Creditors Rejoice: Ontario Court of Appeal Confirms Summary Judgment Is ‘Tailor-Made’ to Enforce Liquidated Claims

On May 6, 2024, the Ontario Court of Appeal upheld a summary judgment motion decision in favour of The Toronto-Dominion Bank (“TD Bank”) in 2275518 Ontario Inc. v. The Toronto-Dominion Bank, 2024 ONCA 343.^[1]

The Court of Appeal’s decision provides much-welcomed support in the jurisprudence for timely access to justice when creditors seek to enforce liquidated claims.

The Court of Appeal reiterated that the summary judgment process is “tailor-made” to enforce liquidated claims against debtors and guarantors.^[2] Absent a genuine issue requiring a trial, the court should be reluctant to deny a creditor’s access to the summary judgment procedure.

The Court of Appeal made additional, helpful comments regarding summary judgment procedure, particularly where there is an outstanding third-party claim, including:

1. Clarifying the broad scope of a motion judge’s use of the enhanced fact-finding powers under Rule 20.04(2.1)^[3] and (2.2).^[4]
2. Reiterating that absent an error of law or palpable and overriding error of fact or mixed fact and law, the exercise of powers under Rule 20.04(2.1) attracts deference, and a determination that there is no genuine issue for trial should not be disturbed on appeal.^[5]
3. Non-party witnesses, including a third party, can be ordered to give oral evidence as part of a mini-trial under Rule 20.04(2.2).^[6]
4. Confirming that a third-party claim is a different proceeding, and that summary judgment which completely disposes of the main action is not partial summary judgment.^[7]
5. Where a third-party claim remains undecided, explaining that: (i) there has to be a “realistic” risk of inconsistent findings in order to give the motion judge pause before granting summary judgment in the main action; and (ii) “fanciful” suggestions of potential inconsistent findings are not sufficient.^[8]

The Court of Appeal’s decision also serves as an important reminder of the valuable role which case management orders can serve in combating any assertions which may later be made by defendants at a summary judgment motion that the process was somehow unfair.

Brief Underlying Facts and Motion Judge’s Decision

The appellants/defendants were the borrower and guarantors of a loan from TD Bank.

At the time of the underlying loan transaction, the same lawyer (the “Third Party”) acted on behalf of both TD Bank and the appellants. TD Bank was supposed to have a first-ranking security interest, but its security was ultimately registered in second position by the Third Party.

After TD Bank commenced its action against the appellants to recover the outstanding indebtedness owing to it, the appellants issued a third-party claim (“Third-Party Claim”) against the Third Party seeking indemnity for any losses they sustained arising from his alleged negligence in failing to register TD Bank’s security interest in a first priority position.

TD Bank brought a summary judgment motion. At several case conferences, the case management judge made certain procedural orders: (i) with respect to the conduct of the summary judgment motion; and (ii) in an effort to advance the Third-Party Claim in tandem with the main action.

In contravention of these case management orders, the appellants failed to take steps to move the Third-Party Claim forward. The Court of Appeal noted that: “The case management orders leading up to the hearing of the summary judgment motion add important context to the appellants’ grounds of appeal.”^[9]

On the eve of TD Bank’s summary judgment motion, the appellants amended their statement of defence to plead that the guarantees were unenforceable on the grounds that the Third Party, in his capacity as the solicitor and agent for TD Bank, had misrepresented to them that TD Bank would be in first priority once the transaction was complete (the “Misrepresentation Defence”). TD Bank agreed to have the summary judgment motion determined on the basis of the proposed amended statement of defence.

At the hearing of TD Bank’s summary judgment motion, the motion judge expressed concern that he could not decide the Misrepresentation Defence based on the written record alone. He concluded it would be in the interests of justice for him to hear oral evidence in a “mini-trial” under Rule 20.04(2.2) to determine if a fair and just determination of the issues was possible without a trial. In this regard, the motion judge ordered that the appellants present oral evidence and that TD Bank call the Third Party as a witness regarding the Misrepresentation Defence. The motion hearing continued over two additional days, during which time the three witnesses testified.

After hearing the live evidence of the appellants and the Third Party, the motion judge granted summary judgment to TD Bank. The motion judge concluded that neither the Misrepresentation Defence nor the other defences raised by the appellants gave rise to a genuine issue for trial.

In its decision released on May 6, 2024, the Ontario Court of Appeal upheld the motion judge’s decision and dismissed the defendants’ appeal, while awarding TD Bank its full-indemnity (solicitor and own client) costs of the appeal.

Appeal Grounds and Court of Appeal Decision

The appellants appealed on three primary grounds. The Ontario Court of Appeal rejected each of those grounds holding that:

1. Rule 20.04(2.2) permits a summary judgment motion judge to order oral evidence at a mini-trial from a non-party, which includes a defendant to a third-party claim;
2. The motion judge’s findings did not create a “realistic” risk of inconsistent findings of fact in the Third-Party Claim nor did his decision constitute partial summary judgment; and
3. The appellants’ interests were not prejudiced by the granting of summary judgment in the main action prior to the determination of their Third-Party Claim. The outstanding Third-Party Claim was not a barrier to granting summary judgment in favour of TD Bank in the main action.

i.        No Error in Ordering Live Evidence at a Mini-Trial From the Third Party

The appellants’ first ground of appeal was that the motion judge was not entitled to order oral evidence from the Third Party, because the Third Party was not a party to the main action. The appellants’ submission was based on an incorrect and restrictive reading of Rule 20.04(2.2):

(2.2) A judge may, for the purposes of exercising any of the powers set out in subrule (2.1), order that oral evidence be presented by one or more parties, with or without time limits on its presentation. [emphasis included in the Court of Appeal decision]

The appellants submitted that Rule 20.04(2.2) only permits oral evidence to be given by one of the parties. Since the Third Party was not a party to the main action, the appellants’ submitted that the motion judge erred in ordering oral evidence to be given by the Third Party at the mini-trial.

The Court of Appeal resoundingly rejected this submission, holding that:^[10]

“…On its face, the rule states that oral evidence can be “presented” by one or more parties. It does not state that evidence can only be given by parties.” [emphasis included in the Court of Appeal decision]         

The Court of Appeal confirmed that permitting the court to order a party to present evidence from a non-party on a mini-trial is entirely consistent with the Supreme Court’s direction in Hryniak,^[11] which empowered judges to use their enhanced powers under the Rules to resolve disputes in a manner proportional to the litigation. In this regard, the Court of Appeal held that:^[12]

“…The clear purpose of r. 20.04(2.2), as shown in the authoritative caselaw interpreting it, is to permit a motion judge to order the parties to present oral evidence from appropriate sources where it is likely to allow the judge to reach a fair and just adjudication on the merits in an appropriate manner.”

ii.       No Realistic Risk of Inconsistent Findings

The second primary ground of appeal raised by the appellants was that the motion judge’s use of his enhanced fact-finding powers to order oral evidence from the Third Party was contrary to the interests of justice, given that the Third-Party Claim remained to be determined. The appellants’ submitted that in making findings of fact and credibility relating to the Third Party, the motion judge created a risk of inconsistent findings of fact and granted partial summary judgment given that the Third-Party Claim remained to be determined.

The Court of Appeal rejected these arguments for several reasons. Importantly, the Court of Appeal reiterated that, as the motion judge correctly observed, the summary judgment process is tailor-made for use by creditors to enforce liquidated debts against debtors and guarantors. A court should be reluctant to deny the creditor access to the procedure absent a genuine issue for trial.^[13]

The Court of Appeal also confirmed that because the summary judgment motion disposed of the entire claim between TD Bank and the appellants in the main action, and because a third-party claim is a separate proceeding, the test for partial summary judgment is not engaged.^[14]

The Court of Appeal rejected the appellants’ submissions that there was a realistic risk of inconsistent findings or possible prejudice to the appellants, concluding that:

1. The motion judge found that the appellants were not credible or reliable witnesses and that their affidavit evidence contained obviously incorrect and misleading information. Further, statements in their affidavits were contradicted or undermined by their oral evidence in the mini-trial. In light of the appellants’ evidence, the Court of Appeal found that any suggestion that there is a risk of inconsistent findings in the Third-Party Claim is “fanciful.” For there to later be different findings of fact, the appellants’ evidence would have to “somehow be different” in the third-party proceeding. The Court of Appeal found that there was no realistic or credible explanation for how the appellants’ evidence would be fundamentally different in the third-party proceeding and, in any event, the appellants were required to put their best foot forward in response to TD Bank’s summary judgment motion.^[15]
2. The Third-Party Claim is in negligence. It was a term of the TD Bank loan that its security be registered in a first priority position. The appellants failed to explain how, in light of that term, the issue of whether they discussed priorities with the Third Party will impact their claim that he failed to meet the standard of care.^[16]

iii.      No Error in Granting Judgment While Third-Party Claim Remained Undecided

The appellants’ third primary ground of appeal was that it was not in the interests of justice to grant TD Bank summary judgment prior to the determination of the Third-Party Claim.

The Court of Appeal rejected this submission. The appellants had not counterclaimed or made a set-off claim against TD Bank, and misrepresentation was not alleged in the Third-Party Claim. The Court of Appeal found that the motion judge properly directed himself on whether it was in the interest of justice to grant summary judgment after a mini-trial:^[17]

“…[The motion judge] properly considered the evidentiary record and the nature, size and complexity of the action. He provided careful and thorough reasons for proceeding with a mini-trial. All the witnesses who testified had sworn affidavits and [had] been cross-examined or examined pursuant to r. 39.03. Therefore, proceeding with that evidentiary record, supplemented by further oral testimony, was entirely efficient and proportionate.”

In concluding that the Third-Party Claim was not a barrier to granting summary judgment, the Court of Appeal noted that: “The issues at stake, framed by the pleadings in the main action, were fully capable of being determined by the motion judge on the fulsome record, as he ordered.”^[18]

Finally, the Court of Appeal noted that the appellants “were provided with every opportunity by the case management judge to have the third party action joined with the main action, so that the outcome of both proceedings could be determined at the same time.” Having failed or chosen not to join the Third-Party Claim with the summary judgment motion, the Court of Appeal concluded “it is not open to the appellants at this time to raise any argument of prejudice.”^[19]

Key Takeaways

To summarize, the Court of Appeal provided the following guidance which will assist creditors in using the summary judgment process to efficiently advance their debtor and guarantor claims:

1. Rule 20 remains a tailor-made procedure for liquidated claims by creditors against borrowers and guarantors;
2. Rule 20.04(2.2) empowers a motion judge to order evidence from non-parties on a mini-trial and such use is appropriate if it furthers a fair and just adjudication on the merits;
3. A third-party claim is a separate proceeding and the test for partial summary judgment will not apply where a motion for summary judgment is brought which will completely determine the main action; and
4. A risk of inconsistent findings needs to be “realistic.” Where a party is locked into their evidence on the summary judgment motion, it is not realistic for a party to baldly assert that their own evidence will be substantially different at a later hearing in the third-party proceeding.

The Court of Appeal’s decision provides helpful guidance for creditors on how to ensure the efficient advancement of liquidated claims in the summary judgment process.

The Court of Appeal’s decision also serves as a helpful reminder of the procedural steps which plaintiffs can utilize in the months leading up to a summary judgment motion, in order to pre-empt procedural defences which might otherwise be raised by defendants at the hearing of the summary judgment motion that the process was somehow unfair or caused prejudice.

Aird & Berlis LLP, including a team of Mark van Zandvoort, Kyle Plunkett, Josh Suttner and Roula Khairalla (articling student), successfully represented TD Bank before both the Ontario Court of Appeal and on the summary judgment motion before the Superior Court.