2015 NBCA 2, 2015 NBCA 2

COURT OF APPEAL OF COUR D’APPEL DU NEW BRUNSWICK NOUVEAU-BRUNSWICK 108-13-CA BRUCE SHANKS APPELLANT BRUCE SHANKS APPELANT - and - - et - PETER SHAY, KELLY LEYDON, BRAD DASH, DEBBIE WHITE, TD HOME AND AUTO INSURANCE COMPANY, ROBERT L. GAUDET, PLANT HOPE ADJUSTERS LTD. and CAA INSURANCE COMPANY (ONTARIO) RESPONDENTS PETER SHAY, KELLY LEYDON, BRAD DASH, DEBBIE WHITE, COMPAGNIE D’ASSURANCE HABITATION ET AUTO TD, ROBERT L. GAUDET, PLANT HOPE ADJUSTERS LTD. et CAA INSURANCE COMPANY (ONTARIO) INTIMÉS Shanks v. Shay et al., 2015 NBCA 2 Shanks c.

Shay et autres, 2015 NBCA 2 CORAM: The Honourable Justice Larlee The Honourable Justice Richard The Honourable Justice Green CORAM : l’honorable juge Larlee l’honorable juge Richard l’honorable juge Green Appeal from a decision of the Court of Queen’s Bench: October 17, 2013 Appel d’une décision de la Cour du Banc de la Reine : le 17 octobre 2013 History of Case: Historique de la cause : Decision under appeal: Unreported Décision frappée d’appel : inédite Preliminary or incidental proceedings: N/A Procédures préliminaires ou accessoires : s.o.

Appeal heard: October 23, 2014 Appel entendu : le 23 octobre 2014 Judgment rendered: January 15, 2015 Jugement rendu : le 15 janvier 2015

Reasons for judgment by: The Honourable Justice Larlee Motifs de jugement : l’honorable juge Larlee Concurred in by: The Honourable Justice Richard The Honourable Justice Green Souscrivent aux motifs : l’honorable juge Richard l’honorable juge Green Counsel at hearing: For the appellant: George A. McAllister, Q.C. For the respondents Peter Shay, Kelly Leydon, Brad Dash, Debbie White and TD Home and Auto Insurance Company: Philip Chapman For the respondents Robert L. Gaudet and Plant Hope Adjusters Ltd: Dennis P. Gonzalez For the respondent CAA Insurance Company (Ontario): Lucie M.

LaBoissonnière Avocats à l’audience : Pour l’appelant : George A. McAllister, c.r. Pour les intimés Peter Shay, Kelly Leydon, Brad Dash, Debbie White et Compagnie d’assurance habitation et auto TD : Philip Chapman Pour les intimés Robert L. Gaudet et Plant Hope Adjusters Ltd. : Dennis P. Gonzalez Pour l’intimée CAA Insurance Company (Ontario) : Lucie M. LaBoissonnière THE COURT The appeal is dismissed with costs. LA COUR L’appel est rejeté avec dépens.

The judgment of the Court was delivered by LARLEE, J.A. [ 1 ] The appellant, Bruce Shanks, was involved in two motor vehicle accidents, the first on September 28, 2007, and the second on November 30, 2007. At the time of the first accident, Mr. Shanks was insured by TD Home and Auto Insurance Company (TD). He sustained various injuries in the accident and applied for loss of income benefits and medical and rehabilitation benefits from TD. Using its in-house staff to adjust his claim (Mr. Shay, Ms. Leydon, Mr. Dash and Ms. White), TD denied the claim.

[ 2 ] At the time of the second accident, Mr. Shanks was insured by CAA Insurance Company (Ontario) (CAA). He also suffered injuries in that accident and applied to CAA for medical and rehabilitation benefits. CAA referred the claim to Plant Hope Adjusters Ltd., which assigned the claim to Robert Gaudet. CAA eventually denied the claim. [ 3 ] In September, 2009, Mr. Shanks commenced an action against TD and its staff, alleging induced breach of contract, breach of contract, bad faith and negligence. In the same action, Mr. Shanks made similar claims against Mr. Gaudet, Plant Hope, and CAA.

At the time of both accidents, Mr. Shanks was insured pursuant to the S.P.F. No. 1 Standard Automobile Policy for New Brunswick. [ 4 ] TD denied coverage because it alleges Mr. Shanks failed to disclose he used his vehicle for commercial purposes (delivering newspapers), an action that materially changed the risk, thereby allowing TD to retroactively terminate the policy. CAA took the position that all of Mr. Shanks’ injuries were caused by the first accident. [ 5 ] On August 8, 2013, Mr. Shay, Ms. Leydon, Mr. Dash, Ms.

White and TD filed a motion requesting that the issue of entitlement to benefits be severed from the claims of bad faith, negligence and intentional interference with contractual relations, and be tried first. It also asked that the claims against TD and its staff be severed from the claims against Mr. Gaudet, Plant Hope Adjusters and CAA.

On October 7, 2013, CAA moved for severance of the claims relating to breach of contract and the allegations related to bad faith and negligence, and for division of the claims related to the two accidents into two separate and distinct claims. [ 6 ] On October 17, 2013, a judge of the Court of Queen’s Bench heard the motion and ordered that the claim relating to the breach of contract be severed, that it be tried first, and that, until that threshold issue was adjudicated, all other issues raised in the Statement of Claim be considered irrelevant for discovery purposes.

She denied the moving parties’ request to sever from each other the claims relating to the two accidents. [ 7 ] Mr. Shanks appeals with leave and requests that the inducing breach of contract claims against the adjusters, supervisors and managers be heard at the same time as the breach of contract claims against the insurers in both actions. I.

Grounds of Appeal [ 8 ] The appellant relies on three grounds of appeal, arguing the motion judge erred as follows: 1) in interpreting and applying Rule 4.05(2) and Rule 39.01(4) and in admitting as evidence paragraphs 17 and 18 of Marie-Josée Cormier’s affidavit or in the alternative failing to rule on their admissibility; 2) in interpreting and applying Rule 4.05(2) and in admitting as evidence paragraphs 9 and 10 of Olga Kouritsyna’s affidavit or in the alternative failing to rule on their admissibility; and 3) in interpreting and applying s. 7(2) of the Judicature Act , R.S.N.B. 1973, c.

J-2 and Rules 1.03(2), 5.05 and 47.03(1) of the Rules of Court . II. Standard of Review [ 9 ] An impugned Order which is the result of an exercise of judicial discretion is not completely insulated from review, but may be interfered with on appeal if it is founded upon an error of law, an error in the application of the governing principles, or a palpable and overriding error in the assessment of the evidence; or if it is unreasonable, in the sense that nothing in the record can justify it: British Columbia (Minister of Forests) v. Okanagan Indian Band , 2003 SCC 71 , [2003] 3 S.C.R. 371 , at para. 43 .

In The Beaverbrook Canadian Foundation v. The Beaverbrook Art Gallery , 2006 NBCA 75 , 302 N.B.R. (2d) 161 , Drapeau C.J.N.B. explains: The impugned Order is quintessentially the product of an exercise of judicial discretion. Like any other discretionary judicial decision, it

may be interfered with on appeal only if it is founded upon an error of law, an error in the application of the governing principles or a palpable and overriding error in the assessment of the evidence (see British Columbia (Minister of Forests) v. Okanogan Indian Band , [2003] 3 S.C.R. 371, 2003 SCC 71 at para. 43 ) or if it is unreasonable, in the sense that nothing in the record can justify it (see The Honourable R.P. Kerans, Standards of Review Employed by Appellate Courts (Edmonton: Juriliber Limited, 1994) at pp. 36-37 and Secretary of State for Education and Science v.

Tameside Metropolitan Borough Council , [1977] A.C. 1014 (H.L.) Lord Diplock at p. 1064). [para. 4] [ 10 ] More recently, in Williamson et al. v. Gillis et al. , 2011 NBCA 53 , 374 N.B.R. (2d) 311 , Richard J.A. refers to the standard of review applicable to the exercise of judicial discretion as formulated in The Beaverbrook Canadian Foundation , and reiterates: Time and again since the decision in Beaverbrook , this Court has, in various contexts, applied this formulation of the standard of review to decisions made in the exercise of judicial discretion: Clements and Wawanesa Mutual Insurance Company v.

Fougère and Morin , 2007 NBCA 4 , 311 N.B.R. (2d) 368, Turnbull-Burnight v. CIBC World Markets Inc., Oland and Spencer , 2007 NBCA 43 , 318 N.B.R. (2d) 326, Spielo Manufacturing and Manship v. Doucet and Dauphinee , 2007 NBCA 85 , [2007] N.B.J. No. 510 (QL), Euclide Cormier Plumbing and Heating Inc. v. Canada Post Corp. , 2008 NBCA 54 , 334 N.B.R. (2d) 211, Seely v. Corrier , 2009 NBCA 3 , 340 N.B.R. (2d) 262, State Farm Mutual Automobile Insurance Company v. State Farm Mutual Automobile Insurance Company v.

Privacy Commissioner of Canada and Attorney General of Canada , 2009 NBCA 5 , 341 N.B.R. (2d) 1, Province of New Brunswick v. Morgentaler , 2009 NBCA 26 , 344 N.B.R. (2d) 39, Jean v. Pêcheries Roger L. Ltée , 2010 NBCA 10 , 354 N.B.R. (2d) 300, St-Coeur, Dozois and Doucet v. Conseil récréatif de Bois Blanc Inc. , 2010 NBCA 61 , 363 N.B.R. (2d) 206, and Pelletier Plumbing & Heating Ltd. et al. v. Cyr , 2011 NBCA 13 , [2011] N.B.J. No. 36 (QL). [para. 14] III.

Exercise of Discretion [ 11 ] The issue in this case is whether the motion judge erred in severing the breach of contact claims from the inducing breach of contract claims. The appellant attacks the soundness of the motion judge’s order to bifurcate an action against insurers where an allegation of bad faith is lumped together with an action on a breach of policy, arguing that the “threshold test” she applied is inherently biased against the plaintiff. That so-called threshold test is set out in Walsh v.

Nicholls and CGU Insurance Company of Canada , 2004 NBCA 59 , 273 N.B.R. (2d) 203 , at paras. 86-89 , where Drapeau C.J.N.B. approves of suitably crafted bifurcation orders in actions against insurers where there is both an allegation of a breach of the policy and of a breach of the covenant of good faith. Whether the policy was breached becomes the threshold issue; the other issues only need be addressed if that question is answered in favour of the insured (para. 67). The appellant argues that a new test should be articulated by this Court with specific enumerated criteria.

He laments that the test in Walsh is too simplistic and the matter is too complicated to be addressed in two short paragraphs by this Court. He seeks criteria to be applied to assess the complexity of the case including a cost benefit analysis. He argues the motion judge blindly and arbitrarily applied the “threshold test” without doing an analysis. [ 12 ] For the following reasons I disagree and would dismiss the appeal. [ 13 ] There are two pertinent Rules of Court . Rule 5.05 states:

5.05 Relief Against Joinder Where the joinder of multiple claims orparties in the same proceeding may undulycomplicate or delay the trial or hearing, orcause undue prejudice to a party, the courtmay (

a) order separate trials or hearings, (

b) require one or more of the claims to beasserted, if at all, in another proceeding, […] 5.05 Recours contre les jonctions Lorsque la jonction de plusieurs demandes ouparties dans la même instance risque decompliquer ou de retarder indûment le procèsou l’audition ou de causer un préjudice indu àune partie, la cour peut

a) ordonner des procès ou auditions distincts,

b) exiger qu’une ou plusieurs demandessoient présentées dans une autre instance ouretirées complétement, […] [14] Rule 47.03 (1) states: 47.03 Severability of Trials

(1) Either before or after an action is setdown for trial, the court may order thatdifferent issues be tried at different times andmay give directions with respect to theconduct of such trials. 47.03 Procès séparés (1) En tout temps avant ou après la mise aurôle d’une action, la cour peut ordonner quediverses questions en litige soient instruitesséparément et donner des instructions quant àla conduite des procès. [15] For some time, courts have suggested a liberal approach to the determination of separation ofissues in a trial. In Coenen v.

Payne and Another, [1974] 2 All E.R. 1109 (C.A.), Lord Denning criticized the reticence of Courts to grantseparate trials, referring to the appropriate test then used by the courts in England: In practice this power has hitherto been exercised only in “extraordinary and exceptional cases” or where “the Judge has serious reason tobelieve that the trial of the issue will put an end to the action”. Winn LJ’s committee did not like that practice. They thought “a more robust and less restrictive approach” should be approved. Theyrecommended that a new rule should be made to alter it ...

I think the time has come to adopt a new approach. There is no need to order anew rule. The practice can be altered without it. The courts already have power to do it. RSC Ord 33, r 4(2) says: In any [action begun by writ] different questions or issues may be ordered to be tried at different places or by different modes of trial andone or more questions or issues may be ordered to be tried before the others. In future the courts should be more ready to grant separate trials than they used to do. The normal practice should still be that liabilityand damages should be tried together.

But the courts should be ready to order separate trials wherever it is just and convenient to do so.[p. 1112] See also McManus v. Nova Scotia (Attorney General) et al. (1991), (NS SC), 119 N.S.R. (2d) 137, [1991] N.S.J. No.628 (S.C.) (QL), where the Court applied the criteria of “just and convenient” as articulated by Lord Denning to determine an issue of

severance. [16] This is the test that Drapeau J.A. (as he then was) adopted in Savoie v. Duguay (1998), (NB CA), 197 N.B.R. (2d) 395, [1998] N.B.J No. 102 (C.A.) (QL), on a motion for leave to appeal a motion judge’sOrder under Rule 47.03(1) to sever the issues of liability and damages for an alleged tort. He explains: The order was clearly made under a discretionary power. Generally speaking, the principles guiding the exercise of discretion within thecontext of an action in damages for an alleged tort are expressed in very general terms (see Quinn v.

Moncton Hospital (1989), (NB KB), 101 N.B.R. (2d) 86 (Q.B.) at page 89, para. 5). I believe the exercise of the discretionary power under Rule47.03(1) should not be too strictly limited, at least not in the context of an action like the case at bar. I therefore adopt the comments ofRichard, J. (then Chief Justice) in Quinn v. Moncton Hospital, supra, at page 90: ... the court should not reject them [these requests] on criteria which were developed under the old rules and in an era which is long past.

McIntyre, J. had the power, in exercising his discretion, to make an order under Rule 47.03(1) if he thought it is just and convenient to doso. [paras. 2-3] This approach was “embraced” by Robertson J.A. in Humble (Litigation guardian of) v. Murphy, [2011] N.B.J. No. 215 (C.A.) (QL). [17] In Whiten v. Pilot Insurance Co., 2002 SCC 18, [2002] 1 S.C.R. 595, the majority of theSupreme Court of Canada found that a breach of the duty of good faith was a separate, sustainable, right of action that existed apart fromany action arising under the contract of insurance.

They noted that since a claim for punitive damages may affect the fairness of theliability trial, bifurcated proceedings may be appropriate (para. 122). [18] In Walsh v. Nicholls, Drapeau C.J.N.B. explains further the view of this Court: The practice of bifurcating actions against insurers where the plaintiff alleges a breach of the covenant of good faith and fair dealing iscommon in American jurisdictions. It strikes me as equally appropriate in a case, such as the present, that features tort- and contract-based claims for bad faith rejection of insurance benefits.

In my judgment, it would be just to sever the issue of breach of the Policy from all other issues in the Statement of Claim and I would soorder. As well, I would order that the issue of breach of the Policy be tried first and that, until that threshold issue is adjudicated, allother issues raised in the Statement of Claim be considered irrelevant for both written and oral discovery purposes. [paras. 88-89] [19] The test is not that there must be exceptional or special circumstances to permit the severanceset out in the above stated Rules. The test is simply whether it is just and convenient to do so.

Nor is the test one in which multiplecriteria must be weighed in the balance in order to decide what is just and convenient, though there have been attempts to create lists offactors to be so weighed. The criteria in Bourne v. Saunby, [1993] O.J. No. 2606 (C.J.) (QL), at para. 30, provide one example, some ofwhich were repeated in New Brunswick in Jeux Maritimes Inc. v. Commission des lotteries du Nouveau-Brunswick (1994), (NB KB), 150 N.B.R. (2d) 46, [1994] N.B.J.

No. 304 (Q.B.) (QL), at para. 13, where ten criteria were listed by the motion judge.Although some of the criteria may be pertinent in certain circumstances, they should not be used to restrain judicial discretion. [20] In other jurisdictions the same is not true. In Alberta, the new Rules of Procedure do away withthe old “exceptional case” test in favour of a more lenient analysis. In Nowicki v. Price, 2011 ABQB 133, [2011] A.J.

No. 227 (QL),Moen J. explains if the threshold is met for severance under Rule 7.1, the case must be looked at as a whole to determine if theFoundational Rules for cost effectiveness and timeliness, among other things, would be met by severance, pursuant to the Alberta Rulesof Court, Alta Reg 124/2010. [21] In New Brunswick, trial judges apply the just and convenient test in motions under Rule 47.03for severance of issues. In Marco Maritimes Ltd. v.

Intact Insurance Co., 2012 NBQB 204, 390 N.B.R. (2d) 255, Rideout J. applied the“just and [convenient]” test on a motion by the defendant to divide the plaintiff’s claims for breach of contract and of good faith; there

was no affidavit evidence that justified a severance order, and the test favoured the plaintiff (paras. 34-36). In MacLean v.

Diaotati , 2012 NBQB 33 , 396 N.B.R. (2d) 56 , on a motion by the defendants for an order directing that two related actions be heard together, but that the issues of liability and damages be severed, McNally J. was satisfied: … that it is the “just and convenient” test that is to be applied in determining motions for severance under Rule 47.03, rather than a mechanical consideration and application of a checklist of criteria which has not been specified or indeed contemplated in the wording of Rule 47.03 and would not be in keeping with the spirit of the current Rules of Court as articulated by Chief Justice Richard in Quinn . [para. 30] [ 22 ] From an access to justice perspective, it is always preferable to interpret the Rules to favour resolution of issues in the most efficient, expedient, and least onerous manner possible: see Thomas Lipton, “Severance: Justice For More” (2010) 88:3 Can.

Bar Rev. 635, in which the author argues for severance of issues as a general rule, avoidable in exceptional circumstances. His thesis is that the civil justice system could realize significant gains (trials would be faster and cheaper) if determinative issues were tried in sequence. [ 23 ] The test, as this Court has stated, in deciding whether to bifurcate a case of this nature, is whether it is just and convenient to do so. Queen’s Bench judges should address their minds to the criteria relevant to the case at hand in ultimately deciding if severance of issues is just and convenient.

It would be unwise, in my view, to formulate a strict test with numerous criteria (as was urged on us by the appellant’s lawyer), because the circumstances in these cases vary so much. IV. Case at Bar [ 24 ] In my view, in the case at bar the application of the just and convenient test justifies severance. The motion judge was not only aware of the Walsh case, but tracked its wording in her Order. I would infer from a reading of the record that the motion judge, in the circumstances of the case, on the whole after a reading of the pleadings, applied a just and convenient test.

From the Statement of Claim, it is clear that the first issue is simple: was TD within its rights to void the policy because Mr. Shanks used the vehicle for business? The second issue is more complicated: did the employees of the companies (five in total are named: four from TD and one from Plant Hope) act in bad faith and induce a breach of contract? A determination on the first issue might put an end to the action.

This essentially boils down to an issue of common sense, and the motion judge made a discretionary order to control process which is not open to appellate intervention under the applicable standard of review. [ 25 ] Finally, the appellant complains the motion judge admitted certain paragraphs of two affidavits, or failed to rule on the admissibility of those paragraphs. There is no evidence whatsoever that the motion judge relied on the alleged offending paragraphs in fashioning her Order. Indeed it is evident she did not focus on the impugned paragraphs of the affidavits, but on the pleadings.

In any event, there was nothing wrong with the affidavits: they were based on information and belief. [ 26 ] In this case the motion judge considered the applicable law and guiding principles and she applied them on a proper understanding of the facts. The discretionary Order in this case is underpinned by the jurisprudence of this Court. I am left to conclude that the Order the motion judge made, following the direction of this Court in Walsh , is the one that ought to have been made. [ 27 ] I would dismiss the appeal. Costs usually follow the event: Dunphy’s Poultry Farm Ltd. v.

Merrithew , 2004 NBCA 25 , [2004] N.B.J. No. 146 (QL) , at para. 4 ; Doucet and Dauphinee v. Spielo Manufacturing Incorporated and Manship , 2011 NBCA 44 , 372 N.B.R. (2d) 1 , at para. 124 , leave to appeal refused [2011] S.C.C.A. No. 317 (QL). Therefore, I would order costs on appeal to each group of respondents, represented by the three lawyers on appeal, in an amount of $1,000. ____________________________________ M.E.L. LARLEE, J.A. WE CONCUR:

___________________________________ J.C. MARC RICHARD, J.A. ____________________________________ BRADLEY V. GREEN, J.A.