Western Canada Business Litigation Blog

Exercise Caution: Lease Renewal Clauses and Standard Form Leases in Gurudutt

Posted in Real Estate
Comment

A recent Ontario Superior Court case will be of interest to commercial landlords and tenants alike.

In 1251614 Ontario Ltd v. Gurudutt, the tenant signed a 10 year lease that granted the tenant the right to renew the lease for 2 further terms of 5 years each, with rental rates to be negotiated at the time of renewal and settled by arbitration, if necessary. In addition, the lease stated:

“Any such renewal to be on the same terms and conditions as are contained in this Lease except…the form of the renewal Lease shall be, at the landlord’s option, a lease extension agreement or a new lease in the landlord’s then standard form.” (emphasis added)

To read more, click here.

The Tricky Question of Drafting an Enforceable Restrictive Covenant

Posted in Real Estate
Comment

Restrictive covenants are commonly used for a wide variety of reasons.  They can ensure access across property or be part of a wider community plan.  They can define the use land can be put to or protect it for a singular purpose.   They are intended to be a commitment that runs with the land rather than just an obligation or benefit for the current owners.  There is no standard form of covenant for the very reason that they are generally drafted for particular reasons with specific properties in mind.  In each case, the covenant must be clear as to its scope and purpose and be capable of application into the future whoever the land owners are and whatever changes take place in the nature of the surrounding area.  As a result, while it may be easy to envision what a covenant is intended to do, it can be quite another thing to properly articulate it in a written document.

The risk of not properly drafting a covenant is that it will, at some future date, be challenged by someone who does not like it and risk being found invalid by the courts.  A recent Court of Appeal decision illustrates this very outcome.  A developer with a vision built a hotel strata on the shores of Lake Okanagan.  The idea was simple.  Units could be purchased as either primary residences or holiday spots for families.  The hotel would provide services such as housekeeping, maintenance, food and beverages and a front desk.  Units that were not occupied full time were to be put into a rental pool operated by the management company that provided the services.  Units would be rented to the public and the revenue shared between the strata unit owner and the operator.

In order to make the plan work, each strata unit was encumbered by a covenant that provided rentals to the public must be done in accordance with a rental pool management agreement administered by the rental manager.  This ensured revenue for the maintenance of the strata and a cohesive hotel operation run by the management company.  Units rented outside this arrangement would get the benefits of a hotel without contributing to the cost of its operation.  The covenant was intended to avoid this unfairness.  Seems simple.

However, the covenant came under attack by one strata owner who, having moved out, wanted to rent his unit free from the obligations imposed by the rental pool agreement.  The hotel managers sued him seeking an injunction compelling the rental of his unit through their office in accordance with the rental pool management agreement.  The owner counterclaimed seeking an order under the Property Law Act that the covenant was unenforceable on the grounds of uncertainty.  The trial judge, no doubt mindful of the chaos to the hotel operation if the covenant was struck down, found it to be sufficiently clear as to be enforceable.  The Court of Appeal disagreed.

The problem really centered on the fact that the covenant did not contain a complete description of the rental pool agreement.  In short, while it was a detailed document, it only referred indirectly to the “Rental Pool Management Agreement” as the agreement made between the owner and the hotel manager setting out its terms and as may be amended from time to time.   What this meant is that no owner could, by looking at the covenant alone, know with any certainty what obligations they had under the Rental Pool Management Agreement.  To find out, they had to look outside the covenant itself.  Further, the Rental Pool Management Agreement had not existed when the covenants were originally registered and, after it was created, had changed a number of times over the years.  The rental pool agreement also gave the hotel operator the ability to change terms (such as the profit share) without an owner’s agreement.

The Court of Appeal did not like this because it meant there was no real certainty to the terms of the covenant.  What the covenant meant was dependent entirely on an external document that was effectively only an “agreement to agree”.  It was whatever the hotel operator and owner may ultimately agree to.  Such “agreements” are legally unenforceable.   The covenant did not contain a mechanism to resolve cases where no agreement was reached.  The law requires that covenants be absolutely clear so that “present and future owners may know with precision what obligations are imposed upon them.”  As the covenant in this case did not meet that standard, it was held unenforceable and struck from the title to the owner’s unit.

While the decision illustrates the clear line courts seek to draw on the requirements needed to make sure a covenant is enforceable, it also throws into peril the operation of this hotel as a practical matter.  If you seek to have a covenant be enforceable now and into the future, you would do well to make sure it is drafted carefully.  If you are burdened with a covenant you don’t particularly like, there may be hope for its cancellation if you can demonstrate it is not entirely clear in its expression.  It may be worth challenging in court.  The only downside, besides time and cost, is that you may be wrong: it is enforceable.  In that case, you are really no worse off.

“But I’m a lawyer…” Supreme Court of Canada clarifies mental element necessary for contempt

Posted in Civil Procedure
Comment

On April 16, 2015, the Supreme Court of Canada released its Reasons for Judgment in the case of Carey v. Laiken, 2015 SCC 17, clarifying that a specific intention to breach a court order is not necessary for a finding of contempt, and clarifying when a Court can and cannot revisit a finding of contempt that it has previously made.

Mr. Carey was counsel for Mr. Sabourin and his companies in a case involving offshore investments that had gone poorly. Ms. Laiken had invested heavily with Mr. Sabourin and his group of companies. The money was lost and, after Mr. Sabourin sued Ms. Laiken for $364,000, alleging a deficit in her margin account, she counterclaimed for $800,000 claiming that he had defrauded her.

During the proceedings, the Ontario Superior Court of Justice issued a Mareva injunction, freezing the assets of Mr. Sabourin and his companies pending trial. As is customary in Mareva injunctions, the order prohibited not only the respondents, but also anyone with knowledge of the order, from disposing or otherwise dealing with any of Mr. Sabourin’s assets.

A few months after the initial order, Mr. Carey received a cheque for $500,000 from Mr. Sabourin, with no explanation or instructions, and deposited it into his trust account. After first instructing Mr., Carey to use the money to try and settle with unrelated third party creditors (instructions that were wisely declined) Mr. Sabourin told Mr. Carey to use the funds to try and settle with Ms. Laiken instead, something within the injunction’s scope.

However, after failing to reach a settlement with Ms. Laiken’s counsel, during which time Mr. Carey did not mention the existence of the trust funds, Mr. Carey agreed to return the balance of the funds to Mr. Sabourin – after deducting a further amount for future legal fees, given that the parties had agreed that the injunction did not prohibit payment of fees. Mr. Carey accordingly re-transferred $440,000 to Mr. Sabourin. A month later, Mr. Sabourin told Mr. Carey he was terminating the retainer, went out of business, and disappeared.

Meanwhile, other creditors of Mr. Sabourin obtained judgment against him and put his assets and companies into receivership. The receiver learned of the funds that Mr. Carey had at one time held, and demanded an accounting. By then, only $6,000 remained. After Ms. Laiken obtained summary judgment dismissing Mr .Sabourin’s initial claim and granting her counterclaim, she obtained an order holding Mr. Carey in contempt of court for breaching the Mareva injunction by releasing the funds to Mr. Sabourin.

At a subsequent hearing to determine the penalty for the contempt, however, the motions judge revisited her decision. Mr. Carey now testified that he thought that he had been acting in accordance with his professional obligations, simply returning the money that was in excess of what was required for legal fees, and that did not count as a “transfer” of the funds. He also claimed that he thought he had an obligation, arising out of solicitor-client privilege, not to alert counsel for Ms. Laiken to the existence of the funds at the time, and that extended to justifying their release. The motions judge reversed herself, deciding that the terms of the order may not have been clear to Mr. Sabourin and doubting whether or not Mr. Carey’s interpretation of it was deliberately and wilfully blind.

The Ontario Court of Appeal unanimously allowed the appeal and restored the initial contempt finding. While it accepted that Mr. Carey did not specifically desire to breach the order, that was not a necessary element to establish in order to find him liable for civil contempt. Mr. Carey knew of a clear court order and committed an act that violated it: that was all that need be shown. Mr. Carey appealed.

There were two issues before the Supreme Court of Canada:

  1. What is the required intent necessary to find contempt?
  2. Was the motions judge permitted to revisit the initial decision finding Mr. Carey in contempt?

Mr. Carey argued that where someone a) could not purge the contempt in question, b) is a lawyer, or c) is a third party to the order, then to find contempt, a Court must find that the person specifically intended to disobey the order, i.e.: they intended to be in contempt. In contempt cases, the alleged contemnor is often given the chance to “purge” their contempt, i.e.: to undo the action that has breached the court order, or to comply with the order, before punishment for the contempt is imposed. Here, there was no way for Mr. Carey to get the money back, and he argued that he thought he was acting in accordance with professional obligations.

The Court rejected this wholeheartedly, reaffirming that the elements for civil contempt are as follows, to be proved beyond a reasonable doubt:

  1. There must be an order that states clearly and unequivocally what must or must not be done;
  2. The party alleged to have breached the order must have had actual knowledge of it; and
  3. The party allegedly in breach must have acted intentionally, in doing what the order prohibits, or not doing what it requires.

The Court held that to create a heightened requirement for the mental element of civil contempt where the contempt could not be purged, or where a lawyer felt he or she had a conflicting legal duty, was neither consistent with the jurisprudence nor with the goals of civil contempt: securing compliance with court orders and protecting the integrity of the administration of justice. There was no logic or justice in requiring a higher standard, and no reason to “treat with special charity” people whose own actions had made further compliance with the order impossible.

The Court also held that requiring a specific intent to breach a court order would put the test too high and make the mental element of contempt dependent on the type of order alleged to have been breached. It would open the door to mistakes of law as defences, with the perverse result that mistakes of law “become a defence to an allegation of civil contempt but not to a murder charge.”

Mr. Carey’s plea that lawyers should be held to a different standard fell on deaf ears. There was no reason to treat lawyers differently than others in determining the mental element of contempt. Given that reliance on legal advice does not shield parties from a finding of contempt, there was no reason to depart from that principle just because the legal advice the contemnor was relying was his own. Mr. Carey’s argument that the “repayment of excess fees” was not a “transfer” as prohibited in the order was dismissed out of hand. He was aware that the order prohibited transfers and giving the money back to Mr. Sabourin was clearly a transfer. If he had doubts as to his obligations, or obligations with respect to disclosure of the funds’ existence, he could have left the money in his trust account while they were clarified.

The Court held that the motions judge had erred by revisiting her original decision finding Mr. Carey in contempt. The starting point is that, in contempt proceedings, where an initial finding of contempt has been made at the first stage of a two-part proceeding on guilt and penalty, it is usually final. Where a party purges its contempt or complies with the order, or – in exceptional cases — if new evidence comes to light, then a court may revisit the original finding. However, in this case, the motions judge allowed Mr. Carey to relitigate the original contempt finding by offering evidence as to his intentions. In doing so, she erred, and erred further in setting her original decision aside.

While Carey does not break new legal ground, it is an important reaffirmation of the goals and elements of civil contempt, and shows the Court’s reluctance to allow exceptions, or to create different classes of alleged contemnors. Its reluctance in this respect extended most of all to lawyers who should know the paramount importance of complying with court orders and protecting the administration of justice.

Foul Play: How Far is Too Far in Recreational Sports?

Posted in Uncategorized
Comment

High profile professional cases of on-field misconduct (think Bertuzzi, McSorley, etc.) have generated considerable headlines in the past, but what about when you or me laces em’ up and goes out on the weekend to play beer league sports?

What are the legal lines we encounter between legitimate and in the heat of the moment physical contact (a body check or slide tackle) and actions which are going to land you in hot water?  When is a penalty not simply 5 minutes but carries criminal consequences?  How far is too far?

In sentencing Marty McSorley for the “baseball swing” of his stick to the head of Donald Brashear, the court cited previous judicial comments advocating an end to coaches, managers and owners valuing intimidation and violence above skill.  Only four years after the McSorley incident, Todd Bertuzzi pled guilty to assault causing bodily harm for a punch to the head of Steve Moore. The McSorley and Bertuzzi incidents are prominent examples of courts grappling with the line of distinction between acceptable and unacceptable physical contact in high intensity sports. Judge Weitzel in R. v. Bertuzzi (2004 BCPC 0472) cited from an earlier case, R v. Watson:

Hockey is a fast, vigorous, competitive game involving much body contact. Were the kind of body contact that routinely occurs in a hockey game to occur outside the playing area or on the street, it would, in most cases, constitute an assault to which the sanctions of the criminal law would apply. Patently when one engages in a hockey game, one accepts that some assaults which would otherwise be criminal will occur and consents to such assaults. It is equally patent, however, that to engage in a game of hockey is not to enter a forum to which the criminal law does not extend. To hold otherwise would be to create the hockey arena a sanctuary for unbridled violence to which the law of Parliament and the Queen’s justice could not apply. I know of no authority for such a proposition.

The Judge then goes on then to quote from the Maki case, which is one of the first cases involving an NHL hockey player:

No sports league, no matter how well organized or self-policed it may be, should thereby render the players in that league immune from criminal prosecution.

But, what about weekend warriors?

Amateur athletes should be aware that criminal responsibility and civil liability are not limited to the professionals.  This is something to think about the next time you lace up.  Your “red mist” at the beer league game can have serious consequences.

In R. v. Adamiec (2013 MBQB 246),  the Manitoba Court of Appeal ruled on criminal sanctions in the context of an amateur soccer match.  Justice Mariella started the decision with the following:

George Orwell warned that lurking behind the fun offered by competitive sports is the threat of the arousal of the most savage combative instincts.

Factually, the accused repeatedly kicked the opposing team’s goalie while going after a loose ball in the penalty area.  The trial judge found the accused guilty of assault – the appellate court acquitted. The kicking was brief and ended when the referee blew the whistle, but in that time the goalie suffered serious injuries to the jaw, neck, chest, and left hip. The appellate Court noted that players consent to physical contact as a risk inherent in the sport but they do not consent to force applied in excess of the particular game’s “playing culture”.  The judge succinctly stated the key question, “When does misconduct become a crime?”

A key distinction in arriving at the acquittal appeared to be between contact that occurs near the ball and that which is “off the ball”. Generally, physical violence occurring “on the ball” is “the most troublesome scenario” for the courts to grapple with in that the line between application of lawful force in a contact sport and assault is the toughest to define (i.e. as opposed to a sucker punch away from the play).  The incident in Adamiec occurred inside the penalty area and even though the accused actions were in breach of the rules of soccer, he was acquitted because his actions were found to be a legitimate sporting play as he was going for the ball and not the goalie; there was no intent to injure the complainant. Further, Adamiec’s force was not motivated by a non-sporting purpose such as an intentional retaliatory attack designed to injure an opponent.

A similar result occurred in R. v. Chu (2006 BCPC 587) where the accused delivered a body check in a recreational hockey game which resulted in a fractured jaw. Although the league was non-contact, the Court concluded that Chu’s conduct was directed at knocking his opponent off the puck rather than causing serious bodily harm. The charge was dismissed because the conduct was within the scope of consent provided by the opponent by virtue of playing the game.

Unlike the previous “on the ball” cases, R. v. Carroll (1995 CanLII 1123 (BCCA)) centered on a 42 year old amateur soccer player who head-butted an opposing player suddenly and without warning. Shades of Zidane in the 2006 World Cup Final come to mind. However, an opposed to Italian defender, Marco Materazzi who suffered no apparent physical injuries from Zidane, the complainant in Carroll suffered dental damage which included three broken teeth. The B.C. Court of Appeal ordered a conditional discharge instead of a fine and criminal conviction as the key factor weighing against a criminal conviction appeared to be the impact on Carroll’s career prospects.

The principles emerging from these cases appear to be that criminal responsibility may not be necessarily so much a function of the harm caused by conduct on the field, ice or court so much as the broader surrounding circumstances.  Context is key. If an action is taken with the intention of playing the ball and is within the playing culture of a sport, there is a lower likelihood of criminal responsibility being imposed regardless of the injury suffered by the other player.

Two civil cases demonstrate two different outcomes.

The case of Zapf v. Muckalt (1996 CanLII 3250 (BCCA)), illustrates one outcome. The Plaintiff in Zapf was playing hockey for the Nanaimo Clippers when a hit from behind rendered him a quadriplegic. In determining liability, the Court asked what a reasonable competitor would do when taking into account the speed, physicality, stresses, and risks inherent in participating in the sport. While the hit in Zapf occurred at a time when hitting from behind was strictly forbidden, the Court noted that breach of the rules is not necessarily sufficient to establish liability. Despite this, the Court determined the hit was careless in the circumstance and therefore imposed liability for a breach of the standard of care required in the circumstances In Zapf, carelessness was enough for liability to be established in the context of a contact sport, the Plaintiff did not need to establish intentional or reckless intention of harm during the game in order to establish civil liability.

In contrast to the result in Zapf, the Court in Nichols v. Sibbick (2005 CanLII 23685 (ON SC)), set out that “Western” cases of civil liability in sports may be different than case law in Ontario.  The plaintiff in Nichols had to establish that the defendant had an intention to injure or was reckless to the consequences of his actions as opposed to the lower threshold of carelessness. The hockey game at issue was fast-paced and competitive between the two top teams in a recreational league. Sibbick attempted to lift Nichols’ stick but instead hit him in the eye causing significant damage that resulted in the eye being surgically removed. Nichols emphasized Sibbick’s admission that he “lost control of his stick” but such carelessness was not sufficient for the Court because it did not establish intentionally harmful or reckless conduct. The Court concluded that the tactic employed by Sibbick (it was a legitimate tactic a reasonable competitor would use – i.e. attempting to prevent a shot by checking Nicholas’ stick) was reasonable and did not impose liability.

But wait, hot off the presses, the 2015 BCSC case of Forestieri v. Urban Recrecation Ltd. (2015 BCSC 249) may represent the latest work on this topic.  The brief facts are: slidetackle by a soccer player in no slidetackle recreational league carries civil liability, but most notably, civil liability for the team captain…I will follow up on this case in my next blog.

So, at the end of the day what do we take from this?  Playing hard and aggressively is fine and, if within the rules of the game, you stand a much greater chance of being onside.  But, context is everything – intent to injure or just being plain reckless may get you in trouble whether by way of a match penalty, a yellow card, or litigation.  Contact sports cannot render lawful what outside the lines is actionable.  And, remember we all have to go to work on Monday.

Fraud: Where does the loss lie as between innocent victims?

Posted in Commercial
Comment

This is a vexing question. It generally arises when a rogue has made off with money or assets having perpetrated a fraud and has left behind two or more equally innocent victims. As between those victims, who should bear the loss?

Earlier this week, the Alberta Court of Appeal weighed in on just such a case. The short answer is that the court will look to the statutory rights of the parties to resolve that issue.

A Mr. Salman signed a conditional sales contract with TD for the purchase of a $42,000 vehicle. Part of that contract required him to maintain possession of the vehicle. TD registered the conditional sales contract in the personal property registry. In legal terms, TD perfected its security in the vehicle by doing so. In this case, that turned out to be the difference.

The Mr. Salman made the first four monthly payments but then stopped. TD did nothing for 8 months and wrote the loan off as a bad debt. Meanwhile, Mr. Yan became aware that a Mr. Amshyah was advertising a vehicle for sale. To satisfy himself the sale was legitimate, Mr. Yan got copies of Mr. Amshyah’s drivers licence and passport. He also obtained a vehicle report from the Registrar of Motor Vehicles which confirmed there were no liens on the vehicle. He then bought the car for $19,000. A few months later, the police seized the vehicle and advised Mr. Yan and TD that the vehicle’s VIN had been “re-VINed” or cloned. Following the criminal investigation, the vehicle was released by the police to Mr. Yan.

TD sued to have Mr. Yan declared its debtor. The chambers judge dismissed that application by finding that TD’s delay in taking any steps against its original debtor, Mr. Salman, essentially amounted to an implied consent for the transfer to Mr. Yan. She also relied on the fact TD had written off the loan.

The Alberta Court of Appeal reversed that decision. They relied on the Latin maxim nemo dat quod non habeti, which means that you cannot sell or give away more than you have. The vehicle sold to Mr. Yan was subject to TD’s security interest, perfected under the Personal Property Security Act (PPSA). That security interest persisted and was enforceable against Mr. Yan.

The argument that TD impliedly consented to the transfer through its conduct was defeated because implied consent must mean informed consent. TD knew nothing of the vehicle’s sale or its “re-VINing.” TD also did not expect the vehicle to be transferred as part of the debtor’s business (as would be the case when financing a car dealer). As a result, all Mr. Yan could have purchased was the same interest in the vehicle when in the possession of the original rogue: a right to possession subject to a conditional sales contract.

As the court noted, “the circumstances of this case are unfortunate. Mr. Yan was an unusually careful purchaser. Both parties were duped by a rogue or a series of rogues. However, the legislation, properly interpreted, protects the security interest of the finance company, and provides no recourse for Mr. Yan.”

Like many such cases, this likely comes down to the proposition that if a deal seems too good to be true, it is probably not what it may seem. Mr. Yan was buying a vehicle at a price significantly below its apparent value. That may have been a clue to the trouble that lay ahead.

Failure to comply with the new Canadian anti-spam legislation (CASL) can cost you

Posted in Privacy
Comment

In a recent decision from the Canadian Radio-television and Telecommunications Commission (CRTC), Plentyoffish Media Inc. was fined $48,000 for violating Canada’s anti-spam legislation. This announcement comes only weeks after Compu-Finder was hit with a $1.1 million fine, which was the first fine levied after CASL came into effect in July 2014.

Plenty of Fish, a Vancouver based company, runs a popular free online dating service. It was founded in 2003 and has grown to be a massive global presence, being ranked the number one dating site worldwide in 2011. In addition to their website, pof.com, Plenty of Fish also has mobile apps for iPhone and Android.

On March 25, 2015, it was announced that Plenty of Fish had voluntarily entered into an undertaking with the Chief Compliance and Enforcement Officer of the CRTC. The undertaking resulted from emails that Plenty of Fish sent to registered users of its dating service between July 1, 2014 and October 8, 2014 that contained an unsubscribe mechanism that, according to the CRTC, “was not set out ‘clearly and prominently’ and was not able to be ‘readily performed’”. The emails in question were contrary to sections 6(2)(c) and 11(1)(b) of the statute, as well as sections 2(2) and 3 of the regulations.

In addition to the $48,000 payment, Plenty of Fish has undertaken to implement a compliance program and ensure that third parties that send messages on its behalf will also comply with the Act and the Regulations. The compliance program, which will be implemented by Plenty of Fish, will include training and education for employees, monitoring, and disciplinary procedures, among other things.

It is interesting to note, that while Plenty of Fish took steps to remedy the situation by updating its unsubscribe process to comply with the legislation and has since agreed to develop a compliance program including staff training, Compu-Finder was ordered to pay a much more substantial fee of $1.1 million after the CRTC found that it has “flagrantly” flouted CASL.

These decisions are instructive in three respects. First, the facts serve as a reminder of the kind of conduct that can give rise to liability under CASL for businesses that communicate electronically with their customers and others (which is most businesses in the modern world) and the need for vigilance and appropriate advice to ensure compliance. Second, the decisions give businesses and the lawyers who advise them a sense of monetary and non-monetary penalties that can result from a breach of CASL. Third, the decisions, and variance in fines, demonstrate that, although the CRTC is willing to issue tough penalties, parties are more likely to receive favourable treatment if they respond quickly and work with the CRTC to develop a plan to address compliance issues.

 

And so it ends…The Final Chapter of the Long-Gun Registry in Canada a.k.a The Limit of Cooperative Federalism

Posted in Constitutional
Comment

Today, the Supreme Court of Canada, in a judgment that revealed a deep divide between Justices from Quebec and those from the rest of Canada, wrote the final chapter in the long-gun registry saga. In a 5 to 4 decision, with all 3 Quebec Justices in the minority, the Court dismissed Quebec’s constitutional challenge to federal legislation that mandated the destruction of long-gun registry data, including data that originated from Quebec. Quebec intends to establish its own long-gun registry and sought an order compelling the federal government to transfer data from the now abolished federal long-gun registry.

Approximately 15 years ago, a former federal government established the Canadian long-gun registry. It was a contentious policy decision and, ultimately, when a new party was elected, it passed legislation to abolish the registry. In doing so, it also passed a provision calling for the destruction of all of the data from the registry. Quebec applied for an order that this provision was unconstitutional as it offended “cooperative federalism” and for an order that the data originating from Quebec be transferred to it. It was successful at the trial level but that decision was overturned by the Quebec Court of Appeal. The Supreme Court of Canada has now dismissed the appeal.

The majority decision was written jointly by Justices Cromwell and Karakatsanis. Quebec argued that there was a partnership between the federal and the provincial governments to work together to achieve both a federal purpose, the criminal law, and a provincial purpose, public safety. It was argued that in ending this partnership, each party’s constitutional authority must be guided by the unwritten constitutional principle – cooperative federalism – such that neither Parliament nor the provinces can pass legislation to terminate such a partnership without considering the foreseeable consequences to do so on the other partner’s constitutional powers.

The minority judgement agreed with this analytical framework and went on to find that the specific purpose of the federal enactment was not just to destroy the data but to do so for the specific purpose of ensuring that the provinces did not set up their own long-gun registries under a valid head of provincial constitutional power.

The majority decision bluntly rejected this framework. They wrote that “Quebec’s position has no foundation in our constitutional law…”.  The majority went on to write that cooperative federalism is a concept used to provide flexibility in separation of powers doctrines such as federal paramountcy, to facilitate interlocking legislative schemes and to avoid unnecessary constraints on provincial powers  It does not, however, impose limits on an otherwise valid exercise of legislative power. The court wrote:

To hold otherwise would undermine parliamentary sovereignty and create legal uncertainty whenever one order of government adopted legislation having some impact on the policy objectives of another.  Paradoxically, such an approach could discourage the practice of cooperative federalism for fear that cooperative measures could risk diminishing a government’s legislative authority to act alone.

The majority did, however, open the door to this argument being reconsidered in different circumstances. The majority decision relied on the fact that the impugned legislation was not dependent on any provincial legislation. If it had, “different consideration might arise” where there is a “truly interlocking legislative framework.”

And so the saga of the long-gun registry in Canada ends with a discussion of the limits of cooperative federalism. Quebec, however, will not be deterred and shortly after the release of the Supreme Court of Canada decision reaffirmed its intention to go it alone and create its own separate long-gun registry from scratch – without this data.

Ontario Court Issues Precedent-Setting Decision on Cyber-Libel

Posted in Defamation
Comment

In a recent precedent-setting case, the Ontario trial court considered the boundaries of what is acceptable speech in the internet blogosphere. The case is one of first impression in Canada. As the court observed: “Political debate in the Internet blogosphere can be, and, often is, rude, aggressive, sarcastic, hyperbolic, insulting, caustic and/or vulgar. It is not for the faint of heart. This case is an action in defamation involving political bloggers on the Internet.”

Overview

In Baglow v. Smith, 2015 ONSC 1175, the Ontario Superior Court of Justice dismissed a claim for defamation brought by left-wing political blogger (“Dr. Dawg”) against a conservative blogger and the moderators of an online message board entitled “Free Dominion” that catered to conservative viewpoints. The court found that the statement made about the plaintiff – that he was “one of the Taliban’s more vocal supporters” – was defamatory, but held that it was protected by the defence of fair comment.

The court heard extensive testimony over many days, including evidence from a court-appointed expert in media and communication on the nature of political blogs and other online communication, and the battle between the left and right in the political blogosphere played out in the courtroom during the trial.

Those who operate blogs or message boards can be held liable

The moderators of the message board argued that they should not be held liable for merely maintaining a message board when they did not write, edit, or modify the impugned words. Supported by the Canadian Civil Liberties Association, which intervened in the case, they argued that holding message board operators liable would be an unconstitutional violation of free expression because they would be forced either to immediately take down a posting upon complaint or face liability as publishers for something they did not author. They argued that the spectre of such liability would have a chilling effect on the flow of information and the freedom of expression and debate.

The court rejected this argument, finding that the moderators set up the message board with a specific political point of view. They were not mere passive bystanders but had the ability to control content on the board, as shown by the board’s terms of use. The court held that acceding to the defendants’ argument would leave potential plaintiffs with little ability to protect their reputations. The moderators were therefore “publishers” who were potentially liable.

Context matters (a little?) when deciding what is defamatory

The court heard considerable evidence and submissions regarding the “rough and tumble nature” of new media platforms. The court observed that political discourse on blogs and message boards, particularly those which are partisan, is qualitatively different than political discourse in more traditional media such as newspapers and television. However, the court refused to find that “anything goes” in the blogosphere, even bearing in mind its unique context and audience. In the end, the court held that the statement in question was defamatory of the plaintiff as tending to lower his reputation in the eyes of a reasonable person.

Defence of fair comment

In the result, the court dismissed the action on the basis that the statements were protected by the defence of fair comment. The topic at issue was the treatment of Omar Khadr, a Canadian, by the American armed forces. The court found that (1) the topic was one of public interest; (2) the comment was based on known facts; (3) the defamatory statement was an opinion, rather than a statement of fact that was capable of proof; and (4) the opinion was one which a person could honestly express on the proved facts, whether reasonable or not.

Key implications of the decision

As the court noted in the decision, the decision is a case of first impression on an important topic. At least two points stand out:

1.                  The finding that those who operate a message board “publish” its content is a potentially significant and far-reaching aspect of the court’s decision, as it may greatly expand the potential liability of those who merely operate message boards and blogs on which others post content.

2.                  Despite much discussion in the judgment regarding the need to take into account the unique nature of blogs and message boards, it is not clear that courts will apply an appreciably different standard when determining what is defamatory, though some comments in the decision may leave more room for that argument in future cases.

Apples, Patents and Trolls, Oh My!

Posted in Intellectual Property
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EAST TEXAS – On February 25, 2015, Apple Inc. was found liable for patent infringement on three patents owned by Smartflash LLC and ordered, by an East Texas jury, to pay Smartflash LLC the princely sum of $532.9 million dollars in damages for the infringement.

Smartflash LLC owns patents that cover methods for digital rights management over songs and software, and methods of paying for songs, games, and other forms of data. These are not patents for the hardware, as such, but more for the processes encompassed by the software. In the context of this case, Smartflash made clear that it believes it is owed money for essentially the entire world of paid digital content. The claims against Apple assert that not only do the iTunes Store and App Store infringe on its patents, but so do any product that connects to those stores, including iPhones and iPads.

To be clear, the plaintiff, Smartflash LLC does not sell software, or hardware, or indeed anything at all. It is, rather, a company known as a “Non-Practising Entity”, a “Patent Assertion Entity” or, less charitably, a “Patent Troll”. NPEs, PAEs, or patent trolls, do not make products, but instead acquire patents, often assembled into a portfolio, and “leverage” them for royalties. In practical terms, this equates to suing companies for alleged patent infringement and, usually, extracting a settlement in the form of damages and future royalty payments, often in the face of the threat of injunctions that would stop the defendant from utilizing the key technology in dispute for an indeterminate amount of time.

East Texas is known for many things: bayous, Janis Joplin, and for being an extremely favourable jurisdiction for patent lawsuits, with a well-earned reputation for speedy trials and plaintiff-friendly juries. Smartflash LLC, whose business consists entirely of licensing seven patents, has its office in Tyler, Texas, just down the street from the courthouse.

The case had some intriguing elements. In support of its (successful) claim that Apple had wilfully infringed its patents, Smartflash LLC pointed to a 1999 meeting that its founder, Patrick Racz, had with an executive who ended up being a senior director at Apple. In addition, Smartflash LLC is an atypical patent troll; it appears that it did at one time actually intend to manufacture products, even going so far as to sponsor a European tour by Britney Spears as promotion for its intended music player. The tour was reportedly cancelled in the aftermath of 9/11. The music player or service never materialized.

The specific reasons for the verdict may never be known. As it was a jury verdict, written reasons are unavailable. Rather, the jury, with a succinctness some would find impressive and others terrifying, answered the question: “Did Smartflash prove by a preponderance of evidence that Apple infringes the following claims of [the following] patents?” with one word: “Yes”, and the question as to damages as follows:

Q: What sum of money, if paid now in cash, do you find from a preponderance of the evidence would fairly and reasonably compensate Smartflash for Apple’s infringement of Smartflash’s patents?

A: $532,900,000.000

The not-so-detailed decision can be found here.  Part of the reason for the existence of patent trolls can be found in the breadth of ideas for which patents are granted. There has been much criticism, particularly in terms of patents regarding software, or processes, that the wording of the patents is too vague and broad, so that instead of patenting an invention, the patent holder has gained a monopoly over an idea, e.g.: paying for music that one can download.

Many countries struggle to balance the need to reward innovation and protect novel and useful ideas, with the need to provide a transparent and understandable system that does not allow one entity to claim ownership over a concept. Reform efforts are, ironically, often stymied by those who suffer the most from the onslaught of patent trolls. For example, large technology companies also accumulate patent portfolios beyond what they themselves have developed, effectively weaponizing them in order to use them against competitors. Together with Blackberry, Ericsson, Microsoft and Sony, Apple is itself a member of a consortium known as Rockstar Consortium Inc., itself a Non Practising Entity, created to hold and licence a number of patents from the bankrupt Nortel. Rockstar was listed by Business Insider in 2012 as the “third most fearsome patent troll” around. What is sauce for the goose is apparently sauce for the gander.

Recently, in Canada, it was companies such as Cisco and Blackberry who opposed proposed legislative reforms  that were intended to make it more difficult for patent rolls to bring claims (and extract settlements) from targets large and small. In the U.S.A., the Innovation Act, specifically introduced to try and curb frivolous lawsuits brought by patent trolls, died in committee in the Senate, as the Judiciary Committee had “heard concerns” that the measures would have “severe unintended consequences on legitimate patent holders who employ thousands of Americans.”

Sometimes, reform efforts go hilariously wrong. In 2001, Australia rolled out a system that would allow for “innovation patents” that incorporated a simplified application process, removing the necessity of having a lawyer or patent agent prepare the application. One individual decided to emphasize the potential for abuse of this new system by applying, and receiving an innovation patent for, a “circular transportation facilitation device,” a.k.a.: the wheel.

Large technology companies often victimized by patent trolls are also not above seeking patents for apparently broad and obvious inventions. For example, Apple is the proud holder of a patent for “The Ornamental Design for a Portable Display Device,” describing how a tablet or phone might have rounded edges.

In Canada, we have largely been spared the scourge of patent trolls. Two commonly cited reasons for this are the fact that a portion of legal fees are shifted to the unsuccessful party in a lawsuit, unlike many jurisdictions in the U.S., and the fact that injunctions are much harder to come by in Canada than south of the border. The threat of such an injunction, which seeks to prevent a defendant from making its product or using a process, pending trial, is significant leverage with which to seek a settlement. In 2006, Blackberry, facing an injunction in the U.S. which would have shut down its entire messaging service (and, by extension, a large portion of the U.S. Government’s mobile devices, affecting 300,000 workers) agreed to settle a suit with an NPE for USD $612 million.

However, in Canada, and specifically in Federal Court where most patent litigation takes place, an applicant for an injunction to restrain alleged violation of a patent must show that it will suffer “irreparable harm” if the injunction is not granted. Irreparable harm is generally defined as harm for which monetary damages will not be a sufficient remedy. The fact that a patent troll is, usually, specifically seeking damages, in the form of royalties or a licensing fee,  significantly undercuts an argument for irreparable harm. Accordingly, it is that much more difficult to obtain an interlocutory injunction, and thus, the same kind of leverage.

That is not to say that Canada is entirely without patent trolls. In the last few years, one company, Dovden Investments Ltd. has accounted for an impressive 42 actions for patent infringement – approximately 1/3 of the patent infringement actions filed. None have been pursued actively in Court, let alone gone to trial, and the majority appear to have settled, or at least been discontinued. Dovden does not make or sell products to the public but instead is an NPE, with an ostensible business model of seeking to license the patents it holds using the threat of patent litigation. Certain of its software patents relate to the transportation sector and a number of municipal transportation authorities have been sued. However, in 2013, the Canadian Urban Transportation Association filed its own suit against Dovden, going on the offensive in seeking a declaration that Dovden’s patents are invalid. In this case, turnabout does not appear to be considered fair play. As of February 18, 2015, Dovden does not appear to have participated in the suit, and a hearing for default judgment is set to be heard in June.

Meanwhile, in East Texas, Apple has said that it plans to appeal the verdict. Historically, East Texas jury awards are reduced substantially on appeal. However, Smartflash LLC, buoyed by its success, will likely now pursue lawsuits it had previously filed as against Samsung, Google, and Amazon.  Apple is also in Smartflash LLC’s crosshairs once again –  the day after it received the $532.9 million jury award, Smartflash filed another lawsuit against Apple in respect of the iPhone 6, iPhone 6 Plus, and the iPad Air 2. There is no word yet on whether Smartflash LLC has sought to renew its sponsorship of Britney Spears with its newfound wealth.

Assisted Suicide: The Beginning of the End

Posted in Administrative/Regulatory, Constitutional, Public Law
Comment

In the recent case of Carter v. Canada, the Supreme Court of Canada declared invalid the Criminal Code prohibitions against physician-assisted suicide.  Those provisions made it a crime for a person to “consent to have death inflicted on him” (s. 14) and to “aid or abet a person to commit suicide” (s.241(b)).  The SCC found this blanket prohibition was a breach of the Charter right to “life, liberty and security of the person and the right not to be deprived thereof except in accordance with the principles of fundamental justice” (s.7) which could not be justified under section 1.  This decision is a reversal of the SCC’s 1993 decision in Rodriguez.

The decision has already been and will continue to be the source of considerable editorial comment and debate.  The press, politicians, the medical profession, religious and other interest groups will all provide competing views of the pros and cons of the decision and its impact.  Parliament will need to address the fallout and, should it chose, create a legislative and regulatory framework to achieve the objective originally served by the impugned sections of the Criminal Code: the protection of the vulnerable from taking their lives in times of weakness.

What was the Court’s reasoning (in a nutshell) and what additional points arise besides the immediate result of effectively legalizing physician-assisted suicide in Canada in appropriate cases.

First, the SCC agreed with the trial judge that changes and elaborations to the legal analysis of Charter cases, along with changes in medical practice and societal views on euthanasia, in the 23 years since the Rodriguez case meant it was appropriate to reconsider the constitutionality of prohibiting physician-assisted suicide.  Since Rodriguez, physician-assisted suicide became lawful in eight other jurisdictions.  Based on the experience in those places, it was shown that safeguards could be put in place that would detect coercion, undue influence, and ambivalence in patients who sought assistance to bring about their own deaths.  It was accepted that physicians were capable of reliably assessing patient competence, including in the context of life and death decisions.

The SCC then conducted an analysis of whether the current prohibition was a violation of s.7 of the Charter.  This Charter right was engaged for a number of reasons.  The current law increased the risk of death because it may compel patients to take their lives earlier (by their own hands) than they otherwise would have if assistance was allowed.  It also denied seriously and irremediably ill patients the opportunity to make a choice (to die) that may be very important to their sense of dignity and personal integrity.  As a result, the current law violated the right to life and the right to liberty and security of the person.

The next issue was whether, as a result, the law violated the principles of fundamental justice.  Was it arbitrary or overbroad?  The current law was found not to be arbitrary because a prohibition on physician-assisted suicide is rationally connected to the object of protecting the vulnerable from ending their lives in a time of weakness.  However, the law was held to be overbroad because it captured everyone, not just the vulnerable.  Entirely competent and willing patients were deprived of the ability to end their lives at the time of their choosing.

Having found a Charter violation, the SCC then needed to decide whether the infringement was nonetheless justified on a societal level (the “section 1 analysis”, the Charter’s “saving provision”).  To be saved, an impugned law that otherwise infringes a Charter right must be shown to be “rationally connected” to the object it seeks to achieve, it must result in “minimal impairment” of individual rights and it must be proportional between its deleterious and salutary effects.  While the current law is “logically connected” to its object, it is not the least harmful means of achieving that goal: the impairment of a Charter right was not minimal.  This finding was made because of the evidence that:

“the risks inherent in permitting physician-assisted death can be identified and very substantially minimized through a carefully-designed system imposing limits that are scrupulously monitored and enforced.”

Given all this, the current law could not be saved.  The SCC thus granted a declaration that the law was invalid.  Specifically, the Criminal Code provisions:

“are void insofar as they prohibit physician-assisted death for a competent adult person who (1) clearly consents to the termination of life; and (2) has a grievous and irremediable medical condition (including an illness, disease or disability) that causes enduring suffering that is intolerable to the individual in the circumstances of his or her condition. “Irremediable” . . . does not require the patient to undertake treatments that are not acceptable to the individual.”

You can be certain the precise meaning and scope of these words will be closely dissected in the coming months and years, particularly by parliamentarians and the medical profession as they wrestle to come up with the “appropriate remedy”.  It will not be an easy task.  That is likely why the SCC suspended the effect of this declaration for one year in order to give Parliament “the opportunity to craft an appropriate remedy.”

For anyone interested in understanding how Canadian courts deal with complicated issues such as this, and about the courts’ interplay with legislatures, the Carter decision is a worthwhile read.  Among other things, it provides a good illustration of how the law is developed incrementally over time and, further, how the courts are willing to revisit and change established law if there are circumstances or evidence that “fundamentally shift the parameters of the debate.”  The Carter decision demonstrates the ability of a single citizen to raise for debate serious questions and issues that affect all Canadians, even when the politicians refuse to do so.  This ability makes for a stronger society and a healthy democracy.  The case is also a good illustration of the ability of the courts to oversee and moderate legislation in order to make sure that all our fundamental rights and freedoms, embodied in the Charter, remain paramount.

Lastly, the reasoning in Carter suggests that the upcoming case of Cambie Surgeries Corporation v. Medical Services Commission of British Columbia will likely result in a finding that the current prohibition on direct billing for medical services is also a Charter violation.  Section 7 of the Charter protects the right to make fundamental personal choices and to control