Citing the “modern legislative trend” towards “putting the Crown on an equal footing with everyone else”, the Ontario Court of Appeal recently overturned an application judge’s granting of legal immunity to a Crown agent. The Appellate Court held that Atomic Energy of Canada Ltd. (“AECL”), a federal Crown corporation and Crown agent, is not immune from the application of s. 60 of the Ontario Evidence Act (“OEA”) which authorizes the enforcement in Ontario of a letter of request from a foreign court. The Court further held that in this particular case, “justice required” that the letter of request be enforced.

Background

AECL operates a nuclear reactor in Chalk River, Ontario. The reactor produces medical isotopes, which are used for various commercial purposes. The Appellant, Lantheus, is an American corporation that used these medical isotopes in the manufacture of its products. When AECL unexpectedly shut down the Chalk River reactor in 2009 and 2010 for 15 months, Lantheus lost an estimated $70 million. It sought indemnification from its insurer, who denied coverage. Lantheus thus launched a lawsuit against its insurer in the United States (the “U.S. Action”). Shortly thereafter, it obtained a letter of request from the court seeking Ontario’s assistance “in securing documents and viva voce testimony from AECL for use at the trial of the U.S. Action” (para 5). Specifically, Lantheus sought information from AECL about why the reactor was shut down and stated that this information was critical to determining whether Lantheus’s losses were covered under its insurance policy.

As such, Lantheus commenced an application here in Ontario, pursuant to s. 60 of the Ontario Evidence Act, seeking an order giving effect in Ontario to the letter of request issued in the United States. The Application Judge dismissed the application, holding that AECL, as a Crown agent, enjoyed immunity. The Application Judge further noted that even if the court had jurisdiction to enforce the letter of request, Lantheus had not satisfied the test for the enforcement of the letter.

Lantheus appealed.

The Decision

The Crown has always been treated differently by the Courts: s. 17 of the Interpretation Act stipulates that “no enactment is binding on Her Majesty… except as mentioned or referred to in the enactment.” Jurisprudence has held that only express words binding the Crown will satisfy s. 17.

The Crown Liability Proceedings Act (“CLPA”) outlines when a Crown may be liable for certain causes of act. Indeed, the purpose of the CLPA is, in general terms, “to create liability on the federal Crown … and expand the jurisdiction of the courts of the provinces for proceedings involving the Crown.” Section 27 of the CLPA stipulates that “the rules of practice and procedure of the court in which proceeds are taken apply in those proceedings. Section 17 therefore binds a Crown agency to the rules of “practice and procedure” of the court.

The central issue in this case then, is whether s. 60 of the Ontario Evidence Act is a rule of “practice or procedure” to which the AECL is bound, or a “rule of evidence” distinct from a “rules of practice and procedure” and therefore not binding on a Crown agency.

What is section 60 of the OEA? Section 60 authorizes a judge of a Superior Court, when it appears to the judge that a court of competent jurisdiction in a foreign country has duly authorized the obtaining of testimony, to “order the examination of such witness… or the production of a writing or other document or thing mentioned in the order.” 

Writing for the Court, Hoy J.A. concluded that s. 60 is properly considered a “rule of practice or procedure”, not (as the application judge found) a separate “rule of evidence.” First, Justice Hor explained that the phrase “rules of practice and procedure” as it appears in the CLPA has a broad meaning. Whereas the application judge decided that the Ontario Rules of Civil Procedure are the source of procedural rules in the province, Justice Hoy concluded that the Rules are “supplementary in nature” (para 30) to the rules of court in the province and are “by no means the only rules governing the practice and procedure of Ontario’s courts” (para 31). Provincial statutes may also legislate rules that govern practice and procedure in Ontario courtrooms.

Second, Justice Hoy examines the goal of s. 60 of the OEA, and finds that s. 60 is not concerned with the admissibility or common law rules of evidence, but is in fact “more akin to a procedure for obtaining pre-trial discovery than a rule of evidence” (para 37). The court therefore concludes that  s. 60 is a “rule of practice and procedure” and therefore binding on AECL.

Interestingly, Lantheus also submitted an “alternative argument” (one that it did not submit to the application judge), suggesting that because the AECL has been involved in litigation as both plaintiff and defendant, AECL has “befitted” from the OEA and cannot now refused to be bound. Put another way, Lantheus suggested that by availing itself of the OEA in other litigation, AECL has waived its immunity. Justice Hoy did not find this argument persuasive. While “sympathetic” to application of the benefit/burden principle, he stated that there was no evidence as to the benefits obtained (and no submissions made) and no evidence as to whether these benefits were connected to s. 60 of the OEA. Presumably then, this principle could be applied in other cases, where evidence as to the benefits is tendered.

Having found that the Crown is bound, the last question the Court addressed was whether the letter of request should be enforced in this particular case. The Court concluded that it should be. Applying the six non-exhaustive factors first laid out in RE Friction Divisions Products, Inc. and E.I. Du Pont de Nemours & Co. Inc. et al (No. 2) 1986 56 O.R. (2d) 722 (H.C.J), Justice Hoy concluded that in this case, the letter of request should be enforced: the evidence AECL could give is sought is relevant, necessary, not otherwise obtainable, and not contrary to public policy. Furthermore, the documents being sought are clearly identified, and the order is not unduly burdensome. These factors are but “useful guideposts” (not a rigid formula) and in the case, are met. AECL must comply with the U.S. court’s letter of request.

Potential Significance

The outcome of this case will affect Crown agents called to give evidence in the United States. While Crown agents may have previously avoided pre-trial discovery or documentary production outside of Canada, Lantheus suggests that insofar as s. 60 of the Ontario Evidence Act is a rule of practice and procedure, it is binding on Crown agents. Government-owned corporations may not be able to rely on Crown immunity in all cases: at least “in commercial matters”, courts are starting to consider the outer limits of Crown immunity.

In Behn v. Moulton Contracting Ltd., 2013 SCC 26, the Supreme Court of Canada (the “Court”) expanded the doctrine of abuse of process to preclude parties which employed self-help remedies from raising as a defence various arguments which could and should have been advanced by commencing formal legal proceedings instead of taking self-help steps. Unlike in cases of res judicata, where similar principles arise, it was of no concern to the Court that there was no pre-existing litigation or proceeding in which the various legal arguments could have been advanced originally. In other words, the party was estopped from raising defences as its election to pursue self-help remedies over a formal legal proceeding would bring the administration of justice into disrepute.

Background

This matter arises following the Crown’s granting of authorizations to Moulton Contracting Ltd. (“Moulton”) to harvest timber within the territory of the Fort Nelson First Nation (the “FNFN”). Individual members from the FNFN (the Behns) who opposed the authorizations erected a campsite to block road access to the logging sites. Moulton commenced a tort action against the individual members, and others, for interference with contractual relations. In their statement of defence, the Behns denied their conduct was unlawful as the authorizations granted by the Crown were illegal because: (a) the Crown’s failed to fulfill its duty to consult with the FNFN; and (b) the authorizations infringed treaty rights to hunt and trap. Moulton brought applications to, among other things, have these portions of the Behns’ defence struck out.

The British Columbia Supreme Court and Court of Appeal held that the impugned defences were an abuse of process. The BCSC reasoned the Behns could not be permitted to introduce the issue of invalidity of the authorizations as they should have applied for judicial review when the authorizations were granted. The Court of Appeal found the defences constituted an impermissible collateral attack on the authorization granted to Moulton as the FNFN had a number of legal avenues to challenge the authorizations.

The Behns sought to overturn the decision of the Court of Appeal with respect to standing and abuse of process. For a general overview of the Court’s decision on all issues, including standing, see our May 10, 2013 ‘This Week at the SCC’ post prepared by Kirsten Thompson here.

The Decision

With respect to the issues of abuse of process, the Court confirmed that raising the defences of breach of the duty to consult and of treaty rights was an abuse of process, noting that “if the Behns were of the view that they had standing, themselves or through the FNFN, they should have raised the issue at the appropriate time.”

The Court was critical of the Behns’ failure to commence any judicial review process, commence an injunction, or seek any other form of judicial relief against the Crown or Moulton:

the Behns’ acts amount to an abuse of process. The Behns clearly objected to the validity of the Authorizations on the grounds that the Authorizations infringed their treaty rights and that the Crown had breached its duty to consult. On the face of the record, whereas they now claim to have standing to raise these issues, the Behns did not seek to resolve the issue of standing, nor did they contest the validity of the Authorizations by legal means when they were issued. They did not raise their concerns with Moulton after the Authorizations were issued. Instead, without any warning, they set up a camp that blocked access to the logging sites assigned to Moulton. By doing so, the Behns put Moulton in the position of having either to go to court or to forgo harvesting timber pursuant to the Authorizations it had received after having incurred substantial costs to start its operations.

In reaching this conclusion, the Court revisited the underlying role of the doctrine of abuse of process. The Court confirmed that abuse of process has its roots in the inherent and residual discretion of judges to prevent abuse of the court’s process. The Court affirmed the principles set forth in Canam Enterprises Inc. v. Coles, 2002 SCC 63, that abuse of process is unlike the concepts of res judicata (i.e. cause of action estoppel) and issue estoppel which have specific requirements. The Court reiterated prior findings that the doctrine of abuse of process:

engages the inherent power of the court to prevent misuse of its procedure, in a way that would be manifestly unfair to a party to the litigation before it or would in some other way bring the administration of justice into disrepute. It is a flexible doctrine unencumbered by the specific requirements of concepts such as issue estoppel.

In the Court’s view, “the case law confirms that the administration of justice and fairness are at the heart of the doctrine of abuse of process.” While prior Supreme Court of Canada cases dealing with abuse of process, such as Canam, arose when litigants sought to prevent a party from re-litigating an issue in circumstances in which the requirements for issue estoppel were not met, the Court was quick to note abuse of process is not strictly limited to precluding re-litigation alone. The Court noted that unreasonable delay that causes serious prejudice could also amount to an abuse of process.

In sum, the Court held that the doctrine of abuse of process is flexible and exists to ensure that the administration of justice is not brought into disrepute. To allow the Behns to raise their defence based on treaty rights and on a breach of the duty to consult as a defence was, in the Court’s view, tantamount to condoning self-help remedies, thereby bringing the administration of justice into disrepute.

Potential Significance

The Court’s decision to expand the doctrine of abuse of process in this manner is significant when compared to similar doctrines which seek to limit the ability of litigants to raise issues which could have been raised in earlier proceedings but were not. The rule developed in Henderson v. Henderson, (1843), 3 Hare 100, and adopted in Doering v. Grandview (Town), [1976] 2 S.C.R. 621, immediately comes to mind. The rule holds that:

where a given matter becomes the subject of litigation in, and of adjudication by, a Court of competent jurisdiction the Court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest, but which was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case. The plea of res judicata applies, except in special cases, not only to points upon which the Court was actually required by the parties to form an opinion and pronounce a judgment, but to every point which properly belonged to the subject of litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time. [emphasis added]

Unlike the rule in Henderson, the Court was prepared to use the doctrine of abuse of process to prohibit the Behns’ ability to raise as a defence the validity of various authorizations despite the fact that no other prior proceeding or legal challenge had been commenced and that the Behns’ communicated their opposition to the Ministry of Forests shortly after the authorizations at issue were granted. There was not, as in the Henderson type cases, a failure to raise one or more potential issues in previously existing proceedings. The Court’s treatment of the doctrine of abuse of process is quite unique as compared to the previous cases dealing with re-litigation in circumstances where the criteria for res judicata are not met or cases where delay will cause prejudice in an ongoing proceeding. In both instances, there is either some prior or ongoing legal proceeding at issue.

What is notable, but which did not expressly factor into the Court’s decision, is that the Crown authorizations at issue were only valid for a year thereby making any formal legal challenge regarding the validity of the authorizations irrelevant by the time the BCSC considered the underlying Moulton applications to strike. With no active Crown authorizations to challenge, the Court was left with the practical reality that permitting the defences would potentially allow the Behns to validate their use of self-help remedies (as opposed to some governmental or court processes) to fulfil their interest of preventing Moulton from carrying on its timber harvesting. Had the Crown authorizations still been active and open to challenge, there would arguably have been some debate over whether or not the more appropriate course would have been, among other things, to permit the defences or stay proceedings pending the commencement and disposition of a judicial review (or other course of judicial relief). There could also be a debate as to whether the Behns would be precluded from commencing a formal claim outright, considering they elected to take the self-help route over any formal process. Unfortunately for future litigants, the facts of the case did not lend themselves to such a debate or determination by the Court.

The very unique circumstances in this case raise questions about how broadly the Court’s decision may be applied when dealing with future cases where a defendant fails to commence a formal—but still available—proceeding but opts to raise its arguments as defences in another proceeding. On the other hand, the Court’s decision may now stand for the simple proposition that the doctrine of abuse of process will operate to prohibit litigants from defending self-help remedies when some form of judicial relief which can address the party’s concerns also exists. Whatever the case may be, this is undoubtedly a case of interest for participants in industries which are often faced with self-help interference by groups or individuals.

Courts in both Canada and UK are grappling with developing a principled approach to damage awards in breach of privacy cases – what types of damage ought to be recognized? Who should be compensated for such damage? By how much? Recent UK case law suggests that a company’s liability for breach of a privacy statute is not limitless.

In Halliday v Creation Consumer Finance Ltd (CCF) [2013] EWCA Civ 333 (“Halliday”), the Court of Appeal of England and Wales held that businesses which breach data protection laws do not have to pay compensation for causing distress to consumers unless that distress is directly attributable to a breach of the statute.

Similar to Canada’s Personal Information Protection and Electronic Documents Act, SC 2000, c 5 (“PIPEDA”), section 13 of the Data Protection Act, 1998 c. 29 (DPA) entitles a person to compensation if they suffer damage as a result of violations the DPA by organisations that hold their personal data. Individuals are also generally entitled to compensation from those data controllers if they suffer distress that causes damage.

Halliday, the complainant in this case, had previously won an order against Creation Consumer Finance Limited (CCF) requiring the company to pay £1500 in connection with breaches of Halliday’s rights under the DPA. Unfortunately, CCF paid the £1500 it owed Halliday into a closed bank account. During the resulting attempts to sort out the banking mixup, CCF entered incorrect information about Halliday in their systems that showed that he was £1500 in arrears; this information was then shared with a credit reference agency.

Halliday claimed that CCF had breached the terms of the court order and that caused him significant distress and claimed between £6,000 and £18,000 for the distress.

The Court of Appeal held that Halliday could not claim compensation for distress that was not caused by the actual data protection breach itself: “In other words, this is a remedy which is not for distress at large but only for contravention of the data processing requirements.”

As a result, the company should only have to pay £750 in substantial damages and a further £1 in nominal damages. Lady Justice Arden further noted that the breach “did not lead to a loss of creditor reputation” for Halliday and that there was “no proof of any fraudulent or malicious intent on the part of CCF”.

In Canada, PIPEDA has a framework similar to the UK’s DPA. Under section 16(c) of PIPEDA, privacy violations are clearly compensable, with the court being given a wide latitude to “award damages to the complainant, including damages for any humiliation that the complainant has suffered.” (emphasis added)

This authority has been described as “remarkably broad”(Englander v. Telus Communications Inc., 2004 FCA 387, at para. 47).  However, courts have also said that “[p]ursuant to section 16 of PIPEDA, an award of damages is not to be made lightly. Such an award should only be made in the most egregious of situations…” (Randall v. Nubodys Fitness Centres, 2010 FC 681, at para. 55).

Justice Zinn in Nammo v. TransUnion of Canada Inc., 2010 FC 1284 noted that section 16 allowed for damage awards even where no financial loss had occurred (paras. 68-69). The award of $5,000, the first under PIPEDA, was founded in part on the egregious behaviour of the defendant credit rating service.

A more recent case, Landry v. Royal Bank of Canada, 2011 FC 687, was the result of the bank releasing the complainant’s account information to her ex-husband without her consent in the context of divorce proceedings. Landry had claimed $100,000 for humiliation and personal harm arising in part because the records revealed a hidden bank account she had not disclosed. The court awarded $5,000, noting that much of Landry’s humiliation and harm had resulted not from the breach itself, but her own secretive conduct.

In Townsend v Sunlife Financial, 2012 FC 550, a misaddressed piece of mail (returned unopened) containing medical information to the financial advisor underwriting an insurance policy, the complainant had claimed $25,000. In dismissing the case, the court held that the “disclosure of personal information was minimal and the inaccuracy in the Applicant’s address caused no injury”.

Canadian courts seem prepared to entertain a broader scope of damages for breach of PIPEDA but are struggling with the types of harms to be compensated. If Canadian courts adopt Halliday, it could narrow the range of compensable harm flowing from a breach of privacy rights under PIPEDA.

The McCarthy Tétrault Opinions Group consists of members of the firm’s litigation department whose practices focus on written advocacy and the provision of strategic advice and opinions in the context of complex business disputes and transactions. The members of the Opinions Group are Anthony Alexander, Martin Boodman, Brandon Kain, Hovsep Afarian and Kirsten Thompson.

In Canada (Public Safety and Emergency Preparedness) v. Information Commissioner of Canada, 2013 FCA 104, the Federal Court of Appeal provides a useful reminder of the extent to which the solicitor-client privilege applies to policies agreed upon by several parties.

Background

At the core of this decision is a request made to the Royal Canadian Mounted Police (“RCMP”) and the Department of Justice of Canada (“DOJ”) under the Access to Information Act. This request aimed at obtaining a Protocol that sets out the respective roles of the RCMP and the Attorney General, as well as the procedures to be followed when the RCMP possesses documents relevant to civil litigation against the Federal Crown.

The RCMP and the DOJ disclosed the Protocol, but excised everything except its title and the signatories of the document, invoking the solicitor-client privilege and the exemption for an advice developed by the government.

Decision Below < http://canlii.ca/t/ftf7d >

Faced with the refusal to disclose the substance of the Protocol, the requester complained to the Information Commissioner.  The Information Commissioner concluded that the Protocol did not fall within the exemptions.  The Federal Court (“FC”) concurred. According to the FC, certain formal matters worked against the existence of a solicitor-client privilege. It was thus found that the Protocol did not contain any legal advice and “was not concerned with providing legal advice”, as the Protocol was not, in itself, advice but rather an agreement setting out respective roles and responsibilities; hence it could not tell from the text of the Protocol whether it reflected earlier legal advice obtained by the DOJ.

In their appeal to the Federal Court of Appeal (“FCA”), the Ministers submitted that the substance of the Protocol is covered by the solicitor-client privileged and that the acting bodies properly exercised their discretion, i.e. not disclosing the Protocol.

The Decision

Rejecting an all-or-nothing approach, and thus considering that only part of a document can be privileged, the FCA ordered disclosure of the last fourteen paragraphs of the Protocol, while leaving the first three paragraphs to the discretion of the qualified access coordinators.

The FCA considered general principles related to the solicitor-client privilege. It acknowledged that not every communication between lawyers and their clients are privileged; only communications directly related to the seeking, formulating or giving of legal advice are privileged, along with communications “within the continuum in which the solicitor tenders an advice”. This protected continuum will include a communication that forms part of that necessary exchange of information of which the object is the giving of legal advice.

Consequently, the disclosure of an unprotected communication should not have the potential to undermine the purpose behind the solicitor-client privilege.

The FCA ruled that documents such as policies and actions shaped by legal advice are not necessarily themselves legal advice, and do not necessarily form part of the protected continuum of communication.

The FCA considered the last fourteen paragraphs of the Protocol to be of such nature and thus not to fall within the continuum. The Court found that those paragraphs were negotiated and agreed-upon operational policy formulated after any legal advice has been given and outside any continuum of communication surrounding such advice.

However, on the first three paragraphs of the Protocol, the FCA ruled that they memorialize the content of certain legal obligations of the Federal Crown for the benefit of the RCMP and the DOJ and that their personnel engaged in document management. Accordingly, those paragraphs could be kept confidential.

Potential Significance

This case is a good reminder that a document or action that is of the nature of an agreement or the product of a negotiation is to be considered not to be covered by the solicitor-client privilege. In addition it makes it clear that the solicitor-client privilege does not protect a document that is operational in nature or an act that is made past the stage of seeking or providing advice. This means that any act made for the purpose of conducting regular business following a legal advice or anything involved in the operational implementation of a legal advice would fall outside the scope of the privilege.

Case Information

Canada (Public Safety and Emergency Preparedness) v. Information Commissioner of Canada, 2013 FCA 104

< http://canlii.ca/t/fx5m2 >

Supreme Court Docket: no Supreme Court Docket (as of May 7, 2013 – delay of 60 days is still effective).

Decision date: April 17, 2013

Can a party who has failed to consummate a transaction get back a “deposit”?  The British Columbia Court of Appeal considered this issue once again in the recent case of Amiri v. One West Holdings Ltd., 2013 BCCA 155.

The facts of the Amiri decision were as follows.  A businessman (“Purchaser”) purchased, in 2005, a condominium that was to be built for a total price of almost $3 million.  The purchase agreement (the “Agreement”) provided for the payment of a total “deposit” in the amount of approximately $750,000.  The Agreement specifically stated that “[i]f the Purchaser is in breach of any of the covenants or obligations hereunder, the Vendor may, at its election, retain the Deposit…as liquidated damages.”  The Agreement went on to state that “[t]he parties…agree that [the Deposit] constitutes a genuine pre-estimate of the minimum damages suffered by the Vendor” and that the “Vendor reserves the right to claim for further damages.”  Time was of the essence for the Agreement.

The Vendor provided notice to the Purchaser that the closing date was going to be March 15, 2010.  The Purchaser was abroad and received the notice in early March.  However, he suffered a motor vehicle accident and was hospitalized.  Moreover, he had significant business obligations arising from his foreign company’s financial year-end.  The Vendor agreed to extend the closing date to March 29, 2010 (the “Extension Agreement”).  The Extension Agreement provided for the release of the Deposit to the Vendor in the event that the Purchaser failed to complete the purchase.

The Purchaser, who had since return from abroad, encountered further difficulty in obtaining the necessary financing (e.g., the lending institution had insisted that the documentation be signed by his wife — who was still abroad — in person,).  The closing date was extended further to April 8, 2010.  Again, as a condition of the extension, it was reiterated that time was of the essence and that the deposit would be forfeited if the purchase was not completed on the new closing date.

The Purchaser was ultimately eight days late in securing the necessary funds to close the deal. The Vendor took the position that the Purchaser was in default, and asserted its right to the deposit.  The transaction was not consummated.

The Purchaser sought to recover his significant deposit.  The trial judge ruled in favour of the Vendor, stating that the Purchaser was in default of his contractual obligations and that the forfeiture provisions in the Agreement were enforceable.

By the time the appeal was heard, a five-member panel of the B.C. Court of Appeal had issued its momentous ruling in Tang v. Zhang, 2013 BCCA 52, which set out the following “general principles” regarding deposits (para. 30):

1.   …[T]the question of whether a deposit or other payment made to a seller in advance of the completion of a purchase is forfeited to the seller upon the buyer’s repudiation of the contract, is a matter of contractual intention;

2.   Where the parties use the word “deposit” to describe such a payment, that word should in the absence of a contrary provision be given its normal meaning in law;

3.   A true deposit is an ancient invention of the law designed to motivate contracting parties to carry through with their bargains. Consistent with its purpose, a deposit is generally forfeited by a buyer who repudiates the contract, and is not dependant on proof of damages by the other party. If the contract is performed, the deposit is applied to the purchase price;

4.   The deposit constitutes an exception to the usual rule that a sum subject to forfeiture on the breach of a contract is an unlawful penalty unless it represents a genuine pre-estimate of damages. However, where the deposit is of such an amount that the seller’s retention of it would be penal or unconscionable, the court may relieve against forfeiture…;

5.   A contractual term that a deposit will be forfeited “on account of damages” on the buyer’s failure to complete does not alter the nature of a deposit, but may be construed to mean that if damages are proven, the deposit will be applied against (“on account of”) them. If no damages are shown, the deposit is nevertheless forfeitable, subject always to the expression of a contrary intention.

The Purchaser argued that the payment of the $750,000 was not a “true” deposit, pointing to the reference in the Agreement describing that amount as “liquidated damages” which “constitute[d] a genuine pre-estimate of the minimum damages suffered by the vendor.”  The B.C. Court of Appeal rejected this argument, ruling that the contracts between the parties described the funds as a “deposit”, and that it was “clear that the parties intended the deposit to be held on account of the purchase price, and to be forfeited to the vendor in the event that the purchaser did not complete” (at para. 32).   The Court went on to state (at para. 32):

The fact that the parties attempted to buttress the forfeiture provisions by also stating that the deposit constituted a genuine pre-estimate of damages does not preclude the characterization of the funds as a ‘true deposit’.

In the result, the forfeiture of the deposit was given effect by the Court of Appeal.  The decision in Amiri reflects a judicial preparedness to affirm the forfeiture of even a significant sum of money which has the indicia of a deposit, particularly its express characterization as such by sophisticated parties.

In Brown v. Canadian Imperial Bank of Commerce, 2013 ONSC 1284, the Divisional Court of Ontario further confirmed the approach to, and difficulty with, “misclassification” overtime class-actions (i.e. class actions alleging that an employer has unlawfully misclassified employees and managers to avoid the obligation to pay overtime). The Divisional Court, armed with the decisions of the Ontario Court of Appeal in the “Overtime Trilogy” (Fulawka v. Bank of Nova Scotia, 2012 ONCA 443; Fresco v. Canadian Imperial Bank of Commerce, 2012 ONCA 444; and McCracken v. Canadian National Railway Company, 2012 ONCA 445) upheld Justice Strathy’s denial of certification of a proposed class proceeding against CIBC and CIBC World Markets for misclassifying various employees, making them ineligible for overtime (Brown v. Canadian Imperial Bank of Commerce, 2012 ONSC 2377). The Divisional Court concluded that “ the issue of eligibility for overtime for the proposed class members could only be determine on an individual basis.” The Divisional Court found no commonality, as well as problems with the class definition generally.

Background

The plaintiff class commenced an action on behalf of employees whose job titles or business tiles contained “Analyst” or “Investment Advisor,” (thus including, “Associate Investment Advisors” in the class). At the time of the certification motion, CIBC’s breakdown of employee roles was organized by job level (between 1 and 10), job title (with an associated four digit job code), business titles (which were not necessarily formal CIBC titles for the purposes of internal organization), and job descriptions.

At the certification hearing, Justice Strathy concluded that eligibility was not determined exclusively based on job levels, job titles/codes or job descriptions. It was decided that the fact an employee had the word “Analyst” or “Investment Advisor” in his or her job title was not determinative of eligibility absent an appreciation of variations in individual circumstances of each employee. Justice Strathy concluded that the evidence established that the question of whether or not the class members are eligible for overtime could not be answered on a common basis. The eligibility of the representative plaintiff “Analyst” and “Investment Advisor” could not be applied to all other class member “Analysts” or “Investment Advisors.”

Recognizing the difficulty of the commonality issues, plaintiffs’ counsel proposed adopting an American approach and rely on statistical evidence to arrive at a conclusion on liability on a class-wide basis. Justice Strathy distinguished the American authorities presented and rejected the invitation to rely on statistical evidence, noting: “it is well-established in this province that the [Class Proceedings Act] cannot interfere with the substantive right of a defendant to have its liability established based on proof through evidence and not by statistical probability based on the behavior of others.”

Justice Strathy ultimately found that the class definition was overly broad and not suitable because the lack of commonality in the functions of the class members means that conclusions on the central common issues proposed could not be extrapolated to all members of the class. Justice Strathy summed up his views on the class action succinctly when concluding:

“The key issue of fact – namely, whether or not a person has managerial responsibility – which is critical to the determination of overtime eligibility, cannot be determined on a common basis. There is no workable methodology to resolve the issue. The action simply will simply not work as a class action.”

Following Justice Strathy’s decision, the plaintiffs appealed the decision on the basis that Justice Strathy erred in the application of the legal test for certification and because the issues raised on the appeal are matters of general principle which are central to the proper application of certification.

At the same time, the claim was altered to remove “analysts” from the class, leaving only those jobs with “Investment Advisor” in the title. This had the effect of restricting the claim to CIBC World Markets and provincial employment legislation alone. Plaintiffs’ counsel also amended the class definition to exclude any Investment Advisor who held any branch management position or had deductions taken from earned commissions which were attributable to Associate Investment Advisors assigned to the Investment Advisor.

The Decision

In its decision, the Divisional Court relied, in large part, on the Court of Appeal’s McCracken decision in deciding to uphold Justice Strathy’s denial of certification. In particular, the Divisional Court launched its analysis by noting the Court of Appeal rejected the general proposition that misclassification cases were appropriate for certification.

The Divisional Court adopted the Court of Appeal’s conclusion that certification is possibly suitable “where the similarity of job duties performed by class members provides the essential element of commonality” and that the “plaintiff’s evidence must establish some basis in fact to find that the job functions and duties of class members are sufficiently similar that the misclassification element of the claim… could be resolved without considering the individual circumstances of class members.”

Interestingly, the Divisional Court acknowledged that the plaintiffs’ revised class definition sought to exclude any worker exercising supervisory and managerial responsibilities over other employees; however, the Divisional Court was of the view that there was clear evidence that the revised definition still contained gaps wherein an Investment Advisor with a supervisory or managerial role could still be captured. Accordingly, the revised definition did not solve the problems identified by Justice Strathy in that each employee continued to have different and highly individualized job duties.

The Divisional Court, relying on the decision in McCracken, did, however, provide some further guidance and parameters for misclassification class actions:

…it is not good enough for a plaintiff to identify and seize upon apparently significant similarities if there are substantial differences which will inevitably require resorting to the evidence of individual class members. In this particular case, the appellant has failed to prove any basis in fact to show that the proposed class members’ job functions (even using the amended definition) are sufficiently similar that eligibility could be decided on a class-wide basis. [emphasis in original].

The Divisional Court noted that the lack of a common issue of eligibility further affects the determination as to whether a class proceeding would be the preferable procedure, under s. 5(1)(d) of the Class Proceedings Act. The Divisional Court upheld Justice Strathy’s decision that so long as the liability to pay overtime to every class member was an individual issue, a class action would not be a fair, efficient and manageable way of advancing the claims.

Potential Significance

While courts have seen an increase in overtime class actions in recent years, it is important to appreciate the difference between “misclassification” overtime actions and “off-the-clock” overtime actions focused on an employer’s imposition of more restrictive conditions for receiving overtime compensation than set forth in the relevant employment legislation. To date, the latter “off-the-clock” class actions, such as Fulawka and Fresco, supra, have been successful at the certification stage.^[1] “Misclassification” overtime class actions, on the other hand, have never left the runway so to speak.

McCracken, and now Brown v. CIBC, make it abundantly clear that the courts are not prepared to accept commonality amongst a diverse spectrum of employee class members whose duties may vary and whose propensity to partake in supervisory or managerial roles fluctuate. So long as the eligibility analysis remains a question of whether or not an employee has managerial responsibilities, it is hard to contemplate a scenario where a class of plaintiffs can be extracted from a mass of employees within a company made up of several complex and unique positions and roles. Short of very narrowly circumscribed classes whose duties are clearly indisputable, decisions like McCracken and Brown suggest, at least implicitly, that there is no place for misclassification overtime class actions in Ontario (and possibly the rest of Canada as well). Even if this was not the intent of the courts, the practical implication is quite apparent.

While McCracken may be the coffin, Brown is only the first nail and employers are certainly not in a position to consider these sorts of actions dead. Given the slow rising trend of overtime class actions, it is only a matter of time before another claim is made to test the boundaries the appellate courts have set for misclassification class actions. Only time will tell whether class counsel rises to the occasion or if misclassification actions suffer a fatal blow.

[1] The Supreme Court of Canada dismissed applications for leave to appeal these decision in March 2013.

Cases Heard

The Supreme Court of Canada heard arguments this week in three cases of interest to Canadian business and professions, and reserved judgment in each.

The first involved two related appeals from Shoppers Drug Mart Inc. v. Ontario (Health and Long-Term Care), 2011 ONCA 830.  As we discussed in a previous post, the appeals turn on whether Ontario can enact regulations prohibiting pharmacies from selling private-label generic drugs, or whether this may only be done by statute.  The Supreme Court’s decision is likely to address several interesting legal issues regarding the vires of subordinate legislation, including whether a statutory power to regulate includes a power to prohibit, the boundaries of the administrative law discrimination doctrine, and the presumption against interference with vested and commercial rights.  The oral arguments before the Court may be viewed here and here, and the written arguments may be viewed here and here.

The second case was an appeal from Telecommunication Employees Association of Manitoba Inc. v. Manitoba Telecom Services Inc., 2012 MBCA 13.  It involves a claim by the employees and retirees of a former Crown corporation, who went from being members of its statutory pension plan to members of its new private plan.  The plaintiffs allege the employer used an initial pension surplus in a way contrary to the terms agreed upon by the parties.  The oral arguments before the Court may be viewed here, and the written arguments may be viewed here.

The third appeal heard by the Supreme Court this week was from Ontario (Environment) v. Castonguay Blasting Ltd., 2012 ONCA 165, a case we also discussed in a previous post.  The Castonguay appeal involves whether the discharge of contaminants into the natural environment must be reported under s. 15(1) of the Ontario Environmental Protection Act even if it does not cause a non-trivial adverse environmental effect, but results only in property damage.  The Supreme Court’s decision could have broad ramifications for businesses whose operations involve a significant environmental component.  The oral arguments before the Court may be viewed here, and the written arguments may be viewed here.

Leave Applications Decided

The Court also denied leave to appeal this week from several cases of interest, including the following:

(1) Fairview Donut Inc. v. The TDL Group Corp., 2012 ONCA 867, where the Ontario Court of Appeal affirmed Strathy J.’s decision to certify but grant summary judgment dismissing a class action by Tim Hortons’ franchisees.  The appeal issues proposed to the Supreme Court included the scope and effect of the franchisor’s statutory duty of fair dealing, and whether special interpretive rules apply to franchise agreements given the power imbalance in franchise relationships.

(2) Pluri Vox Media Corp. v. Canada, 2012 FCA 295, where the Federal Court of Appeal affirmed assessments under the Income Tax Act and Canada Pension Plan which held the appellant failed to withhold and remit employee taxes and make CPP contributions on behalf of an employee who the applicant claimed was an independent contractor.  The applicant argued the Supreme Court should grant leave to clarify the legal test for determining whether a worker is an employee or an  independent contractor.

The McCarthy Tétrault Opinions Group consists of members of the firm’s litigation department whose practices focus on written advocacy and the provision of strategic advice and opinions in the context of complex business disputes and transactions.  The members of the Opinions Group are Anthony Alexander, Martin Boodman, Brandon Kain, Hovsep Afarian and Kirsten Thompson.

Under the law of Quebec, article 2884 C.C.Q. prohibits the modification by contract of the prescriptive or limitations period provided by law. The prohibition applies to all contracts including commercial or business contracts. By contrast, Ontario law permits the  modification of limitation periods in business agreements.

In Construction Infrabec Inc. v. Paul Savard, Entrepreneur électricien Inc. 2012 QCCA 2304, the Quebec Court of Appeal has confirmed that a notice requirement with a specified delay as a pre-condition to a contractual claim is not, in principle, a modification to the prescriptive period under Quebec law.

In the instant case, the fixed-price construction agreements with the Quebec Minister of Transport permitted contractors to claim additional funds from the Minister by sending various notices of claim within specified delays. The contract terms stated that the absence of a proper notice constituted renunciation to the claim. It was clear that the contract provisions dealt with a non-judicial claims process. The litigation arose as a result of various claims made by a subcontractor against its contractor and by the contractor against the Quebec Government. A defence raised against these claims was non-compliance with the notice requirements. The counter argument to this defence was that the notice requirements constituted a prohibited modification to the prescriptive period established under the law of Quebec.

The Quebec Court of Appeal stated that the notice provisions could not be characterized as a modification to the prescriptive period because they did not impose a delay that caused forfeiture or extinction of the claim. Rather, the process for submitting a claim, including the notice provisions, permitted the parties to renegotiate the price which would not otherwise have been possible under a fixed-price agreement. The notice provisions constituted a formality and a pre-condition which, if fulfilled, crystalized the claim against the Minister of Transport which could then be pursued before the courts. In other words, prior to fulfilling the notice provisions, there was no claim and the prescriptive period had not yet begun. Accordingly, the notice requirements could not be viewed as a modification to the prescriptive period established by law.

The decision in Construction Infrabec is important for several reasons. First, it recognized the distinction between a formal notice requirement as a pre-condition for a claim or cause of action and a prescriptive period. Quebec case law has previously recognized that a prior notice requirement in bank account verification agreements, for example, is valid as a pre-condition to a claim against the bank.

The validity of a prior notice requirement was obliquely recognized in Doré v. Verdun (City) [1997] 2 S.C.R. 862, in the context of interpreting article 2930 C.C.Q., which states that a prior notice requirement or delay (shorter than the prescriptive period) for instituting a personal injury claim cannot frustrate or “hinder” the prescriptive period established by law. The Doré decision held that non-fulfilment of such a notice requirement in a municipal statute did not extinguish the claim because to do so would cause it to “hinder” prescription contrary to article 2930 C.C.Q. The court rejected an argument that the notice requirement was merely a pre-condition to the claim.  Nonetheless, the Supreme Court implied that a prior notice requirement would be valid for non-personal injury claims, without addressing the impact of article 2884 C.C.Q.

As a result of the Construction Infrabec decision, it appears that Quebec law permits the parties to a contract to agree that a timely notice must be given to create a claim or cause of action, in default of which the potential claim is abandoned and the debtor is released from liability. While a prior notice requirement might be useful in commercial agreements to attenuate the prohibition against modifying the prescriptive period in Quebec, caution is advised. The Infrabec decision arose in the context of a public call for tenders. The prior notice requirement was expressly held to benefit both parties to the contract. The potential claim was an exception to the rules governing a fixed price building contract by permitting a claim where it would otherwise not be available. The process involved a notice of intention to file a claim and notice of a non-judicial claim. The delay for the latter notice was linked to the ability of the claimant to calculate the claim. Further, the Court of Appeal did not consider the implications of the Doré decision.

The McCarthy Tétrault Opinions Group consists of members of the firm’s litigation department whose practices focus on written advocacy and the provision of strategic advice and opinions in the context of complex business disputes and transactions. The members of the Opinions Group are Anthony Alexander, Martin Boodman, Brandon Kain, Hovsep Afarian and Kirsten Thompson.

In its recent ruling in Stevens v. Stevens, 2013 ONCA 267, the Ontario Court of Appeal refused to grant a party’s request that a document (a domestic contract) be rectified in his favour.  While the Court’s decision may strike many as sensible in the circumstances, the precise doctrinal basis for the conclusion raises interesting questions.

The parties were husband and wife.  The wife was considerably wealthier than the husband.  During an effort to save the marriage, they had entered into a domestic contract.  It appears that the contract was intended to provide that, upon marriage breakdown, the husband would receive 50% of the value of the matrimonial home.  Unfortunately, owing to an apparent drafting error, the contract instead stated that the husband would receive 100% of the value of the home.

When the marriage broke down, the husband attempted — at trial–  to enforce the contract as drafted.  Instead, the trial judge ordered that the entire matrimonial contract was void because it was unconsionable, did not represent a true meeting of the minds, and should be set aside under the provincial Family Law Act.

On appeal, the  husband changed course entirely.  Concluding that “half a loaf” was better than none, he took the position that the marriage contract should be saved by being re-written to reflect what he now claimed was the parties’ true agreement — i.e., that he should received 50% of the value of the home.

More specifically, the husband asked the Court of Appeal to grant the extraordinary equitable remedy of rectification (i.e., the judicially ordered, retroactively effective rewriting of a document so that it reflects the parties’ true bargain).

Perhaps not surprisingly, the Court of Appeal dismissed the husband’s request out-of-hand.

One might have expected the Court to explain that, as a discretionary equitable remedy designed to achieve fairness and justice, rectification was simply unavailable to a party who had knowingly sought to take advantage of the drafting error.  Interestingly, while that may have been a factor in the Court’s thinking, that was not the focus of the Court’s conclusion:

[8]          In our view, on this record and in the light of the position he took at trial, the remedy of rectification is not open to the appellant on appeal. If accepted, it would permit the appellant to take a fundamentally different position on appeal, one that is completely inconsistent with the position he took and the evidence he led at trial. To do so would be fundamentally unfair to the respondent.

[9]          ….The trial judge found as fact that the appellant was aware of the drafting error and that he knew that it needed to be clarified. The appellant refused to take steps to make the clarification and continued to insist that the agreement should be enforced as written. Simply put, he cannot ask this court to rectify an agreement to reflect terms he swore he did not agree to.

Thus, in addition to providing an interesting (albeit implicit) example of the maxim that a party who seeks equitable relief must come to court with “clean hands,” the case may also be seen as representing an example of the estoppel doctrine sometimes called “the principle of approbation and reprobation” (i.e., a party with two inconsistent legal options, who clearly elects to pursue one, will generally be precluded from later resiling from that position, and seeking to pursue the second, inconsistent alternative in a proceeding).

The McCarthy Tétrault Opinions Group consists of members of the firm’s litigation department whose practices focus on written advocacy and the provision of strategic advice and opinions in the context of complex business disputes and transactions. The members of the Opinions Group are Anthony Alexander, Martin Boodman, Brandon Kain, Hovsep Afarian and Kirsten Thompson.

The Supreme Court of Canada issued one decision of interest to Canadian businesses and professions this week.

In Behn v. Moulton Contracting Ltd., 2013 SCC 26, the Court affirmed the B.C. Court of Appeal’s finding that the Behns, as individual members of an Aboriginal community, did not have standing to assert collective rights in their defence, as only the community could raise such rights.

The Crown granted logging licences to a forest company to harvest timber in two areas on the territory of the Fort Nelson First Nation in British Columbia. The licences were opposed by George Behn and individual family members, who set up a blockade camp on the road leading to the area allocated for harvest.

The company brought a tort action against the individuals, who argued in their defences that the timber licences were void because they had been issued in breach of the constitutional duty to consult and because they violated their rights under Treaty 8.  The logging company filed a motion to strike these defences.

The court below held that the individual members of the Aboriginal community did not have standing to assert collective rights in their defence; only the community could invoke such rights.  The appeal court also concluded that such a challenge to the validity of the licences amounted to a collateral attack or an abuse of process, as the members of the community had failed to challenge the validity of the licences when they were issued. For further discussion of the decision of the Court  of Appeal, see the previous blog entry here.

The Supreme Court dismissed the appeal, holding that the duty to consult exists to protect the collective rights of Aboriginal peoples and is owed to the Aboriginal group that holds them.  The Court acknowledged that an Aboriginal group could authorize an individual or an organization to represent it for the purpose of asserting its Aboriginal or treaty rights, but that that was not the case here.

The Court also acknowledged that certain Aboriginal and treaty rights may have both collective and individual aspects, and it may well be that in appropriate circumstances, individual members could assert such rights.  It was suggested that where there was a connection between the rights at issue and a specific geographic location within the First Nation’s territory, individual community members could have a greater interest in the protection of the rights on their traditional family territory than do other members of the First Nation, and that this connection may give them a certain standing to raise the violation of their particular rights as a defence to a tort claim.  However, the Court declined to issue a definitive pronouncement in this regard and left the door open for a future case.

Regarding the allegation of abuse of process, the Court found that neither the First Nation nor the community members had made any attempt to legally challenge the licences when the Crown granted them. In the Court’s view, to now allow the members to raise their defence based on treaty rights and on a breach of the duty to consult at this point would be tantamount to condoning self-help remedies and would bring the administration into disrepute.  It would also amount to a repudiation of the duty of mutual good faith that animates the discharge of the Crown’s constitutional duty to consult First Nations.

The facta of the parties may be found here, and a webcast of the oral argument is available here.

The McCarthy Tétrault Opinions Group consists of members of the firm’s litigation department whose practices focus on written advocacy and the provision of strategic advice and opinions in the context of complex business disputes and transactions.  The members of the Opinions Group are Anthony Alexander, Martin Boodman, Brandon Kain, Hovsep Afarian and Kirsten Thompson.