and different rules relating to evidence: Leadbeater, at para. 14.
40 Having considered the applicable principles, I will now turn to the causes of action in issue on this appeal.
41 The appellants submit that the cause of action of malicious prosecution asserted against the Attorney General,the CRA, the CRA investigators Anne Kamp and Ian McGuffin, as well as the agents of the DOJ Bruck Easton andDamien Frost, ought not to have been struck. They submit that the motion judge erred in concluding that the materialfacts pleaded in support of the fourth element of the test for malicious prosecution, namely, that the respondents wereactuated by malice, were bald and insufficient. The appellants argue that they pleaded as follows: the prosecution waslaunched for the purpose of retaining documents belonging to the appellants that were otherwise to be returned pursuantto statute and a court order. This purpose was improper and therefore malicious. As such, the appellants submit that itwas not plain and obvious that a claim for malicious prosecution would not succeed at trial.
42 In my view, the motion judge was correct in striking out this claim.
43 Firstly, in Kvello v. Miazga, 2009 SCC 51, [2009] 3 S.C.R. 339 (S.C.C.), at paras. 53ff., the Supreme Court stated thatin order to succeed in an action for malicious prosecution, a plaintiff must prove that the prosecution was: (i) initiated bythe defendant; (ii) terminated in favour of the plaintiff; (iii) commenced or continued without reasonable and probablecause, and; (iv) motivated by malice or a primary purpose other than that of carrying the law into effect. In this case,the fourth element of the claim is in issue.
44 In my view, the pleading does not identify a collateral or improper purpose that motivated the respondents.Retention of the appellants' seized documents was in furtherance of the prosecution, not collateral to it. Although thecharges may have been laid in order to retain the documents, those documents were sought to be kept to pursue aprosecution of ITA and Criminal Code offences. Even read generously, a claim of mishandling a prosecution does notamount to a plea of malice.
45 Secondly, rule 25.06(8) provides that where malice is alleged, the pleading shall contain full particulars. Here, themotion judge correctly concluded that the pleading contained merely bald allegations.
46 In my view, the claim for malicious prosecution was properly struck.
(b) Abuse of Process
47 The appellants argue that para. 293 of the amended statement of claim, which claims among other things, damagesfor abuse of process, ought not to have been struck by the motion judge. They assert that the respondents did not requestsuch relief in their notice of motion and the motion judge did not address it. Furthermore, the test for abuse of processis similar to that for malicious prosecution and the appropriate factual basis for each claim was pleaded.
48 The respondents submit that abuse of process was not expressly pleaded in the amended statement of claim, norwere the requisite elements or material facts in support of such a claim. Furthermore, the CRA officers are not "partiesto a proceeding", and therefore such a claim does not lie against them. They argue that the motion judge was correctin striking this claim.
49 The reference to abuse of process in the amended statement of claim is scant. Page 100 of the claim containsthe heading "Fiduciary Duty, Legitimate Expectation and Abuse of Process", and para. 293 of the pleading also refersto a claim for damages for abuse of process. As noted by the motion judge, both references to abuse of process weremade within the section of the pleading that claimed damages for breach of fiduciary duty. As noted above, the motionjudge struck out the appellants' claim for damages for abuse of process on the basis that it is not a stand-alone causeof action for civil damages.
50 That said, even though the respondents served and filed an extremely detailed notice of motion in support of theirmotion to strike, they did not seek to strike the claim for abuse of process. In keeping with principles of practice and
fairness, they should have done so. I am of the view that in the circumstances, it was inappropriate for the motion judgeto strike that claim when such relief was not requested.
51 I would allow the appeal on this ground.
(c) Negligence
52 The appellants do not contest the motion judge's finding that negligence is not a recognized cause of action againstCrown prosecutors.
53 However, the appellants do submit that the motion judge erred in law by finding that it was plain and obviousthat CRA investigators do not owe a duty of care to suspects under investigation. It was on this basis that the motionjudge struck the appellants' pleading. The appellants pleaded that the CRA and its investigators, Kamp and McGuffin,owed a duty of care to McCreight and Skinner and that they breached that duty by failing to investigate the matterproperly, failing to comply with Daudlin J.'s order, rushing to lay charges against the appellants before the investigationwas complete, and by particularly targeting McCreight and Skinner for criminal prosecution without cause.
54 The appellants argue that Canadian case law supports the recognition of a duty of care towards suspects on thepart of CRA investigators. Firstly, they assert that the relationship between a CRA investigator and his or her suspectis analogous to that between a police officer and the subject of his or her investigation. In Hill v. Hamilton-Wentworth(Regional Municipality) Police Services Board, 2007 SCC 41, [2007] 3 S.C.R. 129 (S.C.C.), the Supreme Court confirmedthat the police may owe a duty of care to a suspect under investigation. Secondly, they also argue that in Neumann v.Canada (Attorney General), 2011 BCCA 313, 338 D.L.R. (4th) 348 (B.C. C.A.), leave to appeal to S.C.C. refused, (2012),[2011] S.C.C.A. No. 422 (S.C.C.), the British Columbia Court of Appeal was prepared to assume that the CRA oweda duty of care to a third party whose documents they seized during an investigation. The appellants say that there isgreater proximity between the CRA and the subjects of its investigations than third parties. Thirdly, in Leroux v. CanadaRevenue Agency, 2012 BCCA 63, 347 D.L.R. (4th) 122 (B.C. C.A.), that same court refused to strike a negligence claimagainst the CRA and recognized that it is at least arguable that the CRA owes a duty of care to individual taxpayers inthe administration or enforcement of taxing statutes. The appellants therefore argue that this cause of action should nothave been struck as plainly and obviously having no reasonable prospect of success. They also ask this court to establishthe existence of such a duty of care on the part of the CRA, thus obviating the need for a trial of the issue.
55 The respondents answer by submitting that such a duty of care has not been previously recognized and the CRAinvestigator-suspect relationship is not analogous to the police-suspect relationship from which the decision in Hamilton-Wentworth arose. The motion judge was correct in finding no proximity between the parties. Proximity between theCrown and an individual member of the public may arise from a statutory scheme or from specific interactions. Neithergave rise to proximity in this case. Even if proximity were established, the motion judge was correct in determining thatit was negated for policy reasons, specifically the ITA's statutory scheme, the availability of alternative remedies, and thefact that CRA investigators owe a duty to the public and the Crown, rather than to individuals.
56 To ground a claim in negligence, CRA investigators must be found to owe a duty of care to suspects. As noprecedent for such a duty was advanced, one must therefore consider whether this duty of care could be recognized.
57 As described by McLachlin C.J. in Hamilton-Wentworth, at para. 20, the test for determining whether a personowes a duty of care involves two questions:
(i) Does the relationship between the plaintiff and the defendant disclose sufficient foreseeability and proximity toestablish a prima facie duty of care; and
(ii) If so, are there any residual policy considerations which ought to negate or limit that duty of care?
This is a reformulation of the Cooper-Anns test that originated in Cooper v. Hobart, 2001 SCC 79, [2001] 3 S.C.R. 537(S.C.C.), and Anns v. Merton London Borough Council (1977), [1978] A.C. 728 (U.K. H.L.).
58 Foreseeability is conceded by the respondents in this case.
59 The factors to be considered in an analysis of whether the plaintiff and defendant are in a relationship of proximityare diverse and depend on the circumstances of the case. The categories of proximate relationships are not closed. Inlooking at the relationship between the parties, the focus is on whether the acts of the alleged wrongdoer have a close ordirect effect on the victim, such that the wrongdoer ought to have had the victim in mind as a person potentially harmed:Hamilton-Wentworth, at para. 29.
60 In my view, in this case, the motion judge erred in concluding that it was plain and obvious that the respondentCRA investigators did not owe a duty of care to McCreight and Skinner, policy considerations would foreclose such aduty in any event and, therefore, the negligence claim had no reasonable prospect of success and should be struck.
61 Firstly, given the Supreme Court's ruling in Hamilton-Wentworth that, in certain circumstances, police officersmay owe a duty of care to their suspects, surely it is not plain and obvious that a CRA investigator owes no such dutywhen operating under ITA provisions that attract criminal sanction and under the Criminal Code. The same analogicalreasoning applies to any residual policy rationale that could negate such a duty.
62 Secondly, I see no relevant distinction between the above-cited case of Leroux and this case. That case that involveda claim of negligence against CRA employees as well and the British Columbia Court of Appeal dismissed an appeal ofan order permitting the cause of action to proceed to trial. The Court was not persuaded that the claim should be struckbecause it was at least arguable that such a cause of action could succeed and the issue was to be considered at trial.
63 The action for negligence against the CRA investigators should be permitted to proceed to trial along with thecauses of action for misfeasance in public office and abuse of process, and thereby benefit from a full factual record.
(d) Section 61(1) of the Family Law Act
64 The appellants further submit that their s. 61(1) FLA claims should not have been struck, as their claims werearguable. Contrary to what the motion judge found, McCreight and Skinner pleaded that they suffered from post-traumatic stress disorder, which is a recognized psychiatric illness.
65 The respondents answer that under s. 61(1) FLA, in the absence of a physical injury to McCreight and Skinner,the spousal appellants must show that McCreight and Skinner suffer or have suffered from a recognizable psychiatricillness that was caused by the respondents' negligence. Furthermore, that psychiatric illness must have been reasonablyforeseeable to the respondents. The respondents note that the injuries alleged in this case by the appellants arose solelyfrom having been subjected to the legal process, which was not foreseeable and is not recoverable in law even by aprimary plaintiff. This application of s. 61(1) of the FLA would far expand its intended reach. In addition, the FLAclaim is derivative of the negligence claim and, consistent with the respondents' position on that assertion, this claimshould also fail.
66 Section 61(1) of the FLA states:
If a person is injured or killed by the fault or neglect of another under circumstances where the person is entitled torecover damages, or would have been entitled if not killed, the spouse, as defined in Part III (Support Obligations),children, grandchildren, parents, grandparents, brothers and sisters of the person are entitled to recover theirpecuniary loss resulting from the injury or death from the person from whom the person injured or killed is entitledto recover or would have been entitled if not killed, and to maintain an action for the purpose in a court of competentjurisdiction.
67 In my view, the spousal claims brought by the appellants pursuant to this section were properly struck out.
68 Paragraph 304 of the amended statement of claim pleads that McCreight's and Skinner's physical, emotional, andpsychological well-being have been damaged and that they suffer from post-traumatic stress. Paragraphs 311, 312, and313 address the FLA claims of their spouses, Kim McCreight and Joan Skinner. Those paragraphs allege that the twospouses suffered loss and damage and were without the care and companionship of their husbands due to their injuries.
69 Firstly, as held by this court in Healey v. Lakeridge Health Corp., 2011 ONCA 55, 103 O.R. (3d) 401 (Ont. C.A.), atparas. 60-66, in the absence of physical injury, plaintiffs must establish that they have suffered a recognized psychiatricillness caused by the negligence of the defendants in order to recover. As Ms. McCreight's and Ms. Skinner's claimsfor damages pursuant to s. 61 FLA are derivative of their husbands' primary claims, such an illness — caused by therespondents' negligence — must have been pleaded in the amended statement of claim in order for those paragraphsnot to be struck. Post-traumatic stress was the injury alleged in the appellants' pleading and this does not qualify as arecognized psychiatric illness. While a pleading should be read generously for the purposes of a rule 21.01(1)(b) motion,no mention is made of any disorder or syndrome that would constitute a recognized psychiatric illness.
70 Secondly, even if one were to accept that on a generous reading of the amended statement of claim, a recognizedpsychiatric illness had been pleaded, the stress alleged arises from being subject to a tax investigation and the criminalprocess. In Healey, at para. 40, this court stated that "the plaintiff must satisfy the court that the psychological injurywas caused by the negligence of the defendant. This involves asking whether psychological damage was a reasonablyforeseeable consequence of the defendant's negligence." There is no pleading of the requirement of foreseeability.Moreover, the expected type of stress or upset caused by participation in the criminal process does not attract anyrecoverable damages: Scott v. Ontario, [2002] O.J. No. 4111 (Ont. S.C.J.), at para. 31, aff'd [2003] O.J. No. 4407 (Ont.C.A.); see also Healey, at para. 65.
71 As a result, I would not give effect to this ground of appeal.
(3) Leave to Amend
72 The appellants ask this court to strike the existing amended statement of claim and grant them leave to file the freshstatement of claim appended to their factum. The fresh pleading is premised on the appellants' being fully successful ontheir appeal. As they have only been successful with respect to the claims of abuse of process and negligence against theCRA investigators, it would be inappropriate to grant leave to file the appended pleading. Furthermore, the statementof claim has already been amended on three prior occasions. Absent consent, a further amendment cannot be justified.
F. Costs
73 Counsel agreed that $33,100 should be awarded to the successful party on the appeal. The appellants were onlypartially successful. In my view, in the circumstances, an award of $17,500, inclusive of disbursements and applicabletaxes, in favour of the appellants is fair and reasonable. In addition, I would order the respondents to pay the appellants$5,000, inclusive of disbursements and applicable taxes, on account of costs below.
G. Disposition
74 Accordingly, I would allow the appeal in part and both reinstate the claim for abuse of process and set aside para.4 of the order under appeal, insofar as it strikes the appellants' claims in negligence against the CRA respondents.
Mark Clatney, Applicant (Appellant) and Quinn Thiele Mineault Grodzki LLPand Bertschi Orth Solictors and Barristers LLP, Respondents (Respondents)
E.A. Cronk, Gloria Epstein, Grant Huscroft JJ.A.
Heard: November 13, 2015
Judgment: May 19, 2016 *
Docket: CA C60500
Counsel: Paul Auerbach, for Paul AuerbachWilliam R. Hunter, for Respondent, Quinn Thiele Mineault GrodzkiCheryl Letourneau, for Respondent, Bertschi Orth Solicitors and Barristers
Subject: Civil Practice and Procedure; Public; Torts
APPEAL by client from judgment, dismissing client's application for order setting aside consent order and referring lawfirms' accounts to assessment.
Gloria Epstein J.A.:
Overview
1 At the heart of this appeal lies the importance of public confidence in the administration of justice and, in thatcontext, the court's supervisory role over the appropriate compensation for legal services.
2 In March 2008, the appellant was seriously injured in a motor vehicle accident. The respondents are the law firmsthat represented him in his tort claim. This claim was settled in July 2013 for $800,000, an amount that included FamilyLaw Act, R.S.O. 1990, c. F.3 ("FLA") claims advanced by the appellant's wife and two teenaged sons. Certain funds weredistributed, as will be discussed in further detail below.
3 Under a court order dated August 21, 2013, the settlement monies that then remained, approximately $655,000, wereheld under a charging order pending resolution of the accounts of the respondent, Bertschi Orth Solicitors and Barristers
LLP ("Bertschi Orth"), 1 for fees rendered and disbursements incurred in representing the appellant in the initial stagesof his tort action. In November 2013, $70,000 of that $655,000 was paid into court on behalf of the appellant's sons.
4 On December 3, 2013, an order was issued on consent (the "Consent Order") that provided for the release of theremaining monies, approximately $585,000. The Consent Order specified payment to the respondents of amounts in fullsatisfaction of their fees and disbursements, with the remainder to the appellant. As a result of this order, the appellantrealized a net amount of $274,142.47. The respondents received $310,000, in total.
5 On November 25, 2014, the appellant brought an application for an order referring the respondents' accounts toassessment pursuant to the provisions of the Solicitors Act, R.S.O. 1990, c. S.15. The application judge dismissed the
application on the basis that, in the light of the Consent Order, he lacked jurisdiction to hear the matter. The appellantappeals.
6 For the reasons that follow, I am of the view that the application judge had jurisdiction to refer the respondents'accounts to assessment and erred in law in holding otherwise. I would allow the appeal, set aside the Consent Order,and direct the respondents' accounts to be assessed.
The Background Facts
7 At the time of the accident, the appellant was 46. He was then living with his wife and two teenaged sons. Followingthe accident, the appellant lost his job, and he and his wife separated.
The initial retainer
8 In January 2009, the appellant retained Bertschi Orth to represent him in his tort and accident benefits claims. 2 Theappellant entered into a contingency retainer agreement with Bertschi Orth that provided for payment of fees equal to35% of damages recovered, plus disbursements incurred on his behalf, plus GST. The agreement contained a provisionstating that, if the appellant terminated the retainer prior to the resolution of his claim, he would pay Bertschi Orth allfees, disbursements and charges for services rendered by it to the date of termination.
The change in solicitors and the settlement
9 In November 2012, the appellant terminated Bertschi Orth's retainer and hired the respondent, Quinn Thiele MineaultGrodzki LLP ("Quinn Thiele"). Jaimie Noel, a lawyer at Quinn Thiele who had been representing the appellant's sonson their FLA claims, agreed to represent the appellant in his tort claim and to continue to represent his sons. She hadpreviously worked at Bertschi Orth.
10 The appellant entered into a contingency fee agreement with Quinn Thiele that provided for payment of fees equalto 30% of damages recovered, plus disbursements incurred, plus HST.
11 No written undertaking was given by Quinn Thiele or by the appellant in relation to Bertschi Orth's fees anddisbursements. Correspondence from Bertschi Orth indicates that it was prepared to negotiate the amount owing andrecognized the potential need for "a reduction... on a pro rata basis depending upon the settlement amount, the amountrecovered for fees, and the time [the] firms spent on the file." Ms. Noel informed Bertschi Orth that she did not haveinstructions from her client to agree to pay Bertschi Orth's account or disbursements. Her evidence was that she advisedthe appellant that the fees to be charged by Quinn Thiele pursuant to their retainer agreement were separate from anyfees owing to Bertschi Orth.
12 In December 2012, Bertschi Orth delivered a draft account to the appellant setting out $106,000 in fees and over$7,000 in disbursements. The total balance due, including HST, was identified as $117,333.17.
13 Ms. Noel scheduled a mediation of the tort action for July 2, 2013. The mediation proceeded and the action wassettled for $800,000 - $625,000 to the appellant, $105,000 to his wife and $35,000 to each of the two children. Of theappellant's $625,000, $20,000 had been received by him in advance and a further $20,000 was paid for costs of one ofthe co-defendants in the action.
14 Ms. Noel did not obtain written instructions from the appellant confirming his net recovery after payment offees and disbursements to either of the respondent law firms. The appellant's contemporaneous notes suggest that heexpected to receive a net amount of no less than $400,000 from the settlement.
15 Later in July 2013, Bertschi Orth learned of the settlement and moved to obtain a charging order against thesettlement funds.
16 On August 12, 2013, Smith J. of the Superior Court of Justice endorsed the record requesting a charging order, tothe effect that "[n]one of the settlement funds" were to be disbursed until Bertschi Orth's account was assessed and the"respective share of fee[s] between Bertschi Orth and [Quinn Thiele had] been determined".
17 Quinn Thiele had prepared a response on the appellant's behalf to Bertschi Orth's motion for a charging orderbut the materials were not filed in time. The responding motion record was eventually filed and, on August 14, 2013,Smith J. further endorsed the record to the effect that all settlement funds were to be subject to a charging order untilBertschi Orth's account was assessed.
18 By order dated August 21, 2013, Smith J. revised the August 12 endorsement (as modified by the August 14endorsement) by providing that "the settlement funds [would] be held in trust by [Quinn Thiele] but not distributed untilsuch time as the completion of the assessment of the [Bertschi Orth] account; and distributed on consent or after a furtherorder [was] obtained" (the "Charging Order").
Fee discussions and correspondence
19 Shortly after the date of the Charging Order, the parties started to address the amounts the appellant owed the
respondents for their legal services. 3
20 On October 7, 2013, Bertschi Orth obtained an order from the Registrar for the assessment of its account. Later,the assessment hearing was set for January 21, 2014.
21 At this point in time, the appellant was experiencing mounting financial pressure, a situation he made clear toQuinn Thiele on several occasions.
22 The first indication that the appellant communicated his financial problems to Quinn Thiele appears in an October9, 2013 email from the appellant to Ms. Noel. In that email, the appellant requested $34,000 to "resolve debt issues" andstated that he "[would] need to claim bankruptcy". Ms. Noel responded the next day, stating that she would "look intowhether payment [could] be issued".
23 In a lengthy email sent on October 23, 2013, Mikolaj Grodzki, a partner at Quinn Thiele, advised the appellant thatthe firm could not represent him in any assessment of Bertschi Orth's account because Ms. Noel had formerly been anassociate at Bertschi Orth. Mr. Grodzki relied on the alleged conflict to urge the appellant to settle Quinn Thiele's accountbefore dealing with Bertschi Orth's account, so that the "obstacle" to negotiating Bertschi Orth's fees could be removed:
[Quinn Thiele's] interest to protect our earned fees and to assert a claim for them conflicts with the need to representyour interests against [Bertschi Orth] at this time. Accordingly, we need to remove this obstacle and settle ouraccount with you now. This will be an amount that you agree to pay regardless of the outcome of the assessmentof the [Bertschi Orth] matter.... lf we can do this, then I can focus entirely on representing your interests against[Bertschi Orth] and not on protecting [Quinn Thiele's] financial interests in the file.
24 Mr. Grodzki went on to advise the appellant that a resolution of Quinn Thiele's account would assist him in thepending assessment of Bertschi Orth's account:
We would prefer to reach a mutually acceptable amount and consent to have [Quinn Thiele's] account assessed inthat amount. This would then also be evidence for the assessment hearing of what you are paying the lawyers whodid the work and settled the case. This is a relevant factor in assessing the [Bertschi Orth] law account.
25 In this email, Mr. Grodzki also stressed that the "the assessment process itself [would] be lengthy" and that thelegal costs associated with the assessment would be high.
26 On October 29, 2013, Quinn Thiele delivered a form of account to the appellant claiming fees, disbursements and
HST totalling $305,159.14. 4 Accordingly, at that point in time, Quinn Thiele and Bertschi Orth were asserting claimsof fees and disbursements in an aggregate amount in excess of $422,000 — almost two-thirds of the $695,000 allocatedto the appellant and his sons.
27 On November 4, 2013, Quinn Thiele offered to settle its account with the appellant for $215,000.
28 On November 5, 2013, the appellant delivered a Notice of Intention to Act in Person in the assessment of theBertschi Orth account.
29 On November 13, 2013, the appellant again communicated his financial stress, this time to both firms. He wroteto several individuals at Quinn Thiele and Bertschi Orth, requesting $50,000 to "prevent any further financial hardship,bankruptcy and [to] pay off several long overdue bills." He asked both firms to confirm their agreement, and requestedthat Quinn Thiele advise what paperwork was required at his end.
30 On November 14, 2013, Cheryl Letourneau, counsel at Bertschi Orth, responded on behalf of the firm indicating thatit would consent to the release of $50,000, provided the firm was given $8,175.35 of that amount to cover disbursements.By email that same day, the appellant accepted Bertschi Orth's offer.
31 Quinn Thiele, however, took a different position. On November 16, 2013, Mr. Grodzki emailed the appellant asfollows: "Please review the [Charging Order], the Court ordered that both accounts ([Bertschi Orth] and us) have to besettled before any funds released. The consent from [Ms. Letourneau] is useless." The appellant responded the next day,explaining his belief that consent among the parties was sufficient for the funds to be released.
32 On November 19, 2013, the appellant again informed Quinn Thiele that, in his view, a court motion was notrequired for the release of the requested funds. The appellant requested payment of $8,175.35 to Bertschi Orth, and$41,824.65 to himself. He concluded, highlighting his mounting financial pressures a third time: "I want to stress to thepartners HOW URGENT this matter is from a personal and financial matter."
33 Mr. Thiele responded to the appellant on November 20, 2013 in an email saying:
I note your comment that a Court order is not required, that the consent from Ms. Letourneau is enough. Frankly,that is simply not true. The Court has ordered the proceeds charged and prohibits our dealing with the funds untilthe assessment. Ms. Letourneau's consent does not carry the same weight as a Court Order and she, (like every otherlawyer) does not have the power to over-ride a Judge's order. Only a Judge may undo or change a Judge's order.That being said, with consent, we can fairly quickly get a Judge to make a new order releasing funds etc., so long asthere is consent. This is often and normally done on a Friday in express motions court. The earliest that anyone inthis office could draft and attend to such a motion would be November 29, 2013.
He noted that it was his understanding that Mr. Grodzki had offered to settle the firm's account with the appellant for$210,000.
The Settlement, the Fee Agreements and the Consent Order
34 The appellant responded at 4:29 a.m. on November 21, 2013, agreeing to take Quinn Thiele's settlement offer of$210,000. He noted that his acceptance came in the light of Quinn Thiele's confirmation that the $50,000 could not bereleased as a result of the Charging Order and that a failure to accept the $210,000 offer would lead to an assessmenthearing with consequent costs and delay. That same day, the appellant signed a settlement agreement with Quinn Thiele.
35 Shortly thereafter, the appellant settled the Bertschi Orth account for $100,000. On November 28, 2013, theappellant signed a release as contemplated by this settlement.
36 These two agreements will collectively be referred to as the "Fee Agreements".
37 Quinn Thiele then obtained the Consent Order. Pursuant to the terms of this order, the Charging Order was setaside and the monies in trust were released to Quinn Thiele for distribution in accordance with the Fee Agreements, withthe remainder to the appellant.
38 Quinn Thiele and Bertschi Orth delivered their final accounts to the appellant on December 4, 2013 and December31, 2013, in the amounts of $264,195.74 and $92,541.35, respectively. Bertschi Orth's December 31 account also includeda Trust Statement indicating a payment of $7,458.65 for two additional invoices.
Proceedings below
39 On November 25, 2014, the appellant applied for an order for both accounts to be assessed and, if required, anorder setting aside the Consent Order and related settlement documents.
40 The application judge dismissed the application. The entirety of his brief endorsement reads as follows: "By virtueof the [Consent Order] I have no jurisdiction to hear this matter as it is in fact a matter for an appeal to the Court toAppeal subject to leave etc."
Issues
41 The appeal raises two issues:
1. Did the application judge err in concluding that he was unable to consider the application for want of jurisdiction?
2. If the application judge had jurisdiction to consider the matter, should this court order an assessment of therespondents' accounts?
Analysis
(1) Did the application judge err in concluding that he was unable to consider the application for want of jurisdiction?
42 I am of the view that the application judge erred in finding that he lacked jurisdiction to consider the appellant'srequest for an order directing the respondents' accounts be assessed.
The procedural argument
43 As previously indicated, within his application seeking an order that the Fee Agreements be assessed, the appellantrequested an order setting aside the Consent Order.
44 The respondents submit that an order to set aside a court order can only be obtained by way of a motion under r.
59.06 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. 5 The appellant brought an application under r. 14.05. Theremedies provided for under this rule do not include the order requested by the appellant. Consequently, the applicationjudge was procedurally barred from considering the request.
45 In my opinion, acceding to this procedural argument would not be consistent with the principles that form thefoundation of the Rules of Civil Procedure.
46 Rule 2.01(1) provides that a failure to comply with the Rules is an irregularity and does not render a proceeding,or a step in a proceeding, a nullity. The court may grant all necessary amendments or other relief, on such terms as are
just, to secure the just determination of the real matters in dispute. Relatedly, r. 2.01(2) provides that the court shallnot set aside an originating process on the ground that the proceeding should have been commenced by an originatingprocess other than the one employed.
47 Rule 2.01 reflects the general principle outlined in r. 1.04(1), that the rules "shall be liberally construed to secure thejust, most expeditious and least expensive determination of every civil proceeding on its merits." As this court explainedin Finlay v. Van Paassen, 2010 ONCA 204, 101 O.R. (3d) 390 (Ont. C.A.), at para. 14:
Rule 1.04(1) and rule 2.01 are intended to do away with overly "technical" arguments about the effect of the Rulesand orders made under them. Instead, these provisions aim to ensure that the Rules and procedural orders areconstrued in a way that advances the interests of justice, and ordinarily permits the parties to get to the real meritsof their dispute.
48 In my view, the respondents' procedural argument is "overly technical". The appellant had no choice but to start anew proceeding as the tort action had been dismissed by order dated August 26, 2013. He did so by Notice of Applicationseeking an assessment of the respondents' accounts. It was within that valid application that the appellant sought anorder setting aside the Consent Order.
49 It is worth noting that this court has previously addressed procedural or technical discrepancies in the context ofassessments of solicitors' accounts. In Price v. Sonsini (2002), 60 O.R. (3d) 257 (Ont. C.A.), a decision to which I willagain refer later in these reasons, Sharpe J.A. said, at para. 19:
The court has an inherent jurisdiction to control the conduct of solicitors and its own procedures. This inherentjurisdiction may be applied to ensure that a client's request for an assessment is dealt with fairly and equitablydespite procedural gaps or irregularities.
50 It is my opinion that, in these circumstances, it was open to the application judge to consider the appellant's requestto set aside the Consent Order notwithstanding it was relief sought within an application.
Did the Consent Order deprive the application judge of jurisdiction to order an assessment, if one was warranted?
51 I agree with the application judge's view, expressed in his endorsement, that the Consent Order, as it stood, was abar to his assuming jurisdiction to consider the request that the Fee Agreements be assessed. While the Consent Orderremained in place, an assessment of the Fee Agreements would have allowed the appellant to avoid the consequences ofthe order issued against him; namely, the final acceptance and payment of the fees and disbursements to the respondents.In such circumstances, an order that the Fee Agreements be assessed would have constituted "an attack made inproceedings other than those whose specific object is the reversal, variation, or nullification of the order": R. v. Wilson,[1983] 2 S.C.R. 594 (S.C.C.), at p. 599; Garland v. Consumers' Gas Co., 2004 SCC 25, [2004] 1 S.C.R. 629 (S.C.C.), at para.71. In short, an assessment order would have amounted to an impermissible collateral attack on the Consent Order.
52 My difficulty with the application judge's view is that, here, the appellant specifically requested that the applicationjudge set the Consent Order aside, removing any collateral attack concerns. In my view, the application judge shouldhave considered this request and his failure to do so constituted an error in law.
Should this court set aside the Consent Order?
53 In Aristocrat v. Aristocrat (2004), 73 O.R. (3d) 275 (Ont. C.A.), this court held that r. 59.06 does not conferjurisdiction to hear a motion to set aside an order, at first instance. Here, however, a request to set aside the Consent Orderwas brought before the application judge. And the application judge considered this request in the face of a completerecord and arguments by the parties.
54 I therefore now turn to the question whether this record supports the granting of such an order.
55 The respondents submit that the application judge's comment in the brief hearing before him that there was a lackof evidence of "fraud, slip, [or] mistake" is fatal to the appellant's claim to have the Consent Order set aside. Furthermore,say the respondents, the objectives of finality and certainty would be undermined if the Consent Order were disturbed.
56 I disagree.
57 Courts are, with good reason, cautious about setting aside orders, particularly those made on consent. Finality isimportant in litigation. And, when dealing with a consent order, the objective that parties be held to their agreementsis also an important consideration.
58 However, as this court remarked in Tsaoussis (Litigation Guardian of) v. Baetz (1998), 41 O.R. (3d) 257 (Ont. C.A.),at p. 272, there are ways, two in fact, by which an individual who would otherwise be bound by a previous order can seekto have that order set aside. First, the party can move in the original proceedings under r. 59.06(2)(a) in cases of "fraudor facts arising or discovered after [the order] was made". Or, the party can bring a separate action to set aside the order.
59 The role of r. 59.06 is to provide an expeditious procedure for setting aside court orders. However, it does notprescribe or delineate a particular test: Mohammed v. York Fire & Casualty Insurance Co. (2006), 79 O.R. (3d) 354 (Ont.C.A.), at para. 36, leave to appeal ref'd, (2007), [2006] S.C.C.A. No. 269 (S.C.C.); Tsaoussis, at p. 272. Ultimately, underr. 59.06 or within a separate action, an individual seeking to set aside an order is required to show "circumstances whichwarrant deviation from the fundamental principle that a final [order], unless appealed, marks the end of the litigationline": Tsaoussis, at p. 266.
60 Thus, a court is not limited to setting aside an order in instances of fraud or facts arising or discovered after theorder has been made. This is reflected in a review of this court's decisions, which demonstrates a willingness to departfrom finality and set aside court orders where it is necessary in the interests of justice to do so: see Stoughton TrailersCanada Corp. v. James Expedite Transport Inc., 2008 ONCA 817 (Ont. C.A.), adopting the principles set out in BeetownHoney Products Inc., Re (2003), 67 O.R. (3d) 511 (Ont. S.C.J.), aff'd without comment on this issue, (2004), 3 C.B.R.(5th) 204 (Ont. C.A.); Cookish v. Paul Lee Associates Professional Corp., 2013 ONCA 278, 305 O.A.C. 359 (Ont. C.A.).
Application
61 For the following reasons, it is my view that setting aside the Consent Order is necessary to achieve justice betweenthe appellant and the respondents relating to the legal costs associated with the tort action.
62 I return to the background of the Consent Order.
63 There is no suggestion that Bertschi Orth was not entitled to request a charging order to secure payment forservices rendered. I do question, however, why the Charging Order was sought and granted over the entire amount ofthe settlement funds rather than an amount sufficient to protect Bertschi Orth's interests.
64 What is also problematic, in my view, is Quinn Thiele's conduct once the Charging Order was in place.
65 As detailed above, the record demonstrates that Quinn Thiele was well aware of the significant financial pressurethe appellant was facing in the fall of 2013.
66 Against that background, Quinn Thiele not once but twice informed the appellant that $50,000 of his own moneycould not be released to him, even with Bertschi Orth's consent. This advice was incorrect. And all Quinn Thiele had todo to know that this advice was incorrect was to review the Charging Order.
67 Quinn Thiele admits that the position it repeatedly took with the appellant that no money could be released tohim, on consent, was not correct. It contends, however, that this error was immaterial for two reasons.
68 First, Quinn Thiele argues that the appellant instructed Ms. Letourneau to stop the process for the release of thefunds because he was negotiating a settlement with both firms.
69 I cannot agree with this submission. It is not clear from the record that the appellant gave such instructions toMs. Letourneau. Although in the appellant's email to Ms. Letourneau on November 21, 2013, he tells her to "put thefiling on the back burner", it is unclear whether that comment referred to her earlier commitment to rectify an issue thathad arisen with the court file number for the assessment, or her earlier expressed opinion that the parties' consent didnot need to be filed in court. Even if the record does support a finding that the appellant made such a request, it wasmade after Quinn Thiele had erroneously led the appellant to believe that a small portion of the settlement funds couldnot be released on consent.
70 Second, Quinn Thiele submits that, during the negotiations relating to the settlement of the legal fees, the appellanthad access to independent legal advice.
71 A review of the record indicates that this was not the case. The appellant briefly spoke to two lawyers in October2013. Both lawyers told the appellant that they would require a retainer. To Quinn Thiele's knowledge, the appellantwas unable to afford a retainer. He was approaching bankruptcy. He was in the middle of divorce proceedings. He hadlost his job as a corporate account executive in 2010, and had achieved limited success at several different jobs thereafter.He had drained his savings and investments.
72 The application judge did not consider whether setting aside the Consent Order was necessary to achieve justicein this case. As such, this court is justified in weighing the relevant considerations and coming to its own conclusion.Having done so, I conclude that the Consent Order should be set aside. This would achieve a just result as it would allowthe appellant's request for an assessment to be considered on its merits.
73 My conclusion is based on the cumulative impact of the following:
• In the fall of 2013, the time when his financial obligations to the respondents were being discussed, the appellantwas, to the knowledge of the respondents, in a very vulnerable position. He had suffered a traumatic brain injury,the after-effects of which he continued to experience, and was suffering from depression. And, he was in desperatefinancial straits.
• Quinn Thiele increased the already existing pressure on the appellant in a number of ways.
• Quinn Thiele did not take steps available to it to ensure that Bertschi Orth's fees and disbursements wereprotected. While Ms. Noel's correspondence indicated Bertschi Orth did not receive instructions from theappellant to sign an undertaking, there is no evidence that she explained the consequences of this decision tohim. This failure to take steps gave rise to the need to obtain the Charging Order. The Charging Order madethe Consent Order necessary.
• There is no indication that, in responding to Bertschi Orth's request for a charging order, Quinn Thiele tookthe position, on behalf of the appellant, that the scope of the Charging Order should be limited to the amountclaimed by Bertschi Orth, and not granted over all the settlement funds.
• Quinn Thiele gave the appellant erroneous legal advice to the effect that he could not access a relatively smallamount of his money. In doing so, Quinn Thiele admits, it misinterpreted the clear legal effect of the ChargingOrder.
• Quinn Thiele urged the appellant to settle his account with it, arguing that Quinn Thiele would then assistthe appellant in his negotiations with Bertschi Orth thereby saving him the considerable expenditure of timeand legal costs associated with an assessment.
• In dealing with the issue of the Charging Order and amounts owed to the respondents, the appellant did not haveindependent legal advice.
• Quinn Thiele's initial draft account to the appellant was $305,159.14, an amount incorrectly calculated based on 30percent of $800,000. The base amount should have been significantly lower, subtracting the $105,000 portion for theappellant's then wife, the $20,000 in costs awarded to one of the co-defendants, and the amount for party and partycosts. This over-calculation of the amount the appellant may have owed to Quinn Thiele under the contingencyagreement presented an inflated starting point for the fee negotiations that took place in the fall of 2013.
• There is no evidence that the Fee Agreements were "negotiated" with the appellant in circumstances in whichhe would have understood the impact of the Consent Order on the amount he would ultimately receive from thesettlement.
• The respondents do not point to any specific prejudice they would suffer if the Consent Order were set aside.
74 Of additional relevance is the fact that the Consent Order pertained to agreements relating to the amount andpayment of legal fees and disbursements. As I explain below, agreements of this type involve the public interest in a wayother private contractual matters do not. Thus, the interests of justice in this case must be understood in the light of thecourt's supervisory role over the rendering and payment of legal accounts.
(2) Should this Court order an assessment of the respondents' accounts?
75 The conclusion that the Consent Order should be set aside allows this court to consider whether the Fee Agreements,which, under the terms of the Consent Order, have been paid, should be reopened and an assessment of the accountsrendered further to those agreements, ordered.
76 The respondents submit that the circumstances do not warrant ordering an assessment, primarily on the basisthat the appellant willingly participated in the settlement of the amounts he owed the respondents through the FeeAgreements. In so doing, he chose to forego the scheduled assessment of the Bertschi Orth account and the opportunityto have the Quinn Thiele account assessed.
The role of the courts
77 The courts have inherent jurisdiction as well as jurisdiction under the Solicitors Act to order lawyers' accounts tobe assessed. Both sources of jurisdiction respond to the public interest component of the rendering of legal services andlawyers' compensation, and the importance of maintaining public confidence in the administration of justice.
78 In Plazavest Financial Corp. v. National Bank of Canada (2000), 47 O.R. (3d) 641 (Ont. C.A.), at para. 14, DohertyJ.A. explained how the public interest informs the court's role in supervising the rendering of legal services and paymentof legal fees:
The rendering of legal services and the determination of appropriate compensation for those services is not solely aprivate matter to be left entirely to the parties. There is a public interest component relating to the performance oflegal services and the compensation paid for them. That public interest component requires that the court maintaina supervisory role over disputes relating to the payment of lawyers' fees. I adopt the comments of Adams J. in Borden& Elliot v. Barclays Bank of Canada (1993), 15 O.R. (3d) 352 (Gen. Div.) at pp. 357-58, where he said:
The Solicitors Act begins with s. 1 reflecting the legal profession's monopoly status. This beneficial status orprivilege of the profession is coupled with corresponding obligations set out in the Act and which make clearthat the rendering of legal services is not simply a matter of contract. This is not to say a contract to pay aspecific amount for legal fees cannot prevail. It may. But even that kind of agreement can be the subject ofreview for fairness: see s. 18 of the Solicitors Act.
79 In Price, at para. 19, Sharpe J.A. further elucidated the court's role:
Public confidence in the administration of justice requires the court to intervene where necessary to protect theclient's right to a fair procedure for the assessment of a solicitor's bill. As a general matter, if a client objects to asolicitor's account, the solicitor should facilitate the assessment process, rather than frustrating the process.... In myview, the courts should interpret legislation and procedural rules relating to the assessment of solicitors' accounts ina similar spirit. As Orkin argues, "if the courts permit lawyers to avoid the scrutiny of their accounts for fairness andreasonableness, the administration of justice will be brought into disrepute." The court has an inherent jurisdictionto control the conduct of solicitors and its own procedures. This inherent jurisdiction may be applied to ensurethat a client's request for an assessment is dealt with fairly and equitably despite procedural gaps or irregularities.[Citations omitted.]
The applicable provisions of the Solicitors Act
80 For context, I start with s. 16(1) of the Solicitors Act, which provides:
Subject to sections 17 to 33, a solicitor may make an agreement in writing with his or her client respecting the amountand manner of payment for the whole or a part of any past or future services in respect of business done or to bedone by the solicitor, either by a gross sum or by commission or percentage, or by salary or otherwise, and either atthe same rate or at a greater or less rate than that at which he or she would otherwise be entitled to be remunerated.
81 The term "agreement" includes but is not limited to contingency fee agreements, which, for the purposes of ss.16 and 20-32, are considered to be "agreements": Solicitors Act, ss. 15, 28.1(10). As Salhany J. explained in Ruetz v.Morscher & Morscher (1995), 28 O.R. (3d) 545 (Ont. Gen. Div.), at p. 550, "Section 16 of the Solicitors Act does notrequire that the agreement take on any particular form. The authorities are clear that all that is required is that thedocument be an enforceable agreement." In this case, the "agreements" in question were not the initial contingencyagreements or the Consent Order, but rather the Fee Agreements entered into in full satisfaction of each respondent'sfees and disbursements.
82 Because the amounts agreed upon in the Fee Agreements have been paid, the operative provision for the purposesof reopening the agreements and ordering an assessment is s. 25 of the Solicitors Act:
Where the amount agreed under any such agreement has been paid by or on behalf of the client or by any personchargeable with or entitled to pay it, the Superior Court of Justice may, upon the application of the person whohas paid it if it appears to the court that the special circumstances of the case require the agreement to be reopened,reopen it and order the costs, fees, charges and disbursements to be assessed, and may also order the whole or anypart of the amount received by the solicitor to be repaid by him or her on such terms and conditions as to the courtseems just.
[Emphasis added.]
Special circumstances
83 The question is, therefore, whether the record supports a finding that special circumstances exist here that requirethe Fee Agreements to be reopened and an assessment ordered. The jurisprudence reveals limited consideration of thescope of "special circumstances" as expressed in s. 25 of the Solicitors Act, in particular.
84 As noted by courts considering the meaning of "special circumstances" within other provisions of the SolicitorsAct, however, the language implies that the court has a broad discretion to determine the matter having regard to allthe circumstances in the case, but that ordering an assessment after payment will be the exception rather than the rule:Minkarious v. Abraham, Duggan (1995), 27 O.R. (3d) 26 (Ont. Gen. Div.), at paras. 47, 51-52; Guillemette v. Doucet, 2007ONCA 743, 88 O.R. (3d) 90 (Ont. C.A.), at para. 4; Plazavest, at paras. 29-30, 33; Echo Energy Canada Inc. v. Lenczner
Slaght Royce Smith Griffin LLP, 2010 ONCA 709, 104 O.R. (3d) 93 (Ont. C.A.), at paras. 29, 32; Bui v. Alpert, 2014ONCA 495 (Ont. C.A.), at para. 7.
85 In the s. 11 context, where the payment of a bill does not preclude the court from referring it for assessment if thespecial circumstances of the case appear to require it, this court has noted that "exceptional circumstances of either acontractual or equitable nature could lead a court to find that an assessment is necessary or essential on general principlesor is called for as being appropriate or suitable in the particular case": Plazavest, at para. 33. In Echo Energy, at paras.30-31, this court said that "in the context of s. 11, those special circumstances relate to the underlying principle thatpayment of the account implies that the client accepted that the account was proper and reasonable.... Thus, specialcircumstances will tend to either undermine the presumption that the account was accepted as proper or show that theaccount was excessive or unwarranted."
86 With this in mind, I view the authorities and the objectives of the Solicitors Act as supporting the following broadertest: "Special circumstances" are those in which the importance of protecting the interests of the client and/or publicconfidence in the administration of justice, demand an assessment.
87 In The Law of Costs, loose-leaf, 2nd ed. (Toronto: Canada Law Book, 2015), at para. 306.3, Mark M. Orkinidentifies the relevant circumstances as including but not limited to:
• the sophistication of the client;
• the adequacy of communications between solicitor and client concerning the accounts;
• whether there is evidence of increasing lack of satisfaction by the client regarding the services relating to theaccounts;
• whether there is overcharging for services provided;
• the extent of detail of the bills;
• whether the solicitor/client relationship is ongoing; and
• whether payments can be characterized as involuntary.
Application
88 The appellant is not unsophisticated but was, at the time he entered into the Fee Agreements, vulnerable. He waspermanently impaired by the brain injury he suffered in the car accident. He was under intense financial pressure. Theappellant did not have independent legal advice when such was clearly called for. He expressed his dissatisfaction withthe legal services rendered by both firms. He terminated his retainer with Bertschi Orth and, when it came to resolvingthe firms' fees and disbursements, the appellant expressed his frustration with Quinn Thiele. Finally, at the time the FeeAgreements were entered into, detailed accounts had not been rendered by Quinn Thiele.
89 Furthermore, of particular importance is Quinn Thiele's representation of the appellant. I refer to conduct referredto above that; 1) contributed to the need for Bertschi Orth to obtain the Charging Order, 2) resulted in an order thatreflected no effort on Quinn Thiele's part to represent the appellant's interests by ensuring that the Charging Orderaffected him only to the extent necessary, 3) misled the appellant by providing erroneous legal advice and 4) exertedpressure on the appellant to settle — all of which put the appellant in a position in which he had little choice but toenter into the Fee Agreements.
90 In these circumstances, considered cumulatively, the protection of the appellant's interests and the public'sconfidence in the administration of justice demand that the Fee Agreements be reopened and an assessment be ordered.
91 I now turn to a consideration of whether the Consent Order acted to fulfil the purposes of an assessment underthe Solicitors Act.
92 A consent order "is not a judicial determination on the merits of a case but only an agreement elevated to an orderon consent": Rick v. Brandsema, 2009 SCC 10, [2009] 1 S.C.R. 295 (S.C.C.), at para. 64.
93 There is no evidence that Smith J., in granting the Consent Order, did what an assessment officer would do; namely,consider the fairness or reasonableness of the Fee Agreements. In these circumstances, the Consent Order did not act asa substitute for an assessment. It had nothing to do with promoting the public interest, ensuring public confidence in theadministration of justice or protecting the appellant. It was issued to elevate the Fee Agreements to an order that wouldallow the parties to access the monies being held under the Charging Order.
94 The fact that the Consent Order forms part of the background in which the assessment order is being requesteddoes not detract from the conclusion that the special circumstances in this case demand that an assessment be ordered.
Conclusion regarding the Request for an Assessment Order
95 I therefore conclude that, in the circumstances of this case, relief should be granted under s. 25 of the Solicitors Act.The Fee Agreements should be reopened and an assessment of the respondents' fees and disbursements should take place.
Disposition
96 For these reasons, I would allow the appeal, set aside the Consent Order and direct that the costs, fees, chargesand disbursements incurred or chargeable in respect of the matters included therein be assessed.
97 The application judge did not determine the costs of the application. I would award the appellant his costs of theapplication, fixed in the amount of $10,000, including disbursements and applicable taxes.
98 Further to the parties' written submissions as to costs, I would award the appellant his costs of this appeal in theamount of $15,000, including disbursements and applicable taxes.
E.A. Cronk J.A.:
I agree
Grant Huscroft J.A.:
I agreeAppeal allowed.
Footnotes
* A corrigendum issued by the court on May 24, 2016 has been incorporated herein.
1 Then known as Bertschi Orth Smith LLP.
2 The accident benefit claim was settled by a paralegal firm working out of Bertschi Orth's offices, and is not relevant to thisappeal.
3 Any reference in this decision to fees and disbursements owed by the appellant to the respondents encompasses those forservices rendered both to the appellant himself and to his children, as the appellant agreed to pay for both sets of fees anddisbursements.
4 In an email dated November 20, 2013, Michael Thiele, a partner at Quinn Thiele, revised this amount. He informed theappellant that the total amount of fees and disbursements owed was $264,210.50, more than $40,000 less than the originalamount stated.
5 Rule 59.06(2)(a) provides as follows: "A party who seeks to, (a) have an order set aside or varied on the ground of fraud or offacts arising or discovered after it was made... may make a motion in the proceeding for the relief claimed."
Lorrie Tsaoussis, by her Litigation Guardian Carol Metcalf, Carol Metcalfpersonally, and Angela Tsaoussis, by her Litigation Guardian Carol Metcalf,
Plaintiffs (Respondents) and Juanita M. Baetz, Defendant (Appellant)
Lorrie Tsaoussis, by her Litigation Guardian, Carol Metcalf, Applicant and Juanita M. Baetz, Respondent
Doherty, Abella, Charron JJ.A.
Heard: April 30, 1998
Judgment: September 2, 1998 *
Docket: CA C27319
Proceedings: reversing (1997), 13 C.P.C. (4th) 136 (Ont. Gen. Div.)
Counsel: Sheldon A. Gilbert, Q.C., for the appellant.Andre I.G. Michael, for the respondents.
Subject: Civil Practice and Procedure; Torts
APPEAL by driver from judgment reported at (1997), 13 C.P.C. (4th) 136, 33 O.R. (3d) 679 (Ont. Gen. Div.), grantingmother's motion to set aside settlement of child's personal injury action.
The judgment of the court was delivered by Doherty J.A.:
The Issue
1 Should a judgment approving a settlement made on behalf of a minor plaintiff in a personal injury case be set
aside some 4 1 /2 years later if, based on medical assessments done after the settlement, it appears that the minor was
significantly under-compensated by the terms of the settlement?
I.
2 In April, 1990, the respondent, Lorrie Tsaoussis (Lorrie), aged three, was struck by a car driven by the appellant,Juanita Baetz. Lorrie was hospitalized for three days and subsequently seen by her family doctor and paediatrician.Her mother, Carol Metcalf, retained counsel who, within a month of the accident, notified the appellant of Lorrie'sclaim against her. After negotiations between Lorrie's former counsel and counsel for the appellant's insurer, the partiesreached a settlement. As the settlement involved a minor plaintiff, it had to be approved by the court.
3 Early in 1992, former counsel for Lorrie brought an application under rule 7.08 seeking court approval of thesettlement of Lorrie's claim against the appellant arising out of the accident. In compliance with rule 7.08(4), counselfiled his affidavit and the affidavit of Carol Metcalf, Lorrie's mother and litigation guardian. Counsel also attachedthe hospital records and reports from Lorrie's family doctor and here paediatrician to his affidavit. According to thatmaterial, Lorrie had suffered a skull fracture in the accident. Although she had some medical problems in the weeks
following the accident, they seemed relatively minor. Assessments done in the six months following the accident indicatedthat Lorrie was essentially "normal." Nearly a year after the accident her family doctor said:
It is my impression that she should have a complete recovery without any significant sequela anticipated.
4 In Ms. Metcalf's affidavit, she indicated that the information supplied on the medical records was correct, and thatbased on counsel's advice, she had accepted the terms of the settlement on behalf of Lorrie.
5 On February 7, 1992, Scott J. of the Ontario Court (Gen. Div.) approved the settlement and granted judgment (the1992 judgment). Under the terms of the settlement and judgment, $5,420.00 was paid into court for the benefit of Lorrieand $1,250.00 was paid by the appellant in full satisfaction of costs. After the funds were paid into court, counsel forMs. Baetz wrote to Lorrie's counsel confirming that "this resolves all claims arising out of this accident."
6 Ms. Metcalf remained concerned about her daughter's health. Lorrie had headaches, did not sleep through thenight, seemed easily distracted and had become increasingly clumsy. With the help of a social worker, Lorrie's motherarranged to have Lorrie seen by a paediatric neurologist at Children's Hospital in London, Ontario. Assessments donebetween the summer of 1992 and the fall of 1994 revealed that Lorrie had numerous ongoing medical and developmentalproblems, some of which were attributed to the head injury she had suffered in the car accident in 1990. By February,1996, Lorrie's doctor opined that Lorrie's "attention and concentration problems are attributable to the motor vehicleaccident." Her doctor also felt that the full extent of those problems could not be determined for another year or two.
7 At some point, Lorrie's mother retained new counsel on behalf of Lorrie. In the fall of 1994, that counsel commenceda new action (the 1994 action) claiming that the appellant's negligence had caused injuries to Lorrie resulting in damagesof some $2.2 million. Counsel also claimed damages under the Family Law Act, R.S.O. 1990, c. F.3 on behalf of Lorrie'smother and sister. In her defence, Ms. Baetz pleaded that the claim had been settled by the 1992 judgment leaving Lorriewith no cause for action against her. Ms. Baetz also denied any liability for the accident.
8 In the fall of 1996, counsel brought a motion in the 1994 action to set aside the 1992 judgment. 1 Although counselargued that Scott J. should not have approved the settlement in 1992, the affidavits filed on the motion make it clear thatmedical evidence developed after the 1992 judgment provided the sole basis for setting aside that judgment. The finalparagraph of counsel's affidavit filed on the motion summarizes his position:
There is no doubt in my mind that the present medical evidence now clearly establishes that the court approvedsettlement was not in the best interests of either Lorrie or her mother. The medical tests and assessments which havebeen performed since the time of the court approval have clearly provided new evidence of the extent and effect ofthe brain damage sustained by Lorrie which was not available to Madam Justice Scott. It is my opinion that theinterests of justice require that the judgment of Madam Justice Scott be set aside. ...
9 Leitch J., for reasons reported at (1997), 33 O.R. (3d) 679 (Ont. Gen. Div.) [13 C.P.C. (4th) 136], granted the motion,
set aside the 1992 judgment and directed that the 1994 action should proceed. 2 In doing so, she did not purport to reviewthe correctness of the judgment as of the date it was made. Instead, Leitch J. held that she was obliged to consider themedical evidence developed after the 1992 judgment and decide whether in the light of that evidence the 1992 judgmentcould be said to be in the best interests of Lorrie. She said, at p. 688:
I find it necessary to consider evidence that was not before the judge who approved the settlement in 1992 not toshow that the assessment of the previously existing evidence was incorrect but to allow this court to assess whetherLorrie's best interests have been met.
10 After a careful review of the new medical evidence, Leitch J. concluded that as the 1992 judgment had been premisedon medical information indicating that Lorrie's injury was relatively minor and would cause no long-term effects, itcould not be said to meet Lorrie's best interests in the face of medical evidence indicating a much more serious injury
with significant long-term effects. Leitch J. made it clear that in setting aside the 1992 judgment she had considered onlythe best interests of Lorrie. In her view, the criteria generally applied on a motion to set aside a final judgment did notapply on a motion to set aside a judgment approving an infant settlement. She specifically held that prejudice to theappellant was irrelevant.
11 I think Leitch J. properly characterized her function on the motion to set aside the 1992 judgment. She was not,and indeed could not, sit on appeal from the decision of Scott J. Arguments as to whether Scott J. should have approvedthe settlement based on the information placed before her could only be properly made by way of a direct appeal fromthat judgment and no such appeal was ever taken.
12 Leitch J. also properly avoided any consideration of the adequacy of former counsel's representation of Lorrie inmaking her determination that the 1992 judgment should be set aside. Former counsel is not a party to these proceedings,and it would be inappropriate to take anything said by Leitch J. or by me as a comment on the adequacy of hisrepresentation. If Lorrie wishes to take issue with that representation, she can do so in separate proceedings instituted
against the former counsel for that express purposes. 3
II.
13 If, as Leitch J. held, the best interests of Lorrie is the only factor to consider in deciding whether to set aside the1992 judgment, her decision is unassailable. The medical evidence gathered after the 1992 judgment strongly suggeststhat if the appellant is responsible for Lorrie's injuries, Lorrie was significantly under-compensated by the terms of the1992 judgment. I cannot agree, however, that the best interests of Lorrie govern the decision whether the 1992 judgmentshould be set aside. In my view, a judgment approving the settlement of a minor's personal injury claim that has beensigned, entered and not appealed is final, and must be given the same force and effect as any other final judgment. Amotion to set aside that judgment should be tested according to the same criteria used on motions to set aside other finaljudgments. Applying those criteria, I would hold that the 1992 judgment should not have been set aside.
III.
14 A person who is injured as a result of the negligence of another is entitled to full but fair compensation for thoseinjuries: Watkins v. Olafson (1989), 61 D.L.R. (4th) 577 (S.C.C.), at 581. Under our system of adjudication of personalinjury cases, full but fair compensation is determined at a specific point in time on a once and for all basis, and awardedin the form, of a single lump sum payment. Absent statutory authority, a court cannot provide for periodic paymentsto a plaintiff in a personal injury case, or periodically review damages based on developments subsequent to the initialassessment: Watkins v. Olafson supra, at pp. 580-86. Because we assess damages on a once and for all basis and award asingle lump sum amount, judges must determine what constitutes full but fair compensation on the basis of informationavailable at the time the adjudication is made. Judges must also factor future costs and future losses into that assessmentin many personal injury cases. It is almost inevitable, particularly where future damages are involved, that the amountawarded will in time prove to provide over or under compensation. Despite the likelihood of inaccuracy which has
spawned strong judicial and academic criticism of one time lump sum awards, 4 this province maintains that approach
in personal injury cases in all but very limited circumstances. 5 One time lump sum awards are seen as having sufficient
advantages over other proposed forms of compensation to justify the inaccuracy inherent in those words. 6
15 Paramount among those advantages is finality. Finality is an important feature of our justice system, both to theparties involved in any specific litigation and on an institutional level to the community at large. For the parties, it isan economic and psychological necessity. For the community, it places some limitation on the economic burden eachlegal dispute imposes on the system and it gives decisions produced by the system an authority which they could nothope to have if they were subject to constant reassessment and variation: J.I. Jacob, The Fabric of English Civil Justice,Hamlyn Lectures 1987, at pp. 23-24.
16 The parties and the community require that there be a definite and discernable end to legal disputes. There mustbe a point at which the parties can proceed on the basis that the matter has been decided and their respective rights andobligations have been finally determined. Without a discernable end point, the parties cannot get on with the rest oftheir lives secure in the knowledge that the issue has finally been determined, but must suffer the considerable economicand psychological burden of indeterminate proceedings in which their respective rights and obligations are revisited andreviewed as circumstances change. Under our system for the adjudication of personal injury claims, that and point occurswhen a final judgment has been entered and has either not been appealed, or all appeals have been exhausted.
17 Finality is important in all areas of the law, but is stressed more in some than in others. Its significance in tortlaw was highlighted by McLachlin J. in Watkins v. Olafson, supra, at p. 585, where in the course of discussing problemsassociated with a scheme of compensation based on reviewable periodic payments, she said:
Yet another factor meriting examination is the lack of finality of periodic payments and the effect this might haveon the lives of plaintiff and defendant. Unlike persons who join voluntarily in marriage or contract - areas wherethe law recognizes periodic payments - the tortfeasor and his or her victim are brought together by a momentarylapse of attention. A scheme of reviewable periodic payments would bind them in any uneasy and unterminatedrelationship for as long as the plaintiff lives.
18 The importance attached to finality is reflected in the doctrine of res judicata. That doctrine prohibits the re-litigation of matters that have been decided and requires that parties put forward their entire case in a single action.Litigation by instalment is not tolerated: Toronto General Trusts Corp. v. Roman, [1963] 1 O.R. 312 (Ont. C.A.); aff'd.[1963] S.C.R. vi (S.C.C.). Finality is so highly valued that it can be given priority over the justice of an individual caseeven where fundamental liberty interests and other constitutional values are involved: R. v. Thomas, [1990] 1 S.C.R. 713(S.C.C.); R. v. Sarson (1996), 107 C.C.C. (3d) 21 (S.C.C.); Reference re Language Rights Under s. 23 of Manitoba Act,1870 and s. 133 of Constitution Act, 1867, [1985] 1 S.C.R. 721 (S.C.C.), at 757.
19 That is not to say that finality interests always win out over other interests once final judgment is signed andentered. Sometimes the rigor of the res judicata doctrine will be relaxed: Doering v. Grandview (Town) (1975), [1976] 2S.C.R. 621 (S.C.C.), at 638; Hennig v. Northern Heights (Sault) Ltd. (1980), 30 O.R. (2d) 346 (Ont. C.A.). The courtalso has the power to set aside final judgments: Glatt v. Glatt, [1937] S.C.R. 347 (S.C.C.); aff'd. (1935), [1936] O.R. 75(Ont. C.A.); Whitehall Development Corp. v. Walker (1977), 4 C.P.C. 97 (Ont. C.A.). The limitations on the res judicatadoctrine and the power to set aside previous judgments are, however, exceptions to the general rule that final judgmentsmark the end of litigation. Those exceptions recognize that despite the value placed on finality, there will be situationsin which other legitimate interests clearly outweigh finality concerns. The power to set aside a final judgment obtainedby fraud is the most obvious example. As important as finality is, it must give way when the preservation of the veryintegrity of the judgment process is at stake.
20 Attempts, whatever their form, to reopen matters which are the subject of a final judgment must be carefullyscrutinized. It cannot be enough in personal injury litigation to simply say that something has occurred or has beendiscovered after the judgment became final which shows that the judgment awards too much or too little. On thatapproach, finality would become an illusion. The applicant must demonstrate circumstances which warrant deviationfrom the fundamental principle that a final judgment, unless appealed, marks the end of the litigation line. I thinkAnderson J. struck the proper judicial tone on applications to reopen final judgments in L.M. Rosen Realty Ltd. v.D'Amore (1988), 29 C.P.C. (2d) 106 (Ont. H.C.). He was asked to set aside a judgment and vary the rate of post-judgmentinterest granted because subsequent events showed that the rate was much too high. He said, at p. 109:
...Even if I thought I had the discretion, I would be reluctant to intervene because I feel it would be offensive to thebasic proposition that there should be finality in litigation. Adjusting the result after judgment, save in response tounusual circumstances, would be a conspicuous and dangerous meddling with that proposition.
21 I am not aware of any personal injury case in which a final judgment has been set aside, other than on appeal,
because evidence developed after the judgment indicated that the award was much too high or much too low. 7 I wouldbe surprised to find such a case as it would be entirely inconsistent with our system of one time lump sum awards forpersonal injuries. As assessments which ultimately prove to be inaccurate are inherent in that scheme, I do not see how thedemonstration of that inaccuracy in a particular case could, standing alone, justify departure from the finality principle.
IV.
22 The approach taken by Leitch J. constitutes a departure from the traditional approach taken to final judgmentsin personal injury litigation. She discounts finality concerns entirely. If she is correct, no judgment approving an infantsettlement is final. Instead, all carry the unwritten caveat - subject to being set aside if subsequent events reveal that
the plaintiff may have been under-compensated. 8 Nor, in my view, would it be an unusual case in which this caveatwould come into play. Medical assessments change, unanticipated losses arise and estimates of anticipated costs proveinaccurate. In all such situations where the change was significant, minor plaintiffs would be entitled to set aside ajudgment approving a settlement and re-litigate their claim based on the latest information available as to the extent ofthe damage suffered by them.
23 In addition to discounting finality concerns, Leitch J. has, in effect, introduced a scheme of compensationby reviewable periodic payments in personal injury cases involving minor plaintiffs. Amounts awarded pursuant tosettlements approved by the court would become periodic payments if, before the minor reached majority, circumstancesrevealed that the amount awarded did not provided full compensation. This is the sort of drastic innovation in our tortcompensation scheme which the Court in Watkins v. Olafson supra, instructed should be left to the legislature.
24 The respondent contends that the court's obligation to ensure that the best interests of Lorrie were met trumped allother concerns. There can be no doubt that a court is obliged to look to and protect the best interests of minors who are
parties to legal proceedings. 9 This obligation, sometimes referred to as the court's parens patriae jurisdiction, requiresthat the court abandon its normal umpire-like role and assume a more interventionist mode. For example, the courtmust decide who will act on behalf of the minor (Rule 7.03-7.06) and the court must take control of any proceeds paidto the benefit of the minor (Rule 7.09). The supervisory powers of the court are most clearly evinced by the requirementthat the court approve any consent judgment to which a minor is a party and the closely aligned requirement that thecourt approve any settlement of a minor's claim before that settlement will bind the minor (Rule 7.08). The duty on thecourt when a motion for approval of a settlement is made was authoritatively described by Robertson C.J.O. in Poulinv. Nadon, [1950] O.R. 219 (Ont. C.A.), at 225:
...If, upon proper inquiry, the judge shall be of the opinion that the settlement is one that, in the interests of theinfant, should be approved, he may give the required approval. If, on the other hand, the judge, is not of the opinionthat the settlement is one that should be approved, he may give such direction as to the trial of the action as maybe proper....
25 The inquiry described by Robertson C.J.O. requires that the court make its own determination whether the proposedsettlement is in the minor's best interests. Rule 7.08(4) demands that the parties place sufficient material before the courtto allow it to make that determination.
26 As important and far reaching as the parens patriae jurisdiction is, it does not exist in a vacuum, but must beexercised in the context of the substantive and adjectival law governing the proceedings. The parens patriae jurisdictionis essentially protective. It neither creates substantive rights nor changes the means by which claims are determined.
27 The proper limits of the parens patriae jurisdiction were drawn in Carter v. Junkin (1984), 47 O.R. (2d) 427 (Ont.Div. Ct.). The defendant insurance company proposed to make an advance payment to a minor under the provisions ofthe Insurance Act. The defendant applied for an order approving the advance payment, but the motion judge refused to
make that order unless the insures agreed to a term which would protect the minor's claim to pre-judgment interest. Thedefendant refused to make the payment on that term and appealed. The Divisional Court, held at p. 430:
The court has no jurisdiction to compel an insurer to pay money into court under s. 224 [The Insurance Act] andto make good the interest differential. But that is not what was done here. The learned motions court judge did notrequire the insurer to pay money into court. He simply granted leave to the insurer to do so, if the insurer was willingto agree to give the undertaking as to the interest differential. The insurer can still decline to make the payment, inwhich event the infant plaintiff will recover at trial the full amount of pre-judgment interest to which he is entitled.
28 The court properly drew a distinction between a court imposed term on a voluntary payment as a condition tocourt approval of that payment and the court requiring that the defendant make a payment. The former protected theminor's best interests under the scheme of voluntary payments established under the Insurance Act and was a properexercise of the parens patriae jurisdiction. A forced payment would, however, have gone beyond the limits of the statuteand given the minor rights which he did not have under that statute. While a forced advance payment may have beenin the minor's best interests, it was not within the scope of the parens patriae jurisdiction as it was not contemplatedunder the statutory scheme.
29 A minor plaintiff, like any other plaintiff, is entitled to full but fair compensation if the minor establishes apersonal injury claim. The parens patriae jurisdiction does not expand that entitlement. For example, a minor plaintiffwho cannot establish that the defendant's negligence caused the injury, cannot succeed on the basis that, despite thatfailure, compensation is in the minor's best interests. Similarly, a minor, like any other plaintiff, is entitled to have thecompensation assessment made on a once and for all basis and to be paid that compensation in a single lump sum.The parens patriae jurisdiction does not enable the court to create a different compensation regime for minor plaintiffsinvolving periodic reviews of the adequacy of the compensation provided to the minor. The court must protect theminor's best interests, but it must do so within the established structure for the compensation of personal injury claims:Kendall (Litigation Guardian of) v. Kindl Estate (1992), 10 C.P.C. (3d) 24 (Ont. Gen. Div.), at 27-28
30 Finality, is as important in cases involving minor plaintiffs as it is in cases involving adult plaintiffs. The need forfinality must temper the goal of meeting the minor's best interests just as it must temper the desire to provide every plaintiffwith full but fair compensation. Proposed settlements of minor's personal injury claims, especially those involving veryyoung children with head injuries, raise real concerns about the adequacy of compensation provided by those settlements.
The risk of under-compensation in those cases is very real. 10 That risk demands that the court vigorously exerciseits parens patriae jurisdiction when asked to approve a settlement. Once the settlement is approved, however, and thejudgment is final and not appealed, the parens patriae jurisdiction is spent. It can only be reasserted if there is a validbasis for setting aside the final judgment.
31 In arriving at the conclusion that the best interests of the minor justified setting aside the previous final judgment,Leitch J. relied exclusively on the decision of the British Columbia Court of Appeal in Makowka v. Anderson (1990),67 D.L.R. (4th) 751 (B.C. C.A.). In Makowka, a motion judge was asked to approve an infant settlement. He did soover the objections of the Public Trustee acting on behalf of the infant. The Public Trustee argued that more time wasneeded to assess the extent of the minor's head injury and the cause of her various medical problems. The Public Trusteeappealed the judgment approving the settlement and sought to introduce evidence on appeal of medical assessmentsdone between the judgment approving the settlement and the hearing of the appeal. Those assessments confirmed thePublic Trustee's concerns and indicated that the minor's injuries were serious and that in all likelihood she would suffersignificant long-term disabilities.
32 On a motion to admit the fresh evidence heard before the actual appeal, Lambert J.A., for the court, while acceptingthe importance of finality, even in litigation involving minors, acknowledged that the appeal court could receive evidenceof matters arising after the judgment appealed from. He stressed that the evidence proffered by the Public Trustee was notdirected to a purely factual question, but rather to the assessment of the minor's best interests. The reasons of LambertJ.A. admitting the evidence are referred to in the reasons disposing of the appeal. He said, at p. 758:
...So the purpose of the introduction of fresh evidence in this appeal is not to show that a factual assessment of thepreviously existing evidence was incorrect, but it is to show that the best interests of the infant may not in fact havebeen carried through in the way that the chambers judge thought he was carrying them through.
Accordingly, the factors are quite different in this case. Having regard to the crucial ones, which are the best interestsof the child and the good administration of justice, it would, in my opinion, in the words of the cases, be an affrontto justice to insist on imposing this settlement on this infant if it was, when it was agreed upon, an unjust settlement.
33 The court hearing the appeal described its task in words that were adopted by Leitch J.
So we are entitled to look at the new evidence, which includes subsequent medical reports, for the purpose ofdetermining whether the settlement originally placed before the court seems a just one today. We are not limited toconsidering the strengths and weaknesses of Meghan's [the minor] case as they appeared from the material placedbefore the judge below. [p. 758].
34 Not surprisingly, the court went on to conclude that the amount provided for in the settlement was totally inadequateand set aside the order approving the settlement.
35 The facts in Makowka are quite similar to out facts. The proceedings were, however, fundamentally different.Makowka was a direct appeal from the judgment approving the settlement. When the fresh evidence was tendered thematter was still in the litigation system and the rights and obligations of the parties were subject to appellate review, thepurpose and of which was to determine the correctness of the order approving the settlement. The defendant in Makowkahad not reason to think the end of the litigation line had been reached. The Public Trustee continued to maintain thatthe settlement should not have been approved and the new evidence went directly to the central issue both on the motionand on the appeal.
36 On this motion, Leitch J. was not asked to, and could not, review the correctness of the order of Scott J. Instead,she was asked to allow Lorrie to begin her claim afresh and to re-litigate a claim which, in the eyes of the law and themind of Ms. Baetz, had ceased to exist when it became the subject of final judgment in 1992. In my opinion, there is animportant difference between allowing a party to supplement a record at the appellate stage of an ongoing proceedingand allowing a party to resurrect a claim which is the subject of a final judgment. That distinction has been recognized byappellate courts faced with applications to admit fresh evidence concerning events which occurred between the judgmentand the appeal. In McCann v. Sheppard, [1973] 2 All E.R. 881 (Eng. C.A.), Lord Denning M.R., said:
...The general rule in accident cases is that the sum of damages falls to be assessed once and for all at the time ofthe hearing; and this court will be slow to admit evidence of subsequent events to vary it. It will not normally do soafter the time for appeal had expired without an appeal being entered - because the proceedings are then at an end.They have reached finality. But if notice of appeal has been entered in time - and pending the appeal, a superveningevent occurs such as to falsify the previous assessment - then the court will be more ready to admit fresh evidencebecause until the appeal is heard and determined, the proceedings are still pending. Finality has not been reached....
37 Admitting fresh evidence on appeal of events which occurred between the judgment and the appeal raises finalityconcerns for the reasons set out by Lord Denning, however, these concerns are moderated, first by the fact that theproceeding is still underway and second because the parties know that their rights remain undetermined until appellateremedies have been exhausted. Even in those circumstances, evidence is only admitted where it would be "an affront tocommon sense" to refuse to admit the evidence on appeal: Mercer v. Sijan (1976), 14 O.R. (2d) 12 (Ont. C.A.), at 17;Sengmueller v. Sengmueller (1994), 17 O.R. (3d) 208 (Ont. C.A.), at 211. This was the test applied in Makowka.
38 Leitch J. erred in the equating her position on a motion to set aside a final judgment with that of an appellant
court asked to admit evidence of events which occurred between the judgment and the appeal. 11 while finality concernsare relevant in both situations, they must carry a great deal more weigh where the judgment is final and the proceedings
which culminated in that judgment have long since ended. The court in Makowka did not have to address the thresholdissue raised on this motion - should a litigant, based on evidence developed after final judgment and after proceedingshave ended, be allowed to start the litigation process all over again? That issue could not be resolved by reliance on theparens patriae jurisdiction.
V.
39 A party who would otherwise be bound by a previous judgment can bring an action to set aside that judgment.Fraud in the obtaining of the initial judgment is the most common ground relied on in such actions: McGuire v. Haugh(1933), [1934] O.R. 9 (Ont. C.A.), at 11-13; Russell v. Brown, [1948] O.R. 835 (Ont. C.A.) per Hogg J.A. (concurring)at pp. 846-48; Glatt v. Glatt supra, at p. 79. Rule 59.06 allows that kind of relief to be claimed by way of a motion inthe original proceedings. The rule does not, however, confer the power to set aside a previous judgment, nor does itarticulate a test to be applied in deciding whether a previous judgment should be set aside. The rule merely provides amore expeditious procedure for seeking that remedy: Glatt v. Glatt supra; Braithwaite v. Haugh (1978), 19 O.R. (2d) 288(Ont. Co. Ct.), at 289. The language of Rule 59.06 does, however, provide insight into the varied factual circumstanceswhich may give rise to motions to set aside a judgment.
40 For present purposes, I am concerned with Rule 59.06(2)(a) and particularly, the part of the rule which refersto motions to set aside orders "on the ground ... of facts arising or discovered after it [the order] was made." The ruledraws a distinction between facts which come into existence after the judgment was made and facts which, while existingwhen the judgment was made, were discovered after judgment. In this case, the facts relief on to set aside the previousjudgment concerned the exact nature of Lorrie's head injury and, more importantly, its potential impact on her physical,intellectual and cognitive development. The injury and those potential effects existed at the time of the judgment.
41 In deciding whether to set aside a judgment based on evidence said to be discovered after judgment, the courtmust first decide whether that evidence could have been tendered before judgment. Evidence which could reasonablyhave been tendered prior to judgment cannot be used to afford a party a second opportunity to re-litigate the same issue.In Glatt v. Glatt supra, the appellant moved a set aside a judgment partly on the basis of evidence discovered after thejudgment. Duff C.J., for a unanimous court, rejected the claim stating, at p. 350:
It is well established law that a judgment cannot be set aside on such a ground unless it is proved that the evidencerelied upon could not have been discovered by the party complaining by the exercise of due diligence. The importanceof this rule is obvious and it is equally obvious that the finality of judgments generally would be gravely imperilledunless the rule were applied with the utmost strictness.
42 That same view prevailed in the majority judgment in Doering v. Grandview (Town) supra, some 40 years later.Mr. Doering sued the Town of Grandview alleging that it was responsible for the flooding of his land. The suit wasdismissed. A few months later he commenced a second action, again claiming damages for the flooding of his land. Thesecond claim referred to different years than the first claim and alleged a different means by which the flooding occurred.An expert consulted by Mr. Doering after the first trial had developed a new theory explaining how the flooding hadoccurred. The Town moved to have the second action stayed on the basis that it was res judicata. A closely dividedSupreme Court of Canada sided with the Town and stayed Mr. Doering's claim. The minority were of the view that thetwo actions did not raise the same issue. The majority took the position that the two actions were sufficiently similar towarrant the application of res judicata. Ritchie J., for the majority, went on to consider whether the new theory as tothe cause of the flooding could provide a basis for re-litigating the Town's liability. He cited with approval, at p. 636,the judgment of Lord Cairns in Phosphate Sewage Co. v. Molleson (1879), 4 App. Cas. 801 (Scotland H.L.), at 814-15,where his Lordship said:
As I understand the law with regard to res judicata, it is not the case, and it would be intolerable if it were the case,that a party who has been unsuccessful in a litigation can be allowed to reopen that litigation merely by saying,that since the former litigation there is another fact going exactly in the same direction with the facts stated before,
leading up to the same relief which I asked for before, but it being in addition to the facts which I have mentioned,it ought now to be allowed to be the foundation of a new litigation, and I should be allowed to commence a newlitigation merely upon the allegation of this additional fact. My Lords, the only way in which that could possiblybe admitted would be if the litigant were prepared to say, I will shew you that this is a fact which entirely changesthe aspect of the case, and I will shew you further that it was not, and could not by reasonable diligence have been,ascertained by me before.... [Emphasis added.]
43 Ritchie J., at 638, observed that Mr. Doering had not alleged, much less proved, that the expert evidence advancingthe new theory concerning the flooding could not have been available by the exercise of reasonable diligence at the firsttrial. Consequently, Mr. Doering had not cleared the first hurdle required to allow him to re-litigate a claim which wasres judicata.
44 These and numerous other authorities (e.g. Whitehall Development Corp. v. Walker supra, at p. 98) recognize thatthe finality principle must not yield unless the moving party can show that the new evidence could not have been putforward by the exercise of reasonable diligence at the proceedings which led to the judgment the moving party seeks toset aside. If that hurdle is cleared, the court will go on to evaluate other factors such as the cogency of the new evidence,any delay in moving to set aside the previous judgment, any difficulty in re-litigating the issues and any prejudice toother parties or persons who may have acted in reliance on the judgment. The onus will be on the moving party to showthat all of the circumstances are such as to justify making an exception to the fundamental rule that final judgments areexactly that, final. In a personal injury case, new evidence demonstrating that the plaintiff was inadequately compensatedcannot, standing alone, meet that onus.
45 Lorrie cannot show that the evidence developed after the 1992 judgment could not have been available by theexercise of reasonable diligence prior to obtaining that judgment. Ms. Metcalf testified that she told Lorrie's formerlawyer that Lorrie was having problems sleeping and walking before the 1992 judgment. According to Ms. Metcalf,the former counsel was aware that arrangements had already been made to have Lorrie seen at the Brain Injury Clinicin London when the settlement was made in February, 1992. Documentation produced by Lorrie's present counsel inresponse to undertakings given during Ms. Metcalf's cross-examination indicates that the arrangements were actuallymade shortly after the 1992 judgment. The fact remains, however, that according to Ms. Metcalf, she and Lorrie's formercounsel were aware of Lorrie's ongoing problems and Ms. Metcalf's desire to have a further medical assessment done. Ms.Metcalf testified that Lorrie's former counsel did not suggest that the settlement be delayed pending further assessmentand Ms. Metcalf did not request that the settlement be delayed for that purpose.
46 The reasons no further assessments were made prior to proceeding with the settlement and judgment are irrelevantin this proceeding. Certainly, there is no suggestion that Ms. Baetz or her insurers were aware that further assessmentswere needed or even contemplated. Those acting on behalf of Lorrie chose to proceed with the settlement without furthermedical assessments. It cannot now be said that the evidence eventually generated by further assessments could not havebeen available by the exercise of reasonable diligence prior to the judgment approving the settlement.
47 I would allow the appeal, set aside the order of Leitch J., and in its place make an order dismissing the 1994 action.Ms. Baetz is entitled to her costs both here and in the court below.
Appeal allowed.
Footnotes
* Leave to appeal refused (1999), (sub nom. Tsaoussis v. Baetz) 236 N.R. 189 (note) (S.C.C.).
1 Under the terms of Rule 59.06(2), the motion should have been brought in the 1992 proceedings, but it would appear thatnothing turns on this procedural irregularity.
2 Justice Leitch also directed that the payment pursuant to the 1992 judgment should be treated as an advance payment toLorrie under the terms of the Insurance Act. She further dismissed a motion brought by Ms. Baetz for summary judgment
on the derivative action brought by Lorrie's mother, Carol Metcalf under the Family Law Act. Given my disposition of theappeal from the order setting aside the 1992 judgment, I need not consider the correctness of either of these orders.
3 In the cross-examination of Ms. Metcalf on her affidavit, counsel for Lorrie indicated that the former solicitor had been puton notice of a possible claim against him based on the 1992 settlement. That lawsuit is being held in abeyance pending theresult of this appeal.
4 E.g. see the comments of Dickson J. in Andrews v. Grand & Toy Alberta Ltd., [1978] 2 S.C.R. 229 (S.C.C.), at 236.
5 Section 116 of the Courts of Justice Act, R.S.O. 1990, c. [C.]43 provides for periodic payment and review of damages onconsent of the parties and in one other very limited circumstances.
6 The arguments for and against one time lump sum payments are set out in Waddams, The Law of Damages (loose leaf edition)3.10-3.260; and in The Report on Compensation for Personal Injuries and Death, Ontario Law Reform Commission (1987) chap.5. The majority of the Commission did not favour a periodic payment scheme.
7 In Tiwana v. Popove (1987), 23 B.C.L.R. (2d) 392 (B.C. S.C.), the court reopened the trial after it had delivered its reasons forjudgment, set aside its reasons and allowed the plaintiff to call further evidence concerning certain medical evidence which haddeveloped after the trial had ended. In that case, however, formal judgment had not been entered when the plaintiff movedto set aside the reasons and call further evidence. A trial judge has a wide discretion to permit the reopening of a case prior tothe entering of judgment: Castlerigg Investments Inc. v. Lam (1991), 2 O.R. (3d) 216 (Ont. Gen. Div.).
8 Leitch J. was concerned with a judgment approving a settlement, however, if she is correct in holding that the best interestsof the child are paramount, I see no reason why a judgment following a trial could not also be set aside if subsequent eventsshowed that the child had been under-compensated by the amount awarded at trial.
9 The parens patriae jurisdiction over minors extends beyond claims to which minors are a party. It also protects others whoare under a legal disability: See Eve, Re (1986), 31 D.L.R. (4th) 1 (S.C.C.), at 13-28; Rule 7. I refer only to minors, and onlyto the exercise of the parens patriae jurisdiction in the context of proceedings in which a minor is a party because those arethe circumstances which operate in this case.
10 Steeves v. Fitzsimmons (1975), 11 O.R. (2d) 387 (Ont. H.C.) provides an interesting approach to this problem. The settlementapproved by the court provided that the minor could apply to vary the judgment at any time before his seventh birthday.
11 Tepperman v. Rosenberg (1985), 48 C.P.C. 317 (Ont. H.C.) is more on point than Makowka. In that case an infant plaintiffmoved before O'Leary J. to set aside an order of Craig J. approving a settlement. The infant relied on evidence that was notbefore Craig J. O'Leary considered the fresh evidence so that he could decide whether the settlement was in the infant's bestinterests. He held that it was and dismissed the motion. As the fresh evidence did not affect the result, O'Leary did not haveto decide whether he could have set aside the judgment of Craig J. solely on the basis that the new evidence suggested thatthe child's best interests were not served. The concluding paragraphs of his reasons (p. 320) suggest he would have set thejudgment aside if he throught the fresh evidence supported the conclusion that it was not in the child's best interests. In myview, it would have been wrong to do so without first considering the other relevant factors.
Counsel: Brendan van Niejenhuis for AppellantRyan M. Naimark for Respondent
Subject: Civil Practice and Procedure; Insurance; Property
APPEAL by plaintiff from judgment reported at (2005), 2004 CarswellOnt 5763, 22 C.C.L.I. (4th) 113 (Ont. S.C.J.),dismissing plaintiff's motion to set aside minutes of settlement executed between parties and consent order dismissingplaintiff's action on policy of fire insurance.
Lang J.A.:
1 The appellant, Jameel Mohammed, appeals the order of Justice Wilton-Siegel. That order dismissed the appellant'smotion to set aside minutes of settlement, which resolved the issues between the parties, and a resulting consent order,which dismissed the appellant's action against the respondent without costs. For the reasons that follow, I conclude thatthe motion judge was correct to dismiss the appellant's motion. Accordingly, I would dismiss the appeal.
Chronology
2 In October 1998, the appellant sued his insurer, York Fire & Casualty Insurance Company (York), claiming paymentunder his fire insurance policy. That policy insured the appellant's Haliburton property, which was destroyed by fire inOctober 1997. York defended on the basis that the appellant had deliberately set fire to his property.
3 In December 1998, partly as a result of information from York, the appellant was charged with arson endangeringlife and with arson for a fraudulent purpose. After a seven-day trial, the appellant was convicted in September 2001.The appellant appealed. To obtain legal aid funding for his appeal, he sought an opinion on the merits of his appealfrom a senior criminal counsel. That letter provided particulars about the issues to be raised on the appeal and gave apersuasive opinion that the appeal had considerable merit.
4 After the convictions and before the appeal, the appellant's civil action was scheduled for trial. The appellant wasrepresented on the civil matter by a senior experienced insurance counsel. At trial scheduling court on November 7, 2001,the appellant sought an adjournment of the civil trial pending his criminal appeal. The adjournment was refused.
5 On November 26, 2001, the parties appeared for trial. In raising preliminary issues, the appellant again requestedan adjournment. In the alternative, he sought an order, which was resisted by York, that his criminal convictions beinadmissible in the civil trial. Also, as a preliminary matter, both counsel indicated to the trial judge that a further pre-trial would be helpful. The parties did not seek a ruling on the adjournment or on the admissibility of the convictionsbefore proceeding to the pre-trial.
6 The trial judge heard argument on both the adjournment and the use to be made, if any, of the criminal convictions.On the admissibility of the criminal convictions, York's counsel presented the trial judge and the appellant's counselwith two authorities. York's counsel said that the authorities stood for the principle that, despite the pending appeal, theconvictions were admissible as prima facie evidence that the appellant had intentionally caused the fire. He also arguedthat the convictions were a factor for the trial judge to consider along with all the other evidence.
7 Neither the appellant's lawyer nor the trial judge had the opportunity to read the two authorities at the time themotion was argued, although it appears that the appellant's counsel may have read them during a recess. When counselreturned to court, the appellant's counsel argued that even if the convictions might be admissible in another case, in thiscase the appellant had a persuasive opinion that there was merit to his appeal. In that circumstance, the admission ofthe convictions would give rise to a real danger of inconsistent verdicts.
8 A reading of the transcript indicates that the trial judge was alert to the relevant issues. After argument, the trialjudge reserved her decision on both the adjournment and the admissibility of the convictions. She told counsel that shewould review the authorities. Such a review may have led the trial judge to conclude that the convictions should be givenlittle or no weight in the circumstances of this case or that, alternatively, the requested adjournment should be granted.
9 In the meantime, however, the parties proceeded to a pre-trial, which was conducted by the civil team leader. Theappellant had three problems that affected his readiness for trial. First, he had no expert report on the cause of the fireto counter York's expert report that supported arson. Second, the appellant's lawyer had notified the appellant that hewould seek to remove himself from the record unless appropriate arrangements were made for his retainer. Third, theappellant had the problem presented by his criminal convictions.
10 During the course of the pre-trial, the parties discussed the criminal convictions. On the facts underlying theconvictions that were related to him, the pre-trial judge expressed the view that, even if the trial judge did not consider thecriminal convictions, there appeared to be enough evidence about the fire that the appellant would have "a very difficult
case". 1 After meeting with both counsel, the pre-trial judge met alone with the appellant and his counsel.
11 After meeting with the pre-trial judge, counsel agreed to a settlement involving the dismissal of the appellant'saction without costs, costs that would otherwise have been extensive. Counsel for York obtained instructions from hisclient to accept the settlement. Minutes of settlement were signed by both counsel and also, at least on their face, by theappellant. Counsel then attended before the trial judge who dismissed the action on consent without costs.
12 Sixteen months later, in March 2003, this court overturned the appellant's convictions. The trial judge's reasons inthe criminal trial suggested that he treated his rejection of the appellant's evidence as positive evidence of guilt withoutany analysis of the Crown's evidence. This court ordered a new trial on two bases: the inadequacy of the trial judge'sreasons and a failure by the trial judge to consider the evidence in accordance with R. v. W. (D.) (1991), 63 C.C.C. (3d)397 (S.C.C.).
13 The appellant then moved in this proceeding to set aside the settlement and the consent order. His motion wasadjourned pending the outcome of the criminal re-trial.
14 In January 2004, at the re-trial, the Crown withdrew the charges against the appellant. According to the appellant,the charges were withdrawn because there was no credible evidence to support a conviction. The appellant did not providethis court with a transcript of the re-trial or the reasons for the withdrawal.
15 The appellant's motion to set aside the settlement and the consent dismissal order was heard in June 2004 anddismissed in August 2004. This appeal followed.
The Motion Judge's Decision
16 The motion judge dismissed the motion because the appellant failed to establish that he did not sign the minutesof settlement and because there was no fraud or fresh evidence to justify setting aside the settlement. He also concludedthat the parties had not entered into the settlement as a result of common mistake.
Analysis
17 In my view, the appellant's appeal cannot succeed. The appellant alleged four errors in the findings of the motionjudge. First, the motion judge erred in finding that the appellant agreed to the settlement. Second, the motion judgeerred in failing to find that the parties entered into the settlement as a result of a common mistake as to the admissibilityof the convictions. Third, the motion judge failed to give adequate weight to facts that arose after the settlement thatwere unavailable at the time of the settlement and that warranted the setting aside of the settlement and consent order.Fourth, the settlement was unconscionable. I will address these issues in the order that they were argued.
(i) Was the appellant a party to the settlement?
18 On the first issue, the appellant denied that the signature on the minutes of settlement was his and accused therespondent's lawyer of forgery. The respondent's lawyer filed an affidavit in which he deposed that he both heard theappellant's counsel read the minutes of settlement to the appellant and that he saw the appellant sign that document. Themotion judge found as a fact that the appellant had given instructions to his counsel to settle the case and had signedthe minutes of settlement.
19 Even though the motion judge heard no oral evidence, his findings of fact are entitled to deference. There weresignificant issues surrounding the appellant's credibility. In my view, there was evidence on which the motion judge wasentitled to conclude that a final settlement had been reached and agreed upon by the appellant.
20 In any event, irrespective of the conflicting evidence as to the appellant's signature, the appellant did not dispute hiscounsel's retainer. He did not deny that his lawyer signed the minutes of settlement or consented to the dismissal of his
action without costs. In those circumstances, the settlement was binding on the appellant absent reason to set it aside. 2
I note that the appellant did not strenuously pursue either the challenge of his signature or the issue of his instructionsto counsel in his argument on this appeal.
(ii) Was there a common mistake of fact or law?
21 A contract depends on an agreement between the parties as to the terms of the contract or as to the assumptionsunderlying the contract. In this case, the appellant argues that both parties mistakenly assumed that his convictions wereadmissible. In the face of such a mistake, argues the appellant, justice requires that the civil judgment be set aside.
22 I see no mistake that would warrant setting aside the settlement and the dismissal order. In this case, both partieswere aware of the convictions. Given the letter of opinion, both parties would reasonably have assumed that the appealwas likely to be successful. Accordingly, there was no mistake on this issue. The only possible mistake was an error byYork's counsel in his interpretation of the two authorities presented.
23 The appellant argues that York's mistaken interpretation of the authorities led to an adoption of that mistake bythe appellant's counsel, the trial judge, and the pre-trial judge. This misinterpretation, he says, led the appellant to settlehis action when he ought not to have done so. This argument fails for a number of reasons.
Mohammed v. York Fire & Casualty Insurance Co., 2006 CarswellOnt 829
24 First, the respondent's interpretation of the authorities must be considered in its context of a legal argument madeto the trial judge. In that argument, the respondent's counsel submitted that the convictions were admissible as primafacie evidence of arson. For this, he relied on two cases: Persad v. State Farm Fire, [1998] I.L.R. I-3582 (Ont. Gen. Div.)and Ottenbrite v. State Farm Fire & Casualty Co., [2001] I.L.R. I-4003 (Ont. S.C.J.).
25 In fact, Persad does stand for the principle advanced by the respondent. In that case, the trial judge specificallyrelied on Demeter v. British Pacific Life Insurance Co. (1984), 13 D.L.R. (4th) 318 (Ont. C.A.), aff'g (1983), 150 D.L.R.(3d) 249 (Ont. H.C.) for the principle that a criminal conviction is prima facie evidence of guilt, subject to certain rebuttalevidence. However, the trial judge in Persad went on to consider that, unlike in Demeter, the case before him involveda conviction that was under appeal. He said:
Accordingly, it is my view that I should consider the evidence without regard to the fact of that conviction and,indeed, ignoring that conviction to determine whether or not the defence has been established on the balance ofprobabilities (at 5170).
26 The trial judge in Ottenbrite similarly relied on Demeter. He recognized the admissibility of a criminal convictionin a subsequent civil trial. As in Persad, the Ottenbrite trial judge nonetheless said that he would "consider the evidencewithout regard for the fact of those convictions and determine whether or not a defence [had] been established on abalance of probabilities" (para. 10).
27 In the result, in both cases and irrespective of the convictions, the defence proved arson on a balance of probabilities.Neither case stands authoritatively for the principle, as argued by the appellant, that a conviction pending appeal isinadmissible in a civil trial. That may have been the conclusion reached by the trial judge in this case if the appellanthad awaited her ruling. It may also have been the conclusion of this court on any subsequent appeal. The appellant,however, chose neither to await the ruling nor to appeal its result. All that he had was the argument of counsel. In anyevent, there was no evidence that the appellant's counsel failed to read the authorities either in the earlier court recessor prior to the pre-trial. Moreover, in encouraging settlement, the pre-trial judge focussed on the facts surrounding thefire rather than on the convictions. Accordingly, in my view, there was no mistake of the nature necessary to set asidethe settlement and the order.
28 Second, even if the respondent's statement of the law to the trial judge was a misinterpretation of the authorities(there was no suggestion of a deliberate misstatement), nothing turned on that error. This is so because the partiesattended at the agreed-upon pre-trial subsequent to the motion. At the pre-trial, with the advice of counsel, the appellantdecided to settle his action without the trial judge's ruling on the evidentiary issue or the adjournment. When they beganthe pre-trial, the parties knew about the outstanding convictions, the pending appeal, and likely success of that appeal.
29 Third, even if the respondent's lawyer erred in his interpretation of the law before the trial judge, there is no evidencethat the appellant, his counsel, or the pre-trial judge relied on that misinterpretation in arriving at the settlement. Indeed,and importantly, the only evidence of the discussion with the pre-trial judge was that, regardless of the convictions,the appellant had an uphill battle on the circumstances of the fire. Accordingly, it appears unlikely that the fact of theconvictions drove the pre-trial judge's opinion of the merits of the civil case. There were other reasons why the appellantmay have chosen to settle the case. In addition to the apparently adverse facts underlying the convictions, the appellanthad no expert report and he had difficulty with the retainer for his counsel. Finally, he risked an adverse costs award in
the event that his claim was unsuccessful. Even if any opinion given by the pre-trial judge is relevant or admissible, 3 theappellant has failed to establish that the pre-trial judge erred in his consideration of the law.
30 Moreover, even if the pre-trial judge erred in his analysis of the law, in the circumstances of this case, that errorcould not form a ground to set aside the settlement or subsequent dismissal because the appellant relied on his owncounsel for advice on whether the settlement was reasonable.
31 Finally, if the appellant's counsel erred on the law, and I say "if" because this is not clear on the record, and ifthat error caused the appellant to settle, then that is a matter between the appellant and his then counsel. It is not amatter between the appellant and York. York was not present when the appellant and his counsel met with the pre-trial judge and was not privy to the contents of their discussion or the various reasons that led the appellant to agreeto the settlement.
32 Accordingly, the appellant's argument of common mistake fails.
(iii) Is there fresh evidence on which to set aside the settlement and order?
33 The appellant argues that his subsequent success in overturning his convictions constitutes fresh evidence thatrequired the motion judge to exercise his equitable discretion to set aside the minutes of settlement and the consent order.
34 Minutes of settlement are a contract. A consent judgment is binding. Both are final, subject to reasons to set themaside. Finality is important in litigation. This is so for the sake of the parties who reached their bargain on the premiseof an allocation of risk, and with an implicit understanding that they will accept the consequences of their settlement.Finality is also important for society at large, which recognizes the need to limit the burdens placed on justice resources byre-litigation, a limitation reflected in the doctrine of res judicata: See Tsaoussis (Litigation Guardian of) v. Baetz (1998),165 D.L.R. (4th) 268 (Ont. C.A.) at paras. 15, 17, 18.
35 For these reasons, the avenues to set aside a settlement and consent dismissal are restricted. Rule 59.06 sets outthe procedure for setting aside such an order. It provides that a party may bring a motion in the original proceeding to"have an order set aside or varied on the ground of fraud or of facts arising or discovered after it was made".
36 However, this court has said that the rule, while providing an expeditious procedure to determine whether anorder should be set aside, does not prescribe or delineate a particular test: Tsaoussis at para. 39. Rather, to succeed,"[t]he appellant must demonstrate circumstances which warrant deviation from the fundamental principle that a finaljudgment, unless appealed, marks the end of the litigation line" (para. 20).
37 This case is analogous to Tsaoussis, which also considered the consequences of a change in circumstances followinga judgment. There, two years after a judgment approving the settlement of a minor's personal injury claim, a motion wasbrought on behalf of the minor to set aside the judgment on the basis that the child's injuries were more extensive thanhad been expected. The minor's motion was dismissed.
38 In Tsaoussis, this court confirmed the importance of finality in litigation at para. 20: 4
Attempts, whatever their form, to reopen matters which are the subject of a final judgment must be carefullyscrutinized. It cannot be enough in personal injury litigation to simply say that something has occurred or hasbeen discovered after judgment became final which shows that the judgment awards too much or too little. Onthat approach, finality would become an illusion. The applicant must demonstrate circumstances which warrantdeviation from the fundamental principle that a final judgment, unless appealed, marks the end of litigation.
39 In terms of rule 59.06(2)(a), the court in Tsaoussis stated at para. 44:
These and numerous other authorities (e.g. Whitehall Development Corp. v. Walker) recognize that the finalityprinciple must not yield unless the moving party can show that the new evidence could not have been put forward bythe exercise of reasonable diligence at the proceedings which led to the judgment the moving party seeks to set aside.If that hurdle is cleared, the court will go on to evaluate other factors such as the cogency of the new evidence, anydelay in moving to set aside the previous judgment, any difficulty in re-litigating the issues and any prejudice to otherparties or persons who may have acted in reliance on the judgment. The onus will be on the moving party to showthat all of the circumstances are such as to justify making an exception to the fundamental rule that final judgments
are exactly that, final. In a personal injury case, new evidence demonstrating that the plaintiff was inadequatelycompensated cannot, standing alone, meet that onus [citations omitted].
40 In my view, in this case, new evidence that the appellant succeeded in overcoming his criminal convictions fallsshort of meeting the required onus. I say this for several reasons.
41 First, at the time of the consent order, the appellant knew that he likely had a meritorious appeal. Thus, the ultimateresult leading to the withdrawal of charges was within the appellant's expectations.
42 Second, that the charges against him were ultimately withdrawn is irrelevant. Even if the appellant had beenacquitted of the charges, this would not have affected the civil trial. If the Crown had failed to prove arson on the criminalstandard of proof, this does not mean that York would not have proven arson on the civil standard, even on the higherdegree of scrutiny required to establish such conduct in a civil case. See Tsalamatas v. Wawanesa Mutual Insurance Co.(No. 2) (1982), 141 D.L.R. (3d) 322 (Ont. C.A.) at para. 6.
43 Third, the appellant was represented by experienced counsel and decided to take the advice of that counsel. Hisacceptance of that advice is understandable in the face of his other problems in the civil case with respect to an expertreport and his counsel's retainer.
44 Fourth, after the settlement, the appellant took no steps to set it aside or take any other action for eighteen months.Since he knew that his criminal appeal was likely meritorious, his delay is not adequately explained.
45 Fifth, the appellant's delay inherently prejudices the insurer. With such a delay, it is presumed that there may bea loss of potential witnesses and that the memory of witnesses will be affected. In this case, that prejudice is exacerbatedbecause the onus was on York to establish arson against the appellant. Finally, further prejudice in this case could arisebecause the civil matter would proceed to trial, at the earliest, ten years after the cause of action first arose.
(iv) Was the settlement unconscionable?
46 In oral argument, the appellant raised an issue about whether the settlement was unconscionable. Given thecircumstances surrounding the settlement, and the apparent advantages of the settlement to the appellant at that time,there is no evidence to support a finding that the settlement was shocking, oppressive, or manifestly unfair. In my view,this argument cannot succeed.
47 For these reasons, the appellant has failed to meet the onus necessary to persuade me that the motion judgeimproperly exercised his discretion in refusing to set aside the minutes of settlement and the consent dismissal order.
Disposition
48 For these reasons, I would dismiss the appeal.
Costs
49 The costs of the appeal, the costs of the leave motion that were reserved to this panel, and the costs of the applicationbelow are fixed in the total amount of $15,000, inclusive of disbursements and Goods and Services Tax.
1 This court was not asked to consider the admissibility of this evidence in light of rule 50.03. Accordingly, these reasons arenot to be taken as determining the issue of admissibility of pre-trial conference discussions.
2 See Scherer v. Paletta, [1966] 2 O.R. 524 (Ont. C.A.)
3 As I have said, the admissibility of the pre-trial conference discussions was not argued on this appeal.
4 See also Van Patter v. Tillsonburg District Memorial Hospital (1999), 45 O.R. (3d) 223 (Ont. C.A.), at 230.
Frederick Finlay (Plaintiff / Defendant by Counterclaim / Appellant)and Jason Van Paassen, Peter Van Paassen Sr. and Unifund Assurance
Company (Defendants / Plaintiffs by Counterclaim / Respondents)
Doherty J.A., John Laskin J.A., and S.E. Lang J.A.
Heard: February 2, 2010Judgment: March 18, 2010
Docket: CA C50828
Proceedings: reversing Finlay v. Van Paassen (2009), 2009 CarswellOnt 8825 (Ont. S.C.J.)
Counsel: William G. Scott for AppellantSimon J. Adler, Stephen T. Bogden for Respondents
Subject: Civil Practice and Procedure; Public; Torts
APPEAL by plaintiff from judgment reported at Finlay v. Van Paassen (2009), 2009 CarswellOnt 8825 (Ont. S.C.J.),dismissing motion to set aside registrar's dismissal order.
John Laskin J.A.:
A. Overview
1 The appellant, Frederick Finlay, sued the respondents for damages for personal injuries arising out of a car accident.The registrar dismissed the action for delay in setting it down for trial. The motion judge refused to set aside the registrar'sdismissal order. Finlay asks us to set aside both the motion judge's order and the registrar's order and to reinstate theaction.
2 The accident occurred in October 2003; the statement of claim was issued in October 2004; pleadings and discoverieswere completed by the end of September 2005. Up to this point, the matter had proceeded fairly promptly.
3 Finlay's problems began when his counsel failed to set the action down for trial. In January 2007, the registrar issueda status notice under the Rules stating that the action would be dismissed unless it was set down for trial within 90 days.But a mistake occurred in the registrar's office. The status notice was not sent to Finlay or his counsel. On April 30, 2007,unbeknownst to them, the registrar issued an order dismissing the action for delay.
4 Finlay's counsel first obtained a copy of the registrar's order in mid-May 2007. Had he then moved to set asidethe order, his motion would undoubtedly have been granted. However, the motion to set aside the order was brought inMay 2009. The motion judge focused on this two-year delay in refusing to grant relief.
5 On appeal, Finlay makes two submissions: first, he contends that the registrar's failure to serve the status noticeon him or his counsel deprived the registrar of jurisdiction to dismiss the action; second, he contends that the motion
judge misapplied the test for setting aside a registrar's order in that he adopted a "rigid" approach to the issue instead ofa "contextual" approach that took account of all the relevant considerations.
6 I would allow the appeal on the basis of Finlay's second submission. The motion judge's order was discretionary andwas made as part of his duty to manage the trial list. It thus attracts significant deference from this court. Nonetheless, Iwould set aside the order because the motion judge did not balance all the material considerations, including the absenceof prejudice to the respondents, and therefore reached an unjust result.
B. Analysis
1) Was the registrar's dismissal order made without jurisdiction?
7 Rule 48.14 deals with what occurs when - as in the case before us - a plaintiff has not listed an action for trial within
two years after the filing a statement of defence. Rule 48.14(1) provides for the delivery of a status notice 1 :
Where an action in which a statement of defence has been filed has not been placed on a trial list or terminated byany means within two years after the filing of a statement of defence, the registrar shall serve on the parties a statusnotice (Form 48C) that the action will be dismissed for delay unless it is set down for trial or terminated withinninety days after service of the notice.
8 Rule 48.14(2) states: "A solicitor who receives a status notice shall forthwith serve a copy of the notice to his or her
client." 2 Rule 48.14(3) stipulates that the registrar shall dismiss the action for delay unless the action has been set down
for trial within 90 days of the delivery of the status notice or unless a judge has ordered otherwise 3 :
The registrar shall dismiss the action for delay, with costs, ninety days after service of the status notice, unless,
(a) the action has been set down for trial;
(a.1) in an action under Rule 78, documents have been filed in accordance with rule 78.08;
(b) the action has been terminated by any means; or
(c) a judge presiding at a status hearing has ordered otherwise.
9 Finlay submits that the delivery of a status notice under rule 48.14(1) is a condition precedent to the registrar'sjurisdiction to dismiss the action for delay under rule 48.14(3). As the status notice was not served on Finlay or hissolicitor, the registrar had no jurisdiction to dismiss the action and his dismissal order must be set aside.
10 This was the view of rules 48.14(1) and (3) taken by the Divisional Court in Amardi v. Terrazzo, Tile & MarbleTrade School Inc. [2009 CarswellOnt 2880 (Ont. Div. Ct.)], 2009 CanLII 25607. In that case, too, a status notice was notsent to the solicitor for the plaintiffs. The court held that the registrar's failure to serve the status notice meant that theregistrar had no jurisdiction to dismiss the action. His dismissal order was therefore set aside:
[10] In my view, the Registrar's failure to serve the solicitor of record with the Status Notice deprived theRegistrar of jurisdiction to order the dismissal of the action. As Master Linton stated in Xu v. Olde YorkeEsplanade Limited, operating as Novotel Toronto Centre (endorsement August 7, 2008):
Because a Registrar's order can be so serious it is essential that the Registrar strictly satisfy the conditionspermitted him or her for an administrative order to issue. One requirement is how a Notice is served. Therewas a solicitor of record who was the person to be served. Instead the Notice was sent to the party whichshould not have been done. Therefore the Registrar's order must be set aside.
11 Respectfully, I do not agree with the holding in Amardi. It seems to me that it harkens back to the distinctionbetween nullities and irregularities that pervaded our Rules before 1985. It does not take account of our current rule2.01, which eliminates the notion of a nullity and provides that any failure to comply with the rules is a mere irregularitythat is capable of being cured:
2.01(1) A failure to comply with these rules is an irregularity and does not render a proceeding or a step,document or order in a proceeding a nullity, and the court,
(a) may grant all necessary amendments or other relief, on such terms as are just, to secure the justdetermination of the real matters in dispute; or
(b) only where and as necessary in the interest of justice, may set aside the proceeding or a step,document or order in the proceeding in whole or in part.
(2) The court shall not set aside an originating process on the ground that the proceeding should have beencommenced by an originating process other that the one employed.
12 Under the pre-1985 Rules, procedural missteps characterized as nullities were incapable of being cured. To give butone example, if a sole proprietor carrying on business under a firm name started an action in the firm name, the actionwas a nullity. The court had no power to amend the claim to substitute the name of the sole proprietor for the name ofthe firm, even if the defendant was not misled: see Kaltenback v. Frolic Industries Ltd., [1948] O.R. 116 (Ont. C.A.). Thatcase, of course, would be decided entirely differently under our current Rules.
13 By characterizing the failure to serve a status notice as a jurisdictional error, Amardi effectively turns the registrar'sdismissal order into a nullity that must be set aside. This characterization runs contrary to the curative provision in rule2.01: see Somerleigh v. Polhill (2006), 209 O.A.C. 10 (Ont. C.A.).
14 Rule 2.01 reflects the general principle found in rule 1.04(1), which guides the interpretation of all the Rules:"These rules shall be liberally construed to secure the just, most expeditious and least expensive determination of everycivil proceeding on its merits." Rule 1.04(1) and rule 2.01 are intended to do away with overly "technical" argumentsabout the effect of the Rules and orders made under them. Instead, these provisions aim to ensure that the Rules andprocedural orders are construed in a way that advances the interests of justice, and ordinarily permits the parties to getto the real merits of their dispute.
15 Looked at in this way, the registrar's failure to serve a status notice on Finlay's counsel was an irregularity. Thelack of service did not mean that the registrar was without jurisdiction to dismiss the action, or - in the words of rule2.01 - that the dismissal order was a nullity.
16 The lack of service, however, would be an important consideration in deciding whether to set aside the dismissalorder. So, for example, if Finlay's counsel had moved promptly after learning of the dismissal order, the interests ofjustice would demand that the order be set aside. Conversely, to use an extreme example, if Finlay had waited ten yearsafter learning of the dismissal order before moving to set it aside, I highly doubt that his motion could succeed. Hecertainly could not claim lack of jurisdiction as a basis to set the order aside.
17 For these reasons, I cannot accept Finlay's submission that the registrar's order must be set aside for lack ofjurisdiction.
2) Should the motion judge's order be set aside?
(a) October 2003 to April 2007: from the date of the accident to the registrar's dismissal order
18 The car accident occurred in Port Dover, Ontario. Although the respondents dispute their liability for the accident,they acknowledge that their car collided with the car Finlay was driving after they crossed the centre line of the road. InOctober 2006, after discoveries were completed, the respondents made an offer to settle, which Finlay rejected.
19 Finlay's former wife was a passenger in his car. She has started a separate action against the respondents for herinjuries. The respondents have counterclaimed against Finlay seeking contribution for any damages they must pay toFinlay's former wife. In defending the counterclaim, Finlay is represented by a different law firm.
20 In December 2006, the two actions were ordered to be consolidated. The record before us does not indicate whyFinlay's counsel did not then set the action down for trial. However, the action begun by Finlay's former wife is stilloutstanding.
(b) May 2007 to May 2009: from discovery of the dismissal order to the motion to set it aside
21 This time period was critical to the motion judge's decision. Finlay's law firm did not move against the registrar'sdismissal order for two years. The obvious question is why. The record discloses that motion materials to set aside theorder were drafted but were never served. Then, the lawyer handling the file and the law clerk who prepared the motionmaterials left the firm. Apparently neither told anyone about the registrar's order or the draft motion materials.
22 Moreover, the record suggests that no one in the law firm reviewed the departing lawyer's file. Even so,correspondence from the respondents' lawyers within the two-year period ought to have alerted Finlay's law firm thatsomething needed to be done.
23 On June 15, 2007, the respondents' lawyer wrote a letter to Finlay's law firm stating, in part, that "[u]nless Mr. Ferromoves to set [the registrar's] Order aside by the end of the month, I propose to treat that as the final disposition of thismatter." The letter went unanswered. On August 15, 2007, the respondents' lawyer again wrote to Finlay's law firm. Thatletter discussed whether the consolidation order needed to be amended, but added in the last paragraph: "The foregoingis, of course, premature in light of the Order dismissing the action of Mr. Finlay". This letter, too, went unanswered.
24 Over a year later, on December 4, 2008, the respondents' lawyer served notice on Finlay's law firm withdrawingall previous offers to settle. This notice of withdrawal prompted the motion to set aside the registrar's order, though themotion itself was not brought for several months.
(c) Discussion
25 In Marché d'Alimentation Denis Thériault Ltée v. Giant Tiger Stores Ltd. (2007), 87 O.R. (3d) 660 (Ont. C.A.) at para.12, this court approved four factors to be considered on a motion to set aside an order dismissing an action for delay:
The Master applied the four-pronged test described in Reid v. Dow Corning Corp. (2001) 11 C.P.C. (5 th ) 80 at para.
41 (Ont. S.C.J.), rev'd on other grounds 48 C.P.C. (5 th ) 93 (Ont. Div. Ct.):
(1) Explanation of the Litigation Delay: The plaintiff must adequately explain the delay in the progress ofthe litigation from the institution of the action until the deadline for setting the action down for trial asset out in the status notice. She must satisfy the court that steps were being taken to advance the litigationtoward trial, or if such steps were not taken to explain why.... If either the solicitor or the client made adeliberate decision not to advance the litigation toward trial then the motion to set aside the dismissalwill fail.
(2) Inadvertence in Missing the Deadline: The plaintiff or her solicitor must lead satisfactory evidence toexplain that they always intended to set the action down within the time limit set out in the status notice, or
request a status hearing, but failed to do so through inadvertence. In other words the penultimate dismissalorder was made as a result of inadvertence.
(3) The Motion is Brought Promptly: The plaintiff must demonstrate that she moved forthwith to set asidethe dismissal order as soon as the order came to her attention.
(4) No Prejudice to the Defendant: The plaintiff must convince the court that the defendants have notdemonstrated any significant prejudice in presenting their case at trial as a result of the plaintiff's delay oras a result of steps taken following the dismissal of the action.
26 In his oral reasons, the motion judge recited these four factors. However, he only addressed the first factor - hesaid, "I am not sure I would have too much trouble with that" - and the third factor, which for him was decisive:
Here, the problem for me is what was done between the making of the dismissal order and the bringing of thismotion, a delay of some two years. I do not think that there was a deliberate decision not to advance the litigation.I think it was, rather, more a passive decision to ignore it and not to review the matter properly once Mr. Morrisleft the office. There is no explanation why this file was not reviewed from Mr. Morris' leaving the firm until Mayof 2009. I take it that it was a reaction to the withdrawal of the settlement offers and not a quick reaction at that.
To me, the conduct of the Plaintiff's counsel's firm was more than a lapse or inadvertent mistake and I think it wouldbe very unfortunate if this became an acceptable way of dealing with similar circumstances.
27 The motion judge determined that because Finlay could not satisfy the third factor his motion must fail. In effect,on the motion judge's approach, in order to set aside the registrar's order Finlay had to satisfy each of the four factors. Inapproaching the motion that way, the motion judge made the very error identified by Goudge J.A. in Scaini v. Prochnicki(2007), 85 O.R. (3d) 179 (Ont. C.A.). There, Goudge J.A. rejected as too "rigid" the notion that to set aside a registrar'sdismissal order, a moving party must satisfy each factor. Instead he favoured a "contextual" approach in which the courtweighs all relevant considerations to determine the result that is just:
[21] More importantly, I do not agree that the case law reviewed in Reid, supra, yields the proposition that anappellant must satisfy each relevant criterion in order to have the registrar's order set aside. None of the casesreferred to say so expressly and several proceed on a more contextual basis. For example, in Steele v. Ottawa-Carleton (Regional Municipality), [1998] O.J. No. 3154 (Gen. Div.) Master Beaudoin, at para. 17, describedthe guiding principle in deciding whether to set aside a rule 48.14 dismissal by the registrar as follows:
Ultimately, the Court will exercise its discretion upon a consideration of the relevant factors and willattempt to balance the interests of the parties.
[22] I agree with Master Beaudoin.
[23] In my view, a contextual approach to this question is to be preferred to a rigid test requiring an appellantto satisfy each one of a fixed set of criteria. The latter approach is not mandated by the jurisprudence. On theother hand, the applicable rules clearly point to the former. In particular, the motion to set aside the registrar'sorder dismissing the action for delay engages rule 37.14(1)(c) and (2). The latter invites the court to make theorder that is just in the circumstances. A fixed formula like that applied by the motion judge is simply tooinflexible to allow the court in each case to reach the just result contemplated by the rules.
28 The motion judge did not engage in this weighing exercise. Indeed, he did not even consider the issue of prejudice,which invariably is a key consideration on a motion to set aside a dismissal order: see Farrar v. McMullen (1970), [1971]1 O.R. 709 (Ont. C.A.).
29 The motion judge's failure to adopt the approach advocated by Goudge J.A. in Scaini justifies this court interferingwith his order and weighing all of the relevant considerations ourselves. After performing this exercise, it is my view that
the just result is to set aside the registrar's order and to reinstate the action. My conclusion is based on the followingconsiderations, which take account of the four factors in Marché:
• Up to the time of the service of the Status Notice, the action had proceeded without any unreasonable delay;
• At least initially, Finlay's law firm cannot be faulted for not responding to the Status Notice because theywere not served with it;
• As the motion judge found, and contrary to what occurred in Marché, Finlay's law firm did not deliberatelydecide not to move the litigation forward. The failure to do so was attributable to a slip-up, or at worst tosloppiness, in the law office during and after the time the lawyer in charge of the file left;
• The two-year delay in moving against the registrar's order was obviously undesirable, especially as Finlay's lawfirm had been alerted to the need to take some action. However, the two-year period is not so long that by itselfit warranted denying relief. Moreover, the two-year delay has to be assessed in the context of the timeframepreceding it - a timeframe in which the law suit proceeded reasonably promptly;
• The respondents do not point to any specific prejudice they would incur if the registrar's order was set aside.As Finlay points out, the respondents' lawyer maintained an open file on this litigation until at least December2008 when he withdrew his offers to settle. Yet in their affidavit material the respondents can muster only thebald assertion that it will be "extremely difficult" to locate witnesses and that because of the delay witnessesmemories will be "hampered". Without more, this assertion does not amount to a showing of prejudice. I agreewith Finlay that it is likely respondents' counsel obtained witness statements immediately after the accident.Furthermore, I expect that if one of those witnesses was no longer available or the memory of that witnesscould not be refreshed by the witness' statement, the respondents' affidavit evidence on the motion would havesaid so. The absence of such evidence is telling. See Chiarelli v. Wiens (2000), 46 O.R. (3d) 780 (C.A.); and
• Any hardship visited on the respondents from setting aside the registrar's order is lessened because they arealready defending the action brought by Finlay's former wife.
30 Cumulatively, these considerations outweigh the two-year delay in bringing the motion and justify setting asidethe registrar's order. In my view, it is in the interests of justice to do so.
31 Finally, although not necessary to my decision, I wish to comment on two other considerations relied on by themotion judge to deny Finlay relief. The motion judge rested his decision principally on the two-year delay in movingagainst the registrar's order, but he also referred to the possibility of a negligence claim against Finlay's law firm and the"expiration of the limitation period". Neither consideration, in my view, is germane. The motion judge said:
I also think that the Plaintiff is not necessarily out any remedy and LPIC may, indeed, become involved, althoughI express no opinion, and certainly no opinion as to whose negligence would be involved as I do not know exactlywhat took place between Mr. Morris and Mr. Ferro.
In sum, two years of delay took place after the expiration of the limitation period. Taking that into account andalso the fact that the Defendants have some entitlement to rely on the finality of the registrar's order, I think themotion cannot succeed.
32 A judge who refuses to set aside a dismissal order will naturally be concerned that the effect of the refusal will beto deprive an innocent party of its day in court. To protect the claim of the innocent party, the judge will often raise thepossibility of a negligence action against the party's own lawyer. Although perhaps understandable, I do not find thishelpful. Speculation about whether a party has a lawsuit against its own lawyer, or the potential success of that lawsuit,should not inform the court's analysis of whether the registrar's dismissal order ought to be set aside.
33 In my view, on a motion to set aside a dismissal order, the court should be concerned primarily with the rightsof the litigants, not with the conduct of their counsel. As Sharpe J.A. noted in Marché at para. 28, "The law will notordinarily allow an innocent client to suffer the irrevocable loss of the right to proceed by reason of the inadvertence ofhis or her solicitor." Sharpe J.A. went on to recognize that the situation may be different where the lawyer's conduct isnot inadvertent but deliberate. In the case before us, however, the conduct of Finlay's law firm was not deliberate, whichaffords a further basis to call into question whether the motion judge's decision was just: see Chiarelli v. Wiens [2000CarswellOnt 280 (Ont. C.A.)]; Gao v. de Keyser (2008), 61 C.P.C. (6th) 89 (Ont. Div. Ct.) at para. 27.
34 In refusing Finlay relief, the motion judge took into account that the two years of delay occurred after "theexpiration of the limitation period". I do not see how the running of the limitation period had any relevance to themotion. The action was started well within the limitation period and would be reinstated if the registrar's order were setaside. Moreover, to be relevant, any prejudice from the "expiry" of a limitation period would have to be caused by thedelay. In this case, however, to the extent that it can be said the limitation period "expired", it did so in October 2005while the action was ongoing. The delay itself had no bearing on the running of the limitation period.
C. Conclusion
35 I would allow the appeal. I would set aside para. 1 of the motion judge's order and set aside the registrar's dismissalorder. Finlay shall have 30 days from the release of these reasons to set the action down for trial. As suggested by Mr.Scott on behalf of Finlay, I would leave in place the costs order of the motion judge and would order that there be nocosts of the appeal.
Doherty J.A.:
I agree.
S.E. Lang J.A.:
I agree.Appeal allowed.
Footnotes
1 Rule 48.14(1) has since been amended and now reads:
Unless the court orders otherwise, if an action in which a defence has been filed has not been placed on a trial list or terminatedby any means within two years after the first defence is filed, the registrar shall serve on the parties a status notice in Form48C.1 that the action will be dismissed for delay unless, within 90 days after service of the notice, the action is set down fortrial or terminated, or documents are filed in accordance with subrule (10).
2 This provision is now rule 48.14(3).
3 This provision is now rule 48.14(4) and has since been amended to read:
The registrar shall dismiss the action for delay, with costs, 90 days after service of the status notice, unless,
(a) the action has been set down for trial or restored to a trial list, as the case may be;
(b) the action has been terminated by any means;
(c) documents have been filed in accordance with subrule (10); or
(d) the judge or case management master presiding at a status hearing has ordered otherwise.
Linda Wayne, Glenn Kiff and Jason Kiff o/a East VillageCoffeehouse, Plaintiffs and 1690416 Ontario Inc., Defendant
I.F. Leach J.
Heard: August 24, 2012Judgment: September 18, 2012
Docket: 61476
Counsel: Joel G. Belisle, for PlaintiffsBassam Lazar, for Defendant
Subject: Civil Practice and Procedure; Property
I.F. Leach J.:
1 In this litigation stemming from a commercial tenancy, the defendant corporation moves under Rule 37.14(1)(a) toset aside an order striking out its statement of defence with prejudice, and without leave to deliver a further statementof defence or counterclaim.
2 By way of supplemental notice of motion, the defendant also seeks to set aside its having been noted in default.
Overview of Dispute
3 The disagreement between the parties centres on a London commercial property, at which the plaintiffs have beenoperating a coffeehouse business.
4 Beyond apparent consensus that there was some form of lease agreement between the parties commencing on orabout April 1, 2008, most aspects of the parties' dealings with each other are disputed in the pleadings.
5 For their part, the plaintiffs allege that the parties entered into a commercial tenancy agreement, (eventually reducedto writing in whole or part), that included commitments by the defendant corporation to complete numerous substantialrepairs and improvements to the premises within a specified period of time. The plaintiffs say much of the allegedlyrequired work was not done, done late, or done poorly, thereby necessitating efforts by the plaintiffs and others to addressor correct deficiencies. The plaintiffs also allege numerous instances of further misconduct by the defendant, includingrepeated interference with their quiet enjoyment of the premises, and sustained improper efforts by the defendant to denyor terminate the lease, evict the plaintiffs and seize/appropriate their equipment.
6 All of this, the plaintiffs say, has resulted in substantial interference with operation of the plaintiffs' business, withresulting damages they now seek to recover through the litigation. They also claim injunctive relief to restrain specifiedfurther conduct of the defendant without prior written consent of the plaintiffs or leave of the court.
7 In response, the defendant formally denies almost all of the plaintiffs' allegations. It says a verbal lease agreementwas reached but never reduced to writing, and goes so far as to say the written lease relied upon by the plaintiffs, andpurportedly signed by the defendant's representative, is a forgery. It says the parties' failure to arrive at a written lease
Wayne v. 1690416 Ontario Inc., 2012 ONSC 4861, 2012 CarswellOnt 11410
agreement, and the plaintiffs' alleged subsequent failure to pay rent, have resulted in the plaintiffs' wrongful occupationof the property.
8 By way of counterclaim, the defendant seeks damages, (for the plaintiffs' alleged non-payment of rent, wrongfuloccupation, trespass, forgery and fraud), as well as a declaration that the alleged written lease is invalid.
9 All of this is formally denied by the plaintiffs.
Background to Motion
10 The litigation has a history dating back to the plaintiffs issuing their original statement of claim on March 16,2009, but the more immediate and documented events giving rise to the defendant's current motion are as follows:
• On December 8, 2011, during an oral discovery examination, the defendant's principal, Salim Mikhael,("Mikhael"), acknowledged that the defendant had not disclosed all relevant documentation, gave a number ofundertakings on behalf of the defendant corporation, and indicated that the required material and informationwould be forthcoming by December 16, 2011.
• On March 1, 2012, following numerous unsatisfied requests for satisfaction of the defendant's undertakings, theplaintiffs served a motion, initially returnable March 6, 2012, seeking an order forcing the defendant to comply withits obligations. The motion was adjourned on consent to March 13, 2012, peremptory on the defendant. Prior toreturn of the motion, correspondence was exchanged between counsel. This resulted, in response to a suggestionby the defendant's counsel, in the plaintiffs' willingness to agree on disposition of the motion by way of a consentorder, a draft of which the plaintiffs prepared and forwarded for consideration. However, the defendant then failedto consent to the proposed draft order.
• On or about March 12, 2012, counsel for the defendant advised plaintiff counsel that he had been instructed bythe defendant to take no further action in the proceeding, that the defendant had been advised of the ramificationsof no one attending at return of the pending motion, and that he expected to be removed as the defendant's lawyerof record.
• On March 13, 2012, counsel for the plaintiffs attended at the return of the pending motion and advised thecourt of the communication from the defendant's counsel. Noting the peremptory nature of the motion's previousadjournment, Justice Morissette made an order directing the defendant to satisfy its undertakings within fifteendays, failing which the plaintiffs would be permitted to move, without notice, to strike the corporation's statementof defence and dismiss its counterclaim. Justice Morissette also ordered the defendant to pay the plaintiffs' costs ofthe motion, fixed at $1,000, payable within 30 days. Later that day, counsel for the plaintiffs sent a copy of the orderto the defendant's lawyer, who remained counsel of record. It is common ground that no steps ever were taken toappeal the order made by Justice Morissette.
• On April 2, 2012, having received nothing from the defendant in satisfaction of its undertakings, the plaintiffs fileda motion record returnable the following day, moving for an order including provisions to strike the corporation'sstatement of defence and dismiss its counterclaim, with prejudice to the defendant and without leave to deliver afurther statement of defence or counterclaim. Relying on the order of Justice Morissette, the plaintiffs brought themotion without serving any additional notice on the defendant or its lawyer of record.
• On April 3, 2012, Justice Grace made an endorsement indicating his review of the plaintiffs' motion material,(including the previous order of Justice Morissette granted on March 13, 2012), and his satisfaction that the orderrequested by the plaintiffs should issue. In addition to striking the corporation's statement of defence and dismissingits counterclaim, (with prejudice to the defendant and without leave to deliver a further statement of defenceor counterclaim), the order signed by Justice Grace expressly confirmed that the plaintiffs' motion was properlyreturnable that day "on a without notice basis", and ordered the defendant to pay the plaintiffs, within 30 days, a
Wayne v. 1690416 Ontario Inc., 2012 ONSC 4861, 2012 CarswellOnt 11410
further $750 in costs. Apart from a provision directing service of the order forthwith on the defendant's lawyer ofrecord, the order also indicated that the defendant was not entitled to receive notice of further steps in the proceeding.Later that day, counsel for the plaintiffs served the defendant's lawyer of record with a copy of the order.
• On April 5, 2012, in response to a requisition filed by the plaintiffs, the Registrar noted the defendant in default.
• On April 20, 2012, the defendant served a "Notice of Change of Solicitors" (sic), formally replacing its formerlawyer of record and appointing its current counsel.
• On April 24, 2012, the defendant delivered its original motion record for the relief now requested; i.e., to "set aside,amend or vary" the order made by Justice Grace on April 3, 2012, pursuant to Rule 37.14 of the Rules of CivilProcedure. In that regard, the defendant's notice of motion indicated reliance on Rule 37.14(1)(a), as an alleged party"affected by an order obtained on motion without notice", and reliance on Rule 37.14(1)(b), as an alleged partywho "fails to appear on a motion through accident, mistake or insufficient notice". That motion record, initiallyreturnable on May 1, 2012, was adjourned on consent to May 15, 2012.
• On May 15, 2012, the motion record originally filed by the defendant did not proceed to a hearing. Formally,this occurred because defendant filed no confirmation in relation to the motion. However, for reasons unknown,the defendant delivered a replacement motion record the same day. The replacement motion record, (which in factseems identical to the original record apart from the return date and the tabbed order of material attached to thenotice of motion), initially was returnable on May 22, 2012. On consent, it was adjourned to a special appointmenthearing scheduled for July 13, 2012.
• On May 23, 2012, the defendant's former lawyer, Mr Refcio ("Refcio"), was examined under oath by the plaintiffs'counsel and by the defendant's new counsel, pursuant to Rule 39.02. (At the hearing of the defendant's motion,counsel for all parties advised that the examination proceeded by way of consent, prior to the plaintiffs' delivery ofa responding motion record. For purposes of Refcio's examination, the defendant also had agreed to waiver of anyotherwise applicable solicitor-client privilege.)
• On July 9, 2012, the plaintiffs delivered and filed a responding motion record, and also filed a transcript of Refcio'sexamination.
• On July 12, 2012, the plaintiffs also filed a brief of exhibits from Refcio's examination.
• On July 13, 2012, the parties appeared before me for the scheduled special appointment hearing of the defendant'smotion. However, the parties at that time shared the view that hearing of the motion should not proceed withoutadditional steps first being taken by the plaintiff to supplement its motion material with a formal request for thenoting in default to be set aside pursuant to Rule 19.03. In that regard, both sides wished to file further facta andauthorities. In the result, and on consent of the parties, I adjourned hearing of the defendant's motion to a specialappointment before me on August 24, 2012, set a timetable for the intervening service and filing of additionalmaterial limited to the contemplated Rule 19.03 request, and directed that no further evidentiary material was tobe filed.
• The parties complied with the timetable relating to additional filings, and argument of the defendant's motionproceeded before me on August 24, 2012. At the return of the motion, it was acknowledged and agreed that thedefendant still had not yet supplied the plaintiffs with any material to satisfy any of the defendant's outstandingundertakings. It was also acknowledged and agreed that the defendant had not yet made any payment of the costsawarded by Justice Morissette or Justice Grace.
11 While the above chronology summarizes some of the undisputed events immediately connected with the defendant'smotions, the parties respectively relied on additional evidence filed in relation to the motion.
Wayne v. 1690416 Ontario Inc., 2012 ONSC 4861, 2012 CarswellOnt 11410
12 Before addressing that evidence, mention nevertheless also should be made of information provided by the partiesconcerning appeal proceedings. In that regard:
i. Counsel for all parties agreed and confirmed that no appeal proceedings ever were initiated in relation to JusticeMorissette's order of March 13, 2012.
ii. Counsel also indicated and confirmed that, while the defendant had initiated appeal proceedings in the DivisionalCourt, in relation to the order made by Justice Grace on April 3, 2012, those proceedings were terminated by anadministrative dismissal order issued by the Registrar of the Divisional Court on July 26, 2012, pursuant to Rule61.13 of the Rules of Civil Procedure. Pursuant to Rule 68.13.1(2), that dismissal order included a provision orderingthe defendant corporation to pay the plaintiffs a further $750 in costs, which also remain unpaid.
Evidence
13 In support of its motion, the defendant relied for the most part on a relatively brief affidavit sworn by its principalMikhael on April 23, 2012. (The affidavit indicates 2009, but the context makes it clear this was a clerical error.)
14 In his affidavit, (which attached no supporting exhibits apart from the orders made herein by Justice Morissetteand Justice Grace), Mikhael:
a. acknowledges having given undertakings during his oral discovery examination on December 8, 2011;
b. claims he has made efforts since the examination to satisfy the undertakings, (by collecting information andsupplying it to the defendant's former lawyer);
c. claims he was not advised or made aware of the plaintiffs' motion leading to the order made by Justice Morissetteon March 13, 2012;
d. indicates the defendant terminated the retainer of its former lawyer on March 9, 2012, because the defendant"was not satisfied with his services";
e. claims that he was never told about the order made by Justice Morissette on March 13, 2012;
f. says he made abortive attempts to deal with the matter personally by attending at the Court House on March16, 2011, attempting to meet with plaintiff counsel "to discuss the motion before speaking to it" outside what wasactually an Assignment Court sitting, and was subsequently informed by the Assignment Court judge and clerk that"the plaintiffs' motion was now returnable on April 20, 2012";
g. says he contacted new counsel during the week of March 26, 2012, seeking representation to deal with "a motion"supposedly returnable on April 20, 2012;
h. acknowledges that the defendant's former lawyer provided him, on April 3, 2012, with a copy of the order madethat day by Justice Grace; and
i. indicates that he subsequently met with new counsel on two occasions before their formal retention and deliveryof their Notice of Change of Solicitors (sic) on April 20, 2012.
15 Even before consideration of other evidence, Mikhael's evidence seems somewhat self-contradictory and confusing,or at least incomplete in material respects.
16 In particular, Mikhael's claim that he was not advised of or made aware of the plaintiffs' motion, (leading to theorder made by Justice Morissette on March 13, 2012), seems inconsistent with his indicated personal efforts to address"the motion" following termination of Mr Refcio's retainer on March 9, 2012. Nor does Mikhael indicate how or why
Wayne v. 1690416 Ontario Inc., 2012 ONSC 4861, 2012 CarswellOnt 11410
he expected plaintiff counsel to be attending court on March 16, 2012, or the basis of his stated belief that the matter,and a motion in particular, would be before the court to be spoken to that day.
17 In responding to the defendant's motion, the plaintiffs have filed somewhat detailed evidence suggesting thatMikhael and the defendant are being less than candid with the court, and that recent events are the culmination of apattern of reprehensible litigation behavior by the defendant.
18 In that regard, an affidavit sworn by the plaintiff Ms Wayne ("Wayne"), on July 9, 2012, describes a series ofadditional failings by the defendant, (prior to those noted above), during the course of the litigation. While I have regardto all of that evidence, it includes indications of the following:
a) the defendant's allegedly unsatisfactory response to a demand for particulars and request to inspect documentsserved by the plaintiffs following receipt of the defendant's pleading;
b) the defendant's refusal over the course of several months to cooperate in the scheduling of Mikhael's oral discoveryexamination, necessitating the repeated cancellation of tentatively scheduled dates and eventual service of a noticeof examination on a date unilaterally selected by the plaintiffs;
c) the subsequent failure of Mikhael to attend on that date or a rescheduled date owing to purported severe illnessallegedly requiring hospitalization and rendering Mikhael bed-ridden, (although requests for confirming medicaldocumentation subsequently generated only a vague note confirming Mikhael's attendance at a walk-in clinic forunspecified "medical reasons", and Mikhael was seen by Wayne and others performing outdoor building renovationsat the time of at least one of the scheduled examination dates while plaintiff counsel waited for his attendance);
d) the necessity of a court order, (granted by Justice Hockin on November 29, 2011), compelling Mikhael to attendfor his oral discovery examination on December 8, 2011;
e) the defendant's belated delivery of a sworn affidavit of documents, (in response to demands by plaintiff counseland the aforesaid order of Justice Hockin), which was not provided by the defendant until sometime after December7, 2011, and then listed only four documents;
f) the defendant's subsequent (and ongoing) failure to deliver documents in support of its allegations, or indeed anyrelevant documents whatsoever beyond the four documents disclosed in its affidavit of documents, notwithstandingthe undertakings by Mikhael on December 8, 2011, and Mikhael's own indication during the examination that theundertakings could and would be satisfied by December 16, 2011; and
g) communications from the defendant's former counsel, prior to return of the plaintiffs' motion on March 13, 2012,indicating that the defendant had refused to co-operate with the making of a consent order suggested by its counsel,and that the defendant had expressly instructed its counsel not attend at the return of the plaintiffs' motion or takeany further action in the matter.
19 The defendant filed no evidence in reply to challenge or contradict any of this damning evidence from Wayne,which therefore stands undisputed for purposes of the motion.
20 In that regard, I note that the Wayne affidavit does appear to have been delivered just four days prior to theoriginally scheduled special appointment hearing on July 13, 2012. However, at no time has the defendant requested anyopportunity to file further evidence in reply. In particular, counsel for the defendant did not request such an opportunityat the initial return of the motion before me on July 13, 2012, when I adjourned the motion on terms agreeable to bothparties for the sole purpose of addressing the Rule 19.03 issue.
21 In any case, as noted above, the plaintiffs did not rely on the Wayne affidavit alone. They also responded tothe defendant's motion by taking the unusual step of examining the defendant's former lawyer under oath, (with thedefendant's solicitor-client privilege having been waived for purposes of the examination).
Wayne v. 1690416 Ontario Inc., 2012 ONSC 4861, 2012 CarswellOnt 11410
22 I have reviewed the resulting transcript of that examination in its entirety, but note for present purposes that itincludes sworn evidence from Refcio to the following effect:
a. Mikhael is the sole shareholder, owner and operator of the defendant corporation, and the only person whoprovided instructions to Refcio on behalf of the defendant. Refcio described Mikhael as a "very savvy businessperson", who was "very competent", and in respect of whom he "never had a language barrier" despite English beingMikhael's second language.
b. Despite any concerns Mikhael may have had when he gave the undertakings, Mikhael felt they could be satisfiedas indicated.
c. For approximately three months following the oral discovery examination on December 8, 2012, Refcio triedrepeatedly but unsuccessfully to reach Mikhael directly by email and telephone, in order follow up on satisfactionof the defendant's undertakings. In that regard, Refcio was able to produce copies of numerous emails, (e.g., datedDecember 19, 2011, January 11, 2012, January 21, 2012, February 29, 2012, and March 1, 2012), none of whichhad "bounced back" as undelivered. He also swore that these emails, the importance of which had been marked"high", had been supplemented by numerous contemporaneous telephone calls and messages. The messages sentto and left for Mikhael indicated, in progressively more urgent and detailed terms, that it was necessary for thedefendant to address and satisfy the undertakings. In particular, the messages in late February and early Marchnoted that the plaintiffs had threatened and then served a motion, and that the defendant could face "some seriouscost consequences and other ramifications" if the defendant did not act soon. However, all of these email andtelephone messages went unanswered until Mikhael finally contacted Refcio shortly before March 7 or 8, 2012, andagreed to meet.
d. On March 7 or 8, 2012, Refcio and Mikhael met to discuss the undertakings for the first time since theexamination.
e. Prior to the meeting on March 7 or 8, 2012, Mikhael had not supplied any information or documentation toRefcio to satisfy the outstanding undertakings. At the meeting, Mikhael provided Refcio with "some documentaryevidence" sufficient to satisfy "maybe 20%" of the undertakings. Refcio advised Mikhael that "wasn't sufficient". Inresponse, Mikhael told Refcio he was still trying to track down people and invoices, but that record keeping "wasn'this strong point" and four years had gone by since the majority of documentation "should have been created".
f. At the meeting on March 7 or 8, 2012, Refcio also discussed the plaintiffs' motion, returnable on March 13,2012, after an initial one week adjournment. Refcio gave Mikhael a copy of the plaintiffs' motion record. Refciospecifically advised Mikhael that the motion now was returnable on a peremptory basis. Refcio asked whether theyshould indicate that obtaining the required documents and complying was just not possible. However, Mikhael wasstill indicating that he "might be able" to get the required documentation. In response, Refcio made it "very clear"that "the time was up", that Mikhael "needed to deal with this", (as three months had gone by since the examination),
that "the time for working on it was over", that "the motion was going to be argued on the 13 th ", and that thedefendant "had no other option".
g. On March 9, 2012, Mikhael contacted Refcio by telephone, instructed him to "take no further action goingforward", and terminated Refcio's retainer. Refcio specifically indicated that he did not forward any documentaryevidence to plaintiff counsel, in satisfaction of undertakings, because Mikhael advised him not to do so.
h. Refcio denied that the retainer was terminated because of any defendant dissatisfaction with his services. Rather,Mikhael had expressed inability to satisfy Refcio's request for a monetary retainer, and indicated a desire to act inperson. Refcio explained the need to obtain court permission in that regard, and suggested that might provide abasis for asking the court for an adjournment of the motion.
Wayne v. 1690416 Ontario Inc., 2012 ONSC 4861, 2012 CarswellOnt 11410
i. Refcio specifically advised Mikhael that someone, (e.g., Mikhael personally if that was his choice), needed to
attend motions court on the Tuesday, (March 13 th ), and Assignment Court on the Friday, (March 16 th ).
j. On March 12, 2012, (the day before return of the plaintiffs' motion before Justice Morissette), Refcio telephonedMikhael about a draft consent order forwarded by plaintiff counsel in an attempt to resolve the pending motion.Refcio was able to speak with Mikhael directly. Refcio indicated that, despite Mikhael's instructions to take nofurther action, something needed to be done about the motion as the defendant would "have problems" if neitherRefcio nor Mikhael attended at the hearing. (Mikhael had asked him what would happen if Mikhael did not "showup on Tuesday".) Refcio also followed up with an email to Mikhael later that evening, forwarding the proposedconsent order and requesting instructions to resolve the motion before Refcio ceased to be counsel of record.Mikhael responded by repeating that Refcio was not to do anything, and by indicating that Mikhael would "takecare of it".
k. On March 21 or 22, 2012, Mikhael again attended at Refcio's office and was given a copy of the order datedMarch 13, 2012. Refcio says he emphasized, to Mikhael, the need to "get on this right away", ("to get another lawyeror do something"), given the short time for compliance indicated in the order.
l. By April 3, 2012, Refcio had returned "certain parts" of the defendant's file documentation to facilitate its retentionof new counsel. By April 13, 2012, he had provided the client with copies of "all pertinent information". After serviceof the notice of change of lawyer, (on April 20, 2012), he delivered the "majority of the file" to the defendant's newlawyer. When cross-examined on this point by the defendant's new lawyer, Refcio repeated his belief that he hadprovided the "entire file" to the new lawyer, apart from some solicitor-client correspondence not produced earlierbecause he felt that its disclosure might damage the defendant's position.
23 I also have reviewed the brief of exhibits from Refcio's examinations, which includes copies of the emails describedduring the examination. On their face, at least, they seem to provide contemporaneous documents confirming much ofRefcio's evidence concerning his communication or attempted communication with Mikhael.
24 Although Refcio's examination took place on May 23, 2012, (over seven months prior to the originally scheduledspecial appointment hearing on July 13, 2012), the defendant filed no evidence in reply to address or challenge Refcio'sevidence, or the email documentation he supplied. Nor did the defendant ever request such an opportunity.
25 For purposes of the motion, Refcio's evidence also therefore is not contradicted, except to the extent it conflictswith some of the bald assertions of Mikhael in his original affidavit.
Analysis
Interaction of Rule 37.14 and Rule 19.03
26 Although the parties argued the Rule 37.14 and Rule 19.03 issues in a sequential and somewhat separate manner,(making reference to authorities decided in cases, quite unlike this one, where the defendant had failed to enter a defenceprior to being noted in default, as opposed to having its defence struck out), it seemed and seems to me that the defendant'srequests for relief pursuant to Rule 37.14 and Rule 19.03 necessarily move in lockstep, and stand or fall together.
27 In particular:
a) if I find that Justice Grace's order should be amended, set aside or varied pursuant to Rule 37.14, resulting inthe defendant's pleading being reinstated nunc pro tunc, then the noting in default should not have occurred, andshould be set aside, because the defendant will be regarded as having had a defence in place when the noting indefault therefore unjustifiably took place; but
Wayne v. 1690416 Ontario Inc., 2012 ONSC 4861, 2012 CarswellOnt 11410
b) if I find that relief pursuant to Rule 37.14 should be denied, then it obviously makes little or no sense to set asidethe earlier noting in default pursuant to Rule 19.03 only to have the plaintiff necessarily repeat the process when thedefendant inevitably proves unable to enter a further defence, (because of the undisturbed order of Justice Grace).
Rule 37.14 - Introduction
28 With the above in mind, I therefore turn first to the defendant's request for an order "to set aside, amend or varythe Order of the Honourable Justice Grace dated April 3, 2012", pursuant to Rule 37.14. (It should be noted that thisis the only order in respect of which the defendant seeks relief. In particular, the defendant does not challenge, in anyway, the order of Justice Morissette made on March 13, 2012.)
29 As noted above, in seeking to set aside, amend or vary the order of Justice Grace, the defendant's notice of motionindicates reliance on subrules 37.14(1)(a) and 37.14(1)(b), which read as follows:
37.14 (1) A party or other person who,
(a) is affected by an order obtained on a motion without notice; [or]
(b) fails to appear on a motion through accident, mistake or insufficient notice; ...
may move to set aside or vary the order, by a notice of motion that is served forthwith after the order comes to theperson's attention and names the first available hearing date that is at least three days after service of the notice ofmotion.
[Emphasis added.]
Rule 37.14 - Compliance with Time Requirement
30 Mikhael effectively acknowledges in his affidavit that the order of Justice Grace came to the defendant's attentionon April 3, 2012, (i.e., the day it was made). Three weeks later, on April 24, 2012, the defendant served a notice ofmotion seeking the relief requested herein. (As noted above, for some reason the defendant replaced its original motionrecord with another one seeking the same relief. The "substitute" motion record was not delivered until May 15, 2012,but nothing seems to turn on this as the notices of motion, putting the plaintiffs on notice of the relief sought by thedefendant, appear to be identical in all substantive respects.)
31 Although the plaintiffs emphasized in their motion material that they heard nothing whatsoever from the defendantor any lawyer on its behalf between March 13, 2012, and April 20, 2012, they did not seriously challenge the defendant'sargument that it had moved with reasonable dispatch pursuant to Rule 37.14 after the order made by Justice Grace cameto its attention on April 3, 2012.
32 In any event, I am willing to accept, for purposes of the defendant's motion, that it satisfied the timing requirementsof Rule 37.14 and served its notice of motion "forthwith" in the circumstances, (having particular regard to its apparentcontemporaneous efforts to retain new counsel).
Rule 37.14(1)(b)
33 I am not able to accept, based on the evidence and arguments before me, that the circumstances fall within thedescription of those contemplated by Rule 37.14(1)(b). In that regard, it must be remembered that:
a. the focus is on the order made by Justice Grace on April 3, 2012, and therefore on the motion and hearing beforeJustice Grace that led to the making of that order;
Wayne v. 1690416 Ontario Inc., 2012 ONSC 4861, 2012 CarswellOnt 11410
b. the evidence and arguments of the defendant were premised entirely on the position that it knew nothingwhatsoever about that order, motion or hearing until it was served with a copy of the resulting order after the fact;and
c. the defendant, according to its position, accordingly had no knowledge or awareness of the hearing in respect ofwhich it was capable of making an "accident" or "mistake".
34 This is not, for example, a case in which the defendant knew of a pending motion but "accidentally" or "mistakenly"went to the wrong venue at the right time, attended the right venue at the wrong time, or let the particular hour of anintended appearance pass by through inattention or inadvertence.
35 Nor would it be consistent with the defendant's position to suggest that it received "insufficient notice" of the motionbefore Justice Grace, within the meaning of Rule 37.14(1)(b). Such a conclusion would be possible only if the referenceto "insufficient notice" in Rule 37.14(1)(b) was intended to include situations where a motion was made with no noticeat all; i.e., without notice. However, the disjunctive structure of the clauses in Rule 37.14(1) makes it clear that the Ruleregards a "motion without notice" and a motion brought on "insufficient notice" as two conceptually different situations.
Rule 37.14(1)(a) - Order Obtained on Motion Without Notice?
36 In this case, the defendant's request for relief therefore turns on the interpretation and possible application of Rule37.14(1)(a), dealing with orders "obtained on motion without notice".
37 This in turn raises a threshold question as to whether the order made by Justice Grace was such an order; i.e., anorder "obtained on motion without notice" within the meaning of the rule.
38 More generally: is an order obtained without notice, pursuant to a previous order made with notice and expresslypermitting such a step, a true "without notice" order within the meaning of Rule 37.14(1)(a)? If not, Rule 37.14(1)(a)does not apply in the circumstances before me, in which case I have no jurisdiction in the circumstances to grant therelief requested by the defendant.
39 Unfortunately, although the question has been considered by the Ontario courts on numerous occasions, theanswer is not entirely clear.
40 In Warger v. Nudel, [1989] O.J. No. 1880 (Ont. Master), an order obtained on notice directed a plaintiff to re-attendfor further discovery and provided that, upon the plaintiff's failure to re-attend, the defendants could move without noticeto dismiss the action. There was complete non-compliance with the first order. Relying on the first order, the defendantsmoved without notice and obtained a second order dismissing the action. In the course of his reasons dismissing theplaintiff's motion to set aside the dismissal, Master Sandler opined, at paragraphs 39-41, that an order made withoutnotice and expressly permitting such a step was not a true without notice order, within the meaning of Rule 37.14(1)(a):
Rule 37.14(1)(a), (person affected by an order obtained without notice), also does not apply. The November 3 orderwas not an order obtained "without notice". ...
As to the order of December 4, 1987, it was not a true order without notice, but, rather, flowed from the "on-notice" order of November 3. In Atkins v. Holubeshen (1984), 43 C.P.C. 166 (Ont.H.C.), aff'd (1985), 50 C.P.C. 94(Ont.Div.Ct.), aff'd 23 C.P.C. (2d) 192 (C.A.), which I will discuss in much greater detail below, Henry J., at 170,holds that the ex parte order of Judge Sullivan of August 16, 1981, dismissing the action, made in furtherance of aconsent order of August 10, 1981, was "not a true ex parte order" but flowed from the agreement of the solicitorsand the consent order of August 10. Again, in Brown v. Peppall, [ (1911), 23 O.L.R. 630 (C.A.)], the Court of Appealheld that the order in question in that case was "not an ex parte order in the true sense or in the sense of the Rule".I could have, on November 3, dismissed the plaintiff's action then and there without giving him a further chance.Such order would clearly not be one without notice since someone was served and appeared. The plaintiff cannot
be in a better position because I gave him a further chance but provided in my order that if he did not take it, thedefendants could move without further notice to dismiss his action. ...
The plaintiff, in the guise of moving to set aside the December 4 th order, as being one made without notice, could
not attack the provisions of the November 3 rd order. If the December 4 th order had been based on erroneous ormisleading or incomplete evidence that had been put before the court making it, then it could be set aside under
rule 37.14(1)(a). And so, for example, if Warger had, in fact, attended on discovery on December 3 rd , or if both
solicitors, by consent, had arranged a different date for him to attend than December 3 rd , and this was then notdisclosed in the evidence used on the without notice motion, then such order could be set aside under rule 37.14(1)(1). But this is not what the plaintiff is arguing about. ...
Rule 37.14(1)(a) allows a court not only to consider whether an order should have been made, but whether havingbeen made, it should, in view of any change in the state of affairs or position of the parties, be rescinded. But thisbroad inquiry, by subsequent motion rather than by appeal, is only available if the order was on truly without notice.
[Emphasis added.]
Justice Trainor, sitting as a single judge of the Divisional Court, then dismissed an appeal from Master Sandler's decision,saying: "I cannot improve on the careful, thorough, and logical reasoning of the Master, and I adopt his reasons". SeeWarger v. Nudel, [1990] O.J. No. 3124 (Ont. Div. Ct.), at paragraph 1.
41 However, as the merits of the Warger v. Nudel decision have been questioned in subsequent decisions by judgesat concurrent levels of authority, I pause to note the following:
a. As Master Sandler himself remarks, at paragraphs 3 and 41 of his reasons, the moving plaintiff in that case did notmove pursuant to Rule 37.14(1)(a), and did not rely on that subrule in the course of argument. Rather, the plaintiffwas moving pursuant to Rule 59.06. Master Sandler took it upon himself to raise and offer comments about Rule37.14, saying: "I have dealt with Rule 37.14(1)(b) and (1)(a) in case it is thought that just because plaintiff's counseldid not deal with it, I therefore did not consider this possible approach." His comments in that regard thereforearguably were obiter.
b. With respect, a review of the particular authorities cited by Master Sandler in support of his above commentssuggests they do not offer particularly strong support for the proposition that an order made without actual notice,pursuant to an earlier order obtained on notice permitting such a step, should not be regarded as a true orderobtained without notice for the purposes of Rule 37.14(1)(a). While Atkins v. Holubeshen did involve such a situation,the first court order was obtained on consent, and the court at first instance simply accepted, without any detailedreasons, a party submission that the subsequent order was not obtained ex parte but pursuant to the parties' earlierconsent. In upholding the decision, neither the Divisional Court nor the Court of Appeal focused on that aspect ofthe case. As for Brown v. Peppall, that matter apparently did not involve an order obtained without notice pursuantto an earlier order obtained on notice, but an order obtained without notice from the Registrar using a consentexecuted by the parties. In any event, it is obvious that neither decision approached such issues in the context ofdetermining the proper interpretative approach to Rule 37.14.
c. Justice Trainor's dismissal of the appeal from Master Sandler's decision did not contain any specific considerationor particular endorsement of the Master's comments concerning Rule 37.14(1)(a).
42 The views expressed in Warger v. Nudel were specifically considered and rejected in Rolling Stone Haulage Ltd.v. Wilkinson, Tyrell, McKay Insurance Brokers & Consultants Ltd., [1997] O.J. No. 4018 (Ont. Div. Ct.). In that case,(as in Warger v. Nudel), an order obtained on notice had directed attendance at an examination and provided that, inthe event of default, a motion could be brought without notice to strike the defendant's statement of defence. Thereeffectively was complete non-compliance with the order obtained on notice, and the subsequent dismissal order then
was obtained without notice pursuant to the earlier order. In allowing an appeal from the Master's refusal to set asidethe order pursuant to Rule 37.14, Justice Matlow, sitting as a single judge of the Divisional Court, considered Wargerv. Nudel and said this:
With respect, I disagree with the holding of the learned Master and that of the judge of concurrent jurisdiction withme who upheld it. In my view, an order made on a motion without notice pursuant to leave granted by an order madeon a motion with notice is still an "order obtained on a motion without notice" as contemplated by Rule 37.14(1). Iarrive at this conclusion from the plain language of rule 37.14(1).
The practice of granting leave to move for substantial relief without notice which is now commonplace should,in my view, be exercised sparingly. The suspension of the adversary process which it authorizes even in limitedcircumstances can lead to unjust results which we should strive to avoid. The avoidance of such unjust results isthe underlying rationale of rule 37.14(1) which confers a much wider basis for attacking such orders than wouldbe permitted only by way of appeal.
If the basis for attack ought to be narrowed so as to protect such orders, that should be done in my view byamendment to the Rules of Civil Procedure rather than by a principled interpretation of rule 37.14(1) which strainsits plain meaning. ...
If it were necessary, I would invoke my inherent jurisdiction to achieve the same result as that achieved by myinterpretation of the applicable law.
[Emphasis added.]
In his reasons, Justice Matlow therefore focused on the wording of rule 37.14(1) and on the Warger decision, withoutcontemplation of the earlier appellate authority relied upon in the latter. As far as the suggestion of inherent jurisdictionis concerned, it is worth noting that, while this was rejected in Warger v. Nudel, the rejection there was based expresslyon a recognition that Masters, unlike judges, lack such jurisdiction.
43 In Vesely v. Dietrich (1998), 39 O.R. (3d) 541 (Ont. Div. Ct.), a full panel of the Divisional Court noted the apparentconflict between the Warger and Rolling Stone decisions, but effectively stopped short of resolving it.
44 The underlying facts of Vesely involved an order obtained on notice that obliged the plaintiff to answer undertakingsand, in the event of non-compliance, permitted the defendants to move without notice for an order dismissing the action.Although the plaintiff delivered material in attempted compliance, the defendants considered the material inadequateand moved ex parte to obtain a dismissal order. The judge hearing the plaintiff's subsequent motion pursuant to Rule37.14(1) motion dismissed the preliminary objection by the defendants, (relying on Warger), that the court lackedjurisdiction in the circumstances because the second order was not a true order obtained on motion without notice. Thedefendant appealed.
45 In dismissing the appeal, the Divisional Court panel clearly shared the concerns expressed by Justice Matlow inRolling Stone about the practice of granting leave to move for substantial relief without notice. (Its decision opens witha reference to "the pitfalls inherent in without notice motions", and concludes with an "admittedly obiter" repetition andendorsement of Justice Matlow's comments suggesting the practice should be used sparingly.)
46 Yet the panel stopped short of rejecting the rationale of Warger and endorsing that of Rolling Stone. Instead, thepanel was content to assume (without deciding) that the principle in Warger was correct, but capable of distinction basedon the different underlying fact situations. In particular, whereas the situation in Warger (and Rolling Stone) involvedcomplete non-compliance with the order obtained on notice, the situation in Vesely was said to be different:
To take advantage of rule 37.14 the plaintiff must show that he is "a party affected by an order made without notice".The defendants submitted that the plaintiff was not such a party and therefore rule 37.14 was not available and theplaintiffs only recourse would be to appeal.
The rationale for this position is the case of Warger v. Nudel, a decision of Master Sandler ... upheld on appealby Trainor J. ...
Master Sandler held that an order made without notice, pursuant to a previous order made with notice and expresslypermitting such a step, was not a true without notice order. This was so, he said, because the second order flowedfrom the original order and the original order must be regarded as a sufficient notice of the second order.
That decision has since been criticized by Matlow J. in the as yet unreported case of Rolling Stone Haulage Ltd. v.Wilkinson, Tyrell, McKay Insurance Brokers & Consultants Ltd. ...
Assuming, however, that the principle in Warger is correct, it is our view that it cannot assist the appellant in thefacts of this case.
In Warger v. Nugel, the defaulting party, Warger, was ordered to appear for discovery and it was provided that if hefailed to do so the defendants could move without notice to dismiss the action. He failed to appear and on motionwithout notice his action was indeed dismissed.
There was in that case no question of purported but faulty compliance, but total non-compliance - - as MasterSandler said at p.303 of his reasons, "no one showed up". A motion was brought to set aside the dismissal of theaction. Master Sandler held that the motion for dismissal had not been a "true without notice motion" because itflowed from the previous order which had been made on notice. Thus, it could not be dealt with under rule 37.14.
By contrast, in the case at bar the facts are quite different. Here the appellant had missed the December deadlinebut before the without notice motion was brought he delivered material in purported compliance. The respondentnevertheless [moved] without notice and asserted that the compliance was ... unsatisfactory.
There is, in our view, a very material distinction between these situations. A party delivering material in purportedcompliance with an order of the court is in principle entitled to be present to make his case that his purportedcompliance is sufficient.
... In view of the principle that a party is entitled to make his case, it is our view that unless the moving party isprecisely within the four corners of that order allowing the without notice motion, the reasoning in Warger can notapply. The consequences of such a motion are too drastic to permit any but the strictest of approaches.
The order before us permitting a without notice motion in the event that the plaintiff did not obey the order doesnot expressly address the issue of a challenge to purported compliance. Accordingly it did not justify the bringingof a without notice motion, where there had been purported compliance. Accordingly, notice of that motion oughtto have been given. No notice having been given when it was required, rule 37.14 applies.
[Emphasis added.]
47 Some later decisions have rejected a differential approach to Rule 37.14(1) application based on distinctions suchas those relied upon by the Divisional Court in Vesely. However, in my opinion, the comments above make it clear thepanel there made such distinctions as part of its ratio decidendi, while deliberately setting to one side the apparent conflictbetween Warger and Rolling Stone in cases of complete non-compliance with the original order obtained on notice.
48 Unfortunately, there seems to have been no later authoritative resolution of that apparent conflict.
49 In Rosen v. Homelife/St. Andrew's Realty Inc., [1998] O.J. No. 2473 (Ont. Gen. Div.), at para. 14, Warger seems tohave been accepted and applied to a situation of complete non-compliance, but without analysis and without mentionor consideration of the criticisms in Rolling Stone.
50 In Paglione v. 860804 Ontario Ltd., [1998] O.J. No. 4980 (Ont. Gen. Div.), the motions judge clearly and expresslyrejected Warger, and proceeded to entertain a motion pursuant to Rule 37.14(1) in similar circumstances, but did sosimply because Warger had been decided by a Master "not clothed with the authority of a judge". (The judge apparentlywas not advised that Warger had been upheld on appeal.)
51 The question came before the court again in Big A Amusement Co. v. Erin Agricultural Society, [2000] O.J. No.293 (Ont. S.C.J.). Moving on notice, the defendant in that case obtained an order requiring the plaintiff's delivery ofexpert reports within 45 days, in default of which the defendant was permitted to move without notice for an orderdismissing the claim. The plaintiff was unable to deliver the reports within 45 days, and brought a motion to extend thedeadline. Relying on the earlier order, the defendant nevertheless moved without notice to obtain an order dismissing theplaintiff's claim and, relying on Warger v. Nudel, disputed the court's jurisdiction to then entertain a subsequent motionby the plaintiff pursuant to Rule 37.14(1) to set aside the order of dismissal. After noting the apparent failure of thedefendant to comply with Rule 39.01(6), requiring a moving party or applicant proceeding without notice to make fulland fair disclosure of all material facts, Justice Lane went on to consider the basis of the court's jurisdiction to entertainthe plaintiff's motion for relief:
It was submitted that the motion before Stayshyn J. was not a "true without notice" motion and therefore thisCourt did not have jurisdiction under Rule 37.14 because that motion flowed from the order of Borkovich J. whichauthorized it. Reliance was place on the case of Warger v. Nudel (1989), 39 C.P.C. (2d) 290, (Ont.Master), aff'dC.P.C. (2d) 126, where the Master adopted that analysis. Trainor J. on appeal adopted the Master's reasons. Butthat case did not involve the concealment of material facts. Indeed, at p.308, the Master expressly noted that if thesubsequent order, i.e., the equivalent of the order of Stayshyn J., had been made on erroneous or misleading orincomplete evidence, it could be set aside under rule 37.14. While that statement is obiter, it was part of what wasadopted by Trainor J. Far from giving comfort to the defendant/third parties, the case assists the plaintiff.
As well, in my opinion, whether or not there is a Rule specifically authorizing the Court to intervene, the inherentjurisdiction of the Superior Court to control its own process is basis enough in facts like this. No technical analysis ofthe Rules should ever be allowed to detract from the fundamental principle that parties may not obtain relief by deceit.This is particularly so where the opposite party is not present, whatever may be the reason for that absence. The orderof Stayshyn J. was obtained by concealing from him a very material fact. It would be a scandal if the Court didnot intervene to set it aside.
[Emphasis added.]
While Justice Lane apparently was not directed to the earlier decisions in Rolling Stone and Vesely, he thereforeindependently seems to have formed similar opinions concerning the possibility of supervening inherent discretion, (toaddress any jurisdictional impediment that otherwise might prevent application of Rule 37.14 to ex parte orders obtainedpursuant to previous orders obtained on notice), and distinguishing Warger in situations where a subsequent ex parteorder is obtained without the court being advised of intervening developments. (Despite Justice Lane's apparent relianceon comments in Warger concerning possible application of Rule 37.14 to ex parte orders obtained without full disclosure,I note Master Sandler's express indication, consistent with his earlier comments, that such an inquiry nevertheless "isavailable only if the order was one truly without notice".)
52 The apparent conflict between the Warger and Rolling Stone decisions received express consideration in Freedmanv. Armantrout, [2000] O.J. No. 3724 (Ont. Div. Ct.). The underlying fact situation resembled that in Warger and RollingStone, in that there had been complete failure to comply with the earlier order obtained on notice from a Master, and the
defendant then had obtained an ex parte order of dismissal from the Master pursuant to provisions of the order obtainedon notice. However, matters then took a different procedural turn from the Warger and Rolling Stone situations, asthe plaintiff in Freedman v. Armantrout did not attempt to address the ex parte dismissal by moving before a Masterpursuant to Rule 37.14, (thereby generating a Rule 37.14 decision by a Master that was then appealed to a Superior Courtjudge sitting as a single judge of the Divisional Court). Rather, the plaintiff appealed the Master's ex parte dismissalorder directly to a Superior Court judge sitting as a single judge of the Divisional Court. The defendant challengedthe propriety of that procedure, arguing that the plaintiff should have moved first pursuant to Rule 37.14, which inturn would have required consideration of the apparent conflict between the Warger and Rolling Stone decisions. Indismissing the plaintiff's appeal, Justice O'Driscoll summarized the apparently conflicting views expressed in the twoearlier Divisional Court decisions and expressed a clear preference for the approach to Rule 37.14 adopted in Warger.He nevertheless also expressly indicated that his view in that regard was obiter, as he had arrived at the same result(upholding dismissal of the plaintiff's claim) via the direct appeal from the ex parte order:
In this case, I need not adopt one view or the other. I need not decide whether the conflict procedure in this casewas an appeal or an application to set aside the order of Master Garfield. However, I find the reasoning in Wargerv. Nudel (supra) more persuasive for two reasons:
1. As pointed out in Warger a motion such as the one in this case to set aside the April 15, 1998 order wouldbe a prohibited collateral attack on the earlier order given, on consent, by Beaulieu J., on January 15, 1998.
2. Moreover, Master Sandler in Warger v. Nudel pointed out that in Brown v. Peppall (1911), 23 O.L.R. 630,634, the Court of Appeal for Ontario held that an ex parte order is only one where "a party obtains withoutthe attendance of the other, without his consent, and solely on his (the Applicant's) shewing".
After reviewing the material filed and the submissions heard, I cannot find any error in the order of Master Cork.Moreover, if this was an application to set aside the order of Master Cork, I could not find any reason to set it aside.
In the result, Justice O'Driscoll formally dismissed the appeal, with costs.
53 The proper approach to Rule 37.14(1) in such circumstances was also considered in Pesah v. Grosz, [2001] O.J.No. 3766 (Ont. S.C.J.). The facts once again involved complete non-compliance with an order obtained on notice (froma Master), followed by an ex parte dismissal order obtained (from a Master) pursuant to the earlier order. The plaintiffbrought an application before Justice LaForme to set aside the Master's ex parte order of dismissal. (Quare whether thedecision therefore properly should be cited as one of the Divisional Court.) Noting that his decision in that regard turnedon "a consideration of R.37.14 and perhaps the court's inherent jurisdiction", Justice LaForme considered the Warger,Rolling Stone and Vesely decisions, embraced the "compliance v. non-compliance" distinction emphasized by Vesely, andalso seemed to accept a further residual discretion of the court to set aside ex parte orders producing an "unjust result":
It seems therefore that the distinction is this: Where there is "purported compliance" with the previous order, thenthe principle in Warger does not apply. However, where there is "non-compliance" with the previous order, as therewas in Warger, then the principle can apply. I leave for the moment the fact that there was non-compliance withthe prior order in both Warger and Rolling Stone Haulage Ltd..
What is particularly clear from Matlow J.'s decision in Rolling Stone Haulage Ltd. is that he did not mean that reliefon motions without notice could or would never be granted. He merely stated his view, and it is one which the courtin Vesely agreed with as do I, namely; that relief granted without notice "should be exercised sparingly" (p.192). Thepurpose for this approach he maintained, and again I agree, was to avoid unjust results.
Thus, it seems to me that when dealing with a situation where an order was made without notice, pursuant to aprevious order made with notice, the court is obliged to consider two principles. They evolve, in my opinion, whenone attempts to reconcile the above stated principles found in Warger, Rolling Stone Haulage Ltd., and Vesely, whichin my view leaves us with the following: Rule 37.14 may be relied upon to set aside the motion made without notice if,
(i) It can be established that there has been "purported compliance" with the previous order made with notice; or
(ii) It would eventuate an unjust result not to set it aside.
In the case before him, Justice LaForme confirmed that the situation involved one of complete non-compliance with theorder obtained on notice, and that the ex parte order would not eventuate any unjust result in the circumstances.
54 The Warger, Rolling Stone and Vesely authorities were considered again in Zesta Engineering v. Thermal EnergeticsLtd., [2002] O.J. No. 4523 (Ont. S.C.J.). The plaintiff in that case obtained an order on notice compelling the defendantsto produce certain documents within a specified period, failing which the plaintiff was given to move ex parte for anorder striking out the statement of defence. Prior to the deadline, the defendants made certain admissions that arguablyrendered the productions unnecessary, and also offered to make other documents available for inspection. Relying on thedefendants' failure to comply with all provisions of the order obtained on notice, the plaintiff nevertheless moved ex parteto obtain an order striking the defence. Justice Mossip noted the apparent conflict between the Warger and Rolling Stonedecisions, and seemed inclined to prefer the latter, but found the situation before him was instead governed by Veselyas it was "not one of total non-compliance by the moving party defendants". In such "analogous" circumstances, JusticeMossip felt able to apply Rule 37.14(1)(a) on that basis, and set aside the ex parte order striking the statement of defence.
55 A similar approach was adopted by the court in Sgro-DiGiosaffatte v. DiGiosaffatte, [2001] O.J. No. 5165 (Ont.S.C.J.), where the wife in matrimonial litigation obtained an order on notice requiring productions within a certainnumber of days, and permitting an ex parte motion to strike the husband's answer if he failed to comply. Althoughthe husband had provided a substantial number of documents one day after the court ordered deadline, the wife reliedon the technical default to then obtain the contemplated ex parte order. In setting aside the ex parte order pursuant toRule 37.14(1)(a), Justice Goodman found that the situation involved one of "purported compliance", thereby bringingit within the binding authority of Vesely.
56 To similar effect is the court's decision in Sajjan v. Sajjan, [2004] O.J. No. 1154 (Ont. Div. Ct.). At an earlierhearing brought on notice, (but at which the applicants failed to appear), the respondent obtained an order that includedan award of costs payable within 10 days, failing which the respondent was permitted to move ex parte to obtain reliefsought in her counter-application. Notwithstanding the applicants' indication that they were appealing the original order,(with a corresponding delay in their payment of the cost award therein), the respondent moved ex parte to obtain thecontemplated order. In setting aside that order pursuant to Rule 37.14(1)(a), Justice Wein noted that "the case law is notentirely clear concerning the scope of Rule 37.14(1)" in such situations, and specifically noted the Warger and RollingStone decisions in that regard. However, it was not necessary for her to resolve that conflict, as she found the situationbefore her was governed instead by the principles and approach in Vesely and Zesta Engineering. In particular, there wereevents subsequent to the original order obtained on notice that took the situation "outside the parameters of Warger,assuming Warger to be correctly decided on the particular facts of that case".
57 Finally, one must consider the more extended judicial consideration of this Rule 37.14 jurisdictional issue inLiu v. Daniel Executive (Canada) Holdings Corp., [2009] O.J. No. 4124 (Ont. Master), aff'd [2010] O.J. No. 6252 (Ont.S.C.J.), leave to appeal denied, [2011] O.J. No. 355 (Ont. Div. Ct.). The defendant in that case obtained an order onnotice that required the plaintiffs to post $300,000 as security for costs before a certain date, failing which the defendantswere permitted to move without notice for an order dismissing the claim. The plaintiffs believed they satisfied the orderby having property they controlled in British Columbia made available as security for costs. (The situation thereforearguably was one of purported or attempted compliance with the order obtained on notice, rather than one of completenon-compliance.) However, apparently relying on the plaintiffs' failure to post security in the specified manner, thedefendants moved ex parte and obtained an order of dismissal.
58 In considering the plaintiffs' subsequent motion pursuant to Rule 37.14(1) to set aside the ex parte dismissal,the Master expressly considered the apparent conflict between Warger and Rolling Stone, preferred the reasoning in the
latter, and rejected a suggestion that Vesely somehow had endorsed the approach in Warger. Indeed, the Master wentfurther and also rejected arguments that application of Rule 37.14(1) should turn on questions of compliance with theorder obtained on notice:
The Keelson plaintiffs attempt to reconcile the cases by submitting that when there is partial (or attemptedcompliance) with an order, the Rolling Stone Haulage Ltd. and Zesta analysis should apply, and when there is nocompliance, the Warger and Freedman analysis should apply. The Keelson plaintiffs rely on the decision of theDivisional Court in Vesely v. Dietrich ... for that that submission.
However, the court in Vesely did not state that the legal analysis of whether a dismissal order made without noticearising from an order made with notice would depend on whether there was no or partial (or attempted) compliancewith the underlying order. The court specifically noted that the decision in Warger had been criticized by MatlowJ. in Rolling Stone Haulage Ltd. and simply assumed, for the purposed (sic) of its analysis, that the principle inWarger was correct. The issue of the applicable legal test was irrelevant since the court concluded that the principlesin Warger could not apply if a party engaged in partial (or attempted) compliance. The court did not state whichtest would apply if there was no compliance.
Further, it would not be logical for the legal issue of whether a dismissal order made without notice arising froman order made with notice depends on whether there was no compliance or partial (or attempted) compliance withthe underlying order. Neither Warger nor Rolling Stone Haulage Ltd. suggest such an analysis as a basis for theconclusions reached therein. Rather, the courts have different views based on the reading and interpretation of Rule37.14(1)(a).
Consequently, I apply the reasons in Rolling Stone Haulage Ltd. and Zesta Engineering and I find that the DismissalMotion was made without notice and as such I have the jurisdiction to set aside the Dismissal Order under Rule37.14(1)(a).
In the result, the Master granted relief pursuant to Rule 37.14(1), and set aside the ex parte order dismissing the plaintiffs'claim.
59 In dismissing the defendants' appeal from the Master's order, (Ont. S.C.J.), Justice Wilton-Siegel expressly agreedthat the dismissal order fell with Rule 37.14(1)(a) "for the reasons set out in the [Master's] endorsement", and added thefollowing comments of his own:
Under the Rules, a party may challenge an ex parte order in two ways. If the party does not seek to introduce itsown responding materials with respect to the ex parte motion, it will typically appeal the order. If, however, a partywishes to introduce responding materials and it can satisfy the requirements of Rule 37.14(1), that Rule providesthat the party may proceed by way of a hearing before a judge of this Court to set aside the earlier order. Such ahearing would involve a new decision at first instance.
I see no distinction between an order granted on an ex parte basis and an order granted on a "without notice" motion.If a party affected by a "without notice" order issued on such a motion wishes to challenge the order by introducingresponding materials addressing its noncompliance, the proper proceeding is, therefore, a Rule 37.14 motion, forwhich the party must satisfy the requirements of such Rule.
I also agree with Master Glustein that it would be illogical for the legal position of a party affected by such an order todepend on whether there was compliance or partial compliance with the underlying order as the appellants argue basedon Warger v. Nudel. ... As the present proceeding and several of the cases cited to the Court demonstrate, even ifthere were no compliance, it is possible that the reasons for such noncompliance would be a relevant considerationfor the motions judge in refusing to exercise the Court's discretion to grant the requested relief ... In my opinion,justice and practical common sense compel the simple rule articulated above.
I do not agree with the appellants that such a result is unfair to the nondefaulting party and renders a "withoutnotice" order meaningless, although I agree with Matlow J. in Rolling Stone Haulage Ltd. ... that such orders shouldbe granted sparingly. "Without notice" orders are of value in circumstances in which there is no likelihood that thedefaulting party will comply with the prior order because it has abandoned an action. On the other hand, for thereason set out above, if it transpires that a party has not abandoned an action and there is a dispute as to compliancewith an earlier order with respect to which the defaulting party seeks to introduce responding materials, the disputeregarding the significance of the alleged non-compliance should be resolved on a motion back before the Masterrather than on an appeal.
[Emphasis added.]
60 Justice Ferrier then dismissed the defendants' motion for leave to appeal Justice Wilton-Siegel's ruling upholdingMaster Glustein; see [2011] O.J. No. 355. As for Rule 62.02(4)(a), Justice Ferrier acknowledged the conflict in the caselaw but did not feel it was desirable to have the issue resolved by granting leave to appeal in the case before him:
The reasons of the master reflect a thorough and careful analysis of the issues. He exercised his discretion and setaside the dismissal order. He did so pursuant to rule 37.14(1)(a). After reviewing the conflicting case law, he preferredthe reasoning in Rolling Stone Haulage Ltd. ... to that in Warger and the cases flowing from them respectively.
On appeal to Mr Justice Wilton-Siegel, the learned judge, in an equally thorough and carefully reasoned decision,dismissed the appeal. He too recognized the conflict in the cases and preferred the Rolling Stone Haulage Ltd. lineof authority.
Thus, the Master clearly exercised his discretion correctly, without error in principle, unless rule 37.14(1)(a), andon that question there are conflicting decisions.
Thus the first branch of rule 62.02(4)(a) is satisfied, and the question becomes whether it is "desirable that leaveto appeal be granted".
In my view the answer to that question is no. ...
To be sure, the argument that the conflict in the cases should be cleared up has considerable merit, but in my view thisis not the case which should go forward on the issue. The circumstances here are peculiar to this case. ...
[Emphasis added.]
As for Rule 62.02(4)(b), Justice Ferrier felt unable to conclude that there was "good reason to doubt" the correctness ofthe approach taken by Master Glustein and Justice Wilton-Siegel:
Notwithstanding the conflict case law, I am not of the view that the matter is open to serious debate. A "motion withoutnotice" is such whether it is permitted by the rules or by leave granted in an order. I agree with the analyses of themaster and the judge below. Furthermore, in Warger, supra, the motion was brought pursuant to rule 59.06(2)(a)and the comments of Master Sandler concerning rule 37.14 and the ex parte motion in that case would appear to beobiter. In Vesely, ... the court did not take the principle in Warger, supra, to be correct. The other authorities citedby the plaintiffs and referred to in the decisions below, are clearly distinguishable on their facts.
I am reinforced in this view by the provisions of rule 1.04(1), that the rules shall be liberally construed to secure thejust, most expeditious and least expensive determination of every civil proceeding on its merits. ...
Even if I am wrong on the first branch of this sub-rule, for the reasons expressed above - the particular circumstancesof this case - I am of the view that this is not the case which will advance the administration of justice in referenceto the issue.
61 This extended review of authorities dealing with the threshold Rule 37.14(1)(a) jurisdiction issue justifies, I think,the following general observations and conclusions:
a. To the extent there is any doubt as to whether courts will exercise Rule 37.14(1)(a) jurisdiction in relation to ordersobtained without notice pursuant to earlier orders obtained on notice, such doubt does not extend to situations ofpurported or partial compliance, or non-disclosure of similar material facts. Courts definitely regard themselves ashaving jurisdiction to deal with such situations pursuant to Rule 37.14(1)(a). (See Vesely, Pesah, Zesta Engineering,Sgro-DiGiosaffatte and Sajjan, supra.) Although the Liu case disparages a compliance-based approach to Rule37.14(1)(a), it apparently does so only in support of the position that Rule 37.14(1)(a) jurisdiction should exist incases of non-compliance as well. In any event, it seems to me that the full panel Divisional Court decision in Veselyremains binding authority in cases of purported or partial compliance.
b. In situations of complete non-compliance with the order obtained on notice, the ostensible conflict in the case law,(between the Warger and Rolling Stone lines of authority), is more apparent than real. As noted above, the relevantcomments in Warger arguably were obiter, (a view supported by Justice Ferrier's comments in Liu). Moreover,subsequent authority expressing support with Warger either fails to note and consider the conflicting position, (e.g.,Rosen), or is itself expressly obiter, (e.g., Freedman). In distinguishing situations of complete non-compliance fromthe case before it, Vesely expressly assumed (without deciding) that Warger was correct in those other situations. Inthe result, there actually seems to be no case in which a reasoned preference for Warger over Rolling Stone formspart of the decision's ratio decidendi. In contrast, there are many decisions whose operative comments reject theWarger approach in favour of that advocated in Rolling Stone.
c. Substantively, the position in Warger relies primarily on cases, decided prior to enactment of Rule 37.14, involvingunderlying facts capable of distinction and/or propositions adopted without any detailed consideration, argumentor rationale. (Freedman suggests an additional concern for the prevention of prohibited collateral attacks on earlierorders obtained on notice, but that arguably can be addressed if and when the need arises when courts are askedto exercise their discretion pursuant to Rule 37.14.) In contrast, Rolling Stone and the authorities supporting itsapproach generally involve detailed and purposive interpretations in the specific context of Rule 37.14
d. No case seems to contradict or reject those asserting the existence of a judge's inherent jurisdiction to entertaina motion to set aside an order obtained without notice, even if Rule 37.14(1)(a) is not technically available. (SeeRolling Stone and Big A Amusement Co., supra.) If such a jurisdiction does exist, it arguably renders the entire debateabout the limits of Rule 37.14(1)(a) largely academic.
62 In the result, I believe binding Divisional court authority confirms my jurisdiction to review and set aside ordersobtained without actual notice, (regardless of whether there has been any compliance or attempted compliance withan earlier order, obtained on notice, permitting ex parte proceedings), and that there actually is no conflicting bindingauthority to the contrary.
63 To the extent it is necessary and open for me to decide between the two ostensibly diverging lines of authoritycanvassed above, (as the case before me involves a situation of complete non-compliance with the order obtained onnotice), I would endorse the Rolling Stone approach for the reasons set out therein and in the authorities endorsing it,(although my preference would be the exercise of such jurisdiction through a structured rule rather than an amorphousinherent jurisdiction).
64 In any event, for purposes of the motion before me, I regard the order of Justice Grace as one "obtained on motionwithout notice" for the purpose of Rule 37.14(1)(a).
65 Where Rule 37.14(1)(a) applies, the granting of relief is discretionary, requires balancing of the interests of theparties involved, and depends on the evidence in each particular case: John Wheelwright Ltd. (Trustee of) v. CentralTransport Inc., [1996] O.J. No. 3128 (Ont. Div. Ct.), and Liu v. Daniel Executive (Canada) Holdings Corp., supra.
66 In the particular circumstances of this case, I am not persuaded that the order striking out the statement ofdefence should be set aside. In support of that conclusion, I have regard to all of the evidence outlined above, but notein particular the following considerations.
67 First, I think it important to bear in mind that the defendant seeks relief pursuant to a rule which, as notedabove, inherently is designed to address and remedy possible injustice resulting from temporary suspension of the normaladversarial process; see Rolling Stone, Vesely and Liu, supra. In other words, a party moving pursuant to rule 37.14(1)(a)inherently takes the position that, because it did not receive notice of a hearing that led to an order affecting its interests,it was prevented from attending, filing responding material and/or making submissions that might have led to a differentresult than that embodied in the ex parte order the party seeks to vary or set aside.
68 But can the defendant seriously advance that position on the facts of this case? I think not.
69 When the matter came before Justice Morissette on March 13, 2012, (at a hearing unquestionably brought onproper notice to the defendant), the defendant had failed to comply with outstanding undertakings given months before,in the context of a litigation history suggesting defendant reluctance to address the case properly as required by therules. In the circumstances, Justice Morissette felt it appropriate to give the defendant one further chance to satisfy theundertakings, within a specified time period.
70 When the matter came back on for hearing before Justice Grace on April 3, 2012, had the defendant received noticeand appeared personally or through counsel, what possibly would or could have been said on its behalf to persuadeJustice Grace that the order striking its defence should not have been granted? At that point, the relevant undertakings
still remained entirely unsatisfied. Moreover, based on the evidence before me, proper and full disclosure on April 3 rd
would have included indications to Justice Grace:
a. that the defendant, over the three month period following its discovery examination, had failed to respond inany way to repeated calls and email correspondence from its counsel underscoring the pressing need for efforts toaddress and satisfy the undertakings;
b. that the defendant did not meet with its counsel in relation to the undertakings or provide its counsel with anymaterial whatsoever to satisfy the undertakings until March 7 or 8, 2012, at which time it supplied its counsel withmaterial sufficient to address no more than 20% of the undertakings;
c. that the defendant was indeed made aware of the motion returnable on March 13 th but made a deliberate decisionnot to participate either through counsel or by personal appearance;
d. that the defendant also expressly instructed its counsel to not take any steps towards even partial satisfaction ofthe undertakings, (e.g., by turning over the documentation supplied to its solicitor on March 7 or 8, 2012);
e. that the defendant also had been provided with a copy of the March 13 th order on March 21 st or 23 rd , but still
had taken no steps prior to April 3 rd to satisfy its undertakings or comply with the March 13 th order, in termsof satisfying its undertakings; and
f. that, to the extent the defendant temporarily lacked counsel, that situation resulted from the defendant's deliberate
termination of its counsel's retainer on March 9 th , prior to hearing of the plaintiffs' motion on March 13 th , and thedefendant's subsequent failure to then take any steps whatsoever to secure new counsel for at least several weeks.
71 In such circumstances, and having regard to the previous litigation history, it is difficult to see how or why Justice
Grace would have declined to grant the order made on April 3 rd , even if the defendant had received notice of thathearing and actively participated. On the facts of this case, there accordingly seems to be little or no injustice flowingfrom a suspension of the adversarial process.
72 Second, to the extent the defendant argues it would be unjust in the circumstances to deny it "one last chance" atthis point to satisfy its undertakings, (drawing analogies to other cases in which the granting of a further opportunityfor compliance was considered appropriate), it seems to me that this represents a collateral attack on the order made by
Justice Morissette on March 13 th . In that regard:
a. The hearing before Justice Morissette unquestionably took place on proper notice to the defendant, (althoughthe defendant apparently made a deliberate decision not to participate).
b. As far as the defendant's underlying failure to satisfy undertakings is concerned, the situation that prevailed in
this case on March 13 th when Justice Morissette made her order had not changed by April 3 rd , and in fact still has
not changed. (Again, it was not disputed that, at the time of the hearing before me on August 24 th , the defendantstill had not provided the plaintiff with any material whatsoever in satisfaction of its undertakings, either in wholeor in part.)
c. On March 13 th , Justice Morissette held that the appropriate remedy in such circumstances was to give thedefendant, at that point, one last chance to satisfy its undertakings, within fifteen days.
d. No appeal was taken in relation to the March 13 th order of Justice Morissette. Nor did the defendant's motion
pursuant to Rule 37.14 in any way seek relief as far as the order of March 13 th is concerned.
On these facts, it seems to me that Justice Morissette's order must be taken as the court's formal determination as to thecurative opportunity appropriate to the same unchanged circumstances, and that it is not appropriate for me to nowmake an order that effectively undermines and disregards that earlier ruling.
73 Finally, to the extent Rule 37.14(1)(a) provides a wide residual discretion to revisit ex parte orders of first instanceif they produce an "unjust result", (see Pesah v. Grosz, supra), I am not persuaded that the ex parte order made by JusticeGrace leads to such a result in this case. To the contrary, the undisputed litigation history reveals a defendant thatrepeatedly has demonstrated a reluctance to address the litigation in a prompt and proper way, and whose conduct evennow does not instill faith that the situation is likely to change.
74 In that regard, I note in particular the defendant's ongoing failure to supply anything whatsoever to theplaintiffs in satisfaction of its undertakings - notwithstanding the undisputed evidence that it definitely has at least somedocumentation in that regard. The defendant provided no explanation for its ongoing failure or refusal, apart from vaguesuggestions that its previous counsel might still have some unspecified documentation relevant to satisfaction of theundertakings, and/or that plaintiff counsel had "refused to co-operate" while the defendant's Rule 37.14(1) motion wasoutstanding. However, even if its former counsel still possessed documents needed to satisfy the undertakings, (whichseems contrary to the evidence before me), this provides no justification for the defendant's failure to provide the plaintiffswith documents it has. Nor is there anything whatsoever in the evidence before me to suggest that satisfaction of theundertakings in question was in any way dependent on something to be done by the plaintiff, or that there was any kindof impediment preventing the defendant from unilaterally providing the plaintiff with material in satisfaction - or at leastpartial satisfaction - of those undertakings. Moreover, as rule 31.07(4) makes clear "for greater certainty", nothing in therules "relieves a party ... who undertakes to answer a question from the obligation to honour the undertaking".
75 The defendant therefore should have taken steps long before now to provide the plaintiff with something to satisfyits outstanding undertakings, either in whole or in part.
76 I also note the defendant's ongoing failure to pay, at the very least, the outstanding costs awarded by Justice
Morissette back on March 13 th . Again, no appeal was taken in relation to that order, (a copy of which was provided
to the defendant on March 20 th or 21 st ), and it also was not the subject of any requested relief pursuant to Rule 37.14.
Yet that cost award on March 13 th , directing payment within 30 days, still remained unpaid at the time of the hearing
before me on August 24 th , over five months later. The defendant also provided no explanation for that failure, apartfrom another vague suggestion that any and all costs would be worked out at some later date, after resolution of thedefendant's rule 37.14 motion. To me, this is neither satisfactory nor appropriate. Unless appealed, a court order directingthe payment of costs within a specified time means what it says and is binding, and payment/compliance should not bedelayed in the hope of some possible later offsetting obligation.
77 The defendant relies on numerous authorities emphasizing the importance of having disputes adjudicated on theirmerits, and the general reluctance of courts to impose the drastic remedy of denying a litigant its day in court, (e.g., bydismissing a claim or striking a defence).
78 There obviously is much truth in this.
79 However, as emphasized by the Court of Appeal in the recent case of 1196158 Ontario Inc. v. 6274013 Canada Ltd.,[2012] O.J. No. 3877 (Ont. C.A.), at paragraphs 17-20, it is also true that such concerns must be balanced with othersunderscoring the need for prevention of delay and the promotion of fairness in civil litigation:
The civil justice system aims to resolve disputes fairly, on the merits and in a timely and efficient manner. The Rulesof Civil Procedure provide that the rules are to be "liberally construed to secure the just, most expeditious and leastexpensive determination of every civil proceeding on its merits": rule 1.04(1).
Achieving that goal in cases involving dismissal for delay requires a careful balance of two fundamental principles.The first is that civil actions should, if possible, be decided on their merits and procedural rules should be interpretedaccordingly. The second is that the procedural rules that aim to resolve disputes in a timely and efficient manner canonly achieve their goal if they are respected and enforced.
Time lines prescribed by the Rules of Civil Procedure or imposed by judicial orders should be complied with. Failure toenforce rules and orders undermines public confidence in the capacity of the justice system to process disputes fairly andefficiently. On the other hand, procedural rules are the servants of justice not its master. We must allow some latitudefor unexpected and unusual contingencies that make it difficult or impossible for a party to comply. We should striveto avoid a purely formalistic and mechanical application of time lines that would penalize parties for technical non-compliance and frustrate the fundamental goal of resolving disputes on their merits. As Laskin J.A. stated in Finlayv. Paassen, 2010 ONCA 204, 101 O.R. (3d) 390, at para. 14: "the Rules and procedural orders are construed in a waythat advances the interests of justice, and ordinarily permits the parties to get to the real merits of their dispute".
The challenge posed in cases involving dismissal for delay is to find the right balance between, on the one hand, theneed to ensure that the rules are enforced to ensure timely and efficient justice and, on the other, the need to ensuresufficient flexibility to allow parties able to provide a reasonable explanation for failing to comply with the rules tohave their disputes decided on the merits.
[Emphasis added.]
80 In the case before me, I am not presented with a defendant guilty of "technical non-compliance", offering a"reasonable explanation" for failure to abide by obligations in the rules and court orders, based on "unexpected or
unusual contingencies". (While the defendant tried to suggest in argument that its former counsel deprived it of legalservices at a crucial time in the litigation, this simply is not supported by the evidence before me. To the contrary, thesworn evidence and contemporaneous email communications provided by Refcio confirms the defendant terminated hisretainer and rebuffed his proactive efforts to address and resolve the undertakings dispute before his formal removalas lawyer of record. In any event, the defendant unquestionably has had new counsel since April 20, 2012, and theuncontradicted evidence indicates that previous counsel provided his entire file to new counsel months ago apart fromsome possible solicitor-client correspondence. Yet the defendant's complete non-compliance with its undertakings andthe cost order of Justice Morissette inexplicably continues.)
81 I am instead presented with a defendant that has wholly failed to comply with specific obligations arising pursuantto the Rules and a court order, provides no real explanation for the ongoing non-compliance, (let alone a reasonable one),and gives no indication as to when compliance might be expected. Moreover, all this takes place against the backdropof a litigation history suggesting the defendant's current failings are consistent with behavior demonstrated in the past,as far as its approach to this litigation is concerned.
82 In such circumstances, I think the balancing exercise described by the Court of Appeal requires denial of the rule37.14 relief requested by the defendant.
83 Pursuant to Rules 19.05 and 19.06, the plaintiffs still will be obliged to satisfy the court that the pleaded factsand evidence of damages support granting the relief requested. However, they should no longer be obstructed by thedefendant's failure to address its litigation obligations in a timely way.
Conclusion
84 For the above reasons, I therefore decline to set aside, vary or amend the order made by Justice Grace on April 3,2012, striking out the defendant corporation's defence and dismissing the defendant's counterclaim, with prejudice andwithout leave to file any further statement of defence or counterclaim. The defendant's motion in that regard is dismissed.
85 It follows that the defendant's supplemental notice of motion requesting a setting aside of the noting in defaultalso should be rejected.
Costs
86 Because my decision was reserved, the parties were unable to make any submissions regarding costs of thedefendant's motion. If the parties are unable to reach an agreement on costs in that regard:
a. the plaintiffs may serve and file written cost submissions, not to exceed four pages in length, (not including anybill of costs), within two weeks of the release of this decision;
b. the defendant then may serve and file responding written cost submissions, also not to exceed four pages in length,within two weeks of service of the Respondent's written cost submissions; and
c. the plaintiff then may serve and file, within one week of receiving any responding cost submissions from thedefendant, reply cost submissions not exceeding two pages in length.
87 If no written cost submissions are received within two weeks of the release of this decision, there shall be no costsof the motion.
Linda Wayne, Glenn Kiff and Jason Kiff o/a East Village Coffeehouse,Plaintiffs (Respondents) and 1690416 Ontario Inc., Defendant (Appellant)
Rosenberg J.A., MacPherson J.A., LaForme J.A.
Heard: February 19, 2013Judgment: February 20, 2013
Docket: CA C56126
Proceedings: affirming Wayne v. 1690416 Ontario Inc. (2012), 2012 ONSC 4861, 2012 CarswellOnt 11410 (Ont. S.C.J.)
Counsel: P. Wardle, E. Pleet, for AppellantJennifer Quick, for Respondents
Subject: Civil Practice and Procedure; Property
APPEAL by defendant from judgment reported at Wayne v. 1690416 Ontario Inc. (2012), 2012 ONSC 4861, 2012CarswellOnt 11410 (Ont. S.C.J.), upholding order setting aside statement of defence and dismissing counterclaim.
Per curiam:
1 The appellant appeals the order of Leach J. of the Superior Court of Justice dated September 18, 2012, upholdingan order setting aside the appellant's statement of defence and dismissing its counterclaim. The appellant appeals onthree grounds.
2 First, the appellant contends that the motion judge erred by interpreting Rule 37.14 in too strict a fashion by usingthe language "might have led to a different result" as a de facto test for the application of the Rule.
3 We disagree. The motion judge explicitly referred to the statutory language in Rule 37.14 which requires the balancingof the interests of the parties and depends on the evidence in each case. He then engaged comprehensively in preciselythis balancing exercise.
4 Second, the appellant contends that the motion judge erred by saying that the appellant's motion before him wasan improper collateral attack on the earlier Compliance Order of Morissette J.
5 We do not accept this submission. It was obvious that there would be a linkage between the motion before themotion judge and previous orders in this long-running action.
6 Finally, the appellant contends that in his balancing exercise the motion judge downplayed the short duration ofthe relevant delay by the appellant and ignored the fact that the appellant was self-represented at a crucial juncture.
7 We disagree. In our view, the motion judge's analysis of the relevant factors was comprehensive and persuasive.He stated his conclusion in this fashion at paras. 80-82:
In the case before me, I am not presented with a defendant guilty of "technical non-compliance", offering a"reasonable explanation" for failure to abide by obligations in the rules and court orders, based on "unexpected orunusual contingencies".
. . . . .
I am instead presented with a defendant that has wholly failed to comply with specific obligations arising pursuantto the Rules and a court order, provides no real explanation for the ongoing non-compliance, (let alone a reasonableone), and gives no indication as to when compliance might be expected. Moreover, all this takes place againstthe backdrop of a litigation history suggesting the defendant's current failings are consistent with behaviourdemonstrated in the past, as far as its approach to this litigation is concerned.
In such circumstances, I think the balancing exercise described by the Court of Appeal requires denial of the Rule37.14 relief requested by the defendant.
8 In our view, the record on the motion strongly supports this analysis and conclusion.
9 The appeal is dismissed. The respondent is entitled to its costs of the appeal fixed at $9000 inclusive of HST anddisbursements.
Attorney General of Ontario (Applicant / Respondent) and 15Johnswood Crescent et al. (Respondents / Moving Parties)
G.R. Strathy J.
Heard: August 19, 2009Judgment: September 24, 2009
Docket: 08-CV-359472-0000
Counsel: Clayton Ruby, Gerald Chan for Moving PartiesJames McKeachnie, Leslie Zamojc for Respondent
Subject: Civil Practice and Procedure; Criminal
G.R. Strathy J.:
1 This is a motion under Rule 37.14(1)(b) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, to set aside aninterlocutory preservation order made on August 20, 2008 (the "Order") under the Civil Remedies Act, 2001, S.O. 2001,c. 28 (the "Act"). This order froze the assets of Karen Yau Tai Chu and of her son, Danny Ka Kit Leung, until thehearing of the forfeiture application.
2 The motion was made on notice, but Ms. Chu failed to appear. She moved, some eight months later, to set asidethe Order. She claims that she did not appear at the hearing due to accident or mistake and that she moved to set asidethe Order as soon as she was financially able to do so.
3 Ms. Chu also claims that the Order was based on inadmissible double hearsay evidence and that the evidence didnot establish any specific connection between her property and the alleged unlawful activity. She says that the Order wasdisproportionate and not in the interests of justice.
4 For the reasons that follow, I have concluded that the Order should not be set aside.
Background
5 Section 3 of the Act provides that on the application of the Attorney General of Ontario ("A.G.") the court shallmake an order forfeiting property in Ontario that the court finds is proceeds of unlawful activity, except where it wouldclearly not be in the interests of justice to do so. Section 4 provides that the court may make an interlocutory orderrestraining the disposition of property and for the preservation of property. Subsection 4(2) directs that the court shallmake an interlocutory order, except where it would clearly not be in the interests of justice, where there are reasonablegrounds to believe that the property is proceeds of unlawful activity. Subsection 4(3) provides that such order may bemade on motion without notice for a period not exceeding 30 days and ss. 4(4) provides that a motion to extend theorder shall be made on notice to every party affected by the order, except if a party has been evading service or otherexceptional circumstances exist.
6 In Toronto, the practice has been for the A.G. to bring an initial ex parte motion for an interim preservation orderpursuant to s. 4 of the Act, returnable in 9:00 a.m. Triage Court. The motion to continue the order, either on notice or, in
Ontario (Attorney General) v. 15 Johnswood Crescent, 2009 CarswellOnt 5765
exceptional circumstances, without notice pursuant to s. 4(5), is sometimes brought in Triage Court as well: see Ontario(Attorney General) v. $17,247.10 in Canadian Currency (2008), [2009] O.J. No. 3459 (Ont. S.C.J.).
7 In this case, the application for forfeiture under the Act was commenced by the A.G. by notice of applicationfiled on July 24, 2008 and was returnable on January 28, 2009. In the application, the A.G. sought the forfeiture ofvarious properties and assets owned by Ms. Chu and her son. It was alleged that Ms. Chu was the "dispatcher" for anorganization involved in sending large-scale shipments of marijuana from Canada to various locations in the U.S.
8 Ms. Chu was arrested at her son's home in Richmond Hill, Ontario on July 24, 2008 and remained in custody untilher bail review application was allowed on January 29, 2009.
9 On July 25, 2008, the A.G. brought an ex parte motion under s. 4(3) of the Act for interim preservation for thirtydays, pending the hearing of a motion on notice. Wilton-Siegel J. granted the interim order, preserving properties andbank accounts owned by Ms. Chu and her son.
10 On August 8, 2008, Ms. Chu was personally served, while in a detention centre, with the motion to continuethe interim order. That motion was returnable on August 20, 2008. Ms. Chu admits having received the documents.She swears that she appreciated that they were legal documents, but says that she was unable to read them because shedid not have her reading glasses and was not fully literate in English. She contacted the office of her lawyers, LockyerCampbell Posner, and understood that they would attend to the matter. While her lawyer at the time has no recollectionof this contact, he does not deny it.
11 In the event, no one appeared on behalf of Ms. Chu and her son on August 20, 2008. Newbould J. made theOrder, granting interlocutory preservation of the property until the hearing of the forfeiture application. Ms. Chu wasalso ordered to provide the A.G. with written details of all her bank accounts, investments accounts, and real property,within 14 days of the Order.
12 On August 27, 2008, one week after the Order was made, a legal assistant with the Lockyer firm contacted counselfor the A.G. inquiring about bank accounts belonging to Ms. Chu that had been frozen by the Order.
13 About one week later, on September 5, 2008, the Lockyer firm provided counsel for the A.G. with an affidavitof Ms. Chu setting out her assets, as required by the Order. The covering letter stated: "Pursuant to the Civil Order asmade by the Honourable Mr. Justice Newbould dated August 20th, 2008 directing an accounting of Ms. Chu's assets,please find enclosed the affidavit of Ms. Chu."
14 Over the next two months, the Lockyer firm contacted counsel for the A.G. on five separate occasions to deal withvarious issues in connection with the forfeiture application.
15 Ms. Chu then retained Mr. Ruby's firm. On October 20, 2008, that firm contacted the A.G.'s office to advise thatthey had been retained by Ms. Chu and requested a status update. This was confirmed by letter the following day.
16 On October 31, 2008, Mr. Ruby's office requested particulars of service of the notice of motion in support of theOrder. On November 3, 2008, the affidavit of service was sent by the A.G.'s counsel to Mr. Ruby.
17 Over the next six months, counsel from Mr. Ruby's office communicated by letter or telephone with counsel for theA.G. on at least sixteen occasions concerning various issues in connection with the forfeiture application. On November12, 2008, Mr. Ruby wrote to counsel for the A.G. raising questions about the basis for a portion of the Order that haddirected the preservation of $568,000 in Canadian currency. On December 2, 2008, counsel for the A.G. replied that thefunds were the proceeds of sale of a property that had been owned by Ms. Chu. Further inquiries were made by Mr.Ruby's office on December 5, 2008.
18 On January 28, 2009, the forfeiture application itself was adjourned sine die on the consent of counsel for bothparties. No suggestion was made by Ms. Chu's lawyer at this time that the validity of the Order was in issue or that amotion would be brought to set aside the Order.
19 Ms. Chu was released on bail on January 29, 2009.
20 By March, 2009, Ms. Chu had sold two properties in Hong Kong, thereby obtaining money to fund her legaldefence. In April 2009, she instructed Mr. Ruby to attempt to lift the freeze on her properties and accounts in Ontario.
21 On April 22, 2009, Mr. Ruby's firm advised counsel for the A.G. that a motion would be brought to set aside theOrder. The notice of motion, dated July 17, 2009, was ultimately served, supported by affidavits sworn by Ms. Chu andby a legal assistant in her lawyer's office. Although the motion is brought on behalf of both Ms. Chu and her son, noaffidavit was filed on behalf of her son.
Submissions on behalf of Ms. Chu
22 Ms. Chu's submission on this motion has two related grounds. The first ground is procedural and goes to thequestion of whether the motion should be heard, given the passage of time since the Order was granted. Ms. Chu submitsthat she failed to appear on the motion due to mistake and that she has been unable to move to set aside the Order inthe interim because she was focusing her legal efforts on obtaining her release from custody and she lacked the financialmeans to bring a motion.
23 The second ground of Ms. Chu's submission goes to the underlying merits of the Order. Mr. Ruby submits thatthe evidence in support of the motion was fundamentally flawed in two respects. First, he submits that the evidence was"double hearsay" and inadmissible: Trus Joist (Western) Ltd. v. C.J.A., Local 1598, [1982] B.C.J. No. 87 (B.C. S.C.);British Columbia (Director of Civil Forfeiture) v. Angel Acres Recreation & Festival Property Ltd., [2009] B.C.J. No. 455(B.C. S.C.) at para. 161, Airst v. Airst, [1999] O.J. No. 5866 (Ont. C.A.) at para. 6; State Bank of India v. Navaratna,[2006] O.J. No. 1125 (Ont. S.C.J.) at para. 37. The only evidence filed in support of the A.G.'s motion was the affidavitof a law clerk in the Civil Remedies for Illicit Activities Office of the A.G., who deposed that she had reviewed materialsforwarded by the R.C.M.P., which had in turn referred to information provided by U.S. authorities. The "evidence"relied upon was the clerk's affidavit about the unsworn information received from RCMP officers, who were themselvesrepeating unsworn information they had received from U.S. investigators.
24 The second respect in which Mr. Ruby argues that the evidence was flawed is that it did not establish a link betweenthe property to be preserved and the alleged criminal activity of the owner: Ontario (Attorney General) v. Chatterjee,[2009] S.C.J. No. 19 (S.C.C.); British Columbia (Director of Civil Forfeiture) v. Angel Acres Recreation & Festival PropertyLtd., [2007] B.C.J. No. 2475 (B.C. S.C.); Ontario (Attorney General) v. Wheeler, [2005] O.J. No. 97 (Ont. S.C.J.); Ontario(Attorney General) v. Cuenca, [2009] O.J. No. 859 (Ont. S.C.J.). Mr. Ruby submits that, at its highest, the evidence onlyshows that there was unlawful activity, but there is no evidence that the properties and assets that are the object of theOrder are the proceeds of that activity or indeed of any criminal activity.
Submissions on behalf of the A.G.
25 The submission of counsel on behalf of the A.G. is that Ms. Chu has not established the essential requirementsof Rule 37.14(1)(b), i.e., that she failed to appear through "accident or mistake", and that she moved to set the Orderaside "forthwith" after it came to her attention. Ms. Zamojc on behalf of the A.G. submits that this is an attempt by Ms.Chu to relitigate the granting of the Order and that permitting her to do so would undermine the integrity of the judicialprocess: Toronto (City) v. C.U.P.E., Local 79, [2003] 3 S.C.R. 77, [2003] S.C.J. No. 64 (S.C.C.).
26 Counsel for the A.G. submits that in considering a request to "rehear" a motion, I should apply the test of whetherthere is new evidence that might probably have altered the order and that could not have been discovered sooner withreasonable diligence: Dmytrenko (Litigation guardian of) v. Vandenbor, [2009] O.J. No. 1473 (Ont. S.C.J.).
Discussion
Interpretation of Rule 37.14(1)(b)
27 The threshold question, addressed in the first ground of Ms. Chu's submission, is whether the court should hearthis motion. Rule 37.14(1) sets out the circumstances in which a party may move to set aside an order:
A party or other person who,
(a) is affected by an order obtained on motion without notice;
(b) fails to appear on a motion through accident, mistake or insufficient notice; or
(c) is affected by an order of a registrar, may move to set aside or vary the order, by a notice of motion that isserved forthwith after the order comes to the person's attention and names the first available hearing date thatis at least three days after service of the notice of motion.
(emphasis added)
28 Rule 37.14(2) provides that on such motion the court may set aside or vary the order on such terms as are just.
29 Before examining the factors that govern the exercise of the court's discretion in the application of this rule, itis appropriate to consider the purpose of the rule. The purpose of Rule 37.14(1)(b) is to prevent unfairness or, worse,a miscarriage of justice, where a party's inadvertence or the absence of sufficient notice has resulted in an order beingobtained without that party being afforded an opportunity to present his or her case. A party who does not appear inthese circumstances will usually be given a chance to present evidence and to argue the motion on its merits, assuminghe or she moves promptly and provided there are no countervailing considerations.
30 I do not accept the proposition advanced on behalf of the A.G. that the interpretation of the rule is necessarilygoverned by the line of cases dealing with motions to admit new evidence following the hearing of a motion or a trial.The moving party on a Rule 37.14(1) motion is not required to demonstrate that new evidence has been discovered. Noris a motion under this rule a matter of re-litigation. The rule is simply intended to give a party an opportunity to litigatea matter that was, through inadvertence, never dealt with by the court as a true lis. The purpose of the rule is to upholdthe fundamental principle of justice that the court should hear both sides of a case and to give effect to that principlewhere one party failed to appear through accident or mistake.
31 The approach to be followed in the application of Rule 37.14(1)(b) is informed by the oft-quoted observation ofMiddleton J. in Russell v. Osler (1921), 20 O.W.N. 178 (Ont. H.C.), at 179 -180:
It would not be wise to attempt to place any limitation upon the right of the Court to grant relief under Rule 499. Thequestion is one for the exercise of the sound discretion of the Court in each particular case; and where there is anyaccidental slip or omission or where there has been any miscarriage of justice by reason of misadventure or bungleor mistake upon the part of the litigant, the court will always be found ready to grant relief upon proper terms.
The reference to Rule 499 was to a provision in the rules of practice permitting a judgment at trial to be set aside whena party had not appeared.
32 Some guidance in the interpretation of the rule may be obtained from cases under rule 37.14(1)(c), dealing withmotions to set aside a registrar's administrative dismissal of an action. In Scaini v. Prochnicki, 85 O.R. (3d) 179, [2007]
O.J. No. 299 (Ont. C.A.), the registrar had dismissed an action because the plaintiff had failed to respond to a statusnotice. The plaintiff claimed that this had occurred as a result of his lawyer's inadvertence. The motion judge, relyingon the decision of Master Dash in Reid v. Dow Corning Corp. (2001), 11 C.P.C. (5th) 80 (Ont. Master), had held thatthe moving party had to meet four criteria:
(1) explanation of the litigation delay that resulted in the status notice;
(2) inadvertence in missing the deadline set out in the status notice;
(3) the motion must be brought promptly; and,
(4) there must be no prejudice to the defendant.
33 In Scaini, above, the Court of Appeal acknowledged that these were important factors, but rejected the suggestionthat a party seeking to set aside the registrar's order must establish all these factors. The Court of Appeal referred to the"guiding principle" in such cases as being a consideration of all relevant factors, with a view to balancing the interests ofthe parties. Goudge J.A., who delivered the judgment of the Court of Appeal, stated at paras. 23 - 25:
In my view, a contextual approach to this question is to be preferred to a rigid test requiring an appellant to satisfyeach one of a fixed set of criteria. The latter approach is not mandated by the jurisprudence. On the other hand,the applicable rules clearly point to the former. In particular, the motion to set aside the registrar's order dismissingthe action for delay engages rule 37.14(1)(c) and (2). The latter invites the court to make the order that is just in thecircumstances. A fixed formula like that applied by the motion judge is simply too inflexible to allow the court ineach case to reach the just result contemplated by the rules.
That is not to say that there are no criteria to guide the court. Indeed I view the criteria used by the motion judgeas likely to be of central importance in most cases. While there may be other relevant factors in any particular case,these will be the main ones. The key point is that the court consider and weigh all relevant factors to determine theorder that is just in the circumstances of the particular case.
It may be that in a particular case, one factor on which the appellant comes up short is of such importance that,taken together with the other factors, the appellant must fail. What is important is that the analysis be contextualto permit the court to make the order that is just.
34 It seems to me that the following factors should be considered and weighed in the exercise of the court's discretionin the application of Rule 37.14(1)(b):
(1) Proof of accident or mistake: The moving party must establish a failure to appear on the original motion throughaccident, mistake or insufficient notice. This is a precondition to relief under the rule. A party who has simply chosennot to appear on a motion cannot complain later if he or she does not like the outcome.
(2) The party must move forthwith after the order comes to his or her attention: This is also a precondition to reliefunder the rule, but there is room for flexibility in the interpretation of "forthwith", depending on the circumstances.I will examine this requirement in more detail below.
(3) The length of the delay and the reasons for it: In considering whether to set aside an order, the court will considerwhether there has been delay in bringing the motion and the reason for it. All other things being equal, the longeran order has been in effect, particularly where parties have acquired rights or changed their positions as a result ofthe order, the less likely it will be that the court will set it aside.
(4) The presence or absence of prejudice: The court should consider whether a party will be prejudiced by settingaside the order or by failing to set aside the order. There will always be prejudice if an order is made against a party
without sufficient notice and there will always be some kind of prejudice to the other party if the order is set aside.Nevertheless, the exercise of the court's discretion may require an examination of the relative prejudice to the parties.
(5) The underlying merits of the moving party's case: It may be necessary to consider the underlying merits of themoving party's case in weighing the various factors, balancing the interests of the parties, and determining what isjust in the circumstances. Lengthy delay in bringing the motion may be more readily forgiven if the moving partyhas a very strong case on the merits. It will be less readily forgiven if the party's case appears frivolous.
35 As Middleton J. said in Russell v. Osler above, it would be unwise to circumscribe the scope of the court's discretionand there may well be other factors that will come into play in a particular case.
36 I will now examine Ms. Chu's motion and evidence in light of these factors.
(1) Proof of Accident or Mistake
37 The evidence on "accident or mistake" is weakened by the absence of direct evidence from Mr. Lockyer's office.Ms. Chu's former lawyer simply stated, in a letter to her present counsel's firm, that he had "no recollection" of the eventsrelating to the August 20th 2008 motion. Considering that Ms. Chu's evidence amounts to saying "I told my lawyerabout the documents and I thought they were going to look after it", one would expect to have evidence from the lawyerhimself to show that he failed to appear through mistake or miscommunication with the client.
38 It is clear that the Lockyer firm became aware of the Order very soon after it was made and that the firm immediatelytook steps on behalf of Ms. Chu to comply with part of the Order. If the failure to respond to the motion was really theresult of accident or inadvertence, one would have expected - at a minimum - that her lawyer would have immediatelybrought this to the attention of counsel for the A.G. and would have signaled an intention to move to vary or set asidethe Order.
39 Notwithstanding the weakness of the evidence of "accident or mistake" in this case, I have concluded that it issufficient to require an examination of the other factors.
(2) The party must move "forthwith"
40 The more difficult issue in this case relates to the requirement of Rule 37.14(1) that the party must move "forthwithafter the order comes to the person's attention."
41 The requirement that a party must move "forthwith" reflects the importance of finality of court orders - a policythat goes to the integrity of the justice system. Confidence in the system is eroded if court orders are challenged longafter they have been made.
42 The "forthwith" requirement also reflects two common sense presumptions. The first buttresses the "accident ormistake" requirement. It is presumed that a party whose rights have been adversely affected by a mistake will raise animmediate protest. Thus, moving forthwith provides evidentiary support for the party's assertion of mistake.
43 The second common sense presumption is that a party who sits on his or her rights in the face of a court orderhas accepted the legitimacy of the order. A failure to move "forthwith" to set aside the order suggests that the party isprepared to let it stand.
44 The word "forthwith" means:
• "immediately;"
• "as soon as possible in the circumstances, the nature of the act to be done being taken into account;"
• "as promptly as is reasonably possible or practicable under the circumstances;" or
• "without any unreasonable delay, considering the objects of the rule and the circumstances of the case."
See: Beattie v. Ladouceur (1995), 23 O.R. (3d) 225 (Ont. Gen. Div.), at 228 -229; R. v. Parrot (1979), 27 O.R. (2d) 333(Ont. C.A.), at 339 -40.
45 These definitions suggest that a court considering the "forthwith" requirement must consider the purpose of therule itself, the purpose of the requirement for prompt action, the length of the delay, the reasons and circumstances ofthe delay, and all the surrounding circumstances of the case.
46 I accept that I have jurisdiction under either Rule 2.03 or Rule 3.02 to extend the time to move to set aside the orderor to dispense with the requirement that the party move "forthwith." Rule 2.03 states, "The court may, only where and asnecessary in the interest of justice, dispense with compliance with any rule at any time." [emphasis added] See: Ahmed v.Stefaniu, 72 O.R. (3d) 590, [2004] O.J. No. 3854 (Ont. S.C.J.). Rule 3.02 permits the court to extend any time prescribedby the Rules: Wellwood v. Ontario Provincial Police, [2009] O.J. No. 235 (Ont. Div. Ct.). See also Beattie v. Ladouceur(1995), 23 O.R. (3d) 225 (Ont. Gen. Div.); Thibault v. Haigh, [2002] B.C.J. No. 1385 (B.C. S.C.). The provisions areenabling - the exercise of the court's discretion in a particular case must be governed by the considerations I have setout in the preceding paragraph.
47 In this case, Ms. Chu clearly did not move immediately after the Order came to her attention. I must thereforeconsider the length of the delay and the reasons for it.
(3) Length of delay and reasons for it
48 In this case, there was a delay of almost eight months. Ms. Chu, through her lawyer, was aware of the Order withinone week after it was made in August, 2008. She did not take steps to bring this motion until nearly the end of April,2009. The stated reasons for the delay were her incarceration, during which her efforts were focused on obtaining bail(which occurred in late January, 2009), and her lack of finances. She says that all her funds were devoted to the seriouscriminal charges against her and that she could not afford to bring this motion until her properties in Hong Kong hadbeen sold, which occurred in March, 2009. In the meantime, she had paid almost $180,000 to her criminal lawyers inconnection with her efforts to obtain bail and for her defence of the criminal charges.
49 Ms. Chu was represented by experienced counsel throughout and there was never any suggestion by Mr. Lockyer'sfirm or Mr. Ruby's, in the eight months leading up to April 2009, that Ms. Chu intended to challenge the Order. Tothe extent there was correspondence between the A.G. and Ms. Chu's lawyers, it related primarily to the underlyingapplication. In early January, 2009, Mr. Ruby consented to the adjournment of the hearing of the forfeiture application,which had been scheduled for January 28, 2009. No suggestion was made that the validity of the interlocutory order wasin issue or that a motion would be brought to set it aside.
50 The delay in this case was substantial. The stated reason seems largely to be that Ms. Chu considered her criminalcharges to be more pressing than the civil proceedings in relation to her property.
51 I am not satisfied, however, that the costs of moving to set aside the Order would have been particularly substantialor that cost was a serious impediment to bringing a motion. In the first instance, nothing more would have been requiredthan a notice of motion and a short affidavit by Ms. Chu or her counsel explaining that the failure to appear wasinadvertent. The argument of the motion itself would not have been particularly lengthy.
(4) Presence or absence of prejudice
52 Neither party has put forward any specific evidence of prejudice that will be suffered in the event that the Order isor is not set aside. Ms. Chu has had access to other assets, outside Canada, which have been liquidated in order to fundthe defence of her criminal charges and this proceeding. There is no evidence that it is necessary for her to sell the real
property that is the subject to the freezing order. It appears to be her principal residence. The Order has been in effectfor over a year now, and no evidence of prejudice has been adduced.
53 The nature of the Order itself is relevant to the issue of prejudice. The Order is interlocutory only and is not a finaldetermination of Ms. Chu's rights in relation to her property. A hearing of the application has not yet been held and Ms.Chu will have a full opportunity to tender evidence and make submissions. The test for making a forfeiture order unders. 3 of the Act is that a court must find that the property "is proceeds of unlawful activity", a more stringent requirementthat the test for an interlocutory order under s. 4, which simply requires that the court must be satisfied that there are"reasonable grounds to believe that the property is proceeds of unlawful activity."
(5) The underlying merits of the moving party's case
54 In this case, there appears to be considerable merit to the submissions on behalf of Ms. Chu that much of theevidence in support of the Order was flawed and that the necessary nexus was not established between criminal activityand the property frozen. The merits might well tip the scale in a case in which a miscarriage of justice had occurred orwhere the responding party had obtained an order that was manifestly unjust. The merits might even tip the scale in acase where the delay was less extreme.
(6) Other circumstances
55 In this particular case, a circumstance that is particularly telling is that Ms. Chu has complied with a part of the Orderthat she now attacks. Without protesting in any way, and without reserving her rights, she provided a list containingdetails of her assets as required by the Order. A party who takes steps to comply with an order should generally beprecluded from subsequently challenging the validity of the order. The principle is expressed in Hewson v. Macdonald(1882), 32 U.C.C.P. 407, [1882] O.J. No. 235 (Ont. H.C.); per Wilson, C.J. at para 21:
... it is well settled, as a general rule, that a party who has an order made against him and takes a step in the cause insubmission to it, or who procures an order to be made under which he gets a benefit and takes that benefit, cannotafterwards move against the order.
56 While this is not an absolute rule, in the circumstances of this case the conduct of Ms. Chu and her lawyers raisesreal doubts about her assertion that she would have moved against the Order but for lack of funds.
Discussion of Factors
57 While Mr. Ruby makes a forceful argument that the Order should not have been made on the evidence beforethe court, it is not my function to sit in appeal from an order made by a judge of the Superior Court or to second guessanother judge's assessment of the evidence that was before him. If I was satisfied that a miscarriage of justice had occurredas a result of an accidental failure to appear and that the failure to move "forthwith" had been reasonably explained, thenthe merits of Ms. Chu's position would be an important consideration in excusing the delay and rehearing the matter onthe merits. In this case, the merits do not tip the scale.
58 Considering all the evidence, I am left with the conclusion that, even if the initial failure to appear was unintentional,the conduct of Ms. Chu and her lawyers thereafter demonstrated an acceptance of the Order and was inconsistent withan intention to challenge its validity. The lengthy time since the Order was made, Ms. Chu's compliance with part of theOrder, the failure of her lawyers to indicate that the validity of the Order was in question, and the absence of demonstratedprejudice cause me to conclude that the Order should not be set aside.
59 Ms. Chu will have an opportunity, in due course, to contest the application on the merits.
60 For these reasons, the motion is dismissed. If the parties are unable to agree on costs, the parties shall file writtensubmissions addressed to me in care of Judges' Administration. The submissions should be no more than three pages inlength, excluding the costs outline. The A.G.'s submissions shall be filed within ten days and counsel for Ms. Chu shallhave ten days within which to reply.
Robert Maurice, Applicant (Appellant) and Lorraine Alles, Diane Pomorski, CarolMacDonald, Donald Maurice, George Alles and Kirby-Maurice Company Limited
Lorraine Alles, Diane Pomorski, Carold MacDonald, and Donald Maurice,Applicants (Respondents) and Robert Maurice, Respondents (Respondents)
Gloria Epstein, K. van Rensburg, C.W. Hourigan JJ.A.
Heard: November 10, 2015Judgment: April 21, 2016
Docket: CA C60269
Proceedings: reversing Maurice v. Alles (2015), 2015 CarswellOnt 3320, 2015 ONSC 1671, L.A. Pattillo J. (Ont. S.C.J.[Commercial List])
Counsel: Peter Griffin, Nadia Campion, for AppellantRichard Worsfold, for Respondents
Subject: Civil Practice and Procedure; Contracts; Corporate and Commercial; Torts
APPEAL by RM from decision reported at Maurice v. Alles (2015), 2015 ONSC 1671, 2015 CarswellOnt 3320 (Ont.S.C.J. [Commercial List]), which dismissed oppression remedy claim.
C.W. Hourigan J.A.:
A. Overview
1 This appeal of the order of the motion judge dismissing an oppression remedy claim on a motion for summaryjudgment raises two issues. First, is summary judgment available in the context of an application as opposed to an action?Second, does the two-year limitation period in the Limitations Act, 2002, S.O. 2002, c. 24, apply to oppression remedyclaims and, in particular, to claims of ongoing oppressive conduct?
2 For the reasons that follow, I am of the view that a motion for summary judgment under Rule 20 is not available toadjudicate issues raised on an application under Rule 14 of the Rules of Civil Procedure unless the application is convertedinto an action. However, as I will go on to explain, the use of Rule 20 in the circumstances of this case was merely aprocedural defect and thus I would not interfere with the motion judge's decision on this basis.
3 An oppression remedy claim must be commenced within two years of the discovery of a potential claim. The allegedoppressive conduct in this case is not ongoing. However, where, as here, a party engages in conduct that is in furtheranceof, or based upon, earlier oppressive conduct, this is a new cause of action because it is new oppressive conduct.
4 For this reason, I conclude that the motion judge erred in dismissing the appellant's oppression claim as statutebarred. I would allow the appeal and order that the oppression remedy claim proceed as a trial.
5 The appellant and the individual respondents are siblings except for George Alles, who is the husband of LorraineAlles. Starting in the 1950s, their late father, Mr. Maurice, owned an interest in Television Antenna & Service Co.("Tasco") through his holding company Kirby-Maurice Company Limited ("Kirby-Maurice"). Marlba InvestmentsLimited ("Marlba") owned the land on which Tasco operated. Marlba, in turn, was owned equally by Kirby-Mauriceand another holding company owned by their father's business partner, Mike Sayer.
6 Mr. Maurice restructured Tasco in the late 1970s. He gave equal interests in Tasco to each of his six children andMr. Sayer's six children, preserving voting control for his family by causing the issuance of 54 percent of Tasco's votingpreferred shares to Kirby-Maurice.
7 In the early 1990s, litigation between the Maurice and Sayer families concerning Tasco and Marlba concluded with asettlement agreement that provided for the ownership structure of the two companies. It also specified that both familieswould enter into unanimous shareholder agreements ("USAs") to govern the business and affairs of each company. Theappellant and his siblings were parties to this settlement agreement.
8 Those USAs were never executed. The parties, however, governed themselves according to provisions set out in thesettlement agreement, which were to be contained in the USAs. Those provisions included a prohibition on the transferof shares in either Tasco or Marlba except between members of the same family, a shareholder's right to require thecorporation to repurchase their common shares for cancellation at fair value, and a right of first refusal with respect tothe shares sought to be repurchased by the corporation.
9 The Maurice siblings, who were each 20 percent owners of Kirby-Maurice, later entered into a USA concerningtheir interests in that company (the "Kirby-Maurice USA"). The Kirby-Maurice USA provided, among other things, fora share sale procedure. Critical to this appeal were provisions requiring a shareholder selling their shares in Tasco andMarlba to also sell, at a fair value to be determined by a valuator, his or her shares in Kirby-Maurice.
10 On May 13, 1996, the appellant exercised his right to sell his shares in Tasco and Marlba. In accordance withthe terms of the Kirby-Maurice USA, the appellant offered to sell his shares in Kirby-Maurice at the same time. Thesale of the appellant's shares in Tasco and Marlba did not close until March 23, 2007, almost 11 years after he firstexercised his right under the settlement agreement. When it did, the appellant received a total of $2,275,000 for his shares;$1,966,700 for his shares in Tasco and $308,300 for his shares in Marlba, based on the July 31, 2005 valuation completedby PricewaterhouseCoopers.
11 Negotiations between the respondents and a prospective purchaser ultimately led to Tasco and Marlbashareholders' (including the respondent siblings and Kirby-Maurice) receiving a letter of intent from a third party withan interest in acquiring their shares in June 2007. The appellant, who was no longer a shareholder of Tasco or Marlba,first learned of the potential purchase in October 2007. He expressed his view that Kirby-Maurice's 54 percent of thevoting preferred shares in Tasco should fetch a premium given that they represented control of the company.
12 In the meantime, although he had offered his shares in Kirby-Maurice for sale, the appellant remained a shareholderand director of Kirby-Maurice. He received notice of a Kirby-Maurice shareholders' meeting scheduled for July 25, 2008to discuss a proposed sale of Kirby-Maurice's shares in Tasco and Marlba. At the meeting, the appellant was advisedof the following: his siblings had sold their shares in Tasco and Marlba; the purchaser was a numbered company; theowner of that company was unknown; Kirby-Maurice's preferred shares in Tasco were being sold for redemption at facevalue; and Kirby-Maurice's nominees to Tasco and Marlba's boards of directors were resigning.
13 The appellant opposed the sale. He argued that proceeding without the unanimous consent of the shareholderswould breach the Kirby-Maurice USA and that his siblings should obtain a valuation before selling their shares in Tasco
Maurice v. Alles, 2016 ONCA 287, 2016 CarswellOnt 6094
and Marlba. After the appellant left the meeting, his siblings approved the sale of Kirby-Maurice's shares in Tasco andMarlba.
14 Since the meeting of July 25, 2008, the appellant has requested a valuation of his shares in Kirby-Maurice and, onnumerous occasions, requested information relating to how Kirby-Maurice's preferred shares in Tasco were valued forthe purposes of their sale. These requests have been either ignored or refused by his siblings.
15 In 2013, the appellant's siblings brought an application for the appointment of a valuator to value the issued andoutstanding shares of Kirby-Maurice. The appellant commenced a cross-application against his siblings, George Alles,and Kirby-Maurice, alleging breach of both the settlement agreement and the Kirby-Maurice USA, and seeking reliefunder the oppression remedy section of the Business Corporations Act, R.S.O. 1990, c. B.16 ("OBCA") arising out of thesale of Kirby-Maurice's shares in Tasco and Marlba.
16 In 2014, the appellant received a copy of the share purchase agreement for the sale of the respondents' and Kirby-Maurice's shares in Tasco and Marlba, dated August 1, 2008, as part of the respondents' disclosure. The appellant alsolearned the following:
• negotiations over the sale lasted more than a year;
• the purchase price increased over the course of the negotiations;
• each sibling shareholder received $2,980,025 for their shares in Tasco and Marlba; and
• the issue whether Kirby-Maurice's preferred shares in Tasco should be valued at more than face value wasconsidered.
C. Decision Below
17 Pursuant to an order of Newbould J., dated October 1, 2013, the cross-application was to be determined as a mini-trial before the application to appoint a valuator. The respondents brought a motion for summary judgment to dismissthe claims in the cross-application as being statute barred and for the valuator's appointment. The appellant brought amotion requiring the respondents to reimburse Kirby-Maurice for legal fees the corporation paid on the respondents'behalf in connection with the ongoing disputes with the appellant from 2008 onward.
18 On the motion and cross-motion, the respondents argued that the appellant's claims all related to the sale byKirby-Maurice of its shares in Tasco. The respondents argued that the appellant discovered the claims as of July 25,2008, the date of the shareholder's meeting when the appellant learned of the respondents' sales of their own shares andthe proposed sale of Kirby-Maurice's shares in Tasco and Marlba. As the cross-application was commenced more thantwo years after the claims were discovered, the claims were out of time. The appellant argued that his claims were notbarred since the oppressive conduct was ongoing.
19 With respect to the appellant's claims for breach of the settlement agreement and the Kirby-Maurice USA, themotion judge found that the appellant was aware of these breaches as of July 25, 2008. Accordingly, he held that thebreach of contract claims were statute barred.
20 The motion judge found that the appellant was similarly aware of the facts giving rise to the oppression claimsrelated to the Kirby-Maurice USA as of July 25, 2008. Consequently, those claims were also statute barred. At para. 54of his reasons, the motion judge relied on Fracassi v. Cascioli, 2011 ONSC 178 (Ont. S.C.J. [Commercial List]), for theproposition that "pursuant to the Limitations Act, the applicable limitation period for an oppression claim begins twoyears after the day on which the claim for oppression was discovered."
21 The motion judge held that even if the oppression is ongoing, "such continuation does not operate to extend thelimitation period beyond the time of two years from discovery." In this regard, the motion judge distinguished Waxman
v. Waxman (2004), 186 O.A.C. 201 (Ont. C.A.), leave to appeal refused, (2005), [2004] S.C.C.A. No. 291 (S.C.C.) andMetcalfe v. Anobile, 2010 ONSC 5087, 77 B.L.R. (4th) 293 (Ont. S.C.J.) , on the basis that, while those cases referred tothe ongoing nature of the conduct to defeat a limitation period, "it is discoverability that is the key factor in determiningwhen the limitation period begins to run."
22 As the appellant only learned of his oppression claim for legal fees paid by Kirby-Maurice through informationproduced by the respondents in 2014, the motion judge held that this claim was not statute barred. However, this paymentof legal fees by Kirby-Maurice would only be oppressive to the appellant if Kirby-Maurice did not have sufficient fundsto purchase the appellant's shares at the price determined by the valuator. The motion judge granted the respondents'motion for the valuator's appointment.
D. Issues
23 Although the notice of appeal referenced the dismissal of the appellant's breach of contract and oppression remedyclaims, the appellant limited his argument in both his factum and oral submissions to the dismissal of the oppressionremedy claim. For the purposes of the appeal, therefore, the issues to be determined are whether the motion judge erred in:
(i) granting summary judgment in the context of an application; and
(ii) finding that the limitation period applicable to the appellant's oppression remedy claim had expired.
E. Analysis
(i) Summary Judgment in an Application
24 Counsel for the appellant raised with the panel at the hearing of the appeal the issue of whether a motion forsummary judgment is an available procedure in the context of an application. He admitted that this was an issue thatcame to him shortly before the hearing of the appeal and that it was not raised before the motion judge or in the materialsoriginally filed on this appeal.
25 Generally, a party who has participated in a process in the court below without complaint cannot object to thatprocess on appeal: Harris v. Leikin Group Inc., 2014 ONCA 479, 120 O.R. (3d) 508 (Ont. C.A.), at para. 53; see alsoMarshall v. Watson Wyatt & Co. (2002), 57 O.R. (3d) 813 (Ont. C.A.), at paras. 14-15. I nonetheless think it is importantto address the issue of the availability of a summary judgment motion on an application under Rule 14, especially giventhe increased prevalence and importance of summary judgment motions since the Supreme Court of Canada's decisionin Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87 (S.C.C.).
26 The parties have brought one relevant decision to our attention. In Essex Condominium Corp. No. 5 v. Rose-villeCommunity Center Assn. (2007), 51 C.P.C. (6th) 89 (Ont. S.C.J.), Pomerance J. held that summary judgment was notavailable in the context of an application to wind up a corporation under the Corporations Act, R.S.O. 1990, c. C.38.
27 Similarly, in Ravikovich v. College of Physicians & Surgeons (Ontario), 2010 CarswellOnt 6643 (Ont. Div. Ct.),Ferrier J. concluded that summary judgment is not available in a judicial review application because the remedy is onlyavailable for actions and an action is a proceeding that is not an application.
28 I agree with the analysis of the issue in both cases, although I reach a different result on the facts of this case.
29 The starting point in the analysis is the language of Rule 20. It is clear that the rule contemplates that it will be usedin the context of an action and not an application. The rule specifies that a motion for summary judgment is availableto a "plaintiff" after the delivery of the "statement of defence" on all or part of the claim in the "statement of claim".Similarly, a "defendant" may move for summary judgment to dismiss all or part of the claim in the "statement of claim".
30 The emphasized terms are defined in r. 1.03 and it is plain that they apply in the context of an action and not anapplication. A plaintiff is defined as "a person who commences an action" and a defendant is "a person against whoman action is commenced". An action is a proceeding that is not an application and includes a proceeding commencedby, among other things, a statement of claim.
31 There is no reference in the text of Rule 20 to an "applicant", who is defined in r. 1.03 as "a person who makes anapplication" or to a "respondent" who is defined in r. 1.03 as "a person against whom an application is made or an appealis brought, as the circumstances require". Nor does the summary judgment rule mention a "notice of application", whichis the originating process for an application.
32 The drafters of the summary judgment rule made a deliberate choice to restrict its availability to actions. Thereis a valid policy rationale for this restriction. Summary judgment is a simplified procedure, designed to determine all orpart of an action in a summary manner, in order to reduce expense and preserve court resources. An application is alsoa summary process. Its use is restricted, pursuant to r. 14.05(3), to situations where an application is permitted underthe Rules or in cases where certain enumerated relief is claimed. Evidence is generally supplied through affidavits andcross-examinations conducted out of court. Where there is conflicting evidence that requires credibility determinationson central issues, the application must be converted to an action: see Baker v. Chrysler Canada Ltd. (1998), 38 O.R. (3d)729 (Ont. Gen. Div.). If a proceeding is capable of being resolved as an application, it should be, as that is the mostexpeditious and least expensive determination of the proceeding on its merits. There is no utility in layering on to thissummary process another summary process.
33 This is not a situation, as the respondents submit, where there is a lacuna in the Rules and the court is requiredto utilize r. 1.04 to interpret Rule 20 as if it applied to applications under Rule 14. Rule 38.10(1)(b) empowers a judgeto order that all or part of an application proceed to trial. Pursuant to rr. 38.10(2) and (3), where the application judgeorders that all or part of an application should proceed to trial, the proceeding is thereafter treated as an action in respectof the issues to be tried subject to the directions in the order directing a trial. The practical effect of r. 38.10 is that thesummary judgment vehicle in Rule 20 will be available to resolve the issues in a Rule 14 application after the applicationis converted by judicial order into an action.
34 With this analysis in mind, I turn to a consideration of whether the summary judgment rule was available to theparties and the court below. Newbould J. made an order that the claims of oppression and breach of contract should bedetermined through a mini-trial. Although Newbould J.'s order did not explicitly direct that the application proceed totrial, he had authority to make such an order pursuant to r. 38.l0(1)(b).
35 Considering that neither party objected to the use of the summary judgment procedure and that both fullyparticipated in the motion, any error in disposing of the limitation period issue by way of a motion for summary judgmentwas merely a procedural defect that caused no prejudice to the parties. Thus, I would not interfere with the motion judge'sdecision on the procedural basis raised by the appellant in oral argument.
(ii) Limitation Period
(a) Positions of the Parties
36 There is a division in the case law regarding the applicability of the general two-year limitation period prescribedby s. 4 of the Limitations Act, 2002, to cases of ongoing oppression. The positions of the parties on this appeal reflectthis division.
37 The appellant submits that in the Waxman and Metcalfe decisions referenced above, the courts recognized a judge'sremedial discretion to permit a claim commenced more than two years after its discovery if there is an "ongoing factsituation" of continuing oppressive conduct.
38 In Waxman, this court affirmed the trial judge's decision to allow an oppression claim to proceed even though theplaintiff was aware of the facts giving rise to at least some of the claims many years before he commenced his action.Notwithstanding that knowledge, the court found, at para. 536, that "[t]he trial judge exercised her discretion to applyher broad remedial authority to the pattern of oppressive conduct that started in 1979. In doing so she neither abusedher discretion nor ran afoul of any legislative limitation period."
39 In Metcalfe, a case distinguished by the motion judge with facts very similar to the present appeal, the applicantcommenced an oppression application on August 7, 2008, more than five years after he began seeking information abouthis shareholdings. Citing Waxman , the court held that no statutory limitation period was applicable and, in any event,the claim was not statute barred as the oppression continued until at least March 5, 2007 when the applicant finallyobtained some of the information he sought.
40 The respondents submit that Waxman is distinguishable on the basis that it was decided under the former LimitationsAct, R.S.O. 1990, c. L.15. According to this court's decision in Joseph v. Paramount Canada's Wonderland, 2008 ONCA469, 90 O.R. (3d) 401 (Ont. C.A.), the common law discretion to extend a limitation period by applying the doctrineof special circumstances no longer exists under the new legislation. Rather, s. 4 makes clear that a two-year limitationperiod applies unless the Limitations Act, 2002, provides otherwise.
41 Pepall J. followed the Joseph decision in Fracassi. Having found that oppression claims are caught by the two-year limitation period under the Limitations Act, 2002, Pepall J. concluded that the limitation defence asserted by thedefendants succeeded in part. She also found that limitation periods apply to ongoing oppressive conduct, reasoningthat limitation periods begin when the cause of action arises, not when it is remedied, at para. 273.
42 The respondents cite a number of Ontario Superior Court decisions where Fracassi has been followed: Reinhart v.VIXS Systems Inc., 2011 ONSC 5349 (Ont. S.C.J.), Paul v. 1433295 Ontario Ltd., 2013 ONSC 7002, 120 O.R. (3d) 339(Ont. S.C.J.), rev'd on other grounds 2015 ONSC 3588 (Ont. Div. Ct.), Sterling Waterhouse Inc. v. LMC EndocrinologyCentres (Toronto) Ltd., 2015 ONSC 3987 (Ont. S.C.J.), rev'd on other grounds 2015 ONCA 645 (Ont. C.A.), and SolarHarvest Co. v. Dominion Citrus Ltd., 2015 ONSC 1315, 39 B.L.R. (5th) 141 (Ont. S.C.J. [Commercial List]). In all ofthose cases, the courts held that the two-year limitation period applies to oppression remedy claims under the OBCA.
(b) Applicable Limitation Period
43 In my view, an oppression remedy claim under the OBCA is subject to the general two-year limitation periodprescribed by s. 4 of the Limitations Act, 2002. Oppression is not listed under s. 16 as a claim to which no limitationperiod applies, nor is it exempted under s. 19 of the legislation. Special circumstances are also not available to extendthe limitation period.
44 In the present case, the respondents' act of selling their common shares in Tasco and Marlba would not qualify asoppressive conduct per se. The potential oppressive conduct that arises from this transaction is twofold. The first is thefailure of the respondents to provide the appellant with the requested information regarding the transaction. Second, thetransaction itself may qualify as actionable oppression if it adversely impacted the value of the appellant's shareholdingin Kirby-Maurice.
45 The appellant had knowledge in July 2008 that the respondents were selling their common shares in Tasco andMarlba, that the Tasco preferred shares held by Kirby-Maurice would be sold for redemption at face value ($1.20 pershare), and that the respondents were not disclosing the information regarding the valuation of their shares and anypotential impact of the sale on the value of the appellant's shares in Kirby-Maurice.
46 The appellant had an obligation to commence a claim based on the respondents' failure to produce the informationregarding the share transaction within two years of his discovery that they would not produce it to him. It is not opento this court, as was suggested by the appellant, to look behind his non-action and excuse it based on the fact that this
was a family business or that he had a reasonable expectation that the information would eventually be produced. Suchan approach would effectively mark the return of the special circumstances doctrine, which has no application underthe current limitations regime.
47 Had the appellant taken steps pursuant to the oppression remedy to protect his rights based on the non-disclosure,he would have also been in a position to determine whether he had a potential claim with respect to the respondents'share sale. He then could have potentially commenced a claim seeking compensation or other related relief.
48 I am also of the view that this is not a case where there is ongoing oppressive conduct. The sale was a singular eventthat occurred many years ago. The refusal to produce documents was made known to the appellant in 2008. It is truethat no production was made until this proceeding was commenced, but the continuous refusal to produce documentsdoes not operate to extend the limitation period any more than a refusal to pay an outstanding amount in a collectionaction extends the limitation period until payment is received. As previously mentioned, limitation periods begin whenthe cause of action arises, not when it is remedied: Fracassi, at para. 273.
49 Courts must be careful not to convert singular oppressive acts into ongoing oppression claims in an effort to extendlimitation periods. To do so would create a special rule for oppression remedy claims.
50 Despite the foregoing, in my view, the motion judge erred in law in concluding that the appellant's oppressionclaim was out of time. Another discrete potentially oppressive act occurred when the respondent siblings commencedtheir application on May 13, 2013 for an order appointing a valuator to determine the fair value of the appellant's sharesin Kirby-Maurice.
51 In that application, there was no reference to the circumstances surrounding the disposal of the Tasco preferredshares and what impact it had on the value of the appellant's Kirby-Maurice shares. Nor was there any production ofthe documents related to the share sale until they were produced as part of the respondents' disclosure on the cross-application following the decision of Newbould J. The sibling respondents were in effect seeking a valuation process andpayout to the appellant that did not take into account their earlier alleged oppressive conduct.
52 A party that engages in a series of oppressive acts can always make the argument that it is all part of the samecorporate malfeasance and that the limitation period begins to run with the discovery of the first oppressive act. Inanalyzing that conduct, courts must have regard to the remedial nature of the oppression remedy and the fact that anythreatened or actual conduct that is oppressive, or unfairly prejudicial to, or unfairly disregards the interests of anycomplainant can constitute a discrete claim of oppression. The oppression remedy section of the OBCA is drafted in thebroadest possible terms to respond to the broadest range of corporate malfeasance.
53 Where the motion judge erred was in failing to carefully scrutinize the respondents' conduct to determinewhether there were any discrete acts of oppression within the two-year period prior to the commencement of the cross-application. In my view, the sibling respondents committed a new act of alleged oppressive conduct when they broughttheir application and attempted to rely upon their previous alleged oppressive conduct as part of the share valuation.
54 The practical effect of the motion judge's reasoning is that where a party is alleged to have acted in an oppressivemanner and no oppression remedy application is commenced as a consequence, he or she is free to take additionaloppressive steps in furtherance of, or based upon, the initial oppressive conduct. That reasoning is contrary to the broadpurposive interpretation that must be afforded this statutory cause of action: see BCE Inc., Re, 2008 SCC 69, [2008] 3S.C.R. 560 (S.C.C.), at para. 58; Rea v. Wildeboer, 2015 ONCA 373, 126 O.R. (3d) 178 (Ont. C.A.), at para. 33; andUnique Broadband Systems Inc., Re, 2014 ONCA 538, 121 O.R. (3d) 81 (Ont. C.A.), at para. 107.
55 The value of the Tasco preferred shares is central to the valuation of the appellant's shares in Kirby-Maurice.The determination of the oppression allegations is an important part of the valuation process and that is why NewbouldJ. ordered a mini-trial on those allegations. In order to determine whether there is actionable oppression, the court isrequired to analyze whether there was oppression as a consequence of the respondents' share sale and, if so, whether
there is oppression now by reason of the respondents' reliance on their previous misconduct. Therefore, the motion judgeerred in dismissing the oppression remedy claim as statute barred.
F. Disposition
56 I would allow the appeal and set aside the order for summary judgment dismissing the appellant's oppressionremedy claim. I would direct that the parties proceed to a trial on the allegation that the share sale transaction executedby the respondents was oppressive, or unfairly prejudicial to, or unfairly disregarded the appellant's interest in obtainingfair value for his shares in Kirby-Maurice. This trial shall be determined prior to the valuation of the appellant's sharesin Kirby-Maurice.
57 After the hearing of the appeal, the parties advised that they have reached an agreement on costs, which they willprovide to the court once our decision has been rendered. They may do so now.
Russell G. V. Paul and Doreen G. Downs Paul (Plaintiffs /Respondents) and William V. Sasso, Sutts, Strosberg LLP, BenLansink and Lansink Appraisals and Consulting (also known as
Wellington Realty Group Inc.) (Defendants / Moving Parties)
Lansink Appraisals and Consulting (also known as Wellington Realty Group Inc.) (Plaintiff by Counterclaim)and Russell G. V. Paul and Doreen G. Downs Paul (Defendants by Counterclaim / Respondents)
S.F. Dunphy J.
Heard: November 14, 2016Judgment: December 1, 2016
Docket: CV-15-522279
Counsel: Roger Horst, for Moving Party Defendants / Plaintiff by Counterclaim, Ben Lansink and Lansink Appraisalsand Consulting Inc.Russell G. V. Paul, Doreen G. Downs Paul, for themselves
Subject: Civil Practice and Procedure; Evidence; Property; Public; Torts
MOTION by appraiser and his company for summary judgment to dismiss negligence claim and for summary judgmenton counterclaim.
S.F. Dunphy J.:
1 Does the immunity our courts extend to witnesses as regards their testimony in court extend to a suit against aparty's own expert witness?
2 The moving party defendants, Mr. Ben Lansink and his company Wellington Realty Group Inc. (operating as"Lansink Appraisals and Consulting") have brought this motion for summary judgment to dismiss the negligence claimbrought against them by the plaintiffs. The plaintiffs claim that Mr. Lansink breached his professional duties to them inproviding expert evidence at a trial. The trial judge considered but ultimately rejected substantially all of Mr. Lansink'sconclusions regarding the valuation of the plaintiffs' shares and made adverse comments regarding his lack of objectivity.The moving parties are asking me to dismiss the action in light of their claimed witness immunity. Wellington is alsoseeking summary judgment in respect of outstanding invoices totaling $24,086.81 in regards to Mr. Lansink's testimonyat trial.
3 For the reasons that follow, I am allowing the motion in part and dismissing it in part. The central thrust of themoving parties' position — that as witnesses they are entitled to immunity for their testimony - is well-founded in myview. The immunity of witnesses in Ontario has been accepted by for important reasons of public policy. I can find noprincipled reason to depart from that policy in the case of a plaintiff suing his or her own expert witness. The plaintiff'sunhappiness with the verdict at trial notwithstanding, the question of the value of the plaintiffs' shares has now beendetermined and cannot be changed except by way of a properly constituted appeal.
Paul v. Sasso, 2016 ONSC 7488, 2016 CarswellOnt 18862
4 However, while I would dismiss the plaintiffs' claim as against the moving parties, I cannot grant the moving party'scounterclaim. None of the public policy constraints that have led to the immunity of witnesses in a proceeding applies topermit those witnesses to enforce their own contractual claims for payment despite claimed breaches of duty. The publicpolicy in favour of immunity is sufficiently vindicated by recognizing the inability to pursue witnesses for consequentialdamages and need not be extended to prohibit a defendant from pleading services were negligently rendered in responseto a claim brought for payment of services by a witness. In my view, the plaintiffs have raised triable issues in respectof the counterclaim at least.
Overview of facts
5 The plaintiffs were shareholders in a company known as 1433295 Ontario Limited. In that capacity they brought aclaim against 1433295 and its majority shareholder invoking, among other things, their dissent and appraisal rights. Thecentral issue in the claim was the value of the plaintiff's shares in 1433295, itself a company owning and operating a hotel.
6 The background to that prior proceeding was reviewed by the Divisional Court in Paul v. 1433295 Ontario Ltd.,2015 ONSC 3588 (Ont. Div. Ct.) (CanLII) as well as in the trial decision of Nolan J. is to be found at Paul v. 1433295Ontario Ltd., 2013 ONSC 7002 (Ont. Div. Ct.) (CanLII). I shall not repeat it here.
7 The plaintiffs (sometimes hereafter referred to as "the Pauls") retained Mr. Lansink and his company Wellingtonon December 11, 2011 to provide expert evidence for purposes of the trial. The retainer agreement is contained in aseries of emails exchanged between the Pauls, Mr. Lansink and the Paul's lawyer for the litigation, Mr. Sasso. The emailexchange by which Mr. Lansink and Wellington were retained makes no mention of the defendant by counterclaim TCBRealty Ltd. as being a client.
8 Two reports were produced by the moving parties: an "Appraisal Report and Technical Review, RetrospectiveMarket Value Estimate as of March 18, 2008 for the real property 17 Cumberland Street North, Community of PortArthur, Municipality of Thunder Bay, Ontario" dated February 24, 2012 and "Technical Review Report of a reportauthored by Stefania D'Antonio and Monique Rosszell" dated February 2, 2013. In essence, the first report representedMr. Lansink's own appraisal of the property and business while the second report contained Mr. Lansink's commentaryon the report produced by 1433295's experts. Both reports specifically identify the "Client" as being Mr. Sasso and thePauls. Neither report identifies TCB as a client.
9 The trial was heard by Nolan J. over a total of 13 days between February 19 and May 27, 2013. Mr. Paul gave his ownevidence of value of the hotel business in addition to three other experts (including Mr. Lansink). Nolan J. commentedon the valuation evidence before her as follows in her reasons for judgment (at paras. 55 and 56):
"[55] The court was presented with three different opinions of value of the Hotel as of Valuation Day prepared byexperts qualified to give such opinions. Every valuation used either an income approach or combined income andmarket comparison approach. As referred to earlier in this judgment, Mr. Paul prepared his own valuation of theHotel even though he is not a qualified appraiser. In my view, it was presumptuous of him to take that approachto providing the court with evidence required to determine a proper share valuation. His report was not helpfuland the presentation of his "opinions" resulted in a considerable waste of court time, both in terms of direct andcross-examinations. While Mr. Paul is an experienced real estate broker who has considerable knowledge about thebuying and selling of hotels, his views as an interested party are of no value to the court. The fact that he assignedthe highest value to the Hotel was not surprising, given his interest in the outcome.
[56] Mr. Paul's presentation of a report had another unfortunate result. His own expert, Mr. Lansink, made referenceto various aspects of Mr. Paul's "findings" in his technical report prepared to respond to the defendants' experts'reports to rebut their opinions. In doing so, it brought Mr. Lansink's objectivity into serious question."
10 The Paul's were not successful at trial. The value of the shares found by Nolan J. was, with minor adjustments, theamount determined by the defendants' experts. Mr. Lansink had suggested a global value of $6.14 million; Ms. Rosszellsuggested $4.2 million while PKF Consulting (Mr. Stanford and Mr. Raymer) suggested $4.1 million, the latter numberbeing the one accepted by Nolan J. Mr. Paul's figure had been considerably higher ($8.0 million).
11 In the present proceeding, the plaintiffs complain that as lay people they did not know or appreciate that theirparticipation in the appraisal process would invalidate the testimony of Mr. Lansink. Mr. Lansink and Wellington aresaid to have been negligent and to have breached the terms of their engagement as well as the terms of the CanadianUniform Standards of Professional Appraisal Practice in failing to provide an unbiased and professional technical reviewreport. Mr. Lansink was also alleged to have lied to the trial judge about the extent of his discussions with the plaintiffs,an entirely extraneous allegation to which I shall return in more detail below. The damages sought from Mr. Lansinkand Wellington are $506,000 almost all of which represents the difference between the share value as found by Nolan J.and the value ascribed to those same shares by Mr. Lansink in his expert report.
12 The statement of claim also makes allegations about Mr. Sasso and his firm that are not before me on this motion.My conclusions on this motion apply solely to the parties to the motion being Mr. Lansink and Wellington as movingparties and the Pauls and TCB as responding parties.
Issues to be decided
13 Are the moving parties entitled to claim the benefit of witness immunity as against their own client?
14 Should the counterclaim for the professional fees of the plaintiff by counterclaim be allowed?
Discussion and analysis
(a) Are the moving parties entitled to claim the benefit of witness immunity as against their own client?
15 In my view, the moving parties are entitled to a dismissal of the claim as against them.
16 Our courts have long held as a fundamental principle that witnesses and parties are entitled to absolute immunityfrom subsequent liability for their testimony in judicial proceedings since the proper administration of justice requiresthe full and free participation of witnesses unhindered by fear of retaliatory suits: Reynolds v. Smith, 2007 ONCA 166(Ont. C.A.) (CanLII), (2007), 84 O.R. (3d) 738 (Ont. C.A.) at para. 14. The privilege extends to evidence orally or inwriting, it includes documents properly used and regularly prepared for use in the proceedings and is not limited todefamation actions but extends to any action, however framed: Samuel Manu-Tech Inc. v. Redipac Recycling Corp. [1999CarswellOnt 2764 (Ont. C.A.)], 1999 CanLII 3776 at paras. 19-20 and Salasel v. Cuthbertson, 2015 ONCA 115 (Ont.C.A.) (CanLII). The privilege has been applied in particular to expert reports and evidence given based upon the reportat trial: Fabian v. Margulies [1985 CarswellOnt 1632 (Ont. C.A.)], 1985 CanLII 2063.
17 I can see no principled reason why the privilege should be confined to adverse witnesses. The policy of the commonlaw to ensure that all witnesses are able to give their evidence free of fear of retaliatory law suits is not diminished whenconsidered from the perspective of a party's own expert witness. To the contrary, the very strong policy of the commonlaw has been that a party's own expert must be objective and not become a "hired gun". Rule 53.03(2.1) of the Rules ofCivil Procedure requires an expert to certify his or her understanding of the duties of an expert.
18 The harm that could follow from allowing parties to pursue their own experts for alleged breaches is amplyillustrated by the facts of this case. Nolan J. has made a binding determination of the value of the shares of 1433295formerly owned by the plaintiffs. That decision is binding upon them and has not been set aside or reversed on appeal.Substantially the entire subject matter of the plaintiff's case amounts to a de facto appeal of the decision of Nolan J.The damages sought are based on the value of the shares not found by Nolan J. and the costs to the plaintiff of thatunsuccessful litigation. Nolan J. had the issue of value before her and weighed the testimony of all of the witnesses.
Her determinations bind the plaintiffs and cannot be questioned through the back door by means of a subsequent civilsuit. The principle of finality strongly supports the application of the common law immunity in this case. The questionof what the result would have been if Mr. Lansink had been accepted as fully independent can neither be asked noranswered in another proceeding.
19 This finding does not mean that the question of whether Mr. Lansink's alleged breach of contract and of duty to befully independent is not justiciable. As shall be seen below, I have concluded that the alleged breach of contract and dutymay well sustain a defence to the counterclaim in this case. It does not follow that Mr. Lansink's immunity from civil suitconfers upon him a question-free right to be paid for his services in all circumstances. However, the immunity principledoes mean that damages claims that are directly or indirectly premised upon the results of the trial before Nolan J. andwhat might have been had it gone otherwise cannot proceed. Since the claim against Mr. Lansink and Wellington in theplaintiffs' action is based upon that premise, the claim cannot succeed and these two defendants are entitled to judgmentreleasing them from the action to that extent at least.
20 Accordingly, I find that the moving parties Mr. Lansink and Wellington are entitled to judgment dismissing theaction as against them.
(b) Should the counterclaim for the professional fees of the plaintiff by counterclaim be allowed?
21 The counterclaim has been brought by the defendant Wellington Realty Group Inc. carrying on business as LansinkAppraisals. The named defendants by counterclaim are Mr. Russell Paul, Ms. Doreen Downs Paul and their companyTCB Realty Ltd. Wellington seeks the payment of $24,086.81 being the amount of certain invoices delivered but notpaid in respect of Mr. Lansink's services.
22 The counterclaim alleges that the defendants contracted with the Pauls and TCB to perform the appraisal workrepresented on the invoices. The defence to the counterclaim admits that Wellington "was retained by the Pauls" a termdefined to mean the two individual defendants by counterclaim and the corporation TCB. However, the defence alsospecifically denied that TCB "is a party to the proceedings at stake", a specific denial that I view as derogating from thegeneral admission via an overbroad defined term.
23 I am satisfied that the defence to counterclaim fairly read as a whole does not admit that TCB was a party to theretainer agreement with Wellington. Were it necessary to grant leave to amend the defence to counterclaim in order toclarify the point, I should do so on my own motion. I do not think that step is necessary here.
24 The defence to counterclaim (i) denies that TCB is a party; (ii) pleads negligence and breach of contract in theperformance by Mr. Lansink of the services provided; and (iii) pleads that Mr. Lansink testified at trial over four daysonly.
25 I shall review the adequacy of each of these defences separately.
Is TCB a proper party to the contract?
26 Mr. Lansink's evidence on the motion provides no evidentiary foundation for having included TCB as a party-defendant to the counterclaim. The chain of emails that Mr. Lansink testified constitute the retainer of his firm by thePauls contains no reference to TCB as client but does refer to the Pauls and Mr. Sasso as users of the intended report.The two expert reports prepared by Mr. Lansink and delivered by Wellington name Mr. Sasso and the Pauls as clientswithout mention of TCB. TCB was not a party to the trial at which Mr. Lansink provided expert evidence in person.There is simply no factual basis from which I could find that a contractual link exists between TCB and Wellington. Theyare strangers and TCB ought not to have been joined. The fact that TCB's name was added to the invoices rendered byWellington does not create a contract where none existed.
Paul v. Sasso, 2016 ONSC 7488, 2016 CarswellOnt 18862
27 Mr. Lansink's stated reason for having included TCB as a defendant to the counterclaim was that that it was TCBwho wrote the previous cheques. The original $5,000 deposit was paid by MasterCard and, from the email exchange thatconstituted the retainer agreement, appears to have been paid by the Pauls' daughter. The fact that TCB may have paidone or more of the invoices that followed is not sufficient in my view to render TCB liable on a contract of retainer it wasnot party to for the cheques it did not write on the invoices it did not pay. It is hardly uncommon for individuals to usebank accounts of holding companies they control to pay expenses — the accounting for those directions and paymentsfor tax and other purposes is obviously an entirely different matter and is of no concern to Wellington.
28 TCB is entitled to judgment dismissing the counterclaim as against it. The plaintiff by counterclaim has put its bestfoot forward and failed to prove that it has any claim to pursue as against TCB.
Disputes regarding the amounts outstanding
29 The evidence of Mr. Lansink on behalf of Wellington in respect of the counterclaim includes copies of Wellington'soutstanding invoices. These contain significant time charges for days spent in court by Mr. Lansink where he was nottestifying. Mr. Lansink's affidavit claimed that he was directed to observe the entire trial by the Pauls and their counselMr. Sasso but provides no particulars of how and when those instructions were alleged to have been given.
30 Mr. Paul's responding affidavit on this motion specifically denied having instructed Mr. Lansink to stay in courtfor the duration of the trial or having authorized Mr. Sasso to so instruct him.
31 I am left with an irreconcilable conflict on the evidence as to whether all aspects of the work invoiced by Wellingtonwere in fact authorized. The amount at issue would appear to be at least $6,000 of the $24,086.81 claimed on thecounterclaim. The exact amount would require a more careful analysis than either side entered into in argument.
Breach of contract and negligence
32 The Pauls have defended the counterclaim alleging that Mr. Lansink was in breach of his contract and hisprofessional and ethical duties by reason of having failed to act independently. Mr. Paul's affidavit has provided extensiveevidence of the reasons why he asserts that Mr. Lansink has breached those obligations.
33 Mr. Lansink obviously took strong exception to this evidence. His evidence takes strong issue with the allegationthat he breached any ethical duties and strongly defends the professional standards he applied in preparing his tworeports (and in testifying at trial).
34 It is clear that the breaches of duty alleged by the plaintiffs (defendants by counterclaim) go to the root of theretainer of Wellington. I am of the view that witness immunity can properly be used as a shield by Mr. Lansink toavert liability on the plaintiff's claim but cannot be used as a sword by Wellington to preclude the Pauls from defendingWellington's counterclaim on the basis of the alleged breaches of contract and negligence. The policy grounds that preventthe plaintiffs from suing their own expert witness for consequential damages are of no application to defending a claimfor professional fees brought by an expert witness. I am drawing for this purpose no relevant distinction between Mr.Lansink (who was the actual witness) and Wellington (the company through which he billed his services). If properlydemonstrated, these breaches may well provide a defence to some or all of the damages claimed by Wellington.
35 I must however comment upon the plaintiff's allegation that Mr. Lansink lied to Nolan J. on the witness stand and(hopefully) put that question at least to rest. There was no such finding by Nolan J. in her judgment. I can see no meansby which an alleged lie neither detected nor relied upon by Nolan J. in her decision can have any bearing on any liveissue today. The expert evidence of Mr. Lansink was clearly rejected by Nolan J., but she did not do so in consequence ofany conclusion that he had lied to her. This allegation is exceptionally serious and grave but of absolutely no relevanceto the matters at hand. It is a textbook example of a collateral issue — and is a rabbit hole down which this proceedingought not to be permitted to go.
Paul v. Sasso, 2016 ONSC 7488, 2016 CarswellOnt 18862
36 In my view, the evidence before me raises significant triable issues regarding (i) the authority of Wellington to havecharged for a material portion of Mr. Lansink's billed time at trial; and (i) the claimed breaches of duty and negligence.
37 In respect of both triable issues I have extensive and contradictory evidence of the parties.
38 It is clearly not possible for me to resolve the factual disputes necessary to dispose of these triable issues withoutresorting to the toolbox of Rule 20.04(2.1) of the Rules of Civil Procedure. There are numerous irreconcilable conflicts inthe very voluminous evidence that would require findings of credibility to be made, inferences to be drawn and evidenceto be weighed.
39 I am only authorized by Rule 20.04(2.1) to use the "toolbox" of powers listed therein in cases where the interests ofjustice do not require such powers to be exercised only at a trial. In my view, this is a case where the interests of justicerequire that the powers enumerated in Rule 20.04(2.1) ought only to be exercised at trial. There are simply too manyissues of irreconcilable conflict in the evidence. The defences raised are too complex and the evidentiary contradictionstoo deep to be resolved without viva voce testimony. The issues raised have substantial parallels with the issues thatremain to be resolved in the action that is continuing with Mr. Sasso and his firm as defendants. It makes no sense tohave separate hearings on the counterclaim and the main action with so many common issues.
40 In my view, the proper outcome in this case is to dismiss the motion for judgment under the counterclaim andto require the counterclaim to be proved in the usual way at trial. Subject to further order, the trial of the counterclaimought to be concurrent with the trial of the main action (despite the success of the motion for judgment in that regard asregards these defendants) in light of the common issues remaining. However, I am granting judgment in favour of TCBalone dismissing the counterclaim as against TCB only.
Disposition
41 In the result, I dismiss the counterclaim as against TCB and I otherwise dismiss Wellington's motion for judgmentas against Mr. and Mrs. Paul.
42 In light of the fact that I have dismissed the plaintiffs' claim against Mr. Lansink and Wellington, the plaintiff bycounterclaim (Wellington) will have no further role in the main proceeding apart from its counterclaim for fees. Subjectto further order, the counterclaim shall be tried concurrently with the remainder of the claim in the main action.
43 The moving parties should not fairly have to bear the burden of paying costs of the counterclaim should theyelect to discontinue the counterclaim. It was originally appended to a much larger claim that has now been dismissedas against them. Accordingly, any discontinuance of the counterclaim shall be without costs if done within thirty daysof the release of these reasons (or following the final disposition of any appeal of my order as regards the counterclaimas the case may be).
44 Success has been divided on the motion and I have had no substantive submissions from the parties on costsnor outline of costs. If either party seeks costs, I shall receive written submissions on or before December 31, 2016.Responding submissions shall be due seven days after costs submissions are received. Written submissions shall be limitedto five pages excluding attached settlement offers or Outline of Costs. Cases need not be attached if available on line.
45 Order accordingly.Motion granted in part.
Court File No. CV-11-9532-OOCL
IN THE MATTER OF THE COMPANIES' CREDITORS ARRANGEMENT ACT, 1985, C.c-36 AS AMENDED AND IN THE MATTER OF A PLAN OF COMPROMISE OR ARRANGEMENT OF CRYSTALLEX INTERNATIONAL CORPORATION
ONTARIO SUPERIOR COURT OF JUSTICE
(COMMERCIAL LIST)
PROCEEDING COMMENCED AT TORONTO
BRIEF OF AUTHORITIES OF AD HOC COMMITTEE OF SHAREHOLDERS OF CRYSTALLEX INTERNATIONAL
CORPORATION (MOTION OF THE DIP LENDER)
GOWLING WLG (CANADA) LLP Barristers & Solicitors 1 First Canadian Place 100 King Street West, Suite 1600 Toronto ON M5X 1G5 Tel: 416-862-7525 Fax: 416-862-7661
Clifton P Prophet (#34845K) Tel: 416-862-3509 Fax: 416-863-3509 [email protected]
Nicholas Kluge (#44159T) Tel: 416-369-4610 Fax: 416-862-7661 [email protected]
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