Friday, October 12, 2018

Ontario Judge Considers Systemic Anti-Black Racism As A Sentencing Principle

Earlier this year, a Toronto jury found Kevin Morris (“Morris”), a 26 year old black man, guilty of several gun-related charges including possession of an unauthorized firearm, possession of a prohibited firearm with ammunition and carrying a concealed weapon.  The jury acquitted Morris of assaulting a police officer with intent to resist arrest. Morris was sentenced to 15 months in jail.  Predictably, there was an outcry in some media and corners of the criminal justice community that the sentence was too lenient and “soft on crime”.  On September 11, 2018, several months after Morris’s conviction, Justice Shaun Nakatsuru, the trial judge, released his written reasons for the sentence, including why he spared Morris from serving time in a federal penitentiary.   The reasons run twenty-one pages in length.  At the end of the reasons, Justice Nakatsuru attached as an appendix a report entitled “Expert Report on Crime, Criminal Justice and the Experience of Black Canadians in Toronto,” written by three social scientists.  The appended report, also runs 21 pages in length, excluding another 10 pages of footnotes. 

The Crown objected to the admission of this report.  The Crown also objected to the admission of a second report entitled “Social History of Kevin Morris”, written by one of the social scientists.  The second report focussed on how systemic anti-black racism had affected Morris’s particular circumstances and led him to be where he is now.  However, both reports were either admitted or considered by Justice Nakatsuru on the basis that sentencing judges should take a broader and more liberal view of materials that should be admissible at a sentencing hearing.  The judge reasoned that the goal of a sentencing hearing is to arrive at a fit and proportionate sentence.  Justice Nakatsuru concluded that the more he knew about Morris and his crimes, the better he could arrive at such a sentence.  This was particularly important when it came to tackling the problem of the disproportionate imprisonment of black offenders.

Justice Nakatsuru described the facts of the case as being straight-forward.  In December of 2014, four years earlier when Morris was 22 years old, the police received a call about a home invasion in Scarborough.  As they were investigating the scene, the police came upon four black males walking in a parking lot.  The police stopped the young men.  Morris ran away.  As he was running, Morris discarded his jacket, which police eventually recovered and found that the jacket contained a loaded revolver.  Prior to trial, Morris brought a Charter application to stay the charges.  Justice Nakatsuru did not stay the charges but did find some Charter violations that were relevant to the sentencing. 

The Crown and the defence were far apart on the appropriate sentence.  The Crown asked for 4 to 4.5 years in jail.  The defence argued that the sentence should be 1 year before credit was given for the Charter breaches.  At the sentencing hearing, the defence presented the two reports.  The first report was written by Professor Akwasi Owusu-Bempah, Camisha Sibblis and Professor Carl James.  They are all very qualified academics and experts in their field.  Ms. Sibblis was the primary author of the second report.  As to the first report which dealt with anti-black racism in Canadian society, Justice Nakatsuru agreed with the Crown that an expert report was not required at the sentencing hearing because the law has “now long taken notice of these sorts of things”.  Justice Nakatsuru nevertheless found the report to be so useful that he attached it as an appendix to his reasons, noting “It is invaluable to have such a report available for every judge on every sentencing of a black offender.”.  Justice Nakatsuru indicated that he agreed with the authors’ conclusions which he set out in his reasons in full.  In part, the report concluded “that the social circumstances of Black Canadians in general, and of Black male Torontonians in particular, should be viewed as criminogenic…” and while “no one individual should be completely absolved of their own offending behaviour when it comes to offending behaviour, the social realities that have produced or contributed to such behaviour can be acknowledged, and serve to guide judicial decision making”.    

The second report was intended to provide the judge with more information about Morris, the accused.  The author provided her analysis as to the impact of systemic racism on Morris’s experience in and out of the justice system.  Justice Nakatsuru admitted the second report, but with some qualifications.  The judge indicated that he used his own independent evaluation of how systemic factors applied in Morris’s case and was free to disagree with what the author of the report had said.   While Justice Nakatsuru found that the reports were helpful to him, he also held that we live in a real world of limited resources, and recognized that not every accused is going to be able to present such sentencing reports to the courts for their assistance. 

Justice Nakatsuru held that in arriving at a fit sentence for Morris he was aware that the sentencing principles of general deterrence and  denunciation was most important for offences such as these.  In obiter he held that, “We have a serious problem with gun crime.  Reducing gun crime and its associated violence, is a long game.  Effective solutions take time, money and commitment.  There is no one single solution in the short term.”  He them commented on some of the issues that were responsible for gun crime including addressing social and economic inequalities and disadvantages, supporting smart and fair policing with adequate resources, dismantling gangs and getting at the reason why young people join them, and indicated that the problems are complex and the answers were not easy.   The criminal justice system plays an important role not only to deter gun crime with fit sentences but to make sure the criminal justice system demands the respect of the people who look to is for solution. 

Justice Nakatsuru ruled that when looking at the case in a principled manner, “broader systemic factors such as racism and the effects of colonialis must surely have some impact upon the application of general deterrence and denunciation".  He recognized that criminal judges have limited tools available to them to meet the objectives of sentencing.  But the law does not say that systemic and background factors should play no role in the assessment of the seriousness of the crime and the weight to be given to general deterrence and denunciation. 

In arriving at the sentence for Morris, Justice Nakatsuru considered a number mitigating factors including the factors set out in the second report.  In all of the circumstances he found that a sentence of 15 months was the fit and appropriate sentence in order to deter and denounce.  After finding some Charter violations, Justice Nakatsuru reduced the jail sentence to 12 months accounting for the “dead” time that Morris had already spent in jail.

Justice Nakatsuru recognized that some would see the sentence as being too lenient.  He responded, “In my opinion, we have to get past this idea of waiting for the perfect person to be lenient.  Waiting for the most benevolent soul by the standards of the privileged and the few before we decide to extend consideration for leniency.  For we may be waiting a long time.” 

see R. v. Morris, 2018 ONSC 5186



Wednesday, July 25, 2018

Ontario Court Allows Increased Political Activity By Charities

In an important decision released on July 16, 2018, Justice E.M. Morgan of the Ontario Superior Court of Justice held that the provision of the Income Tax Act (“ITA”) which restricted a charity’s “political activities” to a maximum of ten per cent of its resources were unconstitutional because it offended the charity’s right of freedom of expression contained in the Canadian Charter of Rights and Freedoms (“Charter”).  As a result, Justice Morgan ordered the Canada Revenue Agency (“CRA”) to immediately cease interpreting and enforcing the impugned section of the ITA in that manner.  In doing so, Justice Morgan effectively ended CRA’s “political activities” audits of Canadian charities and opened the door for charities to engage in much more non-partisan political activity.

In this case, (Canada Without Poverty v. AG Canada, 2018 ONSC4147), CRA had threatened to revoke the charitable status of Canada Without Poverty (“CWP”) on the basis that the charity was offside the maximum 10 per cent rule concerning its political activities.  CWP argued that the ITA’s distinction between “charitable activities” and “political activities” was artificial and that almost all of its work could be labelled political activity in the sense that public advocacy for policy change was fundamental to its charitable purpose of poverty relief. 

ITA Prohibits “Political Activities” By Charities

Section 149.1(6.2) of the ITA defines the extent to which a registered charity can devote its resources to political activities and provides that where a charity devotes substantially all of its resources to charitable activities, it can only devote ten per cent of such resources to political activities, provided that the political activities are “ancillary and incidental” to its charitable activities and the political activities do not include the direct or indirect support or opposition to any political party or candidate for public office. 

The CRA has the power to revoke a charity status if it determined that the charity carried on more than the allowed ten per cent of its activities as political activities as opposed to charitable activities.  As a matter of interpretation, the CRA divided political activities into two general types – submissions directly to government and public advocacy.  In doing so, the CRA acknowledged that there could be policy and advocacy components to charitable activities.  In this respect, political activities and charitable activities are not always treated as distinct. 

Section Violates Guarantee of Freedom of Expression

Canada Without Poverty challenged the overall distinction between charitable activities and political activities that were embodied in the ITA and challenged the CRA rule of interpretation enforcement limiting political activity to ten per cent of its resources.  It argued that there was no valid distinction between political expression and (with the exception of partisan political involvement) and charitable activities and so the distinction in the ITA was redundant violated the guarantee of freedom of expression under section 2(b) of the Charter .  CWP argued that the infringements could not be justified under section 1 of the Charter. 

Justice Morgan agreed.  He held that there is no widely agreed upon definition of what is political.  Certainly there was no definition of political activities in the ITA.  Virtually all of Canada Without Poverty’s activities are communicative or expressive and in that sense “political”.  Justice Morgan wondered whether one could “coherently distinguish between political activities and charitable activities or for that matter any other kind of activities”.

CWP argued that public advocacy for policy change was fundamental to its charitable purpose of poverty relief.  Without this component its charitable activities could not accomplish their purpose.  CWP’s approach to relieving poverty is one that strives for the full civic engagement of people living in poverty.  Its purpose is to relieve poverty by sharing ideas with its constituency.  Relying on various international studies on poverty relief, CWP placed its resources and efforts behind civic engagement and public dialogue with the goal of bringing about legislative policy change for the effective relief of poverty.  Justice Morgan held that while this approach may be in keeping with contemporary activism in the field, it was out of step with ITA and the CRA policy statement on interpretation and enforcement of the ITA.  Canada Without Poverty argued that the CRA’s ten per cent rule should no longer be applied because there was no cogent distinction between non-partisan political activities and charitable activities and therefore no reason for political activities to be ancillary or incidental to charitable activities.    

Justice Morgan found that even the Minister of National Revenue in a consultation report agreed with many of the positions taken by CWP.  The consultation panel had recognized that a key principle with respect to charitable activities is that public advocacy and charitable works go hand in hand in a modern democracy and are seen as an essential part of the democratic process.  

Canada Without Poverty challenged the sections of the ITA as infringing its right to freedom of expression.  Justice Morgan held that it would be difficult to express the importance of freedom of expression as a Charter right any higher than the Supreme Court of Canada has put it, “fundamental – because in a free, pluralistic and democratic society we prize a diversity of ideas and opinions for their inherent value both to the community and to the individual”.   Justice Morgan held that there was no doubt that the activity in which the charity wished to engage, i.e. public advocacy of policy change, is within the guarantee of freedom of expression.  CWP argued that non-partisan political advocacy is an accepted charitable activity under the ITA.  The arbitrary ceiling of ten per cent of the organization’s resources restricted the charity’s expressive conduct.  It was the ten per cent restriction that was the target of CWP’s complaint not the status itself. 

Justice Morgan reviewed the evidence.  According to affidavit evidence adduced by CWP, its activities that could be seen as political encompassed far more than ten per cent of its efforts and resources.  It argued that the application of the impugned sections of the ITA imposed restrictions on all expressive activity whose goal was entirely wrapped up with communicating to the public that a law or policy decision at any level of government should be changed or retained for the purpose of relieving poverty.  This ten per cent restriction was fundamentally at odds with the charity achieving its charitable purpose because virtually everything the charity did was “political”.  The fact that a parliament allowed political activity, but the restriction was arbitrarily limited to ten per cent, infringed the charity’s freedom of expression rights.  CWP adduced evidence that it would not be able to function absent its charitable status.

Justice Morgan held that as a registered charity, Canada Without Poverty had a right to effective freedom of expression, i.e. the ability to engage in unimpaired public policy advocacy towards its charitable purpose.  The burden imposed by the sections of the ITA and by the policy adopted by CRA in enforcing that section runs counter to that right.  Accordingly, CWP’s right to freedom of expression under section 2(b) of the Charter was thereby infringed. 

Prohibition Can Not Be Justified Under Section 1 of Charter

Justice Morgan then looked at whether the impugned sections of the ITA could be saved because they were justifiable under section 1 of the Charter. 

Having found that the section of the ITA violated section 2(b) of the Charter so that it burdens CWP’s pursuit of public policy advocacy, it was necessary to turn to section 1 of the Charter.   At that point the burden shifted to the Attorney General to establish that the infringement was reasonable and justified in a free and democratic society. 

The analysis follows the Oakes test (Supreme Court of Canada case – R. v. Oakes).  In full, the test considers whether the legislative objective is pressing and substantial, whether the means chosen by the legislature is rationally connected to the objective, whether the legislation minimally impairs the right of free expression, and whether it is proportional considering the deleterious and salutary effects on the right.  All these tests must be addressed in sequence.  The failure of government to pass any one of the hurdles results in the conclusion that the infringement of the Charter is diversified. 

Justice Morgan held that the first question to arise under Oakes is whether “the state’s action under challenge has good ends”.   In considering the answer to that question, Justice Morgan looked at the right that was being infringed.  He quoted former Chief Justice McLachlin in saying that, “It is difficult to image a guaranteed right more important to a democratic society than freedom of expression…it seems that the rights enshrined in section 2(b) should therefore only be restricted in the clearest of circumstances.”   

Justice Morgan rejected the Attorney General’s submission that the ITA section was a permissive one, i.e. it permitted a charitable organization to devote substantially all, rather than all of its resources to charitable activities.  He held that it was obvious that rather than being permissive the section was prohibitive in that while it permitted ten per cent of an organization’s resources to be devoted to public policy advocacy, it prohibited the remaining 90 per cent of the resources from being devoted to public policy advocacy. 

Seen that way, the objective of the section of the ITA was to limit political expression, i.e.  keep it to a small percentage of the organization’s time, effort and resources.  He held that the government had offered no rationale for the ten per cent ceiling or not answered the question as to why parliament had not opened registered charity status to organizations pursuing political purposes but had limited political speech in furtherance of accepted charitable purposes.  He held that there was an artificial distinction made in the sections between charitable activity and non-partisan political activity and that having not established a pressing and substantial objective, the government’s case had not passed the first hurdle of Oakes.  Accordingly, there was no justification for the infringement of the charity’s right to freedom of expression under section 2(b) of the Charter.

Justice Morgan ordered and declared that:

  1. CRA cease interpreting and enforcing the section of the ITA that limited ten per cent of a charity’s resources to political activities;

  1. the phrase “charitable activities” used in the ITA be read to include political activities without quantum limitation in furtherance of the organization’s charitable purposes;

  1. there be a declaration that the impugned sections of the ITA are of no further force and effect; and

  1. the exclusion from charitable activities of partisan political activities remained in force.




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 fa├žade” 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.