COURT OF APPEAL FOR ONTARIO

CITATION:

Lloyd v. Bush, 2012 ONCA 349

DATE: 20120528

DOCKET: C51756

Goudge, Armstrong and Lang JJ.A.

BETWEEN

Leslie Gail Lloyd and Jason Lloyd

Plaintiffs (Appellants)

and

David P.
    Bush, 818601 Ontario Inc. c.o.b. as MacDonalds Propane,

The Corporation of the County of Lennox and Addington, and

The Corporation of the Town of Greater Napanee

Defendants (Respondents)

R. Steven Baldwin, for the appellants

Kirk F. Stevens and Stuart Zacharias, for the
    respondents

Heard: October 31, 2011

On appeal from the judgment of Justice R. F. Scott of the
    Superior Court of Justice, dated January 27, 2010, with reasons reported at
    2010 ONSC 669 and the costs order dated July 14, 2011, with reasons at 2011
    ONSC 3448.

Armstrong J.A.:

Introduction

[1]

This appeal raises the reasonable apprehension of bias of the trial
    judge in respect of two matters:

(i)    His
    conclusion that counsel for the plaintiffs/ appellants had improperly raised an
    allegation of fraud against the Town of Greater Napanee without having pleaded
    such allegation in the statement of claim; and

(ii)   His
    comments on the credibility of the plaintiff/appellant, Leslie Gail Lloyd,
    before the trial was concluded.

Although the appellants raised other issues it is
    unnecessary to deal with them to decide this appeal.

[2]

As it is my view that it is necessary to order a new trial, I will refer
    only to the evidence that leads me to that conclusion.

The Background

[3]

On the morning of January 3, 2003, Leslie Gail Lloyd drove her car from
    the home of her husbands parents on County Road 9, southwest of Napanee.  She
    was intending to pick up her sister-in-law in Napanee and drive her to the
    local hospital.  It was snowing and it had been snowing during the night.  The
    road was snow packed.  After driving a very short distance (about 400 metres),
    Ms. Lloyd and her automobile were involved in a horrendous accident with a
    loaded propane truck driven by the respondent, David Bush.

[4]

Ms. Lloyd has no memory of the events related to the accident.  She
    suffered permanent head injuries and several lower extremity musculo-skeletal fractures.
    She was taken to the Kingston General Hospital and was later moved to a
    rehabilitation hospital from which she was discharged on July 30, 2003.

[5]

It is not expected that she will be able to return to employment and she
    is unable to independently care for her children, both of whom she gave birth
    to after the accident.

[6]

Ms. Lloyd and her husband, Jason Lloyd, commenced this action against
    the driver of the propane truck (Mr. Bush), the owner of the propane truck, the
    County of Lennox and Addington, and the Town of Greater Napanee.

[7]

On the first day of the trial, counsel for the County brought a Rule 20
    motion to dismiss certain claims against the County and the Town in the
    statement of claim, which alleged failure to properly design the road and
    related issues.  The trial judge granted the motion and dismissed those claims
    with costs to be assessed at the conclusion of the trial.  The only remaining
    issue in relation to the County and Town concerned proper winter maintenance of
    the road.  The Town had a contractual obligation with the County to provide the
    winter maintenance.  After the judge announced his decision on the motion for
    summary judgment, counsel for the Town indicated that the Town was prepared to
    carry the defence of the County and counsel for the County then withdrew from the
    trial.

[8]

After the commencement of the trial, the action was settled with the
    driver and the owner of the propane truck.  The trial continued against the Town
    and the County.  After 19 days of trial over a two-month period, the action was
    dismissed with a costs award of $401,276.43 in favour of the Town and County.
    The Lloyds now appeal to this court in respect of both liability and costs.

The Accident

[9]

On the day of the accident, it had begun to snow at around 2:00 a.m.
    There was a light snow fall at the time of the accident.  The meteorological
    evidence established that there was an accumulation of three to five
    centimetres of snow by 10:00 a.m. with an additional accumulation of 0.5
    centimetres between 10:00 and 11:00 a.m.  The accident happened at about 10:35
    a.m.  The evidence established that County Road 9 was snow packed but not icy.
    The temperature was approximately minus 7 degrees Celsius.

[10]

Since Ms.
    Lloyd has no memory of the accident, the only witness with direct evidence of
    it was David Bush, the truck driver.  Mr. Bush testified that he left the
    propane depot between 7:00 and 7:30 a.m.  While on his delivery route, he
    travelled west on County Road 9.  He testified that as he approached the S
    curve at Rankins Corners, it was snowing pretty hard, the roads were covered
    with one or two inches of snow and the centre line of the road was not visible.

[11]

The S
    curve is on a hill which rises from east to west.  As he was going up the hill
    at 40 to 45 miles per hour, he noticed a car coming towards him.  The driver of
    the car, Ms. Lloyd, apparently lost control and descended the hill on his side
    of the road.  One or two seconds later, Ms. Lloyds car hit his truck.  In
    response to these events, Mr. Bush tried to apply his brakes and clutch.  Both
    vehicles ended up in the ditch on the south side of the road.  There was damage
    to both vehicles with extensive damage to Ms. Lloyds car  the photographs indicate
    that it was a complete write-off.  Ms. Lloyd was lucky to have survived the
    crash.  Mr. Bush was taken to the Napanee Hospital where he was treated for a
    variety of injuries.

The Trial

[12]

When the
    action settled between the appellants and Mr. Bush and the owner of the propane
    truck, the focus of the case was directed to the liability of the Town for
    failure to provide proper winter maintenance on County Road 9.  There was a
    contract between the County and the Town under which the Town provided winter
    maintenance on the County roads.  It was therefore Town employees who were
    responsible for the maintenance of County Road 9 on January 3, 2003.

[13]

There were
    a number of witnesses who drove on County Road 9 either before or after the
    accident and who testified to the road conditions that morning.  Most of the
    witnesses indicated that the road was snow covered but the majority were unable
    to say whether the road was sanded and/or salted.  Some of the witnesses said that
    there did not appear to be either sand or salt on the road, while one witness
    indicated that he observed a snow plough discharging sand or salt shortly before
    the accident.

[14]

Counsel
    for the appellants submitted at trial that if the road had been properly sanded
    and salted, the road would have been bare to centre bare and the yellow centre
    line would have been visible to Ms. Lloyd.  According to this theory, Ms. Lloyd
    probably lost control of her car as she braked abruptly when she saw the
    propane truck because she believed that the truck was in her lane or too close
    to the centre of the road.  Accordingly, had she been able to see the yellow
    line, she would not have braked, crossed the line and the accident would not
    have happened.

[15]

The Town
    called a number of its employees, including two snow plough operators who had ploughed
    County Road 9 before the accident.  The snow plough/sanders were out and
    working by 4:00 a.m.

[16]

Wayne Dixon,
    a snow plough operator, testified that he had ploughed and sanded the road
    three times prior to the accident.  The third occasion was at 10:10 a.m. when
    he proceeded through the S curve at Rankins Corners.  He said that Rankins
    Corners was a problem area and that he would have laid down more sand and salt
    mixture on that part of the road.  He said that the snow was hard packed and it
    was therefore not possible to get all of the snow off the road.

[17]

Doug
    Abrams testified that on the morning of the accident, he also ploughed, salted
    and sanded County Road 9  once in each direction at about 6:00 a.m.

[18]

The trial
    judge accepted the evidence of Mr. Dixon and Mr. Abrams.  He concluded at para.
    86 of his reasons:

From the evidence that was heard at the trial, I found that by
    the time that the ploughs were working at 4:00 a.m., there had been an
    accumulation of snow of approximately 2 to 2.5 centimetres.  This snow became
    snow packed and could not be removed in its entirety by the ploughs due to the
    plough shoes.  From 4:00 a.m. that morning, the area of River Road known as
    Rankins Corners was ploughed/salted and sanded at least five times by the two
    plough operators with the last ploughing/salting and sanding prior to the
    accident taking place shortly after 10:00 a.m. that morning.

[19]

In respect
    of the issue concerning the proper sanding and salting of the road, the trial
    judge concluded at para. 126 of his reasons:

The only issue as it relates to Napanee is that it used a sand
    and salt mixture rather than a salt mixture.  Given all of the circumstances
    and a careful review of all of the evidence, the only conclusion is that
    Napanee (and the County) met or exceeded the Minimum Standards required of it
    (them) from a common law and statutory perspective.  As it relates to the use
    of sand and salt mixture versus salt, I find specifically that the sand and
    salt mixture was appropriate.

[20]

The trial
    judge assessed the damages as follows:  $280,000.00 in general damages for
    Ms. Lloyd; $2,449.00 for loss of past earnings; $930,694.00 for loss of future
    earnings; $29,200.00 per year for three years for supervising and attendant
    care at night and $2,000 per year thereafter for contingencies; and $129,129.00
    for renovations to the existing dwelling. It is unclear what precise amount he
    assessed for extraordinary costs of care, but he stated that he agree[d] with
    the revised findings of Ms. Madras and Professor James Pesando.  The trial
    judge assessed $120,000.00 in
Family Law Act

damages to Ms.
    Lloyds husband.

[21]

The trial
    judge dismissed the action and awarded costs to the County and to the Town in
    the total amount of $401,276.43 including disbursements and applicable taxes.

The Appeal

[22]

The
    appellants raise the following issues on appeal:

(i)    the
    trial judge erred in refusing the appellants motion to amend their statement
    of claim;

(ii)   the
    trial judge failed to consider material evidence relevant to liability and
    damages;

(iii)  the
    trial judge erred in defining the duty and standard of care that the
    municipality owed to the appellants; and

(iv)  the
    conduct of the trial judge gave rise to a reasonable apprehension of bias.

In order to decide this appeal it is only necessary to
    deal with the fourth issue.

Did the
    conduct of the trial judge give rise to a reasonable apprehension of bias?

[23]

The
    appellants allege that certain comments and interventions made by the trial
    judge in the course of the trial give rise to a reasonable apprehension of
    bias.  Counsel for the appellants refers to a number of incidents.  Two of the
    incidents are cause for concern.  The first relates to the trial judges
    conclusion that counsel for the appellants improperly raised an allegation of
    fraud against the Town.  The second relates to the trial judges comments made,
    before the conclusion of the trial, concerning the credibility of Ms. Lloyd.  I
    shall review each of these incidents but before doing so, I observe that the
    threshold for finding a reasonable apprehension of bias is an extremely high
    one.

[24]

In
Chippewas
    of Mnjikaning First National v. Ontario (Minister of Native Affairs)
, 2010
    ONCA 47, leave to appeal refused [2010] SCCA No. 91, at para. 229 and
Canadian
    College of Business and Computers Inc. v. Ontario (Private Career Colleges Act,
    Superintendent)
, 2010 ONCA 856, at para. 23, this court noted that the
    well-settled test for establishing a reasonable apprehension of bias was set
    out in de Grandpré J.s dissenting judgment in
Committee for Justice and
    Liberty v. Canada (National Energy Board)
, [1978] 1 S.C.R. 369 at pp.
    394-95:

The proper test to be applied in a matter of this type was
    correctly expressed by the Court of Appeal.  As already seen by the quotation
    above, the apprehension of bias must be a reasonable one, held by reasonable
    and right minded persons, applying themselves to the question and obtaining
    thereon the required information.  In the words of the Court of Appeal, that
    test is what would an informed person, viewing the matter realistically and
    practically  and having thought the matter through  conclude.  Would he think
    that it is more likely than not that [the decision-maker], whether consciously
    or unconsciously, would not decide fairly.

...

The grounds for this apprehension must, however, be substantial
    and I entirely agree with the Federal Court of Appeal which refused to accept
    the suggestion that the test be related to the very sensitive or scrupulous
    conscience.

[25]

There is a
    strong presumption in favour of the impartiality of a trier of fact: see for
    example
Chippewas
, at para. 243,
Kelly v. Palazzo
(2008), 89
    O.R. (3d) 111 (C.A.) at para. 20, leave to appeal refused, [2008] S.C.C.A. No.
    152;
Peart v. Peel Regional Police Services Board
(2006), 217 O.A.C.
    269 (C.A.), at para. 39, leave to appeal refused, [2007] S.C.C.A. No. 10;
R.
    v. A.G.
(1998), 114 O.A.C. 336 (C.A.), at para. 42, affd [2000] 1 S.C.R.
    439;
R. v. S. (R.D.)
, [1997] 3 S.C.R. 484, at paras. 32 and 114.

[26]

Determining
    whether a reasonable apprehension of bias arises requires a highly
    fact-specific inquiry.  According to
Chippewas
, at paras. 230:

The test is an objective one.  Thus, the trial record must be
    assessed in its totality and the interventions complained of must be evaluated
    cumulatively rather than as isolated occurrences, from the perspective of a
    reasonable observer throughout the trial.

[27]

In
Chippewas
,
    the court warned at para. 243 that [i]solated expressions of impatience or
    annoyance by a judge as a result of frustrations ... do not of themselves
    create unfairness.

[28]

I now turn
    to the two incidents in issue.

(i)      The Fraud Allegation

[29]

To
    appreciate how this issue arose, it is necessary to review the record in some
    detail.  I start with the evidence of David Bender, a professional engineer
    called by counsel for the appellants.  He was qualified by the court to give
    expert evidence relating to practices and procedures of winter maintenance for
    municipal roads in Ontario.

[30]

It was Mr.
    Benders opinion that the three-to-one sand/salt mixture applied to the road
    surface on January 3 did not have sufficient salt.  He would have applied salt
    alone to the road before the snowstorm started.  He had reviewed the Town
    records concerning the ploughing, salting and sanding operation including the
    notes of the two snow plough operators.  He was asked in examination in chief
    if he had verified the accuracy of the Towns records.  He responded: No, Im
    accepting it the way it is.  I have nothing to verify it with.  Thats the
    limit of information I had to look at.  He further testified as follows:

A.

That was basically the analysis of the documents.  I looked at what was
    being done with what was evident as far as the roadway was concerned and the
    roadways were snow covered.  There was no evidence of any melt on the roadways
    so at that point I began to wonder just  really what may have been put down
    but I didnt question...

Q.      Yes.

A.      ...procedure
    because this is what the information was that I had at the time.

[31]

In his
    review of the police photographs taken of the accident scene, he indicated that
    he did not see any evidence of the sand/salt mixture that had been put down.
    He said he would have expected that there would have been some evidence of it.
    He indicated that he had no way to determine whether it actually was done or
    not.  Finally, in examination in chief, the witness was asked the following
    question and gave the following answer:

Q.      And
    again, how do you compare the photograph  well  from what you understood the
    town said had occurred, you compared that to the photographs?

A.      Well
    the town said they were applying a sand/salt mixture with a high percentage of
    sand  ¾ of the mixture was sand, I would have expected some brown
    discoloration if there had been sand spread through that curve at that sort of
    spread rate, especially on three passes but I dont see any evidence of any
    brown discoloration.  There is some road dirt which you see on any road but I
    just dont see the...

[32]

After Mr.
    Benders evidence was completed, the trial judge asked him a number of
    questions concerning the records of the Town with respect to the snow removal
    operation on January 2 and 3 with specific reference to the diaries and notes
    of various Town employees.  In response to questions by the trial judge, Mr.
    Bender testified that if the road had been ploughed, sanded and salted as
    indicated by these records, he would have expected the road to have been down
    to bare pavement.

[33]

The trial
    judge then asked him if he agreed that the implication of his evidence was
    that their notes arent correct.  The witness replied in the affirmative.
    The judge then said: That somebody is not  has made these notes up because
    otherwise it would have been as you say?  Mr. Bender responded: I cannot
    justify or reconcile the notes with what I see in the photographs.  The
    photographs indicate that the road was snow covered.

[34]

Having
    finished questioning Mr. Bender, the trial judge turned to counsel for the
    plaintiffs and the following exchange took place:

THE COURT:        So I understand.  Counsel, are you  do you
    agree with this mans comments because it goes to costs ultimately if youre
    alleging a fraud and costs are at the highest level if you cant sustain that.

MR. BALDWIN:
Your Honour, I make no
    allegation of fraud in this law suit.

THE COURT:        Well what are we listening to then?

MR. BALDWIN:     Your Honour, Im just listening to the evidence.
    Thats all that

THE COURT: Well excuse me.  If youd like to step out just for
    a moment sir.  You can put him either outside or in the jury room.

WITNESS EXITS COURT

THE COURT:        You understand the implication here, dont
    you?

MR. BALDWIN:     Apparently not, Your Honour.

THE COURT:        Well the implication is that these people
    whoever wrote these notes, arent telling the truth because they dont
    because he says otherwise this wouldnt have happened.

MR. BALDWIN:     Your Honour, we only have the evidence and we
    havent heard...

THE COURT:        No. No Counsel.  We have his evidence where
    he implicates that there was a fraud involved here.  Do you understand me now?

MR. BALDWIN:     I understand Your Honours comments.

THE COURT:        Alright.

MR. BALDWIN:
I make no such
    allegations.  Were having a trial.  I havent heard from the municipality
    yet.  I havent heard from the municipal witnesses.

THE COURT:
You certainly didnt
    plead them.  All Im saying is...

MR. BALDWIN:
I didnt plead which
    Your Honour?

THE COURT:
You didnt plead fraud
    in your...

MR. BALDWIN:
No.  I pleaded improper
    and inadequate maintenance.

THE COURT:        Alright.  But do you understand what hes
    saying here?

MR. BALDWIN:     I understand Your Honours comments.

THE COURT:        Hes saying  do you understand his comments
    and the implication of his comments and do you understand what that means?

MR. BALDWIN:     Well Your Honour one of the things we dont
    know and the witness isnt here to  but one of the things we dont know is we
    dont even know the application rate of the materials on the road.

THE COURT:        That may be fine and dandy.  All Im saying
    is based on what we know now and based on what he has said as your expert...

MR. BALDWIN:     Yes.

THE COURT:
Are you agreeing with
    his comments as counsel?

MR. BALDWIN:
I agree with his
    evidence Your Honour.  Its the evidence that we lead
(
sic
).

THE COURT:
Are you agreeing with
    his comments as it relates to the implication of fraud?

MR. BALDWIN:
He didnt make that
    comment Your Honour.

THE COURT:
Excuse me.  I just
    said, I find that he is making that implication.

MR. BALDWIN:
Your Honour, Im not...

THE COURT:
What about that, dont
    you understand?
[Emphasis added.]

[35]

The
    colloquy between the trial judge and counsel for the appellants continued for
    another two and a half pages in the transcript with the trial judge insisting
    that an allegation of fraud was being made by the appellants without having
    pleaded it.  The trial judge referred to the allegation as: the evidence is
    cooked on the other side.

[36]

The exchange
    with the trial judge ended as follows:

MR. BALDWIN:     I understand his evidence to be that if there
    was an application of salt and or sand mixed, at an application rate that might
    have been 570 kilograms per kilometre and it went through there five times that
    morning, that theres not consistent with the photograph.  Thats what I
    understand the evidence to be.

THE COURT:        Alright.  Youre okay with that then,
    alright?

MR. BALDWIN:     Well Your Honour, thats our evidence.

THE COURT:        No, no.  I just  I dont like the kind of
    implications in a trial where they come  you know  where they say, the
    evidence is cooked on the other side.  I just dont like that.

MR. BALDWIN:     Your Honour, Ive never...

THE COURT:        If thats the case...

MR. BALDWIN:     ...I havent said that.  All I do is I lead
    the evidence Your Honour.

THE COURT:        You lead the evidence and Im the Trier of
    Fact.

MR. BALDWIN:     Yes.

THE COURT:        And I came to the conclusion that there was
    an implication there and youre not listening to that, obviously and I wondered
    whether or not you wanted...

MR. BALDWIN:     Im trying to understand Your Honour.

THE COURT:        ...I wanted to know whether you wanted to
    address it now or just let the witness go and thats fine.

MR. BALDWIN:     Im not sure how to address it Your Honour.

THE COURT:        Okay, fair enough.  We can address it later,
    if necessary.  Thats what costs are about.  Thats all Im trying to imply,
    alright?

That might have ended the issue.  However, it did not.

[37]

Mr. Bender
    testified on April 16, 2009.  Mr. Amey, a witness for the Town, testified more
    than a month later on May 26, 2009.  During his examination in chief, counsel
    for the appellants objected to a question on the basis it raised an issue not
    covered by the pleadings.  The trial judge made the following response to
    counsel for the appellants:

There was an allegation that wasnt in your pleadings that was
    brought out by one of your experts, that there was some type of civil fraud
    involved with not putting sand on the road.

When counsel for the appellants replied that there was
    no allegation of fraud, the trial judge responded:

You werent listening to your expert
    then, were you, that day, when he said that they must have cooked their books.
    Thats what he said.
[Emphasis added.]

Then the following exchange took place.

MR. BALDWIN:
No, Your Honour, I dont
    agree that thats what the witness said.
[Emphasis added.]

THE COURT:        That was the implication of what he said, and
    thats what I took it, and I told you about that, that day, sir.  So Im going
    to hear this evidence.  Its something that, as I indicated to you at that
    time, well address with costs if its not borne out.

[38]

When he
    delivered his reasons for judgment dismissing the action, the trial judge said
    at para. 89:

There was a suggestion or innuendo by the plaintiffs during the
    trial that the plough operators and the other witnesses to the plough operators
    were at best mistaken in their evidence about the ploughing/salting and sanding
    that morning or had fabricated such evidence.  Based on all of the relevant
    evidence, this suggestion holds no merit.

[39]

In his
    costs endorsement, the trial judge referred to a number of aggravating features
    associated with this action, which were raised by the costs submissions of counsel
    for the County and the Town.  The third aggravating item in this list is the
    following:

Although not pleaded by the plaintiffs, there was an innuendo
    or allegation of fraud by the plaintiffs during the course of the trial namely
    that the snow plow operators had fabricated their evidence.  This allegation
    was never fully explained or retracted and was not borne out by the evidence at
    trial.

[40]

The trial
    judge made the following comments in respect of item 3 at para. 28 of his costs
    endorsement:

Regarding item 3, the allegation of fraud, I was concerned when
    confronted by it during the course of the trial as the plaintiffs and their
    counsel were clearly aware of this allegation of fraud prior to the
    commencement of trial and had not moved to amend their Statement of Claim.
    This resulted in both the court and the defendants being blindsided.  At that
    time, I had a discussion with counsel that were the plaintiffs to pursue such a
    claim without success, the matter of costs may have an impact despite success
    otherwise.

[41]

The trial
    judge in concluding his costs endorsement fixed the costs of the Town and in
    doing so said at para. 34:

As it relates to Mr. Russell Palin, counsel for the defendant,
    the Town of Greater Napanee, he is entitled to his costs fixed on a partial
    indemnity basis with an increase in the counsel fee for [him] and his
    associates to reflect the offers to settle and the issue of fraud.  Such
    increase is set at $15,000.00 over and above the partial indemnity amount.

[42]

The trial
    judge erred when he concluded that the witnesss testimony amounted to an
    allegation of fraud that had not been pleaded.  This error occurred in part
    because the trial judge came to this conclusion on his own initiative.  I do
    not understand on what basis the trial judge could say that the plaintiffs and
    their counsel were clearly aware of this allegation of fraud prior to the
    commencement of the trial.  I also do not understand on what basis the trial
    judge says, this resulted in both the court and the defendants being
    blindsided.  At the time that Mr. Bender gave his evidence, there was not a
    word of complaint or objection from counsel for the Town.

[43]

There was
    no basis for the trial judge to suggest that the appellants were alleging fraud
    or alleging that the Town had cooked its books.  Accepting that the records
    were being called into question, whether they accurately reflected the amount and
    application rate of salt and sand that was spread on County Road 9, does not
    raise an allegation of fraud.  This is particularly so at this point in the trial
    when the Towns witnesses had not yet testified.

[44]

Corporate
    records, governmental records, medical records and any number of other
    institutional records are called into question every day in courtrooms across
    the country without raising an issue or inference of fraud against the
    particular institution.  If the trial judges approach is correct, every time a
    particular expert testified that the recorded notes do not reflect what
    actually happened, it would be tantamount to an allegation of fraud against the
    author of the notes.  What was raised here by the expert witness, Bender, were
    everyday issues of reliability and credibility, not fraud.  When a witness, on
    behalf of a corporation, government, hospital or some other institution, makes
    a mistake in preparing a record, it does not follow that he or she is lying or
    that the particular organization has cooked the books.

[45]

There are
    many reasons why the records of the Town or its plough operators could be
    inaccurate  starting with a simple mistake in what they were writing down.  In
    the case of Mr. Dixon, one of the snow plough operators whose records were
    reviewed by Mr. Bender, the trial judge had, during his evidence, speculated on
    why Mr. Dixon was having difficulty giving his evidence.  At that time, the
    trial judge asked the witness to leave the room and then said:

I dont think he is trying to mislead anybody here.  I think he
    has some memory of the event.  He has some memory of the day.  He doesnt have
    any short-term memory.  That may be through advancement of age or through some
    chemical process of the brain.

[46]

In any
    event, counsel for the appellant stood his ground and made it clear that he was
    not alleging fraud.  In his responses to the trial judge, he was highly
    professional.  Counsel for the appellants is an officer of the court.  He made
    it as clear as it was possible to be that his clients were not advancing a case
    of fraud against the Town.  In my view, that should have been the end of it.

[47]

There was
    no basis for the trial judge to suggest that the appellants were alleging fraud
    or alleging that the Town had cooked its books.  The evidence about how much
    salt or sand or both it would take to produce bare pavement was a matter of
    professional opinion for the witness in the box and no more.  This intervention
    by the trial judge was unacceptable.

[48]

The
    pointed interjections by the trial judge in respect of the allegation of fraud are
    troubling.  He characterized the plaintiffs evidence that the work reflected
    in the records was inconsistent with the state of the road surface as an
    assertion of fraudulent record-keeping by the Town.  This was an entirely
    erroneous characterization of the evidence and of the plaintiffs position on
    this, the main issue in the trial.  Coupled with the persistence with which the
    trial judge asserted this erroneous characterization, it clearly would have
    suggested the trial judge appeared to have the view that the plaintiff was asserting
    a position that could not possibly be true and doomed the plaintiffs case.  In
    my view, a fully informed reasonable observer would conclude that at this
    relatively early point in the trial, and particularly after the repetition of
    the error later in the trial, the trial judge seemed to have closed his mind to
    the central issue in the case and whether consciously or unconsciously, would
    not decide fairly.

(ii)     The trial judges comments on the credibility of Ms. Lloyd

[49]

This
    incident also needs to be considered in conjunction with the trial judges
    mid-trial conclusion that the plaintiff had falsified her
curriculum
    vitae
.  While the plaintiffs credibility was not in issue concerning
    liability, as she had no recollection of the accident, it certainly was
    important on the issue of damages.

[50]

Ms. Lloyd
    gave her evidence on April 7, 2009.  During the course of her
    examination-in-chief, her counsel reviewed her educational background.  She
    testified that she attended the University of Ottawa for three years and she
    was one full course short of the qualification for a bachelors degree.

[51]

Ms. Lloyd
    testified in some detail about leaving university and her subsequent effort to
    complete her remaining full course credit through long distance education while
    maintaining her employment.  Towards the end of her examination-in-chief, later
    in the day, her counsel filed a number of documents including a short CV, which
    indicated that she had received a bachelors degree from the University of
    Ottawa in 2000.  At that time, the following exchange took place between the
    trial judge and counsel for Ms. Lloyd:

THE COURT:        Can you explain one thing on the education
    2000  University of Ottawa, Bachelor of Social Sciences.  I didnt think she
    had a Bachelor?  Did she get  did she  Im sorry, I saw the transcript but I
    didnt know; I thought she left early or something?

MR. BALDWIN:     One course not completed Your Honour, yes.

THE COURT:        Okay.  Thanks.

REGISTRAR:        Exhibit Number Six?

MR. BALDWIN:     Yes, thank you.

[52]

There was
    no further comment in respect of this reference in the CV to a bachelors degree.
    Ms. Lloyd was not cross-examined on it.  She was not asked to explain why the
    C.V. showed her as having obtained a bachelors degree from the University of
    Ottawa.

[53]

Ms. Lloyds
    husband testified right after her on April 7, 2009.  His evidence was not
    completed on that day.  It was subsequently interrupted to accommodate the
    schedule of two other witnesses.  Mr. Lloyds evidence in examination-in-chief
    and cross-examination continued and was completed on April 14, 2009.  At the
    conclusion of his evidence the trial judge asked the following questions of Mr.
    Lloyd:

THE COURT:        Thank you.  Just before you step down,
    Exhibit #6 is a
Curriculum Vitae
.  Can you take a look at the exhibit?

A.

Yes.

THE COURT:        Did you assist in any way in the preparation
    of that CV?

A.

Did I?

THE COURT:        Yes.

A.

Yes, Im
    sure I would have.

THE COURT:        And under Education it indicates that she
    has a Bachelor of Social Sciences.

A.

Yes.

THE COURT:        She doesnt have a Bachelor of Social
    Sciences, does she?

A.

No, she was attempting to complete her Bachelor of Social
    Sciences at that point in time.

THE COURT:        And did she use that CV to get the job at
    Corbyville Detention Centre?

A.

I would
    presume so.

THE COURT:        You understand where Im going?

A.

No sir.

THE COURT:        Well there may have been other people out
    there with a Bachelor of Social Sciences and who didnt get the job because she
    indicated that she had a Bachelor of Social Sciences.

A.

During the interview she told the interviewer that
    she had not completed it.

THE COURT:        Were you at the interview?

A.

No.

THE COURT:        All right.  Thats what she told you.

A.

Correct.

[54]

In
    re-examination, Mr. Lloyd testified that his wifes employer was pressing her
    to finish her degree, which confirmed that the employer fully appreciated that
    Ms. Lloyd had not yet completed the requirements for graduation.  The
    combination of Ms. Lloyds candid honesty about being a full course credit
    short, Mr. Lloyds acknowledgement of his assistance with her
curriculum
    vitae
, and the evidence supporting the position that Ms. Lloyds employer
    knew she was short the credit, may explain why defence counsel made no attack
    on the plaintiffs credibility on the basis of the CV.  It is with this context
    that a reasonable person would approach the trial judges expressed mid-trial
    belief that the plaintiffs credibility had been significantly compromised by
    the falsified CV.

[55]

Several
    weeks later, at the opening of court on May 25, 2009, the trial judge dealt
    with some minor housekeeping issues before continuing with the evidence.  After
    dealing with these matters, he alluded to the fact that Ms. Lloyds counsel had
    filed a CV that showed she had a bachelors degree when, in fact, she was one
    full course credit short.  He made the following statement:

... I reviewed my notebooks over the break and I can tell you
    that theres a couple of things that may be of significance to you in your
    ongoing settlement discussions.  Firstly, no matter how I deal with the issue
    of liability in, with respect to damages I have to assess damages.  And I made
    a credibility issue with respect to the plaintiffs on a matter of curriculum
    vitae that was falsified and it may affect damages, I havent decided that yet.
    I havent decided this case yet but I can tell you that that may or may not be
    of interest to you at this stage.

Thats the unusual aspect of this type of trial is if, even if
    you cant find on liability you still have to assess damages which may have
    implications to your own insurers, at the end of the day.  But the shoe hasnt
    dropped yet so well continue on.  Thank you unless you need some time to talk
    well get started.

[56]

On what
    basis the trial judge thought it was appropriate to make the above statement before
    the conclusion of the trial, it is impossible to fathom.  There is nothing in
    the transcript to indicate what prompted this statement.  It appears to come
    out of the blue.  Neither counsel for the appellants nor counsel for the
    respondents were able to provide any explanation for it.

[57]

Whatever
    the state of the settlement discussions may have been, the trial judge was not
    part of them  at least on the record before us.  Why he felt he should
    telegraph to the parties that he had apparently made an adverse finding of
    credibility against the plaintiffs does raise a legitimate concern.  The fact
    that he said he had not yet decided whether this credibility issue would affect
    his assessment of damages does not lessen the concern.  He had already
    expressed an opinion about the plaintiffs credibility on an important issue in
    the case  her academic qualifications, which related to her future loss of
    income.

[58]

There is
    also another aspect to the interventions by the trial judge.  It was the trial
    judge who raised the issue of the falsification of the document without counsel
    for the Town and County raising the issue in cross-examination of Ms. Lloyd or
    her husband.

[59]

The trial
    judge waited for her husband to testify to take up the issue with him.  This
    clearly became the trial judges issue at that point.  Ms. Lloyd was thoroughly
    cross-examined by both defence counsel and neither one of them asked about her
    allegedly falsified CV.

[60]

The trial
    judge, in fact, referred to this evidence in his reasons for judgment as
    follows:

[138] An incident arose during the course of the trial that
    impacted on the credibility of the plaintiffs.

...

[142]  In the course of applying for the job at the youth
    facility, Leslie, prepared a resume which indicated that she had a Bachelor of
    Social Sciences.  The resume was filed, inadvertently perhaps, as Exhibit 6.

[143]  Jason testified that he had assisted Leslie with the
    preparation.  He also testified that Leslie had disclosed the falsehood about
    the degree during the course of her interview for the position at the youth
    facility and had been hired in any event.  The implication being that she did
    not take unfair advantage over her employer or the other job applicants.  The
    volunteered confession during the job interview struck me as very unusual and
    did not have a ring of truth.  I concluded from this credibility flaw that
    although not to be over emphasized in my analysis, it was one of many factors
    that I must consider when weighing the evidence of the plaintiffs
    particularly evidence which was largely subjective in nature, as offered by the
    plaintiffs without independent verification.

[61]

The
    seemingly gratuitous statement of the trial judge concerning the credibility of
    Ms. Lloyd in the context of settlement discussions before the conclusion of the
    trial was not appropriate.

[62]

This
    intervention raises a serious issue concerning the trial judges impartiality.
    A recent case of this court,
R. v. Schofield
, 2012 ONCA 120, raised a
    somewhat similar issue.  Although a criminal case, I find this judgment
    provides a useful analysis of the situation presented here.

[63]

The
    appellant was charged with four counts of sexual assault.  After the Crowns
    case was in, the appellant testified, followed by the evidence of his wife.
    After his wifes testimony, the court rose for the lunch break.  During the
    lunch break, the trial judge requested both counsel to attend in his chambers.
    In this meeting, the trial judge expressed his opinion about both the weakness
    of the appellants testimony and some problems with the Crowns case and urged
    counsel to try to resolve the case.

[64]

While the
    primary ground of appeal related to the appellants exclusion from what was
    part of his trial, this court also considered a second issue regarding the
    contents of the discussion.  MacPherson J.A., writing for the court, said at
    para. 21 of his reasons:

In my view, there is a second, and equally serious, problem
    with...the actual contents of the discussion and, in particular, the trial judges
    negative comments about the

appellants

just-finished

testimony. Those comments, even if they had been made in the
    presence of the appellant, seriously compromised the trial judges
    impartiality, particularly since this was a judge-alone trial.

[65]

MacPherson
    J.A. referred to an earlier judgment of this court in
R. v. Roy
(1976), 32 C.C.C. (2d) 97 (Ont. C.A.).  In that case, a trial judge called
    counsel into his chambers, made comments about the evidence, and encouraged
    counsel to consider a plea resolution.  No resolution was achieved, the trial
    continued and the accused was convicted.  This court set aside the conviction
    and ordered a new trial.  Brooke J.A., writing for the court, said at pp.
    98-99:

A judge conducting a trial without the
    intervention of a jury is of course the trier of fact and determines the
    question of guilt or innocence.  In my opinion he cannot initiate such a
    discussion after entering upon the trial and hearing evidence and still
    preserve the appearance of impartiality and being of an open mind, which
    qualities are so essential to a fair trial and the meaning of the presumption
    of innocence.
The fact that he initiates such a discussion and sends
    counsel to the accused with talk of pleas of guilty and terms of sentence could
    reasonably result in apprehension by the accused that the judge presiding at
    his trial had reached some conclusions about the case.  It does not hurt to
    repeat again that justice must appear to be done.  This is not limited simply
    to what is seen from the floor of the courtroom or by the public but includes
    what transpired here.  It is also vital that justice must appear to be done, to
    the accused man in particular.  In those circumstances we think the trial lacked
    this quality and therefore it cannot stand.  [Emphasis added.]

[66]

While the
    case at bar is a civil action, there is no reason to distinguish this case on
    that basis.  Whether a trial is of an accused in a criminal case or of a
    plaintiff in a civil proceeding, both are entitled to an impartial
    adjudication.  See
Sorger et al v. Bank of Nova Scotia et al
(1998),
    39 O.R. (3d) 1, at p. 9.

[67]

In my
    view, the reference made by the trial judge in open court concerning the
    negative credibility of Ms. Lloyd raised a reasonable apprehension of bias,
    particularly when considered in conjunction with the trial judges interjection
    with respect to the allegation of fraud and its apparent impact on his
    perception of the plaintiffs case.

Conclusion

[68]

For the
    above reasons, I am satisfied that the appellants have met the test for
    reasonable apprehension of bias.  I would allow the appeal, set aside the
    judgment below and order a new trial.

[69]

The result
    of setting aside the judgment below is that the costs of the action awarded to
    the County and the Town are set aside.  However, the County is entitled to the
    costs of its successful Rule 20 motion, which dismissed certain claims in the
    statement of claim alleging improper design and related issues.  There was no
    appeal from that motion.  I would fix the costs of the motion at $1,200
    inclusive of disbursements and applicable taxes.

Costs of the Trial

[70]

In the
    circumstances of this case, it is my view that each party should be responsible
    for their own costs at trial.

Costs of the Appeal

[71]

I would
    award the appellants the costs of the appeal on a partial indemnity scale.  If
    the parties cannot agree then they may make written submissions.  The
    appellants shall make their submissions limited to five pages double spaced
    within 15 days of the release of these reasons.  The respondents shall make
    their reply submissions limited to five pages double spaced within ten days of
    the receipt of the appellants submissions.

Released:

MAY 28 2012                          Robert P.
    Armstrong J.A.

STG                                        I agree
    S.T. Goudge J.A.

I agree
    S. E. Lang J.A.


COURT OF APPEAL FOR ONTARIO

CITATION: Lloyds
    Syndicate 1221 (Millennium Syndicate) v. Coventree Inc., 2012
    ONCA 341

DATE:  20120524

DOCKET: C54323

OConnor A.C.J.O., Armstrong and Watt JJ.A.

BETWEEN

Lloyds Syndicate 1221
    (Millennium Syndicate)

Respondent (Appellant)

and

Coventree Inc.

Applicant (Respondent in Appeal)

Eric A. Dolden and Paul Dawson, for the respondent
    (appellant)

Geoffrey D.E. Adair, Q.C., and Jennifer King, for the
    applicant (respondent)

Heard:  February 9, 2012

On appeal from the order of Justice Lederer of the Superior
    Court of Justice, dated September 13, 2011, reported at 2011 ONSC 4788.

OConnor A.C.J.O.:

[1]

The issue on this appeal is whether a directors and officers insurance
    policy provided coverage for a claim when notice of the potential for that
    claim had been provided to a previous insurer.  The application judge, Lederer
    J., considered the language of the policy as well as circumstances underlying
    the negotiation and issuance of the policy.  He concluded that the policy
    afforded coverage.  I see no basis to interfere with his conclusion.

BACKGROUND

[2]

The respondent (Coventree) was a major participant in the asset backed
    commercial paper (ABCP) market in Canada.  In August 2007, the ABCP market
    experienced a severe disruption.  Coventrees business was devastated and its
    share price dropped significantly.  Soon after, Coventree wound up its
    business.

[3]

Prior to the collapse of the ABCP market, Coventree and its directors
    and senior officers had been insured under a policy issued by Great American
    Insurance Company (Great American) with a coverage limit of $1 million.

[4]

Shortly after the collapse of the market, Great American informed Coventree
    that it would not renew its directors and senior officers policy, which was
    due to expire on October 17, 2007.   The Great American policy included
    coverage for claims made after the expiration of the policy if Coventree had
    given notice of the potential claims during the policy period.

[5]

The management of Coventree considered that there was the potential for
    claims against the company and its directors and officers arising from the
    market disruption.  As a result, on October 16, 2007, Coventree gave notice to
    Great American of all of the potential claims it could envision relating to the
    market collapse (the October 16, 2007 notice).  Coventree cast the October 16,
    2007 notice as broadly as possible in order to maximize the coverage.

[6]

Coventree obtained extended coverage from Great American in the amount
    of $1 million for claims made between October 17, 2007 and October 17, 2008
    which were based upon acts alleged to have occurred before October 17, 2007.

[7]

In addition, Coventree obtained a new directors and officers insurance
    policy from the appellant, Lloyds Syndicate 1221 (Lloyds) for the period
    October 17, 2007 to October 17, 2008 (the Lloyds 2007 policy).  The Lloyds
    2007 policy provided coverage in the amount of $10 million, but expressly excluded
    prior act coverage  that is coverage for any claim based upon an alleged
    wrongful act that occurred before October 17, 2007.

[8]

In March 2008, Coventree
    requested Lloyds to provide excess coverage to that provided by Great American
    for the period up to October 17, 2008.  Lloyds declined.

[9]

In September 2008, Coventree set about to acquire coverage for the
    period following October 17, 2008.  Although it had not received any claims
    relating to the collapse of its business, Coventree was aware that there was an
    ongoing investigation being conducted by the Ontario Securities Commission
    (OSC) and that there was the potential for a claim for costs in relation to
    an OSC hearing.

[10]

On
    September 18, 2008, Coventree applied to Lloyds for directors and officers coverage
    for the period beginning October 17, 2008.  A number of discussions, exchanges
    of documents and negotiations ensued.  Eventually, Lloyds issued a policy in
    the amount of $10 million for the period from October 17, 2008 to April 17,
    2010 (the Lloyds 2008 policy).  Coverage for prior acts was capped at the
    first $5 million of the $10 million limit.  The Lloyds 2008 policy was a
    claims-made policy  meaning it covered claims made during the policy period.  The
    policy provided coverage to Coventree and its directors and officers for among
    other matters defence costs for proceedings against the insureds.  The
    exclusion for prior acts coverage in the Lloyds 2007 policy was removed.

[11]

In
    July 2009, the OSC issued a notice of hearing and statement of allegations
    against Coventree and two of its senior officers.  That notice related to
    matters referred to in Coventrees October 16, 2007 notice to Great American.
    In the course of responding to the OSC notice, Coventree and its two senior
    officers incurred legal fees in excess of $12 million.  In time, Great American
    accepted that its policy responded to the claim and paid its limits of $1
    million.  Coventree claimed against Lloyds for reimbursement for defence costs
    under the Lloyds 2008 policy.  Lloyds denied coverage.  Coventree brought the
    application underlying this appeal.

[12]

On
    the application, it was common ground that the Lloyds 2008 policy was a
    claims-made policy and that Coventree made the claim for reimbursement of the
    OSC related defence costs within the policy period.  It was also agreed that
    absent an exclusion provision, the costs incurred in defending the OSC
    proceeding were properly the subject of a claim under the policy.  In addition,
    it was agreed that if the Lloyds 2008 policy responded to the claim, it did so
    only to the extent of the first $5 million of the policy limits.

[13]

Lloyds
    argued, however, that there were three provisions in the Lloyds 2008 policy
    that excluded coverage for acts referred to in the October 16, 2007 notice.  In
    particular, Lloyds referred to (i) a carve out clause in the application for
    insurance submitted by Coventree; (ii) section VI.B; and (iii) section IV.B of
    the Lloyds 2008 policy.

[14]

The
    application judge found that the Lloyds 2008 policy provided coverage for the
    prior acts referred to in the October 16, 2007 notice to the extent of the
    first $5 million of the $10 million policy limits.  He based this conclusion on
    a careful analysis of the provisions in the policy and the circumstances
    relating to the negotiation and issuance of the policy, including Endorsement
    24 to that policy which addressed exclusions for prior acts.  He concluded that
    none of the exclusion clauses relied upon by Lloyds applied to matters referred
    to in the October 16, 2007 notice.

ANALYSIS

(a)

The Legal Principles

[15]

The
    Supreme Court of Canada has set out the general principles to be used in
    interpreting insurance policies.  In
Reid Crowther & Partners Ltd.
,
    [1993] 1 S.C.R. 252, at p. 269, the court said:

In each case, the courts must interpret the provisions of the
    particular policy at issue in light of general principles of interpretation of
    insurance policies, including but not limited to: (i) the
contra proferentem
rule; (2) the principle that coverage provisions should be construed broadly
    and exclusion clauses narrowly; and (3) the desirability, at least where the
    policy is ambiguous, of giving effect to the reasonable expectations of the
    parties.

[16]

When
    interpreting the terms of a contract, including an insurance contract, the aim
    is to determine the intentions of the parties viewed objectively at the time they
    entered into the contract.  The analysis begins with an examination of the text
    of the written agreement.  The aim is to determine the objective intentions of
    the parties from the words they have used.

[17]

However,
    the words of a contract alone may not be determinative of the objective
    intention of the parties.  Contracts are not to be looked at in a vacuum.  Rather,
    it is perfectly proper, and indeed may be necessary, to look at the
    surrounding circumstances in order to ascertain what the parties were really
    contracting about:
Hill v. Nova Scotia (Attorney General)
, [1997] 1
    S.C.R. 69, at para. 20.  The courts search for the intention of the parties
    may be aided by reference to the surrounding circumstances or factual matrix at
    the time of the negotiation and execution of the contract, as viewed
    objectively by a reasonable person:  see also
Ventas Inc. v. Sunrise Senior
    Living Real Estate Investment Trust et al.
, 2007 ONCA 205,
85 O.R. (3d) 254.

[18]

Words
    used in a contact are often better understood when the context of their use is
    understood.  The purpose of the context is to determine what a reasonable
    person in the context of the surrounding circumstances would have understood
    the agreement to be.  The subjective intentions of the parties are not
    relevant.  Consideration of the surrounding circumstances is generally
    restricted to the circumstances known to both parties at the time of the
    execution of the contract.  These circumstances include facts that were known
    or reasonably capable of being known by the parties when they entered into the
    contract.  See:
Dumbrell v. Regional Group of Companies Inc.
, 2007 ONCA
    59, 85 O.R. (3d) 616, at paras. 50, 53 and 56;
Ventas
, at para. 24; and
King
    v. Operating Engineers Training Institute of Manitoba Inc.
, 2011 MBCA 80,
    341 D.L.R. (4th) 520, at paras. 69-73.

(b)

The Carve Outs

[19]

On September 18, 2008, Coventree delivered an application for insurance
    to an agent for Lloyds.  The application was in the standard form used by
    Lloyds for parties applying for insurance.  Question 6(c) in the application
    asked the following question:

6(c) Has anyone for whom this
    insurance is intended given notice under the provisions of any other previous
    or current insurance policy of any facts or circumstances which may give rise
    to a claim being made against the Company and/or any Director and/or Officer?
    If Yes, provide details.

This question was followed by what is described as a
    carve out provision.  It stated as follows:

IT IS UNDERSTOOD AND AGREED THAT IF ANY SUCH CLAIMS EXIST, OR
    ANY SUCH FACTS OR CIRCUMSTANCES EXIST WHICH COULD GIVE RISE TO A CLAIM, THEN
    THOSE CLAIMS ARISING FROM SUCH FACTS OR CIRCUMSTANCES ARE EXCLUDED FROM THE
    PROPOSED INSURANCE.  [Emphasis in original].

[20]

Coventree
    answered question 6(c) in the affirmative.  In response to the request for
    details, it referred to Appendix 6(c).  Coventree attached the October 16, 2007
    notice to Great American as Appendix 6(c).

[21]

Coventrees
    evidence was that in applying to Lloyds, it was specifically seeking coverage
    for matters referred to in the October 16, 2007 notice.  Following the ABCP
    market disorder, Coventree was winding down its operations.  Its business
    activities were limited to providing administrative services to certain market
    participants.  It was not conducting any new business.  It was concerned,
    however, that the coverage with Great American was limited to $1 million for
    acts relating to the market disruption which occurred before October 17, 2007.
    Its objective in applying to Lloyds in 2008 was to obtain full prior acts
    coverage, including most particularly those potential claims referred to in the
    October 16, 2007 notice.  When it answered question 6(c) in the affirmative, it
    did not know whether Lloyds would be agreeable to providing prior act coverage
    or not.  Answering question 6(c) in the affirmative and providing the October
    17, 2007 notice ensured that Lloyds was aware of the potential for claims being
    made during the policy period relating to the matters set out in the October
    17, 2007 notice.

[22]

Question
    7 in the application form asked if anyone for whom the insurance was intended
    had any knowledge of any act or omission which may give rise to a claim which
    may fall within the scope of the proposed insurance.  Question 7 was followed
    by a similar carve out to that which followed question 6.  Coventree answered
    question 7 in the negative.

[23]

On
    September 30, 2008, the parties had a telephone conversation to allow the
    senior vice-president of Lloyds agent to assess the risks involved in insuring
    Coventree.  The main topic of conversation concerned the potential litigation
    risks that were the subject of the October 16, 2007 notice.

[24]

A
    back and forth process ensued.  On October 3 and 14, Lloyds agent sent a
    document to Coventrees brokers variously referred to as a quote, a proposal
    or a binder.  There are two important aspects of these documents.  First,
    each was subject to Lloyds accepting an application with original signature.
    Second, each of these documents contained the phrase:waive questions number 6
    and 7.

[25]

On
    October 16, 2008, Coventrees broker emailed Lloyds agent stating in part:  Please
    bind coverage effective 10/17/08 - 4/17/10 ... for a limit of 10M (
of which 5M will have full prior act coverage
) and a
    premium of $535,000.  [Emphasis added.]

[26]

On
    October 17, 2008, the senior vice-president of Lloyds agent sent a temporary
    binder providing coverage with the same language as referred to in para. 25 above
    waiving the answers to questions 6 and 7.

[27]

Pausing
    in the narrative here, the application judge found that Lloyds intended to
    waive the answers to clauses 6(c) and 7 in the application form as well as the
    carve outs that followed these questions.  Specifically, the application judge
    found that Lloyds intended to waive the carve outs in the applications as they
    applied to matters referred to in the October 17, 2007 notice.

[28]

In
    my view, the application judges conclusion that Lloyds had waived the carve
    out provisions as of October 17, 2008 was supported by the evidence.  Lloyds
    knew about the October 16, 2007 notice.  It had a copy of it.  Coventree,
    through its brokers, had made it clear that it wanted full prior act coverage
    and on October 17, 2008, Lloyds issued a binder providing temporary coverage in
    which it waived the answer to questions 6 and 7.  I accept that waiving an
    answer to a question does not necessarily imply waiver of the carve out that
    followed.  However, it makes little sense in these circumstances that if Lloyds
    wished to exclude the matters referred to in the October 16, 2007 notice, it
    would have waived the answers to questions 6 and 7.  Prior to including the
    words waive questions number 6 and 7 in its temporary binder, Lloyds had received
    an application on September 18 in which the questions had been answered.
    Further, Lloyds waived the answer to those questions in the face of Coventrees
    express request on October 16, 2008 for full prior act coverage.

[29]

In
    addition, I am satisfied that, as of October 17, 2008, a reasonable person viewing
    these circumstances objectively would have understood that the parties had
    agreed that Lloyds would provide full prior acts coverage to the extent of $5
    million, at least for the matters included in the October 16, 2007 notice.  I
    recognize that a temporary binder is not part of the final policy of insurance
    when issued.  That said, I think that the temporary binder is part of the
    factual matrix and is therefore relevant to what the objectively viewed
    intention of the parties was as they proceeded forward after October 17, 2008.

[30]

Lloyds
    relies heavily on the next series of events arguing that they show that the
    parties did not intend to include full prior act coverage in the issued policy.

[31]

In
    the weeks following October 17, 2008, Coventree submitted three further
    applications to Lloyds electronically.  In each, it answered question 6(c) as
    it had done in its original application of September 18.

[32]

On
    November 20, Lloyds issued the 2008 policy.  The policy provided that Coventrees
    application for insurance forms a part of the policy.  Lloyds appended a copy
    of Coventrees application with question 6(c) answered in the affirmative, but
    without the October 17, 2007 notice appended.  Lloyds argues that as a result,
    the issued insurance policy includes the carve out which became operative when
    question 6(c) was answered in the affirmative.

[33]

I
    do not accept this argument.  It would be more than a little surprising if once
    Coventree obtained a temporary binder to cover the prior acts referred to in
    the October 17, 2007 notice, it then forewent that coverage in submitting the
    further applications.

[34]

Moreover,
    despite the issuance of the policy on November 20, 2008, the parties did not
    finally settle the wording of the endorsement that dealt with what prior acts
    were excluded from coverage until Lloyds issued Endorsement 24 later in 2009.

[35]

In
    my view, the events following November 20, 2008 refute the argument that the
    parties intended to exclude the matters referred to in the October 16, 2007
    notice.  On November 21, 2008, Coventrees broker emailed the agent for Lloyds
    expressing concern about Endorsement 21 to the issued policy, which excluded
    coverage for prior acts from the first $5 million coverage rather than the
    second $5 million as Coventrees broker understood the agreement to be.  In his
    email, he said:

... as it is the second $5M that
    will not provide full prior act coverage before 10/17/07.
The first $5M will have full prior act coverage ...
[Emphasis
    added.]

[36]

Thus,
    Coventree continued to take the position that it was purchasing full prior act
    coverage.  Lloyds did not take issue with this assertion.

[37]

On
    December 10, 2008, Coventrees broker forwarded to Lloyds agent a new
    application with questions 6(c) and 7 unanswered.  Lloyds binder of October
    17, 2008 required Coventree to submit an application with an original
    signature.  The application forwarded on December 10, 2008 had an original
    signature and was the only one submitted with an original signature.

[38]

The
    senior vice-president of Lloyds agent testified that frequently the final
    application comes in late in the day.  Lloyds did not respond to receiving the
    December 10, 2008 application.  Moreover, in December 2008, the parties had yet
    to finalize the wording of the endorsement to the policy that specifically
    dealt with prior act coverage.

[39]

Later
    in 2009, Lloyds issued what turned out to be the final version of the
    endorsement dealing with prior act coverage.  Endorsement 24 amends the
    exclusion provisions of the policy by adding:

It is agreed that
Section IV
;
Exclusions
, is
    amended by adding the following:

based upon, arising out of,
    relating to, directly or indirectly resulting from or consequence of, or in any
    way involving any
Wrongful Acts
or related
Wrongful Acts
where
    all or any part of such acts were committed, attempted or allegedly committed
    or attempted prior to
October 17, 2007
, applies only to the
$5,000,000
excess of
$5,000,000
limit of liability.

[40]

The
    effect of Endorsement 24 is that the second $5 million of $10 million coverage
    does not apply to acts committed prior to October 17, 2007.  Implicitly,
    however, the first $5 million coverage does apply.  Had Lloyds intended to
    exclude coverage for the acts referred to in the October 16, 2007 notice, it
    would have been logical to have done so in the endorsement specifically
    addressing exclusions for prior acts.  Instead, it worded the endorsement to
    implicitly provide $5 million prior act coverage for acts committed before
    October 17, 2007.

[41]

Given
    the history of the dealings between the parties, I am satisfied that, objectively
    viewed, the intention of the parties was that the 2008 insurance policy cover
    the matters referred to in the October 16, 2007 notice.

(c)

Section VI.B

[42]

Lloyds
    argues that section VI.B of the 2008 policy operates to exclude coverage for
    the acts referred to in the October 17, 2007 notice. Section VI(B) reads as
    follows:

B. More than one
Claim
involving
    the same
Wrongful

Act
or
Related Wrongful Acts
of one of
    more
Insureds
shall be considered a single
Claim
, and only one
    Retention shall be applicable to such single
Claim
.  All such
Claims
constituting
    a single
Claim
shall be deemed to have been made on the earlier of the
    following dates: (1) the earliest date on which any such
Claim
was first
    made; or (2) the earliest date on which any such
Wrongful Act
or
Related
    Wrongful Act
was reported under this Policy or any other policy providing
    similar coverage.

[43]

I
    do not accept Lloyds argument.  Section VI.B deals with the subject of
    retention  the amount of loss the insured is responsible for before the
    insurer has to begin paying up to the policy limits (somewhat akin to a
    deductible).  On the face of it, s. VI.B does not purport to exclude coverage
    for claims that would otherwise be covered under the policy.  In any event,
    having concluded that the parties intended the Lloyds 2008 policy to cover
    acts referred to in October 16, 2007.  I do not interpret s. VI.B  a retention
    clause  to alter that specific agreement relating to coverage.

(d)

Section IV.B

[44]

Lloyds argues that s. IV.B excludes coverage of matters referred to in
    the October 17, 2007 notice.  Section IV.B is a general exclusion clause for
    claims for which notice was previously given to another insurer.  The
    applicable part reads as follows:

The Insurer shall not be liable to make any payment for
Loss
for any
Claim
made against any
Insured
based upon, arising out,
    relating to, directly or indirectly resulting, in consequence of, in any way
    involving, or in connection with:

B. any
Wrongful Act
or
    related
Wrongful Act
or any fact, circumstance or situation which has
    been the subject of any notice or
Claim
given under any other policy of
    which this Policy is a renewal or replacement.

[45]

Lloyds
    argues that the Lloyds 2008 policy was a renewal or replacement of the Great
    American policy and that clause s. IV.B, therefore, excludes coverage.
    Coventree takes the opposite position.  I do not find it necessary to resolve
    this issue.  I agree with the application judge that once one concludes that
    the parties intended the Lloyds 2008 policy to cover the matters referred to
    in the October 17, 2007 notice, it would make no sense to interpret the general
    exclusion clause as intending to refer to matters set out in that notice.

[46]

The
    Supreme Court of Canada in the case of
Reid Crowther
set out the
    principle that in interpreting insurance contracts, exclusion clauses should be
    narrowly construed.  See also:
Derksen v. 539938 Ontario Ltd.
, 2001 SCC
    72, [2001] 3 S.C.R. 398, at para. 49.  It follows that a generally worded exclusion
    clause, as in the case of Section IV.B, should give way to an agreement to cover
    a specific matter.  Having found that the parties intended to cover the matters
    referred to in the October 16, 2007 notice, I do not accept that s. IV.B
    overrules that specific agreement.

CROSS-APPEAL ON COSTS

[47]

Coventree
    cross-appeals from the award of costs on a partial indemnity scale.  Coventree
    claims that the application judge erred in not awarding costs on a full
    indemnity scale because this case involved an insured applying for a
    declaration regarding the obligation to pay defence costs.  Both parties agree
    that the application judge inadvertently omitted $12,805.63 in disbursements.

[48]

Cost
    awards are discretionary and should not be lightly interfered with.  A judge of
    first instance is in the best position to determine the entitlement, scale and
    quantum of any such award:
McNaughton Automobile Ltd. v. Co-operators
    General Insurance Co.
, 2008 ONCA 597, 298 D.L.R. (4th) 86, at para. 27.

[49]

The
    application judge in this case did acknowledge that costs on a full indemnity
    scale have been awarded in cases involving the duty of the insurer to provide a
    defence to a claim.  However, he found that this case was one where the costs
    of the defence were claimed as an item insured under the policy, and not one
    based on the duty of the insurer to provide a defence to a claim that may fall
    within the insurance policy.  Lloyds had a legitimate question with respect to
    the interpretation of this policy and it should have been able to raise this
    question without incurring an exposure to substantial indemnity costs.  I see
    no reason to interfere with the application judges findings on costs.

[50]

Therefore,
    Coventrees cross appeal on costs is dismissed but the costs award below is
    increased by $12,805.63 to reflect the application judges inadvertent
    oversight of Coventrees claimed disbursements.

DISPOSITION

[51]

In
    the result, I would dismiss the appeal with the respondents costs on the
    appeal fixed in the amount of $15,000 and the appellants costs on the cross
    appeal fixed in the amount of $5,000.  The net amount owing to the respondent is
    $10,000, inclusive of disbursements and applicable taxes.  In addition, and as
    the parties agreed, the costs award below in favour of Coventree is increased
    by $12,805.63.

RELEASED:  DOC  MAY 24 2012

D. OConnor
    A.C.J.O.

I agree Robert P.
    Armstrong J.A.

I agree David Watt
    J.A.


COURT OF APPEAL FOR ONTARIO

CITATION: Lukezic v. Royal Bank of Canada, 2012 ONCA
    350

DATE: 20120528

DOCKET: C54312

Laskin, Rosenberg and Goudge JJ.A.

BETWEEN

James Joseph Lukezic, Walker Hall Winery Ltd.

Plaintiffs (Appellants)

and

Royal Bank of Canada

Defendant (Respondent)

James Joseph Lukezic, appearing in person

Milton A. Davis and Brendan Hughes, for the respondent

Heard: April 11, 2012

On appeal from the judgment of Justice Glen A. Hainey of
    the Superior Court of Justice, dated September 9, 2011, with reasons reported
    at 2011 ONSC 5263.

Goudge
    J.A.:

[1]

The appellants commenced this action against the respondent on April 4,
    2011.  The action arose out of the appellant companys commercial relationship
    with the respondent.  The respondent immediately brought a motion in the action
    for various forms of relief.

[2]

On May 16, 2011, Hainey J. allowed the motion and issued an order
    dismissing the appellants action as disclosing no reasonable cause of action,
    and declaring the appellant Lukezic a vexatious litigant pursuant to s. 140(1)
    of the
Courts of Justice Act
, R.S.O. 1990, c. C.43.

[3]

Both appellants appeal from the first part of that order, and the
    appellant Lukezic appeals from the second part of the order.  There are thus
    two issues in this appeal.

[4]

This court did not call on the respondent on the first issue.  I would
    dismiss the appeal from the dismissal of the action.  I agree with the motion
    judge that the appellants statement of claim is virtually the same as their
    statement of claim in a prior action against the respondent, which was also
    struck out.  It asserts a claim which relates entirely to the appellant Walker
    Hall Winery Ltd.  That company is in receivership and the appellant Lukezic has
    no authority to bring a claim on its behalf without leave, which he does not
    have.  The appeal from this part of the order is therefore dismissed.

[5]

The appellant Lukezic also challenges that part of the order of the
    motion judge declaring him a vexatious litigant.  He does not argue any error
    in the reasoning of the motion judge in making that order.  Nor in my view
    could he do so.  The reasons of the motion judge are compelling.

[6]

Rather, he argues that s. 140(1) of the
Courts of Justice Act
requires that an application must be brought to obtain this relief.  The court
    cannot grant the order when it is sought by a motion in an action.

[7]

While this argument does not appear to have been made to the motion
    judge, I would give effect to it.  Since the vexatious litigant order was
    sought in this case by way of motion in an action, the motion judge did not
    have jurisdiction to grant that relief.

[8]

Section 140(1) of the
Courts of Justice Act
reads as follows:

Vexatious
    proceedings

140.
(1)Where a judge
    of the Superior Court of Justice is satisfied, on application, that a person
    has persistently and without reasonable grounds,

(a) instituted vexatious proceedings in any
    court; or

(b) conducted a proceeding in any court in
    a vexatious     manner,

the judge may order that,

(c) no further proceeding be instituted by
    the person in any        court; or

(d) a proceeding previously instituted by the  person
    in any court not be continued,

except by leave of a judge of the Superior Court of Justice.

[9]

The issue of whether a vexatious litigant order can be made only on
    application, rather than by motion in an action was before this court in
Kallaba
    v. Bylykbashi
(2006), 265 D.L.R. (4
th
) 320 (Ont. C.A.).  In
    that case my colleagues Cronk J.A. and Juriansz J.A. held that they need not
    decide the issue.  They set aside a vexatious litigant order that had been
    obtained against the appellant on motion, concluding that even if the motion
    judge had jurisdiction to make the order, the appellant had not been accorded a
    fair hearing when the order was made.

[10]

However,
    my colleague Lang J.A. addressed the issue squarely.  In detailed reasons, she
    set aside the vexatious litigant order because it was made on a motion in an
    action, not by way of application.  She found that the order was therefore made
    without jurisdiction.

[11]

I
    agree with Lang J.A.

[12]

My
    colleague concluded that the proper interpretation of s. 140(1) requires that
    an application be brought to obtain this relief.  It cannot be obtained by way
    of motion in an action.  She offered four reasons for this conclusion, all set
    in the context of the reality that, as the majority said in that case, a
    vexatious litigant order is an extraordinary remedy that alters a persons
    right to access the courts.

[13]

In
    summary, Lang J.A. emphasized that the
Courts of Justice Act
is
    designed to advance access to justice which is, as she says, a fundamental
    pillar of the rule of law.  Section 140(1) runs contrary to that important goal
    by denying access to individuals with carefully specified characteristics.  In
    that sense, it is an exception to the thrust of the legislation and therefore
    should be construed strictly.

[14]

Second,
    Lang J.A. looked to the legislative history of s. 140(1) to support her
    conclusion.  The first and only previous legislative incarnation permitting
    this relief was the
Vexatious Proceedings Act
, R.S.O. 1980, c. 523.
    It required an originating notice which was clearly different from an
    interlocutory motion.

[15]

Third,
    Lang J.A. found that the plain reading of s. 140(1) compels the same answer.
    The relief must be sought on application.  Section 1 of the
Courts of
    Justice Act
defines application as a civil proceeding that is commenced
    by notice of application or by application.  This is different from a motion
    in an action.

[16]

Finally,
    Lang J.A. found that an application provides the procedure best suited to the
    determination of whether a litigant is vexatious.  In large measure this is because
    of the due process protections which that procedure accords to the person
    targeted, such as personal service, adjudication by a judge, a directed trial
    of an issue if necessary, and the right of appeal without the need for leave.

[17]

I
    agree with this reasoning.  As a consequence, I would allow the appeal from
    that part of the order of the motion judge and would dismiss the respondents
    claim for an order that the appellant Lukezic is a vexatious litigant.

[18]

Since
    success is divided, and the appellant Lukezic is self-represented, I would not
    award any costs of this appeal.

Released: May 28, 2012 (J.L.)

S.T. Goudge J.A.

I agree J.I. Laskin J.A.

I agree M. Rosenberg J.A.


COUR DAPPEL DE LONTARIO

RÉFÉRENCE :
Morin c. The Gananoque Inn, 2012 ONCA 331

DATE : 20120518

DOSSIER : C51911

Les juges Weiler, Blair et
    Rouleau

ENTRE

Diane Morin

Demanderesse (Appelante)

et

The Gananoque Inn

Défendeur (Intimé)

et

Christopher Roblin

Tiers mis en cause

Diane Morin, en son propre nom

P. Muirhead, pour lintimé The
    Gananoque Inn

Audience et décision rendue séance
    tenante : le 14 mai 2012

En appel du jugement du juge Albert J. Roy
    de la Cour supérieure de justice, en date du 9 février 2010.

INSCRIPTION

[1]

Lappelante soulève plusieurs moyens dappel.  Elle
    prétend que le juge de première instance a commis plusieurs erreurs de droit, notamment
    il devait admettre en preuve un vidéo pris quelque quatre ans après lincident
    ainsi que des extraits du
Building Code
, Règl.
    de lOnt. 403/97, modifié par Règl. de lOnt. 350/06.  De plus, selon
    lappelante, le juge de première instance ne devait recevoir en preuve un
    rapport médical du Dr. Thanh-Lan Ngo, psychiatre.

[2]

Nous ne pouvons donner effet à ces motifs
    dappel.  La norme dexamen en appel reconnaît quil faut faire preuve dune
    grande retenue envers les décisions du juge de première instance en ce qui a
    trait à la recevabilité et ladmissibilité de ces preuves au procès.  À notre
    avis, il na commis aucune erreur en lespèce.

[3]

Lappelante prétend également que le juge de
    première instance devait écarter le verdict du jury.  À notre avis, le juge de
    première instance navait aucun motif décarter le verdict du jury.  Il y avait
    amples éléments de preuve à lappui du verdict et celui-ci nétait pas
    déraisonnable.  De plus, comme le verdict nallait pas à lencontre du poids de
    la preuve, nous ne pouvons pas conclure que le jury na pas bien compris son devoir
    ou quil a volontairement agi à lencontre de ce devoir.

[4]

Lappelante conteste aussi la décision du juge
    de première instance de caviarder une phrase dans le rapport de Madame Maria Alexiou,
    ergothérapeute.  Elle allègue que ceci constituait une erreur et que, malgré le
    caviardage de la phrase, le jury pouvait voir le texte de toute façon.  À notre
    avis, la décision était discrétionnaire et ce nest que spéculatif ce que le
    jury aurait pu faire pour lire le texte caviardé.  Il ny a aucune raison de
    croire que le jury na pas suivi les directives du juge de première instance à
    cet égard.

[5]

Lappelant allègue enfin quil y a eu des
    erreurs dans la préparation de la transcription, plus particulièrement le fait
    que certaines parties reflètent la traduction plutôt que la langue du
    témoignage, et que ceci porte atteinte à son droit à un procès bilingue.  Ces erreurs,
    quoique regrettables, nauraient pas eu deffet sur lappréciation de la preuve
    par le jury. Par ailleurs, lappelante ne prétend pas que ces erreurs lont privé
    dun moyen dappel.

[6]

Pour les motifs énoncés ci-dessus, lappel est
    rejeté avec dépens, le montant des dépens étant fixé à 10 000 $, y compris les
    débours et les taxes applicables.

« K.M.
    Weiler j.c.a. »

« R.A.
    Blair j.c.a »

« Paul
    Rouleau j.c.a. »