Good afternoon.

There was only one substantive decision of the Court of Appeal for Ontario last week.

In a lengthy decision in McEwen (Re) , the Court determined that a panel of the Court had the jurisdiction to review the decision of a single member of the Court sitting in chambers that denied leave to appeal under s. 193(e) of the Bankruptcy and Insolvency Act.

John Polyzogopoulos
Blaney McMurtry LLP
416.593.2953 Email


CIVIL DECISIONS

McEwen (Re), 2020 ONCA 511

[Gillese, Brown and Paciocco JJ.A.]

Counsel:

Harvey Chaiton and Alan L. Rachlin, for the moving party, Traders General Insurance Company

Joseph Y. Obagi, for the responding parties, BC et al.

Keywords: Torts, Negligence, MVA, Contracts, Automobile Insurance, Bad Faith Claims, Bankruptcy and Insolvency, Automatic Stay, Property of the Bankrupt, Choses in Action, Civil Procedure, Lifting Automatic Stay, Appeals, Motions to Review, Jurisdiction, Leave to Appeal, Constitutional Law, Doctrine of Paramountcy, Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, ss. 37, 38, s. 41(10), 67(1)(c), 183(2), 187(5), 193(a), 193(e), Courts of Justice Act, R.S.O. 1990, c. C.43, ss. 7(5), Bankruptcy and Insolvency General Rules, C.R.C., c. 368, Rule 3, Carroll v. McEwen, 2018 ONCA 902, Dundas v. Zurich Canada, 2012 ONCA 181, Business Development Bank of Canada v. Aventura II Properties Inc., 2016 ONCA 408, Business Development Bank of Canada v. Pine Tree Resorts Inc., 2013 ONCA 282, R. v. Scherba (2001), 54 O.R. (3d) 555 (C.A.), Alberta (Attorney General) v. Moloney, 2015 SCC 51, Business Development Bank of Canada v. Astoria Organic Matters Ltd. , 2019 ONCA 269, Millcraft Investment Corp. v. Ontario (Regional Assessment Commissioner, Region No. 3) (2000), 46 O.R. (3d) 685 (Div. Ct.), Hillmond Investments Ltd. v. Canadian Imperial Bank of Commerce (1996), 29 O.R. (3d) 612 (C.A.), Denison Mines Ltd. v. Ontario Hydro (2001), 56 O.R. (3d) 181 (C.A.), Universal Am-Can Ltd. v. Tornorth Holdings Ltd. et. al. (2003), 177 O.A.C. 297 (Div. Ct.), Tseng v. Toronto (City) , 2011 ONSC 191 (Div. Ct.), Exchange Tower Ltd. v. Municipal Property Assessment Corp., Region No. 9, 2012 ONSC 415 (Div. Ct.), R. v. R.E.M., 2008 SCC 51

facts:

On March 28, 2009, the responding party, BC, a pedestrian, was struck by a car driven by RM and owned by CM. BC suffered serious injuries.

On March 25, 2011, BC and the other plaintiffs commenced an action in Ottawa against RM and CM (the “MVA Action”). They also named Aviva Canada Inc. (“Aviva”) and Pilot Insurance Company (“Pilot”) as defendants on the basis that one or both of them had issued motor vehicle liability policies that provided the plaintiffs with additional coverage with respect to inadequately insured motorists under an OPCF Family Protection Coverage 44R endorsement. In fact, Pilot, not Aviva, insured the plaintiffs. As well, it was determined that Traders General Insurance Company (“Traders”) had insured the McEwens, not Aviva, which is a corporate holding company that operates Traders.

On September 15, 2011, the RM and CM made an assignment into bankruptcy and Doyle Salewski Inc. was appointed trustee of both their estates (the “Trustee”). The M’s Statement of Affairs listed the realizable value of their unencumbered assets as $6,450, against which there were liabilities owed to unsecured creditors of $456,964.83. The lawyers for the plaintiffs were identified as an unsecured creditor in the amount of $375,000.

On June 16, 2012, the M’s were discharged from their bankruptcies. The Final Dividend Sheet showed dividends paid to creditors totaling $2,985.85. Neither the plaintiffs nor their lawyers were listed as creditors. Subsequently, the Trustee was also discharged.

On October 12, 2012, the plaintiffs obtained an order from Master Roger that: (i) declared the stays contained in ss. 69 to 69.4 of the Bankruptcy and Insolvency Act (“BIA”) no longer operated with respect to the MVA Action “to have the proceeds of any liability insurance policy applied in or toward the satisfaction of the claim” (emphasis added); (ii) set aside the automatic stay of the MVA Action resulting from the assignments in bankruptcy; and (iii) granted the plaintiffs leave to continue the MVA Action against the M’s.

The MVA Action proceeded to trial on September 14, 2015, before a jury and McLean J. In October 2015, the jury rendered a verdict awarding damages to the plaintiffs.

Prior to the start of the trial, the parties exchanged some offers to settle. Copies of the offers were not in the record on this motion. However, McLean J. described some of the offers in post-verdict reasons that he issued on May 19, 2016. He identified two joint offers made by Traders and Pilot on August 27, 2015 and on September 11, 2015. McLean J. noted that the plaintiffs had made various offers, but they stipulated that there would be no assignment of statutory accident benefits. According to the Trustee’s factum filed on the motion before Kershman J. to set aside the BIA s. 38 Order, “[o]n or about September 9, 2015, the plaintiffs offered to settle the [MVA] Action against the M’s, within the policy limits of the M’s policy, however, Traders refused to accept their offer”. This was the only information before the Court of an offer made by the plaintiffs to settle the MVA Action within the limits of the M’s policy with Traders.

On September 23, 2015, the Trustee – which had been discharged several years before in 2012 – sent the McEwens’ trial counsel and an Aviva claims analyst a communication that stated, in part: We are advised that the claimants BC and her family have offered to settle this [MVA] Action against the M’s for the limits of their automobile liability policy, namely $1 million dollars, plus costs and that Aviva has failed to accept that offer and has proceeded to trial. This course of conduct places Aviva’s financial interest in priority to that of its insureds – the M’s, and accordingly is bad faith conduct. Aviva has a duty to settle this lawsuit within the limits of the policy and it has failed to do so. This is notice to you that in the event a Judgment is granted against the M’s for any sum greater than the limits of the liability policy, we hold Aviva fully liable for the excess amount. It is unclear whether the Aviva claims analyst in fact received a copy of the Trustee’s communication.

In reasons for decision dated May 19, 2016, McLean J. stated that “the clear effect of the Bankruptcy Order that the M’s exposure is limited to their policy limits” and that “the judgment of the jury against the M’s must be restricted to the amount of their liability and the jury verdict will be subject to the proviso that it is limited in its enforceability to the amount of insurance otherwise payable.”

The parties were unable to settle the terms of judgment. As a result, another hearing was held before McLean J. on September 19, 2016 to settle the judgment. The plaintiffs proposed that two separate judgments should be issued, the second of which would deal with the issues of the assignment of statutory accident benefits (“SABs”) and the effect of the M’s bankruptcies. McLean J. declined to include in the final judgment the additional language sought by the plaintiffs.

A judgment dated October 30, 2015 was issued that stated the M’s were liable to (i) BC for damages of $2.418 million, consisting of $186,000 in general damages and $2.232 million in future care costs; (ii) to the other plaintiffs for damages totaling $102,132.60; and (iii) for pre-judgment interest on all amounts (“Judgment”). Pilot was adjudged liable to the plaintiffs for $1 million. Para. 3 of the Judgment stated: THIS COURT ORDERS AND ADJUDGES that the judgment against the Defendants RM and CM, personally, is limited to the limits of their insurance policy with Aviva Insurance Company Canada in the amount of $1,000,000.00.

The plaintiffs delivered a notice of appeal dated June 16, 2016 asserting that McLean J. made various errors in his disposition of post-verdict issues and costs. The Court dismissed the appeal but varied the SABs conditional assignment order.

In the summer of 2016, prior to the issuance of the formal Judgment, the plaintiffs’ counsel wrote to the Trustee asking to reopen the bankruptcy in order to file a proof of claim for the portion of the Judgment not satisfied by the insurance policies. In the ensuing correspondence, the Trustee advised that: (i) it could complete the administration of the Mc’s estates under BIA s. 41(10) without reopening them; (ii) the plaintiffs could file a proof of claim; (iii) the estates were without funds; and (iv) the Trustee would consent to the plaintiffs availing themselves of the provisions of BIA s. 38 to take action in their own name for any claims belonging to the M’s against third parties.

On October 11, 2016, BC filed a proof of claim in the M’s bankruptcies for an unsecured claim stating that “at the date of bankruptcy” the M’s were indebted to her in the sum of $624,349.01, which represented the shortfall between the amount of the Judgment and the amounts of the insurance policies available to satisfy it. The plaintiffs then moved under BIA s. 38 for an order that they be authorized to commence and prosecute proceedings in their own name and at their own expense and risk for the purpose of bringing an action against Aviva/Traders, the insurer for the bankrupts RM and CM, for breach of the insurer’s duty of good faith by failing to settle the MVA Action within the policy limit of the M’s insurance policy. Notice of the motion was not given to Aviva/Traders.

On December 21, 2016, Kershman J. granted the order (the “BIA s. 38 Order”). The next day the Trustee assigned to the plaintiffs all of its right, title and interest to and in the subject matter of the proposed action (the “Assignment”).

On August 25, 2017, the plaintiffs commenced an action against Traders seeking damages of $624,349.01 for breach of the duty of good faith in Traders’ dealings with their insureds, the M’s, and their Trustee, together with punitive and exemplary damages of $1 million (the “Bad Faith Action”). The Bad Faith Action alleges that Traders breached its duty of good faith in two ways. First, Traders owed the M’s a duty of good faith to settle the MVA Action “within the insurance policy limit of $1,000,000 as soon as such an opportunity arose” or “as expeditiously as possible”. However, Traders had refused to settle the action as against the M’s “notwithstanding receiving an offer to settle the action against the M’s within the policy limits”. The statement of claim does not specify the dates of the plaintiffs’ settlement offers that Traders failed to accept. As mentioned, the only such offer of the plaintiffs’ referred to in the record was dated September 9, 2015, just prior to the start of the trial. The second allegation complained that Traders adjusted the claims of the M’s jointly with claims against Traders as OPCF 44R insurer of BC, contrary to its obligations of good faith to the M’s. However, as mentioned, Pilot, not Aviva/Traders, insured the plaintiffs with OPCF 44R coverage.

Following service of the statement of claim in the Bad Faith Action on February 21, 2018, Traders moved before Kershman J. for orders: (i) reversing the Trustee’s decision to accept the plaintiffs’ proof of claim; (ii) setting aside the BIA s. 38 Order; and (iii) setting aside the Trustee’s Assignment. Traders advanced three main sets of arguments, all of which the motion judge rejected.

First, Traders argued that the plaintiffs had acted improperly in obtaining the BIA s. 38 Order by failing to give Traders notice of the motion. Second, Traders contended that the Trustee should not have accepted the plaintiffs’ proof of claim because it was filed in violation of para. 3 of the Judgment that limited the M’s personal liability to the $1 million policy limit. As a result of that restriction, the plaintiffs were not creditors of the bankrupts for the $624,349.01 portion of the Judgment that was in excess of the policy limit. Consequently, the plaintiffs lacked the status to file a proof of claim or seek a s. 38 order. Third, Traders submitted that any chose in action for a bad faith claim was not property of the M’s on their date of bankruptcy and was not acquired or did not devolve on the M’s before their discharges from bankruptcy (since the Judgment was dated October 30, 2015, over three years after the McEwens had been discharged from bankruptcy on June 18, 2012). Kershman J. did not accept any of these arguments and dismissed Traders’ motion (the “2019 Review Order”).

Traders appealed the 2019 Review Order by notice of appeal dated October 2, 2019. Shortly thereafter, it filed a motion seeking leave to appeal the 2019 Review Order pursuant to BIA s. 193(e). The Chambers Judge of the Court rejected Traders’ submission that it had a right to appeal under BIA s. 193(a). He held that the point at issue did not involve future rights. Traders does not challenge that conclusion. Instead, Traders takes issue with the decision of the Chambers Judge to refuse leave to appeal pursuant to BIA s. 193(e).

issues:
  1. Does a panel of the Court of Appeal have jurisdiction to consider Traders’ motion to review the decision of a single judge of the Court of Appeal denying leave to appeal?
  2. If so, should Traders be granted leave to appeal?
holding:

Motion (and leave to appeal) granted.

reasoning:

1. Yes. The Court understood that good policy reasons exist to limit the circumstances in which a panel of the Court can review the decision of a single chambers judge of the Court denying leave to appeal. Having a single judge weed out unnecessary or frivolous requests for leave to appeal without subjecting those decisions to further review by a panel economizes judicial resources. Otherwise, the merits of a matter could be considered three times by judges of the same court: on the motion for leave; on a panel review of that motion; and, should the panel grant leave, by a panel on the appeal proper: Against those considerations, however, must be balanced the need to do justice in each case. The Court had strong reservations about its decision in Business Development Bank of Canada v. Aventura II Properties Inc., 2016 ONCA 408, which suggested that a panel of the Court could not review the decision of a single judge of the Court refusing to grant leave to appeal. Notwithstanding those strong reservations, for purposes of the review on this motion, the Court treated the decision in Aventura II as binding.

The principle set out in Aventura II is subject to an acknowledgement in the Court’s decision in Hillmond Investments Ltd. v. Canadian Imperial Bank of Commerce (1996), 29 O.R. (3d) 612 (C.A.) that “there must be an avenue of redress in exceptional cases”. The Hillmond exception includes where the judge “mistakenly declines jurisdiction” on a leave motion. That exception applied to the present case. The reasons of the Chambers Judge do not disclose that he reached a decision on the merits of Traders’ leave to appeal motion, resulting in him mistakenly declining jurisdiction. With due respect to the Chambers Judge, his reasons, when read in context and applying the functional approach, do not explain how he dealt with the critical issues that Traders argued merited granting leave to appeal. Nor do they disclose that he “seized the substance of the issue” on the leave motion.

In his reasons, the Chambers Judge noted that “the motion judge found that the moving party had no standing to attack the proof of claim or the s. 38 order”. However, the reasons provide no explanation as to why the Chambers Judge did not consider Traders’ argument that it was an aggrieved person entitled to review the Trustee’s acts and decisions under BIA s. 37. Nor did the reasons consider whether Traders fell within one of the recognized exceptions to the general rule that a proposed defendant could not seek to review a s. 38 order. As well, although the Chambers Judge observed that the “motion judge resolved the motion based on a substantive finding that the claim is breach of good faith, and that this claim vests in the trustee”, his reasons do not grapple with the two key errors Traders contended the motion judge had made: namely, that (i) given the terms of the Judgment, the plaintiffs were not creditors of the M’s for any amount in excess of the policy’s limits; and (ii) the law and evidence showed that any claim for breach of the insured’s duty of good faith did not arise until long after the M’s and the Trustee had been discharged. The Chambers Judge’s reasons are silent on both of these key issues. In summary, the reasons of the Chambers Judge were not sufficient to explain why he denied Traders leave to appeal, which led the Court to conclude that the Chambers Judge declined jurisdiction by not making a decision on the merits of the leave motion. In the circumstances, the Hillmond exception applied, enabling a panel of the Court to review under CJA s. 7(5) the Chambers Judge’s refusal to grant leave to appeal.

2. Yes. As set out in Business Development Bank of Canada v. Pine Tree Resorts Inc., 2013 ONCA 282, three factors guide a decision whether to grant leave to appeal under BIA s. 193(e). The proposed appeal must: i. raise an issue that is of general importance to the practice in bankruptcy/insolvency matters or to the administration of justice as a whole, and the issue is one that the Court should consider and address; ii. be prima facie meritorious; and iii. not unduly hinder the progress of the bankruptcy/insolvency proceedings.

Traders satisfied all three elements of the test for leave to appeal set out in Pine Tree Resorts. Traders’ submission that the motion judge erred in holding that it had no standing to review the BIA s. 38 Order crossed the prima facie meritorious threshold. Traders’ two arguments that would be complete bars to the s. 38 motion had prima facie merit: (i) by reason of the limitation on the personal liability of the bankrupts contained in para. 3 of the Judgment, the plaintiffs were not creditors of the bankrupts in excess of the policy limits, and therefore, did not have the status to seek to bring a BIA s. 38 action; and (ii) the claim that Traders had breached its duty of good faith to its insureds, the M’s, was not property of the bankrupts on the date of bankruptcy and did not devolve on the bankrupts before their discharge because the claim could not arise until a judgment was issued fixing any liability of the M’s in excess of the policy limits. The Judgment did not issue until many years after the bankrupts’ discharge.

It would be unfair to deprive Traders of some mechanism to have a court determine those issues which, if resolved in a manner favourable to Traders, might avoid the need for Traders to defend a lawsuit that should never have been commenced. Such unfairness constituted a form of prejudice that, arguably, rendered Traders an aggrieved person within the meaning of BIA s. 37. In those circumstances, Traders’ position that it has the standing to move for a review of the BIA s. 38 Order was prima facie meritorious, was worthy of consideration by the Court, and was of general importance to the practice of bankruptcy matters.

There was also merit in Traders’ argument that the motion judge misconstrued the limits placed on the M’s liability by para. 3 of the Judgment issued by McLean J. The Judgment limited the liability of the M’s personally to the $1 million limit of the Traders/Aviva policy. This issue raised the larger question of the practical limits on the liability of the estates of bankrupts where motor vehicle accident actions are initiated against the bankrupts prior to the date of bankruptcy but are not determined until after the bankrupts’ discharge. This was an issue of general importance to the practice in bankruptcy matters.

Finally, Traders demonstrated prima facie meritorious arguments that the motion judge erred in holding that: (i) the chose in action that Traders breached its duty of good faith was property of the M’s on the date of their bankruptcies or devolved to their estates prior to discharge; and (ii) that BIA s. 41(10) provided authority to the Trustee in the circumstances to accept the plaintiffs’ proof of claim and make the Assignment. Both issues were of general importance to the practice of bankruptcy matters.


SHORT CIVIL DECISIONS

Martin v. Mailhot , 2020 ONCA 517

[Tulloch, Huscroft and Harvison Young JJ.A.]

Counsel:

Benoit Richer, for the appellant

Patrick R. Simon, for the respondents

Keywords: Costs

Michel v. Spirit Financial Inc., 2020 ONCA 523

[Benotto, Zarnett and Thorburn JJ.A.]

Counsel:

Michael A. van Bodegom and Daniel W. Veinot, for the appellants FK and Spirit Financial Inc, and respondent on cross-appeal, GK

AM the respondent/appellant on cross-appeal, representing himself

Keywords: Civil Procedure, Appeals, Damages, Costs

Manthadi v. ASCO Manufacturing , 2020 ONCA 524

[Doherty, Juriansz and Paciocco JJ.A.]

Counsel:

John S. Contini, for the appellant

Jonathan Pinkus, for the respondent

Keywords: Costs

Becker v. Walgate , 2020 ONCA 526

[Rouleau, Hoy and Hourigan JJ.A.]

Counsel:

Izaak de Rijcke and Robert J. Fenn, for the appellant

Jeffrey D. Ayotte and Michael W. Gunsolus, for the respondents

Keywords: Costs


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.

Print:
EmailTweetLikeLinkedIn
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.