Lerners' Monthly Lists
January 2017
Top 5 Civil Appeals from the Court of Appeal
1. Excalibur Special Opportunities LP v. Schwartz Levitsky Feldman LLP, 2016 ONCA 916 (Cronk, Blair and MacFarland JJ.A.), December 6, 2016

2. Carter v. Intact Insurance Company, 2016 ONCA 917 (Laskin, Pepall and Brown JJ.A.), December 6, 2016

3. Canadian Imperial Bank of Commerce v. Deloitte & Touche, 2016 ONCA 922 (Hoy A.C.J.O., Benotto and Huscroft JJ.A.), December 8, 2016

4. Greenberg v. Nowack, 2016 ONCA 949 and 2363523 Ontario Inc. v. Nowack, 2016 ONCA 951 (Strathy C.J.O., LaForme and van Rensburg JJ.A.), December 16, 2016

5. Awan v. Levant, 2016 ONCA 970 (Feldman, Simmons and Rouleau JJ.A.), December 22, 2016     
1. Excalibur Special Opportunities LP v. Schwartz Levitsky Feldman LLP, 2016 ONCA 916 (Cronk, Blair and MacFarland JJ.A.), December 6, 2016
In this case, a majority of the Court of Appeal certified a global class action despite 98% of the proposed class members being non-residents of Ontario.
Excalibur Special Opportunities LP (“Excalibur”) was one of 57 investors (50 of which were American) that lost money in a high-risk investment in an American corporation, Southern China Livestock International Inc. (“Southern China”). Excalibur invested US $950,000.00 after reviewing a Private Placement Memorandum that included an audit report prepared by the defendant, a Montreal and Toronto based accounting firm, “page for page, word for word.” However, approximately one year later, Southern China filed a mandated report that revealed its shares were worthless. As the motion judge described it, “Southern China Livestock went dark, and its shares and warrants are now worthless”.
Excalibur sought to certify a class action against the defendant accounting firm for negligence and negligent misrepresentation over the audit report. The motion judge dismissed Excalibur’s certification motion for two reasons.

First, the class definition criterion under s. 5(1)(b) of the Class Proceedings Act, 1992 was not satisfied. Although Excalibur and the defendant were both based in Ontario, the remaining proposed plaintiffs were non-residents of Ontario, Southern China was based in the United States, and the transactions were governed by American law. As a result, the motion judge concluded that it would not be appropriate to certify a global class action as there was no real and substantial connection to Ontario.
Second, the preferable procedure criterion under s. 5(1)(d) was not met. The representative plaintiff had a nearly US $1,000,000.00 claim, and if it joined with the other top 10 investors, their combined claim would be worth approximately US $3,000,000.00. The motion judge held this would justify the risk of litigation and have the same corrective effect as a class action without the additional procedural hurdles. Joinder was therefore a more appropriate mechanism for resolving the plaintiffs’ claims.
Excalibur appealed to the Divisional Court. The majority deferred to and affirmed the motion judge’s decision. However, in dissent, Sachs J. held: (a) the motion judge erred in failing to find a real and substantial connection between Ontario and the proposed action; and (b) that error informed his preferable procedure analysis, in which he fell into further error by failing to conduct the comparative access to justice analysis mandated by the Supreme Court of Canada in AIC Limited v. Fischer, 2013 SCC 69.

Excalibur appealed with leave to the Court of Appeal. The majority allowed the appeal, set aside the order of the Divisional Court, and substituted an order certifying the action as a class proceeding.

Justice MacFarland (for the majority) held that the motion judge erred in law in failing to assume jurisdiction over the global class for three reasons. First, the test to determine whether to take jurisdiction over foreign class members begins with applying the real and substantial test, on the principles set out in Club Resorts Ltd v. Van Breda, 2012 SCC 17. The motion judge erred by considering as an independent factor whether it would be reasonable for the non-resident class members to expect that their rights would be determined by a foreign court.

Second, the motion judge compounded that error by finding that an Ontario court should approach the issue of taking jurisdiction with restraint. Justice MacFarland found that considerations of order and fairness were not seriously challenged in this case. The identity of all class members but one was known and they could be notified directly about the claim and their opt-out options. This was not a situation where there were unknown and indeterminate class members.

Finally, the motion judge mischaracterized the nature of the claim Excalibur sought to certify and, in doing so, fell into error in his jurisdictional analysis. The motion judge improperly characterized the nature of the proposed action by focusing on the transaction in the United States instead of the defendant’s preparation of the audit report in Ontario. The claim was an action in auditor’s negligence against an Ontario auditor who performed the work out of its Ontario office. Justice MacFarland held that if the motion judge properly characterized the claim, then he would have concluded there was a real and substantial connection to Ontario.

The majority also held that the preferability requirement was met. It concluded that if the motion judge had conducted the access to justice analysis through the lens that Ontario had a real and substantial connection to the investors’ claims, he could not have concluded that joinder was a preferable mechanism. Justice MacFarland also held that: (a) a plaintiff is not required to establish that a class proceeding is necessary – rather than preferable to other methods – to obtain access to justice; and (b) joinder is not the “default” procedure against which the merits of a class proceeding should be assessed.

Justice Blair dissented. He held that: (a) the motion judge did not err in law and did not commit any palpable and overriding error in refusing to certify the proposed global class action or in determining that a class proceeding was not the preferable procedure; and (b) the motion judge’s determinations were entitled to deference and should not be overturned simply because judges at a different level might have arrived at different conclusions.

Justice Blair held that the motion judge accepted that Ontario had jurisdiction simpliciter and therefore did not fail to find a real and substantial connection between Ontario and the subject matter of the dispute in the Van Breda sense. In other words, in the view of Blair J.A., the motion judge accepted that several of the presumptive factors establishing a real and substantial connection between the jurisdiction and the subject matter of the proceeding were present; but he nevertheless found that, in spite of the fact that the court had jurisdiction, it should not assume jurisdiction over the non-resident class members.

Viewed in this manner, Blair J.A. saw no error in the motion judge’s approach to considering whether to assume jurisdiction over a global class action (i.e. using a restrained approach and considering whether the proposed non-resident class members would reasonably expect that their rights would be dealt with in the Ontario courts) or in his broader characterization of the subject matter of the proposed class proceeding for the purpose of addressing the reasonable expectations of the proposed non-resident class members.

Because Blair J.A. was not persuaded that the motion judge erred in arriving at his decision not to certify a global class, the motion judge’s analysis of the preferable procedure issue could not be tainted by viewing the preferable procedure analysis through the wrong lens. Justice Blair also did not accept that the motion judge failed to conduct the comparative analysis mandated by Fischer. Therefore Blair J.A. held that absent any error in law or palpable and overriding error on a question of fact or of mixed fact and law, it was not for an appellate court to re-do the preferable procedure analysis and substitute its own views for those of the motions judge, whose decision was entitled to deference.

2. Carter v. Intact Insurance Company, 2016 ONCA 917 (Laskin, Pepall and Brown JJ.A.), December 6, 2016

The appellants owned an income property in Ottawa. The property was comprised of one, two and three storey buildings containing fifteen residential units and thirteen commercial units. When a fire caused significant damage to the property, the appellants decided to demolish the entire site and build an eight and a half storey condominium.

The buildings were insured by the respondent, Intact Insurance Company, from whom the appellants had purchased replacement cost and building by-law coverage. The appellants sought compensation under those extensions of coverage. For its part, Intact declined to pay the replacement cost because the proposed condominium was not a “replacement”. It refused to pay for building code upgrades for a similar reason. Instead, Intact paid the appellants the cash value of the damaged property.

The appellants began to build the condominium and sued Intact for replacement cost and an amount for building code upgrades. They subsequently brought a motion under Rule 21 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 to determine the coverage issues.

Before the motion judge, the appellants argued that they were entitled to replacement cost no matter what they built because “replacement”, as defined in the policy, did not require that their new property be of “like kind and quality”. Alternatively, they argued that their proposed condominium was of “like kind and quality”.

The motion judge rejected both arguments. He interpreted the policy to mean that replacement cost is only available if the insured’s property is of like kind and quality. He also found that the proposed condominium was not of like kind and quality. The appellants were therefore entitled only to the actual cash value of their damaged property. The motion judge did not address the by-law coverage issue.

The appeal turned on the interpretation of the definitions of “replacement” and “replacement cost”. The Court of Appeal held that the motion judge was correct in his interpretation of the appellants’ insurance policy. The appellants were entitled to replacement cost only if they replaced their insured property with a new property of like kind and quality. And, as they did not propose to do so, they were entitled only to the actual cash value of their insured property.

The insurance policy defined “replacement” and “replacement cost” as follows:

(a) "replacement" includes repair, construction or re-construction with new property of like kind and quality, and

(b) "replacement cost" means whichever is the least of the cost of replacing, repairing, constructing or re-constructing the property on the same site with new property of like kind and quality and for like occupancy without deduction for depreciation.

The appellants submitted that the “replacement” definition was the “how” and the “replacement cost” definition the “how much”. They argued that the word “includes” in the definition of “replacement” meant that they could choose to replace their damaged buildings by means other than repair, construction or reconstruction. In their view, they could replace their insured property with a totally different building (i.e. a condominium) and still be entitled to replacement cost. The appellants argued that the phrase “of like kind and quality” modified the enumerated methods of replacement – repair, construction or reconstruction – but did not modify an unenumerated replacement, such as a condominium.

Justice Laskin (writing on behalf of the Court of Appeal) held that the definition of “replacement” in the appellants’ insurance policy was unambiguous and that the motion judge correctly gave effect to its plain and ordinary meaning. He held that a “replacement” was needed to trigger entitlement to “replacement cost”. And the plain and ordinary meaning of the definition of “replacement” in the policy was that to be entitled to “replacement cost”, the replacement, no matter how it is effected, must be of like kind and quality.

While the Court of Appeal agreed with the appellants that the replacement can be effected by a method other than repair, construction or reconstruction, the phrase “of like kind and quality” modified or anchored all methods of replacement. In the view of Laskin J.A., it would be illogical to interpret the definition of “replacement” to mean that a replacement by repair, construction or reconstruction must be of like kind and quality, but a replacement by any other method need not be.

Justice Laskin also noted that indemnity is a main objective of insurance and that coverage provisions should be interpreted with that goal in mind. Although replacement cost coverage can go beyond mere indemnification of an insured (i.e. it allows for a measure of betterment), allowing replacement cost only where the replacement is of like kind and quality to the damaged or destroyed property better reflects the indemnity principle.

Entitlement to an amount for building code upgrades was held to parallel entitlement to replacement cost.

The appeal was dismissed.

3. Canadian Imperial Bank of Commerce v. Deloitte & Touche, 2016 ONCA 922 (Hoy A.C.J.O., Benotto and Huscroft JJ.A.), December 8, 2016
In 1998, an accounting fraud was discovered at a publicly traded company, Philip Services Corp. (“Philip”). As a result, Philip’s financial statements were materially restated. Philip’s financial collapse followed.
Canadian Imperial Bank of Commerce and High River Limited Partnership sued Deloitte and Deloitte-Verein (the international association of accounting firms of which Deloitte was the Canadian member) on their own behalf and on behalf of other lenders (the “Original Lenders”) – who, collectively, advanced approximately US $1,000,000,000 to Philip under a 1997 US $1,500,000,000 credit agreement (the “Credit Agreement”) – and their successors and assigns (collectively the “Lenders”).

The Lenders, whose action was certified as a class action, sought damages for negligence and reckless or negligent misrepresentation. Philip, by its receiver and manager, sued Deloitte for breach of contract and professional negligence. Deloitte filed a third party claim against certain directors and officers of Philip for contribution and indemnity.

The Lenders and Philip alleged that Deloitte gave unqualified opinions in connection with its audits of Philip’s consolidated financial statements for the financial years ending December 31, 1995 and 1996. The Lenders pleaded that they relied on those statements when entering into the Credit Agreement and that they would not have entered into the agreement and advanced the funds had the statements reflected Philip’s true financial position.

In its Statement of Defence, Deloitte denied that the Original Lenders and Philip relied on the financial statements. It also denied that one of the purposes of its audit was to either: (a) permit the Original Lenders to make investment decisions in respect of Philip; or (b) to assist Philip in charting its course for the company.

The motion judge granted partial summary judgment, dismissing the Lenders’ claim in negligent misrepresentation. The motion judge held that “the spectre of indeterminate liability” negated the prima facie duty of care that Deloitte owed to the Lenders.

The motion judge further held that the duty of care issue was discrete from the issues that will be decided at trial. Philip’s breach of contract claim did not involve establishing a duty of care, nor did the Lenders’ claim in reckless misrepresentation. He further held that the “forensic machinery” of a trial will not provide a better appreciation of the duty of care issue than achieved on the summary judgment motion.

As a result, only the Lenders’ remaining claim for reckless misrepresentation, Philip’s claims, and Deloitte’s third party claims against certain of Philip’s directors and officers for contribution and indemnity, would be determined at trial.

The Court of Appeal disagreed that there was no risk of duplicative or inconsistent findings and that summary judgment was advisable in this instance.

While Hoy A.C.J.O. acknowledged that the motion judge correctly stated that neither the breach of contract claim nor the claim of reckless misrepresentation involved the establishment of a duty of care, she noted that these claims arose out of the same factual matrix as the Lenders’ negligence claim. And the facts found by the motion judge in relation to the Lenders’ negligence claim will likely be at issue in the trial of their claim for reckless misrepresentation and Philip’s claims. Accordingly, there was a real risk of duplicative or inconsistent findings.

Justice Hoy observed that the summary judgment motion – while complex and heard at considerable expense to the parties – did not eliminate or even materially shorten the trial, which is scheduled for later this year. She also noted that the evidence of third party directors and officers and other members of the Deloitte audit team will be available at the trial, possibly providing “a more accurate factual matrix” on which to determine whether Deloitte owed the Lenders a duty of care. In the context of the litigation as a whole, partial summary judgment was not advisable.

Justice Hoy also disagreed with some of the motion judge’s analysis with respect to indeterminate liability negating Deloitte’s prima facie duty of care to the Lenders. Although her determination that the Lenders’ negligence claim ought to proceed to trial made it unnecessary to address the issue, Hoy A.C.J.O. provided some guidance on the matter, noting that the overriding question is whether indeterminate liability can be shown not to be a concern on the facts of the particular case.

The appeal was allowed.
4. Greenberg v. Nowack, 2016 ONCA 949 and 2363523 Ontario Inc. v. Nowack, 2016 ONCA 951 (Strathy C.J.O., LaForme and van Rensburg JJ.A.), December 16, 2016

In these two related appeals, the Court of Appeal considered the test for civil contempt as set out by the Supreme Court in Carey v. Laiken, 2015 SCC 17. Both appeals arose from attempts to enforce judgments against Steven Nowack.

Joseph and Pepi Greenberg commenced an action against Nowack claiming the return of funds which Nowack had purported to invest on their behalf. The action was settled for $3.7 million. The settlement required Nowack to make payments to the Greenbergs in eight installments and to consent to judgment in the event of default. After Nowack defaulted, the Greenbergs obtained a judgment in the amount of $3,552,000.

Greenberg v. Nowack arose out of a contempt motion brought in the course of the Greenbergs’ attempt to enforce the judgment. The motion judge held that the contempt motion failed each branch of the test for contempt. The Greenbergs appealed.

2363523 Ontario Inc. separately obtained default judgment against Nowack in an action for fraud, conversion and breach of fiduciary duty. The judgment, which was obtained in Nowack’s presence, ordered him to pay $3,000,000 in damages and $22,000 in costs. The judgment also required him to provide an accounting and produce documents. Nowack brought a motion to set aside the judgment and was examined in the context of that motion. Although the motion was ultimately abandoned, Nowack gave a number of undertakings during his examination.

2363523 Ontario Inc. v. Nowack arose out contempt proceedings related to 2363523 Ontario Inc.’s efforts to enforce the default judgment. Nowack appealed an order finding him in contempt and a subsequent order finding that he had not purged his contempt as well as sentencing him to 30 days in prison.

Writing for the Court of Appeal in both decisions, van Rensburg J.A. considered the three-part test for civil contempt as outlined by the Supreme Court in Carey v. Laiken. In order to establish civil contempt:

1. The order alleged to have been breached must state clearly and unequivocally what should and should not be done;

2. The party alleged to have breached the order must have had actual knowledge of it; and

3. The party allegedly in breach must have intentionally done the act that the order prohibits or intentionally failed to do the act the order compels.

Each of these elements must be proven beyond a reasonable doubt. However, even where the three-part test has been satisfied, a judge has discretion to decline to make a contempt finding where it would be unjust to do so, such as where the alleged contemnor has acted in good faith to take reasonable steps to comply with the relevant court order.

In Greenberg v. Nowack, van Rensburg J.A. held that the first two elements of the test were clearly met. The impugned orders clearly and unambiguously required Nowack to provide an accounting to the Greenbergs and to disclose documentation pertaining to his financial affairs. Nowack also had actual knowledge of the requirements of the orders, which were made in his presence.

Justice van Rensburg found that it was therefore difficult to understand the motion judge’s conclusion that the contempt motion failed all three prongs of the test for contempt. Indeed, the motion judge did not explain his conclusion other than to state that he was unwilling to find contempt in the context of the enforcement of a civil judgment. Citing the Court’s decision in Bell ExpressVu Limited Partnership v. Torroni, 2009 ONCA 85, van Rensburg J.A. emphasized that a motion judge must, at a minimum, turn his or her mind to the Carey v. Laiken test and properly apply its elements.

Justice van Rensburg concluded that the motion judge did not properly turn his mind to the elements of the test for civil contempt. She therefore allowed the Greenbergs’ appeal, set aside the order dismissing the contempt motion, and remitted the matter back to the Superior Court of Justice for determination by a different judge.

In 2363523 Ontario Inc. v. Nowack, van Rensburg J.A. rejected Nowack’s submission that due to the serious consequences flowing from a finding of contempt and the onus of proof beyond a reasonable doubt, the motion judge was required to specifically articulate the three-part test for civil contempt and the burden of proof in his reasons. While a judge deciding a contempt motion must turn his or her mind to the test for contempt and apply the elements correctly, Torroni does not require the judge to set out the test expressly in the reasons.

In van Rensburg J.A.’s view, the motion judge understood and correctly applied the test for contempt. Moreover, the elements of contempt were clearly made out on the evidence beyond a reasonable doubt. There was no dispute about the clarity of the orders and what they required. Nor was there any dispute that their terms had come to the appellant’s attention. The only issue was whether the appellant had intentionally failed to perform the acts the orders compelled, or whether he had a reasonable explanation for his non-compliance. Justice van Rensburg found: (a) there was no question that Nowack failed to answer undertakings, for which no excuse was offered; and (b) the motion judge did not err by not accepting Nowack’s explanation for failing to comply with the balance of what he was required to do.

The appeal in 2363523 Ontario Inc. v. Nowack was therefore dismissed.
5. Awan v. Levant, 2016 ONCA 970 (Feldman, Simmons and Rouleau JJ.A.), December 22, 2016

The appellant, Ezra Levant, published posts to his online blog regarding a June 2008 hearing before the British Columbia Human Rights Tribunal. The hearing arose out of a protracted dispute between Maclean’s magazine and the respondent law student, Khurrum Awan, regarding an October 2006 cover story entitled “The future belongs to Islam”.

The appellant wrote a series of posts entitled “Awan the liar”, in which he stated that the respondent was lying about whether he and his colleagues asked Maclean’s to publish a response to the article from a mutually acceptable author. The posts also stated (among other things) that the respondent was engaged in a “shakedown” of Maclean’s and was one of a group of anti-Semites. The respondent served a libel notice and later commenced a defamation action.

The trial judge found that the appellant’s blog posts were libellous of the respondent. She further found that they were motivated by malice, negating any possible defences that might have been available to the appellant. She awarded the respondent $50,000 in general damages and $30,000 in aggravated damages.

The appellant appealed the finding that his blog posts were libellous and the quantum of the damages award. The appeal was dismissed.

Writing for the Court of Appeal, Feldman J.A. rejected the appellant’s submission that less deference is owed to a trial judge’s findings of fact when the Charter right to freedom of expression is engaged. As the Supreme Court explained in Grant v. Torstar Corp., 2009 SCC 61, the protection of the right to free speech is not intended to be at the expense of a wrongfully defamed person’s ability to obtain a civil remedy for libel. These two rights “live together” under our law.

The appellant asserted that the trial judge erred in: (a) characterizing his statement that the respondent was a liar as one of fact rather than opinion; and (b) holding that he had to prove that the alleged lie was made deliberately by the respondent.

Justice Feldman rejected these submissions. She found that it was open to the trial judge to conclude that the appellant’s characterization of the respondent as a liar was stated as a matter of fact, not comment. She properly noted that the distinction between what is fact and what is comment must be determined from the perspective of a “reasonable reader”. In any event, there was no basis for the court to interfere with the trial judge’s finding that the appellant was motived by malice. As a result, any potential defence of fair comment was defeated.

The Court of Appeal also held that notwithstanding the trial judge’s error in her characterization of the appellant’s statement that the respondent was an anti-Semite as a statement of fact rather than opinion, the defence of fair comment again did not apply because the statement was made with malice.

On the issue of malice, the Court of Appeal held while the appellant may believe the trial judge misunderstood his motives, this was a finding of fact based on her review of the record and she was entitled to make it.

The Court declined to interfere with the trial judge’s award of general and aggravated damages. Justice Feldman noted that a trial judge’s assessment of damages is afforded significant deference on appeal. Moreover, the trial judge made a relatively modest award of general damages.

With respect to aggravated damages, Feldman J.A. acknowledged the potential for overlap. Nevertheless, she held that the trial judge made no error in awarding $80,000 to fully compensate the respondent for the damages he suffered as a result of the malicious conduct of the appellant, whether the amount included for aggravated damages was viewed separately or as part of the general damages award.

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