While most commercial leases or property sale agreements contain express terms dealing with this subject, there are occasions where a tenancy ends or a property is sold that brings a fight over what may be removed and what must stay with the land.  This generally arises where the written lease or property sale agreement is either ambiguous or silent on the subject or, in some cases, where there is no written agreement at all.  The legal test for determining whether an object is a chattel or a fixture is well settled.  It was articulated at the turn of the last century in cases such as Stack v. T. Eaton Co. (1902), 4 O.L.R. 335 (Ont. Div Ct.).  That test has repeatedly been adopted in British Columbia[1] and is articulated as follows:

1. Articles not otherwise attached to the land than by their own weight are not to be considered as part of the land, unless the circumstances establish that they were intended to be part of the land.
2. Articles affixed to the land even slightly are to be considered part of the land unless the circumstances establish that they were intended to continue as chattels.
3. The circumstances necessary to alter this primâ facie character of the objects are the degree of annexation and the object of such annexation, “which are patent to all to see”.
4. The intention of the person affixing the object to the soil is material only so far as it can be presumed from the degree and object of the annexation.

More colloquially, the test has been expressed as “whether annexation of equipment was for the better use of the equipment or for the better use of the realty to which the equipment was annexed”: Heathron Developments Ltd. v. Kemp Concrete Products, (1999) 56 B.C.L.R. (3d) 284 (B.C.C.A). 

In reasoning that, quite frankly, could have gone either way, the Court found that the disputed items were chattels and remained the vendors’ property.  For each particular object, the court reasoned that, though affixed to the land in some way, they were either not that affixed and/or were so for their own better use rather than the better use of the land.  For example, here is what the court wrote of the roller mill and augers:

. . . the rollermill and the augers were easily moveable. The bolts and hard wiring and other connections annexing [them] to the structure are simple to disconnect and allow for their easy removal.   . . . while the rollermill and the augers are attached to the land, . . . these are relatively minor attachment systems.  I conclude that the annexation of the rollermill and augers were for the better use of the grain grinding system, not for the better use of the land to which the system was annexed. I find that the annexation of the rollermill and the augers were for the better use of the grain breaking system, not for the better use of the land to which the items were annexed.  I find the rollermill and the augers were chattels . . .

It would not have been difficult for a court to go the other way and find that these items were affixed to the land (making them prima facie fixtures) and were for the better use of the land as a ranch rather than the individual pieces of equipment for their distinct purpose.  A possible clue to the outcome was that the vendors (two couples) had originally been compelled to sell their ranch by court order when they had a falling out.  The Court may not have wanted the purchaser to benefit from the unfortunate demise of a previously successful ranch. 

An example of a case that could also have gone either way but went the other is Westshore Terminals Ltd. v. British Columbia, 1999 CanLII 6069 (B.C.S.C.).  Westshore operates a coal terminal that includes very large shiploaders and stacker-reclaimers.  This equipment is mobile and rests by its own weight on railway tracks.  The government concluded they were all chattels and, therefore, the maintenance and repair costs were subject to taxation under the Social Services Tax Act.  On an appeal by Westshore, the court held that the shiploaders and stacker-reclaimers were not chattels but fixtures and, therefore, not subject to taxation.  The court reasoned that these pieces of equipment were:

. . . connected to the land by their own weight as guided with wheel flanges, by the power cable, and by the threading of the conveyor belt through them.  They are, . . ., attached to the land.  The degree of that attachment is significant given the magnitude of a dismantling task and the size of the structures.  Further, without them the thirty-six gauge and sixty gauge rail lines are useless.  The degree of attachment of these structures encompasses the attachment of the rail to the land and the fact that the rails exist only to carry the stacker-reclaimers and the shiploader.

Underlying this reasoning may have been the premise that taxing repair and maintenance costs on expensive, large and purpose built equipment may have served as a disincentive to carry out those tasks and create a dangerous situation.

While these two illustrations are not landlord/tenant cases (and therefore do not touch on the issue of “tenant’s fixtures”), their articulation of the chattel/fixture test is equally applicable in the context of tenancies, whether residential or commercial.  If you want to keep things you have installed on land you either lease or are about to sell, it would be wise to get the agreement of your landlord or purchaser up front.  With a landlord, make sure your rights to do so are protected in the lease by, for example, including a “tenant’s fixture” clause.  With a purchaser, make sure you set out in the contract of purchase and sale the items that are excluded from the sale price.  Failing that, you may face a dispute over the nature of the objects that are both valuable and critical to your business.  That is a dispute which, based on past case-law, could go either way.

[1] For example, see La Salle Recreations Ltd. v. Canadian Camdex Investments Ltd. et al, [1969] 4 D.L.R. (3d) 549 (B.C.CA.), and Turismo Industries Ltd. and Western Prospectors Ltd. v. Kovacs et al., [1976] 72 D.L.R. (3d) 710 (B.C.C.A).

The case of Mr. Tsoi and Mr. Lai is a good example.  Mr. Lai ran an illegal mah-jong business and would lend money to his customers at outrageous interest rates.  Mr. Lai asked Mr. Tsoi to lend him $50,000 to fund these loans.  Mr. Tsoi agreed provided Mr. Lai paid him simple interest of 60% annually (Section 347 of the Criminal Code precludes interest greater than this).  For a time, Mr. Lai paid Mr. Tsoi the required interest but then stopped.  Mr. Tsoi sued for breach of the unwritten loan agreement and for unjust enrichment.

The first issue was whether Mr. Tsoi knew whether the loans would be used in the mah-jong business.  If so, Mr. Tsoi was involved in the promotion of an immoral and illegal activity.  On this ground, Mr. Loi argued that the loan agreement was unenforceable.  Mr. Tsoi’s claim could not, in the words of the legal authorities, “be founded upon a base cause . . . that was against public policy” (otherwise known by the Latin maxim ex turpi causa non oritur action).  The Court found that Mr. Tsoi had sufficient knowledge of Mr. Loi’s illegal purpose in borrowing the money to conclude the loan agreement was illegal and unenforceable. 

The Court then needed to consider whether there was some exception to this general rule that would prevent Mr. Loi from being able to keep the $50,000.  The recognized exceptions which relieve a party of the consequences of illegality include:

1. Where the party claiming the return of the property is less at fault than the defendant;
2. Where the claimant “repents” before the illegal contract is performed; and
3. Where the claimant has an independent right to recover the property (such as recovery in tort despite an illegal contract).

Mr. Tsoi chose option #1 and argued he was less at fault than Mr. Loi who, after all, actually ran the mah-jong business and charged his customers interest rates far in excess of the criminal rate.  As Mr. Tsoi only indirectly benefited from the illegal activity and was not directly involved in the mah-jong loans, the Court agreed that he was less at fault than Mr. Lai. 

The next issue was whether or not in those circumstances it would be unjust to allow Mr. Lai to “enjoy an unjustified windfall” by keeping the $50,000.  An unjustified windfall can provide grounds to override the court’s concern about illegality.  In this case, the Court held that the unjust windfall outweighed the illegal contract.  As a result, Mr. Lai was order to repay the $50,000 loan but Mr. Tsoi’s claim to any further interest (other than court ordered interest) was denied.

The moral of the story is that if you enter into an agreement with another person and you know or have reason to suspect the bargain has some taint of illegality or immorality, this may be enough to prevent you from seeking to enforce your bargain.  Don’t take the risk.

Jim Fraser of Lawson Lundell represented BC Ferries before the Board.

Last month, I blogged that a chambers judge in the Yukon had allowed beneficial shareholders to exercise a right of dissent.  The decision of the chambers judge was contrary to the standard practice in Canada, which has traditionally limited dissent rights to registered shareholders.  I noted that this issue had been argued before the British Columbia Court of Appeal, sitting as the Yukon Court of Appeal, and queried how this would affect corporate meetings practice in Canada if the decision was affirmed.

On October 12, 2012, the decision in Certain Shareholders of Crew Gold Corporation v. Crew Gold Corporation was released by the Court of Appeal.  This decision has restored the traditional rule that, other than in very limited circumstances, only registered shareholders are entitled to exercise dissent rights.  The Court found that the chambers judge “erred in relieving” the shareholders “from the requirement that they be registered shareholders in order to exercise a right of dissent.”

The Court also found that the registration requirement was not a technicality but rather was a legislative requirement and that shareholders have only been judicially relieved from this requirement in “exceptional circumstances” where the conduct of a corporation has been misleading or amounted to a form of estoppel.  The Court held that this registration requirement protects against uncertainty and allows a corporation to rely upon the share register when determining which shareholders are entitled to exercise dissent rights.

Importantly, the Court held that the corporation did not have a duty to advise each shareholder of the manner by which each could become a registered shareholder.  Instead, the Court decided that  “advice that might extend beyond referring shareholders to information already disseminated to them or their legal advisor and/or intermediary(ies), who are expressly tasked with the responsibility of advising the beneficial shareholders on this issue, in my view, would result in a positive or affirmative duty on a corporation that could give rise to potential liability for inaccurate advice and would undermine the clear intention of the legislature that this burden lies with the shareholder.”

In the end, the Court found that the judicial exception to the registration requirement is “very narrow” and only encompasses misleading or inaccurate information, or conduct amounting to an estoppel.  Directors and officers who manage corporate meetings that approve transactions giving rise to dissent rights can take note that order has been restored and, absent highly unusual circumstances, they will not be required (i) to assist shareholders in becoming registered, or (ii) to recognize the dissent rights of a beneficial shareholder.

On October 12, 2012, the British Columbia Court of Appeal overturned the TELUS decision.  Of greatest interest was the commentary by the Court that “empty voting” does not violate the law and that there is no statutory provision which would allow the Court to intervene against it on broad equitable grounds.  While the Court found empty voting to be of concern, it said the “remedy must lie in legislative and regulatory change.”

In allowing the requisitioned meeting to proceed, the Court ruled that:

• The requisition for a meeting need only be executed by the registered shareholder under the British Columbia Business Corporations Act, not also the beneficial shareholder as required by the Chambers Judge;

• The resolutions put forward by Mason Capital did not have the effect of amending the articles of TELUS and were not therefore “ultra vires” as seeking an amendment through an invalid process;

• Technical difficulties with having this meeting occur on the same day as a meeting called by TELUS is a concern but that the concern does not allow the Court to cancel the requisitioned meeting.

In the end, the Court directed the parties to attend before the Supreme Court and work out the mechanics as to how these two meetings would proceed in tandem.  The Court’s decision will be seen by many as representing a strict exercise in statutory interpretation and one that may limit more expansive notions of the Court’s jurisdiction in similar circumstances.

On September 20, 2012, the Court gave oral reasons in Western Wind Energy Corporation v. Savitr Capital, LLC.  The Court granted an order for an independent chair and appointed the chair proposed by the dissident shareholder.  In doing so, it found that the “concentration of events” which included commencing legal proceedings (and abandoning them), and unsuccessfully seeking the disqualification of proxy votes, gave rise to a reasonable apprehension concerning the conduct of meeting if a management executive was allowed to chair the meeting..  In addition, the Court dismissed an application by the target company to enjoin the dissident from using its trademark in its proxy materials.

Earlier in September, the Court dealt with an application by TELUS to block a shareholder, an American hedge fund, from requisitioning a meeting of voting shareholders in an attempt to block a merger of Telus’ dual share structure of voting and non-voting shares into one class of common shares.  For the first time in Canada, the Court commented on an “empty voting” strategy which may mean that courts will be more willing to deny “empty” voters the ability to exercise normal shareholder rights.  Empty voting encompasses a range of tactics that investors use to decouple the voting interest from the economic interest carried in a share – meaning that voting control is not aligned with the company’s economic well-being.  The Court held that the practice of empty voting presented a challenge to shareholder democracy as the voter has no interest in enhancing the value of the investment.  The Court further held that while the conversion ratios between the voting and non-voting shares were of interest to all shareholders, the interest here of the hedge fund was not aligned: it was indifferent to the value of Telus and was concerned only with maximizing the price differential between the two classes of shares.  Ultimately, the Court rested its decision on non-compliance with the statutory provisions. The Court’s comments, however, indicate a more interventionist attitude.

Additionally, in August, the Court overturned the results of an AGM of a public company, including the election of its directors, and ordered the company hold a new meeting within sixty days of the decision.  In International Energy and Mineral Resources Investment (Hong Kong) Company Limited v. Mosquito Consolidated Gold Mines Limited, the Court ruled that the conduct of the previous meeting of Mosquito Consolidated Gold Mines Limited had been oppressive to the company’s shareholders.  In particular, it found that a voting system, in which votes were taken over the phone by a proxy solicitation firm, was oppressive.  The impugned voting system was specifically marketed as a means to give an advantage in proxy solicitation contests by recording votes more readily and by not requiring the shareholder to submit a proxy (or vote on the internet or by phone).

In an approximately two months, the Supreme Court of British Columbia has issued three important decisions on contested meetings and proxy contests in Canada.  In doing so, the Court has indicated a willingness to take a more interventionist role to ensure fairness in this process. Time will tell whether these cases signify a short term deviation or represent the start of a new trend in shareholder meeting practice in Canada.

In this case, the Greater Vancouver Water District (GVWD) contracted with North American Pipe & Steel Ltd. (North American) to supply water pipes as part of a multimillion dollar project.  The pipes were to meet a set of specifications established by the GVWD.  The contract between the GVWD and North American was lengthy and complicated but contained two relevant provisions.  First, North American warranted that the pipes it proposed to supply would conform to all applicable specifications and would be “fit for the purpose for which they are to be used”.  Second, North American warranted and guaranteed that the pipes would be “free from all defects arising at any time from faulty design in any part of the Goods.”

As can be surmised from the fact the matter ended up in court, the pipes supplied by North American were defective.  Specifically, the pipes suffered a serious problem in the coating applied to their exterior.  The coating did not adhere to the pipes, undermining their integrity.  The cause of this defect was the design drafted by GVWD.  The GVWD sued for damages and North American counterclaim for the cost of the pipe. 

Following a 28 day trial, the Supreme Court dismissed GVWD’s claim.   In a 54 page, 221 paragraph ruling, the court essentially held that because GVWD had drafted the piping design and specifications, the parties could not have intended North American to guarantee the pipes would be free from defects arising from faulty design.  This meant there was no real reliance by GVWD on North American to warranty the pipes would be free from design defects.  The judge found that North American’s promise to deliver pipes to GVWD’s specifications conflicted with North American’s warranty that they would be free from defects arising from design.  The contract was interpreted to effectively remove that warranty.  The trial court dismissed GVWD’s claim and granted judgment to North American for the cost of the pipes, a sum in excess of $3.8 million.

GVWD appealed.  After noting that the trial had involved “contentious technical issues concerning the nature and cause of the defects in the pipes”, the Court of Appeal went on to enforce the original contract and find North American liable.  They ruled that the trial judge was mistaken in limiting the scope of North American’s warranty such that it did not extend to cover design and specification work relating to the pipes that was done by GVWD.  The Court reasoned that North American had contracted with GVWD to deliver pipes in accordance with GVWD’s specifications.  In addition, and entirely separately, North American had also “warranted and guaranteed that if it so supplied the pipe, it would be free of defects arising from faulty design.”  The Court viewed these as “separate contractual obligations” that reflected a distribution of risk.  That distribution of risk was agreed to by the parties and was not for the court to interfere with.  As the Court of Appeal noted of this type of warranty clause:

Sometime they appear to [distribute risk] unfairly, but that is a matter for the marketplace, not for the courts.  There is a danger attached to such clauses. Contractors may refuse to bid or, if they do so, may build in costly contingencies. Those who do not protect themselves from unknown potential risk may pay dearly.  Owners are unlikely to benefit from circumstances where suppliers and contractors are faced with the prospect of potentially disastrous consequences.  Parties to construction or supply contracts may find it in their best interests to address more practically the assumption of design risk.  To fail do to so merely creates the potential for protracted and costly litigation.

This decision sends a clear message to owners and contractors that the courts will enforce warranty clauses in construction and supply contracts.  The message is that when contracting over the provision of construction services or supplies, the parties should seriously consider the nature of the warranties they are willing to provide.  If there is a risk you do not wish to be responsible for, make sure it is not covered by the warranty clauses.  This will mean more time and effort will likely be needed in drafting the original contract, but it will also avoid lengthy and expensive litigation after the fact if something goes wrong.

At issue in Fisher Road Holdings Ltd. v. Cowichan Valley (Regional District), 2012 BCCA 338 was the validity of a down-zoning amendment bylaw passed by the Cowichan Valley Regional District (“CVRD”) which changed the zoning of certain property owned by the Petitioner Fisher Road from “Light Industrial I-1” to “Light Industrial-Limited I-1C.”  The effect of the amendment was to remove composting, recycling and auto wrecking as possible uses on the subject property.

Prior to the amendment, Fisher Road operated a composting business on the property under a Solid Waste Management Licence issued by the CVRD.  In October 2009, Fisher Road applied to the CVRD to amend its licence in order to permit it to expand its composting business and to add a recycling business on its property.  In response to that application, the CVRD established a citizen’s advisory committee to review and make recommendations to its Director of Engineering concerning the application and it retained an environmental consultant to conduct an environmental review of Fisher Road’s existing and proposed operations.  The CVRD was aware of public concerns about the smell emanating from such businesses and possible contamination of groundwater.

In conjunction with Fisher Road’s application to amend its licence, the CVRD required it to hold a public meeting which occurred on May 20, 2010 with about 200 people in attendance.  Most of those in attendance were opposed to an expansion of the operations permitted under Fisher Road’s licence.  A report about the meeting was prepared by a CVRD staff member and presented to the CVRD’s Electoral Area Services Committee.  The report noted the concerns raised by area residents and suggested that it was unlikely that the smells emanating from the industrial uses and the threat to groundwater could ever be controlled or eliminated.  As a result of that report, the Committee proposed the down-zoning amendment bylaw and on June 23, 2010, the CVRD introduced and gave first and second reading to the bylaw.

On November 19, 2010 the CVRD issued a Notice of Public hearing respecting the proposed bylaw.  The Notice indicated that a copy of the proposed bylaw and relevant supporting information was available for review at its offices.

On November 25, 2010 a second public meeting was held concerning Fisher Road’s licence amendment application.  At the meeting the Environmental Report was presented and discussed.  Following the meeting, the citizen’s advisory committee issued a report recommending that the CVRD not approve any expansion of Fisher Road’s operations until contamination of groundwater in the area had been fully investigated and the source of the contamination identified.  That recommendation came out of the Environmental Report.

On November 30, 2010, the CVRD held a public hearing into the bylaw amendment.  During the course of the public hearing, the Chair advised attendees that all of the file information relevant to the amendment was available at the back of the room.  Neither the Environmental Report nor the report of the citizen’s advisory committee was included in the available materials.

On February 9, 2011, the CVRD gave third reading to the down-zoning bylaw and on March 9, 2011 the bylaw was adopted.  The third reading of the bylaw was based in part on the Environmental Report and the report of the citizen’s advisory committee.

Fisher Road filed a Petition seeking to quash the bylaw on the ground that the CVRD, in adopting the bylaw, failed to comply with the terms of the Local Government Act R.S.B.C. 1996, c. 323 and that it breached the requirements of procedural fairness and natural justice.  In particular, Fisher Road argued that the CVRD failed to disclose to the public at the public hearing all material relevant to the bylaw, specifically the two reports referred to above.

The duties a local government in connection with zoning bylaws are set out in s. 890 of the Local Government Act which stipulates that, subject to certain limited exceptions, a local government  shall not adopt a zoning bylaw without first holding a public hearing for the purpose of allowing the public to make representations on the proposed bylaw.  Section 890 further requires that all persons whose interest in property is affected by the proposed bylaw must be afforded a reasonable opportunity to be heard or to present written submissions concerning the bylaw.

Numerous authorities have held that in order for members of the public to meaningfully participate in a public hearing into a proposed bylaw, they must have the opportunity in advance to examine and consider not only the terms of the bylaw under consideration but also all reports and other information relevant to the approval or rejection of the bylaw.  The central issue in the case therefore was whether Fisher Road was afforded that opportunity.

In the Supreme Court (2011 BCSC 1540), Fisher Road’s Petition was rejected.  The Judge noted that the case was complicated somewhat because there were two parallel procedures ongoing-the licence amendment application and the bylaw procedure.  He also acknowledged that two key pieces of information-the Environmental Report and the citizen’s advisory committee report were missing from the materials made available to the public in connection with the bylaw.  Nonetheless, he concluded that Fisher Road, as the primary party affected by the bylaw, had ample opportunity to review and provide input to both of those reports.  It had in fact been provided with the Environmental Report in draft and hade made submissions before that report was finalized.  The Judge held further that interested members of the public would have been aware of the parallel processes and had the opportunity to attend the public meetings at which the Environmental Report was considered.  That report was also available on the CVRD website.

In the circumstances, the Judge found that the CVRD conducted the public hearing into the bylaw in accordance with the terms of the Local Government Act and in a fair manner.

Fisher Road appealed and the Court of Appeal disagreed with the conclusion of the Supreme Court Judge.  According to Mr. Justice Hinkson, who wrote for the Court, the issue was not whether the two reports had been disclosed to Fisher Road, as clearly they had been.  Rather, the issue was whether the CVRD made it clear to Fisher Road and to other members of the public that the reports would be relied upon by the CVRD in deciding whether or not to pass the bylaw.

In Justice Hinkson’s view, anyone reading the Notice of Public hearing concerning the bylaw or attending the public hearing would have concluded from the absence of any reference to the reports that they in fact were not going to be considered by the CVRD vis-à-vis the bylaw.  Without knowing that the reports were to be considered, Fisher Road and other members of the public could not prepare an intelligent or reasoned response to those reports in the context of the bylaw.  Justice Hinkson further held that the Supreme Court Judge erred by conflating the two separate public processes and by assuming that what was relevant to the licence amendment application would be understood by the public to be relevant to the bylaw amendment process as well.  Once it was accepted that the reports were in fact material to the CVRD’s consideration of the bylaw, the failure to disclose the reports in the bylaw process constituted a breach of the requirements of procedural fairness.

It can be argued that the decision of the Court of Appeal represents a triumph of form over substance in that there is little doubt, as found by the Supreme Court  Judge, that Fisher Road participated extensively in both of the parallel processes and had ample opportunity to address the issues raised in the two reports.  Nonetheless, the Court’s decision underscores the need for local governments to scrupulously adhere to the requirements of the Local Government Act and to the principles of procedural fairness when enacting bylaws affecting the interests of local businesses and members of the public generally.

Notwithstanding that the parties to such agreements have agreed to proceed by way of arbitration, under the B.C. Commercial Arbitration Act, R.S.B.C. 1996, c. 55 (the “CAA”), a party dissatisfied with the result of an arbitration may seek to appeal to the Supreme Court of British Columbia in certain limited circumstances.  Specifically, under section 31 of the CAA, a party may appeal on a question of law arising out of the arbitration decision if all parties agree or the court grants leave.  In order for the court to grant leave, it must be established that:

(i) The importance of the result of the arbitration to the parties justified the intervention of the court and the determination of the point of law may prevent a miscarriage of justice;

(ii) The point of law is of importance to some class or body of persons of which the applicant is a member; or

(iii) The point of law is of general or public importance.

One of the vexing questions that often arises under section 31 is whether an issue on which a party seeks to appeal is in fact a “question of law”, and therefore within the scope of section 31, or a question of fact, in which case no appeal lies.  The courts have often had to grapple with this question in connection with issues of contractual interpretation.  Some courts have held that issues of interpretation are pure questions of law whereas other courts have taken the view that, to the extent that the underlying factual matrix is relevant to interpreting the contract, it is a question of fact or at least a question of mixed fact and law. 

The B. C. Court of Appeal addressed this question in its recent decision in Greg Dowling Architects Inc. v. J. Raymond Griffin Architect Inc., 2012 BCCA 366.  The Court’s decision in this case also provides some useful lessons for partners involved in disputes amongst themselves, particularly in respect of how newer partners treat their more senior members.

The remaining partners sought leave to appeal the arbitration decision under section 31 of the CAA.  They argued first, that the arbitrator erred in finding that damages were available for repudiation of the partnership agreement and second, that the arbitrator erred in his interpretation of the partnership agreement in holding that the expulsion of Mr. Griffin was a repudiation of that agreement.  In the Supreme Court, Mr. Justice N. Smith denied leave on both grounds on the basis that neither issue raised a pure question of law.  In his view, the arbitrator was called upon to interpret the partnership agreement in the context of the factual matrix in relation to the formation of the agreement, the operation of the partnership and the relationship of the parties.  As a result, the errors alleged by the remaining partners fell outside of the scope of section 31 of the CAA (2009 BCSC 960).

On appeal to the Court of Appeal, Madam Justice Saunders, writing for the Court, disagreed with the Mr. Justice Smith’s conclusion.  In her view, relying upon a number of recent Court of Appeal decisions, both issues involved questions of law.  In particular, the issues engaged the application of the law of contract to determine a partner’s entitlement to share in the proceeds of the partnership upon dissolution, the principles governing the repudiation of a contract and the principles of contract interpretation.  While the issues had to be determined in light of the facts found by the arbitrator, at the end of the day the questions raised are questions of law that meet the threshold test under section 31 of the CAA. 

Madam Justice Saunders also found that the other elements of the leave to appeal test set out in section 31 were met in that the amount of money in issue is significant to the parties and the alleged errors raise important issues of contract and partnership law.  However, she held that the analysis does not end there as the court still has a discretion as to whether or not to grant leave and the principal factor in exercising that discretion is whether it is in the interests of justice to do so. 

In Madam Justice Saunders’ view, the interests of justice in this case weighed against granting leave to appeal.  In coming to this conclusion, she noted that the dispute arose in the context of a partnership, which is a relationship imbued with the principles of equity requiring that partners act with the utmost fairness and good faith towards their fellow partners.  Here, the arbitrator had found that the remaining partners had acted in bad faith towards Mr. Griffin and that the reasons they advanced for his expulsion from the partnership lacked substance.  In her view, the remaining partners were “seeking to bring themselves within a relationship steeped in the principles of equity, while falling far short of equity’s expectation of them.”  This factor combined with the fact that the parties had agreed to arbitration under the partnership agreement and that Mr. Griffin was in the twilight of his professional years and would be unduly prejudiced by the prolonging of the dispute, led her to dismiss the application for leave to appeal. 

As suggested at the outset, the Court of Appeal’s decision is useful in that it makes clear that issues of contractual interpretation will generally be treated as questions of law.  This is important not only for the purpose of determining whether leave to appeal may be granted under section 31 of the CAA from arbitration awards but also for the standard of appellate review that will be applied to contract interpretation decisions more generally.  Of equal importance, the decision sends a clear message to members of partnerships that given the equitable nature of the relationship, partners may not be able to stand upon their strict legal rights if their conduct towards their fellow partners falls below the standard of good faith and fair dealing that equity demands.

Crew Gold was a corporation registered under the YBCA.  A Plan of Arrangement was proposed to allow Crew Gold’s 93% shareholder to acquire the remaining outstanding shares at $4.65 USD.  The Plan of Arrangement gave the remaining shareholders the right to “dissent” from the Arrangement and, instead, be paid fair value for their shares.  The remaining minority shareholders held their shares beneficially in that their shares were legally registered in the name of a nominee bank.  The individual minority shareholders, who all lived in Norway, wrongly believed they were registered shareholders and delivered notices of dissent in their own personal names.  At the meeting to approve the Plan of Arrangement, they were all advised their notices of dissent were ineffective.  They applied to have these Notices declared valid.

There is a long line of Canadian jurisprudence that limits the exercise of dissent rights to the registered shareholder.  Notwithstanding this fact, the Yukon Supreme Court ordered that the beneficial shareholders be granted dissent rights.  It did so because it found the circumstances of the Norwegian shareholders to be “exceptional” and that Crew Gold should not be allowed to succeed on a “technical objection.”  The Court relied on the fact that the minority shareholders’ confusion arose from Crew Gold, who the Court found to have acted evasively.  The Court held that Crew Gold had an obligation to address the concerns of the minority shareholders given the minority shareholders’ attempts to obtain clarification on the dissent procedure.  In addition, the Court noted that Crew Gold listed two of the beneficial shareholders on its website as two of its top 50 shareholders and that Crew Gold’s circular did not include any meaningful information about how beneficial shareholders should go about exercising their dissent rights.

The Canadian courts have traditionally held that shareholders have to strictly comply with the statutory requirements in order to exercise dissent rights.  Accordingly, Matre represents a significant departure from traditional corporate practice in Canada.  We will need to wait to see whether the Court of Appeal returns to the traditional analysis and limits dissent rights to registered shareholders or whether the Court alters normal corporate practice by endorsing the chambers decision in Matre.

In Van Breda, the Court heard appeals of two separate cases in which individuals were injured while on vacation in Cuba. The actions were brought in Ontario against several parties, including Club Resorts Ltd., a company incorporated in the Cayman Islands that managed the two hotels where the individuals were staying. Club Resorts challenged the court’s jurisdiction. In both cases, the motion judges held that the Ontario courts had jurisdiction and that Ontario was a more appropriate forum. The two cases were heard together before the Ontario Court of Appeal, where both appeals were dismissed.

In one of the cases, Morgan Van Breda suffered catastrophic injuries while on a beach in Cuba. Ms. Van Breda’s spouse, Mr. Berg had made arrangements for a trip to Cuba with an Ottawa-based travel agent whereby he would provide squash lessons to resort members in exchange for free accommodation. In the other case, Claude Charron drowned while scuba diving in Cuba. Dr. Charron and his wife had booked an all-inclusive vacation package that featured scuba diving.

The Supreme Court of Canada ruled the Ontario courts had jurisdiction.  In doing so, they set out a non-exhaustive list of presumptive connecting factors for tort cases which tie the legal situation to the forum. If the party arguing that the court should assume jurisdiction establishes any one connecting factor, a presumption of jurisdiction arises. The party challenging the assumption of jurisdiction then has the burden of rebutting that presumption by showing that the connecting factor either does not indicate a relationship between the subject matter of the litigation and the forum, or that it indicates only a weak relationship. If the presumption of jurisdiction is not rebutted, the court must hold that it has jurisdiction; unless it determines to decline jurisdiction based on the principles of forum non conveniens.

In an increasingly interconnected world, Van Breda represents an attempt by the Supreme Court of Canada to make more certain the rules which permit litigants to seek the assistance of Canadian courts.  In doing so, the Court appears to have stretched the long arm of Canadian courts.

It is generally accepted that employers can make changes to their benefit plans prospectively including changes to the health and welfare benefits that will be available to their employees in the future when they retire (health and welfare benefits must be distinguished from pension benefits that are subject to different rules and have a measure of statutory protection under pension standards legislation).  Less clear is whether employers can change the benefits provided to those people who are already retired.  Two recent British Columbia cases deal with this situation.

In Lacy et. al. v. Weyerhaeuser Company Limited, 2012 BCSC 353, five former MacMillan Bloedel employees sued Weyerhaeuser for changes made to Weyerhaeuser’s retiree benefit plan (Weyerhaeuser had purchased MacBlo in 1999 and had assumed responsibility for the retiree plan).  Up until 2010, retirees were eligible to have 100% of the cost of the premiums for the provincial Medical Services Plan and an extended health care plan paid by the company.  In October 2009 however, Weyerhaeuser advised retirees that due to concerns about the viability and affordability of the benefit plans, the company was freezing its contribution at 50% of the cost in place as of January 1, 2010 and that any future increases would be borne by retirees.

In his decision dated March 9, 2012, Mr. Justice Saunders of the B.C. Supreme Court found in favour of the Plaintiff retirees and held that Weyerhaeuser was not entitled to make the change.  He concluded that while the benefits were originally extended to retirees as a matter of company policy, over time they had evolved into a contractual obligation and had become a form of deferred compensation.  The Judge found that the promise of premium-free benefits in retirement had been communicated to the Plaintiffs throughout much of their working lives and, as such, was binding upon Weyerhaeuser.  The benefits vested upon retirement and accordingly the Plaintiffs were entitled to the level of benefits in place as of the date each of them retired.

Shortly after the Lacey decision was released, the B.C. Court of Appeal rendered its decision in Bennett v. British Columbia, 2012 BCCA 115.  Bennett involved an appeal from the dismissal of a class action brought by former B.C. public servants challenging changes made to their retiree benefits provided through the B.C. Public Service Pension Plan.  The changes in issue were similar to those considered in the Lacey case in that retirees were required for the first time to contribute to the cost of the benefits.  The Plaintiffs’ claims were similar as well in that they alleged that they had been promised premium-free retiree benefits as part of their contracts of employment with the provincial government.  Unlike in Lacey however, the Court disagreed.

In Bennett, the Court held that the statements relied upon by the Plaintiffs were not contractual promises but rather were merely descriptions of the retirement benefits available from time to time.  The Court distinguished between representations and promises and found that the various statements about the future benefits fell short of having contractual force.  The Court further found that many of the statements were made well after the Plaintiffs were hired and often when they were close to retirement.  As such, the Plaintiffs’ continued employment and service did not provide any new or good consideration for the “promise” of benefits in retirement.

The Lacey decision is currently under appeal and it remains to be seen whether the Court of Appeal will apply a similar analysis as that employed in Bennett and overturn the decision.  In the meantime, notwithstanding the different result in the two decisions, certain common lessons can be drawn for employers who are considering the future of their retiree benefit programs:

• If retiree benefits vest or become guaranteed, they do so at the date of retirement so employers are generally free to make changes prospectively to the benefits for future retirees (subject to any employment law concerns about alteration of existing employment contracts); and

• The ability to change benefits for current retirees will depend in large part about how the benefits have been implemented and communicated to employees and retirees over time.  Employers will be in a stronger position if they have made it clear in relevant communications that they reserve the right to change the benefits.

One issue that forms an undercurrent to both the Lacey and Bennett decisions, but is not addressed by the courts in any detail, is the significantly changed circumstances that exist today from when many of the retirement promises in issue were made.  For example, all of the Plaintiffs in Lacey worked in and retired from the forest industry at a time when that industry was flourishing and when companies operating in the industry were well able to afford generous benefit packages for their retirees.  At the same time, the cost of those benefit packages was relatively small.  Those days are long gone.  Today, the B.C. forest industry has been ravaged by the economy and many companies in the industry simply cannot afford to maintain the existing retiree benefit plans.  If they are held to promises or representations made in the past (often by predecessor companies) under very different circumstances, their economic viability may be threatened.

Because retiree health benefits are not paid out of accumulated assets like pension benefits, but rather are funded by current operating revenues, any threat to the viability of the employer company is in effect also a threat to the long term viability and security of the benefits.  Accordingly, in many instances, retirees would be better served by working with their former employers to achieve some form of compromise that would permit the employer to realize some cost savings while at the same time maintaining a reasonable level of benefit coverage.  If retirees insist however on compelling the employer to maintain historical benefit levels, they do so to the prejudice of current employees and ultimately to their potential prejudice as well.

In Loychuk, two women were zip lining in Whistler and were injured when they collided.  Ms. Loychuk had become stuck part way down and, as a result solely of miscommunication by the operators, Ms Westgeest was sent down the same line and collided with Ms. Loychuk.  They sued the operator.  However, both had signed a release prior to, and as a condition of, taking part in the zip-lining.  The operator admitted negligence but sought dismissal of the case relying on the terms of the releases.  The trial court dismissed the claim and the Court of appeal upheld the decision.

In doing so, the Court of Appeal reviewed the judicial history of releases and waivers in the context of inherently dangerous activities such as skiing, white-water rafting and ski-doing.  In seeking to distinguish their claim from earlier decisions, the plaintiffs argued that in the case of zip-lining, all the risk in the activity was controlled by the operator.  The participants could not be contributorily liable.  If there ever was such a distinction, the Court of Appeal has erased it.  The court reasoned that releases are not contrary to public policy, even where the activity in issue is controlled completely by the operator.  If the law is to change for such activities, it is for the Legislature to do, not the courts. 

The court also addressed the argument that the participants had no meaningful ability to negotiate the release terms.  The operator simply presented what was effectively a contract of adhesion.  In dismissing this submission, the court noted that there is no power imbalance where a person wishes to engage in inherently risky recreational activity that is controlled or operated by another.  It is not unfair for an operator to require a release or waiver as a condition of participating.   If a person does not want to participate on that basis, he or she is free not to engage in the activity. 

That is not to say that adventure companies will always escape liability.  Liability can be established where it can be shown that the party seeking to rely on an exclusion clause knew it was putting the public in danger by providing a substandard product or service, or was reckless as to whether it was doing so.  In other words, that party engaged in conduct that is so reprehensible that it would be contrary to the public interest to allow it to avoid liability.  In such cases, any release signed will not protect the operator.

The court also considered whether waivers or releases were “unconscionable” and in contravention of the Business Practices and Consumer Protection Act (“BPCPA”).  The court found the test for unconscionability under the BPCPA was the same as the test at common law.  The court also noted that under the BPCPA, proof of unconscionability was only one of a number of enumerated factors that must be proven before a consumer transaction could be set aside.  In any event, the requirement to sign the waiver in order to go zip-lining was not unconscionable.  There was nothing in the conduct or advertising of the zip-line operator that misled its customers.

For those wishing to partake in dangerous adventures offered by commercial operators, this decision is a warning that you must truly appreciate the potential risks before taking part.  This includes the possibility of the operator’s negligence.  If you are injured, the courts are unlikely to provide you with any recovery.

According to the Supreme Court, the answer to that question is no.  The federal government sought to justify the creation of a national regulator pursuant to Parliament’s power over trade and commerce as set out in s. 91(2) of the Constitution Act, 1867.  It argued that the reality of the modern securities industry is such that a coordinated national approach to regulation is required in order to adequately protect investors and to ensure the integrity and stability of the financial system.  While the Supreme Court recognized these important objectives, it held that the federal government had not established that securities law had so transformed as to now fall within federal jurisdiction.  The Court further held that the principal components of the legislation are concerned with the day-to-day regulation of securities contracts and, as such, deal with matters of provincial concern that fall under the heading of property and civil rights in the provinces.

In recent years, the Supreme Court has expressed reluctance to draw clear lines around heads of provincial and federal power under the Constitution Act, 1867 so as to create exclusive areas of jurisdiction.  Rather, the court has developed the “double aspect’ doctrine to permit the concurrent application of both federal and provincial legislation to subject matters that have both federal and provincial aspects.  As the Court noted in its recent decision concerning the Insite safe injection site this approach is more in keeping with modern Canadian constitutional interpretation which favours cooperative federalism.

However, the Court concluded in this case that the federal and provincial securities regulatory schemes could not co-exist because the proposed federal scheme was in fact intended to supplant the provincial schemes.  In its view, the federal legislation went beyond what could be justified under the federal trade and commerce power and constituted an impermissible intrusion into provincial jurisdiction.

The Court did suggest in closing that a cooperative approach remains available that would maintain provincial authority over securities regulation while at the same time permitting the federal government to deal with genuine national concerns.  However it remains to be seen whether there is an appetite amongst the provinces to work with the federal government in such a cooperative fashion given the apparent reluctance on the part of many of the provinces to cede any authority in the area of securities regulation.

The PCMLTF legislation, as the name suggests, is aimed at detecting and deterring money laundering and terrorist financing activities.  Its provisions apply to a variety of businesses and professionals  who engage in financial activities, for example accountants, securities dealers, banks and other financial institutions, real estate brokers and money services businesses, and it requires those entities to comply with certain record keeping and due diligence requirements in respect of various prescribed financial transactions.

The federal Government’s approach to dealing with money laundering is influenced to a significant degree by recommendations published by the Financial Action Task Force (“FATF”), an international body whose object is to combat money laundering and terrorist financing on a global basis.  According to the Government consultation paper, the new proposed amendments to the PCMLTF legislation are intended to bring Canadian law into better compliance with the FATF recommendations.

• Rather than applying to specific transactions, the PCMLTF obligations will now apply to the entirety of the business relationship between the reporting entity and its customer.  As noted in the consultation paper, the amendments are intended to increase the range of activities to which the obligations will apply;
• The proposed amendments will require reporting entities to comply with the PCMLTF customer identification and verification requirements whenever they have a suspicion of possible money laundering or terrorist financing activities, regardless of whether the transaction in question would otherwise be subject to those requirements.  The requirements will also apply to any attempted suspicious transaction;
• The proposed amendments will make it mandatory for reporting entities to obtain information about the beneficial ownership of companies or other entities that conduct transactions falling under the PCMLTF legislation; and
• The proposed amendments will require reporting entities to engage in ongoing monitoring of their business relationship with a customer as a whole, again rather than simply focussing on certain prescribed transactions.

While there is no doubt that combatting money laundering and terrorist financing is an important objective, one wonders how the imposition of impractical, and in some cases unworkable, measures will advance that objective.  For example, in many instances, it will simply not be possible to determine the beneficial ownership of a private company, particularly a foreign-based one.  Similarly, it is not clear how a Canadian reporting entity will be able to conduct continuous monitoring of the business activities of clients situated elsewhere around the globe. 

The proposed amendments to the PCMLTF legislation are still only in the consultation stage and it is possible that the consultation process will result in changes to the draft.  However, if history serves, the federal Government is intent upon tightening its approach to combatting money laundering as part of what it sees as its international obligation to comply with the FATF recommendations. There is a significant likelihood therefore that the proposed amendments will become law in the near future.

The titanic legal battle over the soul of Alberta’s Personal Information Protection Act took a new twist recently, when the Supreme Court of Canada refused the Alberta Information and Privacy Commissioner’s application for leave to appeal the Alberta Court of Appeal’s landmark 2-1 judgment in favour of its opponent, Leon’s Furniture Limited.  As such, the Court of Appeal’s majority judgment prevails.

The effect is that it will be reasonable, and therefore lawful, for organizations to collect and retain personal information in Alberta (such as the information contained on a driving licence) as part of system for combatting theft and fraud. Note that there are limits here:  an important factor in the Court of Appeal’s judgment was that, as an integral part of that system, Leon’s Furniture:

• stored the information separately from the other customer information;
• did not share the information with third parties; nor
• used the information for marketing or other collateral purposes.

The Court of Appeal’s decision that information on a vehicle licence plate is not “personal information”, as it does not relate directly to an individual and is available to the public in any event, also stands.

The Supreme Court’s refusal to hear the appeal will be a blow to the Alberta Information and Privacy Commissioner, as his avenue for appeal is exhausted. Only primary legislation can change the law now. The refusal by the Supreme Court to hear the appeal may well redefine the balance to be struck between security and privacy across Canada.

The BC Supreme Court examined this question in two recent decisions.  In Arndt v. The Ruskin Slo Pitch Association, 2011 BCSC 1530 the court considered a claim by the Plaintiff, Ms. Arndt, who was injured when she stepped in a hole in the outfield while playing in a softball game organized by the Defendant Association.  In defence to the claim, the Association sought to rely on a waiver signed by the Plaintiff at the commencement of the season. 

Unfortunately for the Association (and fortunately for the Plaintiff) the Court found that the waiver was not sufficient to preclude the Plaintiff’s claim.  The Court held that the form was deficient in two principal ways.  First, the waiver was included in a larger document which functioned as the official team roster form that had to be signed by each participating player.  It was not obvious to the Plaintiff that she was in fact signing a waiver and release and no one from the Association or her team pointed that out to her.  Second, the language of the waiver itself fell short.  On its face, it simply required that the coach and manager of each team advise the players that they were fully responsible for any damages incurred by them but it did not in fact require each player to personally waive liability as against the Association.

The Plaintiffs in Loychuk and Westgeest v. Cougar Mountain Adventures, 2011 BCSC 193 were not as fortunate.  There the Court held that a waiver was sufficient to preclude claims by the two Plaintiffs who were injured while ziplining at the Defendant’s adventure park in Whistler.  The injuries were sustained when one Plaintiff was sent down the zipline even though the other Plaintiff had not completed her run and was suspended part way.  This resulted in a mid-air collision causing significant injury to both Plaintiffs.  It was acknowledged by the operator that the accident occurred as a result of its negligence in the form of a miscommunication between two guides.  Nonetheless, the waiver signed by the Plaintiffs as a condition of participation was sufficient to immunize the Defendant operator from liability. 

Unlike the waiver in the Arndt case, the waiver here was clear and explicit and on its face stated that participants “FREELY ACCEPT AND FULLY ASSUME ALL ... RISKS, DAMAGES AND HAZARDS AND THE POSSIBILITY OF PERSONAL INJURY, DEATH, PROPERTY DAMAGE AND LOSS”.  By signing the waiver, the participants further expressly agreed to waive all claims against the operator “DUE TO ANY CAUSE WHATSOEVER, INCLUDING NEGLIGENCE, BREACH OF CONTRACT OR BREACH OF ANY STATUTORY OR OTHER DUTY OF CARE”.

The clear and unequivocal language of the waiver and the fact that participants were given ample opportunity to review it, led the Court to find that it was legally binding and enforceable.  Of note, the Court held that there was no obligation on the part of the operator to take reasonable steps to bring the terms of the waiver and release to participants’ attention, provided that the form was such that it would be apparent to people signing it that it was a legal document and that participants had a reasonable opportunity to review the terms of the waiver.  In this regard, it was not lost on the Court that one of the Plaintiffs had recently graduated from law school.

These and other similar cases make it clear that these types of standard form waivers will be enforced where they are drafted in clear language and presented in such a way as to make it clear to participants that they are signing a legal document (for example the waiver terms are not hidden in a larger document).  Where these requirements are met, there is generally no obligation on the part of the operator to point out the waiver terms and a failure on the part of the person signing the document to read it or to ask questions about it will be no defence to the application of the waiver.

The lesson for those participating in activities requiring a signed waiver is therefore to read before you sign.  Once you understand the risks involved and the rights that you are waiving, you can decide whether the adventure is worth it.

In Chan v. City Commercial Realty Group, the Ontario Superior Court reaffirmed that the identity, rights and obligations of corporations and their shareholders are distinct and that the separate legal personality of a corporation will not be disregarded lightly.  The Court did recognize that it had the jurisdiction to pierce the corporate veil to impose liability directly on shareholders but limited that power to largely fact specific situations where the corporation has been used for illegal, fraudulent or improper conduct. 

More recently in British Columbia, the British Columbia Supreme Court in Emtwo Properties Inc. v. Cineplex (Western Canada) Inc., further constrained the jurisdiction to pierce the corporate veil by describing that power in these terms: “The circumstances in which the Court will lift the veil and impose the contractual liability of a subsidiary on a parent require more than the exercise of total control by the parent over the subsidiary.  The corporate veil will not be pierced absent conduct akin to fraud.”

Business owners can take solace that the courts remain strong in their recognition of distinct legal personality of the corporation and the limited ability to pierce the corporate veil.

Lawson Lundell’s Marko Vesely acted as Counsel for Century 21. His thoughts on the larger implications of the case were featured in the Globe and Mail, the Vancouver Sun and on CKNW’s The Simi Sara Show.

Click here to read the Globe and Mail article. To read the Vancouver Sun article, click here.

The long running saga of Creston Moly Corp. v. Sattva Capital Corp.provides an example of the potential pitfalls of arbitration.   These parties are engaged in an ongoing dispute concerning an arbitration decision handed down on December 23, 2008, in which the arbitrator ruled that Creston was required to pay $4,140,000 plus costs as a finder’s fee in connection with the acquisition of Creston's molybdenum property in Mexico. The dispute is over the valuation of the finder’s fee and the arbitrator ruled in favour of the finder.

Parties often enter into Arbitration agreements because they view arbitrator’s decisions as “final”.  However, the Commercial Arbitration Act (British Columbia) does provide limited rights of appeal with respect to arbitration awards. Section 30 allows arbitration decisions to be overturned if they were improperly procured and section 31 allow appeals on errors of law if permission, or leave, is granted by the British Columbia Supreme Court.  Similar, but arguably broader, appeal provisions are found in sections 44 and 45 of the Arbitration Act (Alberta).

In Creston Moly, these appeal rights have delayed the ultimate resolution of this case.  Creston Moly first applied to the British Columbia Supreme Court for leave to appeal the arbitrator's decision and was denied.  Creston Moly then appealed to the British Columbia Court of Appeal which overturned the decision and granted leave to Creston Moly to appeal the arbitrator’s decision.  Creston Moly announced on May 6, 2011 that the substance of the appeal was heard and dismissed.  However, Creston Moly also stated its intention to appeal that decision to the British Columbia Court of Appeal.  Nearly three years after a supposedly “final” decision, the arbitrator’s decision is still subject to review.

Creston Moly is instructive.  It does not suggest that arbitration is bad and the court process is good or vice versa.  Rather, it suggests that an arbitration agreement should be approached in the same manner as other commercial agreements with an understanding of each process and an effort to tailor an arbitration agreement to the specific circumstance.  For example, parties should consider:

• The cost of the Arbitrator?  In the court system you do not have to pay for the Judge and the cost of an arbitrator can be a disincentive to arbitration.
• The speed of the process?  Arbitration may be faster.  However, if you are looking for a fast process, you should consider a number of issues up front to speed the arbitration process. 
• What Rules do you want to govern the arbitration?  Do you want to prohibit discovery of documents or witnesses?  Do you want to specifically name an Arbitrator or only a process for naming one?

All of these questions can substantially impact on the arbitration process. The most common Rules governing arbitration in British Columbia and Alberta provide an arbitrator with a great deal of discretion in setting the process for an arbitration.  Accordingly, there is a good chance an arbitration may emulate a court process unless the parties intially agree that they intend a different more limited process.

The moral of the story is that one size arbitration agreements do not fit all and to “look” before you leap into one.