COURT OF APPEAL FOR ONTARIO

CITATION: Hughes v. Liquor Control Board of Ontario, 2019
    ONCA 305

DATE: 20190417

DOCKET: C65262 & M49666

Hoy A.C.J.O., Simmons and Pardu JJ.A.

BETWEEN

David Hughes and 631992 Ontario Inc.

Plaintiffs (Appellants)

and

Liquor Control
    Board of Ontario, Brewers Retail Inc. (carrying on
business as "The Beer Store"), Labatt Breweries of Canada LP,
Labatt Brewing Company Limited, Molson Coors Canada Inc.,
Molson Canada 2005
and Sleeman Breweries Ltd.

Defendants
    (
Respondents
)

Proceedings under the
Class
    Proceedings Act, 1992

Paul Bates, Linda Visser and Tyler Planeta, for the
    appellants

Kent Thomson, Matthew Milne-Smith and Michael Lubetsky,
    for the respondent Liquor Control Board of Ontario

Michael Eizenga, Ranjan Agarwal and Ilan Ishai, for the
    respondent Brewers Retail Inc.

Jeff Galway and Nicole Henderson, for the respondent Labatt
    Brewing Company Limited

Adam Ship, for the respondents Molson Coors Canada Inc.
    and Molson Canada 2005

Michael S. Dunn and Ravi Amarnath, for the intervener
    Attorney General of Ontario

Aaron Dantowitz and Justin Safayeni, for the Law
    Foundation of Ontario

Heard: January 28-29, 2019

On appeal from the order of Justice Paul M. Perell of the
    Superior Court of Justice, dated March 15, 2018, with reasons reported at 2018
    ONSC 1723, and from the costs order, dated August 14, 2018, with reasons
    reported at 2018 ONSC 4862.

Pardu J.A.:

A.

overview

[1]

Following summary judgment motions that were heard
    over four days, the motion judge dismissed the appellants proposed class
    action.

[2]

The appellants are an individual beer consumer
    and the licensed restaurant he operates. In their action, the appellants took issue
    firstly with a Framework Agreement between the respondents, the Liquor
    Control Board of Ontario (LCBO, the Board) and Brewers Retail Inc., signed
    on June 1, 2000, which they allege violated s. 45(1) of the
Competition
    Act
, R.S.C., 1985, c. C-34,
and secondly with a surcharge
    that Brewers Retail Inc. levied on licensees (essentially, persons such as
    restaurants and pubs licensed under the
Liquor Licence Act
, R.S.O 1990, c. L. 19 to sell beer), which they allege violated the
the
Liquor Control Act
,

R.S.O. 1990, c. L.18.

[3]

The appellants claim arising out of the
    Framework Agreement requires a consideration of what is known as the regulated
    conduct defence as it applies to a provincially regulated defendant.
Broadly
    speaking, in that context, the defence insulates the defendant from criminal
    liability if the legislation governing the regulated defendant (in this case,
    the
Liquor Control Act
) is constitutionally valid, it directs or
    authorizes the defendant to engage in the impugned conduct, and the law
    providing for criminal liability (in this case, the
Competition Act
)
    leaves room for the regulated activity to operate without being criminalized.
As the motion judge explained, the regulated conduct defence is
    fundamentally a principle of statutory interpretation.

[4]

In summary, the appellants advanced four claims:

1.

T
he respondents conspired to divide the beer market between
    them. The conspiracy is embodied in the Framework Agreement and continues to
    this day. This conduct violated s. 45(1) of the
Competition Act
, both
    as in effect in June 2000, and as amended effective March 2010, and entitled
    the appellants to sue for damages under s. 36(1) of the
Competition Act
.
    The appellants also pled the civil tort of conspiracy, relying on the same
    violation of the
Competition Act
.

2.

Brewers Retail
    Inc. charged licensees five percent more for beer than it charged consumers, in
    violation of the
Liquor Control Act
, which requires uniform prices for
    beer throughout Ontario, and the beer respondents
(
Labatt Breweries of Canada LP, Labatt Brewing Company
    Limited, Molson Coors Canada Inc. and Molson Canada 2005
, which in
    the aggregate owned 90% of Brewers Retail Inc. at the relevant time
[1]
)
    were unjustly enriched by this surcharge.

3.

The LCBOs
    conduct in entering into the Framework Agreement amounted to the novel tort of misconduct
    by a civil authority entitling the appellants to damages.

4.

Ontarios legislative
    efforts to retroactively authorize the Framework Agreement amount to an
    impermissible,
ultra vires
intrusion upon the federal criminal law and
    trade and commerce powers.

[5]

The respondents moved for summary judgment, dismissing
    the appellants action. The motion judge granted the respondents motions and dismissed
    the appellants action on the following grounds:

1.

Both versions of
    s. 45 of the
Competition Act
leave leeway for activity regulated under
    the
Liquor Control Act
to operate without criminal liability:
Hughes
    v. Liquor Control Board of Ontario
, 2018 ONSC 1723, at paras. 221-30. Accordingly,
    the regulated conduct defence is available if the legislation governing the
    industry in question expressly or by necessary implication directs or
    authorizes the defendant to engage in the impugned conduct:
Hughes
, at
    para. 220. The alleged violation of the
Competition Act
was within the
    powers and rights conferred upon the LCBO and Brewers Retail Inc. under the
Liquor
    Control Act
:
Hughes
, at para. 240. In any event, s. 10(3) of the
Liquor
    Control Act
, as amended by the
Building Ontario Up Act (Budget
    Measures), 2015
, S.O. 2015, c. 20, Sched. 20, s. 8, enacted in August 2015,
    declared expressly with retroactive effect that the LCBO was deemed to have
    been directed and Brewers Retail Inc. was deemed to have been authorized to
    implement the Framework Agreement in 2000:
Hughes
, at para. 241. Accordingly,
    the regulated conduct defence insulated the respondents from liability for
    damages under the
Competition Act
:
Hughes
, at paras. 237-47.

2.

The
Liquor
    Control Act
authorized differential prices for licensees and consumers,
    thus providing a juristic reason for the differential pricing. In any event, s.
    3(1.1) of the
Liquor Control Act
,
    as amended by the
Building Ontario Up Act (Budget Measures), 2015
, s. 3(4),
provided that the powers of
    the LCBO are deemed always to have included the power to implement a price
    differential for licensees and consumers, provided that those prices are
    charged uniformly for each of the two distribution channels (i.e. a
    distribution channel for retail consumers and a distribution channel for
    licensees) across the province.

3.

The LCBO
    exercised its statutory authority in compliance with the authority given to it
    by the
Liquor Control Act
and in a reasonable manner, as a matter of
    administrative law. Therefore, even if the tort of misconduct by a civil
    authority existed in Ontario, the appellants would not have been entitled to
    damages under that tort.

4.

The retroactive
    legislation sanctioning the conduct complained of in the action was a lawful
    exercise of the provinces undoubted ability to regulate the sale of alcoholic
    beverages in the province.

[6]

The appellants challenge each of these findings.
    They also seek leave to appeal from the costs award in favour of the
    respondents.

[7]

I would dismiss the appeal and deny leave to
    appeal the costs award for the reasons that follow.

B.

ANALYSIS

(1)

Allocation of beer sales as between the LCBO and Brewers Retail
    Inc. pursuant to the Framework Agreement

[8]

The appellants argue that the regulated conduct
    defence requires identifying legislative authority that
specifically

permits the impugned
    conduct; in their view, the
Liquor Control Act
,
    as in effect in June 2000, did not specifically authorize the alleged market
    conspiracy. Further, they argue that, even if
intra vires
of Ontario, retroactive legislation cannot be considered in
    determining the application of the regulated conduct defence. Accordingly, they
    argue, the motion judge erred in dismissing their action based on the Framework
    Agreement.

[9]

I agree with the motion judge that the
Liquor
    Control Act
authorized the impugned conduct and that the
    regulated conduct defence insulated the respondents from liability under the
Competition
    Act
arising out of the Framework Agreement.

[10]

Below, I first provide some brief historical
    background about the arrangements between the LCBO and Brewers Retail Inc., and
    the Framework Agreement, and then set out the relevant portions of s. 45 of the
Competition Act
(as in effect in June 2000 and
    as amended effective March 2010). I will explain why the motion judge concluded
    that s. 45 provides leeway for the operation of the regulated conduct defence. Next,
    I consider the jurisprudence regarding the nature of the authorization or
    direction required for the regulated conduct defence to apply, set out the
    relevant portions of the
Liquor Control Act
in
    effect in June 2000, and consider those provisions in light of the applicable
    test. Finally, I address the appellants argument that retroactive legislation
    cannot be considered in determining the application of the regulated conduct
    defence.

(a)

Alcohol Distribution in Ontario and leeway in s. 45 of the
Competition
    Act

[11]

As the motion judge observed, the LCBO was
    established by the government of Ontario in 1927 after the repeal of prohibition.
    It is a Crown agency wholly owned by Ontario and is required to abide by policy
    decisions and directives of the government. The government has exercised tight
    control over the sale of alcoholic beverages. At the same time as the LCBO was
    established, the Ontario government, in consultation with the brewing industry,
    set up a single distribution system for beer manufactured in Ontario, through
    what is now Brewers Retail Inc., which was authorized to operate government
    stores for the sale of beer under the
Liquor Control Act
. The LCBO stores, in contrast, focused on wine and spirits.

[12]

It was common ground that prior to the Framework
    Agreement, the LCBO operated two types of stores: (i) Ordinary Stores, which
    operated in communities where Brewers Retail Inc. operated outlets and; (2)
    Combination Stores, which operated in smaller communities where Brewers
    Retail Inc. did not operate outlets. The Framework Agreement provided that, in
    its Ordinary Stores, the LCBO would not sell beer in packages greater than six
    containers and that the LCBO would not sell any beer product that was exclusively
    sold by Brewers Retail Inc. Even before the Framework Agreement was signed,
    government policy did not generally allow LCBO Ordinary Stores to sell beer in
    packages greater than six packs, and gave Brewers Retail Inc. the right to sell
    beer in 12-pack and 24-pack formats. Both before and after the Framework Agreement,
    the LCBO could not sell beer to licensees that was available for purchase at
    Brewers Retail Inc. The motion judge concluded, at para. 283, that the
    Framework Agreement did not materially change anything, but rather essentially
    continued market practices that had existed for decades.

[13]

The appellants allege that the formalization of
    this arrangement, in the Framework Agreement, violated s. 45(1) of the
Competition
    Act
as in effect in June 2000, and as subsequently
    amended effective March 2010. In June 2000, the following version of s. 45(1)  was
    in effect:

45 (1) Every one who conspires, combines,
    agrees or arranges with another person

(a) to limit unduly the facilities for
    transporting, producing, manufacturing, supplying, storing or dealing in any
    product,

(b) to prevent, limit or lessen, unduly, the
    manufacture or production of a product or to enhance unreasonably the price
    thereof,

(c) to prevent or
lessen, unduly, competition in the
production, manufacture, purchase, barter,
sale
, storage, rental, transportation or supply
of a product
, or in the price of
    insurance on persons or property, or

(d) to otherwise restrain or injure
    competition unduly,

Is guilty of an
    indictable offence and liable to imprisonment for a term not exceeding five
    years or to a fine not exceeding ten million dollars or to both. [Emphasis
    added.]

[14]

The relevant portions of the present version of
    the
Competition Act,
as amended by the
Budget
    Implementation Act
,
2009,

S.C. 2009, c. 2, s. 410, provides as follows:

45 (1) Every person commits an offence who,
    with a competitor of that person with respect to a product, conspires, agrees
    or arranges

(a) to fix, maintain, increase or control the
    price for the supply of the product;

(b) to
allocate
sales, territories, customers or
markets
    for the
production or
supply
    of the product
; or

(c) to fix, maintain, control, prevent, lessen
    or eliminate the production or supply of the product.

(2) Every person who commits an offence under
    subsection (1) is guilty of an indictable offence and liable on conviction to
    imprisonment for a term not exceeding 14 years or to a fine not exceeding $25
    million, or to both.

(7)
The rules
    and principles of the common law that render a requirement or authorization by
    or under another Act of Parliament or the legislature of a province a defence
    to a prosecution under subsection 45(1) of this Act, as it read immediately
    before the coming into force of this section, continue in force and apply in
    respect of a prosecution under subsection (1).
[Emphasis added.]

[15]

Section
    36(1) of the
Competition Act
provides that [a]ny person who has
    suffered loss or damage as a result of (a) conduct that is contrary to any
    provision of Part VI may sue for and recover damages from the person who
    engaged in the conduct. The versions of s. 45(1) at issue are in Part VI of the
Competition Act
. Thus, the appellants rely on conduct that constitutes
    an indictable offence to ground their claim against the respondents for
    damages.

[16]

At
    least in the context of provincially regulated conduct
[2]
,
    for the regulated conduct defence to be available,
the law
    providing for criminal liability (in this case, s. 45(1) of the
Competition
    Act
) must leave room for the regulated activity to
    operate without being criminalized. The motion judge held that the version of
    s. 45(1) in effect until March 2010, signaled, through the use of the word
    unduly that the regulated conduct defence was available. As he explained,
    conduct authorized by valid provincial or federal legislation is deemed to be
    in the public interest and cannot constitute an undue limit on competition
    under the
Competition Act
:
Hughes
, at para. 221;
A.G. Can v. Law Society of B.C.
, [1982] 2 S.C.R. 307 [
Jabour
], at
    p. 354.

[17]

The motion judge also held that s. 45(7) of the
Competition
    Act
that came into effect in March 2010 preserved the
    regulated conduct defence:
Hughes
, at para.
    226. Finally, he found that the regulated conduct defence is available to
    defend civil claims under s. 36 of the
Competition Act
, as well as criminal proceedings under s. 45:
Hughes
, at paras. 222-30. The appellant does not seriously challenge these
    findings on appeal, and I agree with the motion judge that, as a matter of
    statutory interpretation, the regulated conduct defence is available to defend
    civil claims under s. 36 of the
Competition Act
arising out of conduct allegedly contrary to s. 45(1). If the
    regulated conduct defence is available to a defendant under s. 45(1), the
    defendants conduct is not contrary to s. 45(1).

[18]

With this background, I will now turn to the relevant
    jurisprudence regarding the nature of the authorization required for the
    application of the regulated conduct defence and consider the relevant portions
    of the
Liquor Control Act
that insulate the respondents from liability
    in the case at bar.

(b)

Authorization for the regulated conduct defence under the
Liquor
    Control Act

(i)

Jurisprudence on authorization and the
    regulated conduct defence

[19]

The Supreme Courts decision in
Jabour

is the controlling authority. In
Jabour
, the court reviewed a number of cases in which provincially
    authorized supply management systems for agricultural and other products have
    been exempted from the operation of a predecessor to the
Competition
    Act
, and concluded, at p. 354:

The courts
    in these cases have said in various ways that compliance with the edicts of a
    validly enacted provincial measure can hardly amount to something contrary to
    the public interest. Since all the cases examined above approach the CIA on the
    basis of a criminal charge, actually or potentially arising under it, the
    element of public interest was always present.
In
Can.
    Breweries,
the Court proceeded on the basis that the word
    unduly in s. 32 connotes substantially the same meaning as the more general
    words in the same statute operated or is likely to operate to the detriment or
    against the interest of the public. Even the 1975 amendments to s. 32, by the
    addition of subs. 1.1, did not remove unduly from the operative provision, s. 32(1).
So long as the CIA, or at least Part V, is styled
    as a criminal prohibition, proceedings in its implementation and enforcement will
    require a demonstration of some conduct contrary to the public interest. It is
    this element of the federal legislation that, these cases all conclude, can be
    negated by the authority extended by a valid provincial regulatory statute.
[Emphasis added.] [Citations omitted.]

[20]

In
Jabour
, the
    Law Society disciplined a lawyer for advertising, characterizing that action as
    conduct unbecoming a member of the Society contrary to the
Legal
    Professions Act
, R.S.B.C. 1960, c. 214. Although the Law
    Societys enabling legislation did not specifically authorize it to prohibit
    advertising by lawyers, the general power it had to govern the legal profession
    in the public interest and decide what was conduct unbecoming a lawyer was sufficient
    to constitute authority extended by a valid provincial regulatory statute (
Jabour
, at p. 354) and insulate its activities from the reach of the
    predecessor to the
Competition Act
:
Jabour
, at p. 341.

[21]

Similarly, in
Industrial Milk
    Producers Assn. v. British Columbia (Milk Board
), [1989]
    1 F.C. 463, at pp. 478-79, the court held that provincial authority for the regulatory
    regime, which would permit the operation of the regulated conduct defence,
    could be express or implied. The court found that the Milk Boards
    authorization to allocate quotas and control the marketing of milk was much
    more specific than the broad authority provided to the Law Society in
Jabour
to govern the legal profession in the public
    interest:
Milk Board
, at p. 478.
Milk
    Board
described the authority granted to the Law Society
    in
Jabour

as a very open ended and general
    grant of statutory authority that could benefit from the leeway extended by the
    federal legislation and enable the regulated conduct defence to operate:
Milk
    Board,
at p. 478.

[22]

In support of their argument that the regulated
    conduct defence has no application unless the impugned conduct is specifically
    authorized by the legislative regime, the appellants rely on
Fournier
    v. Mercedes-Benz Canada
,
2012 ONSC 2752. At para. 58, the court indicated, [i]n order for
    the regulated conduct exception or defence to apply, the actions in question
    must have been directed or authorized by the statute or regulation. In the
    absence of any
express
provision
or
    necessary implication
in the regulatory regime
    that would authorize or direct them to engage in the conduct complained of,
    the respondents were unable to rely on the regulated conduct defence:
Fournier,
at para. 58 (emphasis added). I understand the appellants to argue
    that the word express indicates that specificity is required.

[23]

In my view,
Fournier
does not articulate a more restrictive test than
Jabour
. Rather, it clarifies that the authority required can be express
    or can be found in a statute by necessary implication. That authority may be
    articulated in general terms, as in
Jabour
, or
    in very specific terms, as in the present case, provided that that authority is
    expressed or given by necessary implication. The level of specificity that the
    appellants argue
Fournier

suggests is needed is
    more restrictive than the test described in
Jabour
, which, as I have said, is the controlling authority.
Jabour
did not require the same level of specificity that the appellants
    suggest is needed to invoke the regulated conduct defence. In
Jabour
, the Supreme Court rejected the argument of the Attorney General of
    Canada that the absence of a specific statutory provision authorizing the Law
    Society to regulate advertising by lawyers deprived the Law Society of the
    regulated conduct defence; further, the court did not agree with the conclusion
    of the trial judge that the absence of a specific implicit authorization in the
Legal Professions Act
meant that there was no
    scope for the application of the regulated conduct defence:
Jabour
, at pp. 331, 341, 354. In
Jabour
the legislation in issue gave Benchers the
express
power to determine what amounted to conduct unbecoming a member of
    the Law Society, that is to say any matter, conduct, or thing that is deemed
    in the judgment of the Benchers to be contrary to the best interest of the
    public or of the legal profession, or that tends to harm the standing of the
    legal profession:
Legal Professions Act,
s. 1.
    This provision did not specifically give the Benchers the power to control
    advertising by lawyers.

[24]

I do note that
Jabour
considered whether the conduct of a regulator was authorized.
    Arguably, more specific authority might be required to provide immunity where
    only the conduct of a regulatee (a person regulated by the regulator) and not
    also the regulator is at issue. But that is an issue for another day. Here, the
    impugned conduct involves an arrangement between the regulator, the LCBO, and a
    regulatee, Brewers Retail Inc.

[25]

While the appellants rely on
Fournier
to argue that the direction or authorization must be specific, they
    take issue with
Fournier
s holding, adopted by
    the motion judge, that the direction or authorization may be by necessary
    implication, and need not be express. I agree with the motion judge that the
    direction or authorization may be by necessary implication. The purpose of the
    regulated conduct defence and the leeway granted under the
Competition
    Act
is to allow room for implementation of provincial
    public policy expressed in legislative form. Both an express grant of authority
    and a grant of authority by necessary implication advance those provincial legislative
    interests and I see no reason to distinguish between them for the purposes of
    the regulated conduct defence. It is not a difference of substance from an
    express grant of authority where, as a matter of statutory interpretation, it
    must necessarily be implied that the legislature gave a regulatory body
    authority to engage in the impugned conduct in order to advance legislative
    goals.

[26]

The appellants also argue that the use of the
    word authorization in s. 45(7) imports a requirement that the conduct
    prohibited by the
Competition Act
be
    specifically authorized by the regulatory legislation.

[27]

I do not accept this argument. Section 45(7) of
    the
Competition Act
provides that the rules
    and principles of common law that render a requirement or authorization by or
    under an Act of a provincial legislature a defence to a prosecution under the
    Act continue in force.
Jabour
was decided
    before s. 45(7) was enacted. As I have indicated earlier,
Jabour
demonstrates that a general authority such as that given to a law
    society to regulate the conduct of its members may enable the regulated conduct
    defence to operate. There is nothing in the language of s. 45(7) that suggests
    a legislative intention to change the common law interpretation of authority,
    rather, the expressed intention is to preserve the common law. As indicated in
Jabour
, at p. 354 culpability under the federal
    legislation can be negated by the authority extended by a valid provincial
    regulatory statute. There is no basis to conclude that s. 45(7) was intended
    to narrow the scope of the meaning of authority or authorization.

[28]

This legislative expression of the regulated conduct defence earlier
    articulated in
Jabour
did not alter the degree
    of specificity of the legislative authorization required to allow the defence
    to operate.

[29]

I
    turn then to an examination of the authority granted to the LCBO under the
Liquor
    Control Act
at the time of the Framework Agreement.

(ii)

The
    authority granted under the
Liquor Control Act

[30]

As
    previously indicated, I agree with the motion judge that the
Liquor Control
    Act
at the time of the Framework Agreement authorized the respondents to
    engage in the impugned conduct.

[31]

Historically,
    Ontario legislation governing the sale of alcohol has granted very wide
    authority to the LCBO. In
R. v. Can Breweries Ltd
.,
    [1960] O.R. 601 (S.C.), at p. 614, the Supreme Court recognized that the
Liquor
    Control Act
then in force gave the LCBO very wide and
    comprehensive control over every phase of the production and sale of beer in
    Ontario.

[32]

The
Liquor Control Act,
as it appeared in June 2000, sets out the relevant
    powers and purposes of the Board in ss. 3(1) (a)-(j) and in (n):

(a) to buy, import and have in its possession for sale, and to
    sell, liquor and other products containing alcohol and non-alcoholic beverages;

(b) to control the sale, transportation and delivery of liquor;

(c) to make provision for the maintenance of warehouses for liquor
    and to control the keeping in and delivery from any such warehouses;

(d) to establish government stores for the sale of liquor to
    the public;

(e) to authorize manufacturers of beer and spirits and wineries
    that manufacture Ontario wine to sell their beer, spirits or Ontario wine in
    stores owned and operated by the manufacturer or the winery and to authorize
    Brewers Retail Inc. to operate stores for the sale of beer to the public;

(f) to control and supervise the marketing methods and
    procedures of manufacturers and of wineries that manufacture Ontario wine
    including the operation of government stores by persons authorized under clause
    (e);

(g) subject to the
Liquor Licence Act
, to determine
    the municipalities within which government stores shall be established or
    authorized and the location of such stores in such municipalities;

(h) to determine the classes, varieties and brands of liquor to
    be kept for sale at government stores and maintain standards therefor;

(i) to fix the prices at which the various classes, varieties
    and brands of liquor are to be sold and, except in the case of liquor sold
    through an outlet designated by the Minister of National Revenue under the
Excise
    Act

(Canada)
as a duty free sales outlet, such prices shall be
    the same at all government stores;

(j) to determine the nature, form and capacity of all packages
    to be used for containing liquor to be kept or sold;

(n) to do all things necessary for
    the management and operation of the Board in the conduct of its business.

[33]

Government store means a store established or authorized under
    the
Liquor Control Act
by the LCBO for the sale of sprits, beer or
    wine and includes both LCBO stores and Brewers Retail Inc. stores:
Liquor
    Control Act
, s. 1. Liquor in the
Liquor Control Act
means
    spirits, wine and beer or any combination thereof:
Liquor Control Act
,
    s. 1;
Liquor Licence Act
, s. 1.

[34]

Section
    3(1) of the
Liquor Control Act
expressly allows the LCBO to approve
    government stores for the sale of liquor, including beer, in LCBO stores and
    approve Brewers Retail Inc. outlets for the sale of beer. The Board is
    expressly given the power in s. 3(1)(h) to determine the classes, varieties and
    brands of liquor to be kept for sale at government stores. This express
    authority enables the Board to decide which products will be sold at LCBO
    stores and which products will be sold at Brewers Retail Inc. outlets. It
    enables the LCBO to decide that Brewers Retail Inc. outlets will sell 12 and 24-packs
    of beer, and that the LCBO will not sell beer to licensees which is also sold
    by Brewers Retail Inc. Subsection 3(1)(j) allows the Board to determine the
    capacity of all packages to be used for containing liquor. Given the near total
    control exercised by the LCBO over the sale of all liquor in the province,
    there is nothing to suggest a legislative intent to allow meaningful
    competition between Brewers Retail Inc., a corporation historically controlled
    by three large brewing corporations to whom the profits flow from the sale of
    beer, and the LCBO, whose profits flow to the government of Ontario. These
    provisions authorize the LCBO to allocate sales of beer as between LCBO stores
    and Brewers Retail Inc. outlets.

(c)

Retroactive
    legislation and the regulated conduct defence

[35]

Lest
    there be any doubt that the allocation of beer sales as between the LCBO and
    Brewers Retail Inc. was directed and authorized by the government of Ontario, in
    August 2015 the Ontario Legislature enacted s. 10(3) of the
Liquor Control Act
,
    as amended by the
Building Ontario Up Act (Budget Measures), 2015
,  s.
    8, in direct response to this litigation:

The Board is deemed to have been directed, and Brewers Retail
    Inc. is deemed to have been authorized, to enter into the June 2000 framework
    in relation to the Crowns or a Crown agents regulation and control of the
    sale of beer in Ontario.

[36]

This
    legislation is expressly indicated to have retroactive effect. It operates back
    in time to when the Framework Agreement was signed, with the effect that the
    legislation in question is deemed to have always included this provision:
Régie
    des rentes du Québec v. Canada Bread Company Ltd
., 2013 SCC 46, [2013] 3 S.C.R.
    125, at para. 28.

[37]

In
Régie des rentes du Québec,
the court described the operation of
    retroactive legislation, at paras. 26-28:

[26] It is settled law in Canada that it is within the
    prerogative of the legislature to enter the domain of the courts and offer a
    binding interpretation of its own law by enacting declaratory legislation: L.-P.
    Pigeon,
Drafting and Interpreting Legislation
(1988), at pp. 81-82. As
    this Court acknowledged in
Western Minerals Ltd. v. Gaumont
,
[1953] 1 S.C.R. 345, such forays are usually made where the
    legislature wishes to correct judicial interpretations that it perceives to be
    erroneous.

[27] In enacting declaratory legislation, the legislature
    assumes the role of a court and dictates the interpretation of its own law:
    P.-A. Côté, in collaboration with S. Beaulac and M. Devinat,
The
    Interpretation of Legislation in Canada
(4th ed. 2011), at p. 562. As a
    result
, declaratory provisions operate less as legislation and
    more as jurisprudence. They are akin to binding precedents, such as the
    decision of a court: P. Roubier,
Le droit transitoire: conflits des
    lois dans le temps
(2nd ed. 1993), at p. 248.
Such
    legislation may overrule a court decision in the same way that a decision of
    this Court would take precedence over a previous line of lower court judgments
    on a given question of law.

[28] It is also
settled
law that declaratory provisions have an immediate effect on pending
    cases, and are therefore an exception to the general rule that legislation is
    prospective. The interpretation imposed by a declaratory provision
stretches
    back in time to the date when the legislation it purports to interpret first
    came into force, with the effect that the legislation in question is deemed to
    have always included this provision. Thus, the interpretation so declared is
    taken to have always been the law: R. Sullivan,
Sullivan on the
    Construction of Statutes
(5th ed. 2008), at pp. 682-83. [Citations in
    original.]

[38]

The
    appellants argue that the respondents should not be able to take advantage of
    the regulated conduct defence when the conduct in issue is retroactively
    sanctioned. I do not agree. The purpose of extending that defence in the
    context of the
Competition Act
is to avoid criminalizing conduct that
    a province deems to be in the public interest. That same provincial public
    interest should be recognized whether it is expressed in legislation in force
    at the time of the impugned acts, or expressed in retroactive legislation. Further,
    there is no logical basis to treat Brewers Retail Inc. differently from the
    LCBO with respect to the market allocation agreement. They are opposite sides
    of the same transaction which benefits from the regulated conduct defence.

(2)

The price
    differential for beer sales to consumers and licensees

[39]

As
    I have indicated above, the appellants allege that the five percent surcharge
    Brewers Retail Inc. levied on licensees, as compared to consumers, violated the
Liquor Control Act
, as it appeared on June 2000. They claim that the beer
    respondents, which owned 90% of Brewers Retail Inc. at the time, were unjustly enriched
    by the collection of this surcharge.

[40]

The appellants argue that the motion judge erred in his
    interpretation of the
Liquor Control Act
, as
    it appeared on June 2000, and that, correctly interpreted, the surcharge
    violated that Act. Further, they argue that, even if constitutional,
    retroactive legislation cannot be considered when determining whether there was
    a juristic reason for a defendants enrichment. In their view, only legislation
    in effect at the time of the enrichment can provide a juristic reason.

[41]

The
    relevant statutory provision of the
Liquor Control Act
reads as
    follows:

Power and purposes of Board

3.(1) The purposes of the Board are, and it
    has power,

(i) to fix the
    prices at which the various classes, varieties and brands of liquor are to be
    sold and, except in the case of liquor sold through an outlet designated by the
    Minister of National Revenue under the
Excise Act
(Canada)
as a duty free sales outlet,
such prices
    shall be the same at all government stores.

[Emphasis
    added.]

[42]

The
    appellants argument is that the plain meaning of this provision requires that
    the same price be charged to all beer purchasers and that differential prices
    to licensees are not permitted. The respondents argument is that this
    provision was intended to require that no differential price be imposed
    according to the geographic location of the buyer and to eliminate higher costs
    for beer in Northern Ontario. In the respondents view, this provision does not
    prohibit differential pricing among classes, varieties and brands as long as
    the price for each is the same at all government stores (subject to the
    exception). Accordingly, just as the price for six packs of beer and 12-packs,
    for example, can diverge so long as the price for each is the same at all
    government stores, so can the price of liquor (which includes beer) intended
    for sale to each channel of consumer and licensee purchasers diverge. The respondents
    argue that this interpretation is consistent with decades of LCBO and Brewers
    Retail Inc. practice. They therefore submit that s. 3(1)(i) permits the LCBO to
    differentiate as to price between consumers and licensees.

[43]

The
    motion judge favoured the interpretation advanced by the respondents, and, at
    paras. 257-59, of his reasons stated:

[257] The approach to interpretation is
    teleological or purposeful and to interpret a statute, the words of the statute
    are to be read in their entire context and in their grammatical and ordinary
    sense harmoniously with the scheme of the statute, the object of the statute,
    and the intention of the legislator.

[
258
]
Following this
    purposefully approach to interpretation, I favour the interpretation advanced
    by the Defendants. Their interpretation is supported by: (a) the legislative
    history; (b) a proper contextual and purposeful reading of s. 3(1)(i); and (c)
    how the section has been interpreted and applied for decades by the parties
    subject to it, including the LCBO which is the regulator under the legislative
    scheme.

[
259
]  When
    interpreting a specialized public law statute, the public statements of the
    regulator about the scope of its home statute
and the
    administrative practice and interpretation adopted by the regulator, while not
    determinative, are important factors to be weighed in interpreting the statute.
    [Footnotes omitted.]

[44]

I
    need not resolve this issue of statutory interpretation as the government of
    Ontario enacted s. 3(1.1) of the
Liquor Control Act
, as amended by
Building Ontario Up
    Act (Budget Measures), 2015
,  s. 3(4),
in 2015, which retroactively authorized the price differential in issue here:

3(1.1) The Boards
    purposes and powers also include, and are deemed always to have included, the
    purpose and power to fix the prices at which the various classes, varieties and
    brands of liquor are to be sold, and
such prices shall be
    the same at all government stores except
,

(a) liquor sold
    through an outlet designated by the Minister of National Revenue under the
Excise Act
(Canada)
as a duty free sales outlet; and

(b)
liquor sold to holders of a licence under the
Liquor Licence Act
, which may be sold
    at a price that is different from the price at which it is sold to the general
    public.
[Emphasis
    added.]

[45]

As
    indicated above, in relation to retroactive authorization of beer market
    allocation, this retroactive legislation declares what the law was. It deems
    that the law always included the right to price differentiate between licensee
    purchasers and members of the public.

[46]

I
    reject the appellants argument that juristic reason cannot be provided by
    retroactive legislation. This deeming provision supplies the juristic reason
    for the enrichment and puts an end to the appellants action for damages for
    unjust enrichment:
Garland v. Consumers Gas Co
., at para. 49. There
    is no doubt that retroactive legislation can defeat financial expectations
    based on the law in place before the retroactive amendment.

(3)

Misconduct by a civil
    authority

[47]

The
    appellants rely on
Paradis Honey Ltd. v. Canada (Ministry of Agriculture
    and Agri-Food),
2015 FCA 89, [2016] 1 F.C.R. 446, leave to appeal refused,
    [2015] S.C.C.A. No. 227, at paras. 132-40, in which Stratas J.A. proposed that
    in claims for damages for misconduct by a civil authority, courts could grant
    relief where the civil authority acted unacceptably or indefensibly according
    to public law principles, and where the court decided in its discretion that an
    award of damages was appropriate. Even if this basis for liability were adopted
    in Ontario, relief would be unavailable to the appellants here because of the
    conclusions already expressed. The Framework Agreement allocating the beer
    market was authorized by statute, both the current and retroactive versions. The
    price differential was also authorized, at least by retroactive legislation. The
    conduct of the LCBO was reasonable in the public law sense, and there is no
    basis to say that it acted unacceptably or indefensibly. Indeed, the appellants
    acknowledge that if they are unsuccessful on their arguments regarding the
    allocation of beer sales under the Framework Agreement and the differential
    pricing, this ground of appeal cannot succeed.

(4)

Is the retroactive
    legislation
ultra vires
?

[48]

The
    appellants argue that s. 10(3) of the
Liquor Control Act
is outside
    the legislative competence of the government of Ontario, and that it amounts to
    an impermissible intrusion into the trade and commerce and criminal law powers
    exclusively reserved to the federal government. Further, the appellants submit
    in their factum that Ontario cannot dabble in legislation that has the express
    purpose of altering the competitive landscape of industry.

[49]

For
    ease of reference, I repeat, s. 10(3) of the
Liquor Control Act
, which
    reads as follows:

The Board is deemed
    to have been directed, and Brewers Retail Inc. is deemed to have been
    authorized, to enter into the June 2000 framework in relation to the Crowns or
    a Crown agents regulation and control of the sale of beer in Ontario.

[50]

The
    first step in a division of powers analysis is to determine the pith and
    substance or the true character of the law:
Canada Post Corporation v.
    Hamilton (City)
, 2016 ONCA 767, 134 O.R. (3d) 502, at para. 32. Here, the
    essence of both the overall regulatory regime embodied in the
Liquor Control
    Act
and s. 10(3) itself is the regulation and control of the sale of
    liquor in the province. I agree with the motion judge that this matter is
    unquestionably within a provinces jurisdiction under the
Constitution Act
,
1867
, s. 92(13), property and civil rights, and s. 92(16), matters of
    a local or private nature. As observed in
General Motors of Canada Ltd. v.
    City National

Leasing
, [1989] 1 S.C.R. 641, at p. 682:

[C]ompetition is not a single
    matter, any more than inflation or pollution. The provinces too, may deal with
    competition in the exercise of their legislative powers in such fields as
    consumer protection, labour relations, marketing and the like. The point is,
    however, that Parliament also has the constitutional power to regulate
    intraprovincial aspects of competition.

[51]

Here,
    there is no conflict between valid provincial legislation and the federal
Competition
    Act
, as the federal legislation accords leeway to provinces to implement
    legislation to advance their public interest, without running afoul of s. 45 of
    the
Competition Act
. That in essence, is the regulated conduct defence.
    Whether the provincial legislation is retroactive or not is beside the point in
    a non-criminal context.

[52]

I agree with the motion judges conclusion that s. 10(3) is
    constitutionally valid legislation, enacted within the matters allocated to a
    province by s. 92 of the
Constitution Act, 1867.

(5)

Leave to appeal
    costs

[53]

The
    motion judge awarded costs to the then defendants as follows:

LCBO: $753,321.90

Brewers Retail Inc.: $724,250.00

Molson: $502,145.00

Labatt: $394,780.23

Total: $2,374,497.13

[54]

These
    amounts represented a substantial discount from the actual costs incurred and
    from the partial indemnity costs ordinarily expected.

[55]

The
    Law Foundation of Ontario and the appellants seek leave to appeal and allege
    that the motion judge made many errors in his assessment of costs. They submit
    that he failed to consider the impact upon access to justice of a cost order of
    this magnitude. Further, they submit that under an analysis of s. 31(1) of the
Class
    Proceedings Act, 1992
, S.O. 1992, c. 6, the motion judge erred in his
    assessment of the complexity of the case, the extent to which the case raised a
    matter of public interest, the degree of novelty of the issues raised and erred
    in his assessment of what amount constituted a fair and reasonable costs award.

[56]

This
    court has held that leave to appeal costs awards should be granted sparingly
    and only in obvious cases where the party seeking leave convinces the court
    there are strong grounds upon which the appellate court could find that the
    judge erred in exercising his discretion:
Brad-Jay Investments Ltd. v.
    Szijiarto
(2006), 218 O.A.C. 315 (C.A.), leave to appeal refused, [2007]
    S.C.C.A. No. 92, at para. 21. Here, the motion judge largely considered all the
    arguments made by the appellants; he did not fail to consider a relevant factor.
    The appellants in effect ask this court to re-weigh the arguments made before
    the motion judge.

[57]

The
    appellants sued for close to two billion dollars, and alleged that the
    respondents had engaged in a criminal conspiracy. A reasonable litigant would
    expect that the respondents would each devote significant resources to responding
    to this claim.

[58]

This
    is not a case in which this court should grant leave to appeal costs.

C.

DISPOSITION

[59]

I
    would dismiss the appeal, and dismiss the request for leave to appeal costs.

[60]

The
    respondents may make brief written submissions as to the costs of the appeal,
    to be served and filed within 30 days after the date of the release of these
    reasons. The appellants may file their submissions as to the costs of the
    appeal within 20 days thereafter.

Released: April 17, 2019

AH

G. Pardu J.A.

I agree Alexandra Hoy A.C.J.O.

I agree Janet Simmons J.A.

[1]

The defendant Sleeman Breweries Ltd. owned the remaining 10%
    of Brewers Retail Inc. The appellants do not appeal the dismissal of their
    action against Sleeman Breweries Ltd.

[2]
In
Garland v. Consumers Gas Co.
, 2004 SCC 25, [2004] 1 S.C.R. 629, the
    court discussed the need for leeway language in a federal criminal statute to
    create room for a valid
provincial
regulatory scheme to operate,
    giving rise to a regulated conduct defence: at para. 77 (emphasis added). There
    is some suggestion by scholars, practitioners and the Competition Bureau that
    the exercise in statutory interpretation giving rise to the defence may be
    different when it is raised by a conflicting federal regulatory scheme: Robert
    Mysicka, The Regulated Conduct Doctrine (2011) 24:1 Can. Competition L. Rev.
    18 at p. 25; Michael Trebilcock, Regulated Conduct and the Competition Act
    (2004) 41 Can. Bus. LJ 492 at pp. 497-498; Brian A. Facey & Dany H. Assaf,
Competition
    and Antitrust Law: Canada and the United States
, 4th ed. (Toronto:
    LexisNexis, 2014) at paras. 11.30, 11.39-11.40. Whether leeway language would
    be required in such a case is an issue for another day.


COURT OF APPEAL FOR ONTARIO

CITATION: Merino v. ING Insurance Company of Canada, 2019
ONCA 326

DATE: 20190425

DOCKET: C64596

Feldman, Pepall and Pardu JJ.A.

BETWEEN

Karla Garay Merino, Margarita Merino, Adis Perez
Charles and Lou Ann Garay

Appellants (Plaintiffs)

and

ING Insurance Company of Canada, also known as,
or formerly, ING Halifax Insurance Company

Respondents (Defendant)

Myron W. Shulgan and Donald W. Leschied, for the appellants

Douglas A. Wallace and Sean T. Miller, for the
respondents

Heard: October 15, 2018

On appeal from the judgment of Justice Gregory J. Verbeem
of the Superior Court of Justice, dated October 20, 2017, with reasons reported
at 2017 ONSC 6281.

Feldman J.A.:

Introduction

[1]

The appellant, Karla Merino, a pedestrian, was catastrophically injured when
she was struck by a car driven by Timothy Klue. Mr. Klue and his wife, Sonia Abou-Khalil,
were joint owners of the car. They had applied for automobile insurance
coverage over three months before the accident and the respondent insurer had
issued a one-year policy. However, because of misrepresentations in the
application regarding Ms. Abou-Khalils driving record, the respondent insurer
purported to rescind the policy shortly after issuing it, a couple of months
before the accident. Mr. Klue did not drive the car from then until the day of
the accident.

[2]

By Statement of Claim issued on August 19, 2004, the appellants sued Mr.
Klue and Ms. Abou-Khalil, and obtained judgment on July 28, 2011 for
$2,000,000. Having been told by the respondent that Mr. Klue and Ms.
Abou-Khalil were not insured by it because the policy had been rescinded, the
appellants also sued Ms. Merinos mothers insurer, Allianz, in the same action
pursuant to the uninsured automobile coverage it provided to the appellants. After
non-pecuniary accident benefits of $181,107 paid by the Société de lassurance
automobile du Québec were deducted, Ms. Merino obtained a net award of $18,893
against Allianz. The respondent did not seek to be added to that action.

[3]

In the context of an arbitration hearing regarding a dispute among
insurers over the obligation to pay accident benefits, the respondent insurer delivered
a copy of its underwriting file to counsel for the appellants on September 1,
2005. However, the respondent insurer continued to contend that the policy had
been rescinded before the accident.

[4]

On April 16, 2012, after obtaining judgment against Mr. Klue, Ms.
Abou-Khalil, and Allianz, the appellants commenced the action under appeal
against the respondent insurer under s. 258(1) of the
Insurance Act
,
R.S.O. 1990, c. I.8 (the
Insurance Act
 or the Act) on the basis
that the insurance contract had not been properly terminated by the respondent,
and Mr. Klue and Ms. Abou-Khalil were in fact insured by the respondent on the
date of the accident.

[5]

On summary judgment, the motion judge was required to determine whether
the respondent insurer was entitled to rescind the insurance contract with Mr.
Klue and Ms. Abou-Khalil, and if so, whether the purported rescission had the
effect of precluding the injured appellant, as an innocent third party, from
making a claim against the respondent under s. 258(1) of the
Insurance Act
. That section
provides:

Any person who has a
claim against an insured for which indemnity is provided by a contract
evidenced by a motor vehicle liability policy, even if such person is not a
party to the contract, may, upon recovering a judgment therefor in any province
or territory of Canada against the insured, have the insurance money payable
under the contract applied in or towards satisfaction of the persons judgment
and of any other judgments or claims against the insured covered by the
contract and may, on the persons own behalf and on behalf of all persons
having such judgments or claims, maintain an action against the insurer to have
the insurance money so applied.

[6]

The motion judge dismissed the appellants action on summary judgment. He
found that the respondent insurer was entitled to rescind the insurance
contract based on material misrepresentation, making it void
ab
initio
;
that it had done so effectively; and that, as a result, s. 258(1) was not
available to the appellants, as there was no contract with the respondent that
provided indemnity to the at-fault driver or owner at the time of the accident.

[7]

The appellants appealed each of those findings. For the reasons that
follow, I would allow the appeal. The scheme of the automobile insurance provisions
of the Act prescribes how an insurer may terminate its obligations under a
contract it has issued, including for misrepresentation. That scheme makes it
clear that an insurer may not effectively rescind a contract at common law,
making it void
ab initio
; it must comply with the
Act
. One of the sections in that scheme
is s. 258, which allows innocent third parties to sue and recover from the
at-fault drivers insurer, at least up to the statutory minimum liability coverage
of $200,000 prescribed in s. 251, as long as the automobile insurance contract had
not been validly terminated by the insurer before the accident.

Factual Background

(1)

The insurance policy issued by the respondent

[8]

On May 29, 2002, Mr. Klue and his spouse, Ms. Abou-Khalil, attended at
the offices of Gulliver Insurance Brokers in Windsor. There, an application for
insurance for a one-year coverage term for both of them as owners and drivers
of a 1994 Jeep Cherokee was executed by Mr. Klue but not by Ms. Abou-Khalil,
and was submitted to the respondent. The application contained accurate
information about Mr. Klue and his past driving record, which was clean, but
inaccurate information about Ms. Abou-Khalils record, which was not clean.
Gulliver provided a 30-day binder to both as insureds, followed by a one-year
automobile insurance contract.

[9]

The respondents subsequent underwriting investigation disclosed Ms.
Abou-Khalils true driving record, which included an at-fault accident,
convictions for speeding and careless driving, a license suspension for
non-payment of fines, and the cancellation of a previous policy for non-payment
of premiums. The respondent therefore decided to treat the insurance contract
as void based on misrepresentation or failure to disclose required information.

[10]

On
July 2 2002, the respondent sent a registered letter to the insureds, advising
that because of the non-disclosure of Ms. Abou-Khalils previous driving
record, the insurance coverage was void from the inception date and their
right of indemnity was forfeited. Both Mr. Klue and Ms. Abou-Khalil read the
letter. Believing that the vehicle was uninsured, they did not drive it until Mr.
Klue drove on the date of the accident, after he had lost his job and consumed
alcohol.

(2)

The accident

[11]

The
accident occurred on September 12, 2002. The appellant, Ms. Karla Merino, was a
University student at the time. As she was crossing the road, she was hit by Mr.
Klue, driving the 1994 Jeep. She was catastrophically injured as a result.

(3)

The action against the owner and driver and the claim for uninsured
coverage

[12]

On
March 19, 2003, counsel for the appellants wrote to Ms. Abou-Khalil giving
notice of the accident and the claim and asking her to notify her insurer, the
respondent, identifying a specific policy number. A field adjuster for the
respondent responded on March 25, 2003, stating that neither Ms. Abou-Khalil
nor Mr. Klue had an automobile policy with the respondent, and enclosed a copy
of the letter that the respondent had sent to them purporting to rescind their
insurance policy.

[13]

As
a result of the respondents position, the appellants sued the owners and
driver of the car, Mr. Klue and Ms. Abou-Khalil, as well as Allianz, Ms. Merinos
mothers insurer, for uninsured motorist coverage. Mr. Klue and Ms. Abou-Khalil
did not defend the action, but through counsel appointed by the Superintendent
of Insurance, Mr. Klues liability was admitted. The respondent was not joined
in the action as a third party. Following trial, in July 2011, the appellants
obtained judgment against Mr. Klue and Ms. Abou-Khalil in the amount of
$2,000,000, but they were unable to collect from them. Since the accident was
in Ontario, the Allianz policy was required to provide coverage of $200,000,
the minimum limits of uninsured coverage in accordance with the Ontario
Insurance
Act
. The appellant also received accident benefits paid by the Société de lassurance
automobile du Québec. After deduction of the non-pecuniary benefits, she
recovered a net award of $18,893.00 plus interest from Allianz.

(4)

The action against the respondent

[14]

In
the context of the 2005 accident benefits arbitration, which was a dispute
among insurers, counsel for the appellants obtained the respondents complete
underwriting file on the policy it had issued to Mr. Klue and Ms. Abou-Khalil. While
the respondent continued to maintain that it had validly rescinded the policy, in
April 2012, the appellants brought the within action under s. 258(1) of the
Insurance
Act
against the respondent on the basis that the policy was not validly
terminated before the accident. Both sides brought summary judgment motions.

(5)

The motion judges findings

[15]

The
motion judge found that the
Insurance Act
provisions that govern how
an automobile insurer may terminate an automobile policy and the effect of
termination do not preclude an automobile insurer from rescinding a contract at
common law and making the contract void
ab initio
.
He concluded
that the respondent was entitled to rescind its contract with the insureds, Mr.
Klue and Ms. Abou-Khalil, based on material misrepresentation, and that the
respondents July 2, 2002 letter to them had the effect of rescinding their
insurance contract, making it void
ab initio
and of no effect.

[16]

On
this summary judgment motion, in order to determine whether the respondent had
the right to rescind, the motion judge had to decide whether there was a
genuine issue requiring a trial regarding the events surrounding the
application, including the materiality of the misrepresentation, how it
happened that Mr. Klue signed the application and not Ms. Abou-Khalil, whether
he signed on her behalf, and whether either of them knew that the application
contained false information about her driving record. The information before
the court consisted of: (1) the transcripts or partial transcripts of the
examinations for discovery of Mr. Klue and Ms. Abou-Khalil, taken in 2006 for
the appellants original action against them; (2) some hearsay information from
the Gulliver representative contained in a letter from Gullivers solicitor to
INGs solicitor; and, (3) some unsworn and undated statements. The motion judge
gave no effect to the latter evidence.

[17]

The
motion judge concluded that because the record before him was what it would be
at a future trial, there was no purpose in deferring any issue to a trial. He
noted that by 2006, Mr. Klue said he did not have a specific recall of what
occurred during the meeting at the brokerage. By the time of the motions, 15
years had passed since the accident.

[18]

I
will discuss the details of the motion judges findings with respect to the
misrepresentation in the context of the analysis of that issue on the appeal.

[19]

Having
found that the respondent had validly rescinded the insurance contract, the
motion judge went on to consider whether the appellants could still sue the
respondent for indemnity under s 258(1) of the Act. In concluding that they
could not, the motion judge found that this case was distinguishable from the
case law that held that ss. 258(4) and (5) precluded a defence based on
misrepresentation. In the cases where the court applied ss. 258(4) and (5), the
insurer had sought to avoid its obligations only after the accident on the
basis that the misrepresentation in the application voided the contract, whereas
in this case, the insurer rescinded the contract before the accident. Because
the contract was rescinded before the date of the accident, the appellants
could not recover under s. 258(1) because there was no contract of indemnity in
place when the accident occurred.

[20]

As
a result of these findings, it was not necessary to address other issues,
including whether the appellants had waived their rights under s. 258(1) by
electing to seek coverage based on the vehicle being uninsured, the quantum of
any damages claimed, and whether the respondent could rely on ss. 258(11) because
it had not been properly pleaded.

Issues

[21]

The
following issues are raised on this appeal:

1)

Are the appellants entitled to recover against the respondent under s.
258(1) of the
Insurance Act
if the contract was not validly rescinded?

2)

Is an automobile insurer entitled to rescind an automobile insurance
contract at common law, making it void
ab initio
, based on
misrepresentation in the application?

3)

If the contract was not validly rescinded, is the appellants recovery
limited to the statutory minimum of $200,000 under s. 251 of the
Insurance Act
,
based on the defence of knowing misrepresentation, asserted under s. 258(11)?

4)

Are the appellants
barred from recovery under s. 258(1), based on the doctrine of waiver or abuse
of process, because they initially pursued uninsured motorist claims against
Allianz?

Analysis

(a)

Issue 1: Are the appellants entitled to recover against the respondent
under s. 258(1) of the
Insurance Act
if the contract was not validly
rescinded?

[22]

Subsections
258(1), (4) and (5) are known as the absolute liability provisions of the
Insurance
Act
:
Campanaro v. Kim
(1998), 41 O.R. (3d) 545, at p. 547 (C.A.).
Subsection (1) permits an injured plaintiff who has recovered judgment against
a negligent driver to sue the drivers automobile insurer directly and have the
insurance money payable under the contract applied in satisfaction of the
judgment. Subsections (4) and (5) preclude the insurer from defending on the
basis that because the insured made a misrepresentation in the application for
insurance, including a misrepresentation as to ownership of the vehicle, there never
was an insurance policy. However, subsection (11) limits that restriction to
the $200,000 minimum liability that every automobile policy is required to
provide under s. 251.

[23]

Subsections
(4) and (5) provide:

258(4)
The right of a person who is
entitled under subsection (1) to have insurance money applied upon the persons
judgment or claim is not prejudiced by,

(a) an assignment, waiver,
surrender, cancellation or discharge of the contract, or of any interest therein
or of the proceeds thereof, made by the insured after the happening of the
event giving rise to a claim under the contract;

(b) any act or default of the
insured before or after that event in contravention of this Part or of the
terms of the contract; or

(c) any contravention of the
Criminal
Code
(Canada) or a statute of any province or territory of Canada or of any
state or the District of Columbia of the United States of America by the owner
or driver of the automobile,

and nothing mentioned in clause (a),
(b) or (c) is available to the insurer as a defence in an action brought under
subsection (1).

(5) It is not a defence to an action under this section
that an instrument issued as a motor vehicle liability policy by a person
engaged in the business of an insurer and alleged by a party to the action to
be such a policy is not a motor vehicle liability policy, and this section
applies with necessary modifications to the instrument.

[24]

Subsection
(5) was added to the Act in 1947 to overcome and preclude the interpretation
given to the comparable section in the New Brunswick Act by the New Brunswick
Court of Appeal in
Bourgeois v. Prudential
,
[1946] 1 D.L.R. 139 (N.B.C.A.).
In
Bourgeois
, the court
held that in the case of a material misrepresentation by an insured as to
ownership of the vehicle, there was no insurance policy because the policy
never came into existence.

[25]

However,
despite the addition of subsection (5), this court held in
Ministry of
Transport et al v. London & Midland General Insurance Co.
, [1971] 3 O.R. 147-149 (C.A.)
, that an insurer
could still defend a third-party action if the insureds misrepresentation was
with respect to the ownership of the vehicle. The court found that where the
insured misrepresents that he is the owner of the vehicle, the policy cannot be
an owners policy and therefore cannot cover the risk.

[26]

In
Campanaro
, a five-judge panel of this court was struck to reconsider
London
& Midland
and to clarify the extent of the protection the legislature
intended to provide to third parties in s. 258. Osborne J.A., speaking for the
court, made the following statements, at pp. 560, 562, 563:

I think that it is clear that the 1947
Insurance Act
amendment was intended to overcome the effect of
Bourgeois
and
preclude an insurer from defending an innocent third party judgment creditors
claim on the basis of any material misrepresentation, including a
misrepresentation as to ownership of the insured automobile.

In my opinion, for the purposes of the action contemplated by
s.258(1), s. 258(5) prevents the insurer from relying upon material
representations made by, or on behalf of, the named insured, if the insurer
issued an instrument as a motor vehicle liability policy.

With respect, I think that in exempting one type of
misrepresentation, that is a misrepresentation about ownership, from the
defence-limiting provisions of s. 258(5),
London & Midland
was wrongly
decided. In my opinion, if s. 258(5) precludes the insurer from contending that
the instrument it issued as a motor vehicle liability policy is not a motor vehicle
liability policy, it must follow that the insurer cannot rely on any
misrepresentation which, if given effect to, would result in the instrument
issued by the insurer as a motor vehicle liability policy being taken not to be
a motor vehicle liability policy.

[27]

Osborne
J.A. also explained that the addition of uninsured motorist coverage as part of
the no-fault scheme for comprehensive coverage does not influence or change the
interpretation of s. 258 in order to relieve the insurer from its absolute liability
obligation imposed by that section. He commented, at p. 563, that:

The absolute liability provisions
of s. 258 have remained unchanged since the introduction of uninsured motorist
coverage. It seems to me that the language of s. 258 is clear and I see no
basis to change the interpretation of the section because there is another available
payer. In the present scheme of things the tortfeasors insurer is the first
payer.

[28]

To
summarize, the court found and clearly stated that s. 258(1) applies to give an
injured third party the right to collect his or her judgment against the
at-fault driver from that drivers insurer where the insurer issued an
automobile insurance policy that provided for indemnity, regardless of any
misrepresentation that the insured may have made in the application for
insurance.

[29]

The
motion judge acknowledged the meaning and legal effect of s. 258. However, he
observed that in every reported case where the insurer sought to rely, as a
defence under s. 258(1), on a misrepresentation by the insured in the
application to obtain the policy, the policy had not been validly terminated
before the accident. Conversely, in this case, the insurer rescinded the
insurance contract before the accident occurred. Therefore, there was no policy
in existence at the date of the accident in this case, not because of the legal
effect of misrepresentation, but because the policy had actually been rescinded
before the accident occurred. The motion judge accordingly found that because
the respondent rescinded the insurance contract
ab initio
, and there
was no contract at the date of the accident, s. 258 of the Act did not apply.

[30]

I
agree with the motion judge that s. 258 can have no application where an
automobile insurance policy is no longer in existence at the date of the
accident because it was properly and effectively terminated by either party
before that date. However, in this case, the respondent did not terminate the
contract in accordance with the provisions of the Act and the regulations: see
infra
,
at paras. 32-34 of these reasons. Therefore, the next issue is whether the
motion judge erred in law by finding that an automobile insurer may effectively
terminate the contract by rescinding the contract
ab initio
at common
law, and that the respondent did so in this case.

(b)

Issue 2: Is an automobile insurer entitled to rescind an automobile
insurance contract at common law, making it void
ab initio
, based on
misrepresentation in the application?

[31]

For
the reasons that follow, I conclude that the motion judge erred in finding that
the respondent was entitled to rescind the contract at common law based on
misrepresentation in the application, making it void
ab initio
. After
summarizing the motion judges reasons for concluding that the respondent was
entitled to rescind the contract in this manner, I will explain why, in my
view, he erred in so finding.

(i)

The motion judges reasons

[32]

In
dealing with the rescission issue, the motion judge first considered the common
law right of a party to rescind a contract that was induced by a material
misrepresentation. Referring to the written application for insurance that was
signed by Mr. Klue but contained information about both applicants, the motion
judge found that the misstatement or omission of the significant negative features
of Ms. Abou-Khalils driving record in the application constituted a material
misrepresentation that entitled the respondent to rescind the contract.
Further, he found that the respondent had in fact rescinded the contract by its
July 2, 2002 letter.

[33]

Second,
in discussing the options open to an insurer to avoid liability under an
automobile policy, the motion judge set out the termination provisions of the
Act and the regulations. Section 11 of O. Reg. 777/93 (the Regulation)
provides the methods by which an insurer may terminate an automobile insurance contract.
Under that section, an insurer may either give 15 days notice by registered
mail, or five days notice by personal delivery. In both cases, the insurer
must refund the excess premium paid by the insured. However, an insurers
ability to terminate a contract by notice and return of premium is not
unlimited. Section 11 is subject to s. 12 of the
Compulsory Automobile
Insurance Act
,
R.S.O. 1990, c. C.25,
which precludes
an insurer from terminating a contract after 60 days, except in four prescribed
circumstances. One of those circumstances is where there has been a knowing
misrepresentation of a fact in an insurance application.

[34]

While
the respondent could have terminated the policy it issued in accordance with s.
11, it did not do so. The July 2, 2002 letter was sent by registered mail, but
it did not give 15 days notice of termination. There was no return of premium
because no premium had been paid. Because the contract was not terminated in
accordance with the Regulation, if the respondents attempt to rescind was not
effective, the contract remained in force and the respondents position would
be governed by ss. 233 and 258 of the Act

[35]

Third,
the motion judge discussed s. 233 of the Act, which provides the consequences as
between the insured and the insurer of a knowing misrepresentation made by the
insured in a signed written application for insurance.

[36]

Section
233 provides that:

(1) Where,

(a) an applicant for a contract,

(i) gives false particulars of the
described automobile to be insured to the prejudice of the insurer, or

(ii) knowingly misrepresents or
fails to disclose in the application any fact required to be stated therein;

(b) the insured contravenes a term of
the contract or commits a fraud; or

(c) the insured wilfully makes a false
statement in respect of a claim under the contract,

a claim by the insured
is invalid and the right of the insured to recover indemnity is forfeited.

(2) Subsection (1) does not invalidate
such statutory accident benefits as are set out in the
Statutory
Accident Benefits Schedule
.

(3) No
statement of the applicant shall be used in defence of a claim under the
contract unless it is contained in the signed written application therefor or,
where no signed written application is made, in the purported application, or
part thereof, that is embodied in, endorsed upon or attached to the policy.

[37]

The
section does not contain the terms void or voidable. It neither requires nor
contemplates any action by an insurer to terminate the contract. Rather, it
describes the consequences, as between the insured and the insurer, when the
insured has knowingly misrepresented or omitted a fact in a signed application.
Those consequences are three-fold: 1) a claim by the insured (for own property
damage or own loss due to injury) is invalid; 2) the right of the insured to
recover indemnity (from a claim by a third party who suffered damage where the
insured was at fault) is forfeited; but 3) the insured remains entitled to certain
statutory accident benefits under the
Statutory Accident Benefits Schedule
:
see O. Reg. 403/96, s. 30.

[38]

While
a number of cases still express the effect of s. 233 as rendering the contract
void as between the insurer and the insured
[1]
,
it is clear that that language is intended to do no more than reflect the
express consequences of s. 233, which makes claims by the insured for personal loss
or indemnity invalid and unrecoverable. As Wittman J.A. stated in
Schoff v.
Royal Insurance Co of Canada
,
2004 ABCA 180, 348 A.R. 366, at para 49, s. 613 [of the Alberta Act], however,
only renders the insureds claim invalid. It does not end all of the insurers
obligations. He went on to refer to the insurers direct obligation to third
parties under the Alberta equivalent of s. 258(1) of the Act.

[39]

The
motion judge noted that the appellants provided no authority to support their
position that rescission was not an available alternative remedy for an insurer
to either terminating under s. 11 of the Regulation or relying on s. 233 of the
Act, and concluded that an insurer may still elect the common law remedy of
rescission
ab initio
. In my view, for the following reasons, that
conclusion constitutes an error in law.

(ii)

Analysis

[40]

Automobile
insurance is compulsory in Ontario. Section 2(1) of the
Compulsory
Automobile Insurance Act
prohibits an owner or lessee of a vehicle from
driving it or permitting it to be operated unless the vehicle is insured under
a contract of automobile insurance. The purpose of the legislative policy requiring
all vehicles that operate on Ontario highways to be insured is to protect
innocent victims of automobile accidents, and to provide some statutory
accident benefits to everyone who is involved in an accident:
Matheson v.
Lewis
, 2014 ONCA 542, 121 O.R. (3d) 641, at paras. 20, 22;
Insurance
Act
, s. 233(2).

[41]

The
motion judges conclusion on this issue is inconsistent with the statutory
scheme created by the
Compulsory Automobile Insurance Act
and the
Insurance
Act
. If an insurer were permitted to rescind an insurance contract at
common law
ab initio
, a person who believed they were operating a
vehicle with insurance could have that contract rescinded with retroactive
effect, putting the person in automatic contravention of the
Compulsory
Automobile Insurance Act
, a result which is clearly inconsistent with the
intent of the legislature.

[42]

The
termination and renewal provisions of the Act and regulations provide notice
periods to allow an insured time and opportunity to obtain alternate coverage
when they receive notice that their insurance is going to be terminated or not
renewed. There are also restrictions on when an insurer may refuse to renew:
Compulsory
Automobile Insurance Act
, s. 12(1); O. Reg. 777/93, ss. 11(1.1), (1.2);
Insurance
Act
, ss. 236(1), (2). The purpose of these requirements is to ensure that
a person who drives a car always knows whether they are insured, so that they
can take steps to bridge any gap in their coverage, both for their own benefit
and for the benefit of other drivers. If they are not able to secure alternate
coverage, they must not drive the vehicle or allow it to be driven.

[43]

The
scheme of the Act and its regulations prescribes the rights and obligations of
the insured and the insurer under the automobile provisions, requires strict
compliance, and provides an orderly and predictable set of consequences for
compliance and non-
compliance. For example, if a
notice of termination does not comply with s. 11 of the Regulation, then the
insurance contract remains in force:
Ontario (Finance) v. Traders
General Insurance (Aviva Traders)
, 2018
ONCA 565, 142 O.R. (3d) 45, at para. 43
.
That predictable set of consequences would be undermined if an insurer could
circumvent the requirements
of the Act by rescinding the contract at
common law, making it void
ab initio
.

[44]

Sections
233 and 258 are consistent with the legislative scheme. Section 233 addresses
the rights of an insurer under an existing automobile contract that it did not
terminate before an accident, but which was obtained by an insured who
knowingly made misrepresentations in the applications for insurance. As I
discussed in para. 32, an insurer may terminate the contract of insurance for
misrepresentation by providing notice to the insured. However, if the insurer
does not take that step and an accident occurs, then s. 233 governs the rights
as between the insurer and the insured, while s. 258 gives the injured third
party the direct right to sue the at-fault drivers insurer.

[45]

Additionally,
unlike earlier statutory provisions, a misrepresentation does not render the
automobile insurance contract void under s. 233 of the Act. Prior to the
uniform automobile insurance legislation in 1932, which introduced the concept
of compulsory minimum third-party liability automobile insurance, the effect of
misrepresentation was to void the contract. Section 177(5) of
The Insurance
Act
, R.S.O. 1927, c. 222 then provided:

Upon every written application there shall be printed
or stamped in conspicuous type, not less in size than ten point, and in red
ink, the following words:

If the applicant falsely describes the property
to the prejudice of the insurer or knowingly misrepresents or conceals or omits
to communicate any circumstances required by this application to be made known
to the insurer,
the contract shall be void as to the property insured or
risk undertaken in respect of which the misrepresentation or omission is made.
[Emphasis added.]

[46]

Appellate
cases interpreting the pre-1932 version of the misrepresentation provision held
that untrue statements in the application for insurance rendered the policy
void and, in first-party claims, insureds were unable to recover under the
policy:
Rocco v. Northwestern National Insurance Co.
, [1930] 1 D.L.R.
472 (Ont. S.C.A.D.);
Holdaway v. British Crown Assurance Corp.
, [1925]
3 D.L.R. 269 (Ont. S.C.A.D.).

[47]

That
is no longer the law. Under s. 233, a misrepresentation does not render the
contract void; it is neither terminated, nor rescinded as void
ab initio
:
see Craig Brown and Thomas Donnelly,
Insurance Law in Canada
(Toronto:
Thomson Reuters Canada Ltd., 2002) (loose-leaf updated 2019, release 1), at p.
5-14, n. 63. The contract remains in effect, but the insureds rights are
limited to his or her right to receive certain statutory accident benefits; the
insurer is not obligated to compensate the insured for other losses, or to
indemnify the insureds obligation to third parties. Also, because the
automobile insurance contract remains in effect, third parties injured by the
insured or the insureds automobile retain the right to recover the losses they
suffer from the insureds insurer under s. 258 of the Act.

[48]

Consequently,
allowing an insurer to rescind at common law for misrepresentation would undermine
the policy of the legislature in ss. 233 and 258 to provide certain statutory
accident benefits to every person who obtains a policy of insurance, including
by misrepresentation, and to provide protection to innocent third parties.

[49]

The
respondent relies on a statement made in
Hansra v. York Fire & Casualty
Insurance Co.
(1982), 38 O.R. (2d) 281 (Ont. Co. Ct), that an insurer has
three options when it learns of a misrepresentation in an insurance application:
it may a) refund the premium and treat the policy as void
ab initio
; b)
retain the premium and treat the policy as valid and subsisting; or c) treat
the policy as valid but cancel unilaterally in accordance with the statutory
conditions:
Hansra
, at p. 286. The motion judge also referred to this
statement.

[50]

However,
the statement in
Hansra
that an insurer may treat an automobile policy
as rescinded was made
per incuriam
, and does not represent the law in
Ontario. The case of
General Security Insurance Co. v. Howard Sand & Gravel
Co.
, [1954] S.C.R. 785 was cited as authority for the proposition, but
Howard
Sand
does not so state.
[2]
There is no analysis in
Hansra
of the issue, or of the conflict
between the policy of the automobile insurance scheme contained in the two Acts
 the
Insurance Act
and the
Compulsory Automobile Insurance Act
 and the ability of an automobile insurer to rescind
ab initio
.

[51]

The respondent also argued that t
his courts
decision in
Ontario (Finance) v. Elite Insurance Company
,

2018 ONCA
809, 143 O.R. (3d) 1, allows an automobile policy to be terminated other than
in accordance with the statutory provisions. In that case, the court upheld a
decision of an arbitrator who found that the insured and the insurer had
mutually agreed to terminate the policy. The case did not involve a unilateral
termination by the insurer. In upholding the arbitrators decision, the
majority found that on the facts of the case it was open to the arbitrator to
conclude that both the insured and the insurer had agreed to terminate the
policy, referring to the unfettered ability of an insured to terminate its
automobile policy under s. 11(2) of O.Reg. 777/93, and that s. 236(5) of the
Act did not preclude such an agreement. The court summarized its conclusion to
give deference to the arbitrators decision at para. 59, stating:

Section 236(5) may well oust the common law that a policy will
lapse when it is not renewed, but it does not preclude the consideration of
other circumstances that may have arisen and brought the policy to an end. In
my view, this is a reasonable interpretation that does not undermine the policy
behind s. 236(5) to ensure continuous coverage.

[52]

I
conclude that an automobile insurer in Ontario does not have the option of unilaterally
rescinding a contract of insurance at common law
ab initio
, but is
bound by the statutory scheme contained in the two Acts and the Regulation. The
rights and obligations of insurers and insureds, as well as those of injured
third parties, are governed by those statutory provisions.

(c)

Issue 3: Has the respondent proved the defence of knowing
misrepresentation in the application for insurance, and can it rely on s
258(11) to limit its liability to the statutory minimum of $200,000?

[53]

Section
251 of the
Insurance Act
provides that every motor vehicle liability
policy is required to insure for liability to a minimum amount of $200,000 for
any one accident. Section 258(11) allows an insurer to raise against a third-party
claimant any defence it could have raised against its insured in respect of any
amount of coverage that the policy provides that exceeds the $200,000 minimum.
In this case, the policy provided $1,000,000 of liability coverage. Therefore,
the respondent may raise the defence of knowing misrepresentation in respect of
the $800,000 coverage in the policy it issued to Mr. Klue and Ms. Abou-Khalil
that exceeds the statutory minimum requirement.

[54]

The
appellants submit that the respondent is precluded from relying on s. 258(11)
because, although it pleaded reliance on s. 258, it did not particularize this
subsection when asked. The motion judge did not find it necessary to deal with
this position.

[55]

I
would not give effect to this technical argument. Much of the focus of the
motion was on the issue of whether there was a material misrepresentation that
could be the basis for rescission. While the respondent relied mainly on its
rescission position, it also sought to minimize any liability it might have
based on the circumstances that occurred. It was clear that the respondent was
seeking to rely on a misrepresentation defence.

[56]

In
order to rely on the knowing misrepresentation defence, the insurer must prove
that the applicant for a contract knowingly misrepresent[ed] or fail[ed] to
disclose in the application any fact required to be stated therein:
Insurance
Act
, s. 233(1)(a)(ii). Further s. 233(3) goes on to specify that [n]o
statement of the applicant shall be used in defence of a claim under the
contract unless it is contained in the signed written application therefor.

[57]

In
this case, only Mr. Klue signed the application, while the misrepresented facts
related only to Ms. Abou-Khalils application for insurance. Section 232(1) of
the Act recognizes that an application may be signed by the insured or his
agent. Therefore, the first issue is whether Mr. Klue signed the application
as agent for Ms. Abou-Khalil.

[58]

Fortunately,
there was evidence in the record on that issue from Mr. Klue. In the
examination for discovery transcript of Mr. Klue from the tort action that was
filed on the motion, he was asked directly about the agency issue in the
following exchange. He clearly denied that he signed on Ms. Abou-Khalils behalf:

Q115.  When you were signing this application did you realize
you were signing on behalf of Sonia?

A.  No I didnt.

Q 118.  Heres my puzzle. The application on the face of it
says you and Sonia were applying for insurance and yet you signed the application,
not Sonia. Did you believe you were the one applying for insurance or that both
of you were?

A.  I cant answer that because regardless of whether were
both there it wouldnt have been my responsibility to sign for Sonia. Now if I
was asked to sign that document from their staff, then it would have been their
responsibility to ask Sonia to sign it as well.

Q 126.  Did you believe that you were signing for you and you
alone?

A.  I only sign for myself, sir. I cant forge other peoples
signatures.

[59]

There
was no other evidence in the record on the issue. The respondent did not
provide sworn evidence from either of the two insurance agents from Gulliver
who took the insurance application and witnessed Mr. Klues signature, and Mr.
MacLean, INGs Senior Claims Examiner, could provide no explanation for why Ms.
Abou-Khalil did not sign the application.

[60]

From
a procedural point of view, where s. 258(11) permits an insurer to avail itself
of any defence it is entitled to set up against the insured, including a
misrepresentation defence pursuant to s. 233, the onus is on the insurer to
prove a breach of the insureds disclosure obligation on a balance of
probabilities: Barbara Billingsley,
General Principles of Canadian
Insurance Law
2nd ed. (Markham: LexisNexis Canada Inc., 2014), at p. 114; Denis
Boivin,
Insurance Law
, 2nd ed., (Toronto: Irwin Law Inc., 2015), at p.
175;
Barsheshet
v. Aviva Canada Inc.
,
2015 ONSC
4439
, [2015] I.L.R. I-5766
.

[61]

In
the summary judgment context, because both parties moved for summary judgment,
at least as respondents they were each required to put their best foot forward.
Moreover, the motion judge found that, given the passage of time (15 years at
the time of the motions), he had the best evidence before him on the issues
surrounding the insurance application. I agree. As a result, it is appropriate
for this court to make the necessary findings based on the record that the
parties placed before the motion judge.

[62]

On
that record, there is no basis to find that Mr. Klue signed the application for
insurance as Ms. Abou-Khalils agent or on her behalf. He denied doing so, and
there is no evidence from the respondent that it had any contrary belief.

[63]

Since
Ms. Abou-Khalil was an applicant for insurance who did not sign the application
either personally or by her agent, the respondent cannot rely on the defence of
knowing misrepresentation contained in ss. 233(1)(a)(ii) and (3):

Ontario (Finance)
,
at para.
37;
Campanaro
,
at p. 550.

[64]

Another
position may be that, as the person who signed the application, Mr. Klue was
the applicant who made the misrepresentations. However, it is not possible to
find on a balance of probabilities that he knowingly misrepresented the facts
about Ms. Abou-Khalil. Had he signed as agent for his wife, her knowledge would
be the relevant knowledge:
Sleigh v. Stevenson
[1943] 4 D.L.R. 433, at
para. 42 (Ont. C.A.). However, as he did not do so, it is his knowledge that is
relevant.

[65]

The
motion judge did not make a finding that Mr. Klue knowingly misrepresented his
wifes driving record. The motion judge only went so far as to find that Mr.
Klue had the means to ask her whether the facts were true. Mr. Klue was not
asked on his discovery whether he knew the facts were false. Again, there is no
evidence from the agents on the point. In oral argument, counsel suggested that
one could speculate that a husband would know his wifes driving record.
However, because the issue was not explored in the evidence that was put before
the motion judge, there is no basis to draw that inference from the record.

[66]

In
conclusion, as the respondent did not prove the defence of knowing
misrepresentation, the appellants entitlement is not limited to the $200,000
minimum liability limit. They are entitled to the policy limit of $1,000,000,
subject to the waiver and abuse of process arguments.

(d)

Issue 4: Is the appellants claim under s. 258 barred by waiver or abuse
of process?

[67]

The
respondent submitted to the motion judge that if he found that the appellants
were entitled to claim under s. 258, their claim was barred by waiver and by
abuse of process. The motion judge did not find it necessary to deal with these
submissions because he found that the contract had been rescinded. The respondent
renews these positions on this appeal.

[68]

The
respondent says that by suing Allianz under the uninsured motorist provisions
of its policy on the basis that the 1994 Jeep was an uninsured vehicle, the
appellants waived their right to claim against the respondent under s. 258.
They rely on the Supreme Court of Canadas decision in
Saskatchewan River
Bungalows Ltd. v. Maritime Life Assurance Co.
, [1994] 2 S.C.R. 490.

[69]

This
submission can be dealt with summarily. While counsel for the appellants was
aware that the respondent had issued a policy to Mr. Klue and Ms. Abou-Khalil,
the reason the appellants resorted to a claim against Allianz under the
uninsured motorist coverage was because the respondent denied it had a contract
with them on the date of the accident.

[70]

As
the respondent properly states in its factum,
Saskatchewan River Bungalows
provides that, for waiver to be established, the waiving party must have had full
knowledge of its rights and an unequivocal and conscious intention to abandon
those rights. Not only was that clearly not the case here, but it lies ill in
the mouth of the respondent to suggest that it was when it was the respondent
that told the appellants counsel that it had no contract with the at-fault
driver.

[71]

Furthermore,
under s. 258(14), the respondent had the right to apply to be added as a third
party to the tort action. It did not take advantage of that right.

[72]

Nor
has the respondent provided any authority for the proposition that s. 258 can
be waived. It is a right of action given to an innocent third party. There is
nothing in the section to suggest that that right can be waived. As I have
found there was no waiver, it is not necessary to finally decide the issue in
this case.

[73]

Finally,
the respondent also submits that this action is an abuse of process, relying on
an
obiter
statement in this courts decision in
Loftus v.
Robertson
, 2009 ONCA 618, 96 O.R. (3d) 721.

[74]

In
Loftus
, the plaintiff was stopped at a red light when she was struck by
an uninsured vehicle that was being chased by police. The plaintiff sued the
driver and her own insurer under the uninsured coverage provisions of her
policy. Her insurer claimed over against the police involved in the chase for
contribution and indemnity. The issue was whether the innocent injured third
party could sue her own insurer under the uninsured motorist coverage provision
without also suing potential third parties who may have caused or contributed
to the accident.

[75]

The
court held that an injured party may choose whether to pursue potential joint
tortfeasors in the action against the uninsured driver and its own insurer for
the uninsured coverage: citing
July v. Neal
(1986), 57 O.R. (2d) 129 (C.A.).
But, recovery against the joint tortfeasor will preclude recovery against the
insurer under the uninsured coverage. And if the injured party elects to sue
only the insurer for the uninsured coverage and not the possible joint
tortfeasors, then she cannot later sue the possible joint tortfeasors. The
court stated, at para 47:

If an injured insured chooses to obtain judgment against his or
her own insurer under the uninsured coverage in an action that does not include
other potential joint tortfeasor(s), in our view, that choice signifies an
election. It signifies that the insured has elected not to subsequently pursue
a claim against the potential joint tortfeasor(s) to the extent that a judgment
on the claim would have barred recovery under the uninsured coverage if brought
in the same proceeding as the claim on the uninsured coverage. In these
circumstances, in our view, any attempt to pursue such a claim would constitute
an abuse of process.

[76]

The
courts reference to an abuse of process is of course,
obiter dictum
in the
Loftus
case. However, the impugned conduct is seeking to obtain
double recovery, first from the uninsured driver coverage and then from
possible tortfeasors who may be jointly liable with the uninsured driver.

[77]

On
its face, it may appear that that is what occurred here: the appellants first
sued their own insurer, Allianz, under the uninsured coverage provision of the
policy, then later, the respondent as the insurer of the at fault driver, Mr.
Klue. Clearly, the driver cannot be both insured and uninsured.

[78]

However,
there was no election here. The appellants were misled by the respondent
regarding the status of the policy it issued to the at-fault driver and they first
acted on that information.

[79]

In
any event, the appellants make it clear that they do not seek to obtain an
improper benefit by double recovery. They state in their factum that [a]ny
recovery by the appellants of funds for claims for which they were compensated
by Allianz will be received in trust by the appellants for Allianz benefit.
They may also have to address the amount that Allianz set off as against Société
de lassurance automobile du Québec.

[80]

I
would not give effect to this ground of appeal.

Conclusion

[81]

I
would set aside the judgment and reasons of the motion judge. An automobile
insurer in Ontario cannot rescind an automobile insurance contract at common
law
ab initio
, and the respondents letter purporting to do that was
not effective. Because the letter did not give 15 days notice of termination,
it also did not have the effect of terminating the contract under s.11 of the Regulation.
The contract therefore remained in effect on the date of the accident.

[82]

The
appellants were entitled to sue the respondent under s. 258 of the Act to
directly recover the amount of the judgment awarded against the at-fault driver
and owner of the 1994 Jeep up to the policy limits. Because the respondent did
not establish on the record that Mr. Klue knowingly misrepresented facts in the
application or acted as the agent of Ms. Abou-Khalil, the respondent has not
established a defence under s. 258(11) of the Act. It is accordingly liable for
the full amount of the policy limits.

[83]

There
was no waiver or abuse of process. The appellants have undertaken to the court
that they will account for any double recovery.

[84]

I
would therefore allow the appeal with costs fixed in the amount of $40,000 on
the partial indemnity scale, inclusive of disbursements and HST.

Released: K.F. April 25, 2019

K.
Feldman J.A.

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

I agree.
G. Pardu J.A.

[1]

See e.g.
Campanaro
;
Ashton
v. Tu
(1998),
40 O.R. (3d) 690 (C.A.)
;
Burns
v. Hedge
(2001),
146 O.A.C. 333 (C.A.)
.

[2]

The three options were stated by McRuer C.J.H.C. in the trial
decision in
Ellis v. London-Canada Insurance Co
., [1952] O.R. 644 (H.C.),
revd [1953] O.R. 141 (C.A.),affd [1954] S.C.R. 28, but were not endorsed by
the Court of Appeal or the Supreme Court of Canada.