Court Of Appeal Summaries (September 7 ' September 18, 2020)

• Published date: 22 September 2020
• Subject Matter: Corporate/Commercial Law, Insurance, Litigation, Mediation & Arbitration, Insolvency/Bankruptcy/Re-structuring, Insolvency/Bankruptcy, Contracts and Commercial Law, Insurance Laws and Products, Court Procedure, Trials & Appeals & Compensation, Civil Law
• Law Firm: Blaney McMurtry LLP
• Author: Mr John Polyzogopoulos

Good afternoon.

Following are our summaries of the civil decisions of the Court of Appeal for Ontario for the weeks of September 7 to 11 and September 14 to 18, 2020.

The past two weeks saw ten substantive decisions released by the Court of Appeal. Topics covered included bankruptcy &amp insolvency, contracts (freight), enforcement of letters of request by foreign courts, family law and insurance, as well as the usual procedural decisions relating to extensions of time and appellate jurisdiction.

Wishing everyone an enjoyable weekend.

John Polyzogopoulos
Blaney McMurtry LLP

CIVIL DECISIONS

DEL Equipment Inc (Re), 2020 ONCA 0555

[Lauwers, Brown and Nordheimer JJ.A.]

Counsel:

Shastri and D. Winer for the moving party, Gin-Cor Industries.

Wadden, C. Armstrong and A. Harmes for the responding party, DEL Equipment Inc.

Keywords: Bankruptcy and Insolvency, Unjust Enrichment, Set-Off, Civil Procedure, Leave to Appeal Companies Creditors' Arrangement Act, RSC 1985, c C-36, Stelco Inc., (Re) (2005), 75 OR (3D0 5 (CA)., Kerr v Baranow, 2011 SCC 10.

facts:

DEL and Gin-Cor entered into a management agreement under which Gin-Cor assumed management control of DEL's operations. Two years later, the parties terminated the agreement. After terminating the agreement, one of DEL's customers accidentally paid an invoice in the amount of $874,107.08 into Gin-Cor's account pursuant to old payment instructions. DEL immediately requested the funds upon learning of the mistake, but Gin-Cor refused, taking the position that Gin-Cor was entitled to retain the funds as a set-off against other obligations owing to it from DEL.

DEL was then granted protection under the CCAA, with outstanding liabilities totalling $1.5 million, including amounts owed to Gin-Cor. The motion judge in the CCAA proceedings ordered Gin-Cor to pay the funds to their lawyers pending further direction from the court. The parties each proceeded to bring a motion asserting their entitlement to the funds. The motion judged found that Gin-Cor had been unjustly enriched, and could provide no juristic reason for such enrichment. As a result, the motion judge ordered the funds be paid to DEL and pending the payment of the funds, they were to be held in constructive trust.

Gin-Cor sought leave to appeal the motion decision.

issues:

(1) Should leave to appeal be granted?

holding:

Motion dismissed.

reasoning:

No. Leave to appeal in the context of CCAA proceedings should only be granted sparingly. In Stelco (Re) the Court of Appeal held that leave to appeal will only be granted where there are "serious and arguable grounds that are of real and significant interest to the parties", which is to be determined by considering whether: (i) the proposed appeal is prima facie meritorious or frivolous; (ii) the issue on the proposed appeal is of significance to the practice; (iii) the issue on the proposed appeal is of significance to the proceeding and (iv) the proposed appeal will unduly hinder the progress of the proceeding.

For factor (i), Gin-Cor submitted that the motion judge erred in holding that set-off was not a juristic reason to defend their enrichment in this case. The leading authority on unjust enrichment is the Supreme Court of Canada's decision in Kerr v Baranow, 2011 SCC, which provides a two-step analysis of "juristic reason". The juristic reason analysis focuses on whether there is a reason for the enriched party to keep the enrichment. The claimants must establish that there is no established reason for the enrichment, at which point the onus shifts to the defendant to establish whether a new juristic reason should be established. The Court of Appeal found that the motion judge correctly performed the analysis and Gin-Cor raised no viable argument to cast doubt on that decision and as a result, found that the appeal was not prima facie meritorious.

The Court of Appeal recognized that the appeal was significant to both of the parties under factor (ii), but found that there was no significance to the practice under factor (iii), because the motion involved applying well-established factors and analysis to a set of facts. The Court also found factor (iv) to be neutral as each party raised reasonable arguments as to why the appeal would or would not impact the progress of the CCAA proceedings.

Ultimately, the Court of Appeal held that because the appeal was neither prima facie meritorious nor did it raise an issue of significance to the practice, the high bar for granting leave to appeal in the CCAA context was not met. Leave to appeal was therefore refused.

Sky Clean Energy Ltd. (Sky Solar (Canada) Ltd.) v Economical Mutual Insurance Company, 2020 ONCA 0588

[Strathy C.J.O., Lauwers and van Rensburg JJ.A.]

Counsel:

Rebecca Huang, for the appellant

Marcus B. Snowden and Pearl Rombis, for the respondent

Keywords:Contracts, Interpretation, Insurance, Coverage, Commercial General Liability Insurance, Additional Insureds, Meaning of "Arising Out Of The Operations Of", Duty of Good Faith, Civil Procedure, Costs, Vernon Vipers Hockey Club v. Canadian Recreation Excellence (Vernon) Corp., 2012 BCCA 291, Amos v. Insurance Corp of British Columbia, [1995] 3 S.C.R. 405, Lumbermens Mutual Casualty Co. v. Herbison, 2007 SCC 47, Citadel General Assurance Co. v. Vytlingam, 2007 SCC 46, Waterloo (City) v. Economical Mutual Insurance Co., 2006 CanLII 43498 (Ont. S.C.), Great Atlantic & Pacific Co. of Canada Ltd. v. Economical Mutual Insurance Co., 2013 ONSC 7200, Oliveira v. Aviva Canada Inc., 2017 ONSC 6161, Boucher v. Public Accountants Council for the Province of Ontario (2004), 71 O.R. (3d) 291 (C.A.), Canadian Pacific Ltd. v. Matsqui Indian Band, [1995] 1 S.C.R. 3

facts:

The appellant, Sky Clean Energy Ltd. ("Sky"), is a developer of solar energy projects. Sky entered into contracts with Marnoch Electrical Services Inc. ("Marnoch") for the construction of two such projects. Pursuant to these contracts, Marnoch agreed to name Sky as an insured under its comprehensive general liability insurance policy with the respondent, Economic Mutual Insurance Company ("Economical"). However, the insurance certificates issued to Sky by Marnoch's insurance broker provided that Marnoch's liability insurance applied to Sky "but only with respect to liability arising out of the operations of Marnoch".

Fires occurred at both projects, and as a result, Sky incurred liabilities for remediation costs and loss of revenue. It settled these liabilities and then sought to recover those damages, first against Marnoch, then against Economical. The trial judge found that the design of the solar systems which caused the fire were Sky's responsibility. Marnoch played no role in the decisions to purchase or install the faulty equipment used at the two project locations. Therefore, the trial judge concluded that Sky's liability did not "arise out of the operations" of Marnoch.

issues:

(1) Did the trial judge err in interpreting the insurance policy and in finding that Sky's liability did not "arise out of the operations" of Marnoch?

(2) Did the trial judge err in finding that Sky's claim was barred by a breach of Condition Four of the policy or, alternatively, in failing to grant relief from forfeiture?

(3) Did the trial judge err in finding that Economical had not breached its duty of good faith and declining to award punitive damages?

(4) Did the trial judge err in awarding excessive costs?

holding:

Appeal dismissed.

reasoning:

(1) Did the trial judge err in interpreting the insurance policy and in finding that Sky's liability did not "arise out of the operations" of Monarch?

No. This issue turns on the interpretation of the words "arising out of the operations". Referring specifically to the decision in Vernon Vipers Hockey Club v. Canadian Recreation Excellence (Vernon) Corp., 2012 BCCA 291, the trial judge noted that "arising out of" means more than simply a "but for" test and requires an "unbroken chain of causation" and "a connection that is more than merely incidental or fortuitous." In Vernon, the Court followed several leading Supreme Court decisions that similarly interpreted the words "arising out of" and "arising from", including: Amos v. Insurance Corp of British Columbia, [1995] 3 S.C.R. 405; Lumbermens Mutual Casualty Co. v. Herbison, 2007 SCC 47; and Citadel General Assurance Co. v. Vytlingam, 2007 SCC 46.

The British Columbia Court of Appeal in Vernon also considered the meaning of the word "operations", and found that it "is a word of sufficiently broad meaning as to include the creation of a situation, or circumstance, that is connected in some way to the alleged liability. It does not necessarily imply an active role by the named insured in creation of the liability event." The Ontario Court of Appeal found the approach in Vernon, which the trial judge adopted, to be consistent with Ontario precedents, namely: Waterloo (City) v. Economical Mutual Insurance Co., 2006 CanLII 43498 (Ont. S.C.); Great Atlantic & Pacific Co. of Canada Ltd. v. Economical Mutual Insurance Co., 2013 ONSC 7200; and Oliveira v. Aviva Canada Inc., 2017 ONSC 6161.

In short, the Court agreed with the trial judge's finding that Marnoch's connection with the failure of the electrical equipment was "merely incidental". While the fire would not have occurred but for the fact that Marnoch ordered and installed the equipment in the course of its operations under the contracts, the proposition in Vernon requires a stronger connection. Ultimately, the decision to select and approve the equipment to be installed in the projects rested with Sky, and Sky chose and approved the equipment that failed. The Court found that Marnoch was little more that a bystander to the decisions of Sky. While Marnoch's role was sufficient to satisfy a "but for" connection to Sky's liability, it was crucially insufficient to cross the threshold into a connection "more than merely incidental or fortuitous".

(2) Did the trial judge err in finding...