In 1999, a large number of disabled World War I and II veterans brought a class action against the federal Crown. The Class claimed that the Crown had breached its fiduciary duty by failing to invest or pay interest on funds administered by the Crown for the veterans’ benefit. The Crown argued that the Class’s claim was barred by virtue of s. 5.1(4) of the Department of Veterans Affairs Act , which provides that no claim shall lie “for or on account of interest” on monies held by the Department of Veterans Affairs prior to 1990.
The action was divided into a liability phase and a damages phase. In 2000 the motion judge, Justice John H. Brockenshire, held that the Crown was liable for breach of fiduciary duty and that s. 5.1(4) of the Act was inoperative because it conflicted with the Canadian Bill of Rights. The Court of Appeal for Ontario affirmed that decision in 2002. The motion judge proceeded to hear the damages phase of the action, but reserved his decision pending the Crown’s appeal to the Supreme Court of Canada on the liability issue. In 2003 the Supreme Court of Canada allowed the Crown’s appeal, finding that s. 5.1(4) was valid legislation and concluding that the Class had no claim for interest.
Shortly after the Supreme Court released its decision, the Class appeared before the motion judge and requested that he deliver his judgment on damages. The Class argued that the motion judge’s initial declaration that the Crown had breached its fiduciary duty had not been disturbed, and that the reach of both s. 5.1(4) of the Act and of the Supreme Court’s decision were limited to “interest” as distinct from damages for failure to invest. The motion judge agreed and directed further hearings to determine the quantum of damages for failure to invest. In 2005, the motion judge released the final damages decision, in which he assessed the Class’s damages at more than $4.6 billion. The Crown appealed this decision and a number of related judgments to this court.
In a judgment released today, the Court of Appeal for Ontario (Justices Moldaver, Sharpe and Blair) (“the Court”) unanimously allowed the Crown’s appeal.
The issues on appeal were:
The Court answered each of these questions in the affirmative.
First, the Court held that the judgment of the Supreme Court was final and binding and that there was no basis in fact or law for the Class to pursue its claim, or any aspect of it, once that judgment had been rendered. The Court reviewed the history of the proceeding and concluded that it had clearly been litigated on an “all or nothing” basis: either s. 5.1(4) of the Act barred the action in its entirety or it did not. The Court concluded that the motion judge should have recognized the Class motion for delivery of the judgment on damages following the Supreme Court’s ruling as a case of revisionism and dismissed it out of hand.
Second, the Court held that by enacting s. 5.1(4) of the Department of Veterans Affairs Act, Parliament clearly intended to bar any and all claims against the Crown for breach of its fiduciary duty to invest or pay interest on funds under its administration. The legislative framework which governed the Crown’s conduct during the relevant time period prevented it from investing public money in external markets or from paying anything but interest as an investment return. The words “for or on account of interest” in s. 5.1(4) were therefore all that was required to achieve a complete bar to any claim for failure to invest or pay interest. The Court concluded that the motion judge erred in interpreting s. 5.1(4) as only a partial bar to the Class’s claim.
Third, the Court held that the Crown was entitled to rely on the six-year limitation period set out in s. 32 of the Crown Liability and Proceedings Act , and that the Class’s cause of action was discoverable at least since s. 5.1(4) was enacted in 1990. The Court also held that the motion judge erred in finding that the Class’s claim was not time-barred by virtue of the doctrine of equitable fraud, which prevents a limitation period from operating as an “instrument of injustice”. The Court concluded that equitable fraud did not apply in this case for a number of reasons, including that there was no conduct on the part of the Crown that could be said to amount to “concealment” of the veterans’ rights to assert their fiduciary claims.
Finally, the Court held that the motion judge erred in the assessment of damages in at least two ways. First, the motion judge improperly took judicial notice of a disputed investment concept which resulted in an increase of $2.9 billion in the damage award to the Class. Second, the motion judge applied a standard of optimum maximization of gains on an annual basis for the entire period from 1916 to 1990, which put the Class in a better position than they would have been in had the breach of fiduciary duty not occurred. This was inconsistent with the basis for recovery in a fiduciary obligation case, which is to put a plaintiff in as good a position as he or she would have been in but for the breach.