Royal Crest Lifecare Group Inc. v. Ontario (Health and Long Term Care), 2009 ONCA 397

CITATION: Royal Crest Lifecare Group Inc. v. Ontario (Health and Long Term Care), 2009 ONCA 397

DATE: 20090513

DOCKET: C49262

COURT OF APPEAL FOR ONTARIO

Laskin, Simmons and Lang JJ.A.

BETWEEN

Ernst & Young Inc. in its capacity as trustee in bankruptcy of The Royal Crest Lifecare Group Inc., MNC Lifecare Group Inc., 952527 Ontario Inc., Marble Health Care General Partnership, and Marble Health Care Limited Partnership

Applicant (Appellant)

and

Her Majesty the Queen in Right of Ontario as Represented by the Minister of Health and Long Term Care

Respondent (Respondent)

John A. Macdonald, for the appellant

Lise G. Favreau, for the respondent

Heard: May 7, 2009

On appeal from the order of Justice Herman Wilton-Siegel of the Superior Court of Justice, dated July 18, 2008.

Reasons for Decision

By the Court:

[1] This appeal addresses the availability of equitable set-off as between a regulator and a regulated party.

[2] The respondent, the Minister of Health and Long Term Care (the Ministry), claimed that $1,000,000.00 owed by the Crown as occupation rent for the use of an Oakville nursing home should be set off against $4,413,285.85 owed to the Crown by The Royal Crest Lifecare Group Inc. (the owner of the nursing homes) and one of its affiliates for over-subsidization of their nursing homes.

[3] The parties agreed that, on the facts of this case, the issue turned on the application of the third criterion in Holt v. Telford, 1987 CanLII 18 (SCC), [1987] 2 S.C.R. 193 at 212. That criterion requires that the “cross-claim must be so clearly connected with the demand of the plaintiff that it would be manifestly unjust to allow the plaintiff to enforce payment without taking into consideration the cross-claim.”

[4] The application judge considered the third criterion and concluded that the Ministry was entitled to equitable set-off. The appellant challenges this conclusion on three bases.

[5] First, the appellant argues that the application judge attached too much weight to the nature of the relationship between the parties instead of focusing on whether their respective claims - the claim for occupation rent and the claim to a return of surplus funding - were so closely connected that equitable set-off was justified.

[6] We do not accept this argument. As the cases of Re Canadian Airlines, [2001] A.J. No. 225 (Alta. Q.B.) and Algoma Steel Inc. v. Union Gas Limited (2003), 2003 CanLII 30833 (ON CA), 63 O.R. (3d) 78 (C.A.) make clear, the closeness of the cross-obligations can only be assessed in the context of the relationship between the parties. We read the reasons of the trial judge as doing no more than that.

[7] In essence, the application judge concluded that because the respondent took possession of the Oakville home to provide care for the residents, the respondent’s obligation for occupation rent arose from a decision to fund the operation of the nursing home directly as opposed to doing so indirectly by way of subsidy. Viewed in that way, the cross-obligations are directly related. The application judge’s conclusion on this issue was a reasonable application of the third Holt criterion to the facts of the case.

[8] Second, the appellant argues that even if the application judge was correct that equitable set-off applied in these circumstances, the application judge erred in allowing set-off relating to all of the over-subsidized retirement homes rather than restricting it to the one home for which occupation rent was payable.

[9] We do not accept this submission. The application judge specifically found that the Royal Crest’s debt was a single corporate debt reflecting the fact that the regulator-regulated party relationship existed between The Ministry and Royal Crest rather than between the Ministry and the Oakville nursing home. This is confirmed by s. 113(3) of the regulations under the Nursing Homes Act R.S.O. 1990, c. N.7. Moreover, it is consistent with the position taken by the trustee in its September 18, 2002 report.

[10] Finally, the appellant argues that Ontario’s use of the Oakville home as a SARS residence cut off the relationship between the cross-obligations and changed the nature of the relationship between the parties, a matter not addressed in the application judge’s reasons.

[11] We do not accept this argument. The Ministry used the home to care for SARS patients consistent with its obligation under the Health Facilities Special Orders Act, R.S.O. 1990, c. H.5. The trustee at no time demanded the return of the home or took any steps to reclaim the use of the home. In those circumstances, the closeness of the cross-obligation remained and it would be manifestly unfair not to apply set off to this period. We note as well that, for the purpose of occupation rent, the settlement agreement reached between the parties did not separate these two periods.

[12] Accordingly, the appeal is dismissed. Costs to the respondent are fixed in the amount of $10,000 inclusive of disbursements and GST.

RELEASED: May 13, 2009 “John Laskin J.A.” “J.L.” “Janet Simmons J.A.” “S.E. Lang J.A.”