Appellate guidance on the valuation of tort damages in insolvency

Overview: In this case, in separate concurring reasons, the Newfoundland and Labrador Court of Appeal granted leave to appeal but dismissed an appeal on the merits. A group of sexual abuse claimants sought to appeal a decision limiting the amount that could be awarded to the estates of deceased claimants to actual monetary loss under the provincial Survival of Actions Act (“SAA”). This would mean that any claim for non-pecuniary damages such as pain and suffering would be excluded from recovery. They argued that the claims should be valued at the filing date, such that if claimants were alive on the filing date but later died, the restrictions in the SAA would not apply to their estates’ claims. In concurring reasons, the Court of Appeal disagreed, with one set of reasons considering the “once-and-for all” approach to the assessment of tort damages, and the other considering whether the CCAA displaces the SAA’s limitation on damages.

The appellants are part of a group of plaintiffs which, in 1999, commenced proceedings against the first respondent, the Roman Catholic Episcopal Corporation of St. John’s (the “RCECSJ”) and the Christian Brothers Institute Inc., for alleged sexual and physical abuse during the 1940s, 1950s and 1960s at Mount Cashel Orphanage. The allegations against the RCECSJ were that it was either directly or vicariously liable for sexual abuse suffered by the plaintiffs while at the orphanage.

By 2003, there were at least 40 plaintiffs who alleged similar abuse. Given the number of plaintiffs, the individual proceedings were case managed together by a justice of the Supreme Court of Newfoundland and Labrador. As part of the formal case management process, there was an agreement between the parties to select six cases from the group to serve as test cases. The understanding was that the outcome of the test cases might assist in resolving the remaining actions.

Two of the six test plaintiffs chosen passed away before the trial commenced but the trial of the other four plaintiffs proceeded. While the actions against the RCECSJ were dismissed, at the request of the parties, the trial judge assessed damages for each of the four plaintiffs as if liability had been established. The four plaintiffs successfully appealed the trial judge’s dismissal of their actions, and the Court of Appeal awarded damages totaling $2,395,312.45 plus costs. As a result of the Appellate Court’s decision, the four plaintiffs filed the judgment in their favour with the Sheriff’s Office.

After the judgment was filed with the Sheriff’s Office (but before monies were paid to the successful plaintiffs), the RCECSJ filed a Notice of Intention to Make a Proposal under the Bankruptcy and Insolvency Act. One effect of this filing was that the outstanding litigation of the remaining plaintiffs was stayed by the Court. The RCECSJ then applied to the Court to convert the proceedings under the BIA to proceedings under the Companies’ Creditors Arrangement Act, which was allowed.

Although it is no longer disputed that RCECSJ will be vicariously liable if an individual plaintiff establishes their claim of abuse, whether abuse occurred in relation to the remaining individual plaintiffs is still a live issue. The parties attempted to reach an agreement as to the process to be used to resolve the outstanding claims. However, an agreement could not be reached and both parties brought separate applications under section 20 of the CCAA to have the Court approve the manner in which outstanding claims would be resolved. The applications judge heard the two applications together. One of the requests made in the interlocutory applications was how to address the claims of plaintiffs who might pass away after the date on which the proceedings became subject to the BIA and then the CCAA (the filing date), but before their particular claims were resolved.

There was no dispute that had the RCECSJ not sought protection under the BIA or CCAA, any cause of action related to a plaintiff who passed away before its resolution would be subject to the Survival of Actions Act (SAA). As per the SAA, in such circumstances, the extent of damages claimed by the estate of a deceased plaintiff would be limited to “actual monetary loss to the estate” (s. 4). Actual monetary loss would exclude any claim for non-pecuniary losses, such as damages for pain and suffering suffered by the deceased during their lifetime. Non-pecuniary damages comprise a significant component of damages claimed by the remaining plaintiffs.

However, the appellants sought to limit the application of the SAA to the resolution of the claims under the CCAA. The appellants argued that either by virtue of the discretionary authority under the CCAA or through the inherent jurisdiction of a superior court, the applications judge should make an order fixing the quantum of damages available as of the filing date. In the appellants’ view, if the quantum of damages was fixed as of the filing date, and a plaintiff should pass away before the resolution of a claim, the available damages will remain the same as if they were alive. By contrast, the RCECSJ submitted that plaintiffs who pass away after the filing date, but prior to the resolution of their claims under the CCAA, should be treated no differently than a plaintiff who passes away prior to the resolution of litigation that proceeds through the regular litigation process and not under the CCAA or BIA. The RCECSJ submitted that the fact that the litigation was now under the purview of the CCAA did not remove the application of the SAA.

The applications judge agreed with the RCECSJ and concluded that should a plaintiff pass away, the extent of damages that could be awarded to their estate was subject to the SAA and limited to “actual monetary loss to the estate”.  This would mean that any claim for non-pecuniary damages such as pain and suffering were excluded from recovery. The appellants sought leave to appeal the application judge’s decision to the Court of Appeal.

On appeal, the appellants argued that because the BIA and CCAA provide that provable claims are only those that exist at the date of insolvency (the Initial Filing Date in this case), any event or circumstance that occurs following that date is irrelevant to the valuation of the claims. The effective date for valuation should be the same as the effective date for the determination of validity. So, if they were alive on the Initial Filing Date, but later died, the restrictions in the SAA would not apply to their estates’ claims. The respondent maintained the position that the SAA limits the damages recoverable by the estates of deceased plaintiffs. It also argued that the object of a CCAA stay is to maintain the status quo, among creditors and between creditor and the debtor, during the time that the parties attempt to work out a compromise arrangement. The status quo includes the application of the SAA to the claims. Therefore, exercising discretion to favour the claims of deceased plaintiffs would run contrary to the objectives of the CCAA.

The Court of Appeal issued a judgment and concurring reasons. Boone JA noted that s. 2(1) of the CCAA defines a claim as “any indebtedness, liability or obligation of any kind that would be a claim provable within the meaning” of s. 2 of the BIA. The BIA requires proofs of claim to be made to the trustee in bankruptcy and reviewed by the court. Therefore, creditors’ claims must exist at the date of insolvency but be proven later. However, neither the CCAA nor the BIA expressly state the operative date for the valuation of claims. The case law holds that claims, including tort claims, should be valued effective as of the date that the trustee, monitor, or court conducts the valuation. Although the legislation does not expressly state a valuation date, the legislative scheme is consistent with that interpretation.

A tort victim is entitled to claim damages once the tort is complete. In the case of tort causing personal injury, virtually all damages are future damages at the time that the tort is complete. Even claims for general, non-pecuniary damages compensate for past and future pain and suffering and therefore are valued with future contingencies at least implicitly in mind. The court assesses tort damages for personal injury on a lump sum, “once-and-for all” basis at the time of trial, considering past certainties and future contingencies. There is no reason inherent in the objectives of insolvency legislation to depart from these principles when valuing tort damages in an insolvency. Damages should be assessed once and for all at the time of proving the claim to a monitor in a CCAA arrangement, a trustee in bankruptcy, or a supervising court. Events intervening between the date of insolvency and the date of valuation must be considered. Any event that would otherwise be assessed as a future contingency is a relevant factor for assessing damages if it occurs before trial. Past events once proven are treated as certainties. Therefore, Boone JA concluded that the BIA and CCAA do not provide that the plaintiffs’ claims should be valued as of the Initial Filing Date, and dismissed the appellants’ appeal based on the statutory interpretation ground. 

In a separate concurring decision, Knickle JA noted that whether damages claimed by the plaintiffs should be valued as of the filing date, even where a plaintiff subsequently passes away, depends on whether the CCAA displaces or alters the application of the SAA’s limitation on available damages to estates of deceased plaintiffs. Because at common law an action in tort is extinguished by the death of the plaintiff, the estate of a deceased person cannot continue with the prosecution of that action.  Survival of actions legislation such as the SAA enacted in this province, and similar legislation enacted in other common law jurisdictions, attempts to undo the harsh consequences of the common law rule. However, there are limitations. The limitations under the SAA of the availability of damages to actual monetary losses to an estate means that claims for damages such as “pain or suffering” are not available to the estate of a deceased plaintiff.

Knickle JA held that the applications judge committed no error in concluding that survival of actions legislation’s limitation on the available damages to an estate continued to apply notwithstanding that the litigation was now under the purview of the applicable insolvency legislation. The estates of plaintiffs who had passed away, or who may pass away, after the date the RCECSJ sought insolvency protection, were restricted in their recovery of damages to “actual monetary loss” to the estate.

Keeping in mind the remedial objectives of the CCAA, and considering the words in the CCAA in their ordinary grammatical sense and harmoniously with its scheme, there is nothing express or implied in the language of the CCAA that purports to fix the valuation of damages as of the filing date under the CCAA and thereby remove the application of the SAA’s limitation of damages to an estate of a deceased plaintiff. The BIA has been interpreted as permitting the valuation of a claim to take into account events that are subsequent to the filing date. The death of a plaintiff subsequent to the filing date would be a “subsequent” event that could be considered in valuing a claim under the BIA. There is no reason to think this approach is also not available under the CCAA.

The appeal was dismissed.

Reasons for Judgment by: D.M. Boone J.A

Concurred in by: K.J. O’Brien J.A.

Separate Concurring Reasons by: F.J. Knickle J.A.

Counsel for the RCECSJ: Geoffrey Spencer, Meghan King and Bradley Budden of McInnes Cooper

Counsel for EY as monitor: Maurice Chiasson, K.C. and Joseph Thorne of Stewart McKelvey

Counsel for the claimant representatives: Geoffrey Budden, K.C. and Paul Kennedy of Budden & Associates and Clifton Prophet and Thomas Gertner of Gowling WLG