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Good afternoon.

Please find our summaries of last week’s civil decisions of the Court of Appeal for Ontario.

The most interesting and notable decision this week was Justice Thorburn’s decision in Wright v. Horizons ETFS Management (Canada) Inc. Like Darmar Farms, which was featured in our Top Appeals of 2019 CLE (and is awaiting to hear if leave to the Supreme Court will be granted), it would appear that the Court has once again expanded the scope of negligence claims for pure economic loss that can be brought.

In this class action, the plaintiff sued the fund manager of an ETF that tracked the VIX volatility index. On a single day in February 2018, the ETF lost 90% of its value and investors were wiped out. The fund manager subsequently wound up the ETF as non-viable. The allegation made was that such an ETF, by its very design, was doomed to catastrophically fail, and that the fund manager was therefore negligent in designing such a fund and in the disclosure made to investors.

The certification judge, Perell J, dismissed the entire action as disclosing no reasonable cause of action. The Court set aside that decision. While it agreed with the certification judge that the claim did not fit within the shoddy goods exception to claims for pure economic loss (since the financial product in this case was not a physical danger to person or property), it held that the negligence claim in this case fell within the negligent performance of a service exception. In the alternative, the Court determined that if the claim was novel and did not fit within one of the five recognized exceptions to the bar against claims for pure economic loss, it should be allowed to proceed and be determined on a full evidentiary record.

Other topics covered this week included the apportionment of liability in a social host MVA case where the amount of insurance available was not enough to satisfy the judgment obtained, the test for being awarded advance costs under s. 124 of the CBCA to defend a D&O claim, relief from forfeiture from the failure to properly exercise an option to renew a commercial lease, solicitor and client (claim on account for services rendered), striking pleadings on the basis of no reasonable cause of action, a multiplicity of proceedings, abuse of process and issue estoppel, dismissal for delay and rights of first refusal.

John Polyzogopoulos
Blaney McMurtry LLP
416.593.2953 Email

Table of Contents

Civil Decisions

Tuffnail v. Meekes, 2020 ONCA 340

Keywords: Torts, Negligence, MVA, Social Host Liability, Apportionment of Fault, Automobile Insurance, Coverage, Under-Insured Motorist, Subrogation, Damages, Recovery, Apportionment, Civil Procedure, Pre-judgment Interest, Amending Pleadings, Limitation Periods, Insurance Act, RSO 1990, c I8, s 278(2), Ontario Policy Change Form 44R – Family Protection Coverage endorsement, s. 7, Courts of Justice Act, RSO 1990, c C43, s 130, Freudmann-Cohen v. Tran (2004), 70 O.R. (3d) 667 (C.A.), Endean v. St. Joseph Hospital, 2019 ONCA 181

Wright v. Horizons ETFS Management (Canada) Inc., 2020 ONCA 337

Keywords: Securities, Prospectuses, Material Misrepresentation, Secondary Market Misrepresentation, Torts, Negligence, Duty of Care, Damages, Pure Economic Loss, Civil Procedure, Class Proceedings, Certification, Striking Pleadings, No Reasonable Cause of Action, Securities Act, R.S.O. 1990, c. S.5, ss. 116, 130, 138.3, Class Proceedings Act, 1992, S.O. 1992, c. 6, s. 5(1)(a), Deloitte & Touche v. Livent Inc. (Receiver of), 2017 SCC 63, [2017] 2 S.C.R. 855, Darmar Farms Inc. v. Syngenta Canada Inc., 2019 ONCA 789, leave to appeal to S.C.C. requested, 38915, Arora v. Whirlpool Canada LP, 2013 ONCA 657, leave to appeal refused, [2013] S.C.C.A. No. 498, Lavender v. Miller Bernstein LLP, 2018 ONCA 729, leave to appeal refused, [2018] S.C.C.A. No. 488, Martel Building Ltd. v. Canada, 2000 SCC 60, Mandeville v. The Manufacturers Life Insurance Company, 2014 ONCA 417, leave to appeal refused, [2014] S.C.C.A. No. 390, Childs v. Desormeaux, 2006 SCC 18, Cooper v. Hobart, 2001 SCC 79, Canadian National Railway Co. v. Norsk Pacific Steamship Co., [1992] 1 S.C.R. 1021, Whittingham v. Crease & Co. (1978), 88 D.L.R. (3d) 353, at p. 373 (B.C.S.C.), Cannon v. Funds for Canada Foundation, 2012 ONSC 399, leave to appeal refused, 2012 ONSC 6101 (Div. Ct.), Pacific Coast Coin Exchange v. Ontario Securities Commission, [1978] 2 S.C.R. 112, Growthworks WV Management Ltd. v. Growthworks Canadian Fund Ltd., 2018 ONSC 3108, Pro‑Sys Consultants Ltd. v. Microsoft Corporation, 2013 SCC 57, Hodge v. Neinstein, 2017 ONCA 494, leave to appeal refused, [2017] S.C.C.A. No. 341

Lee v. Lalu Canada Inc. , 2020 ONCA 344

Keywords: Corporations, Directors and Officers, Liability, Defence Costs, Advance Funding, Contracts, Interpretation, Unanimous Shareholder Agreements, Canada Business Corporations Act, R.S.C. 1985, c. C-44, s. 124, Cytrynbaum v. Look Communications Inc., 2013 ONCA 455, leave to appeal refused, [2013] S.C.C.A. No. 377, 379, Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53,

Burns v. RBC Life Insurance Company, 2020 ONCA 347

Keywords: Employment Law, Liability of Employees, Breach of Contract, Breach of Duty of Good Faith, Insurance, Long-Term Disability Benefits, Torts, Negligence, Negligent Misrepresentation, Civil Procedure, Striking Pleadings, No Reasonable Cause of Action

2324702 Ontario Inc. v. 1305 Dundas W Inc., 2020 ONCA 353

Keywords: Contracts, Real Property, Commercial Leases, Options to Renew, Relief from Forfeiture, Waiver, Estoppel, Commercial Tenancies Act, R.S.O. 1990, c. L.7, ss. 19, 20, Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co., [1994] 2 S.C.R. 490, Ross v. T. Eaton Co. (1992), 11 O.R. (3d) 115 (C.A.), 1383421 Ontario Inc. v. Ole Miss Place Inc. (2003), 67 O.R. (3d) 161 (C.A.), Mapleview-Veterans Drive Investments Inc. v. Papa Kerollus VI Inc., 2016 ONCA 93

Birdseye Security Inc. v. Milosevic , 2020 ONCA 355

Keywords: Civil Procedure, Striking Pleadings, Frivolous, Vexatious, Abuse of Process, Other Proceeding Pending, Appeals, Jurisdiction, Final or Interlocutory, Rules of Civil Procedure, Rules 21.01(1)(b), 21.01(3)(c), 21.01(3)(d) and 25.11, Farris v. Staubach Ontario Inc. (2004), 32 C.C.E.L. (3d) 265 (Ont. S.C.)

Couper v. Rueter Scargall Bennett LLP , 2020 ONCA 352

Keywords: Contracts, Solicitor-Client, Contingency Fee Agreements, Accounts for Services Rendered, Civil Procedure, Reasonable Apprehension of Bias, Contingency Fee Agreements, O. Reg 195/04 to the Solicitors Act, R.S.O. 1990, c. S. 15, Watt v. Beallor Beallor Burns Inc., 2004 CanLII 19821 (Ont. C.A.)

Short Civil Decisions

Kazen v. Whitten & Lublin Professional Corporation , 2020 ONCA 325

Keywords: Torts, Professional Negligence, Lawyers, Breach of Confidence, Solicitor Client Privilege, Waiver, Civil Procedure, Striking Pleadings, Issue Estoppel, Angle v. Minister of National Revenue, [1975] 2 S.C.R. 248

Home Town Financial (Timmins) Corporation v. Levesque , 2020 ONCA 349

Keywords: Civil Procedure, Dismissal for Delay, Rules of Civil Procedure, Rule 48.14(7), Faris v. Eftimovski, 2013 ONCA 360, Kara v. Arnold, 2014 ONCA 871

Taylor v. 864773 Ontario Inc., 2020 ONCA 345

Keywords: Contracts, Interpretation, Real Property, Rights of First Refusal


CIVIL DECISIONS

Tuffnail v. Meekes , 2020 ONCA 340

[Hoy A.C.J.O., Doherty J.A. and Marrocco A.C.J. (ad hoc)]

Counsel:

Peter W. Kryworuk and Jacob R.W. Damstra, for State Farm Mutual Automobile Insurance Company

James D. Virtue and Rasha M. El-Tawil, for GAT, PDT, DAT, and MAT

D. Romano Reid, for the Litigation Administrator for the Estate of TMB

Brian A. Pickard, James K. Brown and Ayren J. Brown, for SC

Keywords: Torts, Negligence, MVA, Social Host Liability, Apportionment of Fault, Automobile Insurance, Coverage, Under-Insured Motorist, Subrogation, Damages, Recovery, Apportionment, Civil Procedure, Pre-judgment Interest, Amending Pleadings, Limitation Periods, Insurance Act, RSO 1990, c I8, s 278(2), Ontario Policy Change Form 44R – Family Protection Coverage endorsement, s. 7, Courts of Justice Act, RSO 1990, c C43, s 130, Freudmann-Cohen v. Tran (2004), 70 O.R. (3d) 667 (C.A.), Endean v. St. Joseph Hospital, 2019 ONCA 181

facts:

GAT was seriously injured in a single-vehicle crash on September 13, 2009, following a rural wedding reception. The other passenger, KP, was killed. GAT and the driver, SM, had been served alcohol at the reception. The groom, TMB, had hosted the reception. SC was the bartender.

GAT and his family (collectively GAT), commenced an action against SM, TMB and State Farm, GAT’s automobile insurer. GAT claimed that the collision and resulting injuries were caused by SM and TMB’s negligence and/or, in the case of TMB, breach of the provisions of the Liquor Licence Act. In the case of State Farm, GAT sought a declaration that they were entitled to coverage under the OPCF 44R (Ontario Policy Change Form 44R – Family Protection Coverage endorsement), the optional underinsured motorist coverage GAT had purchased from State Farm.

State Farm defended GAT’s claim for a declaration that GAT was entitled to coverage under the OPCF 44R and brought a third party claim against SC for contribution and indemnity in respect of amounts it was required to pay under the OPCF 44R. TMB also brought a third party claim against SC. Both State Farm and TMB alleged that SC’s negligence and/or breach of the Liquor Licence Act caused or contributed to the accident. GAT did not sue SC.

On May 10, 2017, following a six-week trial, the jury awarded damages and apportioned liability among SM, TMB, SC and GAT as follows:

SM (the driver) – 65%

TMB (the host) – 20.03%

SC (the bartender) – 11.12%

GAT (the plaintiff) – 3.85%

Taking GAT’s contributory negligence into account, the net amount payable to GAT is $3,435,034.71.

TMB died during the litigation. The litigation was continued by SCD, as Litigation Administrator for the Estate of TMB (together TMB).

The following insurance coverage was available to the tortfeasors:

SM – $200,000

TMB – $2,000,000

SC – $1,000,000

KP’s family were plaintiffs (KP was killed in the accident) in a companion action (collectively KP). KP agreed to be bound by the findings of liability and apportionment of damages in the GAT action. SM and TMB’s policy limits were subject to pro rata sharing with KP, with GAT entitled to 94.89% of the proceeds. Accordingly, GAT is entitled to $189,780 from SM and $1,897,800 from TMB.

This does not cover GAT’s loss. The net amount GAT is entitled to under the judgment exceeds the aggregate of SM, TMB and SC’s insurance coverage. Key issues on the appeal impact how much State Farm is required to pay to GAT under the OPCF 44R and how, given the “shortfall”, the amount recovered should be divided between State Farm and GAT.

State Farm, GAT and SC all appealed various aspects of the trial judge’s post-jury trial rulings related to the calculation of amounts owing.

issues:

1. Did the trial judge err in her interpretation of the OPCF 44R by finding that SC was not “jointly liable” with SM within the meaning of s. 7 of the OPCF 44R, leading to an erroneous calculation of the amount State Farm was required to pay GAT?

2. Did the trial judge err in ordering that State Farm share any amounts it recovers by way of subrogation with GAT only until GAT receives “full indemnification pursuant to the terms of the OPCF 44R endorsement” pursuant to s 278(2) of the Insurance Act?

3. Did the trial judge err in limiting SC’s liability to TMB to a proportion of the total judgment equal to the 11.12% of fault found by the jury?

4. Did the trial judge improperly exercise her discretion to award prejudgment interest at a rate higher than the bank rate?

5. Did the trial judge err in not allowing SC to amend his pleading to plead a limitation defence, after the jury returned their verdict?

holding:

State Farm appeal allowed. GAT appeal allowed. State Farm conditional cross-appeal dismissed. SC appeal dismissed.

reasoning:

1. Yes. In a lengthy discussion about OPCF 44R and the law of subrogation (the ability of insurers to sue in the name of an insured, but to sometimes be able to sue in their own name by way of third party claim; Freudmann-Cohen v. Tran (2004), 70 O.R. (3d) 667 (C.A.)), the Court ultimately concluded that State Farm’s third party claim against SC was in the nature of a subrogated claim in the name of GAT against SC. Since SC was found partially at fault for the accident by the jury, he was “jointly liable” with SM within the meaning of OPCF 44R. SC’s insurance was therefore “available” to GAT in calculating State Farm’s liability to GAT under s. 7 of the OPCF 44R. State Farm’s liability to GAT was therefore reduced from $800,000 to $347.454.

2. Yes. In another lengthy discussion about the right of subrogation arising only after an insured is fully indemnified for their loss, and the modification of the common law in this regard by s. 278 of the Insurance Act, the Court ultimately agreed with GAT that pro rata sharing of any recovery would only take place after GAT received full indemnification under his judgment, not full indemnification pursuant to OPCF 44R. Accordingly, State Farm was required to share any recovery made in the subrogated action with GAT.

3. No. There was no error in apportioning fault to SM (who had settled but remained a party to the action), therefore no error in the limit imposed on SC’s liability to TMB. Endean v. St. Joseph Hospital, 2019 ONCA 181, which is a decision that provides that there can be no apportionment of fault to persons who were never parties to an action, had no application to this case, since SM was a party.

4. Yes. First, the trial judge misapplied the factor of changes in market interest rates specified under s. 130(2) of the Courts of Justice Act. Market rates never fluctuated above the 1.3% default rate during the litigation. Second, the trial judge considered an inappropriate factor, namely that “[t]he case was undoubtedly conducted by [GAT] with the understanding or expectation (although no vested entitlement) of a certain rate of prejudgment interest”. There can be no expectation on the part of a litigant that he or she is entitled to prejudgment interest at any particular rate until the trial judge determines that rate: Cobb v. Long Estate, 2017 ONCA 717, at para. 90.

5. No. The trial judge’s finding of non-compensable prejudice in dismissing SC’s request to amend his defence to plead a limitation period defence was entitled to deference. Had the defence been raised earlier, GAT may have led different evidence at trial, and he and KP may have had a different pre-trial strategy and settlement decisions. This was not improper speculation.


Wright v. Horizons ETFS Management (Canada) Inc., 2020 ONCA 337

[Lauwers, Hourigan and Thorburn JJ.A.]

Counsel:

Alistair Crawley, Clarke Tedesco, Michael L. Byers, and Alexandra Grishanova, for the appellant

R. Seumas M. Woods and Ryan Morris, for the respondent

Keywords: Securities, Prospectuses, Material Misrepresentation, Secondary Market Misrepresentation, Torts, Negligence, Duty of Care, Damages, Pure Economic Loss, Civil Procedure, Class Proceedings, Certification, Striking Pleadings, No Reasonable Cause of Action, Securities Act, R.S.O. 1990, c. S.5, ss. 116, 130, 138.3, Class Proceedings Act, 1992, S.O. 1992, c. 6, s. 5(1)(a), Deloitte & Touche v. Livent Inc. (Receiver of), 2017 SCC 63, [2017] 2 S.C.R. 855, Darmar Farms Inc. v. Syngenta Canada Inc., 2019 ONCA 789, leave to appeal to S.C.C. requested, 38915, Arora v. Whirlpool Canada LP, 2013 ONCA 657, leave to appeal refused, [2013] S.C.C.A. No. 498, Lavender v. Miller Bernstein LLP, 2018 ONCA 729, leave to appeal refused, [2018] S.C.C.A. No. 488, Martel Building Ltd. v. Canada, 2000 SCC 60, Mandeville v. The Manufacturers Life Insurance Company, 2014 ONCA 417, leave to appeal refused, [2014] S.C.C.A. No. 390, Childs v. Desormeaux, 2006 SCC 18, Cooper v. Hobart, 2001 SCC 79, Canadian National Railway Co. v. Norsk Pacific Steamship Co., [1992] 1 S.C.R. 1021, Whittingham v. Crease & Co. (1978), 88 D.L.R. (3d) 353, at p. 373 (B.C.S.C.), Cannon v. Funds for Canada Foundation, 2012 ONSC 399, leave to appeal refused, 2012 ONSC 6101 (Div. Ct.), Pacific Coast Coin Exchange v. Ontario Securities Commission, [1978] 2 S.C.R. 112, Growthworks WV Management Ltd. v. Growthworks Canadian Fund Ltd., 2018 ONSC 3108, Pro‑Sys Consultants Ltd. v. Microsoft Corporation, 2013 SCC 57, Hodge v. Neinstein, 2017 ONCA 494, leave to appeal refused, [2017] S.C.C.A. No. 341

facts:

The proposed class action arises out of the dramatic collapse of a proprietary derivatives-based exchange-traded fund (“the Fund”) created and managed by the respondent, Horizons ETFS Management (Canada) Inc. (“Horizons”).

The Fund was meant to provide inverse exposure to stock market volatility (“VIX Index”). The Fund was described in the prospectus as “highly speculative” and “involv[ing] a high degree of risk”. Units in the Fund were offered to retail investors, as well as registered brokers and dealers who bought and sold them over stock exchanges.

After two years of growth, the value of the Fund dropped suddenly and dramatically: on February 5, 2018, the Fund lost almost 90% of its value overnight. Investors lost nearly $40 million and the Fund never recovered. In April 2018, Horizons announced that it was closing the Fund because it “no longer offer[ed] an acceptable risk/reward trade-off for investors”.

GW brought a class actoin as the representative plaintiff for all persons who owned units of the Fund at the close of the Toronto Stock Exchange on February 5, 2018 (“the Class”). He alleged that Horizons was negligent and was liable for making misrepresentations in its prospectus under s. 130 of the Securities Act.

The certification judge (Perell J) held that the statement of claim did not disclose a reasonable cause of action, because it was plain and obvious that:

a. Horizons owed the Class no duty of care and that there was therefore no cause of action in negligence; and

b. GW and the Class did not have a cause of action for misrepresentation in a prospectus pursuant to s. 130 of the Securities Act, as the Fund was offered over stock exchanges (on the secondary market) and not directly to investors (the primary market). They could and should have proceeded under s. 138.3 of the Securities Act, not under s. 130.

The claim was not certified as a class action and was dismissed as disclosing no reasonable cause of action. GW appealed.

issues:

1. Did the certification judge err in dismissing the proposed class action as disclosing no reasonable cause of action?

holding:

Appeal allowed.

reasoning:

Yes. The Court agreed with GW that the statement of claim disclosed a cause of action in negligence and that leave should be granted to amend the claim to properly plead a claim of misrepresentation under s. 130 of the Securities Act. The order of the certification judge dismissing the motion for certification and the action was set aside, the plaintiff was allowed to amend the claim such that it can proceed under s. 130 of the Securities Act, and the matter was remitted to the certification judge to determine whether the remaining criteria for certification were met.

The standard of review applicable to a certification judge’s determination of law that a claim discloses no reasonable cause of action is correctness: Hodge v. Neinstein, 2017 ONCA 494, at para. 52, leave to appeal refused, [2017] S.C.C.A. No. 341. For the purpose of the cause of action criterion on a certification motion, the facts pleaded in the statement of claim are deemed to be true: Pro‑Sys Consultants Ltd. v. Microsoft Corporation, 2013 SCC 57 at para. 63. Other principles applicable on this motion included the following: no evidence was admissible; unique or novel claims that involve matters of unsettled law or that require a detailed analysis of the evidence should not be resolved without a factual record; the pleading must be read generously; a plaintiff cannot rely on the possibility that new facts may be discovered, and must plead material facts upon which it relies; the pleading will be struck if it is plain and obvious that the plaintiff’s claim cannot succeed.

Negligence Claim

GW claims that Horizons was negligent in designing, developing, offering, and promoting a financial product that was not adequately tested before launching, excessively risky, complex and doomed to fail. He also alleges that Horizons failed to explain the nature and extent of the risks of investing in the Fund, monitor the Fund’s investment strategy, or diligently perform its duties as manager of the Fund. When the Fund inevitably failed, Horizons failed to take action to prevent investors from sustaining massive losses.

Horizons argued that the certification judge correctly concluded that Horizons, as the creator of the Fund, had no duty to protect investors from a high risk investment product or from possible losses. The prospectus clearly indicates that these were “high risk” investments and that large sums could be lost in short order. Even if there were such a duty, there are sound policy reasons for not allowing such claims where the parties are best left to allocate risks through alternative means.

In finding no cause of action in negligence, the certification judge determined that extending a duty of care for pure economic loss to the creator of an index-tracking ETF would: (a) deter useful economic activity where the parties are best left to allocate risks through the autonomy of contract, insurance, and due diligence; (b) encourage a multiplicity of inappropriate lawsuits; (c) arguably disturb the balance between statutory and common law actions envisioned by the legislator; and (d) have the courts take on a significant regulatory function when existing causes of action, the regulators, and the marketplace already provide remedies.

Canadian courts have limited tort recovery for cases involving pure economic loss where there is no physical harm or damage to property: Arora v. Whirlpool Canada LP, 2013 ONCA 657, at para. 52, leave to appeal refused, [2013] S.C.C.A. No. 498. While there is no automatic bar to recovery for pure economic loss, “such claims warrant more rigorous examination than other claims for negligence”: Lavender v. Miller Bernstein LLP, 2018 ONCA 729, at para. 72, leave to appeal refused, [2018] S.C.C.A. No. 488, citing Martel Building Ltd. v. Canada, 2000 SCC 60, at para. 35; and Mandeville v. The Manufacturers Life Insurance Company, 2014 ONCA 417, at paras. 148-50, leave to appeal refused, [2014] S.C.C.A. No. 390.

Some of the reasons for the refusal to recognize claims for pure economic loss include the possibility of indeterminate liability, the difference between social loss (such as physical harm) and the transfer of wealth from one person or group to another, the relevance of existing and potential contractual allocation of loss, and the fact that negligently-caused purely financial injury does not constitute a violation of a recognized legal right. When looking at a claim for pure economic loss, it is important to consider whether the plaintiff had an opportunity to protect itself by contract from the risk of economic loss and declined to do so.

There is a two-step process to determining if a duty of care in negligence for pure economic loss exists:

a. whether the parties are in a sufficiently close and direct (or proximate) relationship and whether the harm suffered is reasonably foreseeable such that a prima facie duty of care exists; and if so,

b. whether there are residual policy considerations that should insulate the defendant from liability.

See Deloitte & Touche v. Livent Inc. (Receiver of), 2017 SCC 63, at paras. 23-45 and Darmar Farms Inc. v. Syngenta Canada Inc., 2019 ONCA 789, at para. 54, leave to appeal to S.C.C. requested, 38915.

The first issue to be determined is whether the claim fits within or is analogous to a recognized duty of care. If a relationship falls within a previously established duty of care or is analogous to one, then the requisite close and direct relationship is shown: Livent, at para. 26.

Determining whether a proposed duty of care fits within an existing or analogous duty is a matter of precedent: Childs v. Desormeaux, 2006 SCC 18, at para. 15. When a court relies on an established duty of care, there are no overriding policy considerations that would [negate] the duty of care: Livent, at para. 28.

The Supreme Court has recognized five categories of cases in which plaintiffs may recover in negligence for economic loss not causally connected to physical or property harm: Canadian National Railway Co. v. Norsk Pacific Steamship Co., [1992] 1 S.C.R. 1021, at p. 1049:

  1. the independent liability of statutory public authorities;
  2. negligent misrepresentation;
  3. negligent performance of a service;
  4. negligent supply of shoddy goods or structures; and
  5. relational economic loss.

When determining whether a proposed duty of care fits within an existing or analogous duty, a court should avoid construing existing duties of care “in an overly broad manner” and “be attentive to the particular factors which justified recognizing that prior [duty]”: Livent, at para. 28. These factors include (in the case of negligent misrepresentation and negligent provision of services) (a) the defendant’s undertaking to provide a representation or a service and (b) the plaintiff’s reasonable reliance on that undertaking such that the risk of injury was reasonably foreseeable: Livent, at paras. 30-31.

Where the case does not fall within an established duty or a duty analogous thereto, the court must (just as in the case of an established duty of care) satisfy itself that (a) there is a proximate relationship and (b) that the risk of injury is foreseeable: Livent, at paras. 29-32. If so, a prima facie duty of care will be established.

To determine whether a close and direct relationship exists, the court must examine all relevant factors arising from the relationship between the plaintiff and defendant. While the factors are diverse and depend on the circumstances of each case, they include factors such as expectations, representations, and the property or other interests involved as well as any statutory obligations. In the case of a duty of care falling within the category of negligent misrepresentation or negligent performance of a service, two factors are determinative in the proximity analysis: the defendant’s undertaking and the plaintiff’s reasonable reliance: Livent, at paras. 29-30.

Once a prima facie duty of care is established, the court must go on to consider whether there are residual policy reasons that would negate the imposition of a duty of care: Livent, at paras. 37-45; Cooper, at para. 30. The question is whether, despite the proximate relationship and the reasonable foreseeability of the plaintiff’s injury, the defendant should nonetheless be insulated from liability. This inquiry is concerned with the effect of recognizing a duty of care on other legal obligations, the legal system, and society more generally. The court will consider policy objectives that suggest that this duty of care ought not to be recognized, including the existence of other remedies and concerns about creating unlimited liability to an unlimited class: Livent, at paras. 37-41.

In this case, GW suggests that this case fits within the established category of cases for pure economic loss resulting from the negligent supply of shoddy goods. GW pleads that, like the provider of shoddy physical goods, Horizons inflicted economic devastation on the Class by developing and promoting a Fund that was negligently designed. Unit purchasers were not told of all of the risks of investing in the Fund or how the pricing mechanism worked. When the inevitable happened, they lost all or substantially all of the value of their Units.

Winnipeg Condominium Corporation No. 36 v. Bird Construction Co., [1995] 1 S.C.R. 85 was the first case that allowed a claim for pure economic loss for the negligent supply of shoddy goods/structures. However the cladding on the building in that case was physically dangerous to person and property. Winnipeg Condominium did not address recoverability for pure economic loss where there was no dangerous physical defect. In Arora v. Whirlpool Canada LP, 2013 ONCA 657, leave to appeal refused, [2013] S.C.C.A. No. 498, the Court determined that a claim for recovery of pure economic loss relating to shoddy but not dangerous washing machines was not recoverable. Accordingly, GW’s claim for pure economic loss did not fall within the recognized category of the negligent supply of shoddy goods.

GW also submitted that the claim fell within the recognized category of cases for negligent performance of a service. He argued that this case was analogous to the claim in Cannon v. Funds for Canada Foundation, 2012 ONSC 399, leave to appeal refused, 2012 ONSC 6101 (Div. Ct.). In Cannon, at paras. 155-60, and 169-77, Strathy J. (as he then was) held that there was a reasonable cause of action against the creators and promoters of a tax avoidance program that the participants alleged was “negligently designed and … did not work” when they were told that it would. The claim was allowed to proceed against one of the creators of the scheme even though the creator had no direct contractual relationship with investors: Cannon, at paras. 173-77, 245.

The Court found that GW’s claim was analogous to Cannon. As in Cannon, GW alleged that Horizons:

  • Created the Fund for investment;
  • Earned monies from the promotion and management of the Fund; and
  • Undertook to provide a financial product that was suitable for investors.

There is arguably, therefore, a relationship of proximity between Horizons and the Class. Horizons undertook to create and sell a Fund that was suitable for some investors and, on the pleading as drafted, it was not. Read generously, the pleading provides that investors were not given sufficient information about the nature and extent of the risks and possible rewards to enable them to make an informed decision as to whether to invest, nor were they told that there was a design flaw and that the investment was doomed to fail. Without this information, the undertaking to provide a risky but viable investment was not met, and the risk of injury flowing from producing a product doomed to fail was reasonably foreseeable. For these reasons, GW has a reasonable prospect of demonstrating that the claim falls within a recognized duty of care under the category of negligent performance of a service.

In the event that the Court was incorrect that this claim fell within the established category of negligent performance of a service, then the Court was also of the view that it was not plain and obvious that this new novel claim for pure economic loss was doomed to fail. It applied the test set out in Livent/Cooper and determined that it was arguable that a duty of care existed that was not negated by policy considerations.

In this case, the certification judge correctly determined that there is a legally proximate relationship between the Class of ETF investors and Horizons as ETF fund developer and manager, and that the critical issue is the scope of the undertaking assumed by the fund developer and manager. However, the certification judge erred when he held that “Horizons’ [only] undertaking was to place on the exchange a financial product that operated in accordance with the accompanying disclosure documents,” and that Horizons “did not undertake responsibility for any gains or losses purchasers might realize in purchasing the units.”

The Court disagreed. Horizons’ undertaking was broader than the undertaking that the certification judge described. Horizons, as the Fund manager, undertook to its investors to act honestly, in good faith and in the best interests of the investment fund and exercise the degree of care and diligence that a prudent person would exercise in the circumstances as provided for in s. 116 of the Securities Act. Assuming the allegations in the pleading are proven, Horizons created a Fund that was not suitable for any investors because the design flaw rendered it doomed to fail. Moreover, Horizons failed to disclose key features of the Fund’s design and trading strategy so that investors would know the real risks before investing. The Fund managers arguably failed to meet their undertaking to investors and the risk of injury was reasonably foreseeable. The failure to provide full disclosure of the risks and/or the fact that the product was doomed to fail and the Fund manager’s failure to develop a viable strategy for the Fund might constitute a breach of a prima facie duty of care and/or a breach of the fund managers’ statutory duties as set out in s. 116 of the Securities Act: Growthworks WV Management Ltd. v. Growthworks Canadian Fund Ltd., 2018 ONSC 3108, at paras. 221 and 321.

In addition, it was not plain and obvious that policy considerations should negate the alleged prima facie duty of care. The risk of loss cannot be addressed by contract because this was not a vendor-purchaser relationship. Nor, on the claim as pleaded, can it be addressed by insurance, or due diligence by Class members. Moreover, it does not seem apparent that imposing a duty would create liability toward an indeterminate number of persons. Allowing the claim might cause fund managers like Horizons to exercise caution and control in designing investment products and ensure that all material facts are provided to investors.

Misrepresentation Claim under Section 130 of the Securities Act

GW maintains Horizons made misrepresentations in its prospectus within the meaning of s. 130 of the Securities Act. He claims that the prospectus failed to disclose the real risks attached to the Fund, including the disparity in the way gains and losses are experienced, and that it was inevitable that the Fund would lose all or substantially all of its value in a single day.

Horizons argued that GW has no right of action for misrepresentation under s. 130 of the Securities Act. Horizons maintained that a remedy under s. 130 is not available for misrepresentations associated with purchases on the secondary market (the stock exchange) and is only available for purchases on the primary market. Instead the claim should have been brought pursuant to s. 138.3 of the Securities Act.

The Court disagreed with the certification judge that all members of the Class ought to be treated as secondary market purchasers. It was not clear that they all were, as some may have owned “Creation Units” and owners of those units are entitled to be treated as purchasers of units in the primary market and to therefore claim under section 130 of the Securities Act. GW was granted leave to amend the claim to plead that he purchased “Creation Units”.


Lee v. Lalu Canada Inc., 2020 ONCA 344

[Pepall, van Rensburg and Paciocco JJ.A.]

Counsel:

Benjamin Salsberg, for the appellant

Michael M. Title and Patricia Virc, for the respondent

Keywords: Corporations, Directors and Officers, Liability, Defence Costs, Advance Funding, Contracts, Interpretation, Unanimous Shareholder Agreements, Canada Business Corporations Act, R.S.C. 1985, c. C-44, s. 124, Cytrynbaum v. Look Communications Inc., 2013 ONCA 455, leave to appeal refused, [2013] S.C.C.A. No. 377, 379, Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53,

facts:

The appellant, GL, is the former CEO of the respondent, Lalu Canada Inc. (“Lalu”), a real estate investment company. GL asserts that the application judge erred in dismissing his application for advance funding of his legal costs to defend an action brought against him in his capacity as a former officer of Lalu.

The action was commenced by HZC Capital Inc. (“HZC”) (a CBCA company that serves as an investment vehicle for monies from China) and other plaintiffs, including Lalu (75% owned by HZC and incorporated to invest in the Canadian real estate development industry) and other related entities. The action claims breach of contract, breach of fiduciary duty and statutory duties, conspiracy, and fraud. The plaintiffs allege that they were the victims of a complex commercial fraud in relation to their investments in six real estate development projects.

The application judge concluded that a strong prima facie case of fraud had been made out against GL in connection with “acquisition fees” he had received in respect of development properties acquired by Lalu, as a result of which he was disentitled to advance funding. GL appealed.

issues:

1. Did the application judge err in his interpretation of the Consulting Agreement?

2. Did the application judge err in his assessment of the evidence on whether Lalu knew of the acquisition fees and whether GL had concealed the acquisition fees from Lalu?

3. Did the application judge apply the wrong legal test?

holding:

Appeal dismissed.

reasoning:

1. No. The application judge interpreted the plain meaning of the Consulting Agreement as not authorizing GL to receive acquisition fees in respect of properties he sourced for Lalu. The application judge considered the context, including the relationship between the parties, when he observed that GL’s compensation included not only the retainer fee provided for in the Consulting Agreement but also any gain in his wife’s equity stake in Lalu. This conclusion was fully supported by the evidence, including the terms of the Unanimous Shareholders’ Agreement that speak to such gains.

2. No. GL demonstrated no error in the application judge’s assessment of the evidence about whether Lalu knew that he was receiving acquisition fees and whether, by receiving the fees indirectly, he was concealing the fees from Lalu.

3. No. In the context of an application under s. 124 of the CBCA, the “strong prima facie case” requirement for denying advance funding on the basis of bad faith recognizes that there is a presumption of good faith, and that funding would ordinarily be available. It recognizes that the assessment of bad faith is being made at an interlocutory stage, on the basis of evidence available at that stage, and that it will not be binding in the final disposition of the matter, when other evidence and arguments may be before the court. The strong prima facie case test is a stringent test, and that, although the applicant for advance funding would be presumed to have acted in good faith, there is a possibility they would be denied funding when there is strong evidence of bad faith. The fact that, in applying the proper test, the application judge determined that Lalu was “likely to succeed” at trial rather than “very likely” to succeed did not mean that the judge applied the wrong test. The Court declined to decide whether the “strong prima facie case” test for a mandatory injunction set out in R. v. Canadian Broadcasting Corp., [2018] 1 SCR 196 elevated the test for advance funding under s. 124 of the CBCA. The judge in this case was aware of the difference between “prima facie case” and “strong prima facie case”, and he applied the appropriately stringent test.


Burns v. RBC Life Insurance Company , 2020 ONCA 347

[Gillese, Brown and Jamal JJ.A.]

Counsel:

Sloan H. Mandel and Deanna S. Gilbert, for the appellant

Barry G. Marta, for the respondents

Keywords: Employment Law, Liability of Employees, Breach of Contract, Breach of Duty of Good Faith, Insurance, Long-Term Disability Benefits, Torts, Negligence, Negligent Misrepresentation, Civil Procedure, Striking Pleadings, No Reasonable Cause of Action

facts:

The appellant’s claims for breach of contract, bad faith, negligence and negligent misrepresentation against her former employer’s employees were struck, without leave to amend, as disclosing no independent cause of action against the employees that were separate and apart from the claims against her employer. The claim relates to the insurer’s termination of long-term disability benefits.

issues:

Did the motion judge err in striking the claim and denying leave to amend?

holding:

Appeal allowed.

reasoning:

Yes. While the claim was properly struck as disclosing no reasonable cause of action, leave to amend should have been granted.

While it is well-established that a cause of action in tort can lie against the employee of a corporate employer for conduct carried out in the usual course of employment: Sataur v. Starbucks Coffee Canada Inc., 2017 ONCA 1017, Rule 25.06(1) requires a statement of claim to contain a concise statement of the material facts on which the party relies for its claim. Each defendant named in a statement of claim should be able to look at the pleading and find an answer to a simple question: What do you say I did that has caused you, the plaintiff, harm, and when did I do it? The appellant’s claim did not provide the defendant employees with an individualized answer to this question. The comments made in Moynihan v. Rowe, 2018 ONSC 502, at paras. 37-38, that a statement of claim need not draw a distinction between the conduct of employees and that of the employer, and where it does not, it is always open to the defendant to seek particulars were obiter, and do not impact the requirements of pleading.

However, leave to amend should be denied only in the clearest of cases, especially where the deficiencies in the pleading can be cured by an appropriate amendment and the other party would not suffer any prejudice if leave to amend was granted: Tran v. University of Western Ontario, 2015 ONCA 295, at para. 26; South Holly Holdings Limited v. The Toronto-Dominion Bank, 2007 ONCA 456, at para. 6. In the absence of reasons explaining why he denied leave to amend, the discretionary order of the motion judge was not entitled to deference. There was no suggestion that the respondents would suffer litigation prejudice if leave to amend was granted.


2324702 Ontario Inc. v. 1305 Dundas W Inc., 2020 ONCA 353

[Feldman, Lauwers and Huscroft JJ.A.]

Counsel:

Sam A. Presvelos, for the appellant

Robert B. Cohen and Melissa Winch, for the respondent

Keywords: Contracts, Real Property, Commercial Leases, Options to Renew, Relief from Forfeiture, Waiver, Estoppel, Commercial Tenancies Act, R.S.O. 1990, c. L.7, ss. 19, 20, Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co., [1994] 2 S.C.R. 490, Ross v. T. Eaton Co. (1992), 11 O.R. (3d) 115 (C.A.), 1383421 Ontario Inc. v. Ole Miss Place Inc. (2003), 67 O.R. (3d) 161 (C.A.), Mapleview-Veterans Drive Investments Inc. v. Papa Kerollus VI Inc., 2016 ONCA 93

facts:

The appellant’s application that it had validly exercised its option to renew its lease for five more years in accordance with the terms of the lease was dismissed. Its alternative claim to relief from forfeiture was also dismissed.

issues:

1. Did the application judge err in finding that the respondent did not waive the right to require strict compliance with the written notice provision of the renewal option?

2. Did the application judge err by refusing to grant relief from forfeiture?

holding:

Appeal dismissed.

reasoning:

1. No. The application judge found that the appellant wanted the landlord to agree to the new rent payable before it was prepared to exercise its option to renew the lease. It could have exercised the option to renew and then invoked the arbitration clause in the event there was no agreement on the rent to be payable, but it failed to do so. The two part test for waiver ((1) a full knowledge of rights; and 2) an unequivocal and conscious intention to abandon those rights) was not met in this case: Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co., [1994] 2 S.C.R. 490. The fact there were negotiations did not amount to a waiver by the respondent of the renewal option clause. There were no further negotiations after the expiry of the option period, and the respondent did nothing to indicate that it was abandoning its right to expect a written notice of renewal within the notice period.

2. No. Although the failure to renew the lease is not a breach of the lease, the court may grant relief from forfeiture where a party seeks to renew the lease but has not complied with the formal requirements or preconditions for doing so. However, this relief is available only in circumstances more narrowly confined than the three-pronged test from Saskatchewan River Bungalows (the conduct of the applicant, the gravity of the applicant’s breaches of the lease, and the disparity between the value of the forfeited property and the damage caused by the breach). A precondition for the exercise of any such equitable discretion is that the tenant has made diligent efforts to comply with the terms of the lease which are unavailing through no default of his or her own: Ross v. T. Eaton Co. (1992), 11 O.R. (3d) 115 (C.A.), at pp. 124-125; 1383421 Ontario Inc. v. Ole Miss Place Inc. (2003), 67 O.R. (3d) 161 (C.A.), at para. 80; Mapleview-Veterans Drive Investments Inc. v. Papa Kerollus VI Inc., 2016 ONCA 93, at paras. 55-56.


Birdseye Security Inc. v. Milosevic , 2020 ONCA 355

[Rouleau, van Rensburg and Roberts JJ.A.]

Counsel:

Rocco Galati, for the appellant in C67407 and the respondent in C67708

Tyler H. McLean, for the appellants in C67708 and the respondent in C67407

Keywords: Civil Procedure, Striking Pleadings, Frivolous, Vexatious, Abuse of Process, Other Proceeding Pending, Appeals, Jurisdiction, Final or Interlocutory, Rules of Civil Procedure, Rules 21.01(1)(b), 21.01(3)(c), 21.01(3)(d) and 25.11, Farris v. Staubach Ontario Inc. (2004), 32 C.C.E.L. (3d) 265 (Ont. S.C.)

facts:

The parties are involved into two related actions. The motion judge struck certain claims in one action on the basis that they resulted in a multiplicity of proceedings. He also refused to strike certain claims, finding that they did not fail to disclose a reasonable cause of action and were not frivolous or vexatious. Both sides appealed.

issues:

1. Did the motion judge err in striking certain claims because they created a multiplicity of proceedings?

2. Did the motion judge err in not striking certain claims as disclosing no reasonable cause of action or otherwise being frivolous and vexatious?

holding:

Appeal in C67407 allowed. Appeal in C67708 quashed.

reasoning:

1. Yes. It was the respondent on this appeal that was responsible for the multiplicity of proceedings and that opposed the consolidation of the matters. In addition, the appellant was deprived of the right to assert certain claims.

2. Not decided. The refusal to strike claims is an interlocutory order, not a final order. Leave to appeal such orders to the Divisional Court is required. The Court therefore had no jurisdiction to hear this appeal, and it was therefore quashed.


Couper v. Rueter Scargall Bennett LLP , 2020 ONCA 352

[Gillese, Tulloch and Jamal JJ.A.]

Counsel:

MC, acting in person

Barry Weintraub, for the respondents

Keywords: Contracts, Solicitor-Client, Contingency Fee Agreements, Accounts for Services Rendered, Civil Procedure, Reasonable Apprehension of Bias, Contingency Fee Agreements, O. Reg 195/04 to the Solicitors Act, R.S.O. 1990, c. S. 15, Watt v. Beallor Beallor Burns Inc., 2004 CanLII 19821 (Ont. C.A.)

facts:

The appellant, MC, seeks to set aside a judgment against him for legal fees, disbursements, interest and costs totalling approximately $422,000, in respect of legal services rendered by the respondent firm, Rueters.

The firm advanced the case through pre-trial, including defeating a motion for summary judgment. The firm terminated the retainer before trial because MC refused to follow its legal advice on important issues. In particular, the firm refused to bring a motion for summary judgment on behalf of MC. MC accepted the termination of the retainer and found new counsel. At the time of termination of the retainer, MC had only paid a total of $10,000 to the firm.

The parties negotiated a compromise compensation agreement that awarded the firm a portion of its fees incurred, and a percentage of recovery made by MC at trial or by way of settlement. MC proceeded to trial with new counsel and won. Rueters then issued an account in accordance with the agreement entered into with MC. MC sought to asset the account. The assessment officer ruled he did not have jurisdiction. The firm applied for a determination of the appropriate fees payable. The application judge found in favour of the firm. MC appealed.

issues:

1. Was there a reasonable apprehension of bias on the part of the application judge?

2. Did the application judge err in finding that the firm had good reason to withdraw from its representation?

3. Did the application judge err in enforcing the compensation agreement entered into between the firm and MC?

holding:

Appeal dismissed.

reasoning:

1. No. The fact that the applications judge ruled against MC in an assessment of his trial counsel’s fees was inadequate to establish a reasonable apprehension of bias: Watt v. Beallor Beallor Burns Inc., 2004 CanLII 19821 (Ont. C.A.), at paras. 13-14.

2. No. Counsel cannot abandon their clients on the eve of trial or a similarly acute point in the litigation. However, when Rueters terminated the solicitor-client relationship, the litigation was not at a critical stage. There were no imminent court dates nor was there work that could not be dealt with efficiently by new counsel. In fact, MC’s new counsel was able to take the matter to trial quickly and was successful, obtaining judgment in his favour. The Court agreed with the application judge that Rueters had no liability for any costs arising from the withdrawal because MC was “the author of his own misfortune” and was responsible for the material breakdown in the relationship for reasons that included his insistence that Rueters pursue the summary judgment motion, a motion that could have been strategically and financially disastrous for him. Finally, MC agreed that the firm be removed as his lawyers of record. Even if he had not agreed, the court would have granted a motion removing the firm as his lawyers.

No. MC raised for the first time on appeal the his initial retainer agreement and subsequence compromise compensation agreement were invalid as failing to comply with Contingency Fee Agreements, O. Reg 195/04 to the Solicitors Act, R.S.O. 1990, c. S. 15. The Court dismissed this argument because it was not appropriate to consider it when it had not been raised before the application judge. Even if the agreement did not comply with the Regulation, the Court agreed that it was fair and reasonable and therefore


SHORT CIVIL DECISIONS

Kazen v. Whitten & Lublin Professional Corporation , 2020 ONCA 325

[Gillese, Brown and Jamal JJ.A.]

Counsel:

R. Lee Akazaki, for the appellant
Gavin Tighe and Lauren Rakowski, for the respondents Whitten & Lublin Professional Corporation, DAL, DAW, MWK and SCW

Keywords: Torts, Professional Negligence, Lawyers, Breach of Confidence, Solicitor Client Privilege, Waiver, Civil Procedure, Striking Pleadings, Issue Estoppel, Angle v. Minister of National Revenue, [1975] 2 S.C.R. 248

Home Town Financial (Timmins) Corporation v. Levesque , 2020 ONCA 349

[Gillese, Brown and Jamal JJ.A.]

Counsel:

Jesse Harper and Nora Kharouba, for the appellants
Derek Zulianello, for the respondent, SL
Jordan R.D. Lester, for the respondent, BK

Keywords: Civil Procedure, Dismissal for Delay, Rules of Civil Procedure, Rule 48.14(7), Faris v. Eftimovski, 2013 ONCA 360, Kara v. Arnold, 2014 ONCA 871

Taylor v. 864773 Ontario Inc., 2020 ONCA 345

[Rouleau, van Rensburg and Roberts J.J.A.]

Counsel:

Frank Sperduti and Graham Splawski, for the appellant/respondent by way of cross-appeal 864773 Ontario Inc.

Cameron Fiske and William S.M. Cord, for the respondents/appellants by way of cross-appeal DT, EH, MLTH and JTW

Keywords: Contracts, Interpretation, Real Property, Rights of First Refusal


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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Photo of John Polyzogopoulos John Polyzogopoulos

John has been the editor of Blaneys Appeals since the inception of the blog in the Summer of 2014. He is a partner at the firm with almost two decades of experience handling a wide variety of litigation matters. John assists clients with…

John has been the editor of Blaneys Appeals since the inception of the blog in the Summer of 2014. He is a partner at the firm with almost two decades of experience handling a wide variety of litigation matters. John assists clients with matters ranging from appeals, to injunctions, to corporate, breach of contract, construction, environmental contamination, product liability, debtor-creditor, insolvency and other business litigation. He also handles professional discipline and professional negligence matters, as well as complex estates and matrimonial litigation. In addition, John represents amateur sports organizations in contentious matters, and advises them in matters of internal governance. John can be reached at 416-593-2953 or jpolyzogopoulos@blaney.com.