Friday, November 14, 2014

Duty of Honest Performance of Contracts Recognized in Canadian Common Law


In a landmark decision, released on November 13, 2014,  (Bhasin v. Hrynew 2014 SCC 71), the Supreme Court of Canada recognized a new common law duty for parties to a contact to perform their contractual obligation honestly and in good faith, i.e. a duty of honest performance.   The recognition of this duty represents a change in the law in Canada. 

 

In this case, the plaintiff, Mr. Bhasin, operated a business in Alberta selling registered education savings plans on behalf of Canadian American Financial Corp.  (“Can-Am”).  After almost 10 years, Mr. Bhasin and Can-Am entered into a new agreement governing their relationship featuring a three year term which renewed automatically unless one party gave 6 months’ notice of termination. 

 

The defendant, Mr. Hrynew, a direct competitor of Mr. Bhasin, began working for Can-Am with a view to merging his business with Mr. Bhasin’s business.  Mr. Hrynew was placed in the position of “auditing” Mr. Bhasin’s business.  Can-Am repeatedly misled Mr. Bhasin about Mr. Hrynew’s duties and obligations as an “auditor” as well as the plan to merge Mr. Hrynew’s business with Mr. Bhasin’s.  Ultimately, Can-Am gave notice that it did not intend to renew Mr. Bhasin’s agreement resulting in the loss of value that Mr. Bhasin had built over a period of almost 10 years.  Mr. Bhasin’s sales force was subsequently assumed by Mr. Hrynew.

 

Mr. Bhasin sued Can-Am and Mr. Hrynew in the Alberta Superior Court alleging, among other things, that they had breached an implied duty of good faith.  His claim was successful at trial but was subsequently dismissed by the Alberta Court of Appeal. 

 

In a unanimous decision (the majority decision was written by Mr. Justice Thomas Cromwell), the Supreme Court of Canada held that the common law in Canada should take an incremental step forward to recognize a general doctrine in contract law that imposes a minimum standard of honest contractual performance.

 

The court recognized that Anglo-Canadian common law has resisted acknowledging any generalized, independent doctrine of good faith performance of contracts which is out of step with civil law of Quebec and most jurisdictions in the United States.  Rather, Canadian common law in that respect was piecemeal, unsettled, unclear and inconsistent with the reasonable expectations of commercial parties. 

 

Justice Cromwell identified the Court’s role to develop the common law to keep pace with the “dynamic and evolving fabric of Canadian society” where it can do so in an incremental fashion.  He contemplated not a wholesale change or a reversal of settled law, but a development directed at bringing greater certainty and coherence to the law.

 

The new doctrine of honest performance is characterized by two incremental steps:

 

  1.  the first step is to acknowledge that good faith contractual performance is a general organizing principle of common law of contract which informs varies rules in various situations and types of relationships and recognizes obligations of good faith contractual obligations; and
  2. the second step is to recognize as a further manifestation of this organizing principle that there is a common law duty which applies to all contracts to act honestly in the performance of contractual obligations.
This new duty of honest performance is not an implied term but a general doctrine.  This means that the duty is operative irrespective of the intentions of the parties and is analogous to any other equitable doctrine such as unconscionability.   Justice Cromwell provided some guidance on how the new doctrine would manifest itself in the day to day performance of the commercial parties.  A general duty of honesty in contractual performance means simply that the parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract.  This does not impose a duty of loyalty or of disclosure or require a party to put the other party’s economic interest ahead of its own.

This new principle has the potential to affect the manner in which commercial parties structure agreements, the way that parties to a contract exercise existing rights, negotiate for future rights and generally communicate with each other.

Regards,

Blair

Tuesday, November 11, 2014

Supreme Court Says Police Wiretaps Can Be Used in Civil Proceedings


The Supreme Court of Canada has ruled that once a private communication has been "intercepted" for use in a criminal investigation, it becomes available to a party in a civil proceeding who may have a claim to it based on relevance. 

In the early summer of 2004, the Competition Bureau of Canada began an investigation (the “Octane Investigation”) into allegations of a conspiracy to fix gasoline pump prices in certain regions of Quebec.   To carry out the investigation, the Competition Bureau obtained from the Superior Court of Quebec, 7 judicial authorizations that enabled it to intercept and record more than 220,000 private communications.  These authorizations for the wiretaps were obtained under Part VI of the Criminal Code of Canada.

 

In 2008 as a result of the Octane Investigation, a series of charges were laid against a number of people alleging that they had conspired to fix pump prices in certain regions of Quebec.  In July 2010 and September 2012, other charges for the same offences were laid bringing the total number of persons charged to 54.

 

Parallel with the criminal proceedings, certain individuals and the Automobile Protection Association, instituted a class action in the Quebec Superior Court against a number of persons, including the accused, alleging that they had breached duties imposed on them under the Civil Code of Quebec and under section 36 of the Competition Act, by engaging in anti-competitive practices.  The class action was subsequently authorized by the Quebec Superior Court. 

 

In support of the class action, the plaintiffs filed a motion for disclosure of documents under the Quebec Code of Civil Procedure and requested that the Federal Director of Public Prosecutions (“DPP”) and the Competition Bureau disclose to them all the private communications/wiretaps that had been intercepted in the course of the Octane Investigation.   Shortly before the motion was heard, the plaintiffs narrowed the scope of their request limiting it to the recordings that had already been disclosed to the accused in the parallel criminal proceedings.  The accused contested the motion.

 

The motions judge granted the plaintiffs’ motion and ordered that the Competition Bureau and the DPP disclose the wiretaps, but only to the lawyers and experts participating in the class action and screen the recordings to protect the privacy of third parties who had nothing to do with the class action.  

 

The accused persons appealed to the Quebec Court of Appeal.  In two separate judgments, the Court of Appeal declined to review the merits of the motion judge’s decision.

 

The accused persons further appealed to the Supreme Court of Canada ( see Imperial Oil v. Jacques, 2014 SCC 66).  The Supreme Court, in a 6–1 decision, dismissed the appeal.  The majority of the court (decision was written by Mr. Justice LeBel) held that a party to a civil proceeding can request the disclosure of recordings of private communications intercepted by the state in the course of a criminal investigation. 

The Supreme Court held that although section 29 of the Competition Act provides for confidentiality of the Competition Bureau’s record of investigation, it does not prohibit the disclosure of private communications intercepted under Part VI of the Criminal Code.  In addition, even though section 193(1) of the Criminal Code lays down the principle that it is unlawful to disclose or use an intercepted private communication without the consent of the originator or the intended recipient of the communication, there are exceptions to this general prohibition.  For example, section 193(2)(a) provides that a disclosure is not an offence if it is made “in the course of or for the purpose of giving evidence in any civil proceedings”.  Nothing in the words of this provision justifies limiting its application to the time when evidence is being given.  The documents requested at the exploratory stage of any civil proceeding may be requested “for the purpose” of testifying at the hearing.  The Court concluded that section 193(2)(a) does not have "facilitating the fight against crime "as its sole purpose; rather its objective is to ensure that courts will have access to all information relevant to the proceedings before them.

 

The Supreme Court held that the Quebec Civil Code of Procedure empowers a judge to order disclosure of documents relating to the issues between the parties that are in possession of a third party.  Judges have great discretion, but should generally favour disclosure.  Nevertheless, the judge must deny a request for disclosure if immunity from disclosure is either provided for in legislation or established by the courts.  Judges must remain sensitive to the duty to protect a person’s privacy.  However, the scope of the protection of the right of the innocent to privacy must always be assessed in light of the various interests at stake.

 

The majority of the Court reasoned that judges have great discretion to control the process of disclosing evidence at the exploratory stage of proceedings and to set conditions for and limits on disclosure.  Where the request of documents results from a criminal investigation, the judge must also consider the impact of disclosure on the efficient conduct of the criminal proceedings and on the right of the accused to a fair trial.

 

Here, the Supreme Court found that the motion judge’s order was consistent with those principles and there was no factual or legal impediment to disclosure of the documents.  The requested evidence was relevant.  Further, the scope of the disclosure order was limited so as to protect the right to privacy of all those whose communications were intercepted.  The disclosure would not hinder the efficient conduct of the criminal proceedings or violate the rights of the parties still facing charges to a fair trial. 

Regards,

Blair

 

Wednesday, November 5, 2014

Cuban Claimant Denied Refugee Protection in Canada


Luis Alberto Hernandez Febles was admitted to the United States as a refugee from Cuba.  While living in the United States, he was convicted and served time in prison for two assaults with a deadly weapon – in the first case, he struck a roommate on the head with a hammer, and in the second case, he threatened to kill a roommate’s girlfriend at knife point.  The US revoked his refugee status and issued a removal warrant, which is still outstanding.

 

After his refugee status in the US was revoked, Mr. Febles fled to Canada, entering illegally.  He then claimed refugee protection in Canada. Refugee protection claims in Canada are adjudicated by the Refugee Protection Division of the Immigration Refugee Board.

The question was whether Article 1F(b), the “serious criminality exclusion” article of the Convention Relating to the Status of Refugees (“Refugee Convention”) incorporated in Canada by section 98 of the Immigration and Refugee Protection Act (“Act”) barred Mr. Febles from refugee protection because of the crimes he had committed in the past. 

 

Different interpretations of the article of the Refugee Convention were in play.  The Minister of Citizenship and Immigration (“Minister”) argued that the serious criminality exclusion was triggered whenever the refugee claimant had committed a serious non-political crime before coming to Canada.  It is not confined to fugitives from justice.  The Minister also took the position that post-crime events like rehabilitation or expiation, were not relevant.  The only question was whether the claimant committed a serious non-political crime before seeking refugee protection in Canada.

 

Mr. Febles and the United Nations High Commissioner for Refugees (“High Commissioner”) argued for a narrower interpretation of the Article.  Mr. Febles argued that the exclusion in the Article was confined to fugitives from justice.  Mr. Febles, having served his sentences, was not a fugitive from justice.   The High Commissioner argued that the question was whether the refugee claimant was “deserving” of refugee protection at the time of the application, which requires consideration not only of the seriousness of the offence itself, but of how long ago the offence was committed, the conduct of the claimant since the commission of the offence, whether the claimant has expressed regret or renounced criminal activities and whether the claimant posed a threat to the security of Canada at the present time.  

 

Simply put, the Minister argued that serious criminality under the Article was simply a matter of looking at the seriousness of the crime and when it was committed, while Mr. Febles and the High Commissioner argued that the article requires consideration of other matters, including whether the claimant was currently dangerous.   

 
In deciding Mr. Febles’ refugee protection claim , the Board concluded that Febles was among the persons referred to by the Article and therefore ineligible for refugee protection in Canada pursuant to section 98 of the Act.   Both the Federal Court and the Federal Court of Appeal dismissed Febles’ application for judicial review. 

 

In a 5 to 2 decision, the Supreme Court of Canada agreed with the decisions below and dismissed the application for judicial review.  The majority decision was written by Chief Justice McLachlin.  See Febles v. Canada (Citizenship and Immigration) 2014 SCC 68.

 

The Court held that interpreting an international treaty was governed by the Vienna Convention on the Law of Treaties (“Vienna Convention”).  Pursuant to article 31(1) of the Vienna Convention, interpretation of a treaty should be approached by considering:  (1)  the ordinary meaning of its terms; (2)  the context; and (3) the object and purpose of the treaty.  In addition, article 32 of the Vienna Convention provided that recourse to interpretation may be had to supplementary means, including the preparatory work of the treaty and the circumstances of the conclusion, but only if the application for article 31 leaves the meaning ambiguous or obscure or leads to a result which is manifestly absurd or unreasonable.

 

The Court held that the ordinary meaning of the terms “has committed a serious crime” refers only to the crime at the time it was committed and not to anything subsequent to the commission of the crime.  The Court concluded that there is nothing in the text of the provision suggesting that the Article only applies to fugitives, or that factors such as a current lack of dangerousness or post-crime expiation or rehabilitation are to be considered or balanced against the seriousness of the crime. 

 

The Court held that the context around the Article supported this interpretation.  The article in the Refugee Convention is not confined to fugitives.  The reason article 33(2) applies only to particularly serious crimes and has the additional requirement that “danger to the community” be demonstrated, is because it authorizes removal of a person whose need for protection has been recognized. 

 

In addition, the object and purposes of the Refugee Convention do not support the argument that the Article is confined to fugitives.  The Refugee Convention has twin purposes:  it aims to strike a balance between helping victims of oppression by allowing them to start new lives in other countries while also protecting the interest of receiving countries.  These countries did not renounce their interests simply by negotiating specific provisions to aid victims of oppression.  Exclusion clauses should not be enlarged in a manner inconsistent with the Refugee Convention’s broad humanitarian aims but overly narrow interpretations should not be adopted which ignore the contracting states need to control who enters their territories. 

 

Ultimately the purpose of an exclusion clause is to exclude.  Article 1F(b) is not directed solely at fugitives or at some subset of serious criminals who are undeserving at the time of the refugee application.  Rather, in excluding all claimants who have committed serious, non-political crimes, the article expresses the contracting states’ agreement that such persons by definition would be undeserving of refugee protection by reason of their serious criminality.

 

The Court found that there were a number of rationales for excluding people who have committed serious crimes – it may prevent people fleeing from justice, it may prevent dangerous and particularly undeserving people from entering the host country, it may help preserve the integrity and legitimacy and ultimate viability of the refugee protection system, it may deter states from exporting criminals as refugees, it may allow states to reduce danger to their society from serious criminality cases given the difficult task and potential for error when attempting to determine the ongoing dangerousness of criminals from abroad on whom they may often have limited, reliable information.   Whatever rationale may or may not exist for Article 1F(b), its purpose is clear in excluding persons from protection who previously committed serious crimes abroad.

Regards,

Blair

 

Monday, November 3, 2014

Air Canada Passengers Can't Sue for Airline's Failure to Provide French Language Services


Air Canada failed to provide services in French on some international flights as it was obliged to do under the Official Languages Act (“Act”).  Michel and Lynda Thibodeau, two Air Canada passengers, applied to the Federal Court for damages and for orders requiring Air Canada to take steps to ensure future compliance with the Act.  Air Canada defended the claims for damages by relying on the limitation of damages liability set out in the Convention for the Unification of Certain Rules for International Carriage by Air (the “Montreal Convention”) which is part of Canadian Federal law by virtue of the Carriage by Air Act.     

 

The Federal Court rejected Air Canada’s defence, awarded damages to the Thibodeaus and granted a “structural” order.  However, the Federal Court of Appeal set that ruling aside in part, holding that the Montreal Convention precluded the damages remedy for the events that took place on board Air Canada flights.  It also held that a structural order was not appropriate.  The Thibodeaus appealed to the Supreme Court of Canada. 

 

In a 5 to 2 decision, the Supreme Court of Canada dismissed the appeal – Thibodeau v. Air Canada, 2014 SCC 67.  The majority decision was written by Mr. Justice Cromwell.  

The Court held that the Montreal Convention’s uniform and exclusive scheme of damages liability for international air carriers does not permit an award of damages for breach of language rights during international carriage by air.  To hold otherwise would “do violence” to the text and purpose of the Montreal Convention, apart from Canada’s international obligations under the convention and put Canada off-side a strong international consensus concerning its scope and effect.  The general remedial powers under the Act to award "appropriate and just" remedies cannot, and should not, be read as authorizing Canadian courts to depart from Canada’s international obligations under the Montreal Convention. 

 

The court held that two of the main purposes of the Montreal Convention are to achieve a uniform set of rules governing damages liability of international air carriers and to provide the limitation of carrier liability.   These purposes can only be achieved if the Montreal Convention provides the exclusive set of rules in relation to the matters that it covers.  The Montreal Convention does not deal with all aspects of international carriage by air, but within the scope of the matters which it does address ,it is exclusive in that it bars resort to other basis for liability in those areas.

 

The claims before the Supreme Court fell squarely within the exclusion established by the Montreal Convention.  The key provision (Article 29) makes clear that the Montreal Convention provides the exclusive recourse against airlines for various types of claims arising in the course of international carriage by air.  Article 29 establishes that in relation to claims falling within the scope of the Montreal Convention, “any action for damages, however founded” may only be brought “subject to the conditions and such limits of liability as are set out in this Convention”.

 

The court rejected the Thibodeaus argument that the Montreal Convention does not limit claims for damages sought in relation to public law claims or breaches of quasi-constitutional statutes.  It held that such argument had no support in the text or purpose of the convention or in international jurisprudence.  The Thibodeaus claims were an “action for damages” within the meaning of Article 29 as they claimed damages for injuries, namely moral prejudice, pain and suffering and loss of enjoyment of their vacation, suffered in the course of an international flight.

 

The court held that the Montreal Convention is part of an internationally agreed upon uniform and exclusive scheme addressing the damages claimed in the field of international carriage by air.  The remedial provisions in the Act cannot be understood to be an exhaustive code that requires damages to be available in all settings and without regard to all relevant laws.  The Act does not provide that damages should be granted in every cases but authorizes courts to grant “appropriate and just” remedies.  The power to grant such a remedy can be reconciled with a specific and limited exclusion of damages in the context of international air travel.

Regards,

Blair 

 

Thursday, October 23, 2014

Appeal Court Rejects Shoplifter's Argument that Trial Lawyer was Incompetent


In a recent decision [Hordyski v. Her Majesty the Queen 2014 SKCA 102], the Saskatchewan Court of Appeal dismissed an appeal from a convicted shoplifter who argued that his trial lawyer had been incompetent. 

 

The evidence against Mr. Hordyski was not complicated.  He had been observed on a CCTV camera by a store's loss prevention officer shoplifting merchandise.  At the time, he was with his young son and a woman, Pearl Peters, who was the mother of his son, in the household goods area of the store.  Ms. Peters left her shopping basket with Mr. Hordyski and left the area. 

 

The CCTV camera footage showed Mr. Hordyski removing the price tag from a soft shell lunch bag and then transferring items from Ms. Peters' shopping basket into the lunch bag.  Mr. Hordyski then picked up his son, concealed the lunch bag between the two of them and walked towards the store exit.  He paused by the cashiers to look around before walking past them and out of the store with the items.  The loss prevention officer confronted Mr. Hordyski outside the store where he was arrested for theft.  The value of the stolen items totalled approximately $220.

 

At trial, the Crown called the loss prevention officer and the investigating police officer.  Both witnesses were thoroughly cross-examined by Mr. Hordyski’s lawyer.  Mr. Hordyski was the only witness called for the defence.  His defence was that he did not have the necessary intent to commit the offence of theft under $5,000 because his reason for leaving the store was to look for Ms. Peters so she could take their son to the bathroom. 

 

The trial judge made specific findings of fact and credibility and concluded Mr. Hordyski was guilty as charged.

 

On appeal, Mr. Hordyski contended that his trial lawyer was incompetent because he failed to called corroborating evidence to bolster Mr. Hordyski’s theory that his relationship with Ms. Peters was dysfunctional and to confirm the extent of Mr. Hordyski’s debilitating back injury.  According to Mr. Hordyski, that evidence would prove that he did not have the intent to commit the offence. 

 

The Saskatchewan Court of Appeal ruled that there is a two-step process involving an allegation of incompetent trial counsel:  1. The first step is to establish that trial counsel’s failure to call corroborating evidence constitutes incompetence;  and 2.  the second  step is to establish that a miscarriage of justice resulted. 

 

The Court of Appeal noted that the trial judge had accepted Mr. Hordyski’s evidence on the nature of his relationship with Ms. Peters and his evidence as to his back injury.  In both instances, the trial judge ruled that such evidence did not raise a reasonable doubt as to Mr. Hordyski's intention to steal the items in question. 

 

The Court of Appeal could not find any error with the trial judge’s rejection of Mr. Hordyski’s explanation for leaving the store with the items and also found that his trial counsel more than adequately cross-examined the Crown’s witnesses and elicited evidence (which was rejected) in Mr. Hordyski’s examination in chief relating to his defence. 

 

More particularly, the Court of Appeal found that there was nothing unreasonable about the trial counsel’s alleged failure to call corroborating evidence on the two issues because the proposed evidence did not relate to material issues but only to facts the trial judge had already accepted.  The trial judge accepted Mr. Hordyski’s testimony with respect to the nature of his relationship with Ms. Peters and his physical condition.  More importantly, however, the trial judge rejected Mr. Hordyski’s explanation as to why he took the items from the store.

 

In the result, Mr. Hordyski’s conviction appeal was dismissed. 

Regards,

Blair 

Wednesday, October 22, 2014

Ontario Court Upholds Citizenship Oath's Allegiance to the "Queen of Canada"


The Canadian Citizenship Act (“Act”) requires permanent residents who wish to become Canadian citizens to swear an oath or make an affirmation in the following form:

 

I swear (or affirm) that I will be faithful and bear true allegiance to Her Majesty Queen Elizabeth the Second, Queen of Canada Her Heirs and Successors and that I will faithfully observe the laws of Canada and fulfill my duties as a Canadian citizen. 

 

In the case of McAteer v. Canada (Attorney General), 2014 ONCA 578, the appellants objected to the portion of the oath that referred to being faithful and bearing true allegiance to the Queen, her heirs and successors.  They asserted that the requirement to swear or affirm allegiance to the Queen in order to become a Canadian citizen violated their rights of freedom of conscience and religion, freedom of expression and equality under the Charter of Rights and Freedoms.  They argued that the government could not justify any such violation as being a reasonable limit in a free and democratic society and sought a declaration that the impugned section of the Citizenship oath was optional. 

 

The appellants lost their application before Mr. Justice Morgan of the Ontario Superior Court.  They appealed from that decision to the Ontario Court of Appeal.  The Attorney General of Canada cross-appealed Justice Morgan’s finding that the oath violated the appellants’ right to freedom of expression (although Justice Morgan found that such violation was justified under Section 1 of the Charter). 

The application had been initiated by Charles Roach, a well-known human rights lawyer.  Mr. Roach died in October 2012.  Originally from Trinidad, Mr. Roach was a committed republican who believed that to swear fealty to a hereditary monarch violated his belief in the equality of human beings and his opposition to racial hierarchies.  When Mr. Roach died, Michael McAteer, also a committed republican took up the torch.  Mr. McAteer deposed that taking an oath of allegiance to a hereditary monarch who lived abroad would violate his conscience, betray his republican heritage and impede his activities in support of ending the monarchy in Canada.  Mr. McAteer further deposed that taking an oath to the Queen perpetuated a class system and was anachronistic, discriminatory and not in keeping with his beliefs of egalitarianism and democracy.

 

Other appellants supported Mr. McAteer’s position.  Dror Bar-Natan deposed that the oath violated his conscience because it was a symbol of a class system.  Simone Topey was a Rastafarian who regarded the Queen as the head of Babylon.  She deposed that it would violate her religious beliefs to take any kind of oath to the Queen.  She further deposed that on account of the oath she would feel bound to refrain from participating in anti-monarchist movements.  Howard Gomberg, a former applicant, deposed that taking an oath to any human being was contrary to his concept of Judaism. 


 

The Ontario Court of Appeal (Justices Weiler, Lauwers and Pardu) dismissed the appellants’ appeal and allowed the cross-appeal of the Attorney General of Canada.  The court found that the appellants’ arguments were based on a literal, “plain meaning” interpretation of the oath to the Queen in her personal capacity.  The court held that the correct approach was the "purposive" interpretation mandated by the Supreme Court of Canada, which led the court to the conclusion that the appellants' interpretation was incorrect because it was inconsistent with the history, purpose and intention behind the oath. 

Justice Weiler, writing for the court, held that the oath in the Act is remarkably similar to the oath required of members of Parliament and the Senate under the Constitution Act (1967).  In that oath, the reference to the Queen is symbolic of Canada’s form of government and the unwritten constitutional principle of democracy.  She held that the harmonization principle of interpretation leads to the conclusion that the oath in Act should be given the same meaning.   

Further, the Court of Appeal found that the appellants’ incorrect interpretation of the meaning of the oath could not be used as the basis for a finding of unconstitutionality.  The approach to analysing such claims as set out by the Supreme Court, requires the court to determine:

 

  1. whether what is in issue is expression;
  2. whether the purpose is to compel expression; and
  3. whether there is an effect on expression that warrants constitutional disapprobation.  

 

Applying this approach, the Court of Appeal found that there was no issue that the oath was expression.  The purpose of the oath was not to compel expression but to obtain a commitment to Canada’s form of government from those wishing to become Canadian citizens.  Although the oath had an effect on the appellants’ freedom of expression, constitutional disapprobation was not warranted.  Thus, there was no violation of the appellants’ freedom of expression.  In the alternative, if there was a violation of the appellants’ right to freedom of expression, it was justified under Section 1 of the Charter.

 

The court held that there was no violation of the appellant’s right to freedom of religion and freedom of conscience because the oath is secular and is not an oath to the Queen in her personal capacity but to Canada’s form of government of which the Queen is a symbol. 

 

Finally, the court found that the oath was not a violation of the appellants’ quality rights when the correct approach to statutory interpretation was applied. 

Regards,

Blair

 

     

 

 

Tuesday, October 21, 2014

Parties Gearing Up For Chevron's Ecuadorean Pollution Case at the Supreme Court


The Canadian Bar Association (“CBA”) announced last week that it was withdrawing its application to intervene before the Supreme Court of Canada in the pollution case of Chevron Corporation et al. v. Yaiguaje, et al.  The original US$19 billion judgment of a court in Ecuador was one of the largest judgments ever imposed by a court for environmental pollution.

The CBA said that its Intervention Policy required that its Legislation and Law Reform Committee sanction the factum before it could be filed with the court.  In this case, the Committee concluded that while the factum was well-drafted and of a high standard of quality, it did not meet the specific requirements of CBA’s Intervention Policy.  As a result, the CBA concluded that without certification of the factum, its intervention could not move forward and would be withdrawn.

 

The withdrawal was reported as an “eleventh-hour reversal” by the CBA.   It had planned to intervene at the Supreme Court on behalf of Chevron in its on-going battle involving enforcement of the judgment obtained by Ecuadorian indigenous plaintiffs for pollution of their lands in the Amazon basin rainforest.  After a lengthy legal battle that has lasted nearly 20 years, an Ecuadorian court found Chevron liable for oil pollution.  The nearly US$18 billion damages awarded in 2011 was reduced by appeal courts in Ecuador to US$9.5 billion.  

 

Chevron has refused to pay and has condemned the judgment as a product of fraud and bribery.  It has obtained a US District Court fraud ruling against the plaintiffs’ US lawyers and others. 

News outlets reported that lawyers working in aboriginal affairs, environmental law and civil law had all objected to the CBA’s decision to support Chevron’s arguments. 
The original decision of the CBA sparked protests across the country, with some lawyers resigning their CBA members.  Reports say that critics complained that the action was being driven by Blake, Cassels & Graydon LLP, which prepared the factum on a pro-bono basis but also does corporate work for Chevron.

Other interveners, notably the International Human Rights Program at the University of Toronto’s Faculty of Law, MiningWatch Canada and the Canadian Centre for International Justice have argued in their factums filed with the Supreme Court that the jurisdictional requirements proposed by Chevron are novel and unnecessary and “are tantamount to asking this court to raise additional barriers for those attempting to enforce judgments obtained against transnational corporations for environmental or human rights harms”.   
Chevron has argued that its legal battle with the Ecuadorians has nothing to do with Canada and its Canadian subsidiary.  However, the Canadian Human Rights interveners argue that the well-established legal principle of separation of identity between a parent company and its subsidiaries should be disregarded in this case, “The rigid application of common law principles regarding the strict separate of parent corporations from their wholly owned and controlled subsidiaries has been repeatedly cited as an unjustified and unjustifiable barrier to justice and remedy that is out-moded in our current globalized world”.   

I will keep you posted.

Regards,

Blair
 



 

Thursday, October 16, 2014

Supreme Court Rules that Iranian Government Cannot be Sued in Canada for Zahra Kazemi's Torture and Death




The Supreme Court of Canada recently released a decision -Kazemi Estate v. Islamic Republic of Iran 2014 SCC62 - that concluded that foreign states and their functionaries cannot be sued in Canada for acts of torture committed abroad.  The Court held that the State Immunity Act (“SIA”) in its present form, does not provide for an exception to foreign state immunity from civil suits alleging acts of torture occurring outside Canada.    

 

As the Court commented, the facts of this case are horrific.  Zahra Kazemi, a Canadian citizen, visited Iran in 2003 as a freelance photographer and journalist.  In June of 2003, Ms. Kazemi attempted to take photographs of individuals protesting against the arrest and detention of their family members outside the Evin Prison in Tehran.  Ms. Kazemi was ordered arrested and detained by Saeed Mortazavi, Tehran’s Chief Public Prosecutor. 

 

During her time in custody, Ms. Kazemi was not permitted to contact counsel, the Canadian Embassy, or her family.  She was interrogated by Iranian authorities.  She was beaten.  She was sexually assaulted.  She was tortured. 

 

Sometime prior to July 6, 2003, Ms. Kazemi was taken from the prison and transferred to a hospital in Tehran.  She was unconscious upon her arrival.  She had suffered a brain injury and numerous other injuries including strip-like wounds on her back, the back of her legs, fractured bones, broken nails on her hands and toes and extensive trauma on and around her genital area. 

 

Ms. Kazemi died of the injuries that she had sustained.  

 

Ms. Kazemi’s son, Stephan (Salman) Hashemi, requested that his mother’s remains be sent to Canada for burial.  Despite such request, Ms. Kazemi was buried in Iran.

 

In late July, 2003, the Iranian government commissioned an investigation into Ms. Kazemi’s death.  Despite a report linking members of the judiciary and the Office of the Prosecutor to Ms. Kazemi’s torture and death, only one individual, Reza Ahmadi, was tried.  The trial was marked by a lack of transparency.  Mr. Ahmadi was acquitted. 

 

In commenting on these facts, the Supreme Court, in a decision written by Mr. Justice LeBel, concluded that it was impossible for Ms. Kazemi and her family to obtain justice in Iran.

 

In 2006, Mr. Hashemi instituted civil proceedings in Quebec seeking damages on behalf of himself and his mother’s estate against the Islamic Republic of Iran, its Head of State, the Chief Public Prosecutor of Tehran and the former Deputy Chief of Intelligence of the prison where Ms. Kazemi was detained and tortured.  Mr. Hashemi sought damages on behalf of his mother’s estate for her physical, psychological and emotional pain and suffering as well as on his own behalf for the psychological and emotional prejudice that he sustained as a result of the death of his mother.  Both Mr. Hashemi and the estate sought punitive damages.

 

The Iranian defendants brought a motion in Quebec Superior Court to dismiss the action on the basis of state immunity.  The plaintiffs raised exceptions provided in the SIA and challenged the constitutionality of certain provisions of that act.

 

The Quebec Superior Court dismissed the constitutional challenge to the SIA and dismissed the action with respect to the claim brought by Ms. Kazemi’s estate.  However, it allowed Mr. Hashemi’s action to proceed on the basis that it could potentially fall within a statutory exception to the state immunity applicable to proceedings related to personal injury that occurs in Canada.  The Quebec Court of Appeal allowed the Iranian defendants' appeal with respect to Ms. Hashemi’s claim.  The matter was further appealed to the Supreme Court of Canada. 

 

Justice LeBel held that an over-arching question which permeated all aspects of the appeal was whether international law had created a mandatory universal civil jurisdiction in respect of claims of torture, which would require Canada to open its courts to the claims of victims of acts of torture which were committed abroad.  In addition, the court was asked to determine whether torture could constitute an official act of a state and whether public officials having committed acts of torture can benefit from immunity.

 

The majority of the court (Madam Justice Abella dissented), held that neither Mr. Hashemi nor Ms. Kazemi’s estate could avail themselves of a Canadian court in order to sue Iran or its functionaries for the torture that Ms. Kazemi had endured.  Further, there are challenges based on the Canadian Charter of Rights and Freedoms and the Canadian Bill of Rights should be dismissed.

 

In coming to this conclusion, the Supreme Court held that state immunity is not solely a rule of international law, it also reflects domestic choices made for policy reasons, particularly in matters of international relations.  Canada’s commitment to the universal prohibition of torture is strong.  However, Parliament has made a choice to give priority to a foreign state’s immunity over civil redress for citizens who have been tortured abroad.  That policy choice is not a comment about the evils of torture but rather an indication of what principles Parliament has chosen to promote.

 

With respect to Mr. Hashemi’s claim for “personal or bodily injury”, the Court held that the exception to the SIA only applied where the tort causing the personal injury or death had occurred in Canada.  It does not apply where the impugned events or the tort causing the personal injury or death did not take place in Canada.

 

Further, the Court held that the SIA provides that a “foreign state” is immune from the jurisdiction of any court in Canada.  The definition of “foreign state” includes a reference to the term “government”.  Public officials must be included in the meaning of “government” as that term is used in the SIA.  States are abstract entities that can only act through individuals.  However, public officials will only benefit from state immunity when acting in their official capacity.  The heinous nature of the acts and torture did not transform the actions of the individual defendants into private acts undertaken outside of their official capacity.  By definition, torture is necessarily an official act of the state. 

 

The Court reasoned that Parliament has given no indication the Canadian courts are to deem torture an “unofficial act” and creating this kind of jurisdiction would potentially have considerable impact on Canada’s international relations.  This decision is to be made by Parliament and not the courts.

 

The Supreme Court held out one ray of hope in concluding that the fact that a foreign state and its functionaries cannot be sued in Canada for acts of torture committed abroad does not freeze state immunity in time.  It stated that Parliament has the power and the capacity to change the current state of the law on exceptions to state immunity, just as it has done in the past, and to allow those in situations like Mr. Hashemi and his mother’s estate to seek redress in Canadian courts.   

Time will tell as to whether Canada's Parliament will find the courage to take such action

Regards,

Blair  

 

Wednesday, October 8, 2014

Supreme Court Strikes Down Legislation Providing For Court Hearing Fees


The Supreme Court of Canada recently released its decision in Trial Lawyers Association of British Columbia v. British Columbia (Attorney General) 2014 SCC 59.  The majority of the Supreme Court struck down legislation in British Columbia which obliged parties to pay fees to use courtrooms for trials. 

 

The parties in the case were involved in a child custody dispute.  The plaintiff brought an action to have the custody issues resolved.  In order to get a trial date, she had to undertake in advance to pay a court hearing fee.  At the outset of the trial, the plaintiff asked the judge to relieve her from paying the hearing fee.  The judge reserved his decision on the request until the end of the trial.  The parties were not represented by lawyers and the hearing took 10 days.  The hearing fee amounted to $3,6000 – almost the net monthly income of the family.  After legal fees had depleted her savings, the plaintiff could not afford to pay the hearing fee.  In declaring the legislation unconstitutional the Supreme Court held that these hearing fees infringed upon the plaintiff's constitutional right of access to justice and offended the rule of law.

 

Writing for the majority of the court, Chief Justice Beverley McLachlin, stated, “As access to justice is fundamental to the rule of law and the rule of law is fostered by the continued existence of the section 96 Courts (Superior Courts of the Provinces) it is only natural that section 96 of the Constitution Act, 1867 provides some degree of constitutional protection for access to justice…when hearing fees deprive litigants of access to the Superior Courts, they infringe the basic right of citizens to bring their cases to court.  That point is reached when the hearing fees in question cause undue hardship to the litigant who seeks the adjudication of the Superior Court.”  

Justice McLachlin held that a fee that is so high that it requires litigants who are not impoverished to sacrifice reasonable expenses in order to bring a claim may, absent adequate exemptions, be unconstitutional because it subjects litigants to undue hardship, thereby effectively preventing access to the courts.  She held that it is the role of the provincial legislatures to devise a constitutionally compliant hearing fee scheme.  As a general rule, hearing fees must be coupled with an exemption that allows judges to waive the fees for people who cannot, by reason of their financial situation, bring non‑frivolous or non‑vexatious litigation to court.  A hearing fee scheme can include an exemption for the truly impoverished, but the hearing fees must be set at an amount such that anyone who is not impoverished can afford them.  Higher fees must be coupled with enough judicial discretion to waive hearing fees in any case where they would effectively prevent access to the courts because they require litigants to forgo reasonable expenses in order to bring claims.                      

Regards,

Blair

Monday, September 29, 2014

Court Disallows Executive's Golden Parachute Benefits


The Ontario Court of Appeal has ruled that a former public company executive is disentitled to receive "golden parachute" benefits under an employment agreement with the corporation as a consequence of the breach of his fiduciary duties.

 

In Unique Broadband Systems, Inc. (Re) 2014 ONCA538, the Court of Appeal reversed the decision of trial judge, Justice R. Mesbur in certain fundamental respects. 

 

Unique Broadband Systems, Inc. (“UBS”) is a public company listed on the TSX Venture Exchange.  In 2002, Gerald McGoey was appointed a director and acting CEO of the company and later became CEO on a permanent basis.  McGoey’s relationship with UBS was governed by a management services agreement between UBS and his personal company.  The agreement contained a “golden parachute provision” which granted McGoey enhanced termination benefits in certain circumstances.

 

UBS had in place an incentive-driven share appreciation rights plan (“SAR Plan”) for its directors and senior management.  Upon certain triggering events, a SAR unit holder would be paid an amount equal to the difference between the market trading price of a UBS share and a strike price identified in the SAR Plan. 

 

In 2003, UBS acquired a controlling equity interest in Look Communications Inc. (“Look”), a telecommunications company.   McGoey was also a director and the CEO of Look.  Look’s primary asset was a band of telecommunications spectrum.  In early 2009, Look engaged in the process of selling the spectrum through a court-supervised plan of arrangement.  Ultimately, the spectrum was sold for $80 million.  McGoey expected that the sale would generate a significantly higher price and was very disappointed with the figure offered by the buyer. 

 

UBS’ board of directors resolved to treat the spectrum sale as a “triggering event” pursuant to the SAR Plan.  Prior to the announcement of the sale, UBS’ shares were trading at approximately $0.15 per share.  The board anticipated that the sale would cause the UBS shares to appreciate however, the anticipated share price increase did not materialize and the shares continued to trade at the $0.15 after the announcement. 

 

McGoey engaged in negotiations to sell the balance of Looks’ assets but the transaction did not materialize. 

 

After the sale of the spectrum, the compensation committee of UBS’ board, which consisted of McGoey and two others, began reviewing the SAR Plan.  Each member of the compensation committee had a considerable number of SAR units. 

 

At a meeting of the board, each director disclosed his conflict of interest regarding their SAR unit holdings.  The directors then unanimously resolved to cancel the SAR units and established a SAR cancellation payment pool of $2.31 million based on a fixed unit price of $0.40 per share.  Under this new arrangement, McGoey and others would receive a SAR cancellation award based on the $0.40 per unit figure. 

 

At a subsequent board meeting, McGoey proposed the establishment of a bonus pool of $7 million.  That proposal was not approved.  However, the board did approve establishing a bonus pool of $3.4 million. 

 

Under the SAR cancellation award, McGoey was allocated to receive $600,000 and under the bonus pool he was allocated to receive $1.2 million.

 

Such awards were resisted by UBS’ shareholders.  Faced with this resistance McGoey caused UBS to advance to him $200,000 for the payment of anticipated legal fees. 

 

At a special shareholders meeting McGoey and the other directors were removed and were not re-elected.  McGoey then resigned as CEO and took the position that he was terminated without cause because he was not re-elected to the UBS board.  McGoey brought an action against UBS seeking payment of enhanced severance in the amount of $9.5 million.  He successfully moved for partial summary judgment before Justice Marrocco. 

 

On July 5, 2011, UBS was granted protection under the Companies’ Creditors Arrangement Act (“CCAA”).  McGoey filed a proof of claim in an amount in excess of $10 million which the CCAA monitor disallowed in its entirety.  The court ordered a trial of the issue. 

 

At trial, Justice Mesbur found that McGoey and the other directors had breached their fiduciary duty to UBS in establishing the SAR cancellation awards and the bonus pool as these actions were driven by the board’s own self-interest and were of no benefit to the UBS shareholders.  She set aside the allocations to McGoey pursuant to the SAR cancellation award and the bonus pool.   However, Justice Mesbur found that the breach of fiduciary duty did not qualify as a default under McGoey’s management services agreement with UBS and that he was therefore entitled to the benefit of the golden parachute provisions of the agreement.  Finally, Justice Mesbur found that UBS had no obligation to indemnify McGoey for his legal fees because he had breached his fiduciary duties. 

 

UBS appealed and McGoey cross-appealed.

 

The Court of Appeal held that UBS’ appeal should be allowed and McGoey’s cross-appeal should be dismissed.

 

Justice Hourigan wrote the decision of the Court of Appeal.

 

The Court of Appeal held that Justice Mesbur had reasonably concluded that the board’s actions were driven by self-interest and therefore that McGoey had breached his fiduciary duties to UBS.  The $0.40 share price was unjustified and unrealistic.  The board did not seek any expert advice on an appropriate bonus structure and did not have any comparable or other data regarding executive compensation in the marketplace.

 

The Court of Appeal also found that there was no documentation that stipulated the performance factors or criteria by which McGoey’s performance would be evaluated, and there was no documentation that showed how the bonus pool was quantified.  The breach was not incomplete because McGoey was removed from office before he could be paid.  The court held that it would be a remarkable result if a fiduciary could be allowed to act in a manner contrary to his duty with impunity on the basis that he was prevented by the beneficiaries' vigilance from receiving a personal benefit.

 

The Court of Appeal held that McGoey’s actions were not undertaken with the assistance of independent legal advice.  His actions were not protected by the business judgment rule as he did not satisfy the rules' preconditions of honesty, prudence, good-faith and a reasonable belief that his actions were in the best interests of the company.  Accordingly, because McGoey had breached his fiduciary obligations, UBS was not required to indemnify him for his legal fees.

 

The Court of Appeal disagreed with Justice Mesbur’s interpretation of the management services agreement.  It held that her interpretation had ignored section 134(3) of the Ontario Business Corporations Act (“OBCA”) which provides that no provision in a contract relieves a director or officer from the duty to act in accordance with the OBCA or from his or her liability for a breach thereof.  The Court of Appeal held that Justice Mesbur’s interpretation had led to a commercially absurd result.  Interpreting the provisions of the agreement which defined a "default" which would disentitle McGoey to an enhanced severance payment as including a serious breach of fiduciary duty that was materially injurious to UBS would give effect to the entirety of the words used in the definition in their context.  Such an interpretation was also commercially sensible and was not inconsistent with the OBCA.

Regards,

Blair

Wednesday, September 10, 2014

Ontario Court of Appeal Stays Securities Class Action


In a recent discussion (Kaynes v. BP, PLC 2014 ONCA 580), the Ontario Court of Appeal stayed a proposed class action against BP, PLC for secondary market misrepresentation on the principle of forum non conveniens.  The Court concluded that while Ontario Courts had jurisdiction to hear the class action, there was another forum that was clearly more appropriate for the adjudication of the plaintiff's claim and of the claims of foreign exchange purchasers of BP's securities.

 

The plaintiff's claim rose out of the Deep Water Horizon oil spill that occurred in the Gulf of Mexico in April of 2010.  The plaintiff alleged that BP made certain misrepresentations in its public disclosures, before and after the spill, related to its operations, safety programs, and the accident that impacted the price of BP's shares.  His claim was based on part XXIII.1 of the Ontario Securities Act which provides a statutory cause of action for secondary market misrepresentation.

 

The plaintiff, a resident of Ontario, purchased his shares over the New York Stock Exchange. The proposed class included all residents of Canada who acquired BP securities between relevant dates wherever those securities were purchased.

 

BP's challenge of Ontario's jurisdiction to hear the class action was dismissed by a motion Judge.  BP appealed that decision to the Court of Appeal.  The Court of Appeal agreed with the motion judge that Ontario did have jurisdiction simpliciter, but concluded that the motion Judge had erred in principle in failing to decline jurisdiction on the basis of forum non conveniens.

 

The Court of Appeal held that there was a real and substantial connection between BP, or the subject matter of the claim and the forum despite the fact that BP was a UK corporation headquartered in London, England and did not own any real or personal property in Canada, nor did it carry on business in Canada.  BP's common shares were listed for trading on the London Stock Exchange, the Frankfurt Stock Exchange and the New York Stock Exchange.  They had never been listed on the Toronto Stock Exchange.

 

However, BP was a "reporting issuer" under Ontario securities regulations when the plaintiff purchased what is known as American Depository Shares ("ADS") a form of equity security currently listed for trading only on the New York Stock Exchange.  BP was a reporting issuer during the period when ADS were traded on the TSX.  In 2009 after ADS were delisted from the TSX, BP ceased to be a reporting issuer in Ontario and other Canadian provinces on the undertaking that it would continue to send relevant investor documents to its shareholders in Canada.

 

BP did not dispute that it was required by the undertaking send the plaintiff the documents that contained the alleged misrepresentations.  The Court of Appeal held that when BP released the documents, BP knew by virtue of the undertaking it had given that even if the initial point of release was outside Ontario, the documents were "certain to find (their) way to Ontario and to its Ontario shareholders".  Accordingly, by releasing such documents, BP committed an act that had an immediate and direct connection with Ontario.  That was sufficient to establish a real and substantial connection between the claim and Ontario.

 

Accordingly, the Court of Appeal agreed with the motion judge that such connection was a presumptive connecting factor for a tort committed in Ontario and therefore there was jurisdiction simpliciter in Ontario.

 

However the Court of Appeal indicated that a court has discretion to decline to exercise its jurisdiction under the forum non conveniens doctrine if the defendant showed that another forum was clearly more appropriate for the adjudication of the action.

 

In this case, BP argued that Ontario should decline jurisdiction in favour of the United States and the United Kingdom.   Laws of both countries related to jurisdiction over such claims was based on the principle that securities litigation should take place in forum where the securities transaction took place.  Their approach to jurisdiction over securities litigation was based principle of comity.

 

The Court of Appeal held that the motion Judge had erred in failing to take to account the principle of comity and erred in law with respect to a related issue of avoiding a multiplicity proceedings.

 

Both the US and the UK reserved jurisdiction on the basis of the location of stock exchange where the securities are traded. US law goes one step further and provides for the exclusive jurisdiction of the US courts over such claims. In keeping with the principle of comity, the court is obliged to consider that claim of exclusive jurisdiction.  The Court of Appeal  held that asserting Ontario's jurisdiction over the plaintiff's claim would be inconsistent with the approach taken under both US and UK law with respect jurisdiction over claims for secondary market misrepresentation. The principle of comity strongly favoured declining jurisdiction. 

In addition, avoiding a multiplicity of proceedings means that what should be avoided is litigation in more than one jurisdiction over the same claims of the same parties. Proposed class parties who have not opted out of the US proceedings would be problematic in that regard.

As a result, the Court stayed the proposed class proceeding.

Regards,

Blair

Tuesday, September 9, 2014

Ontario Securities Commission Rejects Insider Trading Allegations


The Ontario Securities Commission (“OSC”) released its long awaited decision in the Baffinland insider trading case.  Hearings in the case began in January of  2013 and concluded in September of that year.  The decision was a disappointment to observers who have been clamouring for stiffer penalties for violation  of securities regulations as the OSC dismissed all allegations of wrongdoing against the respondents.

 

In its statement of allegations, staff of the OSC (“Staff”) made allegations of insider trading, tipping and conduct contrary to the public interest in connection with the purchase of 20 million common shares and 5 million warrants of Baffinland Iron Mines Corporation by Nunavut Iron Ore Acquisition Inc., a company owned and controlled by Jowdat Waheed and Bruce Walter.  Nunavut Iron Ore acquired a “toehold” purchase of Baffinland on September 9, 2010 and launched a hostile takeover bid for Baffinland on September 22, 2010.

 

At the time, Baffinland was a publicly-traded junior mining company focused on developing iron ore deposits on its Mary River property located on Baffin Island in Nunavut. 

 

In February of 2010, Waheed entered into a consulting agreement with Baffinland to provide strategic advice to its board of directors and CEO with respect to potential partnerships, mergers and raising capital for the Mary River project.  Waheed ceased to provide those services in  April of 2010. 

 

In July 2010, Waheed approached Walter about a potential transaction involving Baffinland.  Discussions between them progressed over the summer and ultimately resulted in the launch of the takeover bid.  Waheed and Walter incorporated Nunavut Iron Ore in August of 2010.  Walter was the Chairman and Waheed was the President of Nunavut Iron Ore. 

 

Staff alleged that:

a)  both Waheed and Walter authorized, permitted or acquiesced in the toehold purchase (i.e. the purchase of a significant block of shares in Baffinland) while they were in a special relationship with Baffinland and while they had knowledge of material facts with respect to Baffinland that had not been generally disclosed;

 

b)  Waheed, while in a special relationship with Baffinland, informed third parties including Walter of material facts of Baffinland before the material facts were generally disclosed and that both Waheed and Walter had used material facts and confidential information belonging to Baffinland to make the toehold purchase and launch the takeover bid contrary to the public interest; and

 

c)  Waheed had acted contrary to the public interest by not always acting in Baffinland’s best interest while he was a consultant and afterwards.

 

After over 40 days of evidence and submissions in which over 2,600 documents were filed, the OSC dismissed Staff’s allegations finding that the respondents did not trade or tip in respect of undisclosed material facts.  The OSC held that at the time of the toehold purchase, Waheed did not have knowledge of material facts about Baffinland that were not generally disclosed.  In addition, the OSC concluded that there was no other conduct by Waheed and Walter that warranted the exercise the OSC’s public interest jurisdiction.  

 

The statutory framework for insider trading is found in subsection 76(1) of the Ontario Securities Act (“Act”).   That subsection provides that no person or company in a special relationship with a "reporting issuer" shall purchase or sell securities of the reporting issuer with the knowledge of a material fact or material change with respect to the reporting issuer that has not been generally disclosed.  

 

Baffinland’s only mining asset was the Mary River property on which high grade iron ore deposits are located.  The property is approximately 100 km south of the northern coast of Baffin Island which is north of the Arctic Circle.  Two individuals gained a controlling interest in Baffinland Iron Mines Ltd., the private company that held the Mary River Project in 2002 and took it public through a reverse takeover in 2004.  Baffinland reactivated exploration work on the project that had been dormant for some time and by January 2008 had spent over $150 million.

 

In March 2008, Baffinland completed a $193 million public equity offering for the stated purpose of further exploration and development activities and for general corporate purposes.  In 2008, Baffinland initiated a process to identify a strategic partner (or partners) that would assist in financing the Mary River project.  It engaged CIBC and CitiGroup Global Markets Inc. to act as its co-financial advisors.  Baffinland entered into a number of confidentiality agreements with companies in 2008.  In 2009, it appointed a strategic committee to oversee its strategic partnering activities .  It entered into the consulting agreement with Waheed subsequently.  

 

The commission found that as a consultant, Waheed had access to information about a potential transaction between Baffinland and ArcelorMittal, a large steel and mining company.  However, given the status of negotiations between Baffinland and  ArcelorMittal, the information that Waheed had was stale and was not material by the time the toehold purchase was made.  Therefore, the insider trader and tipping allegations failed.

Because at the time of the toehold purchase, Waheed did not have knowledge of material facts about Baffinland that were not generally disclosed, it followed that he did not convey any such material, non-disclosed facts to Walter. 

 

The commission held that an assessment of materiality is fact-specific and will vary with every issuer according to multiple facts.  The test to be applied when determining whether any fact is a material fact is an objective market impact test set out in the definition of material fact in subsection 1(1) of the Act.  In this case, that would require that the OSC determine if any of the alleged material facts would reasonably be expected to significantly affect the market price or value of Baffinland’s securities. 
 

With respect to its public interest jurisdiction, the OSC held that  two aspects of the public interest jurisdiction are of particular importance as found in the purposes of the Act, i.e. to provide protection to investors from unfair, improper or fraudulent practices and to foster fair and efficient capital markets and confidence in capital markets. 

 

The OSC concluded that its public interest jurisdiction was not invoked by the respondents’ conduct.  Although Waheed was in a special relationship with Baffinland as a result of his consultancy, he was not a director or officer of Baffinland or a registrant.  Consequently, the OSC was not required  to exercise its public interest jurisdiction to ensure honest and responsible conduct by market participants.

 

The OSC found that toehold purchases are excluded from the prohibition against insider trading and acknowledged that the acquisition of toeholds is a permitted strategy for bidders.  Absent insider trading or tipping, there was  nothing in the respondents’ toehold purchaser takeover bid that was contrary to the public interest.

Regards,

Blair