Important Decision from S.C.C. on Fiduciary Duties Owed by Solicitors

Posted on June 1, 2007 by Stephen Cavanagh

Today, the Supreme Court of Canada released a much-anticipated decision in Davis & Co. v. Monarch Entertainment Corporation. The case is of particular interest to lawyers practising in the field of commercial law because it has clarified the obligations owed by law firms to clients and former clients. The Court’s decision to impose liability on a law firm for the misdeeds of one of its partners, even though the firm itself was innocent, will cause law firms to scrutinize the activities of their partners more closely in the future.

Davis & Company is a large law firm with offices in various cities but based principally in Vancouver. In the 1990’s, Robert Strother was a partner at the firm. He represented Monarch Entertainment pursuant to a written retainer agreement. Monarch’s business involved the marketing of tax shelter investments targeted at the motion picture industry. These investments vehicles are referred to in the decision as “tax-assisted production services funding” or “TAPSF”.

The retainer agreement between Monarch and Davis generally prohibited the firm from acting for clients other than Monarch in relation to TAPSF schemes. This “exclusivity” arrangement expired in 1997. Nevertheless, the retainer was tremendously profitable for Davis, which received more than $5 million in legal fees from Monarch from 1993 to 1997, and for Strother, who was one of the firm’s biggest billers.

In 1996, the Minister of Finance announced that the Income Tax Act would be amended to do away with TAPSF tax shelters. Strother advised Monarch that he could not come up with any way of getting around the new legislative measures.

Within a year, Monarch had wound down its lucrative TAPSF business. It laid off a number of employees, including one named Paul Darc. Around the same time, Strother learned of a possible way to circumvent the government’s measures to end TAPSF investments. He was approached by former Monarch employee, Darc, about starting a tax credit business. Strother agreed to help Darc in seeking a favourable tax ruling from Revenue Canada. In return, he was to get 55 percent of the first $2 million of profit and 50 percent of any remaining profit.

At no time did Strother tell Monarch that there might, after all, be a way for it to continue in the film production services business.

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C.A. Upholds Jury’s Dismissal of Slip and Fall Action

Posted on May 29, 2007 by Stephen Cavanagh

In Kerr v. Loblaws Inc., the Ontario Court of Appeal was asked to set aside a jury’s dismissal of a claim for personal injury damages. The plaintiff had slipped on a single grape at a Zehr’s store operated by Loblaws. On appeal, her counsel argued that the trial judge had erred by failing to give the jury specific examples, drawn from the caselaw, of what constitutes “reasonable care”.

The Court of Appeal rejected this submission. It noted that the trial judge had correctly explained to the jury, that the applicable standard of care was one of “reasonableness”, requiring “neither perfection nor unrealistic or impractical precautions against known risks”. Because slip and fall cases are so fact-specific, the trial judge had committed no error in not referring, in his charge, to decided cases as illustrations of the standard of care. It was up to the jury, said the Court, to apply that standard in the particular circumstances of this case.

Nothing earth-shatteringly new, but a useful reminder.

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Court Considers Scope of Insurer’s Examination Under SABS

Posted on May 29, 2007 by Stephen Cavanagh

In three separate applications that were heard together, Madam Justice Elizabeth Stewart of the Superior Court ruled on the scope of an insurer’s examination under oath of a statutory accident benefits claimant. Such examinations are authorized by s. 33(1.1) of the Statutory Accident Benefits Schedule.

The main application was Aviva Insurance Company of Canada v. Balvers. (The same reasons also applied to the other two applications before Stewart J., both of which had been brought by Allstate Insurance.)

In the Balvers case, the motor vehicle accident had happened on August 18, 2005. The claimant (who had been struck while riding a bicycle) applied to Aviva for statutory accident benefits. He claimed that his injuries prevented him from working but provided no details about his employment. He claimed income replacement benefits.

Aviva asked the claimant to submit to an examination under oath. Before the examination had taken place, Balvers had commenced a tort action against the driver of the car that had struck him.

When the examination under oath was finally held, counsel for Aviva was met with a string of refusals on the part of counsel for the claimant. The refusals were in response to questions pertaining to Balvers’ address, particulars of his employment, what collateral benefits he had applied for and what medical treatment he had received. It appears that the basis of the objection was that Balvers’ counsel didn’t consider the requested information to be relevant.

In addition, counsel for the insured took the position that because a tort action had been commenced and his client would be required, in that suit, to submit to an examination for discovery, Aviva no longer had the right to conduct an examination under the Statutory Accident Benefits Schedule.

Aviva applied in Superior Court for a determination of its rights under s. 33(1.1) of the SABS. Justice Stewart rejected the insured’s argument and found for the insurer.

Her Honour noted that the only restriction on the right to a SABS examination under oath is that it must be confined to “matters that are relevant to the person’s entitlement to benefits under this Regulation”. She held that the section of the SABS obliges a claimant to be forthcoming with the insurer:

If the purpose of the swift payment of no-fault benefits under the Schedule is to be furthered, I consider that fairly full disclosure by a claimant must be made if benefits are to be assessed and received. This is particularly so in light of the fact that the insurer may conduct only one such examination, and its scope is described in fairly broad terms.

Her Honour went to find that the commencement of a tort action was irrelevant to the entitlement of the accident benefits insurer to an examination under oath, saying, “I consider that both entitlements may co-exist in harmony.”

The claimant was ordered to re-attend Aviva’s examination under oath and to answer all relevant questions put to him.

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Solicitor for LTD Claimant Personally Liable for Costs of Third Party Proceedings Against Insurer’s Employees

Posted on May 29, 2007 by Stephen Cavanagh

In a ruling that is certain to send a chill through the plaintiffs’ bar, Madam Justice Anne Molloy has ordered a solicitor who was representing a disability insurance claimant to pay costs of an abortive third party proceeding against the insurer’s employees.

In The Standard Life Assurance Co. v. Elliott, Standard Life was suing its policyholder, Elliott, for repayment of LTD benefits that it said had mistakenly been paid to Ms. Elliott. A statement of defence and counterclaim was filed by Elliott. She also issued a third party claim against her employer and “against every individual past and present employee of Standard Life who had ever handled her file”, seeking contribution or indemnity from the third parties.

Because Standard Life had acknowledged, in its statement of defence (to the counterclaim, presumably), that it was vicariously liable for the acts of its employees, the third party claim was struck out as against all of its employees. Justice Molloy found that those third party claims were an abuse of process. She said in her endorsement (which preceded the ruling to which this post relates), that “there can be no situation in which the defendant could be unsuccessful against Standard Life but successful against the employees. It is logically impossible.”

Standard Life sought costs against Elliott’s solicitor personally. This necessitated a new hearing, with separate representation of Elliott and the solicitor and the filing of additional material.

The evidence placed before the Molloy J. for the costs hearing included an affidavit from Ms Elliott, who said that she had been aware of all steps that her solicitor had taken and that he had acted on her express instructions. It is also noteworthy that Ms. Elliott is a well-educated woman with an M.B.A.

Justice Molloy first considered what was the appropriate scale of costs. She viewed the suit against of Standard Life’s employees as “a tactic to put pressure on Standard Life to settle on terms advantageous to his client and to obtain the procedural advantage of multiple examinations for discovery of all employees of Standard Life”. She was also critical of Elliott’s lawyer for “repetitive and lengthy correspondence” and other steps in the case that, in her view, had unnecessarily added to the cost. In finding that costs should be awarded on a substantial indemnity basis, she said, “this kind of tactical litigation is not conducive to the legitimate settlement of disputes in our judicial system”.

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Insurers Must Time Withdrawal of Premiums Correctly Before They Can Terminate for Non-payment

Posted on May 12, 2007 by Stephen Cavanagh

Minister of Finance v. Progressive Casualty Insurance Company of Canada contains an interesting discussion of what an insurance company must do before it can terminate an auto policy for non-payment of premiums. (Perhaps the word, “interesting” in the last sentence is a bit misleading. In fact, the discussion of banking records and practices in this decision and in our summary is a bit mind-numbing. Still, the case is an important one for insurers to take note of because what occurred in this case probably takes place thousands of times a day in the insurance industry.)

In this decision of Mr. Justice David Brown of the Ontario Superior Court, the issue was whether the Motor Vehicle Accident Claims Fund or Progressive Casualty Insurance was responsible for paying accident benefits to a passenger in a serious single-car accident. Progressive had insured the driver of the car but took the position that it had validly cancelled the policy several weeks prior to the accident, for non-payment of premiums. Hence, Progressive argued that there was no policy in effect on the day of the accident, so it could not be liable to pay accident benefits to anyone.

The Fund (represented in the litigation by the Minister of Finance) disputed the validity of Progressive’s cancellation, on several grounds. Mr. Justice Brown ruled in favour of the Fund and held that the insured had not failed to pay his premium but rather, Progressive had tried to withdraw the payment from his bank account one day too late. As a result, Progressive had not been entitled to terminate the policy.

The insured’s name was Huu Thang Nguyen. He was killed in the accident. Under the terms of his contract with Progressive, it had been agreed that on the 22nd day of every month, he would make a premium payment of $314.91 by means of Electronic Funds Transfer from his bank. The payments were to commence on May 22, 1997. On May 23, 1997, Progressive’s bank made an electronic request for a withdrawal from Nguyen’s bank (Canada Trust), in the amount of $314.91. Canada Trust declined the request. Although Nguyen’s account had a balance of $480.17 at the time, more than sufficient to cover the withdrawal, the bank’s records showed that on May 21, the account had had a balance of only $325.20. On May 23, Nguyen made a “book deposit” of $274.97 and a withdrawal of $120.00, leaving that balance of $480.17. (The term, “book deposit” was not defined in Justice Brown’s reasons, although the evidence was that such a deposit could take the form of either cash or cheque.)

Thus, at all times in this brief sequence, Canada Trust’s records showed Nguyen having sufficient funds to honour Progressive’s electronic premium payment request.

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ODSP Benefits Not Deductible from MVA Damages

Posted on May 7, 2007 by Stephen Cavanagh

In Moss v. Hutchinson & Associates, Mr. Justice Peter Howden has ruled that benefits received by a plaintiff from the Ontario Disability Support Program (“ODSP”) are not deductible from an award of tort damages. The action arose out of a motor vehicle accident that occurred on September 19, 2000 and so, fell under the Bill 59 regime of the Insurance Act. Liability was admitted but the defendant took the position that ODSP income support benefits totalling $69,872.31 should be deducted from any tort damages for income loss or loss of competitive advantage.

Justice Howden held that because it was a condition precedent of receiving these benefits, that the claimant agree to reimburse ODSP out of any tort damages received, this type of benefit is unlike others (such as CPP) which have been held to be deductible. The repayment requirement is, in itself, a protection against double recovery. As a result, His Honour ruled that the ODSP beneifts were not deductible under s. 267.8(1) of the Insurance Act.

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Plaintiff Can’t Add Third Party Driver as Defendant, Where Conscious Decision Was Made Not to Sue

Posted on April 30, 2007 by Stephen Cavanagh

In Biancale v. Vieyra, Mr. Justice David Crane dismissed a plaintiff’s motion to add, as a defendant in the proceeding, one of two drivers involved in the accident in which the plaintiff had been injured. The amendment was sought after the expiry of the limitation period. Key to His Honour’s decision was the fact that counsel for the plaintiff had deliberately not sued the second driver when commencing the action. It appears that the operation of uninsured motorist coverage greatly complicated what might have seemed, at first, to be a relatively safe decision at the time of commencing the action.

The plaintiff had been a passenger in a car driven by one Vieyra on October 5, 2000. Vieyra had turned left across the path of another car, driven by Broome. Vieyra had been charged. It appears that the task of drafting the statement of defence at the firm of solicitors representing the plaintiffs had fallen to a paralegal. She had elected to sue Vieyra but not Broome. The statement of claim also named as a defendant the plaintiff’s own insurer and a claim was made against the uninsured and underinsured coverage provided by that company (the former in the event that Vieyra proved to be uninsured).

The defendant insurer, CGU, brought a third party claim against the Broomes. It is not clear from the reasons what that claim was for. Section 265(6) of the Insurance Act allows an uninsured insurer to sue “the person or persons responsible for the use or operation of the uninsured or unidentified automobile, which, in this case, would have been Vieyra, not the Broomes. Justice Crane observed that the claim had been made “in order to have an examination for discovery and place them [the Broomes] before the court, in the plaintiff’s action, in an attempt to establish some degree of liability as against Mr. Broome, as operator, causing or contributing to the plaintiff’s injuries.”

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$400,000 in Interest Payable on 10 Years’ of Accident Benefits Improperly Terminated in 1997 (but Plaintiff had Fully Recovered by 1998!)

Posted on April 29, 2007 by Stephen Cavanagh

A new decision of the Ontario Superior Court is a painful reminder to auto insurers of the importance of following the correct procedure in terminating statutory accident benefits. The failure of the insurer to use the correct form of notice in 1997 led to it being found liable for ten years’ of benefits and over $400,000 in interest.

In Stranges v. Allstate Insurance, Mr. Justice Nick Borkovich was dealing with a statutory accident benefits dispute dating back to 1997. In that year, Allstate Insurance terminated the plaintiff’s benefits (arising out of a 1996 accident). The plaintiff sued in 1998, claiming a declaration of entitlement to unpaid benefits, as well as punitive and aggravated damages. The lawsuit evidently languished (to say the least) for a number of years, until the Supreme Court of Canada’s decision in Smith v. Co-operators “breathed new life” into the lawsuit, as Justice Borkovich put it.

In Smith, the insurer had terminated a claim for accident benefits using a standard form of wording which the Supreme Court ultimately said did not satisfy the requirements of s. 71 of the SABS, in that the notice did not explain the dispute resolution process to the insured.

Allstate Insurance, the insurer in the present case, had employed the identical form of wording in terminating the plaintiff’s benefits. It had obtained a DAC report which had said that the plaintiff “was not impaired from the physical perspective but clearly had a major depressive illness at this point which would be adequate to be ‘disabling'”. However, the DAC examiner had not been asked to assess any mental impairment on the plaintiff’s part. Justice Borkovich found that Allstate ought to have done so.

His Honour followed Smith and held that Allstate’s termination notice had been ineffective and that the plaintiff was entitled to benefits from 1997 to date, with compound interest at 2% per month, as provided for in the SABS. The benefits themselves would amount to a little more than $175,000. But the interest totals more than $400,000.

This decision will likely be particularly frustrating to Allstate because His Honour went on to find that although the plaintiff had suffered from a “major mood disorder” to which the 1996 accident had materially contributed, the disability resulting from that disorder had ended in 1998. By the fall of that year, said Borkovich J., the plaintiff “had recovered from all her injuries related to the motor vehicle accident”.

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Plaintiff Not Catastrophically Injured Where Two GCS Readings Below 10/15 in First 30 Minutes after Accident

Posted on April 27, 2007 by Stephen Cavanagh

UPDATE: this decision was reversed by the Court of Appeal on July 17, 2009. The reasons of the Court may be accessed here. The panel agreed that, the plaintiff having had a Glasgow Coma Scale reading of 9/15 within a reasonable time after the accident, even though his readings rose quickly after that, he nevertheless still met the statutory definition of “catastrophic impairment”. The subsequent higher GCS readings were held to be irrelevant.

In brief reasons, Mr. Justice Blenus Wright of the Ontario Superior Court disallowed a jury’s award of $865,000 for future care costs. Liu v. 1226071 Ontario Inc. required the court to determine whether or not the plaintiff had “sustained a catastrophic impairment” as a result of an auto accident. This requirement previously appeared in s. 267.5(3) of the Insurance Act. It has since been repealed but the former wording will continue to affect pending cases for a while yet. A regulation to the Insurance Act provided that a catastrophic impairment included “(i) a score of 9 or less on the Glasgow Coma score…according to a test administered within a reasonable period of time after the incident by a person trained for that purpose.” 

(The Glasgow Coma Scale (“GCS”) is a rough and ready 15 point scale used to measure levels of consciousness.) 

In this case, the plaintiff was involved in an accident on April 9, 1999. Sixteen minutes afterwards, he was tested and registered a GCS of 3/15. Another test was administered 29 minutes after the accident, yielding a reading of 8/15. A third test, done 40 minutes after the accident, resulted in a reading of 12/15. 

At trial, the jury awarded to the plaintiff damages of $865,000 as compensation for future care costs. The question for Wright J. was whether the above readings represented “a score of 9 or less on the Glasgow Coma score…according to a test administered within a reasonable period of time after the incident”. While there is no doubt that the first two readings were scores of “9 or less”, His Honour said: “In this case I find that the GCS scores were 9 or less in less than 40 minutes, which was a reasonable period of time after the incident.” In other words, the plaintiff was not catastrophically injured. 

In coming to this conclusion, Justice Wright rejected a DAC (“Designated Assessment Centre”) report, whose authors had said that “Mr. Liu would appear to meet Catastrophic Impairment status based upon this criterion, as he clearly demonstrated a GCS of less than 10 as ‘administered within a reasonable period of time after the accident by a person trained for that purpose.’”  This brief ruling was an expensive one for the plaintiff. It demonstrates that the mere fact that a GCS reading taken at the scene of an accident produces a reading of less than 9/15 will not necessarily mean that the injury is catastrophic.      

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Master Lifts Deemed Undertaking Rule Where Plaintiff Utters Threats in Course of IME

Posted on April 24, 2007 by Stephen Cavanagh

In Guindon v. VIA Rail, an interesting (but unusual) case, Master Robert Beaudoin ordered that ViIA Rail was not bound by the deemed undertaking rule (Rule 30.1) where the plaintiff had uttered threats in the course of an independent medical examination arranged by VIA.

VIA had retained a neuropsychologist to examine the plaintiff. Medical examinations are a form of discovery under the Rules and Rule 30.1 applies to them. Subrule 30.1.01(3) provides that “all parties and their counsel are deemed to undertake not to use evidence or information to which this Rule applies for any purposes other than those of the proceeding in which the evidence was obtained.”

According to the neuropsychologist, the plaintiff “made statements about getting ‘revenge’ if he does not get what he wants in his lawsuit, relating that he would kill a police officer or blow up or derail a train (by cutting through a rail) ‘killing 500 people’, and then commit suicide. He reiterated these threats on questioning.” VIA asked the Master to relieve it of its deemed undertaking so that it could alert the authorities. The motion was opposed by counsel for the plaintiff.

The Master granted VIA’s motion, holding that, in this case, public safety issues trumped the privacy rationale of Rule 30.1, such that VIA was free to disclose the statements made by the plaintiff to the neuropsychologist.

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