CITATION: Jevco Insurance Company v. Pacific Assessment Centre Inc. et al. 2015 ONSC 432
DIVISIONAL COURT FILE NO.: DC-183/14
DATE: 20150126
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
BETWEEN:
Jevco Insurance Company
Plaintiff
– and –
Pacific Assessment Centre Inc. a.k.a. Pacific Rehab and Therapy Inc., Professional Medexam Management Inc., Evident Diagnostics Inc., Fairview Assessment Centre Inc., Century Diagnostic and Assessment Centre Inc., Vitali Tourkov, Oleg Konnyi, Vladimir Naidenov, Alexandre Lobatch and Pavlo Tsysar
Defendants
Aldo Picchetti, for the Plaintiff
James P. McReynolds, for the Defendants, Pacific Assessment Centre Inc. a.k.a. Pacific Rehab and Therapy Inc., Fairview Assessment Centre Inc., Vitali Tourkov and Alexandre Lobatch
HEARD at Toronto: December 10, 2014
[1] The defendants Pacific Assessment Centre Inc.(“Pacific”), Fairview Assessment Centre Inc. (“Fairview”), Vitali Tourkov (“Tourkov”) and Alexandre Lobatch (“Lobatch”), (together the “moving parties”) seek leave to appeal an order made by Perell J. in which he dismissed their motion to strike the Plaintiff Jevco Insurance Company’s Fresh as Amended Statement of Claim pursuant to Rule 21.01(b).
[2] Although the moving parties initially sought leave on a number of issues, the central issue on the hearing of the motion was the issue of merger. The motions judge refused to apply the merger principle to the case at bar.
[3] For the reasons that follow, I would dismiss leave to appeal on all the issues with respect to which leave was sought, except for the merger issue. I would grant leave to appeal the question of whether the merger principle applies to the case at bar on the basis that there are conflicting decisions on the issue and that it is, in my view, desirable that leave to appeal be granted pursuant to Rule 62.02(4)(a) of the Rules of Civil Procedure.
The factual background
[4] The context of this matter may be briefly summarized. The plaintiff Jevco carries on business as an automobile insurer in Ontario. In sum, Jevco alleges that the defendants submitted false and\or and fraudulent documentation to it. The defendants moved to strike the claims in deceit, misrepresentation, unjust enrichment as well as conspiracy. It also sought to strike out the paragraph of the Fresh as Amended Statement of Claim pleading. With the exception of the plea that the Defendants had contravened s. 380(1) of the Criminal Code, the motions judge dismissed the motion.
[5] At the outset, it is significant as a matter of context that, as I will discuss below, leave to appeal has been granted by this court in a very similar case in State Farm Mutual Assurance Co. v. Assessment Direct Inc. et al. 2014 CarswellOnt 7226 (Div. Ct.) by Lederer J. In both cases, plaintiff insurers have issued claims which include misreprentation, fraud and conspiracy in relation to allegedly false insurance claims. Penny J. had refused to strike claims of conspiracy as against each of the defendants. He held that the decision as to whether the doctrine of merger applied was to be decided at trial, on a full record. In the context of his reasons, Lederer J. granting leave to appeal, considered and discussed the decision of the motions judge in the present case; see State Farm Mutual Automobile Ins. Co. v. Assessment Direct Inc. (January 29, 2014), Penny J. (Ont. S.C.).
The Merger issue
[6] At paragraphs 32-94 of the claim, the plaintiff claims that the defendants, or various combinations of them, engaged in a conspiracy to breach statutory provisions and fraudulently present insurance claims. The plaintiff also claims that the defendants engaged in the tort of fraud and fraudulent misrepresentation regarding the insurances claims presented by the defendants. The moving party defendants claim that the alleged fraudulent misrepresentation are one and the same with the damages claimed for the alleged conspiracy.
[7] The moving parties claim that the doctrine of merger applies such that the conspiracy claim should be struck out. They submit that when, as here, the tort of fraudulent misrepresentation is alleged, an allegation of a prior conspiracy by the same people to commit the same tort, resulting in the same damages adds nothing to the action. The conspiracy doctrine is redundant and thus the conspiracy claim should be struck out.
[8] The motions judge declined to apply the merger doctrine in this case. After citing the foundational decision of Lord Denning in Ward v. Lewis, [1955] 1 W.L.R. 9 (Eng. C.A.), he expressed the principles as follows:
The merger principle associated with conspiracy claims is connected to two principles about pleading a claim in conspiracy, the first of which I shall call the special damages principle. The special damages principle posits that it is fundamental to a proper pleading of conspiracy that the plaintiff must allege damages that are separate and distinct from the damages suffered from an underlying tort. Special damages are a necessary ingredient to a conspiracy action and they should be expressly alleged. The special damages principle is connected to the merger principle because if there are no special damages; i.e., if there are no damages from the conspiracy distinct from the underlying tort, then the conspiracy is redundant and adds nothing.
In Robinson v. Medtronic, Inc., I explained that there are three reasons for the rule that a plaintiff must plead special damages for a conspiracy claim. I stated at paragraph 12 as follows:
I believe that a plaintiff advancing a cause of action for civil conspiracy must plead the special damages associated with the civil conspiracy for three reasons. The first reason is that the case law establishes that damages are a constituent element of the tort of civil conspiracy. The second reason is that the law about civil conspiracy is still being developed and its scope may be determined by the types of damages for which it would provide compensation. Thus, it is necessary to identify what damages were caused by the civil conspiracy even if those damages might overlap with damages caused by another tort The third reason is that by the plaintiff specifying the damages for the conspiracy, the defendant is given fair notice so that it can plead the defence, the merits of which would be decided at trial, that the tort of civil conspiracy merged with the plaintiff's proof of another tort (Reasons for Decision paras. 63-64).
[9] The motions judge continued to state that the second principle associated with the doctrine of merger is the second constituent element of the tort of conspiracy:
As noted above, the second element is that the defendants: (a) use some means (lawful or unlawful) for the predominate purpose of injuring the plaintiff; or (b) use unlawful means with knowledge that their acts were aimed at the plaintiff and knowing or constructively knowing that their acts would result in injury to the plaintiff. The second element of conspiracy creates two types of conspiracy; i.e. two ways of perpetrating the tort; namely: (1) the predominate purpose to injure version; and (2) the using unlawful means with knowledge of injury version. Canada Cement Lafarge Ltd. v. British Columbia Lightweight Aggregate Ltd., is authority that there are two types of conspiracy: (1) conspiracy to injure; and (2) conspiracy to perform an unlawful act. It is important to note that for the predominate purpose to injure version, the means may be lawful or unlawful.
[10] The motions judge noted that the merger principle will not apply if the conspiracy does not involve unlawful means because in such case there will be no underlying tort and thus no possible redundancy: see Reasons for Decision para. 66. Moreover, he notes that even if the conspiracy is based on unlawful means and the unlawful means are different from the other tort claims, then there can be no redundancy between the tort that underlies the conspiracy and the plaintiff’s other tort claims.
[11] The motions judge expressed three reasons for declining to strike the conspiracy claim on the basis of the merger principle:
First, in the case at bar, it is not plain and obvious that Jevco has not satisfied the special damages principle, and, therefore, there is no redundancy based on different damages from the tort and from Jevco’s other claims.
Second, it is not plain and obvious that Jevco’s conspiracy claim is redundant with its tort claims. In other words, based on the second principle, it is not plain and obvious that Jevco’s conspiracy claim is redundant.
Third, although the case law is erratic, Canadian authorities establish that the merger principle is no bar to pleading both a nominate tort and a conspiracy to commit the tort and then to leave it to the trial judge to determine whether the plaintiff has proved the nominate tort or the conspiracy and then to apply the doctrine of merger. These authorities establish that it is only after trial that it can be determined whether the two causes of action have merged (Reasons for Decision, paras. 69-71).
[12] In the course of his reasons, the motions judge also discussed the Supreme Court of Canada’s decision in the Hunt v. Carey decision [1990] 2 S.C.R. 959 in which the defendants had relied on the principle of merger in submitting that a cause of action in conspiracy was not available when a plaintiff has another cause of action available. The Supreme Court rejected the merger submission as one which should be applied at the pleadings stage, noting at para. 57 that
…even if one were to accept the appellants’ (defendants) submission that “upon proof of the commission of the tortious acts alleged” in paragraph 20 of the plaintiff’s statement of claim “the conspiracy merges with the tort”, one simply could not decide whether this “merger” had taken place without first deciding whether the plaintiff had proved that the other tortious acts had been committed.
[13] The motions judge expressed the view that Hunt v. Carey “would have put an end to the merger principle as a way for defendants to attack a conspiracy principle whiles leaving intact the principle could be applied at trial. And indeed, many lower court decisions can be explained as manifestations of Justice Wilson’s approach that merger is a matter for the trial judge not the motions judge on a motion to strike”: see Reasons for Decision, para. 74.
[14] The motions judge also noted that other cases have distinguished Hunt v. Carey and others have distinguished it: see Reasons for Decision paras. 76-78. He summarized the state of the merger doctrine at the pleadings stage as follows:
Thus, the case law is divided and inconsistent. There are cases where courts strike a conspiracy claim as redundant and there is case law that requires the plaintiff to plead his or her special damages and then leaves the matter of merger to the trial judge. There is also case law where the conspiracy plea will survive an attack at the pleadings stage when it is not plain and obvious that the conspiracy claim would be redundant, in which case it is not necessary to provided particulars of damages that are separate and apart from the damages arising from an underlying or discrete tort. […] see Reasons for Decision, para. 79.
[15] One can detect a note of frustration in the motions judge’s reasons (as in those of Penny J. in State Farm) in his comments at paras. 80 ff:
…it is time to eulogize the passing of the merger principle as a basis to challenge a pleading.
The case at bar is an illustration of the dysfunctional nature of applying merger at the pleadings stage. Jevco commenced this action in May 2012 and the Defendants have yet to deliver a Statement of Defence as of April 2014.
[16] The moving parties point to the recent State Farm decision (rendered May 27, 2014) of this court. There, Lederer J. granted leave to appeal from a decision of Penny J. which raised very similar issues to the present case.
[17] It is clear from the reasons of Lederer J. in State Farm that he granted leave on the basis that there appears to be good reason to doubt the correctness of the decision and the order in question and the proposed appeal involves matters of such importance that, in his or her opinion, leave to appeal should be granted. (Rule 62.02(4)(b)) After a thorough review of the case law on the doctrine of merger, Lederer J. found that there was reason to doubt the correctness of Penny J.’s decision refusing to apply the doctrine of merger at the pleadings stage. At para. 47 he stated as follows:
There is reason to doubt the correctness of the decision. It presumes that, once a pleading of conspiracy through an unlawful act is made, the conspiracy must be understood as being consistent with the second of the forms of conspiracy referred to in Canada Cement Lafarge. Following from Hunt v. Carey Canada Inc., Economical Insurance Co. and Dominion of Canada General Insurance Co., this means merger will never be possible because the basis of the conspiracy will always be different from the accompanying tort. This does not necessarily follow. The first of the two forms of conspiracy outlined in Canada Cement Lafarge may also originate in an agreement to carry out an unlawful act, but one that is directed to a particular victim and based on the same facts. Given the decisions in Perth Insurance Co. and Allstate Insurance Co. of Canada, I am not prepared to say that, in such circumstances, merger could never be available at the pleadings stage.
[18] However, as I have already noted, Lederer J. also acknowledged the difference in the cases and the expressions of concern by both Penny and Perell JJ. about the doctrine of merger at the pleadings stage, leading him to the conclusion that the issue constituted a matter of importance such that leave should be granted. He also noted that there is significant confusion with respect to issues relating to the doctrine of merger, and specifically, whether the doctrine may ever be applied at the pleadings stage. In the course of these reasons, Lederer J. considered the reasons of the motions judge in the case at bar. This decision had been rendered on April 8, 2014. Like Penny J., the motions judge in this case declined to apply the doctrine of merger at the pleadings stage. Lederer J. cited Penny J.’s reference to the circumstances appropriate to the application of the doctrine of merger as a “vexed question” and to Penny J’s conclusion at para. 6:
The matter is not free from doubt. There is clearly need for clarification surrounding this issue.
[19] In my view, there are conflicting decisions as to whether the doctrine of merger may be applied at the pleadings stage.
[20] As it stands, the decision of Lederer J. conflicts with the motions judge’s decision in the sense that if there was reason to doubt the correctness of the State Farm decision, there is reason to doubt the correctness of the motions judge’s decision in the case at bar. The two motions judges were clearly applying the same principles and expressed very similar reservations about the doctrine of merger and particularly its application at the pleadings stage. The motions judges in both State Farm and the case at bar both expressed frustration about the inconsistency in the decisions on the issue. It is clear that the lack of consistency in the case law has resulted in confusion, frustration and inconsistency with respect to the application of Hunt v. Carey at the pleadings stage. In my view, this is also sufficient to satisfy the test for leave pursuant to Rule 20.02(4)(a). The degree of confusion, in my view, renders it desirable that leave to appeal be granted.
[21] The respondents cite the decision in Comtrade Petroleum Incorportated v. 490300 Ontario Ltd. [1992] O.J. No. 652 (Div.Ct.) as authority for the proposition that it is insufficient to show that two courts have exercised their discretion to produce different results. Rather, it is necessary to demonstrate a difference on the principles chosen as a guide to the exercise of such discretion. This is, of course, a correct statement, but it is not helpful in the present case, because the issue in this case as far as the merger doctrine is concerned is not an exercise of discretion per se but the question of the principles that are applicable.
[22] At the very least, there is significant uncertainty about the utility and applicability of the doctrine. Moreover, the fact that leave to appeal has been granted State Farm, such a similar case, and one in which Lederer J. considered the reasons of the motions judge in the case at bar which were very similar to those of Penny J., it is thus in the interests of fairness in this case that leave to appeal be granted. It makes sense that these two appeals be heard together.
[23] Costs are awarded to the applicant in the amount of $3,000 as agreed by the parties.
Harvison Young J.
Released:
CITATION: Jevco Insurance Company v. Pacific Assessment Centre Inc. et al. 2015 ONSC 432
DIVISIONAL COURT FILE NO.: DC-183/14
DATE: 20150126
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
HARVISON YOUNG J.
BETWEEN:
Jevco Insurance Company
Plaintiff
– and –
Pacific Assessment Centre Inc. a.k.a. Pacific Rehab and Therapy Inc., Professional Medexam Management Inc., Evident Diagnostics Inc., Fairview Assessment Centre Inc., Century Diagnostic and Assessment Centre Inc., Vitali Tourkov, Oleg Konnyi, Vladimir Naidenov, Alexandre Lobatch and Pavlo Tsysar
Defendants
REASONS FOR JUDGMENT
Released: January 26, 2015