Income Replacement Benefits Subject to Garnishment

Posted on November 26, 2008 by Stephen Cavanagh

Mr. Justice John Cavarzan has held, in Lease Truck Inc. v. Serbinek, that a creditor of an insured is entitled to garnishment of income replacement benefits. Once it receives notice of the garnishment, the insurer paying the accident benefits is obliged to pay 20% of the IRB to the creditor. (Justice Cavarzan ruled that 80 percent of the benefit is exempt from seizure by virtue of section 7(2) of the Wages Act.)

Counsel for the insured had relied on s. 65(1) of the Statutory Accident Benefits Schedule – Accident on or after November 1, 1996, which prohibits the “assignment of a benefit”. However, Justice Cavarzan held that a seizure or attachment was not within the s. 65 reference to “assignment”.

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Insurer Added as Third Party Under Insurance Act Permitted to Examine Insured for Discovery

Posted on November 17, 2008 by Stephen Cavanagh

Corrigendum: Our reference to the Master’s consideration of an Alberta case, Thompson v. McCallum, erroneously contained the following passage: “The insurer suspected that the insured had, in fact, been the driver.” The sentence should read, “The insurer suspected that the plaintiff had, in fact, been the driver.” The correction has been made in the body of the post.

Kapileshwar v. Sivarajah is an interesting decision of Master Ronald Dash. It deals with some of the problems that can arise where an auto insurer exercises the right conferred by s. 258(14) of the Insurance Act and has itself added as a statutory third party in an action against its insured. That right is given to the insurer where it denies coverage under the contract of insurance.

In this case, the issue before Master Dash was whether the insurer (ING), having added itself as a third party in the action against its insured, had the right to examine the insured for discovery.

(The insured had not defended the action, which was one for personal injuries arising out of a motor vehicle accident, and had been noted in default. Once ING had been added as a statutory third party, it pleaded that the accident had been staged, that there had been no collision between vehicles and that the plaintiff was not injured.)

On this motion, the question was whether ING had a right to examine its insured.

Master Dash noted that for a right of examination to exist under Rule 31.03(3), the party sought to be examined must be adverse in interest to the proposed examining party. Could the requisite adversity ever exist between an insurer and its own insured? He held that it could (although rarely). However, we think that there was a better way to arrive at the same conclusion and we’ll get to that in a moment.

The Master reviewed the legislation and the caselaw decided under it. Citing Bortuzzo v. Barna, [1986] O.J. No. 2888, 54 O.R. (2d) 598 (S.C.O.) and a more recent New Brunswick decision, Parlee v. Pembridge Insurance Co. 2005 NBCA 49 (CanLII), [2005] N.B.J. No. 174, 253 D.L.R. (4th) 182 (N.B.C.A.), he concluded:

The insurer, in defending the plaintiff’s claim in its capacity as statutory third party, notwithstanding coverage issues between it and its insured, must defend against the plaintiffs’ claim in the same manner as if it had accepted coverage and put in a defence on behalf of its insured. In defending the plaintiff’s claims it cannot take a position contrary to the interests of its insured and in fact must act in the best interests of its insured.

The Master went on to observe that issues between the insurer and the insured are not to be decided in the plaintiff’s action against the insured, with one exception, a third party action under Rule 29:

The only time coverage issues may be raised in the original action brought by the plaintiff is if the defendant chooses to put in a defence and adds his insurer as an ordinary procedural third party under rule 29.01 in order to seek indemnity for the claims of the plaintiff. Then the issue would be decided in the third party action, which may or may not be tried with the main action.

This proposition makes sense. If an insured did not have the right to have the coverage issue determined in a third party action, an insured to whom coverage has been wrongfully denied by the insurer could end up with a judgment against him or her and only then have the right to sue for a determination of the coverage issue. Permitting the insured to bring a third party claim against the insurer sees to it that the liability of the insurer to the insured is determined at the same time as the liability of the insured to the plaintiff.

However, that’s not what some of the cases have said. For instance, it was held in Chapman v. Ghesquiere (1998), 39 O.R. (3d) 687 (Gen. Div.) that once an insurer has become a statutory third party under the Insurance Act, its insured cannot issue a third party claim against it. There, Justice Leitch followed the reasoning of Justice Cavarzan in Merrill v. Sommerville, (1992), 11 O.R. (3d) 444, [1993] I.L.R. 1-2902 (Gen. Div.), who said:

[R]ule 29.01 cannot operate to bring in an insurer as a full-fledged third party, where an insurer has already obtained the special, limited third party status conferred by s. 226 of the Insurance Act. This would not be a rule “supplementing” the Insurance Act provision; rather, it would be a rule nullifying it.

We don’t find this reasoning as persuasive as did Justice Leitch in Chapman. Although both s. 258(14) and Rule 29 speak about a “third party”, the two concepts are completely different. An insurer added under the Insurance Act might more aptly be described as an “intervenor”. Permitting an insured to sue the insurer on the coverage dispute in a third party claim is not at all inconsistent with the insurer defending the allegations against the insured in the main action. Prohibiting an insured from having the coverage issue litigated concurrently with the main action means that the insured might have a long wait between judgment being entered against him or her and having a determination of his or her right to indemnity from the insurer.

So, on the authorities, it appears that Master Dash’s endorsement of an insurer being both a third party under the Insurance Act and a R. 29 third party, is not supported. But we think it should be.

Back to the issue in this case: could ING examine its insured?

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C.A. Applies “Litigating Finger” Test to Add Defendants After Expiry of Limitation Period

Posted on November 17, 2008 by Stephen Cavanagh

In June, the Court of Appeal laid to rest a dispute that had persisted for more than four years: do courts still have the power to allow defendants to be added to actions after the expiry of the limitation period, on the basis of “special circumstances”? In a pair of rulings–Joseph v. Wonderland and Meady v. Greyhound–the Court held that for claims arising after January 1, 2004 (when the Limitations Act, 2002 came into force), the “special circumstances” power no longer exists (at least for causes of action whose limitation period is now found in the new Act: see below…)  Our discussion of those two cases can be found here.

On November 14, the Court of Appeal considered the Limitations Act, 2002 again in Spirito Estate v. Trillium Health Centre. However, the ruling made by Justices Rosenberg, Gillese and Blair was that, on the facts of this case, they did not have to interpret the Limitations Act, 2002.

The case was an appeal from a decision of Justice Katherine van Rensburg. She had granted a motion, brought by the plaintiffs in a medical malpractice action, to add two physicians as defendants after the expiry of the two-year limitation period under s. 38(3) of the Trustee Act.

(This limitation period, which applies to actions on behalf of a deceased person, has been preserved by section 19 of the Limitations Act, 2002. It runs from the date of death of the deceased. The Court of Appeal has previously held, and reaffirmed in Spirito, that the discoverability principle does not apply to actions governed by s. 38(3).)

In this case, the original statement of claim had named as defendants “Doctors AB, DC, EF, GH”. On the motion before van Rensburg J., the plaintiffs sought to substitute two named physicians for Drs. AB and DC, claiming that they had only been able to identify these doctors as a result of evidence obtained through the discovery process.

Key to the decision of Justice van Rensburg (and to that of the Court of Appeal) was that the original statement of claim had made very specific allegations that, as it turned out, were directly referable to the doctors whom the plaintiffs sought to add. She determined that naming these doctors as “AB” and “DC” in the original pleading had been a misnomer. In other words, the doctors had been sued within the Trustee Act limitation period but had been misnamed.

In coming to this conclusion, van Rensburg J. applied what is known as the “litigating finger” test for misnomer: “would a person having knowledge of the facts be aware of the true identity of a misnamed party by reading the Statement of Claim? If so, the defendant will be substituted unless there is prejudice that cannot be compensated for in costs or by an adjournment.”

The Court of Appeal agreed with van Rensburg J.  It elected not to decide whether the transition provisions found in s. 24 of the Limitations Act, 2002 applied to a case in which the claim is brought after January 1, 2004 but the limitation period is one preserved by s. 19 of the Act (as was the case here). It left that issue to another day. However, it proceeded to consider this case under both possible scenarios: if the Limitations Act, 2002 applied and if it didn’t.

If the Act did not apply, this case did not have to be decided on the basis of limitation periods, transition provisions or “special circumstances”. The members of the panel agreed with van Rensburg J., that this was merely a case of misnomer. The action had been commenced within the Trustee Act limitation period, but the two doctors had been misnamed as “AB” and “CD”. Applying the “litigating finger” test, the statement of claim had pleaded facts that sufficiently identified the two doctors. As the Court observed, what the plaintiffs were really doing was not adding parties but correctly naming existing defendants. No allegation of prejudice had been raised by the defendant doctors, so the Court held that there was no reason to interefere with Justice van Rensburg’s decision.

If the Limitations Act, 2002 did apply, the situation was no different. The defence argued the defence that s. 21(2) of the Act imposed a narrower test than the old law of “misnomer”. (Subsection 21(2) says that subsection 21(1) (which prevents the addition of defendants after the expiry of the applicable limitation period) “does not prevent the correction of a misnaming or misdescription of a party”.)

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Owner “Relinquished Dominion and Control” of Car, But Her Consent to Possession by Driver Still Necessary?

Posted on October 23, 2008 by Stephen Cavanagh

In Seegmiller v. Langer, Justice George R. Strathy reviewed the law with respect to when the owner of an automobile will be liable when someone else drives it and is involved in an accident. His reasons contain a useful review of the law concerning consent to possession of a vehicle and make it clear that an owner’s liability does not depend on consent to operation of the vehicle.

However, we are puzzled as to why, on the facts found by Justice Strathy, he did not conclude that the driver was the owner, such that no consent to possession of the vehicle was required.

The plaintiff was injured as a result of the negligence of the defendant Patrick Langer. The car that Patrick was driving had been leased by his girlfriend’s mother (“Linda”). Under the terms of the lease, Linda was to become the owner of the car at the end of the lease. She agreed with her daughter (“Kelli”) and Patrick to sell the car to them for what was then owing on the lease (about $700). She continued to pay for the insurance, but otherwise had nothing more to do with the car.

However, neither Kelli nor Patrick was licensed to drive. Their understanding with Linda was that they could not operate the car until they acquired their driver’s licences. When that happened, Linda was going to transfer the car’s registration to them.

On the day of the accident, Patrick and Kelli had taken the car without Linda’s consent. The accident in which the plaintiff was injured resulted from Patrick’s negligence.

In addition to suing Patrick and Linda, the plaintiff sued her own insurer, State Farm, on the uninsured motorist coverage in the policy. By the time of trial, the plaintiff’s claim had been settled, leaving only the dispute as to which insurer (State Farm or Linda’s insurer) was responsible to pay the claim.

Linda’s insurer took the position that it was not liable because, at the time of the accident, the car was in Patrick’s possession without Linda’s consent. Counsel for Linda’s insurer argued that Patrick’s conduct in taking the car had been “tantamount to theft” and that accordingly, that insurer was not liable.

Justice Strathy emphasized that the issue was not whether Patrick had Linda’s consent to drive the car: clearly, he did not. However, s. 192 of the Highway Traffic Act makes the owner of a car liable for the negligence of a driver of that car, “unless the motor vehicle or street car was without the owner’s consent in the possession of some person other than the owner or the owner’s chauffeur”.

Although it was not mentioned in the decision, the other relevant provision is to be found in the standard auto policy: “You are covered when you, or anyone else in possession of a described automobile with your consent, uses or operates it. We will consider these other people insured persons.” (paragraph 3.2)

Justice Strathy reviewed the caselaw and distilled from it the following eight principles:

  1. The question of whether a motor vehicle is in the possession of some person without the consent of the owner is a question of fact to be determined by the evidence in a particular case.
  2. The meaning of possession is a question of law but the application of that definition to any particular set of facts is not a question of law alone.
  3. Possession is a concept capable of different meanings and there are different types of possession. The primary definition of possession contemplates power, control or dominion over property.
  4. Once ownership of a vehicle is established, the onus passes to the owner to establish that the vehicle was, without the consent of the owner, in the possession of some person other than the owner.
  5. The owner’s vicarious liability under s. 192 is based on possession, as opposed to operation of the vehicle.
  6. Consent to possession of a vehicle is not synonymous with consent to operate it. Public policy considerations reinforce the importance of maintaining that distinction.
  7. If possession is given, the owner will be liable even if there is a breach of a condition attached to that possession, including a condition that the person in possession will not operate the vehicle.
  8. Breach of conditions placed by the owner on a person’s possession of the vehicle, including conditions as to who may operate the vehicle, do not alter the fact of possession.

Applying those principles to the facts of this case, HIs Honour concluded that Kelli and Patrick were in possession of the car with the consent of Linda. As a result, Linda’s insurer had to pay the claim.

(We’re oversimplifying a bit here. Linda’s insurer, of course, would have been entitled to deny coverage to Patrick, on the basis that he was in breach of statutory condition 4, in that he was operating the car without being authorized by law to do so: he was not licensed. However, that breach would not relieve the insurer of its “absolute liability” to the plaintiff under s. 258(4) of the Insurance Act. That liability is limited to $200,000. Here, the amount paid to settle the plaintiff’s claim was $150,000, so the policy defence would not have prevented the application of absolute liability. The insurer would be able to seek reimbursement from Patrick for the $150,000, under s. 258(13) of the Insurance Act. Patrick’s breach of statutory condition 4 would not have been a basis for the insurer to deny coverage to Linda unless she permitted him to drive, which does not appear to have been the case.)

Leaving that issue aside though, Justice Strathy’s conclusion, that Kelli and Patrick were in possession of the car with Linda’s consent, on the basis of the following findings of fact:

Linda had relinquished dominion and control over the Sunbird to Kelli and Patrick. She had given up the right to treat the Sunbird as her own and had transferred that right to Kelli and Patrick. If Kelli or Patrick had had the Sunbird towed to a repair yard or had sent it to a paint shop, Linda would have had no objection. She would have had no objection if Kelli or Patrick sold the Sunbird, sent it to a scrap yard or traded it in for another car, as long as she was paid the balance owing on the lease. In fact, she would have allowed them to drive the Sunbird, once they had their licences, even if they had not yet paid the balance owing. 

Given these facts, why was it even necessary to establish Linda’s consent? The evidence seems to us to point more strongly to Kelly and/or Patrick being the owner of the car, such that Linda’s consent was irrelevant.

True, Linda remained the registered owner of the car. But there have been many decisions that have held that registered title merely raises a rebuttable presumption of ownership: see Sonny v. Sonnylal, where Pitt J. has reviewed,in some detail, the caselaw about the incidents of “ownership”.

So, if Patrick were held to have been the owner of the vehicle, no question of consent would have arisen. There would still have been an issue with respect to his breach of statutory condition 4 (authority to drive), the absolute liability provisions of the Insurance Act and reimbursement of Linda’s insurer. Presumably though, if Patrick and Kelli between them were having difficulty paying off the last $700 owing on LInda’s lease, there wasn’t much prospect of Linda’s insurer getting paid $150,000 by Patrick.

There might have been a further wrinkle however. It was Linda who was paying the insurance premiums on this car. Justice Strathy’s reasons do not discuss this, but it seems likely that Linda’s insurer knew nothing about her having “relinquished dominion and control over the Sunbird to Kelli and Patrick”. In those circumstances, what insurable interest did Linda still have? Could her insurer not have argued that there had been a material change in risk (statutory condition 1)? If so, then s. 233 of the Act would have meant that his right to recover indemnity was forfeited.

But again, the absolute liability provisions of s. 258(4) of the Act would have required the insurer, even if there was a material change in risk, to pay the plaintiff up to $200,000 and then pursue recovery against Patrick.

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Limitation Period for MVA Pecuniary Claims Follows That of Non-pecuniary Claims, Says Superior Court

Posted on October 15, 2008 by Stephen Cavanagh

Hard on the heels of the Court of Appeal’s decision in Grewal v. Ivany, released last Friday, Mr. Justice Paul Perell has delivered reasons in Ng v. Beline that address one of the issues considered in Grewal: in personal injury claims arising out of motor vehicle accidents, are claims for pecuniary damages prescribed if not brought within two years?

In Grewal, the Court of Appeal said that “the issue whether [the plaintiff’s] pecuniary damages claim is statute-barred is best resolved on a full record. This will ensure that any consideration of this important issue by this court will be informed by a reasoned analysis in the courts below.” We posted a commentary about that decision yesterday.

Today,  Justice Perell released his decision in Ng, apparently without being aware of the ruling in Grewal. He also sent his case on to trial. But in doing so, he decided the legal issue that had been left open by the Court of Appeal in Grewal: whether a claim for pecuniary damages can be prescribed, even though a claim for non-pecuniary damages arising out of the same accident is not, by reason of the discoverability principle.

Ng was a claim that arose under the Bill 198 regime of the Insurance Act. The defendant moved for summary judgment, raising the following question:

When a person is injured in an automobile accident and suffers both (a) pecuniary (special) damages, which are not subject to any statutory threshold and also (b) non-pecuniary damages, which are subject to a statutory threshold, is a claim for pecuniary damages statute-barred if the person’s action is commenced more than two years after the discoverability of the claim for pecuniary [sic, should probably read, “non-pecuniary”] damages?

[There is a somewhat confusing passage in paragraph 3 of the decision, in which Justice Perell seems to have been labouring under the misapprehension that there is a $30,000 deductible that applies to claims for pecuniary damages. However, that error doesn’t affect the balance of the decision.]

Justice Perell referred to an earlier Court of Appeal decision, Chenderovitch v. Doe, which had also been cited in Grewal. In particular, he cited Moldaver J.A.’s conclusion, that in enacting s. 267.5 in the Bill 59 version of the Insurance Act, the legislature had intended to create separate causes of action for pecuniary and non-pecuniary damages claims (para. 23 of Chenderovitch). (Section 267.5 of the Insurance Act deals with the treatment of claims for damages for income loss, health care expenses and non-pecuniary damages. It sets out the “threshold” and deductibles in relation to the latter.)

Justice Perell felt that, applying common law principles, the plaintiff’s claim for pecuniary damages was certainly statute-barred, because the plaintiff had known, within days of the accident, that she had suffered economic loss but she did not sue until about 28 months after her accident.

But His Honour went on to hold that because of the legislative creation of more than one cause of action in motor vehicle cases,  a conventional common-law analysis was inappropriate. Rather, injured plaintiffs should, he said, have the benefit of the most favourable treatment possible:

In my opinion, the spirit and thrust of the Chenderovitch judgment is that with respect to the operation of limitation provisions, a plaintiff with an automobile accident claim should receive the most favourable treatment possible, and this means that the measure of whether he or she has a claim is governed by the discoverability of the claim for non-pecuniary damages, which is the claim that is subject to the threshold test. This approach, in effect, continues the approach from Peixeiro. In practical terms, the pecuniary claims may shelter under the limitation period for the non-pecuniary claims if those claims are not statute-barred.

The result of Justice Perell’s analysis was to transform the limitation period issue. The question became one of discoverability: when had the threshold nature of the plaintiff’s claim for non-pecuniary damages been discoverable? If that date was more than two years prior to the commencement of the action, then the claims for both pecuniary and non-pecuniary damages would be statute-barred. But if the commencement of the limitation period for the non-pecuniary damages claims was postponed by discoverability, to a point less than two years prior to the date of issuance of the claim, then the pecuniary damages claims would be rescued as well. A trial will be required to decide the fact-based discoverability issue.

The legal principle decided by Justice Perell was exactly the one that the Court of Appeal declined to deal with in Grewal, saying that it required a “full record” before doing so. In our commentary, we questioned whether a factual background was really necessary in order for this legal issue to be decided. Justice Perell seems to have held a similar view.

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C.A. Says “One in Four” Chance of Avoiding Accident Doesn’t Meet Causation Threshold

Posted on October 14, 2008 by Stephen Cavanagh

In a brief but interesting decision handed down today, the Court of Appeal allowed an appeal by a third party who had been found liable at trial. The trial judge had found  had that tortfeasor not been negligent, another tortfeasor’s chances of avoiding an accident would have been increased by a factor of “one in four”. The Court of Appeal held that this did not establish causation, so as to ground a finding of liability.

The case is Lawson v. Sullivan and the action arose from a rear-end collision in which the plaintiff’s vehicle was stopped on a roadway because Hydro Ottawa workers were working on overhead lines. The defendant Sullivan, whose car had struck the plaintiff’s vehicle, brought a third-party claim for contribution or indemnity against Hydro Ottawa, arguing that Hydro had failed to take adequate measures to alert approaching motorists that its operations were disrupting traffic.

The action was tried by Mr. Justice David McWilliam, who found 25% liability on the part of Hydro Ottawa. His decision rested on this finding:

I am satisfied that had Mr. Sullivan’s inattentiveness been jarred by flashing lights ahead, his chances of being able to stop in time would have increased by at least one in four given the speed at which he was driving which was not fast, and that is why I have assessed Hydro’s contributory negligence at 25 percent in all of the circumstances.

On the appeal, both sides conceded that the “but for” test of causation governed. Applying that test, the Court of Appeal ruled that the trial judge’s findings fell short of establishing causation. It noted that a one in four chance of avoiding the unfavourable outcome (here, the rear-end collision) meant that the likelihood of so doing was less than fifty-fifty. As a result, it could not be said that “but for” Hydro’s conduct, the accident would, more likely than not, have been avoided: “[w]ithout causation there can be no liability.”

On this basis, the Court allowed Hydro Ottawa’s appeal and dismissed the third party claim with costs.

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C.A. Opens Door to Multiple Limitation Periods in MVA Cases

Posted on October 14, 2008 by Stephen Cavanagh

[Addendum: Since this decision was released and our commentary posted, Mr. Justice Paul Perell has released reasons in Ng v. Beline that deal directly with the issue discussed in this post. It appears that neither the Court of Appeal nor Justice Perell were aware of each other’s decision. Justice Perell decided the very issue that the Court of Appeal chose not to in Grewal. See our commentary above.]

[Second addendum: After the release of Justice Perell’s decision in Ng, Stephen Ross, who was defence counsel in Grewal, has provided an extensive comment about both cases. It appears at the of this post.]

In Grewal v. Ivany, released last week, the Court of Appeal left open the possibility that a claim for pecuniary damages in an MVA action might be prescribed at the end of two years, even though the discoverability principle has postponed the commencement of the same limitation period for a non-pecuniary damages claim.

The Court did not decide the issue though, because the appeal before it related to a motion for summary judgment. It held that the issues on the motion had to be decided on a “full record”.

The motions judge (E. MacDonald J.) had dismissed the plaintiffs’ action (arising out of an accident that occurred under the Bill 59 regime of the Insurance Act) on the basis that the threshold nature of the injuries had been known more than two years before the action was commenced. The Court of Appeal said that the judge had been wrong (on the facts of this case) to make such a ruling on a motion and ruled that there was a genuine issue for trial.

The defendant made a separate argument, that the claim for pecuniary damages was prescribed. (Of course, there is no threshold requirement for pecuniary damages claims, and therefore, nothing to which the discoverability principle would ordinarily apply.) Counsel for the defendant relied upon a 2004 decision of the Court of Appeal in Chenderovitch v. Doe, but the Court distinguished that case, noting that the plaintiff there had abandoned a claim for pecuniary damages, “[t]hus, it was unnecessary for this court to determine whether her pecuniary damages claim was foreclosed by the expiry of a limitation period”.

But the Court then went on to say, “[w]e conclude that the issue whether Gurcharn’s pecuniary damages claim is statute-barred is best resolved on a full record. This will ensure that any consideration of this important issue by this court will be informed by a reasoned analysis in the courts below.” [Emphasis added]

It strikes us as odd that the Court of Appeal could not or would not decide this issue, which seems to be entirely a legal one. Surely the question is whether, as a matter of law, the expiry of the limitation period for claims that are not subject to the discoverability principle is superseded by the postponement of the limitation period that can occur in relation to claims for non-pecuniary damages.

There have been several Superior Court decisions that have considered whether or not a claim for pecuniary damages can be statute-barred independently of a claim for non-pecuniary damages: Burke-Smith v. Sun, Fuller v. McCartney and Richmond v. Hope. Although there has not been, to our knowledge, a definitive pronouncement, the Superior Court judges have consistently refused to find that pecuniary damages claims were prescribed when there was doubt as to whether the claims for non-pecuniary damages had been saved by the discoverability principle. For some reason, none of these decisions was referred to in the reasons of either the Court of Appeal or Madam Justice MacDonald in Grewal.

Now, all bets may be off while we wait for a “full record” on this issue to make its way back to an appellate court.

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C.A. Upholds Dismissal of Third Party Claim Against Plaintiff’s Lawyer

Posted on August 20, 2008 by Stephen Cavanagh

In Macchi S.P.A. v. New Solution Extrusion Inc., the Court of Appeal (Justices Rosenberg, Gillese and Blair) upheld the dismissal, by Mr. Justice Herman Wilton-Siegel, of a third party claim brought by the plaintiff against the defendants’ former lawyer. (The decision of Mr. Justice Wilton-Siegel can be accessed here.)

The Court of Appeal’s reasons are very brief. For a complete understanding of the case, it is important to read the reasons of Justice Wilton-Siegel as well as those in Adams v. Thompson, Berwick, Pratt & Partners (1987), 39 D.L.R. (4th) 314 and in 478649 Ontario Limited v. Corcoran (1994), 20 O.R. (3d) 28 (C.A.) (No links available, unfortunately.)

In this action, the plaintiff sought payment for a packaging machine that it had sold to one of the defendants on a deferred payment basis. It instructed Farb, its solicitor and the proposed third party, to register a security interest under the PPSA. The registration named the wrong entity (“New Solution Extrusion Inc.” instead of “New Solutions Extrusion  Corporation”). By the time the error was discovered, another security interest had been registered, naming the purchaser correctly. The holder of that security interest took the position that its registration had priority over that of the plaintiff.

The plaintiff did not sue Farb but the defendants brought a third party action against him under s. 1 of the Negligence Act. They took the position that Farb’s negligence had been the proximate cause of the plaintiff’s loss.

Farb moved to dismiss the third party claim against him on the basis that it disclosed no cause of action. The motion succeeded before Justice Wilton-Siegel, whose order was upheld by the Court of Appeal.

The defendant relied on a decision of Mr. Justice Laskin in the Corcoran case, supra, where Laskin J.A. had refused to strike a third party claim in somewhat similar circumstances. He held that the plaintiff in that case might be able to say that he had acted reasonably in retaining a solicitor to review an agreement and that, for that reason, was not liable for the solicitor’s negligence.

The plaintiff in the present case, on the other hand, relied on the Adams decision of the B.C. Court of Appeal. There, McLachlin J.A. (as she then was), said that “Generally speaking, all acts falling within the scope of an agency between the proposed third party and the plaintiff fall into the category of acts for which the plaintiff is responsible and hence are not the proper subject to third party claims.”

 Justice Wilton-Siegel said that Adams, not Corcoran, applied here and the Court of Appeal agreed. The reasoning of Wilton-Siegel J. was that Farb had not been retained to advise the plaintiff but to carry out a task on its behalf (registration of the security interest). Further, the Corcoran principle would only apply where the plaintiff “had a pre-existing duty, the performance of which can be said to be discharged by retaining qualified legal counsel to advise it”. In Corcoran, that duty was to complete the transaction. But in the present case, the plaintiff owed no duty to anyone to register a security interest; it did so entirely for its own benefit. Thus, in retaining Farb as its solicitor, it could not be said to have been discharging a duty owed to anyone else.

Justice Wilton-Siegel ruled that all of the allegations sought to be made against the third party solicitor were attributable to the plaintiff and that therefore, third party proceedings were unnecessary.

Thus, the two factors that Justice Wilton-Siegel weighed were: (1) that the solicitor had not been retained to give advice; and (2) that he had also not been retained to discharge the plaintiff’s performance of a duty owed by it. But what if we were to change the facts of this case slightly, such that the plaintiff retained Farb to counsel it about the advisability of registering its interest under the PPSA before actually doing so? That would satisfy the first criterion but not the second because there would still not have been any independent duty owed by the plaintiff to which the retainer of the solicitor related. Would the result be different?

Unfortunately for the legal profession, the net result of this decision will probably be that out of an abundance of caution, plaintiffs will sue their lawyers whenever the other defendant relies on the solicitor’s actions as part of its defence.

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Subrogation by Landlord’s Insurer Permitted Despite Tenant’s Rent Being Applied to Landlord’s Insurance Premiums

Posted on August 20, 2008 by Stephen Cavanagh

1044589 Ontario Inc. (Nantucket Business Centre) dealt with the frequently-litigated issue of the right of a landlord’s insurer to advance a subrogated claim against a tenant. Here, Madam Justice Ruth E. Mesbur held that the landlord’s insurer was entitled to proceed with the subrogated claim, even though payment of the premiums had come, in part, from the tenant.

This was a commercial tenancy in a strip mall. A fire broke out in the tenant’s automobile repair shop and the landlord’s insurer sued the tenant for recovery, alleging negligence on the part of the tenant. The relationship between the parties was governed by an offer to lease, a formal lease not yet having been entered into by the time of the fire.

The tenant was contributing a proportionate share to the cost of the landlord’s fire insurance premiums. On this motion, the tenant argued that this fact resulted in the risk of loss by fire having been assumed by the landlord, with the result that the landlord could not sue the tenant for damages caused by its negligence.

Justice Mesbur did not accept the tenant’s argument. Key to her decision was the fact that the lease did not contain an express provision requiring the landlord to insure the premises against loss by fire. Her Honour relied on the case of Lee-Mar Developments Ltd. v. Monto Industries Ltd. [2000] O.J. No 1332 (S.C.J.), affirmed [2001] O.J. No. 987 (C.A.).

The Court of Appeal’s ruling in Lee-Mar actually said very little. In fact, it is a little difficult to follow. The following is the entire decision:

1 We wish to thank both counsel for their able arguments. This case arose on a Special Case under Rule 22 of the Rules of Civil Procedure.

2 The question passed restricts the court to determining the issue on its basis of the terms of the legal only. We are not persuaded that the judge below erred in her interpretation of the parties’ intentions based on those provisions. Accordingly the appeal is dismissed with costs.

(What does “on its basis of the terms of the legal only” mean?)

In any event, Justice Mesbur said that this case was like Lee-Mar, in that:

  1. There was no covenant to insure on the part of the landlord;
  2. The reference to the landlord’s insurance appeared in a section of the lease that dealt with payments to be made under it;
  3. Both contained “entire agreement” clauses;
  4. Both the Lee-Mar lease and the offer to lease in this case were described as a “completely carefree” net lease to the landlord.

Her Honour considered that these and some other factors led to the conclusion that it had been the intention of the parties, that the tenant be responsible for damage resulting from its failure to operate the business in a safe manner.

As mentioned above, it appears that a factor that was of particular significance to Justice Mesbur was the fact that the offer to lease contained no express covenant to insure. She said, “Here, the landlord points to the fact that in each of the trilogy cases, there was an express provision requiring the landlord to insure the premises against loss by fire. Here, there is no such express provision, and thus the landlord says the trilogy cannot apply. The landlord goes further, and says that the express wording of the offer to lease leads to the same conclusion. I agree.”

The “trilogy” refers to a series of Supreme Court of Canada cases that dealt with the issue of the right on the part of a landlord’s insurer to bring a subrogated action against a tenant: Agnew-Surpass Shoe Stores Ltd. v. Cummer-Yonge Investments Ltd.,  [1976] 2 S.C.R. 221; Ross Southward Tire Limited v. Pyrotech Products Ltd.,  [1976] 2 S.C.R. 35, and T. Eaton Co. v. Smith et al., [1978] 2 S.C.R. 749, [1978] 2 S.C.R. 749.

In fact, contrary to what this decision indicates, in Ross Southward v. Pyrotech, there was not an express covenant by the landlord to insure. Despite that, the Supreme Court concluded there, that because the tenant was obliged to pay the insurance premiums, no subrogated action could be maintained against it. In Ross Southward, the tenant had argued that the court should infer a covenant by the landlord to insure (this is made clear in the reasons of the Court of Appeal in that case). The reasons of Chief Justice Laskin make it clear that the Court’s decision was not based on the existence of a covenant by the landlord to insure:

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Judge Applies “But For” in Slip and Fall Case

Posted on August 6, 2008 by Stephen Cavanagh

In Cartner v. Burlington (City), a recent slip and fall action, Mr. Justice Michael Quigley found for the plaintiffs. In doing so, he applied the “but for” test of causation that was endorsed by the Supreme COurt of Canada in Resurfice v. Hanke.

The case involved a slip and fall accident in Burlington, Ontario in which the plaintiff, a 52 year-old woman, broke her leg and was unable to return to work. She slipped on a “muddy concrete slurry substance” that had pooled on the city sidewalk. She claimed that the substance had originated with “Crystal Shoes”, a nearby store, and sued the owners, who were husband and wife. She also sued the City of Burlington as it had been responsible for the maintenance of the sidewalk. Justice Quiqley found both defendants to be liable for the damages and apportioned 80% of the liability to Crystal Shoes and 20% to the City of Burlington.

Justice Quigley relied on the decision in Resurfice Corp v. Hanke, 2007 SCC 7 (CanLII), [2007] 1 S.C.R. 333, when dealing with the issue of causation. In that decision, the Supreme Court of Canada reaffirmed that the “basic test” for determining causation is the “but for” test and that this test applies to multi-cause injuries. It is only in special circumstances, in other words, where it is impossible to apply the “but for” test because of factors out of the plaintiff’s control, that a “material contribution” test can be applied. Justice Quigley said this was not the case here but he went on to say that even using the material contribution test he would have reached the same conclusion.

With respect to liability, the husband who co-owned Crystal Shoes testified at trial and was found not to be credible and it was stated that much of his evidence had “no air of reality”. Justice Quigley found his evidence to be “largely contrived, internally contradictory, and “cooked up””. On other evidence, including testimony and photographs, it was concluded that the obvious and evident source of the concrete slurry substance was the owner of Crystal Shoes who used a hose to wash concrete residue off of his property and onto the City’s sidewalk the day before the accident. Justice Quigley found the owner of Crystal Shoes liable in both negligence and nuisance. The co-owner of Crystal Shoes, the wife, who did not testify and was not involved in the proceedings despite being a defendant, was found to be severally and jointly liable.

As for the liability of the City, it took the position that it did not know and could not have known about the concrete slurry, a fact which was admitted by the plaintiff. Given this fact, the City’s liability had to be based on the physical state of the sidewalk itself. Justice Quigley stated that while the City is not an insurer of pedestrians and it is not required to maintain its sidewalks in a perfect condition, it did have obligations under section 284(1) of the Municipal Act. It was found that the City breached its statutory obligation to maintain the sidewalk and that this state of non-repair was a cause of the plaintiff’s injuries. Justice Quigley said that the plaintiffs did not need to prove that the state of non-repair of the sidewalk was the cause only that it was acause but for which the accident would not have happened. The City did not satisfy the court that it had taken reasonable steps to maintain the sidewalk in a state of repair or that it could not have known that the sidewalk was in a state of non-repair and therefore the court held that it had not met its required standard of care. Justice Quigley found that the sidewalk was constructed improperly, and while the City undertook remedial work a few years prior to the accident, it was inadequate, leaving the sidewalk in a state of non-repair on the day of the accident. The non-repair created a sidewalk condition that permitted the concrete slurry to become trapped when it pooled on the sidewalk. This accumulation of the slurry which was caused by the condition of non-repair caused the plaintiff to slip and fall making the City liable. In this case, the City could not escape liability by claiming it could not reasonably know of the state of repair of the sidewalk or that it took reasonable steps to prevent the disrepair. Justice Quigley found that the City knew of the state of non-repair, that its system of inspection was inadequate and that even if it was adequate, the City failed to comply with it.

Justice Quigley accepted the evidence of the plaintiff and her medical experts regarding her injuries and inability to work and awarded $120,000 in general damages. He awarded the plaintiff’s husband $20,000 for his loss of care, guidance and companionship under the FLA. The plaintiff’s past and future loss of income was fixed at $171,000 after a 10% reduction had been made because despite a recommendation from her family doctor, the plaintiff had failed to seek sedentary work.

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