LAW 469-003 Civil Procedure Week 10: Complex Litigation Part II

LAW 469-003 Civil Procedure Week 10: Complex Litigation Part II Gavin Cameron March 16, 2016

Takeaways • Types of claims • Counterclaim, cross-claim, third party claim • General policy in favour of preventing duplicative litigation • Advanced by liberal rules permitting joinder of claims and parties • Values underlying joinder rules • Joinder may be appropriate where there are common issues of fact or law, or the person is interested in the relief sought • How to add parties • Consolidation, trial at the same time and severance • Class proceedings

Joinder of claims and parties • Joinder is concerned with which claims and parties may be included in a single proceeding • There is a general policy in favour of preventing duplicative litigation, advanced by liberal joinder rules • R. 22-5 • Law and Equity Act, s. 10 (“avoidance of a multiplicity of proceedings”) • Fundamentally discretionary

Joinder of claims and parties (cont.) • The appropriate size and scope of a proceeding is a matter of balance • Smaller and duplicative litigation can be inefficient and risks inconsistent results • Litigation that is too large risks entropy; at a certain size, a proceeding can become unduly complex or burdensome • Too complex for rational decision

Values underlying joinder policies • Efficiency • Economy • Finality • Fairness • Consistency • The Cook v. Lewis problem: what if each defendant was sued in a separate proceeding? • Correctness • A more complete picture is usually better • Fundamentally, is joinder just and convenient?

R. 22-5 (“Multiple claims and parties”) • A person may join several claims in the same proceeding • R. 22-5(1) • A plaintiff can name two or more defendants in a single law suit as long as: • Common questions of law or fact arise • A right to relief claimed “is in respect of or arises out of the same transaction or series of transactions” • The court grants leave • R. 22-5(2) • Persons who claim joint relief or who are jointly liable must be parties • R. 22-5(3) and (4)

R. 22-5 (cont.) • Court may order severance (separate trials or hearings) of claims where: • Joinder may unduly complicate the trial or hearing • Joinder is otherwise inconvenient • Court may also make any other order it considers will further the object of the SCCR • R. 22-5(6) • Court may also order consolidation, or for two actions to remain separate but be tried at the same time. • R. 22-5(8)

Issues arising with multiple plaintiffs • Possible conflicts or differences of opinion • General rule is all plaintiffs must be represented by the same counsel • Circumstances where the defendant counterclaims against some but not all of the plaintiffs • Insurance issues

Special Rules for Certain Types of Parties • Part 20 of the Rules sets out special rules for certain types of parties, including: • Partnerships; Rule 20-1, partners can be sued in the name of the firm; rules for service; individual partners can file their own response, and an order can be enforced against anyone who has admitted to or has been ruled to be a partner. • Those under a disability, including infants; Rule 20-2, must commence or defend proceedings through a litigation guardian, and act through a lawyer, except for PGT. Cannot take default without leave, must approve settlements.

Joinder devices • Counterclaim • Claim by defendant against plaintiff (and possibly other non-parties) • Third party claims • Claim by a party (who is not a plaintiff) against another person, including by a defendant against one or more other defendants.

Other Types of Pleadings and Parties • Rule 1-1(1) defines pleading as: • Notice of Civil Claim • Response to Civil Claim • Reply • Counterclaim • Response to a Counterclaim • Third Party Notice • Response to a Third Party Notice

The Purpose of Pleadings (a refresher) • Pleadings are written statements exchanged by parties to an action that: • Identify the parties, events and facts giving rise to the lawsuit; • Identify the issues in dispute; • Identify the legal nature of the claims and defences; and • Set out the relief sought by the parties.

Set-offs and Counterclaims • Rule 3-7(11) authorizes set-offs and counterclaims. • A set-off is a defence in which a claim back against the plaintiff is made that is intrinsically tied to the plaintiff’s original claim. • In a contract case where the vendor claims for failure to pay, the purchaser could plead a set-off on the basis that because of late delivery the goods were worth less, and the damages should be reduced by the value of the set-off. • Legal and equitable set-off – see Coba Industries Ltd. • Counterclaim is similar, but it is a stand-alone claim that could be brought by a defendant as a separate action. • In the same contract dispute, the defendant could bring a counterclaim for damages for late delivery as an independent breach of contract. • Beware reviving a limitation barred claim… s. 22(1) of the Limitation Act.

Set-Offs and Counterclaims (Continued) • The practical differences are: • If the plaintiff’s claim is dismissed or discontinued, the set-off falls away, but a counterclaim continues; • A counterclaim can result in payment of damages from the plaintiff to the defendant, but a set-off can only reduce the amount owed by the defendant to the plaintiff to zero.

Counterclaims (Continued) • Governed by R. 3-4 • Claim by a defendant against the plaintiff • If the counterclaim raises questions between the defendant bringing the counterclaim “and a person other than the plaintiff, the defendant may join that other person as a party” to the counterclaim (“defendant by counterclaim”) • R. 3-4(2) and (3); permits the counterclaim to join someone other than the plaintiff if it is necessary to bring a claim against the plaintiff and another. • Court may order counterclaim tried separately, or to continue even if the plaintiff’s claim is stayed, discontinued, or dismissed. • R. 3-4(7) and (7.1)

Third party claims • Governed by R. 3-5. Allow a party who is not a plaintiff to assert a claim against someone else for that person’s liability. • A third party claim can be independent of or dependent upon the cause of action between the plaintiff and defendant, but there must be some connection to the underlying action. • Object of the rule is to provide a single procedure for the resolution of related questions or issues OR relief or remedies • The rule: • Avoids multiple actions and inconsistent findings; • Provides a mechanism for the third party to defend the plaintiff’s claim; and • Ensures the third party claim may be decided before a defendant is called on to pay the full amount of any judgment • McNaughton v. Baker (1988), 25 B.C.L.R. (2d) 17 (C.A.)

Why Have Third Party Proceedings? • Walker at p. 344 • To avoid a multiplicity of actions about the same subject matter: • Avoids inconsistent findings; and • Limits inefficiency • Allows a third party to participate in defence of the underlying matter • Ensures issues are decided in proximity temporally so no party has the advantage of early judgment

Third party claims (cont.) • Decision reached by the court in the plaintiff’s claim against the defendant binds the third party • However, third party permitted to participate in the main action and defend not only the third party claim but also the plaintiff’s claim against the defendant • Third party claims more likely to arise where: • String of contracts • Products liability cases • Contractual rights of indemnity exist • Example of the passenger and two drivers – then add in the mechanic and manufacturer…

Third party claims (cont.) • May be brought where: • Party seeks contribution and indemnity from the third party “in relation to any relief being sought against that party in the action” • Party is entitled to relief from the third party and “that relief relates to or is connected with the subject matter of the action” • There is a “question or issue” between the party and the third party that is • Substantially the same as a question or issue that relates to or is connected with the relief claimed in the action or the subject matter of the action; and • It should be properly determined in the action. • R. 3-5(1)

Third party claims (cont.) • Timing: Rule 3-5(4), at any time with leave, or without leave if filed within 42 days of being served with a notice of civil claim or counterclaim. Must serve within 60 days of the third party notice being filed. • A party affected by third party procedure may apply for directions and the court enjoys a broad discretion to impose terms on third party procedure “to limit or avoid any prejudice or unnecessary delay” • R. 3-5(13) and (14) • An issue between the party delivering a third party claim and the third party may be tried at the time the court may direct • R. 3-5(15)

Third party claims (cont.) • Historically, limited to “flow through recovery” (i.e. claims for contribution and indemnity) • Walker at 345: Indemnity means in the event the defendant is found liable to the plaintiff, the third party must provide full compensation to the defendant. Contribution is a claim that the third party is liable to pay part of any amount for which the defendant is liable to the plaintiff. • Now extended, by the terms of the rules, to act as a general joinder device (claims where the subject matter (“question or issue”) or relief sought is connected). • Practice point: If you’re the plaintiff and a defendant joins a third party who you haven’t sued, likely want to join them as a defendant so you can recover damages if they are at fault. Walker at p. 347

Issues arising in third party claims • Rights of contribution created by statute • Negligence Act creates right of contribution between concurrent tortfeasors. • Negligence Act s. 4 provides that where loss is caused by two or more persons the degree of fault is to be allocated. • Where two or more people are found at fault they are deemed jointly and severally liable to the plaintiff for the full amount. • So under the Act a wrongdoer may have to pay the whole amount to the plaintiff, regardless of their degree of fault, and then seek indemnity from the other wrongdoers in accordance with the apportioned liability. • See Walker pp. 343-347

Issues arising in third party claims (cont.) • Claims for contribution or indemnity under the Negligence Act are brought by third party notice, except as against a plaintiff. • Against a plaintiff, a defendant includes in the response to civil claim a defence based on a claim of contributory negligence. • Examples of relationships of indemnity implied by law • Principal and agent • Guarantor and primary debtor • Master and servant • Examples of rights of contribution implied by law • Partners • Co-trustees • Guarantors • Joint obligors

Third party claims cases • R. v. Imperial Tobacco Canada Ltd. • O’Connor Associates Environmental Inc. v. MEC OP LLC • Refers to Laidar Holdings Ltd., 2012 BCCA 22 • B.C. Ferries

Imperial Tobacco Claims by BC under tobacco health care costs recovery legislation, as well as a class action by individuals who purchased “light” cigarettes. Third party notices filed against Canada by the Defendants on the basis Canada was involved in the creation and promotion of low-tar cigarettes. Claim that Canada was itself liable to consumers, breached duties to consumers, breached duties owed to Imperial and made misrepresentations to it, and was liable to indemnify Imperial under the doctrine of equitable indemnity.

Imperial Tobacco (Continued) Canada argued that contribution may only be awarded if the third party would be liable to the plaintiff directly, and that even if Canada breached duties to smokers, such breaches cannot ground the tobacco companies’ claims for contribution if they are found liable to British Columbia. SCC agreed: A third party may only be liable for contribution under the Negligence Act or common law if it is directly liable to the plaintiff. Plain and obvious the claims against Canada for duties to consumers in the Cost Recovery action were bound to fail for this reason. Claims of misrepresentation failed on the basis there was no duty of care per the Anns/Cooper test, and direct claims against Canada as a “manufacturer” and a “supplier” were also bound to fail.

Laidar The plaintiff leased property in Vancouver to the defendant. The defendant wished to use the property to sell and distribute chocolate. It became apparent after the lease was entered into that the zoning did not permit this use. Failure to complete or pay under lease. Suit brought for payment of the rent, counterclaim for breach of the lease and misrepresentation. In negotiating the lease, the plaintiff had engaged a property management firm and a leasing agent. The defendant had engaged leasing agents and been represented by Blakes. The defendant brought third party claims against its leasing agents.

Laidar (Continued) One of the defendant’s leasing agents then sought to bring a further third party claim (described as a “fourth party notice”) against Blakes and others. The defendant’s leasing agent sought to claim that Blakes had failed in its duty to the defendant to ensure the use for the property was permitted. The issue was whether the “fourth party” claim could be brought against Blakes, or if it fell within the “first branch” of Adams v. Thompson. In addressing this question, the BCCA canvassed the history and nature of third party claims and the rule in Adams.

Laidar (Continued) • In Adams, the court held that a third party claim is not permissible where the claim could effectively be raised as a defence against the plaintiff’s claim. • On that basis, a third party claim is barred in two circumstances: • Where the claim against the third party is legally attributable to the plaintiff because of an agency relationship. Where the plaintiff is responsible for its own loss, there is no claim for contribution and indemnity, only a reduction in damages by allocation under s. 1 of the Negligence Act. • Where the claim against the third party is for failing to assist the plaintiff in mitigating the damages.

Laidar (Continued) • The court then reviewed circumstances when a third party claim was permitted under the “second branch”. • In McNaughton v. Baker, a dairy farm had been sold, but the transaction failed. The vendor foreclosed on the farm and then claimed against its solicitors which had advised on the sale. • The solicitors sought to bring a third party claim against the accountants who had advised on the transaction. To avoid the issue of agency, the solicitors claimed that the accountants had breached a separate duty owed to them, not a duty owed to the plaintiff. • The court accepted that the claim for an independent duty owed by the accountants to the solicitors meant that there was a possible claim for which the plaintiff was not responsible. • In the result, the third party claim was permitted to stand.

Laidar (the result) Applying these principles to the case at hand, the BCCA upheld the chambers judge’s decision disallowing the “fourth party” claim. The chambers judge had found that there was no claim against Blakes that it owed an independent duty to the defendant’s leasing agent. Since Blakes were agents of the defendant, under the principles in Adams, any failure by them was attributable to the defendant, which could be addressed as a defence to the claim itself. In the result, the claim against Blakes was not necessary and was not permitted.

Steveston Seafood Auction v. Bahi, 2013 BCSC 1072 • Application of the principles in Laidar. • The plaintiff claimed that its bookkeeper, Bahi, had defrauded it of $860,000. • The D&H defendants were accountants that were involved in the preparation of the plaintiff’s financial statements. The plaintiff claimed against the accountants for failing to discover the fraud. • D&H sought to bring third party claims against Bahi as well as the directors of the plaintiff, alleging that the proposed third parties had made misrepresentations to D&H. • D&H pleaded that the proposed third parties owed D&H a duty of care to both the plaintiff and D&H directly.

Steveston Seafood (Continued) The proposed third parties argued the allegations by D&H against them were all in their capacity acting for the plaintiff. Therefore, the proposed claims could be pleaded as a defence, rather than a third party claim. The court holds the test for granting leave to bring the third party claim is analogous to R. 9-5, the third parties must establish that the third party notice discloses no cause of action and is bound to fail. The facts pleaded are assumed to be true for the purposes of the application. D&H had pleaded an independent duty owed by the proposed third parties to D&H. Since it was pleaded that the proposed third parties owed a duty directly to D&H and breached that duty by making misrepresentations, the third party notice was allowed to proceed.

Multi Party Settlements and Apportionment Issues • Example of Tucker v. Asleson (1993), 78 BCLR (2d) 173 • Infant plaintiff was badly injured in a car accident when her car slid over the line and collided with another car. • At trial liability is found: • 1/3 to mother driving one car; • 1/3 to the Crown for its failure to sand the roads; and • 1/3 to the driver who was struck while driving on his own side of the highway. • Prior to the trial the plaintiff settled with her mother and the insurer. • On appeal the second driver’s liability is overturned, leaving the Crown with 2/3 fault. • Crown appealed contending that the settlement severed the joint and several liability provided for in the Negligence Act.

Tucker (Continued) • True joint tortfeasors are those that: • truly act in concert with a common purpose; • where one is a principal of or vicariously responsible for the other; or • jointly have a duty imposed on them together. • Several concurrent tortfeasors are not joint tortfeasors, but rather are those that act separately but whose torts together contribute to the damage caused. • An employer or a co-conspirator are true joint tortfeasors. • Two negligent drivers are several concurrent tortfeasors.

Tucker (Continued) For truly joint tortfeasors there is likely no division of fault and release of one releases them all. A release of one several concurrent tortfeasor does not release the others. A several concurrent tortfeasor is liable to the plaintiff for the whole amount of the loss, subject to deduction for amounts received. The several concurrent tortfeasor is left with a right to seek indemnity from the other several concurrent tortfeasors.

Tucker (the result) Crown and Ms. Tucker were several concurrent tortfeasors. “…the right of contribution and indemnity among several concurrent tortfeasors is independent of what the injured person does if, in fact, damage or loss has been caused by the fault of two or more. A finding in an action between the person suffering the loss and one of the several concurrent tortfeasors that the latter has caused some part of the damage by his fault, makes that person liable to the person suffering the loss for the whole of the loss, subject to deduction for what that person has received from the released tortfeasor, but does not prevent the tortfeasor who was sued from maintaining his claim for contribution, whether in that action or a separate action… in this case the act of the plaintiff in releasing the Tuckers did not affect in any way the right of the defendant to claim over against them.”

B.C. Ferries Agreements • Solution to the problem of settling multi-party litigation. • The plaintiff’s ferries were found to contain asbestos. • Plaintiff claimed against the manufacturer, which in turn claimed against the installers seeking contribution and indemnity. • Third party sought to have the third party notice struck out because the plaintiff had released it in a settlement. • Normally, the third party would have to remain in to have its share of fault determined and to allow the defendant to obtain contribution and indemnity for its allocation of fault. • But, in the settlement here, the Plaintiff agreed: • not to seek to recover any portion of the loss attributable to the third party from the defendant; and • to advise the court that it waived any amount from the defendant attributable to the third party.

B.C Ferries Agreements (Continued) Court finds that if a plaintiff seeks only the portion of a loss attributable to one defendant, there is no right of contribution. A defendant can be liable to pay more than its share under the Negligence Act. However there is no ability to shift responsibility for its share of fault to another. The Plaintiff having waived the right to recover any loss attributable to the third party, the defendant’s right of contribution and indemnity would never arise.

Changing parties • Rule 6-2(1) to (5) deals with changes of parties in an action arising from changed circumstances • R. 6-2(7) is more commonly invoked. Three categories • Person “ought to have been joined” • A necessary party e.g. a co-trustee, since trustees can only act jointly • Person’s participation is necessary to ensure all matters may be “effectually adjudicated on” • Person’s participation is more than a mere convenience but less than a necessity e.g. where their direct interests would be affected by the granting of the relief sought • Kitimat (District) v. British Columbia (Minister of Energy and Mines) (2006), 61 B.C.L.R. (4th) 295 (C.A.)

Adding parties (cont.) • There may exist, between the person and any party, a question or issue relating to or connected with (i) the relief claimed or (ii) the subject matter of the proceeding which in the court’s opinion would be just and convenient to determine • R. 6-2(7)(c) • General joinder device • Involves considerations of delay (and explanation for it), potential prejudice, and the degree of connection between the existing action and the new parties and claimed • Overarching consideration is the interests of justice • Applications under s. 6-2 are generally only contested where a limitation period has expired, because otherwise, a plaintiff can simply start a new action naming the defendant they wish to add.

Consolidation and trial at the same time • Governed by R. 22-5(8) • “Proceedings may be consolidated at any time … or may be ordered to be tried at the same time or on the same day” • Also discretionary • Other means of effecting joinder • Avoids inconsistent results by ensuring the same trier of fact, often with an order that evidence in one action applies in the other and vice versa • Also promotes efficiency • Consolidation destroys the separate identity of the different proceedings; trial at the same time preserves them

Class proceedings • Legislative response to “the problem of many suitors with the same grievance” • Previously available tools had limitations • Joinder • Representative actions • Now, Class Proceedings Act (B.C.) allows for an action to be brought on behalf of numerous plaintiffs. • Similar legislation in most other provinces (all except PEI).

Policy objectives of class proceedings • Improve access to justice • Increased judicial efficiency • But does allowing class actions for individually non-viable claims bring about litigation which would otherwise never be brought, increasing the judicial workload and decreasing efficiency? • Behavior modification • Deterrence

Why have class proceedings? • Allows fixed litigation costs to be divided over a large number of plaintiffs • Reduces costs • Promotes access to justice

Why have class proceedings (cont.)? • By aggregating claims, it avoids unnecessary duplication in fact-finding and legal analysis • Judicial economy rationale • This benefits defendants as well as plaintiffs • Also avoids the risk of inconsistent results on common issues • Promotes accountability and therefore deterrence

Central features of class proceedings • Notice to class members • Class definition is critical, as it determines who is entitled to notice, who is entitled to share in relief, and who is bound by the decision. • Ability to opt out of the class • Discovery limited to representative plaintiff, except with leave of court • Settlements and plaintiffs’ counsel’s fees require court approval • Belief by some that “class actions are driven by the greed of attorneys, not the prospect of real benefit to class members.” Attorney fees may exceed tangible benefits, and “coupon” settlements may benefit defendants more than class members.

Central features of class proceedings (cont.) • Fee-shifting • Different approaches to costs • In B.C., representative plaintiff only liable for costs in limited circumstances, such as if action frivolous and vexatious • This is dealt with more in Week 11 (Costs and Access to Justice) • Kerr v. Danier Leather – Walker p. 943, “protracted litigation has become the sport of kings in the sense that only kings or equivalent can afford it. Those who inflict it on others in the hope of significant personal gain and fail can generally expect adverse cost consequences”. • Lack of adversary system, collusion, and conflicts – both attorneys and representative plaintiffs. • Litigation funding and class actions as investment vehicles? • National classes available

Areas where class proceedings most common • Products liability • Consumer protection • Mass tort • Securities? • Despite legislative changes to make secondary market securities class actions easier to bring, still relatively few claims in this area

Specific examples of Canadian class proceedings • Blockbuster late fees • Fairhurst v. DeBeers (conspiracy to inflate diamond prices) • Fulawka v. Bank of Nova Scotia (unpaid overtime) • Rumley v. Canada (negligent failure to protect Jericho Hill schoolchildren from abuse, sexual and otherwise) • Barbour v. University of British Columbia (parking fees)

LAW 469-003 Civil Procedure Week 10: Complex Litigation Part II