Western Canada Business Litigation Blog

Alberta court ruling signals companies can’t block shareholder vote

Posted in Commercial

On September 27, 2016, I blogged about the decision of the Alberta Court of Queen’s Bench blocking approval of an arrangement in Re Marquee Energy Ltd,. and the Alberta Oilsands Inc. In that decision, the Court held that Alberta Oilsands shareholders must be allowed a shareholders vote even though the only company being “arranged” was Marquee Energy Ltd. The appeal of this order was heard on November 9 and on November 14, the Alberta Court of Appeal allowed the appeal, with reasons to follow. I will blog further once the reasons for judgment are released.

Out-of–Province Class Actions Hearings – the Supreme Court of Canada has its say

Posted in Class Actions

On November 13, 2015, I blogged about the Supreme Court of Canada granting leave to appeal in two related cases: Endean v. British Columbia, 2014 BCCA 61 and Parsons v. Ontario, 2015 ONCA 158.  These cases raised the issue of the scope of inter-jurisdictional coordination for national class actions in Canada by determining whether or not judges of provincial superior courts were able to sit outside their home jurisdiction when supervising a settlement of a national class action.

On October 20, 2016, the Supreme Court answered this question. In Endean v. British Columbia, 2016 SCC 42, the Court ruled unanimously as to result. Mr. Justice Cromwell, writing the majority reasons, ruled that that judges in Ontario and British Columbia

“…have the discretionary statutory power … to sit outside their home provinces, and a video link to an open courtroom in the judge’s home jurisdiction is not required” (see paragraph 4).

The Supreme Court has, as a result, removed a shadow that was cast over national class actions which required management in multiple Canadian jurisdictions.

The decision is interesting from a number of perspectives. The Court found the authority to conduct hearings outside of a judge’s home jurisdiction in the class action legislation in Ontario and British Columbia. It did not find it necessary to rely upon the inherent jurisdiction of provincial superior courts to control their own processes.  However, this finding by itself would have left a void in provinces or territories whose class action legislation differed from Ontario and British Columbia (or where there is no class action legislation). In order to fill this gap and not create a patchwork across the country, the Court found that the statutory provisions reflected and confirmed the inherent jurisdiction of provincial superior court. So judges of other provinces or territories are able to rely on that jurisdiction, if necessary due to the absence of express statutory authorization, to hold hearings outside of their home jurisdiction.

The Court also discussed the “Open Court” principle and ultimately found it did not require a video link to a home jurisdiction open court in every case. Rather, whether a video link is necessary was left to the discretion of the judge.

Finally, the Court wrote that in exercising the discretion to determine whether to hold a hearing outside the home jurisdiction, a judge should (1) weigh the benefits and costs of an out-of-province proceeding, including the issue of fairness to the parties, availability of the media and the interests of justice; and (2) consider whether terms, such as a video link, should be imposed to serve the interests of justice.

In the end, the Supreme Court has provided a principled and practical solution to allow the effective management and administration of national class actions.

Setting the Rules for Televising Trials in BC

Posted in Civil Litigation, Civil Procedure

On September 9, 2016, the B.C. Supreme Court issued the first decision to consider the court’s new practice directive concerning the often contentious question of whether to permit a trial to be recorded for broadcasting.

In British Columbia, like other provinces in Canada, trials and other court proceedings are not typically recorded for the purpose of media broadcasts. In contrast to the American experience, the public cannot watch even high profile civil or criminal trials on television. An exception is the broadcasting of proceedings before the Supreme Court of Canada, which are typically available.

In 2015, the B.C. Supreme Court issued Practice Direction 48 (the “PD-48”), which describes the procedure for applications for authorization to video record or broadcast court proceedings. PD-48 states that video recordings or broadcasts are prohibited unless authorized by the court. It prescribes a form of notice of application to be used by media organizations and requires that such an application be filed not more than 90 days and not less than 14 days prior to the start of the hearing. PD-48 provides that the argument in support of the application must address (a) fair trial rights, (b) privacy rights, (c) witnesses who will testify, and (d) the court and the administration of justice. PD-48 also addresses other matters, such as the physical criteria for recording equipment personnel, specific restrictions on what may be recorded, and a mandatory delay in broadcasting.

In Cambie Surgeries Corporation v. British Columbia (Medical Services Commission), 2016 BCSC 1686, Justice Steeves considered the first application brought under PD-48. The applicant, Pacific Newspaper Group, sought to set up a daily feed to host recordings of all proceedings in the trial for the purpose of recording or broadcasting. The underlying case has attracted immense public interest because it involves a constitutional challenge to BC’s ban on private health care for medically necessary services covered by the public health system.

Justice Steeves dismissed the application, and his reasons for doing so give some helpful guidance for those bringing future applications on behalf of the media. His decision demonstrates the following:

  1. The application must be brought in a timely way. Steeves J. made clear at several points in his decision that the 14-day deadline imposed by PD-48 must be respected.
  2. The court will ensure that any order made under PD-48 presents a fair and objective portrayal of the proceedings. He rejected an earlier attempt to have the application heard because of concerns with “an issue of objectivity” in the initial materials. He dismissed the application to broadcast the opening statements because the plaintiff had already completed its opening, and it would not be balanced if the public saw only the opening statement of the defendants.
  3. The court will be sensitive to the privacy interests of parties and witnesses. Steeves J. dismissed the application to record testimony in the trial because individuals will be testifying about “very personal matters” regarding their health, their medical histories and issues of diagnosis and treatment. The application to record expert evidence on historical and policy matters was also dismissed because the cross-examination of those experts may involve putting individual cases to them.

Justice Steeves adjourned the application to record the closing submissions because the court would not hear those submissions for some time.

New BC Franchises Act will come into force on February 1, 2017

Posted in Franchises

The B.C. Ministry of Small Business and Red Tape Reduction announced today that the new Franchises Act and the Franchises Regulation will come into effect on February 1, 2017. The Franchises Act is intended to “provide important legal protections for British Columbia-based franchisees who operate a franchise”. The Act largely mirrors legislation already in force in Ontario, Alberta, Manitoba, New Brunswick and Prince Edward Island, though there are distinguishing features across jurisdictions.

One of the important elements of the Franchises Act is the obligation imposed on franchisors to provide broad disclosure to the prospective franchisee. The Franchises Regulation, approved and released October 3, 2016, outlines the disclosure requirements for franchisors doing business in BC. The full text of the Franchises Regulation can be found here.

If you have questions about how the new Franchises Act and the Regulation may impact your operations in BC, contact Laura Bevan.

Impossible is nothing: Ontario court finds franchise disclosure before franchise location and head lease are determined is no disclosure at all

Posted in Commercial, Franchises, Real Estate

It’s common practice in Canada to enter into a franchise agreement before determining the location of the franchise – the franchisor and franchisee typically agree that the franchisor will use “best efforts” to find a suitable location for the business, often with the franchisee’s input and participation. Once the location is determined, it is common for the franchisor (or an associated entity) to enter into a head lease for the premises and sublease to the franchisee, which provides the franchisor with, among other things, the ability to step into the premises and take over the business if necessary.

In a recent decision with wide-ranging implications across Canada, the Ontario Superior Court has all but foreclosed this practice. In Raibex Canada Ltd. v. ASWR Franchising Corp., (2016 ONSC 5575) the court held that the franchisor failed to meet the disclosure requirements in the Arthur Wishart Act (Franchise Disclosure), (2000, S.O. 2000, c. 3) because the location of the business, and therefore the terms of the head lease, were not known and therefore could not be disclosed.

Often, franchisors do not want to take on the obligations of a head lease without having a franchisee lined up to assume those obligations. Under the court’s reasoning in Raibex, the franchisor’s statutory disclosure obligations will not be met unless it is in a position to disclose a materially complete and materially accurate form of sublease, including the provisions said to be incorporated from the head lease. Franchisors may therefore find themselves in a tough spot when negotiating head leases.

In September 2012, the defendant franchisor in Raibex provided the principal of a prospective franchisee with a Franchise Disclosure Document for an AllStar Wings and Ribs franchise in Mississauga, Ontario. The location of the franchise had not yet been determined, and so no head lease was included in the disclosure document. A draft sublease was included  in the disclosure that provided that the franchisee accept all the terms, covenants, conditions and obligations in the head lease as negotiated by the franchisor and the landlord.

The Franchise Agreement was executed in November 2012. The location of the franchise – an existing restaurant space to be converted to an AllStar Wings and Ribs franchise – was determined by June 2013, and the franchisor’s development entity negotiated a head lease with the landlord. The head lease included a term requiring prepayment of five months’ rent, to be released one month per year for the first five years, together with a security deposit, for a total amount due of $120,000. Though not a party to the head lease, the franchisee “participated to some degree” in the negotiation of the head lease and was aware of the prepayment requirement. The head lease was dated September 19, 2013, and the sublease was signed October 23, 2013, though the court found that the franchisee did not receive a copy of the executed head lease until after the sublease had been executed.

The franchise opened in March 2014. In July 2014, the lessor invoiced the franchisee for the prepayment amount due under the head lease and outstanding construction costs. The franchisee refused to pay, and on July 25, 2014, served notice of rescission of the franchise agreement.

The franchisee claimed that the franchisor’s disclosure was deficient; the franchisor argued that it was impossible to disclose a head lease that did not yet exist.

The court found the franchisee was entitled to rescind the franchise agreement because the terms of the lease – comprised of both the head lease and the sublease – were critical components of franchise disclosure, and found as follows:

The focus of the AWA is on protecting the interests of franchisees. The mechanism for doing so is the imposition of rigorous disclosure requirements on franchisors and strict penalties for noncompliance. If a franchisor can make disclosure at a premature state and avoid those rigorous disclosure requirements, the purpose of the legislation is defeated.

If it is simply impossible to make proper disclosure because material facts are not yet known, then the franchisor is not yet ready to deliver the statutorily required disclosure document. The franchisor must wait – it does not get excused from its statutory obligations.

The court found it was immaterial that the franchisee knew no location had been selected at the time of disclosure, and participated in the selection of the location and the negotiation of the head lease, as the franchisee cannot waive the disclosure requirements of the AWA. If the disclosure document is materially inadequate, then statutory requirements simply have not been met.

The court also found that the franchisor’s disclosure of the potential franchisee’s costs was materially inadequate. The franchisor disclosed an “Estimate of Development Costs” in the disclosure document based on development from a “shell” premises, not the conversion of an existing restaurant space. The franchisor disclosed that the cost of converting an existing space may be significantly lower, but that the franchisor had “no reasonable means of estimating or predicting these costs with any certainty” and that costs could “vary dramatically from location to location.” The court found that this “broad disclaimer” was essentially an admission that the costs disclosure obligation in the AWA could not be met and held “[a]gain, if a location had been determined, these broad caveats based upon costs being “highly site-specific” would be unnecessary and proper disclosure would be made.”

The court found that these defects in disclosure were “egregious” and amounted to no disclosure at all. The franchisee was therefore entitled to rescind the franchise agreement.

The decision may be applied in any jurisdiction with similar statutory provisions. The B.C. Franchises Act is expected to be brought into force in early 2017.

Alberta Court orders Shareholders’ Vote of Non-Arranging Corporation in a Plan of Arrangement

Posted in Commercial

On September 14, 2016, Mr. Justice Macleod of the Court of Queen’s Bench of Alberta gave oral reasons for judgment in Re Marquee Energy Ltd. and The Alberta Oilsands Inc. (unreported, Action No. 1601-11071, Judicial Centre of Calgary).  In doing so, he ordered that The Alberta Oilsands Inc.’s (“AOI”) shareholders be required to vote to approve that arrangement in advance of it proceeding for final court approval.  He made this order notwithstanding the fact that the relationship between AOI and its shareholders was not proposed to be “arranged” by the Plan of Arrangement.

An arrangement had been proposed whereby shareholders of Marquee Energy Ltd. (“Marquee”) would be receive shares in AOI in exchange for their Marquee shares and, once the shares were exchanged and Marquee was a wholly owned subsidiary, a vertical amalgamation would occur between Marquee and AOI. A vertical amalgamation does not require a shareholder vote and no dissent rights are granted.  AOI argued that since nothing changes in the relationship between it and its shareholders that AOI’s shareholders were not entitled to vote as they were not being “arranged”.  The interim order, granted ex parte (without notice to any other party), only required a vote of Marquee’s shareholders on the proposed arrangement.

Smoothwater Capital Corporation (“Smoothwater”), which markets itself as “Canada’s Leading Activist Investor”, was a significant shareholder of AOI and had been actively suggesting to AOI that it distribute the significant cash it had on hand to its shareholders. Smoothwater brought an application asking the court to require AOI to hold a vote of its shareholders and to only allow the application for final approval of the Plan of Arrangement to proceed if AOI obtained approval by way of special resolution (66 2/3% approval). After the hearing, the Court granted what it termed Smoothwater’s “unusual” application.

The decision is striking from a number of perspectives. First, the Court reviewed the application on the basis of the Supreme Court of Canada’s decision in Re BCE Inc. (2008 SCC 69). Of course, BCE is a decision which sets out the test for the final approval of a Plan of Arrangement as opposed to an interim application seeking the court to order a vote as a condition for proceeding with the application for final approval.  Other than BCE, the Court cited no authority in support of the application before it or the order it made.

The Court then proceeded to measure the proposed Plan Arrangement against the test for final approval of the Plan of Arrangement – a pre-vetting of the Plan of Arrangement to determine if it could move forward without a vote of AOI’s shareholders. The Court first concluded that the only business purpose of the Plan of Arrangement was the merger of AOI and Marquee but that this purpose was not being accomplished by the Plan of Arrangement, which only made Marquee a wholly owned subsidiary.  The business purpose was not accomplished until the vertical amalgamation was finalized.  The Court was satisfied that the only reason the Plan of Arrangement was proposed was as an attempt to complete this transaction without an AOI shareholder vote and without providing dissent rights, both of which would be required if this was an amalgamation between arm’s length corporations.

As a result of this finding, the Court found that AOI should not be allowed to use the Plan of Arrangement to avoid safeguards that would otherwise be provided by other provisions of the Alberta Business Corporations Act (“ABCA”).

Surprisingly, the Court went further and found that the Plan of Arrangement was not put forward in “good faith” because it was done to avoid a vote of AOI’s shareholders and dissent rights. He found that the “good faith” aspect of the Plan of Arrangement final order approval test would only be met if AOI’s shareholders were given the right to vote and were provided with dissent rights as if this were an amalgamation under the ABCA.

Finally, the Court ruled that approval would not be “fair and reasonable” unless AOI’s shareholders had the right to vote and were granted dissent rights. He rejected the argument that AOI’s shareholders were not being “arranged”.  He found that they were to be diluted as a result of the shares issued to Marquee’s shareholders as a result of the share exchange included in the Plan of Arrangement and that this was sufficient to require the shareholder vote.

This decision falls outside current Canadian jurisprudence as well as current TSX Venture Exchange policies that apply to this transaction. This appears to be the first time in Canada that a court has ordered a vote in these circumstances and a number of the findings of the Judge run counter to other Canadian decisions.

I understand an appeal has been set for November, 2016. If it goes ahead, this is the type of case that may ultimately find its way to the Supreme Court of Canada.

Ledcor Decision Considers Standard of Review and Insurance Policy Exclusion Clause

Posted in Civil Litigation, Commercial, Construction, Insurance

On September 15, 2016, the Supreme Court of Canada (the “SCC) released its decision in Ledcor Construction Ltd. v Northbridge Indemnity Insurance (2016 SCC 37). In its decision, the Court considered the appropriate standard of review for standard form contracts, as well as the proper interpretation of an insurance policy exclusion clause.

Writing for all but Justice Cromwell, Justice Wagner held that – in most cases – the interpretation of standard form contracts (such as insurance policies) is a question of law and that such contracts thus constitute an exception to the rule in Sattva Capital Corp. v Creston Moly Corp. (2014 SCC 53), which held that contractual interpretation is a question of mixed fact and law. Additionally, Justice Wagner held that an exclusion clause, when ambiguous, is to be interpreted using the general principles of contractual construction, including the reasonable expectations of the parties, and the need for realistic and consistent results.

Though Justice Cromwell agreed with the rest of the Court in its disposition of the matter, he disagreed with its creation of the Sattva exception for standard form contracts. Furthermore, unlike the rest of the Court, Justice Cromwell did not find the exclusion clause to be ambiguous.

Window Washing Gone Awry

Station Lands, the owner of the newly-built EPCOR Tower in Edmonton, hired Bristol Cleaning to clean the tower’s windows while the building was still under construction. As is standard across the construction industry, Station Lands held all-risk property insurance for the construction project. In the course of its work, Bristol damaged the tower’s windows, requiring them to be replaced at a cost of $2.5 million. Station Lands, along with Ledcor Construction Ltd. (its general contractor), claimed the cost of replacement against the insurance policy. The insurers denied the claim, on the basis that an exclusion clause excluded coverage for faulty workmanship.

4(A) Exclusions
This policy section does not insure: … (b) The cost of making good faulty workmanship, construction materials or design unless physical damage not otherwise excluded by this policy results, in which event this policy shall insure such resulting damage.

(the “Exclusion Clause”)

The Court of Queen’s Bench of Alberta found that Bristol’s work constituted ‘faulty workmanship’, but that the Exclusion Clause did not exclude coverage of the damage resulting from Bristol’s work. However, the trial judge found the Exclusion Clause ambiguous, and only found for Station Lands and Ledcor, i.e.: that only the cost of redoing the cleaning work was excluded, after applying the contra proferentem rule against the insurers.

The Alberta Court of Appeal reversed the trial judge’s decision, holding that the damage to the windows was excluded from coverage under the insurance policy. The Court of Appeal arrived at this decision by interpreting the insurance policy on the correctness standard of review, and creating a new test of “physical or systematic connectedness”.

SCC: Standard Form Contracts – An Exception to the Sattva Rule

In finding that standard form contracts generally constitute an exception to the Sattva rule and that their “interpretation is best characterized as a question of law subject to correctness review” (Ledcor at para 24), the SCC provided guidance on a matter that has divided courts since 2014. In holding thus, Justice Wagner noted that standard form contracts usually have no ‘meaningful factual matrix’ specific to the signing parties, as such contracts are often signed without negotiation or modification. Further, since standard contracts (by definition) are generally standard across parties, their interpretation ought to attract greater precedential value than contracts that have been tailored to the individual parties’ needs.

SCC: Ambiguity and the Exclusion in the Exclusion Clause

In interpreting the Exclusion Clause, Justice Wagner noted the general rules of contract construction ought to be used when interpreting ambiguous language in insurance policies. Finding the Exclusion Clause is ambiguous, Justice Wagner interpreted it by addressing the reasonable expectations of the parties, and the need for realistic and consistent results. Furthermore, he looked to Bristol’s contract to determine that it had been hired to clean windows – and not “to install windows in good condition” (Ledcor at para 87).

Ultimately, Justice Wagner held that the Exclusion Clause only operated to exclude the cost of re-washing the windows from coverage under the insurance policy. The cost of re-installing the windows as a result of the damage done to them by Bristol constituted “physical damage not otherwise excluded” by the insurance policy, and was thus covered.


At first glance, the SCC’s judgment in Ledcor provides much-needed guidance to lower courts on the interpretation of standard form contracts in a post-Sattva age. However, just as Justice Rothstein in Sattva left open the possibility for contracts to be interpreted  as questions of law, in Ledcor, Justice Wagner leaves open the possibility for standard form contracts to be interpreted as questions of mixed fact and law in cases where a meaningful factual matrix exists or where a standard form contract has been modified.

Furthermore, with respect to the insurance policy exclusion clause, the Court appears to come down heavily on the side of the insured. Indeed, through judicial interpretation of the insurance policy and a narrow reading of Bristol’s contract, the Court understands the Exclusion Clause as excluding very little from insurance coverage. However, the Court’s decision on this issue rests on Justice Wagner’s finding that the insurance policy’s language is ambiguous. Were judges to find otherwise, Ledcor would instruct them to read the contract as a whole.

As such, though the SCC’s judgment in Ledcor provides guidance and creates an exception to the Sattva rule and signals the Court’s inclination towards the insured, it leaves open sufficient space for lower courts to interpret standard form contracts and insurance policy exclusion clauses differently.

With thanks to articling student Nabila Pirani for her assistance.

New Real Estate Tax Leads to Collapsed Deals

Posted in Real Estate

The provincial government’s new 15 per cent tax on foreign purchasers of residential property is the talk of the town in Metro Vancouver.  While many local residents have spent the last several days debating about the likely effect of the tax, others are already facing the consequences as buyers respond to the tax by failing to complete on binding agreements of purchase and sale.

As mentioned in a Vancouver Sun article published August 3, 2016, there are various ways in which the new tax can impact buyers and sellers of local real estate, even if the buyer does not meet the definition of a ‘foreign entity’ in the new legislation (see link at the end of this article).  For example, in addition to foreign buyers failing to complete in order to avoid payment of the tax, binding real estate deals can also collapse as a result of:

  • foreign buyers failing to have sufficient funds to pay the purchase price and the additional 15 per cent tax on closing;
  • local buyers being unable to sell their previous property at the price required to raise the necessary funds to close on the purchase of a new home; and
  • a domino effect of any sale cancelled for the reasons above and affecting another sale that depended on it.

Sellers need to be on guard to protect their legal rights in these circumstances.  If the buyer has removed the subject conditions for the purchase of the sale of a property, the seller has a legal right to enforce the contract which is unaffected by the imposition of the new tax.  If the seller has any reason to believe that the buyer will not complete the transaction, the seller should advise their conveyancing lawyer, who can assist the seller to ensure that the contract remains valid and binding on the closing date.  If the buyer fails to complete on the closing date, the seller then has the option of re-listing the property and pursuing the buyer in Court to claim compensation for the difference between the purchase price in the original contract and the eventual sale price obtained from a new buyer.  When bringing such a claim, sellers can seek to have the deposit paid into Court pending a resolution of the proceedings, which will be of particular assistance to ensure recovery of damages against a foreign buyer who does not have assets in BC.

Realtors and sellers should be aware that the Collapse Release Form, which is provided by the Real Estate Board of Vancouver, is not appropriate in circumstances where the seller seeks to recover compensation from the buyer for their failure to complete the transaction.  If the seller is asked to sign this form or any other forms or documents in relation to the collapsed sale, they should consult with a lawyer before signing it.

More information about the application and calculation of the new tax is available on the Real Estate Law Blog, also published by Lawson Lundell LLP.

Supreme Court safeguards solicitor-client privilege from requests under the Income Tax Act

Posted in Civil Litigation, Tax

In companion cases released on June 3, 2016, the Supreme Court of Canada (the “SCC”) confirmed the central importance of solicitor-client privilege to the rule of law in Canada. In Canada (National Revenue) v. Thompson, 2016 SCC 21, and Canada (Attorney General) v. Chambre des notaires du Québec, 2016 SCC 20, the Court considered provisions of the Income Tax Act (the “ITA”) requiring lawyers to disclose their clients’ privileged information without client consent during an audit or tax collection action against the lawyer.

Writing for a unanimous Court in both decisions, Mr. Justice Wagner and Mr. Justice Gascon held that lawyers’ accounting records are subject to solicitor-client privilege and that any intrusion on this privilege is permitted only if doing so is absolutely necessary to achieve the ends of the enabling legislation.  The current “exception” in the ITA in the definition of solicitor-client privilege, which excluded a lawyer’s accounting records, was determined to be constitutionally invalid as was the requirement scheme under the ITA which compelled lawyers to provide these records to Revenue Canada.

Thompson: Client information falls under solicitor-client privilege

During the course of an audit, Alberta lawyer Duncan Thompson received an order from the Canada Revenue Agency pursuant to section 231.2(1) of the ITA requiring the submission of various documents, including his accounts receivable. Thompson refused to submit the names of his clients, arguing that their identities fell within solicitor-client privilege.

Information that is protected by solicitor-client privilege is normally exempt from disclosure. However, the wording of section 231.2(1) is clear in its intention to exclude “an accounting record of a lawyer” from the scope of solicitor-client privilege.

On the point of client identity, the SCC gave a clear ruling: there is no difference between information about a communication with the client and information about the status or identity of the client. While not all communication in a lawyer-client relationship is privileged, facts connected with that relationship must be presumed to be privileged absent evidence to the contrary. Therefore, if section 231.2(1) of the ITA is held to require accounting records detailing the names of clients or the services rendered to them, the provision would effectively require the disclosure of otherwise privileged information.

Chambre des notaires: Fundamental principles of justice require solicitor-client privilege

In Québec, “professional secrecy” is a substantive fundamental right comprised of the obligation of confidentiality arising from the lawyer-client relationship and the resulting solicitor-client privilege.  A client’s right to professional secrecy is protected through various codifications, including in the Civil Code of Québec, the Act respecting the Barreau du Québec, and the province’s Charter of Human Rights and Freedoms. Clients therefore enjoy a reasonable expectation of privacy regarding their information and documents that are in the possession of their notary or lawyer.

In Chambre des notaires, the SCC found that the ITA creates a conflict between legal advisors’ duty of professional secrecy and their statutory duty of disclosure to the tax authorities. In balancing the client’s privacy interest and the state’s interest in carrying out a search or seizure of information or documents, the SCC held that professional secrecy must remain as close to absolute as possible. Though the ITA’s requirements serve the legitimate purpose of collecting amounts owed to the CRA and conducting tax audits, this important purpose could not justify infringing upon the protection afforded the Charter. As such, the impugned provisions – in this case sections 231.2(1), 231.7, and 232(1) of the ITA – were held to be unconstitutional.

The takeaway: solicitor-client privilege is here to stay

In February 2015, the SCC released its decision in Canada (Attorney General) v. Federation of Law Societies of Canada in which the Federation of Law Societies of Canada challenged the constitutionality of provisions in the Proceeds of Crime (Money Laundering) and Terrorist Financing Act that required lawyers to record certain information about their clients’ financial transactions. In that case, I lead the Lawson Lundell team that successfully argued on behalf of the Canadian Bar Association that the Act offended sections 7 and 8 of the Charter by unduly interfering with solicitor-client privilege, thus weakening the independence of the bar.

Again in a unanimous decision, the SCC agreed that the Act’s provisions authorizing law office inspection did not sufficiently protect solicitor-client privilege. Finding that the provisions were unjustified and unreasonable under section 8 of the Charter, the Court declared section 64 of the Act to be of no force and effect, and read down certain other law office inspection provisions to exclude application to lawyers.

The recent decisions of Thompson and Chambre des notaires echo this important confirmation of the stringent limits on intrusions into the privileged relationship between lawyers and their clients. As the Court noted in Thompson, “the obligation of confidentiality that springs from the right to solicitor-client privilege is necessary for the preservation of a lawyer-client relationship that is based on trust, which in turn is indispensable to the continued existence and effective operation of Canada’s legal system.”

Disclosure Obligations in Residential Real Estate Transactions

Posted in Civil Litigation, Real Estate

The residential real estate market in the Lower Mainland is incredibly active. Prices continue to rise by significant amounts in a matter of weeks, sometimes days. Stories abound of bidding wars and sales without subject clauses. Out of anxiety or excitement, purchasers sometimes forgo viewing the property or having an inspection done.

What happens when the home you bought turns out to be not quite what you expected? Perhaps the roof leaks or there is a rodent infestation. Maybe the plumbing is faulty or the construction defective. What recourse does a purchaser have against the vendor?

The critical question is what disclosure obligations the vendor has when selling their property. As is often the case in legal matters, there are competing principles at play in determining who bears the loss for such defects.  The first is caveat emptor, colloquially know as “buyer beware”.  It has been described as meaning:

Absent fraud, mistake or misrepresentation, a purchaser takes existing property as he finds it, whether it be dilapidated, bug-infested or otherwise uninhabitable or deficient in expected amenities, unless he protects himself by contract terms.

This means there is a fairly high onus on purchasers to conduct a reasonable inspection and make reasonable inquiries in order to discover patent defects. A “patent defect” is one which might not be observable on a casual inspection but may nonetheless have been discoverable upon a reasonable inspection by a qualified person.  In many cases, this means a purchaser should retain an inspector to inspect the property and the failure to do so cannot shift blame to the vendor.

A competing principle is consumer protection. This means the court will intervene to prevent fraud and non-innocent misrepresentation where a purchaser has been lied to about a property’s condition. However, the court may also intervene where a vendor has failed to disclose material (meaning dangerous) latent defects about the property that they knew about or ought to have known about. A latent defect is one that is not discoverable by a purchaser through reasonable inspection and inquiry. But not every latent defect will result in a remedy against a vendor.  It must be a defect of “substance” that makes the property uninhabitable or dangerous.

In reconciling these competing interests, the courts delineate exceptions to the caveat emptor principle.  For example, it will not apply in situations where the vendor:

  1. fraudulently misrepresents or conceals;
  2. knows of a latent defect rendering the house unfit for human habitation;
  3. is reckless as to the truth or falsity of statements relating to the fitness of the house for habitation; or
  4. breached the duty to disclose a latent defect which renders the premises dangerous.

Given these competing principles, determining the outcome of any given case is entirely dependent on the underlying facts. Some cases have held that the subsequent discovery of slope instability, or leaks, mould, and faulty retaining walls will entitle recovery from a vendor.  In other cases, the discovery of a hidden ravine, or faulty plumbing have not been the types of defect that allow a purchaser to shift liability to a vendor.

Most residential sales involve the vendor providing a Property Disclosure Statement (PDS). A PDS is meant to identify any problems or concerns with the property, not to give detailed comments in answer to the questions posed.  A vendor need only say that they are or are not aware of problems.  When completing a PDS, a vendor must correctly and honestly disclose their current actual knowledge about the property, but that knowledge does not have to be correct.  The contents of a PDS are representations upon which a purchaser can rely.

If you are caught up in the residential real estate frenzy, remember that generally it is “buyer beware”. Before you close a purchase, properly inspect the property and, if necessary, retain professionals to help you.  As a purchaser, if you want a promise of fitness for the home you are going to buy, your safest bet is to negotiate express warranties by the vendor to that effect by the vendor.