Western Canada Business Litigation Blog

Deceit and the enforceability of Exclusion Clauses

Posted in Commercial
Comment

It is common for contracts to contain exclusion clauses limiting the liability of one party in the event of a breach.  Professional service providers often seek to limit their liability to the fees paid to them.  Movers limit their exposure to the value of the goods transported.  Contracts for the sale of land generally cap a purchaser’s remedy for breach to the return of the deposit.  When, if ever, do courts disregard exclusion clauses?

Not so long ago, the Supreme Court of Canada set out the general legal principles on the enforceability of exclusion clauses.  As a general rule, exclusion clauses are enforceable unless it can be shown they are “unconscionable” at the time the contract was signed or are otherwise contrary to “public policy.”

The first question, therefore, becomes what is “unconscionable” and how do you prove it?  To establish unconscionability, you must prove two things: first, an inequality of position between the contracting parties; and, second, the existence of a “substantial unfairness in the bargain obtained by the stronger person.”

The second question is, if an exclusion clause is not “unconscionable,” is it contrary to “an overriding public policy.”

One instance where exclusion clauses will likely be found unenforceable is if there has been deceit.  Deceit is a knowingly making a false representation for the purpose of inducing another to act to their detriment.  The false statement does not need to be the sole inducement but must be a material factor in the subsequent conduct of the innocent party.  Is deceitful behavior sufficient to vitiate an exclusion clause?

The answer is: it depends.  Fortunately, the B.C. Court of Appeal recently gave reasons that, arguably, makes it easier to avoid exclusion clauses in cases involving deceit.  The case also provides a good example of occasions when corporate principals are precluded from hiding behind a corporate veil to avoid personal liability for their conduct.

Roy v. Kretschmer (a case with a tortured judicial history) is an illustration of the type of deceitful conduct that will vitiate an exclusion clause.  In this case, the conduct was post-contractual deceit by the principal of a real estate development company from whom the Roys thought they purchased some land.  The Roys were to get their lot once the subdivision was registered.  Matters were delayed.  Mr. Kretschmer kept telling the Roys this was because the authorities would not approve the subdivision.  The Roys did not learn the truth until a year later.  In fact, the Roys’ lot had been sold to another person who sued Mr. Kretschmer to get title to the land.  The delay in conveying the lot to the Roys was because of this, not because of any dispute over the subdivision.

For the Roys, this meant they did not get their lot and, given the rising real estate market, could not now afford to buy another property.  The Roys sued the development company for breach of contract and Mr. Kretschmer for deceit.

At trial, Mr. Kretschmer was found liable to the Roys in deceit and his company was found liable in breach of contract.  However, the trial judge held that the exclusion clause was not “unconscionable”.  Further, the trial judge found Mr. Krestschmer’s conduct, though deceitful, was not the type of “criminal behavior or  . . . egregious fraud” necessary to find an overriding public policy reason.  As a result, the exclusion clause remained valid and the Roys were limited to recovering their deposit, despite Mr. Krestschmer’s deceit.

The Court of Appeal disagreed.  Like the trial judge, they held Mr. Kretschmer’s conduct was unconscionable.  However, they refused to enforce the exclusion clause on the grounds of public policy.  As the agent of his company, Mr. Kretschmer’s deceitful conduct was also that of his company.  In order to vitiate an exclusion clause on public policy grounds, the conduct need not “approach criminal behavior or egregious fraud.”  The trial judge had set the bar too high.  The Court of Appeal found that it was contrary to public policy to allow a vendor to “hide behind the exclusion clause to avoid the effect of fraudulent conduct that masked its breach of contract and caused injury.”

Based on this case, any post-contract conduct that is fraudulent and deceives another, causing injury, will likely be sufficient to vitiate an exclusion clause.  Though the decision in Roy v. Kretschmer came out just before the Supreme Court of Canada’s ruling in Bhasin v. Hrynew, it is a good example of the newly articulated duty of honesty in contractual performance created by the Bhasin decision.  Deceit in the performance of a contract will expose you to a claim in damages that an exclusion clause cannot prevent.

BC Court of Appeal Rejects Anti-SLAPP Defence

Posted in Defamation
Comment

In a decision released November 10, 2014, the BC Court of Appeal rejected an attempt to create a novel common law defence in the law of defamation against so-called SLAPP suits. In Northwest Organics, Limited Partnership v. Maguire, 2014 BCCA 454, the court upheld the chambers judge’s decision and declined to radically change the law of defamation by introducing such a defence.

In the late 1980s, Professor George W. Pring and Penelope Canan, a sociologist, coined the term “Strategic Lawsuit Against Public Participation” (or “SLAPP suit”) in response to what they saw as an emerging trend in lawsuits where companies involved in land development or resource extraction would sue neighbourhood and environmental activists opposed to their projects. They defined a SLAPP suit as “a lawsuit involving communications made to influence a governmental action or outcome, which resulted in a civil complaint or counterclaim filed against nongovernment individuals or organizations on a substantive issue of some public interest or social significance” (George W. Pring and Penelope Canan, SLAPPS: Getting Sued for Speaking Out (Philadelphia: Temple University Press, 1996), pp. 8-9).

Many American States have enacted anti-SLAPP legislation, with each statute setting different mechanisms and scopes to the protection provided. In Canada, British Columbia briefly had anti-SLAPP legislation in 2001, in the form of the Protection of Public Participation Act, SBC 2001, c. 19, which was enacted by the NDP government in April and repealed by the Liberal government in August. Under that legislation, if the defendant could show that their publication was an act of public participation, then they would be protected by qualified privilege unless the plaintiff could prove actual malice. Even if the defendant was unsuccessful in striking out the claim at first instance, if it could convince the court that the claim had a “reasonable possibility” of being a SLAPP suit, the onus would shift to the plaintiff to prove at trial the claim was not brought for improper purposes.

Following the repeal of the Protection of Public Participation Act, anti-SLAPP legislation went out of fashion in Canada for nearly a decade. In 2008, the Uniform Law Conference of Canada circulated a model statue, the Uniform Prevention of Abuse of Process Act. In 2009, anti-SLAPP measures were added to the Quebec Code of Civil Procedure. In Ontario, Bill 83, the Protection of Public Participation Act, 2013, had its second reading on April 16, 2014, and has been ordered referred to the Standing Committee on Social Policy.

In Northwest Organics, Limited Partnership v Maguire, 2013 BCSC 1328, the chambers judge rejected the defendant’s proposed test for determining whether or not a defamation claim was a SLAPP suit. The defendant had proposed a two part test. At the first stage, she argued the court should examine whether the expression at issue falls within the core areas of protected speech under section 2(b) of the Charter. If so, the plaintiff should then justify the claim as genuine by establishing that the claim: (a) is to compensate a significant injury to reputation; (b) has a significant likelihood of success; and (c) is the only practicable response to the alleged defamatory speech.

The chambers judge rejected this argument, stating that it would be a wholesale change to the law of defamation, and that if the test were to be adopted it would be more properly adopted by a higher level court or by legislative change. Furthermore, such a test should not be adopted at a preliminary stage without a full evidentiary record.

The Court of Appeal dismissed the appeal substantially for the reasons given by the chambers judge. Accordingly, absent legislative changes, an anti-SLAPP defence does not seem to be likely to emerge as part of the common law of defamation in Canada.

 

The Local Venue Rule: Did you start your claim in the right place?

Posted in Civil Procedure
Comment

British Columbia has 28 Supreme Court registries scattered around the eight judicial districts (known as “counties”) being Cariboo, Kootenay, Nanaimo, Prince Rupert, Vancouver, Victoria, Westminster and Yale.  Ordinarily, a civil claim or petition can be commenced in whichever of those registries the claimant chooses.  However, for some types of claims there are restrictions on where the court proceeding has to be commenced.  These are colloquially referred to as “local venue rules”.  A failure to commence such claims in the right registry can result in the case being tossed out, whatever its actual merits may be.

Historically, local venue rules came into existence to prevent plaintiffs visiting additional and unnecessary expense on land owners by commencing claims in registries far from where the landowner lived.  Back in the day, a farmer in the Peace River valley could not reasonably be expected to defend a foreclosure proceeding in Vancouver.  This would be an unfair and costly proceeding to fight.  The policy rationale for the local venue rule was to reduce the expenses faced by defendant property owners and other encumbrancers by having the litigation take place near the subject land.  This thinking rested largely on the premise that land owners lived on or close to the subject land.

Based on this rule, foreclosure proceedings and builders’ lien claims must be commenced in specific registries that depend on where the land at issue is located.  In both circumstances, section 21 of the Law & Equity Act essentially mandates that the claim be filed at the registry closest to the land at issue.  Specifically, foreclosures and lien claims must be commenced either at the registry in the municipality where the subject land is located, or, if there is no such registry or the land is not in a municipality, at any registry within the judicial district where the land is located.

You would think that rules of this nature would be easy to understand and apply.  However, as is often the case in interpretation of the law, there can be fights over seemingly simple things like this.  A recent Court of Appeal decision resolved the most recent bun fight on this topic.

In this case, a lender commenced foreclosure proceedings in the Victoria registry for property located on an island near Nanaimo.  An order nisi was granted and the land owners, residents of Australia, appealed.  One of their arguments was that the foreclosure petition should have been commenced in the Nanaimo registry and, having been improperly commenced in Victoria, the foreclosure was a nullity (meaning it was entirely ineffective and there was, therefore, no foreclosure of the land).  Section 21 of the Law & Equity Act provides that “unless the court otherwise orders” a foreclosure must be commenced in the registry essentially closest to the subject land.  Relying on this phrase, the foreclosed landowners argued that unless the lender had received permission from the court before commencing the foreclosure to file in Victoria rather than Nanaimo, the proceeding was a nullity.  The court could not fix this after the foreclosure petition was filed.

The Court of Appeal held that such a limited interpretation of the phrase “unless the court otherwise orders” is too narrow.  Rather, this phrase is a statutory grant of discretion that includes the ability to cure procedural defects (such as filing in the wrong registry) after they occur.  In other words, section 21 of the Law & Equity Act is not restricted to being exercised only before proceedings have been commenced.  The court had the authority to allow the foreclosure to be continued in the “incorrect” registry if it was warranted.

However, this decision does not do away with the local venue rule.  As the court noted, that rule will “operate in almost all cases.”  If the venue is to be changed, the requesting party will always have the onus of persuading a court that there is good reason to depart from the local venue rule.  If the court is being asked to change the venue for a legal proceeding, that decision must be exercised judicially in a manner that is fair to both parties.  To succeed in changing the venue, you will need to establish that the new venue is as or more convenient to all or most of the parties involved, there are no greater practical difficulties and that costs will likely be lower.

Summary Judgment: It’s the “New Black”

Posted in Civil Procedure
Comment

In an earlier blog post, we reviewed what the Supreme Court of Canada heralded as a “shift in culture” in Hryniak v. Mauldin, 2014 SCC 7 with respect to the availability of summary judgment.  While we had expected BC Courts to therefore be even more receptive to summary adjudications than they had in past, there was some initial hesitation in Alberta given the difference between the Ontario rules at issue in Hryniak and those in Alberta (see, eg. Orr v. Fort McKay First Nation, 2014 ABQB 111).

The Alberta Court of Appeal first considered the impact of the Supreme Court of Canada’s call for a “shift in culture” in Windsor v. Canadian Pacific Railway Ltd., 2014 ABCA 108 and applied its principles to summary judgment applications notwithstanding differences in the Ontario and Alberta rules.  Whereas such applications were previously unsuccessful if a “triable issue” existed (often a very low bar), the new focus was to be on the process for resolution, namely whether there was a genuine issue that required a trial or whether a fair and just adjudication could be accomplished on the record before the court to accomplish the SCC’s urging for courts to find a proportionate, more expeditious, less expensive means to nonetheless achieve a just result.

As three recent decisions clearly demonstrate, there is little doubt that Alberta Courts have since fully embraced the concept of adjudication by summary means, without the need for trial – even where extensive factual, even contradictory, evidence was led, where factual determinations were required (including assessment of expert evidence), and where only some of the claims and/or parties were the subject of the summary judgment application, leaving other issues and parties to proceed to trial.

On October 28, 2014, in Bernum Petroleum Ltd. v. Birch Lake Energy Inc., 2014 ABQB 652, Madam Justice Pentelechuk of the Court of Queen’s Bench granted summary judgment in favor of Bernum for a little over $1M payable by Birch Lake in relation to cash calls related to the drilling of two wells.  Birch Lake resisted Bernum’s application on the basis of Bernum’s alleged gross negligence in the operation of the wells.  The Court had before it factual evidence which was opposed by an expert opinion.  It assessed that evidence (and its admissibility) and ultimately held in favor of Bernum.  Nonetheless, the Court declined to summarily deal with Birch Lake’s counterclaim alleging that Bernum had breached various other duties owed to it and instead directed those issues for trial.

On November 7, 2014, in Ernst v. EnCana Corporation, ERCB, and Her Majesty the Queen in Right of Alberta, 2014 ABQB 672 Chief Justice Wittmann of the Court of Queen’s Bench dismissed Alberta’s request for summary dismissal.  He held that evidence in support of such an application was required under the Alberta Rules and that Alberta’s choice not to file any was fatal given the absence of any “other evidence” in support of the motion.  In the alternative, he held that, even though able to make findings of fact on such applications, “it would not be fair or just for me to determine the merits of this action by way of summary judgment” absent evidence on the record that would “enable me to do so in this case.”  Once again, the absence of any evidence was fatal in the circumstances of that case.

On November 20, 2014, the Alberta Court of Appeal dismissed the appeal of Chief Justice Wittmann’s decision to grant summary dismissal in a different case, CCS Corporation v. Pembina Pipeline Corporation, 2014 ABCA 390.  In that case, the essential issue was whether one aspect of CCS’ claim should be dismissed against Pembina, who was only one of the defendants in the action.  At issue was CCS’ allegation that Pembina had misappropriated a corporate opportunity when Pembina built a plant to remove water from crude oil before the latter was shipped in its pipeline.

Contrary to the situation before the Chief Justice in Ernst, there appears to have been a wealth of evidence before both he and the Court of Appeal (indeed, there was an extensive striking application at first instance, in which many parts of CCS’ evidence were struck).

Even though related issues would be going to trial against the other parties, apparently including overlapping evidence, and even though there were still extant claims against Pembina which would similarly proceed, the Court of Appeal allowed Pembina’s application for summary dismissal on the appropriation/competition issue.  In so doing, the Majority emphasized the importance of proportionality and the benefit of summary judgment in accomplishing that goal.  It concluded that “summary dismissal here is likely to shrink the trial” in respect of the evidence, issues, and length of testimony, even though it was unknown as to whether the trial would be shortened “dramatically”.  Nevertheless, it ultimately held that: “Pembina will not have to spend a fortune taking full part in a long trial which largely or entirely does not concern it.  Litigation is supposed to be adversarial and implicate only those who wish to sue, and those arguably liable, and then only on arguable topics. (Here we use the word ‘arguable’ loosely.)”

As such, even though initially surrounded by some uncertainty, it is now well established that, like one of the staples of a good wardrobe, summary judgment is indeed the “new black” for parties and their counsel in Alberta.

The Supreme Court of Canada Moves the Law of Contract: The Principle of Good Faith and the Duty to Act Honestly

Posted in Commercial
Comment

On November 13, 2014, the Supreme Court of Canada released its much anticipated decision in Bhasin v. Hrynew, 2014 SCC 71.  In its decision, the Supreme Court of Canada for the first time expressly recognized “good faith” as an organizing principle in the operation of contract law in Canadian common law provinces.  This is a significant alteration to the law of contracts in the common law jurisdictions of Canada.  We expect that Bhasin will become known as one of the seminal decisions in Canada in relation to the performance of contractual obligations.

The Supreme Court of Canada’s alteration or what they called an “incremental step” to the law of contracts was to acknowledge good faith contractual performance as a general organizing principle of the common law of contract.  This principle “underpins and informs” the various contractual doctrines which govern contracts in Canadian law.   The Court differentiated an “organizing principle” from a specific legal doctrine.  An organizing principle is a standard which underlies legal doctrines and which may be used to determine how those doctrines operate.  It is flexible and may be given different weight in different situations.  The Court found that good faith was a standard by which existing legal documents should be interpreted and also that by recognizing good faith as an organizing principle, it would allow the common law of contract to be developed in a more coherent and principled manner.

The Court was careful to distinguish the organizing principle of good faith from a fiduciary obligation.  It found that the organizing principle of good faith means that a contracting party should have “appropriate regard” to a contractual interest of the other contracting party.  Appropriate regard will vary and depend on the circumstances of the specific contract, but it does not require the contracting party to subjugate its interests to the other party.  Rather, it obligates the party not to “undermine those interests in bad faith.”

The Court went on to say that the organizing principle of good faith is recognized through existing contractual law doctrines, but that the categories of those doctrines are not closed.  Instead, new doctrines can be recognized where the existing common law is found deficient and the organizing principle of good faith requires further development.  In this case, good faith required the recognition of a general duty of honesty in contractual performance.  Simply put, the Court found that parties must not lie or mislead each other concerning matters linked to the performance of the contract.   On the facts of this case, the Court relied upon the findings of fact of the trial judge, who found that one party had misled the other party concerning the renewal of a dealership agreement and, if that party had not been misled, they would have taken steps to protect the value of their business.  Having lost the value of the business, the Supreme Court of Canada awarded damages equal to the value of the business.

The Court did discuss whether parties could contract out of these obligations, but found that, like unconscionability, the overriding principle of good faith and the duty of honesty were core elements of contract law which could not be expressly excluded from the contract.  Rather, the parties could influence the scope of the duty of honesty in a particular context and relax the requirements of the doctrine provided they recognize its minimum core requirements.

This decision was only released this morning.  Nevertheless, it is important to note that the Supreme Court of Canada has for the first time expressly recognized good faith as an organizing principle of contractual law in the common law of Canada and manifested that organizing principle in a duty of honesty in the performance of contracts.  It will take some time to understand fully understand the impact of this “incremental step” in the law.

 

Each year Lisa A. Peters reviews judgments dealing with contract law issues focusing on decisions of relevance to commercial lawyers and business leaders. This year, her annual seminar will examine topics including the contractual duties of good faith in light of this recent decision. The seminar is scheduled to take place on December 10. If you would like to register or would like more information, please email Mary Merraro at mmerraro@lawsonlundell.com. Seating is limited. 

The word “of” can decide a case: a lesson for contractual drafting and interpretation

Posted in Commercial
Comment

A recent decision of the Ontario Superior Court of Justice shows that the outcome of important questions of statutory or contractual interpretation can sometimes turn on the meaning of the smallest and most ordinary words. As the court noted in the opening words of its judgment in Young Men’s Christian Association of Greater Toronto v. Municipal Property Assessment Corporation, 2014 ONSC 3657: “This Application turns on the statutory interpretation of the word ‘of’”.

The issue before the court was whether the YMCA was entitled to an exemption from an assessment for municipal property tax for certain property that it leased and used to carry on its operations. Section 10 of an Act to Incorporate the Toronto Young Men’s Christian Association provides an exemption from property tax as follows:

The buildings, lands, equipment and undertaking of the said association so long as and to the extent to which they are occupied by, used and carried on for the purposes of the said association are declared to be exempted from taxation except for local improvements.

The municipal tax corporation argued that the YMCA’s properties are exempt only if the property is both occupied and legally owned” by the YMCA. The YMCA argued that section 10 provided an exemption for properties either owned or leased by the YMCA.

The court held that leases were “lands” because a lease is a property interest recognized by the law of real property; however, the court held that the leases were not “land of the YMCA” as required by the statute. The court reviewed dictionary definitions of the word “of” and found that the connective uses of the word included ideas of “belonging and possession”, often functioning as a substitute for the possessive “s” (“the woman’s car” being equivalent to “the car of the woman”, in the court’s view).

The court dismissed the YMCA’s application, finding that the phrase “land of the YMCA” means “YMCA’s land” or “land owned by the YMCA”, and accordingly the YMCA’s leases did not qualify for the statutory exemption.

The lesson to be taken from the YMCA case goes beyond the law of real property or tax assessment. The outcome of statutory interpretation or contractual interpretation (to which similar principles apply) can turn on the most humble words or punctuation in the English language. In Rogers Communications Inc. v. Bell Aliant Regional Communications LP, Telecom Decision CRTC 2006-45, rev’d, Telecom Decision CRTC 2007-75, the outcome of a significant decision famously hinged on the placement of a single comma. For those drafting contractual or statutory language, or those subsequently litigating their meaning, these cases serve as a reminder of the importance that can attach to even the smallest aspects of expression.

The Thorny issue of Costs and Special Costs

Posted in Civil Procedure
Comment

One of the most exasperating aspects of civil litigation for clients is the issue of court ordered costs.  Ordinarily, the party that wins a case is entitled to have their “costs” paid by the other side.  The court’s ability to award costs is discretionary and, as a result, often difficult to predict.

There are, generally speaking, two types of costs awards: “party and party costs” and “special costs”.  “Party and party costs” are calculated based on a tariff in the Supreme Court Civil Rules which provides various ranges of “units” for various steps in litigation.  Once the number of “units” is established, that figure is multiplied by one of three possible unit values (Scale A, B or C), to reach a total.  That amount, plus legitimate disbursements and taxes, equals the ultimate costs award.  This amount is generally about 30% to 40% of the actual legal costs incurred.

“Special costs” are different and are intended to reflect an award of between 80% and 100% of the successful litigant’s actual legal expense.  Special Costs are supposed to reflect the fees that a reasonable client would pay a reasonably competent solicitor for performing the work needed to win the case.  They are usually awarded where the losing party has behaved particularly badly (thus increasing expense) or has made serious allegations (such as fraud or breach of fiduciary duty) that are ultimately unproven.

Awarding and assessing the amount of costs is usually the last step in litigation.  It can be a frustrating experience for litigants because, while the case is effectively over, this residual issue lingers and can be time consuming and expensive.  Unless the parties agree on costs, they must be assessed by the court, a process generally undertaken by the Registrar.  The process can itself become a lengthy form of trial.  Frequently, successful litigants are exhausted by the process at this point.  Unsuccessful litigants often use the costs aspect of a case as a last effort to inflict expense and retribution on their victorious opponent.

For this reason, judges of the Supreme Court will often exercise the discretion allowed them under the Supreme Court Civil Rules (Rule 14-1) to summarily quantify costs awards, thus finalizing all aspects of the dispute they have just resolved by judgment.  For example, a recent case involving a strata and two objectionable owners resulted in such an award.  After protracted litigation, the strata had finally won but had spent in excess of $173,000 in legal fees to get there.  None of the previous cost awards had been paid.  The strata owners, “people of modest means”, could “not understand how it is that one recalcitrant couple can abuse the court system with such impunity, while the owners bleed financially.”  In order to bring some relief, the court awarded special costs and summarily quantified them, reasoning this necessary to “minimize any further legal costs” in dealing with costs.

Unfortunately, a recent decision of the Court of Appeal may well make this type of outcome more difficult and less frequent.  It will encourage intransigent litigants to continue the fight in a protracted costs dispute.

In Gichuru v. Smith, the successful defendant was awarded special costs as a result of unproven allegations of fraud and breach of fiduciary duty made by the plaintiff.  The trial judge also summarily quantified the “special costs” at the rate of $5,000 per half day of trial for a total of $90,000.  This “rough and ready approach” was one often resorted to by the court to end bitter and contested cases.  This result avoided the necessity of a lengthy costs assessment before a Registrar against a plaintiff, Mr. Gichuru, who was unable to pay in any event and who would likely seek to protract the litigation and increase the expense to Mr. Smith.

While the Court of Appeal dismissed Mr. Gichuru’s main appeal, they allowed the appeal on the summary assessment of special costs.  The Court of Appeal embarked on a detailed review of the authority to award costs in litigation, including special costs.  In doing so, they concluded that, unlike in the past, the court presently has no “inherent jurisdiction” to deal with costs because the present Rules provide a complete code on when and how to award costs.  The Rules provide that “parties are only entitled to their objectively reasonable legal costs determined according to the particular costs scale that they were awarded.”  The court may award “only those costs proper and reasonably necessary to conduct the proceeding may be allowed.”  That principle applies to both party and party costs and “special costs.”  What this means is that in cases of dispute, there must be a detailed and objective review of costs claims.  As the Court of Appeal noted:

Absent consent, natural justice requires a certain level of procedural fairness. In the typical case, this means providing an opportunity for the party against whom costs are being awarded to test the reasonableness of the fees underlying the award, which reflects the basic costs principle that cost awards are meant to be an indemnity for fees incurred rather than to provide a windfall.

One of the problems for a successful party awarded “special costs” is that such a review requires disclosure of their lawyer’s file to the opponent and the consequent waiver of solicitor/client privilege.  This is because:

. . . it is difficult to conceive that a proper examination of a party’s incurred legal costs can take place without disclosure of the other side’s file and an examination of the other side’s lawyers in respect of the file and the matters arising therefrom.

The fact that a lawyer has billed a certain sum does not necessarily make the fee reasonable.

The Court of Appeal recognized the tension at play but came down on the side of natural justice and fairness.  They reasoned:

A related concern is that the party who might have to pay the costs will prolong any assessment by requiring microscopic review of the services undertaken by counsel for the successful party: . . . This concern must be weighed against the right of a party to challenge the reasonableness of the opposing party’s proposed costs.  This right derives from the rules of natural justice: . . .

It is true that a more detailed review may be tedious and expensive.  That does not mean such a review is unfair to the successful litigant, particularly given that significant amounts may be in issue.  While R. 1-3(1) sets out that the object of the Rules is to secure the just, speedy and inexpensive determination of every proceeding on the merits, R. 1-3(2) mandates that the proceedings be conducted in a way that is proportionate to the amounts involved in the proceeding, the importance of the issue in dispute and the complexity of the proceeding.

In the end, the Court of Appeal concluded that the “rough and ready approach” previously relied on to quantify special costs “should not be used”.  Further, a summary assessment of costs, including special costs, “should be sparingly exercised”.  The Court concluded:

When assessing special costs, summarily or otherwise, a judge must only allow those fees that are objectively reasonable in the circumstances.  This is because the purpose of a special costs award is to provide an indemnity to the successful party, not a windfall.  . . . [A] judge must conduct an inquiry into whether the fees claimed by the successful litigant were proper and reasonably necessary for the conduct of the proceeding . . . , taking into account all of the relevant circumstances of the case and with particular attention to the non-exhaustive list of factors in R. 14-1(3)(b).

A special costs assessment . . . cannot proceed in absence of evidence of the amount of legal fees incurred.  Usually this will be provided in the same form as a bill between a solicitor and client . . .  This is necessary to allow a court to inquire as to the objective reasonableness of the fees claimed by a litigant, as the fact that a solicitor has billed a certain sum does not necessarily make the fee reasonable.

The consequence of this appellate decision is likely to be that more unsuccessful litigants will prolong the costs aspects of litigation, particularly where special costs are at issue.  Further, anyone seeking or awarded special costs will probably be faced with the choice of the loss of solicitor-client privilege or electing to preserve privilege by having their special costs assessed after all appeals are exhausted or not seeking special costs at all.  Regrettably, this makes “the just, speedy and inexpensive determination of every proceeding on its merits”, as mandated in Rule 1-3(1), that much more unlikely.  The pernickety issue of costs awards and their assessment is going to prolong many cases.  That will be a real frustration for litigants.

Dragooning Google: How long is the online arm of the law?

Posted in Commercial
Comment

On October 27 and 28, the British Columbia Court of Appeal heard the appeal in Equustek Solutions Inc. v. Jack, 2014 BCSC 1063, which will have significant implications for the ability of courts to deal with online wrongdoing, and which raises questions of how to balance a Court’s jurisdiction – and respect for the jurisdiction of other courts – with the worldwide reach of cyberspace, and to what extent foreign non-parties can be compelled to assist the Court when there is no claim against them.

Equustek manufactures networking devices for industrial equipment. After the breakdown of its relationship with a former distributor –  due to the distributor allegedly passing off Equustek’s products as its own and then developing a competing product – Equustek filed suit against it and a number of other defendants. In the course of the litigation, the defendants stopped conducting business in Vancouver, and now operate as a virtual company through an ever-expanding network of websites, defying Court orders and continuing to sell the alleged knockoffs. Certain of the defendants have had their Responses to Civil Claim struck out for this noncompliance, and an arrest warrant remains outstanding for the defendant Morgan Jack.

In a further effort to halt continuing sales, and in the apparent hope of avoiding having to seek out and try to shut down the various ISPs hosting the defendants’ web sites, Equustek obtained an injunction against Google Inc. in June of this year, requiring it to stop including the defendants’ web sites in any of its search results, effectively removing them from Google searches worldwide, the source of approximately 75% of the world’s search traffic. The hope was that this would effectively cripple the defendants’ business.

Google had voluntarily removed certain, specific web pages relating to the defendants, from its Canadian search page www.google.ca, but not from its search pages for other countries. In addition, Google would not block the “mother sites” that generated the individual web pages. This was insufficient for Equustek, as the defendants could simply generate new webpages as ones were blocked, and sold mostly to customers outside Canada in any event. Although Google provided the mechanism by which the majority of traffic reached the defendants’ websites – and thus generated sales, the Court did not agree that Google was aiding or abetting the Defendants in their contempt.

The Chambers Judge found that the Court had jurisdiction, or “territorial competence”, over Google. Its search page was not simply a passive website accessible in B.C., but was rather an interactive one which offered services based in part on data collected from the user, including IP address, location, and previous searches and online behaviour. In addition, Google’s selling of advertising space to B.C. residents strengthened the connection to B.C. The Court also found that B.C. was the appropriate forum for the proceeding, as opposed to California, which Google had argued.

The Court rejected Google’s arguments that removal of the defendants’ web sites from search results would constitute censorship, as Google regularly and voluntarily removed other websites from searches on other grounds. The Court also did not agree that Google’s First Amendment rights would be breached, making the order unenforceable in California where its servers were located. Last, the Court did not agree that the order was too broad just because the effect of the Order could extend worldwide, noting that even orders made enjoining conduct in B.C. could have effects outside the province. For example, an injunction to stop a company from shipping goods from a warehouse in B.C. could affect orders placed from around the world. The balance of convenience was found to favour granting the injunction.

The appeal was heard over two days and drew a number of intervenors, including the Canadian Civil Liberties Association, the International Federation of Film Producers and International Federation of the Phonographic Industry, the Electronic Frontier Foundation, and the Samuelson-Glushko Canadian Internet and Public Interest Clinic.

On appeal, Google argued that the Chambers Judge had erred in finding that the Court had jurisdiction over Google for all purposes, including with respect to sites located in other countries, not readily accessible by Canadian citizens, and designed to serve non-Canadians. Google further argued that the Chambers Judge erred in imposing a positive obligation on Google to assist the plaintiff where there was none, and in granting an injunction when the plaintiff had no underlying claim against Google. The plaintiff (unsurprisingly) contended that the Chambers Judge had come to the right decision, and that the injunction order represented a necessary and proper evolution of the law.

In deciding the appeal, the Court will have to consider how to balance the rights of an innocent, foreign, non-party with the need to enforce its process and authority in the face of brazen contempt, and to what extent search engine providers may be pressed into service to enforce Court orders against others. The Court will also need to decide how to balance the need to impose order – and indeed enforce orders – on the internet while respecting the territorial limits of its own jurisdiction. Whichever way the appeal is decided, the effect of it will be significant for cases involving everything from e-commerce, to misuse of confidential information, and defamation. There will only be more to come.

Silence can be golden: interlocutory restraints on defamatory speech

Posted in Defamation
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A recent decision from the British Columbia Supreme Court is a reminder that interlocutory restraints on speech are possible in Canada, albeit in rare circumstances.

In Richardson v. Hunter, 2014 BCSC 1960, the court issued an interlocutory injunction to restrain the defendant from publishing words that suggest that the plaintiff engaged in criminal conduct. The remedy can be a significant one because, for most people who find themselves the subject of false and defamatory statements online, what they want more than anything is for the statements to stop and be taken down.

The plaintiff was (and is) a police officer serving with the RCMP. The defendant was charged and convicted of three criminal offences as a result of an investigation in which the plaintiff was an investigator (for the background facts to his convictions, see R. v. Hunter, 2006 BCCA 433). In response, the defendant wrote and published a lengthy document online, which the court referred to as a blog, entitled “Creating a Criminal, My story of how the RCMP turned Me into a Criminal.” The blog made allegations of criminal conduct against the plaintiff, including perjury, conspiracy and theft.

The plaintiff sued for defamation and applied for an interlocutory injunction with respect to the defendant’s blog. The court held that it is difficult to obtain an injunction restraining speech because the law puts a priority on freedom of speech. The public interest in freedom of speech ought not to be stifled in advance of a trial on the merits except in the very clearest of cases. The usual test for injunctive relief (a fair case to be tried) is insufficient. The plaintiff must meet a two-prong test: the words complained of must be (1) “manifestly defamatory” and (2) “impossible to justify”.

The court granted the injunction, but only in part. The court ordered that the defendant be restrained until further order of the court from writing words which suggest that the plaintiff has engaged in criminal conduct, including perjury, witness tampering, conspiracy, suborning perjury and theft. However, the court declined to restrain the defendant from stating that the plaintiff’s investigation was negligent, as it could not be said at this early stage of the proceeding that that allegation was “impossible to justify”.

The outcome of the Richardson case shows the potential for injunctive relief but also the strictness with which the standard will be applied.

Collapsing Real Estate Transactions: “Specific Performance” Revisited

Posted in Real Estate
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Frequent readers of this blog may recall a post from October 2012, in which we wrote about a Supreme Court of Canada decision that some believed, at the time, would result in the “death knell” for the remedy of specific performance in Canada at least in respect of commercial real estate transactions.  Since then, many courts have indeed grappled with whether that particular remedy, which permits a purchaser to conclude a transaction and buy the property in question by way of a court order as opposed to obtaining an award of damages as compensation, is still part of the arsenal of remedies potentially available to aggrieved purchasers.

In a decision which was released this past Friday, the B.C. Court of Appeal, in practical terms, has confirmed that reports of the demise of the remedy of specific performance have been greatly exaggerated.

In that case, a vendor refused to close on a sale of commercial property in Burnaby, B.C.  The purchaser, who was still interested in buying the property, sued and sought as one of its remedies, an order for specific performance whereby it asked the court for an order allowing the sale to go through despite the alleged breach by the vendor.  The purchaser therefore filed a Certificate of Pending Litigation (“CPL”) against title to the property.  The vendor brought an interlocutory application under the Land Title Act to have the CPL removed as it argued that it was suffering hardship and inconvenience by the registration of the CPL on title to its land and that in any event the purchaser ought not to be entitled to the remedy of specific performance.  The Chambers Judge removed the CPL with the posting of $1.5million security by the vendor and asserted that the remedy of specific performance was not available to this purchaser.  The purchaser therefore filed an appeal.

The Court of Appeal, in a unanimous decision, held that on an interlocutory application pursuant to the Land Title Act, the Court is not fully and finally determining whether specific performance is in fact available to a purchaser but rather the test at that stage is whether it is “plain and obvious” that a claim for specific performance will not succeed after a trial on the merits.  Absent compelling evidence in that regard, the claim for specific performance ought to proceed to trial.  The Court noted that the landmark Supreme Court of Canada decisions in Semelhago and Southcott Estates were following a trial of those matters and although the legal principles arising from those cases regarding the availability of specific performance are clearly to be applied, it is likely only after a trial where those issues can be finally determined by the Court.  If there is a triable issue on the availability of specific performance, a CPL which is filed based on that remedy ought not to be removed.

Given the decision in Youyi, it is clear that at least for the time being in B.C., a claim for the remedy of specific performance in connection with failed commercial real estate transactions, together with the usual clogging of title to property by the filing of a CPL, is still alive and well and is a valuable and useful tool for aggrieved purchasers.  For landowners’, where property becomes encumbered by a CPL, it may prove helpful to move quickly to trial (or summary trial) in order to have a CPL removed, and a claim for specific performance dismissed, as opposed to seeking to have the CPL removed by way of an interlocutory application very early on in the litigation.  Once again, the seeking of timely legal advice regarding parties’ rights and remedies in response to a collapsing real estate transaction is critical.  We have argued as much on many previous occasions on this blog and Youyi provides yet another example of why that is extremely important.