Ontario Court Of Appeal Summaries (July 29 – August 2, 2019)

Following are this week's summaries of the civil decisions of the Court of Appeal for Ontario.

In Marvelous Mario's Inc. v. St. Paul Fire and Marine Insurance Co., the Court of Appeal dealt with the issue of when a rolling limitation period exists in the breach of contract context (insurance policy). When there is only one breach, but ongoing damages, the limitation period does not get reset every time further damages arise from the initial breach. However, where there are ongoing contractual obligations, every time there is a breach of a contractual obligation, a cause of action for that breach is triggered, with its own new limitation period.

In Nemchin v. Green, the Court of Appeal had the opportunity to review the law on the admissibility of video surveillance and Facebook evidence at trial. The decision involved a discussion of the two purposes of video evidence, to impeach witness credibility or to be used as substantive evidence, and the requirements that must be met for evidence to be admissible. Where the evidence is only to be used for impeachment purposes, it need not be disclosed before trial. However, if the evidence is to be relied upon to prove a fact at trial, it must be disclosed in advance, just like any other document, during the discovery process.

Ridel v. Goldberg deals with the applicable limitation period to a claim brought by creditors of a bankrupt under an assignment to them of the claim of the bankrupt under section 38 of the Bankruptcy and Insolvency Act. The bankrupt was a judgment debtor, which had a claim over for contribution and indemnity against a principal of the company that it did not bring at the time of the underlying litigation. The creditors who had a partially unsatisfied judgment took an assignment of the claim over and brought the action against the principal years after their initial judgment. Among other arguments they made, the creditors argued that the limitation period did not start to run until they had the action assigned to them under section 38. The Court of Appeal rightly rejected this argument. If a claim belonging to a bankrupt is out of time before it is assigned to the creditors, it is also out of time after it is assigned to the creditors. The claim vests in the trustee in bankruptcy, who steps into the shoes of the bankrupt. The trustee and, by extension, the creditors who take on the claim, cannot be in a better position than the bankrupt. They inherit the claim with all its warts.

Other topics covered this week included leave to intervene on the motion for leave to appeal the decision of the Divisional Court in the Ontario sex-ed curriculum case, and whether a lawyer in private practice who received a lot of work from the Office of the Children's Lawyer was a dependent contractor for the purpose of notice of termination of the relationship by her client.

CIVIL DECISIONS

Marvelous Mario's Inc. v. St. Paul Fire and Marine Insurance Co., 2019 ONCA 635

[Hourigan, Paciocco and Fairburn JJ.A.]

Counsel:

R.D. Rollo and D. Melamed, for the appellants

D.A. Tompkins and T.J. Buckley, for the respondent

FACTS:

The appellants had an insurance policy with the respondents that would cover "direct loss from any Peril." In October 1999, one of the appellant's affiliated companies was impacted by a moth infestation that interrupted their business and caused them to be unable to pay rent to the appellant, which formed the basis of the first action. The appellant also loaned $950,000 to the affiliated company, which was never repaid.

In October of 2000, the affiliated company went into receivership and by December, a sale of the company was accepted by the court and the transaction closed. In November 2002, the appellant commenced an action claiming that the Receiver committed theft of insured equipment and assets by wrongfully retaining the assets or wrongfully transferring them to the purchaser, causing business interruption losses to the appellant. These allegations formed the basis of the second action.

At trial, the judge dismissed the first action in its entirety because the loss suffered was not a direct loss. The insured event was the moth infestation. The fact that the affiliated company later became unable to pay its financial obligations, despite receiving insurance money for the infestation, was an indirect result and was not covered by the insurance policy.

Regarding the second action, the question was one of a contractual limitation period. The insurance policy had a one-year limitation period. Since the sale of the affiliated company happened in December 2000, the commencement of the second action in 2002 was outside of that contractual limitation period. However, the trial judge found that the business interruption losses constituted on-going issues and so a rolling limitation period should apply. Only claims that pre-dated one year before the commencement of the second action were statute-barred.

The appellant appeals the dismissal of the first action in its entirety and the partial dismissal of the second action. The respondents cross-appeal on the issue of whether a rolling limitation period should apply.

ISSUES:

(1) Did the trial judge err in finding the losses suffered were not direct losses covered by the insurance policy?

(2) Did the trial judge err in applying damages principles to issue (1)?

(3) Did the trial judge err in holding that a rolling limitation period should apply in respect of the second action?

HOLDING:

Appeal dismissed. Cross-appeal allowed.

REASONING:

(1) Did the trial judge err in finding the losses suffered were not direct losses covered by the insurance policy?

No. The appellants submitted that the trial judge erred in holding that there could only be one proximate cause for a given loss. The Court of Appeal rejected this submission, as the trial judge specifically referred to Supreme Court of Canada cases that reference the idea that there can be multiple proximate causes. Particularly, in Ford, the SCC held "the cause of the loss or damage covered by the contracts must be a 'proximate cause'" (emphasis added). The appellant submits that the infestation caused the bankruptcy of the affiliated company, which in turned caused the appellants to suffer a loss. The trial judge and the Court of Appeal rejected this submission. There was evidence that the affiliated company's sales actually increased after the infestation, and it was instead its failure to manage its finances that led to the appellants' loss.

(2) Did the trial judge err in applying damages principles to issue (1)?

No. The trial judge found that because the affiliated company already received insurance monies from the respondent for the infestation, permitting the appellants to do the same would amount to double recovery. The appellants seized upon this statement and argued that the trial judge erred in law by considering a damages principle in a coverage-only trial.

The Court of Appeal rejected this submission, as it mischaracterized the trial judge's reasons. The trial judge's decision referred to double recovery not as a principle of damages, but as a part of an analysis of interpreting the insurance policy. The trial judge was attempting to interpret the policy so as not to "give rise to results that are unrealistic or that the parties would not have contemplated in the commercial atmosphere in which the insurance policy was contracted", as was espoused in Ledcor. The Court of Appeal upheld the trial judge's reasoning, in that "it would be an unrealistic and commercially unreasonable result if one insured party was paid for its business interruption losses and then did not pay its obligations to a related insured party, who could then make another claim on the same policy..."

(3) Did the trial judge err in holding that a rolling limitation period should apply in respect of the second action?

Yes. The trial judge essentially split the second action into two issues. The first was for property losses for the alleged theft or wrongful handling of property by the Receiver. The second was for business interruption losses flowing from that deprivation. On the first issue, the trial judge found that the claim was barred by the contractual limitation period. On the second, he found that it was subject to a rolling limitation period, and therefore could proceed. The respondent submitted this was an error, and both issues should be barred by the contractual limitation period.

The trial judge found that the appellant knew that it had a cause of action as at the date of the sale, but relying on Treeland, found that business interruption claims are subject to a rolling limitation period because the loss accrues each day.

The Court of Appeal found this to be an error for several reasons. First, Treeland is a Saskatchewan case that has never been followed or adopted in Ontario. While it has been mentioned in passing in one decision, it is not good law in Ontario. While the respondent relied on large volumes of factually similar cases, the Court found that none of these cases were good law in Ontario, and were largely devoid of legal analysis on the issues in dispute in the present case.

The Court of Appeal endeavoured to discuss the principles of rolling limitations periods. Jurisprudence suggested that rolling limitation periods are available in breach of contract cases where the defendant has a recurring contractual obligation. The question is not whether the plaintiff is continuing to suffer a loss or damage, but whether the defendant has engaged in another breach of contract beyond the original breach by failing to comply with an ongoing obligation. Richards discussed the distinction between cases where a defendant is failing to make periodic payments owed to the...