COURT OF APPEAL SUMMARIES (JULY 7 TO JULY 11, 2014)

Hi everyone.  Below are this week’s Court of Appeal summaries.  Topics covered this week included child welfare, executive compensation, MVA, Rule 49, Insurance coverage/exclusions, the intersection between bankruptcy and construction law, defamation, mistake of fact, statutory and contract interpretation, and summary judgment.

Enjoy the weekend. 

John Polyzogopoulos
Blaney McMurtry LLP
jpolyzogopoulos@blaney.com
Tel: 416.593.2953
http://www.blaney.com/lawyers/john-polyzogopoulos

 

Peoples Trust Company v Rose of Sharon (Ontario) Retirement Community, 2014 ONCA 533 [Endorsement]
[Feldman, MacPherson and Cronk JJ.A.]
Counsel:
J. Baichoo, for the appellant 2383431 Ontario Inc.
C. P. Prophet and H. Murray, for the respondent Peoples Trust Company
L. Brzezinski (Blaneys), for the respondent Deloitte & Touche Inc. in its capacity as court-appointed Receiver of Rose of Sharon (Ontario) Retirement Community

Keywords: Commercial Litigation, Motion, Adjournment, Discretion

Facts:
The appellant, 2383431 Ontario Inc. (“238”), became the assignee of a second mortgage on the property three months before the scheduled settlement hearing. On the hearing date, 238 wanted an adjournment but the motion judge did not grant one. 238 asserts it had no notice of the hearing and that it only retained counsel a day before.

Issue:
Did the motion judge err by not granting an adjournment on the hearing date to enable 238 to consider its position and file material?

Holding:
Appeal dismissed.

Reasoning:
The motion judge did not err because granting or refusing an adjournment is discretionary and is “entitled to deference on appellate review.” There is no basis for interfering with the motion judge’s decision.

Peoples Trust Company v Rose of Sharon (Ontario) Retirement Community, 2014 ONCA 534  
[Feldman, MacPherson and Cronk JJ.A.]
Counsel:
J. Baichoo, for the appellant.
C. P. Prophet and H. Murray, for the respondent Peoples Trust Company
L. Brzezinski (Blaneys), for the respondent Deloitte & Touche in its capacity as court-appointed Receiver of Rose of Sharon (Ontario) Retirement Community

Keywords: Commercial Law, Priority Motion, Lien Reference, Construction Lien, s.243 Bankruptcy and Insolvency Act

Facts:
The appellant, Unimac Group Ltd. appealed an order of the Superior Court which declared that the respondent, Peoples Trust Company, was entitled to priority over all other interests that were claimed in various “Life Lease” units in Toronto’s Rose of Sharon (Ontario) Retirement Community, save for all valid and prior construction lien claims. The appellant argued that the motion judge erred in his determination of the Priority Motion, which had been brought by the respondent and was separate from the Lien Reference, in which the appellant was a significant participant. The appellant also argued that the motion judge erred in his decision to not give effect to the appellant’s security and equity interests at the Priority Motion.

Issues:
(1) Did the motion judge err in his determination of the Priority Motion?
(2) Did the motion judge err in his decision to not give effect to the appellant’s security and equity interests at the Priority Motion?

Holding:
Appeal dismissed.

Reasoning:
(1) No. The appellant’s submission ignored two factors. Initially, the bifurcation of the security and construction lien issues had derived from a prior court order, which was not appealed by either party. In a later component of the priority of the security proceedings, the appellant had made submissions regarding the lien and construction lien component of the proceedings. On these issues, Mesbur J. in her endorsement held that the construction lien in question was being dealt with in a separate construction lien action and that when the quantum of the lien was determined, the issue of priority would then be decided in the greater receivership application. The appellant had not appealed that decision. The motion judge’s order preserved the issues surrounding the construction lien and recognized that the two streams would eventually amalgamate.

(2) No. The court held that there was no grounds for appeal on this issue and agreed with the motion judge’s rejection of these claims. Any concern on the part of the appellant that the receiver would make distributions to Peoples Trust Company and that the appellant would receive nothing was misplaced. The receiver was simply collecting assets at this time and could not make any distribution until all claims, including the appellant’s, were dealt with by the court.

Foulidis v Baker, 2014 ONCA 529
[MacPherson, Watt and Benotto JJ.A.]
Counsel:
P. J. Pape and A. M. Bolieiro, for the appellant
G. Tighe and S. Thiele, for the respondent

Keywords: City Council, Untendered Lease Contract, Defamatory Letter, Qualified Privilege

Facts:
Tuggs Inc. (“Tuggs”) operated the Boardwalk Café in the Beaches area of Toronto under a long-term (20 year) exclusive lease. In 2006, Foulidis prepared a proposal on behalf of Tuggs promising an investment of $20,000,000 in the Boardwalk Café in return for another long-term lease. In 2007, City Council voted to approve the Tuggs proposal and began negotiations. This decision attracted media attention. In 2010, Baker filed his nomination papers as a candidate for City Council in the election, and made the untendered nature of the Tuggs deal an issue in his campaign. On the day that City Council was to vote on the Tuggs lease, Baker delivered a letter marked “confidential” to the City Clerk asking for a full audit of election finance donations and a full investigation by Toronto Police. City Council voted to approve the Tuggs lease. Foulidis brought an action against Baker for defamation. The trial judge concluded that Baker’s letter was protected by qualified privilege. The appellant appealed.

Issues:
(1) Did the trial judge err in finding that the statements made in
Baker’s letter:
            (a) gave rise to qualified privilege?
            (b) were not motivated by malice?
(2) Did the trial judge err in making a costs order against the plaintiff at trial?

Holding:
Appeal dismissed in its entirety. The Baker letter had been delivered to City Council on an occasion of qualified privilege.

Reasoning:
(1)(a) No. There was no palpable and overriding error in the trial judge’s finding that the letter was protected by qualified privilege. The timing and manner of the communication were reasonably appropriate. The letter was only sent to a restricted constituency and was treated as “confidential.”

(1)(b) No. There was no palpable and overriding error in the trial judge’s finding that the defendant was not motivated by malice. The trial record was barren of any evidence that Baker directed animosity or ill-will towards Foulidis.

(2) No. The trial judge did not err in principle nor make an award that was plainly wrong by refusing to deny the defendant his costs. Baker acted in the public interest, not irresponsibly, abusively or offensively.

Foulidis v Ford, 2014 ONCA 530
[MacPherson, Watt and Benotto JJ.A.]
Counsel:
P. J. Pape and A. M. Bolieiro, for the appellant
G. Tighe and S. Thiele, for the respondent

Keywords: Municipal Election Campaign, Media Interview, Libelous Remarks

Facts:
During the municipal election campaign in 2010, Councillor Robert Ford, a candidate for mayor of the City of Toronto, was interviewed by the editorial board of the Toronto Sun newspaper. His platform called for greater accountability and transparency at City Hall. In the interview, Mr. Ford made critical comments about a City contract with the Boardwalk Café, a restaurant owned by Tuggs Inc. (“Tuggs”), located in the Beaches area of Toronto on City property. Foulidis was involved in the operation of the restaurant. He sued Mr. Ford for libel. The action was dismissed. The appellant appealed.

Issues:
(1) Did the trial judge err by concluding that Mr. Ford’s words did not refer to Mr. Foulidis?
(2) Did the trial judge err in concluding that Mr. Ford’s words were not defamatory?
(3) Did the trial judge err in awarding costs to Mr. Ford?

Holding:
Appeal dismissed.

Reasoning:
(1) No. Mr. Ford’s words referred only to the “Tuggs deal,” never to Mr. Foulidis personally. The focus of Mr. Ford’s criticism was on the role of City Council in approving the deal, not Mr. Foulidis. Therefore, Mr. Foulidis was not the target of Mr. Ford’s words.

(2) No. Mr. Ford only voiced a suspicion of corruption. The focus of his words was on the decision-making process at City Council, and he explicitly disavowed accusing anyone of corruption. Therefore, he clearly and explicitly prevented any defamatory meaning being perceived from his statements.

(3) No. The costs award in favour of Mr. Ford was appropriate given that there was no reason for the court to express disapproval of his statements. Mr. Foulidis was not the target of Mr. Ford’s words. Mr. Ford’s words were not abusive nor insulting towards Mr. Foulidis.

Asco Construction Ltd. v Epoxy Solutions Inc., 2014 ONCA 535
[Sharpe, Simmons and Benotto JJ.A.]
Counsel:
A. Assuras, for the appellant
S. Bond, for the respondent

Keywords:  Civil Procedure, Pleadings, Breach of Contract, Doctrine of Common Mistake

Facts:
The respondent was a contractor who had been hired by the City of Kingston to renovate the Grand Theatre. The appellant was the successful bidder for the epoxy flooring component thereof. The appellant’s bid included a sketch provided by the respondent that depicted certain elevations of the theatre. The appellant, having won the tender, contracted with a surveyor to verify the elevations as sketched. When the elevations were shown to be inaccurate, the appellant requested an increase in the contract price to account for the additional work required. The respondent insisted that the contract be performed as agreed to; when the appellant refused to begin without an appropriate adjustment in price, the respondent sued for breach of contract. The appellant was successful at trial, with the trial judge finding that the fault was the respondent’s. This decision was overturned on appeal, with the Divisional Court finding that the doctrine of common mistake applied to render the contract void.

Issues:
(1)   Was the Divisional Court correct to find that the doctrine of common mistake applied despite the fact that it had not been pleaded?
(2)   In any event, was the doctrine of common mistake correctly applied?

Holding:
No to both issues; the decision of the Divisional Court is set aside and the trial judgment is restored.

Reasoning:
(1)   The Divisional Court was wrong to apply the doctrine of common mistake on its own initiative. It is settled law that courts should not decide issues on grounds that are not advanced or argued by the parties. In this case, neither of the parties had pleaded the issue of common mistake, no evidence and no argument was put forward on this issue upon which the Divisional Court might have properly based its decision.

(2)   In any event, the doctrine of common mistake was incorrectly applied by the Divisional Court. It was found at trial that the respondent was at fault for the misunderstanding, and the law provides that a party at fault cannot rely upon its own mistake in order to avoid a contract. In addition, the fact that the sketches were provided to the appellant as part of the tender process created a representation upon which the appellant was entitled to rely. Finally, the respondent claimed damages for breach of contract, therefore affirming the contract, and disentitling it from relying on the doctrine of common mistake.

Longo v MacLaren Art Centre, 2014 ONCA 526
[Feldman, Rouleau and Hourigan JJ.A.]
J. J. Adair, for the appellant
A. B. Schwisberg, for the respondent

Keywords: Damage to Artwork, Summary Judgment, Genuine Issue Requiring Trial, Limitations Act, Hearsay Evidence

Facts:
The appellants owned a plaster sculpture entitled Walking Man. While on loan to the respondent MacLaren Art Centre (“MacLaren”), the sculpture suffered extensive damage. The appellants claimed damages for the sculpture’s destruction. MacLaren brought a motion for summary judgment, submitting that the claim should be dismissed because the appellants had not established liability on the part of MacLaren and the claim was statute barred. MacLaren also sought judgment on a counterclaim for storage costs. The motion judge granted the motion for summary judgment, and granted judgment on the counterclaim. This conclusion was reached based on hearsay evidence of a telephone call that took place in 2007 between the appellants and the respondent in which information regarding damage to Walking Man was allegedly conveyed. The appellants appealed.

Issues:
(1) Did the motion judge err in finding that the plaintiff’s action was statute barred under s.5(1) of the Limitations Act?
(2) Did the motion judge err in awarding the defendant total storage costs incurred for the plaintiff’s sculpture?

Holding:
Appeal allowed. Motion judge’s order dismissing the appellants’ action and awarding the respondent judgment on its counterclaim set aside.

Reasoning:
(1) Yes. The motion judge made a palpable and overriding error in concluding that the claim was statute barred. Although the motion judge was permitted to rely upon hearsay, he could not make a finding that was based on a misapprehension of the evidence. It was not clear that the appellants were aware of all the information enumerated in s.5(1)(a) of the Limitations Act, 2002 from the telephone call in 2007, but only after inspecting the sculpture in 2008. The motion judge erred in concluding that there was no genuine issue requiring a trial as to whether the plaintiff’s claim was statute barred. That issue could only be determined with the benefit of a fuller evidentiary record at trial.

(2) Yes. There was no analysis in the motion judge’s endorsement regarding the conflicting evidence or any factual findings. Instead, he simply awarded judgment. Since meaningful appellate review is not possible if the decision of the court below does not provide some insight into how the legal conclusion was reached and what facts were relied upon in reaching that decision, the judgment on the counterclaim was set aside.

Talon International Inc. v Far East Aluminium Work Canada Corp., 2014 ONCA 539 [Endorsement]
[Laskin, MacFarland and Lauwers JJ.A.]
Counsel:
M. Tamblyn and R. Hauk, for the appellant
G. Grenier, for the respondent

Keywords: Application, Settlement Agreement, Summary Judgment

Facts:
In the lower court, the appellant asserted that the respondent did not comply with paragraph 6 of the Settlement Agreement between the parties dated December 2012. The appellant raised three items of complaint within the paragraph. The application judge found that none of the items were contractually required, and also found as fact that each of the items had nonetheless been delivered. The appellant argues that this case should not have been decided summarily and should have been sent to trial. The appellant also pursues on appeal two of the three original items of complaint from the lower court.

Issues:
Whether the application judge erred:
(1) in his finding that none of the items raised by the applicant were contractually required; and
(2) in deciding the case summarily instead of sending it to trial.

Holding:
Appeal dismissed.

Reasoning:
(1) The Court accepted the trial judge’s finding of fact on both items of complaint with regard to the Settlement Agreement. There was sufficient evidence to refute the first item of complaint, regarding “as-built” drawings. Further, the appellants’ reliance on a provision in the architectural specifications in support of the second item of complaint was in error. The Court found that provision did not encompass the issue and the respondent’s efforts met the specification’s requirements.  

(2) The Court cited Hryniak v Maudlin, 2014 SCC 7 in concluding that the standard of fairness is whether the application judge had confidence to find the necessary facts and apply the relevant legal principles so as to resolve the dispute.

Children’s Aid Society of Oxford County v WTC, 2014 ONCA 540
[Hoy A.C.J.O., Feldman and Simmons JJ.A.]
Counsel:
J. Schuman and R. Healey, for the appellant
L. Glass, for the respondent
R. E. Charney and B. Ellis, for the Ministry of the Attorney General

Keywords: Family Law, Adoption, Best Interests of the Child, Charter Section 7, Appeal Delays

Facts:
The child, L.H., was placed with prospective adoptive parents at age two in 2009. The appellant child’s mother brought a status review application to regain custody of her child. The child remained in the care of the prospective adoptive parents until age six when the final appeal was heard by the Court of Appeal in July 2013. The child’s mother argued that the institutional delay in having the case go to final appeal effectively rendered the outcome of the appeal process a fait accompli by extending the time that the child remained in the care of the prospective adoptive family to four years, creating the opportunity for the child to bond with that family. She claimed that this made it inevitable that the court’s “best interests” assessment would favour a Crown wardship/no access order.

Issue:
Was the mother deprived of her Charter s.7 right to security of the person due to inordinate institutional delays in the appeals process?

Holding:
Appeal dismissed.

Reasoning:
No. The delays in the case did not cause the substantive prejudice that the mother alleged. The evidence did not suggest that the child would have been returned to her mother’s care but for the delay in the Crown wardship proceedings. On one hand, fresh evidence showed that the mother had continued to improve her situation considerably. On the other hand, fresh evidence confirmed that the child was thriving as a member of her new family and that it would be potentially harmful if she had to undergo another move. It was therefore in the best interests of the child to remain a Crown ward with no access so that she could be adopted by the prospective adoptive parents whom she had been living with for over four years.

Unique Broadband Systems, Inc. (Re), 2014 ONCA 538
[Sharpe, Gillese and Hourigan JJ.A.]
Counsel:
C. I. Cole and B. Na, for the appellant
J. Groia and T. Okun, for the respondent

Keywords: Corporations, Shareholders,Wrongful Dismissal, Officers and Directors, Executive Compensation, Golden Parachute, Breach of Fiduciary Duty, Business Judgment Rule, Indemnification of Directors and Officers, Contract Interpretation, Oppression Remedy, Trial Costs, Remitted to Trial Judge

Facts:
Gerald McGoey was the CEO of Unique Broadband Systems (“UBS”). UBS alleged that the former Board, of which McGoey was a member, breached its fiduciary obligations to the company. The former Board restructured the share incentive plan and bonus pool in a manner that resulted in a $1.2 million dollar bonus payable to McGoey. This decision was met with resistance from the shareholders which resulted in a special shareholders’ meeting being held. At this meeting, McGoey and other directors were removed from the Board. McGoey resigned as the CEO and took the position that he was terminated without cause because he was not re-elected to the UBS Board. McGoey’s management agreement included provisions that if he was terminated without cause, he would be entitled to receive “enhanced severance”.

McGoey commenced an action against UBS seeking payment of enhanced severance of $9.5 million. UBS was granted CCAA protection and it was ordered that McGoey’s lawsuit must be determined pursuant to that Act. The monitor disallowed McGoey’s claim in its entirety and a trial was ordered on the issue. The trial judge ordered UBS to pay McGoey’s claim for an enhanced severance payment and UBS appealed that decision. The trial judge dismissed McGoey’s claims for payment of the bonus and indemnification for legal and other expenses and McGoey cross-appealed from that decision.

Issues:
(1) Did the trial judge err in finding that Mr. McGoey breached his fiduciary duties to UBS?
(2) Did the trial judge err in finding that Mr. McGoey was not entitled to indemnification from UBS?
(3) Did the trial judge err in finding that Mr. McGoey was entitled to enhanced severance under the Jolian Management Services Agreement? (4) Did the trial judge err in failing to consider the oppression remedy argument advanced by UBS?  

Holding:
Appeal granted, cross-appeal dismissed.

Reasoning:
(1) McGoey’s position was that any decisions made with respect to the bonus structure were done with the advice of legal counsel and were protected by the business judgment rule. The Court disagreed with McGoey’s position and held that the trial judge’s finding that he breached his fiduciary duties was well supported by the evidence. The trial judge correctly rejected McGoey’s argument that decisions were made on the basis of legal advice. The Board never sought an opinion regarding the reasonableness of the changes made to the bonus structure. With respect to the business judgment rule, the Court stated that it is “really just a rebuttable presumption that directors or officers act on an informed basis, in good faith, and in the best interests of the corporation”. However, where evidence rebutted that presumption, t a court would not sit idly when it was clear that a board is in breach of its fiduciary duties and that in the present case, it was clear that McGgoey was not acting in good faith and with a reasonable belief that his actions were in the interests of the company.

(2) The trial judge correctly concluded that given the finding of a breach of fiduciary duty, the indemnity obligations were not operative. Under the UBS by-laws, indemnification was “only available if the director acted honestly and in good faith with a view to the best interests of the corporation”.

(3) The judge erred in law in finding that McGoey was entitled to enhanced severance under the management agreement. The trial judge’s interpretation of the agreement relieved McGoey’s obligation to act in a manner consistent with his fiduciary duties and led to a commercially absurd result that was not consistent with the intentions of reasonable business people in a commercial transaction. There was no severance payable under the management agreement where there was serious misconduct, and the breach of fiduciary duty in this case was such misconduct. This interpretation was commercially sensible and resulted in an interpretation that was not inconsistent with the OBCA.

(4) Having interpreted the management services agreement as not entitling McGoey to enhanced severance, it was not necessary to consider UBS’s argument that the trial judge erred in not considering the oppression remedy. The Court went on to state that the setting aside of the bonus structure award did not cure McGoey’s wrongful conduct and thus the oppression remedy provided an opportunity to protect the interests of the shareholders and should have been considered.

(5) Regarding costs, the trial judge had ordered no costs because of the divided success at trial. However, as UBS was successful on appeal, it was entitled to its trial costs and if the parties could not agree on those costs, they should be determined by the trial judge.

Matheson v Lewis, 2014 ONCA 542
[Juriansz, Tulloch and Strathy JJ.A.]
Counsel:
S. S. Appotive and M. E. W. O’Halloran, for Lanark Mutual Insurance Company
P. Muirhead, for Gary Wayne Lewis and GMAC Leasco Limited
R. E. Houston, Q.C., for the respondents

Keywords: Insurance Coverage, Motor Vehicle, Compulsory Automobile Insurance Act, Statutory Interpretation

Facts:
The primary question on appeal was whether the unmodified all-terrain vehicle (ATV) of the respondent farmer was a “self-propelled implement of husbandry” and therefore not subject to the Compulsory Automobile Insurance Act (the “Act”). The respondent was driving his uninsured ATV on a public highway located just outside his farm property when he was negligently struck by the appellant’s truck, causing severe and permanent physical and cognitive damage. The farmer and others sued the truck driver, the owner of the truck and his own insurer. The farmer brought a motion to determine whether his action was statute-barred because the ATV was uninsured and also sought a declaration that he could collect statutory accident benefits even though the ATV was uninsured. At issue on the motion was whether the ATV constituted an included vehicle under the Act such that the owner’s claim against the truck driver was statute barred by reason of the vehicle being uninsured. The respondent had advanced the theory that the ATV constituted a “self-propelled implement of husbandry”, meaning that it was not covered by Act, and any claims were therefore permitted. A “self-propelled implement of husbandry” is defined in the Highway Traffic Act as including only those self-propelled vehicles that are “manufactured, designed, redesigned, converted or reconstructed for a specific use in farming.” While the respondent’s ATV had been in no way redesigned, converted or reconstructed since its manufacture, the motion judge nonetheless agreed that it constituted a self-propelled implement of husbandry, finding that ATVs had become essential modern-day farming equipment, and that “the statutory and regulatory definitions [had] not kept pace” with developments in farming practice.

Issues:
Did the motion judge err in holding that the ATV was a “self-propelled implement of husbandry”?

Holding: 
Appeal allowed.

Reasoning:
Yes. The proper role of the court is to interpret and apply the laws enacted by the legislature. No principle of statutory interpretation allows a court to decline to apply legislation when it is of the opinion that such legislation has not kept pace with changes in society. As a result, the motion judge strayed outside of the role of the court by failing to properly inquire as to the legislative intent behind the statute. Here, section 15 of the Off-Road Vehicles Act provides specifically that the make and model of ATV used by the respondent is to be classified as an “off-road vehicle” , meaning that it is not a “self-propelled implement of husbandry”. The motion judge failed to appreciate that each of the Highway Traffic Act, the Off-Road Vehicles Act, the Insurance Act and the Act are all components of one harmonious, comprehensive scheme. As a result, the ATV in question clearly falls within definition of motor vehicles for which the legislature intended that insurance be mandatory for use on public roads, and is therefore not a “self-propelled implement of husbandry” exempt from the application of the Act. All claims are therefore statute barred by reason of the respondent’s use of an uninsured motor vehicle on a public road at the time of the accident. 

Elbakhiet v Palmer, 2014 ONCA 544
[Rosenberg, Cronk and Tulloch JJ.A.]
Counsel:
C.G. Paliare and A. K. Lokan, for the appellants
A. Rouben, for the respondents

Keywords:  Insurance Defence, Motor Vehicle Accident, Costs, Rule 49 Rules of Civil Procedure, Offers to Settle, Whether Trial Judgment as Favourable as Offer, Proportionality between Judgment Award and Costs

Facts:
The appellant Palmer’s vehicle rear-ended a vehicle driven by the respondents. They were travelling at a low speed, but one of the respondents in the backseat claimed she suffered post-traumatic headaches, whiplash-related symptoms, depression and a traumatic brain injury leading to post-concussive syndrome. The respondents claimed nearly $2 million in damages. The respondents made one offer to settle and the appellants made two offers to settle. The appellants’ first offer to settle was for $120,000 plus costs as agreed or assessed to the date of the offer. The second offer was for $145,000 plus prejudgment interest and costs. It was dated February 9, 2012 and served February 10, 2012. The respondents made one offer to settle on February 9, 2012 for $600,000 plus costs as agreed or assessed on a partial indemnity basis to the date of the offer and on a substantial indemnity basis thereafter. The jury awarded $144,013.07 in damages and the judge awarded $578,742.28 in costs, inclusive of disbursements and taxes. At issue on the appeal was the scale of costs ordered by the trial judge taking into account the various offers to settle and whether there were rule 49 costs consequences as a result of the offers to settle.

Issues:  
(1) Was the appellants’ second offer to settle made at least seven days before the commencement of the hearing as required by Rule 49.10(2)?
(2) Did the appellants prove that the respondents obtained a judgment as favourable as or less favourable than the terms of the second offer to settle?
(3) Even if the second offer to settle did not meet the requirements of Rule 49.10, did the trial judge err in awarding the respondents their costs on a partial indemnity basis ($578,742.28) despite the respondents’ modest success at trial and the offers to settle made by the appellants?

Holding:
Appeal allowed. The trial judge’s cost order was set aside and the award was reduced to $100,000, inclusive of disbursements and HST.

Reasoning:
(1) Generally, for the purposes of Rule 49, a jury trial commences when the evidence has begun to be heard. “Hearing” refers to other types of proceedings, other than trials. However, both “hearing” and “trial” can have narrower or broader interpretations. The offer was served by the respondents on February 10 and the calling of evidence did not begin until February 22. The appellants’ second offer to settle was made at least seven days before commencement of the hearing.

(2) This issue is distilled into two sub-issues:

(A) Whether the offer was sufficiently certain or clear: The offer does not specify to which part of the judgment the interest rate should apply. The problem was that “the provision for prejudgment interest […] neither provides for a specified amount nor a specified rate, because the rate varies depending upon the element of the claim.” The uncertainty was minute and did not prevent the respondents from fairly determining whether to accept the offer or not.

(B) Whether the appellants established that the offer did exceed the judgement: The appellants argued that there is a general understanding that interest at 5% should apply to the entire offer, but they did not submit any evidence. The judgment and offer “were sufficiently close that only by making some arbitrary distribution of interest could the appellants establish that their offer exceeded the judgment.” The appellants did not meet the burden of proof in Subrule 49.10(3) to show that the offer exceeded the judgment.

 (3) Under Subrule 49.10(2), the defendant is entitled to costs when the plaintiff’s judgment is “as favourable as or less favourable than the terms of the offer to settle,” unless the court orders otherwise. Rule 49.10 is narrowly construed to confer a benefit on the defendant. But a “party that is close to meeting the judgment is not entitled to an award of costs as if they did provide a successful offer.” The appellants would have to show that the trial judge erred in principle on Rules 49 and 57. The trial judge did err because she gave no consideration to Rule 49.13, which she ought to have done because the offer to settle was virtually the same as the judgment. The trial judge also erred with regards to Subrule 57.01(1)(a). Even though the jury preferred the defence theory of the case, she did not give this any weight. Instead she “relied upon her own view of what the case was worth.”

O’Byrne v Farmers’ Mutual Insurance Company (Lindsay), 2014 ONCA 543
[Epstein, Pepall and van Rensburg JJ.A.]
Counsel:
M. P. Forget and E. Reynolds, for the appellant
R. N. Kostyniuk, Q.C. and G. Pribytkova, for the respondents

Keywords: Insurance, Damage, Insurance Act Sections 136 & 131, Proof of Loss, Mechanical Exclusion, Pollution Exclusion

Facts:
The respondents owned a building in Minden, Ontario. A tenant in the building had inserted a piece of cardboard into the primary control of the furnace in order to keep it in constant “hot” operation while she was away. This resulted in a significant spill of heating oil from the furnace. The appellant insured the building pursuant to an “all-risks” insurance policy, but denied coverage for the damage caused by the leaked oil based on a pollution exclusion. Litigation ensued. The trial judge found in favour of the respondents. The appellant appealed.

Issues:
(1) Did the trial judge err in refusing to dismiss the action on the basis that the respondents had failed to deliver a proof of loss?
(2) Did the trial judge err in failing to apply the “mechanical breakdown or derangement” exclusion in the insurance policy?
(3) Did the trial judge err in failing to apply the pollution exclusion in the insurance policy?

Holding:
Appeal dismissed.

Reasoning:
(1) No. Section 136 of the Insurance Act requires a proof of loss to be filed before any insured may commence an action under a contract of insurance. Section 131 of the Insurance Act provides that no term or condition of a policy is waived by the insurer unless it is stated in writing and signed by a person in authority. The appellant had elected to communicate with the respondents about their coverage through an adjuster, and the adjuster spoke for the insurer. The adjuster had advised that the loss was not covered, and did not subsequently advise the respondents that a proof of loss would need to be filed in order to pursue a claim. Therefore, the appellant waived the proof of loss requirement through the independent adjuster.

(2) No. The words “mechanical breakdown or derangement” denote a failure in the operation of a piece of equipment due to a defect. The furnace in question was well-maintained and had no internal defect. The cause of the loss was the tenant’s external interference with the furnace. The risk of a tenant doing an “unexpected act” was not intended to be captured by the exclusion.

(3) No. The pollution exclusion did not apply because on a plain reading, the clause would only apply if there was another operative exclusion. The only other exclusion relied upon by the appellant was for “mechanical breakdown or derangement” which the court refused to accept. The damage that occurred here was therefore not excluded.

The information contained in our summaries of the decisions is not intended to provide legal advice and does not necessarily cover every matter raised in a decision. For complete information or for specific advice, please read the decision or contact us.

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