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Focus: Court opens door to extending liability to gamblers

Focus On: Gambling
In 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.

Focus: Court opens door to extending liability to gamblers
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.’
This has enabled claims for “knowing receipt of trust funds” and “unjust enrichment” to proceed 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 allocated 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 Hamilton law clerk stole more than $4 million from several estates and then posed as a lawyer to gamble the money away. The estates sued the OLG for damages of $950,000 and aggravated damages of $500,000, claiming the OLG knew that the clerk was a problem gambler and knowingly 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 corresponding side of the question,” points out Rollwagen, who remains critical of the decision. “From what source do you derive a right to a fidelity insurance 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 appeal. 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 expecting to find some interesting information through the channels of disclosure as the case proceeds.

Rollwagen considers that it will be difficult for similar actions 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 anyone with whom they are dealing,” he says. “This says they should have known the plaintiff 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 situation is quite so concrete.

“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. If I was the OLG, I’d be thinking that the court is positively disposed 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 judgment becomes more impaired the more they consume. This perverse incentive supports the imposition of a duty to monitor alcohol consumption in the interests of the general public.”

It stated that these comments apply with equal force to casino operators.

Rollwagen considers this approach to be inappropriate.

“The commercial host rule deals with physical damage. The court zealously guards the sanctity of the person and the right not to be physically harmed. There is some duty to prevent a person I served leaving and hurting others. It is easy to predict the consequences. . .,’” he says.

“It is harder to see the consequences in economic negligence cases. For decades, the courts have treated economic loss differently because indeterminate liability can arise. The systematic 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 losing 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 involved in this case is relevant, says Rollwagen.

“There is a perception that a social good is being served, but the dissenting judgment recognized that it’s a legal business. The court needs to reflect 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 honest person with a lot of money who wants to gamble can’t enjoy themselves. There will be questions at every turn. When you apply it at a systematic level, there are inconveniences and consequences.”

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