Court File and Parties
COURT FILE NO.: CV-19-00632545-0000 DATE: 2023-01-27 ONTARIO SUPERIOR COURT OF JUSTICE
RE: Wawanesa Mutual Insurance Company, Plaintiff -and- Barry Marta, Lawson LLP and CEP Forensic Engineering Inc. CEP Ingerierie Legale Inc., defendants
BEFORE: Robert Centa J.
COUNSEL: Don Rollo, for the plaintiff Stephen Cavanagh, for the defendants Barry Marty and Lawson LLP
HEARD: January 24, 2023
Endorsement
[1] Wawanesa Mutual Insurance Company sued Barry Marta and his law firm Lawson LLP for solicitor’s negligence in connection with a subrogated claim Wawanesa advanced in the name of one if its insureds.
[2] The lawyer defendants move under rule 21.01(3)(b) of the Rules of Civil Procedure, R.R.O. 1990, Reg 194, to have the action stayed or dismissed on the basis that Wawanesa does not have the legal capacity to commence or continue this action, which they submit must be advanced in the name of the insured.
[3] For the reasons that follow, I dismiss the motion.
Facts
[4] There are very few relevant facts in dispute between the parties.
[5] Wawanesa insured a property owned by Andrew Dupuis. On November 1, 2010, Mr. Dupuis discovered a heating oil leak in the basement of his house that also affected his neighbour’s property. Wawanesa responded to Mr. Dupuis’s claim under its policy of insurance and indemnified him for his losses.
[6] On October 23, 2012, Wawanesa retained the lawyer defendants to pursue a subrogated claim against the heating oil provider and the manufacturer of the oil tank. The lawyer defendants issued the claim on November 7, 2012: Dupuis v. W.O. Stinson & Son Limited, Court file 12-55924. On September 3, 2013, Master MacLeod, as he then was, ordered that the action was deemed to have been issued on November 1, 2012.
[7] On October 19, 2019, Ryan Bell J. dismissed the Dupuis action for delay under rule 24.01(2): Dupuis v. W.O. Stinson & Son Limited, 2019 ONSC 5762. Justice Ryan Bell found that the action was not set down for trial within 5 years of the commencement of the action, there was no reasonable explanation for the delay, and there was prejudice to the defendants because the engineering firm retained to store the oil tank had lost it.
[8] On December 10, 2019, Wawanesa sued the lawyer defendants and the engineering firm that allegedly lost the oil tank. Wawanesa seeks $1 million in damages.
[9] Wawanesa pleaded that it was an insurance company licenced by the province of Ontario to sell property and casualty insurance. It alleged that it retained the lawyer defendants “to pursue a subrogated claim,” namely, the Dupuis action. Wawanesa claimed that it suffered a loss as a result of the negligence of the lawyer defendants, who owed Wawanesa a duty of good faith that required the lawyer defendants to act promptly when handling the Dupuis action. Wawanesa pleaded that the lawyer defendants breached the standard of care in many ways during their handling of the Dupuis action.
[10] Wawanesa pleaded that it has “incurred $455,705.93 in pursuing the [Dupuis] action.” In addition to significant expenses to remediate the spill, this amount includes $52,532 in legal fees paid to the lawyer defendants, and $5,413.83 to the engineering defendants.
[11] The lawyer defendants served a notice of intent to defend but have not filed a statement of defence. Instead, they brought a motion to have the action dismissed against them under rule 21.01(3)(b), which provides that:
21.01(3) A defendant may move before a judge to have an action stayed or dismissed on the ground that, …
(b) the plaintiff is without legal capacity to commence or continue the action or the defendant does not have the legal capacity to be sued; …
and the judge may make an order or grant judgment accordingly.
Position of the parties
[12] The lawyer defendants submit that Wawanesa is “without legal capacity to sue” because this claim “is the same as the subrogated action, but is now aimed at different defendants.” The lawyer defendants submit that the current action remains a subrogated one and, therefore, Wawanesa cannot avoid the common law and contractual requirement that such claims be brought in the name of the insured. As a result, the defendants submit that Wawanesa does not have legal capacity to bring this action.
[13] Wawanesa submits that its current action is for solicitor’s negligence. It is an action against the lawyer defendants for breach of contract and negligence with respect to their work on the subrogated action. Wawanesa submits that the lawyer defendants owed duties to Wawanesa, regardless of whether the lawyer defendants’ clients were Dupuis, Wawanesa, or both. Wawanesa submits that this is not a subrogation action, it is a completely distinct action for breach of contract and negligence against the lawyers.
Analysis
[14] Rule 21 provides several different and distinct methods for the determination of an issue before trial. Parties may move for the determination of a question of law before trial where that determination disposes of some or all parts of an action (rule 21.01(a)). Parties may also move to strike out a pleading on the ground that it discloses no reasonable cause of action or defence (rule 21.01(1)(b)).
[15] Some of the rules are only available to defendants. Pursuant to rule 21.01(3), a defendant may move to have an action stayed or dismissed where the court has no jurisdiction over the subject matter of the action, where there is another proceeding pending between the same parties in respect of the same subject matter, or if the action is frivolous, vexatious, or an abuse of the process of the court. The law firm moves under rule 21.01(3)(b), which reads as follows:
21.01(3) A defendant may move before a judge to have an action stayed or dismissed on the ground that, …
(b) the plaintiff is without legal capacity to commence or continue the action or the defendant does not have the legal capacity to be sued; …
and the judge may make an order or grant judgment accordingly.
[16] The defendant lawyers must demonstrate that it is plain and obvious that Wawanesa does not have the legal capacity to commence or continue its claim: Zuppinger v. Slightham, 2019 ONSC 5117, at para. 9; Grant v. Collingwood (Town), 2013 ONSC 1720, at para. 39, aff’d 2013 ONCA 568.
[17] The notion of legal capacity in rule 21.01(3)(b) is a relatively narrow and technical one related to the plaintiff's legal ability to commence the litigation: Western Delta Lands Inc. / Immeubles Western Delta Inc. v. Zurich Indemnity Co. of Canada, [1999] O.J. No. 2984 (C.A.) (Western Delta (CA)), reversing [1999] O.J. No. 5863 (Gen. Div.) (Western Delta (Gen. Div.)); Vetro v. Canadian National Exhibition Assn., 2014 ONSC 4324, 17 C.B.R. (6th) 326, at para. 17; Dolgonos v. Scotia Capital Inc., at para. 40.
[18] To have legal capacity to commence or continue the proceeding, Wawanesa must be a natural person, a corporation, or a body which has been given that capacity by statute: Jackson v. Toronto Police Association, at para. 18; McNamara v. North Bay Psychiatric Hospital (1994), 16 O.R. (3d) 633 (C.A.); S. (J.R.) v. Glendinning (2000), 191 D.L.R. (4th) 750 (S.C.J.).
[19] Rule 21.01(3)(b) exists in the rules because some entities do not have the legal capacity to sue or be sued. For example, an unincorporated association lacks capacity to sue because it has no legal existence separate from its members: Longley v. Canada (Attorney General), 2007 ONCA 852, 88 O.R. (3d) 408. A dissolved Ontario corporation does not have the capacity to commence an action, but it may continue an action that began before it was dissolved: Business Corporations Act, R.S.O. 1990, c B.16, s. 242; Sickinger v. Krek, 2016 ONCA 459, 132 O.R. (3d) 548.
[20] However, rule 21.01(3)(b) is not to be used to assess the merits of a claim brought by an entity with the capacity to sue or be sued. This is demonstrated by the Western Delta case.
[21] Western Delta involved a motion to consolidate three actions that arose out of a financial support agreement and a loan agreement. The defendant, Zurich Indemnity, moved to dismiss the claim of S.B. McLaughlin Associates (or S.B.M.A.) because of a lack of legal capacity. Zurich submitted that the only persons who had the capacity to maintain an action for breach of contract were the parties to the contract and that such persons must claim only in respect of damages, losses, or expenses incurred directly by them and not by third parties. Zurich submitted that S.B.M.A. was not a party to the Financial Support Agreement with respect to those provisions of that agreement that it allegedly breached. Therefore, Zurich submitted that S.B.M.A. did not have the legal capacity to continue as a plaintiff in the action.
[22] Justice Ground granted Zurich’s motion and found that S.B.M.A. lacked legal capacity to sue for damages as it was not a party to the contract at issue:
With respect to the question of legal capacity, it appears to me that all of the alleged breaches of contract by Zurich, from which the damages claimed are alleged to flow, relate to the $5 million guarantee bond dated November 30, 1990 and the $3 million guarantee bond dated November 30, 1990 and not to the guarantee bond in the amount of $2,300.000 dated November 30, 1990 with respect to the financing for Pinnacle Country Club. I must also conclude that the effect of the Assumption and Amending Agreement to the Financial Support Agreement is to add S.B.M.A. as a principal only with respect to the latter guarantee bond in that paragraph 4 of the Assumption and Amending Agreement provides that if such guarantee bond is delivered to Zurich for cancellation or is otherwise fully satisfied or is utilized for another transaction, S.B.M.A. will be released from the Financial Support Agreement. Accordingly I am of the view that S.B.M.A. does not have the legal capacity to prosecute the claims for damages arising out of the alleged breaches of contract by Zurich set out in the counterclaim in the first action or in the Statement of Claim in the third action and which will be carried through to the consolidated action.
[23] The Court of Appeal allowed S.B.M.A.’s appeal. The Court of Appeal held that S.B.M.A. was at all times a duly incorporated company with the legal capacity to commence the action, which satisfied the narrow and technical notion of legal capacity in rule 21.01(3)(b). The Court of Appeal held that Ground J. erred by considering the merits of the plaintiff’s claim, which is relevant to a rule 21.01(1)(a) motion or a rule 20 motion, but not to a motion under rule 21.01(3)(b):
The appellant now confines this appeal to a challenge to the order of Ground J. dismissing the claims of S.B. McLaughlin Associates Inc. ("S.B.M.A.") for damages arising out of the alleged breaches by Zurich.
The motion seeking this relief was based on the assertion that this plaintiff lacked legal capacity. The moving party referenced Rule 21.01(3)(b) in its notice of motion.
Ground J. disposed of this motion by concluding that "S.B.M.A. does not have the legal capacity to prosecute the claim for damages".
In our view, Ground J. erred in this conclusion. The notion of legal capacity referred to in Rule 21.01(3)(b) is a relatively narrow and technical one relating to the plaintiff's legal ability to commence the litigation. Here, there is no doubt that S.B.M.A. was at all times a duly incorporated company with the capacity to commence the action.
The reasoning used by Ground J. to reach his conclusion related to the merits of the plaintiff's claim. While this reasoning could have been relevant to a Rule 20 motion, or perhaps a Rule 21.01(1)(a) motion, this motion was neither of those. The appellant was put on notice of a motion challenging its legal capacity and the motions judge disposed of the motion on that basis.
[24] The Court of Appeal’s interpretation of rule 21.01(3)(b) in Western Delta is dispositive of this motion. There is no doubt that Wawanesa is an insurance company licenced by the province of Ontario to sell property and casualty insurance. It is a legal entity that can sue and be sued. That is sufficient for Wawanesa to survive a motion under rule 21.01(3)(b).
[25] The lawyer defendants’ submissions regarding subrogation may be relevant to a future motion under rule 21.01(a) or (b), or Rule 20, but I find that their subrogation argument is irrelevant to the question of Wawanesa’s legal capacity to commence or continue this claim.
[26] The lawyer defendants have not demonstrated that it is plain and obvious that Wawanesa does not have the legal capacity to commence or continue its claim. I dismiss their motion without prejudice to their rights to bring a different motion under Rule 20 or Rule 21 as they see fit and the Rules of Civil Procedure permit.
[27] If the parties are not able to resolve costs of this motion, Wawanesa may email its costs submission of no more than three double-spaced pages to my judicial assistant on or before February 3, 2023. The defendant lawyers may deliver their responding submission of no more than three double-spaced pages on or before February 10, 2023. No reply submissions are to be delivered without leave.
Robert Centa J. Date: January 27, 2023