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.

When will a contractual provision purporting to shorten a statutory limitation period be effective?  The Ontario Court of Appeal addressed this issue in its recent decision in Boyce v. The Co-Operators Insurance Company, 2013 ONCA 298.

The facts of the Boyce are straightforward.  The owners of a fashion boutique suffered loss as a result of a foul odour in their business premises on October 20, 2010.  They sued their insurer in February 2012 – more than a year after suffering the underlying loss – seeking indemnification for the loss.

The owners’ insurance policy contained a clause which stated that:  “Every action or proceeding against the insurer for recovery of any claim under or by virtue of this contract is absolutely barred unless commenced within one year after the loss or damage occurs.”  (This clause was intended to contractually incorporate a statutory condition that applies to other types of policies).

The insurer sought to summarily dismiss the claim, based on the expiry of this contractual limitation period.  The motion judge dismissed the summary judgment motion. He did so by, among others things, ruling that a contractual provision that shortens the statutory limitation period (in Ontario’s Limitations Act, 2002) can only be effective if various pre-conditions are met, namely, such a provision must:

(i)            make specific reference to the statutory limitation period;

(ii)           use clear and unequivocal language that the parties were intending to vary the statutory protection;

(iii)          clearly alert the insured that they were foregoing a statutory right to a longer limitation period; and

(iv)         be signed by the person(s) foregoing such a right in order to make clear that he/she understands the forfeiture of that statutory right.

The Court of Appeal reversed the decision of the motions judge, giving effect to the contractual limitation period and dismissing the insureds’ claim.  The Court of Appeal expressly rejected these preconditions to the enforceability of a contractual limitation period clause, stating that nothing in the language of the Limitations Act supported the imposition of such conditions (at para. 16).

In order to be valid, the Court of Appeal stated (at para. 20) that a contractual limitation period provision must (assuming it is found in a “business agreement”, as it was in the instant case, rather than in an agreement that is for “personal, family or household purposes”) simply:

“[I]n ‘clear language” describe[] a limitation period, identif[y] the scope of the application of that limitation period, and exclude[] the operation of other limitation periods.”

As these requirements had been met in this case, the contractual limitation period was given effect and the case dismissed.

The decision in Boyce is an important one which gives effect to the legislative intention to permit the shortening of limitation periods in business agreements. The Court was reluctant to import conditions into the validity of such contractual clauses that were not found in the legislative text.  The types of safeguards rejected by the Court of Appeal are more suited to the consumer context, and consumers who enter into agreements for personal, family or household purposes are already precluded from forfeiting the benefit of a longer statutory limitation period in the Limitations Act.

Can a defendant be liable for failing to warn about a risk which does not materialize, where this leads the plaintiff to be injured by a second undisclosed risk that, unlike the first, would not have influenced the plaintiff if disclosed?  In Wallace v. Kam, [2013] HCA 19, released today, the High Court of Australia answered no.  The decision in Wallace could prove to be an important one for Canadian defendants who are frequently targeted with failure to warn claims, particularly in the context of product liability class actions and medical negligence disputes.

Background

The Wallace litigation involved a claim by the plaintiff, Mr. Wallace, against a neurosurgeon, Dr. Kam.  As a result of a surgical procedure performed by Dr. Kam, Mr. Wallace suffered a condition known as “bilateral femoral neurapraxia”, which consisted of temporary local damage to nerves on his thighs.

Mr. Wallace’s claim was originally dismissed at trial.  Harrison J. found that although Dr. Kam negligently failed to warn Mr. Wallace of the risk of neurapraxia, he would have chosen to undergo the surgery even if the risk was disclosed.  In response, Mr. Wallace argued that Dr. Kam also negligently failed to disclose the risk of paralysis, and that even though he did not suffer paralysis, he would have decided against the surgery had he known about it.

This argument was rejected by both Harrison J. and the majority of the New South Wales Court of Appeal.  They found that Dr. Kam’s failure to warn of the risk of paralysis could not be the legal cause of Mr. Wallace’s neurapraxia.

The Wallace Decision

The judgments below were unanimously affirmed by the High Court of Australia.  It concluded that although Dr. Kam’s failure to warn Mr. Wallace of the risk of paralysis was the factual (or “but for”) cause of his neurapraxia, it should not be regarded as the legal cause based on considerations of policy:

… The duty of a medical practitioner to warn the patient of material risks inherent in a proposed treatment is imposed by reference to the underlying common law right of the patient to choose whether or not to undergo a proposed treatment. However, the policy that underlies requiring the exercise of reasonable care and skill in the giving of that warning is neither to protect that right to choose nor to protect the patient from exposure to all unacceptable risks. The underlying policy is rather to protect the patient from the occurrence of physical injury the risk of which is unacceptable to the patient. It is appropriate that the scope of liability for breach of the duty reflect that underlying policy. (para. 36)

Based on these considerations, the High Court concluded:

… The normative judgment that is appropriate to be made is that the liability of a medical practitioner who has failed to warn the patient of material risks inherent in a proposed treatment “should not extend to harm from risks that the patient was willing to hazard, whether through an express choice or as found had their disclosure been made.” (para. 37)

Significance

The Wallace decision suggests that the scope of liability for failure to warn of a particular risk does not extend to a different risk which the plaintiff either accepted, or would have accepted had it been revealed.  Although the High Court’s decision was based upon the distinction between factual and legal causation in the New South Wales Civil Liability Act, the same distinction has been drawn at common law by the Supreme Court of Canada (see, e.g., Mustapha v. Culligan of Canada Ltd., [2008] 2 SCR 114).

Assuming Wallace were to be adopted in Canada, it could have an important limiting effect in failure to warn claims against medical professionals.  In addition, it could prove significant in product liability class actions alleging failure to warn, since it underscores the complexity and individual issues that can be involved in decision and injury causation inquiries.  It will therefore be interesting to see how Wallace is received by Canadian courts.

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.

When is a fraudulent and negligent tortfeasor a “concurrent wrongdoer”? In Hunt & Hunt Lawyers v. Mitchell Morgan Nominees, the High Court of Australia has clarified the definition of a concurrent wrongdoer finding that liability can be apportioned under Part 4 of the Civil Liability Act where the damage caused by one or more concurrent wrongdoers is the same. The reasoning behind the apportionment of loss made by the court is instructive on the meaning of concurrent wrongdoing with potential application to other common law regimes.

Background

Angelo Caradonna and Alessio Vella entered into a business venture and together opened a joint bank account taking possession of shares of three properties. Mr. Vella obtained possession of the certificates of title and forged Mr. Caradonna’s signature to obtain a mortgage from Mitchell Morgan. The forgery was certified by Mr. Flammia, Mr. Caradonna’s cousin and solicitor (Mr. Flammia and Mr. Caradonna are defined collectively by the Court as the “fraudsters”). Hunt & Hunt Lawyers (“Hunt & Hunt”) acted as Mitchell Morgan’s solicitor on the transaction. Subsequently, Mitchell Morgan advanced $1,000,748.85 to the account of Mr. Caradonna & Mr. Vella, which was withdrawn by Mr. Caradonna alone. At the time the proceedings were instituted, the fraudsters were bankrupt.

Australia’s Civil Liability Act is distinct from the concurrent liability regime that exists in Canada’s common law provinces. For example, Section 1 of Ontario’s Negligence Act states that concurrent tortfeasors are jointly and severally liable to the plaintiff. The legislative regimes that exist in each of Canada’s other common law provinces similarly hold concurrent tortfeasors to be jointly and severally liable. In contrast, Section 35(1) in Part 4 of the CLA limits a defendant’s liability to a successful plaintiff to the defendant’s proportionate liability, as determined by the court. Under Section 34(2), a “concurrent wrongdoer” is defined as “a person who is one of two or more persons whose acts or omissions (or act or omission) caused, independently of each other or jointly, the damage or loss that is the subject of the claim”.

At first instance, Young CJ in Vella v Permanent Mortgages Pty Ltd [2008] NSWSC 505 held that the fraudsters and Hunt & Hunt were together concurrent tortfeasors under Part 4 of the CLA, the latter for breaching the duty of care owed to Mitchell Morgan by failing to include a covenant to repay a stated amount when preparing the mortgage documents. Mitchell Morgan’s claim against Hunt & Hunt was found to be an apportionable claim limited to 12.5% of Mitchell Morgan’s loss.

The New South Wales Court of Appeal overturned Young CJ’s decision in Mitchell Morgan Nominees Pty Ltd v. Vella [2011] NSWCA 390, holding that the fraudsters and Hunt & Hunt were not concurrent wrongdoers. While the fraudsters were found to have caused Mitchell Morgan to advance loan funds, Hunt & Hunt was found to have denied Mitchell Morgan the benefit of security for the money paid out. The damage caused by Hunt & Hunt was found to be distinct from that caused by the fraudsters.

The Decision

In its decision, the High Court focused its analysis on two questions:

1. What is the damage or loss?
2. Did the acts of any person, other than the defendant, cause the damage or loss?

The court found that the damage forming the subject of a claim is distinct from “damages” ultimately awarded by the court as compensation. The Court confirmed that the damage suffered by Mitchell Morgan under s. 34(2) of the CLA was its inability to recover the monies loaned. The Court’s decision is distinct from the finding made by the Court of Appeal that Mitchell Morgan suffered two forms of damage (1) harm to its economic interests by paying out money when it would not otherwise have done so and (2) not having the benefit of security for the money paid out. The Court held that these statements identify the effects of the fraudsters’ conduct, but do not properly identify the damage suffered by Mitchell Morgan. In the Court’s conclusion, the acts of both the fraudsters and Hunt & Hunt were found to result in the same damage to Mitchell Morgan. In addition, the Court held that the conduct of the fraudsters led to the creation of the mortgage documents and thus was a contributing material cause to the ultimate damage suffered.

The Court confirmed that it is not a requirement of proportionate liability that the actions of one concurrent wrongdoer contribute to the negligence of another concurrent wrongdoer as long as each are found to have materially contributed to the damage suffered. In determining causation, the Court held that it is accepted that value judgments and policy considerations be considered to determine whether an act is sufficiently causative of the plaintiff’s damage. Once causation of a concurrent wrongdoer is established in accordance with s.34(2), more extensive value judgments must be made by the court under s. 35(1) to determine the extent of each defendant’s responsibility.

In conclusion, the Court held that Hunt & Hunt and the fraudsters were both concurrent wrongdoers as both materially contributed to the damage caused. However, the Court found that Hunt & Hunt could not have foreseen the fraudsters’ forgery and that it was inconsistent with Part 4 that Hunt & Hunt be held wholly responsible for the damage given the fraudsters’ conduct. The Court held that Hunt & Hunt should be responsible only for the share for which it was found responsible by the trial judge (12.5%). Special leave to appeal interest, awarded in accordance with the contract by the Court of Appeal, was denied.

The dissenting minority concluded that Hunt & Hunt was not a concurrent wrongdoer, that the damage caused by the actions of the fraudsters and Hunt & Hunt were distinct and that the Court of Appeal was correct to hold that that the fraudsters did not cause the economic loss – the lack of security – that was the subject of the claim by Mitchell Morgan against Hunt & Hunt.

Potential Significance

Acknowledging that the statutory framework in Australia distinguishes Australian negligence law from that which exists in Canada, this case is nonetheless instructive on the meaning and interpretation of concurrent wrongdoing. It may be relevant to provisions such as s. 138.6 of the Ontario Securities Act which creates a proportionate liability regime for secondary market misrepresentations absent fraud. In addition, the Court’s reasoning may be helpful to courts when grappling with multifactorial causation questions including the concepts of joint concurrent tortfeasors, several concurrent tortfeasors, joint non-concurrent tortfeasors and several non-concurrent tortfeasors. Finally, given the ever increasing costs of liability insurance in Canada, the statutory regime in Australia regarding proportionate liability could foreshadow action taken by legislators in Canada to control this rising cost.

Case Information

Hunt & Hunt Lawyers v. Mitchell Morgan Nominees Pty Ltd, [2013] HCA 10

Date of Decision: April 3, 2013