Zurich Indemnity Co. v. Matthews, (2005) 198 O.A.C. 304 (CA)

• Judge: Feldman, Simmons and Gillese, JJ.A.
• Court: Court of Appeal (Ontario)
• Case Date: February 01, 2005
• Jurisdiction: Ontario
• Citations: (2005), 198 O.A.C. 304 (CA)

Zurich Indemnity Co. v. Matthews (2005), 198 O.A.C. 304 (CA)

MLB headnote and full text

Temp. Cite: [2005] O.A.C. TBEd. MY.009

Zurich Indemnity Company of Canada and Zurich Insurance Company (plaintiffs/respondents) v. Donald J. Matthews and Orville Parkes (defendants/appellants)

(C42484)

Indexed As: Zurich Indemnity Co. of Canada et al. v. Matthews et al.

Ontario Court of Appeal

Feldman, Simmons and Gillese, JJ.A.

May 2, 2005.

Summary:

A corporate general contractor entered into six contracts on various construction projects. Two insurers issued labour and material payment bonds and performance bonds for the projects. The general contractor was placed in bankruptcy. The bonds were called upon. The insurers paid out approximately $5.257 million to satisfy claims of subcontractors and became subrogated to the subcontractors' rights against the general contractor. Based on their subrogated rights, the insurers sued the general contractor's officers and directors. The defendants sought disclosure of documents from the insurers. The insurers asserted that the documents were not relevant. Consequently, the defendants moved to amend their statement of defence. The insurers opposed amendments that alleged that it had acted improvidently in underwriting the bonds and an amendment that alleged that its claim was barred either under s. 45(1)(h) of the Limitations Act or by the doctrine of laches. The defendants also sought production of additional documents, including the insurers' underwriting file.

The Ontario Superior Court dismissed the motion. The defendants appealed.

The Ontario Court of Appeal allowed the appeal in part and set aside the order below. The court granted the defendants leave to amend their statement of defence so as to plead laches. Assuming that it had jurisdiction to entertain the appeal respecting production of documents, the court declined to decide the issue where there was no proper record on which to make such an order.

Building Contracts - Topic 7544

Performance bonds - Rights of surety - Subrogation - A corporate general contractor entered into six contracts on various construction projects - Two insurers issued labour and material payment bonds and performance bonds for the projects - The general contractor was placed in bankruptcy - The bonds were called upon - The insurers satisfied the claims of subcontractors and became subrogated to the subcontractors' rights against the general contractor - Based on their subrogated rights, the insurers sued the general contractor's officers and directors for breach of trust under the Construction Lien Act - The defendants moved to amend their statement of defence to allege, inter alia, that the insurers had acted improvidently in underwriting the bonds - The Ontario Court of Appeal affirmed a motions judge's refusal to allow the amendment - For the purposes of the subrogated action, the insurers stood in the subcontractors' shoes - It was the subcontractors' conduct that was relevant from a defence perspective - The improvident underwriting of claims related to the conduct of the insurers, not the subcontractors, and was therefore not a tenable defence - See paragraphs 16 to 21.

Building Contracts - Topic 7844

Labour and material payment bonds - Rights of surety - Subrogation - [See Building Contracts - Topic 7544 ].

Insurance - Topic 2887

Subrogation - Defences of third party - [See Building Contracts - Topic 7544 ].

Limitation of Actions - Topic 1910

Actions - General - Action for penalty, damages or a sum of money given by statute - A corporate general contractor entered into six contracts on various construction projects - Two insurers issued labour and material payment bonds and performance bonds for the projects - The general contractor was placed in bankruptcy - The bonds were called upon - The insurers satisfied the claims of subcontractors and became subrogated to the subcontractors' rights against the general contractor - Based on their subrogated rights, the insurers sued the general contractor's officers and directors for breach of trust under s. 13 of the Construction Lien Act - The defendants moved to amend their statement of defence to, inter alia, raise a defence based on s. 45(1)(h) of the Limitations Act - Section 45(1)(h) provided a two year limitation period for an action for a penalty, damages, or a sum of money given by any statute to the Crown or the party aggrieved - The Ontario Court of Appeal affirmed a motions judge's refusal to allow the amendment - Section 45(1)(h) only applied to penal actions - Section 13 of the Construction Lien Act was remedial and, accordingly, s. 45(1)(h) did not apply - See paragraphs 27 to 42.

Mechanics' Liens - Topic 7503

Trust fund - General - Breach of trust - Personal liability - [See Limitation of Actions - Topic 1910 ].

Mechanics' Liens - Topic 7503

Trust fund - General - Breach of trust - Personal liability - A corporate general contractor entered into six contracts on various construction projects - Two insurers issued labour and material payment bonds and performance bonds for the projects - The general contractor was placed in bankruptcy - The bonds were called upon - The insurers satisfied the claims of subcontractors and became subrogated to the subcontractors' rights against the general contractor - Based on their subrogated rights, the insurers sued the general contractor's officers and directors for breach of trust under the Construction Lien Act - The defendants moved to amend their statement of defence to, inter alia, raise a defence based on s. 45(1)(h) of the Limitations Act - A motions judge dismissed the motion where, inter alia, limitation periods did not apply to trustees - The Ontario Court of Appeal held that the motions judge erred in assuming that the defendants were trustees - Section 13(1)(a) of the Construction Lien Act extended liability to directors and officers if they assented to, or acquiesced in, conduct by the corporation which they reasonably ought to have known amounted to a breach of trust - Section 13 neither declared nor deemed the directors and officers to be trustees - See paragraphs 22 to 26.

Practice - Topic 2123.1

Pleadings - Amendment of pleadings - Statement of defence - Adding new defence - [See Building Contracts - Topic 7544 ].

Cases Noticed:

Keneber Inc. v. Midland (Town) (1994), 16 O.R.(3d) 753 (Gen. Div.), refd to. [para. 14].

AXA Pacific Insurance Co. et al. v. Nicol (R.J.B.) Construction (1975) Ltd. (Bankrupt) et al. (1998), 67 O.T.C. 271 (Gen. Div.), refd to. [para. 20].

Harrison (Patrick) & Co. v. Devran Petroleum Ltd. (1993), 22 C.P.C.(3d) 285 (Gen. Div.), folld. [para. 26].

Baltimore Aircoil of Canada Inc. v. ESD Industries Inc. et al., [2002] O.T.C. 458; 60 O.R.(3d) 290 (Sup. Ct.), folld. [para. 26].

Thomson v. Clanmorris (Lord), [1900-03] All E.R. Rep. 804 (C.A.), refd to. [para. 29].

West End Construction Ltd. and Scott v. Ontario (Minister of Labour) (1989), 34 O.A.C. 332; 70 O.R.(2d) 133 (C.A.), refd to. [para. 30].

Abraham v. Canadian Admiral Corp. (Receivership) (1998), 109 O.A.C. 36; 39 O.R.(3d) 176 (C.A.), refd to. [para. 31].

Superior Propane Inc. v. Tebby Energy Systems (1992), 9 O.R.(3d) 769 (Gen. Div.), refd to. [para. 32].

Smith (A.M.) & Co. v. R. (1981), 120 D.L.R.(3d) 345 (F.C.A.), refd to. [para. 32].

Johnson Controls Inc. v. Varta Batteries Ltd. (1984), 53 N.R. 6; 80 C.P.R.(2d) 1 (F.C.A.), refd to. [para. 32].

Bank of Nova Scotia v. Dunphy Leasing Enterprises Ltd. (1987), 77 A.R. 181; 38 D.L.R.(4th) 575 (C.A.), refd to. [para. 32].

Beef Stabilization Board (Sask.) v. Thomas (1992), 107 Sask.R. 47; 13 C.P.C.(3d) 190 (Q.B.), refd to. [para. 32].

Herbin v. Halifax Atlantic Investments Ltd. (2002), 211 N.S.R.(2d) 59; 662 A.P.R. 59; 36 C.P.C.(5th) 118 (S.C.), refd to. [para. 32].

Robinson v. Essex (1932), 41 O.W.N. 342, refd to. [para. 34].

Lax v. Lax (2004), 186 O.A.C. 20; 70 O.R.(3d) 520 (C.A.), refd to. [para. 35].

Essroc Canada Inc. v. Towne Concrete Forming Ltd., [2004] O.J. No. 2460 (Sup. Ct.), refd to. [para. 39].

Huntington v. Attrill, [1893] A.C. 150 (P.C.), refd to. [para. 40].

Perry, Farley & Onyschuk v. Outerbridge Management Ltd. et al. (2001), 146 O.A.C. 144; 54 O.R.(3d) 131 (C.A.), refd to. [para. 43].

Fleury v. Fleury (2001), 9 C.P.C.(5th) 222 (Ont. C.A.), refd to. [para. 45].

Statutes Noticed:

Construction Lien Act, R.S.O. 1990, c. C-30, sect. 13(1) [para. 25].

Limitations Act, R.S.O. 1990, c. L-15, sect. 45(1)(h) [para. 27].

Authors and Works Noticed:

Ontario, Law Reform Commission, Report on Limitation of Actions (1969), p. 52 [para. 33].

Counsel:

Hans P. Engell, for the appellants;

Richard H. Shaban and Cullen F. Price, for the respondents.

This appeal was heard on February 1, 2005, by Feldman, Simmons and Gillese, JJ.A., of the Ontario Court of Appeal. Gillese, J.A., delivered the following judgment for the court on May 2, 2005.