COURT OF APPEAL FOR ONTARIO

CITATION: Trillium Motor World Ltd. v. General Motors of
    Canada Limited,

2017 ONCA 545

DATE: 20170704

DOCKET: C60838

Cronk, van Rensburg and Pardu JJ.A.

BETWEEN

Trillium Motor World
    Ltd.

Plaintiff (Appellant/

Respondent by way of
    cross-appeal)

and

General
  Motors of Canada Limited
and
Cassels
  Brock & Blackwell LLP
Defendant (Respondent/
Appellant by cross-appeal)
David Sterns, Allan D.J. Dick, Andy Seretis, Bryan
    Finlay Q.C., Marie-Andrée Vermette and Michael Statham, for the
    appellant/respondent by cross-appeal Trillium Motor World Ltd.
Kent Thomson, John McCamus, Sean R. Campbell, Sarah L.
    Weingarten, David S. Morritt and Karin Sachar, for the respondent/appellant by cross-appeal
    General Motors of Canada Limited
Heard: January 16, 17, 18 and 19, 2017
On appeal from the judgment of Justice Thomas J. McEwen
    of the Superior Court of Justice, dated July 8, 2015 and March 22, 2016, with
    reasons reported at 2015 ONSC 3824, 30 C.B.R. (6th) 1 and 2016 ONSC 666.
Pardu J.A.:
[1]

This is the first of two appeals and cross-appeals that arise out of the
    public bailout of General Motors of Canada (GMCL) in the spring of 2009. This
    decision addresses a class action against GMCL brought by franchisees whose
    dealerships were terminated as part of the bailout and a counterclaim by GMCL
    against the franchisees. The second decision addresses a class action brought
    by the terminated franchisees against the law firm Cassels, Brock &
    Blackwell LLP for its alleged mishandling of their interests. That decision is
    being released concurrently with this one:
Trillium Motor World Ltd. v. Cassels
    Brock & Blackwell LLP
, 2017 ONCA 544.
A.

introduction
(1)

The GMCL Insolvency and the Wind-Down Agreements
[2]

GMCL was insolvent in May 2009. To survive and avoid proceedings under
    the
Companies Creditors Arrangement Act
, R.S.C. 1985, c. C-26 (
CCAA
)
, it required bailout money. The
    Canadian and American governments demanded that GMCL aggressively restructure
    as a condition of providing the assistance.
[3]

GMCL accordingly had to rationalize the number of its franchisee
    automobile dealers. It had franchise agreements with far too many dealers, some
    of whose businesses were doomed by the decisions of its American parent company
    to discontinue the Saturn and Pontiac brands. Unless a sufficient number of
    dealers agreed to terminate their relationship with GMCL, GMCL would have to
    file under the
CCAA
.
[4]

On May 20, 2009, GMCL delivered Wind-Down Agreements (WDAs) to 240
    dealers. The WDAs offered payment in exchange for a release of all claims,
    including those that could be advanced under the
Arthur Wishart Act
    (Franchise Disclosure)
,
2000
, S.O. 2000 c. 3 (the Act), and
    provided for an end to the dealers business relationships with GMCL.
[5]

The WDAs also contained a promise by the signing dealer not to sue GMCL.
    They required the dealer to opt out of or disclaim any interest in any future class
    proceeding that purported to assert claims released by the WDAs. They required
    any dealer who failed to opt out to indemnify GMCL against any damages and
    legal costs GMCL might subsequently incur by defending a class proceeding.
[6]

The dealers were given six days to sign the WDAs. The agreements were
    conditional on the dealers first obtaining certificates of independent legal
    advice.
[7]

202 out of the 240 dealers who were offered WDAs signed them and
    accepted the payment offered.
(2)

The class proceeding
[8]

After GMCL made its final payments, a class proceeding was brought on
    behalf of all dealers who signed the WDAs, claiming that GMCL breached the
    rights provided to these franchisees under the Act. It was certified by Strathy
    J. (as he then was) in March 2011. The appellant Trillium Motor World Ltd.(Trillium)
    was named as the representative plaintiff.
[9]

At trial, GMCL argued that it had complied with the Act and that, in any
    event, the proceedings were barred by the releases in the WDAs. It also brought
    a counterclaim for damages, arguing that the dealers breached the covenants not
    to sue in the WDAs by commencing their class proceeding or by not opting out of
    it.
[10]

Following
    a long trial in 2014, the trial judge held that GMCL acted honestly and fairly
    and did not breach the dealers rights under the Act. He further held that the
    releases barred the dealers class proceeding. Trillium appeals these rulings
    to this court.
[11]

The
    trial judge also concluded that the dealers promises not to sue GMCL, and to
    indemnify GMCL should a dealer fail to opt out of class proceedings, were void
    on public policy grounds. He found that the covenant not to sue and the
    indemnity were severable from the rest of the WDA, and dismissed GMCLs action
    for damages arising from the dealers breach of those provisions. GMCL
    cross-appeals these rulings.
[12]

The
    dealers raise a number of grounds of appeal impugning the trial judges ruling
    that the manner in which GMCL secured the dealers agreement to the WDAs did
    not breach the duty of fair dealing under the Act. Specifically, they maintain
    that the six-day window given by GMCL to sign the WDAs breached the Act.
[13]

However,
    I agree with the trial judges observation, at para. 295 of his reasons, that
    the issue whether the releases in the WDAs are valid and enforceable is a
    threshold question. If the releases are valid, the dealers other claims
    under the Act are barred.
[14]

I
    agree with the trial judge that the releases are valid, and on that ground I
    would dismiss Trilliums appeal.
[15]

I
    would also uphold the trial judges decision that the covenant not to sue and
    the indemnity in the WDAs were unenforceable against the dealers. I would
    therefore dismiss the cross-appeal by GMCL.
B.

The common issue
[16]

The
    certification judge certified the following common issue regarding the release
    in the WDAs:
(f) Are the waiver and release
    contained in s. 5 of the Wind-Down Agreement null, void and unenforceable in
    respect of the Class Members rights under ss. 4 and 11 of the
Wishart Act
?
[17]

Section
    4(1) of the
Act
guarantees to
    franchisees the right to associate with each other, and s. 4(4) stipulates that
    any provision in a franchise agreement or other agreement relating to a
    franchise which purports to interfere with, prohibit or restrict a franchisee
    from exercising any right under this section is void.
[18]

Section
    11 of the Act provides that any purported waiver or release by a franchisee of
    a right given under this Act or of an obligation or requirement imposed on a
    franchisor or franchisors associate by or under this Act is void.
[19]

The
    releases in the WDAs were comprehensive. They barred any and all claims,
    including claims under the Act for the following:
·

Breach of the duty of fair dealing in the performance, enforcement
    or exercise of any right under the parties franchise agreements (s. 3);
·

Interference with the dealers rights to associate with each
    other (s. 4);
·

Misrepresentation in a disclosure document or statement of
    material change (s. 5);
·

Rescission for failure to provide a disclosure document (s. 5);
    and
·

Rescission for providing a deficient disclosure document (s. 5).
[20]

On
    their face, the WDAs provided for a release of claims under the Act. At trial,
    the arguments turned on whether the WDAs were settlement agreements and therefore
    fell within the judicially-developed exception to the application of s. 11
    of the Act articulated in
1518628 Ontario Inc. v. Tutor Time Learning
    Centres, LLC
, 2006 CanLII 25276 (S.C.), and approved by this court in
405341
    Ontario Limited v.

Midas Canada Inc.
,
2010 ONCA 478, 264 O.A.C. 111.
[21]

As
    I have said, GMCL required that any dealer signing a WDA obtain independent
    legal advice in order to qualify for the payment. Trillium concedes that there
    is no issue as to the fact or adequacy of that advice.
[22]

The
    trial judge found that the WDA was a settlement of known and existing claims,
    stating at paras. 308, 315 and 328 of his reasons:
The factual matrix surrounding the WDA and the Release
    demonstrates the intention and understanding of the parties: that the WDA was
    to be a full and final settlement of any claims the dealers might have had from
    the non-renewal of their [franchise agreements], including any claims,
    statutory or otherwise, in connection with the Notice of Non-Renewal or the
    WDA.

First, the [certificate of independent legal advice] is not the
    only indication that the dealers knew about their potential claims. An
    inference can be drawn, from the abundance of clear facts facing the dealers at
    the time, that they had a variety of contractual and statutory claims. Upon
    entering into the WDAs, the dealers knew everything they needed to know to
    assert the claims they now bring. They knew that they only had six days to
    consider the WDA, obtain independent legal advice, and make their decision. They
    also knew they had not received, and would not be receiving, a disclosure
    document in relation to the WDA.

The WDA and Release were designed to bring the franchise
    relationship to an end. Thus, for the reasons above, this case falls within
    the
Tutor Time
exception. The dealers reviewed the WDA and
    Release, received legal advice, and decided whether or not to sign the
    agreement. In short, the Release was clearly entered into with legal advice and
    in settlement of existing and fully known claims. Notwithstanding its important
    remedial purpose, the
Wishart Act
does not permit
    franchisees to resile from their settlement agreements in the circumstances of
    this case. Unlike
[
Midas
]
, the claims that the franchisees seek
    to bring against the franchisor were fully known when the Release was given. The,
    not unsophisticated, franchisees received independent legal advice regarding
    the Release which was carefully drafted to address the specific dispute in
    question  namely, any breach of the [dealership agreements] and any breach
    relating to the
Wishart Act
. In this case, the importance of
    ensuring that full and final settlements are indeed, full and final, requires
    the court to answer no to Common Issue (f).
[23]

On
    appeal, Trillium reiterates the arguments made to the trial judge and submits
    that he erred in concluding that the
Tutor Time
exception applied.
C.

Standard of Review
[24]

The
    validity of the releases in the WDAs involves issues of mixed fact and law,
    where principles of contractual interpretation are applied to the words of the
    written contract, considered in light of the factual matrix:
Sattva
    Capital Corp. v. Creston Moly Corp.
, 2014 SCC 53, [2014] 2 S.C.R. 633, at
    para. 50.
[25]

There
    may be rare instances where a question of law can be extricated from the
    interpretive exercise:
Ledcor Construction Ltd. v. Northbridge Indemnity
    Insurance Co
., 2016 SCC 37, [2016] 2 S.C.R. 23, at para. 21. These are
    reviewed on a standard of correctness. Otherwise, an appellate court owes
    deference to the trial judges interpretation of the contract:
Sattva
,
    at paras. 51-53.
[26]

The
    trial judges findings of fact or conclusions of mixed fact and law are also
    owed deference. Intervention on appeal is not justified absent palpable and
    overriding error. A finding contains a palpable error if the error is obvious
    or if the finding is clearly wrong, unreasonable or unsupported by the evidence:
Housen v. Nikolaisen
, 2002 SCC 33, [2002] 2 S.C.R. 235, at paras.
    10-15; and
Waxman v. Waxman
(2004), 185 O.A.C. 201 (C.A.), at paras.
    296, 297 and 299. The error must be significant enough to vitiate the
    challenged finding of fact:
Waxman
, at para. 297.
D.

The Appellants position
[27]

Trillium
    argues that the trial judge erred in concluding that the release bars the class
    members claims under the Act. It makes four arguments.
[28]

First,
    Trillium says that the trial judge made an overarching error by failing to
    consider the purpose of the Act in finding that the releases are operative. The
    purpose of the Act is to protect franchisees, and that purpose should trump
    commercial certainty and the promotion of settlements. Trillium submits that a
    hard times defence by a franchisor should not be allowed to overwhelm the
    protective purposes of the Act.
[29]

Second,
    and related, Trillium submits that the
Tutor Time
exception to the
    application of s. 11 of the Act should be construed narrowly. It says that the exception
    is limited to cases where a franchisee has: (a) given a release with the advice
    of counsel; (b) in settlement of a dispute; and (c) in relation to existing and
    fully known breaches of the Act. Trillium argues that these conditions were not
    met in this case.
[30]

Third,
    Trillium submits that the manner in which GMCL obtained the releases breached GMCLs
    duty of fair dealing with its franchisees. This makes the releases
    unenforceable.
[31]

Finally,
    Trillium submits that the trial judges conclusion that the covenant not to sue
    and the indemnity were void for public policy reasons means that the whole
    release should be void. Mere severance of this clause is incompatible with the protective
    purpose underlying the Act. GMCL cross-appeals the finding that these provisions
    were void and severable in the first place.
[32]

I
    now turn to consider these arguments. I will proceed by considering Trilliums
    first, second and third submissions when addressing its appeal and by
    considering its fourth submission when addressing GMCLs cross-appeal.
E.

the appeal
(1)

Overarching error
[33]

I
    do not accept Trilliums argument that the trial judge erred by failing to take
    into account the remedial purposes of the Act. He explicitly stated that the overarching
    purpose of the Act is to mitigate and alleviate the power imbalance that
    exists between franchisors and franchisees: at para. 276.
[34]

The
    perilous financial circumstances GMCL faced at the time were an important part
    of the factual context. Section 3(3) of the Act makes it clear that the duty of
    fair dealing includes the duty to act in good faith and in accordance with
reasonable commercial standards
 (emphasis added).
[35]

In
    addition, GMCL also owed duties to the dealers who did not sign WDAs.
    Insolvency proceedings could have been catastrophic for them. To use the
    language of Strathy J., as he then was, in
Fairview Donut Inc. v. The TDL
    Group Corp
, 2012 ONSC 1252, affd, 2012 ONCA 867, leave to appeal refused,
    [2013] S.C.C.A. No. 47, the decision to reduce the size of the dealer network
    was a rational business decision made for valid economic and strategic
    reasons, having regard to both GMCLs own interests and the interests of its
    franchisees: at para. 674. The time pressures to deal with the bloated dealer
    network were neither artificial nor arbitrary. They were imposed by the
    Canadian and American governments as a condition to the provision of bailout
    funds.
(2)

The
Tutor Time
exception
(a)

Interpretation of
Tutor Time
[36]

I
    accept the trial judges finding that the
Tutor Time
exception applied
    in this case.
[37]

In
Tutor Time
,

the
    franchisor failed to provide a disclosure document required under the Act when
    the franchisee acquired the business from a predecessor franchisee. The
    franchisee, represented by counsel, participated in settlement discussions that
    culminated in a settlement agreement with the franchisor. The agreement
    provided certain benefits to the franchisee and released the franchisor from
    any claims. The franchisee attempted to repudiate the settlement, arguing that
    it was void under s. 11 of the Act.
[38]

The
    motion judge in
Tutor Time
held at paras. 106 and 108-109:
Parties who reach a settlement are to be held to their bargain.
    The policy reasons for enforcing a valid release mirror the policy principles
    underlying the doctrines of
res judicata
and issue estoppel.

In my view, s. 11 does not have application to a release given
    (with the advice of counsel) by a franchisee in the settlement of a dispute for
    existing, known breaches of the
Act
by the franchisor in
    respect of its disclosure obligations, which would otherwise entitle the
    franchisee to a statutory rescission.
The settlement of a claim arising
    from and consequential to an existing statutory right of rescission is not in
    itself a waiver or a release of that statutory right to rescission. It is a
    release of the claim arising from having exercised the right of rescission or
    being in the position to exercise the right of rescission. In my view, if a
    franchisee, as in the instant situation, with full knowledge of a breach of the
    franchisors obligations to disclose as required by the
Act
and
    regulations, and with the benefit of independent legal advice, chooses to
    affirm the franchise agreement as a term of a settlement of the claims that
    arise from the franchisors breach, then the franchisee can no longer rescind
    and make a claim to the remedies afforded by s. 6(6) of the
Act
. [Citations
    omitted.]
[39]

Tutor
    Time
was endorsed by this court in
Midas
.
[40]

In
Midas
,
the release was
    prospective in operation, and it was invalid. Upon entering into the franchise
    agreement, the franchisee was required to agree that it would, in the future,
    release all potential claims against the franchisor as a condition of renewal
    of the franchise agreement. At the beginning of the franchise relationship,
    there were no known claims or disputes. The franchise came up for renewal after
    the franchisee had sued the franchisor for breach of its duties under the Act.
    The franchisor tried to extract a release as a condition of renewal while the
    lawsuit was pending with a view to ending the lawsuit.
[41]

This
    court held that
Tutor Time
had no application but in so doing
    implicitly affirmed its validity. MacFarland J.A. wrote, at paras. 24 and 30:
Tutor Time
simply has no application to the facts of
    this case. In
Tutor

Time
, the motion judge concluded that s.
    11 did not apply to a release given by a franchisee, with the advice of
    counsel, in settlement of a dispute for existing and fully known breaches of
    the Act that would otherwise have entitled the franchisee to a claim.

The purpose of the Act is to
    protect franchisees. The provisions of the Act are to be interpreted in that
    light.  Requiring franchisees to give up any claims they might have against a
    franchisor for purported breaches of the Act in order to renew their franchise
    agreement, unequivocally runs afoul of the Act. To suggest that by accepting
    the terms of the Agreement, the respondents have in effect settled their
    claims within the meaning of
Tutor Time
, in my view, misapprehends and
    misstates the ratio of that case. Here there has been no settlement of the
    respondents rights; the respondent is merely trying to assert its rights
    through its claims. The assertion that it has waived or released those rights
    contravenes s. 11 of the Act.
[42]

According to
Tutor Time
, a
    voluntarily-negotiated settlement of existing statutory claims, entered into
    with the benefit of legal advice, in settlement of a dispute for existing and
    known breaches of the Act is not caught by s. 11 of the
Act
.
[43]

In
    the present case, the trial judge found that these requirements were met. As I
    will explain, these conclusions were reasonable and not affected by any
    palpable and overriding error.
(b)

Application of the
Tutor Time
exception
(i)

Advice of counsel
[44]

Each
    dealer who signed a WDA obtained legal advice. The certificate of independent legal
    advice accompanying each WDA explicitly addressed all the claims advanced in
    this action. The trial judge stated at paras. 317 and 319 of his reasons:
Regardless of what the ILA Certificate could have said, it
    clearly stated that the advising lawyer (1) had read the WDA; (2) had explained
    the nature and effect of the WDA, including the dealers waivers, releases and
    indemnification obligations; and (3) had verified that the dealer had carefully
    read the WDA and was fully advised and informed with regard to all of the
    foregoing matters. Simply put, the ILA Certificate, as drafted, adequately
    supports an inference that the dealers who signed the WDAs knew they were
    giving up any legal claims they might have against GMCL.

Trillium asserts that GMCL failed to examine Hurdman and Turpin
    on the legal advice they received regarding any claims against GMCL arising out
    of the Notice of Non-Renewal. I agree with GMCL that nothing can be inferred
    from this. Trillium expressly agreed that no challenge has been or would have
    been made to the accuracy or sufficiency of the legal advice that it and other
    Class Members received from their lawyers. Each lawyer for each Class Member
    expressly confirmed, in writing, that he or she explained the nature and
    effect of the Wind-Down Agreement, including the Dealers and the Dealer
    Operators waivers, releases and obligations contained therein.
[45]

At
    trial, counsel for Trillium conceded that there was no challenge to the
    accuracy or sufficiency of the legal advice and that it did not challenge in
    any way the contents or accuracy of the ILA Certificates. As he wrote in the
    passage quoted above, the trial judge concluded that the dealers who signed
    the WDA knew they were giving up any legal claims they might have against GMCL.
(ii)

Settlement of a dispute
[46]

The
    trial judge concluded that each WDA constituted a settlement of claims arising
    out of GMCLs decision not to renew the franchise agreements of the terminated dealers.
    He explained, at para. 312:
Given the factual matrix leading up to the signing of the WDAs
     notably, the looming
CCAA
filing and the known
    restructuring of GMCLs dealer network  the parties must have understood that
    the central purpose of the WDA was a full and final settlement of any legal
    claims arising from non-renewal of the [franchise agreements] and the WDA
    itself. Indeed, Hurdman and Turpin, both dealers who received WDAs, testified
    that they were aware that GMCL intended to rely on their acceptance of the WDA
    to determine whether a
CCAA
filing could be avoided. Anything
    less than a full settlement would have undermined the purpose of this
    out-of-court restructuring.
[47]

A
    settlement is a voluntary arrangement that brings a dispute or potential
    dispute to an end:
Data General Canada Ltd. v. The Molnar Systems Group Inc
.
    (1991), 6 O.R. (3d) 409 (C.A.), at p. 415.
[48]

I
    agree with the trial judges conclusion. The release in this case characterized
    the WDA document as a settlement:
Release; Covenant Not to Sue; Indemnity
(a)     Each of Dealer and Dealer Operator  hereby absolutely
    and irrevocably  releases,
settles
, cancels,
    discharges and acknowledges to be fully satisfied any and all claims, demands,
    complaints  and causes of action of every kind and nature whatsoever  which any
    of the Dealer parties may have  against GM  arising out of or relating to:
(i) the Dealer Agreement, or this Agreement or any
    predecessor agreement(s);

(iv) any and all applicable statute  including Ontario's
    Arthur Wishart Act (Franchise Disclosure), 2000  Dealer and Dealer Operator
    specifically acknowledge that it and they are hereby waiving any and all rights
    given to it or them under the Acts  and further acknowledge that they are
    doing so with full awareness of such rights, obligations and requirements, and
    intend to waive its and their rights to: (1) any Claim for a breach of the duty
    of fair dealing in the performance or enforcement of or exercise of any right
    under the Dealer Agreement; (2) any claim for GM and/or any of the other GM
    Entities penalizing, attempting to penalize or threatening to penalize the
    Dealer and/or the Dealer Operator for associating with other GM Dealers or
    retailers; (3) any claim for damages for a misrepresentation contained in a
    disclosure document or a statement of material change as required by the Acts;
    (4) any Claim for rescission for failure to provide a disclosure document or a
    statement of material change within the time required by the Acts; (f) any
    Claim for rescission for providing a deficient disclosure document or statement
    of material change as required by the Acts; and (g) any other Claims arising
    under one or more or all of the Acts  [Emphasis added.]
(iii)

Existing claims
[49]

The
    trial judge held that, when Trillium and the other dealers signed the WDAs,
    they knew everything they needed to know to assert their statutory claims. They
    knew that they had only six days to consider the WDA, obtain independent legal
    advice and make their decision. They knew that they did not and would not
    receive a disclosure document in relation to the WDA.
[50]

The
    dealers knew that GMCL was purporting to terminate the dealership agreements
    and that, arguably, it did not have the right to do so. At trial, Trillium argued
    that the WDA was a franchise agreement under the Act and that the failure to
    provide a disclosure document 14 days in advance made the WDA void under s. 5
    of the Act. It argued that GMCLs obligation to provide the disclosure document
    was triggered only when the WDAs were signed, and so the fact that the releases
    were contained in the WDAs made it impossible to say that signing the WDAs
    released an existing claim.
[51]

The
    trial judge held otherwise, concluding that Trillium knew it would not be
    receiving a disclosure document. He held, at para. 327:
In my view, given the factual matrix in this case  including
    the fact that Trillium received independent legal advice regarding the Release
     there is nothing inherently wrong with a Release fixing breaches relating
    to its own procurement. Trillium and the other dealers were sophisticated
    commercial actors, with experience of entering into contracts, and signed the
    WDA with the benefit of independent legal advice.
[52]

The
    release specifically included any Claim for rescission for failure to provide
    a disclosure document. The trial judges conclusion that the release was for
    existing and known claims was reasonable.
(3)

Breach of the duty of fair dealing
[53]

The
    question of whether the release in the WDA was contrary to GMCLs duty of fair
    dealing under s. 3 of the Act was not certified as a common issue. Rather, the
    common issue certified for trial vis-à-vis the release was whether the waiver
    and release in the WDA were void and unenforceable in respect of the Class
    Members rights under ss. 4 and 11 of the Act.
[54]

In
    any event, the trial judge held that GMCL did not breach the duty of dealing
    fairly with the terminated dealers when presenting them with the WDAs. That conclusion
    was reasonably open to him and there is no basis for this court to intervene.
F.

the cross-appeal: The Covenant not to sue and severance
[55]

Section
    5(c) of the WDA contained a covenant by the dealer not to sue GMCL, and it required
    the signing dealer to opt out of or disclaim any interest in any class
    proceeding that purported to assert claims released in the WDA. Section 5(d)
    required any dealer who failed to opt out to indemnify GMCL against any damages
    and legal costs incurred by defending the class proceeding.
[56]

GMCL
    brought a counterclaim against each of the dealers who were part of the class.
    The following issue was certified on the counterclaim:
(a) Did each member of the Dealer Subclass breach section 5(c)
    of their respective Wind-Down Agreements by commencing the Class Action and/or
    failing to opt out of the class action?
[57]

Although
    the trial judge found that the release was generally enforceable, he accepted Trilliums
    argument that s. 5(c) of the WDAs offended the right of association under s. 4
    of the Act. He held that s. 4 guaranteed the franchisees rights to protect
    their legal interests through collective action.
[58]

He
    also concluded that s. 5(c) was void for public policy reasons. He explained,
    at para. 355:
The class action lawsuit plays an important role in Canadian
    society and has fundamental advantages over a multiplicity of individualized
    suits. In my view, the public policy principles articulated by the Supreme
    Court of Canada in
Western Canadian Shopping Centres Inc. v. Dutton
, 2001
    SCC 46, [2001] 2 S.C.R. 534, render s. 5(c) of the WDA void to the
    extent that it denies the affected dealers the right to bring an action against
    GMCL collectively. I do not believe this to be inconsistent with my finding
    that the Release bars Trilliums claims against GMCL. The result is that the
    WDAs cannot preclude a class action, but the Release provides GMCL with a
    defence to that class action.
[59]

GMCL
    argues that the trial judge erred in concluding that the covenant not to sue
    and the indemnity for defence costs are void for public policy reasons and
    because they constrain the franchisees right of association provided by
    s. 4 of the Act. It submits that these provisions are the twin mechanisms necessary
    to give force to the release validly given of all claims. It submits that the
    decision that these provisions are void is inconsistent with the conclusion
    that the
Tutor Time
exception applies to the release. Public policy, GMCL
    submits, favours both settlement agreements and provisions that enforce them.
[60]

GMCL
    further argues that the trial judges conclusion leads to an absurd outcome. As
    it states in its factum:
[A]n individual dealer who unsuccessfully sued GMCL in
    violation of the terms of the Covenant Not to Sue would be legally obligated to
    indemnify GMCL for its costs and expenses associated with defending the action;
    however  that same individual, as a willing participant in an unsuccessful
    class proceeding, would face no such obligation.
[61]

However,
    in my view, this difference in treatment between individual litigants and
    members of a class is expressly contemplated by s. 31(2) of the
Class
    Proceedings Act, 1992
, S.O. 1992 c. 6, which provides:
Class members, other than the representative party, are not
    liable for costs except with respect to the determination of their own
    individual claims.
Section 31(2) insulates class members from costs
    awards where, as in the usual course, they do not actively participate in the
    proceedings: see
Dabbs v. Sun Life Assurance Co. of Canada
, [1998]
    O.J. No. 1598 (S.C.), at para. 29; and
Silver v. Imax Corp
., 2012 ONSC
    4064, 40 C.P.C. (7th) 60, at paras. 10-12.
[62]

GMCLs
    counterclaim is, in essence, a claim for reimbursement of its costs in
    defending the class proceeding. Whether that claim is advanced as a claim for
    damages for breach of the covenant not to sue or as a claim for costs in the class
    proceeding is a matter of form rather than substance. Given that the legislature
    has adopted a policy that class members are not liable for costs, I see no
    error in the trial judges conclusion that public policy barred enforcement of
    the covenant not to sue.
[63]

Trillium
    argues that, having decided that s. 5(c) of the WDAs offends the statutory
    right of association, the trial judge should have declared the entire document
    void, rather than blue-penciling the offending covenant.
[64]

In
    response, GMCL relies on
2176693 Ontario Ltd. v. Cora Franchise Group Inc
.,
    2015 ONCA 152, 124 O.R. (3d) 776.
[65]

In
Cora,
two franchisees sued the franchisor, alleging breaches of the
    Act. In an effort to mitigate their losses, they decided to sell their
    businesses. The franchisor insisted that they sign a release of all claims
    against it before consenting to an assignment to a successor franchisee. The
    franchise agreement explicitly provided for such a release as a condition of
    giving consent to the assignment:
22.6.4 Franchisee and its directors, officers and shareholders
    signing and delivering in favour of Franchisor and its directors, officers,
    shareholders and employees, a general release in the form specified by the
    Franchisor or any claims against Franchisor and its officers, directors,
    shareholders and employees.
[66]

In
    so far as it purported to release future unknown claims under the
Act
,
    the release was void. The issue in
Cora
was whether the release could
    be read down to limit it to claims other than those asserted under the Act, or
    whether the entire clause was void.
[67]

Justice
    van Rensburg held, at para. 21, that the decision whether the clause was
    entirely unenforceable or whether it could be read down raised issues of mixed
    fact and law, reviewable on a deferential basis.
[68]

She
    reviewed the general principles governing severance and stated, at paras.
    35-37:
Where part of a contract is unenforceable because enforcement
    would be contrary to statute or the common law, rather than setting aside the
    entire contract, courts may sever the offending provisions while leaving the
    remainder of the contract intact. Severance lies along a spectrum of remedies
    available when a provision of a contract is illegal, including voiding the
    contract in whole or in part. The appropriate remedy will depend on the
    particular context. Courts are generally reluctant to sever contractual
    provisions because severance alters the terms of the original agreement between
    the parties.
Severance takes two forms: blue-pencil and notional.
    Blue-pencil severance involves removing part of a contract, as if by drawing a
    line through it. Notional severance involves reading down a contractual
    provision so as to make it legal and enforceable. Where severance is
    appropriate, courts choose the technique that in light of the particular
    contractual context involved, would most appropriately cure the illegality
    while remaining otherwise as close as possible to the intentions of the parties
    expressed in the agreement.
Courts will consider the context of the contract at issue and
    any relevant policy considerations when assessing whether and how to sever
    provisions. Severance engages policy concerns to a certain degree beyond
    protecting the parties intentions, because the court is being asked to assist
    one party to enforce an otherwise unenforceable provision. [Citations omitted.]
[69]

Applying
    these principles to the franchise context, at para. 48, van Rensburg J. A. identified
    three factors which could affect the decision whether to sever the offending
    provision: (1) whether the purpose or the policy of s. 11 of the Act would be
    subverted by severance; (2) the relative bargaining positions of the parties
    and their conduct in reaching the agreement; and (3) the potential for the
    franchisee to enjoy an unjustified windfall.
[70]

In
Cora
,
modification of
    the contractual clause would have required insertion of additional contractual
    terms. It was not a matter of simply striking out the offending provision.
[71]

In
    this case, the trial judge held that the
Tutor Time
exception applied,
    and he favoured the public policy of giving effect to settlements of known and
    existing claims reached with the benefit of legal advice. He also held that
    GMCL acted fairly and honestly in difficult circumstances. In light of these
    rulings, I cannot identify any palpable and overriding error in his conclusion
    that, although the release was valid, the covenant not to sue was void but was
    severable. In contrast to
Cora
, the WDAs were negotiated to put an end
    to a contractual relationship. They were not negotiated to release the
    franchisor from unknown future claims at the outset of the relationship. The
    dealers who signed the WDAs were enriched by execution of the agreements; they
    received payments to which they would not have been otherwise entitled. They
    knew that GMCL would rely on their decisions in deciding whether or not to file
    under the
CCAA
. Had a filing been undertaken, there is a strong
    likelihood the terminated dealers would have received very little, if anything.
G.

Conclusion
[72]

For
    these reasons, I would dismiss Trilliums appeal on the basis that the class
    members were bound by the releases contained in the WDAs. I would dismiss GMCLs
    cross-appeal from the trial judges decision refusing to award damages for
    breach of the covenant not to sue.
[73]

Counsel
    may make brief written submissions as to costs, due from GMCL within 30 days of
    the date of release of these reasons, and from Trillium within 15 days after
    receipt of GMCLs submissions.
G. Pardu J.A.
I agree E.A. Cronk
    J.A.
I agree K. van
    Rensburg J.A.
Released: July 4, 2017


COURT OF APPEAL FOR ONTARIO

CITATION: Arrow ECS Norway AS v. John Doe, 2017 ONCA 664

DATE: 20170822

DOCKET: C63205

Sharpe, Lauwers and Roberts JJ.A.

BETWEEN

Arrow ECS Norway AS

Plaintiff
(Appellant)

and

John Doe and
Yongqiang Tian

Defendants
(
Respondent
)

David R. Wingfield and David Robins, for the appellant

Richard Worsfold, for the respondent

Heard: July 20, 2017

On appeal from the judgment of Justice Michael Penny of
    the Superior Court of Justice, dated December 13, 2016.

REASONS FOR DECISION

[1]

The appellant appeals from the dismissal of its summary judgment motion
    and the granting of the respondents summary judgment motion, declaring the
    respondent to be the legal and beneficial owner of the amounts of CDN$100,000 and
    US$300,000, which the appellant had paid out under mistake to a third party
    fraudster.

[2]

The appellant was defrauded of over US$66 million. In particular, between
    January 18 and 22, 2016, the appellant was fraudulently induced to forward about
    US$23 million to an account under the name of HongKong JYC Limited (JYC) at
    the Shanghai branch of the Bank of Communications (BoComm), a Chinese bank.
    The appellant recovered some $6 million of the stolen funds. However, over
    US$17 million of the stolen funds flowed through the JYC account into other
    bank accounts throughout the world.

[3]

The respondents uncontroverted evidence is that he is a highly
    successful businessman who transferred monies to Canada to support his
    grandchildrens education and to purchase real estate. He maintained in his
    affidavit and during his cross-examination that he had no knowledge of and did
    not participate in the defrauding of the appellant. He also stated that he was
    unaware of the source of the monies at the time that he had purchased them through
    his intermediary, Li Wang.

[4]

There are two transfers in issue on this appeal: the first is the
    transfer of CDN$100,000 on January 20, 2016, to the respondents former employee,
    Hong Yao, to repay monies that he had borrowed from her in November 2015; the
    second is the transfer of US$300,000 on January 21, 2016 to the respondents US
    dollar bank account with the Royal Bank of Canada.

[5]

The respondent borrowed CDN$100,000 from his former employee, Hong Yao.
    She deposited this amount to the respondents Canadian dollar RBC account on November
    25, 2015. On the same day, this sum was used to purchase a GIC held in the
    respondents account. The GIC was subsequently redeemed on January 27, 2016,
    prior to service of the
ex parte
order freezing the respondents
    accounts which the appellant obtained on that day.

[6]

In order to repay Hong Yao, the respondent arranged to purchase
    CDN$100,000 through Li Wang. On January 20, 2016, CDN$100,000 was transferred
    from Sunny Stable Ltd.s HSBC account to Hong Yaos RBC account.

[7]

The respondent arranged to purchase US$300,000 through Li Wang. On
    January 21, 2016, US$300,000 was ordered to be transferred by JYC from the
    Sunny Stable HSBC account to the Royal Bank of Canada (RBC). RBC deposited
    the funds to the respondents US dollar account on January 25, 2016.

[8]

Between January 21 and 22, 2016, US$1.1 million was transferred from the
    JYC BoComm account to the account held by Sunny Stable at the Hongkong and
    Shanghai Bank (HSBC).

[9]

After he had received confirmation of the receipt of the Canadian and US
    dollar transfers, the respondent paid for the CDN$100,000 transfer to Ms. Yaos
    bank account and the US$300,000 transfer to his bank account by sending the
    equivalent in Chinese currency respectively on January 21 and 22, 2016, to accounts
    with the Agricultural Bank of China, as instructed by Li Wang. It was later
    discovered that these accounts were also held in the name of Sunny Stable.

[10]

The motion judge held that the appellant had failed to trace its stolen
    monies to the respondent. Regardless, the motion judge was satisfied that the
    respondent was innocent and ignorant of the fraud perpetrated on the appellant,
    and that the respondent was a
bona fide
purchaser for value of the
    stolen funds. As a result, the motion judge held that the respondent was
    entitled to the funds.

[11]

The appellant submits that the motion judge made the following errors:

(i)

the motion judge erred in
    failing to find that the appellant had traced the stolen funds to the
    respondent;

(ii)

the motion judge erred in
    finding that the respondent was a
bona fide
purchaser for value of the
    funds stolen from the appellant.

[12]

With respect to the CDN$100,000, we see no error with the motion judges
    conclusion that the appellant had not traced that amount from the appellants
    account to the respondent. The transfer of the CDN$100,000 from Sunny Stable
    was made on January 20, 2016, prior to the transfer of the stolen funds from
    JYC to Sunny Stable on January 21 and 22, 2016. There was no evidence before
    the motion judge that the CDN$100,000 transferred from Sunny Stable to Hong Yao
    came from the appellant.

[13]

The motion judges finding about the US$300,000 is a different matter. We
    agree with the appellants submission that the motion judge made an overriding
    and palpable error in finding that the appellant had not traced US$300,000 of the
    stolen funds to the respondent.

[14]

Based on the uncontroverted evidence before the motion judge, including
    the respondents own evidence, those monies can be clearly traced from their
    withdrawal from the appellants account to their final deposit in the respondents
    account. We reject the respondents submission that the commingling of the
    appellants funds with funds in the accounts of JYC or Sunny Stable prevents
    their tracing. It is irrelevant that the appellants funds may have been mixed with
    other funds in the accounts of JYC or Sunny Stable before they flowed out to
    the respondents account because the appellant can directly trace the amount of
    its own contribution to the monies deposited in the respondents US dollar
    account:
B.M.P. Global Distribution Inc. v. Bank of Nova Scotia
, 2009
    SCC 15, [2009] 1 S.C.R. 504, at para. 85.

[15]

This, however, is not the end of the analysis. As the motion judge
    stated, even if the appellant could trace all of the stolen funds to the
    respondent, the respondent was not implicated in the theft but was merely a
bona
    fide
purchaser for value of the monies that he purchased with Chinese
    currency.

[16]

The appellant submits that the motion judge erred in framing his
    analysis in terms of whether the respondent was a
bona fide
purchaser
    for value.

[17]

First, with respect to the US$300,000, the appellant submits that the
    motion judge should have applied the following test set out in
Barclays
    Bank Ltd. v. W.J. Simms Son & Cooke (Southern) Ltd.
, [1979] 3 All ER
    522 (Q.B.), at pp. 535 and 541, as adopted by the Supreme Court of Canada in
B.M.P.,
at para. 22, about tracing money through the banking system and recovering
    money paid by mistake. The court accepted the test in
Simms
for
    recovering money paid under a mistake of fact (at p. 535): f a person pays
    money to another under a mistake of fact which causes him to make the payment,
    he is
prima facie
entitled to recover it as money paid under a mistake
    of fact. However, the court noted three defences under which the claim may
    fail: first, where: the payer intends that the payee shall have the money at
    all events, whether the fact be true or false, or is deemed in law so to intend;
    second, where the payment is made for good consideration, in particular if the
    money is paid to discharge, and does discharge, a debt owed to the payee (or a
    principal on whose behalf he is authorised to receive the payment) by the payer
    by a third party by whom he is authorised to discharge the debt; and third,
    where the payee has changed his position in good faith, or is deemed in law to
    have done so.

[18]

The appellant submits that having paid the US$300,000 under mistake of
    fact, the appellant was
prima facie
entitled to the return of the
    stolen monies that it traced to the respondent. Moreover, the appellant argues,
    none of the above three defences identified by the Supreme Court in
B.M.P.
was available to the respondent, because the respondent still retained the
    US$300,000 in stolen funds.

[19]

We do not accept these submissions.

[20]

While we agree that the first defence set out in
B.M.P.
has no
    application in the present case, the motion judges findings support the
    availability of the second and third defences. The motion judge accepted the
    respondents evidence that he was innocent of any wrongdoing and unaware of the
    fraud perpetrated against the appellant. The motion judge also found that the
    respondent had paid valuable consideration for the funds that were deposited to
    his US bank account. The motion judge expressly rejected the appellants
    argument that the respondent was not a
bona fide
purchaser for value
    who did not legitimately change his position. These findings were available on
    the record and allowed the motion judge to conclude that the respondent was a
bona
    fide
purchaser for value. That the motion judge did not make specific
    reference to
B.M.P.
is immaterial given that he evidently considered
    and applied the relevant principles concerning the parties competing claims to
    the stolen funds. We see no error here.

[21]

Moreover, we do not read
B.M.P.
as standing for the proposition
    advanced by the appellant that the second and third defences only apply if the
    respondent no longer retains the stolen funds. As noted by the Court at para.
    65 of that decision, it was not because B.M.P. had retained the stolen funds
    but because it had not changed its position or given consideration for them that
    the defences were not available to it:

In conclusion, BMP had not changed its position and the defence
    was available neither to it nor to BNS. It is worth noting that cases in which
    a person who is not a party to the fraud has neither given consideration nor
    changed its position will be rare. However, that is what has happened here
    according to the facts found by the trial judge. In these circumstances, all
    the conditions for recovery of the payment made by mistake are met.

[22]

As we have already noted, that is not what happened in the present case,
    as found by the motion judge: the respondent changed his position and paid
    valuable consideration in Chinese currency for the stolen monies without
    knowledge of their illegal provenance.

[23]

The appellant submits that the motion judge erred in any event in
    finding that the respondent was a
bona fide
purchaser because he had
    obtained access to all of the stolen funds through his knowing participation in
    an illegal underground currency exchange that engaged in money laundering.

[24]

We also reject this submission.

[25]

The motion judge determined that there was insufficient evidence to
    demonstrate that the underground currency exchange was illegal or commonly used
    for money laundering. More important, the motion judge found that there was no
    evidence that the respondent knew or had reasonable grounds to believe that the
    funds that he had purchased had an illicit source. Again, these findings were
    available to the motion judge and contain no error. There is no basis to
    interfere.

Disposition

[26]

Accordingly, the appeal is dismissed.

[27]

The respondent as the successful party is entitled to his partial
    indemnity costs in the agreed-upon amount of $15,000, inclusive of
    disbursements and HST.

Robert J. Sharpe J.A.

P. Lauwers J.A.

L.B. Roberts J.A.


COURT OF APPEAL FOR ONTARIO

CITATION: Angus v. Port Hope (Municipality), 2017 ONCA 637

DATE: 20170803

DOCKET: C62496

Strathy C.J.O., Gillese and Pardu JJ.A.

BETWEEN

Ian Angus
and Dean Ross

Applicants

(
Respondent
)

and

Municipality of Port Hope

Respondent

(Appellant)

Chris G. Paliare, Richard P. Stephenson and Lindsay
    Scott, for the appellant

Alan J. Lenczner, Q.C. and Paul-Erik Veel, for the
    respondent

Heard: April 18, 2017

On appeal from the judgment of Justice John R. McCarthy
    of the Superior Court of Justice, dated June 30, 2016, with reasons reported at
    2016 ONSC 4343.

COSTS ENDORSEMENT

[1]

The Municipality of Port Hope was wholly successful on the appeal and
    cross-appeal (the appeal).  In the ordinary course, it would be entitled to
    its costs of the Application and appeal.  The parties have agreed on the amount
    of those costs - $53,319.11 for the Application and $40,000 for the appeal.

[2]

However, the parties have not been able to agree on entitlement.  Mr.
    Angus submits that this is an appropriate case in which no costs should be
    awarded.  His submission rests on his contention that: the matter was brought
    by him as a representative of all residents of the former Hope Township, now
    Ward 2 of Port Hope; it was a matter of public interest: and, the issues raised
    were novel.

[3]

We do not accept this submission.

[4]

Mr. Angus did not act in a representative capacity.  He acted to
    vindicate the private financial interests of Ward 2 ratepayers, of whom his
    wife was the largest residential taxpayer. Further, the issues raised do not
    have a significant and widespread societal impact.  Moreover, their resolution depended
    on the application of well-known legal principles to a
sui generis
,
fact-specific contract.

[5]

In our view, in these circumstances, it would be unjust to require the
    Port Hope taxpayers to bear the financial burden of this lawsuit, commenced by
    a single citizen in its community.

[6]

Accordingly, we order costs of the Application and the appeal to the
    Municipality in the agreed-on sum of $93,319.11, all inclusive.

G.R. Strathy C.J.O.

E.E. Gillese J.A.

G. Pardu J.A.


COURT OF APPEAL FOR ONTARIO

CITATION: Bonello v. Gores Landing Marina (1986) Limited,
    2017 ONCA 632

DATE: 20170802

DOCKET:
C62732

Sharpe, Tulloch and Lauwers JJ.A.

BETWEEN

Timothy Bonello
,
    Ted Bonello, Anne Cutajar Wagner,

Andrew Bonello and
    Mark Bonello

Plaintiffs
    (
Appellants
)

and

Gores Landing Marina (1986)
    Limited, Joseph Davies
, and Murray E. Carslake and Joseph Davies
    Jr. also known as Joey Davies

Defendants
    (
Respondents
)

and

Chris Kane, Chris
    Ryan, Anthony Cook, Gabe Mansueto, Gerald Chestnut, Jeff Jaglel, Frank
    Buttigieg, Dan Rule, and Mike Buttigieg

Third Parties

Earl A. Cherniak, Q.C., Gillian T.
    Hnatiw and David E. Litwin, for the appellant

R. Steven Baldwin, for the respondents
Gores
    Landing Marina (1986) Limited and Joseph Davies Sr.

Heard:
June 28, 2017

On appeal from the judgment of Justice
Paul
    M. Perell
of the
Superior Court of Justice
,
    dated
August 25, 2016
, with reasons reported at 2016
    ONSC 5372, 30 C.C.L.T. (4th) 316.

Lauwers J.A.:

[1]

On August 4, 2007, the appellant Timothy Bonello
    participated in a game of tug-of-war on a campground owned and operated by
Gores Landing Marina (1986) Limited (the Marina)
. Mr.
    Bonellos left arm was caught in a loop in the rope and he suffered a crush
    injury to his forearm that required amputation. He sued the Marina and Joseph Davies
    Sr.
, its principal
. He later added Joseph Davies Jr.
    after learning of his role in finding the rope and making it available to the
    guests of a campground get-together where the tug-of-war occurred. The amended
    statement of claim asserted that the Marina and Mr. Davies Sr. were liable
    under the
Occupiers Liability Act
, R.S.O. 1990, c. O.2, and for common
    law negligence, and that they were also vicariously liable for the negligent actions
    of Mr. Davies Jr.
[1]

[2]

The motion judge granted summary judgment and
    dismissed the action against the
Marina
and Mr. Davies
    Sr., along with their third party actions against several individuals who had
    taken part in the tug-of-war.

[3]

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

A.

Factual and Procedural Overview

[4]

The Marina
owned and operated a ten acre
    property at the southwest end of Rice Lake. It rented cottages, sites for
    vacation trailers, and boat slips. For some years the Marina sponsored Jimmy
    Buffet Day on the August long weekend. It eventually stopped sponsoring the
    event but the campground guests carried it on.

[5]

On August 4, 2007, the days culminating contest
    was to be a tug-of-war. Mr. Davies Jr., who occupied a cottage and participated
    in the events of the day, was asked by the guests to provide a rope for the
    tug-of-war. He eventually found one in a shed on the property. The rope had
    several loops in it that the guests were unable to untie. They decided to use
    the rope anyway. The tug-of-war started with 20 or so trailer renters on one
    side, and 20 or so cottage renters on the other side, including both Mr.
    Bonello and Mr. Davies Jr.

[6]

Mr. Bonello put his left arm through one of the
    loops in order to get a better grip on the rope. As the guests pulled on the
    rope, the loop cinched on Mr. Bonellos forearm. Although he screamed and tried
    to stop the tug-of-war, the noise of the participants and the onlookers prevented
    him from getting their attention quickly enough to prevent the crush injury
    that eventually necessitated the amputation of part of his left forearm and his
    hand. He then sued the named defendants.

[7]

Mr. Davies Jr. did not defend the lawsuit. The
    other defendants did and issued third party proceedings against some of the
    guests who participated in the tug-of-war. The parties were examined for
    discovery, including Mr. Davies Jr. In January 2016, the Marina and Mr. Davies
    Sr. brought the summary judgment motion to have the main action dismissed
    against them. The motion was heard in August 2016.

[8]

At the argument of the motion, the moving parties
    successfully sought to exclude certain evidence from the motion judges consideration.
    The order under appeal provides:

1.       This Court orders that paragraphs 21
    to 48 of the affidavit of Joan Scott are struck from the affidavit and not
    received as evidence on the motion, as is the discovery evidence of Joseph
    Davies Jr., Frank Buttigieg and Mike Buttigieg.

2.       This Court orders that the main
    action against Mr. Davies, Sr. and Gores Landing Marina, and the third party
    proceedings arising therefrom are hereby dismissed.

[9]

In the result, only Mr. Davies Jr., who did not
    defend the action, remains a defendant. Pleadings were closed against him and
    he was deemed under r. 19.02(1) of the
Rules of Civil Procedure
,
    R.R.O 1990, Reg. 194,
to admit the claims against him, but the
    admission is not binding on anyone else. It appears Mr. Davies Jr. is
    impecunious.

B.

The issues

[10]

There are three issues on this appeal:

1.

Is the order striking affidavit and examination for discovery evidence interlocutory,
    and therefore only appealable to the Divisional Court?

2.

Did the motion judge err by excluding the
    discovery evidence of Mr. Davies Jr., Mike Buttigieg, and Frank Buttigieg?

3.

Did the motion judge err in concluding that there was no genuine issue
    requiring a trial in relation to the Marina and Mr. Davies Sr.?

C.

Analysis

[11]

I will address the issues in turn.

(1)

Is the order striking affidavit and examination
    for discovery evidence interlocutory, and therefore only appealable to the
    Divisional Court?

[12]

The respondents submit that this court has no
    jurisdiction to hear the appeal concerning para. 1 of the order under appeal,
    which excluded certain evidence from consideration, on the basis that it was
    interlocutory. They assert that the appellant should have sought leave to
    appeal from the Divisional Court under sections 6 and 19 of the
Courts of
    Justice Act
, R.S.O. 1990, c. C.43
.

[13]

I would reject this submission.

[14]

In my view this court has jurisdiction to hear
    this appeal including the challenge to the motion judges evidentiary ruling.
    Had para. 1 of the order been issued as a standalone order, it would have been
    interlocutory and the appeal would have been required to take the prescribed route
    to the Divisional Court. However, the paragraph is found in the order that
    granted summary judgment and was an inextricable part of the decision to grant
    judgment. The ruling was part of the evidentiary fabric of the motion and did
    not need to be in the order. Put differently, this is conceptually equivalent
    to a trial judgment in which the trial judges evidentiary trial rulings are
    subsumed in the judgment but are nonetheless challengeable as grounds of
    appeal.

[15]

The bifurcated approach to the appeal advanced
    by the respondent would risk unduly complicating the appeal process from a
    summary judgment, contrary to the spirit of r. 20 and r. 1.04 of the
Rules
    of Civil Procedure
, and the jurisprudence.

[16]

The Supreme Court prescribed the courts preferred
    approach to summary judgment motions in
Hryniak v. Mauldin
, 2014 SCC 7, [2014] 1 S.C.R. 87.
Justice
Karakatsanis stated at para. 2: Increasingly, there
    is recognition that a culture shift is required in order to create an
    environment promoting timely and affordable access to the civil justice
    system.
The culture shift called for by the Supreme Court
    requires courts to promote more efficient and less expensive access to justice,
    and seeks to avoid placing expensive roadblocks in the way of litigants.

[17]

There is no good reason to bifurcate the appeal,
    and doing so is not compelled by the

Courts
    of Justice Act
or the Rules. This court has jurisdiction
    to consider the appeal and, as a necessarily incidental or inextricably related
    matter, to address the motion judges decision to exclude the evidence.

(2)

Did the motion judge err by excluding the
    discovery evidence of Mr. Davies Jr., Mike Buttigieg, and Frank Buttigieg?

[18]

The appellants proffered discovery evidence of Mr. Davies Jr., Mike
    Buttigieg, and Frank Buttigieg on the summary judgment motion. The motion judge
    excluded the evidence at the request of the respondents. He did so on the basis
    of an interpretation of rr. 39.04 and 31.11 that led him to conclude:
On the hearing of a motion, while a party
    can use discovery evidence from an adverse party against that adverse party,
    the evidence is not useable against other adverse parties (at para. 35). Since
    the motion had been brought by the Marina and Mr. Davies Sr., the motion judge
    concluded that the discovery evidence of the other parties not involved in the
    motion had to be struck.

[19]

This issue takes its context from the Amended Statement of Claim,
    which is quoted at para. 60 of the motion judges reasons. It includes several
    allegations about the defendants that implicated Mr. Davies Jr., who took the
    rope for the tug-of-war from a storage shed owned by the Marina and gave it to
    the guests:

(f)      they failed to inspect the rope for the existence of
    dangerous conditions or defect;

(g)     they prepared and or distributed a rope which they knew
    or ought to have known was faulty, and was not fit for the purpose for which it
    was intended;

(h)     they failed to take all reasonable precautions to
    ensure that the equipment system would function properly without causing
    injury;

(i)      they failed to make a proper inspection of the rope
    prior to starting the tug-of-war to ensure that the participants could
    participate in safety;

(j)      they failed to warn the Plaintiff that the subject
    rope was not fit for its intended purpose;

(k)     such further and other particulars of negligence, as
    shall become known to the Plaintiffs.

[20]

The
    motion judge set the procedural context for the evidentiary issue at para. 36:

On the summary judgment motion in the main action, Mike
    Buttigieg, Frank Buttigieg, and Mr. Davies, Jr. did not file affidavits for
    either party to the main action nor were they summonsed as witnesses by either
    party. Had they delivered affidavits, then they could have been cross-examined
    pursuant to rule 39.02 and their evidence would have been evidence at large for
    the purposes of the summary judgment motion. Had they been summonsed as
    witnesses, their evidence would have been available for use at the hearing
    pursuant to rule 39.03.

[21]

The
    appellant summarizes, in my view fairly, the excluded evidence they proffered
    in support of the argument that the Marina and Mr. Davies Sr. were vicariously
    liable for the actions of Mr. Davies Jr.:

Davies Jr. stated on examination for discovery that he was in
    charge of Gores Landing when his father was not around. He was considered his
    fathers substitute decision-maker, and had ready access to his father when he
    was off the property. Tenants regularly spoke to him about matters of general
    concern relating to Gores Landing. He was a well-known authority figure to the
    patrons.

In the summer of 2007, when he was approximately 35 years old,
    Davies Jr. was residing in a cottage at Gores Landing, free of charge. He spent
    the majority of his summers at Gores Landing (which is only open seasonally).

Davies Jr. assisted his father with tasks at Gores Landing,
    including doing repairs and upkeep on the cottages and landscaping, in
    consideration for his access to the cottage.

Davies Jr. was present for Jimmy Buffet Day in 2007, actively
    participated in the events, and socialized with his friends and other patrons.

On August 4, 2007, Davies Jr. was drunk. Nevertheless, when
    asked to provide a rope for tug-of-war, he promptly scoured the grounds until
    he found a rope belonging to Gores Landing in a storage building.

Davies Jr. was familiar with the rope, which had been
    previously used for rope swings, among other things.

Davies Jr. did not examine the rope, nor did he turn his mind
    to examining it, before supplying it for use in the tug of war.

The fact that the rope had loops in it was pointed out to
    Davies Jr., as was the fact that the loops could not be removed in advance of
    the tug-of-war. Davies Jr. took no steps to implement safety measures or issue
    a warning before the competition commenced.

Following Timothys injury, Davies Jr. immediately stepped
    forward to call 911. Once contact with 911 was made, Davies Jr. went to the
    road to flag down the ambulance, and when he arrived he directed it to the area
    where Timothy was waiting.

[22]

The
    evidence put forward by the responding party to a summary judgment motion is
    governed by r. 39, of which r. 39.04 regarding the use of discovery evidence is
    particularly relevant to this case. It provides:

39.04 (1) On the hearing of a motion, a party may use in
    evidence
an adverse party's examination for discovery or the examination for
    discovery of any person examined
on behalf or in place of, or
in
    addition to, the adverse party
, and rule 31.11 (use of discovery at trial)
    applies with necessary modifications. [Emphasis added.]

[23]

This
    is to be contrasted with r. 31.11 which governs the use of discovery evidence
    at trial. Rule 31.11(1) provides:

31.11 (1) At the trial of an action, a party may read into
    evidence as part of the party's own case against an adverse party any part of
    the evidence given on the examination for discovery of,

(a)
the
adverse party; .

[Emphasis added.]

[24]

With
    respect to the use of discovery transcripts on a motion, r. 39.04 states: rule
    31.11 (use of discovery at trial) applies
with necessary modifications
.

[25]

The
    motion judge took a strict approach to the use of the discovery evidence of
    Mike Buttigieg, Frank Buttigieg, and Mr. Davies, Jr. and allowed the wording of
    r. 31.11(1)(a) (
the
adverse party) to override the wording of r.
    39.04(1) (
an
adverse party's examination for discovery or the
    examination for discovery of any person examined  in addition to, the adverse
    party) and refused to apply r. 39.04. He said at paras. 34-35:

The problem with this evidence is that it can only be read in
    as evidence against
the
adverse party that was examined for
    discovery. In other words, for example, the discovery evidence of Mr. Davies,
    Jr. that is incorporated by reference is not evidence at large as against Mr.
    Davies, Sr.

On the hearing of a motion, while a party can use discovery
    evidence from an adverse party against that adverse party, the evidence is not
    useable against other adverse parties. The use of discovery evidence is limited
    to be the party who gave the evidence; that is, it cannot be read in against
    any party other than the party who gave it:
Urbacon Building Groups Corp. v.
    Guelph (City)
, 2013 ONSC 5773 (Ont. S.C.J.);
Cain v. Peterson
(2005), 24 C.P.C. (6th) 298 (Ont. S.C.J.);
MacEachern v. Rennie
(2009),
    80 C.P.C. (6th) 1 (B.C.S.C.). [Emphasis in original.]

I note that the authorities cited by the motion judge
    were all trial cases where r. 31.11 (or its equivalent) would apply with full
    rigour.

[26]

In
    my respectful view, this approach fails to comport with Rule 39.04 and the
    motion judge erred by concluding that the discovery evidence of Mr. Davies Jr.
    and the other witnesses was inadmissible on the summary judgment motion.

[27]

The
    motion judge took an overly technical approach to the admission of the
    discovery evidence on the motion. He said at, para. 37, he had read the
    evidence and added that he did not understand why the Defendants objected to
    the evidence other than on technical grounds. However, he then permitted those
    technical grounds to underpin his decision. Respectfully, this was an error

[28]

I
    accept that the weight to be attached to the discovery evidence of an adverse
    party other than the adverse party who brings a summary judgment motion may
    vary depending upon the context.

[29]

If
    the motion judge is invited to use the discovery of another adverse party as
    evidence establishing liability, he or she may well conclude that the evidence
    falls short of what is required. On the other hand, where the relevant issue on
    the motion is whether there is sufficient evidence in the record to establish
    that there is a genuine issue requiring a trial under r. 20.02(2), the motion
    judge may well conclude that the discovery evidence is sufficient.

[30]

The
    excluded discovery evidence at issue established that the vicarious liability
    of the Marina and Mr. Davies Sr. for any negligence on the part of Mr. Davies
    Jr. was a genuine issue requiring a trial. This triggered the motion judges
    discretion to consider exercising the powers in r. 20.04 as an alternative to a
    full trial or simply finding that a trial was required.

[31]

By
    excluding from his consideration the evidence that purported to establish Mr.
    Davies Jr.s negligence and the vicarious liability of the Marina and Mr.
    Davies Sr., the motion judge was left with the respondents bald assertions in
    the notice of motion for summary judgment that Joseph Davies Jr. has no
    connection with Gores Landing, and in Mr. Davies Sr.s affidavit that he was
    the only employee of the Marina. I note that embedded in this position is the
    erroneous legal proposition that the Marina and Mr. Davies Sr. could only be
    vicariously liable for the actions of Mr. Davies Jr. if he were an employee of
    the Marina. Vicarious liability can arise as the result of other less formal
    relationships, including agency, as the statement of claim alleges.

(3)

Did the motion judge err in concluding that
    there was no genuine issue requiring a trial in relation to the Marina and Mr.
    Davies Sr.?

[32]

In
    order to render judgment in this case, the motion judge was obliged to address three
    substantive issues on the pleadings and the evidence:

1.

Were the Marina and Mr. Davies Sr. liable to Mr. Bonello under the
Occupiers
    Liability Act
?

2.

Were the Marina and Mr. Davies Sr. liable to Mr. Bonello under the
    principles of common law negligence?

3.

If so, were the Marina and Mr. Davies Sr. vicariously liable to Mr.
    Bonello for Mr. Davies Jr.s negligence?

[33]

I
    now turn to consider the motion judges treatment of the appellants causes of
    action.

(a)

The
Occupiers Liability Act

[34]

The motion judge clearly found that the Marina and Mr. Davies Sr.
    were not liable to Mr. Bonello under the
Occupiers Liability Act
. He
    found, at para. 59, that the Marina and Mr. Davies Sr. had met the standard of
    reasonableness under the Act, a finding he repeated at para. 61 and again at para.
    69 following a lengthy exposition of occupiers liability cases.

(b)

The Negligence Claim

[35]

The appellant argues that
the motion judge erred
    in failing to consider Mr. Bonellos negligence claim in common law, beyond the
    strictures of
occupiers
    liability
. As noted earlier, the Amended Statement of Claim
    includes several allegations about the defendants that implicated Mr. Davies
    Jr., who took the rope for the tug-of-war from a storage shed owned by the
    Marina and gave it to the guests
.

[36]

The respondents assert the motion judge did consider Mr. Bonellos
    negligence claim. They point to his express reference to negligence at para.
    60, and to his conclusion at para. 69:

The Defendants could not have reasonably foreseen that the rope
    for the tug-of-war would be taken from its supply shed and even if they had
    purposefully provided the rope, they could not have reasonably foreseen that
    the participants in the tug-of-war would not properly prepare the rope for the
    tug-of-war or have the rudimentary safety equipment necessary to officiate the
    event.

[37]

I disagree with the respondents. These findings were made in the
    context of the occupiers liability claim and do not address the possibility that
    the Marina and Mr. Davies Sr. could be vicariously liable for the actions of
    Mr. Davies Jr., who found the rope, provided it to the guests, and participated
    in the tug-of-war, and arguably should have foreseen the risk of injury arising
    from the use of the rope. I observe that the motion judge did not consider
    further or in any detail the particulars of negligence referred to in the
    pleading.

(c)

The Vicarious Liability Claim

[38]

The motion judge was alive to the vicarious liability issue. He set
    the scene in paras. 49-50:

Mr. Davies, Jr., whose role and relationship with Gores Landing
    Marina is a disputed matter, was asked to provide a rope. He provided a rope
    from a shed on the property. The rope, which belonged to Gores Landing Marina,
    had been used for children's swings.

Unfortunately, Mr. Davies, Jr. supplied a rope which had
    several loops or knots along its length.

[39]

As
    I have already explained, the improperly excluded evidence, which was
    summarized earlier, offers some support for the argument that the Marina and
    Mr. Davies Sr. were vicariously liable for the actions of Mr. Davies Jr. As
    there is a triable issue as to vicarious liability, I would allow the appeal
    and set aside the judgment dismissing the appellants action.

Disposition

[40]

I
    would allow the appeal, set aside the order under appeal, and leave the parties
    free to pursue their claims including, if so advised, other motions for summary
    judgment, without being bound by any of the determinations made in the decision
    under appeal.

[41]

I would fix costs of this appeal payable by the respondents to
    the appellant in the amount of $20,000 inclusive of disbursements and taxes. I
    would reverse the order for costs made below and require the respondents to pay
    the amount awarded below to the appellant.

P.
    Lauwers J.A.

I
    agree Robert J. Sharpe J.A.

I
    agree M. Tulloch J.A.

Released: August 2, 2017

[1]
Only Timothy Bonello appeals. The defendant
Murray E. Carslake
    is now deceased and the action against him was dismissed in 2012.