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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Likely to the relief of publicly traded companies, the B.C. Supreme Court recently dismissed a claim in defamation over a corporate news release that provided general information about the intended response to a lawsuit.  The court did so on the grounds that news releases issued by companies to report on litigation brought against them are published on occasions of either absolute or qualified privilege.  As such, the content of the news releases, even if defamatory, are protected and cannot be the basis for a defamation claim.

The case, Merit Consultants International Ltd. v. Chandler, involved the cancellation of a consulting contract between the plaintiff, a consulting firm, and Redcorp Ventures Ltd., a publicly traded mining exploration company.  The plaintiff sued Redcorp for breach of contract after Redcorp unilaterally terminated the plaintiff’s services.  In response, Redcorp issued a news release stating that it had good reason to terminate the plaintiff’s contract and intended to “vigorously defend the action and counterclaim alleging negligence and breach of contract on the part of Merit that has caused damage . . . , and for costs”.  Subsequently, Redcorp was assigned into bankruptcy, effectively ending the plaintiff’s breach of contract claim.  Undeterred, the plaintiff then started a claim against Redcorp’s directors alleging that the news release was defamatory. 

The issue before the court became whether or not a news release, even if defamatory, was protected by a defence of privilege.  The directors (in addition to pointing out they individually had not published the news release) argued that the news release was protected by either absolute or qualified privilege.  Absolute privilege protects any publication, even if defamatory.  Speeches in Parliament and evidence given at trials are examples of occasions protected by absolute privilege.  Qualified privilege protects a publication when it is made to persons who have a duty or interest in receiving it and if it is made for a proper purpose.  Qualified privilege can be defeated if the defamatory comments were made maliciously, meaning for an improper purpose.  An employee reporting to their employer or a patient to their doctor are examples of occasions of qualified privilege.  Generally, the scope of publication on occasions of qualified privilege is quite limited.

The interesting point in this case is that the news release was made available to the world, not just a limited audience.  The court began its analysis by highlighting the principle of openness in the judicial system and noted that this included the right to publish and comment on documents filed with the courts, including civil claims filed by litigants.  The news release in this case gave notice of a material event involving Redcorp (the litigation) to people who may have an interest in knowing about it such as shareholders, employees and creditors.  The court viewed it as illogical that a person could commence a lawsuit making serious allegations of wrongdoing affecting Redcorp and be immune from a defamation claim but that Redcorp could not make any responsive comment about that lawsuit without risking a defamation claim. 

The court found it reasonable for Redcorp to advise those who had an interest in its affairs that the lawsuit would be defended, the grounds of the intended defence and the prospect and nature of a counterclaim against the plaintiff.  As the Court noted, “the notion that one party can initiate process against another and then somehow claim to be defamed if that party says how it intends to respond makes a trap out of what is meant to be protection against truly egregious behaviour.  The mild allegation that one intends to sue for breach of contract and negligence in response to a claim for breach of contract is nothing of the kind.”

The underlying reason for this was the public interest in freedom of expression by participants in judicial proceedings.  In dismissing the claim, the court did not decide whether the applicable privilege was absolute or qualified as it found either would succeed.  There was no allegation or evidence the news release had been issued maliciously.

This decision is good news for companies who wish to make public comment relating to ongoing litigation in which they are involved.  Provided the statements made are related to the lawsuit and are not egregious, they will be immune for claims of defamation.