COURT OF APPEAL FOR ONTARIO

CITATION: Rooney v. ArcelorMittal S.A., 2016 ONCA 630

DATE: 20160817

DOCKET: C60949

Simmons, Gillese and Hourigan JJ.A.

BETWEEN

Peter Rooney and Archie Leach

Plaintiffs (Appellants)

and

A
rcelorMittal

S.A.,

Lakshmi

N.

Mittal,

Aditya

Mittal,

1843208

Ontario
    Inc.,

Philippus

F.

Du

Toit,

Nunavut

Iron

Ore

Acquisition

Inc.,

Iron

Ore Holdings,

LP,

NGP

Midstream

&

Resources,

L.P.,

NGP

M&R

Offshore
    Holdings,

L.P.,

Jowdat Waheed,

Bruce

Walter,

John

T.

Raymond,

John Calvert,

Baffinland

Iron

Mines

Corporation,

Richard

D.

McCloskey, John

L
ydall

and

Da
n
i
ella

Dimitrov

Defendants (Respondents)

Proceeding

under

the

Class Proceedings Act
,

1992

Michael G. Robb, Douglas M. Worndl and Emilie Maxwell,
    for the appellants Peter Rooney and Archie Leach

Steve Tenai and Saeed Teebi, for the respondents ArcelorMittal
    S.A., Lakshmi N. Mittal, Aditya Mittal, 1843208 Ontario Inc., Philippus F. Du
    Toit, and Baffinland Iron Mines Corporation

Andrea Burke and Michael Finley, for the respondents
    Nunavut Iron Ore Acquisition Inc., Iron Ore Holdings, LP, NGP Midstream &
    Resources, L.P., NGP M&R Offshore Holdings L.P., Jowdat Waheed, Bruce
    Walter, John T. Raymond and John Calvert

Alan L. W. DSilva, for the respondents Richard D.
    McCloskey, John Lydall, and Danielle Dimitrov

Heard:  May 4, 2016

On appeal from the order of Justice Helen A. Rady of the
    Superior Court of Justice, dated July 20, 2015.

Hourigan J.A.:

Overview

[1]

This appeal is about the interpretation of s.
    131(1) of the
Securities Act
, R.S.O. 1990, c. S.5. That subsection
    provides that, in the context of a misrepresentation in a take-over bid
    circular, the security holders of the offeree issuer may sue on account of that
    misrepresentation. Two issues arise. The first is whether the security holder
    must choose between suing the offeror and suing the offerors directors and
    other individuals who signed or approved the take-over bid circular.  The second
    is whether security holders who sold their shares in the secondary market can
    rely on s. 131(1) to assert a claim based on a misrepresentation in a take-over
    bid circular. Both issues are questions of first impression before this court.

[2]

With respect to the first issue, the motion
    judge found that a plaintiff who wants to bring an action under s. 131(1) must
    make an election as to whom it will sue. As I will explain below, in my view,
    the motion judge focused too narrowly on the plain meaning of s. 131(1). The
    modern principle of statutory interpretation requires the court to look not only
    to the plain meaning of a particular provision but to the surrounding context
    in which the words of that provision are found. Here, once you pan the
    analytical lens out to view s. 131(1) as part of a larger scheme of civil
    liability for misrepresentation in securities markets, the motion judges
    interpretation cannot be sustained.

[3]

With respect to the second issue, the motion
    judge found that security holders who transacted in the secondary market cannot
    rely on s. 131(1) to assert a claim. In my view, the motion judge was correct
    in her analysis on this point. The argument that secondary market participants
    have a cause of action under s. 131(1) ignores the legislative scheme and
    history of the
Securities Act
.

[4]

In these reasons, I consider first the
    background facts to put the legal analysis in context. In the analysis section,
    I first review the modern principle of statutory interpretation. I then
    consider the two issues identified above in light of that principle.

Background

[5]

The appellants were security holders of the
    respondent, Baffinland Iron Mines Corporation (Baffinland).  On September 22,
    2010, Baffinland was the target of a hostile take-over bid by a group headed by
    the respondent, Jowdat Waheed. Mr. Waheed had previously been hired by
    Baffinland to provide strategic advice to its board.  The respondent,
    ArcelorMittal S.A., first made a friendly bid for Baffinland on its own behalf
    and then ultimately submitted a joint take-over bid with Mr. Waheeds group.
    That joint take-over bid expired in February 2011.

[6]

As required by the
Securities Act
, the
    joint take-over bid included a take-over bid circular, which was sent to all of
    Baffinlands security holders and filed with the Ontario Securities Commission
    (the OSC). Pursuant to their obligations under the Act, the directors and
    officers of Baffinland considered the bid and prepared a directors circular.
    This document was also provided to all of Baffinlands security holders and was
    filed with the OSC.

[7]

The appellants commenced a class action alleging
    that the circulars failed to disclose material information and that the
    information that was disclosed in the circulars was materially misleading and
    replete with misrepresentations about the business and affairs of Baffinland.
    They sued the persons and companies who signed and filed the circulars,
    alleging that, as a consequence of the defendants conduct, they received less
    for their Baffinland securities than they otherwise would have.

[8]

The appellants rely on s. 131(1) of the
Securities
Act
, which provides as follows:

131. (1)

Where a take-over bid circular sent to
    the security holders of an offeree issuer as required by the regulations
    related to Part XX, or any notice of change or variation in respect of the
    circular, contains a misrepresentation,
a security holder
    may
, without regard to whether the security holder relied on the
    misrepresentation,
elect to exercise a right of action
    for rescission or damages against the offeror or a right of action for damages
    against
,

(a) every person who at the time the circular or notice, as
    the case may be, was signed was a director of the offeror;

(b) every person or company whose consent in respect of the
    circular or notice, as the case may be, has been filed pursuant to a
    requirement of the regulations but only with respect to reports, opinions or
    statements that have been made by the person or company; and

(c) each person who signed a certificate in the circular or
    notice, as the case may be, other than the persons included in clause
    (a). [Emphasis added.]

[9]

The respondents brought various motions to
    strike the appellants statement of claim. Those motions were largely
    unsuccessful. However, there are two rulings on the motions to strike that the
    appellants appeal to this court. First, the ruling that the appellants are
    required under s. 131(1) to elect whether to sue the offerors under the joint
    bid or their respective directors and signatories. Second, the ruling that security
    holders who transacted in the secondary market may not assert a claim pursuant
    to s. 131(1) of the Act.

Analysis

(1)      Modern Principle of Statutory Interpretation

[10]

The starting point in a review of the modern
    principle of statutory interpretation is

Rizzo & Rizzo Shoes Ltd
.
    (Re),
[1998] 1 S.C.R. 27. That case provides both general guidance on the
    proper approach to statutory interpretation and specific guidance on how to
    apply that approach where the plain meaning of a provision appears to conflict
    with its underlying statutory purpose.

[11]

Rizzo Shoes
is
    the best known authority for how to approach the task of statutory
    interpretation and has been cited more than 3,000 times by courts at all levels.
    Iacobucci J., writing for the court, endorsed Driedgers modern principle of
    statutory interpretation, at para. 21, quoting the following passage from Elmer
    Driedger,
Construction of Statutes
, 2nd ed. (Toronto: Butterworths,
    1983), at p. 87:

Today there is only one principle or approach, namely, the
    words of an Act are to be read in their entire context and in their grammatical
    and ordinary sense harmoniously with the scheme of the Act, the object of the
    Act, and the intention of Parliament.

With these words, the Supreme Court
    fully embraced Elmer Driedgers modern principle of statutory interpretation.
    But to fully appreciate the significance of this statement, we have to ask:
    modern compared to what?

[12]

Ruth Sullivan explains that, in the nineteenth
    and for much of the twentieth centuries, statutory interpretation was dominated
    by the plain meaning rule. That rule held that where the words of a statute
    were clear and unambiguous, the courts applied them as they were written  even
    if legislative intention or practical considerations pointed in another
    direction. At times, courts relied instead on the so-called golden rule, which
    allowed courts to depart from the plain meaning of a statute but only when that
    meaning lead to absurd results.: Ruth Sullivan,
Sullivan on the
    Construction of Statutes
, 6th ed. (Markham: LexisNexis Canada Inc., 2014),
    at §2.13-2.17.

[13]

The modern principle takes a more holistic view.
    As Iacobucci J. explained in
Rizzo Shoes
, at para. 21, the modern
    principle recognizes that statutory interpretation cannot be founded on the
    wording of the legislation alone. Sullivan expands on this idea, at §2.18:
    Today, as the modern principle indicates, legislative intent, textual meaning
    and legal norms are all legitimate concerns of interpreters and each has a role
    to play in
every
interpretive effort (emphasis
    added).

[14]

That is the general guidance that
Rizzo
    Shoes
provides in all cases involving statutory interpretation. Equally
    important for present purposes is the guidance the case provides in
    circumstances where the plain meaning of a provision appears to conflict with
    its underlying statutory purpose. The issue in
Rizzo Shoes
was whether
    employees who lost their jobs when their employer went bankrupt were entitled
    to termination and severance pay under the
Employment Standards Act
,
1981
, S.O. 1981, c. 22 (the
ESA
). That statute provided
    that such benefits were payable when a claimants employment was terminated by
    an employer: see ss. 40 and 40
a
. The question was whether bankruptcy
    acted as a termination for purposes of the Act.

[15]

The judge at first instance held that it did. He
    reasoned that the object and intent of the
Employment Standards Act
was to provide minimum employment standards and to benefit and protect
    employees interests. As remedial legislation, the Act should be given a fair,
    large, and liberal interpretation to advance its goals.

[16]

The Court of Appeal for Ontario disagreed. It
    focused on the plain meaning of the impugned provisions and concluded that the
    rights to termination and severance pay were limited to situations where the
    employer actively terminates the employee  not when the termination results by
    operation of law, as in a bankruptcy.

[17]

Iacobucci J. identified the fundamental tension
    as follows, at para. 20:

At the heart of this conflict is an issue of statutory
    interpretation. Consistent with the findings of the Court of Appeal, the plain
    meaning of the words of the provisions here in question appears to restrict the
    obligation to pay termination and severance pay to those employers who have
    actively terminated the employment of their employees. At first blush,
    bankruptcy does not fit comfortably into this interpretation.

[18]

It was in this context that Iacobucci J. repudiated
    the view that statutory interpretation could be founded on the wording of the
    legislation alone.  Instead, the words of the statute had to be read in their
    entire context, having regard not just to their ordinary and grammatical
    meaning but also to the scheme and object of the Act and to the legislatures intention.

[19]

Iacobucci J. examined
    the Court of Appeals reasoning in light of this standard and found it
    incomplete. He explained his conclusion, at para. 23:

Although the Court of Appeal looked to the plain meaning of the
    specific provisions in question in the present case, with respect, I believe
    that the court did not pay sufficient attention to the scheme of the ESA, its
    object or the intention of the legislature; nor was the context of the words in
    issue appropriately recognized.

[20]

Applying the modern principle to the case before
    him, Iacobucci J. concluded that the impugned provisions of the
Employment
    Standards Act
should be interpreted to include the employees whose jobs
    were terminated as a result of their employers bankruptcy. He held the
    following with respect to the Court of Appeals restrictive interpretation of
    the word termination:

·

It
    was incompatible with the object of the Act, which was to protect employees;

·

It
    was incompatible with the object of the termination and severance pay
    provisions themselves, which was to provide employees with a cushion against
    the adverse economic effects of termination without notice; and

·

It
    would lead to absurd results because it would distinguish between employees
    entitlement to benefits based on whether they were dismissed the day before or
    the day after their employers bankruptcy became final.

[21]

In considering the arguments advanced on this
    appeal, this court must take the modern approach described by Iacobucci J. It
    is not permissible or helpful to look at the words of s. 131(1) in isolation and
    without regard to the scheme and object of the Act and to the legislatures
    intention.

(2)      Election of Potential Defendants

(a)      Nature of the Issue

[22]

The parties agree that s. 131(1) requires a
    security holder to choose between suing the offeror for rescission and suing
    the offeror for damages, since the Act treats these as mutually exclusive
    causes of action. The controversy lies in determining whether the provision
    also requires a security holder to choose between suing the offeror and suing
    the offerors directors and the other individuals listed in clauses (a) to (c).

[23]

The appellants were able to point to one
    previous case where the Superior Court certified a class action under s. 131(1)
    against both offerors and their directors and signatories, but the question
    whether the security holders in that case should instead have been put to an
    election does not appear to have been raised: see
Allen v. Aspen Group
    Resources Corp
. (2009), 81 C.P.C. (6th) 298 (Ont. S.C.).

[24]

That said, in
Allen
, Strathy J. (as he
    then was) described s. 131(1) in
obiter
as giving an offerees
    security holders a right of action against an offeror
and
its directors and signatories, at para. 8:

The teeth of the take-over bid provisions are found in s. 131,
    which give the shareholders of the target company a civil remedy in damages, as
    well as a claim against the offeror for rescission, in the event of
    misrepresentation or non-disclosure in the take-over bid circular.
The remedy can be exercised not only against the offeror
    corporation, but also against the directors or officers of the offeror who
    signed the circular, experts whose reports appeared (with their consent) in the
    circular, and those  such as auditors  who signed a certificate in the
    circular.
[Emphasis added.]

[25]

While Strathy J.s comments are not
    determinative of the issue, they lend weight to the appellants preferred
    interpretation of s. 131(1).

[26]

The motion judge acknowledged, at para. 132, that
    s. 131(1) is not as clearly expressed as it could be. She also found it
    unlikely, at para. 131, that the very experienced counsel and judge in
Allen

would have overlooked the election issue.

[27]

Despite these reservations, the motion judge
    accepted the respondents interpretation. She gave four reasons, at para. 132:

·

The
    plain and grammatical meaning of the operative words in the section appear
    to require an election as between a right of action against the offeror and a
    right of action against its directors.

·

The
    combined use of the word elect and the word or in s. 131(1) seems to
    demonstrate that the right of action against an offeror and against the
    persons listed in cls. (a) to (c) are mutually exclusive.

·

The
    statutory context of s. 131(1) supports the conclusion that the legislature
    intended to create mutually exclusive rights of action against an offeror on the
    one hand and the offerors directors on the other.

·

The
    legislative history of s. 131(1) suggests that the legislature deliberately
    avoided creating concurrent statutory rights of action against an offeror and
    the persons listed in cls. (a) to (c).

(b)      Positions of the Parties

[28]

The appellants submit that the
Securities
    Act

is remedial legislation aimed at protecting investors and must
    be interpreted consistent with that purpose. They argue that the only election
    required under s. 131(1) is for a security holder to decide whether to sue the
    offeror for rescission or for damages; a security holder electing to sue the
    offeror for damages may also sue the offerors directors and signatories for
    damages.

[29]

The appellants note that, in its first
    iteration, s. 131(1) (then s. 127) clearly contemplated concurrent causes of
    action against the offeror and the offerors directors and signatories. At the
    time of first reading, the section provided a right of action for rescission
    or damages against the offeror,
and
a right of
    action for damages (emphasis added) against the individual directors and
    signatories: Bill 7,
An Act to revise the Securities Act
, 2nd Sess.,
    31st Leg., Ontario, 1978, cl. 127(1). The draft bill went to committee and
    returned for a second reading with what the appellants say was a clarification
    that the security holder had to elect between rescission and damages, by virtue
    of the and preceding the words a right of action for damages being replaced
    by an or. Ultimately, the bill passed with that altered language:

First reading

Second
          reading/final version

127(1) Where a take-over bid circular sent to the offerees
          of an offeree company as required by Part XIX contains a misrepresentation,
          every such offeree
has a right of action for rescission or damages
          against the offeror, and a right of action for damages against [the offerors
          directors and signatories to the take-over bid circular]
. [Emphasis
          added.]

127(1) Where a take-over bid circular sent to the offerees
          of an offeree company as required by Part XIX contains a misrepresentation,
          every such offeree
may elect to exercise a right of action for
          rescission or damages against the offeror or a right of action for damages against
          [the offerors directors and signatories to the take-over bid circular]
. [Emphasis
          added.]

[30]

The appellants submit that this change was
    intended to clarify that a plaintiff has a cause of action for rescission or
    for damages but not for both. The originally-drafted wording suggested that a
    plaintiff could sue the offeror for rescission and the offerors directors and
    signatories for damages, an outcome precluded by the use of the words may
    elect and or in the final version.

[31]

The appellants agree with the motion judges
    observation that s. 131(1) is not as clearly expressed as it could be. But
    they argue that this ambiguity favours a large and liberal interpretation that
    would advance the purposes of the
Securities Act
. Those purposes, set
    out in s. 1.1 of the Act, are as follows:

(a)      to provide protection to investors from unfair,
    improper or fraudulent practices; and

(b)      to foster fair and efficient capital markets and
    confidence in capital markets.

[32]

Instead, the appellants submit, the motion judge
    focused on the plain meaning of s. 131(1) without an appreciation of its
    surrounding context. The result is an unduly narrow interpretation that frustrates
    rather than furthers the legislatures purposes.

[33]

The respondents submit that the motion judge
    interpreted s. 131(1) correctly. In support of their argument that s. 131(1)
    requires a security holder to choose whom to sue, the respondents compared the
    wording of the Ontario legislation with other provincial securities statutes
    that clearly permit or preclude concurrent causes of action against both the
    offeror and its directors and signatories. For example, s. 132(1) of British Columbias
Securities Act
, R.S.B.C. 1996, c. 418, provides that if a take-over
    bid circular contains a misrepresentation, a person who received the circular
    has a right of action for:

(a) rescission against the offeror,
or

(b) damages against

(i) each person who signed the
    certificate in the circular or notice,

(ii) every director of the offeror at
    the time the circular or notice was signed,

(iii) every person whose consent has
    been filed as prescribed,
and

(iv)
the offeror
.
    [Emphasis added.]

[34]

In other words, security holders have to elect
    between an action for rescission or for damages but, if they opt to sue for
    damages, they may sue both the offeror and the offerors directors and
    signatories.

[35]

Subsection 205(1) of Albertas
Securities
    Act
, R.S.A. 2000, c. S-4, uses the same wording as the Ontario legislation
    but is formatted in a way that  according to the respondents  underscores
    that the security holder has to elect whom to sue. That subsection provides
    that, if a take-over bid circular contains a misrepresentation, a security
    holder may elect to exercise a right of action:

(a) for rescission or damages against the offeror,
or

(b) for
damages
against

(i) every person who, at the time the circular or notice was
    signed, was a director of the offeror,

(ii) every person or company whose consent has been filed,
    but only with respect to reports, opinions or statements that have been made by
    them, and

(iii) each person who signed a certificate in the circular
    or notice. [Emphasis added.]

[36]

Like the appellant, the respondents also rely on
    the changes made to the wording of the subsection between the first and second
    reading of the bill. They argue that the change shows that the legislature made
    a conscious decision to require plaintiffs to elect to sue either the offeror
    or the offerors directors and signatories.

[37]

The main point that the respondents make is that,
    if the legislature intended to permit a plaintiff to sue both the offeror and
    its directors and signatories for damages, it could have easily done so by using
    clear language. However, when pressed in oral argument, they could not offer an
    explanation for how their interpretation advances the purposes of the
Securities
    Act

or the scheme for statutory liability for misrepresentation in
    take-over bid circulars.

(c)      Application of the Modern Principle

[38]

A proper interpretive approach to s. 131(1) requires
    the court to consider this provision in its entire context, with regard to its
    ordinary and grammatical meaning, and in harmony with the scheme of the Act,
    the object of the Act, and the intention of the legislature.

[39]

The first part of the analysis is a
    consideration of s. 131(1) in its entire context. Subsection 131(1) is found in
    Part XXIII of the
Securities Act
, titled Civil Liability. Part XXIII
    creates civil liability for misrepresentation in a prospectus (s. 130), an
    offering memorandum (s. 130.1), and a take-over bid circular (s. 131). A
    contextual approach means that the language of each of these provisions informs
    the interpretation of the others. The distinguishing feature of ss. 130 and
    130.1 for purposes of this appeal is that those sections explicitly create
    mutually exclusive causes of action: a plaintiff can sue for rescission or for
    damages, but not both.

[40]

Subsection 130(1) provides as follows:

130. (1)
Where a prospectus, together
    with any amendment to the prospectus, contains a misrepresentation, a purchaser
    who purchases a security offered by the prospectus during the period of
    distribution or during distribution to the public has, without regard to
    whether the purchaser relied on the misrepresentation, a right of action for
    damages against,

(a) the issuer or a selling security holder on whose behalf
    the distribution is made;

(b) each underwriter of the securities who is required to
    sign the certificate required by section 59;

(c) every director of the issuer at the time the prospectus
    or the amendment to the prospectus was filed;

(d) every person or company whose consent to disclosure of
    information in the prospectus has been filed pursuant to a requirement of the
    regulations but only with respect to reports, opinions or statements that have
    been made by them; and

(e) every person or company who signed the prospectus or the
    amendment to the prospectus other than the persons or companies included in
    clauses (a) to (d),

or, where the purchaser purchased the
    security from a person or company referred to in clause (a) or (b) or from
    another underwriter of the securities, the purchaser may elect to exercise a
    right of rescission against such person, company or underwriter, in which case
    the purchaser shall have no right of action for damages against such person,
    company or underwriter
. [Emphasis added.]

[41]

Similarly, s. 130.1 provides as follows:

130.1 (1)
Where an offering memorandum
    contains a misrepresentation, a purchaser who purchases a security offered by
    the offering memorandum during the period of distribution has, without regard
    to whether the purchaser relied on the misrepresentation, the following rights:

1. The purchaser has a right of action for damages against
    the issuer and a selling security holder on whose behalf the distribution is
    made.

2.
If the purchaser purchased the
    security from a person or company referred to in paragraph 1, the purchaser may
    elect to exercise a right of rescission against the person or company.  If
    the purchaser exercises this right, the purchaser ceases to have a right of
    action for damages against the person or company
. [Emphasis added.]

[42]

Then comes s. 131(1), which provides that a
    security holder may elect to exercise a right of action for rescission or
    damages against the offeror or a right of action for damages against the
    individuals listed in clauses (a) to (c).

[43]

When s. 131(1) is read in this context, it is my
    view that the legislature intended to underscore that, just as in ss. 130 and
    130.1, a plaintiff can pursue a right of action for rescission or a right of
    action for damages against the offeror, but not both.

[44]

Analyzing the sections adjacent to s. 131(1)
    reveals another clue about its proper interpretation: the Act allows a
    plaintiff to sue
both
the issuer
and
the issuers directors and underwriters (under s.
    130) and both the issuer
and
the selling security
    holder (under s. 130.1) for damages. Why would s. 131(1) require a plaintiff
    suing for misrepresentation in a take-over bid circular to choose his or her
    adversary when a plaintiff suing for misrepresentation in a prospectus or an
    offering memorandum is not required to make such a choice?

[45]

The next part of the analysis is a consideration
    of the words of s. 131(1) in their ordinary and grammatical meaning. As
    explained above, the motion judge principally based her interpretation of s.
    131(1) on the plain meaning of the word or, which she interpreted as an
    exclusive or  i.e. one that indicates mutually exclusive options. I
    disagree.

[46]

As Ruth Sullivan explains, in ordinary usage,
    or can be either inclusive (A or B or both) or exclusive (A or B, but not
    both), and it is up to the reader to decide which one the writer intended:
    Sullivan, at §4.97. In other words, the default plain meaning of or is not exclusive.

[47]

In
Garners Modern American Usage
, 3d
    ed. (New York: Oxford University Press, 2009), Bryan Garner goes further,
    arguing that the default plain meaning of or is actually inclusive. In
    lamenting the popularity of what he regards as the unnecessary legal phrase
    and/or, Garner explains, at pp. 45-46: If you are offered a coffee or tea,
    you may pick either (or in this case, neither), or you may for whatever reason
    order both. This is the ordinary sense of the word, understood by everyone and
    universally accommodated by the simple
or
.
 Garner advises that,
    if a writer intends to use the exclusive or, he or she should make this
    intention explicit.

[48]

In my view, the first or in s. 131(1) (elect
    to exercise a right of action for rescission or damages against the offeror)
    should be read exclusively, since rescission and damages are treated as
    alternative causes of action in Part XXIII of the Act. The second or (or a right
    of action for damages against) should be read inclusively  a plaintiff electing
    to sue for damages can sue the offeror, the offerors directors and
    signatories, or both.

[49]

In her reasons, the motion judge held as follows,
    at para. 134: it seems very unlikely that the word or be [read] both
    exclusively and inclusively within the span of a few words. I disagree. As I
    have just explained, the plain meaning of or can be either inclusive or
    exclusive. Or is not a term of art that must be given a consistent
    interpretation throughout a legislative text.

[50]

Next, s. 131(1) must be read harmoniously with
    the scheme of the Act, the object of the Act, and the intention of the
    legislature. As noted above, the legislative purposes of the
Securities Act
are outlined in s. 1.1: to protect investors from unfair, improper or
    fraudulent practices and to foster fair and efficient capital markets and
    confidence in those markets.

[51]

There is nothing in the public record that
    explains why the wording of the subsection was changed between first and second
    reading. As noted above, both the appellants and the respondents argue that the
    change favours their interpretation. I am not able to discern the legislatures
    intention from this change and thus it is of limited assistance in conducting
    this part of the statutory interpretation analysis.

[52]

The appellants point to the following features
    of the statutory scheme for misrepresentation in a take-over bid circular,
    which they say demonstrate that the motion judges interpretation is incorrect:

·

OSC
    Form 62-504F1, which prescribes the contents of a take-over bid circular,
    states that offerors must disclose any material facts concerning the
    securities of the offeree issuer and any other matter known to the offeror
    that would reasonably be expected to affect the decision of the security
    holders of the offeree issuer to accept or reject the offer.

·

A
    take-over bid circular must be accompanied by a certificate stating: The
    foregoing contains no untrue statement of a material fact and does not omit to
    state a material fact that is required to be stated or that is necessary to
    make a statement not misleading in the light of the circumstances in which it
    was made.

·

Section
    99 of the Act, repealed in 2015, provided that a take-over bid circular shall
    contain a certificate of the offeror and must be signed, if the offeror is a
    person or company other than an individual, by each of the following: the CEO,
    the CFO, and two directors.

[53]

I agree. If the motion judges interpretation is
    correct, this scheme falls apart. What point is there in requiring the
    offerors directors and officers to sign a certificate affirming the integrity
    of the take-over bid circular if s. 131(1) forces a plaintiff into an election
    that could let those people off the hook? And what statutory purpose is served
    by forcing an innocent investor to choose which allegedly bad actor to sue?  Why
    should a wrongdoer get a free pass?

[54]

To interpret s. 131(1) as requiring this kind of
    election puts the security holder in an untenable position: if the security
    holder elects to sue the offeror, there is a risk that the offeror might go
    bankrupt before the security holder can recover. If the security holder elects
    to sue the offerors directors and signatories, there is a risk that the individual
    defendants might make themselves judgment-proof. Neither scenario advances the
    cause of investor protection.

[55]

In applying the modern principle of statutory
    interpretation to s. 131(1), I conclude that the motion judge erred in holding
    that the subsection requires a plaintiff to choose between suing the offeror
    and suing the offerors directors and signatories. A plaintiff electing to sue
    for damages rather than rescission may sue both the offeror and the offerors
    directors and signatories.

(3)      Secondary Market

(a)      Nature of the Issue

[56]

The appellants submit that security holders who
    sold their securities in the secondary market during the currency of, and in
    connection with, the take-over bid, rather than tendering their securities to
    the take-over bid, can also assert a claim pursuant to s. 131(1).

[57]

The motion judge did not accept that argument,
    holding that non-tendering sellers could not advance a s. 131(1) right of
    action for the following reasons:

·

Subsection
    131(1) allows for a right of rescission and shareholders who sold in the
    secondary market could not exercise that right. Thus, by necessary implication,
    the language of the subsection excludes secondary market transactions.

·

Part
    XXIII.1 of the
Securities
    Act
extends a remedy to secondary market sellers.

·

The
    aim of s. 131(1) is to assist sellers in making an informed choice about
    whether to tender an offer to a bid, not to make an informed decision about the
    sale of shares on the secondary market.

(b)      Positions of the Parties

[58]

The appellants note that s. 131(1) refers to
    security holders and is not qualified by any other condition. They argue that,
    had the legislature intended to restrict the s. 131 right of action, it would
    have been a straightforward task to add appropriate limiting language. In their
    view, there is no basis for treating class members who tendered in the
    take-over bid and those whose shares were compulsorily acquired differently
    from those who sold in the secondary market.

[59]

The appellants further submit that the Act
    requires that accurate and complete information related to a take-over bid be provided
    to security holders. This disclosure requirement is consistent with the
    issuers on-going disclosure obligations and is not directed solely to security
    holders who are determining whether to tender to a bid. It is the appellants
    position that all sellers who are the victims of misrepresentations in
    circulars should have the right to sue because any distortion of the sale price
    caused by the misrepresentations affects all sellers.

[60]

The respondents submit that the order striking
    out the s. 131 secondary market claims is consistent with the liability scheme
    under the
Securities Act
, the content of the forms required by s. 131,
    and the availability of rescission as a remedy.

[61]

The respondents position is that Part XXIII.1
    is designed to provide a remedy to security holders who trade in the secondary
    market, whereas s. 131 is restricted to target security holders who tender and
    sell their shares pursuant to a take-over bid. In their submission, the
    appellants attempted reliance on s. 131 in the context of trades in the
    secondary market is nothing more than an attempt to bypass the leave
    requirements, liability caps, and other elements of Part XXIII.1 included by
    the legislature as part of the balance struck in creating statutory secondary
    market liability for misrepresentations.

(c)      Application of the Modern Principle

[62]

Again, a proper interpretive approach to the
    issue requires the court to consider the words of s. 131(1) in their entire
    context, with regard to their ordinary and grammatical meaning, and in harmony
    with the scheme of the Act, the object of the Act, and the intention of the legislature.

[63]

The term security holder must be read in the
    context of the surrounding words in the subsection. As the motion judge noted,
    it is significant that rescission is an available remedy under the subsection.
    Obviously, rescission is not available to a security holder who sold in the
    secondary market and is only available to a security holder who transacted
    directly with the offeror by tendering to the take-over bid.

[64]

The appellants submit that the availability of a
    rescission option under s. 131(1) is not determinative. They point out
    that, while rescission is not an available remedy for secondary market
    participants, that does not by necessary implication preclude the other
    available remedy of damages.  The appellants also observe that there is no
    right of rescission in s. 131(2), which provides for a right of action with
    respect to misrepresentation in a directors circular.

[65]

I would reject these arguments.  I agree with
    Perell J.s reasoning in
Tucci v. Smart Technologies Inc
.
, 2013
    ONSC 802, 114 O.R. (3d) 294, at para. 42, that it would be an anomalous result if
    s. 131(1) provided different remedies depending on whether a security holder
    tendered into the bid or sold into the secondary market. The availability of
    rescission as a remedy is an indication that the legislature designed the
    subsection for the benefit of security holders who could use all of the
    available remedies.

[66]

Furthermore, the absence of the remedy of
    rescission in s. 131(2) simply reflects the fact that, unlike offerors,
    directors of a take-over bid target have no ability to return shares tendered
    to and taken up pursuant to a bid.

[67]

Also significant for this part of the analysis is
    the content of the forms required by s. 131. The prescribed forms for the
    take-over bid circular (Form 62-504F1), the issuer bid circular (Form 62-504F2),
    and the directors circular (Form 62-504F3) each impose a catch-all obligation
    to disclose matters that would reasonably be expected to affect the decision
    of the security holders of the offeree issuer to accept or reject the offer.
    This language is consistent with the notion that the focus of s. 131 is a
    security holders decision whether to tender to a bid, not a security holders
    decision whether to trade on the secondary market.  Further support can be
    found in
Allen
, at para. 5, where Strathy J. states that take-over bid
    rules are designed to provide security holders of the target company with
    sufficient information to make an informed decision about whether to tender to
    a bid.

[68]

Turning now to the ordinary and grammatical
    meaning of the term security holder, I agree with the appellants submission
    that there are no restrictions or qualifiers on the term. I also agree that it
    would have been an easy task for the legislature to add appropriate limiting
    language.

[69]

The critical part of the analysis regarding the scheme
    of the Act, the object of the Act, and the intention of the legislature is the
    interplay between s. 131(1) and Part XXIII.1 of the Act, which provides a
    statutory cause of action for secondary market participants. The parties do not
    agree on whether that cause of action is available in the context of a
    take-over bid.

[70]

The appellants submit that they do not have a
    right of action under that part of the Act. They note that, under s. 138.2(c),
    the Part XXIII.1 civil liability regime does not apply to, among other things,
    the acquisition or disposition of an issuers security in connection with or
    pursuant to a take-over bid, except as prescribed by regulation. According to
    the appellants, in connection with would include sellers who sold Baffinland
    securities in the secondary market in the context of a take-over bid.

[71]

In any event, the appellants argue that, even if
    the sellers in the secondary market could avail themselves of the Part XXIII.1
    right of action, s. 138.13 explicitly provides that the remedy does not
    derogate from any other rights of action a claimant may have. Their position is
    that there is no reason why a plaintiff who sold in the secondary market could
    not have rights of action under s. 131 and Part XXIII.1 in different
    circumstances. In the case of Part XXIII.1, limited by the words in connection
    with in s. 138.2(c), the appellants suggest that a plaintiff might sue under
    Part XXIII.1 after a take-over bid has come to an end.  The appellants suggest
    no such limitations on the application of s. 131.

[72]

The respondents submit that the definition of a core
    document in Part XXIII.1 specifically includes a take-over bid circular, an
    issuer bid circular, a directors circular, a notice of change or variation in
    respect of a take-over bid circular, issuer bid circular or directors
    circular. Thus, they argue that the right of action would be available to
    secondary market traders in this case.

[73]

In my view, the respondents make a compelling
    argument on the availability of Part XXIII.1 in the context of a take-over bid
    and their position should be preferred.  Why would the legislature include circulars
    within the definition of core documents if the intention was not to grant a right
    to sue with respect to those documents? And why would the legislature include
    such a statutory right of action if it already existed under s. 131(1)?  The
    legislature must be presumed to have a created a coherent and consistent
    legislative scheme. It is highly unlikely that the legislature would enact a
    redundant right of action.

[74]

I am also not persuaded by the appellants
    suggestion that those who sell their securities on the secondary market are
    able to avail themselves of both remedies. The availability of s. 131 to these
    sellers would render Part XXIII.1 nugatory. If s. 131 provides an unfettered
    right to sue, why would a plaintiff ever chose to sue under Part XXIII.1 and thus
    to be subject to the leave requirement and liability caps imposed by that Part?

[75]

What is perhaps most troubling about the
    appellants submission on this issue is that it ignores the history of the
    development of the law regarding secondary market liability in this country.
    That history was recently and succinctly recounted by
Abella J. in
Theratechnologies
    inc. v. 121851 Canada inc
.
, 2015 SCC 18,
    [2015] 2 S.C.R. 106. She explained, at para. 27, that legislation aimed at
    secondary market liability grew out of Canada-wide efforts to develop a more
    meaningful and accessible form of recourse for investors. She continued as
    follows, at paras. 27, 29-30:

Historically, Canadian investors in the secondary trading
    market did not have access to a statutory cause of action when they suffered
    losses as a result of breaches of legislated continuous disclosure obligations.
    In common law jurisdictions, investors had to rely on the tort of negligent
    misrepresentation, which required, among other things, that investors prove
    that they had relied on the misinformation or omission of information to their
    detriment. Because it was extremely difficult to prove such reliance when securities
    were purchased in the secondary market, this requirement put meaningful redress
    out of reach for many who were harmed by dubious disclosure practices.

During the 1990s, following a series of high profile
    misrepresentations and incidents of questionable disclosure practices among
    publicly traded companies in Canada, the Toronto Stock Exchange created the
    Allen Committee to re-examine the regime governing disclosure in the secondary
    market. The Allen Committee concluded that the current sanctions and funding
    available to regulators... are inadequate and the remedies available to
    investors in secondary trading markets who are injured by misleading disclosure
    are so difficult to pursue that they are, as a practical matter, largely
    hypothetical. It recommended the creation of a statutory civil liability
    regime that would help investors sue issuers, directors, and officers who
    violated their statutory disclosure obligations.

The Canadian Securities Administrators, an umbrella
    organization of Canada's provincial and territorial securities regulators,
    adopted most of the Committee's recommendations and began developing proposals
    to implement them across Canada. Despite the fact that the Allen Committee had
    not recommended it, and in order to discourage the kind of strike suits that
    had become common in the United States under more investor-friendly regimes,
    the Canadian Securities Administrators recommended that in addition to reducing
    the burden of proof on investors, the new liability regime should include a
    screening mechanism to ensure that only claims with a reasonable chance of
    success would be brought. [Citations omitted.]

[76]

In 2002, the Ontario Legislature introduced Bill
    198, which included a proposed amendment to the
Securities Act
to add
    civil liability for secondary market disclosure. That Bill was never proclaimed
    in force. Following further rounds of consultations, in late 2004, Bill 149 was
    introduced. That Bill contained the amendments that added Part XXIII.1 to the
Securities
    Act
. Bill 149 came into force on December 31, 2005: see
Abdula v.
    Canadian Solar Inc
., 2012 ONCA 211, 110 O.R. (3d) 256, leave to appeal
    refused, [2012] S.C.C.A. No. 246.

[77]

Clearly there was a gap in the legislative
    scheme with respect to secondary market participants. The legislature filled
    that gap. They did so on the basis that there was no statutory right of action
    for secondary market participants. In providing that right of action, the
    legislature headed the advice of Cardozo J. in
Ultramares Corporation v.
    Touche
, 174 N.E. 441 (N.Y. App. Ct. 1931)

that the law should not admit "to a
    liability in an indeterminate amount for an indeterminate time to an
    indeterminate class." It was for this reason that the legislature included
    a leave requirement and capped liability.  I agree with the submission of the
    respondents that the appellants attempted reliance on s. 131(1) for
    secondary market participants is an impermissible attempt to avoid the
    restrictions placed on the operation of the statutory cause of action found in
    Part XXIII.1.

[78]

In my view, applying the modern principle of
    statutory interpretation to this issue, the appellants cannot succeed. While
    the plain meaning of the term security holder might support the broad
    interpretation they urge upon us, that interpretation is not supported by the
    context in which it appears and is inconsistent with the scheme of the Act, the
    object of the Act, and the intention of the legislature.

Disposition

[79]

I would grant the appeal in part and order that paragraph 6 of the Order be set aside, the reference in paragraph 8 of the Order to an election be set aside, and the s. 131 claims be permitted to proceed. Given the divided success on the appeal, I would make no order as to costs.

Released: August 17, 2016 CWH

C.W.
    Hourigan J.A.

I
    agree Janet Simmons J.A.

I
    agree E.E. Gillese J.A.


COURT OF APPEAL FOR ONTARIO

CITATION: Royal Bank of Canada v. Hussain, 2016 ONCA 637

DATE: 20160822

DOCKET: C61633

MacPherson, Simmons and Lauwers JJ.A.

BETWEEN

Royal Bank of Canada

Plaintiff (Respondent)

and

Alamgir Hussain
and
    Jesmin Ara

Defendants (Appellant)

Alamgir Hussain, in person

Amanda Jackson, for the Royal Bank of Canada

Heard: June 30, 2016

On appeal from the judgment of Justice D. Parayeski of
    the Superior Court of Justice, dated November 20, 2015.

Simmons J.A.:

A.

Introduction

[1]

Following a summary judgment motion, the motion judge
    granted judgment to the Royal Bank of Canada for amounts owing to the Bank by
    the appellant and his spouse and dismissed a counterclaim filed by the
    appellant and his spouse.

[2]

The appellant raises numerous issues on appeal.

[3]

The main issue on appeal is whether, absent the written consent of the
    parties, rules 50.09 and 50.10 of the
Rules of Civil Procedure
, R.R.O.
    1990, Reg. 194, prohibit a judge who conducts a pre-trial conference from
    presiding on a summary judgment motion.

[4]

For the reasons that follow, I would answer yes to that question, allow
    the appeal and set aside the summary judgment.

[5]

We did not call on the Bank to respond to any of the other issues raised
    by the appellant. In all the circumstances, it is unnecessary that I address
    them.

B.

Background

[6]

The Bank issued a statement of claim against the appellant and his
    spouse in May 2009 claiming amounts owing on various loan facilities. After
    obtaining an order setting aside a default judgment, the appellant and his
    spouse delivered a statement of defence and counterclaim.

[7]

On December 1, 2014, the motion judge conducted a pre-trial conference.
    On November 20, 2015, the motion judge heard the Banks summary judgment
    motion. On December 18, 2015, the motion judge issued reasons for decision,
    granting summary judgment to the Bank for the amounts the Bank claimed was
    owing by the appellant and his spouse, and dismissing their counterclaim. On March
    9, 2016, the motion judge issued a costs endorsement, awarding the Bank $62,500
    in costs.

C.

Rules 50.09 and 50.10

[8]

Subject to certain exceptions, rule 50.09 prohibits communication
    to a judge presiding on a motion with respect to any statement made at a
    pre-trial conference:

50.09
No communication shall be made
to the judge or officer presiding at the hearing of the proceeding or a motion
    or reference in the proceeding with respect to any statement made at a pre-trial
    conference,
except as disclosed in an order under rule
    50.07 or in a pre-trial conference report under rule 50.08
. [Emphasis
    added.]

[9]

Rule 50.10(1) prohibits a pre-trial judge from
    presiding at the trial of the action or the hearing of the application, except
    with the written consent of all parties. Rule 50.10(2) clarifies that rule
    50.10(1) does not prohibit a hearing judge from holding conferences before or
    during the hearing that may assist in the just, most expeditious and least
    expensive disposition of the proceeding:

50.10 (1) A judge who conducts a pre-trial conference
shall not preside
at the trial of the action or the
    hearing of the application,
except with the written
    consent of all parties
.

(2) Subrule (1) does not prevent a judge before whom a
    proceeding has been called for hearing from holding a conference either before
    or during the hearing to consider any matter that may assist in the just, most
    expeditious and least expensive disposition of the proceeding without
    disqualifying himself or herself from presiding at the hearing.

D.

Relevant Legislative History of Rule 50

[10]

The
    predecessor rules to rules 50.09 and 50.10 were last amended in 2010, by O.
    Reg. 438/08, s. 47, following recommendations for the general reform of Rule 50
    made in the Osborne Report arising out of the Civil Justice Reform Project: see
Civil Justice Reform Project: Summary of Findings and Recommendations
(2007) (Hon. Coulter A. Osborne, Q.C.) (Osborne Report), at pp. 101-02. The
    full text of the predecessor rules prior to the 2010 amendments is included in
    Appendix A.

[11]

In
    addition to language changes, the 2010 amendments permitted the parties to an
    action to consent in writing to a pre-trial judge hearing an action or
    application. They also permitted a trial judge or application hearing judge to
    conduct certain conferences without disqualifying himself or herself, a
    provision now contained in rule 50.10(2).

[12]

The
    Osborne Report recognized, at pp. 98-99, that rule 50.04, the predecessor to
    rule 50.10, was aimed at the important purpose of protecting settlement
    discussions at pre-trial. However, the report concluded that parties should
    nonetheless be able to consent to a pre-trial judge hearing the proceeding
    because of efficiencies that could be achieved at trial, based on the pre-trial
    judges familiarity with the facts, expertise and other factors. This would be
    particularly helpful in cases where settlement issues and trial management
    issues could be dealt with separately:

Efficiencies at trial may also be achieved by having the
    pre-trial judge preside at the trial. Pre-trial judges often become familiar
    with the facts and issues in a case, and time would be wasted having to get a
    new trial judge up to speed, particularly in complex cases. The pre-trial judge
    may have expertise in a given area of law that may assist in the resolution of
    the case. Continuity by the same judicial official can also help ensure that
    trial management orders made at the pre-trial are fulfilled and that the trial
    proceeds as planned. However, under rule 50.04, a judge who conducts the
    pre-trial conference shall not preside at trial.

I recognize that this rule is intended to
    protect settlement discussions at pre-trial
. In complex cases, it may be
    advisable to separate the settlement and trial management parts of the
    pre-trial so that a pre-trial judge dealing with trial management issues may
    serve as trial judge. In any event, I recommend that rule 50.04 be amended to
    permit the pre-trial judge to serve as trial judge, where the parties consent. Virtually
    all those consulted saw no impediment to the trial judge dealing with motions
    and trial management issues, similar to what arbitrators do in arbitration
    proceedings. Having the trial judge involved earlier in long complex cases
    will, in my view, enhance the efficiency of the process. [Emphasis added.]

E.

Discussion

[13]

The Bank acknowledges that the motion
    judge presided over a pre-trial in this proceeding. Nonetheless, the Bank
    submits that the motion judge was not prohibited from hearing the summary judgment
    motion.

[14]

As a starting point, the Bank contends
    that this situation does not fall squarely within the prohibition contained in
    the
Rules
.
Nothing
    was communicated to the motion judge about the pre-trial conference; rather, he
    presided over the conference. Rule 59.09 therefore does not strictly apply. And
    the proceeding under appeal is not a trial or an application hearing as
    described in rule 59.10.

[15]

Further, the Bank points out that the appellant
    did not raise at the motion the objection now raised on appeal.

[16]

And finally, the Bank says no
    substantial wrong or miscarriage of justice resulted from the motion judge
    presiding on the summary judgment motion  the Banks case is overwhelming and
    the motion judges decision is correct.

[17]

I would not accept the Banks submissions.

[18]

R
ule
    50.09 reflects the intention that a judge hearing a motion in a proceeding
    should be insulated from knowledge of statements made at a pre-trial
    conference. It is designed to reassure litigants that any information revealed
    in the pre-trial will not be used against them at a hearing, in order to
    encourage a full and frank exploration of settlement prospects at an early
    stage of the proceeding.

[19]

Having regard to rule 50.10(1), absent
    written consent from the parties, a judge who conducts a pre-trial should not
    be the judge who determines the merits of the issues in a proceeding. Particularly
    with the expanded powers available to motion judges under the amended Rule 20,
    presiding on a summary judgment motion must be viewed as akin to presiding at a
    trial or the hearing of an application: see
Hryniak v. Mauldin
,
2014 SCC 7, [2014] 1 S.C.R. 87, at paras. 36 and 45. The
    rationale for prohibiting communications to a judge about statements at a
    pre-trial and for prohibiting a pre-trial judge from presiding at a hearing
    that could determine some or all of the issues in a proceeding is well-established
    and well-known. As explained in the Osborne Report, it is to protect settlement
    discussions at a pre-trial conference.

[20]

And as stated by Carthy J.A. in

Bell
    Canada v. Olympia & York Developments Ltd.
(1994), 17 O.R. (3d) 135
    (C.A.), at pp. 144-45, the prohibition also protects the integrity and
    usefulness of the pre-trial conference system:

Pre-trials were designed to provide the court with an
    opportunity to intervene with the experience and influence of its judges to
    persuade litigants to reach reasonable settlements or refine the issues. None
    of that would be possible without assurance to the litigants that they can
    speak freely, negotiate openly, and consider recommendations from a judge, all
    without concern that their positions in the litigation will be affected.

[21]

Although neither rule 50.09 nor rule
    50.10 contains language expressly prohibiting a pre-trial judge from presiding
    on a summary judgment motion, the rules are to be liberally construed, and
    where matters are not provided for in the rules, the practice shall be
    determined by analogy to them: rules 1.04(1) and (2).

[22]

Having regard to these factors, rules
    50.09 and 50.10 must be read as prohibiting a judge who conducts a pre-trial
    conference from presiding on a summary judgment motion in the action, except
    with all parties written consent.

[23]

Further, although ordinarily, in a
    civil case, a failure to object in the court below to a procedural flaw is
    given considerable weight on appeal, in this case, the parties failure to
    object to the pre-trial judge hearing the motion for summary judgment is not a
    relevant consideration. This is because rules 50.09 and 50.10 effectively preclude
    a judge who conducts a pre-trial from hearing the merits of a proceeding,
    absent the written consent of the parties.

[24]

This case highlights the need for
    parties to remind a judge who has been scheduled to dispose of an action or
    application on the merits that the judge previously presided at the pre-trial
    conference. That way, the judge will have the opportunity to determine if the
    parties are willing to provide their written consent to the judge presiding at
    the hearing, in accordance with rule 50.10(1).

[25]

Finally, I would reject the Banks
    claim that the strength of its case should govern the outcome of this appeal.
    The purpose of rules 59.09 and 59.10 is to protect the efficacy of pre-trial
    conferences in facilitating settlements. In all the circumstances, upholding
    the result in this case would sanction ignoring the
Rules
and undermine public confidence in the administration of
    justice.

F.

Disposition

[26]

Based on the foregoing reasons, I would
    allow the appeal and set aside the summary judgment in its entirety. Although
    the appellants spouse did not appeal, the summary judgment should not stand in
    respect of either defendant.

[27]

I would award costs of the appeal to
    the appellant on a partial indemnity scale fixed in the amount of $1500,
    inclusive of disbursements and applicable taxes.

Released: AUG 22 2016

Janet Simmons J.A.

I agree. J.C. MacPherson J.A.

I agree. P. Lauwers J.A.

Appendix A

Prior to their amendment in 2010, the predecessor
    provisions to rules 50.09 and 50.10 were found in rules 50.03 and 50.04, and
    read:

50.03 No communication shall be made to the judge or officer
    presiding at the hearing of the proceeding or a motion or reference in the
    proceeding with respect to any statement made at a pre-trial conference, except
    as disclosed in the memorandum or order under rule 50.02.

50.04 A judge who conducts a pre-trial conference shall not
    preside at the trial of the action or the hearing of the application.


COURT OF APPEAL FOR ONTARIO

CITATION: Toronto-Dominion Bank v. Hosein, 2016 ONCA 628

DATE: 20160816

DOCKET: C61401

MacPherson, Rouleau and Benotto JJ.A.

BETWEEN

The Toronto-Dominion Bank

Applicant (Appellant)

and

Jeunesse Hosein and Meera Boodhoo

Respondents (Respondents)

Amanda Jackson and James Riewald for the appellant

Jack Fleming for the respondent Meera Boodhoo

No one appearing for the respondent Jeunesse Hosein

Heard: June 24, 2016

On appeal from the order of Justice Gisele M. Miller of
    the Superior Court of Justice, dated October 29, 2015.

Benotto J.A.:

[1]

The appellant bank took a
    mortgage on a condominium owned by the respondent Jeunesse Hosein. Hosein has
    made no mortgage payments since November 2012. After her default, Hosein leased
    the property to the respondent Meera Boodhoo on terms very favourable to
    Boodhoo. The appellant applied to terminate the tenancy agreement pursuant to
    s. 52 of the

Mortgages
    Act
, R.S.O. 1990, c. M.40 (MA).
    The application was dismissed on the basis that s. 52 of the MA conflicts with
    the
Residential Tenancies Act, 2006
, S.O. 2006, c. 17 (RTA) and is therefore of no
    effect. For the reasons that follow, I would allow the appeal.

A.

Background Facts

[2]

The appellant registered a mortgage for
    $130,000 on a townhouse condominium owned by Hosein on July 19, 2011. On
    November 1, 2012, Hosein defaulted. Hosein has made no payments since then, nor
    has she paid the property taxes as required by the mortgage. The appellant
    commenced mortgage enforcement proceedings. A tenant then living at the
    property vacated at the end of June 2013. Before the appellant could take p
ossession
    of the property, and unbeknownst to the appellant, Hosein signed a five-year
    lease agreement with Boodhoo.

[3]

The appellant tried unsuccessfully to obtain a copy of the lease. In
    July, 2013, the appellant served a Notice of Attornment of Rents on Boodhoo.
    The Notice of Attornment of Rents included a Notice of Change of Landlord, a Demand
    for Particulars of Tenancy Agreement and a Notice to Inspect, Appraise and
    Show. Boodhoo sent the appellant a letter acknowledging receipt of the
    documents but indicating she would not provide information or make payments to the
    appellant as her contract was with Hosein.

[4]

Unable to obtain any information about the occupation of the
    condominium, the appellant applied to the Landlord and Tenant Board (the
    Board).  It sought production of the lease pursuant to s. 50(2)(b) of the MA
    and an order to terminate the alleged tenancy and evict Boodhoo on the grounds
    that Boodhoo had substantially interfered with the appellants right,
    privilege or interest by failing to provide the appellant with a copy of the
    tenancy agreement pursuant to s.51(1)(b) of the MA. In September 2013, the
    Board ordered Boodhoo to produce her lease, failing which the landlord could
    apply for an order terminating the tenancy and evicting Boodhoo.

[5]

Boodhoo produced the tenancy agreement. The lease is a five-year fixed
    term lease, beginning on July 1, 2013 and ending on July 31, 2018. It provides
    that rent be paid as follows:

·

From
    July 1, 2013 to May 1, 2014, the rent is $300 per month. This includes the
    $281.76 maintenance fee payable to the condominium corporation;

·

From
    July 1, 2014 to May 1, 2015, the rent is $300 per month plus the  maintenance
    fee payable to the condominium corporation;

·

From
    July 1, 2015 to May 1, 2016, the rent is $800 per month, which includes the
    maintenance fee payable to the condominium corporation.

·

For
    the remainder of the lease, the rent is to increase in accordance with the
    regulated increase for Dufferin County.

[6]

The terms of the lease do not cover the monthly expenses associated with
    the condominium: the mortgage payments are $627; the condominium fees were
    $281.76 in 2013. The municipal property taxes have not been paid since Hosein
    purchased the property in July 2011. Comparable rents in the same condominium
    complex were $900 to $1,000 in 2013.

[7]

Upon learning the terms of the lease, the appellant withdrew the Notice
    of Attornment of Rents and applied to the Superior Court to set aside Boodhoos
    tenancy pursuant to s. 52 of the MA.

B.

Decision of the Superior Court

[8]

The application judge held that the tenancy between Hosein and Boodhoo was
    created with the object of discouraging the appellant from taking possession of
    the property. She found it was a sweetheart deal created after the mortgage default
    and after the appellant served a Notice of Sale on Hosein. The tenancy therefore
    contravened the MA, which allows the court to set aside or vary a tenancy
    agreement when certain conditions are satisfied.

[9]

However
, the application
judge concluded
    that she could not grant the relief requested because s. 52 of the MA conflicts
    with the RTA and, pursuant to s. 3(4) of the RTA, in case of conflict the
    provisions of the RTA apply. The application judge held that:
(i) the RTA
    ousted the jurisdiction of the Superior Court to make an order requiring
    Boodhoo to vacate the premises; (ii) the appellant was a mortgagee in
    possession and thus a landlord pursuant to s. 47 of the MA; (iii) the
    appellant could have ceased to be a mortgagee in possession by withdrawing its Notice
    of Change of Landlord, but did not do so; and (iv) even if the appellant had
    ceased to be a mortgagee in possession, the previous order of the Board
    compelling the production of the lease included a determination that the
    appellant was a landlord, and this determination is
res judicata
.

C.

Issue

[10]

As conceded by the parties in oral submissions, the primary issue in the
    appeal is this: Is there a conflict between the RTA and s. 52 of the MA? This
    is dispositive of the appeal and it will not be necessary to address the issue
    of whether the appellant was a landlord at the time of the application.

D.

Analysis

[11]

The question to be determined is whether s. 52 of the MA conflicts with
    the provisions of the RTA so that the Superior Court is unable to set aside a
    tenancy under s. 52.

[12]

Section 52 of the MA provides for an application to set aside a
    tenancy:

52. (1) The Superior Court of Justice may
    on application by the mortgagee vary or set aside a tenancy agreement, or any
    of its provisions, entered into by the mortgagor in contemplation of or after
    default under the mortgage with the object of,

(a) discouraging the mortgagee from taking
    possession of the residential complex on default; or

(b) adversely affecting the value of the
    mortgagees interest in the residential complex.

(2) In considering the application, the judge
    shall have regard to the interests of the tenant and the mortgagee.

[13]

The RTA states that a tenancy may be terminated only in accordance with
    this Act: s. 37(1). Section 39 also restricts a landlord on how it may recover
    possession of a rental unit subject to a tenancy:

39. A landlord shall not recover possession of a
    rental unit subject to a tenancy unless,

(a) the tenant has vacated or abandoned the unit;
    or

(b) an order of the Board evicting the tenant has
    authorized the possession.

[14]

The appellant submits that these two provisions are not in conflict. The
    MA allows a mortgagee to apply to set aside a tenancy; the RTA allows a
    landlord to apply to terminate a tenancy. The appellant did not seek to
    terminate the tenancy, it sought to set aside the agreement such that the rental
    unit will no longer be subject to a tenancy and s. 39 of the RTA will no
    longer apply to the mortgagee trying to recover possession.

[15]

The respondent Boodhoo argues that regardless of the semantic difference
    between setting aside a tenancy agreement under s. 52 of the MA and terminating
    a tenancy agreement under the RTA, the effect is the same: the tenant can be
    evicted. Section 52 is therefore in direct conflict with the provisions of the
    RTA that only allow for the tenancy agreement to be terminated according to
    that Act.

[16]

Certain principles of statutory interpretation are relevant to this
    appeal. The guiding approach is set out by Elmer Driedger in
Construction
    of Statutes

and adopted by the Supreme Court in
Rizzo & Rizzo Shoes Ltd.
(Re)
,
    [1998] 1 S.C.R. 27, at para. 21:

Today there is only one principle or
    approach, namely, the words of an Act are to be read in their entire context
    and in their grammatical and ordinary sense harmoniously with the scheme of the
    Act, the object of the Act, and the intention of Parliament.

[17]

Statutes dealing with similar subjects are presumed to be coherent and
    consistent. Interpretations favouring harmony should prevail over discordant
    ones:
Pointe-Claire (City) v. Quebec (Labour Court)
,
    [1997] 1 S.C.R. 1015, at para. 61;
Ruth Sullivan,
Sullivan on the
    Construction of Statutes
(Markham: LexisNexis, 2014)
, pp.
    416-417. Finally, the legislature does not intend to produce absurd
    consequences, such as rendering a provision meaningless:
Rizzo
, at para. 27.

[18]

Here, the RTA is concerned with the termination of existing tenancies.
    By contrast, s. 52 of the MA provides a mechanism to have a tenancy agreement
    set aside. There is no provision in the RTA to set aside a tenancy agreement.

[19]

The different words used  to set aside and to terminate  must be
    presumed to have different meanings. Blacks Law Dictionary defines set aside
    as to annul or vacate (a judgment, order, etc.). The Dictionary of Canadian
    Law (4th) defines set aside as to nullify. According to both law
    dictionaries, terminate means to bring to an end. That these terms are not
    meant to be synonyms is also demonstrated by the heading of the section of the MA
    immediately following s. 52. The heading provides for the termination of
    tenancy, and then refers to the process under the RTA.

[20]

Counsel for the appellant compared the situation to an annulment of a
    marriage versus a divorce. This is an accurate analogy. In the former case, the
    marriage is treated as never having existed whereas in the latter case, the
    marriage is ended. Likewise here, to set aside the tenancy agreement
    indicates that the tenancy never existed; to terminate it indicates that it is
    being brought to an end. This interpretation is consistent with the word
    annuler in the French version of the
Mortgages Act
. The French
    version of s. 52 provides for a [r]equête en annulation de la location, and
    states that:

52. (1) La Cour supérieure de
    justice peut, sur requête du créancier hypothécaire, modifier ou
annuler
une convention de location

[21]

Section 52 is in Part V of the
Mortgages Act
. The context of
    this Part is relevant. It was introduced by the
Mortgages Amendment Act
,
    1991, S.O. 1991, c. 6, and deals with mortgagees in possession of rental
    residential units. Section 47 deems a person who becomes a mortgagee in
    possession to be a landlord under the tenancy agreement. This provides security
    to tenants in case of a default by the landlord on its mortgage. Sharpe J.A.
    explained the purpose of the 1991 amendments in
Pieckenhagen v. 1030553
    Ontario Ltd.
(2000), 51 O.R. (3d) 763 (C.A.), at paras. 14-15:

In my view, it is apparent that the "mischief"
    addressed by the Mortgages Amendment Act was the vulnerability of tenants in
    residential complexes to being disrupted in their tenancy by changes in
    possession and title resulting from mortgage default by the landlord or owner
    of the property. Before the Mortgages Amendment Act, tenants lacked security of
    tenure as against mortgagees in possession, those who obtained title by
    foreclosure, and subsequent purchasers who acquired title in power of sale
    proceedings Accordingly a party who obtained possession or title by virtue of
    mortgage default could obtain vacant possession despite the existence of a
    landlord and tenant relationship between the mortgagor and its tenants.

The purpose and intent of the Mortgages Amendment Act was to
    overcome this state of affairs and to provide tenants with security of tenure
    in the event of mortgage default by the landlord. The Mortgages Act, s. 47
    specifically puts those persons described in the position of the landlord under
    the tenancy agreement.

[22]

It was in the context of protecting valid tenancy agreements that the
    legislature set out a provision whereby the Superior Court could set aside an
    allegedly invalid tenancy. If, for specific reasons, the lease is not valid,
    the mortgagee was given an avenue to seek to annul it: s. 52. Section 52 of the
    MA, therefore, is a narrow exception. It protects mortgagees when the tenancy
    agreement was entered into in contemplation of or after default, and with the
    object of discouraging the mortgagee from taking possession or adversely
    affecting the value of the mortgagees interest in the residential complex. In
Compcorp
    Life Insurance Co. v. Divitcos
(1997), 12 R.P.R. (3d) 122 (Ont. Ct. J.
    (Gen. Div.)), at para. 41, Sutherland J. wrote of s. 52:

It represents an awareness on the part of the Legislature of
    the vulnerability of a mortgagee of property that can be leased out by a
    mortgagor under a "sweetheart" deal between the mortgagor, who is in
    default under the mortgage, and a tenant who will in the ordinary course, under
    relatively recent amendments, be "inherited" by the mortgagee in
    possession, whether or not the mortgage was in place before the
    "sweetheart" tenancy agreement was entered into.

[23]

Section 52 also incorporates the objective of protecting the tenant by
    directing the court to have regard to the interests of the tenant and the
    mortgagee. In this way, the interests of the purported tenants are recognized
    and balanced against the interests of the mortgagee seeking to nullify an
    alleged agreement.

[24]

In light of the words used by the legislature and the context of the
    provisions, it is clear that s. 52 of the MA and the provisions of the RTA can
    be read together harmoniously. The RTA is concerned with the regulation and
    termination of valid tenancies; s. 52 of the MA provides a remedy to have an
    alleged tenancy set aside with the result that a valid tenancy never existed in
    the first place. Further, s. 52 would have no meaning or possible application
    if the respondents argument is accepted and the mortgagee can only apply to
    terminate the tenancy under the RTA rather than set it aside under the MA.

[25]

The respondent relies on this courts decision in
Fraser v. Beach
(2005), 75 O.R. (3d) 383, to support the application judges determination that
    the jurisdiction of the Superior Court is ousted by the provisions of the RTA. At
    issue in
Fraser
was an order of the Superior Court in a nuisance
    action. The Superior Court ordered the tenants to vacate the premises as a
    method of enforcing an earlier order restraining the landlord from operating an
    illegal rooming house. This court held that the tenancies could only be
    terminated by the Board pursuant to the predecessor statute to the RTA.

[26]

Fraser
is not applicable here. In
Fraser
and in
Parker
    v. Yundt
, 2012 ONSC 244, the applicants sought to terminate existing
    tenancies. The tenancy agreements were presumed to be valid.

[27]

In this case, the appellants Notice of Application before the Superior
    Court was for an order setting aside an alleged tenancy agreement made
    between Boodhoo and Hosein. The application did not seek to terminate the
    tenancy.
Fraser
holds that the inherent jurisdiction of the courts to
    make an order evicting a residential tenant is ousted by the RTA. Here, jurisdiction
    is specifically given to the Superior Court by s. 52 of the MA not to terminate
    but to set aside a tenancy agreement when it was entered into by a mortgagor
    under certain conditions. The jurisdiction of the Superior Court to apply s. 52
    of the MA has also been recognized by the Board:
File Number: TET-66943-16
,
    2016 CanLII 38767, at paras. 14 and 18;
File No. CEL-02248
,
    2007 LNONLTB 27, at para. 47.

[28]

In short, there is no conflict between the RTA and s. 52 of the MA.

E.

Disposition

[29]

I would allow the appeal, and set aside the tenancy agreement pursuant
    to s. 52 of the MA. I would make the following determination as to costs:

·

In
    accordance with the agreement between the appellant and the respondent Boodhoo,
    there will be no costs against Boodhoo.

·

The
    respondent Hosein will pay costs to the appellant in the amount of $15,000
    inclusive of disbursements and HST. This amount may be added to the mortgage
    arrears and enforced as such.

Released: August 16, 2016

M.L. Benotto J.A.

I agree J.C.
    MacPherson J.A.

I agree Paul Rouleau
    J.A.


COURT OF APPEAL FOR ONTARIO

CITATION: Toronto-Dominion Bank v. Wise, 2016 ONCA 629

DATE: 20160816

DOCKET: C60961

Weiler, Hourigan and Huscroft JJ.A.

BETWEEN

The Toronto-Dominion Bank

Applicant (Respondent)

and

Sheila Wise,
Jordanna Lipson, Earl Lipson
,
    2276552 Ontario Inc. and 1432975 Ontario Limited

Respondents (
Appellants
)

Michael Simaan and Jaclyn McNamara, for the appellants
    Jordanna Lipson and Earl Lipson

Daniel Dooley, for the respondent

Heard: March 30, 2016

On appeal from the order of Justice Peter A. Douglas of
    the Superior Court of Justice, dated August 7, 2015, with reasons reported at
    2015 ONSC 5014.

Huscroft J.A.:

[1]

Ben and Sheila Wise (the Wises) owned
    lakefront property. They wanted to sever the land into two lots and gift one of
    the lots to their daughter and son-in-law, Jordanna and Earl Lipson (the
    Lipsons). The severance was eventually completed following the death of Ben
    Wise in 2002. The lot gifted to the Lipsons connected with a local road, but the
    lot the Wises retained for themselves did not have road access. The Wises did
    not reserve an easement over the Lipsons lot when the gift was completed.

[2]

The respondent bank, which holds a mortgage over
    the parcel of the land retained by the Wises (and now owned by Sheila Wise), brought
    an application for an order declaring that an easement exists for the benefit
    of the Wise property. Although there is access to the Wise property from the
    lake, the application judge found that water access was impractical and, as a
    result, recognized the banks claim for an easement of necessity over the
    Lipson property. He directed a trial to determine the location of the easement
    in the event the parties were unable to agree.

[3]

The Lipsons appeal.

[4]

In my view, the application judge erred in concluding
    that there was an easement of necessity. I would allow the appeal, for the
    reasons that follow.

Background

[5]

The properties in question are lakefront
    properties on Lake Manitouwabing. The Wises owned a large parcel of land (the
    combined parcel). The combined parcel was adjacent to the Inn and Tennis
    Resort lands, which were owned by Ben Wises company, MB Investments Limited,
    until 2011.

[6]

The combined parcel was severed in 2003. This
    resulted in two lots, Part 1 and Part 2. Sheila Wise retained Part 2, where she
    has a cottage. Part 1 was gifted to the Lipsons.

[7]

The gift was the culmination of a long process
    begun by Ben Wise some years earlier. Permission to sever the combined parcel
    was denied by planning officials because Part 2 would have become a
    water-access only lot. Although there were water-access only lots on the lake,
    no additional such lots were being approved.

[8]

The combined parcel had access to a road, but the
    road connected to the proposed Part 1 rather than Part 2. However, Part 2 was
    accessible through the Inn and Tennis Resort lands. Ben Wise considered adding
    Part 2 to the Inn and Tennis Resort lands in order to take advantage of the
    road access they had. He chose not to pursue that plan because of adverse tax
    consequences. Instead, he decided to enter a restriction under s. 118 of the
Land
    Titles Act,
R.S.O. 1990, c. L.5, on Part 2, which would have prevented
    it from being sold separately from the Inn and Tennis Resort lands.

[9]

That restriction was never registered. Following
    the death of Ben Wise, Part 1 was conveyed to the Lipsons and no easement was
    reserved in favour of Part 2. Part 2 had no legal entitlement to road access across
    the Inn and Tennis Resort lands and so became a water-access only lot, despite
    the absence of prior approval. However, Sheila Wise continued to obtain access
    to her home through the Inn and Tennis Resort lands. These lands were purchased
    by 2276552 Ontario Inc. (227) in 2011 through power of sale.

[10]

Sheila Wise is in default on two mortgages on
    Part 2. The respondent bank holds a first mortgage on the property and 1432975
    Ontario Limited holds a second mortgage. Both mortgagors wish to sell the
    property.

[11]

The respondent bank brought an application for an
    order declaring that an easement of necessity exists over any of the adjacent properties
    in favour of Part 2.

The application judges decision

[12]

The application judge determined that an
    easement of necessity is available to both grantors and grantees of land if either
    the land retained or the land granted is rendered inaccessible by severance and
    sale. He stated: The ultimate objective is that land should be able to be
    used. The application judge considered that it was unnecessary to direct a
    trial on the question of the Wises intentions at the time of the severance and
    gift of Part 1, because easements are creatures of public policy and
    [p]ublic policy must trump the intentions of individual landowners.

[13]

The application judge considered that mere
    inconvenience was insufficient to allow the grant of an easement of necessity,
    but found that the common law requirement of absolute or strict necessity had
    developed into a rule of practical necessity, citing
Hirtle

v.
    Ernst
(1991)
,
10
    N.S.R. (2d) 216, [1991] N.S.J. No. 531 (S.C.).

[14]

The application judge concluded that water
    access to Part 2 did not preclude an easement of necessity. The test, he said,
    citing
Dobson v. Tulloch
(1994), 17 O.R. (3d) 533, [1994] O.J. No. 531
    (C.J. (Gen. Div.)), affd (1997), 33 O.R. (3d) 800 (C.A.), is whether water
    access is sufficient to make unnecessary an easement of necessity that is
    otherwise necessary for the reasonable enjoyment of the property (para. 55).

[15]

The application judge found no evidence that
    Part 2 had ever been accessed by water and accepted the uncontradicted evidence
    of the respondents surveyor, Paul Forth, that water access to Part 2 was
    impractical. He found, specifically, that water access does not offer a
    viable, or practical, means of access to and egress from Part 2 (para. 62). He
    concluded that an easement of necessity over Part 1 arose in April 2003, when
    Part 2 became landlocked and the owners had no legal entitlement to cross any
    adjoining lands to get to their property.

[16]

The application judge ordered a trial to
    determine the most efficacious and least intrusive location of the easement in
    the event the parties were unable to agree.

Issue on appeal

[17]

Sheila Wise, a respondent on the application, did
    not participate in the appeal. Nor did 227, owner of the Inn and Tennis Resort lands.

[18]

The appellants contend that the application
    judge erred in three ways:

1.

by considering
    the access to the residence on the property rather than access to the property
    itself and by applying the wrong test;

2.

by admitting the evidence of the surveyor on the
    ultimate issue the application judge was required to determine; and

3.

by determining that easements of necessity are based
    on public policy considerations rather than the intention of the parties.

[19]

I begin with a brief review of the principles
    governing easements of necessity, before applying the relevant principles to
    the facts of this case.

The principles governing easements of necessity

[20]

The basic requirements of an easement of
    necessity were described by this court in
McClatchie v. Rideau Lake
    (Township)
, 2015 ONCA 233, [2015] O.J. No. 1737. As Rouleau J.A.
    explained, easements of necessity are presumed to have been granted when the
    land that is sold is inaccessible except by passing over adjoining land
    retained by the grantor. The concept arises from the premise that the easement
    is an implied grant allowing the purchaser to access the purchased lot (para.
    48).

[21]

It is well established that the necessity of an
    easement of necessity is determined at the time of the grant (para. 49).
    Moreover, an easement of necessity must be necessary to use or access the
    property; if access without it is merely inconvenient, the easement will not be
    implied (para. 53).

[22]

As the application judge noted,
McClatchie
addresses the implication of easements of necessity only from the perspective
    of a grantee of land  the person who obtains the land in favour of which an
    easement is required. It is well established, however, that an easement of
    necessity is also available to a grantor of land  the original owner who
    retains part of the land: see
Gale on Easements,
19th ed. (London:
    Sweet & Maxwell, 2012), at p. 178;
Depew v. Wilkes
(2002), 60 O.R. (3d) 499 (C.A.), at para. 21
.

[23]

Although English authority holds that the test
    for an easement of necessity is more difficult to meet when the easement is
    sought by the grantor rather than the grantee (see
Gale on Easements
,
    p. 179),
it is not necessary to consider the
    matter for the purposes of this case. This case involves a grantor and there is
    no doubt that the test involving grantors is strict necessity.

[24]

The strong test of strict
    necessity ensures that
grantors are not permitted to
    derogate from the terms of their grant of land. If they want to reserve an
    easement, they should do so explicitly at the time they make the grant.
An easement of necessity will be found only if it was
    necessary in order for the grantor to be able to use his or her property at the
    time of the grant.
Water access to property defeats a claim of
    necessity, regardless of convenience.

[25]

This courts decision in
Barbour v. Bailey,
2016
    ONCA 98, [2016] O.J. No. 3261, illustrates these points, albeit in the
    context of a claim by a grantee rather than a grantor. The court held that an easement
    of necessity was not available because the property for which the easement was
    sought  an island sometimes joined to the beach isthmus during periods of low
    water levels  was not
inaccessible and hence
    unusable. Access to the island was certainly not convenient: previous owners of
    the island had used a rowboat, either by rowing it to the island or pulling as
    they waded across the water, or they had walked along the shoreline. Nevertheless,
    water access was possible, and that was enough to defeat an easement of
    necessity. The applicants preference for a quicker and more convenient means
    of access by way of an easement was irrelevant.

[26]

See also
Fitchett v. Mellow
, (1897) 29 O.R. 6;
Hardy
    v. Herr
(1965), 1 O.R. 102 (H.C.), affd (1965), 2 O.R. 801 (C.A.); and
Manjang
    v. Drammeh
(1990), 61 P. & C.R. 194, (P.C.)
,
at p. 4. Although the
trial judge in
Dobson
considered that water access could defeat an easement
    of necessity, the case was decided on its own facts  in particular, a finding
    that the river in question was not navigable at the time of the grant.

Applying
    the governing principles

[27]

At the time of the
    grant, in 2003, there was no legal entitlement to access to Part 2 across the
    Inn and Tennis Resort lands, and the Wises did not reserve an easement through Part
    1, which was gifted to the Lipsons.

[28]

Sheila Wises evidence
    suggests that she expected to continue to enjoy access to Part 2 across the Inn
    and Tennis Resort lands. Evidence from Ms. Wise and Earl Lipson also
    suggests that it was Ben Wises intention to make Part 2 a water-access only
    property. The matter is not free from doubt, however, and the application judge
    made no decision concerning the parties intentions.

[29]

Be that as it may, there
    is no dispute that there was water access to Part 2 at the time of the grant,
    and this is sufficient to defeat the respondents application for an easement
    of necessity. The fact that Part 2 had never been accessed by water is
    irrelevant. So too is the fact that water access was, and probably remains,
    inconvenient or impractical. Water access was available, so Part 2 was not rendered
    unusable when the grant to the Lipsons was made.

[30]

The application judge
erred in holding that water access had to be sufficient for
    reasonable enjoyment of the property in order to render an easement of
    necessity unnecessary. Although
Barbour
was not available for the
    application judge to consider, it is now the authority on this question in
    Ontario. It was enough that water access to Part 2 existed.

[31]

There was no evidence that water access was not
    possible at the time of the grant. At its highest, the evidence established
    that water access does not offer a viable, or practical, means of access to
    and egress from Part 2, as the application judge put it, and this is not
    sufficient to establish an easement of necessity.

[32]

The application judges error flows from his
    conclusion that the necessity test had moved from strict necessity to
    practical necessity. This is not correct. The necessity test has not been
    reduced to a requirement of practical necessity, as the Nova Scotia Supreme
    Court held in
Hirtle
. The recent decisions of this court in
McClatchie
and
Barbour
reaffirm that the test for easements of necessity in
    Ontario is strict necessity.

[33]

In my view,
Hirtle
is not sound authority
    for the proposition that easements of necessity are creatures of public policy.
    Although there is no doubt that easements of necessity have the salutary effect
    of allowing land to be used, rather than rendered useless, easements of
    necessity flow from the intentions of the parties to a grant, not from public
    policy. Put another way, public policy does not provide an independent basis
    for a court to recognize an easement of necessity regardless of the parties
    intentions in particular circumstances.

[34]

This is reflected in
McClatchie
, which
    describes easements of necessity as arising as a matter of presumption and as
    an implied aspect of the grant. As the English Court of Appeal explained in
Nickerson
    v. Barraclough
,  [1981] Ch. 426 (C.A.), at p. 447
:

[T]he law relating to ways of necessity rests not upon a basis
    of public policy but upon the implication to be drawn from the fact that unless
    some way is implied, a parcel of land will be inaccessible. From that fact the
    implication arises that the parties must have intended that some way giving
    access to the land should have been granted.  Public policy may inhibit the
    parties from carrying their intention into effect, but I cannot see how public
    policy can have a bearing upon what their intention was. In my judgment, that
    must be ascertained in accordance with the ordinary principles of construction,
    the language used and relevant admissible evidence of surrounding
    circumstances.

See also
Adealon International Proprietary
    Ltd. v. Merton LBC
, [2007] E.W.C.A. Civ. 362, [2007] 1 W.L.R. 1898, at para.
    11;
North Sydney Printing Pty Ltd. v. Sabemo Investment Corporation Pty
    Ltd.,
[1971] 2 N.S.W.L.R. 150; and
Russell v. Pennings,
[2001] W.A.S.C.A.
    115.

[35]

In summary, the application judge erred by
    failing to apply the test of strict necessity. Even assuming that the evidence
    of the surveyor was admissible, it did not satisfy that test. The availability
    of water access means that the test of necessity at the time of the grant is
    not met. Finally, the application judge also erred in law in holding that
    easements of necessity are creatures of public policy.  Accordingly, an
    easement of necessity cannot be implied for the benefit of Part 2.

Disposition

[36]

I would allow the appeal.

[37]

The appellants are entitled to their costs
    below, in the agreed amount of $11,000, and to costs on the appeal in the
    agreed amount of $13,000, both amounts inclusive of taxes and disbursements.

Released: August 16, 2016 GH

Grant
    Huscroft J.A.

I
    agree K.M. Weiler J.A.

I
    agree C.W. Hourigan J.A.