Allianz Global Risks US Insurance Company (formerly Allianz Insurance Company of Canada) et al. v. Nalco Chemical Company et al.; Arthurs et al., Third Parties;Ontario Power Generation Inc. et al., Fourth Parties

[Indexed as: Allianz Global Risks US Insurance Co. v. Nalco Chemical Co.]

Ontario Reports

Ontario Superior Court of Justice,

Hainey J.

July 17, 2014

122 O.R. (3d) 288 | 2014 ONSC 4302

Case Summary

Torts — Contribution and indemnity — Plaintiffs and defendants settling main action — Defendant bringing third party claim against its lawyers to recover amount it contributed to settlement — Third parties bringing fourth party claim for contribution and indemnity — Fourth party claim not disclosing reasonable cause of action — Contribution rights only arising where party could be required to pay more than its proportionate share of plaintiff's damages — Defendant limiting its claim to amount it contributed to settlement and to third parties' proportionate degree of fault.

The plaintiff OPG and its property insurer brought an action for damages against the designers and builders of OPG's water treatment plant, alleging that the defendants were responsible for damage caused by the release of resins due to their negligence and breach of contract. The main action was settled. The defendant Eco-Tec brought a third party claim against its lawyers to recover the amount it contributed to the settlement. The third party claim was limited to damages arising only from the third parties' proportionate degree of fault. The third parties issued a fourth party claim against the defendants in the main action and OPG, seeking contribution and indemnity for any amounts that they were held liable to pay Eco-Tec on the basis that the fourth parties' negligence was the sole proximate cause of Eco-Tec's losses. The third parties pleaded and relied upon the Negligence Act, R.S.O. 1990, c. N.1. The fourth parties moved to strike the fourth party claim on the ground that it disclosed no reasonable cause of action.

Held, the motion should be granted.

Because Eco-Tec had limited its claim to the amount it contributed to the settlement and to the third parties' proportionate degree of fault, the third parties would never be held responsible for any amounts attributable to the liability of any of the fourth parties. Contribution rights of a party only arise where the party could be required to pay more than its proportionate share of a plaintiff's damages. Section 5 of the Negligence Act did not apply. The damages claimed in the third party claim were only attributable to the third parties' degree of fault. The fourth parties could not be "wholly or partly responsible" for them.

478649 Ontario Ltd. v. Corcoran (1994), 1994 219 (ON CA), 20 O.R. (3d) 28, [1994] O.J. No. 2103, 118 D.L.R. (4th) 682, 74 O.A.C. 152, 33 C.P.C. (3d) 292, 50 A.C.W.S. (3d) 411 (C.A.); Johnston v. Sheila Morrison Schools, [2012] O.J. No. 915, 2012 ONSC 1322, 289 O.A.C. 177, 20 C.P.C. (7th) 103, 212 A.C.W.S. (3d) 699 (Div. Ct.); Lawson v. Viersen (2012), 108 O.R. (3d) 771, [2012] O.J. No. 109, 2012 ONCA 25, 287 O.A.C. 107, 346 D.L.R. (4th) 518, 15 C.P.C. (7th) 275, 211 A.C.W.S. (3d) 275; O. (A.) v. V. (J.) (2002), 2002 41072 (ON CA), 59 O.R. (3d) 384, [2002] O.J. No. 1528, 212 D.L.R. (4th) 558, 158 O.A.C. 188, 113 A.C.W.S. (3d) 236 (C.A.); Taylor v. Canada (Minister of Health) (2009), 95 O.R. (3d) 561, [2009] O.J. No. 2490, 2009 ONCA 487, 264 O.A.C. 229, 309 D.L.R. (4th) 400, consd

Other cases referred to

Davy Estate v. CIBC World Markets Inc. (2009), 97 O.R. (3d) 401, [2009] O.J. No. 4554, 2009 ONCA 763, 255 O.A.C. 165, 313 D.L.R. (4th) 246; Ieradi v. Gordin, [2007] O.J. No. 4357, 161 A.C.W.S. (3d) 810 (S.C.J.); Sale v. O'Grady's Restaurant, [2011] O.J. No. 1915, 2011 ONSC 2437 (S.C.J.)

Statutes referred to

Negligence Act, R.S.O. 1990, c. N.1 [as am.], s. 5

Rules and regulations referred to

Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rules 1.05, 21, 21.01(1)(b), 30.10, 31.10

MOTION to strike a fourth party claim.

James Schacter, for defendant Eco-Tec Inc.

Sean Dewart, for third parties Donald R. Arthurs and Cassels Brock & Blackwell LLP.

Deborah Berlach and Elizabeth Bowker, for fourth party Ontario Power Generation Inc.

Derek V. Abreu, for fourth parties Nalco Chemical Company, Nalco Canada Co., Nalco Canada Co. Compagnie Nalco Canada, Nalco Canada Inc. and Ondeo Nalco Canada Co.

Stephen Libin, for the fourth party Tate Andale Canada, Inc.

HAINEY J.: —

Overview

[1] The fourth parties move under rule 21.01(1)(b) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 for an order striking the fourth party claim on the ground that it fails to disclose a reasonable cause of action.

Facts

[2] The fourth party Ontario Power Generation Inc. ("OPG") is an electricity generation company that generates electricity at its nuclear generating station located in Pickering, Ontario.

[3] In the main action, OPG and its property insurer sought damages from the defendants arising from an incident involving the release of resins at its nuclear generating station in December 2006.

[4] This incident occurred in OPG's water treatment plant, which had been designed and built by the defendants. OPG took the position in the main action that the defendants were responsible for the damage caused by the release of the resins due to their negligence and breach of contract.

[5] The defendants in the main action entered into a settlement agreement with OPG and its insurer for a total payment of $7,500,000. The defendant Eco-Tec Inc. ("Eco-Tec") contributed $6,750,000 toward the settlement.

[6] The third parties, Donald R. Arthurs and Cassels Brock & Blackwell LLP, acted as legal counsel for the defendant Eco-Tec in connection with the drafting and negotiating of the contracts Eco-Tec entered into for the design and building of the water treatment plant. They also acted as legal counsel for Eco-Tec in connection with the settlement of the main action.

[7] Following the settlement of the main action, Eco-Tec commenced a third party claim in which it makes the following claims against the third parties:

1. The defendant, Eco-Tec Inc., claims as against the third parties:

(a) . . . payment of $6,750,000.00, being the amount contributed by Eco-Tec toward a settlement with the Plaintiff in the main action;

(c) Its costs of defending the main action and any crossclaims, on a substantial indemnity basis;

(d) Its costs of the third party action on a substantial indemnity basis[.]

[8] Eco-Tec makes the following allegations in its third party claim:

6A. Eco-Tec states that it, and all of the defendants, entered into a settlement agreement with the Plaintiff, whereby the main action was settled for a total payment of $7,500,000.00, with Eco-Tec contributing $6,750,000.00 toward the settlement. Eco-Tec further states that the Third Parties, and in particular Donald R. Arthurs, was actively involved in reaching said settlement agreement and recommending same. As such, Eco-Tec pleads that the Third Parties cannot now challenge the amount being sought against them by Eco-Tec.

6B. Eco-Tec states that they are limiting their claim as against the Third Parties to its claims for damages, costs and interest attributable only to the Third Parties' proportionate degree of fault, as proven at trial.

6C. Eco-Tec admits that the Court, at any trial of this matter, has and shall have the full authority to adjudicate upon the apportionment of liability, if any, between the Third Parties and any other persons or entities whom the Third Parties may submit has contributory responsibility to the damages sought herein, even though such persons or entities are not parties to this action.

7. Eco-Tec pleads that its liability was caused or contributed to by the negligence or breach of contract of the third parties herein, the particulars of which negligence are as follows:

(a) They failed to alert or advise Eco-Tec that the cumulative effect of the two contracts still left Eco-Tec liable for a potential claim by OPG directly for consequential damages;

(b) They failed to ensure that the subcontract agreement was drafted in such a fashion as to protect Eco-Tec against claims in negligence of the nature that are advanced in the main action;

(c) They failed to warn Eco-Tec of the potential for liability based on the wording of the contract between Eco-Tec and Nalco;

(d) They failed to properly review, if at all, the contract between Eco-Tec and Nalco before same was executed;

(e) They failed to properly review, if at all, the final version of the contract between OPG and Nalco to ensure that the wording was proper and accurate;

(f) They failed to advise Eco-Tec of the potential financial exposure under the contract between Eco-Tec and Nalco;

(g) They failed to obtain all documents, and other information, relevant to the contractual discussions, and ultimate execution of the contract, involving OPG, Nalco and Eco-Tec;

(h) They failed to properly maintain, if at all, all documents, correspondences, memorandums, or other communications, as it related to the contractual discussions, and ultimate execution of the contract, involving OPG, Nalco and Eco-Tec.

(i) Such further grounds as counsel may advise during the course of this Third Party Claim.

7B. Eco-Tec states that the Third Parties had a duty to warn them about the terms of the contract between Eco-Tec and Nalco and that the Third Parties breached their duty to warn, which resulted in Eco-Tec executing a contract which subjected them to avoidable financial exposure and risk.

[9] The third parties have issued a fourth party claim against the defendants in the main action and OPG. They seek contribution and indemnity for any amounts that they are held liable to pay Eco-Tec on the basis that the fourth parties are "joint tortfeasors, and that their negligence is the sole proximate cause of Eco-Tec's losses".

[10] The third parties plead and rely upon the Negligence Act, R.S.O. 1990, c. N.1 in support of their claim for contribution and indemnity from the fourth parties.

Issues

[11] There are two issues to decide:

(a) Does the fourth party claim disclose a reasonable cause of action?

(b) If it does not, and it is struck, is procedural protection available to the third parties to permit the trial judge to apportion the liability of the fourth parties in the third party action?

Positions of the Parties

[12] The fourth parties submit that the third parties' claims for contribution and indemnity cannot succeed because Eco-Tec's claim against them is limited to damages arising only from the third parties' proportionate degree of fault. They argue that the Ontario Court of Appeal's decision in Taylor v. Canada (2009), 2009 ONCA 487, 95 O.R. (3d) 561, [2009] O.J. No. 2490 (C.A.) makes it clear that contribution rights only arise where a defendant is required to pay more than its proportionate share of the plaintiff's damages. Where a plaintiff limits its claim to losses attributable only to certain defendants, those defendants cannot maintain claims for contribution and indemnity against other potential tortfeasors. The fourth parties further submit that if they are not being sued as concurrent tortfeasors by the third parties, the Ontario Court of Appeal's decisions in O. (A.) v. V. (J.) (2002), 2002 41072 (ON CA), 59 O.R. (3d) 384, [2002] O.J. No. 1528 (C.A.) and Lawson v. Viersen (2012), 2012 ONCA 25, 108 O.R. (3d) 771, [2012] O.J. No. 109 (C.A.) establish that there cannot be a claim for contribution and indemnity between non-concurrent tortfeasors.

[13] Either way, the fourth parties maintain that the fourth party claim cannot succeed and must be struck.

[14] Mr. Dewart, on behalf of the third parties, submits that they cannot be characterized as concurrent tortfeasors with the fourth parties because "there is no suggestion that Cassels Brock caused any or all of the losses sustained by OPG when the system failed". He argues that for this reason the decision in Taylor does not apply to the fourth party claim.

[15] The third parties rely upon the Ontario Court of Appeal's decision in 478649 Ontario Ltd. v. Corcoran (1994), 1994 219 (ON CA), 20 O.R. (3d) 28, [1994] O.J. No. 2103 (C.A.) in support of their position that contribution and indemnity is available because the alleged negligence of the third parties and the fourth parties all combined to produce the same "pool of damages".

[16] The third parties also rely on the decision of Strathy J. (as he then was) in Sale v. O'Grady's Restaurant, [2011] O.J. No. 1915, 2011 ONSC 2437 (S.C.J.), in which he held in part, at para. 32, as follows:

"Concurrent tortfeasors", therefore, should be used to describe several tortfeasors whose acts combine to produce the same damage. Their actions need not be concurrent in time. Such tortfeasors have joint and several liability and have a right to contribution pursuant to the Negligence Act.

[17] In the alternative, the third parties submit that if the fourth party claim is struck out, it would be unfair to require them to defend the third party claim without disclosure of relevant documents from the fourth parties and without an opportunity to examine them for discovery. They request an order under rule 1.05 of the Rules of Civil Procedure requiring the fourth parties to deliver affidavits of documents and attend on examinations for discovery.

Analysis

The test

[18] Rule 21.01(1)(b) of the Rules of Civil Procedure provides that,

21.01(1) A party may move before a judge . . .

(b) to strike out a pleading on the ground that it discloses no reasonable cause of action or defence.

[19] The test under Rule 21 is whether it is plain and obvious that the fourth party claim discloses no reasonable cause of action. "Plain and obvious" in this context has been interpreted by the Supreme Court of Canada to mean "beyond doubt". For the purpose of the motion, the facts pleaded in the statement of claim must be taken as proven.

[20] I must, therefore, consider whether I am satisfied beyond doubt that the third parties' claim for contribution and indemnity against the fourth parties cannot succeed.

The pleading

[21] Paragraph 6B of the amended third party claim limits the claim to the several liability of the third parties. Since the allegation against them is one of professional negligence in respect of their legal representation of Eco-Tec, their potential liability cannot exceed the several liability of their former client. Eco-Tec is not seeking recovery of any damages that result from the fault of any of the fourth parties.

[22] If the third parties are found to have been negligent or in breach of their contract with Eco-Tec, it will be on the basis that they failed to properly advise and warn Eco-Tec about its potential exposure to OPG under the contracts that it entered into. The fourth parties submit that they cannot be held liable for the professional negligence of the third parties who cannot pass their professional negligence over onto them. (See Ieradi v. Gordin, [2007] O.J. No. 4357, 161 A.C.W.S. (3d) 810 (S.C.J.).)

[23] Because Eco-Tec has limited its claim to the amount it contributed to the settlement with OPG and to the third parties' proportionate degree of fault, I find that the third parties could never be held responsible for any amounts attributable to the liability of any of the fourth parties. Contribution rights of a party only arise where the party could be required to pay more than its proportionate share of a plaintiff's damages.

[24] Section 5 of the Negligence Act provides as follows:

5. Wherever it appears that a person not already a party to an action is or may be wholly or partly responsible for the damages claimed, such person may be added as a party defendant to the action upon such terms as are considered just or may be made a third party to the action in the manner prescribed by the rules of court for adding third parties.

[25] The damages claimed in the third party claim are only attributable to the third parties' proportionate degree of fault. In my view, the fourth parties cannot be "wholly or partly responsible" for them. Section 5 of the Negligence Act, therefore, does not apply.

[26] In Taylor, the Ontario Court of Appeal held [at para. 20] that "contribution rights arise only where a defendant is required to pay more than its proportionate share of a plaintiff's damages". The fourth parties submit that this decision is fatal to the fourth party claim because the third parties cannot be required to pay more than their proportionate share of Eco-Tec's contribution of $6,750,000 toward the settlement with OPG.

[27] Paragraph 6B of the amended third party claim limits Eco-Tec's claim to the third parties' several liability. In Johnston v. Sheila Morrison Schools, [2012] O.J. No. 915, 2012 ONSC 1322 (Div. Ct.), the Ontario Divisional Court held that a claim for contribution and indemnity cannot be advanced in such a case. At para. 13, Swinton J. held as follows:

In Taylor, Cullity J. determined that a third party claim was unnecessary in circumstances where the plaintiff was limiting her claim to the several liability of the defendant. . . . Put differently, the plaintiff was only seeking that portion of the damages that was attributable to the named defendant. The Court of Appeal upheld Cullity J.'s decision. Writing for the Court, Laskin J.A. stated that apportionment of fault in negligence among parties and non-parties is possible and where a plaintiff limits himself or herself to a several claim, a third party claim is unnecessary. Indeed, in those circumstances, a right of contribution and indemnity does not arise. Accordingly, in that case, the defendant could not advance a third party claim for contribution and indemnity.

[28] I find that the same principles apply to the fourth party claim in this case.

[29] Mr. Dewart argues that Taylor and Johnston do not apply in this case because it is not alleged that the third parties are concurrent tortfeasors with the fourth parties. He maintains that the Ontario Court of Appeal's decision in Corcoran applies to the fourth party claim. In that case, the purchaser of real property sued the vendor and the real estate agent who sold the land, alleging that they had misrepresented the extent to which the land could be developed. The real estate agent commenced a third party claim for contribution and indemnity against the purchaser's lawyer alleging the lawyer should have given proper advice to the purchaser regarding the development potential of the property. The Court of Appeal allowed the third party claim to proceed. Laskin J.A. stated in part as follows, at p. 7 (QL):

The appellant has alleged that the plaintiff's damages were caused or contributed to by its solicitors. If this is established at trial, then under s. 1 of the Act the solicitor would be liable to "make contribution and indemnify" the appellant. In such a case, s. 5 of the Act permits the appellant to make the solicitor a third party.

Equally, it is no bar to the third party claim that the negligence alleged by Stellar is subsequent to the negligence alleged against it by the plaintiff.

[30] The Ontario Court of Appeal distinguished Corcoran in Davy Estate v. CIBC World Markets Inc. (2009), 2009 ONCA 763, 97 O.R. (3d) 401, [2009] O.J. No. 4554 (C.A.). In Davy Estate, the defendant alleged that the plaintiff failed to mitigate her damages. The plaintiff asserted that she relied on the legal advice of her solicitor. The defendant commenced a third party claim for contribution and indemnity against the solicitor. The claim was struck under Rule 21 by the motion judge as disclosing no cause of action. The Court of Appeal upheld the decision. At paras. 22 and 23, Sharpe J.A. held as follows:

The decision of this court in 478649 Ontario Limited v. Corcoran (1994), 1994 219 (ON CA), 20 O.R. (3d) 28 (C.A.), where a third party claim against the plaintiff's solicitor was allowed, is distinguishable. In Corcoran, the plaintiff sued the vendor and a real estate agent for negligent misrepresentations in relation to the purchase of a commercial property. In their third party claim against the plaintiff's solicitors, the defendant alleged that the solicitors had been negligent in reviewing the agreement of purchase and sale and failing to protect the interests of the plaintiff. That was not a plea in mitigation of damages that the defendants could advance against the plaintiff but rather an allegation that the solicitors were implicated in the very events that gave rise to the loss and were jointly and severally liable to the plaintiff for any loss suffered. As the plaintiff had not sued the solicitors, the only way the defendants could protect their position and avoid being held liable for the entire loss was to claim contribution and indemnity from the solicitors.

The cases cited by the appellants where third party claims were allowed to proceed, like Corcoran, involve claims of this nature. That is, they are claims for contribution and indemnity against a party alleged to have been implicated in the events giving rise to the initial loss and who is thereby jointly and severally liable with the defendant for the entire loss.

[31] In this case, the third parties are not implicated in the events giving rise to OPG's loss and cannot be jointly and severally liable with the fourth parties for the entire loss. In my view, they cannot, therefore, claim contribution and indemnity against the fourth parties.

[32] The Ontario Court of Appeal has also made it clear in two other decisions that there cannot be claims for contribution and indemnity between non-concurrent tortfeasors. In O. (A.), the court upheld the motion judge's refusal to add third parties from whom the defendants wished to claim contribution and indemnity because they were not concurrent wrongdoers. Carthy J. held in part as follows, at paras. 10 and 11:

. . . but the subsequent wrongdoers are no more jointly responsible for the full damages flowing after their acts than they would be for the plaintiff's damages, if any, suffered before they committed torts. They are each answerable for their individual conduct but not for that of others.

That is why the wrongdoers must be acting concurrently to attract the application of s. 1 the Negligence Act. And that is why s. 1 has no application to this case and why the third party notices should not issue.

[33] In Lawson, the Ontario Court of Appeal held that only concurrent tortfeasors can seek contribution and indemnity from other tortfeasors. Rouleau J.A. held in part, at para. 35, as follows:

In summary, the Negligence Act makes concurrent tortfeasors, that is persons whose conduct causes a single loss to another, jointly and severally liable. It also provides for the right of concurrent tortfeasors to claim contribution and indemnity from another tortfeasor provided the tortfeasor from whom he or she seeks contribution is, or could be if sued, liable to the plaintiff.

[34] It is clear that the third parties could not be liable to the plaintiffs in the main action for OPG's damages. On the strength of the decision in Lawson, they cannot, therefore, claim contribution and indemnity from the fourth parties who could be found liable for those damages.

Conclusion

[35] For the reasons I have outlined above, I am satisfied that the third parties cannot claim contribution and indemnity from the fourth parties. If they are concurrent tortfeasors, Taylor applies. If they are not concurrent tortfeasors, O. (A.) and Lawson apply.

[36] I am satisfied beyond doubt that the fourth party claim cannot succeed because it does not disclose a reasonable cause of action. I order it struck out pursuant to rule 21.01(1)(b).

Discovery Rights

[37] In the event the fourth party claim is struck out, the third parties seek an order that the fourth parties be required to deliver affidavits of documents and attend on examinations for discovery.

[38] Mr. Dewart argues that there must be documentary production by and examinations for discovery of the fourth parties to permit the trial judge on the third party claim to apportion liability between the third parties and the fourth parties.

[39] There has already been documentary production by and examinations for discovery of the fourth parties in the main action. These documents and transcripts should be available to the third parties from Eco-Tec. It is, therefore, premature to determine whether further documentary production or examinations for discovery by the fourth parties will be necessary in the third party action because Eco-Tec has not yet delivered its affidavit of documents and has not been examined for discovery in the third party action. Further, the scope of the documentary production and oral discovery that may be required of the fourth parties cannot now be determined.

[40] Rule 30.10 of the Rules of Civil Procedure, which provides for documentary production from non-parties, and rule 31.10, which provides for discovery of non-parties, provide ample protection for the third parties if they require further documentary production and/or discovery from any of the fourth parties after Eco-Tec's documentary production and discovery have been completed in the third party action.

[41] In my view, it is not necessary to add any terms to the order striking out the fourth party claim to ensure that the third parties can properly defend the third party claim.

Costs

[42] I encourage the parties to settle the issue of costs of the motion. If they are unable to do so, each party may submit their costs outline and brief written costs submissions of no more than three double-spaced pages to me within 30 days of the date of my order.

Motion granted.

End of Document