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Monday Morning Case Bites for November 22, 2022

Last Week’s Court Rulings from the Alberta Court of Queen’s Bench, Court of Appeal and SCC.

Edited by Steven Graham

Ross v Rancho Realty (Edmonton), 2021 ABQB 921
Rule 4.33 | Delay | Significant Advance | Procedural Order

Trial Lawyers Association of British Columbia v Royal & Sun Alliance Insurance Company of Canada, 2021 SCC 47
Estoppel | Breach of Policy | Denial of Coverage | Waiver

Ross v Rancho Realty (Edmonton), 2021 ABQB 921

The Defendants in both actions brought applications to dismiss the claims for delay under both Rule 4.31 and 4.33. The matters were heard together as counsel were the same in both and the latter steps proceeded in lockstep. The Defendants argued that the Plaintiffs’ provision of undertaking responses in May 2018 were the last significant advance, and filed their applications to dismiss on August 13, 2021.

The Court had to consider the Ministerial Order 27/2020 extension to limitation periods and determined that at minimum, the 75 day extension is available, but the Court has the discretion to take away the extension. The Master did note that the discretion to take away the suspension should only be exercised under “the most compelling circumstances”:

[11]           The key provisions within Ministerial Order 27/2020 are as follows:

  1. Limitation periods are suspended in the enactments under Appendix A from March 17, 2020 to June 1, 2020.
  2. Any period of time within which any step must be taken in any proceeding or intended proceeding is suspended subject to the discretion of the court, tribunal, or                       other decision-maker from March 17, 2020 to June 1, 2020.
  3. For clarity, the limitation period or period of time resumes running on June 1, 2020 and the temporary suspension period shall not be counted.

[14]           In Rahmani v 959630 Alberta Ltd, 2021 ABCA 110 (“Rahmani”) the Court of Appeal provided a very useful list of legal principles that could be discerned from the decisions of that Court in interpreting Rule 4.33. Included in that list (at paragraph 14) was the statement that: “Rule 4.33 functions like a limitations period.”

[15]           However, I need not decide if Rule 4.33 creates a “limitation period” within the meaning of the first paragraph of Ministerial Order 27/2020 as I believe that the extension of 75 days is available under the second paragraph of the Ministerial Order. The second point states that any period of time within which any step must be taken in any proceeding is suspended, subject to the discretion of the court. To me, that means that the court has the discretion to take away the suspension, but the starting point is that it is available.

[16]           In this case, I will not exercise my discretion to take away the 75 day suspension allowed under the Ministerial Order for the simple reason that such discretion should only be exercised with respect to Rule 4.33 under the most compelling circumstances, since the application of the rule is a death sentence for the cause of action. There are no compelling circumstances such that I should exercise my discretion to take away the 75 day suspension under the second paragraph of Ministerial Order 27/2020.

[17]           The net result of this ruling is such that I must determine if a significant advance was made within three years and 75 days from May 28, 2018 in the Ross Action and from May 29, 2018 in the Martz Action.

In the Ross action, the Plaintiff had filed an application for a procedural order approving a litigation plan with a return date of August 10, 2021, though a return date of July 27, 2021 was originally requested. August 10, 2021 was the earliest the Court was able to schedule the application. The Defendant’s counsel was present for the application on August 10, 2021 and advised the Court that they were planning to bring a delay application. The Court therefore had to determine if the procedural order significantly advanced the action:

[21]           Some important concepts identified by Alberta courts in determining whether a significant advance has occurred under Rule 4.33 include the following:

(a) The rule must be applied within the context of the foundational rule (r 1.2) to resolve claims fairly and justly in a timely and cost effective way: Rahmani, paragraph 14;

(b) The application of the Rule is mandatory. If three years or more have passed without a significant advance the Court must dismiss the action: St. Jean Estate v Edmonton (City), 2014 ABCA 47;

(c) Plaintiffs bear the responsibility of prosecuting their claims in a timely way: XS Technologies Inc v Veritas DGC Land Development Ltd, 2016 ABCA 165;

(d) Defendants are obliged (pursuant to r 1.2) to not obstruct, stall or delay an action that the plaintiff is advancing: Rahmani, paragraph 14;

(e) The court must use a functional approach in determining whether something is a significant advance. The functional approach inquires whether the advance in an action moves the lawsuit forward in an essential way considering its nature, value, importance and quality. The genuineness and timing of the advance in the action are also relevant. The focus is on substance of the step taken and its effect on the litigation, rather than its form: Ursa Ventures Ltd v Edmonton (City), 2016 ABCA 135, (“Ursa Ventures”), Ro-Dar Contracting Ltd v Verbeek Sand & Gravel Inc, 2016 ABCA 123 and Weaver v Cherniawsky, 2016 ABCA 152;

(f) The functional approach to r. 4.33 is context-sensitive: “[C]ases that have considered a particular advance in an action will be useful precedents, but they are not determinative”: Ursa Ventures at paras 19, 23, Rahmani, paragraph 14;

(g) The test is not whether steps could have advanced the action but whether they actually did significantly advance the action: Delver v Gladue, 2019 ABCA 54.

The Master noted that the application for the procedural order was made last minute, in part due to the difficulty the Plaintiff had in obtaining a court date. The Master also made clear that the functional approach to delay is case-specific and where a procedural order for a litigation plan advanced an action in one case, it does not mean all litigation plans necessarily advance an action. The Mater noted the decision of MHK Insurance Inc. V Wass (2021 ABQB 328) in which a procedural order was found to have significantly advanced an action because it put the action back on track and the matter was virtually ready for trial.

In this case, Master Summers determined that MHK was distinguishable, since the parties still had a significant number of pre-trial steps to complete:

[28]           In my view, the procedural order in this action has not significantly advanced the action, considering its nature, value, importance and quality. Reviewing the history of the litigation, it is apparent that a procedural order was not required to get the litigation moving. The litigation history shows that it was counsel for the Defendants who repeatedly tried to move the action along and it was counsel for the Plaintiffs who was not responding. If the Defendants were dragging their heels and were the authors of the delay, it is possible that a procedural order approving a Litigation Plan might have more value and importance and consequently be a significant advance. But that is not the case here.

The Master also declined to attribute fault to the Defendants for failing to respond to communications from the Plaintiff’s counsel, since the Defendants took the position that the Ministerial Order did not apply, and therefore the three year period for delay had been satisfied as of May 2021:

[29]           I appreciate that in the Plaintiffs’ chronology of events counsel for the Defendants did not reply to communications from the Plaintiffs’ counsel on June 3, 2021. I do not attribute any fault to the Defendants in this respect as they took the position that the 3 year period from the last significant advance had expired (May 28, 2021 in the Ross Action and May 29, 2021 in the Martz Action) and the suspension under the Ministerial Order did not apply. Furthermore, prior to that it was the Defendants’ counsel who made most of the efforts to get the litigation going and it was the Plaintiffs’ counsel that failed to respond.

Finally, the Master determined that the appearance of the Defendant’s counsel at the Plaintiff’s application for the procedural order did not warrant the action continuing:

[31]           A further issue that I must consider is whether the attendance of counsel for the Defendants at the Plaintiffs’ application for a procedural order is a participation that warrants the action continuing. In my view it does not. Counsel for the Defendants made it very clear in his submissions to Justice Feth that he was not consenting to or opposing the granting of the procedural order, but was just in attendance to let the court know of his upcoming application. Justice Feth said that what he would do is “create a window” to allow counsel for the Defendants to bring his delay application.

Accordingly, the Ross action was dismissed pursuant to Rule 4.33.

In the Martz case, the Court noted that while there was much more that happened after the undertakings had been provided, there was nothing that significantly advanced the action. The Master emphasized that during the relevant three year period it was the Defendants who had taken most of the effort to move the matter forward:

[39]           Although there was much more activity after the responses to undertakings had been given in the Martz Action than in the Ross Action, I find that there was not a significant advance in the Martz Action. As with the Ross Action, it appears that it was counsel for the Defendants who was the one that was most active in trying to get the action moving. It was the Defendants that made an offer of settlement that was not responded to. It was the Defendants that proposed mediation that was not responded to. Counsel for the Defendants even proposed how the Plaintiffs could make a significant advance—by providing the Plaintiffs’ expert report by July 1, 2021.

Once again, the Master concluded that the granting of a procedural order for a litigation plan did not significantly advance the action:

[41]           But has this procedural order approving a Litigation Plan significantly advanced the Martz Action, considering the nature, value, importance and quality of that step? In my view it has not. A procedural order setting the Litigation Plan did not move this action ahead in a significant way. Like the Ross Action, it has been the Defendants that have been striving to move this action forward. Counsel for the Defendants advised counsel for the Plaintiffs to proceed with preparation of the Plaintiffs’ expert report. The Defendants made a settlement offer that was not responded to. The Defendants suggested a mediator for a mediation and that was not pursued by the Plaintiffs.

[42]           As in the Ross Action, the attendance of counsel for the Defendants at the application for a procedural order to approve the Litigation Plan, in order to allow for a window for him to bring his delay application is not a participation by the Defendants that warrants the Martz Action continuing.

The final consideration was whether the stay of proceedings under Rule 4.34 has an impact on a Rule 4.33 application. The Master determined that it does not prevent a Rule 4.33 application from being made, and that the period of the stay does not count under a Rule 4.33 application. As such, the Martz action was similarly dismissed.

Trial Lawyers Association of British Columbia v Royal & Sun Alliance Insurance Company of Canada 2021 SCC 47

The underlying action involved a motor vehicle accident in which D died. His insurer, Royal & Sun Alliance (“RSA”) defended his estate in actions commenced by B and another claimant. Over a year into the litigation, RSA learned that D had consumed alcohol immediately prior to the accident, which put him in breach of his insurance policy. RSA ceased to defend further and denied coverage. B sought a declaration to recover judgment against RSA on the basis that RSA waived its right to deny full coverage by failing to take an “off-coverage” position and providing a defence to D in the litigation. The trial judge found that RSA had waived its right to deny coverage by conduct and awarded the declaration. On appeal, the Court of Appeal noted the Ontario Insurance Act precluded waiver by conduct, and there could be no estoppel because RSA’s conduct could not amount to a promise or assurance intending to affect the parties’ legal relationship, since it did not know of D’s policy breach when it first defended him.

The BC Trial Lawyers Association was permitted to be substituted for the appellant on the appeal to the Supreme Court of Canada.

Before the Supreme Court, the Appellant conceded that waiver by conduct was precluded by statute at the time, but argued that promissory estoppel continued to apply.

The Supreme Court noted that promissory estoppel is an equitable defence, well-settled in Canadian law, that requires the following:

[15]                         Promissory estoppel is an equitable defence whose elements were stated by Sopinka J. for this Court in Maracle, at p. 57:

The principles of promissory estoppel are well settled. The party relying on the doctrine must establish that the other party has, by words or conduct, made a promise or assurance which was intended to affect their legal relationship and to be acted on. Furthermore, the [promisee] must establish that, in reliance on the [promise], he acted on it or in some way changed his position. [Emphasis added.]

The equitable defence therefore requires that (1) the parties be in a legal relationship at  the time of the promise or assurance; (2) the promise or assurance be intended to affect that relationship and to be acted on; and (3) the other party in fact relied on the promise  or assurance. It is, as we will explain, implicit that such reliance be to the promisee’s detriment.

As an aside, the Supreme Court noted that the Appellant’s argument might be better framed as estoppel by representation, which prevents a promisor from denying the truth of a prior representation. However, the Supreme Court held that whatever form of estoppel relied upon, their reasoning would be the same, and ultimately concluded the appeal must fail.

The critical part of the Supreme Court’s reasoning was that RSA gave no promise or assurance intended to affect its legal relationship with the Plaintiff B. As RSA did not know at the time it provided its defence that its insured had breached the policy, it could not have provided any such assurance or promise to the Plaintiff. The Supreme Court further noted that even if constructive knowledge of the facts demonstrating the breach were sufficient for estoppel (they are not), RSA could not be fixed with constructive knowledge of those facts in this case:

[18]                         […] Further, and even if constructive knowledge of the facts demonstrating a breach were sufficient for purposes of estoppel (which, as we will explain, it is not), RSA cannot be fixed with constructive knowledge of such facts in the circumstances of this case. RSA was under a duty to Mr. Devecseri to investigate the claim against him “fairly”, in a “balanced and reasonable manner” (Fidler v. Sun Life Assurance Co. of Canada, 2006 SCC 30, [2006] 2 S.C.R. 3, at para. 63, citing with approval 702535 Ontario Inc. v. Lloyd’s London, Non‑Marine Underwriters (2000), 184 D.L.R. (4th) 687 (Ont. C.A.), at para. 29). It did so. RSA was under no additional duty to Mr. Bradfield or other third‑party claimants to investigate policy breaches at all, much less on a different and more rigorous standard than that which it owed to its insured.

Having found sufficient grounds to dismiss the appeal, the Supreme Court went on to consider additional difficulties that a claimant will face in raising a successful estoppel argument against an insurer.

The first is intention. One of the underlying requirements of estoppel is a promise or assurance be intended to affect the legal relationship of the parties. This requires the promisor to know the facts giving rise to the legal relationship. The Supreme Court indicated that a promisor cannot intend to alter a relationship by promising to refrain from acting on information that it does not have. To succeed, the Plaintiff would have needed to show that RSA knew of the facts demonstrating the breach prior to furnishing their defence on the basis of coverage.

The Supreme Court rejected the notion that constructive knowledge arising from a breach of a duty to investigate is sufficient to impute knowledge to RSA. The Supreme Court emphasized the insurer owes a duty to its insured to investigate liability claims fairly and reasonably, and permitting them to have constructive knowledge of facts that are not notorious or within their own files could interfere with this obligation – or worse – give incentives to insurers to actively search for policy breaches. The Supreme Court maintained that the obligation is of the insurer to its insured, and not to a third party, and those obligations are reciprocal in nature:

[36]                         This reciprocity of obligation is worth stressing. This Court has taken care to strike a careful balance in stating and developing the duty of utmost good faith and fair dealing between insurer and insured with a view to facilitating the honest, fair, and expeditious resolution of insurance claims. Here, RSA owed Mr. Devecseri a duty to investigate the claims against his estate fairly, in a balanced and reasonable manner, and without being zealous or relentless in its search for policy breaches. Had he survived, Mr. Devecseri would have owed a reciprocal duty to disclose any information in his possession which might have voided his coverage — in particular, that he had consumed alcohol. If, after having received this disclosure, RSA had continued to provide a defence, Mr. Devecseri could have relied on that continued defence as an assurance of coverage that could prevent RSA from later changing positions. Had, however, Mr. Devecseri failed to disclose to RSA the fact of his having consumed alcohol, the breach of his duty to disclose would foreclose any later assertion by him and against RSA of estoppel.

With respect to imputing knowledge, the Supreme Court considered if RSA had known of the fact that its insured had consumed alcohol, but failed to appreciate its legal significance (ie. That it was a breach of the policy). In such a case, knowledge of that legal significant could be imputed to RSA. The Supreme Court cited several authorities that support an insurer being estopped from denying coverage once it has defended, where the insurer had the facts but failed to appreciate their legal significance at the time. These authorities did not assist the Appellant because in this case, RSA did not have the facts.

The Appellant argued that it could assert estoppel on behalf of D (the insured)’s estate as well as B, based on assurances to each and detriment suffered by each. In obiter comment, the Supreme Court addressed the difficulties of this “extraordinary” submission.

  • While s.258 of the Insurance Act (which appears in each Canadian province or territory’s version – s.579 in Alberta) permits a third party to maintain an action against an insurer, the critical requirement is that the third party have obtained a judgment against the insured first.

Accordingly, the Supreme Court dismissed the appeal.