Court File and Parties

COURT FILE NO.: CV-22-00689326-00CL DATE: 20240517

ONTARIO SUPERIOR COURT OF JUSTICE COMMERCIAL LIST

BETWEEN:

Toronto District School Board and Simcoe County District School Board Appellants

– and –

Ontario School Boards’ Insurance Exchange Respondent

COUNSEL: Andrew A. Evangelista and Karyn Shapira, for the Appellants Arthur L. Hamilton and Ara Basmadjian, for the Respondent

HEARD: March 27, 2024

REASONS FOR JUDGMENT

OSBORNE J.

[1] The Appellants, the Toronto District School Board (“TDSB”) and the Simcoe County District School Board (“SCDSB”), appeal with leave from the Award of The Hon. Douglas Cunningham, sitting as the Arbitral Tribunal, dated May 4, 2022 (the “Award”).

[2] The Award dismissed the Appellants’ claim against the Respondent, the Ontario School Boards’ Insurance Exchange (“OSBIE”).

The Appeal and the Alleged Errors of Law

[3] The Appellants ask that the Award be set aside and that they be granted:

a. judgment in favour of the TDSB in the amount of $21,980,683 representing its proportionate share of the Guarantee Fund (defined below) as at December 31, 2016, plus applicable pre-judgment and post-judgment interest;

b. judgment in favour of the SCDSB in the amount of $3,916,916 for its proportionate share of the Guarantee Fund, plus interest;

c. in the alternative, a declaration and order that the Respondent holds the Appellants’ respective proportionate shares of the Guarantee Fund in trust for them; and

d. an award of costs in respect of the Arbitration, the application for leave to appeal, and this appeal.

[4] The Appellants submit that the Arbitrator erred in law as follows:

a. in interpreting section 7[^1] of the Reciprocal Agreement (defined below), a standard form contract, as addressing ownership rights of subscribers in the Exchange;

b. in interpreting the Reciprocal Agreement as extinguishing the respective ownership of the assets and equity held by the Appellants in the Exchange when their memberships in the Exchange were terminated;

c. by reading into the Reciprocal Agreement a term that a subscriber’s ownership of the assets and equity in the Exchange is extinguished when membership in the Exchange is terminated;

d. in interpreting the Reciprocal Agreement as mandating the forfeiture of the ownership interest of the Appellants in the Guarantee Fund when it is not referenced in the Agreement; and

e. by failing to provide adequate reasons to support his finding that there was no implied trust in favour of the Appellants.

[5] I would dismiss the appeal for the reasons below.

Facts

[6] The relevant facts are set out in the Award.

[7] The Appellants are district school boards created pursuant to the Education Act, R.S.O. 1990, c. E.2.

[8] The Respondent OSBIE is a reciprocal insurance exchange, licensed and regulated by the Financial Services Regulatory Authority (“FSRA”) pursuant to the provisions of Part XIII of the Insurance Act, R.S.O. 1990, c. I.8 and the Reciprocal Insurance Exchanges Regulation, O. Reg. 637/00. OSBIE was created in 1987 and operates on a not-for-profit basis to provide comprehensive general liability (as well as property and auto) insurance to Ontario school boards.

[9] School boards in Ontario can subscribe to OSBIE, and thereby become Subscribers. As such, they agree to insure each other through the aggregating or pooling of their funds, which are then used on a collective basis to satisfy claims that may accrue over yearly periods. Subscribers exchange reciprocal insurance contracts of indemnity for classes of insurance permitted pursuant to the provisions of the Insurance Act.

[10] The TDSB (and originally, its predecessor, the Metro Toronto School Board) and the SCDSB joined OSBIE in 1987.

[11] The key document is the Reciprocal Insurance Exchange Agreement (the “Reciprocal Agreement”). The Reciprocal Agreement is entered into between and among the subscribing school boards, with each subscription period lasting five years. OSBIE is not a signatory to the Reciprocal Agreement, but rather it is an entity established to manage the arrangement on behalf of all of the subscribing school boards.

[12] The Reciprocal Agreement was originally drafted in August 1986, with effect from January 1, 1987, and was amended and restated on November 30, 2001, with effect from January 1, 2002.

[13] Each of the TDSB and the SCDSB paid annual premiums to OSBIE. In addition, and also pursuant to the Reciprocal Agreement, both Appellant Boards were called upon to make contributions between 1995 and 2000 to OSBIE’s capital fund, as a way of improving OSBIE’s capital targets. All capital contributions made by both Appellants were repaid to them from OSBIE by 2007. Those capital contributions therefore do not form any part of the Guarantee Fund that is the subject of this Appeal.

[14] As stated by the Arbitral Tribunal, and unlike premiums that are pooled for the benefit of all subscribing Boards (in a manner consistent with the design and structure of OSBIE), these capital contributions were separately recorded, according to member and underwriting group (i.e., comprehensive liability, property, and auto). These capital contributions were the only contributions the Respondent Boards made over and above their annual premiums.

[15] The premiums paid by Subscribers are non-refundable and are not segregated or held in separate accounts for each Subscriber. Premiums, reviewed and set by OSBIE’s board annually, are based on a formula and may change from year to year in accordance with a Subscriber’s claims experience.

[16] With respect to the premiums paid, OSBIE maintains a Guarantee Fund, comprised of funds received by way of premiums collected together with investment income earned thereon. It effectively represents an excess of the funds required to pay claims and administrative expenses of OSBIE accumulated over the years.

[17] The Guarantee Fund has appreciated in value materially since 2010. It is this Guarantee Fund, or more particularly, the fact that the Guarantee Fund has materially increased in value, that gave rise to this Proceeding.

[18] The relevant five-year subscription period for each of the Appellant Boards expired at the end of 2016. Each of the TDSB and the SCDSB elected not to renew their subscription, and to terminate their membership in OSBIE.

[19] The Appellants provided written notice of their intention to terminate their respective subscriptions with OSBIE; the TDSB on June 8, 2016 and the SCDSB on June 28, 2016. Both had effect at the end of the year.

[20] The Appellants then sought payment from OSBIE for what they asserted in the Arbitration (and maintain on this Appeal) are their respective ownership shares of the Guarantee Fund, once their open insurance claims are resolved. As at December 31, 2016, the effective date of the terminations, the value of the Guarantee Fund was $117,287,119.

[21] When OSBIE received the notices of termination, it advised both Boards that if they did not reinstate their memberships by November 30, 2016, OSBIE’s assets would remain the property of the Exchange, and the Boards would forfeit all equity rights. However, as departing Subscribers, the Boards would remain responsible for outstanding liabilities, if any, that exceeded the Guarantee Fund for claims arising prior to the effective date of termination.

[22] While the Appellants did not dispute their continuing responsibility for outstanding liabilities, if any, they maintained their claim to an ownership interest in the Guarantee Fund.

[23] The Arbitral Tribunal dismissed that claim based on its interpretation of the Reciprocal Agreement.

[24] The Arbitral Tribunal found that OSBIE, throughout the years of the Appellants’ memberships as Subscribers, has in its annual reports and other publications, identified “ownership” as one of the principal advantages of membership.

[25] The Arbitral Tribunal also found that over the years, OSBIE had achieved significant underwriting “profit” and solid investment returns, which enabled the Guarantee Fund to grow consistently.

[26] The Arbitral Tribunal noted the submission of the Boards that there was no reference to the Guarantee Fund in the Reciprocal Agreement, but determined that “the answer really lies in the wording of the Purpose of the Agreement contained in paragraph 2”.

[27] The Arbitral Tribunal noted that paragraph 2 referred to the Insurance Act and the relevant Regulation noted above, pursuant to which the Reciprocal Agreement was made. The Arbitral Tribunal determined that the relevant statutory provisions[^2] require an exchange to hold funds in excess of liabilities, and if there are deficiencies in the Guarantee Fund, an assessment could be required from Subscribers to make up the deficiency.

[28] In such a case, those funds were to be held separately for each Subscriber assessed, and upon the deficiency being satisfied, are to be returned to assess Subscribers. However, the Arbitral Tribunal determined that this is the only circumstance in which OSBIE holds funds for individual Subscribers.

[29] Accordingly, the Arbitral Tribunal concluded that by reason of section 2 of the Reciprocal Agreement, the Insurance Act was incorporated by reference into the Reciprocal Agreement.

[30] It also dismissed the Appellants’ claims of breach of fiduciary duty, breach of the duty of good faith, and unjust enrichment. Finally, the Arbitral Tribunal dismissed the claim for interest allegedly earned on capital contributions made by (and repaid to) the Appellants on the basis that the claim was statute barred.

[31] Accordingly, and for the reasons set out in the Award, the Arbitration was dismissed with costs.

[32] As stated above at paragraph 4, the Appellants submit that the Arbitral Tribunal made four reviewable errors of law, and each of the Appellants seeks judgment for its proportionate share of the Guarantee Fund or a declaration that OSBIE holds such proportionate shares in trust for them.

Analysis

Jurisdiction and Standard of Review

[33] The jurisdiction of this Court to determine the appeal flows from the Arbitration Agreement entered into by the parties; ss. 37, 45, and 46 of the Arbitration Act, S.O. 1991, c. 17, as amended; r. 62.01(c) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, as amended; and s. 134 of the Courts of Justice Act, R.S.O. 1990, c. C.43, as amended.

[34] The Arbitration Agreement allows for an appeal on a question of law, with leave. Leave to appeal on a question of law was granted by Order of Steele J. dated April 4, 2023: 2023 ONSC 2117.

[35] Steele J. found that the interpretation of the Reciprocal Agreement was a question of law as contemplated by the Supreme Court of Canada in Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, [2016] 2 S.C.R. 23 (“Ledcor”).

[36] On November 15, 2023, Cavanagh J. dismissed a motion by the Respondent to quash this Appeal pursuant to section 134(3) of the Courts of Justice Act for lack of jurisdiction to hear questions of mixed fact and law or questions of fact; or in the alternative, an order striking out the Notice of Appeal under r. 25.11 as an abuse of process.

[37] The interpretation of the Reciprocal Agreement as a standard form contract has already been held to be a question of law (and that is not challenged by any party on this Appeal), such that the standard of review is correctness.

[38] This flows from Ledcor, in which the Supreme Court of Canada recognized an exception for standard form contracts to its holding in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633 (“Sattva”), that contractual interpretation is a question of mixed fact and law subject to deferential review on appeal. The majority held that Sattva did not consider the unique issues that standard form contracts raise, and held, at para. 24, that:

[W]here an appeal involves the interpretation of a standard form contract, the interpretation at issue is of precedential value, and there is no meaningful factual matrix that is specific to the parties to assist the interpretation process, this interpretation is better characterized as a question of law subject to correctness review.

See also Ledcor, at paras. 21, 37, 39, 43 and 46.

[39] For the purposes of this Appeal, I accept that the standard of review is correctness. I do pause to observe, however, that in my view, the Reciprocal Agreement is not a typical standard form contract of the type described by the Supreme Court of Canada in Ledcor, at para. 25, quoting with approval from the description of Professor John D. McCamus in The Law of Contracts, 2nd ed. (Toronto: Irwin Law, 2012), at p. 185:

. . . the document put forward will typically constitute a standard printed form that the party proffering the document invariably uses when entering transactions of this kind. The form will often be offered on a “take it or leave it” basis. In the typical case, the other party, then, will have no choice but either to agree to the terms of the standard form or to decline to enter the transaction altogether. Standard form agreements are a pervasive and indispensable feature of modern commercial life. It is simply not feasible to negotiate, in any meaningful sense, the terms of many of the transactions entered into in the course of daily life.

[40] Standard form contracts (sometimes referred to as contracts of adhesion) are typically just as Professor McCamus described them: standard printed forms that the party proffering the document invariably offers on a “take it or leave it” basis. Examples are contracts like rental car agreements or software licensing agreements, where there is no practical ability of the receiving party to negotiate the terms.

[41] In my view, that framework does not fit easily onto the Reciprocal Agreement at issue in this case. Here, the entity against which the Appellants raise their arguments of contractual interpretation (OSBIE) is not even a party to the contract, let alone a party that dictated its terms. The parties to the Reciprocal Agreement are the Subscribers. OSBIE administers the Reciprocal Agreement on their collective behalf and for their collective benefit. OSBIE did not even negotiate, let alone dictate, the terms of the Reciprocal Agreement. On the contrary, it was negotiated and agreed between and among the Subscribers themselves, originally in 1986 (when both of the Appellants were original Subscribers), and again in 2001 (when both of the Appellants were continuing Subscribers).

[42] The fact that the parties to the Reciprocal Agreement are the Subscribers is reinforced by section 1 of the Insurance Act, which defines an “exchange” or a “reciprocal insurance exchange” to be a “group of subscribers exchanging reciprocal contracts of indemnity or insurance with each other through the same attorney” [Emphasis added].

[43] However, I am satisfied for the purposes of this Appeal, given the findings of this Court already made and in particular the agreement of the Appellants and the Respondent, that a more deferential standard of review is not required for the disposition of the Appeal.

The Issues on Appeal and the Alleged Errors of Law

[44] This Appeal turns entirely on the correctness of the interpretation of the Reciprocal Agreement by the Arbitral Tribunal.

[45] The Appellants’ first three grounds of appeal overlap and require the same analysis. The submissions of the Appellants, both in their factum and in oral submissions, addressed these three alleged errors of law together, and I have therefore addressed them collectively.

[46] The first alleged error of law is that the Arbitral Tribunal erred in its interpretation of section 7 of the Reciprocal Agreement. The second alleged error of law is that, in its interpretation of section 7, and the Reciprocal Agreement as a whole, the Arbitral Tribunal erred in interpreting the Reciprocal Agreement as extinguishing the Appellants’ respective ownership of the assets and equity in the Exchange when their memberships were terminated. The third alleged error of law is that the Arbitral Tribunal erred in interpreting the Reciprocal Agreement as mandating the forfeiture of the Appellants’ ownership interest in the Guarantee Fund when it is not referenced in the Reciprocal Agreement.

[47] Section 7 deals with what happens when a Subscriber terminates participation in the Exchange, just as the Appellants did here. It states:

7. Termination of Subscription

(a) A Subscriber may terminate participation in the exchange of contracts of insurance within an Underwriting Group by written notice of intention to terminate subscription, given prior to July I in the last year of the related Group Subscription Period and, unless such notice is given, the Subscriber's participation in the exchange of contracts of insurance shall continue within the Underwriting Group for successive Group Subscription Periods until terminated by such notice.

(b) A Subscriber may terminate subscription to the Exchange by terminating in accordance with (a) participation in the exchange of contracts of insurance in each Underwriting Group of which the Subscriber is a member. After terminating subscription to the Exchange, the Subscriber has no rights or obligations under this Agreement except in regard to Section 1, Section 27, Section 28, Section 31, Section 35, and Section 37, and is only a Subscriber for purposes of these sections.

[48] The Arbitral Tribunal held that this section was unambiguous and that it clearly established the rights and obligations of departing Subscribers and that the section:

[C]ouldn’t be more clear. Nothing in that section provides any requirement that OSBIE pay any amounts to Subscribers who have terminated their membership in the Exchange. Indeed, as OSBIE points out, there continue to be obligations, a liability a departing member may buy out. Neither of the Applicant boards have taken advantage of that provision.

See: Award, para. 64.

[49] The Appellants submit on this Appeal that the interpretation of the Reciprocal Agreement by the Arbitral Tribunal “relates to a singular general proposition: a subscriber’s entitlement to the funds in the Guarantee Fund [ends] when it terminates its membership in the Exchange.” They submit that this was an error since the Arbitral Tribunal went on to conclude, having found that OSBIE is a non-profit entity owned entirely by its member Subscribers, that “based solely on the words at paragraph 7 of the Agreement, that when a subscribing board leaves the Exchange there is nothing requiring OSBIE to pay any amounts to a terminating subscriber.” (Appellants’ Factum, at paras. 55-56).

[50] The Appellants submit that this interpretation, “given the intention of school board ownership and in the face of the [Reciprocal] Agreement’s silence as to the ownership of the Exchange and the Guarantee Fund, is clearly incorrect. The Arbitrator’s interpretation of para. 7 is not found in the Agreement or supported by any factual finding he made.” (Appellants’ Factum, at paras. 56-57).

[51] This submission cannot succeed, in part for the very reason articulated by the Appellants themselves at the next paragraph in their factum, where they state that: “[p]aragraph 7 of the Agreement speaks to subscribers no longer having rights or obligations under the Agreement, save for the enumerated sections.”

[52] In my view, the Arbitral Tribunal made no error in its interpretation of section 7. The Appellants submit that the Reciprocal Agreement, and particularly section 7, are silent on subscribers’ ownership rights, and if it was intended that subscribers would lose something as fundamental as equity in the Guarantee Fund or the Exchange itself, such a loss would need to be explicitly stated in the Agreement or “conceivably [in] some other document or authority”.

[53] As the Arbitral Tribunal found, section 7 is not silent on subscribers’ ownership rights. On the contrary, it expressly states that a Subscriber has no rights upon termination: “After terminating subscription to the Exchange, the Subscriber has no rights or obligations under this Agreement except in regard to [the enumerated sections].” [Emphasis added].

[54] The enumerated sections are six other sections of the Reciprocal Agreement. None of those provides or creates a relevant exception to the immediately preceding statement that a departing Subscriber has no rights under the Agreement:

a. Section 1 contains defined terms;

b. Section 27 addresses accounting requirements for each underwriting group related to the calculation of a Subscriber’s participation ratio;

c. Section 28 deals with the Board of Directors and annual reports;

d. Section 31 deals with assessments for potential deficits in an underwriting group;

e. Section 35 addresses the continuing liability of departed Subscribers for assessments; and

f. Section 37 is a covenant to pay premiums and assessments.

[55] In short, none of those sections is relevant to the issue on this Appeal and, to be clear, none creates any right to equity or ownership in the Guarantee Fund. Accordingly, section 7 is clear and unambiguous that upon termination, the Subscriber has no rights under the Agreement to equity in the Guarantee Fund.

[56] In addition, in my view, the conclusion that a Subscriber did have equity rights to a proportion of the Guarantee Fund upon termination would be inconsistent with the Reciprocal Agreement read as a whole and interpreted in a manner consistent with the intentions of the parties at the time the contract was entered into.

[57] The parties to this Appeal are in agreement as to the general principles of contractual interpretation. They are summarized aptly by Centa J. in H.Z. v. Upper Canada College, 2022 ONSC 4622:

[48] The Court of Appeal has held that when interpreting a contract, a judge should:

a. determine the intention of the parties in accordance with the language they have used in the written document, based upon the “cardinal presumption” that they intended what they said;

b. read the text of the written agreement as a whole, giving the words used their ordinary and grammatical meaning, in a manner that gives meaning to all of the agreement’s terms and avoids an interpretation that would render one or more of its terms ineffective;

c. read the contract in the context of the surrounding circumstances known to the parties at the time of its formation. The surrounding circumstances, or factual matrix, include facts that were known or reasonably capable of being known by the parties when they entered into the written agreement, such as facts concerning the genesis of the agreement, its purpose, and the commercial context in which it was made. However, the factual matrix cannot include evidence about the subjective intention of the parties; and

d. read the text in a fashion that accords with sound commercial principles and good business sense, avoiding a commercially absurd result, objectively assessed.

Weyerhaeuser Company Limited v. Ontario (Attorney General), 2017 ONCA 1007, 13 C.E.L.R. (4th) 28, at para. 65, rev’d on other grounds, Resolute FP Canada Inc. v. Ontario (Attorney General), 2019 SCC 60, [2019] 4 S.C.R. 394; Thunder Bay (City) v. Canadian National Railway Company, 2018 ONCA 517, 424 D.L.R. (4th) 588, at paras. 30, 46 (“City of Thunder Bay”); Ottawa (City) v. ClubLink Corporation ULC, 2021 ONCA 847, 159 O.R. (3d) 255, at para. 52 (“City of Ottawa”).

[49] Where the parties entered into more than one contract as part of an overall transaction, the contracts must be read in light of each other to achieve interpretive accuracy and to give effect to the parties’ intentions: City of Ottawa, at para. 54. To ascertain the parties’ intentions in the case before me, therefore, it will be necessary to read all of the applicable agreements together: the Registration Agreement, the Financial Handbook, and the Family Handbook.

[50] Finally, when determining the intentions of the parties, the court is not concerned with the parties’ subjective intentions at the time they drafted the contract, but rather with the intent expressed in the written words of the contract and the context in which they used them: Dumbrell v. The Regional Group of Companies Inc., 2007 ONCA 59, 85 O.R. (3d) 616, at para. 50.

[58] In this particular case, the Exchange is an unincorporated association, such that the assets of the Association belong to its then current members. The interest of a member in the assets of the Association terminate if that member voluntarily ceases to be a member: see Organization of Veterans of the Polish Second Corps of the Eighth Army v. Army, Navy & Air Force Veterans in Canada et al. (1978), 1978 CanLII 1606 (ON CA), 20 O.R. (2d) 321 (C.A.), where the Court of Appeal for Ontario expressed it this way:

The interests of the members in the association or club property is a matter which is primarily to be ascertained by reference to the rules of the club: Josling and Alexander, The Law of Clubs, 3rd ed. (1975) at p. 8. Unless the constitution provides otherwise, the rule is that the legal title to common properly is vested in the members of the association for the time being: Massie & Renwick Limited v. Underwriters' Survey Bureau Limited et al., 1940 CanLII 1 (SCC), [1940] S.C.R. 218, per Duff, C.J. at p. 228; 19 Halsb. (4th ed.) para. 135 at p. 78. [Emphasis added.]

A member’s interest in the association’s property continues only so long as he remains a member and, subject to any rules of the society to the contrary, it terminates if he ceases to be a member. Only members in good standing at the time of dissolution are entitled to share in the assets. Lloyd, supra, at p. 175; Abbatt v. Treasury Solicitor, [1969] 1 W.L.R. 1575 at p. 1583; Josling and Alexander, supra, p. 8. [Emphasis added.]

The consequences of the special property rights of members are stated by Lloyd, supra, at p. 177 as follows:

The right of every member in the society’s property is, as has been seen, subject to the similar rights enjoyed by every other member. It follows, therefore, that no alienation of the property can take place, apart from special provisions in the rules, without the concurrence, express or implied, of every member. Just as a majority of members has no inherent right to expel another member from the society, so a majority has equally no inherent power of alienating the common property.

Because of the peculiar nature of the interest of the members of an unincorporated association in the property of the association the courts have been zealous to protect that interest where factions develop and the fellowship of the association is broken. They have been particularly concerned to do this where the fragmented association has split into a disloyal faction, which has gone its separate way and attempted to take the association's property with it, and an ongoing loyal group of adherents seeking to preserve the property and the fellowship of the original association. The tempestuous history of religious denominations, fraternal societies and trade unions affords many examples of local congregations or units seeking to break away from the parent body either to affiliate with another organization or achieve independence. It has been held many times that, unless authorized by the organization’s constitution, a mere majority of members cannot cause property to be diverted to another association having different objects: Vick v. Toivonen (1913), 1913 CanLII 605 (ON CA), 4 O.W.N. 1542. In that case, MacLaren, J.A. said at p. 1543:

It is a well-settled principle of law that the property of a voluntary society like this cannot be diverted by a majority of its members from the purposes for which it was given by those who contributed to it, or devoted to purposes that are alien to or in conflict with the fundamental rules laid down by the society …

[59] Moreover, the Reciprocal Agreement, when read as a whole, is consistent with these principles. Section 2 of the Reciprocal Agreement, setting out its Purpose, is clear that the Reciprocal Agreement is made pursuant to Part XIII of the Insurance Act and the Regulations thereunder:

[F]or the purpose of enabling the Subscribers to exchange reciprocal contracts of indemnity or insurance … Subject to the granting of a licence under the Insurance Act and subject to the provisions of this Agreement, the Subscribers agree to exchange such contracts within such Underwriting Groups to which they may from time to time subscribe. [Emphasis added].

[60] There is no provision in the Reciprocal Agreement that entitles an individual Subscriber to payment of a proportionate share of the Guarantee Fund upon voluntary withdrawal from the Exchange.

[61] The Reciprocal Agreement is not silent on the issue of whether, and on what terms, an individual Subscriber might be entitled to such a proportionate share. That entitlement arises, but only on dissolution and only for Subscribers on the date of dissolution, either of the Exchange as a whole or of one of the three underwriting groups (comprehensive liability, property, or auto). Absent a dissolution, individual Subscribers are entitled to receive surplus premium refunds (and this is what the Appellants are essentially claiming - the balance of the Guarantee Fund in excess of amounts necessary to satisfy outstanding claims) only so long as they are members of OSBIE, and only when such surplus premium refunds are determined and declared by the Board of Directors of OSBIE, acting in its absolute discretion.

[62] All of this flows directly from sections 30(a) and 38(d) of the Reciprocal Agreement. The Arbitral Tribunal recognized, correctly, in my view, that there were only two circumstances in which a subscriber will receive any payment from OSBIE, as provided for in these two sections. They state:

30. Potential Reduction of Premiums or Surcharges on Premiums/Coverage Reduction

(a) In the event that the Board of Directors, in its absolute discretion, determines that the Exchange has accumulated funds in excess of those required to meet the obligations of the Exchange in respect of claims arising in prior years in respect of an Underwriting Group, the Board of Directors may reduce the actuarially determined rate for policies of insurance or may grant premium credits or policyholder dividends for that Underwriting Group in any subsequent underwriting year.

38. Termination of an Underwriting Group

(d) Upon termination of the exchange of reciprocal contracts of insurance within an Underwriting Group, the assets related to the Underwriting Group, after payment of all obligations, and after setting aside an adequate reserve for future liabilities, shall be returned to each Subscriber in the Underwriting Group according to its Subscriber Participation Ratio and after termination the reserve for future liabilities will be reassessed from time to time and when all liabilities have been discharged, any remaining assets returned as [sic] the same basis as upon termination.

[63] Neither of the circumstances contemplated in these provisions applies in the present case. Moreover, the relief that the Appellants seek is inconsistent and incompatible with these provisions, and particularly section 30(a).

[64] It would be practically impossible for the Board of Directors to exercise the discretion it is given in section 30(a) to reduce the actuarially determined rate and grant premium credits or policyholder dividends, if there was the risk that, at any time, an individual Subscriber could “take their marbles and go home” in the sense of terminating their participation as a Subscriber and demanding their proportionate share of the Guarantee Fund. Pursuant to section 30(a), the absolute discretion of the Board can only be exercised in the subsequent underwriting year.

[65] The relief the Appellants seek is also inconsistent with the overarching purpose and objective of the reciprocal exchange in the first place. It would compromise the ability of the exchange to operate with the actuarial confidence that it had the financial ability to respond to claims. The confidence of other Subscribers that the Exchange was being managed prudently such that it had the ability to respond to claims to protect them would inescapably be compromised if any member could withdraw its proportionate share of the funds at any time.

[66] This, too, is entirely consistent with the findings of the Arbitral Tribunal, which held that “[t]here is no other provision in the [Reciprocal] Agreement permitting Subscribers to have access to the Guarantee Fund. As a reciprocal, a collective, it could not operate any other way. The Fund is clearly there for the benefit of the subscribers pursuant to the Agreement they have entered into and agreed to be bound by.” (Award, at para. 62). In my view, the analysis of the Arbitral Tribunal is correct.

[67] It is also consistent, as noted above, with section 7 of the Reciprocal Agreement, which provides that a departed Subscriber has no rights and obligations, except those specified in the six enumerated sections of the Reciprocal Agreement.

[68] I therefore cannot accept the submission of the Appellants that the Arbitral Tribunal improperly implied a term into the Reciprocal Agreement mandating a forfeiture of their ownership rights in circumstances where the contract was silent on the point. As stated above, the Reciprocal Agreement is not silent on the point: section 7 in particular, and the Reciprocal Agreement as a whole, is clear about what happens when a Subscriber withdraws, and the limited circumstances in which a Subscriber is entitled to funds.

[69] The Appellants argue that the Arbitral Tribunal properly found that the Guarantee Fund was owned by the Subscribers. I agree. However, the Appellants then submit that, given this finding, a determination that they are not entitled to take their proportionate share of the Guarantee Fund is inconsistent with the right of ownership. With that, I disagree. The Subscribers own the Guarantee Fund, but they do not own it unconditionally, such that they can take it whenever they may elect to do so. Rather, they own it subject to the terms of the Reciprocal Agreement as set out above, and particularly as clearly stated in section 2, which sets out the Purpose of the Reciprocal Agreement and explicitly states that Subscribers agree to exchange Contracts of indemnity “subject to the provisions of this Agreement”.

[70] Put differently, the right of ownership in a Subscriber is not, in this case, a right to go to the Guarantee Fund and withdraw that Subscriber’s proportionate share of the funds. Rather, ownership is manifested through the right to the benefits of being a Subscriber to a collective, all of which is consistent with the intentions of the parties at the time the Reciprocal Agreement was entered into, none of which intentions included the intention to create an investment fund that could be drawn upon at any time if and when funds were needed.

[71] Finally, the interpretation of the Reciprocal Agreement by the Arbitral Tribunal is entirely consistent with the intention of the parties at the time the Reciprocal Agreement was entered into. The Arbitral Tribunal stated in the Award that “[b]oth [Appellants], being original members of the Exchange, fully understood and appreciated the circumstances of membership.”

[72] The Appellants submit that the Arbitral Tribunal erred in law, however, when it considered events subsequent to the formation of the contract, and specifically the fact that at no time since the Exchange commenced operations in 1987 has any departing Subscriber been entitled to payment of its proportionate share of the Guarantee Fund. The Arbitral Tribunal stated:

[W]hen [the] Hamilton Wentworth District School Board, the York Region Board of Education and the Peel District School Board withdrew from OSBIE in 2006, 1998 and 1996, respectively, none of these Subscribers made any demand for any “share of the equity” in the Guarantee Fund and no such share was ever paid. It is worth noting that a TDSB representative was on the OSBIE Board of Directors when each of these school boards terminated their memberships. The Tribunal must assume these boards recognized that the terms of the Agreement did not provide for an individualized payment to a departing subscriber.

[73] The Appellants submit that the Arbitrator relied on this evidence of the actions of other terminating subscribers to import into the Reciprocal Agreement a term that was clearly not contemplated at the time of signing: a term mandating that the Appellants would forfeit their ownership in the Guarantee Funds upon terminating their participation as Subscribers.

[74] While it is not necessary, given my findings above, to consider the conduct of other departing school boards in order to dispose of this Appeal, I find the Arbitral Tribunal committed no error of law when considering this fact. The Arbitral Tribunal was keenly aware of the contractual interpretation jurisprudence and that consideration of the circumstances surrounding the Reciprocal Agreement was limited to the time of the formation of that contract: Sattva, at para. 58.

[75] I accept the submission of OSBIE that, in observing what had occurred when other school boards withdrew as Subscribers, the Arbitral Tribunal was not considering post-contract intentions (which are inadmissible), but rather was considering post-contracting conduct, which is admissible to the extent it is relevant to demonstrate the intentions of the parties at the time of contracting, if the contract is ambiguous. Such evidence can be admitted as an aid to interpretation: Shewchuk v. Blackmont Capital Inc., 2016 ONCA 912, 404 D.L.R. (4th) 512 (“Shewchuck”), at para. 48.

[76] In Shewchuk, at para. 39, the Court of Appeal recognized that the Supreme Court was clear in Sattva that evidence of the factual matrix or surrounding circumstances of a contract is admissible to interpret the contract, and is to be considered at the outset of the interpretive exercise (in contrast with the earlier view that such evidence was admissible only if the contract was ambiguous on its face).

[77] The issue in Shewchuk was whether evidence of the contracting parties’ conduct subsequent to the execution of their agreement is part of the factual matrix such that it, too, is admissible at the outset, or whether a finding of ambiguity is a condition precedent to its admissibility. Chief Justice Strathy, writing for a unanimous Court of Appeal, noted that subsequent conduct must be distinguished from the factual matrix, and that the scope of the factual matrix is temporally limited to evidence of facts known to the contracting parties contemporaneously with the execution of the contract. It follows that subsequent conduct is not part of the factual matrix (at para. 41).

[78] The Court of Appeal went on to observe that there are some dangers associated with reliance on evidence of subsequent conduct, including the danger that overreliance on subsequent conduct may reward self-serving conduct. However, the Court was clear that evidence of subsequent conduct is admissible where the contract remains ambiguous after considering its text and its factual matrix.

[79] As the Court of Appeal stated, at para. 48: “[d]espite its dangers, evidence of subsequent conduct can be useful in resolving ambiguities. It may help to show the meaning the parties gave to the words of their contract after its execution, and this may support an inference concerning their intentions at the time they made their agreement.” [Emphasis in original].

[80] In this case, the Appellants clearly argued before the Arbitral Tribunal in their closing submissions that “[w]here there is ambiguity in the sense that a phrase is capable of bearing two equally reasonable interpretations, the court may consider extrinsic evidence …”. The Appellants expressly argued that the “[Reciprocal] Agreement is ambiguous or, alternatively, silent regarding the ownership of the assets in the OSBIE Exchange, including the approximately $130 million Guarantee Fund.”

[81] In my view, and having expressly urged the Arbitral Tribunal to find that the contract was ambiguous, the Appellants cannot succeed on an argument that the Arbitral Tribunal considered evidence of subsequent conduct (which it did in the context of discerning the intentions of the parties at the time of contract formation) improperly, amounting to an error of law.

[82] In any event, as I have stated above, given my finding that the Reciprocal Agreement was not ambiguous, it is not necessary to consider any subsequent conduct to interpret the Reciprocal Agreement, and I have not done so.

[83] For all of these reasons, I find that the Arbitral Tribunal committed no error of law, as submitted by the Appellants, and that it interpreted the Reciprocal Agreement correctly.

No Basis or Foundation for Ownership Rights outside the Reciprocal Agreement or by way of Constructive Trust

[84] The Appellants also submit that the Arbitral Tribunal erred in law by failing to provide adequate reasons for its determination that there was no implied trust pursuant to which the Appellants were entitled to a beneficial interest in the Guarantee Fund.

[85] The Appellants also argue, as noted above at para. 51, that a loss or forfeiture of the entitlement they claim would have to be stated somewhere in the Reciprocal Agreement or “conceivably [in] some other document or authority”.

[86] Moreover, the clear statement in section 7 that a Subscriber has no rights upon termination is qualified by the words “under this Agreement”.

[87] For all of these reasons, it is necessary to consider whether there is some other basis or foundation for a claim to proportionate ownership of the Guarantee Fund by a departing Subscriber.

[88] The Arbitral Tribunal found, at para. 66 of the Award, that: “there is no trust in favour of individual subscription. OSBIE, as noted, is a collective entirely governed by the Agreement all subscribers enter into. Nothing in the Agreement or the legislation suggests otherwise.”

[89] In my view, this finding was correct, and the reasons for it, while brief to be sure, are adequate, particularly in the circumstances of this case where these arguments were not pressed by counsel in written or oral submissions. More importantly, the reasons are adequate because the submission that there was an implied trust engaged the very same issues already fully explored by the Arbitral Tribunal, such that the analysis did not need to be repeated.

[90] Simply put, I agree with the Arbitral Tribunal that “nothing in the Agreement or the legislation suggests otherwise”. There is nothing on the evidence that would support a finding that rights and obligations between Subscribers on the one hand, and OSBIE on the other hand, are governed by anything other than the terms of the Agreement (and the relevant provisions of the Insurance Act and regulations incorporated by reference therein). There is no basis in the evidence for the argument that a trust relationship, wholly extraneous to the terms of the Reciprocal Agreement, exists.

[91] In my view, the Reciprocal Agreement is a complete codification of the rights and obligations of Subscribers. The Appellants themselves submit that: “[t]here is no other document or written authority to support OSBIE’s position that a subscribing board that ceases to exchange insurance contracts in OSBIE forfeits its equity, capital, or ownership rights.” (Factum, at para. 22). In my view, the Appellants are correct that there is no other document or written authority.

[92] However, this works both ways in the sense that there is no other document or written authority that is relevant to a determination of the respective rights of the parties, and certainly none that creates or even references the existence of a trust or any rights and obligations other than those that flow from the Reciprocal Agreement. Finally, the very right to ownership claimed by the Appellants flows from the Reciprocal Agreement itself, not from any other document or a trust relationship.

[93] As stated above, the Arbitral Tribunal had already analyzed in detail in its Reasons the relevant provisions of the Reciprocal Agreement such that in my view, it cannot be said that meaningful appellate review was unavailable as a result of insufficient reasons: McDonald v. Toronto-Dominion Bank, 2022 ONCA 788, 163 O.R. (3d) 674 at paras. 121 – 124.

[94] For all of these reasons, the Appeal is dismissed.

Costs

[95] Pursuant to section 131 of the Courts of Justice Act, costs are in the discretion of the court, and the court may determine by whom and to what extent the costs shall be paid.

[96] Rule 57.01 provides that in exercising its discretion under section 131, the court may consider, in addition to the result in the proceeding (and any offer to settle or contribute), the factors set out in that Rule.

[97] The overarching objective is to fix an amount that is fair, reasonable, proportionate, and within the reasonable expectations of the parties in the circumstances: Boucher v. Public Accountants Council for the Province of Ontario (2004), 2004 CanLII 14579 (ON CA), 71 O.R. (3d) 291 (C.A.).

[98] Each of the parties seeks their costs of this appeal and the Arbitration Proceeding below, in the event they are successful. Both the Appellants and the Respondent submitted Costs Outlines. The Decision of Steele J. on the motion for leave to appeal reserved the costs of that motion to the judge hearing the appeal.

[99] The Appellants’ Costs Outline reflects costs on a partial indemnity basis of $56,666 and actual costs of $94,443 (both amounts inclusive of disbursements and HST). The Respondent’s Costs Outline reflects partial indemnity costs of $22,577.40 and actual costs of $37,629 (both amounts inclusive of HST; there having been no disbursements).

[100] The issue on this Appeal was important, both to the parties and also to OSBIE and all other Subscribers. The quantum at issue exceeded $24 million.

[101] The Respondent was successful on the Appeal and is entitled to its costs. There is no basis to award costs on an elevated scale here.

[102] Having considered the success on the Appeal, the importance of the issues, and the factors in r. 57, and having reviewed the Costs Outlines, in my view an appropriate award of costs is $20,000 inclusive of HST. The Appellants shall pay this amount to the Respondent within 60 days.

Result and Disposition

[103] The Appeal is dismissed. Order to go to give effect to these reasons.

[104] I am grateful to all counsel for their able and thorough submissions.

Note: This Endorsement was amended on June 5, 2024 to correct a typographical error by deleting the word "snow" in the last sentence of paragraph 70. No other amendments were made. Osborne J.

[^1]: The appeal materials refer to this provision somewhat inconsistently as "paragraph 7”, or alternatively, "section 7”. However, there is no confusion that the provision being referenced is one and the same. I refer to the provision in these reasons as “section 7” unless the reference is within an exact quote.

[^2]: Subsections 386(5) and (6) of the Insurance Act.