CITATION: Innvest Master Properties GP X Ltd. v. 1271519 Ontario Limited, 2017 ONSC 5961

COURT FILE NO.: CV-14-503208

MOTION HEARD: 20170919

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Innvest Master Properties GP X Ltd., Plaintiff

AND:

1271519 Ontario Limited, Cronnox Incorporated, Maple Reinders Constructors Ltd. (formerly “Maple Engineering & Construction Canada Ltd.”) and Crotech Electrical Contractors Ltd., Defendants

BEFORE: Master Jolley

COUNSEL: Scott Maidment, Counsel for the Moving Party Plaintiff

Albert Wallrap, Counsel for the Defendant Crotech Electrical Contractors Ltd.

R. Lee Akazaki, Counsel for the Non-Party International Programs Group and Lloyd’s Underwriters

B. Robin Moodie, Counsel for the Non-Party Dolden and Miller

HEARD: 19 September 2017

REASONS FOR DECISION

Overview

[1] This motion is ostensibly to validate service of a statement of claim on the defendant Cronnox Incorporated (“Cronnox”). The plaintiff takes the position that service was effected on 30 April 2014 when the lawyer for Cronnox accepted service of the statement of claim on behalf of his client. Cronnox agrees that the lawyer had express authority to accept service of all documents relating to the litigation on its behalf and does not oppose an order confirming that the claim was served on 30 April 2014. For reasons of a coverage dispute, discussed below, it advised that it could not consent to the relief sought.

[2] However, two non-parties to the action wish to argue that service of the claim was not effected on Cronnox until 14 January 2015, despite the agreement of the serving party and the served party that service was made 30 April 2014. So the court is in the unusual position of hearing this motion with no party opposing the relief sought, except for two non-parties who argue that they will be affected by the outcome.

[3] The first party that wishes to oppose the relief sought on the motion is International Programs Group and Lloyd’s Underwriters (“Lloyd’s”), the insurer of Cronnox. Lloyd’s has denied coverage to Cronnox and has not provided it with a defence in this action. Nonetheless Lloyd’s argues that it is affected by the order requested in this motion as to when service was effected. The lawyer originally appointed by Lloyd’s for Cronnox did not commence two third party claims on behalf of Cronnox. They were later commenced by a lawyer whom Cronnox retained once Lloyds’ terminated the retainer of the initial lawyer. It is common ground that if the statement of claim was served on 30 April 2014 those third party claims were commenced out of time. If the claim was served on 14 January 2015 then the third party claims were commenced in time. In a pending application against Lloyd’s for coverage, Cronnox alleges among other things that Lloyd’s instructed the lawyer whom it appointed for Cronnox (and whom it later withdrew) to wait to commence any third party claims, to the detriment of Cronnox.

[4] The lawyer at Dolden and Miller whom Lloyd’s appointed for Cronnox (“Cronnox’s first lawyer”) also wishes to oppose the relief sought. He has not filed any materials on the motion. He wishes to argue that the claim was deemed to have been served on 14 January 2015 such that the third party claims that were commenced on 12 December 2016 were commenced in time.

Issue One: Do the non-parties have standing to appear on this motion?

Applicable Law

[5] Rule 37.07(1) provides that a notice of motion shall be served on any party or other person who will be affected by the order sought, unless these rules provide otherwise.

[6] A party is affected by an order if its proprietary or economic interests will be directly affected by the outcome of the motion (Ivandaeva Total Image Salon Inc. v. Hlemgizky 2003 CanLII 43168 at para 27 (ONCA).

Position of Lloyd’s and Cronnox’s first lawyer

[7] Lloyd’s argues that it has standing on two bases. First, it notes that it was served by the plaintiff with the motion materials under cover of letter that specifically stated that the motion was served “pursuant to the Rules of Civil Procedure”. Lloyd’s argues that this is an admission or at least an acknowledgement by the plaintiff that Lloyd’s was a party “affected by the order” and has standing to argue.

[8] Second, both Lloyd’s and Cronnox’s first lawyer argue that they are parties affected by the order as their proprietary or economic interests will be directly affected by the outcome of the motion. Lloyd’s argues that it is affected by the order because the date of service will impact the defences available to it on an issue in the Cronnox coverage application. Cronnox’s first lawyer notes that the application brought by Lloyd’s for a declaration that the policy does not provide coverage for this claim includes his firm as a respondent. Further, the lawyer for Cronnox’s first lawyer verbally advised the court that if it is found that the third party claims were commenced out of time, there may be a claim brought against him. Other than the Lloyd’s application, there is no material before the court to support this assertion.

Position of the plaintiff

[9] The plaintiff makes three arguments. First, it only served Lloyd’s with the motion materials because Lloyd’s counsel requested a copy, not because it believed Lloyd’s to be an affected party. Its cooperation should not be taken as an admission that it viewed Lloyd’s as a party affected by the order sought.

[10] Second, Lloyd’s and Cronnox’s first lawyer are not affected parties as the order sought does not have the necessary direct proprietary or economic impact on either of them.

[11] Third, even if Lloyd’s or Cronnox’s first lawyer were an affected party, they are required to bring a motion for leave to intervene before they could address the court on the motion.

Conclusion on Standing of the Non-Parties

[12] Cronnox was served with a statement of claim in February 2014 seeking damages as a result of an electrical explosion that occurred on 13 May 2012. Its insurer, Lloyd’s, provided a defence to Cronnox from that period until 23 February 2016 when Lloyd’s counsel sent Cronnox a letter advising that Lloyd’s was denying coverage. Cronnox then retained its own counsel, Mr. Thomas. Lloyd’s takes the position that Cronnox had cancelled its policy with Lloyd’s effective 11 November 2013 and that Lloyd’s had inadvertently provided coverage.

[13] Counsel for the plaintiff served Mr. Thomas with this motion record. Mr. Thomas advised that he was of the belief that the claim was served on 30 April 2014 when it was accepted by Cronnox’s first lawyer. However, Mr. Thomas could not consent to the motion given the coverage dispute. He advised he would send the motion record to Lloyd’s’ counsel. Thereafter discussions took place between Lloyd’s counsel and plaintiff’s counsel. In an email dated 14 August 2017 to Lloyd’s counsel, plaintiff’s counsel stated: “… I ask out of an abundance of caution, if there is some reason that you believe your client should be served with the materials pursuant to Rule. 37.07(1), please let us know and we will include you on the distribution list.”

[14] Lloyd’s counsel requested the record, which plaintiff’s counsel provided. I do not find that plaintiff’s counsel was somehow acknowledging that Lloyd’s was an affected party or somehow conceded that Lloyd’s had standing simply because she acted in a courteous and cooperative manner by providing a copy of the motion record, as requested.

[15] Lloyd’s next argues that its economic and pecuniary rights are directly affected by this order sought. On 8 June 2016 Cronnox commenced an application against Lloyd’s seeking a declaration of coverage and an equitable remedy estopping Lloyd’s from denying coverage. On 17 June 2016 Lloyd’s, presumably in response, brought its own application against Cronnox for a declaration that the policy issued to Cronnox did not provide coverage for the claim. As a ground Lloyd’s pleads that Cronnox cancelled the policy and allowed the insurance policy and reporting period to expire without notifying Lloyd’s of the potential claim.

[16] As set out in an email from counsel for Lloyd’s to plaintiff’s counsel, despite denying coverage, it is Lloyd’s’ position that it wishes to oppose this motion “in order to remove an issue from the coverage litigation”, i.e. whether or not the third party claims were commenced out of time. If the third party proceedings were brought in time, then whether Lloyd’s was responsible for the actions of Cronnox’s first lawyer in allegedly missing the limitation period and whether it is estopped from denying coverage on this basis becomes moot. If it is found that the claim was served on 30 April 2014, Lloyd’s will no longer be able to argue as part of its defence that the third party proceedings were commenced in time. It will argue, presumably, that the limitation period was not missed because of any instructions that it provided to Cronnox’s first lawyer.

[17] In response, the plaintiff argues that Lloyd’s forfeited any right to make argument in this action when it denied coverage. As Lloyd’s is not providing a defence to Cronnox, it cannot jump in and out of the litigation when it suits its own interests. The court agreed in a similar situation in Passarell v. Taku Air Transport 1988 CarswellBC 83. There Coronation Insurance insured Taku Air. There was a crash which resulted in the death of two passengers Passarell and Florence. Coronation Insurance denied coverage on the basis that there were more passengers on board than were permitted under the policy. The families of Passarell and Florence then sued Taku Air. Coronation Insurance brought an application against Taku Air for a declaration that the policy was void. However, it sought to be added to the Passarell and Florence actions to test their claims against Taku Air. The court held that, as Coronation Insurance had elected to rescind the insurance contract, it would not be just for them to hedge their bets by being allowed to test the plaintiffs’ claims against Taku Air, all the while maintaining that it had no obligation to indemnify or defend Taku Air.

[18] The court held that, when faced with a claim, an insurer is put to its election to provide coverage or to repudiate liability. If the insurer elects to take the position that there is no existing or binding policy of insurance, “it releases both parties from any future obligations under the contract save for the payment of damages. Accordingly, having elected to rescind this contract of insurance, the insurers have no status with regard to the litigation between the Passarell and Florence families against Taku. They are strangers to that action…. To rule otherwise would be to enable any stranger to the issues raised in the litigation to intervene in order to set aside a default judgment or otherwise defend the action if it was in its interest to do so” (para 25).

[19] Had Lloyd’s provided Cronnox with a defence, Lloyd’s could have taken whatever position on this service issue that suited it best. However, it did not do that. Effectively Lloyd’s wants to deny a defence to Cronnox but direct how Cronnox is to defend itself. Having taken the position that there is no existing policy of insurance, Lloyd’s cannot re-enter the fray on issues that might impact its exposure in the separate coverage litigation.

[20] Ivandaeva is also instructive on what it means to be “affected by an order”. Hlemgizky and Ivandaeva had entered into a number of contracts. Ivandaeva and his wife became embroiled in divorce proceedings and an order was made sealing the divorce file. A number of financial documents were contained in the divorce file concerning Ivandaeva and his company. Hlemgizky argued that he was affected by that sealing order as there was information in the file that would impact his ability to defend himself against Ivandaeva’s contract claim. At paragraph 45, supra, the Court of Appeal held that the fact that an order might deprive a party in another action of assistance in their defence or claim in that other action is not the “affect” contemplated by the Rules to allow that non-party to establish that they were a party affected by the order. In this case Lloyd’s argues that its defence of Cronnox’s application will be hindered by an event in these proceedings, i.e. a finding on the date of service. Because the order might deprive Lloyd’s of assistance in its defence or in supporting its own application does not make Lloyd’s a party affected by this order.

[21] The order sought does not require any action from Lloyd’s. It does not impose any obligation on Lloyd’s and does not make any declaration about the legal rights of Lloyd’s, including any finding as to whether there was coverage (Sistem Muhendislik Insaat Sanayi Ve Ticaret Anonim Sirketi v. Kyrgyz Republic 2012 ONSC 4351 at para 25, affirmed including the analysis used to determine whether Kyrgyz Republic was a party affected by an order, at 2013 ONCA 83). The order sought cannot be said to directly impact Lloyd’s.

[22] I find that the pecuniary or economic rights of Lloyd’s and Cronnox’s first lawyer are not directly affected by this decision and, as a result, I find that they do not have standing to participate in what is an issue between the plaintiff and Cronnox. This is particularly so where Lloyd’s has denied coverage to Cronnox, taking the position that it has no contract and no exposure.

[23] If I am wrong and it was determined that Lloyd’s and Cronnox’s first lawyer were considered affected parties within the meaning of Rule 37.07, I have gone on to consider their position on the service issue.

[24] As a preliminary position, counsel for the plaintiff argues that even if Lloyd’s had been given notice of the motion as an affected party, Lloyd’s would be required to bring a motion for leave to intervene in order to be heard at the return of the motion. I disagree. This requirement is not set out in the Rules and would represent an unnecessary and cumbersome step. The purpose of requiring that parties who are affected by an order sought on a motion be given notice of the motion must be to allow them the opportunity to address the court on the hearing of the motion. Where it is found that a party is affected by the order sought, I see no need for a further leave motion to be brought.

Issue Two: When was Cronnox served with the claim?

[25] The plaintiff and Cronnox are both of the view that Cronnox was served the evening of 30 April 2014 when the claim was accepted by email by Cronnox’s first lawyer.

[26] The plaintiff seeks an order validating that service as of 30 April 2014 in the event there was imperfect compliance with the service rules.

[27] Had Lloyd’s and Cronnox’s first lawyer had standing, they would have argued that, as Cronnox was never served with the claim, it is deemed to have been served on the date it delivered its defence, 14 January 2015, pursuant to Rule. 16.01(2).

[28] The plaintiff commenced this action by statement of claim issued 16 September 2013. As it was unclear who had performed the electrical work, the claim named John Doe Electrical Contractor as a defendant. The claim was served personally on the owner of Cronnox on 4 February 2014. Cronnox’s first lawyer filed a notice of intent to defend on 20 February 2014.

[29] In April 2014 the plaintiff was able to identify Cro-Tech Electrical Contractors Ltd. as the electrical contractor. As there was no limitation period issue, rather than amend the existing statement of claim, plaintiff’s counsel issued a new statement of claim identical to the first claim but for the replacement of John Doe Electrical Contractor with the defendant Cro-Tech Electrical Contractors Ltd. She attached the new claim to an email that she sent to Cronnox’s first lawyer on 30 April 2014 at 5:28 p.m. and asked him to advise whether he was prepared to accept service of the new claim on behalf of his client. The principal for Cronnox had advised Cronnox’s first lawyer that his wife had been extremely upset by the personal service of the original claim and he requested that the lawyer deal with all documents concerning the claim going forward. With these instructions and on having the new claim in hand by email, Cronnox’s first lawyer advised by return email sent 30 April 2014 at 6:35 p.m. that he would accept service.

[30] Thereafter Cronnox’s first lawyer participated in the action. He delivered his client’s productions to the plaintiff, had discussions with plaintiff’s counsel about the timing of delivery of a defence and delivered a statement of defence and crossclaim on 23 January 2015.

[31] Lloyd’s takes the position that Cronnox’s first lawyer could not have properly accepted service as (1) he did not get instructions from his client to do so, (2) he was not counsel of record, (3) he did not endorse the claim with an acceptance of service as required by Rule 16.03(2) and (4) he only undertook to accept service but did not accept service. It is noteworthy that Cronnox’s first lawyer filed no affidavit or other material on this issue of his instructions and his acceptance of service, although he purports to adopt the submissions of Lloyd’s.

[32] Had I found that Lloyd’s had standing on this issue, I would have rejected the first argument. Cronnox had clearly instructed its lawyer to accept service and the lawyer had properly done so. Cronnox’s first lawyer knew that he had the authority of his client to accept service of all documents concerning the claim. It was not a case where he needed to inquire further. His email accepting service was exactly what his client had authorized him to do and expected him to do.

[33] As to the second argument, I find it is overly technical to take the position that Cronnox’s first lawyer was not counsel of record as he was not “on the record” in the new action. He was acting for Cronnox in the same dispute, had filed a notice of intent to defend and had his client’s instructions to accept all documents concerning the claim. Service was, in the language of Rule 16.03, “on a party who has a lawyer” and service by email pursuant to Rule 16.05(1)(f) was appropriate.

[34] As to the third argument, while Cronnox’s first lawyer did not endorse the claim, I do not find that to be fatal. This argument hinges on a technical reading – particularly where the receiving party, Cronnox, and the serving party all agree that service was properly made. This technical argument is contrary to Rule 1.04 which requires that the Rules be liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits. It also runs contrary to the general principles behind service which are to provide alternatives to personal service to avoid the need for the use of a process server in every case. As noted in Archibald, Killeen and Morton, Ontario Superior Court Practice, 2017, “The Rules are less concerned with technical compliance than they are with whether or not the person to be served was actually on notice.…” If an endorsement were required and service was not valid for that technical reason, I would validate service for the reasons set out below.

[35] As for the fourth argument, it is incorrect on the face of the email exchange to state that Cronnox’s first lawyer only undertook to accept service but did not accept service. Unlike the case of Schreiber v. Mulroney 2007 CanLII 56529 (ON SC), 2007 CarswellOnt 8274 (Ont. S.C.J.), Cronnox’s first lawyer was not hypothetically asked whether he would accept service of a future claim. In that case Mr. Schreiber’s lawyer wrote to Mr. Mulroney’s lawyer advising that he had instructions to sue if his client was not paid. In response, Mr. Mulroney’s lawyer advised that he had instructions to accept service. As the court noted at paragraph 24: “I agree with [Mr. Mulroney’s lawyer] that his statement before receiving the document that he had instructions to accept service is not the same as an undertaking to accept it irrespective of what its contents may turn out to be.” In this case, Cronnox’s first lawyer was not waiting to review the contents of some unknown claim when he advised that he would accept service of it. He had been given a copy of the claim, served a notice of intent to defend on the earlier identical claim and agreed unequivocally to accept service of the new claim on behalf of his client.

[36] Rule 3.01(1)(d) provides that service of a document other than an originating process that occurs after 4:00 pm, shall be deemed to have been made the next day that is not a holiday. With the exception of deemed next day service carved out for originating proceedings, I find that service of the claim on Cronnox was effected on 30 April 2014.

[37] If service of the claim had not met all the technical service requirements of either Rule 16.03(2) or 16.05(1)(f), I would grant the plaintiff’s request to validate service as of 30 April 2014. Rule 16.08 permits the court to validate service where the court is satisfied that the document came to the attention of the person being served. I find that the person being served was Cronnox’s first lawyer, with the express authorization of Cronnox and I am satisfied that the document came to his attention. Alternatively, if the “person served” is Cronnox, Cronnox was aware of the contents of the claim as its principal had been personally served with the earlier claim with the very same allegations – and made it clear that he did not wish to be served again and directed that he be served with any future materials through his lawyer. Cronnox’s first lawyer was expressly authorized to accept any documents on behalf of Cronnox relating to the claim and had his client’s full confidence to file a statement of defence for it and to protect its interests, until that lawyer was removed by Lloyd’s in February 2016.

[38] I note the case of Boodoo v. Boodoo 2011 ONSC 4600 that concerned validation of service of an amended claim that had been served on the lawyer for the defendant. In that case, the defendant’s lawyer did not accept service and there was, as a result, no service in accordance with the Rules. The court nonetheless validated service finding that the lawyer was counsel for the defendant at the time and there was no doubt in the court’s mind that the client had notice of the claims advanced in the amended claim as of the date her lawyer was sent a copy by email and fax, even though the lawyer did not admit service. While Cronnox’s principal cannot recall whether or not Cronnox’s first lawyer gave him a copy of the new claim, I find that Cronnox knew of the claims advanced against it as they were exactly the same claims that the plaintiff had advanced in its original claim which was served on Cronnox on 4 February 2014.

Conclusion

[39] I find that the non-parties are not affected by the order within the meaning of Rule 37.07(1) and do not have standing on this motion. However, I considered their arguments on service in the event I had found they were affected parties. I find that Cronnox was served with the statement of claim on 30 April 2014 when Cronnox’s lawyer accepted service of the claim on its behalf. In the event of any technical non-compliance with the service rules, I validate service of the claim on Cronnox as of 30 April 2014.

Costs

[40] The plaintiff was successful on the motion and is entitled to its costs. I have used the maximum partial indemnity rate of $350, adjusted for inflation and award the plaintiff costs of $8,400.00 inclusive of HST and $1,182.67 for disbursements for a total award of $9,582.67 payable by Lloyd’s and Cronnox’s first lawyer jointly and severally within 30 days of this decision.

Master Jolley

Date: 5 October 2017