Thursday, July 12, 2018

Tribunal : Law Society of Ontario Failed in its Duty to Accommodate Lawyer

In a recent decision of the Law Society Tribunal (“Tribunal”),-  Law Society of Ontario v. Burtt, 2018 ONLSTH 63 - panelist Larry Banack dismissed an application by the Law Society of Ontario (“LSO”) seeking a finding that one of its lawyer  licensees had committed professional misconduct.  Mr. Banack found that the lawyer’s alleged misconduct, i.e. his failure to cooperate with a Law Society investigation was the direct result of a disability and that the Law Society had not discharged its legal obligation to accommodate the lawyer’s disability to the point of undue hardship.

Interestingly, despite evidence that many lawyers who are the subjects of LSO’s disciplinary proceedings are suffering from a mental illness such as depression which can amount to a disability under the Ontario Human Rights Code (the “Code”), Mr. Banack found that the circumstances of this case were “highly unusual”.  His findings were largely based on the particular facts of the case, i.e. that the LSO knew that the lawyer was suffering from a disability that resulted in him “freezing” and therefore was unable to provide a written response to the LSO’s request for communication.

In this case, Mr. Burtt admitted that he had not responded in writing to the LSO.  However, Mr. Burtt asserted that he was not capable of providing written responses, as demanded by the LSO, by reason of a documented disability that caused him to “freeze” when confronted with the investigation.  The defence that was asserted by Mr. Burtt resulted from a previous discipline proceeding in 2015.  As a result of that proceeding, the LSO with the consent of Mr. Burtt, commissioned and received two psychological reports.  Those reports were contained in the LSO’s file and both reports concluded that Mr. Burtt was suffering from a psychological condition which negatively affected his ability to respond to the LSO within specified time frames. 

In the previous matter, Mr. Burtt had been reprimanded and ordered to comply with a psychiatric treatment plan which remained in effect up until the date of the hearing before Mr. Banack.  In making his finding against the LSO, Mr. Banack relied on testimony from an LSO investigator that not only had he not read the two psychological reports that were contained in the LSO’s file but had only learned of them on the morning of the hearing. 

The Code prohibits discrimination with respect to membership in a trade or occupational association on specified grounds, one of which is disability.  In a previous case – Law Society of Upper Canada v. Czernik (2010 ONLSHP 122) – the Tribunal held that:  “The Law Society and the Tribunal are subject to the Code and must apply the duty to accommodate where there is a proven disability at play.  A failure to fulfill professional obligations that is caused by a disability must be accommodated by the Law Society and the Panel”.      The LSO was required to accommodate Mr. Burt to the point of undue hardship.  Mr. Banack found that he was satisfied that the record before him was sufficient to make the findings as to the scope and content of the LSO’s duty to accommodate.  Not only did Mr. Burtt tell the LSO about the prior disciplinary proceedings and the psychological reports, the decisions were publicly available on CanLII and it was part of his LSO file. 

In addition, the information available to the LSO’s investigators from their own observations of Mr. Burtt, his conduct and his communications with them ought to have been enough to alert them to consider the existence of a condition which required accommodation.  Mr. Banack found that the difference in this case, as compared to many before the Tribunal, was that Mr. Burtt had responded to the LSO on a timely basis and as Mr. Banack found, was to be contrasted with the ‘typical” response of the licensees in similar circumstances which included evasion, denial, obfuscation and disregard of professional obligations.  In this unusual case, the investigators engaged with an apparently cooperative licensee in lengthy conversations in which he disclosed a prior proceeding and medical reports, offered promises of cooperation and did not seek to avoid or fail to communicate with them.  He simply failed to follow through on his commitments.

All of this should have alerted the LSO’s investigators that the situation called for alternative thinking which by any other name amounted to accommodation.  The issue then became one of whether the accommodation afforded by the LSO, i.e. providing additional time for Mr. Burtt to respond to it was sufficient in the circumstances.  Mr. Banack found that it was not.  He found that in the “highly unusual” circumstances of this licensee who was known to be suffering from a disability that resulted in freezing but engaged in protracted dialogue with the investigators, the burden was on the investigators to at least canvass what alternative approach might have fulfilled their objectives.  In other words, that was no engagement in the express thought process of inquiry concerning the need for or scope of accommodation that was required. 

In this case, it was impossible for Mr. Burtt to comply with the LSO’s requirement of written cooperation.  The LSO had alleged that Mr. Burtt “failed to cooperate with the Law Society investigation by failing to provide a prompt and complete response to written requests made by the Law Society’s investigators”.  Mr. Banack reviewed rule 7.1-1 of the Rules of Professional Conduct, and held that a requirement to respond in writing is not found in either the rules or the notice of application.  In other words, the LSO could have accommodated Mr. Burtt’s disability by allowing him to respond orally to their inquiries and to attend at his office to obtain the information that it needed.  He concluded that the LSO had failed to satisfy its onus of demonstrating what considerations, assessments and steps were undertaken to accommodate Mr. Burtt “to the point of undue hardship”.   

In dismissing the LSO’s application, Mr. Banack concluded that Mr. Burtt’s disability was the cause of his inability and failure to provide a written response to the investigator’s demands.  Mr. Burtt did not fail to comply with his regulatory obligations but only failed, by reason of his disability, to comply with the manner to which compliance was demanded. 



Friday, June 8, 2018

Ecuadorian Villagers Barred From Enforcing Massive Environmental Judgment Against Chevron Canada

This is my ninth instalment about this case.  It probably won’t be my last. 

In the latest chapter of Yaiguaje v. Chevron Corporation, 2018 ONCA 472, the Court of Appeal for Ontario rejected arguments by the Ecuadorian villagers who are seeking to enforce a US$9.5 billion judgment against Chevron Corporation in Ontario.  The villagers argued that the Execution Act (“Act”) permitted execution on Chevron Canada’s shares and assets to satisfy the Ecuadorian judgment.  Secondly, they argued that the court should pierce the corporate veil between Chevron Canada and Chevron Corporation in order to render Chevron Canada’s shares and assets “exigible” i.e. – subject to seizure and sale to satisfy the judgment.

Justices Hourigan, Huscroft and Nordheimer heard the case.  All three justices dismissed the appeal, however, Justice Nordheimer wrote separate reasons which may give the Ecuadorian’s a glimmer of hope in seeking leave to appeal from this decision to the Supreme Court of Canada.   


From about 1964 to 1992, Texaco Inc. drilled for and extracted oil in the Oriente region of Ecuador which were the villagers’ traditional lands.  The oil company’s activities resulted in extensive environmental pollution.  In 2001, Texaco was acquired by Chevron Corporation.  Following an eight year trial and two appeals in Ecuador, the villagers obtained a US$9.5 billion judgment against Chevron Corporation.  They sought to enforce their judgment in the United States.  However, Chevron Corporation obtained an order in the state of New York holding that the Ecuadorian judgment had been obtained by fraud and preventing enforcement proceedings anywhere in the United States.  As a result, the villagers sought to enforce the Ecuadorian judgment against the assets of Chevron Canada in Ontario.  After a number of proceedings, including a jurisdictional issue that went all the way to the Supreme Court of Canada, the matter came back to the Superior Court of Justice in Ontario where a motion was brought for summary judgment.  Justice Hainey, the motion judge, dismissed the villagers’ claims on both of its arguments.  The villagers appealed the decision to the Ontario Court of Appeal. 

The Execution Act Argument

The villagers argued that section 18(1) of the Act allows the sheriff to seize any interest of a judgment debtor and that Chevron Corporation has an “indirect interest” in Chevron Canada.  The villagers submitted that because this case involves the enforcement of a foreign judgment, the court must, for the reasons of comity, interpret the Act in an expansive manner to facilitate the collection of the debt.  Justices Hourigan and Huscroft (the majority decision was written by Justice Hourigan) disagreed.  They held that enforcement of a foreign judgment is done in accordance with domestic law.  One cannot have one set of enforcement rules for domestic judgments and a second far more expansive set of rules for foreign judgments.  

The majority held that the declaration that the villagers sought, i.e. that the shares of Chevron Canada were exigible was “a legal impossibility”.  A corporation’s shares do not belong to the corporation but to its shareholders.  In fact, under the Canada Business Corporations Act, corporations are prohibited from owning their own shares.  The Act, is procedural only and does not grant substantive rights to judgment creditors.  Its only function is to facilitate the collection of judgments to enforce a judgment debtor’s existing rights.  In other words, there must be an existing legal right which permits seizure of the assets.  Chevron Canada does not hold such a right.  A shareholder (albeit indirect) of a corporation does not have a right to claim a proportionate share of the corporation’s assets while it is ongoing.  That right only arises if and when the corporation is wound up because at that point there is no existing entity capable of holding the assets.  

Granting the order sought by the villagers would ignore the corporate separateness of the subsidiaries in between Chevron Corporation and Chevron Canada.  In addition, the proposed interpretation of the Act would have a significant policy impact on how corporations carry on business in Canada.  As a result, they rejected this ground of appeal. 

Piercing the Corporate Veil Argument

The villagers alternatively submitted that the court had the ability to pierce the corporate veil “when the interests of justice demanded it”.  They relied on Justice Bertha Wilson’s passage in the Supreme Court of Canada case of Kosmopoulous v. Constitution Insurance (“Kosmopoulous”),  when she said that the corporate veil can be lifted when to enforce it would yield a result “to flagrantly opposed to justice, convenience or the interests of the Revenue”.   

The Court of Appeal held that Kosmopoulous was decided thirty years ago and since that time the law has developed.  In the case of Trans-America  Life Insurance Co. of Canada v. Canada Life Assurance Co. (“Transamerica”) (decided in 1996), Justice Sharpe held that there are only three circumstances where the court will pierce a corporate veil:  (1)  when the court is construing a statute, contract or other document; (2) when the court is satisfied that a company is a “mere façade” concealing the true facts; and (c) when it can be established that the company is an authorized agent of its controllers or its members, corporate or human.  The majority held that the Court of Appeal has repeatedly rejected an independent just and equitable ground for piercing the corporate veil in favour of the approach taken in Transamerica.  The Transamerica test is consistent with the principle reflected in the various business corporation statutes in Canada that corporate separateness is the rule.  

The majority held that it is important that the courts be rigorous in their application of the Transamerica test because the rule is provided for in the statute and stakeholders of corporations have a right to believe that, absent extraordinary circumstances, they may deal with the corporation as the actual person.  It held that Transamerica effectively modified Kosmopoulous and that the question for determination in this case is whether this court is prepared to sacrifice certainty for the sake of expediency. 

There was no suggestion or evidence that Chevron Canada was established or used for a fraudulent or improper purpose.  The majority rejected the argument that they should in effect “do the right thing” for the Ecuadorian villagers because at this stage the equities of the case were far from clear.  On one hand the appellants had suffered devastating loss through no fault of their own.  On the other hand, the United States court had found that the Ecuadorian judgment was the result of a massive fraud.  The court held that what they were really being asked to do was to assist the villagers in doing an end-run around the United States courts by breaking with well-established jurisprudence where there is no principled basis to do so.  They dismissed the appeal on that ground as well.

Justice Nordheimer’s Dissent

Justice Nordheimer agreed with the result reached by his colleagues.  He also agreed with their analysis of the case in respect of the Act.  However, Justice Nordheimer did not agree with the analysis of the majority judges concerning whether to pierce Chevron Canada’s corporate veil. 

He held that Transamerica, the case that the majority had heavily relied upon, could be distinguished on the facts.  Transamerica dealt with imposing liability on a party whereas in this situation, the issue concerned enforcing a judgment debt.  In the latter situation, liability has already been established.  The proceeding has moved past the hurdle of finding liability to a stage that concerns the remedies that are available to enforce a valid judgment.  In Justice Nordheimer’s view, Transamerica could not simply be lifted out of the liability context and dropped into and applied to the judgment enforcement context.  In fact, Justice Nordheimer held that it would be very difficult to conceive of a factual situation where the Transamerica test could be met, that is where the corporate structure would be found to have been used as a shield for fraudulent or improper conduct solely in the context of enforcing a judgment. 

Justice Nordheimer also disagreed with his colleagues’ reading of the Kosmopoulous case and found that he could see situations where the court would be willing to lift the corporate veil in the interest of third parties who would otherwise suffer as a result of that choice.  He found that the Ecuadorian villagers might well fall into that category were it not for the findings of the United States courts respecting the fraudulent manner in which the judgment had been obtained.  In Downtown Eatery (1993) Ltd. v. Ontario (“Downtown Eatery”), a 2001 decision of the Court of Appeal, the court pierced the corporate veil despite expressly finding that neither the corporate structure or the reorganization leaving the judgment debtor corporation without assets was fraudulent.  It did so because the reorganization created an injustice.  Justice Nordheimer held that Downtown Eatery was arguably more relevant than Transamerica because it post-dated Transamerica and was involved in enforcement of a judgment debt as opposed to finding of liability. 

Finally, the majority’s finding that Chevron Canada was not an asset of Chevron Corporation was one that Justice Nordheimer found was “completely detached from real-world realities”.  He found that it was crystal clear that Chevron Canada was an asset of Chevron Corporation as that term is understood in common business parlance.  All of Chevron Canada’s shares are owned by Chevron Corporation (albeit indirectly) and it is ultimately controlled for all practical purposes by Chevron Corporation.  He held that the question was not whether the court was prepared to sacrifice certainty for the sake of expediency, it was whether the court was prepared to recognize that there may be situations where equity would demand a departure from the strict application of corporate separateness principle in the context of enforceability of a valid judgment whether foreign or domestic.  However, he found that the United States court’s finding that the Ecuadorian judgment was obtained by fraud put the apparently valid foreign judgment in question.  Canadian courts have not yet been called upon to make their own determination of the validity of the judgment.  Absent such a finding, even on Justice Nordheimer’s approach, the judgment could not be enforced.   



Friday, May 18, 2018

SCC - Careless Garage Not Liable For Injury to Teenager

Rankin (Rankin’s Garage & Sales) v. J.J. 2018 SCC 19 (Rankin)

The Supreme Court of Canada recently held (7-2) that the owners of a commercial garage did not owe a duty of care to a boy who was seriously injured after he and a friend stole a car from the garage even though the garage was negligent in allowing the car to be stolen.

In the summer of 2006, in the village of Paisley, Ontario, the plaintiff J (who was then 15 years old) and his friend C (then 16 years old) were at C’s mother’s house.  The boys drank alcohol, some of which was provided by C’s mother, and smoked marijuana.

After midnight, the boys left the house intending to steal valuables from unlocked cars.  Eventually, they made their way to Rankin’s Garage & Sales, a business located near Paisley’s main intersection.  The garage property was not secured and the boys began checking for unlocked cars.  C found an unlocked Toyota Camry parked behind the garage.  The keys were in the car’s ashtray.  Although he did not have a driver’s license and had never driven on the road before, C decided to steal the car so he could go and pick up a friend in nearby Walkerton, Ontario.  C told J to get in, which he did. C drove the car out of the garage and headed towards Walkerton.  On the highway, the car crashed and J suffered a catastrophic brain injury.

Through his litigation guardian, J sued Rankin’s Garage, his friend, C and C’s mother for negligence.  The issue on appeal to the Supreme Court was whether Rankin’s Garage owed J a duty of care. 

Justice Karakatsanis wrote a majority decision for seven justices of the court.  Justice Brown wrote a dissenting decision (with Justice Gascon concurring). 

The majority held that the case could be resolved based on a straightforward application of existing tort law principles.  It held that J did not provide sufficient evidence to support that Rankin’s Garage owed him a duty of care.

Because there is no clear guidance in Canadian case law on whether a business like the garage owes a duty of care to someone who was injured following the theft of a vehicle, the Supreme Court conducted an Anns/Cooper analysis.  That analysis provides that to establish a duty of care, there must be a relationship of proximity in which the failure to take reasonable care might foreseeably cause loss or harm to the plaintiff.  Once foreseeability and proximity are established, a prima facie duty of care is made out.  The question is an objective one, and properly focused, is whether foreseeability was present prior to the accident and not with the aid of 20/20 hindsight.

The court held that although the results of this case were tragic, physical injury to J was only foreseeable when there is something in the facts to suggest that there is not only a risk of theft of the car, but also a risk that the stolen car might be operated in a dangerous manner.  The risk of theft in general does not automatically include the risk of theft by minors.  The court found that in this case there was insufficient evidence to suggest that minors would frequent the premises at night or be involved in joyriding or theft.  Rankin’s Garage, as a commercial garage, did not have a positive duty to guard against the risk of theft by minors.  The fact that J was a minor does not automatically create an obligation for the company to act. 

The court held that J had not met the burden of establishing a prima facie duty of care because reasonable foreseeability could not be established on the factual record of the case.  A business will only owe a duty to someone who is injured following the theft of a vehicle when in addition to theft the unsafe operation of the stolen vehicle was reasonably foreseeable. 

The dissenting judges held a view that many may believe was more logical.  They held that the concept of “reasonable foreseeability” represents a low threshold and is usually quite easy to overcome.   A plaintiff must merely provide evidence to persuade the court that the risk of the type of damage that occurred was reasonably foreseeable to the class of the plaintiff that was damaged.  In this case, both the trial judge and the Ontario Court of Appeal held that it was reasonably foreseeable that an individual such as J could suffer physical injury as a consequence of Rankin’s Garage’s negligence in failing to properly lock, secure and store vehicles.  Justices Brown and Gascon concluded that the majority of the court had conceded that the risk of theft was reasonably foreseeable but, in order to hold the garage owner responsible, would have required additional evidence that theft would have occurred at the hands of a minor in order to find that physical injury to J was foreseeable.  The dissenting judges held that minors are no less likely to steal cars than any other individual.  In order to establish a duty of care, J was not required to show that the characteristics of the particular thief or the way in which the injury occurred were foreseeable.  Imposition of a duty of care was conditioned only upon J showing that physical injury to him was reasonably foreseeable under any circumstances flowing from Rankin’s Garage’s negligence.    



Friday, May 4, 2018

SCC Rules That Provinces Can't Restrict or Limit Interprovincial Flow of Goods

The Supreme Court of Canada recently released its judgment in R. v. Comeau, 2018 SCC 15.  The decision confirmed that the Province of New Brunswick has the power to enact laws which prevent its residents from bringing large quantities of cheap alcohol into the province from Quebec.  The Court held that the primary purpose of the New Brunswick regulatory scheme is not to restrict trade across a provincial boundary but to enable public supervision of the production, movement, sale and use of alcohol within New Brunswick.  However, more importantly, the Court held that the Constitution Act, prohibited laws whose primary purpose was to restrict or limit the free flow of goods across the country.

The judgment was delivered by the court.

The court began by giving a history lesson.  It noted that when Canada was formed in 1867, the British North America Act, 1867 (UK) (“BNA”), united individual British colonies into the new country.  Prior to this, each colony had its own power to impose tariffs at its borders.  Part VIII of the BNA, now called the Constitution Act, 1867 (“Constitution Act”), contains provisions for transferring this power to levy tariffs to the federal government.  Section 121, at the heart of  Part VIII, was at issue in this appeal:  “All Articles of the Growth Produce or Manufacture of any one of the Provinces shall, from and after the Union, be admitted free into each of the other Provinces”.

The respondent, Gerard Comeau, contended that section 121 is essentially a free-trade provision.  In his view, that section ensured that no barriers could be erected to impede the passage of goods across provincial boundaries.  However, the appellant, The Province of New Brunswick, argued that section 121 was intended only to take away the power to impose tariffs or tariff-like charges at provincial boundaries.  The trial judge agreed with Mr. Comeau.  The matter eventually came before the Supreme Court of Canada which posed the question this way:  “What does it mean for articles to be “admitted free” as provided for in section 121?” 

The Supreme Court mused: if to be “admitted free” is understood as a constitutional guarantee of free trade, the potential reach of section 121 is vast.  Agricultural supply management schemes, public health-driven prohibitions, environmental controls and comparable regulatory measures that incidentally impede the passage of goods crossing provincial borders may be invalid.

The dispute arose out of Mr. Comeau’s assertion that section 121 of the Constitution Act, prevents the province of New Brunswick from legislating that New Brunswick residents cannot stock alcohol from another province.  The applicable section of the Liquor Control Act of New Brunswick (“NB Liquor Act”), provides that:  “Except as provided by this Act or the regulations, no person, within the Province, by himself, his clerk, employee, servant or agent shall… (b) have or keep   liquor, not purchased from the Corporation”.

The facts of the case are straight forward.  Mr. Comeau was a resident of the Tracadie-Sheila region on the Acadian Peninsula in northeastern New Brunswick.  He drove to Campbellton, in the northwest of the province, crossed the Restigouche River and entered Quebec.  He did what many Canadians who live close to cheaper alcohol prices across provincial boundaries do.  He visited three different liquor stores and stocked up.  However, the Campbellton RCMP had become concerned with the frequency by which New Brunswick residents were sourcing large quantities of alcohol in Quebec in contravention of the law.  The RCMP started monitoring New Brunswick visitors who commonly frequented liquor stores on the Quebec side of the border.  Mr. Comeau was one of these visitors. 

Returning from Quebec to New Brunswick, Mr. Comeau was stopped by the RCMP and charged under the section 134(b) of the NB Liquor Act that prohibited buying alcohol outside the province.  He was charged under  and fined $240 plus administrative fees. 

At trial, the New Brunswick provincial court agreed with Mr. Comeau that the NB Liquor Act infringed section 121 of the Constitution Act.  The trial judge found section 134(b) to be of no force and effect against Mr. Comeau and dismissed the charge.  In doing so, the trial judge found that a 1921 Alberta Court of Appeal decision was wrongly decided and should not be applied. 

However, the Supreme Court of Canada disagreed.  It held that section 134(b) of the NB Liquor Act does not infringe section 121 of the Constitution Act. 

The court held that common law courts are bound by authoritative precedent.  Subject to extraordinary exceptions, a lower court, such as the New Brunswick trial court, must apply the decisions of higher courts to the facts before it.  For a binding precedent from a higher court to be cast aside, the new evidence must fundamentally shift how judges understand the legal question in issue.  This high threshold was not met in this case.  The trial judge relied on evidence presented by a historian who he accepted as an expert.  The trial judge accepted the expert’s description of the drafters’ motivations for including section 121 in the Constitution Act and how those motivations drive how section 121 is to be interpreted.  The SCC held that reliance on the expert’s opinion was erroneous.  A trial judge should not depart from precedent on the basis of such opinion evidence because it abdicates the judge’s primary responsibility to determine the applicable law.

The court  then considered how section 121 should be interpreted.  It held that the moderate approach to statutory interpretation provides a guide for determining how “admitted free” in section 121 should be interpreted.  The text of the provision must be read in conjunction with the context and purpose of the statute.  Constitutional texts must be interpreted in a broad and purposive manner and in a manner that is sensitive to evolving circumstances.   Applying this framework to section 121, the text, historical context, legislative context and underlying constitutional principles  support a flexible purpose of section 121, one that respects an appropriate balance between federal and provincial powers. 

The Court held that the phrase “admitted free” is ambiguous and falls to be interpreted on the basis of historical, legislative and constitutional context.  In order to achieve economic union, the drafters of the constitution agreed that the individual provinces needed to relinquish their tariff powers.  The historical context supports the view that section 121 prohibits imposition of charges on goods crossing provincial boundaries, i.e. tariffs and tariff-like measures.    However, the evidence does not suggest that the provinces would lose their power to legislate under section 92 of the Constitution Act for the benefit of their constituents even if that might have impact on inter-provincial trade.

The Supreme Court held that the legislative context of section 121 indicates that it was part of a scheme that enabled shifting of customs, excise and similar levies from the former colonies to the “Dominion”, it should be interpreted as applying to measures that increase the price of goods when they cross the provincial border, and should not be read so expansively that it would impinge on legislative powers under sections 91 and 92 of the Constitution Act. 

The purpose of section 121 is to prohibit laws that in essence restrict or limit the free flow of goods across the country.  Second, laws that pose only incidental effects on trade as part of broader regulatory trade schemes not aimed at impeding trade do not have the purpose of restricting inter-provincial trade and do not violate section 121.  Therefore, section 121 does not catch burdens on goods crossing provincial borders that are merely incidental effects of a law or scheme aimed at some other purpose. 

A claimant alleging that a law violates section 121 must establish that the law in essence and purpose restricts trade across a provincial border.   The claimant must establish that the law imposes an additional burden on goods by virtue of them coming in from outside the province and, restriction of cross-border trade must be the primary purpose of the law thereby excluding laws enacted for other purposes. 

In this case, section 134(b) of the NB Liquor Act impedes liquor purchases originating outside of New Brunswick.  In essence, it functions like a tariff even though it may have other purely internal effects.  However, the text and effects are aligned and suggest that the primary purpose of section 134(b) is not to impede trade but rather to restrict access to any non-corporation liquor, not just liquor brought in from another province.  The scheme serves New Brunswick’s choice to control the supply use of liquor within the province.  The primary purpose of section 134(b) is to prohibit holding excessive quantities of liquor from supplies not managed by the province.  While one effect of that section is to impede inter-provincial trade this effect is only incidental in light of the objective of the provincial scheme in general.  Therefore, while section 134(b) in essence impedes cross-border trade, this is not its primary purpose.  The court held that as a result, section 134(b) does not infringe section 121 of the Constitution Act. 



Tuesday, April 10, 2018

Failure to Immediately Disclose "Mary Carter" Agreement Will Lead to Stay of Action

The Ontario Court of Appeal recently ordered that an action be stayed (Handley Estate v. DTE Industries Limited, 2018 ONCA 324on the basis that certain parties had failed to comply with their obligation to immediately disclose a “Mary Carter” agreement.  The Court held that by originally denying the motion for a stay, the motion judge had erred in principle by failing to apply the remedy for non-disclosure of these types of agreements as specified in a previous Court of Appeal decision called Aecon Buildings v. Stephenson Engineering Limited (“Aecon”).   

In the case, Helen Handley discovered in 2004 that the outdoor oil tank that she had purchased for her home had leaked and had discharged several hundred litres of fuel oil into the soil.  In 2009, Ms. Handley’s insurer, Aviva Insurance Company of Canada (“Aviva”), commenced a subrogated claim against a number of defendants including H&M Combustion Services Ltd. (“H&M”).   H&M had been dissolved in 2007.  Aviva was aware of that fact and pleaded it in the statement of claim.  Aviva did not name as defendants in the action one of the oil tank vendors, Kawartha Lakes HVAC Inc. (“Kawartha Lakes”), and its corporate successors.   By the time Aviva decided to sue Kawartha Lakes, the limitation period for the main action had expired.  Aviva decided to explore asking H&M to initiate a third party claim against Kawartha Lakes.

In 2011, counsel for Aviva and H&M negotiated a litigation agreement.  Under the agreement, H&M would defend the main action and commence a third party claim against Kawartha Lakes and its successors.  Aviva would contribute $5,000 to cover H&M’s costs of prosecuting the third party claim through examinations for discoveries and H&M’s principal would revive H&M should that be necessary to prosecute the third party claim.   Aviva and H&M agreed that all communications between counsel would be subject to common interest privilege.   

At the time, neither Aviva nor H&M disclosed the litigation agreement (Mary Carter agreement) to the other parties.  Such disclosure did not take place until the fall of 2016 when Aviva and H&M concluded a further litigation agreement. 

In the 2016 Mary Carter agreement, H&M assigned all its rights to Aviva in the action including the rights to receive all proceeds from the third party action.  Aviva agreed to indemnify H&M and its principal against all costs and damages that might be awarded against H&M.  Aviva would assume responsibility for defending H&M and prosecuting its third party claim.  Aviva assumed responsibility for all legal costs and disbursements incurred by H&M’s counsel but reserved the right to appoint its own counsel.  The Court of Appeal held that as a result of the 2016 Mary Carter agreement for all intents and purposes Aviva stepped into the litigation shoes of H&M. 

As a result of certain steps taken in the litigation, the 2016 litigation agreement first became known to the other parties but the 2011 litigation agreement did not.  Finally, both litigation agreements were disclosed.  Geo, Williamson Fuels Ltd. (“Williamson”), a defendant and the third parties moved for an order staying the action on the basis that the failure to disclose the Mary Carter agreements immediately had effected the “litigation landscape” contrary to the principles set down by the Court of Appeal in Aecon.   

The third party action settled on the eve of the hearing and only the motion to stay brought by the Williamson proceeded.

The motion judge agreed that the litigation agreements had not been disclosed contrary to the principles of Aecon, but refused Williamson’s request for a stay by distinguishing Aecon.  He held that Aecon did not stand for the proposition that the claims against all parties should be “automatically” stayed.  He held that Williamson had suffered no prejudice from the delayed disclosure of the agreement because as a supplier of the oil in the tank and not the tank, Williamson was unaffected by the third party claim.  There was no reason for Williamson to spend any money litigating the third party claim because H&M had been dissolved. 

On appeal the parties did not dispute the motion judge’s finding that both litigation agreements should have been disclosed immediately because they changed the adversarial relationship between Aviva and H&M.  The dispute centered on the appropriate remedy for such failure. 

The appeal was heard by Justices Hoy, Simmons and Brown.  Justice Brown wrote the reasons for the court.  He held that since 1993, the law in Ontario has been clear that a Mary Carter type agreement must be disclosed to the court and to the other parties to the law suit as soon as the agreement is made.  The rationale for immediate disclosure is as follows:  “

The existence of a Mary Carter agreement significantly alters the relationship among the parties to the litigation.  For that reason the agreement must be disclosed to the parties and to the court as soon as it is made.  The non-contracting defendants must be advised immediately because the agreement may well have an impact on the strategy and line of cross-examination to be pursued and the evidence to be led by them.  In addition, they must be able to properly assess the steps being taken from that point forward by the plaintiff and the contracting defendants.  Procedural fairness requires immediate disclosure.  In addition, the court must be informed immediately so that it can properly fulfill its role in controlling its process in the interest of fairness and justice to all parties.” 

In Aecon the Court of Appeal held that while it is open to the parties to enter into such agreements, the obligation upon entering into them is to immediately inform all other parties to the litigation as well as the court.  The reason for this is obvious.  Such agreements change entirely the legal landscape of the litigation. 

Justice Brown held that the remedy for failing to immediately disclose the agreement is to stay the proceeding.  He held that:  The only remedy to redress the wrong of what amounts to an abuse of process is to stay the claim asserted by the defaulting non-disclosure party because sound policy reasons support such an approach – only be imposing consequences of the most serious nature on the defaulting party is the court able to enforce and control its own process and ensure that justice is done between and among the parties.  To permit the litigation to proceed without disclosure of such agreements renders the process a sham and amounts to a failure of justice”. 

For those reasons, Justice Brown held that the motion judge had misdirected himself regarding the principles in Aecon.  He erred by failing to apply Aecon’s remedy of staying the claim of the party that did not disclose the litigation agreement and amounted to an error of law.



Wednesday, March 21, 2018

Living In Splendid Isolation - Lessons Learned Enforcing an Ontario Judgment in Mexico

Living in Splendid Isolation:  Ten Lessons Learned
Enforcing an Ontario Judgment in Mexico  
Blair Bowen
Fogler, Rubinoff LLP, Toronto
This article presents a cautionary tale for any person who wishes to take legal proceedings against an individual or company resident in Mexico.
More than 25 years ago, the Supreme Court of Canada's decision in Morguard Investments Ltd. v. De Savoye[1], represented a sea change in the way Canadian courts recognized and enforced foreign judgments.  The "foreign" aspect of Morguard involved British Columbia plaintiffs seeking to enforce an Alberta judgment.  Writing for the court, Justice La Forest rejected the centuries' old principles regarding recognizing and enforcing foreign judgments which were anchored in the concept of territoriality.  He held that modern states like Canada should no longer live in "splendid isolation" from the rest of the world and should give effect to judgments made in other countries.  In arriving at its conclusion, the court relied heavily upon the concept of comity which had been adopted by the Supreme Court of the United States.  It held that comity would "impel sovereigns to mutual intercourse". 
These lofty ideals were written just four years before commerce between Canada and Mexico was facilitated by the North American Free Trade Agreement ("NAFTA").  NAFTA sought to reduce, and in some instances, eliminate barriers to trade and commerce between Canada, Mexico and the United States.  Indeed, after NAFTA, trade between Canada and Mexico increased substantially and Mexico is now one of Canada's largest business partners and export destinations.
More recently however, a case in which I was involved, drove home the very unsettling point that the Supreme Court's vision of greater ease in enforcing foreign judgments between trading partners has not been fully embraced by Mexico.  You will learn from reading this offering that Mexico and its judicial system still exist in a state of "splendid isolation" when it comes to recognizing and enforcing judgments from Canada. 
A "Garden Variety" Breach Of Contract Case
Several years ago, I was retained by an Ontario company to sue defendants who resided in Mexico[2].  The client was a producer of live entertainment and theatre and was owed a substantial sum of money as a result of a failed business deal with a Mexican promoter.  The Mexican promoter had persuaded our client to allow a touring dance company to deliver several performances in Mexican venues, without first paying our client for the performances or without providing adequate security for payment.  After several broken promises, our client soon determined that the promoter had no intention of honouring his contractual obligations. 
At first review, this seemed like a straight-forward "garden variety" breach of contract case, the only wrinkle being the non-resident defendants.  After receiving no response to its demands for payment, the client needed to make a decision.  Should it sue the Mexican promoter in Mexico or in Ontario?  The client's Mexican lawyers advised that so long as an Ontario court would take jurisdiction over the Mexican promoter and the other proposed defendants – the promoter's wife and his "theatre arts" company, a Mexican court would recognize and enforce a judgment obtained from the proceedings.  This advice seemed promising and we commenced the action in the Ontario Superior Court of Justice. 
Lesson Number 1 
Before commencing proceedings in Ontario against Mexican defendants, obtain advice from Mexican lawyers describing in detail the process involved for recognizing and enforcing an Ontario judgment in Mexico and the defences that may be raised by Mexican defendants in resisting recognition and enforcement.
Doing Justice Formally
The defendants could be served with the statement of claim outside of Ontario without a court order because Ontario had jurisdiction simpliciter.  A substantial connection existed between Ontario and the cause of action for many reasons:  the contract was made in Ontario;  a breach of the contract had been committed in Ontario;  damage was sustained by our client in Ontario arising out of the defendants' breach of contract; and, the contract provided that the courts of Ontario had jurisdiction to resolve a dispute arising out of the contract. 
Canada and Mexico are both signatories to the Hague Convention on the service abroad of judicial and extra-judicial documents in civil or commercial matters (the "Convention").  Normally, we would be able to serve the statement of claim on the Mexican defendants by any means legally provided for service of an originating document in Mexico.  However, the client's Mexican lawyers warned that when Mexico ratified the Convention, it opposed the use of the simplest methods of serving a foreign statement of claim.  Instead, it had designated a branch of its Foreign Ministry as the only competent authority to receive originating documents from another country.  
Lesson Number 2
Mexican courts require foreign court and other inbound documents to be certified or authenticated.  This generally means having all documents originally signed by the issuing authority, i.e. judge, clerk or other authority, and attesting that the documents are true and correct copies of the originals. 
Mexico, as we were just beginning to learn, is a jurisdiction that does justice very formally.  We learned that Mexican courts required formalistic procedures for often the simplest administrative steps.  At the advice of the Mexican lawyers, we followed a multi-step process to ensure that service of the statement of claim was properly effected on the Mexican defendants.  Such steps included translating our request for service and the statement of claim into Spanish, providing the Mexican lawyers with a power of attorney from our client which needed to be notarized by us and then "legalized" at the Canadian consulate in Mexico City and then transmitting all documents in duplicate to the Mexican Foreign Ministry. 

Lesson Number 3
Once authenticated, Mexican courts require that all inbound documents be "legalized".  The process of legalization can be done by obtaining another document from the Mexican Consulate in Ontario called an "apostille" which will be attached to the documents in question.  The apostille gives Ontario documents full binding effect in Mexico.    
The Mexican lawyers told us that we needed the Mexican Consulate in Toronto to apply a "legalization" stamp on the documents.  We were also told that since our client was a foreign company, it would have to submit an original certificate of status showing it was in good standing, its articles of incorporation, an original copy of the company's by-laws and articles which included the powers vested in the board of directors authorizing the lawsuit, an original copy of the minutes of the relevant meeting of the board with the full names of all the directors and their official titles, an original copy of the minutes of the meeting of the board respecting the election of the present board of directors, an original copy of the minutes of the meeting of the board where it was resolved to confer the power of attorney. 
All of this was necessary to serve the statement of claim on the defendants.  
Lesson Number 4
Utilize the services of Global Affairs Canada where possible.  Global Affairs Canada is the federal government agency that manages Canada's diplomatic and consular relations.  It offers to authenticate a variety of documents so that they will be accepted for use abroad. 
We had two options available to us, (1) the client could present the notarized power of attorney to Global Affairs Canada.  We needed Global Affairs Canada to apply an authentication stamp on the documents and then submit it to the Mexican Consulate to be legalized; or (2) the client's president could attend at the Mexican Consulate in Toronto to execute a power of attorney according to Mexican law.  If he chose this option, he would have to present all of the corporate documents referred to above.  Needless to say, we chose the former option. 
The Mexican lawyers also advised that in addition to serving the statement of claim, it was customary to serve the plaintiff's certificate of status, articles of amendment, if any, and the power of attorney.  While the defendants would not require those documents in order to file a defence, we were advised that to be on the safe side and to avoid the possibility of a technical defence being raised, we should serve all of such documents with the statement of claim.
Having received that advice, we completed a request for service pursuant to the Convention together with a notice summarizing the nature of the documents that were to be served on the defendants.  Since Mexico had objected to "other means of service" under the Convention, we needed to deliver the documents to Mexico using the Central Authority for Canada in Haileybury, Ontario ("Haileybury"). 
Haileybury sent the documents to the client's Mexican lawyers.  The lawyers told us that the documents were "acceptable in principle" but were missing an official stamp and signature of the Canadian "requesting authority".  It was essential to the Mexican Foreign Ministry that Haileybury officially stamp the documents so that it could process our request for service in Mexico.  The Mexican lawyers sent the documents back to Haileybury.  Haileybury stamped the documents and sent them back to the Mexican lawyers who then attempted to file the documents for service with the Mexican Foreign Ministry. 
Lesson Number 5
Ensure that all documents are translated by a certified translator.  According to Mexico's Federal Code of Civil Procedure ("FCCP"), all documents pertaining to an action in Mexico must be translated into Spanish.  I recommend that the translation work is performed by a certified translator appointed by the court where you intend to enforce the judgment and that such work is monitored by legal counsel in Mexico.
After a month of waiting, we were informed that the Foreign Ministry had again returned the documents to the Mexican lawyers because of "technical deficiencies".  The issue appeared to be that the Mexican court wanted an Ontario court to sign the request for service of the documents.  Upon attendance at the registrar's office, our law clerk was informed by the Registrar of the Superior Court that he would not sign such a request.  Haileybury also advised that they would not sign the request.  However, after some persuasion by our law clerk, the Registrar relented and signed the request for service.  To make them look more formal and official, our law clerk put a red paper seal on the documents. 
Lesson Number 6
Follow all instructions from Mexican courts completely, even the instructions that appear to be arbitrary.
We intended to send the documents back to Haileybury for re-stamping.  Before doing so, we noticed that the documents that had been returned from Mexico included new instructions in Spanish.  The Mexican court was now requesting two sets of originally signed documents instead of one.  We were told by the Mexican lawyers that the request for duplicate originals was new and was a criterion of an individual officer at the Foreign Ministry.  It was not a requirement under the Convention or a requirement of Mexican law.  It was simply a requirement of the person dealing with the matter in Mexico.  We were told that we would have to comply with the request in order to have the documents accepted. 
Once we had sent the duplicate documents back to Mexico via Haileybury, the Mexican lawyers told us that the Foreign Ministry still refused to accept them because the preamble in the statement of claim did not specify whether the days required to respond to the claim were calendar days or business days.  The Foreign Ministry wanted the Ontario Court to issue a "resolution" to confirm that the days referred to in the preamble were calendar days.  Just as we were attempting to determine how we could obtain such a resolution from the Ontario Court, we were surprised by the Mexican lawyers who told us that the Foreign Ministry had relented.  The Mexican lawyers had met with the Director of the Foreign Ministry and persuaded her that she did not require the Ontario court to explain its preprinted form by resolution after all.  Apparently they felt they had tormented us long enough. 
Several months after we were first retained, two of the three defendants (the promoter and his company) were finally served with the statement of claim.  Service on the third defendant (the promoter's wife) was pending because the judge that received the request asked for extra copies of the documents even though the Convention did not require that these extra copies be provided. 
No Cakewalk In Ontario Either
The Mexican defendants subsequently attorned to the jurisdiction of the Ontario Court and defended the action.  We hoped that the action would now proceed expeditiously.  We were naive. 
It quickly became apparent that the Mexican defendants would not willingly participate in the action or take any step towards furthering or resolving the proceeding unless ordered to do so by the court.  As a result, we were required to initiate or threaten a number of useless interlocutory motions for, among other things, (a) requiring the defendants to deliver their affidavits of documents; (b) requiring the defendants to attend for discovery (in the end, it was much quicker and cost-effective to examine the defendants in Mexico City rather than to pay for the cost of their attendance in Ontario and wait for travel visas to be issued).  At the time, Citizenship and Immigration Canada had just imposed a travel visa requirement on all Mexican nationals; (c) requiring the defendants to deliver answers to the undertakings given on their examinations for discovery; and (d) exempting the action from mediation. 
Settling (Apparently) On The Eve Of Trial
We set the matter down for trial and obtained a trial date.  On the eve of trial, we heard from the trial coordinator in Toronto.  Her office had overbooked trials and that there were no judges available to hear our trial.  We were on standby until Wednesday of the trial week.  Faced with having to actually purchase plane tickets to come to Toronto for the trial, the defendants became serious in their settlement negotiations.  The trial coordinator further delayed the start of the trial advising that the  matter would need to be put over from spring to the fall of that year.  Our client, wanting to end the matter instructed us to accept the last offer to settle that the defendants had served. 
Once the action had been settled, it became abundantly clear that the Mexican defendants had no intention of paying any part of the settlement amount, just as they had originally no intention of paying my client the amount owed under the contract.  The opposing lawyer attempted to reassure me that my client's rights were protected because the terms of the settlement which provided that my client could obtain consent judgment for a much higher amount if the defendants defaulted in paying any part of the settlement.  Eventually communication with the other lawyer ceased.  We were required to bring a motion to enforce the terms of the settlement. 
Appealing From An Unopposed Judgment
We scheduled a motion for judgment based on the accepted offer to settle, which the Mexican defendants did not oppose.   
Three weeks later, the defendants' lawyers served their clients' notice of appeal from the unopposed judgment.  Because the defendants had not opposed the motion for judgment, it was beyond me as to what their grounds for appeal might be. 
We received a notice of change of lawyer in the appeal proceedings.  However, just before the holiday season that year, the new lawyers for the defendants served a notice abandoning the appeal.
Once the appeal had been abandoned we set about, again, speaking with Mexican lawyers to understand the procedure involved in having the judgment recognized and enforced against the defendants in Mexico.  As we were in the midst of doing so, we were contacted by a third Ontario law firm advising that they had been retained by the defendants to bring a motion to set aside or vary the judgment on the grounds that it had been obtained by mistake. 
Not surprisingly, our client was losing its resolve.  The defendants had put up numerous road blocks to prevent our client from seeing a penny of the amount it was owed.  Our client was willing to substantially compromise its judgment in order to move on with its business.  We began negotiating settlement with this third firm of lawyers.  But in the end, the defendants' threat to move to amend or vary the judgment simply faded away. 
Enforcing The Judgment – Part 1 – Obtaining "Novel" Letters Of Request
The client's Mexican lawyers told us something that had become obvious – the Mexican legal system was very formalistic and rigid in its requirements, particularly when it dealt with any parties or procedures outside of Mexico.
The process involved for recognizing and enforcing a foreign judgment in Mexico is called "homologación".  It is a procedure that involves both local and federal rules of procedure.  This happens within a Mexican civil law system that relies heavily on strict and full compliance with all formalities.  We were told at this late stage that it would have been wise to have considered all requirements and formalities for homologación before we commenced the proceedings in Ontario to make sure that all requirements and formalities would be strictly complied with.  (See Lesson 1)
Lesson Number 7
Obtain letters of request in Ontario which ask the Mexican court to recognize and enforce the judgment.  The letters of request should stress the principle of comity.  Under the FCCP Mexican courts will not enforce a foreign judgment if it is proven that the issuing court would not enforce a Mexican judgment under similar circumstances.  It is advisable that all letters of request include a short statement acknowledging that "under similar circumstances, this court would recognize and enforce a judgment coming from the requested court".
The first such formality was that we were required to obtain from the Ontario court, a letter of request, signed by both a judge and the registrar of the Ontario court asking the Mexican court to recognize and enforce the judgment. 
We could find only one Canadian case in British Columbia, First Majestic Silver Corp.[3], in which such a request had been granted.  The plaintiff in that case was seeking to enforce a British Columbia judgment, in you guessed it, Mexico.  In that case, the court held that Canada's Superior Courts possess an inherent jurisdiction to request international judicial assistance to enforce a domestic judgment.  The case also suggested that the Mexican court's requirement that the Ontario court must request its assistance before it will take steps to recognize and enforce the judgment could be fulfilled on the basis of comity.  Under the common law, Ontario regularly enforced judgments from Mexico by way of an action on the judgment.  The principles of "comity, order and fairness" dictated an expectation that judgments of Ontario would be recognized and enforced by the Mexican courts. 
I made a motion before a judge of the Superior Court of Justice and asked her to sign letters of request that I had drafted.  She refused to do so.  The judge told me that she had never signed such a document and indicated that she would "feel better" if we obtained an affidavit from a Mexican lawyer setting out the requirements of the Mexican court.  Accordingly, we drafted a short affidavit for our client's Mexican lawyer to sign and went back to court. 
My second court appearance took place on the Friday before the Victoria Day holiday long weekend.  I attended before another judge of the Ontario Superior Court of Justice.  Our motion was unopposed.  Having read my factum, the judge advised at the opening of court that he would hear my matter last.  Late in the afternoon, after all of the other motions had been dealt with, the judge told me that he did not oppose, in principle, the relief that I was seeking but had some difficulties with the language of the draft letter of request that gave the Mexican court the power to, among other things, fine and arrest the judgment debtors.  He told me that he would be "more comfortable" with language that reflected the enforcement powers contained in Ontario's Rules of Civil Procedure.  He asked me to revise the draft letter of request and email it to him for approval before I appeared before him again.  Approximately one week later, after appearing before the judge in chambers, and explaining the changes made to the draft letter, I received the signed order and letter of request.  This I considered to be a small victory.
Enforcing The Judgment In Mexico – Part 2 – Doing Justice Very Formally
The Mexican lawyers intended to take the letters of request to the Mexican court to initiate proceedings to enforce the Ontario judgment.  In order to do so, we needed to send them an original or certified copy of the contract on which the action was based, an original or certified copy of the judgment, the letter of request and a power of attorney from our clients.  We also were advised that all documents should be authenticated, translated into Spanish, and legalized by the Mexican consulate in Toronto and then sent to them in Mexico City. 
We then sent the notarial copies of the documents to Global Affairs Canada and asked them to authenticate them.  We received the authenticated documents back from Global Affairs Canada within a couple of weeks.  We then sent all documents to the Mexican lawyers for the necessary translation and submission to the court in Mexico.
The Mexican lawyers arranged to have the document translated into Spanish.  In addition, they made inquiries of the Office of Public Records in Mexico City to ascertain the status of the real properties owned by the defendants.  Once they had done so, and received the translated documents they were ready to file.  By that time, the courts in Mexico were on the November 1st "Dia de Muertos" (day of the dead) break and nothing was functioning.  
The Mexican court acknowledged receipt of the client's documents in or about the middle of November.  The next step would be to serve the judgment debtors.  We were advised the service might take a few days to a week after which the defendants would have 9 working days to present evidence, pleas and arguments as to why the judgment should not be recognized and enforced in Mexico.  The Mexican lawyers advised that the main defence to recognizing and enforcing a foreign judgment was to argue that the judgment was not final but Mexican judgment debtors would use every available defence to avoid execution on the judgment as a delay tactic. 
Lesson Number 8
Ensure that letters of request include a statement that the judgment is final and res judicata.  The FCCP requires that the judgment to be enforced is final and res judicata in the sense that there is no legal recourse pending or available to the defendant in Ontario.  It is advisable that a statement to that effect is contained in the letters of request.
After a few weeks of waiting, the Mexican lawyers advised that the defendants had not yet delivered a defence because they had not been notified of the judgment.  Apparently the judge who was reviewing the documents could not determine whether the judgment emanated from an action involving real property or a personal action involving a payment of money.  The Mexican lawyers also advised "surprisingly and absurdly, the judge also requests us to demonstrate that the judgment presented before him is firm and res judicata".  They advised that they were appealing this decision because the letters of request clearly stated the judgment was res judicata
The matter was then presented to an appeal judge of the Mexican court who advised that he had to study and analyze the matter before issuing a ruling.  The Mexican lawyer advised us, "please let me remind you that Mexican justice is not swift at all, quite the opposite".  He advised that the matter would not be wrapped up before the end of the year and then the courts would be on their year-end break for the holidays and the new year. 
Lesson Number 9
Ensure that the letter of request specifies that the judgment was a result of an action in personam and not an action in rem.  
By the end of January, the client's Mexican lawyers had still not heard from the appeals judge.  Finally, at the end of February, we received an answer but it was not one that we expected or desired.  The judge who had reviewed the materials, ruled that he could not accept the claim because the materials had not demonstrated that the Ontario judgment was final and the materials that were submitted to him did not show that they were in respect of personal rights rather than rights in rem.  When the client's Mexican lawyers submitted the appeal, they argued that the letters rogatory stated quite clearly that the judgment was final and was in respect of a contract between parties as opposed to real property situated in Ontario. 
The appeal judge upheld the ruling of the lower court and added that all documents would have to be sent back to Toronto to be "legalized" by the Mexican consulate. 
Lesson Number 10
Be patient.  This is perhaps the most important lesson.
The Mexican lawyers apologized to us saying that the delay was due to circumstances beyond their control and as a result of the "peculiar ways" of the Mexican judicial system.  They presented two options:
1.               To appeal to an even higher court in Mexico and ask for both decisions to be overturned.  That outcome was uncertain and could take a few months with no guarantee of it going our client's way; or
2.               To file the documents afresh.  The Mexican lawyers indicated that that was the best way to proceed.  The client agreed.
Accordingly, we sent the original contract between our client and the Mexican promoter to the Mexican lawyers to translate into Spanish to present to the judge to show that the judgment originated from an action in personam  as opposed to an action in rem.  In addition, the Mexican lawyers sent back all of the original documents that they had presented to the Mexican court so that we could take them to the Mexican consulate in Toronto to have them legalized.  (See Lesson 3)
Once the documents had been duly stamped by the Mexican Consulate, we sent them back to the Mexican lawyers.  The defendants presented the documents to the Mexican judge.  This time, the judge could not determine whether the judgment had emanated from a civil action or an arbitration, thus necessitating an appearance before him of the Mexican lawyers to explain.  Finally, at the end of August, the Mexican lawyers advised that the Mexican defendants had been served with the enforcement documents.  That gave them 9 working days to file their answer with the court.  A month later, when updating us as to the status of the proceeding, the Mexican lawyer commented, "as you might be aware by now, legal proceedings in Mexico tend to be slow and complicated".  He then advised that they had been first informed unofficially and then officially, that the judge in charge of the case had declined jurisdiction on the grounds that the case was the matter of a local court and not of a federal court.  Accordingly, he intended to send our client's file to a local court, i.e. with jurisdiction in Mexico City only.  The Mexican lawyers advised that they strongly disagreed with that view and were already preparing an appeal to keep the matter in Mexican Federal Court. 
The Mexican lawyers scheduled an appeal before a judge of the Federal Court.  On the date of the appointment, they were told the judge was not available.  As a result, they left their written argument with the judge's administrative assistant.  They were advised that the matter would go to "study and resolution" but they were not advised how long it would take.
Recently a Mexican appeal court ruled that our client's enforcement proceedings should be dealt with by the local court in Mexico City rather than by the Mexican Federal Court.  Although the client's Mexican lawyers disagreed with the ruling, in order to save time and expense, they conceded that the matter should be dealt with locally.  It was now a matter for the Federal Court to transfer the complete file to the Mexico City court, which, we were told, would take some time.
Summary Of Lessons Learned
Lesson Number 1 - Before commencing proceedings in Ontario against Mexican defendants, obtain advice from Mexican lawyers describing in detail the process involved for recognizing and enforcing an Ontario judgment in Mexico and the defences that may be raised by Mexican defendants in resisting recognition and enforcement.
Lesson Number 2 - Mexican courts require foreign court and other inbound documents to be certified or authenticated.  This generally means having all documents originally signed by the issuing authority, i.e. judge, clerk or other authority, and certifying or attesting that the documents are true and correct copies of the originals. 
Lesson Number 3 - Once authenticated, Mexican courts require that all inbound documents be "legalized".  The process of legalization can be done by obtaining another document from the Mexican Consulate in Ontario called an "apostille" which will be attached to the documents in question.  The apostille gives Ontario documents full binding effect in Mexico.    
Lesson Number 4 - Utilize the services of Global Affairs Canada where possible.  Global Affairs Canada is the federal government agency that manages Canada's diplomatic and consular relations.  It offers to authenticate a variety of documents so that they will be accepted for use abroad. 
Lesson Number 5 - Ensure that all documents are translated by a certified translator.  According to Mexico's Federal Code of Civil Procedure ("FCCP"), all documents pertaining to an action in Mexico must be translated into Spanish.  I recommend that the translation work is performed by a certified translator appointed by the court where you intend to enforce the judgment and that such work is monitored by legal counsel in Mexico.
Lesson Number 6 - Follow all instructions from Mexican courts completely, even the instructions that appear to be arbitrary.
Lesson Number 7 - Obtain letters of request in Ontario which ask the Mexican court to recognize and enforce the judgment.  The letters of request should stress the principle of comity.  Under the FCCP Mexican courts will not enforce a foreign judgment if it is proven that the issuing court would not enforce a Mexican judgment under similar circumstances.  It is advisable that all letters of request include a short statement acknowledging that "under similar circumstances, this court would recognize and enforce a judgment coming from the requested court".
Lesson Number 8 - Ensure that letters of request include a statement that the judgment is final and res judicata.  The FCCP requires that the judgment to be enforced is final and res judicata in the sense that there is no legal recourse pending or available to the defendant in Ontario.  It is advisable that a statement to that effect is contained in the letters of request.
Lesson Number 9 - Ensure that the letter of request specifies that the judgment was a result of an action in personam and not an action in rem.  
Lesson Number 10 - Be patient.  This is perhaps the most important lesson.

Blair Bowen
Fogler, Rubinoff LLP, Toronto

[1] [1990] 3 SCR 1077

[2] This saga began in 2008. It is not yet complete.
[3] 2015 BCSC1517

Friday, February 2, 2018

SCC Provides Guidance On When Costs Should Be Awarded Against Lawyers Personally

In a decision that was unsettling to many lawyers – Quebec (DCPP) v. Jodoin [2017] 1 SCR 478 – the Supreme Court of Canada upheld a lower court’s decision to award costs against a lawyer personally in a criminal proceeding. 

 In April 2013, a criminal lawyer Jodoin, was representing ten clients charged with impaired driving, and other charges.  There were twelve cases and they were jointly scheduled for a hearing in the Court of Quebec on a motion for disclosure of evidence.  On the morning of the hearing, Jodoin had the office of the Superior Court stamp a series of motions for writs of prohibition in which he challenged the jurisdiction of the judge who was to preside over the hearing, alleging bias on the judge’s part.  As an experienced criminal lawyer, Jodoin knew that the filing of such motions would result in the immediate postponement of the hearing until the Superior Court had ruled on them.

However, the same morning before the motions were served, the parties learned that another judge would be presiding over the hearing instead.  As the hearing began, the Crown stated that it would call an expert witness.  Jodoin objected on the ground that he had not received the notice required under the Criminal Code and requested an adjournment.  Instead, the judge heard the parties on the issue and decided to authorize an examination of the expert after the lunch break.   During the break, Jodoin chose instead to prepare a new series of motions for writs of prohibition, this time challenging the second judge’s jurisdiction and again alleging bias on the part of the judge.  After service of the motions, the judge had no choice but to suspend the hearing. 

The Crown attorney believing that the sole purpose of the motions was to obtain an adjournment, objected, and told Jodoin that he intended to seek an award of costs against him personally for delay and abuse of process.   

In the Superior Court, a judge found that Jodoin's motions were unfounded and frivolous in that they were of questionable legal value for an experienced lawyer such as Jodoin.  On the issue of costs against Jodoin personally, he concluded that Jodoin’s conduct satisfied the applicable criteria and ordered that he pay costs of $3,000 or $250 per case.

The Court of Appeal affirmed the Superior Courts judgment on the dispositions of the motions but allowed Jodoin’s appeal to set aside the award of costs against him personally. 

The Supreme Court of Canada (on a 7 – 2 majority) allowed the Crown’s appeal and restored the award of costs against Jodoin. 

The majority decision was delivered by Justice Gascon.  The majority found that the courts have the power to maintain respect for their authority.  A court has an inherent power to control abuse and to prevent the use of procedure in a way that would be manifestly unfair to a party to the litigation before it would bring the administration of justice into disrepute. 

The awarding of costs against lawyers personally flows from the right and the duty of the courts to supervise the conduct of the lawyers who appear before them and sometimes penalize conduct of such a nature as to frustrate or interfere with the administration of justice.  This power can be exercised in criminal cases, which means it can be exercised against defence lawyers. 

The threshold for exercising the court’s discretion to award costs against a lawyer personally is high.  It can be justified only in exceptional circumstances where the lawyer’s acts have seriously undermined the authority of the courts or seriously interfered with the administration of justice.  This high threshold is met where the court has before it an unfounded, frivolous, dilatory or vexatious proceeding that denotes a serious abuse of the judicial system by the lawyer or dishonest or malicious conduct on the lawyer’s part that is deliberate.   

There are two important “guideposts” that apply to the exercise of this discretion.  The first relates to the specific context of criminal proceedings.  The courts must show a certain flexibility towards the actions of defence lawyers, whose role is not comparable in every respect to that of a lawyer in a civil case.  Costs against a lawyer personally must not be to discourage the lawyer from defending his or her client’s rights or interest and the client’s right to make a full answer in defence.  Secondly, the guidepost requires a court to confine itself to the facts of the case and to refrain from indirectly putting the lawyer's disciplinary record or his or her career on trial. 

Before imposing the sanction, the lawyer must be given prior notice of the allegations against him and the possible consequences.  The lawyer should have an opportunity to make separate submissions on the issue and to adduce an relevant evidence.  The applicable standard of proof is the balance of probabilities. 

In this case, the majority found that the circumstances were exceptional.  It found that Jodoin’s conduct was “particularly reprehensible”.  His conduct was motivated by a desire to have the hearing postponed rather than by a sincere belief that the judges targeted by his motions were hostile.  He thus used the motions for a purely dilatory purpose with the sole objective of obstructing the orderly conduct of the judicial process in a calculated manner.  It was therefore reasonable for the court  to conclude that he acted in bad faith and in a way that amounted to an abuse of process thereby seriously interfering with the administration of justice. 

Two justices (Justices Abella and Côté) dissented.  They held that costs awards against a lawyer personally are exceptional and, in particular in the criminal context, such orders could have a chilling effect on criminal defence counsel’s ability to properly defend their client.  Accordingly, they should be only issued in the most exceptional circumstances and the Crown should be very hesitant about pursuing them. 

The dissenting judges held that in this case, it appears that Jodoin’s conduct was not unique and that he was being punished as a warning to other lawyers engaged in similar tactics.  The desire to make an example of his behaviour does not justify straying from the legal requirement that his conduct should be rare and exceptional before costs are awarded against him personally.  In addition, it was arguable that this tactic of trying to delay the hearing to obtain more time to cross-examine the expert, was a strategic one.  The Crown had not provided Jodoin with the requisite notice for the expert report and the presiding judge only granted him a brief one over the lunch break and mistakenly said that Jodoin had already cross-examined the Crown’s expert when that was not the case.   

Given the facts emphasized by the dissenting judges, it is apparent that criminal defence lawyers will now need to take a hard look at the perceived bona fides of strategies they may use to assist them to prepare their clients' cases.