Superior Court of Justice - Ontario

Court File No.: CV-10-00411180-0000
Date: 20120301

RE: ERNST & YOUNG INC.

Plaintiff

AND:

CHARTIS INSURANCE COMPANY OF CANADA, formerly known as AIG COMMERCIAL INSURANCE COMPANY OF CANADA and AMERICAN HOME INSURANCE COMPANY

Defendants

BEFORE: Mr. Justice Lederer

COUNSEL:
Lawrence G. Theall & Michael Foulds, for the Plaintiff
Douglas H. McInnis & Jacqueline Wall , for the Defendants

HEARD: February 28 & 29, 2012

ENDORSEMENT

[ 1 ] A decision to retain new counsel at the last moment, before an important motion is to be argued does not bring with it the right to produce new material or re-consider the strategy adopted by a predecessor. This is especially so where these changes would continue to contribute to inappropriate and unnecessary delay.

[ 2 ] Following a lengthy and difficult process, a lawsuit begun by Ernst & Young Inc. (“E&Y”) against Central Guaranty Trust (“CGT”) came to trial. It was the second trial. It concerned the allegations that CGT had breached certain trusts of which it was the trustee. The action was commenced, in Alberta, during the month of October 1992. E&Y was authorized to bring the action on behalf of the beneficiaries of the trusts by an order of Miller A.C.J.A. Shortly after the action had been commenced, CGT was placed in liquidation under the Winding up Act , R.S.C., W-11. On October 6, 1993, Mr. Justice Houlden, of the Ontario Court (General Division), made an order granting leave for the action to continue in the face of the winding-up. In its original Statement of Defence, CGT admitted the validity of the trusts, but denied there were any breaches of trust. At some point, apparently within weeks of the first trial, this approach changed. For the first time, it was said that there were no legally-valid trusts. CGT was insured by Chartis Insurance Company of Canada (“Chartis”). The change was significant. In the event that there were no trusts, the available insurance policies would not apply and there would be no insurance coverage. On February 9, 2001, Mr. Justice Wilson, of the Court of Queen’s Bench of Alberta, allowed the amendment, found that there were no trusts and dismissed the claim. The decision was appealed. The Court of Appeal of Alberta found that the motion to amend the defence was an abuse of process, and that the issue of the validity of the trusts was settled by the principles of res judicata, collateral attack and abuse of process. Following the second trial, Mr. Justice MacCallum found CGT liable for breach of the trusts. Judgment was granted in the amount of $3,139,642.42, plus pre-judgment interest of $6,888,768.90, for a total of $10,028,411.32, plus costs and post-judgment interest. Costs of the second trial were fixed in the amount of $65,147.37. They have not been paid.

[ 3 ] Chartis was asked to satisfy the judgment. It did not respond and this action was commenced. E&Y seeks declarations that:

(a) the defendants issued “policies of insurance providing coverage for all amounts payable under the judgment” of Mr. Justice MacCallum;

(b) the defendants owe E&Y duties of utmost good faith and fair dealing, which it breached; and,

(c) the plaintiff is entitled to be paid all amounts payable under the judgment.

[ 4 ] Chartis was served with the Statement of Claim on September 28, 2010. Rather than serve a Statement of Defence, Chartis waited until E&Y advised that it would be noted in default. Only then did Chartis bring a motion to extend the time for delivery of a Statement of Defence. The motion was settled with a consent order made by Master Brott, dated November 4, 2010, requiring that Chartis: (a) deliver its defence by November 22, 2010; (b) immediately produce a copy of any insurance policies that may provide coverage for the judgment; (c) produce copies of any coverage letters; and, (d) pay costs of $3,000.

[ 5 ] In its Statement of Defence, Chartis pleads that it has refused to indemnify the plaintiff on the ground that there is no coverage under the policy that applies to the plaintiff.

[ 6 ] Despite this position and the order of Master Brott, Chartis failed to disclose any “coverage letters” for over a year. When asked, during the examinations-for-discovery, why it had failed to produce the letters, it was said, on behalf of Chartis, that it was on the advice of counsel. No further response was offered.

[ 7 ] On March 15, 2011, counsel for E&Y sent two e-mails to representatives of Chartis, seeking to discuss a discovery plan and outlining the documents E&Y felt were relevant and producible. Counsel for Chartis did not respond. On April 7, 2011, counsel for E&Y sent a further e-mail enclosing a draft discovery plan and requesting comments by April 12, 2011. There was no response to this e-mail or the draft discovery plan. On April 15, 2011, counsel for E&Y sent an e-mail to counsel for Chartis advising that, there having been no response, they were instructed to bring a motion to impose a discovery plan. There was an exchange of e-mails between counsel. Counsel for Chartis advised that he would deal with the matter of the discovery plan early the following week. When, at that time, no response was forthcoming, on April 20, 2011, counsel for E&Y served a notice of motion to impose a discovery plan. There was a further response. There was no resolution and the motion proceeded on June 9, 2011. Master Dash found that E&Y had been compelled to bring the motion in order to keep the action moving forward. He granted an order imposing a discovery plan and awarded costs fixed and payable forthwith in the amount of $5,500. He noted that it was surprising that it had taken the defendants seven weeks to respond to the initial request for a discovery plan.

[ 8 ] On July 19, 2011, the parties attended at motion scheduling court in order to fix dates for two motions: one, by E&Y, for summary judgment; and the other, by Chartis, to have the proceedings stayed on the basis that this court was a forum non conveniens (a forum which is not convenient). Timetables for both motions were approved by Madam Justice Himel, and the two motions were fixed to be heard for two days on February 28 and 29, 2012.

[ 9 ] The parties served their respective notices of motion and supporting affidavits for the summary judgment motion and the forum non conveniens motion on September 20, 2011. Following this exchange, Chartis requested an extension to serve its responding materials with respect to the summary judgment motion. The time was extended, by 10 days, to October 14, 2011. Chartis provided its responding affidavits for the summary judgment motion on October 21, 2011.

[ 10 ] Examinations-for-discovery were undertaken and completed during October 2011 and January 2012. Deponents of the affidavits filed in respect of the motions were cross-examined during January and February 2012. As a result of the examinations continuing through January, the parties agreed to amend the timetable for delivery of their facta: each moving party’s factum was to be delivered on February 6, 2012 and the responding factum by February 13, 2012.

[ 11 ] The factum of E&Y, as the moving party on the motion for summary judgment, and the factum of Chartis, as the moving party on the forum non conveniens motion, were both served on February 6, 2012. E&Y delivered its responding factum, with respect to the forum non conveniens motion, on February 13, 2012. Chartis failed to serve its responding factum with respect to the summary judgment motion, as required by the timetable. Instead, on February 14, 2012, Chartis served a Notice of Change of Lawyer, appointing its present counsel as counsel of record. It is said that this change took place because it was only with receipt of the factum served on behalf of E&Y that Chartis understood that its existing counsel might be required to be a witness at any trial.

[ 12 ] In summary, it is evident that Chartis has been in no hurry to have this matter proceed. Moreover, it has been aware that a motion for summary judgment was to be heard by this court on February 29, 2012 since July 19, 2011, which is to say, over seven months. It required an extension, but filed its responding material, on this motion, on October 21, 2011, which is to say, three months after the date for the summary judgment motion had been set and four months before the motion was to be argued.

[ 13 ] Following the notice of change, counsel now acting for Chartis obtained a hearing date at motions scheduling court for February 21, 2012 seeking an adjournment of the motion and leave to file additional affidavits and conduct further cross-examinations. On February 21, 2012, the parties appeared before Madam Justice Low. She refused to grant an adjournment. She found that it should have been apparent to Chartis by December 2010 that it would need to retain new counsel. It was during that month that E&Y delivered its Reply and Defence to Counterclaim pleading that the actions of counsel, then acting for Chartis, would be material issues in the action. The responding party’s factum was due before the new solicitors were appointed. Madam Justice Low observed that “the delay is unexplained and in my view is tactical and for the purpose of creating a situation in which the scheduled date would be lost”. She went on to find that there was no evidence that the defendant had only recently realized that counsel had to be replaced.

[ 14 ] In the meantime, the newly-appointed counsel for Chartis advised that the forum non conveniens motion was to be withdrawn. Accordingly, on February 28, 2012, the motion for summary judgment was to proceed before me. Counsel for Chartis advised the court that, in response to the order of Madam Justice Low, a factum responding to the motion for summary judgment was prepared. Counsel for E&Y confirms the factum was served the morning the motion was to commence. Counsel provided a factum, in effect, seeking leave of the court to appeal the order of Madam Justice Low to the Divisional Court. I asked counsel to explain what jurisdiction this court could have to consider such a motion. He had no answer. The accompanying Notice of Motion asked for an adjournment to March 22, 2012, on which day, as I understood it, it was proposed that the motion seeking leave to appeal would be heard by a judge of the Divisional Court. Any circumstance in which a judge of this court might adhere to such a request would be rare. Otherwise, every time a party felt aggrieved by its failure to obtain an adjournment, it would bring such a motion and use the intervening time as it required. Having, by this means, obtained the delay it wanted, the party would be free to withdraw its motion. During the course of the ensuing discussion, counsel for E&Y, to his considerable credit, advised that his client would not object to a short adjournment to allow counsel for Chartis to prepare to properly argue the motion. This did not include any concession that the case was to be re-opened so that new material could be filed and a new strategy developed. Chartis was bound by the timetable and had produced its responding material.

[ 15 ] At the same time, I expressed a nascent concern. Given the position of E&Y that Chartis had acted in bad faith in undertaking the defence of CGT in the Alberta action, and the nature of some of the findings that would be sought in this proceeding, it may be that this is not a situation where summary judgment is an appropriate remedy. Both counsel were of a view that the proceeding could be bifurcated. The motion could deal only with coverage. If there was coverage and the policy limits allow for the judgment to be satisfied, that could be the end of the matter. On the other hand, if there is coverage, issues could remain as to the value of the funds available. It could be that the policies would be limited such that there would not be enough to satisfy the judgment. In those circumstances, there could be an issue as to whether there was bad faith. If there was, Chartis could be required to satisfy the entire judgment regardless of the limits on any available insurance. Those questions, if they exist, could require a trial.

[ 16 ] Over the course of the next two days, counsel spent a considerable amount of time reviewing the circumstances and developing a consent order that would allow for a brief adjournment for counsel to prepare and for the motion to proceed with the issues limited to account for the possibility that matters could be left for a trial. As of yet, the results of the discussion have not been finalized and not presented to the court. It appears that the remaining contentious issue is what, if anything, should be added to the existing record. As I understand it, with this issue resolved, counsel will be able to finalize a consent order allowing for a brief adjournment and for appropriate limits as to what the motion will deal with.

[ 17 ] Counsel for Chartis wishes to file or be free to rely on:

(a) the endorsement which explains and supports the order of Mr. Justice Houlden made on October 6, 1993;

(b) the court file that was before and considered by Mr. Justice Houlden in making his order of October 6, 1993;

(c) an affidavit of, an as yet unidentified lawyer, who acted with respect to or has knowledge of what took place in regard to the order of Mr. Justice Houlden made on October 6, 1993;

(d) answers to select undertakings and refusals made during the course of the examinations for discovery; and,

(e) a letter which would provide some information with respect to the amount of any remaining coverage arising from existing insurance policies held by Chartis, in favour of CGT, taking into account any costs associated with the defence of CGT in the action in Alberta, as well as information with respect to any excess insurance that may exist.

[ 18 ] Counsel for E&Y is prepared to consent to this court being asked to consider the endorsement of Mr. Justice Houlden (paragraph (a) above). He has reserved the right to argue that no regard should be given to it.

[ 19 ] Counsel for Chartis explained that each of the items referred to, in paragraphs (a), (b) and (c) above, are relevant to a submission that E&Y is without standing to bring this action. As I understand it, this arises from an interpretation as to the breadth and application of the order made by Mr. Justice Houlden. Whether this is an argument contemplated by prior counsel or a new strategy devised by present counsel, it cannot be that the appointment of new counsel allows for a re-opening of the record, causing a breach of the understanding that the responding material would be in place by October 21, 2011. Of particular concern is the request for a fresh affidavit. It is not unreasonable to expect that such an affidavit would cause the need for cross- examinations, undertakings and more delay. The court file available to Mr. Justice Houlden, if it is relevant in any way, would have been available to prior counsel and could have been sought by, obtained and produced by prior counsel. It is difficult to ascertain what would be required by counsel for E&Y to deal with this material and what time that would take.

[ 20 ] It is not clear to me, from the submissions made, what would be contained in the undertakings and refusals referred to in paragraph (d) above. It may be in respect of information concerning the available insurance policies. E&Y has been asking for information of this type since the outset and appears to have had trouble obtaining it. Be that as it may, whatever these answers contain, counsel wants to include them in the record after the responding factum was to have been provided. The retention of new counsel may be a catalyst for a re-consideration of positions taken, but it does not allow for the record to be re-opened to support these changes, in contravention of the orders and agreements the parties have been acting on for a considerable period of time.

[ 21 ] Finally, with respect to paragraph (e) above, counsel for Chartis says that the letter is in response to undertakings made with respect to the limits of the insurance that may be available if the right to coverage is established. Counsel for E&Y is vociferous in his objection. He says that he has been asking for this for some time and that it is not a small matter. The letter, which he has seen, only introduces answers. It will require more investigation, more time and more delay. He has been offered the end of a piece of a yarn. If he pulls at it, counsel for E&Y is unsure what will be involved in unravelling the whole ball. Counsel for Chartis points out that this is in response to the advice of counsel for E&Y that, as a result of this information not having been provided, he will ask the court to make an adverse inference as to its impact on the motion. How this position will impact on the ability of the court to fully appreciate the evidence (see: Combined Air Mechanical Services Inc. v. Flesch , 2011 ONCA 764 , at para. 50 ) is not something I can decide now. In the circumstances, it is not clear to me what the impact of allowing this letter into evidence would be. I am not prepared to open up the record and allow Chartis the possibility of further delay. I have cautioned counsel for E&Y that it may be that this will cause more than might otherwise be necessary to be left for a trial. I cannot know. Counsel has maintained his objection.

[ 22 ] Counsel for Chartis submitted that Rule 31.09(1) of the Rules of Civil Procedure applies. This rule deals with circumstances where a party, having been examined for discovery, determines that an answer was incorrect or incomplete. The rule requires that, in such circumstances, the party shall provide the correct or complete information, in writing, to every other party. As I understand it, this rule applies when a mistake is been made in the information that is provided. It does not apply when a party determines to provide an answer it had earlier refused. The correction is as to the substance of an answer not to the tactical consideration of whether it should be answered. The rule does not assist Chartis.

[ 23 ] Counsel for E&Y relied on Rule 39.02(2) of the Rules of Civil Procedure . This rule provides that a party, having cross-examined on an affidavit delivered by an adverse party, cannot deliver an affidavit for use at the hearing without consent of the other party or leave of the court. I begin by observing that counsel for Chartis, in respect of paragraph (e) above, is not seeking to rely on an affidavit which is sworn evidence. He wants to file a letter. This is not what the rule is directed to. Even if this were not so, what is required for leave, under this rule, has been discussed in the following way:

I believe the words “ought to be permitted to respond” found in the rule 39.02(2) impose a burden on a party who seeks leave to show more than an absence of non-compensable prejudice to the opposite party. In my view, those words import a requirement for the party who seeks leave under rule 39.02(2) to provide, by way of evidence on the motion for leave, a satisfactory explanation for its failure to include the proposed additional evidence as part of its pre-cross-examination case. The court should scrutinize carefully the reasons for the omission and the evidence offered in support of that explanation. To approach the issue otherwise undermines the integrity of the evidentiary framework for motions and applications that is mandated by the rules. Absent some reasonable explanation for the original omission, leave should be refused.

( Brock Home Improvement Products Inc. v. Corcoran 2002 CarswellOnt 794, at para. 9 )

[ 24 ] Counsel has attempted to explain why this letter should be added to the record. What he has not done is explain why the information it contains was not provided earlier.

[ 25 ] Finally, counsel for E&Y submitted that, in any event, the question of whether the record could be re-opened had been determined by Madam Justice Low. Counsel says the principle of issue estoppel should apply. Counsel for Chartis submitted that this is not so. Madam Justice Low refused the adjournment and because of this, never got to the question of whether, if the motion was to proceed, additions to the record should be permitted. To me, whether issue estoppel applies does not matter. The thrust of the determination of Madam Justice Low was that the adjournment being requested was tactical and directed to creating a situation in which the scheduled date would be lost. I will not allow that to happen where an indulgence is being offered to counsel, who was retained too late, to allow him to prepare to argue the motion.

[ 26 ] For the reasons reviewed, I will not order any additions to the record beyond the endorsement of Mr. Justice Houlden, to which the parties have agreed. It is a matter of public record and something that, in the normal course, the court could take judicial notice of.

LEDERER J.

Date: 20120301