ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
CUNNINGHAM A.C.J., E. MACDONALD and sWINTON JJ.
B E T W E E N:
McNAUGHTON AUTOMOTIVE LIMITED
Applicant (Respondent on Appeal)
- and -
CO-OPERATORS GENERAL INSURANCE COMPANY
Respondent (Appellant)
G. Pop-Lazic, for the Applicant (Respondent on Appeal)
T.H. Rachlin, Q.C., Michael A. Eizenga and Michael G. Robb, for the Respondent (Appellant)
HEARD at Toronto: October 31, 2006
1Co-operators General Insurance Company (“Co-operators”) appeals a decision of Haines J. dated August 14, 2003, in which he certified an application brought by McNaughton Automotive Limited (“McNaughton”) as a class proceeding. Leave to appeal was granted by Winkler J. on June 13, 2006. The central issue in this appeal is the effect of the Court of Appeal’s reversal of its interpretation of Statutory Condition 6(7) of O.Reg. 777/93 under the Insurance Act, R.S.O. 1990, c. I.8 since the motion for certification was decided.
Background Facts
2McNaughton, the proposed representative applicant, had an automobile insurance policy issued by Co-operators. The policy contained the statutory conditions required under the Insurance Act, and provided that McNaughton would pay a deductible of $1,000 towards the cost of any claim. In March 1999, one of McNaughton’s vehicles was damaged beyond repair in an accident. McNaughton negotiated a settlement with Co-operators and received the agreed upon cash value less the $1,000 deductible, and Co-operators took possession of the salvage of the damaged vehicle.
3Statutory Condition 6(7) is found under the heading “No Abandonment, Salvage”. It states:
There shall be no abandonment of the automobile to the insurer without the insurer’s consent. If the insurer exercises the option to replace the automobile or pays the actual cash value of the automobile, the salvage, if any, shall vest in the insurer.
4McNaughton asserted in its Notice of Application that the proper interpretation of this statutory condition precluded the application of a deductible by Co-operators to McNaughton’s total loss claim. In a decision dated August 14, 2000, the motions judge rejected this submission and held that the statutory condition did not prohibit the application of a policy deductible. Therefore, he dismissed both the application and the motion for certification.
5McNaughton’s appeal of this decision was allowed by the Court of Appeal in 2001 (McNaughton Automotive Ltd. v. Co-operators General Insurance Co. (2001), 2001 21203 (ON CA), 54 O.R. (3d) 704). In its reasons, the Court made the following declaration (“the McNaughton Declaration”) at para. 38:
The appellant [McNaughton] is entitled to a declaration that, as the respondent [Co-operators] elected to take title to the damaged vehicle, the terms of statutory condition 6(7) of its automobile insurance policy required the respondent to pay the appellant the actual cash value of the vehicle with no reduction for the amount of the deductible under the policy.
The Court of Appeal remitted the certification motion to the motions judge for the determination of the issue of certification. Leave to appeal this decision to the Supreme Court of Canada was denied on March 7, 2002.
6In the interim, more than 30 similar class proceedings were commenced against various insurers in Ontario. All motions in these class proceedings were to be determined by the same motions judge, in accordance with a case management order.
7On August 14, 2003, the motions judge determined that the McNaughton application should be certified as a class proceeding. Meanwhile, several of the insurers in the parallel proceedings appealed decisions of the motions judge, in which they had unsuccessfully challenged the Court of Appeal’s interpretation of Statutory Condition 6(7) in the McNaughton decision. On June 15, 2005, a five member panel of the Court of Appeal released its decision in David Polowin Real Estate Ltd. v. The Dominion of Canada General Insurance Co., 2005 21093 (ON CA), [2005] O.J. No. 2436, reversing the earlier interpretation of the statutory condition. The Court held that the statutory condition does not preclude the application of a policy deductible in total loss cases, and the proceedings against the appellant insurers were dismissed. At paragraph 147 of his reasons, Laskin J.A. stated:
My proposed disposition would not affect McNaughton itself. That case was finally determined when the Supreme Court of Canada denied leave to appeal. Whether the court’s decision in these appeals would affect the subsequent certification and class proceedings in McNaughton is not before us.
8Leave to appeal the Polowin decision was denied by the Supreme Court of Canada on January 26, 2006. Given the Polowin decision, Co-operators sought and obtained leave to appeal the certification decision in this case. No judgment has been given on the common issues in this application, nor has notice been given to the putative class.
Issues
9The central issue in this appeal is the effect to be given to the earlier Court of Appeal decision in McNaughton. More particularly, do the doctrines of res judicata and abuse of process preclude the appellant from relying on Polowin as a basis to overturn the motions judge’s decision?
Analysis
10Section 5(1) of the Class Proceedings Act, 1992, S.O. 1992, c. 6 sets out the criteria to be considered on a certification motion:
whether the pleading or notice of application discloses a cause of action;
whether there is an identifiable class of two or more persons that would be represented by the representative plaintiff or defendant;
whether the claims or defences raise common issues;
whether a class proceeding would be a preferable procedure for the resolution of the common issues; and
whether there is a representative plaintiff who would fairly and adequately represent the interests of the class.
11In determining whether the pleading or notice of application discloses a cause of action, a motions judge must determine whether it is “plain and obvious” that there is no cause of action.
12Co-operators submits that the notice of application does not disclose a cause of action, given the decision of the Court of Appeal in Polowin. Although the representative applicant, McNaughton, has had its case finally determined, the other class members no longer have a cause of action.
13McNaughton submits that the matter is res judicata, and that the appeal should be dismissed either because of the doctrine of issue estoppel or because the appeal is an abuse of process.
14In his reasons on this issue, the motions judge stated (at para. 13):
The pleadings do disclose a cause of action. The parties in McNaughton accept that this has been determined by the Court of Appeal and in my opinion, application of the principle of stare decisis establishes a cause of action in the balance of these proposed class proceedings subject to the disposition of any outstanding motions for judgment.
15There are three preconditions to the operation of issue estoppel: the same question has been decided in an earlier proceeding; the earlier judicial decision was final; and the parties to the judicial decision or their privies were the same persons as the parties to the proceedings in which the estoppel is raised or their privies (Danyluk v. Ainsworth Technologies Inc., 2001 SCC 44, [2001] 2 S.C.R. 460 at para. 25). As the Supreme Court of Canada stated in Danyluk (at para. 33), the underlying purpose of issue estoppel “is to balance the public interest in the finality of litigation with the public interest in ensuring that justice is done on the facts of a particular case”.
16In this case, the third condition is not satisfied, as the potential class members were not parties in the earlier McNaughton proceeding, nor can they be considered privies to the party in that proceeding.
17The certification motion is a purely procedural motion. Under the Class Proceedings Act, an individual does not become a member of the class until after certification and the termination of the opt-out period (Ford v. Hoffman-Laroche Ltd., [2001] O.J. No. 3682 (S.C.J.) at para. 16). Indeed, while a class member will be bound by an order or judgment that meets the requirements set out in the Act to bind a class, such person does not necessarily have the status of a party to the litigation (see, for example, the appeal provision in s. 30, differentiating parties and class members, or the discovery provisions in s. 15). In this case, there had been no decision on certification at the time of the McNaughton decision by the Court of Appeal, so putative class members could not be considered parties.
18Privity requires mutuality. In considering whether there is mutuality, courts and commentators have found it helpful to consider whether the party seeking the benefit of the earlier decision would have considered itself bound, had the decision been decided against its interests (J. Sopinka, S.L. Lederman, A.W.Bryant, The Law of Evidence in Canada, 2d ed. (Butterworths, 1999) at p. 1090; Britannia Airways Ltd. v. Royal Bank of Canada, [2005] O.J. No. 2 (S.C.J.) at para. 53). In this case, had the situation been reversed, and had the first appeal in McNaughton been decided in Co-operator’s favour in 2001 and then reversed in 2005, it is highly unlikely that putative class members would expect to be bound by the earlier, unfavourable decision made before certification.
19The respondent relied on Shaw v. BCE Inc., 2004 12080 (ON SC), [2003] O.J. No. 5481 (S.C.J.) for the proposition that proposed class members and the proposed representative applicant are privies. In that case, Mr. Shaw had commenced a class proceeding. His Statement of Claim was struck, and his motion for certification dismissed. He then amended his Statement of Claim, and Mr. Gillespie filed a Statement of Claim that was in all material respects identical to Shaw’s. Both proceedings were to be brought for the benefit of minority equity security holders of a corporation.
20In that case, the motions judge held that Shaw and Gillespie were privies, especially because of the fact that both proceedings were brought by the two individuals for the benefit of the same group (at para. 16). They were described by him as, in effect, alter egoes. He also held that Gillespie’s action was an abuse of process.
21However, the motions judge did not address the issue that arises in the present case – namely, the privity between the proposed representative applicant and the members of the proposed class when a legal issue affecting the merits of the case is decided before certification. In my view, the putative class members were not privies at the time of the McNaughton declaration.
22In any event, the application of issue estoppel is a matter of discretion, although that discretion will normally be exercised only in exceptional circumstances (Danyluk, supra at para. 33). One example of special circumstances identified by the Court of Appeal in Minott v. O’Shanter Development Co. (1999), 1999 3686 (ON CA), 42 O.R. (3d) 321 (C.A.) is an intervening change in the law (at para. 51).
23Even if the proposed class members were privies of McNaughton, this is a case where it is appropriate to exercise the discretion not to apply issue estoppel because of the intervening change in the law with the Polowin decision.
24In the alternative, the respondent submits that Co-operators failed to present a full evidentiary record before the Court of Appeal in the first appeal, in that it failed to provide the Court with legislative history. It should not now be able to relitigate the issue, relying on Polowin, where legislative history was “critical”.
25An abuse of process is characterized by a misuse of the court’s procedure in an unfair manner, in a way which would bring the administration of justice into disrepute or in a way inconsistent with objectives of public policy (Toronto (City) v. C.U.P.E., Local 79 (2003) CarswellOnt 4328 (S.C.C.) at para. 37).
26While the Court of Appeal in Polowin did make reference to the legislative history before it, I am not satisfied that the legislative history was “critical” to its decision to overturn McNaughton, as the respondent submits. Rather, legislative history was the ninth of nine indicators that the Court of Appeal considered in determining whether the earlier interpretation was correct (at paras. 88-91).
27Co-operators’s reliance on Polowin in this appeal is not an abuse of process. Co-operators is contesting a point of law that turns out to have been wrongly decided when the motions judge determined the motion for certification. It is not seeking to revisit factual findings. Nor is this a collateral attack on the earlier Court of Appeal decision in 2001. Rather, Co-operators seeks to have the principle of stare decisis applied in the determination of any claims other than McNaughton’s. There is no unfairness to putative class members if their claims are determined in light of the current state of the law.
28As the pleadings do not disclose that potential class members have a cause of action within s. 5(1) of the Class Proceedings Act, given the Polowin decision, the respondent has not satisfied one of the essential elements for certification. Therefore, the decision granting certification must be set aside. While the appellant addressed a number of other reasons why certification should not have been granted, it is not necessary to address them.
29The appeal is allowed, and the certification order is set aside, and the motion for certification is dismissed. If the parties can not agree on costs, they may make written submissions within 30 days of the release of this decision.
Swinton J.
Cunningham A.C.J.
E. Macdonald J.
Released: December 27, 2006
COURT FILE NO: 500/03
DATE: 20061227
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
B E T W E E N:
McNAUGHTON AUTOMOTIVE LIMITED
Applicant (Respondent on Appeal)
- and -
CO-OPERATORS GENERAL INSURANCE COMPANY
Respondent (Appellant)
REASONS FOR JUDGMENT
sWINTON J.
Released: December 27, 2006