Western Canada Business Litigation Blog

Promissory Notes and the Limitation Act

Posted in Commercial
Comment

A promissory note is a written promise by a borrower to pay a sum of money to a lender upon the occurrence of an event, usually a demand for payment.  Promissory notes are often used by friends and family members to record loans made between them.  No one expects there to be problems at the outset and all are sure the loan will be repaid at some point.  But how long do promissory notes remain enforceable?  What happens if the friendly understanding behind the loan is undermined by a falling out?  The short answer is whether a promissory note remains enforceable depends both on what type of note it is and when it was given.

In law, there are two types of promissory notes: a note for a demand loan and a note for a contingent loan.  A demand loan is a loan payable on demand by the lender.  A contingent loan is a loan payable at a future date upon the occurrence of a specified event.  Prior to the enactment of the current Limitation Act, the limitation period for a demand loan began to run on the day the loan was advanced, not on the date demand was subsequently made.  Despite the fact that the loan was not repayable until “demand”, courts held that the limitation period for such loans began to run on the day of the advance because, as a matter of law, it was not necessary to make demand before suing on the note.  If a lender did not sue on the promissory note within six years of the date of the loan, the claim was barred by the Limitation Act.  Six years was the applicable limitation period.

However, the same was not so for promissory notes for contingent loans.  For these notes, the limitation period only begins to run from the date of the contingent event that triggers the obligation to repay.  One type of contingent loan is that repayment is not required until a stated period after demand has been made, such as in the case of Ewachniuk Estate v. Ewachniauk.  Another common example would be a loan from parents to assist in buying a house and which is not repayable until after the house is sold.  In such a case, the parents had six years (now two) after the sale of the house to sue for repayment of the loan, no matter how long ago the loan was first given.

If you hold a promissory note for a demand loan made more than six years ago, then you may have difficulty suing to recover the money lent.  Such were the circumstances in the recent decision of Kong v. Saunders.  The Kongs lent money to their son and his wife to help the couple  buy a house.  The loan was recorded in a promissory note as a demand loan.  Many years later, the son separated from his wife and they both fell out with the parents.  The Kongs sued to recover the $160,000 loan.  The Court of Appeal held that, as it was a demand loan, the limitation period had expired long before the Kongs sued and it was now too late to do so.

Things changed on June 1, 2013 when the current iteration of the Limitation Act came into force.  Though it reduced the basic limitation period from six years to only two, it also enacted a provision that changed the previous law on when a demand loan limitation period begins.  The new provision, section 14, provides that “a claim for a demand obligation is discovered on the first day that there is a failure to perform the obligation after a demand for performance has been made”.  Though the language appears odd, it echoes other sections in the Limitation Act that address when a limitation period begins.  In short, a limitation period begins once the claim is “discovered”.  This means that a demand loan is now truly a demand loan: it only becomes payable once demand is made; not, as previously, on the date the loan is first made.  But, this new provision is only applicable to promissory notes made after June 1, 2013.  The old law and old Limitation Act apply to loans and promissory notes granted before that date.

If you are the holder of a promissory note, you should make sure that you are aware of which iteration of the Limitation Act applies and when the limitation period applicable to this demand obligation begins to run.  If you do not, you may discover that the loan is unenforceable when you do seek repayment.

How Solid is Your Rent Guarantee?

Posted in Real Estate
Comment

A recent case from the BC Supreme Court has highlighted yet again that a guarantee or indemnity of a lease (here now referred to as an “Indemnity”) does not necessarily assure payment to a landlord following a default by a tenant.  The terms of the Indemnity must be carefully scrutinized and examined to determine if the specific circumstances outlined in the document are engaged in order for a call to be made on the indemnifier.  A landlord cannot simply assume that because it obtained an Indemnity, it will be made whole if the tenant defaults in payment of rent or otherwise is in default of the lease.

In 848 Courtney Street Holdings Inc. v. JED Enterprises Ltd., 2014 BCSC 2301, a commercial landlord made a claim against a defaulting corporate tenant and its indemnifiers.  The corporate tenant was a shell company that had been established by its principals who happened to be lawyers.  It had no assets and therefore judgment was allowed to be taken against it.  The real dispute was whether the indemnifiers, the lawyers who had been carrying on their law practices from the leased premises, were liable on the Indemnity which they had provided at the outset of the landlord/tenant relationship.  The lease was initially entered in 1999 and had been renewed on two occasions.  At the time of default, there were still 38 months left on the latest term of the lease.  The court outlined the issue before it in these terms:

In the alternative, the landlord seeks damages from the lawyers pursuant to the terms of the indemnity. The damages sought under the indemnity are lower, as the indemnity was limited to 30 months, and the landlord says at the time of the breach, there were 14 left of the 30 months. The landlord also seeks its solicitor and client costs pursuant to a separate term of the indemnity agreement.

The defendants respond to this claim by saying that the indemnity operated for the first 30 months of the first lease term only, and was not renewed or revived each time the lease was renewed or replaced.

Before examining the terms of the Indemnity granted in the case, the court addressed very technical arguments raised by the landlord that the lawyers ought to be liable for the corporate tenant’s default regardless of the indemnity.  Those arguments were rejected and so the landlord was left with making its claim based on the wording of the Indemnity.  The terms of the Indemnity were very ‘landlord friendly’ in that, for example, the lawyers had provided an absolute and unconditional guarantee of payment of rent regardless of a variety of circumstances that may arise.  It was crafted in a way to avoid and address many defences to guarantee or indemnity claims that have evolved over the years.  In other words, based on a superficial reading of the Indemnity in question, it seemed as if the defendant lawyers may have had an uphill battle in defending the landlord’s claims.

However, the case turned on one clause of the Indemnity which provided for a limitation of liability.  The limitation clause provided that the indemnifiers would not be liable for rent accruing due after the 30th month of the term of the Lease.  The first term of the Lease had clearly expired but, as mentioned, the Lease had been renewed on two occasions.  Therefore, the issue was whether the renewal of the Lease also resulted in the restarting of the clock on the 30 month period provided for in the Indemnity.  The parties had been silent and did not address the issue at the time of the two renewals.  The problem the landlord faced was that most of its arguments regarding how the terms of the various documents ought to be interpreted were reliant on the wording of the Lease itself.  The court concluded that because the indemnifiers weren’t party to the Lease and the Indemnity was not included as part of the Lease, the landlord was unable to rely on the lease as an interpretive aid.  As a result, the court found that based on the plain wording of the Indemnity in question, it only was in existence for the first 30 months of the lease and thereafter the Indemnity was no longer in effect even though the lease had been renewed.  The landlord’s claims were therefore dismissed as against the indemnifiers.

This case is another good example of ensuring that when an Indemnity is sought by a landlord in order to support a lease and provide further security for payment of rent, its terms ought to mirror and in fact reflect the business terms that have been agreed upon.  Also, when a lease is renewed, both landlord and tenant will be well served to review the terms of any Indemnity and to either confirm the Indemnity continues or needs to be modified in some respect to once again capture the business terms of the transaction.  Failure to review the terms of any Indemnity at crucial times during the landlord/tenant relationship may result in expectations not being met.  As the old saying goes, the Indemnity “may not be worth the paper it is written upon.”

Interim Preservation Orders: The Civil Forfeiture Act and its “overzealous” use by the Director of Civil Forfeiture

Posted in Civil Forfeiture
Comment

Regrettably, this appears to be a case where the office of the Director of Civil Forfeiture has taken zealous measures outside the proper bounds of its home statute with the unfortunate effect of depriving a citizen of lawful possession and use of her property, putting that citizen to what I suspect is considerable expense and inconvenience to retrieve her property.

Those are the closing words to a recent judgment in which the court dismissed an application by the Director of Civil Forfeiture (the “DCF”) to seize a pickup truck.  These comments are a clear reflection of the court’s displeasure at the DCF’s tactics.

In this particular case, the DCF seized a pickup owned by Roberta Allwright.  Following that seizure, the DCF applied for an interim preservation order allowing the continued detention of the truck, depriving Ms. Allwright of its use, until the substantive issues in the claim were resolved.  If the DCF succeeded, Ms. Allwright would have lost the use of her vehicle for a year or more until the trial.  The DCF’s likely motive was to put practical and economic pressure on Ms. Allwright in an effort to extract from her an advantageous “settlement” (i.e., money) to bring the matter to an end sooner and allow her to retrieve her vehicle.

The pickup was originally impounded by the police on July 1, 2014 when Ms. Allwright’s common law husband was arrested for driving it while impaired.  He had a number of prior impaired and driving while disqualified convictions (though none since 2007).  On July 25, 2014, the DCF commenced a claim seeking forfeiture of the pickup, alleging it was “an instrument of unlawful activity.”  The DCF commenced the claim in Victoria, even though Ms. Allwright and her partner live in Kelowna and the pickup was seized by the police there.  The practical effect of this (a common tactic by the DCF) is to increase the expense and effort of defending a claim for people like Ms. Allwright.

The DCF also obtained a without notice order granting possession of the pickup.  The DCF then sought an “interim preservation order” allowing him to continue to hold the pickup and prevent Ms. Allwright from using it until at least the trial.  Not surprisingly, the CFA is favourably drafted and, on such applications, the DCF needs only to show that “there is a serious question to be tried.”  Earlier case law establishes that the threshold for this test is low.  The DCF needs only to establish its case is not “vexatious, nor frivolous.”  This test is so minimal a judge must grant the order “even if of the opinion that the [DCF] is unlikely to succeed at trial.”

In this particular case, the issue was whether the pick-up was an “instrument of unlawful activity,” a defined term in the CFA meaning, among other things, that it either had been or in future would be used in an unlawful activity where serious bodily injury was likely.

It would have been easy for the court to reason that the pickup, driven by an impaired person, may well have been involved in an accident that might have been serious or to find that Ms. Allwright’s partner, given his history, may do so again in the future.  However, the court did not make these findings.  Instead, the court noted that “the vast majority of individuals who operate a vehicle while impaired do not in fact cause serious bodily harm to anyone.”  Based on this, it could not seriously be contended that the manner of use of the pickup on July 1, 2014 was likely to cause serious bodily harm.  Similarly, the court found that given the absence of any driving offences in the last seven years, Ms. Allwright’s partner was not likely to use the pickup in future to engage in unlawful activity.  This reasoning led to the dismissal of the DCF’s application, the release of the pickup to Ms. Allwright and the Court’s comments that opened this blog post.

The bottom line is that the courts are willing to look very critically at any application for an interim preservation order by the DCF.  It is worth opposing such applications and seeking to deprive the DCF of the tactical advantage he gains in depriving individuals of their assets before the appropriateness of a forfeiture order has been determined.

“Newer Frontiers” – More Mining Litigation in Canada for Foreign Activities

Posted in Negligence
Comment

On September 16, 2014, I blogged concerning the filing of a Notice of Civil Claim in British Columbia in Adolfo Garcia v. Tahoe Resources Inc.  That case concerns a claim against a Canadian parent company for mining activities conducted through a foreign subsidiary in Guatemala.  I noted a trend towards seeking redress against Canadian parent mining companies in Canadian courts.  This trend has been picked up by the press and I was quoted on this topic in the Legal Post on December 10, 2014.

This trend is continuing.  On November 20, 2014, a Notice of Civil Claim was filed in Araya v. Nevsun Resources Ltd.  This is a representative claim brought on behalf of four Eritrean Nationals, now refugees, who allege that they were forced to work at the Bisha Mine in Eritrea.  The Bisha Mine is alleged to be a project operated by an indirect subsidiary of Nevsun (60%) with 40% being held owned by the state-owned Eritrean National Mining Corporation.

The Notice of Civil Claim alleges that Eritrea is a repressive rogue State in which there is a national system of forced labour akin to slavery.  It alleges that this forced labour was used to construct and operate the Bisha Mine.  Further, it is alleged that revenue generated from the Bisha Mine has provided the financial support for a system of “forced labour and human rights abuses”.

The plaintiffs assert the right to bring this claim as representatives on behalf of all Eritrean Nationals who are forced to work at the Bisha Mine from September 2008 to the present claiming damages (general, special, aggravated and punitive).  The plaintiffs are not seeking to certify the claim as a class proceeding.

The allegations made in the Notice of Civil Claim are far-reaching.  From a legal pleadings perspective, the plaintiffs have relied upon both international and domestic law to ground their claim.  The plaintiffs allege that they are entitled to damages for forced labour, slavery, torture and cruel, inhuman or degrading treatment under international law, and damages for crimes against humanity under international law.  Of particular interest, however, is the fact that the plaintiffs also allege that the actions of Nevsun are tortious under British Columbia law.

It is alleged that Nevsun controlled the operations at Bisha Mine and exercised complete control over the actions of the foreign subsidiary or that the foreign subsidiary acted as the agent of Nevsun.  The plaintiffs plead that this conduct amounts to conversion, battery, unlawful confinement and intentional infliction of mental distress.  The plaintiffs also allege that Nevsun condoned the use of forced labour and the system of enforcement and is therefore directly liable for the injuries suffered by the plaintiffs, or alternatively, it failed to stop the forced labour and enforcement practices when it was obvious to it that such activities were occurring.  Further, the plaintiffs say that Nevsun has vicarious liability for Eritrean government entities as well as the Eritrean military who were engaged to further Nevsun’s commercial activities at the Bisha Mine.  There is also an allegation that Nevsun was negligent in that it owed a duty of care in light of its corporate responsibility policies and that it breached the standard of care by failing to act in accordance with customary corporate social responsibility principles, failing to conduct due diligence and failing to adequately investigate and respond to reports of abuse.  There is also an allegation of conspiracy between Nevsun, its foreign subsidiary, Eritrean corporate entities and the Eritrean military.  The final claim is that Nevsun has been unjustly enriched at the expense of the forced labourers who were not paid for their work.  As a result, there is a claim that Nevsun hold its interests in the Bisha Mine “in trust” for the plaintiffs.

Nevsun is another example of the use of traditional and well-known Canadian legal principles in an effort to have claims against Canadian parent companies adjudicated in Canada.  The pleadings in Nevsun expand the use of those principles with claims under international law.  This increased litigation trend dovetails with the announcement of the Canadian government that it issued a new strategy imposing new consequences on foreign extractive Canadian companies operating in foreign jurisdictions who refuse to adhere to corporate social responsibility best practices and the government’s dispute resolution process initiated through the office of the Extractive Sector CSR Counsellor.  This is further evidence that Canadian mining and other extractive industries companies operating in foreign jurisdictions ought to be prepared to defend their activities and the activities of their subsidiaries in Canadian courts as well as before Canadian regulators.

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.