December 4, 2023
Newsletter – December 2023
A Special Announcement – “Best Lawyers”
Dolden is pleased to announce that Best Lawyers has recognized the following seven of our lawyers as top insurance lawyers in Canada: Eric Dolden, Brian Rhodes, Janis McAfee, Jill Shore, Mike Libby, K.C., Christine Galea, and Elka Dadmand.
The full announcement from Best Lawyers can be read here:
https://www.bestlawyers.com/article/the-best-lawyers-in-canada-2024-awards/5460
Surface Discontinuities and Accidents – Court Provides Guidance Regarding Claims of Negligence Against Municipalities
By Robert Smith, Dolden Toronto, Email: [email protected]
The Ontario Superior Court of Justice released a decision that demonstrates why it is important for municipalities to fully investigate the scenes of motor vehicle accidents or trip and fall accidents.
In Beardwood v. Hamilton, 2022 ONSC 4030, the plaintiff was injured as a result of a 2015 single-vehicle motorcycle accident at the intersection of White Church Road and Trinity Church Road in Hamilton. The plaintiff alleged that a surface discontinuity, caused by an asphalt lip, caused his accident.
The plaintiff took photographs of a ruler held up within the discontinuity that caused the accident. The discontinuity was extensive and some areas of it were 3.5 cm and some were 5.5 cm. Importantly, the plaintiff could not identify exactly where he had struck the surface discontinuity and, therefore, could not identify the height of the discontinuity at that location.
The defendant’s liability turned on section 44 of the Ontario Municipal Act, 2001. Section 44(1) provides that a municipality shall keep a highway “in a state of repair that is reasonable in the circumstances”. Section 44(3) relieves a municipality from liability if, at the time of the accident, the highway met the minimum maintenance standards enacted by the Ontario government.
In this case, the Minimum Maintenance Standards had been amended in 2013 to deem all road surfaces to be in a state of good repair if they contained surface discontinuities that did not exceed a certain level. According to the trial judge, the relevant level was 5 cm. The trial judge then noted that the plaintiff could not pinpoint the location of the accident and also noted that all discontinuities that were lower than 5 cm in height were deemed to be in good repair. Given the uncertainty, the trial judge took an average measurement of all the discontinuities, and held that the average height was 4.5 cm. As a result, the court deemed the roadway to be in good repair and dismissed the plaintiff’s case.
Takeaway
This decision is interesting for a number of reasons. First, the trial judge distinguished the Ontario Court of Appeal’s decision in Kamin v. Kawartha Dairy, 2006 CanLII 3259, where the Court held that liability could be found against an occupier for the purposes of the Occupiers’ Liability Act even if the plaintiff could not prove the exact location where she fell. The Court supported this decision because there was uncontradicted evidence that the parking lot where the fall occurred was in a uniform state of serious disrepair. In Beardwood, by contrast, the Minimum Maintenance Standards made it more important for the parties to be able to pinpoint the location of the accident. This is because the Standards dictated different outcomes based on the height of the discontinuity. In order to take advantage of the Standards, adjusters who investigate municipal claims should investigate the entire scene where the incident occurred.
Court Clarification on Criminal Acts: Is an Insured Entitled to Coverage After Being Found Not Criminally Responsible?
By Michael Libby, K.C. Dolden Vancouver, Email: [email protected]
The recent decision in Butterfield v. Intact Insurance Company 2022 ONSC 4060 highlights the very interesting interactions between criminal and civil law when an insured seeks liability coverage against a claim for damages caused by an insured who was later charged and found not criminally responsible for that act by reason of mental disorder.
In 2019, Brett Butterfield suffered a psychotic episode while at a firearms store. He stabbed the store owner in the honest but deluded belief that he was defending himself and/or his family. He was charged with aggravated assault, but was found Not Criminally Responsible (“NCR”) due to his schizophrenia.
The store owner sued Mr. Butterfield for negligence in attending the store and applying for a firearms licence when he was lucid, when it was reasonably foreseeable that he would injure or kill someone.
Mr. Butterfield had third party liability insurance under his Condominium Unit Owners Policy. His insurer denied coverage for the lawsuit, stating that the claims are excluded from the policy because the knife attack was both: (a) an intentional act; and (b) a criminal act for which no coverage would be afforded under the policy. Mr. Butterfield sought a declaration for coverage, in which three issues were raised:
- What is the true nature of the claim?
- Were the insured’s actions criminal?
- Were the insured’s actions intentional?
True Nature of the Claim
The court was first required to consider whether the claims in negligence were entirely derivative of the harm caused by intentional conduct. The court concluded that the alleged negligence claim was based on the same harm as an intentional tort of assault (if it had been pleaded). A plaintiff cannot convert the intentional tort of assault into an action in negligence solely to ensure that the defendant’s insurer will provide the necessary ‘deep pocket’ to make a judgment recoverable. The elements of the negligence and intentional tort were not sufficiently disparate to make them unrelated, and the negligence claim was found to be derivative of an intentional tort, which was the true nature of the claim.
Criminal Act
The policy defined “criminal act” extends to any breach of the Criminal Code – without regard for any intent or lack of intent to cause damage. Any NCR finding by a criminal court is necessarily predicated on a finding that the accused has actually committed the criminal act in question. It then operates to “excuse” the accused from certain degrees of responsibility – but does not detract from the finding that the criminal act was committed. The court cannot proceed to a determination on the NCR issue until the Crown has proven the case beyond a reasonable doubt. In this case, Mr. Butterfield’s acknowledgement that he committed the criminal act (and the court’s related findings) led to the conclusion that the damages claimed in the lawsuit were caused by a criminal act.
Intentional Act
Two forensic psychiatric assessments were undertaken to determine whether Mr. Butterfield was criminally responsible at the time of the assault. Both psychiatrists diagnosed him with schizophrenia and concluded that, due to his mental disorder, he did not have the capacity to know that stabbing the store owner was morally wrong. The criminal court found that Mr. Butterfield committed the act that constitutes the offence, but found that Mr. Butterfield was NCR on the basis that he did not have the capacity to know that stabbing the store owner was morally wrong. However, his inability to appreciate that did not change the fact that his actions were clearly intended to cause harm.
The court concluded that coverage for the claim was excluded by operation of both the criminal act and the intentional act exclusions, and that the insurer had no duty to defend.
Takeaway
Although such situations are rare, this decision offers some welcome clarification to the question of when an insurer will have to respond to a civil claim for damages caused by an insured who has committed a criminal act but is found to have been NCR. It is now clearer that those situations will be quite rare.
The Passage of Time Does Not Diminish a Judge’s Job When Hearing Historic Abuse Cases
By Robert Smith, Dolden Toronto, Email: [email protected]
The recent Ontario Court of Appeal decision of Darlene Marie Paddy-Cannon v. The Attorney General of Canada and Katherine Cannon, 2022 ONCA 110 provides a reminder of the proper approach to be followed when assessing a witness’ testimony in cases of historic abuse.
In this case, the abuse occurred in the late 1960s. The alleged abuser defended the action and was 81 years old at the time of trial. There were disagreements between the plaintiffs and the defendant about whether the abuse occurred. The trial judge found that the appellants presented as credible and appeared to be sincere, truthful and honest. He recognized that each experienced a traumatic and tragic childhood. However, he concluded that the “passage of several decades make it impossible for me to determine that the plaintiffs’ evidence is reliable.” The Court of Appeal found that the trial judge made this determination for two reasons. First, their testimony often lacked specifics because all three appellants relied on generalizations, such as “sometimes”, “I believe” and “as I recall”. Second, their testimonies were inconsistent as to the details of the assaults, such as whether they were primarily beaten individually or collectively. As a result of this finding, the trial judge dismissed the plaintiffs’ lawsuit.
The plaintiffs appealed on the grounds that the trial judge improperly determined that they were not credible because of the passage of time. The Court of Appeal overturned the trial judge’s findings and ordered a new trial.
The Court of Appeal’s reasoning is instructive for anyone who defends or analyzes historic abuse claims. First, The Court held that “particular scrutiny” is called for in approaching the reliability of the evidence with respect to abuse that occurred decades before the trial. To this end, the trier of fact must be mindful of “serious inconsistencies” in a witness’ account, as well as the “subtle influences that may have distorted” a witness’ memories over time.
That said, the Court held that these cautions do not “instruct a trial judge to reject witness testimony as unreliable” merely because time has passed. The Court held that the trial judge erred by placing too much emphasis on this factor and held that “the passage of time cannot overwhelm a trier of fact’s assessment of the evidence”.
The Court held that the proper approach was laid down by the Supreme Court of Canada in R. v. W. (R.), [1992] 2 S.C.R. 122, where it held that an adult testifying to events that occurred when she was a child is to have her credibility assessed according to the criteria applicable to adult witnesses. However, her evidence with respect to events that occurred in her childhood should be considered in the context of her age at the time of the events to which she is testifying. That means that a court must be mindful that events that occurred when someone was a child may have inconsistencies with respect to peripheral matters (such as time and location) and they may lack some memories.
Takeaway
It is hard to assess witnesses in historic abuse cases. Their evidence is often lacking in many of the qualities that makes a witness credible in more contemporary lawsuits. The Paddy-Cannon case reminds us that the mere passage of time does not necessarily mean that witnesses will not be believed. On the contrary, the law allows the trial judge to accept some inconsistencies in the testimony of adults who were of tender years when abuse occurred.
Director’s Corporate Malfeasance to Limited Partnerships, Liability of Third Parties and Disgorgement of Profits
By Chris Stribopolous, Dolden Toronto, Email: [email protected],
Recently, the Supreme Court of Canada (“SCC”) dismissed an application to appeal the Ontario Court of Appeal’s (“ONCA”) judgment in Extreme Venture Partners Fund I LP v. Varma, 2021 ONCA 853. In this case, the ONCA had addressed “acceptable standards of conduct” as well as the disgorgement remedy in the context of corporate malfeasance.
Background
The Appellants were shareholders and directors of EVP GP Inc. (“GP”) alongside 3 other shareholders and directors. GP was the corporate general partner and manager of Extreme Venture Partners Fund I LP (“LP”), a limited partnership and venture capital fund providing seed capital to start-up technology companies (GP, LP and the 3 other directors of GP are collectively the “Respondents”). Unbeknown to other directors of GP, the Appellants established a second fund, Extreme Venture Partners Annex Fund I (the “Annex Fund”), obtained financing of US$5 million for the Annex Fund from an investment firm, and in the process provided confidential information on LP’s investment portfolio to the investment firm. Consequently, the Annex Fund invested in LP’s most successful portfolios, one of which was Xtreme Labs (“Xtreme”). The Appellants were founders, CEOs, MDs as well as shareholders of Xtreme, while the 3 other directors of GP were merely shareholders and directors.
LP began to explore options to sell Xtreme. At Board meetings discussing sale options, the Appellants understated Xtreme’s revenue projections to the rest of the Board. Without informing the other directors, the Appellants helped a third party (“P”) to prepare an offer to buy Xtreme. P eventually bought Xtreme for US$18m. After the sale, the Appellants and P transferred to themselves a 13% equity in one of Xtreme’s assets, Hatch Labs (“Hatch”). P resold Xtreme for US$60m, and sold the 13% equity in Hatch for US$30million.
The Respondents sued the Appellants for establishing and operating the Annex Fund, misrepresenting and concealing material information, as well as disclosing confidential information in breach of their fiduciary duties as directors. The Respondents also sued P for conspiring with the Appellants. The trial judge found the Appellants liable for $250,000 in punitive damages for the duties breached in respect of the Annex Fund. The trial judge also found P and the Appellants jointly and severally liable for $3.36 million in damages and $12.33 million in disgorgement of profits.
The Judgment of the ONCA
The Appellants submitted that they could not be held liable for breach because they only owed a fiduciary duty to GP, and not to LP who suffered the loss. The ONCA held that the Appellants’ submission may have been tenable if they were trying to balance the interests of LP and GP. However, the ONCA found that the Appellants were acting in self-interest to the detriment of both LP and GP. Consequently, the ONCA extended the Appellants’ fiduciary duty to GP to include LP.
P challenged the trial judge’s imposition of joint and several liability on him, since he was a third party and did not owe the Respondents any fiduciary duty. The ONCA rejected this contention and held that P was jointly and severally liable for the Appellants’ conduct, having knowingly assisted and actively participated in and was in fact a primary beneficiary of the Appellants’ wrongful conduct.
The Appellants submitted that since Hatch was not worth more than $500,000 at the time P bought Xtreme, the Respondents were not entitled to the subsequent increased value (an increase of $29.5 million at the time of sale by P). This submission was based on the absence of causal connection between the increase in value and the wrongful conduct. In other words, the Respondents had no right unrelated to the breach. The ONCA rejected this submission and held that the Respondents were entitled to benefit from the increased value, since the Appellants, by concealing its investment in Hatch, robbed the Respondents of the opportunity to decide whether to invest in Hatch or not. The ONCA therefore increased the trial judge’s order of disgorgement of profits to $29.5 million.
Takeaway
Firstly, the scope of the fiduciary duty owed by directors of a corporate general partner includes a duty to any underlying limited partnership. Secondly, where a third party knowingly assists a director or officer in breaching their fiduciary duties to a corporate entity and benefits from that breach, such third party will be jointly and severally liable for the director or officer’s breach. It does not matter that the third party owes no direct fiduciary obligation to the corporate entity. Thirdly, the Courts can order a fiduciary in breach to disgorge all profits. However, such orders for full disgorgement will only be made where the equity of a case so demands.
| Editor |
| Cody Mann |
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