COURT
    OF APPEAL FOR ONTARIO

CITATION: Nagpal v. IBM Canada Ltd., 2021
    ONCA 274

DATE: 20210430

DOCKET: C67398

Doherty, Pepall and Thorburn
    JJ.A.

BETWEEN

Vinay Nagpal

Plaintiff

(Respondent)

and

IBM
    Canada Ltd.

Defendant

(Appellant)

Jennifer Dolman and Aislinn Reid, for
    the appellant

IBM Canada Ltd.

Michael N. Freeman, for the respondent Vinay
    Nagpal

Heard: February 16, 2021 by videoconference

On appeal from
    the judgment of Justice Paul B. Schabas of the Superior Court of Justice, dated
    July 30, 2019, with reasons reported at 2019 ONSC 4547, 2019 C.L.L.C. 210-065.

Thorburn J.A.:

A.

OVERVIEW

[1]

This is an appeal of an order dismissing IBM
    Canada Ltd.s (IBM) motion for summary judgment and granting summary judgment
    in favour of IBMs former employee, Vinay Nagpal.

[2]

In so doing, the motion judge held that IBM had
    not established that Mr. Nagpal had resigned, abandoned his position at IBM,
    or that his contract of employment was frustrated. These were the issues placed
    before the motion judge by IBM.

[3]

First, the motion judge held that, there was no
    clear and unequivocal resignation by Mr. Nagpal. Nor can it be said that Mr.
    Nagpals actions, viewed objectively by a reasonable person, clearly and unequivocally
    indicated an intention to no longer be bound by his employment contract with
    IBM. As such, the motion judge held that Mr. Nagpal did not resign or abandon
    his employment with IBM.

[4]

Second, the motion judge found that IBM could
    not rely on the doctrine of frustration as IBM had no basis to find that his
    illness was permanent, or even long-term at the time his employment ended.

[5]

Third, although he held it was not necessary for
    his decision, the motion judge was not satisfied that the Short-Term Disability
    (STD) Policy formed part of the employment contract which could be relied on
    by IBM to support its contention that Mr. Nagpal resigned.

[6]

On the motion, the parties had agreed that,
    should IBM be unsuccessful in establishing that Mr. Nagpal either resigned,
    abandoned his position, or that the contract was frustrated, it would follow
    that Mr. Nagpal had been wrongfully dismissed. Noting this concession, the
    motion judge granted Mr. Nagpal summary judgment for wrongful dismissal, with
    damages to be assessed.

[7]

On this appeal, IBM claims the motion judge:

1.

Made palpable and overriding errors by
    misapprehending evidence that Mr. Nagpal had resigned, abandoned his
    employment or that his contract of employment was frustrated;

2.

Erred in holding that the STD Policy was not
    part of Mr. Nagpals employment contract and that Mr. Nagpal was not estopped
    from denying that the STD Policy was enforceable; and,

3.

Erred in finding that IBM had a duty to further
    discuss Mr. Nagpals medical condition with him.

[8]

For the reasons that follow, I would dismiss the
    appeal.

B.

BACKGROUND

Mr. Nagpals employment history

[9]

Mr. Nagpal was employed by IBM for over two
    decades and spent fifteen years in leadership or management positions.

[10]

In 2011, he applied for and was granted a new
    leadership position. Shortly thereafter, he began experiencing stress and
    mental health problems. Mr. Nagpal attributed these difficulties to a
    challenging employee and he sought support from his supervisor, Rick Simpson. The
    motion judge found that, by March 2012, Mr. Simpson was aware of Mr.
    Nagpals stress and mental health challenges but took few steps to address them.
    By November 2012, Mr. Simpson was tracking Mr. Nagpals absences from work and,
    in January 2013, Mr. Simpson gave Mr. Nagpal a poor performance evaluation,
    the first he had received.

[11]

In March 2013, Mr. Nagpal called in sick. Mr.
    Nagpal advised IBM that his doctor recommended he take six weeks off and he
    commenced a leave of absence. He was referred to Manulife Financial Corp.
    (Manulife), which administers IBMs STD Policy.

The STD Policy

[12]

Under the STD Policy, qualified IBM employees with
    at least five years of service are provided 100% of their salary for the first
    26 weeks of disability leave. To qualify, an employee must have an illness or
    injury that prevents the employee from performing the essential duties of the
    occupation. Documentation must be provided to Manulife in support of the claim.

[13]

If short-term disability benefits are denied by
    Manulife, the employee may either return to work, appeal Manulifes decision
    and remain on an administrative unpaid leave of absence until the appeal is
    adjudicated by Manulife, or apply for long-term disability. The STD Policy also
    provides that:

If you have not taken any action in support of
    your appeal within one month of the commencement of the unpaid leave, IBM will
    consider that you have abandoned your appeal. In this instance
you will be
    expected to return to work immediately or will be presumed to have voluntarily
    resigned your employment with IBM
. [Emphasis added.]

[14]

While Manulife administers the STD Policy on
    behalf of IBM, the policy provides that IBM in its sole discretion shall
    decide who is properly entitled to STD benefits. It also provides that IBM reserves
    the right to modify, discontinue, suspend, or improve its disability policies
    and, further, that [n]othing contained in [the policy] shall be construed as
    creating an express or implied obligation on the part of IBM to maintain its
    disability policies.

Mr. Nagpals application for STD benefits

[15]

In May 2013, Mr. Nagpal was told he had to
    provide documentation to support his claim for short-term disability benefits
    to Manulife.

[16]

In June, Mr. Nagpals psychiatrist completed
    Manulifes short questionnaire confirming that he was being treated for
    depression and anxiety, among other things.

[17]

In early July, his psychologist completed
    Manulifes questionnaire, advising that Mr. Nagpal had poor stress coping,
    cognitive impairment, limited energy and tolerance and that the duration of
    this was unknown. She stated that return to work is premature and would
    likely exacerbate symptoms and stall recovery and was not recommended. Manulife
    acknowledged receipt of these materials, thanked Mr. Nagpal for his quick
    response, and told him that, [a]s the information is reviewed, we will
    follow-up with you.

[18]

Neither Mr. Nagpals psychiatrist nor
    psychologist provided their notes and reports to Manulife, as requested by the
    questionnaire. Manulife never followed up to request these additional
    materials, nor did Mr. Nagpal receive copies of the information his treating professionals
    sent to Manulife.

Manulifes response

[19]

On July 16, Manulifes medical consultant, Dr.
    Hines, reviewed Mr. Nagpals file. On the basis of the responses to
    questionnaires, he observed that there was some improvement in Mr. Nagpals
    condition. He acknowledged that Mr. Nagpal was on medication for
    depression and that there were workplace issues but stated that Mr. Nagpal should
    be able to receive treatment while working. He did not contact Mr. Nagpals
    doctors. The motion judge noted that it was difficult to reconcile Dr. Hines
    conclusion with the views of those treating Mr. Nagpal.

[20]

On July 19, Manulife told Mr. Nagpal that his benefits
    would be terminated based on the information received from his two physicians
    and Dr. Hines assessment. Mr. Nagpal was advised that he could appeal but that
    there would be no point in appealing unless he submitted information that has
    not already been reviewed.

[21]

On July 22, IBM, through Mr. Simpson, informed
    Mr. Nagpal that he could return to work or appeal Manulifes decision, and that
    he had until August 22, 2013 to provide the appropriate documentation required
    to support the appeal to Manulife, otherwise IBM would consider the appeal
    abandoned and you will be required to return to work or will be considered to
    have voluntarily resigned your employment.

The termination of Mr. Nagpals benefits and
    IBMs response

[22]

Mr. Nagpal did not commence an appeal and provided
    no new information to Manulife, although his benefits were to expire on July
    30. He contacted his doctors, who confirmed that Manulife had not requested any
    additional information and that they were unable to offer anything new to
    Manulife. Mr. Nagpal deposed that, at this point, he thought IBM was putting
    him between a rock and a hard place and that he saw no point in appealing, as
    Manulifes representative had told him there was nothing to be gained.

[23]

Instead, he engaged legal counsel, Mr. Freeman,
    who advised IBM by letter dated July 29 that:

1.

Mr. Nagpal
cannot return to work
 (emphasis added);

2.

[T]here is no new information that would be brought
    forward in support of an appeal other than what was provided by Mr. Nagpals
    doctors on June 2 and July 2, 2013;

3.

The doctors would be pleased to provide updated
    information if required; and,

4.

Mr. Nagpal has no intention of resigning, nor
    will he be cajoled into doing so. He is, however, prepared to enter into
    negotiations that might lead to the development of an exit package whereby he
    would agree to leave IBM provided that he is reasonably compensated for doing
    so.

5.

He looked forward to the courtesy of your
    prompt reply.

[24]

Mr. Nagpals short-term disability benefits
    expired the following day.

[25]

No one at IBM responded to Mr. Nagpal counsels July
    29, 2013 letter until September 10, when IBM offered Mr. Nagpal three options:
    (1) a return-to-work meeting to discuss your barriers to returning to work;
    (2) communicate directly with IBM to address any workplace concerns; and/or
    (3) contact the confidential employee assistance provider for information about
    services such as Professional Counselling, Family Support, Nutrition and
    Health Coaching. He was told that if he did not engage any of these processes
    by September 27, 2013 we will consider you to have voluntarily resigned on
    September 27, 2013.

[26]

On September 19, his counsel responded, stating that
    Mr. Nagpals healthcare providers advise that he is not capable of returning
    to work even with some form of accommodation. [T]he only satisfactory
    resolution is that if Mr. Nagpals disability cannot be reinstated, his
    salary should continue to be paid to him. It appears the intent is to either
    starve Mr. Nagpal into settlement or force him to resign from his employment.
    Please rest assured that neither of these will happen.

[27]

Mr. Nagpals counsel received no response from
    IBM. On October 9, the company wrote to Mr. Nagpal stating that it considered him
    to have abandoned [his] employment with IBM Canada Limited. While there were
    further discussions with Mr. Nagpals counsel, IBM did not reinstate Mr. Nagpal
    as requested or provide him with an exit package.

[28]

In December 2013, Mr. Nagpal commenced an action
    against IBM alleging, among other things, wrongful or constructive dismissal. In
    May 2014, he also commenced an action against Manulife, alleging breach of
    contract, which was settled by payment of a lump sum of an undisclosed amount
    prior to the motion on appeal.

Mr. Nagpals ongoing health challenges

[29]

There is no dispute that Mr. Nagpal was unwell
    in 2013 and continued to have mental health challenges for several years
    following these events. The motion judge noted that, [i]n the litigation,
    additional medical information, in the form of notes and reports have been
    produced that may well have supported continuing STD, and providing [long-term
    disability], benefits.

[30]

The motion judge found that these documents were
    in the doctors possession but not Mr. Nagpals and, as noted above, that Mr.
    Nagpal was unaware of the contents of the documents submitted to Manulife.

C.

ANALYSIS OF THE Issues

1.

Did the motion judge make palpable and
    overriding errors of fact in holding that Mr. Nagpal neither resigned nor
    abandoned his employment, nor was the contract frustrated?

The law

[31]

As the motion judge observed, resignation must
    be clear and unequivocal. The evidence must objectively reflect an intention to
    resign, through words or conduct. Context is important. The totality of the
    circumstances must be considered:
Kieran v. Ingram Micro Inc.
(2004)
,
189 O.A.C. 58 (C.A.), at para. 27.

[32]

The test for abandonment by contrast, is whether
    the statements or actions of an employee, viewed objectively by a reasonable
    person, clearly and unequivocally indicate an intention to no longer be bound by
    the employment contract and, in particular, the implied term of every
    employment contract that the employee must attend work unless excused or unable:
Betts v. IBM Canada Ltd.
, 2015 ONSC 5298, 2016 C.L.L.C. 210-003 (
Betts

(ONSC)
), at para. 57, affd 2016 ONSC 2496, 31 C.C.E.L. (4th) 60 (Div.
    Ct.) (
Betts (Div. Ct.)
);
Pereira v. The Business Depot Ltd.
,

2009 BCSC 1178
, at para. 29,
revd on
    other grounds, 2011 BCCA 361
,
20 B.C.L.R.
    (5th) 295
.

[33]

A contract is frustrated where, without default
    of either party, a contractual obligation has become incapable of being
    performed because the circumstances in which performance is called for would
    render it a thing radically different from that which was undertaken by the
    contract:
Duong v. Linmar Corp
, 2010 ONSC 3159, 82 C.C.E.L. (3d) 84,
    at paras. 33-36, affd

2011 ONCA 38 and
Naylor Group Inc. v. Ellis-Don Construction
    Ltd.
, 2001 SCC 58, [2001] 2 S.C.R. 943 at 967-968.

[34]

The determination of whether a temporary
    incapacity to work constitutes frustration is also contextual. Illness alone is
    not a frustrating event and one must look at the length of the illness in
    relation to the duration of the employment contract:
Duong
, at para.
    35;
Antonacci v. Great Atlantic & Pacific Company of Canada Ltd.
(1998),
    35 C.C.E.L. (2d) 1 (Ont. C.J.), at para. 37, affd 128 O.A.C. 236 (C.A.), at
    paras. 9-11.

[35]

Evidence that relates to the post-termination
    nature and extent of an employees disability is permitted only if that
    evidence sheds light on the nature and extent of the employees disability at
    the time of the employees dismissal:
Ciszkowski v. Canac Kitchens
,
    2015 ONSC 73, 20 C.C.E.L. (4th) 171, at para 156.

The motion judges decision

[36]

The motion judge found that Mr. Nagpal said clearly,
    through his lawyer, that he had no intention of resigning or abandoning his
    employment.

[37]

He rejected IBMs argument that, notwithstanding
    these statements, Mr. Nagpals conduct in failing to appeal Manulifes
    decision or return to work amounted to abandonment or resignation. In his view,
    Mr. Nagpals conduct could not be looked at in isolation. IBM ignored the letters
    from Mr. Nagpals lawyer and simply relied on the process set out in the STD Policy,
    the application of which, it had delegated to Manulife. When that ran its
    course, IBM presented Mr. Nagpal with options that all contemplated a return to
    work, even though IBM knew Mr. Nagpal had been on STD leave for four
    months due to mental health issues, and had been told by Mr. Nagpals lawyer
    that Mr. Nagpals treating professionals had advised him against returning to
    work.

[38]

The motion judge observed that IBM made no
    attempt to engage with Mr. Freeman or obtain any further information about
    Mr. Nagpals condition, despite the fact that IBM knew he was under medical
    care. While the motion judge noted that Mr. Freeman failed to identify the
    gap in information [provided by Mr. Nagpal] or pursue an appeal [with Manulife]
    which might have disclosed more about Mr. Nagpals condition to IBM, this alone
    did not mean Mr. Nagpal resigned or abandoned his employment.

[39]

Finally, he considered IBMs argument that the
    STD Policy was part of Mr. Nagpals contract of employment such that Mr.
    Nagpal was deemed to have voluntarily resigned. The motion judge found that the
    STD Policy was not part of the employment contract that could be relied upon by
    IBM to conclude that he had resigned but held that this finding was not
    necessary for his decision. [H]aving regard to the entire factual context, he
    held that Mr. Nagpal did not resign, nor did his actions, viewed objectively,
    indicate that he no longer intended to be bound by the terms of his employment
    contract.

[40]

Moreover, at para. 52, he held that the contract
    of employment was not frustrated because when his employment was terminated:

IBM had very limited evidence of Mr. Nagpals
    condition, and no basis to find that his illness was permanent, or even
    long-term. It made no inquiries either. To the extent that evidence
    subsequently disclosed demonstrated that he had a longer-term illness, this was
    something that could easily be tolerated by a large company like IBM. An
    ability to tolerate long-term absences is indicated by the availability of
    long-term disability benefits and by the fact that had Mr. Nagpal appealed
    Manulifes decision his employment status would have continued, albeit without
    pay.

[41]

Since IBM conceded on the motion for summary
    judgment that Mr. Nagpal was wrongfully dismissed if IBMs arguments regarding
    resignation, abandonment, and frustration were unsuccessful, the motion judge
    granted summary judgment in favour of Mr. Nagpal.

Analysis and conclusion

[42]

There is no dispute that deference is owed to
    the motion judge on appeal. Whether or not there is a genuine issue requiring
    trial is a question of mixed fact and law. Absent an error in principle or an
    error with regard to a purely legal question, the motion judges findings should
    be overturned only where there is palpable and overriding error:
Hryniak v.
    Mauldin
, 2014 SCC 7, [2014] 1 S.C.R. 87, at paras. 80-84.

[43]

I see no error in the motion judges finding
    that IBM did not satisfy its onus to establish that Mr. Nagpal resigned or
    abandoned his employment on or before October 9, 2013, because (i) he and his
    counsel made clear and unequivocal assertions that he was not resigning or
    abandoning his employment; (ii) he advised IBM that he was suffering from ongoing
    mental health issues and, (iii) Mr. Nagpals lawyer told IBM that Mr. Nagpals healthcare
    providers said he was incapable of returning to work and they would be
    pleased to provide updated information if required.

[44]

Based on this undisputed evidence, I find there
    was no palpable and overriding error in the motion judges findings of fact or
    his conclusion that, viewed objectively, Mr. Nagpals actions do not reflect a
    clear intention to resign nor do they indicate an intention to no longer be
    bound by the employment contract. As discussed in greater detail below, nor do I
    accept IBMs argument that, notwithstanding this evidence, Mr. Nagpal resigned
    by operation of the STD Policy. As such, IBMs argument that the motion judge erred
    in finding that Mr. Nagpal neither resigned nor abandoned his employment must fail.

[45]

I further find that the motion judge made no legal
    error in concluding that the contract of employment was not frustrated.

[46]

IBM claims the motion judge made a palpable and
    overriding error of fact by failing to consider evidence that, at the time of Mr.
    Nagpals termination of employment, there was no reasonable likelihood of him
    returning to work at IBM within a reasonable period and that the contract of
    employment was therefore frustrated. This evidence was in the form of letters
    from legal counsel referenced above, and medical evidence.

[47]

I disagree. IBMs argument on the motion and
    before this court was that it was not provided with sufficient information to
    know the extent of Mr. Nagpals illness or when he could return to work. Since
    IBM did not know and did not ask Mr. Nagpals counsel to provide the
    information from Mr. Nagpals treating medical professionals, whom he said
    would be pleased to provide updated information if required, IBM could not
    satisfy its onus to establish that the contract of employment was frustrated at
    the time his employment terminated.

[48]

IBM cited
Ciszkowski
to support its
    position on appeal that post-termination evidence is permitted so long as it
    relates to the nature and extent of an employee's disability at the time of
    termination of employment.

[49]

The
Ciszkowski
decision was noted by
    the motion judge. He held, however, that the case also provides that an
    employer is not permitted to rely on post‑termination evidence if it is
    not relevant to the dismissal date. The medical notes IBM introduced on the
    motion were written prior to Mr. Nagpals dismissal but were not in IBMs possession
    at the time of dismissal. They are evidence that demonstrates only that, sometime
    later, IBM discovered he had a longer-term illness.

[50]

Moreover, the letters from Mr. Nagpals lawyer, which
    were available to IBM at the time his employment was terminated, were before
    the motion judge and his interpretation of those letters attracts deference. The
    letters do not establish that Mr. Nagpals illness was so severe that he was
    likely unable to continue his employment after the expiration of the term of IBMs
    long-term disability policy.

[51]

For these reasons, IBMs claim that the contract
    of employment was frustrated must fail.

2.

Did the motion judge err in holding that the STD
    Policy was not part of Mr. Nagpals employment contract?

[52]

IBM raises several arguments concerning the motion
    judges treatment of the STD Policy. IBM claims (i) the motion judge erred by
    granting summary judgment on a basis not pleaded, namely that the STD Plan did
    not form part of Mr. Nagpals contract of employment; (ii) the motion judge
    applied incorrect legal principles in determining that the STD Policy did not
    form part of the contract of employment; and in any event, (iii) Mr. Nagpal was
    estopped from denying the enforceability of the STD Policy.

[53]

In short, IBM claims that the STD Policy confers
    benefits on employees that they are not otherwise entitled to under statute or
    common law. The condition of receiving those benefits is that employees comply
    with the terms set out in the policy. As such, IBM claims the motion judge was
    wrong to decide that the STD Policy did not form part of the contract of
    employment and erred in failing to give effect to the STD Policys presumption
    of resignation.

[54]

As noted by IBM, this STD Policy has been found
    by other courts to be enforceable, insofar as noncompliance with procedures set
    out in the policy (i) may justify dismissal or (ii) may support a finding of resignation
    or abandonment:
Betts (ONSC)
, at para. 62;
Betts

(Div.
    Ct.)
, at para. 19.

[55]

The motion judge nonetheless held that the STD Policy
    could not be relied on by IBM to conclude that Mr. Nagpals failure to appeal
    Manulifes decision and his subsequent failure to return to work amounted to a
    resignation. He observed that termination provisions  rebutting an employees
    common-law entitlement to termination only on reasonable notice  require clear,
    express, and unambiguous language in the contract of employment. In his view, the
    STD Policy did not form part of the contract of employment because there was no
    evidence of a common intention to be bound by its terms, as IBM could change
    those terms unilaterally at any time. His analysis of this issue is consistent with
    the authorities in
Leeming v. IBM Canada Ltd.
, 2015 ONSC 1447, at
    paras. 48-51;
Rahemtulla v. Vanfed Credit Union
(1984), 51 B.C.L.R.
    200 (S.C.), at paras. 10-28, per McLachlin J. (as she then was);
Cheong v.
    Grand Pacific Travel & Trade (Canada) Corp.
, 2016 BCSC 1321, 35
    C.C.E.L. (4th) 316, at para. 48.

[56]

He held however, at para. 45, that it was not
    necessary for him to decide whether the STD Policy formed part of Mr. Nagpals
    contract of employment.

[57]

I agree with the motion judge that it is not
    necessary to decide whether this STD Policy forms part of the contract of
    employment because, even if it were part of the employment contract, the
    provision of the STD Policy at issue provides only that Mr. Nagpal will be
presumed
to have voluntarily resigned (emphasis added).

[58]

I accept that, regardless of whether it forms
    part of the contract of employment, the presumption contained in the STD Policy
    could be relevant to a determination of whether Mr. Nagpal in fact clearly and
    unequivocally resigned his employment, as suggested by the Divisional Court in
Betts
,
    at para. 19. But this presumption must be looked at in the context of the other
    evidence that (i) Mr. Nagpal and his counsel clearly and consistently said
    that he
did not
intend to resign, and (ii) the above medical opinions substantiate
    Mr. Nagpals claim that he was suffering from mental health issues and there
    were concerns about his ability to return to work. Even if the presumption of
    resignation were part of the contract of employment, it was open to the motion judge
    to find that the evidence, taken as a whole and viewed objectively, does not clearly
    and unequivocally indicate Mr. Nagpals intention to resign or abandon his
    employment contract, particularly given the evidence that he was unable to work
    when he was seen by his psychologist.

[59]

In my view, Mr. Nagpals conduct, and that of
    his lawyer, was not without fault. But the motion judge was alive to these
    issues. As he noted, [e]ach case turns on its own facts. He considered and
    distinguished
Betts
and found on the evidence before him that,
    notwithstanding the language of the STD Policy, Mr. Nagpal did not resign.
    This finding is entitled to deference.

[60]

I cannot accept IBMs argument that the motion
    judge erred by deciding the motion on a basis not pleaded by Mr. Nagpal. IBM
    raised the effect of the STD Policy on its motion; Mr. Nagpal was entitled to
    dispute IBMs assertions. The motion judge was invited to consider the effect
    of the STD Policy and, in any event, did not decide the motion on the basis of its
    unenforceability. Moreover, there was no unfairness in granting Mr. Nagpal
    summary judgment given IBMs concession that liability would follow from the
    failure of its motion.

[61]

Finally, because the motion judge did not decide
    the motion for summary judgment on the basis of the enforceability of the STD
    Policy, I need not address IBMs estoppel argument.

3.

Whether the motion judge erred in finding that
    IBM had a duty to discuss Mr. Nagpals medical condition further with him

[62]

IBM also claims that the motion judge erred by
    asserting that IBM had a duty to discuss Mr. Nagpals medical condition with
    him.

[63]

The motion judge remarked, at para. 38, that:

IBM should have done more when Mr. Nagpal
    clearly expressed an intention to return to work when he was able to do so and
    said he could not do so because of his continuing illness, on the advice of his
    doctors. Instead, on September 10, rather than reaching out to Mr. Freeman [Mr.
    Nagpals lawyer] and inquiring into why Mr. Nagpal, a senior, a [sic] long-time
    employee was not able to return to work, Ms. Runnalls [from IBM] gave him an
    ultimatum and Mr. Simpson [from IBM] initiated steps to permanently replace Mr.
    Nagpal.

[64]

This statement was made in the context of the
    motion judges analysis of whether IBM had established that Mr. Nagpal resigned
    or abandoned his employment, not in the context of a free-standing duty on
    IBMs part.

[65]

Furthermore, as noted at para. 30 of the motion
    judges reasons, the parties agreed that unless IBM was able to establish that
    Mr. Nagpal resigned or abandoned his employment, or that his contract of
    employment was frustrated, IBM would concede that Mr. Nagpal was wrongfully
    dismissed.

[66]

Consistent with that agreement, the motion judge
    held, at para. 54 of his reasons, that:

In light of my findings that Mr. Nagpal did
    not resign or abandon his employment, and that the employment contract was not
    frustrated, IBMs motion for summary judgment is dismissed. It follows, then,
    that Mr. Nagpal was wrongfully dismissed, and I grant summary judgment in
    favour of the plaintiff accordingly. Although Mr. Nagpal brought no motion
    for summary judgment, the Court can grant judgment in such circumstances when
    all of the relevant evidence is before the Court, as here, and where, as here,
the parties agreed that the only
    remaining issue if IBM failed on its motion, is to determine damages
.
    [Emphasis added]

[67]

Given the above concession
that the wrongful dismissal claim succeeds if the claims of
    resignation, abandonment, and frustration are unsuccessful, the only remaining
    issue is the determination of damages.

D.

CONCLUSION

[68]

For the above reasons, I would dismiss the
    appeal and remit the issue of damages to the motion judge.

[69]

The parties did not reach an agreement on costs
    of the appeal and the motion below. I would order that, if the parties are
    unable to reach an agreement, the respondent shall make written submissions,
    not exceeding five pages, within 14 days of the release of these reasons. The
    appellant shall make written submissions, not exceeding five pages, within 10
    days after the respondent makes his submissions.

Released:
April
    30, 2021 D.D.

J.A.
    Thorburn J.A.

I
    agree. Doherty J.A.

I
    agree. S.E. Pepall J.A.


COURT OF APPEAL FOR ONTARIO

CITATION: Nemchin v. Green, 2021 ONCA 342

DATE: 20210519

DOCKET: C67869

Roberts, Trotter and Thorburn
    JJ.A.

BETWEEN

Tatiana Nemchin

Plaintiff (Appellant)

and

Yvonne Green

Defendant
    (Respondent)

Joseph Y. Obagi and Elizabeth A.
    Quigley, for the appellant

Stephen G. Ross, Thomas Macmillan and
    Meryl Rodrigues, for the respondent

Heard: October 27, 2020 by
    video conference

On appeal
    from the order of Justice Sylvia Corthorn of the Superior Court of Justice,
    dated October 28, 2019, with reasons reported at 2019 ONSC 6243.

COSTS ENDORSEMENT

[1]

On April 16, 2021 we allowed
    the appeal and amended various paragraphs of the trial judges October 28, 2019
    order. The trial judge had ordered the appellant to pay to the respondent an
    additional amount to top up the appellants assigned benefits under the Sun
    Life income continuation plan to account for Sun Lifes deduction of income
    taxes at source. We set aside that portion of the order and required the
    respondent to reimburse the appellant for any top up amounts paid by the
    appellant pursuant to the order. We granted the appellant her partial indemnity
    costs in the agreed upon amount of $30,000.

[2]

We invited the parties to
    make further written submissions about the costs of the motion before the trial
    judge if they could not agree on their disposition in the light of our
    decision. They could not and we have reviewed their costs submissions.

[3]

In her March 3, 2020
    endorsement, reported as
Nemchin v. Green
, 2020 ONSC 1375, the trial
    judge disposed of the costs related to two motions: she awarded the respondent
    costs for its successful assignment and prejudgment interest motion but concluded
    that there should be no order with respect to costs for the second motion
    dealing with various aspects of the treatment of the Sun Life benefits which
    culminated in her October 28, 2019 top up order (the top up motion). The
    trial judge was of the view that both parties were responsible for the lack of
    agreement reached with respect to the terms of the assignment of the
    appellants rights under the Sun Life plan.

[4]

The appellant seeks costs
    related to the top up motion. The respondent says there should be no costs. In
    the event that we award costs to the appellant, the parties have agreed that
    costs should be in the amount of $10,000.

[5]

We agree that the appellant
    is entitled to costs.

[6]

While, as the respondent
    points out, the parties respective submissions were developed somewhat
    differently on appeal, this was understandable in the circumstances as the
    parties had to respond to the trial judges unanticipated top up order. As the
    trial judge noted, the terms of her order differ from the specific terms
    proposed by counsel for the parties during submissions.

[7]

The tax treatment of the
    assigned benefits proved a stumbling block for the parties agreement on the
    terms of the assignment. Had the parties sought an advance ruling from the CRA
    on the tax treatment of the benefits, as suggested by the appellant, the tax treatment
    issue could have been ascertained and an agreement more likely achieved. The
    top up motion could have been avoided or, at the very least, could have
    proceeded on a more certain factual footing. Instead, both the top up motion
    and the resulting appeal were argued without a concrete understanding of the
    tax consequences of the assignment from the CRAs perspective.

[8]

Moreover, as we noted in
    paragraph 41 of our reasons disposing of the appeal, the appellant should be
    relieved of the financial burden related to the implementation of the assignment
    of her rights under the Sun Life plan for the period of the assignment. As a
    result, she is entitled to her costs of the motion to deal with the mechanical
    aspects of the assignment.

[9]

Accordingly, the respondent
    shall pay to the appellant the agreed upon amount of $10,000 for her costs in
    relation to the top up motion.

L.B.
    Roberts J.A.

Gary
    Trotter J.A.

J.A.
    Thorburn J.A.


COURT OF APPEAL FOR ONTARIO

CITATION: Nemchin v. Green, 2021 ONCA 238

DATE: 20210416

DOCKET: C67869

Roberts, Trotter and Thorburn
    JJ.A.

BETWEEN

Tatiana Nemchin

Plaintiff (Appellant)

and

Yvonne Green

Defendant
    (Respondent)

Joseph Y. Obagi and Elizabeth A.
    Quigley, for the appellant

Stephen G. Ross, Thomas Macmillan and
    Meryl Rodrigues, for the respondent

Heard: October 27, 2020 by
    video conference

On appeal
    from the order of Justice Sylvia Corthorn of the Superior Court of Justice,
    dated October 28, 2019, with reasons reported at 2019 ONSC 6243.

Roberts
J.A.:

Overview

[1]

The appellant appeals from
    the trial judges order requiring her to top up the amount of the long-term
    disability benefits that she assigned to the respondents insurer pursuant to
    s. 267.8(12) of the
Insurance Act
, R.S.O. 1990, c. I.8.

[2]

Following the successful
    trial of her action, the appellant was awarded substantial damages against the
    respondent. The respondent then moved under s. 267.8(12) of the
Insurance
    Act
for an order requiring the appellant to assign her rights to the
    benefits she receives under an income continuation plan to the respondents
    insurer. The trial judge granted the respondents request and included an additional
    order that the appellant
top up any amount
    paid from her insurer, Sun Life Assurance Company of Canada, to the
    respondents insurer, Aviva Insurance Company of Canada, to account for the
    fact that Sun Life deducted applicable income taxes from its payments to the
    appellant.

[3]

While no longer contesting
    the assignment of her benefits to the respondents insurer, the appellant
    submits that the trial judges order was contrary to the principles of natural
    justice and exceeded her jurisdiction because neither party sought the top up
    that she ordered. Moreover, the appellant argues, the trial judge erred in her
    interpretation of s. 267.8 of the
Insurance Act
.

[4]

The appellant asks that the trial
    judges top up order be set aside, that the respondents insurer repay all top
    up amounts to the appellant, plus interest, and that the respondents insurer
    be required to bear all costs necessary to address the tax and other implications
    of the assignment of the appellants benefits.

[5]

For the reasons that follow,
    I would allow the appeal and grant the requested relief.

Background

[6]

The appellant sustained
    serious injuries and became totally disabled as a result of a motor vehicle
    accident involving the respondent. The jury determined the respondent was 90%
    liable for the accident. The appellant was found 10% contributorily negligent. On
    April 5, 2017 the jury awarded the appellant significant damages because of her
    injuries. With respect to her future loss of income claim, the head of damages
    relevant to this appeal, the appellant received an award of $540,000, net of a
    10% reduction for the appellants contributory negligence.

[7]

The appellants injuries
    triggered coverage for long-term disability income continuation benefits from
    Sun Life, her employers group benefits insurer. Both the appellant and her
    employer had contributed to the plan. As a result, Sun Life deducted and remitted
    income taxes from its payments to the appellant under the plan and provided to the
    appellant an annual T4A slip for the gross benefit. In the period between the
    April 5, 2017 judgment and the payment of the judgment damages by the
    respondents insurer on November 14, 2019
[1]
, the appellant received from Sun
    Life net after-tax payments totalling $104,162.34.

[8]

Following the jurys
    verdict, the respondent brought a motion under s. 267.8(12) of the
Insurance
    Act
to require the appellant to assign to the respondents insurer from
    the date of the judgment the appellants rights to the Sun Life benefits. The relevant
    provisions of s. 267.8(12) of the
Insurance Act
are as follows:

Assignment of future collateral benefits

(12) The court that heard and determined the
    action for loss or damage from bodily injury or death arising directly or
    indirectly from the use or operation of the automobile, on motion, may order
    that, subject to any conditions the court considers just,

(a) the plaintiff who recovered damages in the
    action
assign to the defendants or the defendants insurers all rights in
    respect of all payments to which the plaintiff who recovered damages is
    entitled in respect of the incident after the trial of the action
, [emphasis
    added]

(ii) for income loss or loss of earning
    capacity under the laws of any jurisdiction or under an income continuation
    benefit plan,

(b) the plaintiff who recovered damages in the
    action co-operate with the defendants or the defendants insurers in any claim
    or proceeding brought by the defendants or the defendants insurers in respect
    of a payment assigned pursuant to clause (a).

[9]

The trial judge considered
    how the assignment of all rights in respect of all payments to which the
    plaintiff  is entitled under s. 267.8(12)(a) should apply to the
    appellants income continuation plan. She found that s. 267.8(12)(a) called
    for the assignment of the
gross
amount of the Sun Life benefits, and not
    the
net after-tax
payments. She rejected the appellants submission that
    a ruling from the Canada Revenue Agency (CRA) should be obtained to determine
    if the appellants tax liability and Sun Lifes tax withholding obligation
    would change once the rights to the payments under the plan were assigned to
    the respondents insurer. She found that Sun Lifes obligation to withhold
    income tax was irrelevant to the appellants right to receive the gross amount
    of the payments.

[10]

Having concluded that the
    respondents insurer was entitled to receive the gross benefit under the
    appellants income continuation plan, the trial judge considered two methods of
    structuring the assignment. Under the first approach, Sun Life would make
    payments directly to the respondents insurer while deducting taxes at source. The
    appellant would then top up the payments to compensate for the source
    deductions. The assignment would remain in place until the earlier of the
    appellant reaching the age of 65 and the respondents insurer recovering the
    amount it had paid in tort damages for future loss of income. From the trial
    judges perspective, this arrangement served to insulate the respondents
    insurer from the appellants personal tax situation: the appellant would be
    responsible for any shortfall arising from the deductions at source and she
    would receive the benefit of any tax refunds resulting from overpayment without
    depriving the respondent of its right to receive the full benefit.

[11]

Under the second approach,
    the appellant would not top up the payments, and the respondents insurer would
    receive the net payments from Sun Life. In both cases, the appellant would
    receive the benefit of any tax refund and bear responsibility for any
    shortfall. However, under the second approach, the respondents insurer would
    recoup the amount owing under the assignment more slowly.

[12]

The trial judge concluded
    that the appellant was required to top up the net payments from the date of the
    judgment that were assigned to the respondents insurer so that they would
    equal the gross payments to which the appellant was entitled under the Sun Life
    plan.

[13]

With respect to the amounts
    already paid by Sun Life under the income continuation plan, the trial judge ordered
    the appellant to disclose to Aviva the gross amount of her entitlement since
    the jurys verdict. This amount, later determined to be $124,951.05, was deducted
    from the $540,000 income loss award in accordance with the trial judges top up
    order, despite the fact that the appellant had only received net payments of
    $104,162.34 from Sun Life. At the hearing of the appeal, counsel for the
    appellant indicated that the appellant has not made any further top up payments
    on the assigned payments.

Issues

[14]

I would summarize the issues
    as follows:

i.

Was the trial judges top up order procedurally
    unfair and contrary to natural justice?

ii.

Did the trial judge err in her interpretation
    and application of s. 267.8 of the
Insurance Act
?

(1)

Procedural Fairness

[15]

It is common ground that
    neither party requested that the trial judge make the top up order. Rather, the
    appellant submitted that the gross amount of the payments received from Sun
    Life should be credited against the amount assigned to Aviva, even though Aviva
    would receive only payment of the net benefit, and that, regardless, there
    should be a mechanism to address the potential income tax shortfall or
    overpayment by the appellant arising from the deduction of income tax at source.
    The respondent sought an assignment to its insurer of the appellants rights to
    the net after-tax benefits received from Sun Life from the date of judgment, with
    a provision for an accounting of any taxes refunded in the case of overpayment
    on source deductions. The trial judge did not request submissions from the
    parties on the issue of top up.

[16]

In my view, the trial judge resolved
    the rights of the parties, imposed a burden on the appellant, and provided a
    remedy to the respondent, on a theory never pleaded and with respect to which
    battle was never joined:
Rodaro v. Royal Bank of Canada
(2002)
, 59 O.R. (3d) 74 (C.A.), at para.
    63. Accordingly, the order must be set aside.

[17]

Anticipating this outcome,
    the parties requested that this court look afresh at the top up question and
    the underlying issue of the parties respective rights and obligations under
    the statutory assignment, rather than remitting it to the trial judge for a
    rehearing. I am of the view that the record and the parties submissions are
    sufficient to permit such a determination. I turn now to that analysis.

(2)

Section 267.8 of the
Insurance Act

(a)

The parties positions

[18]

The appellant submits that
    the trial judges top up order represents an erroneous interpretation of the trust
    and assignment provisions of s. 267.8 of the
Insurance Act
. Under the
    trust provisions, the appellant can only hold in trust and pay over to the
    respondents insurer the payments she actually received. Under the statutory
    assignment, the respondents insurer, as assignee of the rights to the taxable
    collateral benefits, must assume the tax consequences of the benefits along
    with the benefits themselves. Otherwise, the appellant, as tort victim, is left
    in a worse net position than a tort victim with no collateral benefits, and the
    respondents insurer receives a windfall.

[19]

The respondent says that
    even if the trial judge erred, her top up order is reasonable and causes no
    prejudice to the appellant. It also best serves the principle of finality that
    benefits both parties because there will be no need for an ongoing accounting
    or other administrative reconciliation. Relying on
Kant v. The Queen
,
[2001] 2 C.T.C. 2703
(T.C.C.), the respondent submits that the appellant may
    not be required to pay taxes on the benefits after the assignment since they
    are not taxable in [her] hands when assigned because she derives no benefit
    from them. According to the respondent, the appellant can seek a refund of the
    taxes remitted by Sun Life.

(b)

Analysis

[20]

It is my view that the trial
    judge misinterpreted ss. 267.8(9), (10), and (12)(a)(ii) of the
Insurance
    Act
and applied the trust and assignment provisions in a manner contrary
    to the plain meaning of the legislative text and its purposes. She also erred
    in failing to take into account Sun Lifes withholding and remittance of income
    tax as a statutory trust and its effect on the appellants rights under the
    plan.

[21]

As this court indicated in
Bapoo
    v. Co-Operators General Insurance Co.
(1997), 154 D.L.R. (4th) 385 (Ont.
    C.A.), leave to appeal refused, [1998] S.C.C.A. No. 62, at p. 389, the
    interpretative framework to be applied is as follows:

The modern approach to statutory
    interpretation calls on courts to interpret a legislative provision in its
    total context.
The court's interpretation should comply with the legislative
    text, promote the legislative purpose and produce a reasonable and just meaning
.
    Professor Sullivan described the modern approach in the following passage in
Driedger
    on the Construction of Statutes
:

There is only one rule in modern
    interpretation, namely, courts are obliged to determine the meaning of
    legislation in its total context, having regard to the purpose of the
    legislation, the consequences of proposed interpretations, the presumptions and
    special rules of interpretation, as well as admissible external aids
. In other words, the courts must consider and take into account all
    relevant and admissible indicators of legislative meaning. After taking these
    into account, the court must then adopt an interpretation that is appropriate.
An
    appropriate interpretation is one that can be justified in terms of (a) its
    plausibility, that is, its compliance with legislative text; (b) its efficacy,
    that is, its promotion of the legislative purpose; and (c) its acceptability,
    that is, the outcome is reasonable and just
. [Emphasis added; Citations
    omitted.]

[22]

It is well established that
    the legislative purpose of s. 267.8 is to promote fair compensation to injured plaintiffs
    and prevent double recovery. As this court observed in
Cadieux v. Cloutier,
2018 ONCA 903, 429 D.L.R. (4th) 468,
    leave to appeal refused
[2019]
    S.C.C.A. No. 63
, at para. 17:
Section 267.8 of the
Insurance Act
contains
    provisions designed to address [the overlap between tort damages and collateral
    benefits] and to prevent double recovery. It reflects the principle that
    victims should be fairly compensated, but not over-compensated.

See also:
Carroll
    v. McEwen
, 2018 ONCA 902, 429 D.L.R. (4th) 443, at para.
38;
Cobb v.
    Long Estate,
2017 ONCA 717, at
    para. 52;

El-Khodr v. Lackie
, 2017 ONCA 716, 416 D.L.R. (4th) 189, at para.
33, leave to appeal refused, [2017] S.C.C.A. No.
    461. As I shall explain, I conclude that the effect of the trial judges order
    is to leave the appellant undercompensated and in a worse position than if she
    had not had collateral benefits from Sun Life.

(i)

The trust provisions under ss. 267.8(9) and (10)

[23]

While the trial judge did
    not expressly address the application of the trust provisions under ss.
    267.8(9) and (10) to the amounts received by the appellant pre-assignment, the
    effect of her order requiring the deduction of the gross amount of the payments
    to the appellant under the Sun Life plan since the date of judgment on April 5,
    2017 resulted in the deduction of more than the amount of the payments actually
    received and held in trust by the appellant post trial and pre-assignment. This
    effect runs contrary to the provisions of ss. 267.8(9) and (10).

[24]

Under s. 267.8(9)(ii), prior
    to any assignment under ss. 267.8(12)(a)(ii), a successful plaintiff must hold

payments
in respect of the incident
that the plaintiff receives
after the trial of the action for income loss or loss of earning capacity
    under an income continuation benefit plan
in trust
(emphasis added).
    Subsection 267.8(10) requires the plaintiff who holds money in trust under
    subsection (9) to pay the money to the persons from whom damages were
    recovered in the action, in the proportions that those persons paid the
    damages.

[25]

Subsections 267.8(9) and (10)
    impose a statutory trust on the payments that the plaintiff actually receives
    for the benefit of the defendant or the defendants insurer. These provisions
    reflect basic trust principles: a trustee is only chargeable for the trust
    property that he or she actually holds or controls; and the trust property does
    not form part of the trustees property but is held for the beneficiary of the
    statutory trust:
Lewin on Trusts
, 19th ed. (London: Sweet &
    Maxwell, 2015) at pp. 2-4 and 285. See also
In Re Scott
, [1948]
    SASR 193, at p. 196. Under ss. 267.8(9) and (10), the plaintiff as
    trustee holds the monies received in trust for the defendant or the defendants
    insurer who pays the judgment damages.

[26]

The trust property in the
    present case consisted of the net after-tax payments that the appellant
    received pre-assignment from Sun Life from the date of the judgment in the
    amount of $104,162.34. The appellant, as trustee, was only required to hold in
    trust and then pay to the respondents insurer these actual payments from Sun
    Life, which were net of tax. Contrary to the provisions of ss. 267.8(9)
    and (10), the trial judges order erroneously inflated that amount to
    $124,951.05, representing the gross pre-tax amount, which had the effect of
    reducing the appellants compensation by $20,788.71 once the trust funds were
    set off against the judgment damages. The appellant was never required to hold
    this amount in trust and it should be repaid.

(ii)

The assignment provisions under s.
    267.8(12)(a)(ii)

[27]

Similar reasoning led the
    trial judge into error with respect to the assignment provisions under s.
    267.8(12)(a)(ii) of the
Insurance Act
. As noted, this section permits a
    defendant to seek the assignment to its insurer of all rights in respect of
    all payments to which the plaintiff who recovered damages is entitled in
    respect of the incident  under an income continuation benefit plan. In my
    view, the trial judge conflated the respondents insurers entitlement to the
    rights to the plan benefits with the mechanism of a specific mode of payment, namely
    an assignment, and therefore failed to apply the assignment provisions under s. 267.8(12)(a)(ii)
    in a manner consistent with the trust provisions under s. 267.8(9) and
    (10).

[28]

The trial judge correctly
    recognized at para. 16 of her reasons that the assignment is of all rights in
    respect of all payments and that [t]he assignment is of more than the
    payments themselves. However, she failed to recognize that the respondents
    insurer, as assignee, steps into the shoes of the appellant and acquires the
    entitlement to the rights to the appellants benefits subject to all the
    equities and obligations existing between the appellant and Sun Life under the
    plan:
Frederick v. Aviation & Gen. Ins. Co.
, [1966] O.J. No. 1064
    (C.A.). Instead, the trial judge effectively concluded that the respondents
    insurer was entitled to collect the appellants gross benefits as if they were
    not taxable or as if the appellant had elected to take the entire taxable sum in
    hand.

[29]

In my view, the language of
    s. 267.8(12) does no more than clarify the mechanism of the
assignment
of the appellants rights to the payments within the scheme of s. 267.8. This
    means that by virtue and for the term of the assignment, the respondents
    insurer has all the appellants rights and is subject to all the provisions
    under the plan, including, subject to the plan
[2]
, the ability to deal directly
    with Sun Life and to contest the deduction of income taxes from the payments.
    But, while s. 267.8(12)(a) refers to all
rights
in respect of all
    payments to which the plaintiff who recovered damages is
entitled

    rather than payments
received
by the plaintiff, as was the case in
Bapoo
,
    it does not entitle the respondents insurer to receive payments greater than
    those the appellant receives. Subsection 267.8(12) does not refer to payments
    received, because the focus of this provision is not on the entitlement to
payments
,
    but rather on the broader entitlement to the plaintiffs underlying
rights
,
    which includes a right to payment, among others.

(iii)

The trust and assignment provisions are
    complementary mechanisms

[30]

The trial judges approach
    fails to take into account the complementary nature of the trust and assignment
    provisions in the context of s. 267.8 as a whole which, as earlier noted, is
    designed to ensure fair compensation to the injured plaintiff:
Cadieux
,
    at para. 111.

[31]

First, the trial judges
    approach would introduce a discrepancy between the provisions of ss. 267.8(9)
    and (10), and (12) of the
Insurance Act
,

which are

intended to be complementary. As
    earlier noted, the modern rules of statutory interpretation require the words
    of the statute to be read in their entire context and in their grammatical and
    ordinary sense harmoniously with the scheme of the Act, the object of the Act,
    and the intention of the enacting legislative body:
Cadieux
, at para.
    109, citing
Rizzo & Rizzo Shoes Ltd. (Re)
, [1998] 1 S.C.R. 27, at
    para. 21.

[32]

Subsections 267.8(9), (10),
    and (12) provide for two different mechanisms that work together to achieve the
    same underlying aim of providing compensation without over-compensation:
Cadieux
,
    at para. 24;
Carroll
, at para. 38;
El-Khodr
, at para. 33. As
    discussed above, the plain meaning of s. 267.8(9) is that a plaintiff is
    required to hold monies
actually received
in trust. Here, prior to any
    assignment to the respondents insurer under s. 267.8(12)(a)(ii), the
    appellant was required to hold in trust the actual net after-tax payments from
    Sun Life as she received them. It would not make common sense for the
    assignment to apply to gross pre-tax amounts if the trust does not. This would
    place the appellant in a different and worse position simply because the
    mechanism of assignment was engaged as opposed to the mechanism of a trust.

[33]

Second, and similarly, it
    would not make common sense for there to be a different meaning of the word
    payments in each of ss. 267.8(9), (10) and (12). Reading the provisions
    harmoniously, the grammatical and ordinary sense of the word payments is
    the same in the trust and assignment provisions under s. 267.8(9), (10),
    and (12). As noted, the payments referred to in ss. 267.8(9) and (10) are the
    payments actually received and held in trust by the appellant. In this case, from
    the date of the judgment, this amounted to $104,162.34 in payments that the
    appellant actually received. The word payments in s. 267.8(12) must refer to
    the same payments but to be received under the mechanism of an assignment.

(iv)

Effect of Sun Lifes statutory obligations

[34]

The trial judges errors in
    her interpretation and application of the trust and assignment provisions led
    her to ignore the effect of Sun Lifes withholding and remittance of income
    taxes to the CRA from the plan payments pursuant to its statutory obligations. Again,
    as the appellants assignee, the respondents insurer has all the same rights
    as against Sun Life as the appellant, and Sun Life has all the same defences. These
    defences may include any statutory obligation on the part of Sun Life to
    withhold and remit taxes to the CRA from the plan payments.

[35]

The respondent argues that, post-assignment,
    Sun Life is no longer required to withhold and remit taxes because the
    appellant no longer receives the benefit of the plan payments; however, as I
    explain in para. 38 below, this is by no means certain absent a court order or
    CRA ruling. Moreover, it is common ground that pre-assignment, Sun Life was
    obliged under the provisions of the
Income Tax Act
, R.S.C. 1985, c. 1
    (5th Supp.), to deduct and remit taxes from payments made directly to the
    appellant for her benefit under Sun Lifes income continuation plan. Further,
    post-assignment, Sun Life intends to continue withholding and remitting income
    taxes regardless of whether the payments are issued directly to the appellant
    or to the respondents insurer, until otherwise exempted by court order or CRA
    ruling.

[36]

The parties did not
    reference the provisions of the
Income Tax Act
that give rise to Sun
    Lifes statutory obligations to withhold and remit taxes. Presumably, the income
    from the plan is taxable in the hands of the appellant under s. 6(1)(f) of the
Income
    Tax Act
because both the appellant and her employer contributed to the
    plan: See also
Pugh v. Canada
, [2000] T.C.J. No. 585, at para. 9;
Bouchard
    v. Canada
, 2008 TCC 408, at para. 14. If that is the case, then the income
    from Sun Life under the income continuation plan would fall under the
    definition of salary or wages at in s. 248. Under s. 153 of the
Income
    Tax Act
, Every person paying at any time in a taxation year (a) salary,
    wages or other remuneration  shall deduct or withhold from the payment the
    payees tax. This is no mere mechanical exercise as the trial judge stated. Amounts
    deducted but unremitted by any person are deemed to be held separate and apart
    from the property of the person and in trust for Her Majesty and for payment
    to Her Majesty pursuant to s. 227(4) of the Act.

[37]

Regardless if its position
    is correct, the fact that Sun Life purports to withhold and remit income taxes
    pursuant to a statutory obligation to the CRA means that those monies are
    imposed with a statutory trust and therefore do not form part of the payments
    made under the plan. Even if the respondent prevails and Sun Life is no longer
    required to withhold and remit taxes, this does not alter the nature and effect
    of its present withholdings and remittances as statutory trust funds. In
    consequence, so long as Sun Life withholds and remits taxes pursuant to the
    statutory trust provisions of the
Income Tax Act
, Avivas assigned
    rights are to the net after-tax payments.

[38]

I do not accept the
    respondents submission that the trial judges order causes no prejudice to the
    appellant because she can simply apply for a tax refund and be in no worse
    position. First, it is by no means certain that the CRA would agree that the
    appellant is entitled to a refund of the taxes remitted by Sun Life. It is
    dependent on a whole host of variables, including the appellants personal tax
    circumstances about which there is no evidence. Second, the appellant would likely
    be required to incur considerable expense to ascertain whether the CRA accepts
    this position. This additional financial burden is contrary to s. 267.8 of the
Insurance
    Act
since it undermines the purpose of full compensation for the
    appellant.

[39]

The respondent obtained an
    assignment to its insurer of the appellants rights to future collateral
    benefits under the Sun Life plan from the date of judgment. If it disputes the
    deduction of income tax at source, then the respondents insurer, having
    stepped into the appellants shoes through the assignment, must take the
    necessary steps and incur the necessary expense to deal with that issue. For
    the term of the assignment, the appellant has assigned her rights with respect
    to those payments. While s. 267.8(12)(b) of the
Insurance Act
requires
    her to cooperate with the respondents insurer, it is the respondents insurer,
    as assignee, that must direct what is to be done in relation to the plan
    benefits.

[40]

The respondent and its
    insurer cannot complain of its situation. If they had acceded to the
    appellants request to seek a ruling from the CRA on the tax issue, the issues
    of quantum and liability for taxes following the assignment could have been
    ascertained. As it presently stands, the respondents insurer is only entitled
    to receive what Sun Life pays. It would be patently unfair to require the
    appellant to pay for the very step that she submitted was necessary before the trial
    judge made her assignment order. Having taken the benefits of the assignment,
    the respondents insurer must undertake the concomitant burdens.

Conclusion

[41]

The trial judges
    interpretation leads to an unfair result. It imposes a financial burden on the
    appellant that she would not have incurred if she did not have collateral
    benefits. This runs counter to the principle of full compensation. The
    statutory assignment of her rights under the Sun Life plan means that for the term
    of the assignment the appellant no longer receives any benefit under the plan
    and should be relieved of any financial burden in respect of it.

[42]

Accordingly, the correct
    interpretation of s. 267(12)(a)(ii) of the
Insurance Act
is that the
    assignment of the appellants rights under the plan means that the respondents
    insurer is entitled to a credit for the actual payments that the appellant
    receives under the plan. As matters now stand, this means net of the taxes
    withheld by Sun Life. The respondents insurer is entitled to take whatever
    steps are necessary, at its own expense and with the appellants co-operation,
    as required under s. 267(12)(b), to deal with the issue of the tax withholdings
    with Sun Life and the CRA.

Disposition

[43]

In my view, the fairest
    order that is also in keeping with the purposes of s. 267.8 of the
Insurance
    Act
is to amend the trial judges order to provide for the assignment from
    the date of judgment of the appellants rights in respect of all payments under
    the Sun Life plan to the respondents insurer, net of all income tax withholdings
    so long as Sun Life continues to withhold and remit income taxes to the CRA from
    the payments made under its plan, until the appellant reaches the age of 65 or the
    respondents insurer has been fully reimbursed for its payment of the loss of
    income damages award, whichever event occurs earlier. We were advised that the
    appellant has not received any tax refunds or credits with respect to the
    withholdings since the date of judgment. As a result,
so
    long as Sun Life continues to withhold taxes from the payments made under its
    plan
, this order obviates the need for an annual accounting.

[44]

In the event the respondents
    insurer wishes to contest with Sun Life and/or the CRA the issue of tax
    withholdings during the period of the assignment, the respondents insurer
    shall pay all expenses associated with such request, including for the
    preparation of any necessary forms or returns by the appellant or her financial,
    legal or other advisors, and the payment of any disbursements or fees. This
    arrangement is consistent with the requirement in para. 4 of the order that the
    respondents insurer shall pay the appellant the reasonable costs that she
    incurred to preserve her rights to payment of the long-term disability benefits
    under the Sun Life plan.

[45]

Accordingly, I would allow the
    appeal. I would amend para. 2 of the October 28, 2019 order to reflect the
    disclosure of the gross and net payments for the benefits under the Sun Life
    plan, set aside paras. 3, 5 and 6 and insert in their place a new paragraph (or
    paragraphs as the case may be) in accordance with these reasons. I would order
    that the respondents insurer pay to the appellant the amount of $20,788.71
    that was deducted from its payment of the appellants loss of income damages
    award. As earlier noted, according to the parties submissions, the appellant
    has not paid any top up amounts under paras. 5 and 6 of the October 28, 2019
    order. If that is incorrect, the appellant is at liberty to provide evidence of
    such payments and this courts order can provide for their repayment. I would
    amend para. 9 to provide that the appellant shall co-operate with the
    respondents insurer, at the latters expense, and that this co-operation shall
    also include participation in any process regarding Sun Life and/or the CRA
    concerning the income tax remitted by Sun Life.

[46]

The parties did not make
    submissions as to what should occur with respect to any set off against the
    judgment in the event that the taxes previously remitted by Sun Life were
    refunded by the CRA and/or in the event that Sun Life no longer withholds the
    taxes. Accordingly, if the parties cannot agree on the formulation of the additional
    terms to be inserted into the order in accordance with these reasons, or they
    require additional direction to address the set off issue or any other issue
    necessary for the implementation of this courts decision, I would permit them
    to make brief written submissions of no more than two pages, plus a draft form
    of order, within seven days of the release of these reasons.

[47]

In accordance with the
    parties agreement, I would grant the appellant her partial indemnity costs of
    the appeal in the amount of $30,000, inclusive of disbursements and applicable
    taxes.

[48]

If the parties cannot agree
    on the disposition of the costs on the motion before the trial judge, I would
    allow them the opportunity to forward to the panel brief written submissions of
    no more than two pages, with a costs outline, within seven days of the release
    of these reasons.

Released: April
    16, 2021 L.R.

L.B.
    Roberts J.A.

I
    agree. Gary Trotter J.A.

I
    agree. Thorburn J.A.

[1]
This delay
    appears to have resulted in part from the appeal of the decision on the merits,
    which this court dismissed on July 31, 2019 with reasons reported at 2019 ONCA
    634, and from the fact that the payment of damages was put off until the
    quantum of the assignment could be ascertained in the post-trial ruling
    currently under appeal. That motion was only argued in October 2019.

[2]

We
    were not provided with a copy of the Sun Life plan. While a June 26, 2018 email
    from Sun Life to appellants counsel, noted by the motion judge at para. 21 of
    her reasons, refers vaguely to some mechanical difficulty with payment
    protocols, it does not indicate, in my view, any restriction against the respondents
    insurer dealing directly with Sun Life. As a result, I presume there is none.