Court Of Appeal Summaries (August 30 – September 3, 2021) -

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Good afternoon.

Following are our summaries of the civil decisions of the Court of Appeal for Ontario for the week of August 30.

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Heliotrope Investment Corporation v. 1324789 Ontario Inc., 2021 ONCA 589 dealt with summary judgment on defaulted mortgages and the test for when judgment will be stayed pending the determination of a counterclaim under Rule 20.08 of the Rules of Civil Procedure.

In Ontario First Nations (2008) Limited Partnership v. Ontario Lottery and Gaming Corporation, 2021 ONCA 592, the Court upheld an arbitration panel's finding that the Province of Ontario and the Ontario Lottery and Gaming Corporation had breached a revenue sharing agreement with the Ontario First Nations (2008) Limited Partnership. The Court confirmed once again that questions of contractual interpretation generally attract a deferential standard of review absent an extricable error of law. The Court determined that Ontario and OLG had breached express contractual terms of the revenue sharing agreement and upheld the judgment against them.

MDS Inc. v. Factory Mutual Incurance Co. is an insurance coverage case in which the Court overturned an over $56 million judgment, finding there was no insurance coverage for the plaintiff's lost profit claim relating to the shutdown of the Chaulk River nuclear reactor in 2009.

Wishing everyone an enjoyable weekend.

John Polyzogopoulos
Blaney McMurtry LLP
416.593.2953 Email

Civil Decisions

1758704 Ontario Inc. v. Priest , 2021 ONCA 588

Keywords: Breach of Contract, Debtor-Creditor, Asset Purchase Agreements, Promissory Notes, Security Agreements, Enforcement, Notice of Intention to Enforce Security, Doctrine of Merger, Torts, Conversion, Intentional Interference with Economic Relations, Damages, Civil Procedure, Civil Procedure, Judgments, Enforcement, Writs of Seizure and Sale, Personal Property Security Act R.S.O. 1990, C. P. 10, ss. 62, 63 and 67, Rules of Civil Procedure, Rule 60.07(18), Bhasin v. Hrynew, 2014 SCC 71, C.M. Callow Inc. v. Zollinger, 2020 SCC 45, Lloyds Bank Canada v. Transfirst Inc., 71 O.R. (2d) 481 (Ont. H.C.), AJM Leasing v. Brown (2002), 6 P.P.S.A.C. (3d) 58 (Ont. S.C.), R.E. Lister Ltd. v. Dunlop Canada Ltd., [1982] 1 S.C.R. 726, Massey v. Sladen (1868), L.R. 4 Ex. 13 at 19, 38 L.J., Royal Bank of Canada v. W. Got & Associates Electric Ltd., [1999] 3 S.C.R. 408, Kavcar Investments Ltd. v. Aetna Financial Services Ltd. (1989), 70 O.R. (2d) 225 (C.A.), Waldron v. Royal Bank (1991), 53 B.C.L.R. (2d) 294 (B.C.C.A.), Owners, Strata Plan LMS 3905 v. Crystal Square Parking Corp., 2020 SCC 29, Parry Sound (District) Social Services Administration Board v. O.P.S.E.U., Local 324, 2003 SCC 42, Goodyear Tire & Rubber Co. of Canada Ltd. v. T. Eaton Co. Ltd., [1956] S.C.R. 610, Jacob S. Ziegel, David L. Denomme & Anthony Duggan, The Ontario Personal Property Security Act - Commentary and Analysis, 3rd ed. (Toronto: LexisNexis, 2020)

Heliotrope Investment Corporation v. 1324789 Ontario Inc. , 2021 ONCA 589

Keywords: Contracts, Real Property, Mortgages, Enforcement, Civil Procedure, Summary Judgment, Stay of Judgment, Statute of Frauds, R.S.O. 1990, c. S.19, Rules of Civil Procedure, Rule 20.08, Canadian Western Trust Company v. 1324789 Ontario Inc., 2019 ONSC 4789, SK Properties & Development Inc. v. The Equitable Trust Co, [2003] O.J. No. 2234 (S.C.), St. Amand v. Tisi, 2018 ONCA 106, Baywood Homes Partnership v. Haditaghi, 2014 ONCA 450, Service Mold + Aerospace Inc. v. Khalaf, 2019 ONCA 369, Hryniak v. Mauldin, 2014 SCC 7, Canadian Imperial Bank of Commerce v. Deloitte & Touche, 2016 ONCA 922, leave to appeal requested but appeal discontinued, [2017] S.C.C.A. No. 58, Butera v. Chown, Cairns LLP, 2017 ONCA 783, 137 O.R. (3d) 561, Heliotrope v. 1324789 Ontario Inc., 2020 ONSC 808, Hinke v. Thermal Energy International Inc., 2012 ONCA 635, Freedom International Brokerage Company v. Anastakis (2006), 21 B.L.R. (4th) 246 (Ont. S.C.), Zucchetti Rubinetteria S.P.A. v. Natphil Inc., 2011 ONSC 2275, Hurwitz v. Baz, [1955] O.J. No. 352 (C.A.), General Printers Ltd. v. Algonquin Publishing Co., [1970] O.J. No. 1534 (C.A.), Univar Canada Ltd. v. Pax-All Manufacturing Inc., 2008 CanLII 44741 (Ont. S.C.),Telford v. Holt [(1987), 41 D.L.R. (4th) 385, Algoma Steel Inc. v. Union Gas Ltd., [2003] O.J. No. 71 (C.A.), 1324789 Ontario Inc. v. Marshall, 2019 ONSC 517, Heliotrope v. 1324789 Ontario Inc., 2020 ONSC 808, Canadian Western Trust Company v. 1324789 Ontario Inc., 2019 ONSC 5948, 1324789 Ontario Inc. v. Marshall et al., 2020 ONSC 4651, 1324789 Ontario Inc. v. Marshall et al., 2021 ONSC 86

Ontario First Nations (2008) Limited Partnership v. Ontario Lottery and Gaming Corporation , 2021 ONCA 592

Keywords: Contracts, Interpretation, Civil Procedure, Arbitration, Standard of Review, Aboriginal Law, Honour of the Crown, Arbitration Act, R.S.B.C. 1996, c. 55, Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, Teal Cedar Products Ltd. v. British Columbia, 2017 SCC 32, Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65, Phillips v. Nova Scotia (Commission of Inquiry into the Westray Mine Tragedy), [1995] 2 S.C.R. 97, Wastech Services Ltd. v. Greater Sewerage and Drainage District, 2021 SCC 7, Corner Brook (City) v. Bailey, 2021 SCC 29, Reardon Smith Line Ltd. v. Hansen-Tangen; Hansen-Tangen v. Sanko Steamship Co., [1976] 3 All E.R. 570 (U.K. H.L.), IFP Technologies (Canada) v. EnCana Midstream and Marketing, 2017 ABCA 157, Kilitzoglou v. Curé, 2018 ONCA 891, Bank of America Canada v. Mutual Trust Co., 2002 SCC 43, Dasham Carriers Inc. v. Gerlach, 2013 ONCA 707, Mikisew Cree First Nation v. Canada (Governor General in Council), 2018 SCC 40, Manitoba Métis Federation Inc. v. Canada (Attorney General), 2013 SCC 14, R. v. Desautel, 2021 SCC 17, Newfoundland and Labrador (Attorney General) v. Uashaunnuat (Innu of Uashat and of Mani-Utenam), 2020 SCC 4, R. v. Drury, 2020 ONCA 502

MDS Inc. v. Factory Mutual Insurance Company , 2021 ONCA 594

Keywords: Contracts, Insurance, Interpretation, Ambiguity, Coverage, Business Interruption, Standard of Review, Compound interest, Sattva Capital Corp v. Creston Moly Corp, 2014 SCC 53, Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 377, MacDonald v. Chicago Title Insurance Company of Canada, 2015 ONCA 842, Courts of Justice Act, R.S.O. 1990, c. C. 43, ss 128, 129, Tribute (Springwater) Limited v. Atif, 2021 ONCA 463, Krieser v. Garber, 2020 ONCA 669, Eli Lilly & Co. v. Novopharm Ltd., [1998] 2 S.C.R. 129, Dumbrell v. The Regional Group of Companies Inc., 2007 ONCA 59, Sabean v. Portage La Prairie Mutual Insurance Co., 2017 SCC 7, Progressive Homes Ltd v. Lombard General Insurance Co. of Canada, 2010 SCC 33, Dunn v. Chubb Insurance Company of Canada, 2009 ONCA 538, Jesuit Fathers of Upper Canada v. Guardian Insurance Co. of Canada, 2006 SCC 21, Investors Compensation Scheme Ltd. v. West Bromwich Building Society, [1998] 1 All E.R. 98, Co-operators Life Insurance Co. v. Gibbens, 2009 SCC 59, Hi-Tech Group Inc. v. Sears Canada Inc. (2001), 52 O.R. (3d) 97 (C.A.), Consolidated-Bathurst v. Mutual Boiler, [1980] 1 S.C.R. 888, United Brotherhood of Carpenters and Joiners of America, Local 579 v. Bradco Construction Ltd., [1993] 2 S.C.R. 316, Canadian Premier Holdings Ltd. v. Winterthur Canada Financial Corp. (2000), 132 O.A.C. 172, SimEx Inc. v. IMAX Corp. (2005), 206 O.A.C. 3, Cornish v. Accident Insurance Co. (1889), 23 Q.B. 453 (C.A.), Canadian Oxford Dictionary, PLC Constructors Canada Inc. v. Allianz Global Risks US Insurance Company, 2014 ONSC 7480, 123 O.R. (3d) 549, Zurich Insurance Co. v. 686234 Ontario Ltd. (2002), 62 O.R. (3d) 447 (C.A.), Edmonton (City) v. Protection Mutual Insurance Co. (1997), 197 A.R. 81 (Q.B.), Partners Investment Ltd. v. Etobicoke (City) (1981), 124 D.L.R. (3d) 125 (Ont. H.C.), Bettigole v. American Employers Ins. Co., 30 Mass. App. Ct. 272, 567 N.E. 2d 1259 (App. Ct. 1991), Gilbane Bldg. Co. v. Altman Co., 2005 Ohio 984 (App. Ct.), Lantheus Medical Imaging, Inc. v. Zurich American Ins. Co., 255 F. Supp. 3d 443 (S.D.N.Y. Dist. Ct. 2015), Canadian National Railway Co. v. Royal and Sun Alliance Insurance Co. of Canada, 2008 SCC 66, British and Foreign Marine Insurance Co. v. Gaunt, [1921] 2 A.C. 41 (H.L.), Jessy's Pizza (Bedford) v. Economical Mutual Insurance Company, 2008 NSSM 38, MRI Healthcare Center of Glendale, Inc. v. State Farm General Ins. Co., 187 Cal. App. 4th 766, 115 Cal. 3d 27 (App. Ct. 2010), Western Fire Ins. Co. v. First Presbyterian Church, 165 Colo. 34, 437 P (2d) 52 (Super. Ct. 1968), Perry et al. v. General Security Insurance Co. of Canada et al. (1984), 11 D.L.R. (4th) 516 (Ont. C.A.), Monk v. Farmers and Muskoka Ins., 2017 ONSC 3690, 70 C.C.L.I. (5th) 94, Sterling Crane v. Penner Brothers Utilities Ltd., 12 C.C.L.I. 97 (B.C.S.C.), International Radiography & Inspection Services (1976) Ltd. v. General Accident Assurance Co. of Canada (1996), 193 A.R. 1 (C.A.), ARG Construction Corp v. Allstate Insurance Co. of Canada (2004), 73 O.R. (3d) 211 (S.C.), Canadian Equipment Sales & Service Co. Ltd. v. Continental Insurance Co. (1975), 59 D.L.R. (3d) 333 (Ont. C.A.), Fridel Limited v. Intact Insurance Co., 2018 ONSC 5923, Hamel Construction Inc. v. Lombard Canada Ltd., 2004 NSSC 42, Simcoe & Erie General Insurance Co. v. Royal Insurance Co. of Canada (1982), 36 A.R. 553 (Q.B.), Hamilton Die Cast, Inc. v. United States Fidelity & Guaranty Co., 508 F. (2d) 417 (7th Cir. Ct. App. 1975), Pilkington United Kingdom Ltd. v. CGU Insurance Plc., [2004] E.W.C.A. Civ. 23, [2005] 2 All E.R. 283, Enbridge Gas v. Michael Marinaccio et al., 2011 ONSC 4962, Brock v. Cole (1983), 142 D.L.R. (3d) 461 (Ont. C.A.), St. Jean v. Cheung, 2009 ONCA 9, Hunt v. TD Securities, 66 O.R. (3d) 481 (C.A.)

Short Civil Decisions

Drywall Acoustic Lathing and Insulation, Local 675 Pension Fund v. Barrick Gold Corporation, 2021 ONCA 596

Keywords: Securities, Misrepresentation, Civil Procedure, Costs, Securities Act, R.S.O 1990 c.S.5, Drywall Acoustic Lathing and Insulation, Local 675 Pension Fund (Trustees of) v. SNC-Lavalin Group, 2016 ONSC 5784

CIVIL DECISIONS

1758704 Ontario Inc. v. Priest, 2021 ONCA 588

[Benotto, Miller and Trotter JJ.A.]

Counsel:

M. Zemel, for the appellants/respondents by way of cross-appeal

K. McKenzie, for the respondent/appellants by way of cross-appeal

facts:

These appeals arise from the sale of a business. Roughly two years after the deal closed, the purchasers/assignees, who are the appellants in this case, defaulted on a promissory note that was secured by certain assets. Following the default, and without notice to the appellants, the respondents/cross-appellants seized the assets from the appellants. The aforementioned action put the appellants out of business. The appellants are a numbered company and its principal.

The respondents sued for the money still owing. The appellants filed a counterclaim pleading breach of contract, intentional interference with economic relations, and the tort of conversion based on the seizure without notice. The trial judge granted judgment in favour of the respondents, based on the unpaid debt. She also dismissed the appellants' counterclaim, based on her conclusion that the respondents were not required to provide notice to the appellants prior to seizing the assets.

The appellants appealed the judgment against them and the dismissal of their counterclaim. The respondents appealed the trial judge's award of damages.

issues:

(1) Did the trial judge err in the determining that the appellants were not entitled to notice before seizure?

(2) Did the trial judge err in determining that the PPSA relieved the respondents of the obligation to give the appellants notice of their intention to seize the secured assets?

(3) Did the trial judge err in waiving the six-month waiting period under the Writ of Seizure and Sale?

(4) Did the trial judge err in finding the principal personally liable for failing to assume the excavator lease?

(5) Did the trial judge err in the assessment of damages awarded against the respondents?

holding:

Appeal allowed in part. Cross-appeal dismissed.

reasoning:

(1) Yes

The appellants were entitled to notice prior to the seizure of the collateral at common law and pursuant to the Asset Purchase Agreement.

As per R.E. Lister Ltd. V Dunlop Canada Ltd., there is an obligation to provide notice to a debtor before seizing secured assets. This obligation was further clarified in Kavcar Investments Ltd. V Aetna Financial Services Ltd, which held that this obligation applies "regardless of the wording of the security document". Moreover, the notice period must be a reasonable amount of time.

As per, section 3.03 of the APA, the respondents were obligated to give notice of seizure if the appellant default in payment. Specifically, the respondent was obligated to provide 15 days notice before seizing any of the purchased assets. The Court rejected the respondent's position that this section merged on closing of the APA. The doctrine of merger has some application to real property transactions, but this doctrine does not apply to transactions involving personal property. In any event, merger is not automatic; it is the intentions of the parties that must prevail.

(2) Yes

The trial judge erred in determining that subsection 63(7)(c) of the PPSA relieved the respondents of their obligation to provide notice. While the exception to notice found in the PPSA can be applicable in certain situations, it has no application at the pre-seizure stage, and therefore the Court determined that it cannot be said to relieve the respondents of their common law and contractual obligations to provide notice of seizure.

(3) Not considered

The Court determined that because the case must be returned to the Superior Court for an assessment of damages on the counterclaim, the writ was set aside, and therefore it was not necessary to consider the issue of waiver of the six-month waiting period.

(4) Yes

The trial judge erred because the principal of the numbered company was not a party to the APA. Although he was personally liable on the promissory note, the note only applied to purchased assets, not leased equipment. Furthermore, absent the finding that would provide grounds for piercing the corporate veil, which were not apparent, there were no other grounds for finding the individual personally liable for failing to assume the lease.

(5) No

The Court saw no error in the trial judge's approach to the damages.

Heliotrope Investment Corporation v. 1324789 Ontario Inc., 2021 ONCA 589

[Feldman, Lauwers and Trotter JJ.A.]

Counsel:

B. Marks, for the appellants

C. L. Merovitz, D. Sayer and E. Lay, for the respondents

facts:

The respondents loaned money to the appellants, which was secured by mortgages on properties owned by the appellants. The relationship deteriorated, and in the litigation that followed, the respondents sought to enforce the mortgages by way of motions for summary judgment in three different mortgage enforcement actions. Those motions were heard together by the motion judge, who found the three mortgages to be enforceable and granted summary judgment. The motion judge also refused to stay the enforcement of those judgements under Rule 20.08 of the Rules of Civil Procedure pending the resolution of the appellant's claims against the respondents.

issues:

(1) Did the motion judge err in granting the summary judgments?

(2) Did the motion judge err in declining to stay the enforcement of the summary judgments?

holding:

Appeals dismissed.

reasoning:

(1) No

The Court deferred to the motion judge's decision to grant the summary judgment in the absence of any extricable errors. The Court also noted that, in the circumstances, the orders for summary judgement advanced the objectives of proportionality, efficiency, and cost-effectiveness outlined by the Supreme Court in Hyrniak v. Mauldin, 2014 SCC 7.

(2) No

After restating the multi-factorial approach to a stay under Rule 20.08, the Court agreed with the motion judge's conclusion that a stay should not be granted after considering several factors. First, with respect to the merits of the counterclaim, the Court found that the motion judge's assessment - that the counterclaims only have minimal potential merit and a small chance of success - was not unreasonable. Second, the clear connection between the respondent's claims and the appellant's counterclaims in the mortgage enforcement actions favoured a stay. Third, the appellant's litigation conduct, which included conduct that contributed to the delay in moving the litigation forward, did not weigh in favour of granting the stay. Finally, the Court held that any perceived unfairness to the appellants by refusing to grant a stay of the summary judgements was outweighed by the appellant's conduct and the potential prejudice to the respondents of granting a stay and being out of pocket during the time it takes to recoup the debt from the proceeds of the sale of lots on the properties or for the litigation to conclude.

Ontario First Nations (2008) Limited Partnership v. Ontario Lottery and Gaming Corporation, 2021 ONCA 592

[Fairburn A.C.J.O., Lauwers and Jamal JJ.A.]

Counsel:

R.P. Steep, B.E. Gray and S. Sugar, for the appellant, Ontario Lottery and Gaming Corporation

D.B. McPherson, E.S. Huang, M. Fancy, and I. Kanjee, for the appellant, Her Majesty the Queen in the right of Ontario

S. Block, D. Outerbridge, L. Jackson, N. Wall, and H. Allen, for the respondent

facts:

In 2008, the Province of Ontario ("Ontario") and the Ontario Lottery and Gaming Corporation ("OLG") entered into a "Gaming Revenue Sharing and Financial Agreement" with Ontario First Nations (2008) Limited Partnership (the "First Nations Partnership"). Under the Agreement, Ontario and OLG agreed to share three types of revenue with the First Nations Partnership: (1) gaming revenue, (2) non-gaming revenue, and (3) "comps".

OLG decided to outsource its non-gaming amenities to private operators through a process it called "modernization". Under modernization, private operators would assume the risk and responsibility for non-gaming amenities in exchange for keeping 100% of the associated non-gaming revenue. As a result, OLG would stop paying the First Nations Partnership non-gaming revenue and revenue from comps. Despite OLG anticipating higher revenue under modernization, OLG did not disclose its plans to the First Nations Partnership or seek to amend the Agreement. In June 2016, the First Nations Partnership learned about modernization and initiated arbitration under the Agreement.

The arbitration panel held that Ontario and OLG breached the Agreement. The majority of the panel found that Ontario and OLG breached express contractual terms when they stopped paying the First Nations Partnership non-gaming revenue and revenue from comps. The majority also found that the honour of the Crown doctrine had been engaged, although their decision did not turn on this. The dissenting member found that Ontario and OLG breached an implied term in the Agreement to disclose and consult with the First Nation Partnership. The dissenting member further described Ontario and OLG's conduct as "breathtaking in the age of reconciliation".
The appeal judge dismissed Ontario and OLG's appeals. The appeal judge ruled that the appropriate standard of review was reasonableness and found that the majority's interpretation of the Agreement was reasonable. The appeal judge also held that while the majority's reference to the doctrine of honour of the Crown was obiter, the majority did not err in deciding it was engaged by the Agreement.

issues:

(1) Did the appeal judge err as to the standard of review?

(2) Did the appeal judge err in interpreting the contract?

(3) Did the appeal judge err in applying the doctrine of the honour of the Crown?

holding:

Appeal dismissed.

reasoning:

(1) No

The Court found that Ontario and OLG largely advanced questions of contractual interpretation. These questions constituted questions of mixed fact and law and attracted a deferential standard of review absent an extricable error of law.

(2) No

The Court applied the principles of contractual interpretation discussed by the Supreme Court of Canada in Sattva Capital Corp. v. Creston Moly Corp. and Corner Brook (City) v. Bailey.

The Court rejected Ontario and OLG's argument that the appeal judge ignored their limited payment obligation under the Agreement. Ontario and OLG asserted that they were only required to pay the First Nations Partnership 1.6% of gaming revenue, non-gaming revenue and comps received by OLG. The Court found that Schedule 1.1(nn) and s. 2(c) of the Agreement supported the interpretation that all three revenue streams, regardless of whether they were received by the OLG, were to be included for revenue sharing purposes. The Court further found that Ontario and OLG's interpretation of the Agreement was commercially unreasonable, "non-purposive and technical", and based on inconceivable assertions.

The Court rejected Ontario and OLG's argument that the appeal judge failed to read the Agreement as a whole. The Court found that the appeal judge considered the non-derogation clause and was not required to consider the final account clause, thereby reading the Agreement as a whole.

The Court rejected Ontario and OLG's argument that the appeal judge ignored the entire agreement clause and allowed extrinsic evidence to overwhelm the words of the Agreement. The Court found that an entire agreement clause alone did not prevent the appeal judge from considering admissible evidence of the surrounding circumstances at the time of contract formation.

Finally, the Court rejected Ontario and OLG's argument that, in the alternative, the appeal judge erred in awarding damages. The First Nations Partnership was entitled to expectation damages. In this case, expectation damages constituted 1.7% of all gaming revenue, non-gaming revenue and comps.

(3) Not addressed

The Court declined to address the honour of the Crown issue on the facts of this case for two reasons. First, the appeal judge expressly noted that the comments on the honour of the Crown were obiter. Second, the appeal judge did not err in dismissing the appeal based on the principles of contractual interpretation.

MDS Inc. v. Factory Mutual Insurance Company, 2021 ONCA 594

[Thorburn, Feldman, Harvison Young, J.A]

Counsel:

P. J. Pape, D. E. Liblong, S. Chaudhury and C. Senese, for the appellant, Factory Mutual Insurance Company

B. J.E. Brock, Q.C., for the respondents, MDS Inc. and MDS (Canada) Inc.

G. A. Smith and N. Bombier, for the intervener, Insurance Bureau of Canada

facts:

This appeal is about whether the insurer appellant, Factory Mutual Insurance Company ("FM Global"), is required to provide insurance coverage for losses arising from an unplanned shutdown of the Atomic Energy of Canada Limited ("AECL") Nuclear Research Universal ("NRU") reactor located in Chalk River, Ontario on May 14, 2009.

FM Global issued the owner of the reactor, MDS, an all-risk insurance policy which covers all risks of physical loss or damage to property and contingent time element coverage resulting from a supplier's business interruption ("the Policy").

The Policy excludes coverage for losses caused by "corrosion". The term "corrosion" is not defined. The Policy includes an exception from this exclusion for resulting "physical damage not excluded by this Policy" at specified locations. The parties agree that the NRU constitutes property of the type insured under the Policy's extended coverage. The Policy limit for the relevant coverage (the Contingent Time Element Extended coverage) is US$25,000,000.

On May 14, 2009, heavy water containing radioactive tritium was discovered leaking through the calandria wall of the NRU reactor. The corrosion, in the words of a research scientist, was "surprising" and "not expected". The reactor was shut down for 15 months to repair the leak. The leak was caused by corrosion. As a result of the shutdown, MDS lost its supplier of radioisotopes and lost profits of approximately CA$121,248,000.

On May 21, 2009, MDS submitted a claim for lost profits. FM Global denied coverage on August 4, 2009, on the basis that this claim was excluded under the Policy.

The central issues at trial were (i) the interpretation of the corrosion exclusion in the Policy and (ii) whether MDS' business losses arising from the shutdown of the NRU reactor are payable pursuant to the exception to the exclusion for physical damage caused by corrosion.

The trial judge held that (i) the term "corrosion" is ambiguous and should be interpreted in light of the dictionary definition of the term as modified by the "reasonable expectations of the parties", (ii) the exclusion does not apply to unanticipated and "fortuitous corrosion"; it only applies to "non-fortuitous anticipated corrosion"; and (iii) the exception to the "corrosion" exclusion for "physical damage" should be interpreted broadly to include not just physical damage caused by the corrosion but economic loss caused by the inability to use the insured property during the shutdown.

The trial judge therefore concluded that MDS' losses were covered under the Policy and, in addition to damages up to the Policy's limit, MDS should be awarded prejudgment interest at the rate of the company's actual cost of borrowing, including compound interest at 5.14 percent, as she held this was "just compensation". Prejudgment interest was assessed at US$14,821,338. MDS was awarded US$39,821,338 (the US$25,000,000 allowable limit plus interest in the amount of US$14,821,338) which, at the date of the release of the decision, amounted to CA$56,406,911.

issues:

(1) What is the standard of review to be applied to the interpretation of this insurance Policy and the award of pre-judgement interest?

(2) The following issues regarding the proper Interpretation of the Policy:

a) Did the trial judge err in concluding that the term "corrosion" was ambiguous and should be interpreted to mean "the anticipated and predictable process of corroding"?

b) Did the trial judge err in finding that the exception to the exclusion for "physical damage" caused by corrosion in the Policy was ambiguous and should be interpreted to include loss of use?

(3) Did the trial judge err in awarding compound prejudgment interest at the rate of actual borrowing costs although this was not contemplated by the policy?

holding:

Appeal allowed.

reasoning:

(1) Correctness for the interpretation of this insurance policy. Palpable and Overriding error for the award of pre-judgment interest.

Typically, the interpretation of a contract attracts a deferential standard of appellate review. Correctness review only applies to extricable errors of law in the trial court's interpretation. Standard form contracts are an exception to the usual rule. The contract in question is a standard form policy, there was no negotiation of the terms of the Policy by the parties and the issues are of general importance to all insured parties who use this policy, therefore the standard of review is correctness.

The trial judge's decision to award prejudgment interest at a rate higher or lower than provided for in ss.128 and 129 of the Courts of Justice Act, R.S.O. 1990, is discretionary. The trial judge must take into account changes in market interest rates, the circumstances of the case, the amount claimed and recovered and other relevant considerations. The court will only interfere with the exercise of discretion if it was based on an error of law, a palpable and overriding error of fact, the consideration of irrelevant factors or the omission of factors that ought to have been considered, or the decision was unreasonable in the sense that it is not compatible with the judicial exercise of discretion. The standard of review applicable to this issue is palpable and overriding error.

(2)

The evidence of one party's subjective intention has no independent place in determining the parties' contractual intent. Standard form contracts of insurance should be interpreted consistently. Where the language of the disputed clause is unambiguous, effect should be given to the clear language of the policy read in the context of the policy as a whole. It is unnecessary to consider extrinsic evidence in order to interpret its terms. The words of the contract are given their ordinary meaning, not the meaning they might be given by persons versed in insurance law. However, where a policy provision is ambiguous, the rules of contract construction may be employed to resolve the ambiguity. A contractual provision is ambiguous if it is reasonably susceptible of more than one meaning. Extrinsic or parole evidence may be admitted to resolve ambiguity. If the general rules of construction fail to resolve the ambiguity, courts will construe the contract contra proferentum, and interpret coverage provisions broadly and exclusion clauses narrowly.

(a) Yes

The Policy does not define corrosion. Although the contract is an all-risk policy that covers all claims save for those that are specifically excluded, this does not mean that the interpretation of clear terms should be changed. All-risk policies are, by their grant, limited to cover only fortuitous or unanticipated losses. The trial judge erred in concluding that fortuitous or unanticipated corrosion is covered by the Policy and should have been interpreted in a manner consistent with the Policy as a whole and the surrounding circumstances, including the purpose of the coverage, the nature of the relationship it creates and the industry in which it operates.

(b) Yes

The insurer has the onus to establish that one of the exclusions to coverage applies. If an exclusion applies, the onus then shifts back to the insured to prove that an exception to the exclusion applies. Although the leak resulted in the shutdown, the shutdown itself was not resulting from physical damage. To read in coverage for "loss of use" distorts the plain language of the Policy and is out of step with the case law. The Court of Appeal found that the exception to the corrosion exclusion for resulting physical damage includes physical damage, but not damage resulting from loss of use. While economic loss may result from physical damage, it is not physical damage.

(3) Not addressed.

Given the conclusion of no coverage in this case, there was no need to address the issue of the rate of prejudgment interest awarded. However, had the Court decided otherwise, it would not have interfered with the trial judge's exercise of her discretion to award compound prejudgment interest. Courts of equity have always exercised the power to award compound interest whenever there is wrongful detention of money that ought to have been paid and which the defendant uses in its business. The trial judge concluded that it was reasonable to award prejudgment interest at the actual cost of borrowing and the Court of Appeal found no error in principle in the exercise of her discretion on this issue.

SHORT CIVIL DECISIONS

Drywall Acoustic Lathing and Insulation, Local 675 Pension Fund v. Barrick Gold Corporation, 2021 ONCA 596

[Hoy, Brown and Thornburn JJ.A.]

Counsel:

J.P. Rochon, P.R. Jervis and G. Nayerahmadi, for the appellants

K.E. Thomson, L. Sarabia and S.G. Frankel, for the respondents

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be ought about your specific circumstances.

Canada: Court Of Appeal Summaries (August 30 – September 3, 2021) Blaney's Appeals

John Polyzogopoulos Blaney McMurtry LLP 416.593.2953 Email

Table of Contents

CIVIL DECISIONS

Counsel:

facts:

issues:

holding:

reasoning:

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facts:

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reasoning:

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facts:

issues:

holding:

reasoning:

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facts:

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SHORT CIVIL DECISIONS

Counsel:

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Canada: Court Of Appeal Summaries (August 30 – September 3, 2021)
Blaney's Appeals

John Polyzogopoulos
Blaney McMurtry LLP
416.593.2953 Email