COURT FILE NO.: CV-14-00499947-0000 and CV-13-492185
DATE: 20221012
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
ROYAL WINDSOR MECHANICAL INC.
Plaintiff
– and –
BONDFIELD CONSTRUCTION COMPANY LIMITED, THE TORONTO TRANSIT COMMISSION, TRAVELERS INSURANCE COMPANY OF CANADA carrying on business as and/or operating as TRAVELERS GUARANTEE COMPANY OF CANADA, TRAVELERS GUARANTEE COMPANY OF CANADA and ZURICH INSURANCE COMPANY LTD.
Defendants
AND
ROYAL WINDSOR MECHANICAL INC.
Plaintiff
– and –
BONDFIELD CONSTRUCTION COMPANY LIMITED
Defendant
Adam Wainstock, for the Plaintiff
Fabio Soccol, for Bondfield Construction Company Limited
Lipi Mishra, for The Toronto Transit Commission
Lena Wang, for Travelers Insurance Company of Canada carrying on business as and/or operating as Travelers Guarantee Company of Canada and Travelers Guarantee Company of Canada
Mark Wiffen, for Zurich Insurance Company
Jennifer Stam, for the Monitor, Ernst & Young Inc.
HEARD: July 20, 2022
ENDORSEMENT
McEwen, J.
[1] Zurich Insurance Company Limited (“Zurich”), Bondfield Construction Company Limited (“Bondfield”) and the Toronto Transit Commission (“TTC”) (collectively the “Moving Defendants”) bring motions seeking orders to enforce the settlements they allege the parties reached dismissing these two actions without costs.
[2] The other defendants and the Monitor, Ernst & Young Inc. (the “Monitor”), support these motions.
[3] The plaintiff, Royal Windsor Mechanical Inc. (“Royal Windsor”), opposes these motions and brings a cross-motion to add these actions to separate and ongoing litigation (the “TTC Finch West Litigation”).
[4] For the reasons that follow, I grant the motions brought by the Moving Defendants and dismiss Royal Windsor’s cross-motion.
Background
[5] These actions relate to work done by Royal Windsor for Bondfield on the Toronto-York Spadina subway extension – the Finch West Station Project (the “Project”).
[6] Royal Windsor entered into a contract with Bondfield as the mechanical sub-contractor for the Project. The contract price was $6,384,500.00.
[7] In 2013, Royal Windsor brought an action against Bondfield (the “Lien Action”) seeking $3,842,276.70 in damages. Bondfield counterclaimed for $5 million.
[8] In 2014, Royal Windsor commenced a second action seeking $25 million against multiple defendants, including Zurich (the “Bond Action”). Royal Windsor alleged, amongst other things, that Zurich was liable to Royal Windsor under a Labour and Material Payment Bond for the Project.
[9] Royal Windsor does not dispute that it instructed counsel to enter into an agreement to dismiss the actions on a without costs basis; nor does it dispute that that settlement was in fact reached. Instead, Royal Windsor asks this court to exercise its discretion not to enforce the settlement.
[10] Royal Windsor raises several arguments to support its position. Royal Windsor primarily submits that (i) the settlements were entered into because of misrepresentations made by Zurich to Royal Windsor; (ii) that the settlements are unconscionable; and, (iii) that the settlements were entered into as a result of Royal Windsor’s misapprehension. Woven into the aforementioned arguments is the allegation that the law firm Borden Ladner Gervais LLP (“BLG”) acted in a conflict of interest by representing, at various times, both Royal Windsor and Zurich.
[11] The following history of these two actions is important:
• In June 2011, Royal Windsor entered into a contract with Bondfield to provide mechanical services to the Project;
• Conflicts arose almost immediately. Royal Windsor registered a construction lien and thereafter commenced the Lien Action. Royal Windsor then commenced the Bond Action.
• In the Bond Action, Gowling WLG initially represented Zurich (and Travelers Guarantee Company of Canada (“Travelers”)).
• Royal Windsor was required to obtain its own bonds pursuant to its sub-contract. This included a performance bond. Berkley Insurance Company (“Berkley”) issued Royal Windsor’s performance bond. In June 2013, Bondfield commenced an action against both Royal Windsor and Berkley under the performance bond (the “Performance Bond Action”). This claim was separate from Bondfield’s counterclaim in the Lien Action.
• In defending the Performance Bond Action, Bisceglia & Associates initially represented Royal Windsor. They removed themselves as the solicitors of record in 2015. Thereafter, Bruno DeGasperis, the principal and president of Royal Windsor, agreed to have BLG, who was representing Berkley, act for Royal Windsor as well.
• Mr. DeGasperis deposed that he understood that BLG would defend both Berkley and Royal Windsor in the Performance Bond Action. The Lien Action and the Bond Action would be assigned to Berkley and BLG would pursue those actions on Royal Windsor’s behalf.
• Months later, BLG advised Mr. DeGasperis that Berkley had settled its own action with Bondfield and that the Lien Action and the Bond Action would be re-assigned back to Royal Windsor. BLG would no longer represent Royal Windsor in these actions.
• Little progress was made on both actions. Associate Justice Albert noted in a July 2018 endorsement that Royal Windsor appeared to have abandoned the Lien Action. Motions were scheduled to strike Royal Windsor’s Lien Action, which settled.
• In or around this time, Mr. DeGasperis learned that BLG, who had acted for Royal Windsor and Berkley in the Performance Bond Action, had also taken over the defences for Zurich and Travelers in Royal Windsor’s Bond Action. A different lawyer at BLG acted for Zurich and Travelers but nonetheless, BLG was the solicitor of record. This surprised Mr. DeGasperis. There is no evidence before the court as to what ethical walls BLG created. Zurich’s motion materials, which include an affidavit from James MacLellan of BLG, do not address the issue.
• In November 2018, Royal Windsor retained Arnold Zweig to represent it in the Lien Action and the Bond Action. A trial management conference took place in May 2019. Mr. Zweig attended for Royal Windsor. BLG lawyers attended for Berkley, as well as for Zurich and Travelers. Royal Windsor did not raise conflict allegations at the trial management conference or, for that matter, at any time.
• As a result of the motions to strike Royal Windsor’s claim in the Lien Action, Royal Windsor was ordered to pay $15,000.00 in costs.
• In September 2019, Justice Hainey held a case management conference regarding the TTC Finch West Litigation. Mr. Zweig attended on behalf of Royal Windsor. At the case conference, Royal Windsor brought a motion to join the Lien Action and the Bond Action with the TTC Finch West Litigation. Mr. DeGasperis swore an affidavit in support of the motion. The motion apparently did not proceed.
• Discussions between counsel ensued on the issue of costs of the motion and settlement of the two actions. As previously noted, a settlement was reached. Mr. Zweig agreed to prepare the consents and orders to dismiss the Lien Action and the Bond Action without costs. This occurred in or about November 2019. This included a settlement of Bondfield’s counterclaim in the Lien Action.
• With respect to the settlement discussions, Mr. DeGasperis deposed that Mr. MacLellan told Mr. Zweig that the Bond Action and the Lien Action lacked merit and had little probability of success. Mr. Zweig relayed this to Mr. DeGasperis and, in doing so, advised that it would be expensive to continue the litigation. As a result, Mr. DeGasperis further deposes that this left him deflated and convinced that further legal costs could not be justified for a case unlikely to succeed. He therefore gave Mr. Zweig instructions to agree to a without costs dismissal of the two actions.
• As previously noted, Mr. Zweig agreed to have the orders and consents prepared and to sign the consents on behalf of the parties. Given the onset of the COVID-19 pandemic, Mr. Zweig’s office was unable to have the orders issued with the court.
• A few days after the agreement was entered into, Royal Windsor changed lawyers and its new counsel wrote to the parties indicating that he was coming up to speed on the matter. He later confirmed that he did not have instructions to take out the dismissal orders and, as such, the dismissal orders were never taken out.
THE LAW
[12] A motion to enforce a settlement in these circumstances raises two issues. As stated by Justice Perell in Viveiros v. Mokhtarian, 2018 ONSC 2676, at para. 5:
Whether a litigant is entitled to enforce a settlement by motion depends upon whether there are no genuine issues for trial about: (a) the existence of the settlement agreement; and (b) the enforceability of that agreement. The court also has the discretion not to enforce the settlement when, among other things, it considers the settlement to be unreasonable or where the settlement would result in an injustice.
[13] Several cases considered this issue within the context of r. 49.09 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. Although the within actions do not include the acceptance of a formal offer to settle, the case law is instructive.
[14] It is clear that the first step is to determine whether a settlement was reached. If this assessment results in a finding that a settlement was reached, the second step is to consider whether, on all of the evidence, the court should exercise its discretion not to enforce the settlement.
[15] The first step of the analysis is conducted like a r. 20 motion for summary judgment: it requires a determination as to whether there are genuine issues requiring a trial with respect to whether the parties intended to create a legally-binding relationship or whether they agreed on all the essential terms.
[16] For the second step of the analysis, a broader approach is favoured. In determining whether to exercise its discretion to enforce the settlement under r. 49.09, the court must take into account all the relevant factors disclosed by the evidence. This includes whether the offer was clear and unequivocal; whether a mistake was made; the reasonableness of the settlement; the degree of prejudice to either party if the settlement is not given effect; and, the effect of the settlement on third parties if the settlement is not enforced. This may include misrepresentations made by a party even if the misrepresentation is made innocently: see Aganeh v. Mental Health Centre Penetanguishene Corporation, 2019 ONSC 5599, 50 E.T.R. (4th) 55, at paras. 40-43; Deschenes v. Lalonde, 2020 ONCA 304, 447 D.L.R. (4th) 132, at paras. 27-28.
The PositionS of the Parties
The Moving Defendants
[17] The Moving Defendants’ position is rather straightforward. First, they submit that there is no genuine issue as to the existence of an agreement to settle. They point to Mr. Zweig’s unequivocal confirmation in his October 2019 email where he confirmed that the agreement was being made on his client’s instructions. The Moving Defendants further point to the specific form of the dismissal order that was negotiated and agreed upon by all parties, including the Monitor. The consents and orders were drafted by Mr. Zweig. Subsequently, the consents were executed by Mr. Zweig and would have been filed with the court, but for the COVID-19 pandemic.
[18] Further, the Moving Defendants point to the fact that Mr. DeGasperis does not dispute that a settlement was reached.
[19] The Moving Defendants therefore submit that a settlement was clearly reached. They point to the fact that the sole reason the dismissal orders were removed was, as noted above, due to the unexpected effects of the COVID-19 pandemic.
[20] Insofar as the second part of the test is concerned, the Moving Defendants submit that there are no grounds to justify not enforcing the settlements.
[21] The Moving Defendants point to case law to suggest that courts should rarely exercise their discretion not to enforce a settlement, as the policy of the courts is to promote settlements: see Deschenes, at para. 27; Kent and Catanzaro v. Kellogg’s Canada Inc., 2015 ONCA 779, at para. 9; Mohammed v. York Fire and Casualty Insurance Company (2006), 2006 CanLII 3954 (ON CA), 79 O.R. (3d) 354 (C.A.), at para. 34.
[22] The Moving Defendants submit that, given Mr. Zweig’s representations, there is good reason to believe that Royal Windsor is insolvent. Therefore, it would be prejudicial for them to have to carry on litigating against an insolvent plaintiff who has no ability to pay costs awards. The Moving Defendants further submit that, notwithstanding Mr. DeGasperis’ complaints about his lack of information and the representation issue concerning BLG, the settlement was entered into when Royal Windsor was represented by able counsel and had a full opportunity to review the strengths and weaknesses of their claims. This includes the alleged conflict of interest.
[23] Further, the Moving Defendants maintain that based on the decision above in Deschenes, at para. 27, Royal Windsor cannot rescind an agreement based on information that it subsequently learned. Therefore, it cannot now argue that had it been aware of the TTC Finch West Litigation, Royal Windsor would not have agreed to the settlement. In any event, the Moving Defendants stress that at the time of the settlement, Royal Windsor was fully aware of all the issues of which it now complains.
[24] Last, the Moving Defendants point out that many of Royal Windsor’s complaints are based on hearsay or double hearsay evidence. This is discussed below. Specifically, Mr. Zweig did not provide an affidavit (nor is there any evidence that he was asked to) to address critical issues such as his discussions with Mr. MacLellan and his involvement in, or knowledge of, the TTC Finch West Litigation.
Royal Windsor
[25] Royal Windsor advances three primary arguments as to why the settlement should not be enforced. The arguments deal with issues of misrepresentation, unconscionability and misapprehension.
[26] I will deal with each in turn, setting out the arguments advanced and why I have rejected each argument in coming to the conclusion that the orders sought by the Moving Defendants ought to be granted.
(i) Misrepresentation
[27] Royal Windsor submits that the settlement was entered into as a result of a misrepresentation by Zurich to Royal Windsor and, since the settlement constitutes a contract, it ought to be rescinded based on this misrepresentation.
[28] In support of this assertion, Royal Windsor submits that Zurich, through Mr. MacLellan, advised Mr. Zweig that the Lien Action and the Bond Action lacked merit and had a low probability of success, in part because Berkley made payments to Bondfield to settle the Performance Bond Action.
[29] Royal Windsor asserts that no evidence has been produced to substantiate the fact that Berkley paid any money to settle the Performance Bond Action and that no terms of the agreement were produced to Royal Windsor. Since Zurich has not produced any evidence in support of the terms of the settlement, Royal Windsor submits that I should draw an adverse inference against Zurich. Royal Windsor also points to the fact that Bondfield is advancing a claim against the TTC for $147 million which carries amounts for sub-contractor delays, including Royal Windsor.
[30] With respect to the aforementioned misrepresentations, Royal Windsor submits that it is irrelevant whether the misrepresentation was made honestly or not; if it is relied upon, a settlement cannot stand: Deschenes, at para. 30.
[31] Mr. DeGasperis deposed that he relied upon these misrepresentations because Mr. MacLellan had acted for Berkley and, while BLG did not formally represent Royal Windsor, it represented its interests by acting for Berkley, who had stepped into Royal Windsor’s shoes as plaintiff.
[32] Royal Windsor further submits that BLG made the misrepresentation when it knew or ought to have known that it was false. Because of this, the court should look to equitable considerations to refuse to enforce the settlement.
[33] Mr. DeGasperis deposed that the misrepresentation went to the heart of the Lien Action and the Bond Action and was relied upon in settling both actions.
[34] I do not accept these submissions.
[35] First, the allegation of misrepresentation is based on double hearsay; i.e. alleged comments made by Mr. MacLellan to Mr. Zweig that were passed along to Mr. DeGasperis.
[36] Although the parties on the motions did not adduce any case law or scholarly comment on the law of hearsay, I cannot accept the double hearsay proffered in Mr. DeGasperis’ affidavit to conclude that there was a misrepresentation. Mr. DeGasperis does not provide any comment in his affidavit explaining why Mr. Zweig has not provided this evidence directly based on his discussions with Mr. MacLellan. No efforts were made to elicit evidence from Mr. MacLellan. I see no applicable exceptions to the hearsay rule that allow this double hearsay into evidence. That being the case, there is no reason to depart from the rule against hearsay which has been described as “part of the bedrock of the law of evidence for centuries”: Sopinka, Lederman & Bryant:The Law of Evidence in Canada, 6th ed. (Lederman, Furest, Stewart) at para. 6.1.
[37] Further, the case law is clear that in order to set aside the strong presumption in favour of the finality of a settlement, the false or misleading misrepresentation must be material. The material misrepresentation must relate to a matter that would be considered by a reasonable person to be relevant to the decision to enter into the agreement. A generalized, non-specific comment does not meet the necessary criteria: Deschenes, at para. 29. Putting aside, for a moment, the issue of double hearsay, the alleged comment made by Mr. MacLellan to Mr. Zweig does not meet the necessary criteria; it was, in my view, a rather generalized, non-specific comment. Royal Windsor could have investigated and pursued this generalized comment if it felt it was necessary to determine its decision to settle. It did not.
[38] In all of these circumstances, I do not find that Royal Windsor has established that a misrepresentation took place or that if the comment alleged was made, it represents a material misrepresentation that justifies setting aside the settlement.
(ii) Unconscionability
[39] Alternatively, Royal Windsor submits that the doctrine of unconscionability applies to allow the court to set aside this settlement. In this regard, Royal Windsor relies upon the judicial authority from Black v. Wilcox (1977), 12 O.R. 2(d) 759 (C.A.), at para. 17, that stands for the principal that:
“[T]he court will invoke the equitable rule that a person who is not equal to protecting himself will be protected, not against his own folly or carelessness, but against his being taken advantage of by those in a position to do so by reason of their commanding and superior bargaining position. The combination of inequality of position and improvidence is the foundation upon which the doctrine is based.”
[40] Royal Windsor submits that it meets the three-part test in that there was inequality of bargaining; the Moving Defendants preyed upon Royal Windsor; and the bargain was improvident.
[41] Insofar as the inequality of bargaining is concerned, Royal Windsor submits that there were two sources of inequality. The first being the obvious financial inequality that stemmed from Royal Windsor being in a very vulnerable financial situation. The second concerns the conflict of interest that Royal Windsor argues BLG had, since it previously acted for Berkley, which stepped into the shoes of Royal Windsor and later acted for Zurich against Royal Windsor on the Bond Action.
[42] For the second source of inequality, Royal Windsor submits that Mr. MacLellan had special knowledge of Royal Windsor’s claims. This special knowledge would not have been otherwise known to Zurich but for BLG’s acting on the file. Moreover, BLG, specifically Mr. MacLellan, has not served any affidavit evidence to refute the allegation that it had special knowledge. Royal Windsor submits that, armed with this information, it cannot be said that the parties were negotiating as equals.
[43] Insofar as the second part of the test is concerned, Royal Windsor states that the Moving Defendants preyed upon Royal Windsor given the outstanding costs awards of $15,000.00. They argue the Moving Defendants therefore strategized to advise Royal Windsor that its actions lacked merit, had a low probability of success and would negotiate a without costs dismissal to obviate the necessity of Royal Windsor having to pay the costs award or be exposed to any further claims.
[44] With respect to the third part of the test, the improvident bargain analysis, Royal Windsor states that the amount of its lien was in excess of $3.8 million, for which it received no money as a result of the settlement. It asserts that its actions do have merit and points to the fact that Bondfield is advancing some of Royal Windsor’s claims in the TTC Finch West Litigation as proof. As such, it submits that the settlement is clearly improvident.
[45] Once again, I do not accept Royal Windsor’s arguments. Notwithstanding its financial difficulties, at the time of the settlement Royal Windsor was no doubt a substantial company run by its long-time owner Mr. DeGasperis and represented by counsel. It cannot be forgotten that Royal Windsor gained a benefit by settling the Bond Action and the Lien Action without costs: Bondfield dropped its $5 million counterclaim against Royal Windsor.
[46] It is simply not enough, in my view, that a financially strapped company could point to its precarious financial situation in order to set aside a settlement that it entered into.
[47] With respect to the alleged conflict of interest, I am of the view that even if an actual conflict existed prior to the settlement being entered into, the settlement ought not be set aside.
[48] By the time that the settlement was entered into, Mr. DeGasperis, who undoubtedly is an intelligent person and capable businessperson, was ably represented by counsel and was fully aware of BLG’s past activities as counsel for Berkley and Zurich. There was no secret in this regard. Even if a conflict existed, and there is scant evidence in the record that one did, Royal Windsor's complaint would rest with BLG. The allegation of a conflict does not constitute a basis for setting aside the settlement in the above circumstances. And, even if there was evidence in the record that an actual conflict did exist, and special knowledge was gained, Royal Windsor has not shown how that knowledge was leveraged to give rise to the inequality of bargaining power it now claims.
[49] Last, I also do not accept that the bargain was improvident. Even though Royal Windsor abandoned its Lien Claim of approximately $3.8 million, it also obtained the benefit of Bondfield agreeing to dismiss its counterclaim. Royal Windsor was also released from its obligation to pay $15,000.00 in costs in the Lien Action. In these circumstances, it cannot be said that Royal Windsor, as it alleges, received no consideration from the settlement. Negotiations took place over a number of months in which the compromises of claims were made on both sides.
(iii) Misapprehension
[50] Here, Royal Windsor submits that it did not receive notice from any of the defendants that the separate construction lien reference, which ultimately turned into the case-managed TTC Finch West Litigation, was taking place. Royal Windsor was not included in that litigation and was unaware of the important information and advantages it would have received had it been part of the case-managed process. This included, amongst other things, the lifting of the stay of proceedings against Bondfield with respect to the TTC Finch West Litigation. Since the action was being managed and time-tabled, and that some of Royal Windsor’s claims were being advanced by Bondfield against the TTC, Bondfield clearly believed that Royal Windsor’s claims had some merit.
[51] Mr. DeGasperis deposed that he was not aware of any of the details until after the settlement was reached. He claims that, had he been aware of the full picture and status of the TTC Finch West Litigation, he would not have agreed to the settlement.
[52] I do not believe this argument has merit. As noted, Royal Windsor was represented by capable counsel against whom it does not complain. The record discloses that Royal Windsor knew of the TTC Finch West Litigation and prior to the settlement, in fact, brought a motion to join that litigation. Mr. Zweig even attended at a case conference concerning the TTC Finch West Litigation.
[53] It is simply not enough that Royal Windsor did not know about the intricacies of that litigation or failed to inform itself of the benefits Royal Windsor may have enjoyed by joining in that litigation and not entering into the settlement. It is not the obligation of Bondfield, or for that matter Zurich, to educate the party adverse in interest in this regard.
[54] Frankly, had Royal Windsor sought to inform itself, it could have learned about the further nuances of the TTC Finch West Litigation. It chose not to do so and ultimately entered into a settlement.
[55] I also pause to note here that Royal Windsor submitted that this court should exercise its overriding discretion and not enforce the settlement on the basis that a dismissal order was not taken out and there is no evidence that it would have been taken out if not for the COVID-19 pandemic.
[56] Royal Windsor also argues that there is no other prejudice to the defendants should Royal Windsor’s actions be restored and permitted to join the TTC Finch West Litigation. In this regard, Royal Windsor relies on the decision of the Court of Appeal in Milios v. Zagas (1998), 1998 CanLII 7119 (ON CA), 38 O.R. (3d) 218 (C.A.), at para. 21.
[57] I also do not accept these submissions. The court in Milios dealt with a number of specific issues before deciding not to enforce the settlement.
[58] Insofar as this case is concerned, the evidence does not bear out Royal Windsor’s submission that there is no evidence that the dismissal orders would have been taken out but for the COVID-19 pandemic. The correspondence between the parties, particularly between Mr. Zweig’s office and BLG, confirm that consents were executed to dismiss the actions without costs and that Mr. Zweig’s process server would have issued the two dismissal orders once Mr. Zweig and his assistant safely returned to the office.
[59] With respect to the issue of prejudice, there is clear prejudice. Setting aside the order would once again expose Zurich and Bondfield to liability in the two actions. As noted, there is good reason to believe that the plaintiff is insolvent and the matter has not progressed to the examination for discovery stage, despite being commenced in 2013 and 2014.
Conclusion
[60] Given the aforementioned reasons, the settlement agreements should not be set aside. In addition to the strong presumption in favour of the finality of settlements, virtually all the information relied upon by Royal Windsor to set aside the settlements was known to them or could have been known to them. As noted in Deschenes, it is not enough to revisit a settlement decision based on the better vision of hindsight. In my view, that is exactly what Royal Windsor is attempting to do in this case.
Disposition
[61] An order shall go out dismissing these actions as per the settlement agreed to by the parties.
[62] Royal Windsor’s cross-motion is dismissed.
[63] If the parties cannot agree on the issue of costs, I can be spoken to at a 15-minute case conference to discuss further steps.
McEwen J.
Released: October 12, 2022