COURT OF APPEAL FOR ONTARIO

2012 ONCA 274

DATE: 20120430

DOCKET: C54631 & C54632

Blair, Lang and Hoy JJ.A.

BETWEEN

Portuguese Canadian Credit Union Ltd. by its Liquidator Deposit Insurance Corporation of Ontario

Plaintiff

and

1141931 Ontario Ltd., INKAS Corporation, INKAS Finance Corp., 2000007 Ontario Inc., Margarita Simkin and David Khazanski

Defendants

AND BETWEEN

1141931 Ontario Ltd., INKAS Corporation, INKAS Finance Corp., 2000007 Ontario Inc.

Plaintiffs by Counterclaim (Appellants)

and

Portuguese Canadian Credit Union Ltd. by its Liquidator, Deposit Insurance Corporation of Ontario, Deposit Insurance Corporation of Ontario, Financial Services Commission of Ontario and the Office of the Superintendent of Financial Institutions Canada

Defendants by Counterclaim (Respondents)

Counsel:

Howard W. Winkler, for the appellants

Jane M. Bachynski and Karen Perron, for the respondent, Deposit Insurance Corporation of Ontario

Dona M.H. Salmon, for the respondent, Financial Services Commission of Ontario

Heard: April 24, 2012

On appeal from the order of Justice Peter A. Cumming of the Superior Court of Justice, dated October 18, 2011.

ENDORSEMENT

[1] The Portuguese Canadian Credit Union Ltd. (PCCU), by its Liquidator, Deposit Insurance Corporation of Ontario (DICO), sued the appellants, referred to as INKAS, for monies INKAS allegedly owed pursuant to credit facilities extended by PCCU to INKAS. INKAS’s former vice president of operations apparently stole $30 million of the monies advanced by PCCU to INKAS.

[2] In its counterclaim, INKAS alleges that PCCU’s losses resulted from the failure of the Financial Services Commission of Ontario (FSCO) and DICO to properly exercise their operational powers in breach of an alleged duty of care they owed to PCCU. As a result, INKAS seeks contribution and indemnity from FSCO and DICO “for any amount found due and owing” by INKAS to PCCU in the main action. In essence, INKAS attempts to shift responsibility for the fraud committed by its former employee to FSCO and DICO.

[3] DICO and FSCO each brought a Rule 21 motion to strike the counterclaim. The motion judge granted both motions on the basis that the pleadings do not disclose a reasonable cause of action against either FSCO or DICO. INKAS appeals.

[4] In our view, the appeals can be disposed of on three bases.

FSCO Is Not An Entity Capable of Being Sued

[5] First, we agree with the motion judge, Cumming J., that FSCO is not an entity capable of being sued. As the motion judge observed at paras. 14-15 of his reasons:

FSCO is a non-corporate entity without the express or implied capacity to be sued. In Ontario v. Gratton-Masuy Environmental Technologies Inc. (2010), 2010 ONCA 501, 101 O.R. (3d) 321 (C.A.), at paras. 36-81, the Court of Appeal considered the liability to suit of statutory entities, relying upon the six categories articulated by Justice Houlden in Westlake v. The Queen in Right of the Province of Ontario, 1971 CanLII 680 (ON SC), [1971] 3 O.R. 533 (H. Ct. J.), aff'd 1972 CanLII 515 (ON CA), [1972] 2 O.R. 605 (C.A.), aff'd (1973), 1973 CanLII 2492 (SCC), 33 D.L.R. (3d) 256 (S.C.C.). The sixth category relates to:

Non-corporate bodies which are not by the terms of the statute incorporating them or by necessary implication liable to be sued in an action for damages, but who are legal entities in that their actions may be reviewed in proceedings brought against them by way of the extraordinary remedies of certiorari, mandamus and prohibition.

In my view, FSCO fits within this category. It is a non-corporate entity without the express or implied capacity to be sued. The FSCO Act establishes FSCO as a commission, not a corporation, and does not contain any terms rendering it expressly or impliedly liable to be sued.

[6] This conclusion was not appealed and, in our view, could not have been successfully challenged. We agree with the motion judge that there can be no sustainable claim against FSCO.

DICO Has Statutory Immunity

[7] Second, the motion judge correctly concluded that DICO has statutory immunity. Section 253(1) of the Credit Unions and Caisses Populaires Act, 1994, S.O. 1994, c. 11 (the CUCPA) states:

No action or other proceeding for damages shall be instituted against ... [DICO] ... for any act done in good faith in the execution or intended execution of a duty of ... [DICO] or for any neglect of default in the execution, in good faith, of that duty.

[8] As the motion judge observed, that immunity extends to “’... third or subsequent party proceedings and proceedings for contribution and indemnity by restitution ...’ by reason of the Legislation Act, 2006, S.O. 2006, c. 21, Sched. F, s. 97, Schedule B, p. 50.”

[9] This immunity protects DICO from acts “done in good faith” in the execution of its duties. While the appellant argues that the counterclaim pleads bad faith, the pleading does no more than allege that DICO’s breaches of duty “demonstrate bad faith … in carrying out its statutorily prescribed duties.” This is wholly inadequate to sustain a pleading of bad faith. Bad faith must be pled with particularity: see Rules of Civil Procedure, Rule 25.06(8) and Ontario v. Gratton-Masuy Environmental Technologies Inc. 2010 ONCA 501 at paras. 87-89. The pleading provides no particulars of any operational acts or their circumstances that would support the allegation of bad faith.

[10] We see no merit in acceding to the appellants’ argument that the motion judge ought to have granted leave to amend to provide particularity. There is no indication based on the history of this proceeding and the lack of response to DICO’s demand for particulars that there are material facts that the appellants could add that would save the pleading: see Piedra v. Copper Mesa Mining, 2011 ONCA 191 at paras. 94-96.

No Tenable Claim For Contribution and Indemnity

[11] Third, we agree with the motion judge that the appellants’ claim for contribution and indemnity cannot succeed based on an alleged private law duty of care owed by DICO (or FSCO) to PCCU. We come to this conclusion for two reasons.

[12] First, INKAS bases its claim on allegations that DICO failed to oversee and monitor PCCU’s processes, personnel, education and audits. However, the CUCPA places no obligation on DICO to undertake these discretionary tasks. Indeed, as the motion judge observed, “DICO was not a 'regulator' of credit unions until the CUCP Act was amended with such amendments coming into force on October 1, 2009, after the dates material to the proceedings at hand.”

[13] As well, the pleading fails to provide particulars of any breaches of any alleged operational duty. Without particulars of any operational duty, a cause of action against DICO based on an alleged private law duty of care it owed to PCCU cannot be sustained.

[14] Second, the notion that INKAS is entitled to contribution and indemnity from DICO (or FSCO) in the circumstance is untenable in law. Section 1 of the Negligence Act, R.S.O. 1990 c. N.1, states:

Where damages have been caused or contributed to by the fault or neglect of two or more persons, the court shall determine the degree in which each of such person is at fault or negligent, and, where two or more persons are found at fault or negligent, they are jointly and severally liable to the person suffering loss or damage for such fault or negligence, but as between themselves, in the absence of any contract express or implied, each is liable to make contribution and indemnify each other in the degree in which they are respectively found to be at fault or negligent.

[15] However, these provisions have no application in the present circumstances for the simple reason that neither in the contract action by PCCU against INKAS nor in the INKAS counterclaim for damages against PCCU and FSCO/DICO is INKAS a tortfeasor. In the former, INKAS is a debtor being asked to repay its line of credit; in the latter, INKAS is essentially a plaintiff seeking to recover damages for the loss of the stolen monies. The appellants claim for contribution and indemnity is, therefore, misconceived regardless of whether there is a duty of care owed as between FSCO/DICO and INKAS or as between FSCO/DICO and PCCU.

[16] In the contract action, INKAS alleges that PCCU’s losses are the result of PCCU’s negligence and also of the negligence of FSCO/DICO. “Fault” and “contributory negligence” are not factors in a contract action however, and are not a defence to the breach of contract claim. In any event, it is PCCU and the regulators (FSCO/DICO) who are the joint tortfeasors in the scenario put forward by the appellants. Any contribution and indemnity considerations would flow between those two entities. INKAS is not saying it was negligent, nor is PCCU.

[17] In the counterclaim, INKAS seeks contribution and indemnity against FSCO and DICO for any amounts found due and owing to PCCU, blaming them for the loss of the $30 million. This claim cannot succeed. INKAS is not a tortfeasor in the counterclaim scenario; it is the plaintiff and victim. Again, contribution and indemnity claims in this context would be between PCCU and FSCO/DICO. Any negligent claim by INKAS against FSCO/DICO must therefore be a direct claim, and the appellants do not contest the motion judge’s conclusion that no such claim can exist in law on proximity grounds.

[18] Finally, we see no basis on which to grant leave or, if leave were granted, to interfere with the motion judge’s exercise of discretion in his costs award to DICO.

Disposition

[19] Accordingly, the appeals are dismissed. The successful respondents are entitled to their costs of the appeal: FSCO in the amount of $7,200 and DICO in the amount of $20,000, each inclusive of disbursements and all applicable taxes.

“R.A. Blair J.A.”

“S.E. Lang J.A.”

“Alexandra Hoy J.A.”