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The Supreme Court of Canada (“SCC”) has granted leave to appeal [41673] the decision in Arcamm Electrical Services Ltd v Avison Young Real Estate Management Services LP, 2024 ONCA 925 [Arcamm v Avison Young]. The SCC is expected to determine whether contributory fault governs the apportionment of damages arising from breach of contract, and to provide, for the first time in over a decade, renewed guidance on realizing the culture shift envisioned in Hryniak v Mauldin, 2014 SCC 7 [Hryniak].
Facts
The underlying dispute in Arcamm v Avison Young arose from unpaid invoices for electrical services rendered after a power outage.
Avison Young Real Estate Management Services LP (“Avison”) manages a commercial property owned by 4342 Queen St. Niagara Holdings Inc. (“Queen”). In June 2021, Avison hired Arcamm Electrical Services Ltd. (“Arcamm”) to “do what was needed to restore power to the Property on an emergency basis, and to provide any other services arising out of or related to the electrical failure.” (Arcamm v Avison Young, 2023 ONSC 1151, para 5)
Arcamm de-energized the existing transformers and stored them at the property, installed temporary generators, and replaced the electrical switchgear to restore power to the property on a temporary basis. Several months later, the de-energized transformers failed to meet the standard for re-energization. Arcamm subsequently supplied and installed replacement transformers to permanently supply power to the property. (Arcamm v Avison Young, 2024 ONCA 925, paras 8-14)
Upon receiving reports about liability for the power outage and damages to the existing, de-energized transformers, Aviva Insurance Company of Canada (“Aviva”) ceased providing payment to Queen for Arcamm’s services. Then, Queen refused to pay the remainder of Arcamm’s invoices. (Arcamm v Avison Young, 2024 ONCA 925,para 15)
Three separate actions arose (Arcamm v Avison Young, 2024 ONCA 925, paras 16-20):
- Arcamm sued Avison and Queen for its unpaid invoices and ongoing costs (the “Arcamm Action”). Queen defended the action, arguing that Arcamm failed to properly and promptly investigate the elements that caused the power outage and failed to protect the de-energized transformers.
- Aviva (in Queen’s name) sued Arcamm, among others, alleging that one or more of the named defendants caused the power outage and damage to the de-energized transformers (the “Subrogated Claim”).
- Queen sued Aviva seeking a declaration that it is entitled to payment from Aviva for all amounts for which Queen is found liable (the “Queen Action”).
In June 2022, Arcamm brought a motion for summary judgment on all issues raised in the Arcamm Action.
A summary judgment motion is a “cheaper, faster alternative to a full trial” (Hryniak, para 34) governed by Rule 20 of the Rules of Civil Procedure, RRO 1990, Reg 194 [Rules of Civil Procedure]. The motion judge may grant or dismiss all or part of a claim at a summary judgment motion where there is no genuine issue for trial. This will be the case where the motion: (1) allows the judge to make necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to achieve a just result. (Hryniak, para 49)
Queen argued that summary judgment should not be granted because its defence, Arcamm's liability, raised a genuine issue for trial and risked inconsistent findings with the Subrogated Claim. (Arcamm v Avison Young, 2024 ONCA 925, para 22)
Judicial History
The motion judge: Arcamm’s alleged fault need not be decided at the summary judgment motion
The motion judge, Sheard J., held that the Arcamm Action to claim unpaid invoice payments could be decided at the summary judgment motion without determining Queen’s defence. She characterized the Arcamm Action as “essentially a debt collection claim,” emphasizing that, in contrast, the “heart” of the Subrogated Claim was “the allegation that Arcamm (and the other defendants) should have prevented the damage to the transformers caused by humidity.” (Arcamm v Avison Young, 2023 ONSC 1151, para 33) Sheard J. wrote: “I neither need to make nor, in fact, do make any findings as to Arcamm’s liability…I find that there is not a ‘clear risk’ that my findings on [this motion] might be inconsistent or contradictory with any findings in the [Subrogated Claim].” (Arcamm v Avison Young, 2023 ONSC 1151, para 34)
Sheard J. found that “Queen has enjoyed the benefit of the services and materials provided by Arcamm... It was at the request and direction of Queen (or at least that of its agent, Avison) that Arcamm supplied Queen with temporary generators, the fuel to run them, and provided and connected replacement transformers.” (Arcamm v Avison Young, 2023 ONSC 1151, para 66) She concluded Queen should assume the cost of those services while the parties are engaged in the Subrogated Claim to determine the issue of liability. Accordingly, she ordered Queen to pay Arcamm’s invoices. (Arcamm v Avison Young, 2023 ONSC 1151, para 66)
The Court of Appeal for Ontario: Arcamm’s alleged fault raised a genuine issue for trial
Gillese J.A. writing for the Court of Appeal for Ontario (“ONCA”) held that damages in contract can be apportioned based on the degree of fault of the plaintiff and defendant. She noted that appellate courts across Canada have recognized the principle of contributory fault in contract law, citing with approval Tompkins Hardware Ltd v North Western Flying Services Ltd, 1982 CanLII 3160 (ONSC) among other cases. (Arcamm v Avison Young, 2024 ONCA 925, paras 41-42)
Gillese J.A. held the contributory fault issue could not be decided on the record before the motion judge as it requires credibility and reliability determinations based on evidence from witnesses, non-parties, and experts, and that the facts, issues and damages associated with the contributory fault issue are “inextricably intertwined” with the Subrogated Claim. (Arcamm v Avison Young, 2024 ONCA 925, paras 47 and 50)
Gillese J.A. concluded that a successful summary judgment motion necessitated the determination of the contributory fault issue to achieve a just determination on the merits. Gillese J.A. further ordered the parties to have the Arcamm Action tried together with the Subrogated Claim or one after the other pursuant to Rule 6.01 of the Rules of Civil Procedure. (Arcamm v Avison Young, 2024 ONCA 925, paras 56 and 58)
Issues on Appeal to the SCC
The issues on appeal may be summarized as follows: (Applicant’s Memorandum of Argument, para 14).
- Does contributory fault determine apportionment of damages for breach of contract?
- How should appellate courts approach summary judgment reviews on appeal?
Analysis
It seems uncontroversial that a party who is the author of its own misfortune should not be entitled to full compensation. Yet, it is debatable whether this principle extends to contract law, where a promisor seeks compensation for services that it has performed as requested by the promisee. Where the conduct of promisor caused, or contributed to, the need for the services performed pursuant to the contract, should the promisor expect full payment from the promisee for the full extent of the provided services?
Queen has argued that the common law remedy of apportionment of damages based on contributory fault in contract law aims to achieve fairness and equity. (Respondent’s Memorandum of Argument, para 8) On the other hand, Arcamm has argued that recognizing contributory fault in contract law will have far-reaching implications for the construction industry, as the allegations of contributory fault could, among other things: (Applicant’s Memorandum of Argument, paras 3-4)
- Disrupt prompt payment regimes;
- Impact expedited adjudication for construction matters;
- Slow payments for services rendered;
- Make litigation more complex;
- Incentivize parties to refuse to pay invoices on the basis of alleged contributory fault;
- Affect insurance premiums and sureties who provide performance bonds, raising the costs of bonding “such that small to medium contractors can no longer afford it.”
In response, Queen has argued that Arcamm’s position exaggerates the practical impact of recognizing contributory fault in contract law, since “contributory fault defences have long existed at common law in Ontario, as well as other provinces, without causing systemic disruption or undermining statutory regimes, such as the prompt payment regime.” (Respondent’s Memorandum of Argument, para 11)
Should the SCC affirm contributory fault in contract law, it would have the effect of consolidating Arcamm's action for unpaid invoices with the potentially complex evidence and argument involved in a determination of liability. Since this determination would, as noted by the ONCA, require a full evidentiary record, the existence of this defence has serious implications on summary judgment for actions arising from unpaid invoices; it would make summary judgment impossible to pursue where the payer raises a contributory fault defence, delaying payment until a full trial is complete.
In Hryniak, Karakatsanis J. wrote for a unanimous Court: “failed, or even partially successful, summary judgment motions add — sometimes astronomically — to costs and delay” (Hryniak, para 74). Although a full trial would result in finality on all issues in dispute, overturning summary judgment in this case would also undermine its essential objectives: efficient, expeditious and effective adjudication of the action for unpaid invoices. If contributory fault defence is “good law,” it begs the question: Is there room for a course of action that reconciles the efficiency of summary judgments with the more complex procedure necessary to adjudicate contributory fault issues?
Conclusion
The issue of contributory fault in contract law remains unsettled across Canada. The SCC is likely to consider both fairness and practical implications to establish whether contributory fault should be recognized in Canadian contract law. This appeal also presents a renewed opportunity to clarify summary judgment motions. What role, if any, do such motions play in complex proceedings involving counterclaims, crossclaims, and multiple actions arising from the same factual matrix? Arcamm v Avison Young provides the SCC with an opportunity to settle this important legal question.
This article was edited by James Staines.