Western Canada Business Litigation Blog

Apples, Patents and Trolls, Oh My!

Posted in Intellectual Property
Comment

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

“Much Ado About Parking”: Contempt and the power to punish

Posted in Civil Procedure
Comment

On January 27, the British Columbia Court of Appeal dismissed the appeal in Bea v. The Owners Strata Plan, LMS 2138, 2015 BCCA 31, upholding the lower court’s decision finding the Plaintiff and her husband in contempt of Court and granting the extraordinary relief that the Plaintiff’s strata unit (the “Unit”) be seized and sold by the respondent (the “Owners”). In doing so, the Court made a bold statement about the scope of its inherent jurisdiction to fashion its own remedies for findings of contempt. The decision was not however unanimous, and the dissent reveals a stark philosophical divide over the question of whether or not the Legislature can direct that the Court’s inherent power to punish for contempt be exercised in specific ways.

The case arose out of a long and contentious relationship between Mr. and Mrs. Bea, on the one hand, and the Owners, on the other. The dispute began when the Owners passed a bylaw which provided for the assignment of specified parking stalls for each unit. This did not sit well with the Beas who decided to fight against this infringement upon a freedom they apparently held dear above all else: to park wherever they liked.

Over a period of six years, the Beas filed multiple petitions and appeals all asserting the same cause of action against the Owners – that the parking Bylaw was ultra vires.  All were unsuccessful.  All were appealed, unsuccessfully, and then new, identical, petitions commenced, which, in turn, were dismissed, appealed, and the appeals dismissed.  Both the Supreme Court and the Court of Appeal found the Beas to be vexatious litigants who engaged in abuse of the litigation process, and ordered them not to file any further petitions, applications, or appeals without leave of the Court.  They would not however be deterred from their goal; this too they ignored, variously claiming to have obtained leave when they had not, disregarding any and all costs orders, and pressing on. For the Beas, such was the price of liberty (to park).

On January 31, 2014, Madam Justice Koenigsberg found Mr. and Mrs. Bea in contempt of court and ordered each of them to pay a fine of $10,000.  In making her ruling she noted:

The contempt in question is longstanding and persistent.  Every step a court can take to prevent a litigant to continue to abuse its process and cause very significant stress and damage to his neighbours, in this case, all other members of the Strata Plan, has been flouted by Mr. and Mrs. Bea.  Not one order as to costs has been paid, including security for costs.  There have been in excess of 40 applications to this Court and the Court of Appeal, including hearings to challenge each and every cost award where it was not made specific, and probably attempts to challenge those, but I do not actually know.

Needless to say, the fines imposed by Madam Justice Koenigsberg were not paid.  In a subsequent application by the Owners, Mr. Justice Grauer ordered that the Unit be seized and sold as soon as practicable, having found that nothing else would end their persistent and ongoing contempt of Court. In a move that surprised precisely no one, the Beas appealed the decision.

The main issue for the Court of Appeal was whether or not the Court had the authority to order the seizure and sale of the Beas’ property as part of its inherent power to punish for contempt.  Rule 22-8 of the Supreme Court Civil Rules deals with applications for contempt and specifically states: (1) the power of the court to punish contempt of court must be exercised by an order of committal or by imposition of a fine or both(emphasis added).

Thus, the question for the Court of Appeal was whether or not the language of Rule 22-8, and specifically the use of the word “must”, meant that Justice Grauer had no jurisdiction, inherent or otherwise, to impose a punishment for contempt that involved the seizure and sale of the property.  The Beas argued that the only choices available to the Court were a imposition of a fine, or imprisonment, as per the language of the Rule.  The Owners argued that the Court’s contempt power is an inherent power of the Court and is not limited by the language of the Rule, but is instead intended to allow the Court to protect its process however it deems necessary.

The appeal was dismissed. Madam Justice Garson, writing for the majority, discussed, at length, the basis of the court’s inherent jurisdiction to punish for contempt, including its historical roots.  After examining the use of sequestration as an historical punishment for contempt, or tool for enforcement of orders, the majority concluded that sequestration is a protected part of the core of the court’s Inherent jurisdiction. Relying on the seminal article on the inherent jurisdiction of superior courts by I.H. Jacob, the majority concluded that the Court’s powers in this respect are “complementary to its powers under the Rules of Court; one set of powers supplements and reinforces the others.”  In determining that the legislature’s rule-making power could not detract from or limit the court’s inherent jurisdiction to punish for contempt, the majority held that Rule 22-8 could not be read as an exhaustive codification of the court’s power to punish for contempt.  Instead, the Rule, notwithstanding its mandatory language, must be read as complementary: the Rules of Court being in addition to and not in substitution for the powers arising from the inherent jurisdiction of the court. Accordingly, the court had the authority to order the seizure and sale of the unit as punishment for contempt.

The majority further concluded that the imposition of this punishment was appropriate in the circumstances.  The remedy’s primary purpose was the cessation of persistent, contumacious behaviour. The Strata in this case consisted of about 35 modest units and the numerous proceedings that the Beas had inflicted upon the Owners had cost the Strata an enormous amount in legal fees.  The chambers judge had found that it was Mrs. Bea’s continued ownership of the Unit that fueled the interminable, vexatious, court applications and that forcing the sale was the only way to end them.  In affirming the propriety of the remedy, the majority stated:

The protected core of a superior court’s inherent jurisdiction to punish for contempt exists to prevent a court from being rendered feckless in the face of continued abuse of its process.  A court must not allow itself to be used as an instrument of continuing injustice as innocent bystanders are put to continued expense and inconvenience for no legitimate purpose. (emphasis added).

Mr. Justice Goepel wrote a strong dissent to the majority’s opinion, stating that the court’s inherent jurisdiction is not unlimited and that Rule 22-8 prescribed, in clear language, the two options available to the court in making a contempt order – fine or imprisonment.  Reasoning that that the legislature has the authority to structure how the courts will exercise their inherent jurisdiction, he concluded that Rule 22-8 was an example of the “well-settled principle that the Legislature may limit and structure the ways in which the superior courts exercise their inherent powers.”

As the plain language of Rule 22-8 provided a complete and comprehensive list of the options available to the chambers judge to punish for contempt, there was no ability to order the seizure and sale of the Unit.  Therefore, the minority would have ordered the matter back to the chambers judge, to impose a penalty prescribed by Rule 22-8.

While the facts of this case were extraordinary, and the remedy very specific to them, the case is notable for its assertion that the Court can go beyond the apparently mandatory language of the Rules of Court, and impose creative – and in the case draconian – punishments for contempt of court.  It remains to be seen whether the Supreme Court will interpret this case as a license to innovate in punishing for contempt, or simply an example of extraordinary litigants meriting extraordinary punishment.  It is also not known where the Beas are currently parking.

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.