Western Canada Business Litigation Blog

How should a Strata Deal with the Owner from Hell? - Part 3

Peter Roberts — Tue, 21 May 2013 09:15:08 -0800

In my January 2012 and July 2012 blog posts, I discussed the ongoing saga of the Jordisons, arguably the epitome of strata owners from hell. For a period of years, the Jordisons continually behaved in an obnoxious and outlandish manner towards their neighbors. To try to stop them, the strata council levied fines totaling over $20,000 for their ongoing and flagrant breaches of the strata bylaws and rules. This did not work.

The strata council then sought the assistance of the court. The case was significant because, for the first time in B.C., the court ordered the Jordisons’ strata unit sold. In doing so, the court relied on s.173 the Strata Property Act, R.S.B.C 1998, c. 43 (the “SPA”) which provides:

On application by the strata corporation, the Supreme Court may do one or more of the following:

(a) order an owner, tenant or other person to perform a duty he or she is required to perform under this Act, the bylaws or the rules;

(b) order an owner, tenant or other person to stop contravening this Act, the regulations, the bylaws or the rules;

The court held that the authority to order a sale was implicit in s.173(c) as the only reasonable means of solving the problems created by the Jordisons. The court also imposed an injunction prohibiting the Jordisons from violating the strata bylaws and rules and from “making loud noises . . ., making obscene gestures or uttering any abusive or obscene comments directed at any member” of the strata.

The Jordisons appealed. The Court of Appeal set aside the order requiring the sale of the strata unit though left in place the mandatory injunction prohibiting the Jordisons from behaving badly. The Court of Appeal held that s.173(c) is intended only to enhance the efficacy of the two preceding subsections and is not, on its own, a source of authority to order a sale. Subsections 173(a) and (b) allow the court to order mandatory or prohibitory orders against someone regarding their obligations under the SPA, the strata bylaws or rules. Those types of orders do not include an order for sale, at least not at first instance.

While there motive was unlikely the elucidation of neat legal issues such as this, the Jordisons ended up back in court to provide an answer to that question. Undeterred by the fines and court orders intended to moderate their behavior, the Jordisons continued to behave badly. The strata council applied to have them found in contempt of court and for an order that their strata unit be sold. After reciting a litany of ongoing, obnoxious behavior, the court found that the Jordisons were in contempt for “intentionally, willfully, and in a blameworthy fashion disobey[ing] the order of this court.”

Ordinarily, a finding of contempt leads to fines and/or jail. In this case, however, the court reasoned that past fines had gone unpaid and a stint in jail would only temporarily solve the problem while the Jordisons were actually incarcerated. The difficulties would continue once they returned. In addition, incarceration is generally warranted for “only the most egregious contempt.” The only solution, therefore, was to invoke the auxiliary authority of s.173(c) and order the sale of the Jordisons’ strata unit. This was justified as a means of “giving effect” to the earlier injunction granted under s.173(a) of the SPA. The Jordisons were ordered to vacate their strata unit and given 30 days to sell it. If they did not sell it in that time period, the strata council would be given conduct of the sale. The RCMP were ordered to arrest the Jordisons if they did not comply. Lastly, the strata council was granted its “special costs” of the application against the Jordisons.

For reasons mentioned below, the Jordisons saga is not quite over. However, the lesson for strata councils is to seek the assistance of the courts sooner when faced with objectionable behavior by tenants or owners. Document well the impugned conduct and the strata’s efforts to address the problem. In the face of this type of evidence, the court will grant a mandatory injunction requiring the bad strata occupant to behave. This is effectively a warning by the court to act civilly or else. If the poor conduct continues, the court will order the strata unit sold as the only practical method of remedying the situation where earlier orders have been ignored.

The caveat is that, yet again, the Jordisons appealed. That appeal has yet to be heard but, in the meantime, the Jordisons asked the Court of Appeal to suspend the order that they vacate their strata unit and that it be sold. The Court of Appeal ordered only a stay of the sale pending the appeal. It did not set aside the order that the Jordisons vacate their unit because “the Court can have no confidence that the appellants will restrain themselves from further harassment of other occupants of the condominium building pending the appeal.”

My view is that the Jordisons’ appeal will ultimately be dismissed and their unit sold. From the sale proceeds, the strata council will finally recover all the fines and its special costs. The Jordison saga will be over (for this strata) and will leave in its wake strong appellate authority that, in the right circumstances, persistently anti-social and intransigent owners can be kicked out of a condominium complex and their unit sold.

Is it a Fixture or is it a Chattel?

Peter Roberts — Wed, 01 May 2013 17:18:11 -0800

Posted by Peter Roberts

Landlords, tenants and law students all wrestle over what it means for something to be a fixture as opposed to a chattel. It matters to landlords because, at the end of a tenancy, fixtures can become their property and enhance the land value. It matters to tenants because they risk losing valuable assets installed on the premises as part of their business. It matters to law students because, on their real property exams, they are frequently asked to write intelligently on a legal test that seems straight forward but, in its application, has bedeviled both litigants and courts.

While most commercial leases or property sale agreements contain express terms dealing with this subject, there are occasions where a tenancy ends or a property is sold that brings a fight over what may be removed and what must stay with the land. This generally arises where the written lease or property sale agreement is either ambiguous or silent on the subject or, in some cases, where there is no written agreement at all. The legal test for determining whether an object is a chattel or a fixture is well settled. It was articulated at the turn of the last century in cases such as Stack v. T. Eaton Co. (1902), 4 O.L.R. 335 (Ont. Div Ct.). That test has repeatedly been adopted in British Columbia[1] and is articulated as follows:

Articles not otherwise attached to the land than by their own weight are not to be considered as part of the land, unless the circumstances establish that they were intended to be part of the land.
Articles affixed to the land even slightly are to be considered part of the land unless the circumstances establish that they were intended to continue as chattels.
The circumstances necessary to alter this primâ facie character of the objects are the degree of annexation and the object of such annexation, “which are patent to all to see”.
The intention of the person affixing the object to the soil is material only so far as it can be presumed from the degree and object of the annexation.

More colloquially, the test has been expressed as “whether annexation of equipment was for the better use of the equipment or for the better use of the realty to which the equipment was annexed”: Heathron Developments Ltd. v. Kemp Concrete Products, (1999) 56 B.C.L.R. (3d) 284 (B.C.C.A).

Making sense of this test depends entirely on the facts of each case. A recent decision, Monical v. 0793545 B.C. Ltd., 2013 BCSC 25, provides an example. Here, the vendors of a ranch sought to recover a variety of items they had used to operate their ranch before they sold it. The items included 124 concrete feed troughs, three augers, a roller mill and a Hi-Hog cattle handling system. The contract was ambiguous about what was and what was not included in the sale. The new ranch owners wanted to keep these things and opposed the request for their return. They pointed out that most of the items were both affixed to the land in some way (i.e., bolted, welded or cemented in place) and were necessary for the better use of the land as a ranch, rather than the better use of the individual items themselves.

In reasoning that, quite frankly, could have gone either way, the Court found that the disputed items were chattels and remained the vendors’ property. For each particular object, the court reasoned that, though affixed to the land in some way, they were either not that affixed and/or were so for their own better use rather than the better use of the land. For example, here is what the court wrote of the roller mill and augers:

. . . the rollermill and the augers were easily moveable. The bolts and hard wiring and other connections annexing [them] to the structure are simple to disconnect and allow for their easy removal. . . . while the rollermill and the augers are attached to the land, . . . these are relatively minor attachment systems. I conclude that the annexation of the rollermill and augers were for the better use of the grain grinding system, not for the better use of the land to which the system was annexed. I find that the annexation of the rollermill and the augers were for the better use of the grain breaking system, not for the better use of the land to which the items were annexed. I find the rollermill and the augers were chattels . . .

It would not have been difficult for a court to go the other way and find that these items were affixed to the land (making them prima facie fixtures) and were for the better use of the land as a ranch rather than the individual pieces of equipment for their distinct purpose. A possible clue to the outcome was that the vendors (two couples) had originally been compelled to sell their ranch by court order when they had a falling out. The Court may not have wanted the purchaser to benefit from the unfortunate demise of a previously successful ranch.

An example of a case that could also have gone either way but went the other is Westshore Terminals Ltd. v. British Columbia, 1999 CanLII 6069 (B.C.S.C.). Westshore operates a coal terminal that includes very large shiploaders and stacker-reclaimers. This equipment is mobile and rests by its own weight on railway tracks. The government concluded they were all chattels and, therefore, the maintenance and repair costs were subject to taxation under the Social Services Tax Act. On an appeal by Westshore, the court held that the shiploaders and stacker-reclaimers were not chattels but fixtures and, therefore, not subject to taxation. The court reasoned that these pieces of equipment were:

. . . connected to the land by their own weight as guided with wheel flanges, by the power cable, and by the threading of the conveyor belt through them. They are, . . ., attached to the land. The degree of that attachment is significant given the magnitude of a dismantling task and the size of the structures. Further, without them the thirty-six gauge and sixty gauge rail lines are useless. The degree of attachment of these structures encompasses the attachment of the rail to the land and the fact that the rails exist only to carry the stacker-reclaimers and the shiploader.

Underlying this reasoning may have been the premise that taxing repair and maintenance costs on expensive, large and purpose built equipment may have served as a disincentive to carry out those tasks and create a dangerous situation.

While these two illustrations are not landlord/tenant cases (and therefore do not touch on the issue of “tenant’s fixtures”), their articulation of the chattel/fixture test is equally applicable in the context of tenancies, whether residential or commercial. If you want to keep things you have installed on land you either lease or are about to sell, it would be wise to get the agreement of your landlord or purchaser up front. With a landlord, make sure your rights to do so are protected in the lease by, for example, including a “tenant’s fixture” clause. With a purchaser, make sure you set out in the contract of purchase and sale the items that are excluded from the sale price. Failing that, you may face a dispute over the nature of the objects that are both valuable and critical to your business. That is a dispute which, based on past case-law, could go either way.

[1] For example, see La Salle Recreations Ltd. v. Canadian Camdex Investments Ltd. et al, [1969] 4 D.L.R. (3d) 549 (B.C.CA.), and Turismo Industries Ltd. and Western Prospectors Ltd. v. Kovacs et al., [1976] 72 D.L.R. (3d) 710 (B.C.C.A).

BC Court of Appeal Acknowledges Independence of the Bar as a Principle of Fundamental Justice

Ron Skolrood — Tue, 23 Apr 2013 15:46:20 -0800

Posted by Ron Skolrood

In October 2011 I wrote about the BC Supreme Court decision in Federation of Law Societies of Canada v. Canada (Attorney General), 2011 BCSC 1270 in which the Court held that provisions of the federal Proceeds of Crime (Money Laundering) and Terrorist Financing Act and related Regulations were constitutionally inapplicable to lawyers. Specifically, the Court held that provisions of the legislation requiring lawyers to collect and maintain confidential information about their clients, and their clients’ activities, violates section 7 of the Canadian Charter of Rights and Freedoms and cannot be saved under section 1 of the Charter.

The federal government appealed to the BC Court of Appeal which issued its Reasons for Judgment on April 4, 2013 upholding the decision (2013 BCCA 147). What is particularly interesting about the Court of Appeal decision is that while the Supreme Court decision (and earlier related decisions) were largely decided on the basis of a concern that the legislation does not adequately protect solicitor/client privilege, the Court of Appeal based its decision on the fact that the legislation interferes with the independence of the Bar, a value that the Court characterized as a principle of fundamental justice within the meaning of section 7 of the Charter. In coming to this conclusion, the Court of Appeal accepted the arguments of the Federation of Law Societies, supported by the Law Society of British Columbia, the Canadian Bar Association, the Chambre des Notaires du Québec and the Barreau du Québec, that the legislation puts lawyers in a position of conflict between the duty of loyalty owed to their clients and the obligation to the state created by the legislation. The various law bodies have argued all along that this conflict is untenable in that it undermines the independence of lawyers and therefore prejudices the proper administration of justice in Canada.

While the decision represents a victory for the legal profession, it is arguably of greater significance to the clients that we serve in that it recognizes that clients must be free to consult legal counsel and to speak fully and frankly with their lawyers in order to ensure that they receive proper legal advice.

The federal government is still considering whether it will seek leave to appeal to the Supreme Court of Canada.

B.C.'s New Emergency Intervention Disclosure Act

Peter Roberts — Wed, 10 Apr 2013 20:09:15 -0800

Posted by Peter Roberts

On March 2, 2013, the Emergency Intervention Disclosure Act, S.B.C. 2012, c. 19, was quietly enacted. This statute had been on the books since 2012 but not in force. The purpose of the Act is to authorize the involuntary sampling of bodily fluids where those samples are not being offered voluntarily. For example, it covers situations such as a police officer or medic being spat on while providing treatment to a homeless drug addict who may have HIV or hepatitis. The underlying concern is exposure to contagious diseases that may not immediately manifest themselves but that may require immediate preventative treatment.

The Act was originally met with criticism in the press and from special interest groups, largely on the grounds that it grants overly intrusive powers to violate the privacy and bodily integrity of “source individuals” without any practical benefit. Most first responders follow safety protocols, including getting vaccinations and peremptory treatment, long before any compelled blood test can be obtained to see whether, in fact, they were exposed to any risk.

The involuntary testing of a person’s bodily fluids is obtained under a “testing order”. To get such an order, the applicant must have “come into contact with a bodily substance of another individual” in certain circumstances. Presently, those circumstances are limited to contact “while providing emergency health services” or while performing duties as a first responder (i.e. firefighters, police, paramedics, etc.). Additional circumstances can be prescribed by regulation but none have been yet. There is some suggestion it may be extended to victims of crime.

The application is made to the Provincial Court. It must be made within 30 days of the alleged contact. Generally, the “source individual” must be given four days’ notice of the application. This notice requirement can be waived where it is either “impossible or impracticable”. To obtain a testing order, it must be proven that:

a) there are reasonable grounds to believe that the applicant has been exposed to “a pathogen that causes a prescribed communicable disease”;

b) analyzing the applicant’s bodily fluid will not determine any infection in a timely manner;

c) obtaining a sample will not endanger the life or health of the source individual;

d) there is no reasonable alternative to obtain the needed information; and

e) the testing order is necessary to decrease or eliminate the health risk to the applicant.

The opinion of a physician on the medical issues is required. If ordered, the sampling is done by a qualified analyst. The test results are given to the applicant’s physician and to the source individual’s physician (if they have one). The test results must remain confidential and there are fines for any breach of confidentiality.

While this legislation makes for good optics and publicity, only time will tell whether it is of any practical benefit. On its face, it only applies to a limited number of possible applicants. Similar legislation in Alberta is rarely used. As a practical matter, it may often be difficult to find the “source individual” to do the testing on, let alone serve them with the application.

Supreme Court of Canada Strikes Balance Between Freedom of Expression and Suppression of Hate Speech

Ron Skolrood — Thu, 14 Mar 2013 14:17:34 -0800

Posted by Ron Skolrood

In the realm of Canadian human rights law, few topics have generated as much discussion and controversy in recent years as the “hate law” provisions found in many human rights statutes. These provisions typically prohibit the publication of statements that have or are likely to have the effect of exposing a person or class of persons to ridicule and hatred.

Defenders of these provisions argue that they are necessary in order to protect vulnerable persons and groups in our society whereas critics decry them as an unwarranted attack on freedom of expression. The debate illustrates the challenge that often arises in constitutional litigation where the court is called upon to strike a balance between competing rights and values.

In its recent decision in Saskatchewan (Human Rights Commission) v. Whatcott, 2013 SCC 11, the Supreme Court provides some guidance as to how this delicate balance will be struck.

The case involves complaints filed with the Saskatchewan Human Rights Commission concerning four flyers published and distributed by William Whalcott, an avowed anti-homosexual activist. Two of the flyers were entitled “Keep Homosexuality out of Saskatoon’s Public Schools” and “Sodomites in our Public Schools.” The other two flyers in issue were copies of personal ads published in local newspapers with anti-homosexual handwritten notes added. Four individuals who received the flyers at their homes filed complaints with the Commission alleging that the flyers promoted hatred against them because of their sexual orientation, in violation of the Saskatchewan Human Rights Code.

The relevant provision of the Code, section 14(1)(b), which is similar to provisions found in other provincial human rights statutes, prohibits the publication of any statement or representation that “exposes or tends to expose to hatred, ridicules, belittles or otherwise affronts the dignity of any person or class of persons on the basis of a prohibited ground.”

A tribunal appointed by the Commission to hear the matter found that the flyers violated s. 14(1)(b). The tribunal further held that section 14 of the Code was a reasonable limit on Mr. Whalcott’s freedom of expression and freedom of religion as guaranteed by ss. 2(a) and (b) of the Canadian Charter of Rights. The Saskatchewan Court of Queen’s Bench upheld the tribunal decision. On further appeal to the Saskatchewan Court of Appeal, the Court agreed that the provision of the Code was constitutional but found that the flyers did not contravene it.

Three issues were before the Supreme Court of Canada: first, does s. 14(1)(b) of the Code violate ss. 2(a) and (b) of the Charter; second, if so, is the infringement demonstrably justified under s. 1 of the Charter; and third, if the provision is constitutionally sound, was the tribunal correct in finding that the flyers violate that provision.

The Court had little difficulty in finding that s. 14 offends both ss. 2(a) and (b) of the Charter. The types of statements in issue, while repugnant, nonetheless have expressive content that brings them within the freedom of expression guarantee. To the extent that such expression is motivated by sincerely held beliefs, it will fall within the guarantee of freedom of religion and conscience in s. 2(a).

The issue thus fell to be decided under s. 1 of the Charter. The section 1 analysis requires the government, in seeking to justify an otherwise offensive law, to establish that it is a proportionate response to a pressing and substantial societal concern. As did the courts below, the Supreme Court found that section 14 could be saved, subject to one exception that I will return to below.

The Court found that the objective of the legislation is pressing and substantial in that it is aimed at addressing the causes of discriminatory activity in order to reduce the harmful effects and social costs of such discrimination. The Court also held that the legislation is a proportionate response to that objective in that it only prohibits public communication of hate speech, rather than private expressions, and it only applies to speech that rises to the level of subjecting a whole group or class of persons to hatred rather than simply impugning an individual.

Further, the Court noted the distinction between the type of speech in issue and other forms of speech, for example political speech, that lies closer to the core of what the freedom expression guarantee is intended to protect:

“Political expression contributes to our democracy by encouraging the exchange of opposing views. Hate speech is antithetical to this objective in that it shuts down dialogue by making it difficult or impossible for members of the vulnerable group to respond, thereby stifling discourse.”

The one exception found by the Court was that the phrase “ridicules, belittles or otherwise affronts the dignity of” as found in s. 14 could not be saved in that such language did not rise to the same level as language that promotes hatred.

On the strength of its findings on the constitutional issues, the Supreme Court restored the tribunal’s decision with respect to the first two flyers but found that, with respect to the second two flyers, while the statements made were offensive they did not rise to the level of promoting hatred.

Critics of the hate speech legislation will no doubt be unhappy with the Court’s decision in that it maintains certain limits on free expression which they consider wholly unacceptable. Certainly, there is some merit to the view that the decision does not adequately make clear what types of expression will cross the line from being merely offensive to constituting prohibited hate speech nor does it clarify how the alleged harm resulting from impugned speech will be measured. Further, the Courts’ ruling that the sincerity of the underlying beliefs, including religious beliefs, that give rise to the offensive speech will not constitute a defence has also caused considerable consternation amongst free speech advocates.

That said, the Court has addressed one of the most significant criticisms of the legislation namely that it prohibits speech that has the effect of merely offending sensibilities or hurting people’s feelings. At a minimum, by striking out the references to “ridicule” and to “affronts to dignity” the Court has attempted to narrow the scope of the legislation and to restrict its application to instances in which the offending speech is likely to result in actual hatred towards vulnerable groups.

Infrastructure Construction v. Private Enjoyment of Land - the Supreme Court of Canada Weighs In

Craig Ferris — Fri, 08 Mar 2013 15:21:04 -0800

Posted by Craig Ferris

On March 7, 2013, the Supreme Court of Canada issued an important decision regarding the obligation of public authorities to compensate private landowners in circumstances where public infrastructure construction has interfered with the private use and enjoyment of land. In doing so, the Court ruled that a court must weigh the overriding public good occasioned by the infrastructure project against the severity of the interference with the landowner’s property in deciding whether compensation is owed.

In Antrim Truck Centre Ltd. v. Ontario, 2013 SCC 13, the appellant had operated a truck stop on Highway 17 in Ontario for approximately 25 years. In 2004, Ontario altered Highway 17 such that access to the truck stop was severely limited. The restriction on access to the truck stop ultimately put the appellant out of business.

The Supreme Court of Canada found that Ontario could be held liable under the Expropriation Act (Ontario) for injurious affection if the appellant could have successfully sued for damages caused by the construction under the law of private nuisance. A nuisance was determined to arise where there has been an interference with the landowner’s occupation or enjoyment of land that was both substantial and unreasonable. This is a two part test with the first part being a determination of whether the interference is “substantial” meaning “non-trivial” and the second part being a weighing of the interference suffered by the landowner against the utility of the act of the public authority. In this weighing process, the Court decided that the act of the public utility will generally outweigh even very significant interferences with a claimant’s land. It wrote that a claimant must prove that he or she has suffered from an interference that is more than the “give and take” expected of everyone and that the interference must be a disproportionate burden on them. The public authority is to be favoured where the landowner’s harm cannot be viewed as more than the claimant’s “fair share” of the costs associated with providing a public benefit.

In this appeal, the Court restored the original decision which held that the appellant’s permanent interference with its property and reduced market value was a disproportionate burden which was not outweighed by the greater public good occasioned by the highway construction. In doing so, the Court made an important finding that the type of harm suffered here – lack of access to the property from Highway 17 – was sufficient to support the claim.

With billions of dollars being invested on public infrastructure projects in Canada, this decision has deep implications for the public cost of such projects. While the words used by the Court suggest deference is to be given to reasonable interferences by public authorities, the facts of the case may suggest a broader willingness to compensate landowners.

Resolving Ambiguities in a Will

Peter Roberts — Tue, 19 Feb 2013 18:14:05 -0800

Posted by Peter Roberts

Despite the intentions of a testator and the best drafting skills of their lawyer, there are often occasions when there is an ambiguity or apparent error in the resulting will. These can be anything from small typographical mistakes through to directly conflicting descriptions of a testator’s assets, beneficiaries or wishes. The difficulty for an executor is trying to determine exactly what was meant in order to properly administer the estate. A failure to do so correctly may expose the executor to claims by disappointed beneficiaries. The executor’s task is not made any easier by the fact that, more often than not, there is a time lapse of many years between the date the will was originally drafted and the date the ambiguity is discovered. The testator is no longer around to ask and the executor is left to divine the true intent from the tea leaves of history.

One avenue of resolution is to seek the agreement of all the beneficiaries on the intended meaning. However, this is can be difficult to obtain as there is often a division of view over what was meant: a division frequently underscored by the prospect of financial benefit. In such cases, the only safe course open to an executor is to seek a declaration from the court on the construction of the will.

How will the court address such issues? A recent case provides a concise example. The testatrix owned a half interest in an apartment building which she left to one of her three adult children. Though the apartment building had a single civic address, it was actually comprised of four separate legal titles. The difficulty was that, in her will, the testatrix made reference to only one of the four parcel identifier numbers (PID) that formed part of each legal description for the land. Elsewhere, she had used the civic address and made reference to the fact it was four lots. She also set out reasons in her will why she favoured one child over the other two in bequeathing this half interest to that child.

Given the value of the apartment building, it is little surprise that the other two children challenged an interpretation of the will that saw their sibling inheriting the entire interest. They took the view that the bequest was ambiguous and either unenforceable or limited to one of the four legal titles. The result, they argued, was that the remaining three lots were part of the residue of the estate to which they were entitled to one third shares. The executor sought the assistance of the court.

When faced with such situations, the courts turn to well-established principles of construction. First, the court will look at the language used in the will itself to see if the intention of the testator can be determined. If that does not resolve any ambiguity, the court is entitled to look at the surrounding circumstances known to the testator at the time the will was drafted. This involves a consideration of evidence extrinsic to the will as an aid in construction. Such evidence is intended to explain what the testator has written, not what he or she intended to write. As a result, the court will only consider certain types of evidence. Admissible evidence includes things like a testator’s occupation and property; his or her financial situation; relationships with family and friends; and the natural objects of his or her grant in the will. Inadmissible evidence includes notes or statements of the testator as to intention, or instructions given to a lawyer in preparing the will. This distinction is intended to avoid other written or verbal statements of intent from hijacking or altering the intent expressed in the will. It is the will alone that governs.

In the apartment case, the court looked at extrinsic evidence to find there was no ambiguity in the will and that its proper construction saw the entire interest in the apartment go to one child. This was so because, despite the absence of three of the four PID numbers, the testatrix identified the property in the manner she always had: by the civic address. She also mentioned the existence of four lots and gave reason in the will why she favoured a single child with this bequest. The omission of three of the PID numbers was a “minor error”. An ambiguity would only exist if the testatrix intended to identify her property by using PID numbers, technical numbers of which the court found she was “unlikely to have any knowledge or understanding”. The inclusion of any PID numbers added no further necessary information to the will to make clear the testarix’s intent.

For any executor uncertain of a will’s meaning, this case demonstrates two things. First, you can look at what the deceased knew and how they conducted their affairs at the time the will was drafted to help resolve any ambiguity. Second, you can appropriately seek the assistance of the court to confirm that interpretation. Lastly, the cost of doing so is properly an expense of the estate, particularly where the beneficiaries are not all in agreement over the interpretation.

B.C. Supreme Court Rejects Auditor General's Application for Access to Basi/Virk Accounts

Ron Skolrood — Mon, 04 Feb 2013 10:17:41 -0800

Posted by Ron Skolrood

On January 29, 2013, Chief Justice Robert Bauman of the BC Supreme Court released his decision (2013 BCSC 98) rejecting an application by the BC Auditor General for sweeping access to information and documents relating to the provincial government’s payment of legal fees on behalf of Mr. Basi and Mr. Virk, two former government employees charged with criminal breach of trust for allegedly receiving bribes and other benefits in connection with the sale of BC Rail.

The lengthy saga that ultimately led to Mr. Virk and Mr. Basi pleading guilty to four charges of breach of trust in October 2010 is well known as the case, dubbed “Railgate” in the media, received considerable attention. Following the guilty pleas, public scrutiny shifted to the fact that the two men had their legal fees incurred in defending the charge paid by the government to the tune of (reportedly) $6 Million. The issue caught the attention of the Auditor General who launched an investigation. Ostensibly, the investigation was into the government’s general program for indemnifying employees (known as Special Indemnities), but there is no doubt that it was triggered by the Basi/Virk case given that it represented the largest single payout ever under the indemnity program.

The government cooperated with the Auditor General and had provided him with considerable information and records in its possession. In addition, the Auditor General had obtained access to further information through an earlier court application. However, Messrs. Basi and Virk continued to resist production of certain records including the contents of defence counsel’s files and unredacted copies of the relevant invoices. The argument advanced on behalf of Messrs. Basi and Virk was that the invoices and related documents would disclose information concerning legal advice and strategies and that the information was therefore protected by solicitor-client privilege.

For his part, the Auditor General argued that he was entitled to broad access to documents in order to conduct an audit or investigation pursuant to his governing statute, the Auditor General Act, S.B.C. 2003, c. 2. In particular, section 16 of the Act provides that:

“Despite any other enactment, the Auditor General, in the conduct of the Auditor General’s duties, must be given access to records, information and any explanations required from a person or organization for the Auditor General to exercise the powers and perform the duties of auditor General.”

In his submission, the words used in section 16 must be given their ordinary meaning and be construed as extending to materials and information otherwise subject to solicitor-client privilege because such access is necessary in order for the Auditor General to properly perform his required function.

In rejecting the Auditor General’s position, Chief Justice Bauman considered expert evidence as to what was necessary in order for the audit process to be valid and complete and whether access to otherwise privileged information was required to achieve that objective. He accepted the opinion of the former Provincial Auditor of Saskatchewan that all auditors encounter some difficulty in accessing information of various types and that absolute assurance is not attainable. Accordingly, the goal of the auditor is to reduce risk to the lowest level practicable. In Chief Justice Bauman’s view, that was an important consideration particularly in light of the fact that the Auditor General did have access to extensive information voluntarily produced by the government.

The determinative factor however for Chief Justice Bauman, was the need to respect, and protect, solicitor-client privilege. He noted recent Supreme Court of Canada authority where that Court again emphasized that solicitor-client privilege is fundamental to the proper functioning of our legal system and that it must be as close to absolute as possible. Chief Justice Bauman recognized that solicitor-client privilege can be abrogated by the legislature where it uses clear and unambiguous language to do so, however in his view, section 16 of the Auditor General Act does not meet that test. Absent language clearly directed at overriding privilege, the Chief Justice was not prepared to read or infer such an intent into the statute.

Recognizing that his decision might be viewed by some as inhibiting the Auditor General in his quest for transparency and accountability in government spending, the Chief Justice went to some length to explain why solicitor-client privilege must prevail. He said:

“Solicitor-client privilege, as the case law repeatedly reminds us, is fundamental to the proper functioning of our legal system. It is virtually an absolute privilege and must remain so. Properly understood, the privilege does not act as a shield, obscuring from view matters that should be publically aired.

…

Solicitor-client privilege is not a lawyer’s “trick” to avoid proper scrutiny of her client’s conduct of the steps taken on his or her behalf during the retainer, it is a critical civil right. All citizens must be able to freely discuss their legal positions with their lawyers and to take frank advice thereon, secure in the knowledge that this relationship-that between solicitor and client-is as sacred as any secular business relationship can be.

…

It would be wrong to conclude that the result in this case represents the triumph of secrecy over transparency and accountability. It rather represents the reaffirmation of a principle which is a cornerstone value in our democracy and which has been so for hundreds of years.”

It is hard to improve on the Chief Justice’s eloquent defence of solicitor-client privilege other than to note that it is a right that belongs to the client, not the lawyer, and that it is intended to provide equal protection to individuals such as Messrs. Virk and Basi, who have pled guilty in a highly public and highly political case, as well as to innocent people who have been wrongly charged.

This decision does not bring an end to the Auditor General’s investigation and he is still expected to prepare a report based upon the information in his possession. Regardless of what he finds, it is likely that the fall-out from Railgate will continue to be with us for a long time to come.

Supreme Court of Canada Overturns Indalex

Craig Ferris — Fri, 01 Feb 2013 10:32:31 -0800

Posted by Craig Ferris

Pension and insolvency lawyers have been waiting with great anticipation for the Supreme Court of Canada to rule in Indalex. The decision was released on February 1, 2013 and represents a major statement by Canada’s top court on the intersection of pension and insolvency law.

Indalex was the sponsor and administrator of two pension plans. It sought protection from its creditors under the Companies Creditors Arrangement Act, a federal statute (“CCAA”). During that process, it was authorized to obtain debtor in possession (“DIP”) financing and that financing was granted a priority over all other liabilities. Indalex sold its business during the court supervised process with the proceeds used to satisfy the DIP financing. The pension plan members challenged the priority of the DIP financing and argued that they had priority in the amount of the wind-up deficiency by virtue of a statutory deemed trust under the Pension Benefits Act (Ontario) (the “PBAO”) and a constructive trust arising from breaches of fiduciary duty by Indalex as administrator of the pension plans. The Ontario Court of Appeal ruled in the members’ favour and ordered that the plan wind-up deficiencies had priority over the DIP financing by reason of the deemed statutory and constructive trusts.

The Supreme Court of Canada allowed the appeal. In doing so, it held that with respect to one of the pension plans, the salaried plan, that a deemed trust arose for the wind-up deficiency under the PBAO. However, the priority granted for the DIP financing in the CCAA proceedings was made under a federal statute and thus was paramount over the deemed trust, which arose under a provincial law.

The Court went on to consider whether a breach of fiduciary duty occurred because the employer, acting in its management capacity, did something that had the potential to affect the beneficiaries of the pension plans of which it was the administrator. The Court held that employer was allowed to wear these “two hats’ by statute so that there was not a conflict of interest by simply acting in both roles. However, in this case, while seeking an order for CCAA protection did not on its face give rise to a conflict of interest, Indalex did act in a conflict of interest when is sought DIP financing without providing notice to the plan members. The failure to give notice meant the plan members did not have the opportunity to protect themselves with respect to the priority granted for the DIP financing. In the end, the court held that Indalex had a duty to advise the court of its potential conflict of interest in these circumstances and should have taken steps to address the conflict by, for example, appointing an independent administrator for the pension plans with respect to the DIP financing approval as well as the sale of the corporate assets and the order to enter bankruptcy.

While the Court’s statements on the law regarding conflicts in the CCAA context were meaningful, they did not ultimately lead to a remedy for the plan members as the Court ruled that the breach was not tied to any particular asset and, as a result, the remedy of a constructive trust was not appropriate.

In the end, the Court appears to have answered the question of how the DIP financing priority issue will be addressed when there are deemed statutory pension trusts or constructive trusts created in insolvency situations. In addition, the application of the conflict of interest duty and the procedures identified to address conflict facing pension plan administrators are sure to have an immediate impact on business in Canada and will likely extend beyond the insolvency context.

The "Interests of Justice" and the Civil Forfeiture Act: The B.C. Court of Appeal Weighs In...

Peter Roberts — Wed, 23 Jan 2013 14:38:23 -0800

Posted by Peter Roberts

Some time ago I blogged about the decision in B.C. (Director of Civil Forfeiture) v. Wolff. That case was something of a setback for the Director of Civil Forfeiture who had sought forfeiture from Mr. Wolff of his $52,000 truck. In November 2005, Mr. Wolff was arrested for possession for the purposes of trafficking. As a “favour”, Mr. Wolff was transporting a duffle bag of marijuana in his truck for an unnamed friend. In June 2007, shortly after buying out the lease on his truck, Mr. Wolff pled guilty and was sentenced to a one year conditional discharge.

Six months later (over four years after the original arrest), the Director commenced a civil claim seeking forfeiture of Mr. Wolff’s truck as the “instrument of unlawful activity”. Once it was proven the truck had been used in the commission of an offence, the Civil Forfeiture Act (“CFA”) compelled its forfeiture unless it “is clearly not in the interests of justice”. The onus to establish this is on the defendant. At trial, the Director’s claim failed only because the judge found that Mr. Wolff was entitled to relief from forfeiture. That decision was based on a number of considerations, including the Director’s delay in making the claim and the fact Mr. Wolff was a first time offender.

As a general observation, the Director has been very aggressive in seeking forfeiture in most cases, regardless of the underlying facts or equities. The Wolff decision represented a set back and created a precedent for legitimate opposition to the Director. Presumably grumpy over the loss, the Director appealed. In a victory for the “little guy”, the Court of Appeal recently upheld the result, though not agreeing entirely with the lower court’s reasoning. More importantly, this decision provides much needed appellate guidance on what to consider when determining whether forfeiture under the CFA “is not clearly in the interests of justice”. The case provides hope to all those facing a forfeiture claim by the Director.

The objectives of the CFA are to:

a) take the profit out of unlawful activity;

b) prevent the use of property to unlawfully acquire wealth or cause bodily injury; and

c) compensate victims of crime and fund crime prevention and remediation.

The Court of Appeal began its analysis by noting that the CFA does not require proof that a particular forfeiture will serve any one or more of these objectives. Once the Director establishes an asset is the “proceeds of unlawful activity” or an “instrument of unlawful activity”, the court “must order forfeiture, regardless of value, purpose, ownership or condition of the property, unless the offender shows that the order would clearly not be in the interests of justice”. In that context, the Court of Appeal turned to the specific grounds of the Director’s appeal.

The first ground was that the trial judge erred in inferring the Director deliberately delayed commencing the claim until after Mr. Wolff paid off his truck. The Court of Appeal agreed this was an error but noted that “inordinate delay . . . might be relevant to the ‘interests of justice’”. However, the fact the truck was not fully owned by Mr. Wolff at the time of the offence was not a bar to its subsequent forfeiture.

The second ground of appeal involved the nature of Mr. Wolff’s use of his truck in committing the offence. The trial judge accepted as relevant that the truck was not primarily used for unlawful purposes. The Court of Appeal held that the nature of use was irrelevant. The fact the truck had been “used to engage in unlawful activity” (even once) was all the CFA required to trigger forfeiture. However, the court noted it was not appropriate to hold a defendant responsible for the aggregate social costs of a particular criminal activity in order to justify forfeiture. The Director argued that the societal costs of the illegal drug trade was over $140 million annually. As the truck’s value was less than this, its complete forfeiture was justified. The Court of Appeal rejected this submission, noting the CFA’s purposes do not depend on drawing a direct connection between the property to be forfeited and the “diffuse harms” of criminal offenses. Instead, the focus should be on the specific asset and the individual circumstances of each case.

Finally, the Court of Appeal addressed the “interests of justice”. On appeal, the Director argued the CFA’s purposes were the overriding considerations and sought to diminish the scope and weight of other traditional elements. The Court of Appeal rejected this approach. They held that the “interests of justice” confers a “very wide discretion”, though it must be exercised judiciously. Relief from forfeiture in a civil context has been available in equity for centuries. In B.C., it is codified in section 24 of the Law & Equity Act. In the private law realm, usually in a contractual context, it affords a case-by-case consideration of competing rights in specific circumstances. That is quite different from forfeitures under a statutory regime, such as the CFA, which engages important public concerns as well as private rights. Courts must consider the statutory purposes in deciding whether to relieve from forfeiture and cannot grant relief if it subverts the statutory purposes.

Despite this, the Court of Appeal held that the “interests of justice” encompass considerations that are much broader than just the statutory purposes. The scope of these considerations cannot be exhaustively listed and are not subject to any prescribed limits. The relevant factors include proportionality, fairness, the applicant’s culpability, the extent of the social problems caused by the unlawful activity, the need to remove profit and motive from crime, general deterrence, the offender’s personal and family circumstances, and the reputation of the administration of justice. These are all to be applied under the overarching rubric of the “dominant principles” of proportionality and fairness.

In the final result, while the Court of Appeal found that the trial judge had made some errors of law, they rejected the harsh and inequitable propositions advanced by the Director. Rather than remitting the case back to the Supreme Court, the Court of Appeal exercised its discretion to uphold the result relieving Mr. Wolff from the mandatory forfeiture of his truck. They did so because Mr. Wolff was a first time offender and was “in the main a productive and law-abiding member of society”. His criminal conviction had serious consequences for him as he had lost his job as a fire captain. There was no evidence he had been involved in criminal activity either before or after this particular event, or that Mr. Wolff had made any profit. There was also no evidence the truck itself had ever been used for any other unlawful activity or that it had been purchased from proceeds of such activity. Indeed, the truck’s value greatly exceeded that of the marijuana found in it. As a result, the Court of Appeal concluded that the trial judge was not in error in concluding that “it would be manifestly contrary to the interests of justice to order forfeiture of all or part of the value of the truck”.

This decision should provide comfort to individuals caught up in a forfeiture claim by the Director. It firmly anchors the wide discretion available to courts to provide relief from such claims in appropriate circumstances. It signals that the courts will not necessarily accede to the Director’s claim for forfeiture. If the Director is demanding an unfair bargain to resolve a forfeiture claim, this decision illustrates that there is no certainty the Director will get that result in court. A defendant can now go to court with greater confidence that, if the circumstances warrant, they can avoid or ameliorate a forfeiture. As a result of this case, the playing field, while still tipped in favour of the Director, is a more level now than it was previously.