Ontario Divisional Court clarifies proper procedure for bad faith claims

Bad procedure can preclude bad faith claims under the Crown Liability and Proceedings Act. In a recent decision, the Divisional Court in His Majesty the King in right of Ontario v. Dell clarified the proper procedure for bringing a bad faith claim against the Crown under s.17(2) ‎of the Crown Liability and Proceedings Act (the “Act”), noting that proper procedure requires a motion seeking leave and an ‎automatic stay of any other claims in the proceeding until the motion seeking leave is dealt with. In particular, s.17(2) of the Act states the following:

A proceeding to which this section applies… may proceed only with leave of the court and, unless and until leave is granted, is deemed to have been stayed in respect of all claims in that proceeding from the time that it is brought. 2020, c. 11, Sched. 7, s. 1.

Background

Dell, the respondents in the appeal, are a group of individuals residing near a now-inoperative waste removal facility in the Niagara region. In ‎anticipation of a potential re-opening of the facility, the Dell group brought an application against multiple ‎parties, including Ontario, to prevent the re-opening. In their original application, the Dell group alleged that Ontario was negligent, but did not allege bad faith. Once the case management judge converted the application to an action, however, the Dell group was required to deliver a new statement of claim. In their Statement of Claim, the Dell group introduced an allegation of bad faith against Ontario, thereby ‎invoking section 17(2) of the Act.‎

In accordance with s.17(2) of the Act, the Dell group brought a motion seeking leave to sue Ontario for ‎bad faith. Instead of staying the proceedings to address the leave motion, however, the case management judge ordered that the ‎leave motion proceed concurrently with other motions (the “Order”).‎ Ontario thereafter appealed that Order on the basis that the case management judge failed to comply with the ‎mandated automatic stay in s.17(2) of the Act.

Divisional Court ruling

On appeal, the Divisional Court conducted a statutory analysis of the Act and s.17(2), ultimately finding in favour of Ontario.

In reaching its decision, the Divisional Court referenced the role of s.17(2) in screening out unmeritorious bad faith claims. The bulk of the court’s analysis, however, focused on the scope of the automatic stay, and in particular, the interpretation of the words “claims” and “proceeding” under s.17(2). While the Dell group argued that the mandated stay was limited to claims ‎against Ontario only and not the non-Crown defendants in the proceeding, the Divisional Court disagreed. In doing so, the court highlighted the purpose of the Act – i.e., to govern the conduct of proceedings in which the Crown is a party – and noted that this purpose will inevitably include situations where both the Crown and non-Crown entities are parties to the same proceeding. Accordingly, when s.17(2) is read in its grammatical and ordinary sense, and in harmony with this object of the Act, “all claims in that proceeding” includes claims regarding non-Crown defendants. The court further noted that other provisions in the Act supported the broad interpretation of “proceeding”, and that s.17(2) itself expressly states that “all claims” in a proceeding are to be stayed.

In the result, the Divisional Court held that the case management judge had contravened the Act by failing to order a stay as ‎mandated by s,17(2). ‎Ontario’s appeal was allowed, and the Order was set aside save as it related to the motion for leave under s. 17(2) of the Act.

Conclusion

Dell clarifies that under s.17(2) of the Crown Liability and Proceedings Act, any party suing the Crown for bad faith must first seek leave – and until that motion for leave is addressed the remainder of the proceeding cannot continue, whether against the Crown or non-Crown parties to the claim.