



COURT OF APPEAL FOR ONTARIO

CITATION:
Portuguese
    Canadian Credit Union v. 1141931 Ontario Ltd.,
2012 ONCA 274

DATE:  20120430

DOCKET: C54631 & C54632

Blair, Lang and Hoy JJ.A.

BETWEEN

Portuguese Canadian Credit Union Ltd. by
    its Liquidator Deposit Insurance Corporation of Ontario

Plaintiff

and

1141931 Ontario Ltd., INKAS Corporation, INKAS
    Finance Corp., 2000007 Ontario Inc., Margarita Simkin and David
    Khazanski

Defendants

AND BETWEEN

1141931 Ontario Ltd., INKAS Corporation,  INKAS
    Finance Corp., 2000007 Ontario Inc.

Plaintiffs by Counterclaim (Appellants)

and

Portuguese Canadian Credit
    Union Ltd. by its Liquidator, Deposit Insurance Corporation of Ontario, Deposit
    Insurance Corporation of Ontario, Financial Services Commission of Ontario
and the Office of the Superintendent of Financial Institutions Canada

Defendants by Counterclaim (
Respondents
)

Howard W. Winkler, for the appellants

Jane M. Bachynski and Karen Perron, for the respondent,
    Deposit Insurance Corporation of Ontario

Dona M.H. Salmon, for the respondent, Financial Services
    Commission of Ontario

Heard: April 24, 2012

On appeal from the order of Justice Peter A. Cumming of
    the Superior Court of Justice, dated October 18, 2011.

ENDORSEMENT

[1]

The Portuguese Canadian Credit Union Ltd. (PCCU), by its Liquidator,
    Deposit Insurance Corporation of Ontario (DICO), sued the appellants, referred
    to as INKAS, for monies INKAS allegedly owed pursuant to credit facilities
    extended by PCCU to INKAS.  INKASs former vice president of operations
    apparently stole $30 million of the monies advanced by PCCU to INKAS.

[2]

In its counterclaim, INKAS alleges that PCCUs losses resulted from the
    failure of the Financial Services Commission of Ontario (FSCO) and DICO to
    properly exercise their operational powers in breach of an alleged duty of care
    they owed to PCCU.  As a result, INKAS seeks contribution and indemnity from
    FSCO and DICO for any amount found due and owing by INKAS to PCCU in the main
    action.  In essence, INKAS attempts to shift responsibility for the fraud
    committed by its former employee to FSCO and DICO.

[3]

DICO and FSCO each brought a Rule 21 motion to strike the counterclaim. 
    The motion judge granted both motions on the basis that the pleadings do not
    disclose a reasonable cause of action against either FSCO or DICO.  INKAS
    appeals.

[4]

In our view, the appeals can be disposed of on three bases.

FSCO Is Not An Entity Capable of Being Sued

[5]

First, we agree with the motion judge, Cumming J., that FSCO is not an
    entity capable of being sued.  As the motion judge observed at paras. 14-15 of
    his reasons:

FSCO is a non-corporate entity without the express or implied
    capacity to be sued. In
Ontario v. Gratton-Masuy Environmental Technologies
    Inc.
(2010), 101 O.R. (3d) 321 (C.A.), at paras. 36-81, the Court of
    Appeal considered the liability to suit of statutory entities, relying upon the
    six categories articulated by Justice Houlden in
Westlake v. The Queen in
    Right of the Province of Ontario
, [1971] 3 O.R. 533 (H. Ct. J.), aff'd
    [1972] 2 O.R. 605 (C.A.), aff'd (1973), 33 D.L.R. (3d) 256 (S.C.C.). The sixth
    category relates to:

Non-corporate bodies which are not by the terms of the
    statute incorporating them or by necessary implication liable to be sued in an
    action for damages, but who are legal entities in that their actions may be
    reviewed in proceedings brought against them by way of the extraordinary remedies
    of certiorari, mandamus and prohibition.

In my view, FSCO fits within this category. It is a
    non-corporate entity without the express or implied capacity to be sued. The
FSCO
    Act
establishes FSCO as a commission, not a corporation, and does not
    contain any terms rendering it expressly or impliedly liable to be sued.

[6]

This conclusion was not appealed and, in our view, could not have been
    successfully challenged.  We agree with the motion judge that there can be no
    sustainable claim against FSCO.

DICO Has Statutory Immunity

[7]

Second, the motion judge correctly concluded that DICO has statutory
    immunity.
Section 253(1) of
the
    Credit Unions and Caisses Populaires Act
,
1994
, S.O. 1994, c. 11 (the CUCPA) states:

No action or other proceeding for damages shall be instituted
    against ... [DICO] ... for any act done in good faith in the execution or
    intended execution of a duty of ... [DICO] or for any neglect of default in the
    execution, in good faith, of that duty.

[8]

As the motion judge observed, that immunity
extends to ... third or subsequent party proceedings and proceedings
    for contribution and indemnity by restitution ... by reason of the
Legislation
    Act, 2006
, S.O. 2006, c. 21, Sched. F, s.
    97, Schedule B, p. 50.

[9]

This immunity protects DICO from acts
    done in good faith in the execution of its duties.  While the appellant
    argues that the counterclaim pleads bad faith, the pleading does no more than
    allege that DICOs breaches of duty demonstrate bad faith  in carrying out
    its statutorily prescribed duties.  This is wholly inadequate to sustain a
    pleading of bad faith.  Bad faith must be pled with particularity:  see
Rules
    of Civil Procedure
, Rule 25.06(8) and
Ontario
    v. Gratton-Masuy Environmental Technologies Inc.
2010 ONCA 501 at paras. 87-89.  The pleading provides no particulars of
    any operational acts or their circumstances that would support the allegation
    of bad faith.

[10]

We see no merit in acceding to the appellants
    argument that the motion judge ought to have granted leave to amend to provide
    particularity.  There is no indication based on the history of this proceeding
    and the lack of response to DICOs demand for particulars that there are
    material facts that the appellants could add that would save the pleading:  see
Piedra v. Copper Mesa Mining
,
2011 ONCA 191 at paras. 94-96.

No Tenable Claim For Contribution and Indemnity

[11]

Third, we agree with the motion judge that the
    appellants claim for contribution and indemnity cannot succeed based on an
    alleged private law duty of care owed by DICO (or FSCO) to PCCU.  We come to
    this conclusion for two reasons.

[12]

First, INKAS bases its claim on allegations that
    DICO failed to oversee and monitor PCCUs processes, personnel, education and
    audits.  However, the CUCPA places no obligation on DICO to undertake these
    discretionary tasks.  Indeed, as the motion judge observed, DICO was not a
    'regulator' of credit unions until the
CUCP Act
was amended with such amendments coming into force on
    October 1, 2009, after the dates material to the proceedings at hand.

[13]

As well, the pleading fails to provide particulars of
    any breaches of any alleged operational duty.  Without particulars of any
    operational duty, a cause of action against DICO based on an alleged private
    law duty of care it owed to PCCU cannot be sustained.

[14]

Second,
    the notion that INKAS is entitled to contribution and indemnity from DICO (or
    FSCO) in the circumstance is untenable in law.  Section 1 of the
Negligence
    Act
, R.S.O. 1990 c. N.1, states:

Where damages have been caused or contributed to by the fault
    or neglect of two or more persons, the court shall determine the degree in
    which each of such person is at fault or negligent, and, where two or more
    persons are found at fault or negligent, they are jointly and severally liable
    to the person suffering loss or damage for such fault or negligence, but as
    between themselves, in the absence of any contract express or implied, each is
    liable to make contribution and indemnify each other in the degree in which
    they are respectively found to be at fault or negligent.

[15]

However,
    these provisions have no application in the present circumstances for the
    simple reason that neither in the contract action by PCCU against INKAS nor in
    the INKAS counterclaim for damages against PCCU and FSCO/DICO is INKAS a tortfeasor. 
    In the former, INKAS is a debtor being asked to repay its line of credit; in
    the latter, INKAS is essentially a plaintiff seeking to recover damages for the
    loss of the stolen monies.  The appellants claim for contribution and indemnity
    is, therefore, misconceived regardless of whether there is a duty of care owed
    as between FSCO/DICO and INKAS or as between FSCO/DICO and PCCU.

[16]

In
    the contract action, INKAS alleges that PCCUs losses are the result of PCCUs
    negligence and also of the negligence of FSCO/DICO.  Fault and contributory
    negligence are not factors in a contract action however, and are not a defence
    to the breach of contract claim.  In any event, it is PCCU and the regulators
    (FSCO/DICO) who are the joint tortfeasors in the scenario put forward by the
    appellants.  Any contribution and indemnity considerations would flow between those
    two entities. INKAS is not saying
it
was
    negligent, nor is PCCU.

[17]

In
    the counterclaim, INKAS seeks contribution and indemnity against FSCO and DICO
    for any amounts found due and owing to PCCU, blaming them for the loss of the
    $30 million.  This claim cannot succeed. INKAS is not a tortfeasor in the
    counterclaim scenario; it is the plaintiff and victim.  Again, contribution and
    indemnity claims in this context would be between PCCU and FSCO/DICO.  Any
    negligent claim by INKAS against FSCO/DICO must therefore be a direct claim,
    and the appellants do not contest the motion judges conclusion that no such
    claim can exist in law on proximity grounds.

[18]

Finally,
    we see no basis on which to grant leave or, if leave were granted, to interfere
    with the motion judges exercise of discretion in his costs award to DICO.

Disposition

[19]

Accordingly,
    the appeals are dismissed.  The successful respondents are entitled to their
    costs of the appeal:  FSCO in the amount of $7,200 and DICO in the amount of
    $20,000, each inclusive of disbursements and all applicable taxes.

R.A. Blair J.A.

S.E. Lang J.A.

Alexandra Hoy J.A.


