Court Of Appeal Summaries (October 30 – November 3) - Civil Law

Good afternoon.

Following are this week's summaries of the Court of Appeal for Ontario for the week of October 30, 2023.

In Cummins Estate v. Milton (Town), the appellants unsuccessfully sought a declaration that they were entitled to use their farm land for purposes other than agriculture. The Town was unsuccessful in getting a finding of contempt against the appellants for breaching an old 1994 order restraining them from dumping materials on the land. However, the application judge declined to award costs to the appellants. The appeal on both issues was dismissed.

In 25162116 Ontario Ltd. (Numbrs) v. Abledocs Inc., another prominent law firm was refused an order that it be removed as solicitors of record. This was a debtor-creditor case where the merits of the appeal were questionable and the respondent had good reason to seek to lift the automatic stay of its money judgment pending appeal and to seek security for costs of the appeal before the bank could put the appellant into receivership. The appellant's law firm was required to remain on the record to argue this motion even though it was not being paid and the relationship with the appellant had broken down as a result.

In Steinberg v Adderley, an MVA claim was dismissed after the plaintiff was found in contempt for not travelling from Thunder Bay to attend defence medical examinations in Toronto, in breach of two separate court orders. The Court dismissed the appeal.

In Trillium Mutual Insurance Company v Emond, the respondents' home was severely damaged by a flood. Their insurer, Trillium, acknowledged coverage, but disputed costs related to the rebuilding of the home. The application judge found that under the Policy, the Es were entitled to recover the cost of rebuilding their home at the same location and with materials of similar quality using current building techniques. The application judge did not enforce the exclusion that provided that the insurer did not have to cover any increased costs of construction resulting from the operation of any new rule, regulation, by-law, or ordinance that required the construction of a building materially different from the one that had been destroyed. The Court allowed the appeal and enforced the exclusion.

In Leeder Automotive Inc. v. Warwick, the Court dismissed an appeal from an application judge's order that found that the buyer had breached a share purchase agreement entered into pursuant to compulsory buy-sell provisions contained in a unanimous shareholders' agreement.

Other topics this week included the dismissal of two actions as an abuse of process and an appeal of a contempt order.

Wishing everyone an enjoyable weekend.

John Polyzogopoulos
Blaney McMurtry LLP
416.593.2953 Email

Ines Ferreira
Blaney McMurtry LLP
416.593.2953 Email

Civil Decisions

Cummins Estate v. Milton (Town), 2023 ONCA 721

Keywords: Municipal Law, Land Use Planning, Zoning By-laws, Legal Non-Conforming Uses, Planning Act, RSO. 1990, c P 13, s 34(9), Carey v Laiken, 2015 SCC 17

25162116 Ontario Ltd. (Numbrs) v. Abledocs Inc., 2023 ONCA 727

Keywords: Contracts, Debtor-Creditor, Bankruptcy and Insolvency, Receiverships, Civil Procedure, Appeals, Removal of Lawyer of Record, Rules of Civil Procedure, Rule 15.04(4), R. v. Cunningham, [2010] 1 S.C.R. 331, KingSett Mortgage Corporation v. 30 Roe Investments Corp., 2023 ONCA 196, Tremblay c. Banque de Montréal, 2023 QCCA 691

Steinberg v. Adderley, 2023 ONCA 725

Keywords: Torts, MVA, Civil Procedure, Orders, Enforcement, Contempt, Dismissal of Action, Rules of Civil Procedure, R 60.12, Carey v Laiken, 2015 SCC 17, Susin v Susin, 2014 ONCA 733

Leeder Automotive Inc. v. Warwick, 2023 ONCA 726

Keywords: Contracts, Interpretation, Repudiation, Corporate Law, Rights of First Refusal, Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, Flintoff v. Crown William Mining Corporation, 2016 ONCA 86, Remedy Drug Store Co. Inc. v. Farnham, 2015 ONCA 576, Spirent Communications of Ottawa Ltd. v. Quake Technologies (Canada) Inc., 2008 ONCA 92, Place Concorde East Limited Partnership v. Shelter Corporation of Canada (2006), 270 D.L.R. (4th) 181 (Ont. C.A.), Hongkong Fir Shipping Co. Ltd. v. Kawasaki Kisen Kaisha Ltd., [1962] 1 All E.R. 474 (C.A.), Blackmore Management Inc. v. Carmanah Management Corporation, 2022 BCCA 117, Western Larch Limited v. Di Poce Management Limited, 2013 ONCA 722, leave to appeal dismissed, [2014] S.C.C.A. No. 32, Mitsui & Co. (Canada) Ltd. v. Royal Bank of Canada, [1995] 2 S.C.R. 187, Barresi v. Jones Lang Lasalle Real Estate Services Inc., 2019 ONCA 884, Angela Swan, Jakub Adamski & Annie Na, Canadian Contract Law, 4th ed. (Toronto: LexisNexis Canada, 2018), Paul M. Perell, "Options, Rights of Repurchase and Rights of First Refusal as Contracts and as Interests in Land" (1991) 70 Can. Bar Rev. 1

Trillium Mutual Insurance Company v. Emond, 2023 ONCA 729

Keywords: Contracts, Insurance, Interpretation, Standard Form Contracts, Standard of Review, Conservation Authorities Act, R.S.O. 1990, c. C.27, s. 28, Insurance Act, R.S.O. 1990, c. I.8, Wigle v. Allstate Insurance Co. of Canada, 49 O.R. (2d) 101 (C.A.), Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, MacDonald v. Chicago Title Insurance Company of Canada, 2015 ONCA 842, RBC Travel Insurance Co. v. Aviva Canada Ltd. (2006), 82 O.R. (3d) 490 (C.A.), Sam's Auto Wrecking Co. Ltd. v. Lombard General Insurance Company of Canada, 2013 ONCA 186, Pilot Insurance Co. v. Sutherland, 2007 ONCA 492, Carter v. Intact Insurance Company, 2016 ONCA 917, Brkich & Brkich Enterprises Ltd. v. American Home Assurance Co., 8 B.C.L.R. (3d) 1 (C.A.), Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33, Roth v. Economical Mutual Insurance Company, 2016 ABCA 399, Allemand v. State Farm Ins. Cos. (2010), 160 Wn. App. 365, Fabian v. BCAA Insurance Corporation, 2022 BCSC 552, Valley Rubber Resources Inc. v. British Columbia (Minister of Environment, Lands & Parks), 2002 BCCA 524, Armadale Communications Ltd. v. Saskatoon (City) (1990), 90 Sask. R. 23 (Q.B.), Epp School District v. Park (Rural Municipality), [1936] 2 W.W.R. 331 (S.K.C.A.), Ainsley Financial Corp. v. Ontario (Securities Commission), 21 O.R. (3d) 104 (C.A.), Choukair v. Allstate Insurance, 2015 ONSC 4989, Cabell v. Personal Insurance Company, 2011 ONCA 105, Indemnity Insurance Co. of North America v. Excel Cleaning Service, [1954] S.C.R. 169, Foodpro National Inc. v. General Accident Assurance Co. of Canada (1988), 63 O.R. (2d) 288 (C.A.)

Short Civil Decisions

Brown v. Williams, 2023 ONCA 730

Keywords: Civil Procedure, Appeals, Removal of Lawyers of Record, Rules of Civil Procedure, r. 15.04, Rules of Professional Conduct, r. 3.7-1, 3.7-2, MacDonald Estate v. Martin, [1990] 3 S.C.R. 1235, R. v. Cunningham, [2010] 1 S.C.R. 331, KingSett Mortgage Corporation v. 30 Roe Investments Corp., 2023 ONCA 196, 1621730 Ontario Inc. v. Queen (Ontario), 2012 ONSC 604, Kovinich v. Kovinich (2008), 58 C.P.C. (6th) 78 (Ont. S.C.), Nicolardi v. Daley (2003), 34 C.P.C. (5th) 394 (Ont. S.C.), Johnson v. Toronto, [1963] 1 O.R. 627 (H.C.J.)

Rebello v. Bank of Nova Scotia, 2023 ONCA 734

Keywords: Civil Procedure, Abuse of Process, Costs

CIVIL DECISIONS

Cummins Estate v. Milton (Town), 2023 ONCA 721

[MacPherson, Lauwers and Copeland JJ.A.]

COUNSEL:

B. Romano and J. Nussbaum, for the appellants

K. Stavrakos, for the respondent

Keywords: Municipal Law, Land Use Planning, Zoning By-laws, Legal Non-Conforming Uses, Planning Act, RSO. 1990, c P 13, s 34(9), Carey v Laiken, 2015 SCC 17

FACTS:

In 1984, Mr. C purchased a 38-acre farm. The property was zoned "agricultural" in 1984 under Oakville zoning by-law 1965-136. There were two issues before the application judge. The first was whether to declare that the appellants could use an irregularly shaped 1.1-hectare portion of the property for several purposes including the outdoor storage of vehicles, machinery, and equipment, and the storage of heavy trucks and shipping containers. The application judge dismissed the appellants' application for a declaration that they have the right to use the property for the claimed purposes, with costs. The appellants sought an order on appeal reversing the dismissal of the declaration application and certain alternative relief.

The second issue before the application judge was the Town's motion for an order finding the appellants in contempt of a 1994 order restraining Mr. C from dumping materials on the property. The application judge dismissed the motion, but declined to order costs in favour of the appellants. The appellants sought leave to appeal the application judge's decision not to award them the costs of the contempt motion on which they were successful.

ISSUES:

Did the application judge err in dismissing the appellants' declaration application?
Did the application judge err in refusing to award the appellants the costs of the Town's contempt motion on which they were successful?

HOLDING:

Appeal dismissed.

REASONING:

[REASONING]

25162116 Ontario Ltd. (Numbrs) v. Abledocs Inc., 2023 ONCA 727

[Roberts J.A. (Motion Judge)]

COUNSEL:

J. K. Downing, for MT LLP, solicitors for the appellant
A. Beale, for the respondent
No one appearing for the appellant, although properly served

FACTS:

The appellant's solicitors, MT, had brought a motion for an order removing themselves as solicitors of record. Mr. D advised that MT had served the appellant with the motion materials, provided the appellant with the motion scheduling information, and indicated that the appellant was entitled to appear at the motion. The appellant did not appear.

On August 28, 2023, Reid J. granted judgment to the respondent for unpaid bookkeeping services rendered to the appellant. The appellant served its Notice of Appeal on September 26, 2023. On October 17, 2023, the respondent served its motion in writing returnable on October 31, 2023, for an order lifting the stay of enforcement of Reid J.'s judgment and granting security for its appeal costs. On October 18, 2023, MT served its motion returnable on October 30, 2023. On October 24, 2023, HSBC Bank Canada commenced its application to obtain a receivership order against the appellant returnable on November 2, 2023.

MT's main argument was that there had been a breakdown in the solicitor-client relationship because of the appellant's failure to pay all of MT's accounts. The respondent opposed the solicitors' removal prior to the disposition of its motion. It submitted that the appeal was frivolous, its motion had considerable merit and there was great urgency in having its motion heard prior to the hearing of the receivership application.

ISSUES:

Should the appellant's solicitors be granted an order removing them as solicitors of record?

HOLDING:

Order refused.

REASONING:

The court has the discretion to refuse to remove a law firm from the record. Considerations informing the exercise of this discretion include not only the interests of the law firm's client but also comprise factors independent of the solicitor-client relationship, such as the impact on the other parties to the proceedings and the effect on the administration of justice. In the circumstances of this case, the Court noted that the order caused no prejudice to MT or the appellant but obviated prejudice to the respondent and the administration of justice: Cunningham at para 50; Kingsett Mortgage Corporation at para 13,18; Tremblay at para 21.

This short delay had not placed MT or the appellant in any different position than if the law firm's motion were granted immediately. MT's motion record showed that the appellant's failure to satisfy MT's accounts was not new and was a longstanding issue between them. It was not until the appellant made a payment towards its significant outstanding indebtedness to the law firm that MT advised its client on September 21, 2023 that it would be "handling the appeal", and thereafter, on instructions from its client, filed a notice of appeal on the appellant's behalf. According to the affidavit evidence filed, this position changed immediately following service of the notice of appeal when, "based on a new determination" by the law firm that the appellant "would be unable to satisfy its significant account receivables", all work was to cease immediately. The appellant was advised that the law firm would be unable to act on this appeal unless the accounts receivable issues were cleared. The appellant was also advised of the respondent's motion in writing and of the deadline for the appellant to file responding materials by October 27, 2023. MT received no instructions from the appellant to file responding materials. The Court noted that the appellant had not filed any responding materials by last week's deadline. The appellant had not appeared on MT's motion.

The respondent's motion had considerable merit. It was unchallenged by any responding materials. The appeal principally contested the application judge's discretionary findings that seemed reasonable and grounded in the record, and, importantly, flowed to a large extent from the appellant's acknowledgment of its indebtedness to the respondent. The appellate deferential standard of review owed to the application judge rendered this appeal very difficult for the appellant. This was a straightforward collection matter. It was uncertain whether a stay would be imposed immediately on November 2, 2023, as a result of the receivership application. The Court concluded that the respondent should be given the opportunity to try to lift the stay and obtain security for its appeal costs. Any further delay or expense would have been very unfair to the respondent and would have frustrated the due administration of justice in this case.

Steinberg v. Adderley, 2023 ONCA 725

[van Rensburg, Hourigan and Favreau JJ.A.]

COUNSEL:

M. Stoiko, for the appellant

K. Commisso and A. W. Demeo, for the respondent

Keywords: Torts, MVA, Civil Procedure, Orders, Enforcement, Contempt, Dismissal of Action, Rules of Civil Procedure, R 60.12, Carey v Laiken, 2015 SCC 17, Susin v Susin, 2014 ONCA 733

FACTS:

The appellant was involved in a motor vehicle accident on October 29, 2011. He commenced his action in January 2013.

In support of his claim, in 2017, the appellant's counsel served numerous expert medical reports. In response, the respondent's counsel scheduled two medical examinations in Toronto for November 2018. The appellant, through his counsel, originally agreed to attend these medical examinations. However, in September 2018, his counsel cancelled the examinations stating that, for medical reasons, the appellant was not able to travel to Toronto. The respondent brought a motion to compel the appellant to attend the medical examinations. Shaw J. made an order requiring the appellant to attend medical examinations in Toronto.

The appellant brought a subsequent motion seeking to set aside Shaw J.'s order on the basis of COVID-19. The motion judge found that there was an insufficient evidentiary basis for the appellant's position that he should not be required to travel to Toronto due to COVID-19. Despite this second order, the appellant refused to attend the medical examinations.

The respondent brought a motion for contempt. In response, the appellant brought a cross-motion seeking an order that he was not in contempt and that the medical examinations should take place in Thunder Bay. The appellant continued to take the position that he should not be compelled to travel to Toronto because of his medical condition. His evidence on the motion consisted of an affidavit by his chiropractor stating that the appellant's condition had worsened since 2017 and that long-distance car travel could pose a risk to his life.

The motion judge rejected the appellant's position, finding that the appellant's evidence did not establish that his condition had worsened since the orders made in 2021 and 2022, nor did it establish that he could not travel by air or by train. He also found that the appellant's attempt to move the medical examinations to Thunder Bay was an improper collateral attack on the court's two previous orders.

The motion judge granted the respondent's motion for contempt.

The motion judge also decided that it was an appropriate remedy to dismiss the action for several reasons, including that the appellant "will never travel to the GTA as ordered to attend defence medicals no matter how many more chances he is given to purge his contempt" and that his "paradoxical behaviour" of seeking a large monetary award while refusing to comply with the court's clear orders was contemptuous conduct that should not be rewarded and should result in the action being dismissed.

ISSUES:

Did the motion judge err in granting the respondent's motion for contempt
Did the motion judge err in ruling that that there was no change in circumstances justifying the appellant's failure to comply with orders?
Did the motion judge err in dismissing the action?

HOLDING:

Appeal dismissed.

REASONING:

There was no error in the motion judge's finding of contempt. It was clear from the record that the appellant deliberately failed to comply with two previous court orders. The motion judge's finding of contempt was well-supported by his finding that the appellant's conduct showed that he was aware of the orders, that their terms were clear, that he deliberately chose not to comply with them, and that he had no intention of complying with them in the future.

The Court also rejected the appellant's argument that the motion judge should have found that there was a change in circumstances justifying the appellant's failure to comply with the orders. The motion judge rejected this position based on his review of the evidence. His evidentiary findings were entitled to deference and were supported by the record. The chiropractor's evidence, even if it was admissible as expert evidence, referred to the appellant's condition worsening since 2017 but did not establish a change in circumstances since 2022.

Further, there was no error in the motion judge's decision that the appropriate penalty in this case was to dismiss the action. The penalty for a finding of contempt is discretionary and entitled to deference. The penalty in this case was consistent with the court's powers under Rule 60.12 of the Rules of Civil Procedure. It was appropriate to dismiss the action without giving the appellant another opportunity to attend the medical examinations.

Leeder Automotive Inc. v. Warwick, 2023 ONCA 726

[Trotter, Sossin and Copeland JJ.A.]

COUNSEL:

A. Goldenberg and G. Ringkamp, for the appellants

H. Book and W. McLennan, for the respondent

FACTS:

The appellants, Leeder Automotive Inc. and 2786818 Ontario Inc. (collectively, "Leeder") and the respondent, Mr. W, entered into a share-purchase transaction pursuant to provisions of a unanimous shareholders' agreement ("USA").

Under the provisions of the USA, Mr. W indicated his intention to sell his shares to Leeder under its right of first refusal provided for in the USA (Article 8). Leeder agreed to purchase his shares. Having invoked the buy-sell mechanism, the requirements of Article 12, the valuation provision, were triggered. However, the relationship between Mr. W and Leeder's CEO, J.L., broke down. Mr. W ultimately refused to sell his shares.

Leeder brought an application for an order forcing Mr. W to complete the transaction. Mr. W alleged that Leeder had failed to comply with the governing requirements of the USA and, by doing so, repudiated the share-purchase agreement. Leeder's application was dismissed. The application judge held that, even though the share-purchase transaction did not constitute a contract separate from the USA, it was nonetheless repudiated by Leeder, and this repudiation was accepted by Mr. W. Mr. W therefore remained a shareholder. Leeder appealed.

ISSUES:

Was the share-purchase transaction a separate, standalone contract capable of being repudiated?
If so, did Leeder repudiate that contract?

HOLDING:

Appeal dismissed.

REASONING:

The application judge erred in her conclusion that the buy-sell agreement did not form a separate contract from the USA. As laid out in Flintoff, the case was a matter of contractual interpretation, something that would ordinarily attract deference on appeal. However, the application judge's ultimate conclusion – that the agreement had been repudiated – appeared to rest on the assumption that it did not matter whether there was a standalone contract or not.

Repudiation occurs when the entire foundation of a contract has been undermined; where the very thing bargained for has not been provided. It allows the non-repudiating party to elect to treat the contract as at an end, and relieves the parties from further performance of the contract.

Partial repudiation of a contract would be antithetical to a finding that the entire foundation of a contract has been undermined. Accordingly, the application judge could not have found, on the one hand, that the share-purchase transaction was merely an implementation of the USA, but on the other hand, that the transaction agreement alone had been repudiated. Thus, in the circumstances, the application judge's analysis on the issue was not entitled to deference; it was predicated on an incorrect legal assumption.

Returning to the question of whether there was in fact a standalone agreement, the decision in Blackmore did not assist. Whether the buy-sell provisions gave rise to a standalone agreement appeared to have played a minor role in the Blackmore decision.

Article 8.2 of the USA required that, before a shareholder entered into any discussions with a third party about the purchase and sale of any shares, it must provide notice to all other shareholders of its intention to sell. There was no corresponding obligation on the Corporation to buy those shares. In this eventuality, the shareholder may sell the shares to a third party: Articles 8.2-8.4. The procedure was not compulsory, at least until the Corporation or other shareholders elected to purchase the offered shares. The Court in Blackmore found that, based on a reading of the USA as whole, once the buy-sell process was triggered, it was irrevocable during the relevant notice period.

Article 8.2 created a mechanism akin to a right of first refusal, giving rise to a new contractual arrangement built on an offer to sell (by Mr. W) and the acceptance of that offer (by the Corporation or other shareholders). Article 8 was entitled "Rights of First Consideration", a relevant factor in the interpretation of the contractual provisions.

The essential aspect of a right of first refusal is "a commitment by the grantor to give the grantee the first chance to purchase should the grantor decide to sell. This commitment may be structured in a variety of ways."

The Court held that the triggering of the buy-sell mechanism by the selling shareholders did not force a sale, as the shotgun clause did in Blackmore. Instead, the buy-sell mechanism required an acceptance of the seller's offer by the Corporation (or by other shareholders). It was the fact that the buy-sell mechanism required both offer and acceptance that caused it to give rise to a standalone contract.

The process in the USA required shareholders wishing to sell their shares to make an offer that the Corporation could accept or reject, and subsequently, another shareholder could either accept or reject. The offer, if accepted, created an agreement that the transaction would be completed through compliance with Article 12. The presence of the opportunity for the Corporation or another shareholder to accept – or reject – the offer, and, subsequent to rejection by both, for the offeror to retain their shares, meant that the buy-sell mechanism would give rise to a contract in the same way that sale to a third party would inevitably require the creation of a contract.

Reading the relevant provisions in the context of the USA as a whole, there was no basis on which to characterize a sale between shareholders and a sale between a shareholder and a third party in such fundamentally different ways. This approach would mean that some share-purchases (i.e., to the Corporation or other shareholders) would not constitute standalone transactions, and would not be capable of repudiation, whereas others (to third parties) would.

The Court concluded that the agreement to sell Mr. W's shares was a standalone agreement that arose from and incorporated terms of the USA – specifically, those laying out the valuation procedure under Article 12. As a standalone agreement, it was capable of being repudiated.

Leeder challenged the application judge's findings that two of the three breaches she identified amounted to repudiatory breaches. These factual findings were made after a careful review of the evidence. They were responsive to the submissions of counsel and entitled to deference on appeal.

The Court rejected Leeder's submission that the application judge erred by finding that Leeder had repudiated the contract because Leeder's breaches were "purely procedural defects" and did not deprive Mr. W of the "very thing" for which he bargained. The obligations that the application judge found Leeder had disregarded were designed to generate a fair price for the sale of the shares, which was at the heart of the share-purchase agreement. They were not merely procedural; they were essential, something that the shareholders had agreed upon back in 2003.

The Court saw no error in the application judge's finding of a fundamental breach in the absence of any evidence of loss sustained by Mr. W. These were factual issues for the application judge to determine. The Court also noted that this finding was fully consistent with the analysis above: the content of the standalone agreement was that the share-purchase transaction would be completed through compliance with the valuation process in Article 12. Fundamental breach of this article, then, undermined the standalone agreement as a whole.

In terms of the valuation of the Corporation's real estate holdings by Cushman & Wakefield, L contended that there was no breach because Article 12.2 required the shareholders to collectively choose a valuator. As the application judge found, Mr. L as President, and on his own initiative, engaged Cushman & Wakefield on this issue. There were legitimate concerns about the firm's independence from Leeder.

It was open to the application judge to find that the failure to obtain an independent appraisal of the Corporation's real estate holdings was a repudiatory breach of the share-purchase agreement. The point of Article 12 was to generate the fair market value of the company based in part on a fair value for these holdings. Bypassing the requirements put in place to generate a fair value would therefore undermine the purpose of this article altogether.

A similar analysis applied to Leeder's attempts to undo the application judge's findings in relation to the BDO valuation. Article 12.1 requires that the accountants or auditors "shall use generally accepted accounting principles applied on a basis consistent with those used in the preceding fiscal year". When draft financial statements were sent to Mr. L, BDO wrote: "Paragraph 12.1 requires GAAP financial statements, being a Review of Audit Engagement. The draft financials are a Notice to Reader engagement only and are not GAAP" (emphasis added).

Mr. L submitted that Article 12.1 did not require formal compliance with GAAP. The Court found that this was an untenable interpretation of Article 12. The provision was clear and there was sufficient basis for the application judge to find that Article 12.1 had been infringed. The Court concluded there was no basis to set aside the finding.

Trillium Mutual Insurance Company v. Emond, 2023 ONCA 729

[Lauwers, Zarnett and Thorburn JJ.A.]

COUNSEL:

P. Peloso and J. Wilson, for the appellant

J. Y. Obagi and E. Quigley, for the respondents

FACTS:

The respondents, SE and CE (collectively, the "Es"), lived in a home on the Ottawa river. Their home was located in the catchment area of the Mississippi Valley Conservation Authority (the "MVCA"). The MVCA Regulation Policies regulated development and activities in or adjacent to rivers, lakes, shorelines, hazardous lands, and wetlands.

The Es had purchased a standard form residential Homeowners' Package Comprehensive Form Insurance Policy from the appellant, Trillium Mutual Insurance Company ("Trillium"). The Policy provided coverage from September 27, 2018 to September 27, 2019. On April 29, 2019, the Es' home was severely damaged by a flood and was deemed a total loss. Although Trillium acknowledged coverage for the loss under the Policy, the parties could not agree on what, if any, costs of "replacement" of the Es' dwelling were excluded from coverage under the Policy.

The Policy included (i) a Guaranteed Rebuilding Cost Coverage endorsement to pay the insured to replace a dwelling with materials of similar quality using current building techniques (the "GRC"); (ii) an exclusion for "increased costs of repair or replacement due to the operation of any law regulating the zoning, demolition, repair, or construction of buildings" (the "para. 8 Exclusion"); and (iii) a Building By-Law and Code Compliance Coverage endorsement (the "BBCC") that provided for payment of up to $10,000 for increased costs of demolition, construction, or repair to comply with any law regulating the zoning, demolition, repair, or construction. The coverage limit listed on the Declaration Page for the dwelling was $585,092.

The Application judge accepted Es' position that the GRC coverage was intended to guarantee the cost to rebuild, and she rejected Trillium's position that the GRC did not include coverage for increased costs to comply with "any law". The application judge found that the para. 8 Exclusion did not apply to the MVCA Regulation Policies. She held that the term "law" in the para. 8 Exclusion was restricted to statutes and did not include rules, regulations, by-laws, or ordinances. The application judge also found that Trillium's interpretation of the Policy would contravene the nullification of coverage doctrine.

The application judge concluded that under the Policy, the Es were entitled to recover the cost of rebuilding their home on the same location and with materials of similar quality using current building techniques, without any limitation of coverage resulting from the operation of any rule, regulation, by-law, or ordinance. Trillium appealed.

ISSUES:

Did the application judge err in holding that the GRC entitled the Es to recover all costs of rebuilding their home, with no limitation of coverage for compliance costs, and whether the effect of excluding compliance costs would nullify the GRC coverage under the Policy?

HOLDING:

Appeal allowed.

REASONING:

The Court set out the general principles applicable to the interpretation of insurance contracts. All parts of a policy should be given meaning: RBC Travel Insurance Co v Aviva. Provisions granting coverage should be construed broadly and provisions excluding coverage construed narrowly. Even a clear and unambiguous clause should not be given effect if to do so would nullify the coverage provided by the policy. Endorsements to an insurance policy should be read together with the other policy provisions because "an endorsement is generally not understood to be a self-contained policy": Pilot Insurance Co. What is insured in the case of replacement cost insurance is the cost of replacing the dwelling without taking into account depreciation.

The Court noted that because the contract was standard form, the standard of review of the application judge's contractual interpretation on appeal was correctness.

An analysis of these issues entailed a review of:

a) The coverage provided in the GRC;

b) The exclusion of coverage in the para. 8 Exclusion for "increased costs of repair or replacement due to operation of any law";

c) The effect of the Policy coverage in the BBCC for "an additional amount up to $10,000 or the amount shown on the 'Declaration Page', for the increased cost ... to comply with any law";

d) The extent to which, if at all, the para. 8 Exclusion limits coverage in this case; and

e) Whether applying the para. 8 Exclusion to the GRC would nullify the GRC.

a. The coverage provided in the GRC.

With respect to the flood protection, the Es' house was destroyed in a flood, and Trillium acknowledged coverage under the Policy as it provided coverage for flood protection.

The Policy also provided that where there was coverage, the insured may have chosen as the basis of loss settlement, either the cost of repairs or replacement or the actual cash value. The GRC enhanced the coverage in the Policy to repair or replace the dwelling by excluding any "deduction for depreciation even if it is more than the amount of insurance shown on the 'Declaration Page'." It also provided that the dwelling would be replaced "using current building techniques." This language opened up the possibility of coverage in excess of the coverage limit listed on the Declaration Page, that is, $585,092.

b. The Para. 8 Exclusion of Coverage

I. The meaning of "increased costs"

The para. 8 Exclusion specifically excluded coverage for "increased costs of repair or replacement due to operation of any law regulating the zoning, demolition, repair or construction of buildings and their related services; except as provided under Additional Coverages of Section 1." The Court noted that the onus rested on the insurer to establish an exclusion of coverage: Progressive Homes Ltd. "[I]ncreased costs" were noted to be those that exceed the amount payable by the insurer to replace the dwelling as it was. This necessarily implied that they result from a "law" enacted after the dwelling was originally built that required features of the house to be enhanced or that they pertain to correcting deficiencies in the building as it stood at the time of the loss.

The determination of what constituted "increased costs" started with an explanation of the "amount payable" on the Declaration page of the Policy for the dwelling, which was: $585,092. The Court noted that the "amount payable" to replace a dwelling would not have reasonably been expected to include costs associated with correcting legal deficiencies that exist in the building at the time of the loss, or complying with laws that were enacted after the dwelling was built.

The para. 8 Exclusion for increased costs in this case took into account the fact that the insurer had not accounted for these types of costs in its estimate of the replacement cost listed on the Declaration Page. Accordingly, any "increase" to the cost of repair or replacement that resulted from any law that had not allowed the building to be rebuilt with the deficiencies that existed at the time of the loss, was excluded from coverage by the para. 8 Exclusion.

II. The meaning of the words "any law"

First, the Court disagreed with the application judge's interpretation of the words "any law". The Court noted that the plain meaning of the word "law" included both legislation and rules of subordinate authority such as by-laws and regulations.

Second, the term "any" was all-embracing and without limitation or qualification: Epp School District.

Third the Court noted that the BBCC supported the interpretation that "any law" included by-laws, regulations, and other subordinate legislation. It provided that the insurer would pay up to an additional $10,000 or the amount on the Declaration Page for the increased cost to comply with "any law" regulating construction. Like the para. 8 Exclusion, it used the general term "any law" in the opening words articulating this additional coverage.

Fourth, even if the MVCA Regulation Policies were "policies" as suggested by the respondent, they were included in the definition of "any law". The MVCA Regulation Policies had clearly set out a detailed regulatory scheme which was mandatory in order to construct. Accordingly, they were a de facto legislative scheme that captured by the term "any law".

Lastly, the decision in Choukair relied on by the respondents was distinguishable. The exclusion clause in Choukair only excluded by-laws, a much more specific term than the more general term, "law". Further, the Choukair policy did not contain anything similar to the BBCC coverage in this Policy, which applies to by-laws, regulations, ordinances, or laws that clearly fall under the umbrella of the term "any law".

The Court concluded that the para. 8 Exclusion applied to increased costs to demolish and replace the dwelling as it was that are due to the operation of "any law" including the MVCA Regulation Policies, municipal by-laws, and other regulations regarding demolition or reconstruction of the dwelling.

c. BBCC Coverage

The Court noted that there was a recognition of potential compliance costs borne by the insurer: the BBCC provided up to $10,000 payable by the insurer for such costs. In terms of what was being repaired or rebuilt, "increased costs" only included those increased costs related to replacing the dwelling "as it was". Therefore, enhancements required by laws enacted after the building was constructed were increased costs.

The Court concluded that "increased costs" in standard form contracts, are those that exceed the amount payable by the insurer to replace the dwelling as it was, because either existing deficiencies had to be fixed, or a law enacted after the original construction required enhancements on rebuilding.

d. Whether the Exclusion Clause Applies to Coverage in the GRC Endorsement

The Court disagreed with the conclusion that the para. 8 Exclusion did not limit the Es' coverage under the Policy. The Policy contained the para. 8 Exclusion of coverage for the increased costs of demolition and replacement due to the operation of any law. The para. 8 Exclusion applied "except as provided under Additional Coverages of Section 1", which included the BBCC. The BBCC provided a coverage limit of $10,000 for these increased costs. The fact that this coverage limit was not repeated in the GRC itself was not determinative because the Policy provisions must be read as a whole: Pilot Insurance Co., at para. 21. The Court concluded that when the GRC was read along with the para. 8 Exclusion and the BBCC, there was a limit on the increased costs (as defined above) to comply with "any law", including the MVCA Regulation Policies: they are only covered up to $10,000.

e. Whether applying the para. 8 Exclusion to the GRC would nullify the GRC.

Nullification occurs when a policy defeats the purpose of the coverage the policy provides: Cabell. The GRC provided the Es with enhanced coverage to rebuild their home the way it was, using materials of similar quality and current building techniques, (i) without deduction for depreciation and (ii) even if the cost of replacement exceeded the policy limit on the Declaration Page (i.e., inflation protection). The application of the para. 8 Exclusion had not denied the Es these benefits; it only applied to increased costs required by "any law". The Court concluded that while the operation of the para. 8 Exclusion may have denied the insured some funds, this did not "render nugatory coverage for the most obvious risks for which the endorsement [was] issued": Foodpro. It was clear that the "most obvious risks" for which the GRC was issued were depreciation and inflation, not [bylaw] compliance costs.

SHORT CIVIL DECISIONS

Brown v. Williams, 2023 ONCA 730

[Roberts J.A. (Motion Judge)]

COUNSEL:

R. Hajdëri and L. Csanyi, for Stieber Berlach LLP

J. W., acting in person

No one appearing for the respondent, although properly served

Rebello v. Bank of Nova Scotia, 2023 ONCA 734

[Doherty, Pepall and Copeland JJ.A.]

COUNSEL:

T.R., acting in person

D. Rankin and M. Dick, for the respondents

Keywords: Civil Procedure, Abuse of Process, Costs

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 (October 30 – November 3)
Blaney's Appeals

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CIVIL DECISIONS

SHORT CIVIL DECISIONS

Canada: Court Of Appeal Summaries (October 30 – November 3) Blaney's Appeals

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CIVIL DECISIONS

SHORT CIVIL DECISIONS

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Canada: Court Of Appeal Summaries (October 30 – November 3)
Blaney's Appeals