On October 21, 2010, the Supreme Court of Canada (the "Supreme Court") refused an application made by Windsor Regional Hospital (the "Hospital") for leave to appeal the judgment of the Ontario Court of Appeal ("Court of Appeal") in Rosenhek v. Windsor Regional Hospital.[1] The application, filed by the Hospital on March 19, 2010, was the culmination of a twenty year legal dispute between the Hospital and Dr. I.S. Rosenhek, stemming from the Hospital's revocation of Dr. Rosenhek's privileges in 1989. The Court of Appeal's verdict in Rosenhek garnered widespread attention because of the precedent that it set in establishing that hospitals and their boards can be held civilly liable for actions exercised pursuant to their statutory powers where they do not act in good faith. The decision is also notable because the Court of Appeal upheld $3 million in damages awarded to Dr. Rosenhek by the Ontario Superior Court of Justice (the "Superior Court").

Facts

Dr. Rosenhek joined the Hospital in 1984 for the purpose of working in the planned, but not-yet-built, critical-care unit of the Hospital. The proposed critical-care unit became a contentious issue among Hospital staff and due to opposition from Hospital internists, the unit failed to materialize. The conflict of opinions over the planned unit created personal divisions within the Hospital between Dr. Rosenhek and Dr. Mandal (then Chief of Staff of the Hospital) specifically, and Dr. Rosenhek and the internists more generally. As a result of these personal divisions, as well as other interpersonal differences, Dr. Rosenhek was excluded from the internist coverage group at the Hospital. The effective result of the exclusion was that Dr. Rosenhek was on call almost all of the time.

Dr. Rosenhek approached the Board of Governors of the Hospital (the "Board") in 1988 to express his concerns about being excluded from the internist coverage group. By this point, Dr. Rosenhek reported that the stress of the situation was so serious that it was causing him physical and mental harm. After hearing his complaint, however, the Board declined to address the situation or become involved in any way, labelling it a private matter between the physicians in the group.

In 1989, the Board granted Dr. Rosenhek associate staff status and privileges at the Hospital for a period of three months, rather than the typical term of one year. Only two months into this three-month reinstatement period, the Board adopted a recommendation made by the Medical Advisory Committee ("MAC") to revoke Dr. Rosenhek's privileges. Without any prior notice, Dr. Rosenhek was notified that his privileges had been revoked and was asked to leave the Hospital immediately.

Dr. Rosenhek appealed the revocation to the Hospital Appeal Board. In January 1994, the Appeal Board found that although the Board's actions in revoking Dr. Rosenhek's privileges were in compliance with its statutory obligations, Dr. Rosenhek had not been given proper notice of the revocation. A rehearing was granted on that basis. Following the rehearing, the Hospital Appeal Board (comprised of a new panel of decision-makers) ordered that Dr. Rosenhek's revocation be set aside and that Dr. Rosenhek be granted active staff privileges at the Hospital.

Subsequently, Dr. Rosenhek brought a claim before the Ontario Superior Court of Justice (the "Superior Court") for damages against the Hospital on the grounds of a breach of duty of good faith and interference with economic interest.

The Trial Court Decision

The first issue to be addressed by Justice Quinn, the trial judge at the Superior Court, was whether a cause of action existed. The Hospital argued that no cause of action existed because the Board had no contractual obligations towards Dr. Rosenhek as he was not an employee of the hospital. The Hospital further argued that the law does not hold quasi-judicial bodies, such as the Board, liable for an incorrect decision. While Justice Quinn accepted the Hospital's first argument, that there was no contractual obligation to ground the cause of action, he refused to accept the second argument. Instead, Justice Quinn held that because the Board was acting in quasi-judicial capacity in revoking Dr. Rosenhek's privileges, the Board's actions attracted an obligation to act in good faith. Justice Quinn viewed the manner in which the Board revoked Dr. Rosenhek's privileges as a denial of natural justice on account of the fact that Dr. Rosenhek was not given the opportunity to appear before the Board, nor to respond to the recommendation of the MAC to revoke his privileges.

It was also held that the Board's revocation of Dr. Rosenhek's privileges was not a good faith error. In support of this conclusion, Justice Quinn pointed to the manner in which the hearing was conducted and the reasons behind the Board's revocation. The court regarded the reasons for the revocation as amounting to bad faith because the Board's decision was based on a problem which was minor and one that Dr. Rosenhek was only partially responsible for.

Dr. Rosenhek's claim that the Board was liable for damages for the tort of intentional interference with economic relations was also accepted by the court. Three criteria for this tort were set out in Justice Quinn's judgment, namely: (1) that the defendant intended to injure the plaintiff; (2) that the defendant interfered with the plaintiff's business by illegal or unlawful means; and, (3) as a result of the interference, the plaintiff suffered economic loss. The first criterion was found to be satisfied because it was clear that the Board's action of revoking Dr. Rosenhek's privileges as a means to resolve issues among the Hospital's physicians were directly targeted at Dr. Rosenhek. The fact that the Board acted contrary to the Public Hospitals Act (in the manner that they revoked Dr. Rosenhek's privileges) was sufficient to fulfil the second criterion. Finally, the third criterion was found to be satisfied by the court on account of the economic loss that Dr. Rosenhek sustained subsequent to having lost his privileges at the Hospital.

The Superior Court awarded Dr. Rosenhek $3 million in damages plus pre-judgment interest for the Board's breach of its duty of good faith and its interference with economic relations.

The Appeal Court Decision

In 2009 the Court of Appeal heard appeals from both parties. Dr. Rosenhek cross-appealed the damage assessment and the Hospital appealed the finding of liability and the damage assessment.

The Hospital appealed the liability and damages holdings by challenging the cornerstone of the trial judge's decision. The Hospital claimed there was insufficient support for the finding that the Board acted in bad faith. The Court of Appeal rejected the Hospital's appeal, finding the following evidence of bad faith:

  • While the Court of Appeal acknowledged that an error in judgment is not an act of bad faith in and of itself, the Court reasoned that in some circumstances, a decision may be so clearly wrong on its merits that it provides some evidentiary support for a finding of bad faith; the Court saw the Board's decision as one such circumstance and inferred bad faith on the basis that the revocation was made despite the absence of any legitimate concern regarding Dr. Rosenhek's professional competence or the safety of his patients;
  • The timing and manner of the revocation decision were also evidence of bad faith. The Board's decision to revoke Dr. Rosenhek's privileges immediately was unmerited on account of the fact that these privileges had just been reinstated by the Board and there was no evidence of any changes in Dr. Rosenhek's competence or any concern raised regarding the safety of his patients;
  • The Court saw the Board's motive for the revocation of Dr. Rosenhek's privileges as being the most significant factor supporting its finding of bad faith. Emphasizing the Hospital's failure to intervene in the coverage issues and the fact that the Chief of Staff was a major source of the coverage problem, the Court concluded that the Hospital's desire to resolve interpersonal conflict was the motive behind the revocation of Dr. Rosenhek's privileges. This motive was evidence that the Board used its decision-making function for an ulterior purpose and not for the public good.

In upholding the Superior Court's award of damages, the Court of Appeal recognized that although Dr. Rosenhek had failed to produce enough evidence to support an accurate quantification of damages, the trial judge had properly followed the principles set out in Martin v. Goldfarb[2] in speculating as to the amount of the damages to be awarded to Dr. Rosenhek.

Post Rosenhek: A Summary the Duties of Hospitals and the Rights of Physicians

In view of the Court of Appeal's judgment, the following section summarizes the duties of hospitals and the rights of physicians with respect to the issue of revocation of privileges.[3]

The Duties of Hospitals

  1. Hospitals and their boards have a duty to act in good faith, which includes:
    1. a duty to intervene and address interpersonal issues as they arise;
    2. an obligation to ground decisions to revoke physician privileges in evidence of reduced patient care and safety and/or physician incompetency. Especially in the case of disruptive physicians, the disruptive actions cited for revocation of privileges must be linked to these grounds.[4] In this case, it was significant that both parties accepted as fact that neither Dr. Rosenhek's competence nor the safety of his patients was ever at issue.
  2. Hospital decision-makers have a duty to conform to the Public Hospital Act[5] and their respective hospital by-laws.
  3. Hospitals should conduct thorough due diligence when initially granting privileges to a physician. (This is more of a lesson learned than a duty.)

The Rights of Physicians

  1. Physicians have the right to procedural fairness, meaning that they are entitled to:
    1. be aware of allegations made against them;
    2. call witnesses or provide names of witnesses to be heard by the hospital board; and
    3. to put forward responses and evidence regarding allegations.
  2. Physicians have the right to receive reasons for the revocation of their privileges.
  3. Physicians have the right to expect that their privileges will only be revoked for reasons that are:
    1. substantial;
    2. transparent, fair, and in accordance with hospital by-laws; and
    3. in the best interest of the hospital.
  • Note: revoking privileges to resolve interpersonal conflict in a hospital could ensure proper hospital functioning and, therefore, could be viewed as being in the hospital's best interest. Problems arise, however, when the hospital decision makers are partial and use the board's power to strengthen one faction.