Law Times

Law Times • OcTOber 3, 2016 Page 11 www.lawtimesnews.com Court opens door to extending liability to hosts BY JUDY VAN RHIJN For Law Times I n a controversial decision, the Ontario Court of Appeal has refused to strike a claim that is attempting to extend the "commercial host" duty of care owed by establishments serving alcohol to the Ontario Lottery and Gambling Corporation. This has enabled claims for "knowing receipt of trust funds" and "unjust enrichment" to pro- ceed in relation to the misuse of trust funds by a solicitor's clerk with a chronic gambling problem. "Courts have to realize that by refusing to strike the cause of action they have already al- located risk and given plaintiffs something they didn't have before — a cause of settlement action," says Scott Rollwagen, research partner at Lenczner Slaght Royce Smith Griffin LLP, of Toronto. "This opens the door to claims by third parties against the people the plaintiff is dealing with." The case in question is Paton Estate v. Ontario Lottery and Gaming Corporation, 2016 ONCA 458, in which a Hamil- ton law clerk stole more than $4 million from several estates and then posed as a lawyer to gam- ble the money away. The estates sued the OLG for damages of $950,000 and aggravated dam- ages of $500,000, claiming the OLG knew that the clerk was a problem gambler and knowing- ly received trust funds from her. The motion judge, Superior Court Justice Peter Hambly, struck down the claim, citing it did not have a reasonable cause of action and that it was "plain and obvious" that the lawsuit would have no chance of success. He found that the casinos did not know the clerk was gambling with trust funds and that they do not owe a duty of care to those who lose their money gambling at their establishments. In June 2016, the Court of Appeal decided the claim should move forward, saying that while casinos could not assess each of their customers, when an individual is obviously addicted to gambling and out of control, they may be required to make enquiries. "Pleading motions focus on what the plaintiff says about the duty of the OLG, not the corre- sponding side of the question," points out Rollwagen, who re- mains critical of the decision. "From what source do you de- rive a right to a fidelity insur- ance policy from a casino with which the gambler is dealing?" A spokesperson for the OLG has advised that the OLG will not be seeking any further ap- peal. The case will proceed and the OLG will defend itself in the normal course. Don Morris, a civil litigator in Hamilton who represents Paton Estate, is ex- pecting to find some interesting information through the chan- nels of disclosure as the case proceeds. Rollwagen considers that it will be difficult for similar ac- tions to get struck now. "Once you refuse to strike, the court creates rights that many people will be surprised exist. When a person is defrauded, you can now look in the pockets of any- one with whom they are deal- ing," he says. "This says they should have known the plain- tiff was spending money stolen from others. This is an example of the court's lack of awareness of the need to be careful." Morris disagrees that the sit- uation is quite so concrete. "It's pretty clear that the ap- pellate court had an under- standing that on a full trial record the court will consider whether there ought to be a duty. It has only opened the door. If I was the OLG, I'd be thinking that the court is positively dis- posed to hear more about this," he says. The majority judgment makes an analogy between the duties of a commercial host serving alcohol to its customers and the OLG, arguing that if a commercial host served alcohol to an intoxicated patron who drove and injured a third party, there would be a recognized duty of care to the customer and the third party. The majority stated: "[T]he benefits of over-consumption go to the tavern keeper alone, who enjoys large profit margins from customers whose judg- ment becomes more impaired the more they consume. This perverse incentive supports the imposition of a duty to monitor alcohol consumption in the in- terests of the general public." It stated that these comments apply with equal force to casino operators. Rollwagen considers this ap- proach to be inappropriate. "The commercial host rule deals with physical damage. The court zealously guards the sanc- tity of the person and the right not to be physically harmed. There is some duty to prevent a person I served leaving and hurt- ing others. It is easy to predict the consequences. . .," he says. "It is harder to see the conse- quences in economic negligence cases. For decades, the courts have treated economic loss dif- ferently because indeterminate liability can arise. The system- atic consequences should be considered before recognizing a duty." Rollwagen is concerned that the court should look out for the interests of people dealing with the plaintiff. "They don't know who the defendants are or how many there are or how they might have exposed themselves to los- ing the money," he says. He gives the example of a person who is in the business of selling luxury cars. "If there is a certain brand that criminals like to buy, is there a duty to find out if anyone who buys one is squeaky clean and do a criminal record check?" he asks. The fact that a casino is in- volved in this case is relevant, says Rollwagen. "There is a perception that a social good is being served, but the dissenting judgment recog- nized that it's a legal business. The court needs to ref lect on the consequences," he says. "If I'm conducting a legal gambling business and someone brings money in the door to purchase my services, do I now have to make enquiries? Because of this decision, a perfectly hon- est person with a lot of money who wants to gamble can't en- joy themselves. There will be questions at every turn. When you apply it at a systematic level, there are inconveniences and consequences." LT FOCUS Scott Rollwagen says a recent Court of Appeal ruling is 'an example of the court's lack of awareness of the need to be careful.' E. V. Litigation & Financial Services Inc. Elaine G. Vegotsky, CMA, CFE, CFI Assisting you in Litigation & Forensic Accounting, Financial Investigations x a F r o e n o h p e l e T 0 0 9 e t i u S 0 7 3 1 - 0 3 9 ) 6 1 4 ( , t s a E e u n e v A d r a p p e h S 5 4 Willowdale, Ontario M2N 5W9 (905) 731-5812 evlitigation@rogers.com E. V. Litigation & Financial Services Inc. Elaine G. Vegotsky, CMA, CFE, CFI Assisting you in Litigation & Forensic Accounting, Financial Investigations x a F r o e n o h p e l e T 0 0 9 e t i u S 0 7 3 1 - 0 3 9 ) 6 1 4 ( , t s a E e u n e v A d r a p p e h S 5 4 evlitigation@rogers.com Toronto, Ontario M2N 5W9 (905) 731-5812 CFA, CPA, Vlit_LT_Mar10_14.indd 1 14-03-04 10:18 AM We are a law fi rm that combines experience, leadership and teamwork. We align best practices with fl exibility and pragmatism. We have an innate appreciation for each client's unique challenges. If this sounds like the right fi t for you, you've discovered Right-sized Thinking®. Find out how this approach can assist you. Not too big. Not too small. Right-sized Thinking® • 1-800-323-3781 • pallettvalo.com Your Authority For: Business Law • Commercial Litigation • Commercial Real Estate Construction • Insolvency & Corporate Restructuring Employment & Labour • Wills, Estates & Trusts Untitled-4 1 2016-09-27 3:54 PM It's pretty clear that the appellate court had an understanding that on a full trial record the court will consider whether there ought to be a duty. It has only opened the door. Don Morris

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