Falk Bros. Industries Ltd. v. Elance Steel Fabricating Co., [1989] 2 S.C.R. 778

Falk Bros. Industries Ltd. and Canadian Surety Company Appellants

v.

Elance Steel Fabricating Co. Ltd. Respondent

indexed as: falk bros. industries ltd. v. elance steel fabricating co.

File No.: 20679.

1989: May 25; 1989: September 28.

Present: Dickson C.J. and Lamer, Wilson, La Forest, L'Heureux‑Dubé, Sopinka, Gonthier, Cory and McLachlin JJ.

on appeal from the court of appeal for saskatchewan

Insurance -- Surety bond -- Notice of claim given after expiry of notice period stipulated in bond -- Insurance Act providing for relief -- Whether relief confined to statutory conditions or extended to contractual provisions -- If applicable to contractual conditions, whether failure to give notice within the time prescribed by the bond constituting "imperfect compliance" or "non‑compliance" -- The Saskatchewan Insurance Act, R.S.S. 1978, c. S‑26, s. 109.

Respondent claimed on a debt owed by Falk Bros. Industries Ltd. together with interest under a bond issued by the Canadian Surety Company. Notice of the claim, however, was given 28 days after the expiry of the 120‑day period for notice set out in the bond. The chambers judge found, on respondent's application, that s. 109 of The Saskatchewan Insurance Act empowered him to relieve against forfeiture occurring because of this breach of the bond's time limitations and then proceeded to grant such relief. The Court of Appeal allowed the appeal of the Canadian Surety Company with respect to the actual grant of the relief, but dismissed its appeal from the chambers judge's ruling that the court had authority to grant relief against forfeiture. The issues before this Court were: (1) whether s. 109 was confined to statutory conditions or extended to contractual provisions; and (2) if it extended to contractual conditions, whether failure to give notice within the time prescribed by the bond constituted "imperfect compliance" within s. 109 or, alternatively, "non‑compliance". Respondent conceded that the actual grant of relief was improper given that only a declaration as to whether it could obtain such relief had been sought.

Held: The appeal should be dismissed.

Section 109 extends to contractual as well as statutory conditions. It should be read as empowering the Court to relieve against forfeiture "Where there has been imperfect compliance with: (1) a statutory condition as to the proof of loss to be given by the insured; or (2) other matter or thing required to be done or omitted by the insured . . . ." This broad interpretation is appropriate given that s. 109 is remedial legislation and in light of the interpretation that has been adopted by the courts for more than a decade. The contract in question and the conduct of the parties with relation to it arose in this jurisprudential context. Making relief available for contractual breaches pursuant to s. 109 of The Saskatchewan Insurance Act accordingly cannot be said to be unfair or contrary to the intention of the parties. The statutory terms are as much a part of the bargain as non‑statutory terms.

Failure to give notice within the time prescribed by the bond constituted "imperfect compliance" within s. 109. It is a less serious breach than failure to bring an action within a stipulated time and relates to "proof of loss" or "other matter or thing required to be done or omitted by the insured with respect to the loss". Relief from forfeiture can be granted in respect of delayed notices of claims.

Cases Cited

Referred to: Minto Construction Ltd. v. Gerling Global General Insurance Co. (1978), 1978 1441 (ON CA), 86 D.L.R. (3d) 147; Canadian Equipment Sales & Service Co. v. Continental Insurance Co. (1975), 1975 670 (ON CA), 59 D.L.R. (3d) 333; Fitzgerald v. Casualty Co. of Canada (1981), 31 Nfld. & P.E.I.R. 521; Janet Estate and Kallos v. Saskatchewan Government Insurance (1984), 1983 2477 (SK QB), 30 Sask. R. 185; V & G Polled Herefords v. Lloyd's Non‑Marine Underwriters (1986), 1986 3355 (SK QB), 51 Sask. R. 81; Dashchuk Lumber Ltd. v. Proman Projects Ltd. (1987), 1987 4670 (SK CA), 59 Sask. R. 193; Moxness v. Saskatchewan Government Insurance Office, 1977 1504 (SK QB), [1977] 3 W.W.R. 393; North Lethbridge Garage Ltd. v. Continental Casualty Co., 1930 265 (AB SCAD), [1930] 1 W.W.R. 491; D. S. Ashe Trucking Ltd. v. Dominion Insurance Corp. (1966), 1966 456 (BC CA), 55 W.W.R. 321; National Juice Co. v. Dominion Insurance Co. (1977), 1977 1375 (ON CA), 18 O.R. (2d) 10; Presco Industrial Ltd. v. Saskatchewan Government Insurance Office (1967), 1967 437 (SK CA), 61 W.W.R. 637; Hogan v. Kolisnyk, 1983 1027 (AB QB), [1983] 3 W.W.R. 481.

Statutes and Regulations Cited

Interpretation Act, R.S.S. 1978, c. I‑11, s. 11.

Saskatchewan Insurance Act, R.S.S. 1978, c. S‑26, s. 109.

APPEAL from a judgment of the Saskatchewan Court of Appeal (1987), 1987 4929 (SK CA), 62 Sask. R. 304, 42 D.L.R. (4th) 181, [1987] 6 W.W.R. 679, [1988] I.L.R. 1‑2266, 27 C.C.L.I. 20, allowing an appeal from that part of a judgment of Estey J. in Chambers granting relief but dismissing an appeal from that part of his judgment declaring that the court had authority to grant relief against forfeiture under s. 109 of The Saskatchewan Insurance Act (1986), 1986 3361 (SK QB), 52 Sask. R. 283, 31 D.L.R. (4th) 76, [1987] I.L.R. 1‑2143, 22 C.C.L.I. 268. Appeal dismissed.

R. P. Rendek, Q.C., for the appellants.

Q. D. Agnew, for the respondent.

//McLachlin J.//

The judgment of the Court was delivered by

MCLACHLIN J. -- The issue raised in this case is whether s. 109 of The Saskatchewan Insurance Act, R.S.S. 1978, c. S-26, (the Insurance Act) permits the Court to grant relief from forfeiture where the claimant failed to give notice of his claim to the insurer within the time prescribed by a labour and material payment bond.

The Background

Elance Steel Fabricating Co. Ltd. claimed under a bond issued by the Canadian Surety Company on account of a debt due and owing, together with interest for supply of metal to Falk Bros. Industries Ltd. Elance failed to give notice of its claim within the period specified in the bond, making its claim 28 days after expiry of the 120-day period for notice provided in paragraph 6 of the bond.

Elance applied to the chambers judge for an order declaring that it was entitled to relief from forfeiture from the breach of the time limitations for the filing of the notice of claim specified in the bond. The chambers judge held that s. 109 of the Insurance Act empowered him to relieve against forfeiture and then proceeded to grant such relief. Elance concedes that the actual grant of relief was improper since it had only requested a ruling as to whether it could obtain such relief.

The Court of Appeal allowed the appeal of the Canadian Surety Company with respect to the actual grant of the relief, but dismissed its appeal from the chambers judge's ruling that the court had authority to grant relief against forfeiture under s. 109 of the Insurance Act. Canadian Surety now appeals to this Court.

The Legislation

Section 109 of the Insurance Act provides:

109. Where there has been imperfect compliance with a statutory condition as to the proof of loss to be given by the insured or other matter or thing required to be done or omitted by the insured with respect to the loss and a consequent forfeiture or avoidance of the insurance in whole or in part and the court considers it inequitable that the insurance should be forfeited or avoided on that ground, the court may relieve against the forfeiture or avoidance on such terms as it considers just.

Similar provisions are found in Insurance Acts throughout Canada.

The Issues

The only issue is whether s. 109 empowers the Court to grant relief against forfeiture for breach of a contractual condition prescribing a period within which notice of a claim must be given.

This issue raises two sub-issues:

(1)Is s. 109 confined to statutory conditions as opposed to contractual provisions; and

(2)If s. 109 extends to contractual conditions, does failure to give notice within the time prescribed by the bond constitute "imperfect compliance" within s. 109 or, alternatively, "non-compliance"?

Discussion

1. Is s. 109 Confined to Statutory Conditions as Opposed to Contractual Conditions?

The term breached in the instant case was a term of the contract: it was not a statutory condition. Canadian Surety submits that the Court has no power to grant relief under s. 109 of the Insurance Act because the section is confined to statutory conditions.

The wording of s. 109 is ambiguous. It can be read as empowering the Court to relieve against forfeiture "Where there has been imperfect compliance with a statutory condition as to: (1) the proof of loss to be given by the insured; or (2) other matter or thing required to be done or omitted by the insured . . . ." (Punctuation and numbering added). On this reading, s. 109 is confined to statutory conditions, the entire phrase which follows modifying "statutory conditions". This reading of the section is strained; one feels the word "any" should be added before "other matter".

Alternatively, s. 109 can be read as empowering the Court to grant relief "Where there has been imperfect compliance with: (1) a statutory condition as to the proof of loss to be given by the insured; or (2) other matter or thing required to be done or omitted by the insured . . . ." (Punctuation and numbering added). On this interpretation, s. 109 extends to contractual conditions. This interpretation is also awkward; again, one feels the word "any" should be inserted before "other matter".

The question before us is which of these two interpretations should be adopted. In my opinion, a number of considerations favour adoption of the second interpretation with the consequent extension of s. 109 to contractual as well as statutory conditions.

The first consideration is that s. 109 is a remedial section and as such should be given an appropriately broad interpretation. In Minto Construction Ltd. v. Gerling Global General Insurance Co. (1978), 1978 1441 (ON CA), 86 D.L.R. (3d) 147, citing Canadian Equipment Sales & Service Co. v. Continental Insurance Co. (1975), 1975 670 (ON CA), 59 D.L.R. (3d) 333 (Ont. C.A.), MacKinnon J.A. noted at p. 151 that the equivalent Ontario "section is `an ameliorating clause', and [that] it should be given a fair, large and liberal interpretation". In the same vein, see also The Interpretation Act, R.S.S. 1978, c. I-11, s. 11 which provides:

11. Every Act and every regulation and every provision thereof shall be deemed remedial, and shall receive such fair, large and liberal construction and interpretation as best ensures the attainment of the object of the Act, regulation or provision.

The purpose of allowing relief from forfeiture in insurance cases is to prevent hardship to beneficiaries where there has been a failure to comply with a condition for receipt of insurance proceeds and where leniency in respect of strict compliance with the condition will not result in prejudice to the insurer. This purpose is consistent with interpreting s. 109 as permitting the court to grant relief from contractual as well as statutory conditions.

The second consideration is that for more than a decade, courts across the country have adopted the second, more generous interpretation: see Minto Construction Ltd. v. Gerling Global General Insurance Co., supra; Canadian Equipment Sales & Service Co. v. Continental Insurance Co., supra; Fitzgerald v. Casualty Co. of Canada (1981), 31 Nfld. & P.E.I.R. 521 (Nfld. S.C.T.D.); Janet Estate and Kallos v. Saskatchewan Government Insurance (1984), 1983 2477 (SK QB), 30 Sask. R. 185 (Q.B.); V & G Polled Herefords v. Lloyd's Non-Marine Underwriters (1986), 1986 3355 (SK QB), 51 Sask. R. 81 (Q.B.); Dashchuk Lumber Ltd. v. Proman Projects Ltd. (1987), 1987 4670 (SK CA), 59 Sask. R. 193 (Sask. C.A.) In the face of this uniform jurisprudence in favour of extending s. 109 or its equivalents to purely contractual clauses, none of the legislatures has acted to alter the wording of s. 109. Since the contract here in question and the conduct of the parties with relation to it arose in that jurisprudential context, it cannot be said to be unfair or contrary to the intention of the parties that relief now be available for contractual breaches pursuant to s. 109 of the Insurance Act.

Finally, I should note that I cannot accept the argument that extending s. 109 to ordinary contractual clauses in insurance contracts constitutes undue interference with contractual rights. An argument based on privity of contract is difficult to advance where the claimant is a third party. Moreover, since relief from forfeiture is required only where there has been a breach of contract, it is inherent in s. 109 that it must derogate from contractual arrangements if it is to have any effect. While the parties have no choice as to the statutory terms, these are as much a part of their bargain as non-statutory terms.

In summary, the rules of statutory construction and precedent favour interpreting s. 109 as extending to non-statutory terms of insurance policies. There is no reason to depart from the interpretation of such clauses which has been uniformly adopted across the country. I conclude that s. 109 should be read as empowering the court to grant relief from forfeiture for breaches of terms of insurance contracts other than statutory conditions.

2. Does Failure to Give Notice Within the Prescribed Time Period Constitute Imperfect Compliance Under s. 109 of the Insurance Act or Non-Compliance?

Should failure to give notice of claim within the time prescribed by the bond be considered as imperfect compliance, against which the court may relieve in appropriate cases, or is it non-compliance, in which case the court has no power under s. 109 to grant relief? The distinction between imperfect compliance and non-compliance is akin to the distinction between breach of a term of the contract and breach of a condition precedent. If the breach is of a condition, that is, it amounts to non-compliance, no relief under s. 109 is available.

The case law has generally treated failure to give notice of claim in a timely fashion as imperfect compliance whereas failure to institute an action within the prescribed time period has been viewed as non-compliance, or breach of a condition precedent. Thus, courts have generally been willing to consider granting relief from forfeiture where notice of claim has been delayed: Canadian Equipment Sales & Service Co. v. Continental Insurance Co., supra; Minto Construction Ltd. v. Gerling Global General Insurance Co., supra; Moxness v. Saskatchewan Government Insurance Office, 1977 1504 (SK QB), [1977] 3 W.W.R. 393 (Sask. D.C.); Janet Estate and Kallos v. Saskatchewan Government Insurance, supra; North Lethbridge Garage Ltd. v. Continental Casualty Co., 1930 265 (AB SCAD), [1930] 1 W.W.R. 491 (Alta. S.C., App. Div.) See also: Dashchuk Lumber Ltd. v. Proman Projects Ltd., supra.

On the other hand, cases in which failure to meet a time requirement has been held to be non-compliance rather than imperfect compliance have largely been cases in which the time period was for the commencement of an action rather than for the giving of notice: D. S. Ashe Trucking Ltd. v. Dominion Insurance Corp. (1966), 1966 456 (BC CA), 55 W.W.R. 321 (B.C.C.A.); National Juice Co. v. Dominion Insurance Co. (1977), 1977 1375 (ON CA), 18 O.R. (2d) 10 (Ont. C.A.)

The reasons for the distinction are bi-fold. First, failure to give notice of claim has been viewed as a breach of a term rather than a breach of a condition. Clearly, being akin to failure to meet a limitation period, failure to bring an action within the time required is a more serious breach than failure to give timely notice. A notice of a claim simply informs the insurer of the possibility of a future action, thereby allowing the insurer some time to investigate the merits of the claim and to negotiate a settlement: the actual bringing of an action, however, is the legal crystallization of the claim which sets its parameters and magnitude. Second, and probably more importantly, failure to give notice of the claim within the time required is a defect in provision of proof of loss for which relief against forfeiture is, by the terms of the statute, available. "Where there has been imperfect compliance with the statutory condition as to the proof of loss to be given by the insured or with any other matter or thing required to be done or omitted by the insured with respect to the loss and a consequent forfeiture or avoidance of the insurance in whole or in part", s. 109 gives the court power to relieve from such forfeiture or avoidance. But it is only in respect of such statutory conditions as to proof of loss or other matters or things that are required to be done or omitted with respect to the loss that the court has this power. Culliton C.J.S. made this point in Presco Industrial Ltd. v. Saskatchewan Government Insurance Office (1967), 1967 437 (SK CA), 61 W.W.R. 637 (Sask. C.A.) There, a condition which imposed a time limitation for the bringing of an action was held to not fall into this category (at p. 639):

[The time limitation condition] does not work a forfeiture or avoidance; it does not bar any right -- it only bars a remedy. This was the view expressed by Williams, C.J.Q.B., in Luke's Elec. Motors & Machinery Ltd. v. Halifax Insur. Co. (1953-54) 1953 273 (MB QB), 10 WWR (NS) 539, at 550, 551, 61 Man R 297, with which view I am in complete agreement. A similar opinion was expressed by Tysoe, J.A. in D. S. Ashe Trucking Ltd. v. Dom. Ins. Corpn. (1966) 1966 456 (BC CA), 55 WWR 321 (B.C.). In that case Tysoe, J.A. considered the effect to be given to the condition of a policy which read:

"14. Every action or proceeding against the Insurer for the recovery of any claim under or by virtue of this contract shall be absolutely barred unless commenced within one year after the loss or damage occurs."

At p. 349 he said:

"The statutory condition does not relate to the appellant's contractual obligations, but to the right of the respondent to enforce them by action or proceeding. The appellant's liability remains but the right of the respondent to enforce it by action or proceeding is lost at the expiration of the one-year term."

On the other hand, the case law is clear that notices of claims relate to proof of loss and therefore fall within the ambit of the forfeiture relief provisions. Hence, in Hogan v. Kolisnyk, 1983 1027 (AB QB), [1983] 3 W.W.R. 481 (Alta Q.B.), Miller J. said:

It is now clearly established that notice of loss falls within the term "proof of loss", and that relief can be given with respect to failure to comply with the requirement of notice: Prairie City Oil Co. v. Standard Mut. Fire Ins. Co. (1910), 1910 57 (SCC), 44 S.C.R. 40; Bodnorchuk v. Union Marine & Gen. Ins. Co. Ltd. 1957 172 (SK CA), [1957] I.L.R. 1-267, reversed 1958 50 (SCC), [1958] S.C.R. 399, [1958] I.L.R. 1-287, 13 D.L.R. (2d) 609.

I agree that failure to give notice of claim within a given period is a less serious breach than failure to bring an action within a stipulated time. I also agree that it relates to "proof of loss" or "any other matter or thing required to be done or omitted by the insured with respect to the loss". I am therefore of the view that relief from forfeiture can be granted in respect of delayed notices of claims.

For these reasons, I conclude that the failure to give notice of claim within the prescribed time period constitutes imperfect compliance rather than non-compliance and that Elance is eligible to claim relief from forfeiture in this case.

Conclusion

In summary, I conclude that s. 109 of The Saskatchewan Insurance Act is not confined to statutory conditions, and that failure to provide notice of claim in a timely fashion is imperfect compliance under s. 109. It follows that the Court has the power to grant relief under s. 109.

I would dismiss the appeal with costs.

Appeal dismissed with costs.

Solicitors for the appellants: Rendek Kaufman Embury, Regina.

Solicitors for the respondent: Agnew & Company, Saskatoon.