Hello everyone.

Except for a brief addendum to an order made in a criminal matter, the Court of Appeal only released civil law decisions this week, which is rare. Topics covered included whether or not leave to appeal a vesting order made on a receivership sale under the Bankruptcy and Insolvency Act is required (it is), an ironic case in which a lawyer initially resisted a professional negligence claim for missing a limitation period by arguing the limitation period had been missed (nice try), insurance law and adjournments.

Wishing everyone a nice long weekend and everyone celebrating a Happy Easter.

Civil Decisions

DBDC Spadina Ltd. v. Walton, 2016 ONCA 220

[Laskin, Simmons and Huscroft JJ.A.]

Counsel:

Christopher Sparling, for Junior Academy Inc. and Dibri Inc.

Danielle Glatt, for 368230 Ontario Ltd.

Facts:

The property at issue in this appeal was originally purchased by the appellant, Dibri Inc., in 2005 (the “Property”). A school was later built on the Property and operated by the appellant, Junior Academy Inc. The appellants, Dibri and Junior Academy share common principals. In 2011, Dibri sold the Property to The Rose and Thistle Group Ltd. (“Rose”), in trust, for a company to be incorporated. As part of the agreement, Junior Academy would continue as a tenant of the Property.

Junior Academy, Dibri and Rose entered into a side agreement for $100,000 to be held back from the purchase price for an anticipated retroactive realty tax reassessment. Subsequently, the parties agreed that instead of the $100,000 holdback, Junior Academy would pay $25,000 to Academy Lands Ltd., the company incorporated by Rose to complete the sale agreement. Junior Academy leased the Property from Academy Lands for 10 years and Dibri guaranteed Junior Academy’s obligations under the lease for five years. Under the lease, Junior Academy would pay $5,000 monthly to Academy Lands for the estimated property taxes and if the property taxes assessed were “less than the amount paid by the Tenant”, the Landlord was required to credit the Tenant “the difference on account of the taxes due for the following year”.

In 2014, the first mortgagee of the Property obtained an order to appoint Spergel Inc. as receiver of the assets of Academy Lands. In response, Junior Academy stopped paying amounts owing under its lease. In an order dated December 17, 2014, Junior Academy was ordered by a motions judge to pay $188,845 on account of rent and other arrears to Spergel.

By way of a January 2015 vesting order, Spergel transferred the Property to the purchaser, 368230 Ontario Ltd (the “Purchaser”). Before the receiver’s sale, Dibri held a second mortgage on the Property. The vesting order transferred the Property to Purchaser, vested Junior Academy’s lease in the Purchaser and extinguished Dibri’s second mortgage and most other encumbrances.

An April 21, 2015 order directed that $188,845 be held back from the initial distribution of the net proceeds of sale (the “disputed balance”) until it was determined whether amounts paid by Junior Academy to Academy Lands for property taxes under the lease were enforceable against the Purchaser and the entitlement of various parties to the disputed balance.

The motion judge held that the amounts paid by Junior Academy to Academy Lands for the property taxes under its lease are enforceable against the Purchaser but that the Purchaser should be paid the amount owing under the December 17, 2014 order regarding the rent arrears out of the disputed balance, less credit for the property tax overpayments. The motion judge declined to grant Junior Academy’s request to enforce against the Purchaser the $25,000 payment made to Academy Lands under the side agreement.

Issues:

(1) Did the motion judge err in holding that the Purchaser is entitled to be paid the amount owing under the December 17, 2014 order?

(2) Did the motion judge err in failing to order that the entire disputed balance be paid to Dibri?

(3) Did the motion judge err in denying Junior Academy’s claim for a $25,000 credit against the purchaser?

Holding: Appeal dismissed.

Reasoning:

(1) No. The Court rejected the appellant’s argument that the arrears owed under the lease merged in the December 17, 2014 judgment and so remained the property of Academy Lands, through its receiver. The vesting order operates as an assignment of the lease to the Purchaser and thus vests all Academy Lands’ interest in the Purchaser. The sale documents made it clear that all benefits and obligations under the lease, including rent, vested with the Purchaser.

The appellants cited the Supreme Court of Canada 2007 decision Hislop v. Canada (Attorney General) and its 1934 decision Lew v. Lee as the basis for the argument that a cause of action merges in a judgment so that an appeal can be prosecuted in relation to a judgment even after the holder of a personal action has passed away. The Court held that these cases did not establish that the December 17, 2014 order somehow excluded the rent arrears from the operation of the vesting order.

(2) No. Dibri’s second mortgage does not give it priority over unsecured claims of the Purchaser against Junior Academy for rent arrears. The arrears effectively formed part of the sale and needed to be accounted for as part of the transaction. As well, Dibri and Junior Academy had common principals and Dibri guaranteed Junior Academy’s obligations under the lease.

(3) No. The appellants argued that the $25,000 payment decreased Junior Academy’s amount owing on account of assessed property taxes and increased the amount Junior Academy overpaid for property taxes under the lease. The Purchaser was not party to the side agreement and the vesting order did not transfer the benefits and obligations under the side agreement to the Purchaser. Junior Academy’s rights against the Purchaser arise out of the lease and there was no evidence that Academy Lands had used the $25,000 to reduce the property taxes owing.

Clarke v. Faust, 2016 ONCA 223

[Feldman, Juriansz and Brown JJ.A.]

Counsel:

Edward Goldentuler, for the appellants

Kerri P. Knudsen and Nicole A. Dowling, for the respondent

Facts:

The appellants were injured in a motor vehicle collision on April 7, 2006. They retained the respondent, Joseph Faust, to represent them on their claims for accident benefits and tort damages. The respondent issued a statement of claim on June 17, 2008, nine weeks after the second anniversary of the accident. Prior to the filing of the statement of claim, the appellants retained new counsel, who advised that the statement of claim had not been issued within two years of the accident. The new counsel advised that this was not necessarily fatal to the claim because of the doctrine of discoverability. The new counsel wrote to the respondent on July 2, 2008 putting him on notice of the missed limitation period, and the respondent replied with the response that no limitation period had been missed because of the doctrine of discoverability.

The appellants’ solicitor passed away and another solicitor at the firm advised he was not concerned about the missed limitation period and spoke with defence counsel about the discoverability issue. The defendants did not initially plead the missed limitation period as a defence. However, they amended their statement of defence on March 18, 2009, to plead the limitation period. The appellants commenced a professional negligence action against the respondent on December 22, 2010. Ironically, the respondent pleaded that the appellants’ professional negligence action against him was statute-barred because it was commenced more than two years after they knew or ought to have known they had a cause of action against him.

The appellants’ action against the respondent was dismissed by way of summary judgment in favour of the respondent. The motion judge found there was no genuine issue requiring a trial on whether the action was statute-barred. The appellants appealed.

Issues:

(1) Did the motion judge err in finding that the limitation period to sue the lawyer began to run before March 18, 2009, when the appellants say they first knew they had suffered some damages from the respondent’s “act or omission”?

(2) Did the motion judge err in her finding that discoverability had not been pleaded in the appellants’ statement of claim for the professional negligence action?

Holding: Appeal allowed.

Reasoning:

(1) Yes. The court held that the appellants’ claim against the respondent was not discovered before March 18, 2009, if at all. The motion judge was mistaken in her understanding of the Limitations Act, 2002. She failed to consider the requirement of ss. 5(1)(a)(iv) that a person with a claim know that a proceeding would be an appropriate means to seek to remedy the injury, loss or damage having regard to its nature. That provision requires a person to have good reason to believe he or she has a legal claim for damages before knowing that commencing a proceeding would be an appropriate means to seek to remedy the injury, loss or damage.

Since the motion judge proceeded on an incorrect understanding of the Act, the court proceeded to determine when the appellants first discovered they had a claim against the respondent lawyer. It held that based on the appellants’ subjective knowledge, they were advised by three lawyers that the doctrine of discoverability applied to their motor vehicle action and it was the amended statement of defence on March 18, 2009 that changed the situation. On those facts, the court was satisfied the appellants had no reason to know that commencing a legal proceeding was appropriate before the amendment of the statement of defence.

In addition, a reasonable person with the abilities and in the circumstances of the appellants would not have known it was appropriate to commence a legal proceeding before the March 18, 2009 amendment of the statement of defence in the motor vehicle action. This satisfied the objective test of ss. 5(1)(a).

Finally, the court made two further observations in obiter. First, it remained to be determined whether the appellants’ motor vehicle accident was statute-barred. If it was not statute-barred, the professional negligence action may be premature. Second, the appellants might have been able to establish that the respondent was estopped from pleading a limitation defence in the professional negligence action. The court found it likely that the appellants, in failing to commence the professional negligence action within two years of the second anniversary of the motor vehicle accident, relied on the respondent’s expressed initial position that he had not missed the limitation period in the motor vehicle action. However, the appellants did not raise this issue and it was unnecessary to deal with it.

(2) Yes. The statement of claim set out the material facts to support the application of the doctrine.

2403177 Ontario Inc. v. Bending Lake Iron Group Limited, 2016 ONCA 225

[Brown J.A. (In Chambers)]

Counsel:

Kenneth Kraft, for the moving party, A. Farber & Partners Inc.

Robert MacRae, for the responding party, Bending Lake Iron Group Limited

Facts:

The Debtor went into receivership in 2014 on the application of its secured creditor, 2403177 Ontario Inc. (the “Receivership Order”). The Debtor’s major asset is an undeveloped iron ore mine site located northwest of Thunder Bay, Ontario. By order, the court approved a Sales and Investor Solicitation Process for the Debtor’s property (the “SISP Order”). Significantly, the Debtor consented to the SISP Order. In 2015, the Receiver moved for court approval of an asset purchase agreement it had entered into with Legacy Hill for substantially all of the Debtor’s property (the “Sale Agreement”). The Debtor opposed the motion and, in turn, brought its own motion seeking a variety of relief, including the postponement of the sale of its property. The motion judge approved the Sale Agreement and ordered the vesting of the Debtor’s property in Legacy Hill upon the filing of a receiver’s certificate (the “Approval and Vesting Order”). As well, the motion judge dismissed the Debtor’s motion to postpone the sale and for other relief. The Debtor filed a notice of appeal in 2016 seeking to set aside the Approval and Vesting Order. Legacy Hill is not prepared to close the Sale Agreement until the Debtor has exhausted its appeal rights in this court. The Receiver moves for a declaration that the Debtor requires leave to appeal.

Issue:

Does the Approval and Vesting Order fall into any of the categories identified in s. 193(a)-(c) of the Bankruptcy and Insolvency Act (“BIA”) in which an appeal lies as of right to this court, or does the Debtor have to obtain leave to appeal under s. 193(e)?

Holding: Receiver’s motion granted and Debtor ordered to obtain leave to appeal from the Approval and Vesting Order. The Debtor’s notice of appeal dated 2016 is quashed.

Reasoning:

The Approval and Vesting Order does not fall under any of the categories in BIA s.193(a)-(c), and therefore the Debtor has to obtain leave to appeal under s,193(e).

Under BIA s.193(a), the Approval and Vesting Order does not involve future rights. The Debtor’s argument that the Approval and Vesting Order involves the future rights of “affected Aboriginal communities” is vague and difficult to follow. First, for an order to involve future rights, it must involve the future rights of those with an economic interest in the Debtor company – i.e. its creditors or shareholders. On the sale approval motion, the Debtor did not adduce evidence that any “affected Aboriginal community” had such an economic interest in the Debtor. Second, at this stage of the process it does not lie in the Debtor’s mouth to contend that the Receiver failed to give proper notice to “affected Aboriginal communities”. The time to raise such an issue was when the Receiver sought approval of the SISP Order, yet the Debtor consented to that order. Third, to the extent that the Approval and Vesting Order affects the rights of those with an economic interest in the Debtor, it affects the present, existing rights of the Debtor’s creditors and shareholders, not their future rights. Finally, it is clear that the Debtor’s real complaint about the effect of the Approval and Vesting Order is one concerning the “commercial advantages or disadvantages that may accrue from the order challenged on appeal.” That has nothing to do with “future rights” within the meaning of s. 193(a).

Under BIA s.193(b), the Approval and Vesting Order does not affect other cases of a similar nature in this proceeding. First, the Debtor consented to the SISP Order which authorized the Receiver to proceed with the sales process. The Debtor did not raise the issue of a duty to consult “affected Aboriginal communities” about a sale at that time. It is difficult to conceive how it can do so now. Second, it is very doubtful that the Debtor has standing to advance on appeal an argument based on the duty to consult. Third, the jurisprudence has consistently interpreted this section as meaning that a right of appeal will lie where “the decision in question will likely affect another case raising the same or similar issues in the same bankruptcy proceedings.” Here, the Approval and Vesting Order disposed of all the property of the Debtor. Consequently, there will not be any other case dealing with the disposition of the Debtor’s property in this receivership.

The Approval and Vesting Order is not a method of disposing of a debtor’s assets that falls under BIA s.193(c) (property involved in the appeal exceeds $10,000). The caselaw holds that s. 193(c) of the BIA does not apply to decisions or orders that are procedural in nature, including orders concerning the methods by which receivers or trustees realize an estate’s assets. In the present case, the overwhelming majority of the Debtor’s grounds of appeal are process-related, involving issues concerning the Debtor’s dealings with Legacy Hill following the Receivership Order, the Receiver’s disclosure of information about the Sale Agreement, the negotiation process it followed with Legacy Hill, its treatment of persons affected by the Sale Agreement, and the adequacy of notice it gave to “affected Aboriginal communities.” The second principle emerging from the caselaw is that s. 193(c) is not engaged where the decision or order does not call into play the value of the debtor’s property. In the present case, the Approval and Vesting Order marked the final step in the Receiver’s monetization of the Debtor’s assets. Finally, for s. 193(c) to apply, the order in question must contain some element of a final determination of the economic interests of a claimant in the debtor. The Approval and Vesting Order did not determine the entitlement of any party with an economic interest in the Debtor to the sale proceeds. In that sense, no interested party gained or lost as a result of the order.

Arcelormittal Dofasco Inc. v. Industrial Alliance Insurance and Financial Services Inc., 2016 ONCA 224

[Laskin, MacFarland and Roberts JJ.A]

Facts:

D.C. has a rare medical condition; her hematologist prescribed the drug Soliris to manage her condition. The drug is very expensive, costing roughly $25,000 per month. D.C. applied to the respondent Industrial Alliance (IA), her employer’s group benefits insurer, for pre-approval for the expected cost of the drug. The IA policy provided for reimbursement of 90% of certain drug payments.

IA denied D.C’s claim. IA thought that Soliris was administered in a hospital setting, and therefore excluded it under the terms of its policy. Her retired husband had a benefit plan through his former employment; this plan was underwritten by the appellant, Arcelormittal and managed by Great West Life (GWL).

After paying benefits for a year, GWL began to inquire why IA denied D.C’s claim. Evidence demonstrated that IA knew that its denial was inappropriate. IA also ignored or refused requests from GWL and D.C. for the wording of the policy. In the meantime, IA continued to refuse coverage.

Arcel commenced an action seeking reimbursement from IA for Soliris payments from 2009 to 2011. They sought reibursment from IA for Soliris payments from October 2009 to November 2011 in the sum of $1,280,163.95, representing 90 percent of its payout of $1,422,404.40.

By way of summary judgment, the court ordered that IA reimburse the appellant for 90 percent of all amounts paid from April 2010, onwards, which amounted to a total of $548,995.97. The rest of the claim was found to be statute-barred. Arcel appealed.

Issues:

1) Did the motion judge err in finding that Arcel’s agent, GWL, was aware of IA’s obligation to pay as of October 2009 constitute a palpable and overriding error?

2) Did Arcel clearly establish that its agent, GWL, acting reasonably could not have discovered its claim until on or after April 4, 2010?

Holding: Appeal Allowed

Reasoning:

Yes to both questions. The court held the appellant acted properly in the face of the respondent’s denial of coverage. The appellant asked for the contract wording which supported the Soliris decline. Despite follow up emails from the appellant, IA did not respond until December 2010, but did not provide the policy wording. The court held that contrary to the motion judge’s finding, the appellant did not know and could not reasonably have known it had a claim until after September 2011, the action was therefore commenced within the two years of its “discovery” and, accordingly, none of the claims for which it sought reimbursement from the respondent were statue-barred.

Turbo Logistics Canada Inc. v. HSBC Bank Canada, 2016 ONCA 222

[Strathy, C.J.O., Lauwers and Benotto JJ.A.]

Counsel:

Jasdeep Singh Bal and Daniel Perlin, for the appellants

Matt Saunders and J. Brian Casey, for the respondent

Facts:

A trial was scheduled to commence in September 2013, a date that was set to accommodate the schedule of the appellants’ counsel. Three weeks before trial, the appellants served notices of intention to act in person. It appeared that they were hoping to settle the case, and when their offer of settlement was rejected, their lawyer discussed the costs of proceeding to trial. The appellants were unwilling to pay him for same, and he subsequently insisted on getting off the record. Shortly before trial, the appellants stated that they would not be pursuing their claim and that the trial was to proceed on the respondent’s counterclaim.

A few days before trial, the appellants advised that they would be seeking an adjournment. The trial judge refused the adjournment. At trial, the appellants were found liable for over $10 million in damages for fraudulent misrepresentation, negligent misrepresentation, conversion and conspiracy in connection with loans made by the respondent bank. The trial judge found that the appellants fraudulently submitted false information to the respondent to obtain the loans.

On appeal, the parties agreed that the sole ground of appeal was whether the trial judge erred in refusing an adjournment to enable the appellants to retain new counsel. The appellants acknowledged that the decision to grant an adjournment is discretionary and is thus afforded deference from an appellate court. Nonetheless, they argued that the trial judge failed to consider all of the relevant circumstances and thus the decision was contrary to the interests of justice.

Issue:

Did the trial judge fail to consider all of the relevant circumstances in this matter in deciding not to grant an adjournment?

Holding: Appeal Dismissed.

Reasoning:

No. The appellants submitted that the trial judge failed to exercise her discretion judicially, whereas the respondent argued that the trial judge properly measured the case and concluded that it would not be unfair to refuse the adjournment.

The court in Khimji v. Dhanani reasoned that, in refusing an adjournment, a trial judge should have taken into account the goal expressed in Rule 2.01(1)(a), namely “to secure the just determination of the real matters in dispute” and the resolution of cases on their merits. Factors to be considered in this determination include the reason for the adjournment request, the history of the matter, the prejudice to the party resisting the adjournment and the consequences to the requesting party of refusing the request. The fact that a party is self-represented is a relevant factor, as the court has an obligation to ensure that all litigants have a fair opportunity to advance their positions.

The appellants had given notice of their intention to act in person and had ample time within which to retain new counsel. They did not demonstrate any attempt to retain new counsel and did not offer terms. Instead, the court concluded that they “had simply rolled the dice, hoped to settle and when that strategy did not work, decided to try another one – delay.” While the appellants were self-represented, this was simply the result of their own decision to put off trial preparation in the hope of settlement.

Moreover, the trial judge considered the nature of the case, the matters in dispute, the appellants’ familiarity with the issues and their relative sophistication. The appellants were experienced and sophisticated businessmen, while the issues were not complex. The Court further commented that it would “have been perfectly obvious to the trial judge that the appellants had nothing to lose and everything to gain by delaying the trial as long as possible.” Conversely, the respondent would obviously be prejudiced by further delay.

Finally, the Court reasoned that there is a public interest in the efficient use of scarce judicial resources and in the efficient and fair resolution of trials. These were factors the trial judge was entitled to take into account. There was no merit to the assertion that the conduct of the trial was unfair: the trial judge managed the trial firmly but fairly.

Economical Mutual Insurance Company v. Caughy, 2016 ONCA 226

[Hoy A.C.J.O., Lauwers and Hourigan JJ.A.]

Counsel:

Daniel Strigberger and Alexandra Wilkins, for the appellant

Nigel Gilby, Jasmine Akbarali, and Christopher Dawson, for the respondent

Facts:

The respondent was playing tag with his daughter and her friend around midnight when he suffered an injury from running into a parked motorcycle on the pedestrian walkway. The motorcycles were not blocking the walkway initially, however, after nightfall, and without the respondent’s knowledge, the motorcycles were moved and parked on the walkway. The respondent suffered serious spinal cord injuries as a consequence of the fall. He was also intoxicated at the time of the incident. The respondent sought accident benefits from his insurer, the appellant, which were denied on the basis that the incident did not meet the definition of accident as found in the Statutory Accident Benefits Schedule – Effective September 1, 2010, O. Reg. 34/10 (the “SABS”).

The application judge found that that the temporary parking of the motorcycle that evening on the walkway constituted an ordinary or well-known use of the vehicle. In addition, he found that the temporary parking of the motorcycle that evening was the dominant feature in the incident, and not ancillary to it. The application judge concluded that the incident satisfied the test for an accident under the SABS as articulated by the Supreme Court of Canada in Amos v. Insurance Corp. of British Columbia [Amos].

Issue:

Whether the application judge erred in concluding that the purpose test from Amos was met in finding that the respondent was involved in an “accident”, as that term is defined in s. 3(1) of the SABS.

Holding: Appeal dismissed.

Reasoning:

No. The application judge was correct in finding that the respondent was involved in an accident, as that term is defined in the SABS. The court found that parking a vehicle does not constitute the type of aberrant use contemplated by the Supreme Court in Citadel General Assurance Co v Vytlingam, which considered the Amos test. The court noted that a vehicle is designed to be parked and most vehicles are parked most of the time. It concluded that parking a vehicle is an ordinary and well-known activity to which vehicles are put.

With regard to the alleged errors in the application judge’s analysis of the purpose test, the court addressed the appellant’s arguments but noted they would not change the result.

First, the argument that the application judge erred in failing to conclude that there must be an active use of the vehicle to meet the purpose test was misconceived. There is no active use component of the purpose test.

Second, the application judge did not err in finding that the motorcycle was parked temporarily on the walkway when the appellant tripped as suggested by the appellant. He correctly found that there was no evidence that the motorcycle was inoperable or that it was being stored at the campsite for an extended period of time.

Third, the court did accept the appellant’s submission that the application judge erred when he concluded that the respondent had satisfied the purpose test that the use or operation of an automobile was involved in this incident. The court stated the purpose test was not designed to determine whether a vehicle is involved in an incident. However, when the application judge’s statement was read in context, the court was satisfied that the application judge understood the elements of the purpose test and that the misstatement did not affect his analysis.