Court File and Parties
COURT FILE NO.: CV-09-376975 00A1 DATE: 20180712 SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Ison T.H. Auto Sales Inc., Plaintiff AND: Toronto Hydro-Electric Systems Ltd., Defendant AND: Gonte Construction Limited and City of Toronto, Third Parties
BEFORE: Copeland J.
COUNSEL: Kirsten Franz, for the Third Party, City of Toronto Ivan Y. Lavrence, for the Defendant, Toronto Hydro-Electric Systems Inc. Christopher Afonso and Elizabeth Bowker, for the Third Party, Gonte Construction Limited
HEARD: March 5 and May 24, 2018
AMENDED ENDORSEMENT
[1] This motion is brought by the City of Toronto, with the consent of the other parties, as a special case under rule 22. The issues in the motion arise out of circumstances where there is multi-party litigation, and a settlement was reached between two of three parties to the litigation (City of Toronto and Toronto Hydro), but that bilateral settlement did not involve the third party in the litigation (Gonte Construction). There were no terms in the settlement to limit the continuing litigation in the nature of a Pierringer agreement.
[2] The City of Toronto is now faced with the practical problem, not unusual in multi-party litigation, that it has settled with Toronto Hydro, but it still faces claims from Gonte Construction. The City of Toronto seeks to resolve that problem by way of the special case motion. It seeks a ruling from the court that would limit the ability of both Toronto Hydro and Gonte Construction to pursue their full claims. The practical effect of such a ruling would be to relieve the City of Toronto from having to defend the action and from having to participate further in this litigation. The City argues that as a matter of law under the Negligence Act, Toronto Hydro’s claim for contribution and indemnity in tort against Gonte Construction is limited to seeking Gonte’s several share of the damages. If the City prevails in this argument, then Gonte will not need to seek contribution and indemnity from the City of Toronto in relation to Toronto Hydro’s tort claim against Gonte.
[3] The City of Toronto concedes that to the extent that Hydro’s claim against Gonte is based in contract, it may pursue the full claim against Gonte. However, the City of Toronto argues that if Gonte is found liable in contract only, Gonte cannot seek contribution and indemnity from the City. The City argues that Gonte’s claim for contribution and indemnity against the City is based only in the Negligence Act, and therefore cannot be pursued if Gonte is only liable in tort. In the alternative, the City argues that contribution is not available at common law between a party who breaches a contract and another party who is not a party to the contract, but may have engaged in tortious conduct.
[4] For reasons that I will explain, I accept the City’s argument with respect to Toronto Hydro’s claim in tort being limited to pursuing Gonte’s several share of liability, based on the interpretation of ss. 1 and 2 of the Negligence Act. However, I reject the City’s argument that if Gonte is found liable in contract, it cannot seek contribution and indemnity from the City based on allegations that the City’s negligent conduct contributed to the damages flowing from the breach of contract. I accept Gonte’s argument that there is case law that supports allowing claims for contribution and indemnity at common law in this type of mixed contract and tort case. The trial judge may or may not ultimately find that the case law is applicable to whatever facts he or she finds at trial. But I find that there is sufficient support for the availability of such a claim that Gonte should be allowed to pursue it to trial. It is not a claim with no reasonable prospect of success.
Facts of the special case and the reference questions
[5] The facts are set out in the special case, supplemented with a number of exhibits. As context, I will explain briefly the event that gave rise to this the underlying litigation. I base this summary on the pleadings, so none of the facts is yet proven. The basic facts about the fire are not in dispute for purposes of this motion. But who is at fault is in dispute.
[6] On July 20, 2008, there was a fire in a vault in the basement parking garage of a building in East York. The vault housed two Toronto Hydro electrical transformers. Gonte was the owner of the building. The source of the fire is alleged to have been one of the Toronto Hydro transformers, although the cause of the fire is unclear at this stage. Ultimately, a superintendent and other staff at the building saw smoke and called the Toronto Fire Department.
[7] Toronto Fire crews attended. The nature of the steps they took and the appropriateness of the steps is in dispute. However, as they were attending to the issue in the vault, they heard a series of noises that caused them to be concerned for their safety. They then evacuated the area. There were then a series of explosions, with sufficient force that the floors of the underground parking garage partially collapsed.
[8] Toronto Hydro was sued in two lawsuits, one of which was a class action. Toronto Hydro initially defended both actions. In both actions, Toronto Hydro made third party claims against Gonte and the City of Toronto. Toronto Hydro’s claims against the City are based in negligence and negligent misrepresentation. In simplified terms, Toronto Hydro alleges that the City was negligent both in how its fire crews responded to the fire (opening the vault door before Toronto Hydro staff arrived, and thereby giving oxygen to the fire), and in relation to inspections of the vault in relation to compliance with the fire code conducted by staff of the fire department.
[9] Toronto Hydro claims that Gonte breached a contract with Hydro in relation to electrical supply by failing to maintain the vault, including ventilation fans in good and serviceable condition, and in failing to maintain smoke and or heat detectors in contravention of building and fire codes. Toronto Hydro also makes similar claims against Gonte based in negligence.
[10] Gonte issued a counterclaim against Toronto Hydro and a crossclaim against the City. The City of Toronto issued a crossclaim against Gonte.
[11] Gonte denies it had a contractual relationship with Toronto Hydro. Gonte pleads that Toronto Hydro had sole responsibility for the vault that contained the transformers. Gonte denies it was negligent, and alleges that Toronto Hydro was negligent. Gonte seeks contribution and indemnity from the City. In that portion of the pleading, which I will discuss further below, Gonte specifically pleads reliance on Toronto Hydro’s allegations against the City in Hydro’s Amended Third Party Claim.
[12] The City denies it was negligent, alleges Toronto Hydro was negligent, and seeks contribution and indemnity from Gonte.
[13] Toronto Hydro settled with the plaintiffs in the two actions, and continued its claims against Gonte and the City.
[14] Subsequent to that, Toronto Hydro settled its claims against the City in both actions for a dismissal of all claims between them without costs.
[15] The issues raised in this motion involve what claims, and the scope of the claims, that Toronto Hydro and Gonte are permitted to continue in light of Toronto Hydro’s settlement with the City.
[16] Initially, the special case posed one question. However, during the course of the argument of the motion on March 5, 2018, it became clear that there were issues with the wording of the reference question because it did not take into account that Toronto Hydro’s claim against Gonte was brought not only in tort, but also in contract.
[17] The hearing was adjourned on consent, in order for the parties to discuss whether they could reach agreement on amending the special case and the reference questions. Agreement was reached, and amendments were made to the special case, stating three reference questions which more clearly separated the issues in relation to the tort and contract claims.
[18] I set out the amended special case in full:
THE FOLLOWING CASE is stated for the opinion of the court:
The above-noted actions by the Kennedy/Yusuf (the “Plaintiff Class”) and ISON T.H. Auto Sales Inc. (“ISON”) have settled, upon payment to those plaintiffs by Toronto Hydro in the amount of $8,106,000 (the “Class Action and ISON Settlement Amount”).
Toronto Hydro-Electric System Ltd. (“Toronto Hydro”) sought to recover the Class Action and ISON Settlement Amount by Third Party Claims for contribution and indemnity in both actions, against the City of Toronto (the “City”) and Gonte Construction Ltd. (“Gonte”). Gonte cross-claimed against the City for contribution and indemnity in both of the Third Party Claims, as set out in the Amended Third Party Defence, Counterclaim and Cross-claim of Gonte. [Third Party Claims, Statement of Defence of City and Amended Third Party Defence, Counterclaim and Crossclaim of Gonte are attached to the Motion Record]
Toronto Hydro and the City have reached a settlement of claims as between the two of them, as reflected in the attached Settlement Documents, which accurately represent the terms agreed (the “City Settlement”). [Offer to Settle dated May 26, 2016, letter dated October 31, 2016 and Release are attached to the Motion Record]
Toronto Hydro intends to continue the Third Party Actions against Gonte, to seek judgment for Class Action and ISON Settlement Amount, less any amount for amounts for which Toronto Hydro is responsible (the “Claimed Amount as Against Gonte”).
The City understands the legal effect of the City Settlement to be that Toronto Hydro is only entitled to claim and collect, contribution and indemnity for Gonte’s several share of liability for the Claimed Amount as Against Gonte.
Toronto Hydro understands the legal effect of the City Settlement to be that Toronto Hydro’s Third Party Claim against Gonte allows Toronto Hydro to collect from Gonte all of the Claimed Amount as Against Gonte, regardless of the apportionment of liability between Gonte and the City.
Gonte intends to maintain its claim for contribution and indemnity against the City in the event that the court determines that Toronto Hydro’s claim is not limited to Gonte’s several share of liability for the Claimed Amount as Against Gonte.
Toronto Hydro and the City both confirm that the City Settlement did not involve a “Pierringer Agreement” and that the legal question was not discussed by them prior to entering into the City Settlement.
THE QUESTIONS for the opinion of the court are:
Is Toronto Hydro’s third party claim for contribution and indemnity against Gonte in tort limited to claiming the share of liability apportioned to Gonte, or is Toronto Hydro entitled to pursue the full Claimed Amount against Gonte?
If the answer to question 1 is that Toronto Hydro can claim the full Claimed Amount against Gonte in tort, can Gonte claim contribution and indemnity from the City? The parties agree that if the answer to question 1 is that Toronto Hydro is limited to claiming the share of liability apportioned to Gonte, Gonte cannot claim contribution and indemnity from the City.
The parties agree at this time, Toronto Hydro can pursue its third party claim for contribution and indemnity against Gonte in contract for the full Claimed Amount. The parties agree that the determination of whether the contract applies, the interpretation of the contract or the extent of Gonte’s liability to Toronto Hydro for breach of contract are matters for the trial judge to determine.
- If Gonte is liable to Toronto Hydro for breach of contract, can Gonte claim contribution and indemnity from the City for the amounts payable for the contract breach.
THE RELIEF SOUGHT on the determination of the questions stated is:
The parties seek orders as follows:
The City requests that the Court Answer the stated questions as follows:
Toronto Hydro’s third party claim for contribution and indemnity against Gonte in tort is limited to claiming the share of liability apportioned to Gonte.
If Toronto Hydro can claim the full Claimed Amount as against Gonte in tort, Gonte can claim contribution and indemnity from the City.
If Gonte is liable to Toronto Hydro for breach of contract, Gonte cannot claim contribution and indemnity from the City for amounts payable for the contract breach.
Toronto Hydro requests that the Court answer the stated questions as follows:
Toronto Hydro’s third party claim for contribution and indemnity against Gonte in tort is not limited to claiming the share of liability apportioned to Gonte and Toronto Hydro is entitled to pursue the full Claimed Amount against Gonte.
If Toronto Hydro can claim the full Claimed Amount against Gonte in tort, Gonte can claim contribution and indemnity from the City.
Toronto Hydro takes no position on this Question.
Gonte requests that the Court answer the stated questions as follows:
Toronto Hydro’s third party claim for contribution and indemnity against Gonte in tort is not limited to claiming the share of liability apportioned to Gonte and Toronto Hydro is entitled to pursue the full Claimed Amount against Gonte.
If Toronto Hydro can claim the full Claimed Amount against Gonte in tort, Gonte can claim contribution and indemnity from the City.
If Toronto Hydro can claim the full Claim Amount against Gonte for breach of the contract, Gonte can claim contribution and indemnity from the City for amounts payable for the contract breach.
[19] I will not summarize the various documents appended to the Special Case. However, I make reference to a number of them in the course of my analysis below.
[20] As is clear from the amended questions above, the parties have reached agreement on the answer to the second reference question. Thus, the court needs only consider questions 1 and 3.
Law in relation to special cases brought under rule 22
[21] Rule 22.01 of the Rules of Civil Procedure allows the parties, by consent, to state a question or questions of law in the form of a special case for the opinion of the court. Where the judge hearing the special case is satisfied that the determination of the legal question or questions may dispose of all or part of the proceeding, substantially shorten the hearing, or result in a substantial savings of costs, the judge may hear and determine the special case: Coady v. The Law Society of Upper Canada, 2015 ONCA 876 at paras. 12-13, and 17.
[22] A judge hearing a special case must rely on the facts stated in the special case. The judge is not entitled to assume any facts on the hearing of a special case. However, under Rule 22.05 a judge may draw any reasonable inference from the facts agreed on by the parties and documents referred to in the special case.
[23] I am satisfied that the answers to the questions posed may dispose of all or part of the proceeding, substantially shorten the hearing, or result in a substantial savings of costs. Therefore I will hear and determine the special case.
[24] The language in rule 22.01(2) is almost identical to the language in rule 21.01(1)(a).
[25] The practical impact of the rulings the City of Toronto seeks in this special case is to prevent Toronto Hydro and Gonte from pursuing portions of their claim to trial, on the basis portions of their claims are not legally viable. Given the similarity of the language in rule 22.01(2) and rule 21.01(1)(a), and the fact that in substance the City of Toronto is seeking to prevent Toronto Hydro and Gonte from pursuing aspects of their claims on the basis that they have no basis in law, I find that it is appropriate to consider the arguments through the lens to the well-established test under rule 21 to strike a claim for having no basis in law or disclosing no reasonable cause of action.
[26] As will become clear in the course of my reasons I find that the rule 21 framework is particularly appropriate because aspects of the claims, in particular the relationship between the tort and contract claims, are areas where the law is not clearly settled. Thus, if it is not “plain and obvious” that the full claims of Toronto Hydro or Gonte have no reasonable prospect of success, they should be entitled to pursue those claims to trial and have the legal issues determined on a full factual record.
[27] On a motion to strike out a claim on the basis that it discloses no reasonable cause of action, the moving party must show that it is “plain and obvious”, assuming the facts pleaded to be true, that the claim discloses no reasonable cause of action, or put differently, has no reasonable prospect of success. The test on a motion to strike is a stringent one. The pleadings must be read generously in favour of the plaintiff, with allowances for drafting deficiencies: R. v. Imperial Tobacco, 2011 SCC 42, [2011] 3 S.C.R. 45 at paragraph 17.
[28] The Court will accept the allegations in the statement of claim as true, unless they are manifestly incapable of being proven: Imperial Tobacco at paragraph 22. However, allegations which are vague, or take the form of assumptions or speculation are not taken as true because by their very nature they are incapable of proof by the adduction of evidence: Hunter v. Bravener, [2003] O.J. No. 1613 at paragraph 5 (ONCA).
[29] In considering whether a claim discloses a reasonable cause of action, a court must bear in mind that the law is not static. New developments in the law may first arise on preliminary motions such as a motion to strike. Thus, in considering a motion to strike, the court must ask whether, assuming the facts pleaded to be true, the claim has a reasonable prospect of success, taking into account that the process of development of the law may allow a novel but arguable claim to prevail at trial: Imperial Tobacco at paragraph 21.
Question 1 – Whether Toronto Hydro can pursue the full amount of its claim against Gonte, or only Gonte’s several share?
[30] This question raises issues of interpretation of ss. 1 and 2 of the Negligence Act, R.S.O. 1990, c. N.1, as they apply to claims for contribution and indemnity between a settling defendant, and third parties.
[31] The City argues that as between defendants and third parties claiming contribution and indemnity, ss. 1 and 2 of the Negligence Act have the legal effect that those claims are for the several share of liability of each third party. The City argues that if that interpretation of the Negligence Act is correct, then when Toronto Hydro voluntarily agreed to the dismissal of its claim for contribution and indemnity against the City, it was giving up its claim for the City’s several share of liability (if any is ultimately notionally found against the City).
[32] Toronto Hydro argues that the bar to proceedings portion of the release between itself and the City, and the exception to that bar, allow it to pursue the full claimed amount in tort against Gonte. Toronto Hydro further argues that there is case law supporting joint and several claims among defendants or third parties for contribution and indemnity, and this supports allowing it to pursue the full claimed amount against Gonte in tort, despite the settlement with the City. Further, Toronto Hydro argues that as a result of the settlement, it stands in the shoes of the plaintiffs in the two actions, and for this reason can pursue that full claimed amount in tort against Gonte.
[33] Gonte supports Toronto Hydro’s position. Gonte argues that if the City’s submission about the interpretation of ss. 1 and 2 of the Negligence Act is correct, then crossclaims for contribution and indemnity between third parties (or fourth parties) are without purpose, since a defendant’s claim against a third party for contribution and indemnity will always be limited to each third party’s proportionate share of liability. Gonte argues that this conclusion would raise practical problems of parties seeking to have courts apportion a notional share of liability to non-parties who are not participating in the litigation.
[34] For reasons, I will explain, I find that the effect of ss. 1 and 2 of the Negligence Act is that Toronto Hydro’s claims in tort for contribution and indemnity against the City and Gonte are each limited to their several share of liability. Toronto Hydro has voluntarily chosen to give up its claim for contribution and indemnity against the City. Its claim for contribution and indemnity from Gonte is limited to seeking Gonte’s several share of liability.
[35] I begin by considering the nature of Toronto Hydro’s claims against Gonte in both actions. The claims are only for contribution and indemnity. Toronto Hydro does not seek damages from Gonte for any damage to Toronto Hydro itself. Rather, it only seeks contribution and indemnity “for amounts found to be owing by the Defendant [Toronto Hydro] to the Plaintiff” (as well as related costs and interest). Toronto Hydro’s claims against Gonte are framed both in tort (negligence) and in contract. Question 1 of the amended special case involves only the tort aspect of the claim.
[36] Contribution and indemnity in tort cases are governed by the Negligence Act. In this case, ss. 1 and 2 are relevant. Sections 1 and 2 of the Negligence Act provide as follows:
Where damages have been caused or contributed to by the fault or neglect of two or more persons, the court shall determine the degree in which each of such persons is at fault or negligent, and, where two or more persons are found at fault or negligent, they are jointly and severally liable to the person suffering loss or damage for such fault or negligence, but as between themselves, in the absence of any contract express or implied, each is liable to make contribution and indemnify each other in the degree in which they are respectively found to be at fault or negligent.
A tortfeasor may recover contribution or indemnity from any other tortfeasor who is, or would if sued have been, liable in respect of the damage to any person suffering damage as a result of a tort by settling with the person suffering such damage, and thereafter commencing or continuing action against such other tortfeasor, in which event the tortfeasor settling the damage shall satisfy the court that the amount of the settlement was reasonable, and in the event that the court finds the amount of the settlement was excessive it may fix the amount at which the claim should have been settled.
[37] Section 1 outlines the basic policy of the Negligence Act. Where tortious damage has been caused by two or more persons, those persons are jointly and severally liable to the plaintiff for the damage caused. But as between themselves, in the absence of contracting to the contrary, the tortfeasors are liable to make contribution and indemnify each other only in the amount that each is found to be at fault or negligent.
[38] With respect to plaintiffs, the purpose of s. 1 is to facilitate full recovery of loss to the plaintiff. With respect to defendants, the purpose of s. 1 is to create a right and a mechanism to fairly apportion liability according to the degree of fault of each tortfeasor: David Cheifetz, Apportionment of Fault in Tort (Canada Law Book Limited: 1981) at pp. 60, 97; Ontario Law Reform Commission, Report on Contribution Among Wrongdoers and Contributory Negligence (Ministry of the Attorney General: 1988) at pp. 32-34; Lawson v. Viersen, 2012 ONCA 25 at para. 34.
[39] The right to contribution and indemnity between tortfeasors is in the nature of a restitutionary claim to prevent unjust enrichment. Although the plaintiff may enforce the entire judgment against any one (or more) tortfeasors because they are jointly and severally liable to the plaintiff, the right to contribution and indemnity provides for fairness between the tortfeasors by allowing them to spread the damages in according with their share of liability: Ontario Law Reform Commission, Report on Contribution Among Wrongdoers and Contributory Negligence (Ministry of the Attorney General: 1988); Piaczek v. Green, 2009 ONCA 83 at para. 38. It is an imperfect system, in the sense that insolvent or absent tortfeasors may impose additional costs on other tortfeasors. But fairness is the goal.
[40] Section 2 of the Negligence Act creates a mechanism for a tortfeasor who settles with a plaintiff to recover contribution and indemnity from other tortfeasors. Under s. 2, the tortfeasor who settles with the plaintiff must satisfy the court that the amount of the settlement was reasonable. If the court finds that the amount was excessive, the court may fix the amount for which the claim should have been settled. It is clear from the opening words of s. 2 that the purpose of the court assessing the reasonableness of the settlement is so that the court can then apportion the appropriate amount between tortfeasors for purposes of contribution and indemnity.
[41] Section 2 does not explicitly state on what basis the settlement is to be apportioned. Gonte argues before me that s. 2 does not provide any regime for how the apportionment is done, and so the court can apportion however it wishes. With respect, I find that this decontextualized reading of s. 2 cannot be supported. Gonte presents no case law supporting this interpretation.
[42] Rather, I find that s. 2 must be read in conjunction with s. 1. The basic policy of the Negligence Act is set out in section 1, and is that tortfeasors are jointly and severally liable to the plaintiff, but for purposes of contribution and indemnity, as between themselves, (in the absence of contracting out) they are liable “in the degree to which they are respectively found to be at fault or negligent” – i.e., each for their several share of liability. I find that this apportionment regime extends to cases where a defendant has settled with a plaintiff and is seeking contribution and indemnity under s. 2. Section 2 exists to make clear that where a defendant settles with a plaintiff, there is still a right to pursue contribution and indemnity, and to provide a mechanism for the courts to ensure that only amounts of settlement that are reasonable are apportioned: Cheifetz, Apportionment of Fault in Tort at pp. 145-146; R. v. Thomas Fuller Construction Co. (1958) Limited, [1980] 1 S.C.R. 695 at p. 712.
[43] In this case, Toronto Hydro has settled with the plaintiffs in the two main actions. In its third party claims, Toronto Hydro seeks contribution and indemnity in tort from the City (prior to the settlement with the City), and in both tort and contract from Gonte. Toronto Hydro’s claims for contribution and indemnity in tort are governed by ss. 1 and 2 of the Negligence Act.
[44] As I have explained, section 1 of the Negligence Act limits claims by tortfeasors for contribution and indemnity from other tortfeasors to their several share.
[45] Therefore, I find that from the outset, Toronto Hydro’s claims in tort against the City and Gonte for contribution and indemnity were limited to the several share of liability of each of the City and Gonte.
[46] The nature of the settlement between Toronto Hydro and the City is set out in the documents appended to the special case. Toronto Hydro made an offer to the City to settle all claims between the City and Toronto Hydro for a dismissal without costs. The City accepted that offer. The release executed to give effect to the settlement is also appended.
[47] I find that effect of the settlement is that Toronto Hydro made a voluntary choice to give up its claim in tort for contribution and indemnity from the City. In so doing, Toronto Hydro made a voluntary choice to forgo its claim on the City’s several share of liability. In my view, Toronto Hydro cannot now indirectly pursue the City’s share of liability through the vehicle of claiming a larger share from Gonte because Gonte is the only party left that Hydro can claim against, and then have Gonte recoup Toronto’s share via Gonte’s crossclaim.
[48] I find that allowing Toronto Hydro to do this would be contrary to the effect of ss. 1 and 2 of the Negligence Act, which make claims for contribution and indemnity for the several share of a party’s liability.
[49] I also find that allowing Toronto Hydro to pursue a larger share of liability against Gonte would be unfair to Gonte. I do not accept that Toronto Hydro and the City can make an agreement (the settlement) only between themselves, that does not include Gonte, and, according to Hydro, the effect of that agreement is that Gonte, a non-party to the agreement, bears a bigger share of liability. I say this without making any finding as to how liability will ultimately be apportioned. The special case does not ask me to answer that question, and does not contain sufficient facts to answer that question. But clearly, if liability in tort is apportioned between two parties (Toronto Hydro and Gonte), rather than between three parties (Toronto Hydro, the City and Gonte), the two parties will each bear a bigger share of liability than if there were three parties to whom liability was apportioned. I find that it would be fundamentally unfair for this effect to be imposed on Gonte by a settlement that it was not a party to. And, as outlined above, I find that it is inconsistent with sections 1 and 2 of the Negligence Act where all defendants and third parties were involved in the litigation, and the defendant chose to give up its claim against one of the third parties.
[50] The submissions of both Toronto Hydro and Gonte contain some discussion about the problem of absent defendants or third parties.
[51] In my view, this case is not like an absent defendant or absent third party case. In the case of an absent defendant or third party, one who really cannot be found, the effect of s. 1 and 2 of the Negligence Act is to divide the several liability under the contribution regime into fewer shares. This causes some unfairness to individual defendants, because, in effect, they take on a proportionate share of the missing defendant’s liability. But it is the fairest outcome in the circumstances of a missing party, in that none of the defendants bears the costs of the missing party’s absence alone.
[52] It is not necessary in deciding this motion for me to consider they hypothetical situation raised in argument by Gonte about absent potential third parties (i.e. potential parties who were never an actual party to the litigation).
[53] In this case the City is not absent. There was a lis inter partes between Toronto Hydro and the City until the settlement between them. There continues to be a lis between the City and Gonte. In these circumstances, where Hydro chose to give up its claim for contribution and indemnity against the City, it is not entitled to indirectly reassert that claim by seeking a bigger share of liability from Gonte on the basis that Hydro now only has one party to seek contribution from.
[54] Further, the decisions of M.(J.) v. Bradley, [2004] O.J. No. 2312 (CA), and Taylor v. Canada (Minister of Health), 2009 ONCA 487, 95 O.R. (3d) 561 provide authority in appropriate cases for a trial court to apportion a notional share of liability to a non-party as part of assessing the apportionment of liability of parties before the court. Thus, the trial judge who hears this trial will be able to consider and make a finding about the City’s notional share of liability in tort in order to assess Gonte’s share of liability, even though Hydro’s claim against the City is no longer live.
[55] I note as well that the practical problems that may sometimes arise in a trial court considering apportionment in relation to a party who has been settled out of a proceeding, or a potential party who never actually became a party to a proceeding, do not arise in this case. In some cases, there can be practical problems for a trial court considering a notional apportionment of liability for a non-party, in order to assess what the several share of liability is for the parties before the court. Those problems could include potential unfairness to parties not before the court, or issues of evidentiary gaps, or discovery in relation to non-parties. Those potential problems are not present in this case. As I have noted, there continues to be a lis between The City and Gonte. In light of my conclusions on question 3 of the Special Case outlined below, Gonte’s claim for contribution and indemnity from the City in the event Gonte is found liable in contract may proceed. Thus, there is no issue of potential unfairness to the city, or of non-party participation or potential evidentiary gaps.
[56] I have given careful consideration to Toronto Hydro’s argument about the absence of a Pierringer agreement in its settlement with the City. There is nothing in the settlement that provides either that Toronto Hydro will limit any of its claims against Gonte, or that it will indemnify the City in relation to any claims Gonte has against the City. In many cases of multi-party litigation where one party settles, a Pierringer or similar agreement will be necessary in order to limit claims of remaining parties. M.(J.) v. Bradley, is a good example of such a case. In that case, the Pierringer agreement was necessary because the settlement involved the plaintiffs. Absent the Pierringer agreement, the plaintiffs would have been able to pursue their full claims against the remaining defendants because of the joint and several liability that defendants have to plaintiffs under s. 1 of the Negligence Act. However, in this case, I find that the effect of ss. 1 and 2 of the Negligence Act is that Toronto Hydro’s claims for contribution and indemnity against the City and Gonte could only be for the several share of liability of each third party.
[57] For these reasons, I find that as a matter of law Toronto Hydro’s claim against Gonte in tort for contribution and indemnity is limited to Gonte’s several share. It is plain and obvious that Toronto Hydro’s claim against Gonte in tort for the full claimed amount cannot succeed, because it is contrary to the regime established by ss. 1 and 2 of the Negligence Act.
[58] I will now address a number of specific arguments made by Toronto Hydro and Gonte.
[59] Toronto Hydro argues that the exception to the bar to further proceedings at page 2 of the release between itself and the City is a contracting out of the several liability in ss. 1 and 2 of the Negligence Act. The relevant portion of the release reads as follows:
AND FOR THE SAID CONSIDERATION the undersigned further agree not to make any claim or take any proceedings of any kind with respect to the Released Claims, against any other person or corporation who might claim contribution, indemnity, or other relief over whether arising at law, equity or under the provisions of the Negligence Act and amendments thereto from the person, persons or corporation discharged by this Release. In the event an undersigned makes any claim or takes any proceeding in breach of this Release, such undersigned shall full indemnify all other undersigned against any such resulting claims or proceedings against it for all costs and expenses incurred, including reasonable legal fees.
NOTWITHSTANDING THE ABOVE bar on proceedings against third parties, the parties hereto agree that the above bar shall not apply to any claims, crossclaims or counterclaims being made by these parties as against Gonte Construction Limited within the Proceedings, and those claims will continue. [emphasis added]
[60] With respect, I find that Hydro’s interpretation these terms of the release is foreclosed by the facts agreed to in the special case. Paragraph 8 of the Special case states: “Toronto Hydro and the City both confirm that the City Settlement did not involve a ‘Pierringer Agreement’ and that the legal question was not discussed by them prior to entering in the City Settlement” [emphasis added]. I understand the “legal question” to refer to the questions posed for the court to answer in the Special Case (I believe it is stated in the singular because in the original special case there was only one question). Paragraphs 5 and 6 also state the City and Toronto Hydro’s different views of the meaning of the settlement. Given these agreed facts in the special case, I am unable to find that the City agreed in those paragraphs of the release that Toronto Hydro could pursue the full claimed amount in tort against Gonte as a claim for contribution and indemnity.
[61] Further, I agree with the City’s submission that a finding that Toronto Hydro may only pursue its claim for contribution and indemnity in tort against Gonte in the amount of Gonte’s several share of liability is not contrary to the wording of the exception to the bar on proceedings in the release. My ruling is that ss. 1 and 2 of the Negligence Act limit the scope of Toronto Hydro’s claims in tort for contribution and indemnity to seeking Gonte’s several share of liability. This is not an issue of Toronto Hydro being barred from bringing its claim, or part of it, against Gonte, but rather about the legal scope of the claim. Toronto Hydro may pursue its claim against Gonte in tort for contribution and indemnity. It is not barred from pursing the claim. But the amount of the claim is limited as a matter of law by the Negligence Act. The reason the claim is limited to Gonte’s several share of liability is because that is the legislative decision imposed by ss. 1 and 2 of the Negligence Act.
[62] This interpretation of the exception to the bar on proceedings in light of the Negligence Act does not have the effect that that portion of the release has no effect. In relation to the tort claim, the exception allows Toronto Hydro’s tort claim against Gonte to be continued; however, because of the effect of ss. 1 and 2 of the Negligence Act, it may only be pursued in the amount of Gonte’s several share of liability in tort. Further, as I explain below in relation to question 3 of the special case, the exception to the bar on proceedings also allows Toronto Hydro’s claim against Gonte in contract to be pursued.
[63] Toronto Hydro also argues that it may pursue the full amount claimed against Gonte because it entered into a full settlement with the plaintiffs in both actions, and it has stepped into the shoes of the plaintiffs. Toronto Hydro argues that once it settled with the plaintiffs, it was no longer seeking to establish liability in a crossclaim or third party claim, but rather was in substance acting as “the party asserting the claim for all purposes.”
[64] Toronto Hydro provides no authority for this proposition. I reject this argument. There is nothing in the record to support that Toronto Hydro was, for example, assigned the plaintiffs’ rights. But more fundamentally, it is clear from reading Toronto Hydro’s third party claims that they are claims for contribution and indemnity. At this point, Toronto Hydro is pursuing the claims following a settlement with the plaintiffs. Thus, the claims are governed by ss. 1 and 2 of the Negligence Act. As I have explained above, the legal effect of ss. 1 and 2 of the Negligence Act is that Toronto Hydro’s claims for contribution and indemnity in tort against third parties are claims for the third parties several shares. Toronto Hydro is a settling defendant tortfeasor within the meaning of s. 2 of the Negligence Act. Its claims assert a right to contribution and indemnity, not the rights of the plaintiffs. And as I have explained above, I find that s. 2 must be read in conjunction with s. 1, such that the apportionment regime in s. 1 between tortfeasors is for the several share of liability of each tortfeasor.
[65] Toronto Hydro argues that there is authority for joint liability as between defendants and third parties in the context of claims for contribution and indemnity. Toronto Hydro relies on Sozonchuk v. Polych, 2011 ONSC 842 for this proposition. With respect, I find that Sozonchuk is distinguishable from the case before me. As I have outlined above, s. 1 of the Negligence Act is clear that as between defendants (and, I find, third parties as well), claims for contribution and indemnity are for the several liability of each defendant or third party only (subject to the situation of an actual absent defendant or third party, which I have discussed above). Sozonchuk, the case cited by Toronto Hydro for joint and several liability for contribution and indemnity is in a specific and limited context which is not applicable to this case. Sozonchuk deals with joint and several liability where one defendant is vicariously liable for another defendant (in that case, an employer being vicariously liable for the acts of its employee): Sozonchuk at paras. 2-3, 175-179; Cheifetz, Apportionment of Fault in Tort at pp. 60-61.
[66] In the case before me, there is no factual basis in the pleadings (assuming the allegations to be true) to establish joint liability for contribution and indemnity between the City and Gonte. There is no allegation of a vicarious liability relationship between Gonte and the City, or any facts pleaded to support such a relationship.
[67] Finally, both Gonte and Toronto Hydro argue that if Toronto Hydro’s claim in tort against Gonte for contribution and indemnity is limited by the effect of ss. 1 and 2 of the Negligence Act to seeking the Gonte’s several share of liability, then the implication is that Gonte and the City were never required to cross-claim against each other for contribution and indemnity. They argue that cross-claims between third and fourth party defendants are often brought in similar situations for contribution and indemnity, and for this reason, the Negligence Act must not limit Toronto Hydro’s claim against Gonte to Gonte’s several share.
[68] I am not persuaded that reading ss. 1 and 2 of the Negligence Act as limiting a defendant’s claim for contribution and indemnity from a third party to seeking each third party’s several would mean that crossclaims between third parties for contribution and indemnity between them are not necessary. Crossclaims between the third parties for contribution and indemnity create a lis inter partes between the third parties. Absent crossclaims between the third parties, a lis only exists between the defendant and each third party, but not between the third parties themselves. That lis between the third parties is necessary, because if the matter goes to trial, and the trial judge has to apportion liability, commonly one tactic of each third party making its case for a smaller share of liability will be trying to make a case that the other third party or parties should bear a larger share of liability. The crossclaims between the third parties will define the allegations that are the basis for these issues to be tried.
[69] For these reasons, I answer question 1 as follows: Toronto Hydro’s third party claim for contribution and indemnity against Gonte in tort is limited to claiming the share of liability apportioned to Gonte. For sake of clarity, the share of liability apportioned to Gonte means Gonte’s share taking into account whatever liability is apportioned to Toronto Hydro, and whatever notional share of liability is apportioned to the City.
Question 2
[70] As is clear from the amended special case, the parties are in agreement regarding the response to Question 2. Thus, I make no ruling in relation to Question 2, other than to affirm the answer agreed to by the parties.
Question 3 – If Gonte is found liable in contract, can it claim contribution and indemnity against the City of Toronto?
[71] As noted in the amended special case, the parties agree that Toronto Hydro can pursue its third party claim in contract against Gonte for the full claimed amount (and leave to the trial judge the issues of the existence and interpretation of the contract, and the extent of Gonte’s liability, if any, in contract).
[72] Since the parties have agreed that Toronto Hydro can pursue the full claimed amount in its claim in contract against Gonte, I will not address it in detail. However, I note that this conclusion is consistent with my holding in relation to Toronto Hydro’s tort claim against Gonte. Unlike the tort claim, the contract claim is not governed by the Negligence Act. Thus, there is nothing limiting Toronto Hydro’s right to pursue the full claimed amount in contract.
[73] Further, this conclusion gives meaning to the exception to the bar on proceedings at page 2 of the release between Toronto Hydro and the City. Although the exception to the bar on proceedings does not allow Toronto Hydro to pursue the full claimed amount from Gonte in tort, by reason of the effect of ss. 1 and 2 of the Negligence Act, the exception to the bar on proceedings is applicable to allow Toronto Hydro to pursue its contract claim against Gonte in the full claimed amount.
[74] This gives rise to the third question in the amended special case, whether if Gonte is found liable to Toronto Hydro in breach of contract, Gonte can claim contribution and indemnity from the City of Toronto?
[75] I note that it is difficult to envision a set of factual findings in this case where Gonte would be found liable in contract, and not also be found liable in tort. But given the different theories of liability pleaded, and the questions posed, it is necessary for me to consider this possibility.
[76] In light of the arguments made by the parties, to answer this question I must consider whether contribution and indemnity is available under the Negligence Act where the party seeking contribution and indemnity has been found liable in contract and not in tort. And I must also consider whether contribution and indemnity is available in these circumstances at common law.
[77] I accept the submission of the City of Toronto that contribution and indemnity is not available to Gonte from the City of Toronto under the Negligence Act if Gonte is found liable to Toronto Hydro only in breach of contract. Briefly put, the language of the Negligence Act makes contribution and indemnity available to joint “tortfeasors”. If Gonte is found liable to Hydro only for breach of contract, then it is not a “tortfeasor”, and it has no claim for contribution and indemnity under the Negligence Act: Allcock Laight & Westwood Ltd. v. Patten, [1967] 1 O.R. 18, [1966] O.J. No. 1067 (ONCA) at para. 2; Dominion Chain Co. Ltd. v. Eastern Construction Co. Ltd. (1976), 12 O.R. 201, [1976] O.J. No. 2014 (ONCA) at para. 21 (upheld, but leaving this question open Giffels Associates Ltd. v. Eastern Construction Co., [1978] 2 S.C.R. 1346, [1978] S.C.J. No. 61 at pp. 5-6); Cosyns v. Smith et al (1983), 41 O.R. (2d) 488, [1983] O.J. No. 3006 at para. 10; Indal Metals v. Jordan Construction Management Inc., [1994] O.J. No. 1616 (Gen. Div.) at paras 2, 4, and 8.
[78] Toronto argues that Gonte has not pleaded a claim for contribution an indemnity at common law, but only relies in its pleadings on a claim for contribution and indemnity based on the Negligence Act. I find that this is an unduly narrow reading of Gonte’s claim for contribution and indemnity from the City of Toronto.
[79] As I have noted above, I find it is appropriate to consider this special case as akin to a motion to strike a claim under rule 21. That requires that I read the pleadings generously, with allowances for drafting deficiencies.
[80] Gonte’s crossclaim against the City is found at paragraphs 39 to 43 of its Amended Third Party Defence, Counterclaim and Crossclaim in both actions. It is pleaded identically in both actions, which I reproduce in full:
- Gonte claims against the co-third party, the City of Toronto:
(a) Contribution, indemnity and any other relief over for any amounts which Gonte Construction Limited may be found liable to the Defendants herein;
(b) The costs of this action and this crossclaim on a substantial indemnity basis; and
(c) Such further and other relief as this Honourable Court may deem just.
For the purposes of this crossclaim only, Gonte repeats and relies upon the allegations made against its co-third party in the Amended Third Party Claim.
Gonte repeats and relies upon the allegations set out in its Amended Third Party Defence herein.
Gonte pleads and relies upon the provisions of the Negligence Act, R.S.O. 1990 c. N.1 and amendments thereto.
Gonte requests that this crossclaim be tried together with the Third Party Claim action.
[81] I find that paragraph 40, where Gonte relies on “the allegations made against its co-third party in the Amended Third Party Claim”, clearly refers to the allegations that the City was negligent made in Toronto Hydro’s third party claim. The City is the only “co-third party” in both actions. The negligence and negligent misrepresentation allegations made against the City by Toronto Hydro are the only allegations made against the City in Toronto Hydro’s third party claim (paragraphs 18-20, 23, 25 of Toronto Hydro’s Amended Third Party Claim in both actions). Thus, paragraph 40 of Gonte’s crossclaim must be read as asserting allegations of negligence and negligent misrepresentation against the City. Thus, I find that Gonte’s pleadings do assert a claim of negligence and negligent misrepresentation against the City.
[82] The City argues that because Gonte’s pleading at paragraph 42 refers to the Negligence Act, Gonte’s claim for contribution and indemnity is based only on the Negligence Act. With respect, I find that this is an unduly restrictive reading of Gonte’s pleading. Although a pleading will normally state any statutory basis for a claim, it is not necessary for a pleading to expressly state a common law basis for a claim. Rather, a party is simply required to plead material facts that as a matter of law can be the basis for the claim. I find that Gonte’s pleading is fairly read as claiming contribution and indemnity both under the Negligence Act, and at common law.
[83] As I have already found at paragraph 77 above, I accept and find that if Gonte is found liable only in contract, it cannot make a claim for contribution and indemnity against the City under the Negligence Act, because in those circumstances, Gonte would not be a “tortfeasor” as required by the Act. That leaves the issue of whether Gonte can make a claim for contribution and indemnity at common law, if it is found liable in contract, and if the City is found to have been negligent.
[84] Surprisingly, 32 years after the decision of the Supreme Court of Canada in Central Trust v. Rafuse, [1986] 2 S.C.R. 147, the interrelationship between contract and tort claims when both are raised on a particular set of facts has not yet been fully fleshed out in the law. However, there is authority for the availability at common law of claims for contribution and indemnity, and also for claims for contribution and indemnity in circumstances where tort and contract claims overlap: Bow Valley (Bermuda) Ltd. v. Saint John Shipbuilding Ltd., [1997] 3 S.C.R. 1210 at paras. 101-102; Blackwater v. Plint, 2005 SCC 58, [2005] 3 S.C.R. 3 at para. 68; McFee v. Joss, [1925] 2 D.L.R. 1059 (ONCA) at pp. 1064-1065; Creasy v. Sudbury (Municipality) at para. 45; Trans-Canada Forest Products v. Heaps, [1954] S.C.R. 240 at p. 261; Petersen Pontiac Buick GMC (Alta.) v. Campbell, 2013 ABCA 251 at paras. 31-54. I accept that this is an area where the law is still developing.
[85] Depending on the particular factual circumstances, these common law rights to seek contribution and indemnity have been conceptualized as an incremental development in the common law creating a right to seek contribution and indemnity, as a right to seek contribution based on a theory of implied contract, or as a claim to contribution based on restitution to prevent unjust enrichment. Whatever the legal theory employed, what these cases have in common is a recognition of the unfairness of denying contribution and indemnity between defendants based on the nature of the cause of action pleaded, when as a factual matter multiple defendants are at fault in some way or another, whether in tort or contract: S.M. Waddams, The Law of Contracts, 7th ed. (Thomson Reuters: 2017) at pp. 541-542.
[86] On the allegations as pleaded in this case, I find that Gonte’s claim for contribution and indemnity from the City of Toronto on the basis of tortious conduct by Toronto that contributed to the damages resulting from Gonte’s alleged breach of contract has a reasonable prospect of success. I find this because the substance of Gonte’s claim is that, if Gonte is liable to Hydro for breaching the contract, the damages are greater than they would have otherwise been due to the allegedly negligent conduct of the firefighters of the City of Toronto.
[87] A brief summary of the factual allegations makes this clear. Hydro’s claim in contract against Gonte, very briefly stated, is that Gonte breached its electrical supply contract with Hydro by failing to maintain the vault, including ventilation fans, in good and serviceable condition, and by failing to install and maintain smoke or heat detectors in contravention of the building and fire codes. Gonte claims as the basis for its claim for contribution and indemnity against Toronto that the City of Toronto’s firefighters were negligent in failing to see and to advise Gonte of deficiencies with equipment in the vault or non-compliance with the applicable codes or regulations, and in opening the door to the vault before Hydro staff attended. The substance of Gonte’s claim is that absent the alleged negligence by the fire department, either Gonte would have been alerted to deficiencies in the vault and would have been able to avoid the fire, or the damage that would have resulted from the fire (and therefore from the breach of contact), would have been less.
[88] The City raises the concern that creating a common law right of contribution between a contract breaker and a tortfeasor would be a “radical departure” from the incremental approach taken by courts in Bow Valley and Blackwater v. Plint. I agree with this concern only to the extent that I accept that the courts have held that in incrementally developing the common law, the courts should be cautious to do so only where the facts support doing so. This concern speaks to the need for a full record at trial to decide if this is an appropriate case for contribution between the City and Gonte, if Gonte is found liable in contract, and the City is found to have been negligent. A trial judge, with a full factual record, will be best-placed to assess the ramifications of allowing contribution and indemnity between Gonte and Toronto in these circumstances.
[89] The City also notes that the Ontario Law Reform Commission recommended in 1988 that there be legislative reform to provide by statute for contribution between tortfeasors and those who have committed other types of wrongs, such as breach of contract: Ontario Law Reform Commission, Report on Contribution Among Wrongdoers and Contributory Negligence (Ministry of the Attorney General: 1988) at pp. 65-75. The City points out that the legislature has not made this change in the law, and argues that the courts should not do so. I do not accept this argument, as the case law set out above at paragraph 84 makes clear, the courts have engaged in the process of incrementally developing the law in relation to contribution between tortfeasors and contract-breakers. The Law Reform Commission noted these developments in the law in its report at pp. 65-75, and engaged in reasoning similar to that I have explained above at paragraph 85. The reason the Law Reform Commission recommended legislative reform was primarily to avoid “slow and piecemeal” development of the law in this area (pp. 73-74). While statutory reform may be the ideal, the process of reform of the common law in this area has begun and is ongoing. As this issue involves a matter of basic fairness between parties, in my view, that process should be allowed to continue.
[90] My finding on this motion is not that Gonte will necessarily be entitled to contribution and indemnity from Toronto in the event Gonte is found liable only in contract, and the City is found to have been negligent. Rather, it is a finding that Gonte’s argument is sufficiently viable that it should be allowed to proceed to trial. I make no finding on whether the evidence at trial is likely to support the allegations as pleaded. But I find that if the evidence does support these allegations, a claim for contribution and indemnity against Toronto has some prospect of success, given that there is support in the case law for the possibility of contribution and indemnity at common law, and for contribution and indemnity in relation to overlapping claims in tort and contract.
[91] Thus, I answer question 3 as follows: Gonte is entitled to pursue its claim for contribution and indemnity from the City for amounts payable for the alleged contract breach.
Conclusion
[92] As I noted above, the parties reached an agreement on the answer to the second question in the reference case. The answers to questions 1 and 3 posed in the special case are as follows:
Toronto Hydro’s third party claim for contribution and indemnity against Gonte in tort is limited to claiming the share of liability apportioned to Gonte. For sake of clarity, the share of liability apportioned to Gonte means Gonte’s share taking into account whatever liability is apportioned to Toronto Hydro, and whatever notional share of liability is apportioned to the City.
Gonte is entitled to pursue its claim for contribution and indemnity from the City for amounts payable for the alleged contract breach.
[93] I did not hear submissions on costs at the hearing of the motion. If the parties are unable to come to an agreement regarding costs. I will receive written submissions on costs on the following schedule. The City of Toronto may file its costs submissions within 30 days of this decision. Toronto Hydro and Gonte may file their costs submissions within 20 days after the submissions of the City. Costs submissions are limited to a costs outline, plus three pages of submissions.
[94] I thank counsel for all parties for their helpful submissions, and for the spirit of professionalism and cooperation with which they approached this motion.