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November 2012

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INSIDE THIS ISSUE: Featured Cases: 03 Fraud; Unjust Enrichment; Fiduciary Duty; Knowing Assistance - With Counsel Comments 09 Pension Plans; Family Law; Death Benefits; Beneficiaries; Spouses - With Counsel Comments

16 Insurance Law; Sole Proprietorship; Commercial Fleet Policies; Statutory Accident Benefits - With Counsel Comments

19 Limitation Periods; Minors; Discoverability - With Counsel Comments 24 First Nations; Crown Liability; Misfeasance in Public Office - With Counsel Comments

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Enbridge Gas Distribution Inc. v. Marinaccio, 2012 ONCA 650 Areas of Law: Fraud; Unjust Enrichment; Fiduciary Duty; Knowing Assistance Fraudsters liable to Enbridge in $6.7 million scam; Enbridge insider liable for breach of fiduciary duty

BACKGROUND

T

he appellant Michael Marinaccio (“Marinaccio”) was an operations supervisor with respondent utility Enbridge Gas Distribution Inc. (“Enbridge”), with authority to retain third party contractors on behalf of Enbridge and to approve payment of invoices. The appellant Angelo Piro (“Piro”) was a labourer who worked for various companies that did business with Enbridge who got to know Marinaccio. The appellant Italo Tony Montaldi (“Montaldi”) was an accountant and financial planner and sole shareholder and principal of the respondent Maverick & Associates (1991) Limited. Marinaccio, Piro and Montaldi were engaged in a venture under which Enbridge paid approximately $6.7 million from 2001 to 2007 for work and equipment allegedly supplied to Enbridge by four entities set up by Piro. Montaldi was the accountant for the Piro entities. He also prepared all of the invoices to Enbridge from information supplied by Piro or Marinaccio. Marinaccio admitted to Enbridge that the entire scheme was a fraud. No work was ever done. All the invoices were fraudulent. Marinaccio also claimed that Piro and Montaldi were aware of the fraud. Enbridge brought suit against Marinaccio, Piro and Montaldi. Marinaccio settled Enbridge’s November 2012

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Enbridge Gas Distribution Inc. v. Marinaccio, (cont.) claim against him for $1.9 million. Enbridge then moved for summary judgment against Piro and Montaldi. The motion judge, Newbould J., found that Marinaccio owed a fiduciary duty to Enbridge and that he breached his fiduciary duty by secretly profiting at the expense of his employer. Newbould J. granted summary judgment against Piro and Montaldi on three separate bases: knowing assistance to Marinaccio in breaching his fiduciary duty; bribery; and unjust enrichment. On their appeal, Piro argued that the Newbould J. erred in finding that Marinaccio owed a fiduciary duty to Enbridge; in finding Piro and Montaldi liable for

knowing assistance; in finding them liable for the tort of bribery because Enbridge did not plead bribery and did not prove the payment of a secret commission; and in finding them liable for unjust enrichment.

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Enbridge Gas Distribution Inc. v. Marinaccio, (cont.) APPELLATE DECISION

to establish a cause of action in bribery. In its notice of motion, Enbridge expressly moved for summary judgment for bribery. Its motion was served on the appellants 14 months before it was heard, and the issue of bribery was fully argued before the motion judge. Therefore, neither Piro nor Montaldi can seriously claim that he was prejudiced by the omission of the word bribery from Enbridge’s pleading. Accepting their admission and their assertion, Piro and Montaldi secretly paid to Marinaccio approximately $4.086 million from the amounts invoiced to Enbridge and paid by Enbridge to the Piro entities. In other words, they paid bribes to Marinaccio amounting to $4.086 million and they kept these payments secret from Enbridge. The entire scheme was a fraud, as Marinaccio claimed and Piro later admitted. was an innocent stranger to the scheme. Both fully participated and assisted Marinaccio in arranging what was shown to be a fraud on Enbridge.

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he appeals were dismissed. Marinaccio had discretionary power to hire outside contractors for Enbridge and to approve the payment of invoices they submitted. Enbridge was undoubtedly vulnerable to the exercise of that power because Marinaccio used his power to defraud his employer of over $6.5 million over the course of six and a half years. That Marinaccio had the authority, opportunity and ability to perpetrate such a large-scale fraud on his employer over such a prolonged period of time was some evidence that he possessed the hallmarks of a fiduciary duty: discretionary power over a correspondently vulnerable employer. The components of a claim for knowingly assisting in a breach of a fiduciary duty include actual knowledge on the part of the stranger to the fiduciary relationship of both the fiduciary relationship and the fiduciary’s fraudulent conduct. In the present case, both Piro and Montaldi knowingly assisted in the breach of Marinaccio’s fiduciary obligations to Enbridge. They were aware that Marinaccio had a conflict and assisted him in taking steps to hide his role in the venture. They knew as well that Marinaccio was making sure that Enbridge was not aware of the venture. Although Enbridge did not use the word “bribery” in its amended claim, it did plead all of the material facts required November 2012

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COUNSEL COMMENTS Enbridge Gas Distribution Inc. v. Marinaccio, 2012 ONCA 650 Comments provided by Reid Lester , Counsel for the Respondent Enbridge Gas Distribution Inc. dishonest employee, and that he had duped them into participating. They argued that there were issues of credibility on these points so that they should be entitled to have a (very lengthy) trial on these issues. We had pleaded fraud, but we also pleaded and moved for summary judgment on the basis of “knowing assistance in breach of fiduciary duty” and bribery. We believed that these causes of action would be easier to prove on a summary basis. We were right. The key to the case was that we had executed an Anton Piller search and obtained very strong evidence of the secret business, and the payments made to the dishonest employee. As such, we were able to obtain the remaining defendants’ admissions that they and the dishonest employee had participated in a secret business scheme which received payments from the employee’s employer, Enbridge, and that they had made secret payments to this employee. Once we established these factual points, we had all we needed. Bribery is an especially good cause of action, since once you can establish the secret payment, there is an irrebuttable

Reid Lester

Appeal Dismissed in Knowing Assistance of Breach of Fiduciary Duty and Bribery Case

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n April 14, 2011, we obtained summary judgment is a large fraud case. I wrote about this case last year. The Court of Appeal has now dismissed the appeal with reasons that are helpful. We had settled out with one defendant (the dishonest employee). Two other defendants (now, appellants), admitted most of the relevant facts but denied any knowledge that the underlying “business” venture was fraudulent. They claimed that legitimate work was done in connection with the scheme at issue; or, that if there was a fraud, it was the fraud of the

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COUNSEL COMMENTS, Cont. presumption that the payment is a bribe and there can be no defence. The scheme was this: the appellants submitted invoices (thorough the business) to Enbridge. The employee approved these for payment and received some of the $6.5 million in proceeds. All three men took steps to ensure that the employee’s involvement was kept secret from Enbridge. We claimed that the employee’s behaviour was a breach of his fiduciary duty to Enbridge, and we argued that the other defendants knowingly assisted in this breach of fiduciary duty since they were aware of the employee’s conflict of interest. We also argued that any secret payments to the employee were “bribes”. The motions judge agreed and awarded judgment in the amount of roughly $6.5 million. The Court of Appeal agreed that the employee had engaged in a breach of fiduciary duty through his profiting from this secret business and that the appellants had participated. However, in order to establish that the appellants had “knowingly assisted” in the breach of fiduciary duty, we needed to show that they had “actual knowledge” of both the fiduciary relationship and of the fiduciary’s “fraudulent and dishonest conduct”. Our position was that the “knowledge requirement” was met by showing that the appellants were aware of the employee’s undisclosed conflict of interest and that any higher level of knowledge was not required. The appellants argued that the knowledge requirement could only be met by our establishing that they had actual knowledge of the underlying fraud itself and that in light of their factual claims, there was at least a triable issue on that point. The Court of Appeal unanimously accepted our position: [With] knowing assistance in the breach of a fiduciary duty, dishonest and fraudulent conduct signify a level of misconduct or impropriety that is morally reprehensible but does not necessarily amount to criminal behaviour. The term fraudulent does not signify that an additional degree of corruption is necessary to make out the tort; it simply emphasizes the required dishonest quality of the fiduciary’s act… [Appellants] knew that [employee’s] conduct was dishonest, and indeed morally reprehensible, and that his conduct harmed Enbridge. They cannot escape liability by their assertion that they did not know at the time that they were participating in a fraud.”

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COUNSEL COMMENTS, Cont. The lesson of this case is that where you have evidence of an employee acting in an undisclosed conflict of interest, and where you can show secret payments being made to the employee, you have a good chance of being able to move successfully for judgment on the basis of breach of fiduciary duty, and/or bribery not only with respect to that employee, but also with respect to anyone making those payments or otherwise assisting in the scheme.�

November 2012

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Carrigan v. Carrigan Estate, 2012 ONCA 736 Areas of Law: Pension Plans; Family Law; Death Benefits; Beneficiaries; Spouses Common law spouse living with pension plan member at member’s death, while member still married to legal spouse, not entitled to death benefits under Pension Benefits Act; legal spouse taking benefits as designated beneficiary under plan

BACKGROUND

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ppellant Mary Melodee Dianne Carrigan married Ronald Carrigan in 1973. They remained legally married until his death on June 4, 2008, at the age of 57. In 2002, Mr. Carrigan designated Mrs. Carrigan and their daughters as the beneficiaries of the death benefit in his pension plan. They were separated by January 2000, by which time Mr. Carrigan was living openly with the respondent, Jennifer Margaret Quinn. Mr. Carrigan continued to live with Ms. Quinn until his death. Mrs. Carrigan remained living in the matrimonial home. The Carrigans never formalized their separation by a separation agreement or court order. Mrs. Carrigan and Ms. Quinn both claimed the death benefit of Mr. Carrigan‘s pension under s. 48 of the Pension Benefits Act, R.S.O. 1990, c. P.8 (“PBA”). Section 48(1) of the PBA provides: “If a member who is entitled under the pension plan to a deferred pension described in section 37 dies before payment of the first instalment is due, or if a former member or retired member dies before payment of the first instalment of his or her deferred pension or pension is due, the person who is his or her spouse on the date of death is

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entitled, (a) to receive a lump sum payment equal to the commuted value of the deferred pension; (b) to require the administrator to pay an amount equal to the commuted value of the deferred pension into a registered retirement savings arrangement; or (c) to receive an immediate or deferredBetter pension, the Records and Docu care for a better life If you are carrying commuted value Home of which required to ke careis at least equal to are that provide suffic designed for you support to determ the commuted value of theespecially deferred pension.” you owe. Estimate • Nursing • Funding Investigations information are no Section 1 of the PBA defines “spouse” as • Personal Care • Free Assessments In this regard, I re • Home Support • Nurse Supervised Staff Guide RC4409 Ke “except where otherwise indicated in this • Companionship • 24 Hour/7 Day ServiceAct, which can be foun 604.873.2545 either1.866.227.3106 of two persons who (a) are married to A Company Vancouver office

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Carrigan v. Carrigan Estate, (cont.) each other, or (b) are not married to each other and are living together in a conjugal relationship (i) continuously for a period of not less than three years, or (ii) in a relationship of some permanence, if they are the natural or adoptive parents of a child, both as defined in the Family Law Act; (“conjoint”)”. Section 48(3) of the PBA provides: “Subsections (1) and (2) do not apply where the member, former member or retired member and his or her spouse are living separate and apart on the date of death”. Section 48(6) of the PBA provides: “A member, former member or retired member described in subsection (1) may designate a beneficiary and the beneficiary is entitled to be paid an amount equal to the commuted value of the deferred pension mentioned in subsection (1) or (2) (a) if the member, former member or retired member does not have a spouse on the date of death; or (b) if the member, former member or retired member is living separate and apart from his or her spouse on the date of death.”

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The trial judge dismissed the action of Mrs. Carrigan, the legally married spouse, for a declaration that she was entitled to her husband’s pre-retirement death benefit under s. 48 of the PBA. The trial judge found that Ms. Quinn, the common law spouse, was entitled to the death benefit, since she was living with Mr. Carrigan when he died. Mrs. Carrigan appealed.


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Carrigan v. Carrigan Estate, (cont.) APPELLATE DECISION Juriansz and Epstein JJ.A. allowed the appeal; LaForme J.A. dissented. The judgment of the trial judge was set aside and replaced with a declaration that Mrs. Carrigan and the daughters of Mr. Carrigan were entitled to his pension death benefit, pursuant to s. 48(6) of the PBA. Section 48 of the PBA establishes a statutory regime whereby a spouse becomes the beneficiary under a deferred pension benefit plan. The trial judge assumed, on his interpretation of s. 48, that Mrs. Carrigan, the legal spouse, and Ms. Quinn, the common law spouse, could both qualify as “spouses” under s. 1 of the PBA. Mrs. Carrigan cannot be an entitled spouse, since she was living separate and apart from Mr. Carrigan at the date of his death, and therefore s. 48(3) of the PBA barred her from receiving benefits under s. 48(1). The term “spouse living separate and apart from the member” must necessarily connote the legally married spouse of the member. Section 48(3) can only apply to a legal spouse; a spouse living common law with the plan member at the time of the plan member’s death could not possibly be a “spouse” under the wording of s. 48(3). Consequently, even if one assumes the definition of “spouse” encompasses both Mrs. Carrigan and Ms. Quinn, only Mrs. Carrigan could be the “spouse” referred to in s. 48(3). Since the circumstance contemplated by s. 48(3) existed, s. November 2012

48(1) was rendered inapplicable. Since s. 48(1) was inapplicable, the difficulty in applying the spousal priority falls away. When s. 48(1) does not apply, there is no provision that the “spouse” of the member is entitled to the death benefit. As there is no spousal entitlement, the member’s designated beneficiary is entitled to the death benefit under s. 48(6) of the PBA. Section 48(6) provides that the designated beneficiary is entitled to the death benefit if either of two circumstances exists: either the member does not have a spouse on the date of death; or the member is living separate and apart from his or her spouse on that day. The structure of s. 48(6) indicates that the existence of either circumstance triggers the application of the subsection. Mr. and Mrs. Carrigan were living separate and apart on the date of his death. The second circumstance in s. 48(6) existed and the application of s. 48(6) was triggered. Once s. 48(6) was triggered, the designated beneficiaries in the death benefits plan – Mrs. Carrigan and the daughters of Mr. and Mrs. Carrigan - were entitled to Mr. Carrigan’s deferred pension benefits.

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COUNSEL COMMENTS Carrigan v. Carrigan Estate, 2012 ONCA 736 Comments provided by Raymond Colautti, Counsel for the Respondent Jennifer Quinn

“T

he decision of the Ontario Court of appeal in Carrigan v Carrigan Estate concerns a important question of law of national significance to pension administrators and regulators across Canada. As posed by Juriansz J.A., writing for the majority, the question of law is this: Who receives the pension death benefit when a member of pension plan entitled to a deferred pension dies and is survived by both a married, but separated, spouse and a “common law” spouse? In my own view, this formulation does not actually capture the competing interests at play in this case. I would restate Justice Juriansz’s proposition somewhat as follows: Is a co-habiting common law spouse (i.e. persons, although not married to each other, living together continuously in a conjugal relationship of not less than three years) disentitled to the death benefit priority scheme set out in section 48(1) of the Pension Benefits Act payable on the death of a pension member because the definition of “spouse” is different in section 48(1) and 48(3), than from section 1 of that Act? Alternatively stated, the November 2012

Raymond Colautti

proposition may be stated as follows: Is a co-habiting “common law spouse” (i.e. a person who was living with the deceased member together in a conjugal relationship, continuously, for a period of not less than three (3) years ) not protected in receiving a death benefit on the death of a pension member? Two of the Justices in the Court of Appeal held, reversing the Trial Judge’s decision in the Superior Court of Ontario, that, notwithstanding the definition of “spouse” in section 1 of the Pension Benefits Act of Ontario, and section 48(3) of that Act, which mandates that, where a former member and his or her “spouse” are living separate and apart on the date of death, then the preferential statutory priority under section

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COUNSEL COMMENTS, Cont. 48(1) of the Pension Benefits Act, which requires payment to the person who is the “spouse” on the date of death, does not apply. The majority of the Court of Appeal effectively determined that the definition “spouse” in section 1, did not apply to the word “spouse” in section 48(1) and (3). The effect of this decision was therefore to deprive the co-habiting “common law” spouse of the preferential protection of section 48(1) of the Pension Benefits Act. The dissenting opinion of Justice LaForme in the Court of Appeal and the reasons for judgment of the Trial Judge in the Ontario Superior Court, on the other hand, held that the definition of “spouse” set out by the legislature in section 1 of the Pension Benefits Act, ought to be consistent with the meaning of “spouse” under section 48 (1) and (3) of the Act so that co-habiting “common law” spouses receive the preferential protection of section 48(1) of the Pension Benefits Act which provides that the death benefit be paid to the co-habiting “spouse”. The conclusions of the majority of the Ontario Court of Appeal, as set out above, are questionable. The interpretation of the majority of the Court of Appeal of the aforesaid statutory provisions appears to violate long accepted principles of statutory construction, ignores policy behind the statutory protection for co-habiting spouses, creates serious problems for pension administrators and regulators in Ontario, as well as the most of the provinces, and will create problems in pension administration for past and future members. As pointed out by Justice LaForme, in dissent: • For the purposes of the Pension Benefits Act, it is possible for a person to have two spouses at the same time; • For a spouse to be entitled to receive a death benefit under section 48(1), he or she cannot be living separate and apart on the date of death. • It is clearly wrong to restrict the meaning of “spouse” in section 48(3) as always meaning the legally married spouse. To read “spouse” to mean only a married spouse in the context of section 48(3) is to give the same term a different meaning throughout the Pension Benefits Act; • A proper reading of section 48(3) provides that a spouse, either married or common law, will not be entitled to the section 48(1) death benefit if he or she lives separate and apart from the member on the member’s date of death. November 2012

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COUNSEL COMMENTS, Cont. In other words, while married and common law spouses may, in the other legal contexts, continue to have certain legal rights even if they are living separate and apart, for instance the right to support under the Family Law Act, section 48 makes it clear that living separate and apart on the date of death, precludes a spouse from receiving a death benefit under section 48(1). Consequently, the decision in this case, awarding the pension to the married, but separated spouse and her two daughters, appears to run afoul of the statutory intention; • Even if one accepts that section 48(3) never applies to common law spouses, then there is no reason to conclude how section 48(3) qualifies a common law spouse from receiving the benefit under section 48(1); • It is illogical and counter-intuitive to conclude that the term “spouse” in section 48(3) will always mean the legally married spouse such that if there is a married spouse and the married spouse is living separate and apart on the date of death, a common law spouse will be not entitled to the death benefit under section 48(1). Pensions are heavily regulated by statutes such as the Pension Benefits Act. They establish a set of minimum standards for all pensions within the jurisdiction of that legislature. One of those minimum standards is a statutory direction that a pre-retirement death benefit is only payable to the spouse if the deceased member was not living separate and apart from that spouse on the date of his or her death. The legislature has made a policy decision that has taken into account all of the competing interests of various classes of spouses who survive a pension plan. Pensions are part of the complex of rights and obligations, contractual and statutory, between employers and employees and obviously serve broad societal and economic purposes. It is clear from this explicit legislation that the legislature intended its provisions to displace common law rules, including equitable remedies and principles. Consequently, the Pension Benefits Act prevails over the traditional remedies such as constructive and resulting trusts. An Act such as the Pension Benefits Act must be interpreted as being remedial and must be give such fair, large and liberal interpretation as best ensures the attainment of its objects. It was a common, if not universal interpretation amongst plan administrators, and pension advisors in relation to payment out of pre-retirement death benefits

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COUNSEL COMMENTS, Cont. to “spouses” either married or common law, that the right of the co-habiting spouse, whether married or common law, at date of death could not be displaced by a beneficiary designation without first getting the consent of the current spouse. The implication of the majority of the Court of Appeal’s decision is that if there is an un-divorced married spouse who is living separate and apart, the death benefit will be payable to whomever the member has designated as a beneficiary, whether that is the current spouse, the un-divorced married spouse, or someone else. The Court of Appeal’s radical change to an otherwise well understood practice, is neither justified nor logical. The facts in the present case are not entirely unique. Many pension plan members in common law relationships have un-divorced married spouses for many reasons. It is not logical to conclude that because one “spouse” does not qualify for the benefit, neither “spouse” should qualify, especially when a spouse by spouse analysis would have logically resulted in the co-habiting “common law” spouse receiving the benefit in this case. The majority of the Court of Appeal attempted to identify a policy assumption in paragraph 39 of their Reasons: “Moreover, I see no particular policy rationale for interpreting the PBA to provide unequivocally that in all circumstances where there is a legally married spouse and a common law spouse, the common law spouse is entitled to the member’s death benefit. Given the diversity of possible relationships, it is more desirable to interpret the statute to allow pension members to order their affairs in a way that suits their particular circumstances.” This assumption of a policy to support the majority’s decision cannot stand scrutiny. The clear interplay between s. 1, and s. 48(1) and (3) of the PBA demonstrates that the legislature was concerned with finding and limiting the rights of plan members to provide for members who are not their spouses at the date of death. The act clearly identifies a strong policy intention to protect persons who are spouses of plan members who are not living separate and apart. Consequently, it is wrong-headed to conclude that the mere existence of a undivorced former spouse will destroy the priority of the Pension Benefits Act sets up to safeguard the interests of persons who are spouses at the date of death. Leave to appeal to the Supreme Court of Canada is being sought. November 2012

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Security National Insurance Company v. Markel Insurance Company, 2012 ONCA 683 Areas of Law: Insurance Law; Sole Proprietorship; Commercial Fleet Policies; Statutory Accident Benefits Insurers of fleet of commercial motor vehicles liable to sole proprietorship for statutory accident benefits; owners/operators of sole proprietorship “deemed insureds”under s. 66(1)(a) of the Statutory Accident Benefits Schedule – Accidents on or after November 1, 1996, O. Reg. 403/96 (“SABS”)

BACKGROUND

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ecurity National Insurance Company v. Markel Insurance Company: Pinnacle Transport Ltd. (“Pinnacle”) operated a transport company. The respondent Markel Insurance Company (“Markel”) issued a motor vehicle liability policy to Pinnacle as named insured, which provided coverage for all vehicles owned, registered, leased and/or operated on behalf of the named insured. Duncan McKerchar (“McKerchar”) carried on business as a sole proprietorship with the business name “The Tidy Scot”. McKerchar bought a 1998 GMC truck from Pinnacle and paid for it in bi-weekly instalments. Pinnacle and The Tidy Scot entered into an Independent Contractor Agreement (“Agreement”) dated September 14, 2005, which provided that The Tidy Scot, as an independent contractor, would perform such transportation and ancillary services, including loading and unloading as requested by Pinnacle. The Agreement expressly provided that the relationship was not one of master/servant, principal/ agent or employer/employee. On April November 2012

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4, 2006, McKerchar was injured when he attempted to jump on to his moving truck, which was being operated by another driver, fell under it and was run over. McKerchar was not a named insured nor a listed driver on the Markel policy of insurance issued to Pinnacle. McKerchar claimed statutory accident benefits from respondent Security National Insurance Company (“Security National”), the insurer of his personal use vehicle. Security National paid the statutory accident benefits but instituted a claim that the obligation to pay those benefits rested with Markel as the insurer of Pinnacle’s fleet of vehicles. The parties remitted the dispute to Arbitrator Lee Samis in accordance with the Arbitration Act, 1991, S.O. 1991, c.17. Arbitrator Samis held that McKerchar was not a deemed named insured pursuant to s. 66(1) of the Statutory Accident Benefits Schedule – Accidents on or after November 1, 1996, O. Reg. 403/96 (“SABS”) under the Markel policy and, as a result, Security National was required to pay the statutory accident benefits. Security National successfully appealed the arbitration decision to the Superior Court of Justice. Markel appealed to the Court of Appeal.

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Security National Insurance Company v. Markel Insurance Company, (cont.)

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ingsway General Insurance Company v. Gore Mutual Insurance Company: Trowbridge Transport Ltd. (“Trowbridge”) operated a transport company. Appellant Kingsway General Insurance Company (“Kingsway General”) issued a fleet policy in favour of Trowbridge as named insured, which provided coverage for all vehicles owned and operated on behalf of the named insured. William Higgs (“Higgs”) owned a freightliner tractor and worked as a self-employed owner/operator for Trowbridge. Trowbridge entered into an Owner/Operator Agreement with Bill Higgs & Sons, the sole proprietorship owned by Higgs, dated January 1, 2008. The freightliner tractor was a scheduled vehicle on the Kingsway General policy and Higgs was a listed driver but not a named insured on the policy. In February 2008, Higgs was injured in an accident while he was driving the freightliner tractor. At the time of the accident, Higgs was the named

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insured under the automobile insurance policy issued by respondent Gore Mutual Insurance Company (“Gore Mutual”) for his 1996 Oldsmobile personal use automobile. Higgs applied to Kingsway General for statutory accident benefits. Kingsway General paid the accident benefits but served Gore Mutual with a notice of dispute between insurers. Kingsway General and Gore Mutual proceeded with an arbitration before Arbitrator Bialkowski. Arbitrator Bialkowski held that Higgs was a “deemed named insured” under s. 66(1) of the Statutory Accident Benefits Schedule – Accidents on or after November 1, 1996, O. Reg. 403/96 (“SABS”). As a result, Kingsway General, as the insurer of the freightliner tractor, was the priority insurer responsible to pay all accident benefits to Higgs. Kingsway General appealed unsuccessfully to the Superior Court of Justice. Kingsway General further appealed to the Court of Appeal.

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Security National Insurance Company v. Markel Insurance Company, (cont.) APPELLATE DECISION Both appeals were dismissed. The insurers of a fleet of commercial vehicles, Markel and Kingsway General, were responsible for payment of accident benefits. McKerchar and Higgs were deemed insureds for the purposes of s. 66(1) of the SABS. McKerchar and Higgs operated as a sole proprietorship, and entered into their Agreements under their respective business names. Section 66(1)(a) of the SABS provides that “[a]n individual who is living and ordinarily present in Ontario shall be deemed for the purpose of this Regulation to be the named insured under the policy insuring an automobile at the time of an accident if, at the time of the accident, the insured automobile is being made available for the individual’s regular use by a corporation, unincorporated association, partnership, sole proprietorship or other entity.� The subsection contemplates that an individual operating a sole proprietorship can make a vehicle available to him or herself. The intent of the s. 66(1) is that the commercial insurer should be responsible for the accident benefits arising from the operation of the commercial vehicle.

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Duchesne v. St-Denis, 2012 ONCA 699 Areas of Law: Limitation Periods; Minors; Discoverability Court clarifies meaning of “actual knowledge” in limitation period case involving minor

BACKGROUND

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n June 23, 2002, the appellant Eric Duchesne (“Duchesne”), then age 15 (born September 5, 1986), and his two friends, respondents Steve Gauvreau (“Gauvreau”) and Jean-Marc Bedard (“Bedard”), were invited to the home of Brian and Danielle St-Denis (“St-Denis”). While at the home, Duchesne and his two friends commenced a game of football. A boy standing outside of the pool area would throw the football into the pool area. One of the other boys would jump off the deck and into the pool to catch the football in mid-flight. In an attempt to catch the ball in mid-flight, Duchesne jumped off the deck and into the pool. He struck his head on some part of the swimming pool and suffered severe spinal injuries as a result. Duchesne elected not to pursue an action in order to focus on his recovery. The Limitations Act, 2002, S.O. 2002, c. 24 (“2002 Act”), came November 2012

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into force on January 1, 2004. Duchesne reached the age of majority in Ontario (age 18) on September 5, 2004. On August 28, 2006, Duchesne issued a Statement of Claim against the defendants St-Denis, eight days before he turned 20 (eight days before the expiry of a two-year limitation period after he reached the age of majority). The third parties, Gauvreau and Bedard, were later brought into the action by the defendants St.-Denis. It was not until June 2009 that Duchesne brought a motion to amend the Statement of Claim to add the third parties, Gauvreau and Bedard, as party defendants. If Duchesne’s claim against Gauvreau and Bedard was discoverable prior to January 1, 2004 – the date the 2002 Act came into force - the former Limitation Act applied and Duchesne had six years from attaining the age of majority – in Duchesne’s case, six years from September 5, 2004 – to add them as parties. If, on the other hand, his claim was only discoverable when he attained the age of majority after January 1, 2004, a two-year limitation under the 2002 Act would apply and he would be out of time. Master Beaudoin dismissed Duchesne’s motion, holding that Duchesne had not actually discovered his claim against the third parties before January 1, 2004. Master Beaudoin concluded that Duchesne was not aware of any acts or omissions on the part of Gauvreau or Bedard that caused or contributed to his injuries, nor was Duchesne aware that a proceeding against either friend would be an appropriate means to a remedy. Master Beaudoin also held that, as a minor, Duchesne could not be deemed to have discovered his claim pursuant to s. 5(1)(b) of the 2002 Act. Section 5(1)(b) states that a

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Duchesne v. St-Denis, (cont.) claim will be considered discovered on the day that a reasonable person with the abilities and in the circumstances of the person with the claim first “ought to have known” of the claim. Duchesne’s appeal from Master Beaudoin to a single judge of the Divisional Court upheld the Master Beaudoin’s decision. The Divisional Court agreed with Master Beaudoin that a minor cannot be deemed to have discovered his or her claim under s. 5(1)(b) of the 2002 Act because a

minor is presumed not to know his or her rights and is protected during the period of disability. Duchesne appealed to the Court of Appeal.

APPELLATE DECISION

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he appeal was allowed and the order of the Divisional Court was set aside. Duchesne was granted leave to serve and file a Fresh Statement of Claim adding the third party Gauvreau as a defendant (the action against Bedard had been settled). The overall question raised by this appeal was whether Duchesne’s claim was discovered or discoverable by a reasonable person with his abilities and, in his circumstances, prior to January 1, 2004 (the date the 2002 Act came into force). The limitation issue and the question whether the claim was discovered or discoverable were to be determined by the trial judge. Both the Master and the Divisional Court erred in their interpretation of previous November 2012

decisions of the Court of Appeal relative to whether knowledge of legal consequences that flow from known facts is required in order for actual knowledge to exist. Such knowledge may assist in the acquisition of actual knowledge of a claim, but it is not a requirement. Duchesne could have had actual knowledge without having had the benefit of the legal analysis that might have identified for him the potential liability of various potential defendants. In his examination for discovery, Duchesne admitted that, even during 2004, he did not know that he had a case specifically against either Gauvreau or Bedard that would result in a damage award in his favour. He testified that he knew he had a case but not specifically against whom. This admission was key to

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Duchesne v. St-Denis, (cont.) the Master’s and Divisional Court’s erroneous determination that Duchesne had not “discovered” his claim against these particular persons as required by s. 5(1)(a)(iii) and (iv) of the 2002 Act prior to the implementation of the Act itself (on January 1, 2004). As the finding of the Master, affirmed by the Divisional Court, that Duchesne did not have actual knowledge of the claim before January

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1, 2004, was based upon an incorrect view of the law, that finding must be set aside. The Divisional Court made no determination as to whether Duchesne’s claim was “discoverable” pursuant to s. 5(1)(b) of the 2002 Act. It was an error in law not to have addressed whether the claim was discoverable by a reasonable person with Duchesne’s abilities and in his circumstances.


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COUNSEL COMMENTS Duchesne v. St-Denis Comments provided by Elizabeth Quigley, co-counsel for the Appellant

“E

ric Duchesne was actual or deemed seriously injured discovery of the while playing a claim had occurred dangerous game in a pool with before January 1, his two friends, Steve Gauvreau 2004, Eric’s action and Jean-Marc Bedard. The game against Gauvreau involved one boy throwing a and Bedard was not football to another person who statute barred as it Elizabeth Quigley was leaping into the pool. Eric was governed under the former six hit his head on the pool and the year limitation period. serious nature of his injuries were apparent immediately. Eric’s mom The Plaintiff always maintained that sought legal advice and Eric was told there was no new facts or information he had a lawsuit against a “bunch of after the date of the accident which people”. Eric, who was 15 years old are relied upon in support of his at the time of the accident, chose not action. All the relevant information to pursue his claims and focus on his which formed part of the claim recovery. At the time of the accident, was always in the possession of the the applicable limitation period was Plaintiff. The identity of the parties six years. and their actions at the time of the accident were known as well as the On January 1, 2004, the Limitations severity of the Plaintiff’s injuries. Act, 2002 , S.O.2002, c.24 came into force. The former limitation period was only applicable for claims which had not been “discovered” prior to the new legislation. In order to determine whether a claim had been discovered, the inquiry was whether there was actual discovery or deemed discovery under the legislation. If November 2012

The Court of Appeal affirmed that knowledge of the legal consequences that flow from the known facts are not necessarily required in order for actual knowledge to be found to exist. While in some cases, such legal advice may assist in the acquisition of actual knowledge, it is not a requirement.

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COUNSEL COMMENTS, Cont. There are clearly some situations that legal advice is not required before someone could be said to have discovered a claim. In other words, the entire legal theory of the case need not be known before discovery can occur. This is consistent with the principles outlined by the Court of Appeal in Kowal v. Shyiak, 2012 ONCA 512 which held that certainty of a defendant’s responsibility for the act or omission that caused or contributed to the loss is not a requirement. The more interesting issue was whether Eric could be deemed to have discovered his claim at the age of 17 (his age at the time the Limitations Act, 2002, came into force). The lower courts refused to consider this issue on the basis that it would be contrary to public policy for a minor to be deemed to discover his claim. The lower courts relied upon the Supreme Court of Canada decision of Murphy v. Welsh, [1992] 2 S.C.R. 1069. The assumption made by the lower courts was that minors would be adversely affected by deemed discovery of a claim. In order to challenge that assumption, a thorough review of the effect of the Limitations Act, 2002 and preceding legislation was compiled in order to demonstrate that the new Limitations Act, 2002 , fixed the loopholes which were plaguing minors under the former limitation regimes. In fact, the Limitations Act, 2002 , addressed the very problem which was problematic in Murphy v. Welsh. Prior to the Limitations Act, 2002, the suspension of limitation period protection afforded to minors was not universally applicable to all limitation periods. This meant that some limitation periods could run against minors during their infancy. The Supreme Court in Murphy v. Welsh intervened to protect minors who otherwise were left unprotected by the former Limitation Act. The suspension of limitation periods for minors in the Limitations Act, 2002, applies universally to all limitation periods in Ontario and therefore no such judicial intervention was required. The Ontario Court of Appeal has affirmed that minors can discover (and be deemed to discover) their claims. The legal effect of such a discovery is suspended until the individual is no longer a minor. There is no adverse consequences of a discovery or a deemed discovery. The only practical effect of such a discovery is in the application of the transitional rules under the Limitations Act, 2002. For Eric, any discovery or deemed discovery of his claim means that his claim is governed by the former six year limitation period. November 2012

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Pikangikum First Nation v. Nault, 2012 ONCA 705 Areas of Law: First Nations; Crown Liability; Misfeasance in Public Office Former Minister of Department of Indian Affairs and Northern Development not liable for misfeasance in public office

BACKGROUND

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he appellant Pikangikum First Nation (“PFN”) was a community of about 2000 located on a remote reserve hundreds of kilometres northwest of Thunder Bay. In 2000-2001, Parliament allocated $4.14 billion for the Indian and Inuit Affairs Program, the objectives of which were to enhance the capacity of First Nations governments to provide services and to build infrastructure on reserves at levels comparable to those enjoyed by other Canadians. The plans for PFN as part of this initiative called for a phased series of capital projects, including connecting Pikangikum to the electrical distribution grid from Red Lake and extending water and sewage service to public buildings and, eventually, to every home on the reserve. Respondent Robert D. Nault (“Nault”) was appointed Minister of the Department November 2012

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Indian Affairs and Northern Development (“the department”) in 1999. In February 2000, PFN advised the contractor for the electrical grid that it had run out of money. In June 2000, a power failure at the new water treatment plant caused a sewage backup that contaminated PFN’s drinking water. In October 2000, the basement of the new water treatment plant flooded. Fuel oil spilled into the reservoir and PFN’s water supply was deemed unsafe. A state of emergency was declared. As a recipient of federal funds, PFN was subject to a Comprehensive Funding Agreement or Arrangement. On November 17, 2000, officials in the department decided that the aforementioned dire circumstances warranted immediate intervention, and they wrote to Chief Peter Quill to advise that a third-party manager would be appointed for PFN. Immediately upon receipt of the letter, Quill asked for a written explanation for why third-party management was being imposed without prior notice or consultation with PFN and requested a meeting. In a telephone call a few days later, Nault assured Quill that he had “no intention” of imposing third-party management. Nault met with Quill and other PFN leaders in December 2000, and used the opportunity to affirm his preference for comanagement rather than third-party management. At the end of the meeting, PFN’s lawyer served Nault personally with notice of an application for judicial review of the department’s November 17 decision to impose third-party management, a decision Nault had already disavowed. PFN and the department

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Pikangikum First Nation v. Nault, (cont.) entered into negotiations concerning co-management versus third-party management. PFN made applications to Federal Court for judicial review of the department’s decision to intervene in the affairs of PFN under the Comprehensive Funding Agreement or Arrangement. In July 2001, Nault met with PFN leaders and proposed mediation. One of the conditions laid down on the recommendation of the Department of Justice was that PFN put the application for judicial review in abeyance. PFN did not respond to the formal offer to mediate. PFN’s application for judicial review was heard in June 2002. In November 2002, O’Keefe J. allowed the application. O’Keefe J. held that it was patently unreasonable for the department not to follow the intervention policy,

November 2012

which, in his view, mandated that PFN be given notice of the difficulty or default before intervening. The application judge declared the Minister’s decision to require co-management to be invalid because of the breach of the duty of procedural fairness. Shortly after the Federal Court decision was released, PFN commenced an action against Nault, claiming that Nault acted unlawfully and misused his power by imposing thirdparty management; attempting to deny PFN access to the courts; insisting on favourable media statements; and cancelling or delaying vital health and safety projects to advance illegal or wrongful objectives. The trial judge found that PFN had failed to establish the elements of the tort of misfeasance of public office. PFN appealed.

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Pikangikum First Nation v. Nault, (cont.) APPELLATE DECISION

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he appeal was dismissed. The tort of misfeasance in public office has two elements: (1) the defendant must have engaged in deliberate and unlawful conduct in his or her capacity as a public officer; and (2) the defendant must have known that the conduct was unlawful and that it was likely to harm the plaintiff. A failure to act can amount to misfeasance in a public office, but only in those circumstances in which the public officer is under a legal obligation to act. Misfeasance in a public office requires an element of bad faith or dishonesty. In the case at bar, the trial judge’s central factual finding was that it was reasonable for Nault to insist that PFN suspend its litigation as a precondition to co-management and the release of millions of dollars in federal infrastructure funds. On account of PFN’s managerial and audit problems, some legal mechanism was required to monitor public money given to PFN. Under the governing legislation and departmental policies, that legal mechanism would inevitably involve an intermediary, either a co-manager or a third-party manager. Nault believed that the litigation stood in the way of reaching a mutually acceptable resolution of the management issue and the trial judge found that Nault’s belief was properly motivated and reasonable in the circumstances. The idea that PFN should November 2012

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suspend its litigation while the parties attempted mediation first emerged on the advice of the Department of Justice. While Nault continued to insist upon that as a condition of coming to some accommodation with PFN, there was ample evidence to support the trial judge’s finding that there were other compelling reasons to justify federal intervention in PFN’s financial affairs. There was a solid basis in the evidence for the trial judge to conclude that intervention by co-manager or third-party manager was reasonable under the intervention policy in the circumstances. Rightly or wrongly, Nault regarded the applications for judicial review as a stumbling block to achieving co-management.


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COUNSEL COMMENTS Pikangikum First Nation v. Nault Comments provided by Joseph Magnet, Counsel for the Appellant/ Respondent by way of Cross-Appeal

“T

erroneous and regrettable.

he Court found that Minister Robert Nault held up Pikangikum’s projects for clean water and reliable winter power until Pikangikum agreed to give up its court action which challenged INAC’s financial management decisions.

We believe that projects for clean water and reliable winter power cannot be thwarted because First Nations exercise their constitutional rights to go to court.

The Court of Appeal held Joseph Magnet that misfeasance in office will be made out only where an official “deliberately abused his powers to Forty million dollars of critically harm another party” (paras 74, 77). needed infrastructure failed here We believe this is erroneous. because of departmental actions Precedent and principle specify that which both the trial and appeal misfeasance is made out when a courts criticized in their reasons. public officer acts with knowledge Pikangikum must get on with both that she or he has no power to building the necessary infrastructure; do the act complained of and that it will now work outside the litigation the act is likely to injure the plaintiff. process to do this. We hope The Court of Appeal added a further Pikangikum will find a willing partner requirement to this – the specific in the new occupants of the Minister’s intent to injure (para 77). We Office at Aboriginal Affairs Canada.” believe the Appeal Court’s departure would restrict the tort too far for a democracy, and that its decision is

November 2012

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