Newsletter > October 2011
In this issue: 1. Firm and Industry News 2. Notice of Claims – Receipt from Third Party 3. HNS Convention – A Reality? 4. Voyage Data Recorder Regulations 5. Use of Summary Judgment on Issue of Timebar
1. Firm and Industry News
- November 4th Arlington Virginia: Transportation Law Institute
- November 29th Toronto: Canadian Board of Marine Underwriters Annual Dinner
- December 2nd, Montreal: Grunt Club Annual Dinner
- December 3-7, Hawaii: Joint Meeting U.S. Maritime Law Association, Canadian Maritime Law Association, Maritime Law Association of Australia and New Zealand
- January 13th, 2012, Toronto: Fernandes Hearn LLP Annual Maritime and Transportation Conference
- January 14-15, 2012, New Orleans: Conference of Freight Counsel
- January 20th, 2012, Chicago: Transportation Lawyers Association Chicago Regional Seminar
- January 20th, 2012, Toronto: Marine Club Annual Dinner
Gordon Hearn was the moderator for a Transportation Lawyers Association webinar presentation on October 21, 2011 entitled “The Carrier Must Get Paid: Fact or Fiction?”Gordon Hearn, Kim Stoll and Kimberley Newton will be representing the firm at the Transportation Law Institute to be held on November 4, 2011 in Arlington, Virginia. Chris Afonso recently appeared before the Ontario Court of Appeal on behalf of a freight forwarder who sought to collect unpaid storage and demurrage charges. A three-judge panel unanimously upheld the applicability of the Canadian International Freight Forwarders Association (CIFFA) Standard Trading Conditions. Rui Fernandes and Martin Abadi will be in the Federal Court of Appeal on December 13th, 2011 responding to the appeal and pursuing the cross appeal of the decision of Justice Heneghan in Buhlman v. Buckley, 2011 FC 73. [The decision is reported in our July 2011 newsletter] The Fernandes Hearn LLP 12th Annual Maritime & Transportation Conference 2012 “Winning Cases with Experts” will take place as per below: Date: Thursday January 13th, 2012 Location: Royal & Sun Alliance Lecture Theatre (Courtesy RSA) 10 Wellington St. East, Toronto ON Cost: $50.00 – Includes light lunch and materials on CD ROM Registration: Shannon Manna, Fernandes Hearn LLP 416-203-9500 BY INVITATION ONLY Send cheques to: Fernandes Hearn LLP, 155 University Ave. Suite 700, ON M5H 3B7 Limited to 100 attendees RIBO Credits (Technical)
8:00-8:30 Registration & Coffee 8:30-8:45 Welcome 8:45-9:15 Use of Experts at Trial 9:15-9:45 Insurance Issues: Reservation of Rights, Non-Waiver Agreements, Additional Insureds, Coverage Gaps and Overlaps, Subrogation 9:45-10:15 Frozen & Refrigerated Foods 10:15-10:45 Determining Cause in Engine Failures 10:45-11:00 Coffee Break – Sponsored by Zurich Canada 11:00-11:30 Energy Update 11:30-12:00 Tug & Tow Failures 12:00-12:30 Accident Reconstructions 12:30-1:30 LUNCH 1:30 – 2:30 Modal Updates Aviation Marine Trucking Rail & Forwarders Insurance 2:30-330 Expert Panel: TBA
2. A Liability Insurer May Receive “Notice of a Claim” from Someone Other than it’s Insured
The recent decision of the Ontario Court of Appeal in the case of Marie Walker and Albert Walker v. Sun Shelters Industries Inc. (*1) provides a cautionary tale for liability insurers: care should be taken when adopting an “off cover” position simply because an insured did not give timely notice of a claim, if the insurer has independently received details of the claim. This case illustrates how a “notice of claim” requirement might be satisfied by a party adverse in interest to the insured having given details of the claim to the insurer.
This decision also provides a helpful review and analysis of the “direct right of action” whereby third parties might claim against liability insurers found in Ontario’s Insurance Act. (*2) The reasons of the Court of Appeal also provide analysis of the “relief from forfeiture” provision found in the same statute. (*3)
On January 30, 1999 the Walkers went to a movie at the Power Centre in Burlington, Ontario. On the way back to their car after the movie was over, Marie Walker slipped on some ice in the parking lot and fell, sustaining a serious head injury.
The Walkers sued the owner of the Power Centre, Emshih Developments Inc. (“Emshih”), and the maintenance company retained to keep the property clear of ice and snow, Sun Shelters Industries Inc. (“Sun Shelters”). Emshih cross-claimed against Sun Shelters for “contribution and indemnity”. As Sun Shelters had declared bankruptcy, it did not defend the action. Emshih, however, discovered that Sun Shelters was insured by the Sovereign General Insurance Company (“Sovereign General”) and, accordingly, counsel for Emshih notified Sovereign General of the Walkers’ claim and forwarded copies of the court pleadings to it. Sovereign General ultimately declined to participate in the action.
The Walker plaintiffs settled with the Emshih defendant. They then obtained a judgment against Sun Shelters for $100,000 in general damages and related relief. The trial judge found that the “parking lot was completely treacherous and unfit for use by pedestrians … that day”, that “Ms. Walker’s fall was horrific”, and that “no amount of care by Ms. Walker could likely have prevented her fall”.
The Walkers brought an action against Sovereign General, which was the subject of this decision. They claimed damages under Section 132 of the Insurance Act, which allows a third party to recover against a liability insurer where an insured named in a liability policy has failed to satisfy a judgment for damages.
Section 132 of the Insurance Act provides as follows:
Where a person incurs a liability for injury or damage to the person or property of another, and is insured against such liability, and fails to satisfy a judgment awarding damages against the person in respect of the persons liability, and an execution against the person in respect thereof is returned unsatisfied, the person entitled to the damages may recover by action against the insurer the amount of the judgment up to the face value of the policy, but subject to the same equities as the insurer would have if the judgment had been satisfied.
Accordingly, persons such as the Walkers seeking recovery under s. 132 stand in no better position then the insured. The insurer can still raise policy defences (e.g. issues on coverage) but cannot reopen issues such as the finding of liability or the quantification of damages from the underlying trial. The analysis accordingly then proceeded to the question as to whether Sovereign General owed a duty to indemnify Sun Shelters in order for the Walkers to be in a position to recover damages under the policy.
Sovereign General asserted that Sun Shelters breached the statutory conditions of the policy (being a commercial insurance policy containing comprehensive general liability coverage) requiring it to give notice and to co-operate in the defence. As Sun Shelters was at the time bankrupt, it had not defended the action and had not provided notice of the claim to Sovereign General. Sovereign General asserted that, because Sun Shelters did not give timely notice of the claim, it was not required to defend the action brought by the Walkers or to indemnify Sun Shelters for any finding of liability. Accordingly, the argument followed that Sovereign General was not required to satisfy the Walkers’ claim brought under s. 132 of the Insurance Act.
The Action by the Walkers Against Sovereign General
The Walkers moved for summary judgment on their claim against Sovereign General, which, in turn, brought a cross-motion to dismiss the action. The issue on the motion was whether Sovereign General had received notice of the claim against Sun Shelters in accordance with the conditions of the insurance policy.
The judge hearing the motion (“the motion judge”) held that although Sun Shelters itself had not given Sovereign General notice of the claim, that Sovereign General had in fact received notice from Emshih, which notice complied with the policy conditions. In granting summary judgment to the Walkers, the motion judge held that because Emshih had cross-claimed against Sun Shelters in the underlying action, it may have been entitled to part of the insurance proceeds and therefore it had standing to give notice of the claim. The motion judge held that, under either of the notice provisions in the policy (there being both statutory provisions and stand alone policy provisions on point), Emshih’s notice was effective notice to Sovereign General. Alternatively, the motion judge held that, even if there was something wrong in this manner of notice, the Walkers were entitled to “relief from forfeiture” under s. 129 of the Insurance Act. Section 129 provides:
Where there has been imperfect compliance with a statutory condition as to the proof of loss to be given by the insured or other matter or thing required to be done or omitted by the insured with respect to the loss and a consequent forfeiture or avoidance of the insurance in whole or in part and the court considers it inequitable that the insurance should be forfeited or avoided on that ground, the court may relieve against the forfeiture or avoidance on such terms as it considers just.
Accordingly, while finding that sufficient notice was given to the insurer for the purposes of the policy in question, the motion judge ruled that, even if there was imperfect compliance, the same should in effect be “waived” so as to provide the insured Sun Shelters (and, by extension, the Walkers) the benefit of the insurance coverage. Accordingly, the Walkers were successful on their motion to enforce their claim against the Sovereign General insurance policy.
Sovereign General Appeals to the Court of Appeal
Sovereign General appealed to the Ontario Court of Appeal on three grounds:
1. The motions judge was in error in holding that the notice provision in the statutory conditions of the insurance policy applied to the Walkers claim.
2. The motion judge was in error in finding that the notice given by the Emshih was effective notice under the policy conditions for liability coverage (the policy in question having contained both the “statutory conditions” legislated by the Insurance Act as well as specific policy conditions forming a part of the policy itself).
3. The motion judge made an error in granting “relief from forfeiture” because such relief is available only for imperfect compliance with a policy condition, whereas in this case, the total lack of notice of the claim amounted to “total non-compliance”.
The Court of Appeal reviewed the entirety of the insurance policy. As mentioned above, Sun Shelters was insured under a commercial insurance policy, which provided various coverages such as fire and extended coverage, comprehensive general liability and insurance over other perils.
Section 8 of the Statutory Conditions contained in the policy dealt with who may give notice of a loss:
Notice of loss may be given, and proof of loss may be made by the agent of the insured named in the contract in case of absence or inability of the insured to give the notice or make the proof, and absence or inability being satisfactory accounted for, or in the like case, or if the insurer refuses to do so, by a person to whom a part of the insurance money is payable. (Emphasis added)
The motion judge relied upon this section to find that Sovereign General had been given effective notice of the Walkers’ claim. This was by virtue of the fact that Emshih had cross-claimed against its co-defendant in the initial action, Sun Shelters, thereby it was a “person to whom a part of the insurance money is payable”.
The policy conditions in turn formed a part of the “Comprehensive General Liability Coverage Rider”, which had a different notice provision from that in the Statutory Conditions. The policy conditions also imposed a duty of co-operation. The relevant wording was as follows:
3. Insured’s Duties in the event of Accident, Occurrence, Claim or Suit:
a) In the event of an accident or occurrence, written notice containing particulars sufficient to identify the insured and also reasonably obtainable information with respect to the time, place and circumstances thereof, and the names and addresses of the injured and of available witnesses, shall be given promptly by or for the Insured to the Insurer or any of its authorized agents.
Section 4 of the Policy Conditions stated that compliance with the terms of the policy was a condition precedent to any action against Sovereign General:
No action shall lie against the Insurer under any Insuring Agreement of this policy including the Insuring Agreement relating to “Defence-Settlement-Supplementary Payments” unless, as condition precedent thereto, there shall have been full compliance with all of the terms of this policy…
Sovereign General maintained that Sections 3 and 4 of the Policy Conditions applied to the Walkers’ claim, and that notice was not given in accordance with Section 3 (a). Without any analysis, the motion judge had held that effective notice had been given not only under Section 8 of the Statutory Conditions reproduced above but also under Section 3(a) of the Policy Conditions.
Issue No.1: Did the motion judge err in holding at Section 8 of the Statutory Conditions applied to the Walkers claim?
The Court of Appeal reviewed the policy in its entirety and determined that the Statutory Conditions applied to “first party property” losses such as fire and theft but not apply to liability or losses to third parties. The first party or property coverages were seen to be stand-alone from the third party or liability coverage. On a proper construction of the policy as a whole the Statutory Conditions were accordingly seen to apply only to the property coverages where as the Policy Conditions applied to any third party liability claims.
Accordingly, the Court of Appeal ruled that Section 8 of the Statutory Conditions was inapplicable to the Walkers’ claims and, in this regard, came to a different finding than that of the motion judge.
Issue No.2: Did the motion judge err in finding that the notice given by Emshih was effective notice under Section 3(a) of the Policy Conditions for liability coverage?
Sovereign General argued on the appeal that only Sun Shelters was able to give notice under Section 3(a) and that Sun Shelters had breached its duty to co-operate under Section 3(c). The Court of Appeal disagreed with both of these submissions. The court held that notice under Section 3(a) could be given “by or for the Insured”. Accordingly, such notice could be given by a person other than the Insured and the court noted that the policy did not define the class of persons capable of giving notice on behalf of the insured. The court also noted that it is necessary to interpret Section 3(a) in light of its purpose; that is, to make Sovereign General aware of circumstances so that it has a timely opportunity to deal with the claim. The delivery and content of the notice is important because it triggers Sovereign General’s duty to defend and obligation to act in good faith to its Insured. Given this purpose as stated by the court, “if the notice is to be given for an Insured instead of by the Insured itself, the person giving it should have sufficient proximity to the claim to have knowledge of the information required by Section 3(a)”. The court found that Emshih was such an entity as the owner of the property where the accident occurred. In giving notice to Sovereign General, Emshih was in fact then acting for Sun Shelters in that regard.
The Court of Appeal noted also that, at the very least, the policy was ambiguous as to who could give notice “for” the Insured. In accordance with well accepted principles in the interpretation of contracts, any ambiguities are to be construed against the party who provided the wording, in this case being Sovereign General: Consolidated – Bathurst v. Mutual Boiler  S.C.R. 888. (*4)
Accordingly, the Court of Appeal agreed with the motion judge that Emshih’s notice was effective notice to Sovereign General. On the second argument, that Sun Shelters had failed to co-operate in the defence of the original action, the Court of Appeal cited with approval the motion judge’s reasoning that this argument had no merit on the basis that Sovereign General had made no effort to contact its Insured or to seek its assistance in defending the action. Instead, Sovereign General had taken the position that it would not participate in the action at all. The court reasoned that Sovereign General could not now complain that Sun Shelters breached its duty to co-operate.
Issue No.3: Did the motion judge err in granting relief from forfeiture?
The Court of Appeal noted that its disposition of the second issue above would be sufficient to decide the appeal: effective notice was in fact given of the claim to Sovereign General such that its policy indemnification obligations would be triggered (with the Walkers being able to recover their damages). It accordingly was not necessary to determine whether or not the Insured, Sun Shelters, or, by extension, the Walkers, should be given “relief” from any imperfect compliance with a policy condition. However, the Court of Appeal noted that, even if Emshih was unable to give notice under policy condition 3(a), it agreed with the motion judge that the Walkers would be entitled to “relief from forfeiture” under Section 129 (reproduced above). The Court of Appeal noted that the relief from forfeiture provisions of Section 129 apply to both the statutory and policyconditions. The court cited case law precedent that the failure to give timely notice of a claim is imperfect compliance rather than “total non-compliance” of the policy or statutory condition. On this basis, the Court of Appeal then proceeded to the next question as to whether the forfeiture of the insurance proceeds would be inequitable. The motions judge had ruled that such forfeiture would be inequitable, there being no bad faith by Sun Shelters, the Walkers or Emshih.
Accordingly, Sovereign General’s policy obligations were seen to be triggered and, by virtue of s. 132, the Walkers were entitled to recover against the policy for the judgment assessed against Sun Shelters.
The “direct right of action” element of Section 132 of the Insurance Act is always something to be reckoned with by insurers who consider taking an “off cover” position on a liability policy. If the insurer chooses not to participate; that is, it decides not to provide a defence, the possibility remains that an unsatisfied judgment creditor may “come knocking” later on in time. If the liability insurer catches wind of a claim against an insured, the insurer would be well served to carefully consider the notice requirements contained in the policy to determine whether any constructive or indirect notice (provided by someone other than the insured itself) might suffice to trigger policy obligations. Perhaps the insurer should deal with the matter rather than “turning its back” on same. For its part, a claimant might wish to provide details of a claim to a defendant’s insurance company.
*1 2011 ONCA 597 (CanLII) *2 s.132, Insurance Act R.S.O. 1990 c.I.8 *3 s. 129 *4  S.C.R. 888
3. HNS Convention – A Reality?
On October 25, 2011, Canada took part in a ceremony to sign a protocol that will establish a global liability regime and further protect the environment from the risks of marine transport. The Protocol of 2010 to the International Convention on Liability and Compensation for Damage in Connection with the Carriage of Hazardous and Noxious Substances by Sea, 1996 (“2010 Protocol) was signed at the International Maritime Organization (IMO) in London, United Kingdom. Canada was one of the states that led the development of this important protocol at the IMO.
The International Maritime Organization is the leader is setting conventions and codes that define Hazardous and Noxious Substances (HNS).
In the 1990s, several incidents involving waterborne spills of HNS highlighted a gap in the marine liability system and prompted the international community to take action. Through the International Maritime Organization (IMO), a liability regime was devised to compensate claimants in the event of spills involving chemicals and other hazardous substances. This effort culminated in the International Convention on Liability and Compensation for Damage in Connection with the Carriage of Hazardous and Noxious Substances by Sea (HNS), 1996 (the HNS Convention), which was adopted under the auspices of the IMO in 1996.
When it enters into force, the HNS Convention will provide compensation from damage resulting from the maritime transport of HNS. In 1997, the Canadian government signed the Convention. Ratification was to follow, but has been slow.
Under this Convention, HNS include:
- other liquid substances defined as noxious or dangerous,
- liquefied gases,
- liquid substances with a flashpoint not exceeding 60° C,
- dangerous, hazardous and harmful materials and substances carried in packaged form, and,
- solid bulk materials defined as possessing chemical hazards.
The Convention also covers residues left by the previous carriage of HNS when carried as bulk cargo.
In 2005, Canada released the Maritime Law Reform Discussion Paper recommending the ratification and implementation of the HNS Convention. This sent a signal to stakeholders and the international community that Canada intended to give favourable consideration to the Convention’s ratification and to the legislation required to implement the regime in national law. The Maritime Law Reform Discussion Paper also allowed for initial consultations with stakeholders. Following the release of the paper, Canada was part of discussions among states at the international level, which focused on finding solutions to issues raised within the existing 1996 HNS Convention. However, in 2007, it was agreed that a Protocol was needed to deal with obstacles to the implementation of the Convention by states.
The Protocol is intended to address the underlying causes that have inhibited the entry into force of the HNS Convention, i.e.:
1) Contributions to the Liquefied Natural Gas (LNG) Account and the fact that titleholders to LNG cargoes in non-state parties would not contribute to cover compensation from LNG incidents. This would of lead to situations where those with certain types of LNG supply contracts would not have contributed to the HNS Fund if they were located outside of the jurisdiction of an HNS Convention state party;
2) The concept of ‘receiver’ and the difficulties of effectively implementing a reporting and contributions system for packaged HNS. The complex logistics chain for packaged HNS and uncertainty over who would be considered the actual “receiver” meant that states would need to implement very burdensome reporting and tracking requirements for packaged HNS; and
3) Non-submission of contributing cargo reports by states, on ratification of the Convention and annually thereafter. The 1996 HNS Convention did not impose any sanctions against states that did not report the HNS received in their territory and this presented an unfair sharing of the burden among states when assessing contributions to the HNS Fund.
In Canada, over the last nine years (2001-2010), there have been at least 98 chemical spills from vessels in Canadian waters. Although most of these were small spills, the high volume of HNS carried by sea-going vessels, particularly in international trade, highlights the potential for a major chemical spill occurring in Canadian waters.
As it currently stands, the original HNS Convention of 1996 was signed, subject to ratification, by eight states and was ratified by 14 states but never came into force internationally as one of the entry into force provisions was never met. The particular entry into force provision that was never met by those states that ratified the Convention was the requirement to submit reports on its contributing cargo to the future HNS Fund (i.e. how much HNS received in that state over the thresholds established in the Convention).
The 2010 Protocol to the HNS Convention was developed first by a Working Group set up by the International Oil Pollution Compensation (IOPC) Fund’s 1992 Fund Assembly and then by the IMO’s Legal Committee, with the aim of facilitating the entry into force of the HNS Convention.
The 2010 Protocol, which addresses the practical problems, outlined above, that have prevented many states from ratifying the original Convention, was adopted by the IMO at a diplomatic conference held on April 26-30, 2010. That conference also adopted four resolutions relating to the setting up of the HNS Fund, the promotion of technical co-operation and assistance, avoidance of a situation in which two conflicting treaty regimes are operational, and the implementation of the 2010 HNS Protocol. As indicated at the beginning of this article, the ceremony to sign the protocol took place on October 25th, 2011 and Canada was present.
The 2010 HNS Protocol will be tabled in the Canadian Parliament this fall, and subsequently amendments to the Marine Liability Act will be introduced to implement the protocol by ensuring that compensation is available for victims of marine pollution and that polluters are held responsible. Following its ratification, Canada will be able to implement the protocol.
4. Voyage Data Recorder Regulations
On 21 March 2006, the passenger and vehicle ferry Queen of the North departed Prince Rupert, British Columbia, for Port Hardy, British Columbia. On board were 59 passengers and 42 crewmembers. After entering Wright Sound from Grenville Channel, the vessel struck the northeast side of Gil Island at approximately 00:21 hours on March 22. The vessel sustained extensive damage to its hull, lost its propulsion, and drifted for about 1 hour and 17 minutes before it sank in 430 m of water. Passengers and crew abandoned the vessel before it sank. Two passengers were unaccounted for after the abandonment and have since been declared dead.
The accident was investigated by the Transportation Safety Board of Canada (TSB). In its report, the TSB noted that the Queen of the North was not equipped with a voice data recorder (VDR) and that it was not required to be equipped with one. The TSB noted that the lack of a VDR can result in a more complex and protracted investigation and that the information from a VDR or a simplified voyage data recorder (S-VDR) can be invaluable to investigators and operators seeking to understand the sequence of events leading up to an accident.
As a result of the investigation the TSB recommended in 2008 that the requirement for the carriage of voyage data recorders or simplified voyage data recorders be extended to large passenger vessels over 500 gross tonnage and all other commercial vessels on an equivalent basis to those trading internationally.
On September 30th 2011 the federal government implemented the Voyage Data Recorder Regulations (see SOR/2011-203). The regulatory impact analysis statement for the regulations sets out the following description of the regulation:
The primary purpose of a voyage data recorder (VDR) or a simplified voyage data recorder (S-VDR) is to assist in casualty investigations. The VDR or S-VDR records specific information from a variety of data sources on board the vessel and stores this information in a secure and retrievable form.
The Voyage Data Recorder Regulations (the Regulations) require all new passenger vessels of 500 gross tonnage or more and new cargo vessels of 3 000 gross tonnage or more that are not engaged solely on inland voyages to be fitted with a VDR. In addition, all existing passenger vessels of 500 gross tonnage or more are required to be fitted with either a VDR or an S-VDR by July 1, 2015. The Regulations do not apply to certain new and existing passenger vessels that are seasonally operated, nor do they apply to domestic cargo vessels constructed before January 1, 2012.
The Regulations also implement the VDR requirements contained in the International Safety Convention for the Safety of Life at Sea (SOLAS Convention), which affects Canadian vessels engaged on international voyages. As certain portions of these requirements were contained in the Navigation Safety Regulations, these specific requirements have been repealed.
The SOLAS Convention requires all passenger vessels of 150 gross tonnage or more and all cargo vessels over 3 000 gross tonnage to be fitted with a VDR when engaged on an international voyage (SOLAS Convention Regulation V/20). Cargo vessels constructed before July 1, 2002, may be fitted with a VDR or an S-VDR. The requirement has been phased in over the years, between July 1, 2002, and July 1, 2010.
The new VDR regulations implement domestic VDR requirements that take into account existing international standards and requirements, the recommendation of the TSB, the cost-benefit analysis conducted, and results of consultations with stakeholders. The Regulations do not apply to domestic cargo vessels constructed before January 1, 2012.
5. Use of Summary Judgment on Issue of Timebar
Until the recent changes to the Rules of Civil Procedure, summary judgment motions brought by defendants to bring a quick end to actions where a plaintiff failed (or allegedly failed) to issue within the proper limitation period (under the Limitations Act) were typically dismissed and the issue reserved for trial. Plaintiffs often would defend such motions on the basis that the applicable limitation period should be extended on the basis of “discoverability”. (The discoverability principle pertains to the party’s knowledge of the material facts upon which the cause of action is based and is often focused on the issue of the exercise of due diligence by that party to ascertain such facts.) The test on summary judgment was (and continues to be) whether there is a “genuine issue” regarding a material fact that would require a trial. Previously, judges hearing such timebar motions were inclined to order that there was just such a genuine issue for trial given that the plaintiff’s evidence would be required and a determination based on credibility made. Prior to the changes to Rule 20, such an assessment could be done only at trial by the ultimate trier of fact.
The cases below show the marked shift between the way summary judgment motions were done and the way the will be done going forward. (This article does not seek to examine the concept of “discoverability” in any great detail or the correctness of the associated judgments, but rather to review this new route that is now more economical and potentially of much greater value as a weapon in defence counsel’s arsenal.)
In early 2010, Rule 20 of the Rules of Civil Procedure was amended granting a Judge on the hearing of a summary judgment the ability to undertake a more intensive analytical review in the decision-making process, by providing expanded powers, to determine if the test has been met. These greater powers outlined in Rule 20.04(2.1) included the ability to examine and weigh evidence, evaluate the credibility of deponents and draw inferences from the evidence.
The motion for summary judgment in the Safai case (a motion decided before the change of the Rules), below, was initially dismissed by the motions judge but such order was overturned by the Court of Appeal and sent back for a trial with the issue of discoverability left for determination by the trial judge. The Supreme Court of Canada recently dismissed (on May 5, 2011) the application for leave to appeal as brought by the defendant.
This pre-emptive attack by counsel for the defendant in Safai ultimately had no value and cost the defendant a great deal of money to attempt. (Thereby, it is completely understandable why such attempts were rare indeed). Conversely, with the new Rules, the Liu case, below, was decided by the motions judge on the evidence before him and the associated appeal to the Court of Appeal was dismissed on October 29, 2010.
The Old Way
Safai v. Bruce N. Huntley Contracting Limited, 2010 ONCA 545 Application for leave to appeal dismissed May 5, 2011
Gity Safai slipped and fell in a patch of ice in a parking lot in February 2000. Ms. Safai suffered a broken ankle and she commenced an action as against the owner of the parking lot in which she fell. A separate action was commenced in September of 2006 as against the company responsible for winter maintenance of the parking lot. The maintenance contractor and owner of the property moved for summary judgment based on the expiry of the then six-year limitation period. Ms. Safai argued that she was not aware of the identities of each of the maintenance contractor and owner and so her claim was only “discoverable” as of the date she became aware of their identities. Therefore, she argued that the limitation period with regard to the both entities was extended on the basis of the discoverability principle.
The motions judge found that the discoverability principle had no application and dismissed both actions against both the maintenance contractor and the owner of the property. These orders were appealed and the Ontario Court of Appeal confirmed the dismissal against the owner but reversed the motions judge’s order regarding the maintenance contractor and sent the matter back for trial. Leave to appeal to the Supreme Court of Canada from the Court of Appeal’s order was sought by the maintenance company, but such application was dismissed on May 5, 2011.
On February 17, 2000, Ms. Safai attended her accountant’s office to discuss her financial issues. Her accountant was located in a commercial building on Woodbine Avenue in Markham, Ontario. While walking in the parking lot she slipped and fell on a patch of ice and fractured her ankle. At the time of the fall, she had no information concerning the ownership of the parking lot or who was responsible for its maintenance. A month after her fall, she met with a lawyer and retained him to act for her and her family regarding her accident. A title search was done by her counsel and a demand letter sent to the registered owner of the property. The insurers of the property owner identified Markham Property Services Ltd. as the maintenance contractor responsible for winter maintenance of the parking lot in question. A statement of claim however was not issued as against the maintenance contractor until February 23, 2006, which was several days after the expiry of the limitation period (which at that time was six (6) years).
Motions and Appeal
Both the owner of the property and the maintenance contractor moved by motion for summary judgment pursuant to rule 20 of the Rules of Civil Procedure on the basis that the action was commenced after the expiry of the limitation period as outlined in the Limitations Act.
At the motion, the maintenance contractor and owner of the property submitted that there were genuine issues for trial because Ms. Safai knew or ought to have known the identity of the owner of the property where she was injured and the contractor who had been employed to provide snow removal services for the parking lot. Mr. Justice Mullins, the motions judge found that the discoverability principle did not apply and dismissed both actions.
On appeal, the Ontario Court of Appeal considered whether or not the name of the property owner and the maintenance contractor were essential elements of the cause of action and whether the limitation period did not run until the appellants knew these names or, by the exercise of reasonable diligence, could ascertain them.
Justice Armstrong, speaking for the court, stated that the proposition made by the plaintiffs that the limitation period did not start to run until the plaintiff knew the names of the potential defendants either by actual knowledge or the exercise of reasonable diligence was stating the rule in Aguonie, cited below, too broadly. Otherwise, such proposition would mean that every motor vehicle accident, where the ownership of the defendant’s vehicle was not immediately known, would have an extended limitation period until such time as a routine search of the motor vehicle register could be made. This suggestion would mean that the limitation period would not commence on the date of the accident but rather the date that the routine motor vehicle search revealed the owner’s name. This, in the words of Armstrong J., defied common sense.
Having said this, Armstrong J. went on to provide the judgment of the Court of Appeal stating that on the date of the accident Ms. Safai knew she had fallen and injured her ankle and knew that she likely had a claim for her injuries against the owner of the property. As of the date of the accident, she was in a position to ascertain the name of the registered owner of the property. In fact, this information was discovered using reasonable diligence. Accordingly, there was no reasonable basis in those circumstances to involve the discoverability rule to dispel the commencement of the limitation period. The date of the accident started the time running. Ms. Safai was out of time to sue the owner of the property.
However, the Court of Appeal took a different approach with regard to the claim as against the maintenance contractor. As of the date of the accident, it was reasonable for Ms. Safai to assume that she would have a cause of action against the owner of the property. However, the Court held that she did not know that the owner of the property had contracted out the winter maintenance for the property to a third party. This information may not have been available until her lawyer was advised by the receipt of the letter dated October 19, 2000 from the insurer for the owner of the property. There is no simple procedure such as a search of a public register to ascertain that the winter maintenance responsibilities were contracted out to a third party. As a result, the trial judge found there was indeed a genuine issue for trial concerning the running of the limitation period and the application of the discoverability rule that should be left to the trial judge. This was in keeping with the decision in Aguonie v. Galion Solid Waste Material Inc. (1998), 38 O.R. (3d) 161 (C.A.), in which the Court of Appeal stated at paragraph 25 on page 10 of that decision:
“As the discoverability rule applies to this case, the factual issue which the trier of fact will be required to decide is “the time the cause of action arose” within the meaning s. 61(4) of the FLA so that it can be determined whether this action was commenced within the two-year limitation period. That time, logically, will be a date between Lyman Aguonie’s death on October 4, 1993, and the availability of Mr. Miller’s January 27, 1995, report, depending on the trial judge’s finding about the exercise of reasonable diligence by the plaintiffs in learning the identity of the respondent tortfeasors and the necessary facts relative to their alleged negligence.”
(It is noted that the Safai decision clearly states that the cause of action against the property owner will be discoverable on the date of the accident and/or when the injury has been incurred. However, the action against the maintenance contractor will not be discoverable until such a time as the existence of a maintenance contractor’s involvement is revealed. While in Safai, this was done by a letter from the property owner and took no effort on the part of the plaintiff, in other circumstances further reasonable steps would have had to have been taken by the plaintiff in order to obtain such information and this information would be before the court.)
The application for leave to appeal was dismissed on May 5, 2011 by the Supreme Court of Canada.
The New Way
Liu et al v Silver et al, 2010 ONSC 2218 Appeal to Ontario Court of Appeal dismissed October 29, 2010 (2010 ONCA 731)
Ms. Liu, the plaintiff, underwent minor outpatient surgery on August 16, 2004. This allegedly minor surgery for removal of a polyp resulted in an eighteen-day hospital stay with many complications including a perforation of Ms. Liu’s uterus and abdominal bleeding. She was released from hospital on September 4, 2004.
Some two years and four months later, Ms. Liu brought an action against the defendant doctor for medical malpractice. The defendant doctor brought a motion for summary judgment to have the action dismissed on the basis that the action was not commenced with the appropriate limitation period of two years under the Limitations Act.
Motions and Appeal
The issue considered by the motions judge was in essence whether the plaintiff could rely on the doctrine of discoverability to extend the limitation period. The plaintiff argued that she did not have the requisite knowledge of material facts of her case against the defendant doctor until she obtained an independent medical expert report. As opposed to the date of surgery being the date the cause of action arose, she argued that her cause of action was not actually “discoverable” until the report was prepared. Buoyed by the newly extended powers under the new Rules, the defendants brought a motion for summary judgment in this regard to dismiss the action on the basis of timebar and to determine whether there was a genuine issue requiring a trial.
After citing the expanded powers, Justice Allen examined the evidence before the court with the proverbial fine-toothed comb including both sworn affidavits and discovery transcripts and the expert’s report that was said to have been relied upon by Ms. Liu. Allen J. detailed facts from the evidence before her which included that Ms. Liu told hospital staff that she intended to seek legal counsel, she knew that the defendant doctor had performed the surgery and that she felt she was “fighting for her life” after she woke up from the surgery. Justice Allen noted that Ms. Liu claimed that she did not discover the defendant’s doctor’s negligence until she obtained an independent medical expert’s report, but Justice Allen did not accept this.
Upon examining and weighing the evidence, evaluating the credibility of the deponents of the affidavits and drawing inferences from the evidence, Allen J. found that Ms. Liu had sufficient facts by the time of her discharge from the hospital on September 3, 2004 to know she had sustained an injury or loss in which she could base a claim in negligence against the defendant doctor. Allen J. reviewed the plaintiff’s actions and mental state (including her growing anger toward the defendant doctor) before finding at page 8 of the Reasons that there was “ample evidence that the plaintiff knew litigation was an appropriate avenue to seek redress and that knowledge was concretized (sic) after discharge and before the limitation period expired when she sought advice from three law firms.”
Her Honour found that the plaintiff failed to display reasonable diligence in that neither she nor her counsel could provide an explanation for periods of delay that occurred before she commenced her claim including her failure to retain counsel. Her Honour found that the plaintiff was an engineer and sophisticated as shown by her request for her hospital records upon leaving the hospital and her answers at discovery. Justice Allen found that there was no genuine issue requiring a trial and the action was dismissed.
Ms. Liu appealed to the Ontario Court of Appeal. The appeal was dismissed and the Appeal Book Record was endorsed as follows:
“The motion judge found on (sic) a fact that before the appellant was discharged from the hospital on September 3, 2004, she knew that she had suffered an injury as a result of a surgical procedure performed by the respondent to which she had not consented. She knew from that point that litigation was an appropriate avenue to seek redress and she immediately sought legal advice with pursuing a claim against him.  On these findings which were amply supported by the appellant’s own evidence, the motion judge did not err in concluding that the two year limitation period began to run from September 3, 2004. As the action was not commenced within the two-year period, the motion judge properly granted summary judgment dismissing the action.  Appeal dismissed.”
Cases like Safai and Aguonie essentially held that issues such as the principle of discoverability were more appropriately dealt with by the trial judge given the need to make findings of fact and assessments of credibility. Under the new Rules for summary judgment motions, however, the motions judge has greater powers to examine and weigh evidence, evaluate the credibility of the deponents of the affidavits and draw inferences from the evidence before the court including discovery transcripts.
The result in the Liu case tells counsel and clients alike that, under new Rule 20, such pre-emptive attacks on preliminary issues can be successful and that plaintiffs’ attempts to argue that “discoverability” issues should be left for trial will no longer be accepted. Further, the rules regarding costs awards for unsuccessful summary judgment motions are now also less severe. It is now apparent that there should be less hesitancy by counsel and clients to attempt summary judgment on limitation or timebar issues.
Kim E. Stoll
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