Sinclair-Cockburn Insurance Brokers Limited v. Richards; Wiggins Mechanical Contractors et al., Third Parties [Indexed as: Sinclair-Cockburn Insurance Brokers Ltd. v. Richards]
61 O.R. (3d) 105
[2002] O.J. No. 3288
Docket No. C36972
Court of Appeal for Ontario,
Laskin, Charron and Armstrong, JJ.A.
August 30, 2002
- Application for leave to appeal to the Supreme Court of Canada was dismissed with costs March 20, 2003 (Gonthier, Major and Arbour). S.C.C. File No. 29431. S.C.C. Bulletin, 2003, p. 457.
Civil procedure -- Stay of proceedings -- Abuse of process -- Plaintiff settling claim against third party and signing release -- Plaintiff promising that it would not make claim against anyone who might claim contribution or indemnity from third party -- Plaintiff suing defendant who [page106] commenced third party proceedings claiming contribution and indemnity from third party -- Third party moving for stay of main action and third party proceedings as abuse of process -- Motion for stay granted and upheld on appeal -- Court entitled to hold parties to their promises by exercising stay jurisdiction under s. 106 of Courts of Justice Act or rule 21.01(3)(d) to prevent abuse of process -- Courts of Justice Act, R.S.O. 1990, c. C.43 -- Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rule 21.01(3)(d).
The plaintiff, Sinclair-Cockburn Insurance Brokers Limited ("Sinclair-Cockburn"), employed the defendant Linda Richards as an insurance broker. Despite knowing that Wiggins Mechanical Contractors ("Wiggins") was not bondable, Richards fraudulently issued a $5.8 million performance bond on a hospital project. Under the bond, Canadian General Insurance ("Canadian General") was the surety.
Canadian General was required to honour the bond, and Sinclair-Cockburn, to limit its financial exposure as Richards' employer, negotiated a settlement with Canadian General and Wiggins. Under the settlement, Sinclair-Cockburn and Wiggins each paid $172,500 and the parties agreed to mutual releases. The release given by Sinclair-Cockburn provided that it would not make any claim against anyone who might claim contribution or indemnity from Wiggins and that it would indemnify Wiggins against any such claim.
Despite the release, Sinclair-Cockburn sued Richards for the $172,500 it had contributed to the settlement with Canadian General and for losses allegedly suffered on other transactions. Richards defended the action and counterclaimed against Sinclair-Cockburn. She took third party proceedings against Wiggins in which she claimed full contribution and indemnity for Sinclair-Cockburn's claim. Sinclair-Cockburn delivered a reply and a defence to the counterclaim in which it undertook that it would not seek to recover from Richards any amounts for which she could claim contribution and indemnity under the Negligence Act, R.S.O. 1990, c. N.1 from Wiggins. Sinclair-Cockburn gave an undertaking to the same effect directly to Wiggins.
Wiggins did not plead to the main action or the third party proceeding; instead, it moved under s. 106 of the Courts of Justice Act and rules 21.01(3)(b) and (d) of the Rules of Civil Procedure for a stay of the third party action and of the related claims in the main action as an abuse of process. Mesbur J. granted the motion. Sinclair-Cockburn appealed. Richards cross-appealed and submitted that she should be permitted to maintain her third-party claim if Sinclair- Cockburn were permitted to sue her.
Held, the appeal and the cross-appeal should be dismissed.
The action against Richards unquestionably fell within the terms of the Sinclair-Cockburn release. Wiggins had paid a substantial sum of money to buy peace, not only from liability for a judgment but from having to respond to a claim from Richards. The undertaking proffered by Sinclair-Cockburn amounted to a unilateral amendment to the release. It was not authorized by the settlement agreement. The court was entitled to hold parties to their promises by exercising its stay jurisdiction under s. 106 of the Courts of Justice Act or rule 21.01(3)(d) to prevent an abuse of process. Further, Sinclair- Cockburn's submission that it should be permitted to sue Richards with her third party claim against Wiggins' stay should be rejected. Wiggins had no independent right to have the third party claim stayed; rather, the stay of the third party proceeding followed from the stay of the related claims in the main action. Accordingly, the [page107] appeal should be dismissed, which in turn rendered the cross-appeal unnecessary. It should be dismissed.
APPEAL of an order staying a third party proceeding and related claims in the main action.
Cases referred to Abitibi Paper Co. v. R. (1979), 1979 1946 (ON CA), 24 O.R. (2d) 742, 99 D.L.R. (3d) 333, 8 C.E.L.R. 98, 47 C.C.C. (2d) 487 (C.A.); Owen v. Zosky, [2000] O.J. No. 4838 (Quicklaw); Van Patter v. Tillsonburg District Memorial Hospital (1999), 1999 3754 (ON CA), 45 O.R. (3d) 223, 42 M.V.R. (3d) 261 (C.A.)
Statutes referred to Courts of Justice Act, R.S.O. 1990, c. C.43, s. 106 Negligence Act, R.S.O. 1990, c. N.1
Rules and regulations referred to Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rule 21.01(3) (b), (d)
Reid Lester, for appellant. Andrew J. Heal, for respondent/appellant by way of cross-appeal. Lloyd D. Cadsby, Q.C., for respondents.
The judgment of the court was delivered by
LASKIN J.A.: --
A. Introduction
[1] This appeal concerns the effect of a release given by the appellant Sinclair-Cockburn Insurance Brokers Limited to the respondent Wiggins Mechanical Contractors and its principal, the respondent Rudolf Schrempf (collectively "Wiggins"). As part of the settlement of a lawsuit arising out of the fraud of its employee Linda Anne Richards, Sinclair-Cockburn agreed not to make a claim against any person who might seek contribution and indemnity from Wiggins.
[2] Sinclair-Cockburn then sued Richards to recover the money it had paid on account of her fraud. Richards in turn counterclaimed against Sinclair-Cockburn and took third-party proceedings against Wiggins for contribution and indemnity. Sinclair-Cockburn tried to avoid the effect of the release by giving an undertaking to Wiggins that it would not claim from Richards any amount for which she could claim indemnity from Wiggins.
[3] However, on a motion brought by Wiggins, Mesbur J. stayed the main action and the third-party claim because of the terms of [page108] the release. Sinclair-Cockburn appeals and Richards cross-appeals. Sinclair-Cockburn makes two submissions: it should be permitted to sue Richards in the light of its undertaking to Wiggins; alternatively, it should be permitted to sue Richards but her third-party claim should be stayed. In her cross-appeal, Richards submits that she should be permitted to maintain her third-party claim if Sinclair-Cockburn is permitted to sue her.
B. Factual Background
[4] Richards was an insurance broker with Sinclair-Cockburn. She fraudulently issued a performance bond in connection with a $13 million construction project at the Credit Valley Hospital.
[5] Performance bonds are common in the construction industry. They insure against the possibility a contractor will not be able to pay its bills or complete its work. These bonds are based on a three-party relationship. The first party (the principal) obtains the bond from the insurer (the surety) for the performance of an underlying agreement with a third party (the obligee). The surety binds itself to pay the obligee if the principal does not perform its primary obligation under the construction agreement.
[6] Here, Richards issued a performance bond for $5.8 million on behalf of the surety Canadian General Insurance to the principal Wiggins, the mechanical subcontractor on their hospital project, in favour of the obligee Vanbots Construction, the general contractor on the project. Richards acted fraudulently because she knew that Wiggins was not bondable and that she did not have Canadian General's authority to issue the bond. Nonetheless, Canadian General had to honour the bond because it had given Richards general authority to issue performance bonds on its behalf.
[7] When Sinclair-Cockburn discovered Richards' fraud, it fired her. It then negotiated a settlement with Canadian General and Wiggins to limit its financial exposure as Richards' employer. Sinclair-Cockburn, Wiggins and Canadian General signed a settlement agreement in March 1997. Richards took no part in the settlement. Under the terms of the agreement, Sinclair-Cockburn and Wiggins each contributed $172,500 to the settlement. The parties also agreed to mutual releases. The release given by Sinclair-Cockburn, on which this appeal turns, provides that:
Sinclair shall not make any claim or take any proceedings against any other person, corporation, or other entity who might claim contribution or indemnity from . . . Wiggins . . . with respect to any matter to which this release relates, and shall indemnify . . . Wiggins . . . against any such claim. [page109]
[8] Despite giving this release, in 1998 Sinclair-Cockburn brought an action against Richards for recovery of the $172,500 it had contributed to the settlement. Sinclair-Cockburn alleged that the bond issued to Wiggins was fictitious and that Richards was negligent, and had breached her contract of employment and her fiduciary duty. Sinclair-Cockburn also claimed damages from her for losses it allegedly suffered on other transactions. Paragraphs 5A, 6D III) and 6D IV) of the statement of claim set out Sinclair-Cockburn's allegations concerning the bond issued to Wiggins:
- During the course of her employment, Richards acted dishonestly, and unfaithfully, and in breach of the rules of professional conduct of the Registered Insurance Brokers of Ontario ("RIBO"), the self-governing body for insurance brokers in Ontario. As a result, Richards breached the contract of employment, the duty of care and the fiduciary duty as aforesaid. The breaches, the particulars of which are known to the defendant, are as follows:
A. In the matter of Wiggins Mechanical Contracting Ltd. ("Wiggins"), Richards purported to issue, on behalf of Canadian General Insurance Company as surety a performance bond of $5,800,000 relating to the proposed liability of Wiggins under a tender for a construction contract, when she knew or ought to have known that the bond was unauthorized and fictitious and that Wiggins was not bonded in respect of the proposed liability. In respect of her activities on behalf of Wiggins, Richards was found guilty of professional misconduct by RIBO;
- As a result of the breaches as aforesaid, Sinclair-Cockburn claims damages as follows:
D. Damages by Way of Mitigation
Sinclair-Cockburn has incurred expenses and losses in its efforts to identify, assess and minimize its damages and in fulfilling its obligation to make appropriate reports to RIBO. Those expenses and losses include, without limitation:
III) The $172,500 cost of negotiating a settlement in respect of the fictitious Wiggins bond as aforesaid;
IV) Legal and accounting fees relating to the internal reviews and investigations, reports to and discussions with RIBO and the settlement in respect of the fictitious Wiggins bond, all as aforesaid, other than legal and accounting fees in respect of which the plaintiff maintains a claim of privilege.
[9] Richards defended the action, counterclaimed against Sinclair-Cockburn and took third-party proceedings against Wiggins. She alleged that she issued the bond "in a moment of weakness" because of pressure from Schrempf. In the third-party [page110] claim, she sought full contribution and indemnity from Wiggins for Sinclair-Cockburn's claim.
[10] Sinclair-Cockburn delivered a reply and defence to counterclaim in which it undertook that it was not seeking to recover from Richards any amounts for which she could claim contribution and indemnity under the Negligence Act, R.S.O. 1990, c. N.1 from Wiggins. Sinclair-Cockburn's counsel gave a similar undertaking directly to Wiggins' counsel. That undertaking provided:
Accordingly, the plaintiff acknowledges that it has no further claim against Wiggins/Schrempf and should the plaintiff obtain judgment against Ms. Richards in action 98-CV-152480, any award of damages should exclude any damages for which Richards could claim indemnity from the third parties, Wiggins/Schrempf. As such, the plaintiff undertakes not to pursue any claim which could result in a (successful) claim by Richards for contribution or indemnity against Wiggins/Schrempf pursuant to the Negligence Act.
[11] Wiggins did not plead to the third-party claim or to the main action. Instead, Wiggins brought a motion under s. 106 of the Courts of Justice Act, R.S.O. 1990, c. C.43, and rule 21.01(3)(b) and (d) [of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194] to stay the third-party claim and the claims in paragraphs 5A, 6D III) and IV) of the statement of claim on the ground of abuse of process. Mesbur J. granted the motion. She held that Sinclair-Cockburn's undertaking was "a transparent attempt to avoid the clear and unambiguous wording of the settlement. Parties should be held to their promises".
[12] I turn to Sinclair-Cockburn's two submissions.
C. Analysis
1. Should Sinclair-Cockburn be permitted to maintain its action against Richards on its undertaking to Wiggins?
[13] The action against Richards unquestionably falls squarely within the terms of Sinclair-Cockburn's release. Sinclair-Cockburn has made a claim against another person -- Richards -- who might, and indeed did, claim contribution and indemnity from Wiggins in respect of a matter -- the performance bond fraudulently issued to Wiggins -- to which the release relates. Nonetheless, Sinclair-Cockburn submits that it should be allowed to continue its action against Richards because it has undertaken not to claim from her any money that she could recover from Wiggins. Thus, Sinclair-Cockburn argues that its claim against Richards does not expose Wiggins to any financial liability.
[14] I do not accept this submission. As Mr. Cadsby, counsel for Wiggins, said during oral argument, his client paid a substantial sum of money to buy peace, not just peace from potential liability [page111] for a judgment, but peace from even having to respond to a claim from Richards. Sinclair-Cockburn signed an unqualified release. Wiggins is entitled to all the benefits that flow from that release, which include its reputational interest and its interest in not being dragged into a lawsuit. Wiggins was entitled to expect the party who signed the release to live up to its bargain. It is not obliged to accept something almost as good. The undertaking proffered by Sinclair-Cockburn amounts to a unilateral amendment to the release. Nothing in the settlement agreement authorizes such an amendment.
[15] Moreover, each party had counsel when the release was negotiated. I find no evidence in the record to suggest that its terms were the product of an error by Sinclair-Cockburn's solicitor. Had Sinclair-Cockburn wanted to preserve its right to pursue Richards on the bond she issued to Wiggins, it should have tried to procure that concession in the settlement negotiations. Apparently, it did not do so.
[16] The terms of the release plainly preclude Sinclair-Cockburn's action against Richards to recover the money it contributed to the settlement. As Mesbur J. accurately said"[p]arties should be held to their promises." The court is entitled to enforce these promises by exercising its stay jurisdiction under either s. 106 of the Courts of Justice Act or rule 21.01(3)(d) to prevent an abuse of process. A stay works no injustice on Sinclair-Cockburn because its effect is simply to hold Sinclair-Cockburn to its bargain. The motions judge thus committed no error in principle when she stayed Sinclair-Cockburn's claims in paras. 5A and 6D III) and IV) of its statement of claim and the third-party action. See Abitibi Paper Co. v. R. (1979), 1979 1946 (ON CA), 24 O.R. (2d) 742, 99 D.L.R. (3d) 333 (C.A.).
[17] That Richards indirectly benefits from the stay matters not. That she would benefit must have been or at least ought to have been reasonably foreseeable to Sinclair-Cockburn when it negotiated the settlement agreement. No question of privity of contract arises because Richards has not sought to enforce the stay.
[18] Sinclair-Cockburn submits that two decisions of this court support its position. Both, however, are distinguishable. The closest on the facts is Owen v. Zosky, [2000] O.J. No. 4838 (Quicklaw). The plaintiff in that case had given an undertaking similar to the one offered by Sinclair-Cockburn. The motions judge made the same order as Mesbur J., staying the main action and the third-party claim. On appeal, however, this court allowed the plaintiff's action to proceed.
[19] Owen v. Zosky differs from this case in two crucial respects. First, in Owen v. Zosky, the stay of the third-party claim [page112] was not appealed. Here, Richards has cross-appealed to allow the third-party claim to go forward if the main action against her is allowed to proceed. Second, in Owen v. Zosky, the third party admitted that it had no exposure from a continuation of the main action. Wiggins made no such admission in this case. Thus, Owen v. Zosky does not assist Sinclair-Cockburn.
[20] The other decision of this court relied on by Sinclair-Cockburn is Van Patter v. Tillsonburg District Memorial Hospital (1999), 1999 3754 (ON CA), 45 O.R. (3d) 223, 42 M.V.R. (3d) 261 (C.A.). In that case, as Mesbur J. recognized, the result was different because of the different procedure invoked by the third party. In Van Patter, the plaintiff had been injured in a car accident and settled with both the owner and the driver. She signed a release agreeing not to make any claim against any person who might claim contribution and indemnity from them. She then discovered that she had further injuries because of the car accident. She sued her doctors for failing to diagnose these injuries. In turn, the doctors third partied the owner and the driver, who, relying on the release, moved for summary judgment to dismiss the plaintiff's claim in the main action.
[21] The motions judge granted summary judgment, dismissing the plaintiff's claim against the doctors, but the order was set aside on appeal. Borins J.A. held that in bringing their summary judgment motion, the third parties stood in the shoes of the defendant doctors. They had the same rights as the doctors but were also limited to the defences available to these defendants. The doctors, however, had no rights under the release because they were not parties to it. Thus, the summary judgment motion could not succeed.
[22] Here, by contrast, Wiggins has not stood in Richards' shoes in moving for a stay. Instead, it has sought relief directly against Sinclair-Cockburn under s. 106 of the Courts of Justice Act and the rules, which authorize a stay of an action where permitting it to proceed would be an abuse of process. Van Patter, too, does not assist Sinclair-Cockburn. I would not give effect to this ground of appeal.
2. Should the third-party claim alone be stayed?
[23] Sinclair-Cockburn alternatively submits that it should be permitted to sue Richards but her third-party claim against Wiggins should be stayed. I would not give effect to this submission.
[24] As Wiggins acknowledges, it has no independent right to obtain a stay of the third-party claim. The stay of the third-party claim follows from a stay of the claims in paras. 5A and 6D III) [page113] and IV) of the statement of claim. If the stay of those claims in the main action is set aside, so too must the stay of the third-party claim. This alternative argument fails.
[25] I would therefore dismiss Sinclair-Cockburn's appeal. The dismissal of Sinclair-Cockburn's appeal renders Richards' cross-appeal unnecessary.
D. Conclusion
[26] I would dismiss Sinclair-Cockburn's appeal with costs payable to Wiggins in the amount of $5,000. I would order no costs for or against Richards. I would dismiss Richards' cross-appeal without costs.
Order accordingly.