Court File and Parties

COURT FILE NO.: CV-19-631251-00A1

DATE: 20221004

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Blue Mountain Linen Inc.

AND:

Enercare Homes and Commercial Services Limited Partnership et al.

AND:

Hawco Products Limited, et al.

BEFORE: J.T. Akbarali J.

COUNSEL: Patrick Summers and Kristina Bezprozvannykh, for the plaintiff/responding party

Chris Stribopoulos, for the defendant Enercare Home and Commercial Services Limited Partnership

Michael T. Lax, for the defendant Alpine Specialty Chemicals Ltd.

Stephen T. Brogden, for the third party/moving party TA Appliance Inc. o/a Onward Commercial Laundry Equipment

James Aston, for the third party Brenik Engineering Inc.

Ruth Henneberry, for the third party Hawco Products Limited

Elizabeth K. Ackman, for the third party Steenhof Mechanical and Electrical Services Inc. o/a Suppa Engineering

HEARD: September 6, 2022

ENDORSEMENT

Overview

[1] The third party, TA Appliance Inc. o/a Onward Commercial Laundry Equipment (“Onward”), brings this motion for a permanent stay of the main action and as a result therefrom, of the third-party proceedings. It relies on a release that the plaintiff signed in its favour before this litigation was commenced in connection with a settlement of the plaintiff’s claims against it. The release included a no-claims-over clause. However, the defendant, Enercare Home and Commercial Services Limited Partnership (“Enercare”), has made a claim for contribution and indemnity against Onward in third-party proceedings.

[2] The question before me is whether a permanent stay ought to be granted, or whether the fact that the plaintiff has expressly pleaded that it waives any right to recover from Enercare any portion of its loss that may be attributed to wrongdoing on the part of Onward means that the main action is not prohibited by the no-claim-over clause in the release such that the action can continue.

Brief Factual Background

[3] The plaintiff operated a commercial laundry business that failed. It alleges that the failure of the business was caused by the defendants’ wrongdoing. It also considered Onward responsible for some part of the failure; it engaged in negotiations with Onward prior to commencing its claim. The negotiations resulted in a settlement between Onward and the plaintiff, under which the plaintiff was released from its obligations to Onward under a loan it had received from Onward, the plaintiff returned certain equipment to Onward, and Onward paid the plaintiff just over $33,000.

[4] The release entered into as a result of that settlement provides, among other things, that:

…the parties covenant and agree not to make claim or to commence or take proceedings as against the other party or as against any other person, firm, partnership, business or corporation who or which might claim contribution from, or be indemnified by any of the parties, under the provisions of any statute or otherwise in respect of those matters for which this Release applies (a “Prohibited Proceeding”).

[5] The parties also agreed that the release will operate conclusively as an estoppel if a Prohibited Proceeding is commenced, and may be relied upon to dismiss a Prohibited Proceeding. The release requires a party that commences a Prohibited Proceeding to discontinue it, and pay the other all the legal costs it incurred in any such proceeding on a substantial indemnity basis.

[6] Thereafter, the plaintiff commenced its action against Enercare and the defendant Alpine Speciality Chemicals Inc.[^1] (“Alpine”). The claim alleges that the plaintiff engaged Enercare as its general contractor to get its premises ready for operation, including construction, sourcing equipment and building supplies, and hiring sub-trades. The plaintiff alleges that Enercare breached its duty of care to the plaintiff, and breached its contract with the plaintiff. It alleges, among other things, that Enercare did not complete its work according to schedule, failed to connect the dryers properly, failed to vent the premises properly, installed a grossly undersized HVAC system, improperly installed the flat iron machines, improperly installed the water lines, failed to install washing machines that delivered the proper water pressure and water temperature, improperly installed air lines, caused leaks in the roof, installed deficient boilers, designed the project incorrectly, used inferior materials in construction, failed to follow applicable regulations, codes, and by-laws, and failed to properly inspect its work or supervise its employees.

[7] The thrust of Enercare’s defence is that it did not act as a general contractor for the project, and did not occupy the role described by the plaintiff in its claim. It alleges that an engineering firm (the third party Suppa Engineering) prepared the plans for the project based on the plaintiff’s instructions.

[8] In Enercare’s third party claim, it alleges that, throughout the course of the project, the plaintiff sought information and advice from Onward regarding the laundry facility’s set-up, equipment, water calculations, and other specifications the plaintiff required to build a laundry facility that met its requirements. It alleges that Onward failed to properly advise the plaintiff about these issues, and failed to provide accurate in-and-out calculations for the washing machines, resulting in them not receiving proper water pressure or temperature.

[9] Not surprisingly, Onward wants no part of this litigation, having settled the matter with the plaintiff and having obtained the release. It relies on the release to establish an abuse of process justifying the stay of the action.

[10] For its part, the plaintiff alleges that the release is not engaged because the action is not a Prohibited Proceeding within the meaning of the release. The plaintiff has restricted its claim against the defendant expressly in its amended statement of claim, which provides:

[The plaintiff] states that no part of this Amended Statement of Claim involves any claim, or allegation that any machinery, equipment, or services, received by it for the Premises from [Onward] was deficient, in breach of contract, or was negligently provided on the part of [Onward]. In any event, [the plaintiff] expressly waives any and all right to recover from the Defendants, Enercare, or Alpine, any portion of [the plaintiff’s] loss that may be attributable to the fault, tort, negligence, and/or breach of contract or breach of any equitable common law or statutory duty of [Onward] and for which the Defendants, or any Third Party to this action, might be entitled to claim against [Onward] for contribution, indemnity or an apportionment either at common law, in equity, pursuant to the Negligence Act, R.S.O. 1990, C. N1, or any amendments thereto, or any successor legislation.

Analysis

[11] Onward relies on jurisprudence from the Court of Appeal for Ontario from 2002 and 2005, and a recent decision of this court from earlier this year to make its argument that it bargained for peace, and the plaintiff ought to be held to its bargain.

[12] In contrast, the plaintiff relies on decisions from the Court of Appeal for Ontario from 2000 2009, and 2017, plus a 2020 decision of the British Columbia Supreme Court to support its position that, by limiting its claim to exclude any loss attributable to the fault of Onward, it is entitled to continue its claim.

[13] In Sinclair-Cockburn Insurance Brokers Ltd. v. Richards, 2002 CanLII 45031 (ON CA), the Court of Appeal considered a situation where Richards, a former employee of Sinclair-Cockburn, had fraudulently issued a performance bond on behalf of a surety to the principal Wiggins, although she knew Wiggins was not bondable. The surety had to honour the bond because it had given Richards general authority to issue performance bonds on its behalf. After firing Richards, Sinclair-Cockburn and Wiggins negotiated a settlement with the surety, and signed mutual releases, which included a clause that Sinclair-Cockburn make no claim in which anyone might claim contribution or indemnity from Wiggins.

[14] Sinclair-Cockburn then sued Richards, who added Wiggins as a third-party. Sinclair-Cockburn undertook, in its reply and counterclaim, not to claim from Richards any money that she could recover from Wiggins. Wiggins moved for a stay under s. 106 of the Courts of Justice Act, R.S.O. 1990, c. C.43 and r. 21.01(3)(b) and (d) to stay the third-party claim as an abuse of process. Justice Mesbur’s decision to grant the motion was upheld on appeal. The Court of Appeal held that Wiggins was entitled to all the benefits that flowed from the release, including its reputational interest and its interest in not being dragged into a lawsuit: para. 14.

[15] The Court of Appeal reached a similar conclusion in Woodcliffe Corp. v. Rotenberg, 2005 CanLII 23675 (ON CA). That case involved a land development project that encountered difficulties. The developer settled with a number of the parties involved in the project, and entered into comprehensive mutual releases as part of the settlement. Subsequently, the developer sued its former lawyer and law firm, alleging that the improper conduct of the settling parties was made possible due to the conduct of the law firm and lawyer. The law firm and lawyer commenced third party proceedings against the settling parties.

[16] The Court of Appeal found, at para. 9, that the statement of claim was “replete with allegations of breaches and defaults by the third parties that were part of the earlier litigation and that have been settled.” Because the plaintiff had to first establish the alleged third-party wrongs, the allegations against the lawyer and law firm were “inextricably linked to allegations of wrongdoing by the third parties”, and as such, fell within the category of claims precluded by the releases: para. 11. In other words, the claims against the lawyer and law firm could not be litigated without relitigating the (settled) claims against the third parties, making third-party proceedings inevitable. The Court of Appeal held that the abuse of process doctrine applied to stay the claim: para. 12. However, it allowed the plaintiff to amend its statement of claim to allege only a claim with respect to an accounting of funds against the lawyer and law firm, as the accounting claim was not precluded by the releases: paras. 15-16.

[17] In Ieradi v. Gordin, 2007 CanLII 48637 (ON S.C.J.), the plaintiffs attempted to close a share purchase, but the transaction failed. The plaintiff commenced legal proceedings against the vendors. The action was settled. Minutes of settlement were signed that included a no-claim-over clause.

[18] Subsequently the plaintiffs commenced an action against their lawyers who acted on the failed transaction. The lawyers issued third party claims against the vendors for contribution and indemnity. The third parties asked Lederer J. to stay the main action and third-party claim as a result of the no-claim-over clause in the minutes of settlement.

[19] Justice Lederer held that a stay is not granted as a matter of course, but lies within the discretion of the court: para. 9. He concluded that to order a stay, the defendant must prove two things. First, the defendant must satisfy the court that the continuance of the action would work an injustice because it would be oppressive, vexatious or an abuse of process. Second, the stay must not cause an injustice to the plaintiff: para. 10.

[20] Justice Lederer applied Sinclair-Cockburn to conclude that the third-party claims ought to be stayed. However, he concluded that the main action did not necessarily have to be stayed. Relying on Woodcliffe, he found that it is possible to maintain parts of the main action in the face of the third-party proceeding being stayed where the claims against the defendants are independent of the claims to be made against the third parties: para. 22. He was concerned that, if a third party proceeding without merit can be stayed based on a no-claim-over clause, and on that basis, the main action also stayed, any defendant could get that advantage by issuing a third-party proceeding even if it has no chance of success: para. 23.

[21] Justice Lederer concluded that it was appropriate to allow the main action to proceed, because, on the facts of Ieradi, the third party had no exposure in contribution or indemnity to any successful claim by a plaintiff: paras. 26-27.

[22] Subsequent to Sinclair-Cockburn, and Woodcliffe, the Court of Appeal dealt with a similar issue in Taylor v. Canada (Minister of Health) (2009), 2009 ONCA 487, 95 O.R. (3d) 561. The plaintiff in Taylor brought a class action against Health Canada for damages she allegedly suffered as a result of the surgical implantation of a device in her jaw, claiming that Health Canada’s negligent regulation of those devices caused her injury. She limited her claim to those damages that were attributable to Health Canada’s proportionate degree of fault. Health Canada brought a third-party claim against the dental surgeon who performed the implant surgery, and the hospital at which the surgery had taken place, seeking contribution and indemnity. The third parties brought a motion to dismiss the third-party claim as disclosing no reasonable cause of action.

[23] The Court of Appeal held that contribution rights arise only where a defendant is required to pay more than its proportionate share of the plaintiff’s damages. Since the plaintiff’s claim was limited to only those losses attributable to Health Canada’s negligence, Health Canada could have no claim over against the doctor or hospital. The Court of Appeal noted that to ensure that Health Canada’s exposure is limited to damages attributable to its fault, the court may have to apportion fault among the three potential tortfeasors, but the court could do so even if the other alleged tortfeasors were not parties to the action: paras. 20-22, 29.

[24] The Court of Appeal recognized that some discovery would likely be required of the other alleged tortfeasors, but because such relief had not been requested from the motion judge, the Court of Appeal left it to the case management judge to consider: paras. 30-32.

[25] In reaching its decision in Taylor, the Court of Appeal applied its earlier decision in Holthaus v. Bank of Montreal, 2000 CanLII 5665 (ON CA), where it found that a statement of claim that was limited to damages that could be attributed to the fault of the Bank of Montreal meant that the bank could have no claim-over against the third party, RBC Dominion Securities: paras. 8-9.

[26] The decision in Taylor was adopted, and the availability of non-party production and discovery accepted, by Hainey J. in Allianz Global Risks US Insurance Co. v. Nalco Chemical Co., 2014 ONSC 4302, at paras. 34-40.

[27] More recently, in J.K. v. Ontario, 2017 ONCA 902, the Court of Appeal dealt with a proposed class proceeding against the Crown alleging negligence, breach of fiduciary duty, and breach of Charter rights in the use of solitary confinement in youth detention centres across Ontario. The Crown brought a third-party claim against 15 non-government, non-profit organizations which operated some of the youth detention centres under contract with the Crown. The motion judge concluded that the third-party claims had no reasonable prospect of success, and struck them without leave to amend.

[28] The Court of Appeal concluded that it was not plain and obvious that the third-party claim had no reasonable prospect of success: para. 3. However, the court went on to conclude that it would be possible for the plaintiff to amend his claim such that the third-party claim would have no reasonable prospect of success, at which point the third-party claim could be properly struck without leave to amend. In providing guidance on how to amend the claim, the Court of Appeal, at para. 31, made reference to the Taylor decision, and (using the plaintiff’s words), explained how to “Taylorize” his claim.

[29] The court held, at paras. 33-34, that the principle in Taylor would apply to preclude third party claims for contribution and indemnity by making clear that the claim against the Crown excludes damages that can be attributed to the concurrent fault or negligence of any other person.

[30] In The Owners of Strata Plan KAS3294 v. Navigator Development Corporation, 2020 BCSC 1954, the court considered the impact of two BC Ferry settlement agreements (the BC version of a Pierringer agreement) at a summary trial. In that case, a party who settled with the plaintiff sought an order dismissing the third-party claims against it on the basis that the plaintiff had limited its claim “to the several extent of liability of named defendants remaining in the action”. As in this case, the plaintiff had expressly waived its right to recover any portion of its loss that may be attributable to the wrongdoing of the settling parties, and for which the defendants might reasonably be entitled to claim contribution and indemnity from the settling parties, including the third party.

[31] The court held that a plaintiff can prevent a defendant from advancing a claim for contribution against a settling party by limiting its claim to loss that is not ultimately attributed to the fault of the settling party. By doing so, the plaintiff eliminates the foundation for any claim for contribution against the settling parties: para. 19.

[32] The court invoked the decision in Taylor to conclude that by circumscribing the pleadings to only seek damages attributable to the defendant’s fault, a plaintiff can prevent a defendant from seeking contribution from another party: para. 29. The court concluded that a third-party claim will be summarily dismissed as bound to fail where the plaintiff has expressly waived, in its pleadings, any right to recover from the defendants any portion of the loss which the court may attribute to the fault of the settling third party: para. 35.

[33] Most recently, in Fehr v, Gribilas, 2022 ONSC 275, Perell J. considered a motion brought by a third party to the action seeking a stay of the main action because the plaintiffs had signed a release in its favour containing a no-claim-over provision.

[34] Justice Perell considered the Sinclair-Cockburn case, and noted the importance of the fact that the main action and the third-party claims were stayed based on the court’s procedural jurisdiction to stay actions that are an abuse of process. He also noted that the accounting claims which were not connected to the no-claims-over provision were not stayed: para. 94.

[35] Justice Perell also reviewed the Ieradi case. In his view, the decision demonstrated that a stay on the grounds of abuse of process will be granted only to preclude claims that are connected to the claims that are being released, while claims independent of the subject matter of the release will not be stayed: para. 112-113.

[36] Justice Perell also noted, at para. 115, that the requirement from Ieradi, that the litigant must have a viable claim-over, is logical because of the discretionary and extraordinary nature of a stay of proceedings:

A stay for the benefit of a third-party beneficiary of a release should not be granted where the triggering of the preclusive clause is disingenuous, which is to say not genuine. The triggering of the preclusive, claims-barring provision, will not be genuine, if the triggering claim is not legally viable. If the triggering claim is not legally viable, then the extraordinary order of a stay cannot be justified because it is not necessary to protect the litigant that was a signatory of the release, and it would be unjust to protect the third-party beneficiary who has no privity of contract.

[37] In Fehr, Perell J. concluded that Ieradi was of no assistance to the plaintiffs because the preconditions set down by Lederer J. were satisfied in that case. The defendants were being sued with respect to the subject matter of the release in favour of the third party and had a viable claim-over to trigger the protection of the no-claim-over provision.

[38] It does not appear that Perell J. was specifically directed to the Taylor line of cases, as he does not discuss them in his reasons.

[39] In my view, the jurisprudence, including the most recent jurisprudence from the Court of Appeal, supports the conclusion that a plaintiff can tailor (or “Taylorize”) its claim so as to preclude any possibility of a claim for contribution and indemnity against a third party if the plaintiff restricts its claim against the defendant to a claim that excludes those damages caused by the third party. I agree with the analysis of the British Columbia Superior Court in Strata Plan, which applies Taylor to a situation involving a no-claim-over clause.

[40] In contrast, the court in Sinclair-Cockburn did not deal with a pleading that waived the plaintiffs’ claim against the third party; rather, the plaintiff in that case undertook in its reply pleading not to claim money from the defendant that the defendant could recover from the third party. In any event, Sinclair-Cockburn pre-dates Taylor, and to the extent there is any inconsistency between the approaches, I apply the most recent jurisprudence – Taylor, and its progeny, including most recently at the appellate level, J.K.

[41] Because the plaintiff in this case has expressly waived its right to recover from Enercare any portion of its loss that may be attributable to the wrongdoing of Onward, and for which the defendants, or any third party to this action, might be entitled to claim against Onward for contribution, indemnity or an apportionment, there is no viable claim-over to be made against Onward by Enercare.

[42] The main action is thus not a “Prohibited Proceeding” under the release because it is not a proceeding against a party which might claim contribution from, or be indemnified by, Onward.

[43] The fact that Enercare has made a claim for contribution and indemnity against Onward does not, in my view, bring the main action within the definition of “Prohibited Proceeding”, because it is apparent from my analysis that the third-party claim is not viable. The law I have referred to is clear that contribution rights arise only where a defendant is required to pay more than its proportionate share of the plaintiff’s damages. No one gave me case law to the contrary. Given the plaintiff’s pleading, there is no possibility that Enercare will be required to pay any of Onward’s proportionate share of the plaintiff’s damages. Enercare thus has no contribution rights to assert against Onward.

[44] If I were to stay the main action in the face of this fatal flaw in the third-party claim, the concern identified by Lederer J. in Ieradi would arise — that is, if a third party proceeding that is not viable can be stayed based on a no-claim-over clause, and on that basis, the main action also stayed, any defendant could get that advantage, free, simply by issuing a third-party proceeding even if it has no chance of success.

[45] I recognize that if the third-party proceeding is stayed or dismissed, but the main action allowed to continue, there will need to be an apportionment of liability at trial to ensure that Enercare is not responsible for the portion of the plaintiff’s losses related to Onward’s faults, if any. However, the jurisprudence is clear that such an apportionment can be made without Onward remaining as a party to the action, and that non-party production and discovery is an available means of ensuring the relevant evidence is before the court.

[46] While I agree that Onward has bargained to be free from being a party in a proceeding relating to the plaintiff’s claims, it has not bargained for freedom from the rules regarding non-party discovery, nor has it bargained for the right to bring to a close any proceeding that may seek an apportionment of liability where there is no claim-over against it for contribution and indemnity. There is nothing in the release to suggest that it has. The terms of any non-party discovery, if necessary, can be dealt with by agreement between the parties or by order of the court.

[47] This analysis leads me to the conclusion that the main action should not be stayed. It is apparent that my analysis also leads to the conclusion that the third-party claim ought to be stayed or dismissed. However, Onward’s notice of motion seeks only a stay of the main action, from which counsel indicated that a stay of the third-party action would automatically flow. For reasons I cannot discern, no separate request was made to stay or dismiss the third-party action, either in the notice of motion or in the factum. Nor did the plaintiff argue that an order staying or dismissing the third party claim only would be the appropriate result of this motion; it seeks only an order dismissing the motion.

[48] Counsel for Enercare was present at the motion. When I asked about my jurisdiction to make an order staying the third-party action only, he indicated that Enercare had not filed any materials on the motion, noting that Onward had not made any request, even in the alternative, to stay the third-party action.

[49] Although the case law argued by the parties included cases where a third party claim was stayed when the main action was not, I am not prepared to grant relief that has not been sought. The parties are represented; they will have to decide on the appropriate next steps to take in view of my reasons. To be clear, nothing in these reasons prejudices Onward’s ability to move to stay or dismiss the third party claim.

[50] I deny Onward’s motion to stay the main action.

Costs

[51] The three main purposes of modern costs rules are to indemnify successful litigants for the costs of litigation, to encourage settlement, and to discourage and sanction inappropriate behaviour by litigants: Fong v. Chan (1999), 1999 CanLII 2052 (ON CA), 46 O.R. (3d) 330, at para. 22.

[52] Subject to the provisions of an Act or the rules of court, costs are in the discretion of the court, pursuant to s. 131 of the Courts of Justice Act, R.S.O. 1990, c. C.43. The court exercises its discretion taking into account the factors enumerated in r. 57.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, including the principle of indemnity, the reasonable expectations of the unsuccessful party, and the complexity and importance of the issues. Overall, costs must be fair and reasonable: Boucher v. Public Accountants’ Council for the Province of Ontario, 2004 CanLII 14579 (Ont. C.A.), 71 O.R. (3d) 291, at paras. 4 and 38. A costs award should reflect what the court views as a fair and reasonable contribution by the unsuccessful party to the successful party rather than any exact measure of the actual costs to the successful litigant: Zesta Engineering Ltd. v. Cloutier, 2002 CanLII 25577 (ON CA), 2002 CarswellOnt 4020, 118 A.C.W.S. (3d) 341 (C.A.), at para. 4.

[53] The plaintiff is the successful party on this motion, and is presumptively entitled to its costs. Its bill of costs, filed, supports partial indemnity costs of $21,417.18, and substantial indemnity costs of $32,156.13. Onward’s costs outline supports partial indemnity costs of $17,908.20, and full indemnity costs of $25,991.71.

[54] The plaintiff has also filed an offer to settle which, in accordance with the parties’ agreement at the motion, I did not look at until after I completed my reasons on the merits of this case. In the offer, the plaintiff proposes that Onward dismiss or withdraw its motion with prejudice, and pay the plaintiff’s partial indemnity costs to the date of the offer of $10,000, an amount it discounted by $2,852.62, and thereafter, its costs on a substantial indemnity basis.

[55] The plaintiff has only beaten its offer if I would have awarded it more than $10,000 in costs up to the date of the offer.

[56] I would have awarded the plaintiff’s claimed partial indemnity costs up to the date of the offer in full. The motion was complex and the work that had to be done to get the motion record, factum, and book of authorities prepared was easily worth more than $10,000 in partial indemnity costs that the plaintiff offered to accept.

[57] I thus conclude that the plaintiff is entitled to its partial indemnity costs to August 30, 2022 and its substantial indemnity costs thereafter.

[58] I note that, unusually, the plaintiff’s bill of costs shows more time spent by the more expensive timekeeper than the less expensive timekeeper. I considered whether to reduce the plaintiff’s costs as a result. However, having reviewed the actual time spent on the file by plaintiff’s counsel, I conclude that the overall time is appropriate having regard to the work product produced, and the complexity and the importance of the issues. In other words, Mr. Summers may have taken on more of the work than Ms. Bezprozvannykh, but he was able to complete those tasks more efficiently than Ms. Bezprozvannykh would have been able to. The cost of preparing the motion was not inflated due to the allocation of work between them.

[59] In determining the quantum that is fair and reasonable, I take into account the following:

a. Onward’s costs are lower than the plaintiff’s costs;

b. The issues on the motion were complex;

c. The issues on the motion were important. The plaintiff’s claim against Enercare is a $20,000,000 claim, and Enercare maintains a counter-claim against the plaintiff. It was very important to the plaintiff that its claim against Enercare not be stayed;

d. Counsel’s claimed hourly rates are reasonable; and

e. The time spent by plaintiff’s counsel was reasonable in view of the complexity of the issues, the importance of the issues, and the quality of the materials prepared.

[60] In my view, a costs award of $22,500, all inclusive, is fair and reasonable. Onward shall pay the plaintiff this amount within thirty days.

Conclusion

[61] In summary, I make the following orders:

a. The motion to stay the main action is dismissed;

b. Onward shall pay the plaintiff costs of $22,500, all inclusive, within thirty days.

J.T. Akbarali J.

Date: October 4, 2022

[^1]: The defendant’s correct name is Alpine Specialty Chemicals Inc., but it has been misspelled in the style of cause.