Claims for Contribution and Indemnity: When? Who? Why?

by Frank Csathy, Lesley Albert | Oct 16, 2018

INTRODUCTION

Commencing claims for contribution and indemnity is a common and important part of the litigation process and can be essential to protect the interests of our clients.  As such, it is important to recognise when such claims are available in law and when they are appropriate.

Generally speaking, there are three situations wherein a claim for contribution and indemnity may be made:  (i) between contracting parties, (ii) between concurrent tortfeasors, and (iii) between tortfeasors and contracting parties.  Part 1 of this paper discusses the state of the law with respect to these 3 situations generally, by way of case studies.  Part 2 of this paper addresses the recent case of Toronto Hydro v. Gonte and City of Toronto[2]  and the extent to which it has the potential to change the landscape of claims for contribution and indemnity, keeping in mind that it is a lower court decision and therefore likely not the final word on the extent of such claims.

PART 1: WHEN, WHO & WHY

(i) Contribution and indemnity between contracting parties: a case study of Parkhill Excavating Limited v. Robert E. Young Construction Limited[3]

Practically speaking, many claims that go through insurance and involve parties that have provided goods or services pursuant to a contract are framed in both breach of contract and negligence (i.e. construction deficiency claims, product liability claims, professional liability claims, maintenance and repair claims involving condominiums, etc.).  An example of a case wherein it was fortuitous that the claim was framed in both contract and negligence, is the 2017 case of Parkhill Excavating Limited v. Robert E. Young Construction Limited [4] (hereinafter “Parkhill Excavating ”).  In that case the claim in negligence was not made out due to the lack of expert evidence on the issue of whether the standard of care was met. However, the claim for breach of contract succeeded.  However, for the purposes of this paper, the importance of Parkhill Excavating centres on the discussion and analysis therein by Justice Boswell of the availability of claims for contribution and indemnity between contracting parties.

Parkhill Excavating was a decision in a third party action, following settlement in the main action. In the main action the plaintiff was BGS Homes and the defendants were Parkhill Excavating Limited and its principles, Arthur and Randy Barker (collectively “Parkhill”), the local health unit, and the municipality.  Parkhill brought Robert E. Young Construction Limited (“RYC”) into the action by way of Third Party Claim.

The background facts are that BGS built a number of homes in a subdivision without municipal services, requiring the homes to be equipped with private septic systems. Parkhill installed the septic systems, most of which it had designed.  The septic systems were raised filter bed systems and were built up above grade using filter sand supplied by RYC, pursuant to a contract with Parkhill.   The septic systems failed, resulting in BGS having to repair or replace 35 septic systems at a cost of $1.5 million.  A significant reason for the Municipality requiring rebuild of the systems was that the filter sand used, and supplied by RYC, was largely not compliant with Ontario Building Code requirements as to grain size (they were too big).  The main action settled part way through trial with Parkhill contributing $420,000 to the settlement and incurring litigation costs that totaled $675,033.25.

In this third party action, the Fresh as Amended Third Party Claim sought “contribution and indemnity and relief over for the amounts the Parkhill defendants agreed to pay to the plaintiffs in the main action, pursuant to the settlement of the main action”. 

The issue of the availability of claims for contribution and indemnity in contract arose in Justice Boswell’s consideration of how Parkhill’s damages were to be measured, after establishing that RYC was in breach of the implied warranty of fitness for use, which was deemed to include a warranty of compliance with the Ontario Building Code in these circumstances.

It is at this point that Justice Boswell’s decision addresses counsel for RYC’s attempt to argue that essentially Parkhill was barred from any remedy in contract as against RYC because (i) there was no contractual right of indemnity between them [i.e. no indemnification clause in the contract], (ii) the right to indemnity under the Negligence Act does not apply to breaches of contract, and (iii) there is no enforceable implied right to indemnity because such a right is restricted to cases where the claimant is without fault, which was not the case for Parkhill.[5]

In response to this argument, Justice Boswell held as follows:

[153] With respect to the effort put into the argument by RYC, I do not intend to spend much time on it.  This is a claim for damages based in contract and tort.   The Claim arguably may have been better without the use of the phrase “contribution and indemnity”.  But it is clear from a careful reading of the claim that Parkhill is seeking damages from RYC for, amongst other things, its breach of the implied warranty of fitness under s. 15 of the SGA.

[154] The Claim, in any event, seeks “relief over” against RYC.  I understand that phrase to mean essentially that Parkhill is seeking damages against RYC equal to any amounts it is required to pay as a consequence of the claim of BGS in the main action. The Claim goes on to outline the bases upon which RYC is allegedly liable for those damages, in both contract and tort.

[155] There is absolutely no unfairness to RYC to treat the Claim as one for breach of contract and negligence. Indeed, it would be unfair to Parkhill, at the end of seven weeks of trial, to say, “too bad, you didn’t frame your prayer for relief correctly”.

[Emphasis added]

An issue in Parkhill Excavating  was whether Parkhill’s contractual damages should be subject to reduction for fault-based contribution or otherwise. Counsel for Parkhill had indicated if the Court were to find liability against RYC under contract and tort, then Parkhill preferred to take its damages in contract[6].  Justice Boswell took this to mean that Parkhill expected or hoped that a damages award in contract would not be subject to reduction for any fault on behalf of Parkhill, whereas an award in tort would likely be reduced to account for Parkhill’s contributory negligence, pursuant to S. 3 of the Negligence Act[7].  Justice Boswell rejected this notion and held as follows:

[207] It appears to me, however, that Canadian authorities now firmly support the conclusion that there should generally be no difference in the measure of damages payable on a particular set of facts regardless of whether the claim is framed in contract or tort.  As the majority held in B.G. Checo[8], as above, at para. 47:

In situations of concurrent liability in tort and contract, however, it would seem anomalous to award a different level of damages for what is essentially the same wrong on the sole basis of the form of action chosen, though, of course, particular circumstances or policy may dictate such a course.

See also Tompkins Hardware Ltd. v. North Western Flying Services Ltd.  (1982), 1982 CanLII 3160 (ON SC), 139 D.L.R.(3d) 329 (Ont. H.C.);

[208] It is of significance, however, that while the Negligence Act ,  provides a mechanism for apportioning damages in cases of concurrent or shared fault in tort cases, there is no ready-made mechanism to do the same in contracts cases.

[209] Courts have, nevertheless, found a number of means of apportioning fault, where it is fair and appropriate to do so in contracts cases.  In some cases, the mechanism used is causationBensuro Holdings Inc. v. Avenor Inc.,  [2004] O.J. No. 4875 (Ont. C.A.).  In other cases, it is foreseeability.  In other words that it was within the reasonable contemplation of the parties that they would be liable for damages in accordance with their respective degrees of fault: Doiron v. Caisse populaire d’Inkerman Ltée  (1985), 1985 CanLII 95 (NB CA), 61 N.B.R. (2d) 123 (N.B. C.A.).

[210] Professor E.J. Weinrib suggested, as long ago as 1976, that restitution was an appropriate mechanism of apportionment, as the concept of unjust enrichment should prevent a partially at-fault plaintiff from recovering damages that he or she contributed to.  See E.J. Weinrib, Contribution in a Contracts Setting, 54 Can. Bar Review 338 (1976).  This mechanism is supported by Professor Waddams: The Law of Contracts, as above, at 777.

[211] A thorough review of the Canadian jurisprudence on the issue of fault-based apportionment of damages in contracts cases was provided by Ducharme J. in Treaty Group Inc. v. Drake International Inc., 2005 CarswellOnt 7057 (S.C.J.), aff’d 2007 ONCA 450 (CanLII).  He concluded as follows, at paras. 69-70:

My review of the foregoing jurisprudence persuades me that, while I cannot rely on the provisions of the Negligence Act, R.S.O. 1990, Ch. N.1, I can apportion damages in a contract action to recognize conduct on the part of the plaintiff that has increased his or her damages…

I agree with the view expressed by Saunders J. in Tompkins Hardware Ltd. that there is no principled reason not to consider contributory fault in a contracts case… Indeed, to refuse to consider contributory fault would be reminiscent of the technical strictures of the old system of common law pleadings and elevate the niceties of pleadings above the substantive requirements of achieving the fair and just result in any particular case.

[212] A common theme uniting the authorities is that fault-based apportionment of damages in contracts cases is often required as a matter of fairness and justice.  The concept is quite simple:  where a plaintiff has contributed to his or her own losses, he or she ought to be responsible for those losses, to the extent that he or she caused them, whether a claim is framed in contract or tort.  Regardless of the mechanism for achieving it – whether it be causation, foreseeability or restitution – the time has come where courts have both the will and the means to impose fault-based apportionment of damages in contracts cases.

[Emphasis added]

Justice Bosewell therefore set out in no uncertain terms that parties who are liable to the plaintiff in contract may claim contribution from each other and liability will be apportioned accordingly.

We suggest the takeaway from this recent decision is:

  • Claims for “contribution” are available to parties that have contracted with each other;
  • Plead claims for contribution and indemnity broadly to avoid restricting the claim to negligence only;
  • It is a good idea to include the term “relief over” as an element of the claim in the prayer for relief when suing for contribution and indemnity in contract, whether it be in a Crossclaim or Third Party Claim; and
  • Apportionment based on fault is available in claims for contribution in contract, through considerations of the principles of causation and restitution.


(ii) Contribution and Indemnity Between Concurrent Tortfeasors: A case study of Lawson v. Viersen et. al.[9]

The 2012 decision of the Court of Appeal for Ontario in Lawson v. Viersen is a costs decision, specifically regarding whether “Rule 49.10 cost consequences” were applicable in a situation where two actions arising from separate motor vehicle accidents were consolidated, the plaintiff argued that each accident resulted in the same damages, and the offers to settle made by the two sets of defendants had not been made jointly.  The offer of the defendant in the first action exceeded the Jury’s award against him. The offer of the defendant in the second action did not exceed the Jury’s award against him. (The offers together exceeded the plaintiff’s total recovery at trial –this fact not being relevant to our topic).

In coming to its decision that the Trial Judge did not err in declining to award Rule 49.10 cost consequences in this consolidated action, the Court of Appeal’s reasoning centred on the meaning of joint and several liability and concurrent tortfeasors under Section 1 of the Negligence Act [10], and it is for this reason that this case is often cited and is a focus herein.

The background facts are that the plaintiff, Martha Lawson, was involved in 2 motor vehicle accidents that occurred approximately seven months apart. The first accident involved the Viersen defendants, and the second accident was with the defendant Robert Hart. Plaintiff commenced a separate action for each accident, and in the Statements of Claim claimed damages in respect of alleged injuries to the same areas of the plaintiff’s body.  Neither Statement of Claim mentioned the other accident.  However, the position of the plaintiff and of her medical experts was that both the first and second accidents contributed to the same damages and injuries.  This position was conveyed at the Pre-Trial Conference and a consent Endorsement was made ordering the actions to be tried together as one consolidated action.

The verdict by the Jury at Trial was that the injuries sustained by the plaintiff in each accident were separate and distinct.

As mentioned, the offer of the defendants in the first action, the Viersens, exceeded the award against them.  The offer of the defendant in the second action, Hart, did not exceed the Jury’s award against him.

As per Rule 49.10(2) of the Rules of Civil Procedure[11]:

Defendant’s Offer

(a) Where an offer to settle,

(b) is made by a defendant at least seven days before the commencement of the hearing;

(c) is not withdrawn and does not expire before the commencement of the hearing; and

(d) is not accepted by the plaintiff,

and the plaintiff obtains a judgment as favourable as or less favourable than the terms of the offer to settle, the plaintiff is entitled to partial indemnity costs to the date the offer was served and the defendant is entitled to partial indemnity costs from that date, unless the court orders otherwise.  R.R.O. 1990, Reg. 194, r. 49.10 (2); O. Reg. 284/01, s. 11 (2).

As per Rule 49.11 of the Rules of Civil Procedure[12]:

            MULTIPLE DEFENDANTS

            49.11 Where there are two or more defendants, the plaintiff may offer to settle with any   defendant and any defendant may offer to settle with the plaintiff, but where the defendants are alleged to be jointly or jointly and severally liable to the plaintiff in respect of a claim and rights of contribution or indemnity may exist between the defendants, the cost consequences prescribed by rule 49.10 do not apply to an offer to settle unless,

(a) in the case of an offer made by the plaintiff, the offer is made to all the defendants, and is an offer to settle the claim against all the defendants; or

(b) in the case of an offer made to the plaintiff,

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

(ii) the offer is made by all the defendants and is an offer to settle the claim against all the defendants, and, by the terms of the offer, they are made jointly and severally liable to the plaintiff for the whole amount of the offer.  R.R.O. 1990, Reg. 194, r. 49.11.

[Emphasis Added]

At Trial the Viersens argued that their offer could be considered as a stand-alone offer and did not have to encompass the claim being made in the action against Hart in accordance with Rule 49.11, given that the accidents were separate and the Viersens did not try to shift responsibility to Hart (i.e. no crossclaim in the consolidated action).

The Trial Judge rejected that position and held that the offers needed to be made jointly and comply with Rule 49.11 in order for the cost consequences contemplated by Rule 49.10(2) to apply.  The Trial Judge reasoned that Rule 49.11 needed to be complied with because the Viersens and Hart were alleged to be joint and several in liability by the plaintiff for her injuries.

While there were other issues in respect of the decision on costs by the lower Court, the issue before the Court of Appeal for Ontario that is of interest for the purposes of this paper was whether the Trial Judge had erred in declining to apply the cost consequences of Rule 49.10 against the plaintiff and in favour of the Viersens, considering that the Viersens’ offer to settle exceeded the award against them.

On appeal, the plaintiff argued that Rule 49.11 must apply because same requires the plaintiff to allege joint and several liability of the defendants or put another way advance a claim that may result in rights of contribution or indemnity, which she did, and the fact that the Jury decided otherwise was irrelevant.

The Viersens argued on appeal that where there are two separate and distinct actions arising from two torts separated in time there is no possibility of joint and several liability,  and consequently no right of contribution and indemnity existed between the defendants, making Rule 49.11 inapplicable.

In deciding that the Trial Judge did not err in this regard the Court of Appeal provided an in depth analysis, as follows[13]:

Determining joint and several liability and rights of contribution and indemnity

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

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

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

[31] Tortfeasors whose torts are separate in time but concur in the sense that they run together to produce the same damage [page 781] are described by Glanville L. Williams, Joint Torts and Contributory Negligence: A Study of Concurrent Fault in Great Britain, Ireland and the Common-Law Dominions (London: Stevens and Sons, 1951), at p. 1, as concurrent tortfeasors. These concurrent tortfeasors are distinguished from “nonconcurrent tortfeasors”, where separate acts produce different damage to the plaintiff. This was explained in the Ontario Law Reform Commission, Report on Contribution Among Wrongdoers and Contributory Negligence (Toronto: Ontario Ministry of the Attorney General, 1988), at p. 8-9, as follows:

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

[32] The issue of joint and several liability was dealt with by this court in Alderson v. Callaghan (1998), 1998 CanLII 895 (ON CA), 40 O.R. (3d) 136, [1998] O.J. No. 2181 (C.A.). In Alderson, the plaintiff sued her common law spouse as result of injuries she sustained in a motor vehicle accident while a passenger in an automobile driven by her common law spouse. The defence took the position that the extensive brain damage she suffered was not due to that accident but rather to a series of post-accident assaults inflicted on her by her common law spouse, a further assault committed by a stranger and her pre-existing conditions. Relying on Athey v. Leonati, 1996 CanLII 183 (SCC), [1996] 3 S.C.R. 458, [1996] S.C.J. No. 102, this court held that, where damages caused by consecutive tortfeasors are indivisible, in that it is impossible to determine which tortfeasor caused which damages, the material contribution test applies. In those circumstances, any tortfeasor whose actions materially contributed to those damages is liable for all of the damages and, pursuant to s. 1 of the Negligence Act, each tortfeasor has a right of contribution and indemnity from the other tortfeasors who caused the damages.

. . .

[34] In Martin v. Listowel Memorial Hospital (2000), 2000 CanLII 16947 (ON CA), 51 O.R. (3d) 384, [2000] O.J. No. 4015 (C.A.), leave to appeal to S.C.C. refused [1993] 3 S.C.R. vii, [1992] S.C.C.A. No. 447, this court described the purpose of s. 1 of the Negligence Act, at para. 34, as facilitating “full recovery of the loss for the plaintiff, while at the same time providing a mechanism for each of those who contributed to the loss to share the financial responsibility in the proportions of their respective degrees of fault”. . . .

[35] In summary, the Negligence Act makes concurrent tortfeasors, that is, persons whose conduct causes a single loss to another, jointly and severally liable. It also provides for the right of concurrent tortfeasors to claim contribution and indemnity from another tortfeasor provided the tortfeasor from whom he or she seeks contribution is, or could be if sued, liable to the plaintiff. The statute is not concerned with the acts of several tortfeasors whose actions produce different damage to the same person. In those circumstances, several tortfeasors are liable only for the damage they respectively caused.[14]

The Viersens attempted to argue that the Court of Appeal for Ontario’s decisions in O’Neil v. Van Horne (2002), 59 O.R. (3d) 384[15], and in Misko v. John Doe  (2007), 87 O.R. (3d) 517[16], came to different conclusions when it found that tortfeasors whose tortious conduct led to the same type of damages but were separated in time were non-concurrent tortfeasors.  Rouleau J.A., on behalf of the Court of Appeal held that the Court of Appeal in the said two cases did not come to a different conclusion on the meaning of concurrent tortfeasors under the Negligence Act.

In respect of O’Neil v. Van Horne, Rouleau J.A. held:

[37] I disagree. In O’Neil, . . . the court concluded that this was not a case where two or more tortfeasors had caused single indivisible damage. Rather, each tortfeasor may have aggravated the injury suffered by the plaintiff.

. . .

In respect of Misko v. John Doe, His Honour held:

[42] In Sale v. O’Grady’s Restaurant, [2011] O.J. No. 2493, 2011 ONSC 2837 (CanLII), Strathy J., in a thoughtful analysis, carefully reviewed the Misko decision . . . As Strathy J. explained, the basis of this court’s conclusion that the third party claim should be struck was that Liberty Mutual could never be at risk of having to compensate the plaintiff for the damages sustained in the first accident. This was because the plaintiff had limited his claim against Liberty Mutual to the portion of damages for which Liberty Mutual would ultimately be responsible. . . .

. . .

Thus, in the Court of Appeal’s 2012 decision the Lawson v. Viersen et al., it held, in no uncertain terms, that tortfeasors whose conduct causes indivisible injuries or damage are concurrent tortfeasors and are jointly and severally liable to the plaintiff under the Negligence Act.  The torts need not be concurrent in time.

We suggest the takeaway from this decision is:

  • A claim for contribution and indemnity between tortfeasors whose tortious conduct is separated in time is available as long and the damages caused are indivisible;
  • That scenario will be in a situation wherein the “but for” causation test is not workable and the “material contribution” test of causation applies, which is a rare occurrence;
  • Do not confuse a claim of aggravation of damages with one of indivisible damages, so as to avoid any adverse cost consequences of third partying non-concurrent tortfeasors –or third party the other tortfeasor(s) but be sure to agree to a without costs dismissal as soon as productions and examinations for discovery are complete if it is apparent that at issue is an aggravation of damages;


(iii) Contribution and Indemnity Between Tortfeasors and Contracting parties: A case study of Trans-Canada Forest Products v. Heaps
[17]

The issue of the availability of claims for contribution and indemnity at common law between tortfeasors and contract breakers was addressed by the Supreme Court of Canada in its 1954 decision in Trans-Canada Forest Products v. Heaps (hereinafter “Trans-Canada Forest Products ”), supra.  This decision has been often since cited and was addressed in the recent 2018 Toronto Hydro v. Gonte and City of Toronto  decision discussed under Part 2 below, and it is for this reason that it is a focus herein.  It should be noted that inToronto Hydro v. Gonte and City of Toronto, Justice Copeland acknowledged that this is an area where the law is still developing.

The background facts are that Chris Bergvin Hoff (deceased at the time of appeal to the Supreme Court of Canada, and hereinafter “Hoff” –but not “The Hoff”!) owned a planer mill (i.e. a lumber mill) and Trans-Canada Forest Products (hereinafter “TCFP”) was the lessee. The mill was operated by an engine which had broken down.  TCFP had contracted Heaps, Waterous Limited (hereinafter “Heaps”), the sellor of the engine, to make the repairs.  Heaps subcontracted Lipsett Engine and Manufacturing Co. (hereinafter “Lipsett”) to do the repairs, and Lipsett sent out a mechanic by the name of Martin and his helper to do the repairs.  (An issue in the litigation was whether Martin was the agent of Heaps or Lipsett at the time of the repairs).  While Martin and his helper were doing the repairs the engine caught fire and the mill burned down.  Hoff and TCFP commenced their own separate actions to recover losses from the fire. Heaps and Lipsett were the named defendants in each action.  Heaps then initiated proceedings against Lipsett for contribution and indemnity. These 3 actions were consolidated prior to trial.

At trial, judgment was awarded in favour of TCFP against Heaps and Lipsett jointly and severally and Heaps was entitled to be indemnified by Lipsett.  Hoff’s action was dismissed as against Heaps, but Hoff’s action against Lipsett succeeded.  Lipsett appealed.

The majority of the British Columbia Court of Appeal dismissed both main actions and the proceedings for indemnity, holding that the mechanic sent out by Lipsett had not been negligent.

The Majority of the Supreme Court of Canada held that Martin was the employee of Lipsett and was negligent in performing the work, and that even if he was not negligent, the doctrine of res ipsa loquitur (the principle that in certain circumstances the occurrence of an accident implies negligence) applied.  It was further held that the negligent performance of the work under this contract constituted a breach thereof for which Heaps was liable in damages to TCFP.[18]  As to the issue of whether there was any contributory negligence on the part of TCFP, it was held that there was none.

The issue before the Supreme Court of Canada that we are concerned with for the purposes of this paper was the consideration of whether there is a common law right of indemnity, and whether it applies as between defendants who are not both tortfeasors?

In this respect the Majority of the Supreme Court of Canada held:

As between Lipsett and Heaps, the work of repairing and testing the engine was of a type the former agreed to and did, in fact, upon this occasion, undertake to perform. The damages arising out of Martin’s negligence in the performance of that duty was a liability of Lipsett. In the circumstances judgment has been given against Heaps and Lipsett for the damages suffered by Trans-Canada. These parties were not joint tortfeasors. In so far as Heaps may be called upon to pay these damages, that company is entitled to be indemnified by Lipsett. Eastern Shipping Co. Ltd. v. Quah Beng Kee[16] ; McFee v. Joss[17] .[19]

The result was that TCFP was entitled to recover damages against Heaps in contract and against Lipsett in tort.  Hoff was entitled to recover from Lipsett in tort.  Heaps was entitled to be indemnified by Lipsett –meaning a party liable to the plaintiff in contract was entitled to relief over from a party liable to the plaintiff in tort.  While one might take the position that this was a special case because there was a contract between Heaps and Lipsett, that was not the rational of the Supreme Court of Canada noted above.

We suggest the takeaway from this decision is:

  • Claims for contribution and indemnity are available between a party liable to the plaintiff in contract and a party liable to the plaintiff in tort, at least at common law.


PART 2: WHEN, WHO & WHY AFTER
TORONTO HYDRO V. GONTE AND CITY OF TORONTO

The 2018 case of Toronto Hydro v. Gonte and City of Toronto[20] is a decision in respect of a Rule 22/Special Case motion under the Rules of Civil Procedure[21], which is essentially a motion for a determination by the Court of a question of law, with the question agreed upon by the parties[22].  The agreed upon issues were all in respect of the parameters of claims for contribution and indemnity, and this case is one of the most recent edicts from the Ontario Courts in this regard.

The background facts are that there was a fire in a vault in the basement parking garage of a building owned by Gonte.  The vault housed two Toronto Hydro electrical transformers. The source of the fire was alleged to have been one of the Toronto Hydro transformers although the cause of the fire was not clear at this stage of the proceedings.  A City of Toronto fire crew attended the scene.  The fire crew heard concerning noises and evacuated the area. This was followed by a series of explosions with sufficient force that the floors of the underground parking garage partially collapsed.

Toronto Hydro was then sued in two actions, one of which was a class action.  In both actions Toronto Hydro commenced third party claims for contribution and indemnity against Gonte and the City of Toronto.  Toronto Hydro’s claim against the City of Toronto was based in negligence (i.e. how the City’s fire crew responded to the fire) and negligent misrepresentation (i.e. in respect of pre incident inspections).  Toronto Hydro claimed against Gonte in contract and in negligence, claiming that Gonte breached the vault maintenance provisions of its contract with Toronto Hydro with respect to the former and similarly claiming that Gonte was negligent in its duty to maintain the vault with respect to the latter. Gonte denied it had a contractual relationship with Toronto Hydro.

Gonte counterclaimed against Toronto Hydro and crossclaimed against the City of Toronto for contribution and indemnity.

The City of Toronto crossclaimed against Gonte for contribution and indemnity.

Eventually Toronto Hydro settled with the plaintiffs in both actions. Toronto Hydro also settled with the City of Toronto in both actions.  The settlement with the City was without a Pierringer Agreement (that would restrict Toronto Hydro’s claim against Gonte to its several share of liability).

Therefore, following these settlements there remained:

  • The Third Party Claim by the defendant, Toronto Hydro against the third party, Gonte for contribution and indemnity in contract and in negligence (with Gonte counterclaiming back against Toronto Hydro);
  • The Crossclaim by the third party, Gonte, against the third party, City of Toronto for contribution and indemnity in negligence; and
  • The Crossclaim by the third party, City of Toronto, against the third party, Gonte for contribution and indemnity in negligence.

 

The issues on this motion were:

1) Whether Toronto Hydro’s third party claim for contribution and indemnity against Gonte in tort was limited to claiming the share of liability apportioned to Gonte as opposed to being entitled to pursue the full claimed amount against Gonte (i.e. the amount of its settlement with the plaintiffs in both actions, less any amounts for which Toronto Hydro is responsible, but including amounts for which City of Toronto is responsible, hereinafter “the full amount”)?

2) If Toronto Hydro can claim the full amount against Gonte in tort, can Gonte claim contribution and indemnity from the City?[23]

Note: All parties agreed that the answer to the second question was yes. Therefore there was no deliberation on this issue.

3) If Gonte were found liable to Toronto Hydro for breach of contract, could Gonte claim contribution and indemnity from the City for the amounts payable for the contract breach?

Again, only issues 1 and 3 were addressed.

Re: Issue 1, whether a third party claim for contribution and indemnity in tort is limited to the third party’s proportionate share of liability?

With respect to the first issue, Justice Copeland found that the effect of Sections 1 and 2 of the Negligence Act [24] was to limit Toronto Hydro’s claims in tort for contribution and indemnity against the City of Toronto and Gonte to the said third parties’ several share of liability.[25]

The authors note that in the multitude of cases reviewed for this paper, the decisions dealing with claims for contribution and indemnity against a non-settling party involved a claimant who had voluntarily limited the claim against the non-settling party to its several share of liability.  Justice Copeland’s finding that such limitation is the necessary result is something new in the case law, as far as we have seen.

Justice Copeland commences her analysis of this issue with a consideration of Sections 1 and 2 of the Negligence Act, which provide as follows:

Extent of liability, remedy over 

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

Recovery as between tortfeasors

2) A tortfeasor may recover contrib0ution or indemnity from any other tortfeasor who is, or would if sued have been, liable in respect of the damage to any person suffering damage as a result of a tort by settling with the person suffering such damage, and thereafter commencing or continuing action against such other tortfeasor, in which event the tortfeasor settling the damage shall satisfy the court that the amount of the settlement was reasonable, and in the event that the court finds the amount of the settlement was excessive it may fix the amount at which the claim should have been settled.[26]

[Emphasis added]

Justice Copeland interpreted these sections as follows:

[42] Rather, I find that s. 2 must be read in conjunction with s. 1.  The basic policy of the Negligence Act  is set out in section 1, and is that tortfeasors are jointly and severally liable to the plaintiff, but for purposes of contribution and indemnity, as between themselves, (in the absence of contracting out) they are liable “in the degree to which they are respectively found to be at fault or negligent” – i.e., each for their several share of liability.  I find that this apportionment regime extends to cases where a defendant has settled with a plaintiff and is seeking contribution and indemnity under s. 2.  Section 2 exists to make clear that where a defendant settles with a plaintiff, there is still a right to pursue contribution and indemnity, and to provide a mechanism for the courts to ensure that only amounts of settlement that are reasonable are apportioned:Cheifetz, Apportionment of Fault in Tort  at pp. 145-146; R. v. Thomas Fuller Construction Co. (1958) Limited, 1979 CanLII 187 (SCC), [1980] 1 S.C.R. 695 at p. 712.[27]

[Emphasis added]

Her Honour goes on to hold:

[47] I find that [the] effect of the settlement is that Toronto Hydro made a voluntary choice to give up its claim in tort for contribution and indemnity from the City.  In so doing, Toronto Hydro made a voluntary choice to forgo its claim on the City’s several share of liabilityIn my view, Toronto Hydro cannot now indirectly pursue the City’s share of liability through the vehicle of claiming a larger share from Gonte because Gonte is the only party left that Hydro can claim against, and then have Gonte recoup Toronto’s share via Gonte’s crossclaim.

[48] I find that allowing Toronto Hydro to do this would be contrary to the effect of ss. 1 and 2 of the Negligence Act , which make claims for contribution and indemnity for the several share of a party’s liability. 

[49] . . .  clearly, if liability in tort is apportioned between two parties (Toronto Hydro and Gonte), rather than between three parties (Toronto Hydro, the City and Gonte), the two parties will each bear a bigger share of liability than if there were three parties to whom liability was apportioned.  I find that it would be fundamentally unfair for this effect to be imposed on Gonte by a settlement that it was not a party to.  And, as outlined above, I find that it is inconsistent with sections 1 and 2 of the Negligence Act  where all defendants and third parties were involved in the litigation, and the defendant chose to give up its claim against one of the third parties.[28]

[Emphasis added]

The writers note that the above excerpt addresses the fairness of having the Court apportion liability between all named parties to the action, despite any exclusive settlement, so as to insure against the non-settling party being burdened with liability beyond its proportionate share.

However, by decreeing that claims for contribution and indemnity are limited to the sued party’s several share, is the result not to eliminate fourth party claims against parties not yet involved in the litigation and thereby limiting the number of entities to which liability may be apportioned? Does this not leave sued parties potentially bearing liability beyond their proportionate share?

This concern was voiced by Toronto Hydro and Gonte on this motion. However, Justice Copeland appears to have only addressed this concern in the context of a missing potentially liable party who truly cannot be found. Her Honour acknowledged that in such circumstance the result would be to “divide the several liability under the contribution regime into fewer shares” but justified this result as being “the fairest outcome in the circumstance of a missing party, in that none of the defendants bears the costs of the missing party’s absence alone”.[29]

Indeed, Her Honour by-passed the issue of the circumstance wherein there are potential parties who are not “missing” or un-locatable, but have simply not been sued by the plaintiff in the main action or by the defendants by way of Third Party Claim.  Her Honour indicated that same was a hypothetical issue given that there was no such notional party/ies in this case and there remained a “lis ” (i.e. a suit) involving the City of Toronto, in the way of the  mutual crossclaims between it and Gonte.[30]

Further, as pointed out by counsel for Gonte, the logical extension of Justice Copeland’s finding that claims for contribution and indemnity in tort may only seek proportionate liability is that crossclaims between such third parties so sued are unnecessary (if not improper).  Justice Copeland rejected that same would be the result:

[68] I am not persuaded that reading ss. 1 and 2 of the Negligence Act  as limiting a defendant’s claim for contribution and indemnity from a third party to seeking each third party’s several would mean that crossclaims between third parties for contribution and indemnity between them are not necessary.  Crossclaims between the third parties for contribution and indemnity create a lis inter partes  between the third parties.  Absent crossclaims between the third parties, a lis  only exists between the defendant and each third party, but not between the third parties themselves.  That lis between the third parties is necessary, because if the matter goes to trial, and the trial judge has to apportion liability, commonly one tactic of each third party making its case for a smaller share of liability will be trying to make a case that the other third party or parties should bear a larger share of liability.  The crossclaims between the third parties will define the allegations that are the basis for these issues to be tried.

[Emphasis added]

The writers are of the view that Justice Copeland’s comments in this regard actually prove the point of the necessity for the continued allowance of Fourth Party Claims.  The “lis” is required for the Court to be in a position to apportion liability between those who may bear liability to the plaintiff.

Thus, is the decision of Justice Copeland internally inconsistent or does it protect fourth party claims for contribution and indemnity by third parties who have been sued for such damages themselves?  Is Justice Copeland saying that while fourth parties have no exposure to a third party sued for its proportionate share they may nonetheless be sued by way of fourth party claim to enable a truer/fairer apportionment of liability at trial?  It is one thing to crossclaim against another party who is already part of the action, but how can a third party sue a fourth party for contribution and indemnity toward the third party’s several/proportionate share of liability –i.e. sue a party for something to which they bear no exposure?

The writers are of the view that the prudent/best practice is to continue to bring Fourth Party Claims in these circumstances. This is a developing area of law that is likely to be challenged and refined.  Moreover, the decision does not explicitly state that Fourth Party Claims for contribution and indemnity made by a third party so sued are barred.

A real conundrum will be when we are all faced with the instance when our client is fourth partied in this way.  Should the Fourth Party Claim be challenged as failing to plead a cause of action known in law, possibly leading to a decision in that one client’s favour but creating case law that will be adverse in interest to our other clients for whom such a Fourth Party Claim against another individual or entity is their best interest?  Food for thought.

Re: Issue 3, if Gonte were found liable to Toronto Hydro for breach of contract only, could Gonte claim contribution and indemnity from the City for the amounts payable for the contract breach? 

In order to answer this question Justice Copeland was required to consider whether contribution and indemnity is available under the Negligence Act, supra, where the party seeking contribution and indemnity has been found liable in contract and not in tort.

Relying on a number of earlier decisions that already addressed this issue Justice Copeland held that contribution and indemnity would not be available to Gonte under the Negligence Act if Gonte was found liable only in breach of contract.  This is because the language of the Negligence Act limits contribution and indemnity to “tortfeasors”.[31]

Her Honour then went on to consider whether contribution and indemnity in these circumstances was available at common law.

Justice Copeland cited the aforementioned 1954 Supreme Court of Canada decision in Trans-Canada Forest Products v. Heaps [32] in addition to four other cases since then, as “authority for the availability at common law of claims . . . for contribution and indemnity in circumstances where tort and contract claims overlap”.[33]

Justice Copeland went on to hold:

Whatever the legal theory employed, what these cases have in common is a recognition of the unfairness of denying contribution and indemnity between defendants based on the nature of the cause of action pleaded, when as a factual matter multiple defendants are at fault in some way or another, whether in tort or contract: S.M. Waddams, The Law of Contracts, 7th ed. (Thomson Reuters: 2017) at pp. 541-542.”[34]

[Emphasis added]

Justice Copeland held that Gonte’s claim for contribution and indemnity from the City on the basis that its tortious conduct contributed to the damages had a reasonable prospect of success and was proper.[35]

We suggest the following in terms of the takeaway to be had from this decision:

  • No more Fourth Party Claims for contribution and indemnity in tort? Not until there is an appellate decision on the issue of claims for contribution and indemnity being restricted to several/proportionate liability.
  • Are Pierringer Agreements less necessary in tort cases? In theory, they may be less necessary for a settlement of a claim for contribution and indemnity.  However, we would recommend not risking going without a Pierringer Agreement in instances such as these until there is an appellate decision confirming claims for contribution and indemnity in tort may only seek the sued party’s proportionate share of liability.
  • Pierringer Agreements remain necessary in respect of settlements between the plaintiff and a defendant, since S. 1 of the Negligence Act allows the plaintiff to claim the full amount against the remaining defendants on the basis of their joint and several liability, and the Pierringer Agreement would cause the plaintiff to indemnify the settling defendant from such exposure.
  • Claims for contribution and indemnity remain available in circumstances where tort and contract overlap.
  • Fourth party claims for contribution and indemnity based on breach of contract remain available (e.g. claims against subcontractors for breach of contract).

CONCLUSION

What is clear is that claims for contribution and indemnity may be made:  (i) between contracting parties, (ii) between concurrent tortfeasors, and (iii) between tortfeasors and contracting parties.

It also seems clear that fourth party claims for contribution and indemnity based on breach of contract remain available.

What is less clear, after Toronto Hydro v. Gonte and City of Toronto, is whether claims for contribution and indemnity in tort by third parties remain available. However the authors are of the view that the Toronto Hydro v. Gonte and City of Toronto decision is not likely to be the last word on the subject.  That case is not under appeal.  However the issue is sure to come up in subsequent jurisprudence.  That being said, whoever brings this issue to a head should bear in mind that the result will be a double edged sword. While in one instance a client’s interest will be to move to strike a Fourth Party Claim for contribution and indemnity for failing to assert a proper cause of action, at the same time or in a separate instance another client’s interest will be to pursue a Fourth Party Claim for contribution and indemnity.


[1] Special thank you to Brianna Mantynen, Student at Law, for conducting legal research for this paper.

[2] 2018 ONSC 4315; Note: this case was argued by Chris Afonso and Elizabeth Bowker of Stieber Berlach LLP.

[3] 2017 ONSC 6903 (CanLII)

[4] 2017 ONSC 6903 (CanLII)

[5] Ibid, at para 152.

[6] Ibid, at para 204

[7] R.S.O. 1990, c. N.1, S.3

[8] BG Checo International Ltd. v. British Columbia Hydro & Power Authority, [1993] 1 S.C.R. 12

[9] 108 O.R. (3d) 771

[10] RSO 1990, c. N.1

[11] RRO 1990 Reg. 194, Rule 49.10(2)

[12] Ibid, Rule 49.11

[13] Lawson v. Viersen, 2012 ONCA 25 (CanLII), para 28

[14] Ibid, paras 29 to 35

[15] (A case where the plaintiff was sexually abused by various individuals over time).

[16] (A case involving two accidents separated in time –with the action arising from the first accident settling before trial in respect of the second accident)

[17] [1954] SCR 240

[18] Ibid, at page 251

[19] Ibid, at page 261

[20] 2018 ONSC 4315

[21] R.R.O. 1990, Reg. 194

[22] R.R.O. 1990, Reg. 194, Rule 22.01

[23] It was agreed between the parties that if Toronto Hydro was limited to claiming Gonte’s proportionate share, Gonte could not claim contribution and indemnity from the City.  It was also agreed between the parties that Toronto Hydro could claim the full amount against Gonte in its contract claim.

[24] R.S.O. 1990, c.N.1

[25] Toronto Hydro v. Gonte and City of Toronto, 2018 ONSC 4315, at para 34

[26] Negligence Act, R.S.O. 1990, c.N.1, s. 1 and s.2

[27] Toronto Hydro v. Gonte and City of Toronto, 2018 ONSC 4315, at para 42

[28] Ibid, at paras 47-49

[29] Ibid, at para 51

[30] Ibid, at para 55

[31] Ibid at para 77.

[32] Supra

[33] Toronto Hydro v. Gonte and City of Toronto, 2018 ONSC 4315, at para 84

[34] Ibid at para 85.

[35] Ibid at para 86.