CITATION: Lawson v. Viersen, 2012 ONCA 25

DATE: 20120116

DOCKET: C52688

COURT OF APPEAL FOR ONTARIO

Sharpe, Armstrong and Rouleau JJ.A.

BETWEEN

Martha Lawson

Plaintiff (Respondent)

and

Maria Viersen and John
          Viersen

Defendants (Appellants)

AND BETWEEN

Martha
          Lawson and James Lawson

Plaintiffs (Respondents)

and

Scott
          Robert Hart

Defendant (Respondent)

Jeffrey M. K. Garrett, for the appellants

Mason Greenaway, for the respondents, Martha Lawson and James
          Lawson

Gordon L. Robson, for the respondent, Scott Robert Hart

Heard: September 6, 2011

On appeal from the order of Justice
          C. Anne Tucker of the Superior Court of Justice, dated June 17, 2010, with
          reasons dated December 29, 2009 and April 27, 2010, with the April 27, 2010 reasons
          reported at 2010 ONSC 2465.

Rouleau J.A.:

[1]

This is an appeal of the costs ordered in the trial of the consolidated action
    of two claims involving successive motor vehicle accidents.  The appeal concerns
    the costs consequences of a plaintiffs failure to accept an offer to settle
    and of a co-defendants failure to accept an offer to contribute as well as a
    courts discretion in awarding and apportioning costs. More specifically, it involves
    the interpretation of s. 1 of the
Negligence Act
, R.S.O. 1990, c. N.1, the
    interplay between that section and rule 49.11 of the
Rules of Civil
    Procedure
, R.R.O. 1990, Reg. 194, and the interpretation and application of
    rules 49.12 and 49.13.

[2]

Rule 49.11 provides that where two or more defendants are alleged to be
    jointly and severally liable and rights of contribution or indemnity
may
exist between the defendants, they must make a joint offer to settle to attract
    the costs consequences of rule 49.10(2).  Rule 49.12 concerns offers to
    contribute in cases involving multiple defendants and rule 49.13 gives a trial
    judge residuary discretion to consider offers to settle that do not meet the specific
    requirements of rules 49.10 and 49.11.

FACTS

Background

[3]

The respondent, Martha Lawson, was involved in
    two motor vehicle accidents that occurred approximately seven months apart.  The
    first accident, on August 16, 1997, involved the appellants, Maria
Viersen
    and John Viersen (collectively, the Viersens).  The second, on March 21,
    1998, was with the respondent, Scott Robert Hart.

Pleadings

[4]

On March 13, 2000, Ms. Lawson and her eldest
    son, James Lawson, (collectively, the Lawsons) commenced an action against Mr.
    Hart for injuries suffered by Ms. Lawson in the second motor vehicle accident
    and for damages claimed by James Lawson pursuant to the
Family Law Act
,
    R.S.O. 1990, c. F.3.  On April 10, 2001, Ms. Lawson commenced an action against
    the Viersens for injuries she suffered in the first motor vehicle accident.
    Neither statement of claim made specific reference to the other motor vehicle
    accident.  Both claims, however, claimed damages in respect of injuries to the
    same areas of Ms. Lawsons body.

[5]

The position of Ms. Lawson, as well as her
    medical experts, was that both the first and second accidents contributed to
    the same damages and injuries she suffered.  For instance, it was alleged that
    both accidents contributed to, among others, a mild traumatic brain injury,
    cognitive deficits, a major depressive episode, general anxiety disorder, and chronic
    pain syndrome as well as to Ms. Lawsons income loss both before and after the trial.

[6]

Ms. Lawsons allegation that the first and
    second accidents contributed to overlapping injuries was also canvassed during
    the pre-trial conference before Riley J. on January 16, 2009.  The pre-trial
    conference resulted in a consent endorsement that both actions be tried
    together as a single consolidated action.

Offers to Settle

[7]

The following offers to settle were made:

(a)       Mr.
    Hart offered to settle by making a payment of $300,000 to the Lawsons, net of
    any advance payments and the statutory deductible under the
Insurance Act
,
    R.S.O. 1990, c. I.8, plus costs on a partial indemnity basis to be agreed upon
    or assessed (the Hart offer);

(b)       The
    Lawsons offered to settle the consolidated action for $1,250,000, plus costs to
    be agreed upon or assessed; and

(c)       The
    Viersens offered to settle or contribute by making a $100,000 payment to Ms.
    Lawson, plus costs as agreed upon or assessed (the Viersens offer or  the
    Viersens offer to contribute).

[8]

Each offer remained open for acceptance until the beginning of trial.  However,
    none of the offers was accepted.

Trial and Result

[9]

The trial commenced on March 23, 2009 and lasted
    approximately six weeks.  The jury found that the injuries suffered by Ms. Lawson
    in the two motor vehicle accidents were separate and distinct.  Therefore, the
    jury made separate damages assessments respecting each accident.

[10]

The jury found the Viersens 100 per cent
    responsible for the first motor vehicle accident and awarded $20,000 for
    general damages (resulting in an award of $5,000 net of the statutory
    deductible), plus prejudgment interest.  The jury did not award damages for
    past or future income loss.

[11]

The jury found that Mr. Hart was 75 per cent
    responsible for the second motor vehicle accident and awarded $100,000 in
    general damages (resulting in an award of $85,000 net of the statutory
    deductible), $321,000 in past income loss and $192,000 in future income loss.
    The jury also awarded James Lawson damages of $12,000 pursuant to the
Family
    Law Act
.  Each award carried prejudgment interest.

[12]

Following the jurys award, the court found
    that, after taking into account the statutory deductibles,
[1]
Ms. Lawsons
    contributory negligence with respect to the second motor vehicle accident and
    the prejudgment interest, the total net amount awarded against the Viersens was
    $7,926.71 and the total net amount awarded against Mr. Hart was $344,260.37,
    for a total net damage award of $352,187.08.
[2]

[13]

The Lawsons sought costs of $519,378.92.  The
    Viersens argued that they should not pay costs but rather were entitled to
    recover their costs on the basis of rule 49.10(2).  They argued that their
    offer of $100,000 far exceeded the judgment of $5,000 obtained by Ms. Lawson
    with respect to the first accident.  In the Viersens view, their offer could
    be considered as a standalone offer and did not have to encompass the claim
    being made in the action against Mr. Hart as contemplated by rule 49.11.  The
    Viersens submitted that the accidents were separate, there was no issue between
    them and Mr. Hart and they did not attempt to shift the responsibility on Mr.
    Hart in making their case.

[14]

The trial judge rejected the Viersens
    position.  She confirmed that both defendants made offers but that the offers
    had not been made jointly in accordance with rule 49.11.  Although the Viersens
    offer exceeded the jury verdict, the trial judge found that the Hart offer was
    less than the award made against Mr. Hart.  Because the defendants were alleged
    to be jointly and severally liable for Ms. Lawsons injuries, only a joint
    offer to settle constituted an offer that complied with rule 49.11.  As a
    result, the trial judge declined to apply the costs consequences of rule
    49.10(2) with respect to the Viersens offer and found that the Lawsons were
    entitled to their costs in the consolidated action.

[15]

The trial judge accepted Mr. Hart and the Viersens
    submission that there was duplication in the work due to the number of new
    lawyers involved on behalf of the Lawsons in the consolidated action.  Accordingly,
    the trial judge reduced the amount of fees claimed by approximately 10 per cent.
    She then awarded the Lawsons a total of $482,278.09 in fees and disbursements.

[16]

The Viersens submitted that the liability to pay
    the costs should be divided as between Mr. Hart and the Viersens on the same basis
    as the proportion of damages awarded against each of them.  In the Viersens
    view, since the Lawsons recovered $344,260.37 from Mr. Hart and Ms. Lawson only
    recovered $5,000 from the Viersens, virtually all of the costs should be paid
    by Mr. Hart.  The trial judge, however, rejected their submission.  She noted
    that it was a joint trial and that the time spent defending each action was
    similar.  She then exercised her discretion and apportioned costs of 35 per
    cent against the Viersens and 65 per cent against Mr. Hart.

[17]

The Viersens also sought to recover their costs
    from Mr. Hart pursuant to rule 49.12 on the basis that Mr. Hart ought to have
    accepted their offer to contribute $100,000 towards settlement of the
    consolidated action.  The trial judge rejected this submission finding that in
    the face of a $1 million joint claim it would not [have been] logical to
    accept the Viersens offer to contribute and, although the award against the
    Viersens was substantially lower than the offer, making an award of costs based
    on hindsight in the result was not appropriate in this case.

[18]

The Viersens appealed the costs order with leave
    of this court.

ISSUES

[19]

The issues raised on appeal are as follows:

(1)

Did the trial judge err in declining to apply
    the costs consequences of rule 49.10 against Ms. Lawson considering the
    Viersens offer to settle?

(2)

Pursuant to rule 49.13, should the Viersens and
    Hart offers have been taken into account in making the costs order?

(3)

Did the trial judge err in giving little or no
    weight to the Viersens offer to contribute made pursuant to rule 49.12?

(4)

Did the trial judge err in her apportionment of
    the costs awarded to the Lawsons?

PURPOSE OF RULE 49

[20]

The purpose of Rule 49 is to encourage parties to make reasonable
    offers to settle or to contribute by imposing costs consequences on those who
    do not reasonably assess the actual value of the case in advance of trial: see
    e.g.
Niagara Structural Steel (St. Catherines) Ltd. v. W.D. LaFlamme Ltd.
(1987), 58 O.R. (2d) 773 (C.A.);
Rooney (Litigation Guardian of) v. Graham
(2001), 53 O.R. (3d) 685 (C.A.).
This
    objective includes providing an incentive to plaintiffs and defendants to make
    settlement offers which represent some reasonable element of compromise: see
Walker
    Estate v. York-Finch General Hospital
(1999), 43 O.R. (3d) 461 (C.A.),
    affd without reference to this issue 2001 SCC 23, [2001] 1 S.C.R. 647 .

[21]

Costs consequences are result oriented.  Pursuant to rule 49.10,
    the terms of the offer are measured not against the claim advanced but rather
    against the judgment obtained in order to determine whether such offer is as
    favourable as, more favourable than or less favourable than the judgment.

[22]

For the purpose of comparing the offer with the judgment, the
    court considers not the judgment awarded by the jury, but the amount finally
    awarded by the trial judge plus prejudgment interest: see
Pilon v. Janveaux
(2006), 211 O.A.C. 19 (C.A).  This is the amount contained in the formal
    judgment that finally disposed of the action. However, statutory deductibles,
    mandated by s. 267.5(7) of the
Insurance Act
, are treated differently.
    In
Rider v. Dydyk
, 2007 ONCA 687, 87 O.R. (3d) 507, leave to appeal to
    S.C.C. refused, [2007] S.C.C.A. No. 594, this court noted that the deductions
    from a plaintiffs assessed damages in a motor vehicle negligence case are not
    to be taken into account in determining whether the defendant is presumptively
    entitled to costs.  As a result, pursuant to s. 267.5(9) of the
Insurance Act
,
    the court determines a partys entitlement to costs without regard to the
    effect of the statutory deductions under s. 267.5(7)(3) of the
Insurance Act
on the amount of damages awarded for non-pecuniary loss and considers this
    amount against all of the terms of the offer.
[3]

[23]

With these general principles and policy objectives in mind, I
    turn now to the specific issues raised by this appeal.

DISCUSSION

(1)

Did the trial judge err in declining to apply the costs consequences of
    rule 49.10 against Ms. Lawson considering the Viersens offer to settle?

[24]

The parties agree that the Viersens offer complied with the requirements
    of rule 49.10 in that the judgment obtained by Ms. Lawson with respect to the
    Viersens liability was less favourable than the terms of the offer.  The
    issue, however, is whether in the circumstances of this case, rule 49.11
    operates such that the presumptive costs consequences of rule 49.10 do not
    apply in favour of the Viersens.

Rule 49.11: Multiple Defendants

[25]

Rule 49.11 provides that, where multiple defendants are alleged to be
    jointly or jointly and severally liable to the plaintiff in respect of a claim
    and rights of contribution or indemnity
may
exist between the
    defendants, the costs consequences prescribed by rule 49.10 do not apply to an
    offer to settle (emphasis added) unless, pursuant to rule 49.11(b):

(i)
    the offer is an offer to settle the plaintiffs claim against all the
    defendants and to pay the costs of any defendant who does not join in making
    the offer, or

(ii) the offer
    is made by all the defendants and is an offer to settle the claim against all
    the defendants, and, by the terms of the offer, they are made jointly and
    severally liable to the plaintiff for the whole amount of the offer.

[26]

In the present case, Ms. Lawson argues that the claim she advanced
    included claims for damages she suffered as a result of the combined effect of
    both motor vehicle accidents.    Therefore, she argues that the damages are
    indivisible and could not be attributed to one tortfeasor or the other.  In
    other words, both accidents contributed to the injuries she suffered, such as
    her major depressive episode.  Because of her claim that it was impossible to
    determine which defendant caused the damages and that each defendant materially
    contributed to her injuries, Ms. Lawson was of the view that the defendants
    should be jointly and severally liable for the entirety of her damages.  The
    defendants would then have rights of contribution and indemnity between them.

[27]

The fact that the jury found against Ms. Lawson on the issue of joint
    and several liability was, in Ms. Lawsons submission, of no moment because, to
    comply with rule 49.11, she need only advance a claim that
may
result in
    rights of contribution or indemnity.

[28]

The Viersens argue that where, as in the circumstances of this case,
    there are two separate and distinct actions arising from two torts separated in
    time, there is no possibility of joint and several liability and consequently,
    no rights of contribution or indemnity exist.  In their view, rule 49.11 should
    have no application.

Determining Joint and Several
    Liability and Rights of Contribution and Indemnity

[29]

Section 1 of the
Negligence Act
provides for a right of
    contribution and indemnity between concurrent tortfeasors.  Specifically, s. 1
    provides that:

Where damages have
    been caused or contributed to by the fault or neglect of two or more persons,
    the court shall determine the degree in which each of such persons is at fault
    or negligent, and, where two or more persons are found at fault or negligent,
    they are jointly and severally liable to the person suffering loss or damage
    for such fault or negligence, but as between themselves, in the absence of any
    contract express or implied, each is liable to make contribution and indemnify
    each other in the degree in which they are respectively found to be at fault or
    negligent.

[30]

The question raised by this appeal is whether, in order to come within
    that section, the damages in issue need to be caused or contributed to by
    multiple tortfeasors acting together or at the same time.  In other words, does
    s. 1 apply to create joint and several liability if (1) two torts are unrelated
    and separated in time, as they are in the present case; and (2) the damage
    suffered by the plaintiff as a result of both torts is indivisible and
    therefore cannot be divided as between the two tortfeasors.

[31]

Tortfeasors whose torts are separate in time but concur in the sense
    that they run together to produce the same damage are described by Glanville L.
    Williams,
Joint Torts and Contributory Negligence
: A Study of Concurrent Fault in Great Britain,
    Ireland and the Common-Law Dominions
(London: Stevens and Sons,
    1951), at p. 1, as concurrent tortfeasors.  These concurrent tortfeasors are
    distinguished from nonconcurrent tortfeasors where separate acts produce
    different damage to the plaintiff.  This was explained in the Ontario Law
    Reform Commission,
Report on Contribution Among Wrongdoers and Contributory
    Negligence
(Toronto: Ontario Ministry of the Attorney General, 1988), at p.
    8-9, as follows:

First, each of
    two or more concurrent wrongdoers ... is liable in
solidum
for the whole
    of the loss suffered by [the plaintiff].  However, in the case of
    non-concurrent, several tortfeasors, whose acts have produced different damage,
    each tortfeasor is liable ... only for the damage he has caused. ...  Secondly,
    because concurrent tortfeasors are responsible for the same damage,
    satisfaction by one discharges them all.  Accordingly ... there may be rights
    of contribution between such wrongdoers. [Footnotes omitted.]

[32]

The issue of joint and several liability was dealt with by this court in
Alderson v. Callaghan
(1998), 40 O.R. (3d) 136 (C.A.).  In
Alderson
,
    the plaintiff sued her common law spouse as result of injuries she sustained in
    a motor vehicle accident while a passenger in an automobile driven by her
    common law spouse.  The defence took the position that the extensive brain
    damage she suffered was not due to that accident but rather to a series of
    post-accident assaults inflicted on her by her common law spouse, a further
    assault committed by a stranger and her pre-existing conditions.  Relying on
Athey
    v. Leonati
,

[1996] 3 S.C.R. 458, this court held that, where damages
    caused by consecutive tortfeasors are indivisible, in that it is impossible to
    determine which tortfeasor caused which damages, the material contribution test
    applies.  In those circumstances, any tortfeasor whose actions materially
    contributed to those damages is liable for all of the damages and, pursuant to
    s. 1 of the
Negligence Act
, each tortfeasor has a right of contribution
    and indemnity from the other tortfeasors who caused the damages.

[33]

Subsequent case law, such as
Blackwater v. Plint
, 2005 SCC 58,
    [2005] 3 S.C.R. 3 and
Resurfice Corp. v. Hanke
, 2007 SCC 7, [2007] 1
    S.C.R. 333, has made it clear that the material contribution test is the
    exception.  It applies only if causation cannot be determined using the but
    for test.  Further, even if untangling different sources of damage and loss may
    be difficult, it is nonetheless the obligation of the trial judge or the jury
    to do so.

[34]

In
Martin v. Listowel Memorial Hospital
(2000), 51 O.R. (3d) 384
    (C.A.), leave to appeal to S.C.C. refused,
[1993] 3 S.C.R. vii,
this court described the purpose of s. 1 of the
Negligence Act
at
    para. 34 as facilitating full recovery of the loss for the plaintiff, while at
    the same time providing a mechanism for each of those who contributed to the
    loss to share the financial responsibility in the proportions of their
    respective degrees of fault.  At para. 35, this court went on to state that,
    as between the defendants, they are each entitled to contribution and
    indemnity to the extent of any overpayment to the plaintiff of their own
    proportionate share.  Any defendant who successfully claimed over against a
    third party is also entitled to contribution from that third party to the
    extent of that partys fault.

[35]

In summary, the
Negligence Act
makes concurrent tortfeasors, that
    is persons whose conduct causes a single loss to another, jointly and severally
    liable.  It also provides for the right of concurrent tortfeasors to claim
    contribution and indemnity from another tortfeasor provided the tortfeasor from
    whom he or she seeks contribution is, or could be if sued, liable to the
    plaintiff.  The statute is not concerned with the acts of several tortfeasors
    whose actions produce different damage to the same person.  In those
    circumstances, several tortfeasors are liable only for the damage they
    respectively caused.

Did Subsequent Decisions of this Court Change the
    Law?

[36]

The Viersens argue that
ONeil v. Van Horne
(2002), 59 O.R. (3d)
    384 (C.A.) and
Misko v. John Doe
, 2007 ONCA 660,
87
    O.R. (3d) 517
have limited the application of s. 1 of the
Negligence
    Act
to cases where the tortfeasors are concurrent in time, that is, the
    torts occurred at the same time.

[37]

I disagree.  In
ONeil
, it was alleged that the defendant had
    sexually assaulted the plaintiff when she was three years old and he was 12.
    The defendant sought to add three third parties: the plaintiffs parents who
    allegedly abused her during childhood and a former boyfriend who had allegedly
    sexually assaulted her some 16 years after the events at issue in the action.
    This court dismissed the appeal from the decision of the motion judge refusing
    to add the third parties.  The court did so on the basis that, although the
    stream of damages caused by the defendant may have come into confluence with
    other streams flowing from other tortious or non-tortious acts each tortfeasor
    was nonetheless answerable for its individual conduct but not for the conduct
    of others (at para. 10).  At para. 14, the court also noted that although it
    may be difficult to separate out the consequences, if any, of the defendants
    conduct from all the influences upon the plaintiff over the intervening years
    ... that is her task as a plaintiff.  In other words, the court concluded that
    this was not a case where two or more tortfeasors had caused single indivisible
    damage.  Rather, each tortfeasor may have aggravated the injury suffered by the
    plaintiff.

[38]

It should also be noted that in
ONeil
, the plaintiff only sought
    damages for which the defendant was solely to blame.  There was no indication
    that the plaintiff was seeking damages from the defendant as a contributor to
    her injuries along with other tortious or non-tortious causes.  As this court
    noted, at para. 14, because the tortfeasors [were] each distinct, the
    plaintiff could not have attempted to seek contribution for any damages she
    suffered as a result of the proposed third parties wrongdoing.

[39]

In
Misko
, the plaintiff was involved in two motor vehicle
    accidents 11 months apart.  He settled with the defendant in the first accident
    and gave him a standard form of release that included the usual term that he
    would not make any claim or take any proceeding against a person who might
    claim contribution or indemnity from that defendant.  The driver responsible
    for the second accident was unidentified so the plaintiff sued his own insurer,
    Liberty Mutual, since his policy included unidentified motorist coverage.

[40]

When Liberty Mutual became aware of the earlier accident, it brought a
    motion for leave to issue a third party claim against the tortfeasor in the
    first accident.  The leave to issue the third party claim was initially granted
    by Heeney J. but later struck.  In striking the third party claim, Desotti J.,
    relying on
ONeil
and
Listowel
, held that tortfeasors who are not
    concurrent tortfeasors (that he defined as existing or happening at the same
    time), cannot third party one another:
Misko v. Doe
(2006), 82 O.R.
    (3d) 535 (S.C.), at para. 47.  The Viersens rely on this statement as
    demonstrating that concurrent tortfeasors encompass only tortfeasors who were
    acting at the same time.

[41]

The Viersens argue that because this court dismissed the appeal, it
    effectively adopted Desotti Js interpretation of concurrent tortfeasors.  I
    disagree.  Although this court quoted, at para. 9, Desotti J.s comment that
    if defendants are not concurrent tortfeasors (existing or happening at the
    same time) then they cannot third party one another, this was not part of the
    courts reasoning and the court did not rely on that statement in dismissing
    the appeal.

[42]

In
Sale v. OGradys Restaurant
, 2011 ONSC 2837, Strathy J., in a
    thoughtful analysis, carefully reviewed the
Misko
decision and was of
    the view that this court was simply quoting Desotti J. without confirming the
    correctness of his statement.  As Strathy J. explained, the basis of this
    courts conclusion that the third party claim should be struck was that Liberty
    Mutual could never be at risk of having to compensate the plaintiff for the
    damages sustained in the first accident.  This was because the plaintiff had
    limited his claim against Liberty Mutual to the portion of damages for which
    Liberty Mutual would ultimately be responsible.  As set out by this court at
    paras. 17-18:

Assuming that,
    as alleged by Liberty Mutual, there is a single indivisible injury, this simply
    means that, applying
Athey v. Leonati
, both tortfeasors are fully liable
    for the injury.  The court, however, must still apportion responsibility
    between the tortfeasors.  Liberty Mutual will be responsible in the pending
    trial only to the extent that the unidentified driver caused or contributed to
    the damages claimed. ... Applying s. 1 [of the
Negligence Act
] to the
    circumstances of this case, at the trial between Misko and Liberty Mutual, the
    court will determine both the amount of damages suffered by Misko and the
    degree of responsibility attributable to the second accident.  In view of the
    plaintiffs position that this is all he seeks from Liberty Mutual (and that he
    does not rely on the full compensation principle in
Athey
), judgment
    will go against Liberty Mutual only for the damages for which the second
    tortfeasor is responsible.  If the damages are indivisible as is alleged by
    Liberty Mutual, this task may not be an easy one, but the court will have to
    make the determination.  [Footnotes omitted.]

[43]

In
Misko
, the court was presented with a very specific
    situation.  The plaintiff had conceded that he was not relying on the full
    compensation principle in
Athey
and did not seek compensation for the
    damages he sustained in the first accident since he had already reached a
    settlement in that regard.  As such, any judgment against Liberty Mutual, if
    liable to the plaintiff, would go against it only for the degree of its
    responsibility for the plaintiffs injuries.  In order to make it absolutely
    clear that the plaintiff was only claiming damages for the injuries for which
    the driver in the second accident was responsible, this court stated that the
    statement of claim should be amended in that regard.

[44]

In my view,
ONeil
and
Misko
did not narrow the concept of
    concurrent tortfeasors and, in the present case, the trial judge was correct to
    conclude that, because the defendants in the consolidated action were alleged
    to be jointly and severally liable to Ms. Lawson for indivisible injuries,
    rights of contribution or indemnity
may
exist between them.  As a
    result, the Viersens offer did not engage the costs consequences of rule 49.10
    as the offer did not comply with rule 49.11 respecting a joint offer from
    multiple defendants.  The
ONeil
and
Misko
decisions did,
    however, indicate that a plaintiff can accept an offer to settle from a
    concurrent tortfeasor and, by limiting the claim against the other concurrent
    tortfeasor in the manner set out in
Misko
, proceed against that other
    tortfeasor without giving rise to a possible third party claim.  As I will
    explain further in these reasons, this option was available to Ms. Lawson.

(2)

Pursuant to rule 49.13, should the Viersens and Hart offers have been
    taken into account in making the costs order?

[45]

This case presented the trial judge with a very particular and somewhat
    unusual set of circumstances.  Although neither the Viersens nor the Hart offer
    complied with rule 49.11, the total amount they offered in settlement exceeded
    the Lawsons recovery at trial.
[4]
It was, therefore, important for the trial judge to consider the impact of rule
    49.13.

[46]

Rule 49.13 provides that [d]espite rules 49.03, 49.10 and 49.11, the
    court, in exercising its discretion with respect to costs, may take into
    account any offer to settle made in writing, the date the offer was made and
    the terms of the offer.  This rule allows a judge to consider offers even
    though the offers do not comply with rules 49.10 or 49.11.  Rule 49.13 is not
    concerned with technical compliance with the requirements of rules 49.10 or
    49.11.  It calls on the judge to take a more holistic approach.

[47]

The trial judge made no specific reference to this rule in her brief
    reasons on costs.  Instead, the trial judge simply concluded that because the
    offers of Mr. Hart and the Viersens did not comply with rule 49.11, they should
    not recover costs and the Lawsons should recover their costs against both the Viersens
    and Mr. Hart.  The only adjustment made was a 10 per cent reduction in the fees
    being claimed in order to adjust for duplication in the work carried out by the
    Lawsons lawyers.  The trial judge concluded that, because the offers made by
    the defendants did not comply with rule 49.11, she [could not] consider them
    together, nor [could she] find that they [could] successfully stand on their
    own.  Although the Viersens offer exceeded the award made against them, the
    trial judge considered that:

[T]he [p]laintiff
    was being put in a position to make an impossible if not negligent choice of
    accepting one offer.  Only a joint offer would have allowed the [p]laintiff to
    be reasonably in a position to accept such offer without compromising [her]
    ability to recover against either of the other defendants.  Although the jury
    did not find a global assessment to be correct, [it] could have done so.  If
    Ms. Lawson had settled with the Viersens and the jury found that the Viersens
    were the parties that were mainly responsible for the injuries, her ability to
    recover would have been compromised.

[48]

In my view, the trial judge erred in the way she approached the issue of
    costs as between the Viersens and the Lawsons.  Although she correctly
    concluded that the failure to comply with rule 49.11 meant that she could not
    consider the Viersens offer alone or together with the Hart offer for purposes
    of rule 49.10(2), she was not prevented from considering the offers when
    exercising her discretion pursuant to rule 49.13.

[49]

In the circumstances of this case, it is significant that the combined
    Viersens and Hart offers exceeded the Lawsons recovery.  The reason that the
    combined total exceeded the Lawsons recovery was because of the Viersens
    offer.  When the Viersens offer is viewed in context rather than in isolation,
    it is therefore apparent that the offer was a genuine and generous offer to
    settle and, particularly when taken together with the Hart offer, complied with
    the spirit of rule 49.10.  In these circumstances, the Viersens offer is the type
    of offer that, as contemplated by rule 49.13, ought to be given considerable
    weight in arriving at a costs award.

[50]

Further, the trial judge appears to have discounted the fact the Viersens
    offer far exceeded the amount of the award made against them.  Although the
    allegation of joint and several liability meant that pursuant to rule 49.11 the
    presumption of costs consequences in rule 49.10 did not apply, it would not, as
    the trial judge found, have been impossible or negligent for Ms. Lawson to
    have accepted the Viersens offer.  The claim of joint and several liability
    that made the Viersens offer non-compliant with rule 49.11 was not made out at
    trial.  In light of the jurys award, the Viersens offer can, therefore, only
    be seen as having been very reasonable.  Contrary to the view expressed by the
    trial judge, it would have been no more impossible or negligent for Ms. Lawson
    to have accepted the Viersens offer, than for any plaintiff to accept an offer
    to settle for an amount substantially less than the amount claimed.  Given the
    outcome at trial, an accurate assessment of Ms. Lawsons claim was that there
    was no joint and several liability.  As a result, accepting the Viersens offer
    would not have prejudiced the claim against Mr. Hart and, therefore, would have
    been the correct decision.

[51]

Additionally, as the cases of
ONeil
and
Misko
show, even if
    there is a possibility of joint and several liability, a plaintiff can settle
    with one defendant and continue his or her action against a co-defendant
    provided that the plaintiff agrees to limit his or her recovery from the
    co-defendant to the damages caused by that defendant.

[52]

In my view, the trial judge erred in failing to consider or in giving
    inadequate weight to the fact that the combined offers exceeded the Lawsons
    recovery at trial, the fact that the Viersens offer substantially exceeded the damages
    awarded against them and the fact that, given the outcome of the trial, Ms. Lawson
    could have accepted the Viersens offer without compromising her right to
    recover against Mr. Hart.  These were significant factors that weighed heavily
    in favour of limiting the award of costs against the Viersens to the costs
    incurred before the date of their offer and militated in favour of allowing the
    Viersens to recover some of their costs.  As a result, the award of costs
    against the Viersens cannot stand.

[53]

The Viersens should only be responsible for the Lawsons costs up to the
    date the Viersens offer was served.  Using the allocation made by the trial
    judge, I would order costs against the Viersens equal to 35 per cent of the
    Lawsons costs incurred to the date of the Viersens offer less a reduction of
    10 per cent in the amount claimed for fees to account for duplication in the
    work.  I would also allow the Viersens to recover their partial indemnity costs
    from the date of their offer.  For the reasons that follow, however, I would
    make these payable by Mr. Hart.

(3)

Did the trial judge err in giving little or no weight to the Viersens
    offer to contribute made pursuant to rule 49.12?

[54]

The Viersens offer to settle for $100,000 was also an offer to
    contribute to Mr. Hart pursuant to rule 49.12(1).  Rule 49.12(2) provides that [t]he
    court may take an offer to contribute into account in determining whether
    another defendant should be ordered, (a) to pay the costs of the defendant who
    made the offer; or (b) to indemnify the defendant who made the offer for any
    costs that defendant is liable to pay to the plaintiff or to do both.  Pursuant
    to rule 49.12(3), rule 49.13 also applies to an offer to contribute made in
    accordance with rule 49.12(1) as if it were an offer to settle.

[55]

According to rule 49.12(2), costs consequences pertaining to an offer to
    contribute are discretionary, not presumptive as is the case with rule 49.10.
    More specifically, rule 49.12(2) provides that the court
may
consider an
    offer to contribute in making an award of costs.

[56]

Although the Viersens acknowledge that rule 49.12(2) is permissive, they
    argue that the trial judges reasons for declining to give effect to the offer
    would leave that rule devoid of any meaning and would also go against the
    policy objectives of that rule.  Similar to rule 49.10, the purpose of rule 49.12
    is to encourage parties to make reasonable offers to contribute to
    co-defendants by providing that, if the results after trial show that the offer
    should have been accepted, it will weigh in favour of awarding the party having
    tendered the offer a more favourable costs order than otherwise would have been
    the case.  As a general rule, the reasonableness of an offer to contribute is
    measured against the judgment.

[57]

The trial judge rejected the Viersens submission that Mr. Hart should
    have accepted the offer to contribute stating that: in the face of a $1
    million joint claim it would not be logical to accept [the] Viersens offer
    to contribute.  In light of the decision of the jury, [the Viersens] argument
    has some validity but to make the costs rest upon hindsight in the result in
    this case is not appropriate I find.

[58]

In my view, the trial judge erred by refusing to consider the
    reasonableness of the Viersens offer to contribute in light of the result
    obtained.  Nothing in the record or her reasons explain why the offer should be
    viewed as anything but a good faith effort by the Viersens to extricate
    themselves from what would be a lengthy trial by offering to contribute
    significantly more than the award of damages ultimately awarded against them at
    trial.  The trial judges analysis failed to properly consider both the purpose
    and mechanism of offers to contribute under rule 49.12 as encouraging
    reasonable offers to contribute by exposing a co-defendant to possible costs
    consequences.

[59]

In my view, the Viersens offer to contribute should have weighed heavily
    in favour of ordering that Mr. Hart pay the Viersens costs as contemplated by
    rule 49.12(2)(a).  As a result, I would order Mr. Hart to pay the Viersens their
    partial indemnity costs incurred from the date of their offer to contribute.

(4)

Did the trial judge err in her apportionment of the costs awarded
    to the Lawsons?

[60]

The Viersens argue that the trial judge erred in not apportioning the
    Lawsons costs on a pro-rata basis in accordance with the proportionate amount
    of damages awarded against the Viersens and Mr. Hart and in failing to take
    into account the relative success of the Lawsons.

[61]

The force of these submissions is substantially reduced in light of the
    changes I would make to the award of costs.  In any event, the apportionment of
    costs is a discretionary order and I see no basis to interfere with the trial
    judges order in that respect.

CONCLUSION

[62]

In conclusion, I would allow the appeal and vary the costs order to
    provide that the Viersens are to pay 35 per cent of the Lawsons costs incurred,
    but only up to the date of the Viersens offer, less a 10 per cent adjustment to
    the fees component to account for duplication in the work.  I would also order
    that Mr. Hart pay the Viersens partial indemnity costs incurred from the date
    of the Viersens offer to contribute in the agreed upon amount of $149,071.  I
    would also award the Viersens their costs of the appeal fixed at $33,000
    inclusive of disbursements and applicable taxes.  Mr. Hart is to pay $16,500 of
    the costs and the Lawsons are to pay the balance of $16,500.

Paul Rouleau J.A.

I agree Robert J.
    Sharpe J.A.

I agree R.P. Armstrong
    J.A.

RELEASED:

[1]
The applicable statutory deductibles under s. 267.5(7)(3) of the
Insurance
    Act
are as follows: (1) $15,000 in the case of damages for non-pecuniary
    loss other than damages for non-pecuniary loss under s. 61(2)(e) of the
Family
    Law Act
and (2) $7,500 in the case of damages for non-pecuniary loss under s.
    61(2)(e) of the
Family Law Act
.  Pursuant to s. 267.5(7)(4) of the
Insurance
    Act
, the award for damages is reduced by the statutory deductibles before
    the damages are apportioned for contributory negligence.  Therefore, in this
    case, the total amount of statutory deductibles under s. 267.5(7)(3) of the
Insurance
    Act
is $37,500. Other deductions considered in the determination of the net
    damage award relate to the calculation of net income loss.

[2]
Counsel for the respondents Lawsons provided a detailed calculation of the
    damage award and arrived at a slightly lower figure.  Nothing turns on this
    difference.  Counsel confirmed that, after reconciliation of the total damages
    awarded by the jury and the statutory deductibles under s. 267.5(7)(3) the
Insurance
    Act
, the deductions related to income loss, the deduction for contributory
    negligence, the deduction for Mr. Harts advance payment of $10,000, and the
    addition of pre-judgment interest, the net damage award against the Viersens
    was $7,167.50 and the net damage award against Mr. Hart was $344,268.37, for a
    total net damage award of $351,435.87.

[3]
The effect of the statutory deductible in the case of the damage award against
    the Viersens is $15,000. In the case of the damage award against Mr. Hart, the
    effect of the statutory deductibles is 75 per cent of the total amount of the
    statutory deductibles of $15,000 and $7,500, considering that Mr. Harts
    negligence was assessed by the jury at 75 per cent and Ms. Lawsons
    contributory negligence was assessed at 25 per cent.  For this reason, the
    effect of the statutory deductibles on the damage award against Mr. Hart is
    $16,875.  Therefore, the combined effect of the statutory deductibles on the
    total damage award is $31,875.

[4]
According to the trial judge, the total net damage award with prejudgment
    interest was $352,187.08 (as noted earlier, the reconciliation provided by
    counsel for the respondents Lawsons uses the slightly lower figure of
    $351,435.87 for the total net damage award, however, this is of no consequence
    for the calculations that follow).  While the offers were made net of the
    statutory deductible, even if the total amount of $31,875 with regard to the
    effect of the statutory deductibles under s. 267.5(7)(3) of the
Insurance
    Act
(see note 3, above) is added back to the net damage award of
    $352,187.08 in accordance with this courts decision in
Rider
, the
    combined Viersens and Hart offers of $400,000 still exceeded the total net
    damage award plus the effect of the statutory deductibles, which amounts equal
    $384,062.08.  Finally, counsel for the respondents Lawsons advised that Mr.
    Hart made a $10,000 advance payment.  It is unclear as to whether this payment
    was made before or after the Viersens and Hart offers, however, even if the
    $10,000 advance payment is added to the above amount, the combined Viersens and
    Hart offers nonetheless exceeded this amount.


CITATION:
Lebatchi v. Center for Addiction and Mental
          Health, 2012 ONCA 2

DATE: 20120104

DOCKET: C54145

COURT OF APPEAL FOR ONTARIO

Laskin, MacPherson and Lang JJ.A.

BETWEEN

Ramin Lebatchi

Plaintiff/Appellant

and

Center for Addiction and Mental Health

Defendant/Respondent

Ramin Lebatchi, in person

E. Krajewska, for the defendant/respondent

Heard:
January 3, 2012

On appeal from the judgment of Justice Kevin W.V. Whitaker of
          the Superior Court of Justice dated May 24, 2011.

APPEAL BOOK ENDORSEMENT

[1]

The appellants claim
against the Center for Addiction and Mental
    Health (CAMH) was based on his allegedly improper detention, treatment and
    medication while he was involuntarily detained at the hospital.  CAMH moved to
    dismiss the appellants action and in support delivered an expert report providing
    an opinion that CAMH met and exceeded the standard in its care of the
    appellant.  In the absence of any evidence challenging this opinion, the motion
    judge was entitled to conclude that there was no issue concerning the
    appropriateness of the appellants treatment that required a trial.  We see no
    error in this conclusion.  The appeal is dismissed.  No costs.


CITATION:
Lisec America,
          Inc. v. Barber Suffolk Ltd., 2012 ONCA 37

DATE: 20120120

DOCKET: C53360

COURT OF APPEAL FOR ONTARIO

Blair and LaForme JJ.A. and Benotto J. (
ad hoc
)

BETWEEN:

Lisec America, Inc.

Applicant (Appellant)

and

Barber Suffolk Ltd. and
Roynat Capital Inc.

Respondents (
Respondent in Appeal
)

Brett Harrison and Jeffrey Levine, for the appellant

Craig J. Hill, for the respondent Roynat Capital Inc.

No one appearing for the respondent Barber Suffolk Limited

Heard: October 14, 2011

On appeal from the order of Justice Frank Marrocco of the
          Superior Court of Justice, dated February 9, 2011.

R.A. Blair J.A.:

OVERVIEW

[1]

The issue on this appeal is whether Lisec America Inc. or Roynat Capital
    Inc. holds a prior perfected and first ranking security interest in a large $1.4
    million piece of equipment known as a waterjet glass cutting machine (the
    Waterjet).

[2]

Both parties argue that a proper and commercially reasonable
    interpretation of the governing legislation  the
Personal Property Security
    Act
, R.S.O. 1990, c. P.10 (the PPSA)  supports their position.  In a
    nutshell, here is how the dispute arose.

[3]

Lisec sold the Waterjet to Barber Suffolk Ltd. and, in accordance with
    the agreement, later delivered it to the Collingwood facility of a related
    company, Barber Glass Industries Inc.  Prior to delivery, Lisec perfected its
    security interest in the machine by registering a financing statement against
    Barber Suffolk.  At the same time, Lisec had also sold two other pieces of
    equipment to Barber Glass  a Cutting Line and a Vertical IG Line.  They were
    delivered to Barber Glass in Collingwood at the same time, and Lisec registered
    a financing statement against Barber Glass in order to perfect its security
    interest in that equipment as well.

[4]

What Lisec did not know was that Barber Suffolk had sold its interest in
    the Waterjet to Barber Glass on the day of the original sale.

[5]

Barber Glass was in need of additional financing at the time when the
    equipment was delivered.  It arranged that financing through Roynat Capital.
    Aware of Lisecs PPSA registration against Barber Glass, Roynat requested Lisec
    either to confirm the details of its security interest or, if paid in full, to
    register a discharge of it.  Lisec discharged the registration, still unaware
    of the transfer from Barber Suffolk to Barber Glass.  It did so on the
    understanding that it would receive payment for the Cutting Line and the
    Vertical IG Line out of the proceeds of the new financing.  Roynat then
    advanced close to $9.5 million to Barber Glass and registered a PPSA financing
    statement against Barber Glass to perfect its own security interest in the
    Waterjet.

[6]

Barber Glass was subsequently placed into receivership.  Lisec and
    Roynat each claim to be entitled to a prior security interest in the Waterjet
    on the basis of the priority of perfection by registration regime set out in
    the PPSA.  Lisec says that its properly perfected interest in the Waterjet
    through the Barber Suffolk registration remained perfected, in spite of the
    unknown transfer of the machine to Barber Glass, because of the saving
    provisions of ss. 39 and 48(2) of the Act.  Roynat appears to agree that would
    be the case but for the intervention of the registration of Lisecs discharge of
    its security interest against Barber Glass.  Roynat submits, however, that the
    discharge caused Lisecs security interest in the Waterjet to become
    unperfected and therefore to be superceded by the Roynat registration on the
    basis of the priority of registration regime set out in s. 30(1), rule 1.

[7]

Lisec applied to the Superior Court of Justice to settle the issue.
    Marrocco J. ruled in favour of Roynat.  Lisec appeals from that order.  For the
    reasons that follow, I would allow the appeal.

THE FACTS DEVELOPED

[8]

The Barber Glass group of companies is in the business of supplying
    glass products to the transportation industry, heavy equipment manufacturers,
    the architectural market and the furniture market  and has done so for over
    100 years.  Barber Glass and Barber Suffolk are related companies in that
    group, although Barber Suffolk is not in a similar business.  Barber Glass
    operates three facilities, one in Collingwood (for processing oversized glass
    orders) and two in Guelph (a manufacturing facility and a retail facility).

[9]

On July 16, 2007, Lisec sold the Waterjet to Barber Suffolk.  The
    equipment purchase agreement provided for a Purchase Money Security Interest (a
    PMSI) in favour of Lisec.  At the same time, Lisec also sold additional
    equipment to Barber Glass  the Cutting Line and the Vertical IG Line  destined
    for the Barber Glass facility in Collingwood.

[10]

Unbeknownst to Lisec, Barber Suffolk in turn sold the Waterjet to Barber
    Glass on July 16, 2007.

[11]

A year later, all three pieces of equipment were delivered and, in
    accordance with the equipment purchase agreement, Lisec delivered the Waterjet
    to Barber Glass Collingwood facility as well.  On June 19, 2008  before
    delivering the equipment  Lisec registered a financing statement against
    Barber Suffolk to perfect its PMSI in the Waterjet.  It also registered a
    financing statement against Barber Glass to perfect its PMSI in the two pieces
    of equipment sold to Barber Glass.  Neither registration, on its face,
    indicated any particular collateral description.

[12]

Lisec did not know when the equipment was delivered that Barber Suffolk
    had earlier transferred its interest in the Waterjet to Barber Glass.

[13]

Barber Glass was looking for additional financing at about the same
    time.  It approached Lisec asking Lisec to release its security interest in the
    Barber
Glass
equipment so that Barber Glass could obtain additional
    financing.  The new financing was to result in Lisec invoices respecting the
    Cutting Line and the Vertical IG Line being paid.

[14]

Enter Roynat Capital, which was to provide the refinancing.  Having
    learned of the June 19, 2008 Lisec registration against Barber Glass, Roynats
    solicitors contacted Lisec by a letter dated June 23, 2008 asking for
    confirmation of the details of its security interest and requesting that, if
    in fact the registration has been paid in full, Lisec discharge its
    registration.  Lisec did not respond to the letter, but on July 9, 2008, it
    registered a financing change statement discharging its registration against
    Barber Glass.

[15]

On the basis of that discharge, Roynat proceeded to advance $9.5 million
    to Barber Glass pursuant to a Debenture dated July 7, 2008.  The Debenture
    specifically granted Roynat a security interest in the Waterjet.  Roynat in
    turn perfected that security interest by registering a financing statement
    sometime thereafter.  Some of Barber Glass indebtedness to Lisec was repaid
    out of the funds advanced.

[16]

Barber Glass financial difficulties began to mount, however, and on
    November 10, 2010 it was placed in receivership.  Lisec shortly learned for the
    first time that Barber Suffolk had earlier sold the Waterjet to Barber Glass
    and that the Waterjet was considered in the receivership as an asset of Barber
    Glass.  On November 17, 2010, Lisec claimed a PMSI in the Waterjet and on
    November 29, 2010, it registered a financing statement showing Barber Glass as the
    new debtor in respect of its security interest in that machine.

[17]

As part of the Barber Glass receivership proceedings the receiver is
    seeking to sell Barber Glass assets.  Lisec objected to the inclusion of the Waterjet
    in the asset sale, and applied to the Superior Court of Justice for a
    determination of its right and entitlement in the machine.  As noted above, the
    application judge dismissed its application.

THE REASONS OF THE APPLICATION JUDGE

[18]

The application judge accepted Lisecs argument that its PMSI over the
    Waterjet had not become unperfected as a result of the transfer of the machine
    from Barber Suffolk to Barber Glass.  Lisec did not know about the transfer
    until the receivership occurred and properly registered a financing change
    statement within 30 days of learning about it, and its perfected security was
    therefore preserved by the operation of s. 48(2) of the PPSA.

[19]

That was not the end of the matter for the application judge, however.
    He reasoned that because Lisec had registered a financing statement against
    Barber Glass, because the wording of that financing statement was sufficiently
    broad to capture the Waterjet as well as the two other pieces of equipment sold
    to Barber Glass, and because Lisec had discharged the Barber Glass registration
    without qualification, the effect of that discharge was to unperfect Lisecs
    PMSI in the Waterjet.  Lisecs subsequent attempt to continue to perfect that
    interest by its November 29, 2010 registration was to no avail because Roynat
    had perfected
its
security interest in the machine after the discharge
    and before the subsequent Lisec registration.

ANALYSIS

[20]

For purposes of the analysis, a brief resumé of the chronological
    timeline may be helpful:

July
    16, 2007:                       Lisec sells the Waterjet to Barber Suffolk and
    two other pieces of equipment to Barber Glass

July
    16, 2007:                       Barber Suffolk transfers its interest in the Waterjet
    to Barber Glass

June
    19, 2008:                      Lisec perfects its security interests by registering
    PPSA financing statements against both Barber Suffolk and Barber Glass
    (thinking it is doing so against Barber Suffolk in relation to the Waterjet and
    against Barber Glass in relation to the other two pieces of equipment)

June
    28, 2008:                      All three pieces of equipment are delivered to
    the Barber Glass facility in Collingwood

July
    9, 2008:                         Lisec discharges its registration against
    Barber Glass, at Barber Glass and Roynats request

After
    July 9, 2008:               Roynat registers a PPSA financing statement against
    Barber Glass, perfecting its security interest against the Waterjet, and
    thereafter advances its financing

November
    10, 2010:            Barber Glass is placed in receivership

November
    17, 2010:            Lisec claims a PMSI in the Waterjet

November
    29, 2010:            Lisec registers a financing change statement after
    learning that the Waterjet had been sold by Barber Suffolk to Barber Glass

Did the Unknown Transfer Affect Lisecs
    Registration Against Barber Suffolk?

[21]

The application judge correctly determined that the unknown transfer
    from Barber Suffolk to Barber Glass did not unperfect Lisecs PMSI in the
    Waterjet because Lisec properly registered a financing change statement against
    Barber Glass within 30 days of learning of the transfer.  This conclusion
    follows from the operation of subsection 48(2) of the PPSA, which states:

Where a security interest is perfected by
    registration and the debtor, without the prior consent of the secured party,
    transfers the debtors interest in all or part of the collateral, the security
    interest in the collateral transferred becomes unperfected thirty days after
    the later of,

(a) the
    transfer, if the secured party had prior knowledge of the transfer and if the
    secured party had, at the time of the transfer, the information required to
    register a financing change statement; and

(b) the
    day the secured party learns the information required to register a financing
    change statement,

unless the secured party registers a financing
    change statement or takes possession of the collateral within such thirty days.

[22]

The purpose of this provision is to protect creditors who have taken all
    proper steps to perfect their security under the PPSA from losing their
    priority because of an unknown transfer of the protected asset to another
    debtor.  Since the PPSA regime protects priority by means of registration
    against the name of the debtor, the Act provides a secured party in such
    circumstances with a grace period after becoming aware of the transfer to preserve
    its priority by registering a financing change statement against the new debtor
    as well.  Accordingly, since Lisec registered its financing change statement
    within 30 days of learning the information required to do so, the effect of s.
    48(2) is that Lisecs security interest in the Waterjet  as protected by the Barber
    Suffolk registration  remained perfected and entitled to priority over any
    registrations made against Barber Glass, and covering the same collateral,
    during the period between the transfer and the registration of Lisecs
    subsequent financing change statement.

[23]

Were that the only issue, therefore, Lisec would clearly have priority
    over Roynat in the dispute over security in the Waterjet.  But that is not the
    only issue.  Lisecs discharge of its registration against Barber Glass  a
    registration that was never intended to apply to the Waterjet  muddies the
    waters.

[24]

I turn to that issue now.

Discharge of the Barber Glass Registration

[25]

The application judge concluded that the effect of Lisecs discharge of
    its registration against Barber Glass on July 9, 2008, was to unperfect its
    PMSI in the Waterjet.  Since Roynat had perfected a security interest in the
    assets of Barber Glass  including the Waterjet  before Lisec registered its
    subsequent financing change statement, it followed that the Roynat registration
    took priority.

[26]

The rationale for this conclusion was that Lisecs registration against
    Barber Glass, even though not intended to protect its interest in the Waterjet,
    was nonetheless broad enough to do so.  It covered all of Barber Glass goods,
    inventory, equipment and accounts.  The application judge reasoned that
    creditors should understand that the registration of a discharge of a
    generally-worded financing statement unperfects all security interests in the
    collateral described in the financing statement, and that any security
    interest they hold in the assets of the debtor in question will become
    subordinated.

[27]

The difficulty with this reasoning is that creditors in the position of
    Lisec have no reason to believe that the contested collateral in a situation
    like this  the Waterjet, here  is amongst the assets over which the creditor
    has agreed to release its interest.  That said, the other interest at play
    the second creditor in the position of Roynat  advanced its funds and
    perfected its security interest in the second debtors collateral without
    knowing that the first creditor claimed a security interest in the collateral;
    indeed, in this case, Roynat had every reason to believe that Lisec did not,
    since Lisec has expressly discharged its registration against the collateral at
    Roynats request before it advanced its funds.

[28]

Herein lies the dilemma.  Whatever the result, an innocent provider of
    credit will suffer a loss.  The application judge was dealing with a case of
    first impression.  I have been able to find no other case where the effect of
    an intervening discharge by the first creditor against the assets of the second
    debtor in circumstances such as this has arisen.

[29]

Respectfully, however, I disagree with the conclusion of the application
    judge.  I say this for two reasons.

Lisecs
    Security Interest in the Waterjet Did Not Attach Through Barber Glass

[30]

First, I am not persuaded  as the application judge and the parties
    appear to have accepted  that the Lisec registration against Barber Glass operated
    to perfect a Lisec security interest in the Waterjet enforceable against Barber
    Glass.  Lisec did not have a security interest in the Waterjet that could have
    been perfected in that fashion because Barber Glass never granted it one.

[31]

Registrations under the PPSA do not operate in the air.  They operate to
    protect a security interest in collateral that has attached.
[1]
Section 11 of the PPSA provides that a security interest is not enforceable
    against a third party unless it has attached.  Section 19 requires that, to be
    perfected, a security interest must (a) have attached, and (b) been perfected
    in accordance with the Act.  A security interest cannot attach, however, unless
    (amongst other things) the debtor has signed a security agreement containing a
    description of the collateral in which the security interest has been given: see
    s. 11(2).

[32]

Here, Barber Suffolk and Barber Glass did not grant Lisec a general
    security agreement or other instrument that would have provided security over
    all of their assets.  They executed equipment purchase agreements granting
    security interests in specific pieces of equipment  in the case of Barber
    Suffolk, the Waterjet; in the case of Barber Glass, the Cutting Line and the
    Vertical IG Line.  At no time did Barber Glass sign a security agreement
    granting Lisec a security interest in the Waterjet.  As Professor Ziegel and
    David Denomme note, [w]here collateral is transferred by a debtor to another
    person the new debtor has not created a security interest in [the first secured
    creditors] favour; he merely holds an interest in collateral subject to the
    prior security interest: Jacob S. Ziegel & David L. Denomme,
The
    Ontario Personal Property Security Act Commentary and Analysis
, 2d ed.
    (Toronto:  Butterworths, 2000) at pp. 253-54.

[33]

As Mr. Quast observed in his December 20, 2010 affidavit filed on behalf
    of Lisec, [the Barber Glass registration] was entirely unrelated to Lisecs
    PMSI in the Barber Suffolk Equipment, i.e., the Waterjet.  Accordingly, although
    Lisecs security interest in the Waterjet both attached and was perfected by
    registration against Barber Suffolk, Lisec never had a security interest in the
    Waterjet that attached through Barber Glass and therefore that could be
    perfected through a registration against Barber Glass.

[34]

On this analysis, Lisecs registration against Barber Glass could not
    have perfected a security interest in the Waterjet.  Given the wording of the
    security agreements in question, the fact that Barber Glass ultimately became
    the owner of the machine does not alter this result.  It follows, then, that if
    Lisecs registration against Barber Glass did not cover the Waterjet, neither
    it nor its discharge could have had an impact on the operation of ss. 39 and
    48(2) in preserving the priority of Lisecs security interest in the Waterjet.
    The state of affairs is not different than if there had been no Barber Glass
    registration in the first place.

The Lisec
    Registration and Discharge Against Barber Glass Are Irrelevant In Any Event

[35]

There is a second reason why Lisecs priority must prevail.

[36]

The application judges conclusion that the intervening Barber Glass
    discharge operated to unperfect Lisecs security interest in the Waterject for
    purposes of Roynats priority is premised on the view that Lisecs Barber
    Suffolk registration somehow became subsumed in its Barber Glass registration
    and therefore that Lisecs discharge of the Barber
Glass
registration
    operated to discharge the Barber
Suffolk
registration.  In my view, that
    is not the case.

[37]

Lisecs Barber Suffolk registration is a stand-alone registration.  It
    is not dependent upon nor was it replaced by the Barber Glass registration
    assuming for the purposes of this discussion that the latter also sheltered
    Lisecs security interest in the Waterjet, upon the transfer from Barber
    Suffolk to Barber Glass.

[38]

There is nothing in the PPSA that precludes a secured creditor from having
    a perfected security interest in collateral in more than one way or through
    registration against more than one entity.  In short, even if the Barber Glass
    registration did encompass Lisecs security interest in the Waterjet (which,
    for the reasons articulated above, I do not think it did), the discharge of the
    Barber
Glass
registration did not take with it the discharge of the
    Barber
Suffolk
registration; nor does the preservation of the Barber
Suffolk
priority through the operation of ss. 39 and 48(2) constitute an effective
    revival of the Barber
Glass
registration.

[39]

The Barber Suffolk registration remained in place and remained perfected
    at all material times as a result of the operation of s. 48(2) of the PPSA.  The
    Lisec/Barber Glass registration and discharge are red herrings in the analysis,
    in my view, and the Lisec/Barber Suffolk registration therefore takes priority
    over the Roynat registration.  In this way the priority provisions of rule 1 of
    s. 30(1) of the PPSA continue to be respected: priority of registration does
    prevail.  It is simply Lisecs priority of registration that prevails, not
    Roynats.  By operation of s. 48(2), the Barber Suffolk registration is deemed
    to be a prior registration against the Barber Glass equipment.

[40]

On this interpretation, there is no need to engage in the debate about
    whether the common law doctrine of
nemo dat quod non habet
continues to
    play a parallel role in the determination of priority disputes involving
    security interests, or whether it has been ousted by the terms of the PPSA, as
    counsel have invited us to do.  Suffice it to say, as the Supreme Court of
    Canada has recently noted, in
Bank of Montreal v. Innovation Credit Union
,
    2010 SCC 47, [2010] 3 S.C.R. 3, at para 41, the PPSA resolves priority
    disputes through a detailed set of priority rules rather than on the basis of
    title or the form of a transaction.

[41]

To the extent that
nemo dat
principles would otherwise have been
    applicable in these circumstances, it seems to me that they have been
    incorporated into  and are given effect through  the upshot of ss. 9, 39 and
    48(2) of the Act, taken together: (i) a security agreement is effective
    according to its terms against third parties (s. 9); (ii) the rights of a
    debtor in collateral may be transferred, but no transfer prejudices the rights
    of the secured party under the security agreement or otherwise (s. 39); and (iii)
    a registered priority does not become unperfected by an unknown transfer to a
    third party if the secured party registers a financing change statement within
    30 days of learning of the information required to do so (s. 48(2)).  Nothing
    further is required for these purposes.

[42]

Nor does anything in this approach conflict with the well-accepted
    purpose of the PPSA which, as Gonthier J. noted in
Royal Bank v. Sparrow
    Electric Corp
., [1997] 1 S.C.R. 411, at p. 436, is to increase certainty
    and predictability in secured transactions through the creation of a coherent
    system of priorities.

[43]

It is true that lenders in the position of Roynat are vulnerable in
    situations such as this case presents.  But the legislature has given a clear
    indication through the operation of s. 48(2) of the PPSA that lenders in the
    position of Lisec are to prevail.  There is no lack of certainty or
    predictability when the provisions of the Act as a whole are properly applied.

[44]

I note, in concluding, that on this interpretation, Roynat is in no
    worse position than it would have been in had there never been an intervening
    Lisec/Barber Glass registration.  Having conducted a search that would have
    revealed no prior registration, Roynat would have made its advance.  Section
    48(2) would have operated to preserve Lisecs priority through the Barber
    Suffolk registration, however, once Lisec registered its financing change
    statement within the allotted 30-day period after acquiring knowledge of the
    transfer of interest, as it did.

DISPOSITION

[45]

For the foregoing reasons, I would allow the appeal, set aside the order
    below, and declare that Lisecs security interest in the Waterjet ranks first
    in priority to Roynats security interest in the Waterjet.

[46]

Lisec is entitled to its costs of the appeal, fixed in the amount of
    $15,000 all inclusive, as agreed between counsel.

R.A. Blair J.A.

I agree H.S. LaForme
    J.A.

I agree M.L. Benotto
    J. (
ad hoc
)

RELEASED:  January 20, 2012

[1]
The notion of attachment recognizes that a security interest is proprietary in
    nature and must therefore fasten to specific collateral:  see Ronald C.C.
    Cuming, Catherine Walsh & Roderick J. Wood,
Personal Property Security Law
(Toronto:  Irwin Law, 2005), at p. 164; Roy Goode,
Legal Problems of
    Credit and Security,
3d ed. (London:  Sweet & Maxwell Ltd., 2003) at p.
    59; Richard H. McLaren,
The 2012 Annotated Ontario Personal Property Act
(Toronto:
    Thomson Canada Ltd., 2011) at pp. 143-44.