Canada: Court Of Appeal Summaries (April 12 – April 16, 2021)
Blaney's Appeals

Good evening.

Please find below our summaries of the civil decisions of the Court of Appeal for the week of April 12, 2021.

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Marshallzehr Group Inc. v. Ideal (BC) Developments Inc. addressed the interpretation of a commitment letter for a commercial loan cancelled by the lender as a result of the borrower's failure to satisfy the conditions of financing (the postponement of a pre-existing mortgage). At trial, the respondent was awarded certain amounts for its fees and expenses, including the lender's fee, which was payable out of the amount advanced. The Court of Appeal found for the lender on most issues, including its right to cancel the financing, but it sided with the borrower and determined the lender's fee had not been earned because no funds were advanced. The result turned on the specific wording of the commitment letter.

Nemchin v. Green dealt with the statutory assignment and trust provisions of section 267.8 of the Insurance Act which required a plaintiff who had been compensated for their injuries by a defendant to assign collateral benefits they received to the defendant's insurer. The purpose of these provisions is to avoid double-recovery.

Makeeva v. Makeev is a family law decision. The Court allowed the cross-appeal because the trial judge failed to deduct the value of the respondent's date of marriage assets (a condo that was not a matrimonial home) when calculating the equalization payment to be made.

Please join us on April 27, 2021, from 5:30-7:45pm for our fifth annual "Top Appeals" CLE, which will take place via Zoom. We are set to have a great turnout. Justice Benjamin Zarnett will be co-chairing the event with myself and Chloe Snider of Dentons. Following is our excellent slate of decisions and panelists:

2020 Update from the Bench

The Honourable Benjamin Zarnett, Court of Appeal for Ontario

Panel 1 - Advocacy Practice Tips from the Court

Girao v. Cunningham, 2020 ONCA 260

OZ Merchandising Inc. v. Canadian Professional Soccer League Inc., 2020 ONCA 532

Welton v. United Lands Corporation Limited, 2020 ONCA 322

Jordan Goldblatt, Adair Goldblatt Bieber LLP

Sara Erskine, Weintraub Erskine Huang LLP

Panel 2 - Negligently Designed Financial Products - A New Age in Product Liability?

Wright v. Horizons ETFS Management (Canada) Inc., 2020 ONCA 337

Seumas Woods, Blake, Cassels & Graydon LLP

Alistair Crawley, Crawley MacKewn Brush LLP

Elizabeth Bowker, Stieber Berlach LLP

Panel 3 - Developments in Insolvency Law - Priority of Construction Trust Claims and Landlord Claims in Bankruptcy

Urbancorp Cumberland 2 GP Inc. (Re), 2020 ONCA 197

7636156 Canada Inc. (Re), 2020 ONCA 681

Ken Kraft, Dentons LLP

Kevin Sherkin, Miller Thomson LLP

D.J. Miller, Thornton Grout Finnigan LLP

There is still plenty of time to register for the program by visiting the OBA's website.

Wishing everyone a safe and pleasant weekend.

John Polyzogopoulos
Blaney McMurtry LLP
416.593.2953 Email

Table of Contents

Civil Decisions

Marshallzehr Group Inc. v. Ideal (BC) Developments Inc., 2021 ONCA 229

Keywords: Contracts, Breach, Interpretation, Commercial Reasonableness, Duty of Good Faith and Fair Dealing, Debtor-Creditor, Commercial Lending, Commitment Letters, Conditions, Termination, Damages, Lender's Fees, Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, Ventas, Inc. v. Sunrise Senior Living Real Estate Investment Trust (2007), 85 O.R. (3d) 254 (C.A.), Deslaurier Custom Cabinets Inc. v. 1728106 Ontario Inc., 2017 ONCA 293, Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, 2021 SCC 7, Chijindu v. Prudential Property Management, 2014 ONSC 4759

Makeeva v. Makeev , 2021 ONCA 232

Keywords: Family Law, Spousal Support, Child Support, Lump Sum Payments, Imputed Income, Equalization of Net Family Property, Date of Marriage Assets, Reopening of Case, Fresh Evidence, Divorce Act, section 15.3(1), Family Law Act, section 38.1(1)

Nemchin v. Green , 2021 ONCA 238

Keywords: Insurance, Subrogation, Collateral Benefits, Long-term Disability, Statutory Assignment of Rights and Benefits, Statutory Trusts, Civil Procedure, Procedural and Natural Justice, Insurance Act, R.S.O. 1990, c. I.8, Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), s. 267.8, Lewin on Trusts, 19th ed. (London: Sweet & Maxwell, 2015), Rodaro v. Royal Bank of Canada (2002), 59 O.R. (3d) 74 (C.A.), Kant v. The Queen, [2001] 2 C.T.C. 2703 (T.C.C.), Bapoo v. Co-Operators General Insurance Co. (1997), 154 D.L.R. (4th) 385 (Ont. C.A.), leave to appeal refused, [1998] S.C.C.A. No. 62, Cadieux v. Cloutier, 2018 ONCA 903, leave to appeal refused [2019] S.C.C.A. No. 63, Carroll v. McEwen, 2018 ONCA 902, Cobb v. Long Estate, 2017 ONCA 717, El-Khodr v. Lackie, 2017 ONCA 716, leave to appeal refused, [2017] S.C.C.A. No. 461, Re Scott, [1948] SASR 193, Frederick v. Aviation & Gen. Ins. Co., [1966] O.J. No. 1064 (C.A.), Rizzo & Rizzo Shoes Ltd. (Re), [1998] 1 S.C.R. 27, Pugh v. Canada, [2000] T.C.J. No. 585, Bouchard v. Canada, 2008 TCC 408.

Short Civil Decisions

Lengyel v. TD Home and Auto Insurance, 2021 ONCA 237

Keywords: Torts, Negligence, MVA, Civil Procedure, Settlements, Court Approval, Litigation Guardians, Appeals, Jurisdiction, Kavuru (Litigation guardian of) v. Heselden, 2014 ONSC 6718.

CIVIL DECISIONS

Marshallzehr Group Inc. v. Ideal (BC) Developments Inc., 2021 ONCA 229

[Rouleau, Brown and Miller JJ.A.]

Counsel:

M.A. Russell, for the appellants

S. Schwartz, for the respondents

Keywords: Contracts, Breach, Interpretation, Commercial Reasonableness, Duty of Good Faith and Fair Dealing, Debtor-Creditor, Commercial Lending, Commitment Letters, Conditions, Termination, Damages, Lender's Fees, Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, Ventas, Inc. v. Sunrise Senior Living Real Estate Investment Trust (2007), 85 O.R. (3d) 254 (C.A.), Deslaurier Custom Cabinets Inc. v. 1728106 Ontario Inc., 2017 ONCA 293, Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, 2021 SCC 7, Chijindu v. Prudential Property Management, 2014 ONSC 4759

facts:

The respondents, Marshallzehr Group Inc. ("MZ"), agreed to advance funds to the appellants, Ideal (BC) Developments Inc. ("Ideal"), for a residential development project under a commitment letter (the "CL"). Under the terms of the CL, MZ was going to syndicate the loan but was not required to advance any funds to Ideal until Ideal had satisfied certain preconditions. Shortly after the CL was executed, the syndicated lenders began to advance funds, but because Ideal had not satisfied the preconditions, MZ transferred the funds to its counsel to be held in trust pending the satisfaction of the preconditions. MZ informed Ideal that interest was beginning to accrue on the funds.

Roughly one month later, MZ notified Ideal that it was terminating the CL because the funding conditions had not been met. One of the predominant issues was that MZ and Ideal could not agree on a postponement and standstill agreement for a pre-existing first mortgage. The pre-funding conditions required the execution of all ancillary agreements including postponements in a form satisfactory to MZ (the "Subordinate Financing Clause"). The parties could never agree on the form of these postponements. No funds were ever advanced to Ideal.

MZ brought this action to recover its fees and expenses and Ideal counter-claimed for damages caused by a wrongful termination of the CL by MZ. MZ moved for summary judgment which was granted in favour of MZ both on the main action and the counter-claim.

issues:

(1) Did the motion judge err in determining that MZ had the right to terminate the CL and thus dismissing the counter-claim?

(2) Did the motion judge err in calculating the fees and expenses to which MZ was entitled to upon cancellation of the CL?

holding:

Appeal allowed in part.

reasoning:

(1) Did the motion judge err in determining that MZ had the right to terminate the CL and thus dismissing the counter-claim?

No. This ground of appeal concerned the motion judge's interpretation of the contract, the CL. The standard of review was that articulated in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53. Ideal submitted that the motion judge committed an error on an extricable question of law, namely that the motion judge failed to interpret the provisions of the CL as a whole and thus failed to assign meaning to all of the contested terms.

The CL covered two distinct time periods: i) the time between signing the CL and advancing the funds (the pre-closing period); and ii) the time from advancing the funds until the end of the 13 month term of the loan (the post closing period). The conditions to funding related to the pre-closing period whereas the section of the CL dealing with default by Ideal and termination for default (the "Demand and Default Provisions") related to the post closing period. There was also a general cancellation right in the CL which gave MZ the right to cancel the undrawn portion of the loan at any time, for any reason and without notice.

The crux of Ideal's arguments was that in order to terminate the CL, MZ needed to rely on the Demand and Default Provisions, which required MZ to notify Ideal of a default and give Ideal an opportunity to remedy the default. Ideal argued that since MZ never gave notice or an opportunity to cure, the termination of the CL was wrongful.

The motion judge held that the cancellation right required MZ to have a reason for cancelling and that MZ's reason for doing so was that it became apparent that Ideal could not or would not satisfy the pre-funding conditions. Ideal argued on appeal that the Demand and Default Provisions needed to be given meaning and priority. However, the Court of Appeal rejected this submission because the Demand and Default Provisions only applied after funds had been advanced, which was not the case.

Ideal also argued that the cancellation language only entitled MZ to cancel the undrawn portion of the loan, not terminate the CL entirely. The Court rejected this argument as it was commercially unreasonable. At the time MZ advised Ideal it was terminating the CL, no funds had been advanced and so the full value of the loan was undrawn. The effect of cancelling this portion and terminating the CL were the same - Ideal would not receive any money. While the CL's language may not have been clear, the motion judge's finding that MZ could terminate the CL gave practical meaning to all the CL's terms and was commercially reasonable.

Ideal further argued that the Subordinate Financing Clause treated the parties' inability to resolve the dispute over standstill agreements as a default and thus MZ had to resort to the Demand and Default Provisions. The Court of Appeal rejected this submission as the Subordinate Financing Clause clearly defined two events of default - the failure to agree to resolve the dispute over the standstill was not one of them. The failure by Ideal to provide security documents in a satisfactory form to MZ materially altered the level of risk MZ was taking on and that gave MZ sufficient reason to rely on the cancellation provision.

Ideal's last argument on this ground focused on good faith and the duty to exercise contractual discretion in good faith. Ideal argued that when MZ unreasonably demanded a permanent standstill agreement in excess of what was required under the CL and terminated the CL without notice, it breached its duty of good faith. Ideal did not advance this argument before the motion judge. On appeal, Ideal also sought to rely on Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, 2021 SCC 7. The Court of Appeal refrained from commenting on the ability of an appellant to argue on appeal a pleaded defence it chose not to pursue at trial or the lateness of the hour at which the appellant raised the issue thus depriving the court of the parties' submissions on the Wastetech decision.

The Court chose instead to address Wastech directly. The Court observed that while Wastech states that contractual discretion must be exercised reasonably, in light of the purpose for which it was conferred, the decision notes that such a duty of good faith "does not displace the detailed, negotiated bargain as the primary source of justice between the parties". The Court went on to note that in the case at hand, the pre-conditions to financing and the cancellation right existed to define the level of risk that MZ was willing to take on. When Ideal did not or would not meet the conditions, the level of risk was materially altered and so MZ used the cancellation right for the exact purpose it was given for.

(2) Did the motion judge err in calculating the fees and expenses to which MZ was entitled to upon cancellation of the CL?

Yes, in part. The motion judge's judgment consisted of three awards: i) standby interest; ii) expenses; and iii) a lender fee. The Court of Appeal addressed each of these awards in turn.

Standby Interest

The CL provided that interest would become payable, among other things, upon termination of the CL without any advances having been made. Ideal argued that since MZ had cancelled the CL, not terminated it under the Demand and Default Provisions, the standby interest was not payable. The Court of Appeal rejected this argument, as the practical effect of cancelling the CL under the cancellation provisions was to terminate the CL without advances having been made. The award for standby interest was affirmed.

Expenses and Good Faith Deposit

MZ was entitled to all reasonable expenses including all legal costs and to retain a $50,000 non-refundable good faith bonus regardless of whether Ideal proceeded with the transaction. Ideal submitted that MZ exercising the cancellation provisions did not constitute Ideal failing to proceed with the transaction. The motion judge held, and the Court of Appeal affirmed that the evidence amply supported the finding that Ideal could not or would satisfy the conditions and that the failure to meet the conditions was conduct sufficient to show that Ideal failed to proceed with the transaction. The award for expenses and the good-faith deposit were upheld.

Lender's Fee

The CL provided that fees for MZ were to be $396,000 and were to be deducted from the initial advance of funds. The motion judge held that the lender's fee was recoverable despite Ideal's argument that the lender fee was clearly only payable once an advance was made. The Court of Appeal agreed with Ideal in that the language saying the fee shall be deducted from the initial advance indicates that the fee was not earned until funds were advanced. MZ relied on Chijindu v. Prudential Property Management, 2014 ONSC 4759, however, the Court of Appeal distinguished that case because it did not involve the same language that the lender's fee was to be deducted from the advance of funds. As well, in Chijindu, the lender had actually advanced funds. The Court of Appeal held that the motion judge erred in awarding MZ its lender's fee and thus reduced the damage award against Ideal accordingly.

Makeeva v. Makeev, 2021 ONCA 232

[Rouleau, Brown and Miller JJ.A.]

Counsel:

R. Korytko, for the appellant/respondent by way of cross-appeal

J.W. Bruggeman, for the respondent/appellant by way of cross-appeal

Keywords: Family Law, Spousal Support, Child Support, Lump Sum Payments, Imputed Income, Equalization of Net Family Property, Date of Marriage Assets, Reopening of Case, Fresh Evidence, Divorce Act, section 15.3(1), Family Law Act, section 38.1(1).

facts:

The parties separated after fifteen years of marriage and had two children. At trial, the judge ordered the appellant to pay $905 per month in spousal support to the respondent. The trial judge also ordered the appellant to make an equalization payment. After the judge issued her decision, the appellant attempted to reopen the trial and file fresh evidence. The trial judge dismissed this motion largely on the basis that this evidence would not change her original judgment.

The appellant appealed on several grounds. The respondent cross-appealed the equalization payment calculation.

issues:

(1) Did the trial judge err by allowing the interpreter to continue despite the appellant's objections?

(2) Did the trial judge err by failing to order a lump sum child support payment?

(3) Did the trial judge err in imputing the respondent's income at $28,000 per year?

(4) Did the trial judge err in awarding spousal support?

(5) Did the trial judge err by failing to admit the fresh evidence?

(6) Did the trial judge err by failing to deduct the value of a date of marriage asset from the respondent's net family property?

holding:

Appeal dismissed, cross-appeal allowed.

reasoning:

(1) Did the trial judge err by allowing the interpreter to continue despite the appellant's objections?

No. The appellant alleges that the incompetency of the interpreter led to inaccuracies and omissions in the translation at trial which were substantial and resulted in an unfair trial. The Court of Appeal rejected this. The appellant's lawyer only raised the issue on the seventh day of the trial. The trial judge gave the appellant three options on how to proceed. The appellant chose to proceed with the interpreter and was therefore precluded from appealing from that choice.

(2) Did the trial judge err by failing to order a lump sum child support payment?

No. The appellant argued that lump sum child support should have been ordered as the respondent had regularly failed to make periodic payments since separation. The Court of Appeal rejected this argument. The issue was one of mixed fact and law. While lump sum payments are appropriate when there is a real risk that periodic payments will not be made, the appellant did not marshal any evidence to suggest that future non-payment of periodic payments was a risk.

(3) Did the trial judge err in imputing the respondent's income at $28,000 per year?

No. The appellant argued that the respondent was intentionally underemployed and so greater income should have been imputed to him. The appellant argued that given factors such as age, education, experience and health, income should have been imputed to the respondent in the $60,000 range. Alternatively, since the respondent had previously been a truck driver, his previous income in that role of $50,000 should be imputed.

The Court of Appeal rejected this argument and affirmed the trial judge's decision. The issue was one of mixed fact and law and the respondent could show no error, let alone a palpable and overriding error to justify intervention. There was no evidence indicating that the respondent could earn anything close to $60,000 as a self-employed electrician servicing only Russian speaking people in the GTA. Further, the respondent had to quit his trucking job in 2008 because of chronic back pain so there was no reason to impute that previous income.

(4) Did the trial judge err in awarding spousal support?

No. The appellant submitted that the trial judge did not give sufficient consideration to s. 15.3(1) of the Divorce Act or s. 38.1(1) of the Family Law Act requiring courts to prioritize child support over spousal support. The trial judge found that the respondent had foregone paid work and career opportunities so the appellant could pursue a nursing degree. The respondent was significantly older than the appellant and working a minimum wage job while the appellant had a prosperous career ahead of her. There was a substantial inequality between their incomes and so the trial judge's decision to award spousal support in the mid-range of the advisory guidelines was reasonable and entitled to deference.

(5) Did the trial judge err by failing to admit the fresh evidence?

No. The appellant sought to adduce fresh evidence after the trial judge had given her decision but before the final order was given. The trial judge refused to admit the evidence because she was of the opinion that had it been before the court, it would not have changed the decision. The Court of Appeal saw no issue with the trial judge's decision to reject the fresh evidence.

(6) Did the trial judge err by failing to deduct the value of a date of marriage asset from the respondent's net family property?

Yes. The respondent owned a condo at the time of the marriage, which was sold and the proceeds reinvested. The trial judge found that the condo was not a matrimonial home, but refused to deduct the value of the date of marriage asset from the respondent's net family property. The respondent submitted that the failure to deduct it was an error. The Court of Appeal agreed and allowed the cross-appeal. The trial judge ought to have deducted that value of the condo or its sale proceeds from the respondent's net family property. While the trial judge correctly found that it was not a matrimonial home and addressed the proceeds, the trial judge failed to explain why she did not deduct the value, which was an error.

Nemchin v. Green, 2021 ONCA 238

[Roberts, Trotter and Thorburn JJ.A.]

Counsel:

J.Y. Obagi and E. A. Quigley for the appellant, T.N.

S.G. Ross, T. Macmillan and M. Rodrigues for the respondent, Y.G.

Keywords: Insurance, Subrogation, Collateral Benefits, Long-term Disability, Statutory Assignment of Rights and Benefits, Statutory Trusts, Civil Procedure, Procedural and Natural Justice, Insurance Act, R.S.O. 1990, c. I.8, Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), s. 267.8, Lewin on Trusts, 19th ed. (London: Sweet & Maxwell, 2015), Rodaro v. Royal Bank of Canada (2002), 59 O.R. (3d) 74 (C.A.), Kant v. The Queen, [2001] 2 C.T.C. 2703 (T.C.C.), Bapoo v. Co-Operators General Insurance Co. (1997), 154 D.L.R. (4th) 385 (Ont. C.A.), leave to appeal refused, [1998] S.C.C.A. No. 62, Cadieux v. Cloutier, 2018 ONCA 903, leave to appeal refused [2019] S.C.C.A. No. 63, Carroll v. McEwen, 2018 ONCA 902, Cobb v. Long Estate, 2017 ONCA 717, El-Khodr v. Lackie, 2017 ONCA 716, leave to appeal refused, [2017] S.C.C.A. No. 461, Re Scott, [1948] SASR 193, Frederick v. Aviation & Gen. Ins. Co., [1966] O.J. No. 1064 (C.A.), Rizzo & Rizzo Shoes Ltd. (Re), [1998] 1 S.C.R. 27, Pugh v. Canada, [2000] T.C.J. No. 585, Bouchard v. Canada, 2008 TCC 408.

facts:

This case arose out of a motor vehicle accident involving the appellant and respondent where the appellant sustained serious injuries and became totally disabled. As a result, the appellant was awarded substantial damages against the respondent at trial. The appellant's injuries also triggered coverage for long-term disability income continuation benefits from Sun Life Assurance Company of Canada ("Sun Life"), her employer's group benefits insurer. Both the appellant and her employer had contributed to the plan, and as a result, Sun Life deducted and remitted income taxes from its payments to the appellant under the plan.

Following the trial, the respondent brought a motion under s. 267.8(12) of the Insurance Act (the "Act") to require the appellant to assign her rights to the Sun Life benefits to the respondent's insurer from the date of the judgment. The trial judge granted the respondent's request and included an additional order that the appellant "top up" any amount paid from Sun Life to the respondent's insurer to account for the fact that Sun Life deducted applicable income taxes from its payments to the appellant.

The appellant then appealed the trial judge's order requiring her to top up the amount of the long-term disability benefits that she assigned to the respondent's insurer. The appellant did not contest the assignment of her benefits to the respondent's insurer, rather the appellant argued that the trial judge's order was contrary to the principles of natural justice and exceeded her jurisdiction because neither party sought the top up that she ordered. Further, the appellant argued that the trial judge erred in her interpretation of s. 267.8 of the Act.

issues:

(1) Was the trial judge's top up order procedurally unfair and contrary to natural justice?

(2) Did the trial judge err in her interpretation and application of s. 267.8 of the Insurance Act?

holding:

Appeal allowed.

reasoning:

(1) Was the trial judge's top up order procedurally unfair and contrary to natural justice?

Yes. The Court stated that neither party requested that the trial judge make the top up order, nor did the trial judge request submissions from the parties on the issue of top up. Instead, the Court held that the trial judge resolved the rights of the parties, imposed a burden on the appellant, and provided a remedy to the respondent, "on a theory never pleaded and with respect to which battle was never joined". Therefore, the Court agreed with the parties' request that it ought to look at the top up question and the underlying issue of the parties' respective rights and obligations under the statutory assignment, rather than remitting it to the trial judge for a rehearing.

(2) Did the trial judge err in her interpretation and application of s. 267.8 of the Insurance Act?

Yes. The Court found that the trial judge misinterpreted ss. 267.8(9), (10), and (12)(a)(ii) of the Act and applied the trust and assignment provisions in a manner that was contrary to the plain meaning of the legislative text and its purposes. The trial judge also erred by failing to take into account Sun Life's withholding and remittance of income tax as a statutory trust and its effect on the appellant's rights under the plan. The legislative purpose of s. 267.8 is to promote fair compensation to injured plaintiffs and prevent double recovery. However, the Court stated that the effect of the trial judge's order led to an unfair result for the appellant and ran counter to the principle of full compensation because it imposed a financial burden on the appellant that she would not have incurred if she did not have collateral benefits from Sun Life.

The trust provisions under ss. 267.8(9) and (10)

Subsections 267.8(9) and (10) of the Act impose a statutory trust on the payments that a plaintiff actually receives for the benefit of the defendant or the defendant's insurer. The trust property in this case consisted of the net after-tax payments that the appellant received pre-assignment from Sun Life from the date of the judgment. The appellant, as trustee, was only required to hold in trust and then pay to the respondent's insurer these actual payments from Sun Life, which were net of tax.

The Court stated that while the trial judge did not expressly address the application of the trust provisions under ss. 267.8(9) and (10) to the amounts received by the appellant pre-assignment, the effect of the order requiring the deduction of the gross amount of the payments to the appellant under the Sun Life plan since the date of judgment resulted in the deduction of more than the amount of the payments actually received and held in trust by the appellant post trial and pre-assignment. Thus, the Court held that the effect of the order was contrary to the provisions of ss. 267.8(9) and (10).

The assignment provisions under s. 267.8(12)(a)(ii)

Subsection 267.8(12)(a)(ii) of the Act permits a defendant to seek the assignment to its insurer of "all rights in respect of all payments to which the plaintiff who recovered damages is entitled in respect of the incident.under an income continuation benefit plan". In the Court's view, the trial judge conflated the entitlement of the respondent's insurer to the rights to the plan benefits with the mechanism of a specific mode of payment (i.e. an assignment), and therefore failed to apply the assignment provisions under s. 267.8(12)(a)(ii) in a manner consistent with the trust provisions. Therefore, the trial judge effectively concluded that the respondent's insurer was entitled to collect the appellant's gross benefits as if they were not taxable or as if the appellant had elected to take the entire taxable sum in hand.

Instead, the Court stated that the correct interpretation is that the respondent's insurer, as assignee, steps into the shoes of the appellant and acquires the entitlement to the rights to the appellant's benefits subject to all the equities and obligations existing between the appellant and Sun Life under the plan (Frederick v. Aviation & Gen. Ins. Co., [1966] O.J. No. 1064 (C.A.)). Therefore, the assignment of the appellant's rights under the plan means that the respondent's insurer is entitled to a credit for the actual payments that the appellant receives under the plan, which in this case meant net of the taxes withheld by Sun Life. The respondent's insurer is entitled to take whatever steps necessary, at its own expense and with the appellant's co-operation, as required under s. 267.8(12)(b), to deal with the issue of the tax withholdings with Sun Life and the CRA. However, the respondent's insurer is not entitled to receive payments greater than those the appellant received.

The trust and assignment provisions are complementary mechanisms

The Court held that the trial judge's approach failed to take into account the complementary nature of the trust and assignment provisions in the context of s. 267.8 as a whole for two reasons. First, ss. 267.8(9), (10), and (12) provide for two different mechanisms that work together to achieve the same underlying aim of providing compensation without over-compensation. However, the trial judge's approach instead introduced a discrepancy between the provisions by having the assignment apply to gross pre-tax amounts when the trust did not. Second, the word "payments" should be given the same meaning in each of ss. 267.8(9), (10) and (12). The "payments" referred to in ss. 267.8(9) and (10) are the payments actually received and held in trust by the appellant. Thus, the word "payments" in s. 267.8(12) must refer to the same payments but to be received under the mechanism of an assignment.

Sun Life's statutory obligations

The Court held that due to the errors in the interpretation and application of the trust and assignment provisions, this led the trial judge to ignore the effect of Sun Life's withholding and remittance of income taxes to the CRA from the plan payments pursuant to its statutory obligations. As the appellant's assignee, the respondent's insurer has all the same rights as against Sun Life as the appellant, and Sun Life has all the same defences, which may include any statutory obligation on the part of Sun Life to withhold and remit taxes to the CRA from the plan payments.

The Court stated that since Sun Life purports to withhold and remit income taxes pursuant to a statutory obligation to the CRA, this means that those monies are imposed with a statutory trust and do not form part of the payments made under the plan. Therefore, so long as Sun Life withholds and remits taxes pursuant to the statutory trust provisions of the Income Tax Act, the assigned rights of the respondent's insurer are to the net after-tax payments. The Court held that the respondent and its insurer could not complain of this situation, because had they acceded to the appellant's request to seek a ruling from the CRA on the tax issue, the issues of quantum and liability for taxes following the assignment could have been ascertained. Since they did not, the respondent's insurer is only entitled to receive what Sun Life pays.

Further, the Court disagreed with the respondent's submission that the trial judge's order causes no prejudice to the appellant because she can simply apply for a tax refund and be in no worse position. The Court stated that it was by no means certain that the CRA would agree that the appellant was entitled to a refund of the taxes remitted by Sun Life, and that the appellant would likely be required to incur considerable expense to ascertain whether the CRA accepted this position. Thus, this would further undermine the purpose of full compensation for the appellant.

In conclusion, the Court held that the trial judge's order should be amended to provide for the assignment from the date of judgment of the appellant's rights in respect of all payments under the Sun Life plan to the respondent's insurer, net of all income tax withholdings, so long as Sun Life continued to withhold and remit income taxes to the CRA from the payments made under its plan. This will continue until the appellant reaches the age of 65 or the respondent's insurer has been fully reimbursed for its payment of the loss of income damages award, whichever event occurs first.

SHORT CIVIL DECISIONS

Lengyel v. TD Home and Auto Insurance, 2021 ONCA 237

[Tulloch, Nordheimer and Jamal JJ.A.]

Counsel:

G.L., in person/responding party

H. Hogan, for the Public Guardian and Trustee/moving party

No one appearing for the defendant

Keywords: Torts, Negligence, MVA, Civil Procedure, Settlements, Court Approval, Litigation Guardians, Appeals, Jurisdiction, Kavuru (Litigation guardian of) v. Heselden, 2014 ONSC 6718

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