C.A. Says Bad Faith Action Against Auto Insurer Not Subject to Limitation Period in Policy

Posted on April 8, 2012 by Stephen Cavanagh

The Court of Appeal’s decision in Dundas v. Zurich Canada, 2012 ONCA 181, is interesting for a couple of reasons: liability of an insurer for failing to pay its policy limits into an interest-bearing account and the limitation period that applies to a bad faith claim against an auto insurer.

Here, the underlying action alleges liability on the part of an auto insurer, for having failed to pay its policy limits into an interest-bearing account, for the benefit of injured claimants who were suing its insureds. While I’ve seen this issue raised several times before and I’m aware of one case in which a judge commented on it (Drummond v. Fortune, 1994 CarswellOnt 3964 (Ont. Ct. (Gen. Div.)), I hadn’t seen a case in which the question was raised directly as a basis for liability: is there an obligation on the part of a liability insurer to pay its policy limits into an interest-bearing account, for the benefit of claimants?

That question isn’t answered by the Court of Appeal decision. Rather, the question that arose here was whether the claim against the insurer was prescribed. The Court rejected the view of the court below, that the claim was barred by a one-year limitation period found in the policy. Instead, it held that the claim against the insurer was not an “action or proceeding against the Insurer under [the insurance contract] … in respect of the loss or damage to person or property” within the meaning of statutory condition 6(3)”. Therefore, the contractual limitation period (one year from the date on which the cause of action arose) did not apply.

It also held that the cause of action against the insurer was only complete when the insurer had an obligation to indemnify its insured.

The plaintiffs in the case had obtained judgment against Zurich’s insureds, for an amount slightly in excess of $2 million. Zurich’s policy limits were $1 million.

The following facts are relevant, to be able to understand the decision:

  • The case arose out of a car accident in which the driver and three passengers died. The families of the deceased passengers sued the estate of the driver;
  • On May 27, 1992, one group of plaintiffs offered to settle the quantum of damages at $1,657,032 (exclusive of interest and costs);
  • On April 6, 1993, the independent counsel for the driver’s estate agreed with the assessment on behalf of the estate;
  • On October 12, 1993, counsel for the parties met in chambers with Kennedy J., where minutes of settlement were entered into, with damages quantified as above;
  • On December 3, 1993, the parties attended again before Justice Kennedy, to make submissions about prejudgment interest and costs. On that occasion, it was argued that Zurich had breached its duty of good faith to its insured, by not having settled the plaintiffs’ claims promptly and by having failed to pay its policy limits into an interest-bearing account and making that interest available to the claimants;
  • On December 23, 1993, Zurich paid its limits into an interest-bearing account;
  • On March 29, 1994, Zurich paid out the limits in agreed-upon proportions;
  • On November 25, 1994, Justice Kennedy issued an endorsement dealing with interest and costs (almost a year following argument, it appears) and in his ruling, made some comments critical of Zurich’s failure to pay the policy limits into an interest-bearing account earlier than it did;
  • On December 21, 1994, Justice Kennedy’s endorsement was sent to the lawyer for Zurich, who immediately sent it to the lawyer for the insured’s estate; and
  • Consent judgments were taken out on August 21, 1995.

The insureds assigned to the plaintiffs their right to sue their insurer, Zurich, in exchange for a release of claims against the estate.

The plaintiffs sued Zurich on August 19, 1996, alleging breach of a duty of good faith owed to its insured (which had assigned to the plaintiffs its right to sue Zurich).

The motions judge, Mr. Justice Terrence Patterson, had held that the action was prescribed, based on the one-year limitation found in the statutory conditions of the standard auto policy (“in respect of the loss or damage to person or property [action] shall be commenced within one year next after the cause of the action arose”). His Honour held that the insured’s estate had known, at the latest, by December 21, 1994 (when its lawyers received Justice Kennedy’s endorsement, criticizing Zurich), that it had a possible claim against the insurer. On his analysis, the limitation period would have expired not later than December 21, 1995, making the action by the assignees out of time.

However, the Court of Appeal said, first of all, that the one-year limitation period did not apply. This was, it said, not a claim under the insurance contract at all. “On the contrary, this action contains a claim for breach of the independent duty of the utmost good faith, which an insurer owes to its insured. In Whiten v. Pilot Insurance Co., 2002 SCC 18 (CanLII), [2002] 1 S.C.R. 595, at para. 79, Binnie J. described the duty as ‘independent of and in addition to the breach of contractual duty to pay the loss’.”

For that reason, the applicable limitation period was held to be six years.

However, the Court of Appeal also allowed the appeal on the basis that the motions judge (sometimes referred to in the reasons as “the trial judge”) had interpreted the statutory conditions incorrectly. It held that the cause of action against Zurich did not arise until a point “when the liability of the Reid estate had been finally ascertained by judgment after trial or by settlement between the parties with the consent of the insurer”, which “[o]n the facts… did not occur until the issues of interest and costs had been resolved by the consent judgments that were taken out on August 21, 1995. It was at this time that the Reid estate had a liability to pay the third parties and it was at this time that it was entitled to demand indemnity from Zurich.”

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Posted in Auto, Discoverability, Insurance News, Limitation Periods | Leave a comment

Recent “additional insured” decisions continue confusing Ontario jurisprudence

Posted on April 8, 2012 by Stephen Cavanagh

In various contractual settings, one party assumes an obligation to have the other included in the former’s insurance policy as an “additional insured”. This has been a fertile source of work for lawyers practising in the insurance field because the process is often handled badly at one stage or another, resulting in litigation.

Unfortunately, the caselaw that has developed in Ontario has been somewhat inconsistent and, in a number of instances, has failed to address some key issues.

“Additional insureds” are a particular interest of mine so I will forewarn the reader that this post is considerably longer than usual.

This post was prompted by two very recent decisions. One came from the Court of Appeal: 1540039 Ontario Limited v. Farmers’ Mutual Insurance Company (Lindsay), 2012 ONCA 210 (CanLII). The other was a decision of Mr. Justice Stanley Kershman in Minto Developments Inc. v. Carlsbad Paving et al., 2012 ONSC 1574 (CanLII). I have some difficulties with both decisions.

1540039 Ontario Limited v. Farmers’ Mutual Insurance Company (C.A.)

In this case, a shopping centre tenant (“Design Depot”) had agreed, under the terms of its lease, to have its landlord named as an additional insured under a comprehensive general liability policy that it had with Farmers’ Mutual Insurance Company (Lindsay). A man was electrocuted while he was working on a pylon sign located in front of the plaza in question. His family members sued the landlord, alleging that it had been the owner and occupier of the plaza and had been negligent in its placement of the sign, had failed to warn of the danger posed by the sign and other similar allegations.

Hydro One was also sued (as owner of the hydro lines above the pylon sign), as was another person (“TRJ Signman”) who was alleged to have subcontracted to the deceased the work that led to his death.

The landlord sought to have the tenant’s insurer share in the cost of its defence. The tenant had not been sued, nor had any allegations implicating it been made in the pleadings.

However, the landlord had attempted to place before the court affidavit evidence to the effect that it had been the tenant, Design Depot, that had retained the deceased (or caused him to be retained), to place a sign advertising its business. The judge who had heard the application had refused to admit this “extrinsic evidence” because he considered that it would require him to make findings that would affect the underlying litigation. He would not have allowed the application, even if the extrinsic evidence had been admitted.

The landlord appealed to the Court of Appeal. The appeal was dismissed.

Much of the Court of Appeal’s decision had to do with the line of cases that have considered when and to what extent extrinsic evidence should be considered on a pleadings motion and, in particular, in deciding when a duty to defend has been triggered. I am not going to get into a discussion of those cases here, other than to say that I agree that the affidavit evidence tendered in this case did seem to go beyond the limits that have traditionally been established. Instead, I will focus on the aspects of the case that are relevant to the law relating to “additional insureds”.

For once, there seems to have been an actual additional insured endorsement issued by the insurer in this case. The endorsement cross-referenced the policy declaration, which provided that the landlord was an additional insured under the tenant’s policy “as landlord only”. According to the reasons of the Court of Appeal, once the cross-referenced passages were incorporated into the Endorsement, the latter would read as follows:

It is Hereby Understood and Agreed that [the appellant landlord] is added as an Additional Insured for the term of as of April 9, 2007 to January 14, 2008 but, only with respect to liability arising out of operations by or on behalf of Design Depot for interior decorating—home decor.

It is Further Understood and Agreed that the Additional Insured shall not be covered for other than “Insured Contract” as defined in the Insuring Agreements. [Emphasis added.]

(This seems a little surprising to me: the end result of the cross-referencing appears to have yielded a result that is quite a bit more restrictive than being insured “as landlord only”.)

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Posted in CGL, Duty to Defend, Insurance News | Leave a comment

Master Pope Refuses To Add Insurer in OPCF-44R Claim

Posted on March 26, 2012 by Stephen Cavanagh

Vogler v. Lemieux, 2012 ONSC 1692 is an interesting case and, to me, a bit puzzling. I am hoping that one of the readers of this blog can clear things up for me.

The plaintiff was injured in a single vehicle accident in 2006. He was the owner of the car, which was insured with Allstate. After the accident, the plaintiff was found alone in the passenger seat. He claimed to have no recollection of the accident or the events leading up to it. Although the plaintiff claimed that someone else had been operating his car, he was charged with impaired driving.

The plaintiff sued Allstate under the unidentified motorist coverage. After that action was underway, an individual named Lemieux came forward and admitted to being the driver of the car at the time of the accident.

The impaired driving charges were dropped against the plaintiff. Lemieux was added as a defendant in the lawsuit, in place of Allstate. However, Allstate denied coverage to Lemieux, on the basis that his licence had been under suspension for many years, which was a breach of statutory condition 4. Allstate had itself added to the action as a statutory third party.

Apparently, counsel for the plaintiff then proceeded on the assumption that because of Lemieux’s policy breach, the most that the plaintiff could recover in the lawsuit was the statutory minimum limits of $200,000, for which Allstate would have been absolutely liable under s. 258(4) of the Insurance Act. After the pre-trial though, the plaintiff’s lawyer   “determined that the plaintiff would have to access his underinsured coverage on the basis that a violation of the O.A.P. 1 Ontario Automobile Policy by Lemieux for being unlicensed would not disentitle the plaintiff access to his OPCF 44R Family Protection Coverage”. As a result, this motion was brought for leave to add Allstate as a defendant, with a claim being made against it pursuant to its underinsured coverage in the OPCF-44R endorsement.

Master Pope dismissed the motion. She concluded that in light of the definition of “inadequately insured motorist”, the claim against Allstate could not succeed. Master Pope accepted Allstate’s argument, which she summarized as follows:

Allstate submits that if it is found that Lemieux was driving the plaintiff’s vehicle, and aside from the fact that his liability coverage may be reduced to $200,000 on the basis that he had a suspended license breaching Statutory Condition 4 – Authority to Drive of the Standard Automobile Policy – OAP1, the plaintiff will be unable to prove that Lemieux meets the definition of “inadequately insured motorist” because the definition states that an inadequately insured motorist means “. . . the identified driver of an automobile for which the total motor vehicle liability insurance . . . obtained by the owner or driver is less than the limit of family protection coverage.” In other words, since the motor vehicle liability insurance obtained by the owner, here the plaintiff of $1 million, is equal to the limit of family protection coverage of $1 million, the definition of “inadequately insured motorist” as set out in s. 1.5(a) cannot be met.

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Posted in Auto, Uninsured or Underinsured | Leave a comment

Rule 53.03 Applies Only To “Litigation Experts”

Posted on March 21, 2012 by Stephen Cavanagh

In Continental v. J.J.’s Hospitality, 2012 ONSC 1751 (CanLII), Mr. Justice Edward J. Koke has provided the latest judicial interpretation of Rule 53.03, which deals with the evidence of expert witnesses. He held that that rule only applies to “litigation experts”, i.e., those who are hired expressly for the litigation and who have no other involvement with the subject matter of the suit.

In this case, the plaintiff roofing company, Continental, contracted to do work on the defendant’s building. During the course of the work on the defendant’s roof, substantial damage resulted from a leak. The roofer sued for the contract price and the defendant counterclaimed for compensation for the damage to its building.

Both before and after Contintental began its work, the defendant had enlisted the assistance of one Bruce Caughill, an architect and engineer, to act as a consultant about the roof. He had undertaken inspections and had made recommendations with respect to repair or replacement of the roof.

Mr. Caughill had prepared a number of reports for the defendant that were served on Continental. The defendant plans to call Mr. Caughill to give opinion evidence at the trial, scheduled for August, 2012. On this motion, Continental asked for an order that the reports and the testimony of Mr. Caughill were inadmissible.

Continental argued that:

  • Mr. Caughill’s evidence was not necessary as it was not outside the experience or knowledge of the trial judge;
  • he had opined on the “ultimate issues”, thereby usurping the role of the trial judge; and
  • he was biased in favour of the plaintiff, due in part to his long business relationship with it.

Although the reasons do not address the question, it appears that the defendant had made no attempt to have the witness sign a Form 53, the acknowledgement of an expert’s duty.

Justice Koke reviewed the genesis of the 2010 reforms to Rule 53. The rule now sets out requirements governing the contents of an expert’s report and provides for the signing of the acknowledgement of an expert’s duty. Rule 4.1.01 is also new: it codifies “the duty of an expert”.

He then considered the question, “To Whom Does Rule 53.03 Apply?” This issue has received quite a bit of attention from the courts lately and Justice Koke discussed the jurisprudence, which has dealt with the testimony of treating health practitioners (Slaght v. Phillips and Burgess v. Wu), official investigators (Hall v. Kawartha Karpet & Tile Co.), and practitioners who assess claimants for accident benefits insurers (McNeill v. Filthaut). He observed that “[r]ecent cases have held that Rule 53.03 is limited in its application to witnesses who are hired as ‘litigation experts’ and have not had any involvement with the subject matter of the litigation or either of the parties.”

His Honour concluded that Rule 53.03 was not intended to apply to experts such as this one, who have not been retained as “litigation experts”:

The amendments to the rule were intended to eliminate the use of “hired guns” or “opinions for sale” in civil litigation, which resulted in potentially biased evidence being given at trial. In the case of Mr. Caughill and looking at the mischief that Rule 53.03 was intended to address, I do not find him to be a typical “hired gun” or just a “litigation expert” in the circumstances of this case.

Justice Koke held that the trial judge could deal with issues of bias. On the question of usurping the role of the trial judge on the ultimate issue, he felt that this was unavoidable but that “the trier of fact will make a decision based on the totality of the evidence”.

Thus, the expert’s testimony was allowed: “Mr. Caughill is permitted to provide opinion evidence at trial with respect to the methods and procedures used by the defendant in carrying out the roof repairs, and any failures associated therewith, and with respect to the cause of the leakage of water into the building”.

In this case, the party calling the expert had obtained and served reports from the expert. But why? If Rule 53.03 does not apply to non-litigation experts, what obliges a party to serve a report? Section 52 of the Evidence Act does impose certain requirements with respect to reports of “practitioners” under the Regulated Health Professions Act, 1991 but even that provision does not say that doctors cannot testify as experts unless they have provided a report that summarizes their testimony.

So, I’m looking forward to the next logical step in the evolution of the judicial exposition of Rule 53.03: at some point, a court will be asked to decide whether there is anything that prevents a party from calling a non-litigation expert in exactly the same manner as if the person were a fact witness (i.e., without a report, a summary of qualifications, an acknowledgment of duty and the other requirements imposed by Rule 53.03).

In a similar vein, what is one to make of the requirements of Rule 31.06(3), which deals with obtaining information about experts during examination for discovery. It says:

(3) A party may on an examination for discovery obtain disclosure of the findings, opinions and conclusions of an expert engaged by or on behalf of the party being examined that are relevant to a matter in issue in the action and of the expert’s name and address, but the party being examined need not disclose the information or the name and address of the expert where,

(a) the findings, opinions and conclusions of the expert relevant to any matter in issue in the action were made or formed in preparation for contemplated or pending litigation and for no other purpose; and

(b) the party being examined undertakes not to call the expert as a witness at the trial.

The word, “expert” is not defined in the Rules. And Rule (3) uses the term, “expert”, while Rule 53.03 speaks of “expert witness”.

Still, it seems pretty clear that the language of Rule 31.06(3), “an expert engaged by or on behalf of the party being examined”, is referring to what Justice Koke calls “a litigation expert” in the context of Rule 53.03. Does that mean that Rule 31.06(3) only applies to such experts? If you have happen to have in your file a report from an expert witness whom you did not retain for the litigation, does that mean that the other parties are not entitled to the information about that expert evidence that is set out in Rule 31.06(3)? (Of course, in this scenario, the report itself would have been produced, because it would not be privileged. But as for the other information contemplated by Rule 31.06(3), that’s a different question.)

Stay tuned!

Posted in Experts and Opinions | Leave a comment

Clarification of Jurisdiction of Masters On Motions for Summary Judgment in Wake of C.A.’s Decision in Combined Air

Posted on March 20, 2012 by Stephen Cavanagh

I”ve just come from a motion before Master Calum MacLeod, where he provided to me and to opposing counsel a copy of his reasons in 90 George St. v. Reliance Construction, 2012 ONSC 1171 (CanLII). Upon returning to my office however, I found that they are now on CanLII, accessible through the link above.

This is an important decision, especially for those of us who bring most of our motions for summary judgment before masters. In it, Master MacLeod discusses the scope of powers that masters can exercise on such motions in light of the Court of Appeal’s decision in the Combined Air cases, which interpreted the amendments to Rule 20.

The facts of 90 George St. aren’t of much significance beyond this case, but Master MacLeod’s general observations are. I don’t think I can do much better than to quote the eleven principles distilled by the Master from the authorities:

a. The court hearing a summary judgment motion must first determine if there is a genuine issue that could be successful at trial.

b. There is no genuine issue if the law clearly shows that one of the parties cannot succeed. For example if the Supreme Court of Canada has determined that the cause of action does not exist or if a release, contract or statute allows of only one interpretation.

c. There is no genuine question of fact if the party relying on a key fact that is essential to success at trial cannot prove it. In determining that issue, the court may draw a negative inference under Rule 20.02 (1) if it is appropriate to do so. The court may reject evidence that could not persuade a trial judge such as a bald self serving affidavit, an affidavit that is illogical or internally inconsistent, or an affidavit that is demonstrably incorrect because, for example it purports to rely on wording in a document or contract which is misquoted or nonexistent.

d. In assessing the sufficiency of the evidence, the court must consider whether or not it is just to draw a negative inference and the extent to which it is reasonable to require a party to put its best foot forward at this particular point in time, whether the motion is premature, whether the responding party has been denied access to critical evidence.

e. In an appropriate case if a summary judgment motion would impose an unreasonable and disproportionate procedural burden in advance of discovery, the motion should be stayed.

f. Another factor to be considered in assessing whether the responding party has met its responsibility to put its best foot forward will be the complexity of the evidence. The genuine appreciation test should inform this analysis in my view.

g. A plaintiff moving for summary judgment must show firstly that the plaintiff can prove all elements of the case and secondly that there is no merit to the defence. A defendant moving for summary judgment could do so either on the basis that the plaintiff cannot prove its case or that there is an absolute defence or both. In addition summary judgment may be available on evidentiary grounds or on legal grounds or a combination of the two.

h. If summary judgment would have been granted under the previous rule then it is self evident that it also meets the test under the amended rule. If the evidence or the law demonstrates there is no genuine issue to be tried then summary judgment should be granted.

i. In the case of a genuine issue of law, the master may refer the matter to a judge to decide the question of law if the master is of the view that the only genuine issue is a question of law that could be determined without a trial. (Rule 20.04 (4)) Even if the sole genuine issue is a question of law, it is open to the master to dismiss the motion for summary judgment if it appears the question of law is such that it would require a trial for resolution. In making that decision, the court should now apply the full appreciation test.

j. If there is a genuine question of fact or of mixed fact and law then the master must apply the full appreciation test and may grant summary judgment if the question can be determined without a trial. This will seldom be the case for the master because the powers added to the rule in Rule 20.04 (2.1) and 20.04 (2.2) are not accessible to masters. Thus there will be a class of cases in which notwithstanding that there is a genuine issue that could be tried, a judge can decide the merits without a trial whereas a master cannot.

k. If summary judgment is refused or granted only in part then the master may have recourse to the powers of the court set out in Rule 20.05 but must heed the admonishment of the Court of Appeal in Combined Air that Rule 20.05 cannot be used to grant the very summary judgment that the court has just refused. Rule 20.05 may be used to salvage the resources that went into the summary judgment motion but it is not to be used to effectively order a trial that resembles the motion that was dismissed. [footnotes omitted]

One question that I have is, what happens if the master hearing the motion for summary judgment determines that there is an issue of fact or mixed fact and law that he or she cannot resolve because of not having the new powers conferred by the amendments to Rule 20? Say, for example, an adjudication depends on an evaluation of the credibility of a deponent. Making such an evaluation is something that judges, but not masters, can now do on motions for summary judgment, pursuant to Rule 20.04(2.1) 1. In such a situation, would a motion returnable before a master simply be dismissed or would it be adjourned to be heard by a judge? If the former is the case, bringing motions for summary judgment before masters becomes a somewhat higher-risk proposition.

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Justice Brown Lambastes Provincial Government’s “Poor Excuse of A System” for Document Management

Posted on March 16, 2012 by Stephen Cavanagh

I don’t often burst out laughing when reading reasons for judgment (tears are more likely), but today’s offering from Justice David M. Brown was an exception. In Romspen Investment Corporation v. 6176666 Canada Ltée, His Honour was riding one of his favourite hobbyhorses: the antediluvian document management system used in Ontario’s courts.

(In  an earlier decision, Pershadsingh v. Thompson, 2010 ONSC 4943 (CanLII), Brown J. complained that “I am not the only judge in this region who has complained about having to get down on one’s hands and knees to organize into piles, on the floor, the materials filed with the court.” He added that, “apart from trading ribbon-tied bundles of paper for cirlox-bound volumes of paper thrown into bankers’ boxes, and the entry of filed documents into a computer ledger, instead of onto a handwritten ledger, one really wonders how much the document and file management systems maintained by the Government of Ontario in this Court differ from those that existed back in 1867″.)

In the Romspen case, it was not so much the waste of his own time that was on his mind as it was the needless running around that the lawyers before him had had to do (and the concomitant expense to their clients).

Under the heading, “Just how broken is the document management system of the Superior Court of Justice?”, Justice Brown’s reasons began in a somewhat whimsical tone:

I suppose that on a sunny, unusually warm, mid-March day one should be mellow and accept, without complaint, the systemic failures and delay of this Court’s document management system. The problem is that from the perspective of the members of the public who use this Court, delays caused by our antiquated, wholly-inadequate document management system impose unnecessary, but all too real, costs on them.

The case involved the sale of condominium units by a Receiver. As part of this process, it had filed sealed appraisals of some of the units. However, it had (understandably) filed only one copy of each appraisal. His Honour needed multiple copies and so, “a two-track process unfolded”. He sent a member of his staff to a nearby court building, where sealed documents for Commercial List matters are kept, to try to retrieve the documents. Simultaneously, counsel for the Receiver also tried to obtain copies through her office. Each was successful but in both cases, the task took one hour.

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Posted in Litigation Technology, Practice and Procedure | 1 Comment

C.A. Says Only “Damage” Necessary to Start Limitation Period, Not “Damages”

Posted on March 15, 2012 by Stephen Cavanagh

The language of the Limitations Act, 2002 continues to be interpreted by the courts and an important decision was handed down this week by the Court of Appeal. Hamilton (City) v. Metcalfe & Mansfield Capital Corporation was an appeal from a decision of Madam Justice Eva Frank, in which an action by the City of Hamilton, arising out of certain investments that it made, was dismissed as statute-barred. The Court of Appeal upheld her decision and, in so doing, provided some extensive comments about how section 5 of the Limitations Act, 2002 should be interpreted. The decision is a cautionary tale for litigants and their lawyers because it strongly suggests that the clock starts running under the Limitations Act, 2002 quite a bit earlier than many of them might have thought.

In 2007, the City made a $10 million investment in asset backed commercial paper. The investment was to mature about two months later but some three weeks after the purchase, the market for this form of investment collapsed. The City and others took certain steps to try to preserve the status quo, such as entering into a standstill agreement but ultimately, commenced this lawsuit two years less a day after the maturity date of the notes. This was several months past the two-year anniversary of the date on which the notes had been purchased. The City has never received any payment on the notes.

The defendants raised a limitation defence and the motions judge agreed with their position. She dismissed the action as having been brought out of time.

Although several causes of action were apparently pleaded, the argument in the Court of Appeal focused on the claim for negligent misrepresentation. The City advanced a number of arguments in response to the limitation defence but in this post, I am only going to discuss the main one. The City argued that it had only “discovered” its damage on September 26, 2007, the date on which the note had matured and on which default in payment was made. (Section 4 of the Limitations Act, 2002 provides that the two-year limitation period runs from the day on which the “claim was discovered”. Section 5 sets out the criteria for when a claim is “discovered” and one of them is knowledge (or imputed knowledge) that “injury, loss or damage had occurred”. This was the key phrase for purposes of the decision.

The Court of Appeal held that the City’s cause of action was complete, not when there had been default in payment but when it discovered that it had been misled about the asset structure underlying the notes. There seems to have been no dispute that the City had come to that realization more than two years prior to the commencement of the action.

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Posted in Appeals, Commercial Litigation, Discoverability, Limitation Periods | 1 Comment

Master MacLeod Discusses Appropriate Procedure In Undertakings Motions

Posted on March 7, 2012 by Stephen Cavanagh

Kariouk v. Pombo was a motion by the plaintiff to compel plaintiffs to answer undertakings given in the course of examinations for discovery. A commonplace type of motion, to be sure. But it is because such motions occur so frequently that Master MacLeod’s comments about the correct procedure to follow are valuable to practitioners. In particular, the Master’s reasons on the issue of costs in this context are instructive. Typically, by the time an undertakings motion is actually heard, the dilatory party has answered the undertakings and the motion has become largely academic. But time has been spent by that point; what should be done about those costs?

The plaintiff was a designer who worked on the renovation of the defendants’ home. He sued under Rule 76 for unpaid fees of $40,000. The defendants responded with a counterclaim of $750,000, alleging cost overruns.

Although the parties had not agreed on a discovery plan, counsel for the plaintiff had proposed one. Counsel for the defendants indicated that he would be withholding his agreement to the plan until the parties had exchanged lists of documents.

At the defendants’ examinations for discovery, thirty three undertakings were given. There were also some refusals that were later converted into undertakings. At the time that the plaintiff’s motion was brought, none of the undertakings had been answered. However, by the time the motion was argued, only a few of the undertakings remained outstanding.

In his reasons, the Master dealt with the various unanswered undertakings and established a timetable for the completion of the discovery process.

He then turned to the issue of costs. He noted that the moving party (the plaintiff) had spent 11.8 hours in preparation for the motion and had incurred actual costs of $5,519.81. The defendants’ preparation time was three hours, resulting in an actual costs of $2,957.78. Based on this information, the Master fixed partial indemnity costs at $2,900 plus disbursements. However, he then had to go one step further, to review the conduct of each party, leading up to the motion. This was because the plaintiff was arguing for costs on a substantial indemnity basis and the defendants contended that the plaintiff should be deprived of costs altogether. This led the Master to “the somewhat unsavory exercise of reviewing correspondence and e-mail passing between counsel”.

A rather painstaking analysis followed. The Master’s description of the communications between counsel on both sides will probably be, to many litigation lawyers, reminiscent of many of their own files, with a certain amount of posturing and threats.

The defendants argued that the plaintiff should be deprived of costs because:

  1. there was no discovery plan in place and specifically no deadline had been agreed upon for answering undertakings;
  2. it was precipitous and unreasonable to bring the motion when there had been a commitment to answer the undertakings; and
  3. insisting on unreasonably strict adherence with the Rules of Civil Procedure is a breach of principles of civility particularly when the defendants had cooperated in moving the action forwards with rapidity and were prepared to set a pre-trial and trial date.

The Master rejected the defendants’ argument. He found that counsel for the plaintiff had been courteous (albeit firm) throughout and that he could not be faulted “for giving notice in advance of what he intended to do and then doing what he said he would do” (i.e., move to compel compliance with the undertakings).

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C.A. Slams Duration of “GasTOPS” Action

Posted on March 2, 2012 by Stephen Cavanagh

The Court of Appeal has just released its decision in GasTOPS Ltd. v. Forsyth et al. This case is well-known in the East Region and arose out of the departure of a number of employees of a software company, GasTOPS, who then formed their own competing company, MxI. GasTOPS sued MxI and its founders for breach of fiduciary duty and other relief. Following a very lengthy trial, Mr. Justice Granger ordered MxI to disgorge profits of $12,306,495 and ordered damages against the individual founders in the same amount. He also awarded prejudgment interest of $3,039,944 and full indemnity costs of $4,252,920.24.

MxI appealed, principally with respect to the trial judge’s use of a ten year period for the calculation of the disgorgement of profits. The Court of Appeal rejected that argument on the basis that such a calculation is very much driven by the facts and that the trial judge had evidence to support his choice of that period here. MxI’s appeal was dismissed.

GasTOPS cross-appealed Justice Granger’s refusal to order a permanent injunction. The cross-appeal too was dismissed.

The Court of Appeal concluded its reasons by sharply criticizing the duration of the lawsuit:

[96] I wish to conclude with an expression of concern about the length of time that this proceeding took. There is no doubt that it involved significant stakes, and some issues that were not easy. But it took seven years. The evidentiary portion of the trial took three and a half years. There were 295 days of evidence and 70,000 pages of exhibits. Written submissions occupied more than 3,000 pages and took a further year and a half. The reasons for judgment took another two years, and ran to 668 pages.

[97] It is important to reiterate that the principle of proportionality is a vital prerequisite to an efficient and effective justice system. Counsel and especially the trial judge have a responsibility to manage the processes with this in mind. It is difficult to conclude that a trial of this length and a record of this magnitude were necessary to resolve the issues in this case.

Interestingly, this trial was conducted “electronically”, with counsel, the trial judge and the witness all having computer monitors before them. Documents were imaged in Summation and were accessed and displayed in that fashion.

Justice Granger (who is now retired) has long been a strong proponent of the use of technology in litigation and has written approvingly of the Summation software in particular and has given presentations in which he has advocated the approach used in the GasTOPS case.

The use of litigation technology is a cause that I too strongly support. However, based on the dim view that the Court of Appeal has taken of the end result in GasTOPS, it might be time to go back to the drawing board…

Posted in Litigation Technology | 1 Comment

Plaintiff Given Leave to Examine Defendant Under Rule 39.03 On Rule 25.11 Motion to Strike Statement of Claim

Posted on March 2, 2012 by Stephen Cavanagh

Khan v. Lee is an interesting decision of Master Joan Haberman. In this medical malpractice action, the defendant doctor had moved, under Rules 21.01 and 25.11, to strike the statement of claim. He filed no evidence on the motion. Counsel for the plaintiff served the defendant with notice of examination under Rule 39.03 (10) in order to obtain responding evidence on the defendant’s motion. The defendant did not attend for his examination and, as a result, the plaintiff brought this motion before the master, seeking an order compelling the defendant to attend to be examined. The motion was granted.

Although no evidence is permitted on a motion to strike, brought under Rule 21.01, the plaintiff argued that this was, in substance, a motion under Rule 25.11, on which the court is permitted to receive evidence.

Master Haberman noted that the defendant doctor had not filed a factum on this motion but had filed one on his own motion to strike. In that factum, the defendant had said, “the statement of claim, as it is currently pleaded, fails to allow the defendant or the court to ascertain precisely the issues in dispute, nor does it permit the defendant to respond to the allegations” [emphasis added by court]. The master found the highlighted portion significant:

Despite having asserted in his factum that he is unable to respond to the allegations raised by the plaintiffs in their statement of claim, Lee has filed no evidence to support his position and now asserts that the issue is not relevant. This leaves the plaintiffs with no ability to refute the statement. Though, at the end of the day, the court may well give it little weight, this is not a risk the plaintiffs wish or should have to take.

On that basis, she granted leave to the plaintiff to examine the defendant with respect to issues raised by his motion to strike the claim, including his contention that the form of the statement of claim made it impossible for him to respond to it.

Posted in Pleadings, Practice and Procedure, Professional Liability | Leave a comment