COURT FILE AND PARTIES

COURT FILE NO.: 00-CV-188846

DATE: 20140117

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Richard Dick, Steve Marek by his litigation guardian David Marek, and John Kuca, Plaintiffs

– AND –

Robert Duncan McKinnon, Tubular Steel Inc., and 1086668 Ontario Inc., Defendants

BEFORE: E.M. Morgan J.

COUNSEL: Daniel Dochylo and Matthew Furrow, for the Plaintiff, Steve Marek by his litigation guardian David Marek

Jonathan McKinnon, for the Defendants

HEARD: December 4, 2013

ENDORSEMENT

[1] This is a motion by the Defendants under Rule 49.09 of the Rules of Civil Procedure to enforce a settlement agreement reached in August 2005 but never implemented. The Plaintiff, Steve Marek (“Steve”), whose son David Marek (“David”) acts as his litigation guardian, objects to enforcement of the settlement. As litigation guardian, it is David’s view that the terms of the settlement do not adequately compensate Steve.

[2] David, on Steve’s behalf, also alleges that when the settlement was agreed upon in 2005, Steve lacked the mental capacity to effectively consent to the settlement. Although Steve was represented by counsel at the time of the settlement agreement, and an assessment of his capacity was not done until mid-2012 and a litigation guardian only appointed on January 23, 2013, it is David’s position that the August 2005 settlement cannot be enforced as Steve was too impaired to have properly instructed counsel and to have settled the action. David contends that since Steve is, and was, under a disability, any settlement must be approved by the Court under Rule 7.08 and that this is not a settlement which should be approved.

[3] I am not convinced that Rule 7.08 is the appropriate procedural basis on which to analyze the settlement at issue. As the Court of Appeal stated in Wu Estate v Zurich Insurance Co., 2006 16344 (ON CA), [2006] OJ No 1939, at para 12, the purpose of Rule 7.08 is “to protect a party under disability from mistakes of the litigation guardian.” The settlement here was entered into by Steve and communicated to the Defendants by Steve’s then solicitor of record prior to there being any determination of incapacity or the appointment of a litigation guardian.

[4] Counsel for David concedes that at the time of the settlement Steve had no litigation guardian for the court to supervise. Nevertheless, he follows this observation in paragraph 30 of his factum with the statement that, “A fortiori, if there was no litigation guardian in place when a purported settlement was reached, the Court must therefore provide even greater scrutiny to a proposed settlement.”

[5] In making this submission, counsel for David of course overstates the point. It is obvious that not every settlement in which there is no litigation guardian in place prompts a Rule 7.08 review. The only reason that the court might invoke its Rule 7.08 jurisdiction to scrutinize a settlement agreement entered into by a party with no litigation guardian would be if there were cogent evidence that a guardian ought to have been appointed at the time of the settlement. Counsel for David has provided me with no cases, and I have been able to find no cases, in which court approval of a settlement under Rule 7.08 was deemed necessary where the party who entered into the settlement was not under a disability at the relevant time.

[6] Accordingly, the real question raised by the Rule 7.08 argument is whether Steve was under a disability in August 2005. The fact that he was much later determined to be under a disability does not in itself trigger the application of Rule 7.08.

[7] A formal Assessment Report under the Substitute Decision Act, 1992, SO 1992, c 30 (the “SDA”), dated December 11, 2012 was issued by Dr. Alina Kaminska, a qualified assessor within the meaning of section 1(1) of the SDA. After examining Steve on three separate occasions in the summer and fall of 2012, and interviewing his spouse Kathy Marek and son David on two separate occasions, and reviewing Steve’s medical history, Dr. Kaminska determined under section 6 of the SDA that Steve lacks capacity to manage property.

[8] Dr. Kaminska’s Assessment Report contains the requisite statement in paragraph 4 of the Statement/Notice of Assessor that: “I performed the assessment in accordance with the procedures for assessing capacity for managing property established by the Attorney General.” It is a credible report with which the Defendants take no issue. As with most reports under the SDA, Dr. Kaminska’s determination of incapacity speaks in the present tense; that is to say, the opinion of incapacity is valid as of the date of the Assessment Report – December 11, 2012.

[9] It is important to note that Dr. Kaminska ventures no opinion as to Steve’s capacity back in August 2005. Indeed, no assessor designated as qualified under section 1(1) of the SDA has provided a retroactive opinion regarding Steve’s capacity at the time of the settlement agreement. Instead, counsel for David has presented an affidavit and opinion from a doctor in the U.K., Dr. Robin Jacoby, in an effort to fill this void. Dr. Jacoby concluded at paragraph 44 of his opinion that, in his view, in August 2005 Steve “would have lacked sufficient ability to understand the information relevant to the decision about Tubular Steel Inc [i.e. the settlement agreement], by reason of his cognitive impairments described above.”

[10] Dr. Jacoby has an impressive C.V. listing his qualifications as a British physician/professor, complete with an affiliation with Oxford University. His most interesting credential, however, is not in the field of medicine or psychiatry – indeed, he does not describe much in the way of clinical medical practice or patient care – but rather in the field of law. Dr. Jacoby states in the introductory portion of his opinion that he has given expert opinion evidence in over 180 court cases, “the great majority of which concerned contentious probate”.

[11] Dr. Jacoby does not indicate whether any of those cases have been in Ontario, but it is apparent that as a foreign doctor he is not a designated assessor under Ontario’s SDA. His opinion does not indicate whether his methodology conformed with the Attorney General’s guidelines for assessing capacity the way Dr. Kaminska’s does, although it seems likely that in the absence of actually examining or speaking with the patient the Attorney General’s procedural guidelines were not met.

[12] Counsel for David indicated in argument that Dr. Jacoby is very experienced in giving retroactive opinions on capacity, in particular in estate litigation. I pause to note that in estate or probate litigation the person who is the subject of the assessment is, by definition, not available to be interviewed or examined by the doctor conducting the assessment.

[13] By contrast, Steve is very much alive and would have been available to be examined or interviewed. He certainly was available on several occasions for Dr. Kaminska, who nevertheless refrained from expressing any view on his capacity at the relevant time period in 2005. In any case, Dr. Jacoby’s analysis of Steve is based strictly on the written medical file supplied to him by counsel for David. He neither met nor spoke with Steve, and did not interview any of his family members.

[14] With all of the designated assessors and qualified experts in Ontario, it seems unusual that David’s counsel would have had to go to England to obtain a medical expert who was not in a position to examine the patient before rendering an opinion under Ontario legislation for an Ontario court proceeding. The Defendants have not submitted any expert opinion of their own on the question of Steve’s capacity in 2005, and so I have nothing to put up against Dr. Jacoby’s opinion; however, the absence of a 2005 opinion by Dr. Kaminska or any other qualified Ontario assessor is certainly noteworthy.

[15] What is equally noteworthy is the absence of an affidavit or testimony from Steve’s solicitor in 2005, John Stephens. It was Mr. Stephens who negotiated the settlement agreement between Steve and the Defendants, in which Steve was to hand over his shares in the Defendant, Tubular Steel Inc. (“Tubular”), in return for a payment of $700,000. The offer that formed the basis of the settlement agreement was made to the Defendants by Mr. Stephens in his capacity as Steve’s solicitor of record in the action, and was written on his law firm letterhead.

[16] Mr. Stephens has never denied the authenticity of the offer, or the receipt of the Defendants’ acceptance of the offer, or the validity of the agreement. He has never denied that he was instructed by Steve to make the offer that ultimately formed the settlement, and has never stated that he had any doubts about Steve’s capacity to properly instruct him or to comprehend and agree to the settlement agreement. Indeed, quite the contrary is true; in his correspondence, including to Allan Farrer, another lawyer consulted by Kathy Marek, he has confirmed that he was authorized by Steve to make the settlement offer. In none of the correspondence exhibited in the record did Mr. Stephens ever suggest that he had any doubts as to Steve’s capacity to comprehend the settlement or instruct him.

[17] At the hearing of this motion, counsel for David advised that Mr. Stephens still lives in Toronto and that Steve has not brought any claim against him. Counsel for David further submitted that if the Defendants were so interested in Mr. Stephens’ evidence they could have summonsed him as a third party witness. I hasten to point out that had the Defendants summonsed Steve’s former solicitor of record it would doubtless have been a futile endeavor; anything that Mr. Stephens could say to shed light on his communications with Steve and his understanding of Steve’s instructions in 2005 would have been covered by solicitor-client privilege. It was for David, as Steve’s litigation guardian, to call Mr. Stephens as a witness in this motion or to submit Mr. Stephens’ affidavit.

[18] Kathy Marek has provided an affidavit in which she indicates that she has had power of attorney over Steve’s property since 2000. She states that Steve has had medical issues, including memory problems, since suffering a head injury in 1999. She further explains that since that time she has been assisting him with the family’s financial affairs, and that she has now taken over the handling of family finances. She indicates that today Steve has reached a stage where he has virtually no memory at all and can remember no details of the settlement agreement.

[19] Ms. Marek’s description of Steve’s 1999 injury and gradual memory loss dovetails with the medical history outlined by Dr. Kaminska, although, as indicated, Dr. Kaminska gives no opinion as to when it was that Steve actually became incapacited. I would note, however, that her Assessment Report also goes on to describe a further head injury and medical deterioration that Steve suffered in February 2009 – nearly 4 years after the settlement agreement was reached – when he was involved in an altercation with the police and sustained a blow resulting in a fracture to the bone under his right eye.

[20] Ms. Marek deposes that she participated in a number of the meetings with Steve and Mr. Stephens in which they discussed this and other litigation in which Steve was involved. She recalls the settlement negotiations and Steve’s instructions to Mr. Stephens to proceed with those negotiations, but indicates that she was not involved with the specific settlement instructions at issue because Steve preferred to handle those himself. She states that Mr. Stephens must have known in August 2005 that Steve did not fully understand the instructions that he gave Mr. Stephens regarding the settlement of this action.

[21] What Ms. Marek does not do is to deny that the instructions to settle were given to Mr. Stephens and that she was aware of those instructions. She likewise does not in any way deny that Mr. Stephens was solicitor of record for Steve at the time and that he had authority to deal with counsel for the Defendants. There is equally no doubt raised anywhere in the record that the settlement offer was communicated by Mr. Stephens to Defendants’ counsel and that its terms were clear and accepted by the Defendants. Although it is suggested in Ms. Marek’s affidavit that the Defendants must have known of Steve’s 1999 injury, it is nowhere suggested that they had reason to take Mr. Stephen’s settlement offer on Steve’s behalf as anything other than a duly authorized and valid offer.

[22] Moreover, there is no denial by Ms. Marek or anyone else that the settlement was made after thoroughly consulting with and receiving legal advice from Mr. Stephens, and that it was Mr. Stephens who made the final settlement offer to counsel for the Defendants, and not the other way around. Ms. Marek likewise provides no satisfactory explanation as to why no one came forward with any of the information in her affidavit and David’s motion record about Steve until the present motion.

[23] The substantive objection to the settlement, as set out in the affidavit of David Marek, is that it undervalues Steve’s claim and his fair share in the Defendant companies. Kathy Marek deposes that in her affidavit that she was told by an accountant, Perry Truster, that the $700,000 settlement amount may be substantially lower than the value of the shares that Steve agreed to transfer to the Defendants in the settlement. For this reason, counsel for David submits that the court should exercise the jurisdiction to reject the settlement agreement that the Court of Appeal identified in Milios v Zagas (1998), 1998 7119 (ON CA), 38 OR (3d) 218.

[24] What is clear from Ms. Marek’s affidavit is that Steve not only had legal advice from Mr. Stephens, he had accounting advice as well in 2005 when the settlement was agreed to. Her evidence shows that she and Steve consulted Perry Truster in advance of agreeing to the settlement. While Ms. Marek states that Mr. Truster expressed doubts at the time about the value Steve was to receive for the shares of Tubular, neither she nor David explains is why there is no affidavit from Mr. Truster in the record. I note that counsel for David confirmed at the hearing that Mr. Truster still lives in Toronto.

[25] The record presented by David as responding party in this motion contains some gaps, to put the matter mildly. I have already noted that it is odd that the qualified assessor under the SDA, Dr. Kaminska, does not give the opinion as to Steve’s capacity in 2005 that is necessary to make David’s case, and that it is equally odd that David’s counsel had to go to England to find an expert witness who would give a medical opinion without examining the patient. Likewise, I have already noted that it is odd that Ms. Marek would depose that Steve’s lawyer, Mr. Stephens, must have known that Steve was not capable of instructing him in 2005, but that Mr. Stephens has not provided any affidavit himself.

[26] The most glaring gap in the evidentiary record, however, is the lack of any real evidence of the supposed unfairness of the settlement. After all, whether the court pursues the analysis put forward by Defendants’ counsel under Rule 49.09, in which a settlement is to be enforced unless in all of its circumstances it offends against the court’s “sense of justice”, see Fox Estate v Stelmaszyk (2003) 2003 36922 (ON CA), 65 OR (3d) 846, at para 11 (Ont CA), or it pursues the analysis put forward by David’s counsel under rule 7.08, in which it must be determined whether the settlement is “in the best interests of the disabled person”, see Rivera v LeBlond, 2007 CarswellOnt 1482, at para 36 (SCJ), it must weigh evidence of the fairness or unfairness of the settlement.

[27] The correspondence exhibited in the record indicates that in 2005 both parties’ solicitors were satisfied as to the fairness of the settlement. Defendants’ counsel wrote to Mr. Stephens with an offer to pay $565,000 for Steve’s shares in Tubular, after which Mr. Stephens countered with Steve’s offer of a sale price of $700,000, which was ultimately accepted. Furthermore, Mr. Stephens’ later correspondence with Mr. Farrer indicates that the other two Plaintiffs, who settled their claims separately from Steve, received substantially less than $700,000 for their shares in Tubular. Mr. Stephens wrote rather forcefully to Mr. Farrer that Steve and Ms. Marek were both intimately involved in the settlement negotiations, and that the amount that Mr. Stephens managed to negotiate for Steve was as generous as possible.

[28] Mr. Stephens further explained to Mr. Farrer that the reason for the delay in implementing the 2005 transaction was that he was specifically asked by the Mareks to delay in order to extract a tax advantage from the settlement. The delay, in other words, is explained by Steve’s own lawyer as having had nothing to do with either the supposed non-understanding of the settlement by Steve or the supposed unfairness of the settlement amount. Rather, it was apparently a conscious strategy pursued on Steve’s and Ms. Marek’s instructions.

[29] Accordingly, although there is no affidavit evidence from Mr. Stephens, his correspondence amply demonstrates that he is of the view that the settlement is a fair one. There is nothing in the record to counter this evidence other than the hearsay of an accountant who has not gone on record and who, according to Ms. Marek, had in any case expressed only a “preliminary and informal view” of the value of Steve’s shares. Frankly, in the face of the correspondence from Mr. Stephens, this accountant’s “evidence” is so tentative and unreliable that it is difficult to give it any credence at all. It certainly does not outweigh the documented evidence that Steve’s own solicitor viewed the settlement as having been validly entered into and substantively fair.

[30] If I were to accept that the settlement should not be enforced, the result would be to “direct that the proceeding continue as if there had been no accepted offer to settle.” Capital Gains Income Streams Corp. v. Merrill Lynch Canada Inc. (2007), 2007 39604 (ON SCDC), 87 O.R. (3d) 464, at para 19 (Div Ct), quoting Royal Bank v. Central Canadian Industrial Inc. (2003), 2003 41411 (ON CA), 180 OAC 275, at para 15 (Ont CA). That, of course, would mean that the matter be restored to the active list and proceed to trial. Were that to happen, David would in all likelihood have to pursue Steve’s claim without the benefit of Steve’s testimony, since he and Ms. Marek have deposed that Steve has lost his memory and his ability to focus his thoughts.

[31] That could present grave difficulties under the circumstances, since the Statement of Claim alleges that the Plaintiffs – of whom Steve is the only one whose claim remains alive – “were led to believe that they would each have a 10% interest in the entire project which included the lands and buildings which were eventually divided between the Defendant Tubular and the Defendant 1086668.” In other words, Steve’s testimony would be central to any attempt to establish the claim, as it is based on purported discussions between him and the Defendants.

[32] Unsurprisingly, the Defendants in their Statement of Defence deny this allegation by the Plaintiffs. Consequently, Steve’s loss of memory casts a serious doubt on his chances of success should the action proceed. I would be hesitant to upset the August 2005 settlement supposedly in furtherance of a “sense of justice” or of Steve’s “best interest”, where the alternative is potentially far less just and contrary to his interest.

[33] The motion by the Defendants under Rule 40.09 is hereby granted.

[34] I am of the view that Rule 7.08 is not applicable to the present settlement, which was entered into at a time when Steve was not under a disability. Notwithstanding that view, I am also of the view that even if Rule 7.08 were to apply in these circumstances, the test for approval of the settlement – that it be in Steve’s best interest – has been met.

[35] There shall be an Order implementing the terms of the August 2005 settlement agreement. The Order will vest 60 common shares of Tubular and all of Steve’s right, title and interest in Tubular in the Defendant, Robert Duncan McKinnon, upon payment of $700,000 by Mr. McKinnon to Steve. This exchange of settlement funds for shares is to take place within 30 days of the date of this endorsement.

[36] The parties may make written submissions as to costs, to be sent directly to me. I would ask that counsel for the Defendants send me his submissions within two weeks of the date of this endorsement, and that counsel for David send me his cost submissions within a week thereafter.

Morgan J.

Date: January 17, 2014