Economical Mutual Insurance Company v. The Bank of Nova Scotia et al., 2015 NLCA 29

Date: 20150601 Docket: 14/65 and 14/62 Citation: Economical Mutual Insurance Company v. The Bank of Nova Scotia et al. , 2015 NLCA 29 IN THE SUPREME COURT OF NEWFOUNDLAND AND LABRADOR COURT OF APPEAL BETWEEN: ECONOMICAL MUTUAL INSURANCE COMPANY APPELLANT AND: THE BANK OF NOVA SCOTIA FIRST RESPONDENT AND: BROTHERS AND BURDEN LAW OFFICE PLC INC. SECOND RESPONDENT AND: KENNETH J. BROTHERS THIRD RESPONDENT AND: AON REED STENHOUSE INC. (formerly Anthony & Associates Inc.) FOURTH RESPONDENT AND: KEITH GOODYEAR FIFTH RESPONDENT AND: DARREN BRAKE SIXTH RESPONDENT AND: K.S.A.B. CONSTRUCTION LIMITED SEVENTH RESPONDENT AND

Docket: 14/62 BETWEEN: AON REED STENHOUSE INC. (formerly Anthony & Associates Inc.) APPELLANT AND: KEITH GOODYEAR FIRST RESPONDENT AND: THE BANK OF NOVA SCOTIA SECOND RESPONDENT AND: BROTHERS AND BURDEN LAW OFFICE PLC INC. THIRD RESPONDENT AND: KENNETH J. BROTHERS FOURTH RESPONDENT AND: ECONOMICAL MUTUAL INSURANCE COMPANY FIFTH RESPONDENT AND: DARREN BRAKE SIXTH RESPONDENT AND: K.S.A.B. CONSTRUCTION LIMITED SEVENTH RESPONDENT Coram: Green C.J.N.L., Welsh and Hoegg JJ.A. Court Appealed From: Supreme Court of Newfoundland and Labrador Trial Division (G) 201001T1501 2014 NLTD(G) 60 Appeal Heard: March 10, 2015 Judgment Rendered: June 1, 2015

Reasons for Judgment by Welsh J.A. Concurred in by Green C.J.N.L. and Hoegg J.A. Counsel for Economical Mutual Insurance Company: Deborah L.J. Hutchings Counsel for The Bank of Nova Scotia: No Appearance Counsel for Brothers and Burden Law Office PLC Inc.: No Appearance Counsel for Kenneth J. Brothers: No Appearance Counsel for AON Reed Stenhouse Inc.: Terry G. Rowe Q.C. Counsel for Keith Goodyear: Terry G. Rowe Q.C. Counsel for Darren Brake: Philip J. Buckingham Counsel for K.S.A.B. Construction Limited: Philip J.

Buckingham Welsh J.A.: [ 1 ] AON Reed Stenhouse and Economical Mutual Insurance Company applied for leave to issue third party notices to Darren Brake and K.S.A.B. Construction Limited in respect of certain consolidated actions taken by the Bank of Nova Scotia to collect monies owing under a mortgage. At issue is whether leave to appeal is required and whether the applications judge erred by refusing to grant the requested applications.

BACKGROUND [ 2 ] Because this matter has not yet been to trial to establish the facts, the following sets out the basis on which the applications were made and these appeals were heard. [ 3 ] Mr. Brake is the sole director, shareholder and operating mind of K.S.A.B. Construction Limited, a construction company involved in property development. By and large, the company’s projects were insured using AON Reed Stenhouse Inc. as the insurance broker (the “broker”), with a Master Policy for which Economical Mutual Insurance Company was the insurer (the “insurer”). [ 4 ] Regarding the property in question, Mr.

Brake decided to demolish the existing house and to construct a new house. A mortgage with Canadian Imperial Bank of Commerce was retired and title was transferred from K.S.A.B. to Mr. Brake. A mortgage in Mr. Brake’s name in the amount of $800,000 was obtained from the Bank of Nova Scotia. The Bank required a “loss payable” clause in the insurance policy to protect its interest in the mortgage. Mr. Brake instructed the law firm, Brothers and Burden, to have the broker place the necessary insurance on the property.

In turn, the broker instructed the insurer to replace the existing policy with a builder’s risk policy while the house was being built. Although the mortgage and title to the property were in Mr. Brake’s name, the insurance policy was issued in K.S.A.B.’s name. Unfortunately, the insurance policy did not contain the “loss payable” clause that was required by the Bank when granting the mortgage. [ 5 ] On March 14, 2008, while under construction, the house was destroyed by fire. Mr. Brake was unable to rebuild due to a change in municipal zoning regulations. For some months after the fire, Mr.

Brake continued to make payments to the Bank, but the mortgage fell into arrears in March 2009. [ 6 ] On July 13, 2009, the insurer issued a cheque pursuant to the insurance policy in the amount of $500,000 to K.S.A.B. On August 4, 2009, the Bank sent a letter to the broker indicating that the Bank, as mortgagee, was entitled to payment from the insurance proceeds. The broker says that the letter was forwarded to the insurer’s claims department. Nonetheless, on October 1, 2009, the insurer made an additional payment of $142,899 to K.S.A.B., apparently because the letter had not been received.

The outstanding balance on the mortgage has not been paid by Mr. Brake or K.S.A.B. [ 7 ] The Bank commenced actions in negligence and breach of contract against the law firm, the broker and the insurer for failure to ensure that the Bank was named as the loss payee under the insurance policy. The law firm issued third party notices against the broker and the insurer. The Bank also commenced an action against Mr. Brake for failure to pay on the mortgage. K.S.A.B. commenced an action against the insurer claiming the balance of the insurance proceeds.

An application by the Bank to consolidate the three actions it had commenced was granted on January 30, 2013. [ 8 ] Identifying the various actions by court number, the applications judge: (1) authorized the insurer to serve a third party notice on the broker, but denied the insurer’s application to serve a third party notice on Mr. Brake and K.S.A.B.; and (2) authorized the broker to serve a third party notice on the insurer, but denied the broker’s application to serve a third party notice on Mr.

Brake and K.S.A.B. [ 9 ] Regarding the insurer’s application, the judge explained: [26] The Court finds that the intended third party claim is connected with the overall claim by the Bank as against [the broker and the insurer]. However the Court finds that there is no recognized cause or causes of action against Brake and KSAB in the application and

affidavit provided by [the insurer]. [27] As it is insufficient to justify a third party claim on vague references to notions of equity and justice, it is also inadequate to rely on a claim of indemnity or contribution without setting forth the facts by affidavit that otherwise would justify such a claim. [ 10 ] Regarding the application by the broker, the judge applied the same reasoning: [30] … Again, as in the application by [the insurer] to add Brake and KSAB, no specific or recognized cause of action was established in the pleadings generally or particularly in the application and affidavit.

ISSUES [ 11 ] The first issue is whether leave to appeal is required and, if so, whether it should be granted. The issue on the appeals is whether the applications judge erred by failing to apply principles of law particularly related to unjust enrichment. An additional issue is whether the applications judge erred by failing to recall counsel to address the relevance of the decision in Pakara Apartments Ltd. v. Dew Enterprises Ltd. , 2014 NLCA 11 , 347 Nfld. & P.E.I.R. 274, which was released by this Court after the hearing but before the decision was filed in this case.

ANALYSIS Leave to Appeal [ 12 ] Appeal of an interlocutory order requires leave of the Court ( Rules of the Supreme Court, 1986 , rule 57.02(1)(a)). An order will be interlocutory, rather than final, if its effect “is such that the real matter in dispute between the parties remains to be determined in the very proceeding from which it issued” ( Newfoundland Government Fund Ltd. v. Hickman , 2008 NLCA 56 , 287 Nfld. & P.E.I.R. 13, at paragraph 7 ). [ 13 ] This appeal does not fall within that definition and, therefore, cannot be characterized as interlocutory.

The decision refusing the applications by the broker and the insurer to issue third party notices finally determines that Mr. Brake and K.S.A.B. are eliminated as parties in the disputes to which the third party notices would apply. It follows that that decision is final rather than interlocutory. By contrast, a different result would have obtained, requiring leave, if Mr. Brake and K.S.A.B. had been brought in as third parties and had appealed that decision. (See, for example, Pakara Apartments Ltd. v.

Dew Enterprises Ltd. , supra .) [ 14 ] In the result, rule 57.02 is not engaged and leave to appeal is not required. The Appeal Opportunity to Make Submissions on Dew Enterprises [ 15 ] The decision in Dew Enterprises was filed by this Court after the hearing in this case but before the decision was released. Mr.

Brake and K.S.A.B. submit that the applications judge erred by failing to ensure that counsel had an opportunity to address the decision in Dew Enterprises insofar as it was relevant to the proper adjudication of this case. [ 16 ] Given that the judge relied on the principles set out in Dew Enterprises , it would have been preferable for him to have brought the decision to counsels’ attention and provided them with an opportunity to make submissions.

By the same token, the courts rely on counsel to maintain a watch and, in circumstances such as this, to bring the decision to the judge’s attention and, where desired, to request the opportunity to make additional submissions. [ 17 ] In any event, on appeal, the parties had ample opportunity to address the principles set out in Dew Enterprises . It was apparent from the submissions that the lost opportunity in the lower court did not materially alter the positions that were taken in this Court. At this stage of the proceedings there is no reason to remit the matter to the Trial Division for further submissions.

Relevant Principles of Law [ 18 ] Principles regarding the issuance of third party notices were discussed by this Court in Pakara Apartments Ltd. v. Dew Enterprises Ltd. , supra .

Rule 12.02(1) of the Rules provides: Where a defendant claims against any person, … who is not a party to the proceeding, that the latter is or may be liable to the defendant for all or any part of the plaintiff’s claim against the defendant, the defendant may, before the defendant files a defence or appears on a hearing under an originating application, issue and serve a third party notice without leave of the Court, and thereafter with leave. [ 19 ] In Dew Enterprises , Green C.J.N.L., for the Court, summarized what is necessary under rule 12.02(1) where leave is required: [38] … [A] third party claim must arise out of, in the sense of being “related to or connected with”, the original litigation. … … [68] … [T]he question is, as a practical matter, can the defendant, by asserting a separate claim arising out of the same factual circumstances and by recovering damages from the third party on the basis of the third party’s involvement in those circumstances, effectively make the third party ultimately answer in whole or in part for the losses that have occurred? … … [72] The nature of the third party claim and “the facts upon which the third party notice is based” must, however, at the very least, be set out in the affidavit supporting the third party application: rule 12.03(2)(c).

[20] While it is necessary for the applicant seeking to issue a third party notice to lay the foundation for a cause of action, thesuccess of that action would be a matter to be determined at trial based on the evidence. [21] In this case, the broker and the insurer assert a cause of action in unjust enrichment. In Kerr v. Baranow, 2011 SCC 10, [2011]1 S.C.R. 269, Cromwell J., for the Court, discussed the principles relevant to such a claim.

While the factual context was a family lawmatter, the principles apply generally: [31] At the heart of the doctrine of unjust enrichment lies the notion of restoring a benefit which justice does not permit one to retain:Peel (Regional Municipality) v. Canada, (SCC), [1992] 3 S.C.R. 762, at p. 788. For recovery, something must havebeen given by the plaintiff and received and retained by the defendant without juristic reason. A series of categories developed in whichretention of a conferred benefit was considered unjust.

These included, for example: benefits conferred under mistakes of fact or law;under compulsion; out of necessity; as a result of ineffective transactions; or at the defendant’s request: [citations omitted]. [32] Canadian law, however, does not limit unjust enrichment claims to these categories. It permits recovery whenever the plaintiffcan establish three elements: an enrichment of or benefit to the defendant, a corresponding deprivation of the plaintiff, and the absence ofa juristic reason for the enrichment: Pettkus [ (SCC), [1980] 2 S.C.R. 834]; Peel, at p. 784.

By retaining the existingcategories, while recognizing other claims that fall within the principles underlying unjust enrichment, the law is able “to develop in aflexible way as required to meet changing perceptions of justice”: Peel, at p. 788. [34] … Thus, while the underlying legal principles of the law of unjust enrichment are the same for all cases, the courts must applythose common principles in ways that respond to the particular context in which they are to operate. … [38] For the first requirement – enrichment – the plaintiff must show that he or she gave something to the defendant which thedefendant received and retained.

The benefit need not be retained permanently, but there must be a benefit which has enriched thedefendant and which can be restored to the plaintiff in specie or by money. Moreover, the benefit must be tangible.

It may be positiveor negative, the latter in the sense that the benefit conferred on the defendant spares him or her an expense he or she would have had toundertake: (Peel, at pp. 788 and 790; Garland [2004 SCC 25, [2004] 1 S.C.R. 629], at paras. 31 and 37). [39] Turning to the second element – a corresponding deprivation – the plaintiff’s loss is material only if the defendant has gained abenefit or been enriched (Peel, at p. 789-90).

That is why the second requirement obligates the plaintiff to establish not simply that thedefendant has been enriched, but also that the enrichment corresponds to a deprivation which the plaintiff has suffered (Pettkus, at p. 852;Rathwell [ (SCC), [1978] 2 S.C.R. 436], at p. 455). [40] The third element of an unjust enrichment claim is that the benefit and corresponding detriment must have occurred without ajuristic reason.

To put it simply, this means that there is no reason in law or justice for the defendant’s retention of the benefit conferredby the plaintiff, making its retention “unjust” in the circumstances of the case: [citations omitted]. … [43] … The first step of the juristic reason analysis applies the established categories of juristic reasons; in their absence, the secondstep permits consideration of the reasonable expectations of the parties and public policy considerations to assess whether recoveryshould be denied: …. [45] … As McLachlin J. put it at p. 994 [Peter v.

Beblow, (SCC), [1993] 1 S.C.R. 980], “It is precisely where aninjustice arises without a legal remedy that equity finds a role.” … [46] Remedies for unjust enrichment are restitutionary in nature; that is, the object of the remedy is to require the defendant to repayor reverse the unjustified enrichment. … [22] In applying the above principles in this case, I begin by emphasizing that the following analysis is made on the basis of theallegations set forth by the insurer and the broker. In determining whether third party notices should be issued against Mr.

Brake andK.S.A.B., the focus is on whether the facts and allegations set out in the applications provide the foundation for a cause of action, that is,an arguable case. The merits of the cause of action are left for determination at trial based on the evidence and the parties’ submissionson the applicable law. The Insurer [23] Applying the principles in Dew Enterprises, the applications judge accepted that the first requirement for a third party noticewas satisfied; that is, the claim against Mr. Brake and K.S.A.B. was related to or connected with the original litigation.

That conclusionis not in dispute in this appeal. The basis for the judge’s refusal to give the insurer leave to issue third party notices to Mr. Brake andK.S.A.B. was his determination that “there is no recognized cause or causes of action against Brake and KSAB in the application andaffidavit provided by [the insurer]” (paragraph 26). [24] The insurer submits that the applications judge erred in this conclusion and that the documents provide the basis for a claim inunjust enrichment. The judge did not conduct an analysis of the alleged facts based on the principles set out in Kerr.

This failureamounts to an error in law, with the result that the decision must be set aside (Dew Enterprises, at paragraph 33). [25] I turn, then, to a consideration of the principles regarding unjust enrichment, beginning with the allegations set out by theinsurer in the documents attached to the third party notices: - Mr. Brake held the title to the insured property;

- K.S.A.B. was constructing or renovating the insured property pursuant to a contract with Mr. Brake; - Mr. Brake was the sole shareholder and sole director of K.S.A.B.; - On January 21, 2008, the insurer issued a builder’s risk policy not to Mr.

Brake who held title to the property, but to K.S.A.B.; - The insured property was completely destroyed by fire on March 14, 2008, and cannot be rebuilt due to zoning restrictions; - On July 23, 2009, K.S.A.B. filed an interim proof of loss claiming $500,000, followed by a second interim proof of loss claiming $142,899, both of which were paid by the insurer and accepted by K.S.A.B.; - The Bank alleges that the mortgage on the insured property, for which Mr. Brake is the named mortgagor, is in default; the Bank has, accordingly, made a claim against Mr.

Brake for payment of the amount due under the mortgage; - K.S.A.B. and Mr. Brake personally and as the sole director of K.S.A.B. knew or ought to have known about the Bank’s requirement to have the insurance proceeds applied to the mortgage; - Mr. Brake failed to comply with the obligation specified in the mortgage “to do all necessary acts to enable (the Bank) to receive payment of insurance proceeds” upon occurrence of a loss, and Mr. Brake’s breach of that obligation was induced by K.S.A.B.’s failure to transfer the insurance proceeds to Mr.

Brake for that purpose; - In the alternative, the failure of K.S.A.B. and Mr. Brake, or one of them, to ensure protection of the Bank’s mortgage interest amounted to a breach of their contractual and common law duties to deal with the insurer in good faith pursuant to the policy; and - In the further alternative, any money the insurer may be required to pay to the Bank has already been paid to K.S.A.B. for the mutual benefit of K.S.A.B. and Mr.

Brake, and those parties would be unjustly enriched if not required to make restitution to the insurer for any amount the insurer is ordered to pay to the Bank. [ 26 ] If the insurer is required to pay the amount of the mortgage default to the Bank, the Bank will have no further claim under the mortgage. The effect would be to release Mr. Brake of any further obligation under the mortgage. However, the insurer has already paid $642,899 under the insurance policy to K.S.A.B. The money paid by the insurer to K.S.A.B. allegedly involved two errors. First, the policy was issued in the name of K.S.A.B. though Mr.

Brake held title to the property and the mortgage was in Mr. Brake’s name. In addition, the insurance policy did not contain a loss payable clause as required by the Bank. The source of any errors and possible negligence are to be determined at trial. [ 27 ] In the context of this background, I turn to an application of the three elements in a claim for unjust enrichment set out in Kerr to determine whether the allegations here are sufficient to provide the basis for the insurer’s claim. Regarding the first element, Mr.

Brake, as the mortgagor, would be enriched or enjoy a benefit if the insurer is required to pay the amount of the mortgage default to the Bank, thereby discharging Mr. Brake’s obligation. This would amount to a negative benefit as referenced in Kerr insofar as Mr. Brake would be spared an expense, that is, payment on the mortgage, that he would otherwise have had to undertake.

Regarding K.S.A.B., by retaining the insurance proceeds, the company would benefit by a windfall, the money having been paid in error to the company which held no interest in the property. [ 28 ] With respect to the second element, the insurer would suffer a corresponding deprivation by having to pay twice out of the insurance funds the amount due under the mortgage, once to K.S.A.B and once to the Bank.

Accordingly, it is arguable that the first two elements of unjust enrichment would be satisfied if the facts alleged by the insurer are proven. [ 29 ] The final element in the unjust enrichment analysis is that the benefit to Mr. Brake and K.S.A.B. and the insurer’s corresponding detriment must have occurred without a juristic reason; that is, there would be no reason in law or justice for retention of the benefit, making its retention unjust in the circumstances.

If, at trial, the insurer cannot demonstrate by evidence that the established categories of juristic reasons, such as are referenced in Kerr , would apply, it would be open to the trial judge to consider “the reasonable expectations of the parties and public policy considerations to assess whether recovery should be denied” ( Kerr , at paragraph 43 ). [ 30 ] In respect of that analysis, the insurer alleges that Mr. Brake is the sole shareholder and director of K.S.A.B. and that, as the directing mind of the company, Mr.

Brake knew about the mortgage, about the error in the issuance of the insurance policy to K.S.A.B, about the Bank’s interest in payment of the insurance proceeds, and that he had an obligation under the insurance policy to take all necessary steps to enable the Bank to receive payment of the insurance proceeds. [ 31 ] In the circumstances, it is arguable that the facts alleged by the insurer are, on their face, sufficient for purposes of the third element to ground an unjust enrichment claim, as discussed in Kerr .

In other words, it is arguable that those facts, if proven, would, on their face, satisfy the principle that there is no reason in law or justice, and, in fact, that it would be unjust, to permit Mr. Brake or K.S.A.B. to retain the monies paid to K.S.A.B. under the insurance policy if the insurer is ordered to make a second payment under the policy, being the amount owed, but not paid, by Mr. Brake to the Bank. Whether Mr.

Brake or K.S.A.B. may advance an explanation or legal principle that would defeat the insurer’s claim is a matter properly left for trial. [ 32 ] I conclude that the applications judge erred by failing to apply the relevant principles regarding unjust enrichment as set out in Kerr . Applying those principles, together with the principles regarding third party applications set out in Dew Enterprises , particularly with respect to laying the foundation for a cause of action, I would grant the insurer’s application for leave to issue third party notices to Mr. Brake and K.S.A.B.

The Broker [ 33 ] As with the insurer, the applications judge accepted that the broker’s claim against Mr. Brake and K.S.A.B. was related to or connected with the original litigation, and that, therefore, the first requirement for a third party notice as set out in Dew Enterprises was

satisfied. Again, this was not challenged on appeal. The basis for dismissing the broker’s application for leave to issue the third party notices was that “no specific or recognized cause of action was established in the pleadings generally or particularly in the application and affidavit” (paragraph 30). [ 34 ] The position of the broker is somewhat different from that of the insurer since the insurer made a payment to K.S.A.B. under the insurance policy while no money has been paid out by the broker.

Nonetheless, the broker submits that, if it is required to pay the amount owing under the mortgage to the Bank, the effect would be to unjustly enrich Mr.

Brake by releasing him from his obligations under the mortgage and to enrich K.S.A.B. with an unjust windfall. [ 35 ] For convenience, I repeat the test set out in Dew Enterprises : [68] … [T]he question is, as a practical matter, can the defendant, by asserting a separate claim arising out of the same factual circumstances and by recovering damages from the third party on the basis of the third party’s involvement in those circumstances, effectively make the third party ultimately answer in whole or in part for the losses that have occurred? … [ 36 ] Again, the claim is in unjust enrichment.

To ground that claim, the broker alleges in the application for leave to issue the third party notices that: - Mr. Brake was the sole shareholder and director, and the operating mind, of K.S.A.B.; - Mr. Brake retained Brothers and Burden Law Office to transfer title to the property from K.S.A.B. to Mr.

Brake, retire the Canadian Imperial Bank of Commerce mortgage, and set in place the mortgage with the Bank; - As a condition of the mortgage, the Bank required that insurance be in place with the Bank named as a loss payee; - The broker requested that the insurer replace the existing policy with a builder’s risk policy; - Mr. Brake was aware that the mortgage with the Bank required inclusion of the loss payee clause, and “was aware that if there was, indeed, a loss on the property any funds should go to the Bank to cover its mortgage interest”; - After the fire, the insurance adjuster met with Mr.

Brake who told him, among other things, that there was a mortgage on the property; - On July 13, 2009 and October 1, 2009, respectively, the insurer paid $500,000 and $143,000 to K.S.A.B. under the insurance policy; - On August 4, 2009, the Bank sent a letter to the broker “indicating that the Bank was entitled to the proceeds under the builder’s risk policy”, and the broker sent that letter to the insurer’s claims department; - Brake and K.S.A.B. “have received over $1.2 million in mortgage proceeds and insurance proceeds, but have failed to pay the Bank’s interest under the mortgage”; - The Bank “has noted Brake in default under the mortgage but has not enforced its rights under the Conveyancing Act , RSNL 1990, c.

C-34, to exercise a power of sale over [the property in question]”; - Mr. Brake in his personal capacity and as the directing mind of K.S.A.B. is responsible for the payment of the insurance proceeds to the Bank; he has no claim to the insurance proceeds either in his personal capacity as mortgagor or as the operating mind of K.S.A.B.; - Mr.

Brake knew or ought to have known that the insurance policy was intended to cover him in his personal capacity and as the directing mind of K.S.A.B., and that the Bank was intended to be the loss payee under the insurance policy as this was a condition of the mortgage; and - Mr. Brake and K.S.A.B. have no basis in law or equity to retain the insurance funds which rightly belong to the Bank. [ 37 ] Applying the Kerr analysis, under the first element, the alleged benefit to Mr.

Brake would be the avoidance of his obligation to make the mortgage payment to the Bank, even though K.S.A.B. had received and retained the insurance money. As in the case of the insurer, this would be characterized as a negative benefit as referenced in Kerr . As to K.S.A.B., it is arguable that retention of the insurance proceeds would amount to a windfall to which the company had no claim (paragraph 27, above). [ 38 ] The second element, a corresponding deprivation of the broker, must be considered taking into account the fact that the broker did not pay money directly to Mr.

Brake or K.S.A.B. as was the case with the insurer. Nonetheless, if the broker is found to be negligent or in some other way responsible for the failure of the insurer to make the payment of the money to the Bank, that would only occur as a result of Mr. Brake’s failure to discharge his obligation to the Bank. In this sense, although the broker did not pay money to Mr. Brake or K.S.A.B., the broker would suffer the loss, that is, be required to make the payment to the Bank, as a result of Mr. Brake’s actions, leaving Mr. Brake with a discharged mortgage as well as the insurance monies paid to K.S.A.B.

In other words, had Mr. Brake complied with the terms of the mortgage by making the required payments after K.S.A.B. had received the insurance money, the broker would not be in the position of having to pay the Bank on Mr. Brake’s behalf. Accordingly, it is arguable that the second element of the Kerr analysis would be satisfied as regards Mr. Brake. [ 39 ] With respect to the alleged benefit to K.S.A.B. resulting in a corresponding deprivation of the broker, the analysis would involve considerations as to the liability of K.S.A.B. as a third party.

That is, if K.S.A.B. is allowed to retain what is arguably a windfall on the basis that it had no interest in the property, would the broker, if found to have been negligent in its dealing with the Bank or the insurer, be prevented from taking action against K.S.A.B. because the connection between the broker and K.S.A.B. is too remote to establish the necessary corresponding deprivation of the broker? This question must be considered in light of the broker’s allegations

regarding Mr. Brake’s position as sole director, shareholder and operating mind of K.S.A.B., and the knowledge and control exercised by Mr. Brake in that capacity, in light of the alleged error which resulted in the insurance money being paid to K.S.A.B.

I am satisfied that there is, at least, an arguable case to be made that, if the broker is held liable in damages to the Bank or the insurer, the broker would suffer a deprivation corresponding to the benefit to K.S.A.B. that would satisfy the second element of the Kerr analysis. [ 40 ] The third element under the unjust enrichment analysis is that there must be a factual foundation for the broker’s allegation that there is no reason in law or justice for the retention of the benefit by Mr. Brake and K.S.A.B., making the retention “unjust” in the circumstances of the case.

If the facts alleged by the broker are proven, it is arguable that there would be no juristic reason for permitting Mr. Brake or K.S.A.B. to retain the monies paid to K.S.A.B. under the insurance policy while ordering the broker to pay the Bank the amount required to discharge the mortgage. Whether Mr. Brake or K.S.A.B. may advance an explanation or legal principle that would defeat the broker’s claim is a matter properly left for trial. [ 41 ] Accordingly, I conclude that the applications judge erred by failing to apply the relevant principles regarding unjust enrichment as set out in Kerr .

Applying those principles, together with the principles regarding third party applications set out in Dew Enterprises , particularly the requirement to lay the foundation for a cause of action, I would grant the broker’s application for leave to issue third party notices to Mr. Brake and K.S.A.B.

SUMMARY AND DISPOSITION [ 42 ] The decision denying the applications by the insurer and the broker to issue third party notices is final in nature. Accordingly, the rule requiring leave to appeal an interlocutory order is not engaged. [ 43 ] The applications judge erred by failing to apply relevant principles of law regarding unjust enrichment. Accordingly, I would allow the appeals by the insurer and the broker, and would set aside the decision of the applications judge denying the insurer and the broker leave to issue third party notices against Mr.

Brake and K.S.A.B. [ 44 ] I would grant the insurer and the broker leave to issue Mr. Brake and K.S.A.B. with third party notices. I would order that the insurer and the broker have their party and party costs in this Court and in the Court below as against Mr. Brake and K.S.A.B. ____________________________________ B. G. Welsh J.A. I Concur: ________________________________ J. D. Green C.J.N.L. I Concur: _________________________________ L. R. Hoegg J.A.