2020 NLSC 64, 2020 NLSC 64

court crest IN THE SUPREME COURT OF NEWFOUNDLAND AND LABRADOR GENERAL DIVISION Citation : The First Canadian Group Limited v. St. Anthony (Town) , 2020 NLSC 64 Date : May 4, 2020 Docket : 201301G3908 Between: The First Canadian Group Limited Plaintiff/defendant by counterclaim And: The Town Council of St. Anthony Defendant/plaintiff by counterclaim AND: TRAVELERS INSURANCE COMPANY OF CANADA second defendant by counterclaim (discontinued) And: Newfoundland & Labrador Consulting Engineers Limited First Third Party And: Exp Services Inc. Second Third Party And: Her majesty in right of newfoundland and labrador as represented by the minister of municipal affairs and environment

fourth Party Corrected judgment: The text of the original judgment was corrected on May 19, 2020 and a description of the correction is appended. Before: Justice Rosalie McGrath Place of Hearing: St. John’s, Newfoundland and Labrador Date of Hearing: February 3, 2020

Summary: The Fourth Party brought an application to strike the claim against it as disclosing no cause of action. The Court declined to strike the claim for indemnity and/or contribution but granted the Second Third Party leave to amend its claim against the Fourth Party to further particularize the basis upon which its claim was being pursued. Appearances: Robert R. Bradbury Appearing on behalf of the Plaintiff/ Defendant by Counterclaim Dean A. Porter Appearing on behalf of the Defendant/ Plaintiff by Counterclaim Gregory A.C. Moores Appearing on behalf of the First and Second Third Party Suzanne M.

Orsborn Appearing on behalf of the Fourth Party Authorities Cited: CASES CONSIDERED: BCL Group Inc. v. O’Brien , 2017 NLTD(G) 205; Knight v. Imperial Tobacco Canada Ltd. , 2011 SCC 42 ; Szeto v. Dwyer , 2010 NLCA 36 ; Ryan v. Dew Enterprises Ltd. , 2014 NLCA 11 ; Birmingham & District Land Co. v. London & North Western Railway (1886), 34 Ch. D. 261 (Eng. C.A.) .; Addison & Leyen Ltd. v. Fraser Milner Casgrain LLP , 2014 ABCA 230 ; Collavino Inc. v. Newfoundland (1985), 56 Nfld. & P.E.I.R. 265, 35 A.C.W.S. (2d) 380 (Nfld. S.C. (T.D.)) RULES CONSIDERED: Rules of the Supreme Court, 1986 , S.N.L. 1986, c. 42, Sch.

D ; Contributory Negligence Act , R.S.N.L. 1990, c. C-33

REASONS FOR JUDGMENT McGrath, J. : INTRODUCTION [ 1 ] The Fourth Party, Her Majesty the Queen in Right of Newfoundland and Labrador (“HMQ”) [1] , asks that I strike a claim commenced against HMQ by the Second Third Party pursuant to Rule 14.2(1) (

a) of the Rules of the Supreme Court, 1986 , S.N.L. 1986, c. 42, Sch. D (“ Rules ”). That Rule allows this Court to strike a claim on the basis that it discloses no reasonable cause of action. [ 2 ] The Plaintiff/Defendant by Counterclaim, the First Canadian Group Limited (“FCG”), originally commenced a Statement of Claim against the Town Council of St. Anthony (“Town”) on August 14, 2013. That claim alleges that the Town breached a contract entered into between FCG and the Town on March 11, 2011 (“FCG Contract”).

In that contract, FCG agreed to provide work related to site services and interior fit-up for the construction of a new recreation centre in St. Anthony known as the Polar Centre. [ 3 ] The construction of the Polar Centre (the “Project”) was to occur in several phases. The work performed by FCG was part of Phase 3 (“Phase 3 Work”). [ 4 ] The FCG Statement of Claim alleges that the FCG Contract provided for a commencement date for the Phase 3 Work of March 23, 2011 with a substantial completion date of November 29, 2011.

However, FCG says it could not start the Phase 3 Work on the commencement date as the Phase 1 and Phase 2 work was not yet complete. As a result, FCG alleges that it had to do the work in the winter months, resulting in increased costs. [ 5 ] FCG further alleges that it encountered unexpected subsurface conditions which differed from those indicated at the time of its tender submission. FCG says it provided Newfoundland and Labrador Consulting Engineers Limited (“NLCEL”), the company providing Project professional engineering services to the Town, with notice of this issue.

NLCEL told FCG to remove and replace the unsuitable fill, again at an increased cost. [ 6 ] The above two issues were noted by NLCEL as being in dispute under the FCG Contract. [ 7 ] The Statement of Claim initially sought damages in respect of the above two issues in the amount of $1,060,407.10 but the damage claim was increased to $1,734,495.07 in an Amended Statement of Claim filed on September 6, 2017 (“FCG Statement of Claim”).

FCG claimed in breach of contract or, alternatively, unjust enrichment. [ 8 ] The Town filed its Statement of Defence and Counterclaim on September 16, 2013 (which also named Travelers Insurance Company of Canada, a bonding company, as Defendant by Counterclaim). The Counterclaim was subsequently discontinued and an amended Statement of Defence and Counterclaim was filed on September 6, 2017 (although counsel for the Town confirmed that it was really only an amended defence as the counterclaim remained discontinued). The Town denied that it is liable to FCG for any of the claims.

It also counterclaimed against FCG for failing and/or refusing to complete the Phase 3 Work. [ 9 ] It was not until March 7, 2017 that the Town filed a Third Party Notice attaching a Statement of Claim of the Defendant/Counterclaim against the First and Second Third Parties (“Third Party Claim”). As the pleadings were closed, the Town sought leave of this Court to issue the Third Party Notice. Leave was granted pursuant to an order dated March 1, 2017, with the consent of the Plaintiff and Defendant.

While the Third Party Claim names both NLCEL and EXP Services Inc. (“EXP”) as separate Third Parties, it is notable that NLCEL was amalgamated into EXP on April 1, 2011. As such, EXP is the only Third Party. All references to Third Party or Third Parties in this decision therefore refer to EXP. [ 10 ] The Third Party Claim generally alleges that if the Town is found liable to FCG for any of the damages claimed in the FCG Statement of Claim, the Town claims an indemnity, or alternatively, a contribution from EXP.

Further, if the Town is found liable to FCG for any of the damages claimed in the FCG Statement of Claim, the conduct of EXP was negligent, grossly negligent or marked by wanton and willful misconduct. Such conduct consisted of, but was not limited to: (

i) Failing to accurately or appropriately prepare the tender documents for the Project, including failing to properly address the issue of subsurface conditions, and failing to ensure that the tender reflected that the Town required the Project to be completed on an “all in” financial basis; (ii) Failing to properly advise the Town in relation to issues arising under the FCG Contract, including failing to have proper regard to the fact that the Town required the Project to be completed on an “all in” financial basis, and failing to advise FCG that the Town did not have access to additional funds to cover extra claims, including claims for delay; and (iii) Failing to exercise the degree of care, caution and prudence expected of a reasonably competent engineering firm. [ 11 ] EXP filed a Statement of Defence on November 28, 2018 in which it denied the allegations.

On the same date, EXP filed a Statement of Claim of the Second Third Party against HMQ, as represented by the Minister of Municipal Affairs and Environment (“Fourth Party Claim”). The Fourth Party Claim generally claims that, if EXP is found liable to the Town and/or FCG, HMQ is obligated to either indemnify EXP or, alternatively, contribute towards any damages. HMQ’s alleged liability arises out of the involvement of HMQ in the Project, through its Department of Municipal Affairs. [ 12 ] While the above represents a

summary of the pleadings, counsel for HMQ has helpfully and succinctly summarized the relevant claims and defences applicable to this application as follows:

a) FCG has claimed damages against the Town for breach of the FCG Contract, or, alternatively, in unjust enrichment, arising out of

costs it incurred due to delays and having to deal with unexpected subsurface conditions;

b) The Town has denied any liability to FCG;

c) The Town has filed a Third Party Claim against EXP in which it claims (

i) that if the Town is liable to FCG for breach of contract and/or in unjust enrichment, the Town is entitled to an indemnity or, in the alternative, a contribution from EXP, and (ii) that EXP was negligent in the performance of its services to the Town;

d) EXP has denied any liability to the Town;

e) EXP has filed a Fourth Party Claim against HMQ in which it claims that, if EXP is liable to the Town, presumably either to provide an indemnity or contribution, or due to the negligent performance of its services to the Town, EXP is entitled to an indemnity or contribution from HMQ; and

f) The Fourth Party Claim further alleges that HMQ is responsible for the damages claimed by FCG for delay due to HMQ’s alleged involvement in the decision-making process for the Project. It also claims that HMQ established the Project budget with the result that there were constraints on the testing, including subsurface testing, available to the Town. issue [ 13 ] Should the Fourth Party Claim be struck pursuant to Rule 14.24(1) (

a) of the Rules on the basis that it discloses no reasonable cause of action? law and analysis Rule 14.24(1) [ 14 ] Rule 14.24 of the Rules reads as follows: 14.24.

(1) The Court may at any stage of a proceeding order any pleading, affidavit or statement of facts, or anything therein, to be struck out or amended on the ground that (

a) it discloses no reasonable cause of action or defence; (

b) it is false, scandalous, frivolous or vexatious; (

c) it may prejudice, embarrass or delay the fair trial of the proceeding; or (

d) it is otherwise an abuse of the process of the Court, and may order the proceeding to be stayed or dismissed or judgment to be entered accordingly.

(2) Unless the Court otherwise orders, no evidence shall be admissible by affidavit or otherwise on an application under rule 14.24(1) (a). [emphasis added] [ 15 ] Both counsel for HMQ and EXP are in general agreement as to the law governing an application under Rule 14.24(1)(a). FCG and the Town took no position. [ 16 ] Counsel for EXP and HMQ both referred me to a decision of Butler, J. (as she then was) in BCL Group Inc. v.

O’Brien , 2017 NLTD(G) 205 in which a fourth party brought an application to strike portions of a third party statement of claim against it under Rule 14.24(1) (a). [ 17 ] In that decision, Butler, J. referred, with approval, to Knight v. Imperial Tobacco Canada Ltd. , 2011 SCC 42 . At paragraph 17 of Knight , the Supreme Court of Canada, in addressing an equivalent rule in British Columbia, held that an applications judge must review the pleadings, assuming the facts to be true, to determine whether it is plain and obvious that the pleadings do not disclose a cause of action.

Courts have also referred to this test as being a determination of whether the claim has a reasonable prospect of success. [ 18 ] After considering additional commentary from Knight , at paragraph 18 of BCL Group , Butler, J. offered the following

summary of the guidance given by the Supreme Court of Canada: 18 I accept from the foregoing, that:

(

a) The power to strike out claims that have no reasonable prospect of success is essential to effective and fair litigation, and promotes the goals of efficiency in the conduct of the litigation, and correct results. (

b) A motion to strike for failure to disclose a reasonable cause of action proceeds on the basis that the facts pleaded are true unless they are manifestly incapable of being proven. (

c) On an application to strike, the court is not to consider "evidence" but instead the pleadings before the court at that time. Whether the evidence substantiates the pleaded facts is irrelevant to the motion to strike. The possibility of unknown evidence appearing at a future date is speculation which has no place on a motion to strike. (

d) The motion to strike is a tool that must be used with care because the law is not static and unchanging and actions that yesterday were deemed hopeless may tomorrow succeed. (

e) On a motion to strike, the Court must ask whether, (assuming the facts pleaded are true), there is a reasonable prospect that the claim will succeed. The approach must be generous and err on the side of permitting a novel but arguable claim to proceed to trial. [ 19 ] At paragraph 20 of BCL Group , Justice Butler noted that, in assessing whether an applicant has met the high threshold of demonstrating that a claim has no reasonable prospect of success, the applications judge must be “informed by the objective of improving access to justice by facilitating fair, effective and focused ‘real issues’ litigation”.

In making that statement, the Court relied upon the Newfoundland and Labrador Court of Appeal decision in Szeto v. Dwyer , 2010 NLCA 36 . While that decision dealt with an application under another Rule, it contains principles that have broader relevance when considering how access to justice considerations inform a judge’s application of the Rules .

Access to Justice Considerations [ 20 ] Butler, J., at paragraph 26 of BCL Group , identifies the following factors from Szeto for a court to consider when deciding whether allowing a claim to proceed would improve access to justice: “timeliness, costs, the nature and complexity of the litigation, appropriateness of the procedure and its cost and impact on the litigation”. [ 21 ] HMQ submits that its addition as a fourth party does nothing to improve access to justice by facilitating fair, effective and focused real issues litigation. On the other hand, using Rule 14.24(1) (

a) to strike the claim meets access to justice objectives. A claim that has no reasonable prospect of success should be struck as it alleviates the requirement for the parties and this Court to expend unnecessary time, expense and resources. [ 22 ] With respect to the factor of timeliness of its addition as a party, HMQ notes that the original action was started in August 2013. However, the Third Party Claim was not filed until March 7, 2017. The Fourth Party Claim was issued on November 28, 2018 and served on HMQ two days later.

This was over a year and a half after the Third Party Claim was issued and more than five years after the original FCG Statement of Claim was issued. Discoveries of some witnesses had already taken place and Lists of Documents had already been filed by FCG and the Town. [ 23 ] With respect to the nature and complexity of the litigation, HMQ notes that, prior to its addition, the basis of the litigation was relatively straightforward. None of the prior pleadings raised any question of liability or involvement on the part of HMQ.

The allegations in the Fourth Party Claim therefore unnecessarily complicate what is otherwise a straightforward matter. [ 24 ] With respect to the appropriateness of the Fourth Party Claim, its cost and impact on the litigation, HMQ states that, at this relatively late stage of this litigation, the addition of HMQ would likely slow the process and result in increased cost, at the very least to HMQ, if not the other parties. [ 25 ] On the other hand, with respect to the cost, appropriateness and litigation impact of HMQ bringing this application to strike the Fourth Party Claim, HMQ asserts that the cost of the application is reasonable and proportionate, having regard to the fact it raises legal issues on the basis of the facts as pleaded.

While the application is ongoing, the parties should still be able to proceed with possible settlement discussions and, if it is ultimately determined that the Fourth Party Claim should not be struck, HMQ says it will proceed to fully defend against the claim. [ 26 ] In addressing the broad access to justice considerations put forward by HMQ, the position of EXP is set out below. [ 27 ] With respect to timeliness, EXP recognizes that, while it is certainly more convenient for additional parties to be added shortly after the commencement of litigation, the Defendant did not add it as a third party until 2017.

The Plaintiff consented to the Defendant’s application seeking leave to add EXP as a third party. EXP cannot therefore be held responsible for that delay. Further, it must be assumed that both FCG and the Town were aware of the potential consequences arising from the addition of a new party four years into the litigation, including the risk that EXP may seek to add one or more further parties. [ 28 ] Counsel for EXP says he added HMQ as a fourth party before filing a defence once he became aware of the nature of HMQ’s involvement.

EXP notes that it must be recognized that parties sometimes discover additional information which causes them to add

parties, even years after a claim is commenced. [ 29 ] With respect to the appropriateness of the addition of HMQ and the nature and complexity of the litigation, EXP notes the litigation already involves multiple contracts and various obligations flowing between the parties. Further, the factual circumstances that will be examined in the course of this litigation relate to a project and contracts in which representatives of the Department of Municipal Affairs were involved as key players.

Evidence from HMQ and its representatives would be relevant, resulting in it participating in this litigation in some manner, regardless of its status as a party.

Therefore, its addition as a party does not render this litigation unwieldly or otherwise overly complex. [ 30 ] Further, while there would certainly be an increased cost, at least to HMQ, if it is required to participate in this litigation, EXP asserts that access to justice tolerates that expenditure in order to allow parties the opportunity to have claims adjudicated fairly and fully. [ 31 ] EXP submits that it would be contrary to access to justice principles to not allow its claim against HMQ to proceed to a judicial determination at this relatively early stage of litigation that involves the same factual underpinnings as the impugned Fourth Party Claim.

There will be continued discovery of documents and witnesses. In fact, EXP submits that the reason a Rule 14.24(1) (

a) application to strike has such a high threshold is a recognition of the broad nature of the right to access justice. [ 32 ] Overall, looking at the above-noted factors relating to access to justice, I find that these factors weigh in favour of allowing the Claim to proceed. In particular, while the Fourth Party Claim was filed late in the proceedings, the majority of the delay between the filing of the Statement of Claim and the Fourth Party Claim was due to the Defendant’s delay in filing the Third Party Claim, a delay to which the Plaintiff consented.

That delay should not prejudice the Third Party. [ 33 ] I also agree with EXP that the addition of HMQ, if there is a viable cause of action against it, is appropriate and will not unduly complicate the litigation. Nor will it result in any appreciable increased cost due to HMQ’s involvement in the dealings giving rise to the litigation. That is not to say that an entity should be added as a party merely because it has relevant evidence and its representatives may be required to provide evidence at trial. However, that is a factor to consider when assessing the potential increased cost and complexity.

I also note that any such increased cost could be taken into account in an award of costs at the end of trial. [ 34 ] As to the access to justice considerations applicable to this application to strike, HMQ has not delayed in bringing this application. The questions raised are legal issues that are amenable to such an interlocutory application without the necessity to admit evidence.

As such, there is no significant cost, delay or impact on the continued litigation. [ 35 ] The primary consideration is therefore whether the Fourth Party Claim discloses a reasonable cause of action and whether it is appropriate for me to strike it at this stage of the proceedings, applying the high threshold test for applications under Rule 14.24 (a). This then leads to a consideration of the parties’ submissions on the viability of the claims set out in the Fourth Party Claim. Does EXP’s Fourth Party Claim Have a Reasonable Prospect of Success?

Review of Pleadings [ 36 ] As noted above, the determination of whether a claim has a reasonable prospect of success involves an examination of the pleadings, proceeding on the assumption that the pleaded facts are true.

While the parties agree on that point, EXP and HMQ take a slightly different position as to which pleadings are relevant to this determination. [ 37 ] HMQ refers to paragraph 34 of the decision in BCL Group as support for its position that, where there are a number of pleadings, some of which are contradictory, it is the assertions in the impugned Fourth Party Claim that must form the basis of my determination.

That is, it is the facts in those pleadings that I must review and assume to be true. [ 38 ] On the other hand, EXP asserts that it is important for me to assess the Fourth Party Claim in light of all the pleadings, including the FCG Statement of Claim and the Third Party Claim. EXP states that it is only where there is a direct conflict between pleadings that a court is to look solely at the pleadings that are the subject of an application to strike. [ 39 ] In making this submission, it relies on the direction of the Newfoundland and Labrador Court of Appeal in Ryan v.

Dew Enterprises Ltd. , 2014 NLCA 11 , at paragraph 87 , where the Court stated as follows: 87 The starting point in determining whether a third party claim by a defendant is supported by a recognized cause of action is the initial statement of claim.

That pleading identifies the nature of the claim to which the defendant is exposed and which the defendant wishes to pass on, in whole or in part, to the putative third party or for which the defendant wishes the third party to face ultimate responsibility. [ 40 ] While Butler, J., at paragraph 34 of BCL Group , did state that it was the assertions in the impugned fourth party statement of claim that she must assume as true, that statement was made in the context of the particular pleadings before her.

Those pleadings clearly contained differing allegations of fact that could have a bearing on the validity or viability of the claim against the fourth party. [ 41 ] In this case, the pleadings as a whole do not reveal diametrically opposed pleadings of fact. All pleadings prior to the Fourth Party Claim are silent as to any involvement of HMQ, rather than being contradictory. [ 42 ] I agree with EXP that, in order to assess the pleaded facts that allegedly give rise to an action against HMQ, I must place them in context by looking at the pleadings in their entirety.

Those pleadings include the FCG Statement of Claim and the Third Party Claim against EXP as they identify the claims for which indemnity and/or contribution is sought. [ 43 ] However, I also agree with HMQ that my primary focus will necessarily be on determining whether EXP has pleaded sufficient facts in the Fourth Party Claim that, if assumed true, establish a reasonable prospect of success in a claim for contribution and/or

indemnity. That pleading is particularly important as it is the only pleading that references HMQ’s alleged involvement in the Project, including the decision-making process and the establishment of budgetary constraints. Claim for Indemnity and/or Contribution [ 44 ] HMQ has summarized the claim by EXP against it as being a claim based upon an allegation that HMQ is responsible for the damages claimed by FCG (

i) for delay costs due to HMQ’s alleged involvement in the decision-making process for the Project; and (ii) for the cost of removing and replacing unsuitable fill on the basis that HMQ established the Project budget with the result that there were constraints on the testing, including sub-surface testing, available to the Town. [ 45 ] However, HMQ submits that EXP has not alleged any breach of contract by HMQ. Further, it is not alleged that HMQ was negligent.

HMQ says that the only actual legal cause of action claimed by EXP against HMQ is found at paragraph 11 of the EXP Fourth Party Claim which reads as follows: In the event that EXP is found liable to the Town and/or First Canadian, EXP claims an indemnity, or in the alternative, a contribution from the Fourth Party. [ 46 ] The essence of HMQ’s application to strike is that the pleaded facts disclose no reasonable cause of action for contribution or indemnity.

HMQ relies upon the Newfoundland and Labrador Court of Appeal decision in Ryan in which Green, C.J.N.L. (as he then was) addressed the requirements for claims seeking indemnity and contribution. [ 47 ] With respect to indemnity, Green, C.J.N.L. referred, with approval, to the English Court of Appeal decision in Birmingham & District Land Co. v. London & North Western Railway (1886), 34 Ch. D. 261 (Eng.

C.A.) , at paragraph 54 of Ryan as follows: 54 A claim for indemnity is a claim that another party save the indemnity-claimant harmless against loss or damage which the indemnity-claimant has incurred or suffered or will incur or suffer at the hands of another, and to reimburse the claimant in respect of such loss or damage. The claim may arise from an express contract, by implication of law or from statute. An example of a claim to indemnity arising from implication of law is where

an act is done at the request of another, the act turns out to be injurious to a third party and in consequence of doing the act the doer incurs liability to the third party ( Birmingham & District Land Co. v. London & North Western Railway (1886), 34 Ch. D. 261 (Eng. C.A.) ). … [ 48 ] Later in that same paragraph, Green, C.J.N.L., provides the following diverse examples where a claim for indemnity may arise by implication of law: … (

i) where an agent incurs loss while lawfully carrying out the mandate of his or her principal; (ii) where a principal suffers loss by incurring liability to a third party as a result of the wrongful actions of his or her agent or employee; (iii) where a trustee causes a co- trustee to incur costs through the trustee's negligent management of the trust; and (iv) where an obligation arises in equity from the relationship between the parties, such as between trustee and beneficiary… [ 49 ] Counsel for HMQ submits that, while Green, C.J.N.L. identified three circumstances in which a claim for indemnity may arise: namely, (

i) by express contract; (ii) by implication of law; or (iii) by statute, it appears that his reference to the second category is really a combination of two different categories in which the common law has recognized a right to indemnity arising from implied contract. [ 50 ] As noted above, Ryan relies on Birmingham & District Land Co. as the guiding authority on the law of indemnity.

In that decision, both Cotton, L.J. and Bowen, L.J., gave written reasons identifying and commenting on the classes of cases in which the law will recognize an obligation to indemnify. [ 51 ] At page 272, Cotton, L.J., spelled out in plain terms when the law will impose an obligation to indemnify: … [I]f A. requests B. to do a thing for him, and B. in consequence of his doing that act is subject to some liability or loss, then in consequence of the request to do the act the law implies a contract by A. to indemnify B. from the consequences of his doing it.

In that case there is not an express but an implied contract to indemnify the party for doing what he does at the request of the other… …The case of Spuller v.

Bristol Steam Navigation Company lays down that there must, in order to bring the matter within this rule, be a contract to indemnify either express or implied, not simply a right to claim damages over. [ 52 ] In further expanding on when an implied contract to indemnify will arise, in his reasons, Bowen, L.J. explained at page 274: I think it tolerably clear that the rule, when it deals with claims to indemnity, means claims to indemnity as such either at law or in equity.

In nine cases out of ten a right to indemnity, if it exists at all as such, must be created either by express contract or by implied contract: by express contract if it is given in terms by the contract between the two parties; by implied contract if the true inference to be drawn from the facts is that the parties intended such indemnity, even if they did not express themselves to that effect, or if there is a state of circumstances to which the law attaches a legal or equitable duty to indemnify, there being many cases in which a remedy is given upon an assumed promise by a person to do what, under the circumstances, he ought to do.

I say in nine cases out of ten, for there may possibly be a tenth. Thus there might be a statute enacting that under certain circumstances a person should be entitled to indemnity as such, in which case the right would not arise out of contract, and I do not say that there may not be other cases of a direct right in equity to an indemnity as such which does not come within the rule that all indemnity must arise out of contract express or implied. But

it is quite clear to my mind that a right to damages, which is all that the defendants have here if they are entitled to anything is not a right to indemnity as such. [ 53 ] Counsel for HMQ points out that, at page 275 of the decision, Bowen, L.J. again discussed the large class of cases, chiefly arising under the law of principal and agent, where the law implies a contract to indemnify from a request. This implied contract to indemnify arises because the principal has requested that an agent do a thing for the principal, and the agent, in consequence of doing that act, becomes subject to some liability or loss.

Bowen, L.J. recognized that this class of implied contract to indemnify is not confined to cases of principal and agent. However, all cases of an implied contract to indemnify proceed upon the notion of a request which one person makes under circumstances from which the law implies that both parties understand that the person who acts upon the request is to be indemnified if he does so. [ 54 ] Based upon the two sets of reasons in Birmingham , counsel for HMQ submits that that there are actually four separate circumstances in which a right to indemnity could arise:

a) By express contract;

b) By implied contract, divided into two sub-categories:

i) Where it may be inferred from the facts that the parties intended an indemnity, even if they did not expressly so state; ii) Where the circumstances are such that the law attaches a legal or equitable duty to indemnify in situations where there is an assumed promise by a person to do what, under the circumstances, he ought to do;

c) By statute; or

d) Potentially by a direct right in equity. [ 55 ] In further support of this position, counsel for HMQ refers to the Alberta Court of Appeal decision in Addison & Leyen Ltd. v. Fraser Milner Casgrain LLP , 2014 ABCA 230 , a decision relied upon by Butler, J., in BCL Group .

At paragraphs 34 and 35, the Alberta Court of Appeal referenced the decision of this Province’s Court of Appeal in Ryan in describing how the common law of implied indemnity applies; i.e. where the circumstances are such as to imply a promise to indemnify. 34…First, the common law of implied indemnity is rooted in the principles of restitution and unjust enrichment. An indemnity permits the reimbursement of damages paid by an innocent party to a third party on behalf of the true wrongdoer, where that wrongdoer should otherwise have been liable to pay.

A right to reimbursement through an implied indemnity does not arise in every situation in which A becomes liable to C in connection with the negligence of B. That connection must be supported by a theory of legal or equitable liability between the third party and the party against whom the indemnity is sought ( Ryan v.

Dew Enterprises Ltd. at para 54 ). 35 A simple statement of this requirement is provided by Professor Charles Mitchell in his text, The Law of Contribution and Reimbursement (New York: Oxford University Press, 2003) at 5: "Claims for contribution and reimbursement lie between two parties who both initially owe legal liabilities to a third party" (emphasis added).

Put another way, the circumstances must be such that the putative party against whom the indemnity was sought could have been liable to the third party for all or part of the claim against the party seeking the indemnity . [ 56 ] In the above quotation, references to A, B and C relate to the following scenario:

a) An act done by B (an accountant who prepared a tax opinion) at the request of A (client);

b) Without any fault of A (client), A is exposed to liability to a third party, C (the Minister of National Revenue); and

c) The liability of A (client) to C (Minister of National Revenue) arises in connection with the negligence of B (accountant). [ 57 ] In that case, the Alberta Court of Appeal held that the law of implied indemnity did not allow the client to make a claim in implied indemnity against the tax accountant.

That is because there was no legal or equitable basis of liability between the tax accountant who prepared the negligent opinion and the Minister of National Revenue. [ 58 ] At paragraph 43 of that decision, the Alberta Court of Appeal explained that the policy implications of extending the common law to allow such a claim would be significant. It could result in anybody who gives advice being considered to provide an implied indemnity to their clients that covers any loss incurred by the client in relying on that advice.

This could subject professionals to indeterminate litigation under a never-ending limitation period. [ 59 ] Counsel for HMQ submits that the decision in Birmingham forms the basis of the present day law of indemnity in Newfoundland and Labrador and is the law upon which Green, C.J.N.L. decided Ryan and on which the Alberta Court of Appeal relied in Addison & Leyen .

While Green, C.J.N.L. identified diverse examples where the law may imply a duty to indemnify, counsel for HMQ says all the examples identified as arising by implication of law fall within the two subsets of indemnification by implied contract, as set out in Birmingham .

It is therefore HMQ’s submission that Ryan did not remove or alter the fundamental requirement that, in order for an indemnity to arise by implication of law, there must be “a state of circumstances to which the law attaches a legal or equitable duty to indemnify”. [ 60 ] I agree with the statement that, in order for an indemnity by implication of law to arise, the law must attach a legal or equitable duty to indemnify.

However, in reviewing Ryan , I query whether Green, C.J.N.L. did not also intend the category of indemnity by implication of law to include not only those two subsets of cases where there is an implied contract to indemnify but also the other

potential category set out in Birmingham , that being where there is a direct right to indemnity in equity. That potential category was not referenced in Ryan . [ 61 ] However, it is not necessary to settle that point for the purposes of determining this application. When questioned regarding the category under which a claim for indemnity was put forward, counsel for EXP acknowledged that EXP was not claiming a right to indemnity either by way of express contract, statute, or by a direct right in equity.

As such, he acknowledged that the only claim for indemnity which may be gleaned from the Fourth Party Claim is a claim for indemnity arising by implied contract, i.e. where it can be inferred that indemnity was intended or where the law attaches a legal or equitable duty based upon an assumed promise.

Both situations are subsumed under Green, C.J.N.L.’s second category of indemnity arising by implication of law. [ 62 ] Counsel for EXP says that, while its claim does not fall within one of the four examples given by Green, C.J.N.L., at paragraph 54 of Ryan , Green, C.J.N.L. was clear that he was only identifying diverse examples of indemnity by implication of law. [ 63 ] In particular, EXP refers to paragraph 57 of BCL Group : 57 While I agree that the facts asserted herein do not fall within the four examples cited within paragraph 54 of Ryan (agent/principal; trustee/co-trustee; and trustee/beneficiary) our Court of Appeal in Ryan did not purport to limit claims for indemnity to the examples given.

There is a reasonable prospect that an obligation to indemnify may arise by implication of law ( Addison & Leyen Ltd. v. Fraser Milner Casgrain LLP , 2014 ABCA 230 (Alta. C.A.)) if Re/Max can establish a breach of either the Conveyancing Act covenant, duty of good faith or duty of care. While counsel could not refer to authority supporting a claim for indemnity on facts similar to those pleaded herein, this is not fatal.

The Supreme Court of Canada in Knight confirmed that "it is not determinative that the law has not yet recognized the particular claim" (paragraph 21). [ 64 ] However, counsel for HMQ points out that Green, C.J.N.L., while not closing the door on other examples of cases where an obligation to indemnify may arise by implication of law, did note at paragraph 54 that the circumstances are not open-ended stating: …While the circumstances where an obligation to indemnify arises by implication of law are diverse, they are not open-ended.

The obligation cannot be imposed simply by the exercise of ad hoc discretion. …just because a party may have a claim for damages over against a third party does not entitle him or her to a claim in indemnity or contribution. [ 65 ] Counsel for HMQ therefore submits that, while the circumstances where an obligation to indemnify arising by implication of law may be diverse, there remains the requirement on a party claiming such indemnification (

B) to put forward a theory of legal or equitable liability between (

i) A, the party claiming against B; and (ii) C, the person from whom B is seeking indemnity or contribution. In this instance, A would be EXP; B would be HMQ; and C would be the Town. In order for an implied obligation to indemnify to arise, EXP must put forward a theory of legal or equitable liability between HMQ and the Town. [ 66 ] It is on that basis that HMQ differentiates BCL Group .

In that case, the fourth party claim put forward a theory or legal or equitable liability against the fourth party, including breaches of a statutory covenant, breach of a duty of good faith or breach of a duty of care by the fourth party. While the legal claims were somewhat novel, they were specifically pleaded based on facts set out in the fourth party claim. [ 67 ] In contrast, HMQ notes that no claims in breach of contract, statute or negligence have been pleaded. Rather it is the following facts that EXP relies on as giving rise to an implied contract to indemnify:

a) That HMQ, through the Department of Municipal Affairs, whether formally or informally and whether as required by contract or custom, was involved in decision-making on the Project and that the Town made all decisions in consultation with HMQ;

b) That HMQ, through the Department of Municipal Affairs’ approach to decision-making, had a significant influence on the timing of decisions being made and implemented by the Town; and

c) That HMQ established budgets or financial limitations that effected constraints on testing and investigative services available to the Town. [ 68 ] Applying the law as to when an implied contract to indemnify will arise, HMQ states that it cannot be inferred from the above pleaded facts that the parties intended for HMQ to indemnify EXP for damages EXP might incur in reliance on the decision-making process, imposition of budgets or financial constraints or otherwise.

Nor has EXP alleged any other facts or circumstances that could give rise to a legal theory of liability in law or equity between HMQ and the Town. [ 69 ] With respect to the alternative claim for contribution, HMQ states that the pleadings do not support this claim either. [ 70 ] Green, C.J.N.L. noted at paragraph 55 of Ryan that a claim for contribution is in one sense a claim to a partial indemnity, but the basis of the right is different. Referencing the decision of the late Goodridge, J., as he then was, in Collavino Inc. v. Newfoundland (1985), 56 Nfld. & P.E.I.R. 265, 35 A.C.W.S. (2d) 380 (Nfld.

S.C. (T.D.)), Green, C.J.N.L. noted that the right to contribution is based on general principles of justice involving the equitable sharing of responsibility among persons who are jointly responsible for a claimed loss. The typical situations in which the right arises are between joint debtors, contractors, trustees, sureties or tortfeasors. Claims for contribution between joint tortfeasors are now governed by the Contributory Negligence Act , R.S.N.L. 1990, c.

C-33 . [ 71 ] As with the claim in indemnity, HMQ says that the Fourth Party Claim does not allege that HMQ is jointly responsible for the damages claimed, either as a joint debtor, contractor, trustee, surety, tortfeasor, or otherwise. It is therefore HMQ’s submission that any claim for indemnity and/or contribution does not have a reasonable prospect of success. [ 72 ] On the other hand, EXP says that the pleadings, taken together, allege the following facts that are sufficient to ground a claim in indemnity or contribution:

a) FCG is claiming damages associated with delay and sub-surface conditions;

b) FCG has alleged that the representations regarding sub-surface conditions in the FCG Contract were incorrect;

c) FCG has alleged that it suffered damages due to the direction from EXP to proceed with the Phase 3 Work, including work during the winter and work to remove and replace the unsuitable fill;

d) HMQ, through the Department of Municipal Affairs, entered into a contract with the Town to fund the Polar Centre;

e) EXP and the Town, in the consulting contract, agreed to adhere to the requirements of HMQ, through the Department of Municipal Affairs;

f) HMQ, through the Department of Municipal Affairs, was ultimately required to authorize the award of the construction contract for the Phase 3 Work by the Town to FCG; and

g) The Town made its decisions in respect of the FCG Contract in consultation with HMQ, through the Department of Municipal Affairs. [ 73 ] While HMQ says that EXP has not put forward a theory of legal or equitable liability, EXP says that HMQ had a funding contract with the Town and was directly involved in the actions of the Town that are alleged to have been negligent or in breach of contract to FCG. EXP further says that it has alleged that, if EXP is found to have caused any of the damage suffered by FCG or the Town, HMQ also caused or contributed to that damage.

EXP says the facts as pleaded are sufficient to ground a claim in contribution and/or indemnity. [ 74 ] However, HMQ says that the Fourth Party Claim does not clearly set out the theory of legal or equitable liability or responsibility on which EXP relies.

I agree that, in both the pleadings and written submissions, counsel for EXP did not allege or provide particulars of any alleged breach of contract by HMQ or of any negligence by HMQ as it relates to any contract or duty of care owed to the Town. [ 75 ] However, in oral submissions, counsel for EXP submitted that decisions made and communicated back to FCG were made collectively with the involvement and direction of EXP to ensure the Project came in on budget.

EXP also says the Town could have made a viable third party claim against HMQ for breach of a contractual duty of good faith under the funding contract or a claim in negligence. The fact that neither FCG nor the Town chose to make a claim against HMQ does not mean that HMQ is not responsible for the loss. EXP can not only make a claim in contribution against HMQ, but the circumstances relating to HMQ’s involvement in the decisions leading to the damages gives rise to an implied or assumed promise to indemnify. [ 76 ] However, counsel for HMQ points out that that is not in fact what the pleadings allege.

Further, HMQ says that the facts and circumstances that are pleaded cannot support a valid claim that HMQ breached any obligation or duty owed to the Town or FCG, either in contract or the law of negligence. [ 77 ] Most tellingly, HMQ says EXP has not provided the Court with any case law in which (

i) a project consultant has been found liable to pay a project owner damages due to the consultant’s negligence (as has been alleged in the Third Party Claim), and (ii) that consultant is then able to claim that the government-funder of the project has an obligation to indemnify the consultant for those damages on the basis that insufficient funding was provided to allow the project owner to pay the consultant to properly carry out its work. [ 78 ] On the other hand, counsel for EXP notes that, in BCL Group , Butler, J. was able to identify that the pleaded facts in that matter could be said to allege either a breach of a statutory condition, a duty of good faith or duty of care.

This was despite the fact that counsel had no supportive authority. This is because the courts must recognize that there may be particular claims that the law has not yet recognized. At the application to strike stage, a court must recognize that the law evolves over time. What is not a valid or viable claim today may be a valid and viable claim by the time the matter goes to trial. [ 79 ] EXP says, at this early stage of litigation, it has not yet conducted discoveries of all witnesses, including Crown witnesses.

However, the facts as put forward in the Fourth Party Claim are sufficient to demonstrate that a duty of good faith or duty of care may be owed by HMQ to the Town. HMQ is also alleged to have had direct involvement with both EXP and the Town.

A stronger analysis of the claim would only be possible after all the circumstances, including those that may come out through discovery, are put before the Court. [ 80 ] Having considered the pleadings and submissions of the parties, I have reservations as to whether the claim against HMQ is capable of being established, and in particular, whether the law of contract and negligence is or will be sufficiently flexible to allow such a claim.

However, unlike the circumstances before the Alberta Court of Appeal in Addison & Leyen , there were some direct dealings between the Town and HMQ that could be pleaded as giving rise to a claim in contract or negligence. Further, the pleaded circumstances reveal dealing between EXP, the Town and HMQ that EXP alleges could give rise to an implied contract to indemnity. [ 81 ] I must also be mindful that, as noted by Butler, J. at paragraph 59 of BCL Group , I must apply a generous approach on an application to strike and err on the side of caution for a novel claim.

Applying that approach, I find it is not appropriate to strike the Fourth Party Claim at this time. [ 82 ] However, I do agree with counsel for HMQ that the pleadings, as presently drafted, are not sufficient for HMQ to adequately respond to the claim as framed by counsel for EXP during oral submissions. Nevertheless, both counsel recognized that this Court has the authority to allow EXP to amend its pleadings on an application to strike.

EXP has advised that it will amend and further particularize its pleadings if given the opportunity to do so. [ 83 ] I therefore grant leave to EXP to amend the Fourth Party Claim to particularize its claim for indemnity and/or contribution.

[ 84 ] As the COVID-19 pandemic caused the Court to suspend normal operations after the hearing of this application, at this point in time the Registry is not accepting filings of non-urgent pleadings such as an Amended Fourth Party Claim. I therefore order that the amended Fourth Party Claim be filed within 30 days of the date when the Court accepts such filings. [ 85 ] While HMQ was not successful on its application to strike, I find it was reasonable for it to bring the application in light of the lack of clarity in the Fourth Party Claim.

Further, neither FCG nor the Town made representations on the application. I therefore make no order as to costs. _____________________________ Rosalie McGrath Justice APPENDIX Corrections made on May 19, 2020: 1. The footnote at page 3 of the original decision has been amended to reflect the proper designation of HMQ as “Her Majesty in right of Newfoundland and Labrador”.