Deer Island Credit Union Ltd. v. Simson, Cumming, Webber et al., 2012 NBCA 92

• Judge: Richard, Bell and Quigg, JJ.A.
• Court: Court of Appeal (New Brunswick)
• Case Date: March 22, 2012
• Jurisdiction: New Brunswick
• Citations: 2012 NBCA 92;(2012), 395 N.B.R.(2d) 76 (CA)

Deer Island Credit v. Simson, Cumming (2012), 395 N.B.R.(2d) 76 (CA);

    395 R.N.-B.(2e) 76; 1023 A.P.R. 76

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[French language version follows English language version]

[La version française vient à la suite de la version anglaise]

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Temp. Cite: [2012] N.B.R.(2d) TBEd. NO.004

Renvoi temp.: [2012] N.B.R.(2d) TBEd. NO.004

Simson, Cumming, Webber, a Partnership, Cumming, Webber, Francoeur, a Partnership, John R. Simson, Bruce C. Cumming, John E. Webber, Mark D. Francoeur and Terrence L. Thorne (appellants/defendants) v. Dale Barteau, Glenna Barteau, Constance Rogerson, Gilbert Stuart, Allison Pendleton, Weldon Lambert, Elizabeth Darke, Laurie Pendleton, Brian Young, Bryan Barteau, Philip Miner, Glenn Cox, Edward Power, Floyd Richardson, Dana Conley and Brian Calder (respondents/third parties) and Deer Island Credit Union Limited, A Body Corporate (respondent/plaintiff)

(151-11-CA; 172-11-CA; 2012 NBCA 92)

Indexed As: Deer Island Credit Union Ltd. v. Simson, Cumming, Webber et al.

Répertorié: Deer Island Credit Union Ltd. v. Simson, Cumming, Webber et al.

New Brunswick Court of Appeal

Richard, Bell and Quigg, JJ.A.

March 22, 2012.

Summary:

Résumé:

The Deer Island Credit Union sued its auditors for damages for not discovering that a former employee had fraudulently misappropriated money. The auditors third partied the Credit Union's directors. The directors moved to strike out the third party claim against them.

The New Brunswick Court of Queen's Bench, Trial Division, in a decision reported at 379 N.B.R.(2d) 380; 978 A.P.R. 380, struck out the third party claim against the directors as not disclosing a reasonable cause of action and as an abuse of the court's process. The court gave notice of the possibility of an award of costs in favour of the directors being made against the solicitor personally who issued the third party claim. The parties made submissions on costs.

The New Brunswick Court of Queen's Bench, Trial Division, in a judgment reported at 384 N.B.R.(2d) 51; 995 A.P.R. 51, ordered the directors' solicitor to pay the directors' costs of $39,900 (scale 2 on an amount involved of $1,800,000) and reasonable disbursements, plus HST of $5,187. If the amount was not paid by 12:00 noon on December 15, 2011, the court would hear counsel regarding enforcement of the order. Should that hearing be necessary, the court ordered the directors' solicitor to attend in person. The costs of the Credit Union and the auditors were to be left as costs in the cause for determination by the trial judge. The auditors appealed the order striking the third party claim and the costs order.

The New Brunswick Court of Appeal allowed the appeal from the dismissal of the third party claim. Had the court dismissed that appeal, it would nevertheless have allowed the appeal from costs.

Barristers and Solicitors - Topic 852

Duty to court - Liability for costs - For causing delay or costs to be incurred without reasonable cause - A motions judge, applying Piedra et al. v. Copper Mesa Mining Corp. et al. (Ont. C.A.), struck a third party claim brought against the corporate plaintiff's directors on the basis that it did not disclose a reasonable cause of action and was an abuse of process - Piedra was decided on March 11, 2011 - The judge stated that the Ontario solicitor who issued the third party claim ought to have known of Piedra before she issued the third party claim on May 30, 2011 - The judge stated this was a rare and exceptional case in which it might be appropriate to award full solicitor and client costs in favour of the directors payable by the defendants' solicitor (Dawe) personally and to "compel" payment by the judicious exercise of the power to imprison for contempt - The judge, after receiving submissions on costs, concluded that Dawe had lacked an honest belief that the auditors' claim against the directors had merit - She "... acted in disregard of the interests of justice, and without reasonable cause that she caused costs to be wasted or incurred improperly" - In the circumstances of this rare and exceptional case and to protect the court's process, the judge ordered that Dawe personally pay the directors' costs of $39,900 (scale 2 on an amount involved of $1,800,000) and reasonable disbursements, plus HST of $5,187 - The New Brunswick Court of Appeal allowed an appeal from the decision striking the third party claim, holding that Piedra had limited, if any application - The court added that had it dismissed the appeal, it would nevertheless had allowed the appeal from the decision to order solicitor-client costs and that Dawe personally pay them - There was no proper basis in law or on the facts for the order - See paragraphs 21 and 22.

Company Law - Topic 310

Nature of corporations - Lifting the corporate veil - General - The Deer Island Credit Union sued its auditors for damages for not discovering that a former employee had fraudulently misappropriated money - The auditors third partied the Credit Union's directors - The directors moved under rule 23 to strike out the third party claim - A motions judge allowed the motion - The New Brunswick Court of Appeal allowed an appeal - The motions judge's reliance upon principles applicable to rule 22 motions for summary judgment caused him to overlook the two foundational principles of rule 23 motions, namely: (1) the court had to accept as proved the facts set out in the statement of claim; and (2) the motion could only succeed if it was plain and obvious that the statement of claim (or, in this case, a third party claim) failed to disclose the essential elements of a cause of action - The third party claim contained assertion of facts, which, if proven, would constitute the essential elements of a negligence action against the directors - The judge also misapplied the law relating to the limited liability of a corporation - He relied extensively on Piedra et al. v. Copper Mesa Mining Corp. et al. (2011) (Ont. C.A.) to conclude that the courts had to protect directors from ill-founded litigation and that the common law generally protected directors from personal liability - Piedra had limited, if any application - Unlike in Piedra, the third party claims here were not novel and the test to determine whether a novel duty should be given legal recognition had no relevance - The judge's preoccupation with the need to protect directors appeared to be based upon a flawed understanding of the principles flowing from Salomon v. Salomon & Co.(H.L.) - The corporate veil was not lifted where a plaintiff or third party relied upon an independent cause of action against a company's principals - Tortious conduct of directors was independently actionable, with the exception of inducing breach of contract between the corporation and a third party (the Said v. Butt (K.B.) exception) - The auditors were entitled to a determination of whether they were correct in asserting the directors' negligence caused the Credit Union's losses - The judge also misapplied the Contributory Negligence Act in concluding that the Act could not be interpreted as overruling the common law that generally protected directors of corporations from personal liability - This was a classic contributory negligence claim - The auditors denied fault, but if they were responsible, they claimed that fault, at least in part, rested with the directors for their negligence - The court knew of no common law principles, other than the limited application of Said v. Butt, which generally protected directors from personal liability - The definition of "person" as contemplated in the Act included corporate managers, directors and employees - The definition was not determined by the merit or lack thereof of the claim - Even where Said v. Butt applied, the wrongfully named defendants or third parties were still "persons" which had to bring a rule 23 motion or argue at trial that they could not at law be a person at fault - See paragraphs 6 to 20.

Company Law - Topic 4183

Directors - Liability of directors - For torts - [See Company Law - Topic 310 ].

Company Law - Topic 4185

Directors - Liability of directors - Inducing breach of contract by company - [See Company Law - Topic 310 ].

Company Law - Topic 9731

Actions against corporations and directors - Practice - Pleadings - [See Company Law - Topic 310 ].

Practice - Topic 1121

Pleadings - Third party or subsequent party procedure - When available - Claim for contribution or indemnity - [See Company Law - Topic 310 ].

Practice - Topic 2230

Pleadings - Striking out pleadings - Grounds - Failure to disclose a cause of action or defence - [See Company Law - Topic 310 ].

Practice - Topic 7404

Costs - Solicitor and client costs - General principles - Solicitor ordered to pay client's or other party's costs - [See Barristers and Solicitors - Topic 852 ].

Torts - Topic 6600

Defences - Contributory negligence - General principles - [See Company Law - Topic 310 ].

Avocats et notaires - Cote 852

Devoirs judiciaires - Responsabilité à l'égard des dépens - Retard causé par l'avocat - [Voir Barristers and Solicitors - Topic 852 ].

Délits civils - Cote 6600

Défense - Négligence contributive - Principes généraux - [Voir Torts - Topic 6600 ].

Droit des compagnies - Cote 310

Nature des corporations - Levé de voile corporatif - Généralités - [Voir Company Law - Topic 310 ].

Droit des compagnies - Cote 4183

Administrateurs - Responsabilité des administrators - Délits civils - [Voir Company Law - Topic 4183 ].

Droit des compagnies - Cote 4185

Administrateurs - Responsabilité des administrators - Inciter la compagnie à rompre un contrat - [Voir Company Law - Topic 4185 ].

Droit des compagnies - Cote 9731

Actions contre les corporations et les administrateurs - Procédure - Plaidoiries - [Voir Company Law - Topic 9731 ].

Procédure - Cote 1121

Parties - Mise en cause - Conditions d'ouverture - Réclamation pour contribution ou indemnité - [Voir Practice - Topic 1121 ].

Procédure - Cote 2230

Plaidoiries - Radiation des plaidoiries - Motifs - Défaut de révéler une cause d'action ou un moyen de défense - [Voir Practice - Topic 2230 ].

Procédure - Cote 7404

Dépens - Frais entre avocat et client - Principes généraux - Avocat ordonné de payer les frais du client ou de l'autre partie - [Voir Practice - Topic 7404 ].

Words and Phrases

Person - The New Brunswick Court of Appeal considered the meaning of this word as used in the Contributory Negligence Act, R.S.N.B. 1973, c. C-19 - See paragraphs 18 to 20.

Cases Noticed:

Sewell v. ING Insurance Co. of Canada - see/voir Sewell v. Sewell.

Sewell v. Sewell (2007), 314 N.B.R.(2d) 330; 812 A.P.R. 330; 2007 NBCA 42, refd to. [para. 6].

Cannon v. Lange et al. (1998), 203 N.B.R.(2d) 121; 518 A.P.R. 121 (C.A.), refd to. [para. 7].

Piedra et al. v. Copper Mesa Mining Corp. et al. (2011), 280 O.A.C. 1; 2011 ONCA 191, dist. [para. 9].

Salomon v. Salomon & Co., [1897] All E.R. 33 (H.L.), refd to. [para. 9].

Anns v. Merton London Borough Council, [1978] A.C. 728 (H.L.), refd to. [para. 11].

Cooper v. Registrar of Mortgage Brokers (B.C.) et al., [2001] 3 S.C.R. 537; 277 N.R. 113; 160 B.C.A.C. 268; 261 W.A.C. 268; 2001 SCC 79, refd to. [para. 11].

Edwards et al. v. Law Society of Upper Canada et al., [2001] 3 S.C.R. 562; 277 N.R. 145; 153 O.A.C. 388; 2001 SCC 80, refd to. [para. 11].

Williams v. Canada (Attorney General) et al. (2009), 249 O.A.C. 150; 2009 ONCA 378, leave to appeal denied (2009), 403 N.R. 400 (S.C.C.), refd to. [para. 11].

ADGA Systems International Ltd. v. Valcom Ltd. et al. (1999), 117 O.A.C. 39 (C.A.), leave to appeal refused (2000), 254 N.R. 400; 134 O.A.C. 400 (S.C.C.), refd to. [para. 13].

Said v. Butt, [1920] 3 K.B. 497; [1920] All E.R. 232 (H.L.), refd to. [para. 15].

Walsh v. Nicholls et al. (2004), 273 N.B.R.(2d) 203; 717 A.P.R. 203; 2004 NBCA 59, refd to. [para. 15].

Sullivan and Sullivan Farms Ltd. v. Desrosiers et al. (1986), 76 N.B.R.(2d) 271; 192 A.P.R. 271 (C.A.), leave to appeal refused (1987), 80 N.R. 315; 79 N.B.R.(2d) 90; 201 A.P.R. 90 (S.C.C.), refd to. [para. 16].

London Drugs Ltd. v. Brassart and Vanwinkel, [1992] 3 S.C.R. 299; 143 N.R. 1; 18 B.C.A.C. 1; 31 W.A.C. 1, refd to. [para. 16].

Statutes Noticed:

Contributory Negligence Act, R.S.N.B. 1973, c. C-19, sect. 1(1) [para. 18].

Counsel:

Avocats:

Sandra E. Dawe, for the appellants on Appeal Case 151-11-CA;

John P. Barry, Q.C., and Nadia M. MacPhee, for the appellants on Appeal Case 172-11-CA;

Mark A. Canty, Q.C., for the respondent, Deer Island Credit Union Limited;

Richard Bird, Q.C., for the respondents (third parties).

This appeal was heard and decided orally on March 22, 2012, by Richard, Bell and Quigg, JJ.A., of the New Brunswick Court of Appeal. The following decision of the court was delivered in both official languages on November 1, 2012.