Law Society of Upper Canada et al. v. Ernst & Young et al.

[Indexed as: Law Society of Upper Canada v. Ernst & Young]

65 O.R. (3d) 577

[2003] O.J. No. 2691

Docket No. C38094 and C38140

Court of Appeal for Ontario

McMurtry C.J.O., Carthy and Borins JJ.A.

July 3, 2003

• Application for leave to appeal dismissed with costs April 1, 2004 (Bastarache, LeBel and Deschamps).

Civil procedure -- Summary judgment -- Genuine issue for trial -- Plaintiff bringing action for damages for breach of contract, negligence and negligent misrepresentation -- Defendants arguing that plaintiff was precluded from recovering damages by defence of passing on even if liability was established -- Not plain and obvious as matter of law that passing on defence does not constitute reasonable defence in Canada -- Action should proceed to trial and issue should not be determined on motion for summary judgment.

Civil procedure -- Summary judgment -- Question of law -- Parties conceding that material facts were in dispute and that genuine issue for trial existed with respect to defendants' liability to plaintiff -- Defendants moving for summary judgment under rule 20.04(4) and for determination of question of law under rule 21.01(1)(a) on issue of whether plaintiff was precluded from recovering damages by defence of passing on -- Defendants conceding for purpose of their motions only that plaintiffs could prove liability -- Motion judge should not have ruled on motion under rule 20.04(4) on basis of hypothetical admission of liability -- Matter should proceed to trial -- Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rules 20.04(4), 21.01(1)(a).

The plaintiff brought an action against its former auditors and actuaries for damages for breach of contract, negligence and negligent misrepresentation, alleging that the defendants grossly understated deficits and unpaid claim liabilities relative to the plaintiff's professional liability insurance plan. The defendants moved for summary judgment dismissing the claim for damages under rule 20.04(4) of the Rules of Civil Procedure, and alternatively sought a declaration under rule 21.01(1)(a) determining a question of law, that is, whether or not the plaintiff sustained damages that were recoverable in law. Essentially, the defendants took the position that, even if they were at fault, damages were not recoverable because the plaintiff had passed on the damages to the members of the Law Society through supplemental and increased levies. In order to permit the questions of law to be decided, although there were material facts in dispute and genuine issues for trial with respect to the breach of contract, negligence and negligent misrepresentation issues, the defendants conceded, solely for the purpose of the motions, that the plaintiff could prove their alleged breach of contract, negligence and negligent misrepresentation. The motion judge (a) dismissed the Rule 21 motion; (b) held that the plaintiff's claim for lost interest earned on premiums it said it would have collected had it known of the size of the deficit could not be maintained; and (c) declared that the damages claimed by the plaintiff, if proven and otherwise established to be recoverable by the plaintiff from the defendants, were not reduced or eliminated by reason of the collection of supplemental and increased levies by the plaintiff. The defendants appealed orders (a) and (c), and the plaintiff cross-appealed order (b).

Held, the appeal and cross-appeal should be allowed. [page578]

Per Borins J.A.: The motion judge should not have acceded to the parties' request that the motions be decided on the basis of facts assumed for the motions, because in doing so he decided a hypothetical question. Unless there were no facts in dispute, the defendants could not rely on rule 20.04(4), which permits the court to determine a question of law where it is the only genuine issue for trial. Similarly, it would not have been appropriate for the motion judge to decide as a question of law under rule 21.01(1)(a) that the passing on defence precluded the plaintiff from recovering damages if there was a factual issue whether the plaintiff had sustained damages based on the defendants' alleged wrongful conduct. Because there were facts in dispute concerning the defendants' alleged wrongful conduct, which facts the defendants were prepared to assume in the plaintiff's favour but only for the purpose of their motions, the motion judge was put in the position of being asked to decide two hypothetical questions. Moreover, it appeared that many underlying facts were in dispute. This reinforced the importance of deciding significant substantive issues on a full factual background that formed the complete picture. Such factual background could best be developed at trial, rather than on an interlocutory motion. Because the motion judge's legal analysis was informed by the defendants' concession of their alleged wrongful conduct, it was not possible to say that any of the legal results that flowed from the motion judge's order would survive a revision of the facts at the trial that was to be held consequent to the motion judge's order. It is not the purpose of rule 21.01(1)(a) to enable a party to obtain the advisory opinion of the court as to the validity of its cause of action or defence where the facts that constitute the substratum thereof are in dispute.

Whether viewed from the perspective of a rule 20.04(4) motion or a rule 21.01(1)(a) motion, the central issue was the same. On the assumption that the plaintiff was able to prove that it sustained damages that were caused by the defendants' breach of contract or negligence, the issue was whether the plaintiff was precluded from recovering the damages because they were passed on to Law Society members by way of supplemental and increased levies. The motion judge decided this issue on the ground that the passing on defence has not been judicially recognized in Canada (with one exception that did not apply to this case). In reaching that conclusion, the motion judge effectively approached the motion as if it had been brought under rule 21.01(1)(b) in deciding that the passing on of damages to a third party failed to disclose a reasonable defence. In doing so, he implicitly applied the "plain and obvious" test, which proceeds on the assumption that the facts stated in the statement of claim or the statement of defence can be proved. From the perspective of the plain and obvious test, this action should proceed to trial. It was not plain and obvious, as a matter of law, that the passing on defence does not constitute a reasonable defence. The action should proceed to trial.

Per McMurtry C.J.O. (concurring in the result): The defendants' hypothetical admission of negligence was not fatal to their motion under rule 21.01(1)(a). It was appropriate under this rule to set aside the issue of negligence in order to seek a preliminary determination on the issue of damages. This matter should proceed to trial for the other reasons enunciated by Borins J.A.

Per Carthy J.A. (dissenting): The lawyers involved in this litigation reached a consensus that, if they had an answer from the court as to the overarching issue of whether compensable damages could be proved, the case would be either resolved or much simplified. They were clearly seeking, in the words of rule 21.01(1)(a), to "substantially shorten the trial or result in a substantial saving of costs". A final determination of the legal issue as to whether recoverable damages were sustained would end the case on one result, or lead to the potential of settlement before trial. [page579] The essence of the motion lay within rule 21.01(1)(a), seeking a determination of a question of law. Here, there were two questions of law: were damages sustained and, if so, did the defence of passing on prevent their recovery? It was only after those questions were resolved that any issue of summary judgment under Rule 20 or striking of pleadings under rule 21.1(1)(b) could arise. The essential facts for a determination of these questions were not in question. The motion was not impaired by the fact that the concession of negligence was for the limited purpose of the motion. The concession was unnecessary and did not alter the fact that the legal issue was discrete and severable. The hypothetical to be avoided is one where an underpinning of the legal determination sought under Rule 21 may be altered at trial, and the legal determination thus rendered redundant. That could not happen in this instance. The facts surrounding the concession had no bearing upon those relating to the legal issue of damage recoverability.

APPEAL from an order dismissing motions for an order striking out a statement of claim or granting summary judgment dismissing a claim; CROSS-APPEAL from an order striking out part of a statement of claim.

Cases referred to Barnes v. Kaladar, Angelsea and Effingham (Townships) (1985), 1985 1927 (ON SC), 52 O.R. (2d) 283, 6 C.P.C. (2d) 75 (H.C.J.); Bell Pole Co. v. Commonwealth Insurance Co. (1999), 66 B.C.L.R. (3d) 79, 123 B.C.A.C. 316, [1999] B.C.J. No. 956 (QL), 9 C.C.L.I. (3d) 123, 1999 BCCA 262 (C.A.), revg (1998), 1998 6751 (BC SC), 55 B.C.L.R. (3d) 189 (S.C.); British Columbia v. Canadian Forest Products Ltd. (2002), 100 B.C.L.R. (3d) 114, 11 C.C.L.T. (3d) 1, 2002 BCCA 217, 166 B.C.A.C. 122 (C.A.) [Leave to appeal to S.C.C. granted (2003), [2002] S.C.C.A. No. 269]; Buckley v. British Columbia Teachers' Federation (1992), 1992 747 (BC CA), 65 B.C.L.R. (2d) 155 (C.A.), affg (1990), 1990 906 (BC SC), 44 B.C.L.R. (2d) 31, 47 B.L.R. 138 (S.C.); Chitel v. Bank of Montreal (1999), 1999 8746 (ON CA), 126 O.A.C. 159, [1999] O.J. No. 3988 (QL) (C.A.); Dawson v. Rexcraft Storage & Warehouse Inc. (1998), 1998 4831 (ON CA), 164 D.L.R. (4th) 257, 20 R.P.R. (3d) 207 (Ont. C.A.); Goudie v. Ottawa (City) (2003), 2003 SCC 14, 223 D.L.R. (4th) 395, 301 N.R. 201, 2003 CLLC Â220-028, 2003 SCC 14, 23 C.C.E.L. (3d) 1, 30 C.P.C. (5th) 207, [2003] S.C.J. No. 12 (QL); Hobbs v. Robertson (2002), 13 C.C.L.T. (3d) 109, 23 C.P.C. (5th) 17, 2002 BCCA 381, revg (2001), 85 B.C.L.R. (3d) 114, [2001] 4 W.W.R. 218, 2001 BCSC 162; Hunt v. Carey Canada Inc., 1990 90 (SCC), [1990] 2 S.C.R. 959, 49 B.C.L.R. (2d) 273, 74 D.L.R. (4th) 321, 117 N.R. 321, [1990] 6 W.W.R. 385, 4 C.C.L.T. (2d) 1, 43 C.P.C. (2d) 105 (sub nom. Hunt v. T & N plc); Jam's International Ventures Ltd. v. Westbank Holdings Ltd. (2001), 153 B.C.A.C. 1, 2001 BCCA 12, [2001] B.C.J. No. 548 (QL); Lennon v. Ontario (Premier) (1999), 1999 15072 (ON SC), 45 O.R. (3d) 84 (S.C.J.); MacDonald v. Ontario Hydro (1995), 1995 10628 (ON SC), 26 O.R. (3d) 401 (Div. Ct.), affg (1994), 1994 7294 (ON SC), 19 O.R. (3d) 529, 38 C.P.C. (3d) 378 (Gen. Div.); Nelles v. Ontario, 1989 77 (SCC), [1989] 2 S.C.R. 170, 69 O.R. (2d) 448n, 35 O.A.C. 161, 60 D.L.R. (4th) 609, 98 N.R. 321, 49 C.C.L.T. 217, 37 C.P.C. (2d) 1, 71 C.R. (3d) 358; R.D. Belanger & Associates Ltd. v. Stadium Corp. of Ontario Ltd. (1991), 1991 2731 (ON CA), 5 O.R. (3d) 778 (C.A.); Spasic Estate v. Imperial Tobacco Ltd. (2000), 2000 17170 (ON CA), 49 O.R. (3d) 699, 188 D.L.R. (4th) 577, 47 C.P.C. (4th) 12, 2 C.C.L.T. (3d) 43 (C.A.), revg in part (1998), 1998 14716 (ON SC), 42 O.R. (3d) 391, 44 C.C.L.T. (2d) 188, 27 C.P.C. (4th) 134 (Gen. Div.); Steyns v. Manitoba Public Insurance Corp. (1995), 1995 1262 (BC CA), 7 B.C.L.R. (3d) 106, 126 D.L.R. (4th) 394, [1995] 7 W.W.R. 507, [1995] I.L.R. Â1-3242, 12 M.V.R. (3d) 165 (C.A.), revg (1994), 1994 725 (BC SC), 88 B.C.L.R. (2d) 125, 1 L.W.R. 192, [1994] 4 W.W.R. 449 (S.C.) [Leave to appeal to S.C.C. refused (1996), 203 N.R. 240n] Statutes referred to Law Society Act, R.S.O. 1990, c. L.8, s. 62(1) Rules and regulations referred to Rules of Civil Procedure, R.R.O. 1990, Reg. 194, Rules 20, 20.04(4), 21, 21.01(1) Rules of Practice and Procedure, R.R.O. 1980, Reg. 540, Rules 124, 126 Supreme Court Rules, B.C. Reg. 221/90, Rule 18A [page580]

Patricia D.S. Jackson and Cynthia L. Tape, for appellants Ernst & Young, Clarkson Gordon and Zittrer, Siblin, Stein, Levine. Claude R. Thomson, Q.C., Ronald J. McCloskey and Berkley D. Sells, for appellants Tillinghast, a Towers Perrin Company and Towers Perrin Inc. Benjamin Zarnett and Joe Conforti, for respondents.

[1] BORINS J.A.: -- This is an appeal by the former auditors and actuaries of the Law Society of Upper Canada ("LSUC") from the dismissal of their motions for an order striking out the statement of claim, or granting summary judgment dismissing the claim, in an action against them by the LSUC and the Lawyers' Professional Indemnity Company ("LPIC"). The LSUC has cross- appealed from that part of the motion judge's order striking out certain paragraphs of the statement of claim.

I

[2] The LSUC is the governing body of the legal profession in Ontario. Since 1971, it has required that practising members of the profession carry minimum levels of professional liability insurance. Until 1990, this mandatory insurance coverage was provided by a group policy issued by third party insurance companies. In 1990, the LSUC incorporated LPIC, a wholly-owned subsidiary, for the purpose of providing professional liability insurance to its members. In these proceedings, the provision of this insurance has been referred to as the Insurance Plan.

[3] Although the manner in which the LSUC operated and funded the Insurance Plan is complex, it is sufficient for the purpose of this appeal to state that the LSUC and LPIC have two legal mechanisms to raise revenues to acquire funds to pay the costs and expenses of the Insurance Plan as well as to defend and to pay claims made against members of the LSUC, who under the Insurance Plan are known as Insured Members.

[4] The first mechanism is the requirement that an Insured Member pay a deductible, being a small portion of each claims liability. The second is the LSUC's statutory right to levy its members annually to create a fund out of which the LSUC pays liabilities, costs and its reasonable expenses incurred in connection with the [page581] Insurance Plan, including a premium to LPIC from which it funds its liabilities. In regard to the second mechanism, Rule 50 of the Law Society's Rules made under the Law Society Act, R.S.O. 1990, c. L.8, s. 62(1) at the relevant period provided as follows:

The fees and levies that are payable to the Society shall be paid in the circumstances and at the times specified as follows, and the amount of a fee or levy shall be the sum of the amount specified and any tax that is required by law to be paid by the person receiving the service and collected by the Society:

Indemnity for professional liability

A levy for indemnity for professional liability to be used for an insurance fund to cover insurance premiums, reserves, group deductibles, adjusting costs, counsel and legal fees, administration costs and other expenses reasonably incurred in connection with indemnity for professional liability payable to every member who engages in active practice in any year to be paid to the Society at such time and in such amount in any years as Convocation may from time to time determine. . . .

If at the end of the year the insurance fund is not entirely used up, the surplus remaining shall be carried forward into the next year.

[5] For the years 1990, 1991, 1992, 1993 and 1994, the LSUC and LPIC retained Ernst & Young, in which Clarkson Gordon and Zittrer, Siblin, Stein, Levine were partners (collectively referred to as "E&Y"), as their auditors and Tillinghast, a Towers Perrin Company and Towers Perrin Inc. (collectively referred to as "Tillinghast"), as their actuaries.

[6] Auditing services were required by the LSUC for the purpose of obtaining annual audited financial statements to allow it to accurately assess its financial position, including that of its Insurance Plan. In regard to the Insurance Plan, the LSUC required clear and accurate information about the financial position of the Plan and LPIC, including the amount of claims liabilities and their relationship to assets available to meet such liabilities. The LSUC required this information to enable it to make proper decisions concerning, inter alia:

(a) The level, types and amounts of coverage to offer, and the quantum and nature of liabilities to be underwritten;

(b) The amount of deductibles to be borne by Insured Members and the terms on which they should bear them; and

(c) The amount of assets it was required to raise annually through the charging of premiums and levies, and the setting of, and levels, of premiums and levies. [page582]

LPIC required audited financial statements for essentially the same purposes as the LSUC.

[7] The LSUC and LPIC retained Tillinghast to provide actuarial valuations of the claims liabilities related to the Insurance Plan. From 1990, Tillinghast prepared actuarial reports and actuarial opinions for LPIC. In general, Tillinghast's valuations, reports and opinions were required to inform and alert the LSUC and LPIC of any circumstances that called into question or threatened the viability or continued operation of the LSUC, LPIC or the Insurance Plan.

[8] In their lengthy statement of claim, the LSUC and LPIC (the "plaintiffs") allege that in April, 1994, they learned the deficits and unpaid claim liabilities relative to the Insurance Plan, as calculated and reported by E&Y and Tillinghast (the "defendants") were grossly understated, with the result that the Insurance Plan was incurring large unpaid claims liabilities, in amounts considerably in excess of what had been reported. They further allege that the liabilities and deficits were spiralling without control, threatened the financial viability of the LSUC and LPIC, and justified the cessation or serious modification of the Insurance Plan. It is alleged that had correct amounts of unpaid claims liabilities and deficits been reported, E&Y and Tillinghast should have reported a deficit of $67 million in 1991, rising to a deficit of $153 million by 1994.

[9] As a result, the LSUC and LPIC allege that it was necessary to take a number of steps to keep the Insurance Plan viable. They increased deductibles. To reduce the rate at which liabilities were incurred, they eliminated some coverages and reduced other coverages. In addition, they substantially increased the annual levies imposed on the members of the LSUC. As such, the LSUC and LPIC allege that they sustained losses in the amount of about $100 million which they would not have incurred had claims liabilities been accurately reported by E&Y and Tillinghast. In this action, they seek to recover damages in the amount of $110 million from their former auditors and actuaries based on breach of contract, negligence and negligent misrepresentation related to claims liabilities and deficits incurred by the Insurance Plan during the years 1991 and 1994.

II

[10] The defendants brought similar, but not entirely identical, motions for the purpose of terminating the plaintiffs' action on the pleadings. Both defendants moved for summary judgment dismissing the plaintiffs' claim for damages or, in the alternative, [page583] for partial summary judgment dismissing the claim for damages in para. 45 of the statement of claim (E&Y) or the claim for damages in paras. 42 to 46 of the statement of claim (Tillinghast). In the further alternative, both E&Y and Tillinghast sought a declaration under rule 21.01(1)(a) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 determining a question of law, stated as follows in Tillinghast's notice of motion:

[R]egardless of whether there was negligence on the part of defendants and whether or not the plaintiffs relied on representations or reports of the defendants to their detriment, did the plaintiffs sustain damages that are recoverable in law?

[11] The motions, as framed, sought to put an end to the plaintiffs' action by either obtaining a summary judgment dismissing the action, or a judgment striking out the statement of claim on the ground that even if the defendants were at fault, as a matter of law the plaintiffs sustained no damages, or if they did, damages were not recoverable from the defendants because the plaintiffs had passed on the damages to the members of the LSUC through supplemental and increased levies.

[12] Save for one minor exception, the operative paragraphs of the formal orders of the court reflecting the results of the motions are identical. These paragraphs, in the order in the E& Y motion, read as follows:

1. THIS COURT ORDERS THAT the motion pursuant to Rule 21 be and is hereby dismissed.

2. THIS COURT ORDERS AND DECLARES that to the extent the plaintiffs' claim for damages is comprised of a claim for lost interest earned on premiums the plaintiffs say they would have collected in 1991, 1992, 1993 and/or 1994 had they known of the size of the deficit, no such claim can be maintained.

3. THIS COURT ORDERS AND DECLARES that except as set out in paragraph 2 above, the damages claimed by the plaintiffs in the statement of claim, if proven and otherwise established to be recoverable by the plaintiffs from the defendants, are not reduced or eliminated by reason of the collection of any levies by the Law Society of Upper Canada from its members or by reason of any right of the Law Society of Upper Canada to collect any levies from its members, and the motion for summary judgment is hereby dismissed.

(Emphasis added)

The only difference in the Tillinghast order is that in para. 1"and 51.06" follows "Rule 21". Thus, the motion judge held that the plaintiffs' alleged damages were recoverable, except for the interest component of their damage claim.

[13] E&Y and Tillinghast appeal from paras. 1 and 3 of the order. The LSUC and LPIC cross-appeal from para. 2. [page584]

III

[14] Because of the view that I hold of the result of this appeal, it is unnecessary to provide a detailed review of the reasons of the motion judge. I will confine my review to those portions of his reasons which will be of assistance in developing my reasons for setting aside the orders of the motion judge and ordering that this action proceed to trial.

[15] My starting point is an analysis of the defendants' motions. Relying on rule 21.01(1)(a) (determination of a question of law), although properly the subject of a rule 21.01(1)(b) motion (failure to disclose a reasonable cause of action), each defendant sought to strike out the statement of claim on the ground that it is substantively inadequate. In support of their position, the approach taken by the defendants was that the plaintiffs did not sustain any recoverable damages because the deficits and unpaid claims liabilities incurred between 1990 and 1994 were largely eliminated by 1999 by the LSUC's imposition of supplemental and increased levies on its members under the statutory scheme for funding the Insurance Plan. From E&Y's perspective, this resulted in the plaintiffs' failure to sustain any damages. From Tillinghast's perspective, if the plaintiffs sustained damages they were not recoverable as they had been "passed on" to the members of the Law Society through the supplemental and increased levies imposed by LSUC under Law Society Rule 50. In addition, both defendants contended that they were entitled to summary judgment under Rule 20 dismissing the plaintiffs' claims which they said did not raise a genuine issue for trial. The legal issues that underlay the rule 21.01(1)(a) and Rule 20 motions are closely related and, in my view, raise complex issues.

[16] At the outset of his reasons, the motion judge referred to two factors which are central to the determination of the appeal. At p. 216 O.R., the motion judge stated that "it is conceded that there are material facts in dispute and genuine issues for trial with respect to the breach of contract, negligence and negligent misrepresentation alleged in the Statement of Claim". In this regard, it is significant that in their statements of defence the defendants denied that they had been negligent and further denied that they had breached their contracts with the plaintiffs. He continued, at pp. 216-17 O.R.:

The two main motions before this court are for summary judgment, partial summary judgment or the declaratory relief based on the defendants' position that, even if breach of contract, negligence or negligent misrepresentation could be proved, the plaintiffs have suffered no damages and cannot maintain their actions as all of the unpaid claims liabilities and deficits incurred by the insurance plan in subject years have been recouped by the plaintiffs [page585] as a result of supplemental or increased levies imposed on the members of LSUC covered by such insurance plan.

(Emphasis added)

[17] The motion judge then considered the grounds advanced by the defendants in support of their motions to dismiss the plaintiffs' claims for failing to raise a genuine issue for trial or, in the alternative, because the claims did not support a legally recognized remedy. Under the headings "Summary Judgment Motions" and "Passing on Defence", at considerable length he analyzed the nature of the Insurance Plan and reviewed authorities in Canada, England and the United States that appear to have considered whether the passing on defence is one that has received judicial recognition. As I understand his reasons, he considered the central issue raised by the summary judgment motions to be whether recognition should be given to a passing on defence, also referred to as a passing-off defence. At p. 236 O.R., he concluded that the defence had received limited recognition in Canada in circumstances "where a taxpayer brings action to recover taxes paid under ultra vires litigation". As reflected by para. 3 of the formal judgments, he effectively declared that the passing on defence was not available to the defendants. Accordingly, he dismissed the defendants' motions both under rule 21.01(1)(a) and Rule 20.

[18] However, the motion judge dismissed one element of the plaintiffs' damage claim - the "interest claim". This is a claim for interest which the plaintiffs allege they would have earned by way of revenue on levies that they would have imposed on the members of the Law Society had they been informed of the true financial position of the Insurance Plan in 1991. In other words, had the LSUC known of the $67 million deficit, it claims that it would have raised additional revenue that might have yielded approximately $29 million in interest. At pp. 224-25 O.R., the motion judge provided brief reasons for awarding partial summary judgment dismissing this claim. As I have indicated, the plaintiffs cross-appeal the dismissal of this element of their claim.

IV

[19] This brings me to my reasons for why I believe that this case should proceed to trial. At the outset of the appeal, the court raised two concerns: (1) whether it had jurisdiction to hear the appeals; and (2) whether it was proper for the motion judge to have adjudicated the defendants' motions "on the facts accepted for the purpose of [the motions]", as the plaintiffs put it in para. 3 of their factum in response to E&Y's appeal, and similarly in [page586] para. 47(g) of their factum in response to Tillinghast's appeal. Counsel were referred to a number of authorities by the court which then adjourned to permit counsel an opportunity to prepare submissions in response to its concerns.

[20] After taking time to consider the submissions of counsel, the court indicated that it was satisfied that it had jurisdiction to hear the appeals. However, it expressed no opinion on whether it was proper for the motion judge to adjudicate the motions on the basis of facts assumed, or conceded, for the purpose of the motions. As I will explain, it is my view that the motion judge should not have acceded to the parties' request that the motions be decided on the basis of facts assumed for the purpose of the motions because in doing so he decided a hypothetical question.

[21] The defendants moved under rule 20.04(4) and, alternatively, under rule 21.01(1)(a), to obtain an order either dismissing the plaintiffs' action or striking out their statement of claim on one, or both, of two legal grounds. It was their position that the plaintiffs did not sustain legally recoverable damages; however, if they did, the plaintiffs were precluded from recovering the damages because the LSUC passed on the damages to its members through supplemental and increased annual levies. Doctrinally, unless there were no facts in dispute, the defendants could not rely on rule 20.04(4), which permits the court to determine a question of law where it is the only genuine issue for trial: Dawson v. Rexcraft Storage and Warehouse Inc. (1998), 1998 4831 (ON CA), 164 D.L.R. (4th) 257, 20 R.P.R. (3d) 207 (Ont. C.A.). However, as the motion judge noted at p. 216, the parties had conceded there were material facts in dispute and a genuine issue for trial concerning the defendants' liability. Consequently, to permit the questions of law to be decided the defendants conceded that the plaintiffs could prove their alleged breach of contract, negligence and negligent misrepresentation. However, they did so only for the purpose of their motions. Similarly, it would not have been appropriate for the motion judge to decide as a question of law under rule 21.01(1)(a) that the passing on defence precluded the plaintiffs from recovering the damages that they claimed if there was a factual issue whether the plaintiffs had sustained damages based on the defendants' alleged wrongful conduct: cf. Lennon v. Ontario (Premier) (1999), 1999 15072 (ON SC), 45 O.R. (3d) 84 (S.C.J.).

[22] It follows that because there were facts in dispute concerning the defendants' alleged wrongful conduct, which facts the defendants were prepared to assume in the plaintiffs' favour but only for the purpose of their motions, the motion judge was put in [page587] the position of being asked to decide two hypothetical questions. Of course, had the defendants been prepared to admit for all purposes that they had breached their contracts with the plaintiffs or had performed their services negligently, that would have removed the hypothetical nature of the questions of law raised by their motions.

[23] Moreover, it appears from the reasons of the motion judge, as well as from the factums of the parties and the oral submissions of counsel, that many underlying facts are in dispute. This reinforces the importance of deciding significant substantive issues on a full factual background that forms the complete picture. Such factual background can best be developed at trial, rather than on an interlocutory motion. I refer, for example, to the dispute among the parties as to the nature of the Insurance Plan, the role of the LSUC and LPIC in respect to the Insurance Plan and, in particular, their responsibility for liabilities and expenses they incurred in connection with the Insurance Plan. Indeed, during oral argument, because there was a such a substantial difference of opinion among counsel as to the underlying or foundation facts, it appeared that counsel for the appellants and the respondents were arguing different cases.

V

[24] There are a number of recent cases on which I rely in arriving at the conclusion that the motions should not have proceeded on the basis of assumed facts.

[25] In Chitel v. Bank of Montreal (1999), 1999 8746 (ON CA), 126 O.A.C. 159, [1999] O.J. No. 3988 (QL) (C.A.), the plaintiff had moved for summary judgment. When faced with a record before the motion judge that demonstrated that there were many factual issues in dispute, the plaintiff's counsel abandoned certain factual positions of the plaintiff "for the purpose of the motion" in order "to clean up the record" so that it was appropriate to be heard under Rule 20. This strategy proved to be disastrous for the plaintiff. In the plaintiff's sworn evidence on the motion she said that she had received the consent of one of the parties to mortgage her interest in a property. However, for the purpose of the motion, her counsel conceded that no consent had been obtained. This concession formed the basis of the conclusion of the motion judge that the plaintiff had no case with respect to the majority of her claims, which the motion judge effectively dismissed, when, in narrowing the issues for trial, he deleted the claims. [page588]

[26] This court was of the view that the plaintiff's concession of facts for the purpose of the motion rendered the motion "procedurally flawed". At para. 7 the court said:

Not only was the plaintiff's procedure strategically misguided, it is unavailable under Rule 20 except in very limited circumstances. (For example, this procedure was used in the case of Guarantee Company of North America v. Gordon Capital Corp., 1999 664 (SCC), [1999] S.C.J. No. 60 without adverse comment by the court.) In any case where it is left open to the motions judge on a summary judgment motion to narrow the issues for trial or to grant partial summary judgment to any party, then any agreement on the facts must be for the purposes of the entire proceeding.

[27] The court went on to say that the problem of deciding a motion on the basis of facts admitted for the purpose of the motion could place the trial judge in a difficult position if he or she were to make a different finding of fact based on the evidence. The court added, at para. 10, in a passage that has particular relevance to this appeal:

Besides this problem, it is unclear from the record and the reasons, what facts were found not to be in dispute in order to form the basis for the legal conclusions reached by the motions judge. Rather, it appears that many important facts, as well as inferences from the facts, are very much in dispute in this case and that they are part of a complete story which must be told in its entirety at the trial. Furthermore, because the entire legal analysis was based on, and flowed from, at least one of the facts conceded for the motion only, it is not possible to say that any of the legal results would survive a revision of the facts.

[28] In allowing the appeal and ordering that the action proceed to trial on all issues, at para. 11, the court concluded: "Both the facts and the legal issues are complex and require a trial where they can be considered as a whole by one judge who will apply the law to the facts as ultimately found."

[29] The problem created by conceding or admitting facts for the purpose of a motion under Rule 18A of the British Columbia Supreme Court Civil Rules has been considered in three recent judgments of the British Columbia Court of Appeal. Rule 18A is similar in purpose to Ontario Rule 20. The rule permits a party to apply by way of a summary trial for judgment either on an issue or generally, on the basis of an affidavit, answers to interrogatories, discovery evidence, an admission or the written statement of an expert.

[30] In Bell Pole Co. v. Commonwealth Insurance Co. (1999), 1999 BCCA 262, 66 B.C.L.R. (3d) 79 123 B.C.A.C. 316 (C.A.), the plaintiff appealed a summary trial decision in which certain facts had been assumed for the purpose of the application. Before the appeal was argued, the Court of Appeal raised with counsel whether a summary trial [page589] could be decided on assumed facts. Although the court agreed to hear the appeal, it made it clear that it might ultimately decide that the application could not properly be decided on assumed facts.

[31] In the argument of the appeal a number of problems arose, principally that the parties were not in agreement on the assumed facts, with the result that they were not in agreement on the law which could properly be advanced. To Esson J.A., these problems established that the attempt to isolate an issue and decide it on assumed facts was misconceived. He observed that although in Steyns v. Manitoba Public Insurance Corp. (1995), 1995 1262 (BC CA), 126 D.L.R. (4th) 394, 7 B.C.L.R. (3d) 106 (C.A.), Finch J.A. was of the view that sometimes it will be appropriate on a Rule 18A motion to decide a question of law on assumed facts, he did not believe it was appropriate to make a definitive statement on the matter. In allowing the appeal and remitting the action for trial on all issues, at para. 15 Esson J.A. stated: "I will say that to proceed with a summary trial on assumed facts is likely to result in the kind of confusion which arose here, and that such a procedure seems inconsistent with the principle that a summary trial is a trial."

[32] The next case is Jam's International Ventures Ltd. v. Westbank Holdings Ltd. (2001), 153 B.C.A.C. 1, 2001 BCCA 12 (C.A.), which was an appeal from a summary trial under Rule 18A dismissing the plaintiff's claims. The application was heard on the basis of facts assumed for the purpose of the application.

[33] In my view, the extensive observations of Lambert J.A. in discussing two of the principles which have guided the British Columbia Court of Appeal in appeals from decisions under Rule 18A warrant repetition.

[34] At paras. 4-5, Lambert J.A. observed:

The first principle applies to those cases where the summary trial relates to only one issue in the appeal and is not a trial of the whole proceeding. The principle was stated in District of North Vancouver v. Fawcett (1998) 162 D.L.R. (4th) 402 where, in a unanimous judgment, the Court said this, at p. 413:

With respect, it seems to me that if the answer to an issue sought to be tried under rule 18A will only resolve the whole proceeding if one answer is given, but not if a different answer is given, then the applicant should be required to demonstrate, and the judge should be expected to decide, that the administration of justice, as it affects not just the parties to the motion, but also the orderly use of court time, will be enhanced by dealing with the issue as a separate issue. It cannot be enough simply that the parties have agreed to a summary trial of one or more issues, but not all of the issues, raised in the proceeding, without any consideration for the effective use of court time, or the efficient resolution of the proceeding. [page590]

The second principle applies to those cases where the Court is asked to make assumptions of fact or mixed fact and law in a course of an 18A proceeding. Those assumptions can produce a hypothetical issue and often result in a situation where careful attention should be given to the first principle I mentioned because the resulting issue may not be a real issue in the case and it may save no time or expense to have it decided. There are a number of cases which discuss the difficulties of dealing with an 18A application on the basis of assumptions. I will mention only two: Steyns v. Manitoba Public Insurance Corp. (1995) 1995 1262 (BC CA), 7 B.C.L.R. (3d) 106 and Bell Pole Co. v. Commonwealth Insurance Co. (1997) 66 B.C.L.R. (3d) 79.

(Emphasis added)

[35] Lambert J.A. then quoted the passage from Esson J.A.'s reasons for judgment in Bell Pole, cited in part above, and continued [at] paras. 7-8:

I would like to add this; the problem is particularly acute in those cases where the court has been asked to decide the 18A application on assumed facts which are not conceded by the applicant to be true. In most cases if the application is dismissed the applicant on assumed facts seeks to retain the right to prove the true facts which may or may not be the same as the assumed facts. As in the Bell Pole case I would not make a definitive ruling on this issue until the issue itself is argued and not simply raised by this Court.

I think it would be a rare case where the Court was asked to assume facts which were not also conceded to be true for all purposes of the litigation by all parties to the litigation and where it would be wise for the court to give a judgment on those assumed facts. Of course, when all parties are prepared to concede that the facts put forward on the application are true and should be treated as such by all parties to the litigation, for all purposes of the litigation and not simply for the 18A proceeding, and all parties agree that that is so, then no problem is likely to arise. But those facts are not assumed facts they are admitted facts.

(Emphasis added)

[36] In allowing the appeal and sending the case to trial, Lambert J.A. was of the view that the issue of law presented by the application could not be resolved on the basis of the assumed facts. He stated [at para. 28] that both the legal and factual questions required "a fuller evidentiary basis than was achieved on the rule 18A proceeding". He concluded, at para 29:

I add that the fact that only a part of a proceeding was before the court, on the 18A application, leaves me in this case with a measure of apprehension that facts found on the full trial may be shown to be different from the facts underlying the chambers judge's dismissal of the action against the developer under rule 18A.

(Emphasis added)

[37] The final case is Hobbs v. Robertson (2002), 2002 BCCA 282, 23 C.P.C. (5th) 17, 13 C.C.L.T. (3d) 109 (B.C.C.A.). In this case the family of a woman who died of blood loss during surgery sued the defendant [page591] doctors for negligence. The doctors relied on a document signed by the deceased entitled "Refusal to Permit Blood Transfusions", which they claimed released them from any liability. They applied under Rule 18A for a summary determination of whether, assuming that the blood loss resulted from their negligence, the document provided a complete answer to the claims against them. The doctors appealed from the dismissal of their application.

[38] After discussing Bell Pole, Newbury J.A. referred to the earlier case of Buckley v. British Columbia Teachers' Federation (1992), 1992 747 (BC CA), 65 B.C.L.R. (2d) 155 (C.A.), where the British Columbia Court of Appeal was critical of a Rule 18A application brought on assumed facts. At para. 9, she quoted extensively from the reasons in that case of Lambert J.A., who underscored the potential problems that could arise where an application is made on assumed facts, and where the application is dismissed, or does not deal with all the issues, resulting in a trial at which the facts as found by the trial judge differ from the assumed facts. In my view, the following passage from Lambert J.A.'s reasons in Buckley (as quoted in Bell Pole) is helpful:

To decide otherwise would be to permit the Supreme Court Rules, and particularly R. 52(11) and 18A, though the same principle is applicable to Rule 34, to be used to decide hypothetical or moot questions which may turn out, in the end, to have no direct bearing on the outcome of the proceedings.

Rule 18A permits a party to apply to the court for judgment either upon an issue or generally. In my opinion such a judgment, if given, is a judgment which disposes once and for all of the issues on which it is given.

By an application to amend the notice of appeal and appellant's factum, counsel for the federation drew our attention to the decision of this court in Hill v. Vernon (City) (March 25, 1991), Doc. Vancouver CA010436, [1991] B.C.W.L.D. 1227, in which it was said that an application under R. 18A might well involve the determination of a contested question of fact, but that it should not go ahead under R. 18A on assumptions about the facts which might later prove to be wrong, unless both parties agreed that those assumptions were final.

I would adopt a similar approach in this case to the issues raised for decision under R. 18A. A judgment on those issues under R. 18A is final. That finality cannot be undermined by later assertions that the true facts are different from the facts which were before the court when it gave its R. 18A judgment.

(Emphasis added by Newbury J.A.)

[39] After reviewing the authorities, Newbury J.A. observed at para. 9: "A summary trial on assumed facts may, then, be a confusing and futile exercise." She concluded at paras. 11-12:

For the foregoing reasons, we advised counsel after hearing brief submissions that the appeal was allowed on the basis that the Chambers judge [page592] should not have proceeded with the application before him and that rather, the facts must be found in the usual way before the issues raised by the appeal may be properly decided. Counsel later made written submissions which have been duly considered.

I add only that I would not want to be taken as discouraging attempts by counsel to use R. 18A to obtain the judicial determination of issues that can be properly decided summarily by a court of law, thereby avoiding the expense and inconvenience of a full-blown trial. Rule 18A has proved to be an invaluable tool to British Columbia courts and to British Columbia litigants in having many legal disputes decided in an efficient and timely way. Such cases, however, are dependent on a proper factual foundation, which did not exist in this case.

[40] An earlier case which is also helpful because of its similarity to this case is Barnes v. Kaladar, Angelsea and Effingham (Townships) (1985), 1985 1927 (ON SC), 52 O.R. (2d) 283, 6 C.P.C. (2d) 75 (H.C.J.). In that case, Callaghan A.C.J.H.C. refused to hear a motion under rule 21.01(1)(a) for the determination of a question of law on the assumption that the facts in the statement of claim could be proved. The plaintiff had sued the defendants for negligently supplying firefighting services. In their statement of defence, the defendants specifically denied any negligence in fighting the fire.

[41] Callaghan A.C.J.H.C. gave the following reasons for refusing to hear the motion, at p. 285 O.R.:

Therefore, if one considers the circumstances of this case and the plaintiffs' statement of claim in light of the statement of the defence, you are faced with the realization that the fundamental issue for trial is the question of whether or not there was negligence on the part of either or both parties. The defendant has denied negligence on the part of the plaintiffs. I do not see how a ruling at this time on the assumption that the facts in the statement of claim are correct would in any way shorten the trial or result in a substantial saving of costs. The issue of negligence must be tried on its merits.

I also think it is significant that the question posed raises the issue of whether or not the court in exercising its jurisdiction under this rule should be placed in the position of advising a plaintiff as to the validity of its cause of action when the facts which form the substratum of the alleged cause of action are in dispute. That matter was dealt with properly in Gladstone Petroleums Ltd. v. Husky Oil (Alberta) Ltd. (1968), 1968 521 (SK CA), 1 D.L.R. (3d) 219 at p. 229, 66 W.W.R. 641, per Hall J.A.:

The point of law which the learned Chamber Judge has here ordered to be tried rests entirely on allegations of fact raised by the plaintiff itself. In my opinion, it is not the purpose of the rule to permit a plaintiff to test his view of the law before presenting his case. If it were, the Courts would continually be trying what would in reality be hypothetical questions of law.

At p. 286 O.R., Callaghan A.C.J.H.C. added:

In my view the plaintiff herein cannot invoke rule 21.01(a) for a determination as to whether or not it has a cause of action where the facts fundamental [page593] to that cause are in dispute. To rule otherwise would lead the court into the realm of the hypothetical.

[42] Helpful also is the decision of the Supreme Court of Canada in Goudie v. Ottawa (City), 2003 SCC 14, 223 D.L.R. (4th) 395, that was released subsequent to the argument of this appeal. The defendant had moved under rule 21.01(3)(a) to have the plaintiffs' claim struck out on the basis that the court had no jurisdiction over a "labour relations" subject matter. This court set aside the motion judge's dismissal of the claim on the basis that it would be open to a trial judge to find a pre-employment agreement altogether outside the City's collective agreement with the labour union that represented the plaintiffs. A further appeal to the Supreme Court was dismissed. Writing for a unanimous court, Binnie J. held that while a dispute which "in its essential character" arises from a collective agreement is to be determined by an arbitrator appointed in accordance with the collective agreement, access to the courts is not denied to a plaintiff who alleges a cause of action outside the collective agreement.

[43] In reasons that are relevant to this appeal, Binnie J. was critical of the City's attempt to resolve the jurisdictional issue on a preliminary motion because the existence of a pre-employment agreement, which was central to the plaintiffs' claim, was in dispute as disclosed by conflicting affidavits filed on the motion by the parties. To Binnie J., the principal difficulty confronting the City on its motion was not legal but factual. At para. 30, he stated: "That being the case, I do not think that the appellant could avoid the exigencies of a summary judgment motion (Rule 20) by framing its attack as a jurisdictional challenge under clause 21.01(3)(a)."

[44] Binnie J. concluded as follows, at paras. 33-34:

The respondents were under no evidentiary obligation at this stage to prove the existence of a pre-employment contract for the purposes of surviving a jurisdictional challenge under clause 21.01(3)(a). The pleadings themselves established that the central allegation of jurisdictional fact (the existence of a pre-employment contract) was also the central issue on liability in the law suit. This is not a jurisdictional issue that turns on uncontroverted or easily ascertainable facts. Clearly, credibility would very much be an issue.

I agree with the Ontario Court of Appeal that the appellant's approach was misconceived. The disagreement between the parties was essentially factual, not legal. In light of the factual issues raised by the pleadings, the jurisdictional issue could not be determined on a preliminary motion. The motions judge should not therefore have driven the respondents so precipitously "from the judgment seat", per Wilson J. in Hunt v. Carey Canada Inc., 1990 90 (SCC), [1990] 2 S.C.R. 959, at p. 973. [page594]

[45] Earlier in his reasons, in responding to a submission not unlike that made by the appellants in this appeal, Binnie J. stated, at para. 27:

The appellant complains that it is being put to the trouble and expense of a law suit merely on the bare allegation of a pre-employment contract. This is true, but of course the courts are open to any litigant who "merely" alleges a cause of action. Procedures exist under the rules of practice to obtain particulars or to bring frivolous or unsupportable claims to an early resolution. The losing litigant may, depending on the view taken of the matter by the motions judge, find itself burdened with costs.

VI

[46] To succeed in this action, the plaintiffs must prove that one or both of the defendants were either in breach of contract or negligent, or both, and that as a result the plaintiffs sustained legally recoverable damages. Should the plaintiffs prove the alleged wrongful conduct, for the defendants to avoid paying damages they must persuade the court that their breach of contract or negligence did not cause the plaintiffs to sustain damages, or if their wrongful conduct caused damages to the plaintiffs, that they are precluded from recovering them because the damages were passed on to the members of the LSUC. Central to any recovery by the plaintiffs is whether they can prove that the defendants were in breach of contract or negligent, which allegations are denied by the defendants in their statements of defence. Although the defendants did not specify the particulars of their breach of contract or their negligence, they asked the motion judge to assume for the purpose of the motion only that they were in breach of contract or negligent. However, the defendants' concession of their liability for the purpose of the motion necessarily contains a concession that they committed the underlying acts which the plaintiffs allege in their statement of claim. As the above cases illustrate, because the motion judge's legal analysis was informed by the defendants' concession of their alleged wrongful conduct, it is not possible to say that any of the legal results that flow from the motion judge's order will survive a revision of the facts at the trial that is to be held consequent to the motion judge's order. As the defendants' motion was dismissed, there must be a trial at which the facts as found by the trial judge may differ from the facts assumed for the purpose of the motions. This possible revision of the facts on the basis of a complete trial record graphically demonstrates the hypothetical nature of the questions of law that the motion judge was asked to decide. It is not the purpose of rule 21.01(1)(a) to enable a party to obtain the advisory opinion of the court as to the validity of its [page595] cause of action or defence where the facts that constitute the substratum thereof are in dispute.

[47] In my view, therefore, the motion judge should not have proceeded with the defendants' motions on assumed facts. As I have indicated, at the outset of his reasons the motion judge stated that the parties conceded that there were material facts in dispute concerning the defendants' alleged breach of contract and negligence, which were denied by the defendants in the statement of defence. He should not have been placed in the position of advising the defendants of the legal validity of their defence when the facts which formed the foundation of the plaintiffs' claims were in dispute. Rather, the facts in this complex case must be found in the usual way by a trial judge before the issues raised by this appeal may properly be decided. In the result, the motion judge decided a hypothetical question. The hypothetical nature of his decision is highlighted by the italicized words in para. 3 of the formal order of the motion judge which is reproduced in para. 12 of these reasons.

VII

[48] There is, in my opinion, a somewhat different approach that can be taken to this appeal that also demonstrates that this case should proceed to trial. As I have indicated, whether viewed from the perspective of a rule 20.04(4) motion or a rule 21.01(1)(a) motion, the central issue is still the same. On the assumption that the plaintiffs are able to prove that they sustained damages that were caused by the defendants' breach of contract or negligence, that issue is whether the plaintiffs are precluded from recovering the damages because they were passed on to the members of the LSUC by way of supplemental and increased levies. The motion judge decided this issue on the ground that the passing on defence has not been judicially recognized in Canada, with one exception that does not apply in this case, with result that the defendants were unable to rely on the passing on defence to preclude the plaintiffs from recovering damages.

[49] In reaching this conclusion, the motion judge effectively approached the motion as if it had been brought under rule 21.01(1)(b) in deciding that the passing on of damages to a third party fails to disclose a reasonable defence. In doing so, he implicitly applied the plain and obvious test developed in Hunt v. Carey Canada Inc., 1990 90 (SCC), [1990] 2 S.C.R. 959, 74 D.L.R. (4th) 321, which test, I note, proceeds on the assumption that the facts stated in the statement of claim, or the statement of defence, can be proved. As pointed out in [page596] MacDonald v. Ontario Hydro (1994), 1994 7294 (ON SC), 19 O.R. (3d) 529, 38 C.P.C. (3d) 378 (Gen. Div.), affd (1995), 1995 10628 (ON SC), 26 O.R. (3d) 401 (Div. Ct.), the plain and obvious test applies to both rules 21.01(a) and 21.01(b).

[50] From the perspective of the plain and obvious test, it is my opinion that this action should proceed to trial. From my reading of the authorities considered by the motion judge, as well as those referred to by counsel, it is not plain and obvious, as a matter of law, that the passing on defence does not constitute a reasonable defence. As this court said in R.D. Belanger & Associates Ltd. v. Stadium Corp. of Ontario Ltd. (1991), 1991 2731 (ON CA), 5 O.R. (3d) 778, at p. 782: "Matters of law which have not been settled fully in our jurisprudence should not be disposed of at this [interlocutory] stage of the proceedings." This principle was applied recently by this court in Spasic Estate v. Imperial Tobacco Ltd. (2000), 2000 17170 (ON CA), 49 O.R. (3d) 699, 188 D.L.R. (4th) 577 (C.A.) in permitting a claim for damages based on the tort of spoliation of documents to proceed to trial. In Spasic the court was of the opinion that it is for a trial judge in the context of a full evidentiary record to determine whether the tort of spoliation is recognized by Canadian jurisprudence. In this appeal, there is no better indicator that the law concerning the recognition of a passing on defence is unsettled than the decision of the Supreme Court of Canada, announced on the second day of the hearing, to grant leave to appeal from a decision of the British Columbia Court of Appeal on the issue of whether the Court of Appeal erred in accepting the "passing-off" defence and awarding no damages for commercial timber damaged or destroyed in a fire: British Columbia v. Canadian Forest Products Ltd. (2002), 2002 BCCA 217, 166 B.C.A.C. 122, 100 B.C.L.R. (3d) 114, leave to appeal to S.C.C. granted (2003), [2002] S.C.C.A. No. 269. This case was relied on in this appeal by the appellant Tillinghast.

[51] Finally, I would add as did Newbury J.A. in Hobbs v. Robertson, supra, that I do not want to be taken as discouraging attempts by counsel to use the Rules of Civil Procedure to obtain the judicial determination of issues that can be properly decided summarily at the pleading stage, thereby avoiding the expense, inconvenience and delay of a trial, as well as effecting judicial economy. Such cases, however, are dependent on a proper factual foundation, which does not exist in this case.

VII

[52] As the trial judge should not have heard the defendants' motions on the basis of facts assumed for the purpose of the motions, I would, as this court did in similar circumstances in Chitel v. Bank of Montreal, supra, allow the appeals and the [page597] cross-appeal, set aside in their entirety the orders of the motion judge and order that this action proceed to trial. The parties are to address the costs of the motions and the appeal by way of written submissions. E&Y and Tillinghast are to provide the Senior Legal Officer with submissions on costs and their bills of costs within 15 days from the release of these reasons. The LSUC and LPIC may file their submissions and their bill of costs within seven days after receipt of the appellants' submissions. The appellants may respond within seven days thereafter.

[53] MCMURTRY C.J.O. (concurring): - I have had the opportunity to review the reasons of my colleagues, and I agree with the disposition of the appeal and cross-appeal as reached by Borins J.A. However, with respect, I cannot agree with his conclusion that the appellants' hypothetical admission of negligence is fatal to their motion under rule 21.01(1)(a).

[54] Rule 21.01(1)(a) authorizes a party to move for a preliminary determination of a question of law"where the determination of the question may dispose of all or part of the action, substantially shorten the trial or result in a substantial saving of costs". For the reasons that follow, it is my view that it was appropriate under this rule to set aside the issue of negligence in order to seek a preliminary determination on the issue of damages. While I conclude that this matter must proceed to trial for the other reasons enunciated by Borins J.A., I am of the view that this approach had the potential to dispose of the case or at least significantly simplify the trial which, of course, could result in a substantial saving of costs. In my opinion, this approach should not be discouraged in the appropriate case.

[55] The appellants moved before the motions judge, and having been unsuccessful, appeal to this court asserting that, even if they were negligent, the plaintiffs have no recoverable damages because they subsequently increased levies to members of the Law Society so as to have the necessary funds to pay their liabilities and expenses. One of the appellant's principal arguments has been correctly characterized by the motions judge as a "passing-on" defence.

[56] The motions judge did not determine that the plaintiffs had suffered no loss but determined that, on the facts accepted for the purpose of the motion, the plaintiffs had suffered losses and damages as a result of the defendants' negligence.

[57] The issue on the motions was framed by the motions judge as follows [at p. 229 O.R.]:

In the case at bar, it is apparent that the plaintiffs had suffered actual losses in the operation of the insurance plan in the subject years and the issue is [page598] whether they can recover damages for such losses in view of the fact that the losses were recouped by the imposition of supplemental and increased levies on the members of the LSUC.

[58] The motions judge [at p. 236 O.R.] rejected the appellants' passing-on defence stating in part as follows:

I prefer to adopt a principle ... that a wrongdoer should not be immune from liability for its wrongful acts simply because the person harmed by those acts has been able to recover the amount of the losses incurred by accessing other sources of revenue or exercising contractual or statutory rights it has. The fact that the plaintiffs in our cases are, pursuant to the Law Society Act and the Rules thereunder, able to recoup the losses suffered by the LSUC insurance plan during the subject years by the imposition of supplementary and increased levies on the members of the LSUC should not in my view yield the result that the defendants are shielded from any liability for their negligence or breach of contract, if proven in this action.

[59] The appellants sought a determination of two questions under rule 21.01(1)(a) as follows: (a) assuming that the respondent could prove a cause of action, the respondents had not suffered any damages; (b) whether there is a "passing on" defence in Canadian law, and whether this defence applies in the present case. In my view, the answer to these questions does not turn on a determination of the issue of negligence and I agree with the observation of Carthy J.A. that the hypothetical concession in this case was not strictly necessary.

[60] I also agree with Carthy J.A. that "the hypothetical to be avoided is one where the underpinning of the legal determination sought under Rule 21 may be altered at trial, and the legal determination thus rendered redundant" [at para. 71, infra]. This was the kind of problematic hypothetical that, for example, arose in Chitel. In that case, counsel for the plaintiff made a concession for the purposes of the motion, on a point which was essential to the determination of the motion but which could have become an issue at trial. In our case, however, the hypothetical concession was not essential for the determination of the legal issues before the motions judge.

[61] In the present case, there are a number of underlying facts in dispute. The basis of the respondents' claim to damages is that, had it known the true extent of its exposure, it would have acted more quickly to reduce insurance coverage. The appellant contends that this assertion is speculative and cannot be proven. As Borins J.A. observes, the parties also do not agree on the nature of the Insurance Plan, the role of LSUC and LPIC in respect to the Insurance Plan, and their responsibility for liabilities and expenses incurred in connection with the Insurance Plan. These issues must be resolved in order to determine whether the respondents suffered damages. [page599]

[62] Finally, for the reasons expressed by Justice Borins, at paras. 48-50, it is my view that it is premature to determine whether there is a passing on defence in the present case.

[63] For these reasons, I am also in agreement with the disposition proposed by Justice Borins, at para. 52 of his reasons.

[64] CARTHY J.A. (dissenting): -- I cannot agree with the reasons of Borins J.A. As I see it, the lawyers involved in this litigation reached a consensus that, if they had an answer from the court as to the overarching issue of whether compensable damages could be proved, the case would either be resolved or much simplified. No counsel sought to have the motion or appeal dealt with as a referral to trial. They were clearly seeking, in the words of rule 21.01(1)(a), to "substantially shorten the trial or result in a substantial saving of costs". A final determination of the legal issue as to whether recoverable damages were sustained would end the case on one result, or lead to the potential, usually achieved in negligence actions, of settlement before trial.

[65] The essence of the motion lies within rule 21.01(1)(a), seeking a determination of a question of law. Here, two questions of law. Were damages sustained and, if so, does the defence of "passing on" prevent their recovery. It is only after those questions of law are resolved that any issue of summary judgment under Rule 20 or striking of pleadings under rule 21.01(1)(b) could arise. Thus, I would not look to jurisprudence concerning the latter rules to determine the outcome of this appeal.

[66] In Nelles v. Ontario, 1989 77 (SCC), [1989] 2 S.C.R. 170, 60 D.L.R. (4th) 609, the court found jurisdiction under the predecessor to rule 21.01(1)(a) to deal with the discrete question of prosecutorial immunity prior to a trial on the general liability issue.

[67] The original motion was brought under former Rule 124 dealing with questions of law and Rule 126 dealing with striking of pleadings. The lower courts had dealt with the issue under Rule 126. McIntyre J., in dissent on this point, held that there should be a trial because the result was not plain and obvious on the face of the pleadings.

[68] In speaking for a majority of the court, Lamer J. said. at pp. 176-77 S.C.R.:

A review of the cases dealing with the application of Rule 124 and Rule 126 reveals the following. The difference between the two rules lies in the summary nature of Rule 126 as opposed to the more detailed consideration of issues under Rule 124. A court should strike a pleading under Rule 126 only in plain and obvious cases where the pleading is bad beyond argument. Rule 124 is designed to provide a means of determining, without deciding the issues of fact raised by the pleadings, a question of law that goes to the root of the action. I would like to point out that what is at issue here is not [page600] whether malicious prosecution is a reasonable cause of action. A suit for malicious prosecution has been recognized at common law for centuries dating back to the reign of Edward I. What is at issue is whether the Crown, Attorney General and Crown Attorneys are absolutely immune from suit for the well-established tort of malicious prosecution. This particular issue has been given careful consideration both by the Court of Appeal and in argument before this Court. The Court of Appeal for Ontario undertook a thorough review of authorities in the course of a lengthy discussion of arguments on both sides of the issue. As such it matters not in my view whether the matter was disposed of under Rule 124 or 126. To send this matter back for trial without resolving the issue of prosecutorial immunity would not be expeditious and would add both time and cost to an already lengthy case.

[69] Here we have the discrete question of whether the Law Society suffered compensable loss when it was not informed of its true claims experience and thus postponed remedial steps to lower the incidence of claims. The remedial steps included reducing coverage, increasing deductibles, and adjusting rates so that the experience in future years would be a lowering of the level of claims to the level of the assessments. The major claim in the action is that if these steps had been taken earlier the total of the claims would have been reduced in the intervening years.

[70] In the course of argument of the appeal on its merits, I did not identify any factual difference between the parties underlying this issue. The essential facts for a determination of the legal issue are set out in paragraphs two to nine of the reasons of Borins J.A. without any suggestion that they are in question. These facts concerning the Law Society's financial and corporate position relating to the insurance are immutable and, given an answer to the question posed, would not become hypothetical by reason of any finding on the issues of negligence or contractual breach. Rather, these facts would be irrelevant at a trial on these issues, as would be the question of Crown immunity in Nelles.

[71] Nor is the motion impaired by the fact that the concession of negligence was for the limited purpose of the motion. The concession was unnecessary and did not alter the fact that the legal issue was discrete and severable. In Nelles, no one felt it necessary to concede negligence in order to reach the legal issue. In fact, it is difficult to imagine how a part of an action could be eliminated, as contemplated by rule 21.01(1)(a), without leaving another part to be proved in order to complete the action. The concession did not create a hypothetical. In the judgments speaking on this subject, the hypothetical to be avoided is one where an underpinning of the legal determination sought under Rule 21 may be altered at trial, and the legal determination [page601] thus rendered redundant. That cannot happen in this instance. The facts surrounding the concession have no bearing upon those relating to the legal issue of damage recoverability.

[72] The rules should not be construed as if they create jurisdictional issues. They are intended to further the most expeditious and least expensive determination on the merits. I would echo the thought expressed by Lamer J. that it would be preferable to take advantage of the consideration by the motion judge and the lengthy arguments by counsel before us rather than directing that the entire process be repeated.

[73] Since this is a dissenting view, I will express no opinion on the merits of the appeal.

Appeal and cross-appeal allowed.