Friday, June 27, 2014

Ontario Appeal Court Reduces 70 Year Old's Dismissal Notice Period By Six Months


In a recent ruling, the Ontario Court of Appeal reduced the wrongful dismissal award of a 70 year old employee by 6 months.

 

In the case of Kotecha v Affinia Canada ULC (2014 ONCA 411).  The Court reduced the motion judge’s award of a 24 and one-half months to 18 months on the basis that "there were no exceptional circumstances that would justify" the longer award.

 

Affinia is a manufacturer of auto parts.  Kotecha was 70 years old and had worked for Affinia for 20 years as a machine operator.  He installed rivets on brake pads.  At the time of his dismissal, Kotecha was earning $18.23/hour.  Based on a 40 hour work week, this wage equated to approximately $38,000.00 per year. 

 

Affinia admitted that Kotecha was dismissed without cause.  Kotecha brought a motion for a summary judgment to fix the length of the notice requirement and his damages. 

 

At the motion, the judge considered the factors in Bardal v. Globe and Mail Ltd  as set out by the Supreme Court of Canada i.e. the character of the employment, length of service, age of the employee and the availability of similar employment having regard to the experience training and qualifications of the employee.  The judge concluded that this was a simple case of wrongful dismissal and having regard to other cases with similar facts, fixed the notice period at 22 months.  Her ruling did not include the 11 weeks of working notice that Affinia had given Kotecha. 

 

Affinia appealed to the Court of Appeal.  Before the appeal court, Affinia argued that the motion judge had erred in disregarding an unreported judgment of another judge in a case against it (Sharma v Affinia Canada) and that on almost identical facts, that judge in that case had awarded 13 months as reasonable notice.  Affinia argued that the motion judge was bound by the doctrine of stare decisis to award a similar period of reasonable notice in this case.

 

The Court of Appeal rejected that argument.  It reiterated that the principle of stare decisis required that courts render decisions that are consistent with the previous decisions of higher courts.  While other decisions of the Superior Court are persuasive, they are not binding.  Moreover, the Court held that the determination of the appropriate notice period is a very fact-specific exercise and is calculated in accordance with numerous factors set out in Bardal.

 

However, the Court held that judges should strive to ensure that notice periods, which are inherently individual, are consistent with the case law.  The Court found that was not done in this case.  Taking into account the period of working notice that Affinia had given Mr. Kotecha, the total notice period awarded to him was 24 and ½ months.  The Court held that this was excessive and that there were no exceptional circumstances that would justify the award.  It did not accept Affinia’s position that a 13 month notice period was appropriate but rather “adjusted” the notice period to 18 months, less the working notice of 11 weeks. 

The decision seems harsh given that, at 70 years old,  Mr. Kotecha has virtually no chance of getting another job.  One would have thought that his advanced age was an "exceptional circumstance" that would have persuaded the court to award a period of notice in the 20 to 24 month range. 

Regards,

Blair



 

Thursday, June 26, 2014

Appeal Court Confirms Litigation Privilege In Regulatory Investigations


In a recent decision, the Alberta Court of Appeal concluded that litigation privilege may be properly claimed by a target of a regulatory investigation.  In TransAlta Corporation v. The Market Surveillance Administrator (2014 ABCA196), the court allowed an appeal from a decision of a chambers judge of the Alberta Court of Queen’s Bench which held that the term “solicitor-client privilege” in section 50 of the Alberta Utilities Commission Act (“Act”) referred only to the privilege dealing with obtaining legal advice and did not extend to litigation privilege. 

 

In its ruling, the court reaffirmed the importance and protection afforded to litigation privilege claims, recognizing that there is a need for both legal advice and protection of an associated zone of privacy when a party is facing an investigation that could result in a prosecution with serious consequences. 

 

The facts of this case first arose in the 1990s, when Alberta decided to de-regulate its electricity and natural gas industries.  Alberta established an independent body, the Market Surveillance Administrator (“MSA”) to oversee both industries. 

 

TransAlta owned several power generation stations in Alberta.  In February of 2011, MSA received a complaint that TransAlta was timing the maintenance shutdown of some of its power plants to occur during periods of high demand to improperly influence the price of electricity. 

 

MSA initiated an investigation and as part of the investigation, issued a formal request for production of documents.   TransAlta began producing documents in response to this request which continued for several months.  During the course of document production, TransAlta claimed privilege, both solicitor-client and litigation privilege over a number of documents.  MSA disputed the claim for litigation privilege and TransAlta applied to a judge of the Court of Queen’s Bench for an order that it had claimed privilege properly over the documents. 

 

The issues in dispute before the chambers judge included whether litigation privilege came within the “general rubric” of solicitor-client privilege under section 50 of the Act.

 

In overturning the chambers judge’s decision, the court of appeal held that she had interpreted section 50 of the Act too narrowly in finding that the term solicitor-client privilege did not include litigation privilege.  The court reasoned that the mere fact that the two privileges may have differences in scope and operation, did not answer the question of interpretation.  The court held that the common law still treated litigation privilege as being an aspect of solicitor-client privilege and that the Alberta legislature would have had this understanding in mind when it drafted the wording contained in the Act. 

 

Further, even if “solicitor-client privilege” did not include litigation privilege, it was still open to TransAlta to resist production of the documents on the basis of litigation privilege because section 50 of the Act was procedural in nature and did not exclude claims for litigation privilege or for any other privilege recognized at common law. 

 

Finally, the court held that if TransAlta was entitled to advance a claim for litigation privilege, it was necessary to consider whether there could be a basis for such a claim in the context of an investigation by the MSA.  The court held that while an investigation undertaken by the MSA will not result directly in criminal convictions or prison, nevertheless the consequences of being found guilty of an offence under the Act could result in millions of dollars of fines and other penalties of a very substantial nature.  Indeed, the ongoing business of the company could be put into jeopardy.  Thus, there was an obvious need for legal advice and the zone of privacy contemplated by litigation privilege when a party or parties are facing an investigation which could result in the prosecution of offences with such potential consequences. 

Regards,

Blair

Thursday, June 12, 2014

Lawyer Suspended For Making Imprudent Loan


A panel of the Divisional Court of Ontario’s Superior Court of Justice (Justices Marrocco, Nordheimer and Whitaker) dismissed an appeal brought by a lawyer who had been suspended from practicing law by a Law Society of Upper Canada Appeal Panel.  The panel found that the lawyer had engaged in conduct unbecoming a lawyer.  [See Cengarle v. Law Society of Upper Canada 2014 ONSC 1884]

 

The appeal arose as a result of the lawyer’s position as the executor of an estate.  He became the executor in 1988.  At the time, the value of the estate was approximately $250,000.

 

In 1991, the lawyer advanced a loan of $118,000 from the assets of the estate to a long-standing employee of his law firm.  The Law Society’s Hearing Panel found that the loan was advanced in order to permit the employee to placate a client of the lawyer’s firm for money’s that the client had lost on a loan to another client of the firm.  The client blamed the lawyer’s employee for the loss and made certain threats if she was not repaid the money.  The Hearing Panel found that the client’s threats where the motivation for advancing the loan. 

 

Not only did the loan represent about 50% of the value of the estate, it was initially unsecured.  Although, at a later point the loan became partially secured, at no point in time was the loan ever fully secured.

 

The loan was repaid in 2007.  Both the principal and the interest were paid to the estate over this period of time.

 

At the initial hearing, the Hearing Panel concluded that the lawyer had engaged in conduct unbecoming a lawyer and that he had breached his fiduciary duty as the executor of the estate by making an imprudent and unsecured investment, i.e. the loan.

 

The Appeal Panel upheld the Hearing Panel’s decision and went further, finding that the lawyer had breached section 27 of the Trustee Act.  That section provides that a trustee:  “...must exercise the care, skill, diligence and judgment that a prudent investor would exercise in making investments.” .

 

The Divisional Court upheld the decision of the Appeal Panel.  Associate Chief Justice Marrocco, writing for the court, held that the standard of review applicable to the issues was one of “reasonableness”.  He held that the Trustee Act is a statute closely connected to the Law Society’s disciplinary function and engages the frequent situation of a lawyer acting as an executor or trustee.  The Appeal Panel’s application of the Trustee Act in deciding whether a lawyer has engaged in conduct unbecoming of a lawyer is one that is entitled to deference from the court. 

 

The Divisional Court held that just because the loan was repaid with interest, did not mean that the test in section 27 of the Trustee Act had been met.   What was important is whether, at the time of making the loan, the lawyer complied with the provisions of the Trustee Act.   The test in section 27 is measured against the reasons and analysis undertaken at the time that the investment decision was made.

 

In this case, there was no overall investment strategy in operation.  Secondly, the investment amounted to approximately half of the value of the assets of the estate.  Thirdly, the investment was not justified by any offsetting investments.  To the contrary, the making of the loan was entirely dictated by the lawyer’s desire to assist his employee and to placate his client.

 

Accordingly, the lawyer’s appeal was dismissed and the Hearing Panel’s order of suspension of the lawyer from practicing law for a period of 30 days was re-instated. 

Regards,

Blair

Thursday, June 5, 2014

Ontario Appeal Court Dismisses Class Action Against Manulife For Pure Economic Loss


The Ontario Court of Appeal has affirmed a trial judge's decision to dismiss a class action against the Manufacturers Life Insurance Company (“Manulife”) on the basis that there was no cause of action for the plaintiffs' pure economic loss.

 

In Mandeville v. The Manufacturers Life Insurance Company, 2014 ONCA 417, the appeal court considered whether Manulife owed a novel duty of care to certain policyholders in connection with its decision to "demutualize" the company.  
 

As a mutual insurance company, Manulife was governed by the Insurance Company’s Act (the “Act”).  The Act required Manulife to obtain regulatory approval for the transfer (i.e., the demutualization) from the Canadian government.  Because the “block of business” in issue was located in Barbados, Manulife also needed the approval of the Barbados government.

 

Approximately 8,000 residents of Barbados had participating policies with Manulife that were transferred to the Barbados Insurance Company.  In demutualizing, Manulife converted from a mutual insurance company to a stock company.  Because the class members policies had been transferred to the Barbados Insurance Company, they were no longer Manulife participating policyholders and therefore were ineligible to share in the value of the company.

 

The class action brought by the Barbados policyholders claimed that Manulife was negligent and breached its fiduciary duty that it owed to them.  Their negligence claim was founded on the allegation that Manulife knew it was going to demutualize when it transferred its Barbados business and that it ought to have structured the transfer in a way that protected or preserved the class numbers’ rights to share in the value of Manulife on demutualization.  They sought damages equal to the amount that the class members would have received had they been treated as eligible policyholders on demutualization.

 

After a 29 day common issues trial, Justice Newbould of the Ontario Superior Court concluded that while Manulife owed the Barbados policyholders a prima facie duty of care based on foreseeability of harm and proximity, for policy reasons, he refused to recognize that duty of care.  Had he found Manulife liable, Justice Newbould would have ordered Manulife to pay damages of approximately $82 million, plus interest.

 

The class members advanced an alternative theory that claimed that Manulife should have compensated them for the loss of their “ownership rights” at the time of the transfer.  Justice Newbould also rejected this theory, but determined that if liability had been established on that basis, he would have ordered Manulife to pay damages of $24.5 million, plus interest.

 

The class members appealed to the Court of Appeal.  Manulife cross-appealed on the issue of damages.  Justice Gillese writing for the Court of Appeal (Justices Blair and Strathy) held that the appeal and the cross-appeal should be dismissed.

 

In coming to the appeal court’s decision, Justice Gillese reviewed the key concepts in play about how a mutual insurance company was established and how it demutualized.  She then set out a brief history of demutualization in Canada beginning in the late 1950’s when insurance companies in Canada became concerned about their vulnerability to hostile takeovers, the enactment by Parliament of amendments to the Canadian and British Insurance Companies Act (predecessor to the Act) to allow stock companies to mutualize and ending in the 1990’s when insurance companies began to see the advantages of converting back into stock companies. 
 

In 1990, Manulife decided to sell its life insurance in the Caribbean – Atlantic region because the business was too small to operate effectively and its growth prospects were poor.  Manulife eventually sold all of its business in the Caribbean, except for the business in Barbados.  In Barbados, an insurance company required approval of the Supervisor of Insurance in order to transfer all or part of its business to another company.  Justice Gillese explained in detail Manulife’s attempts to transfer its Barbados business.  It was finally able to reach an agreement to do so in 1996.  Manulife obtained regulatory approval to close the sale and transfer its Barbados policies from both the Canadian and Barbados regulators.  Manulife’s demutualization became effective approximately 3 years later, in September of 1999.

 

In 2002, the proceeding was certified as a class action by Justice Nordheimer.  Justice Nordheimer concluded that the regulatory approval given by Barbados Government did not automatically bar the Barbados policyholders from bringing the action.

 

Ten years after certification, the matter was brought to a common issues trial.

 

After reviewing the findings made by the trial judge, the Court of Appeal held that the appeal raised a single issue:  Did the trial judge err in refusing to recognize that Manulife owed the class members a duty of care at the time of the transfer?

 

The Court held that the nature of the appellants’ claim was not straightforward in this case.  Justice Gillese wrote that the question wasn’t whether the participating policyholders could be described as owners of a mutual insurance company.  It was whether at the time of the transfer to the Barbados Insurance Company, whether the class members had a legally recognized right or interest in respect of a possible demutualization by Manulife.  She held that they did not.  At the time of the transfer in 1996, mutual companies like Manulife were not permitted to demutualize.  That right only came into existence in 1999.  The terms of the class members’ policies did not refer to any right to receive benefits on demutualization.  In addition, there was no such right afforded by statute or regulation.  Because Manulife had no right to demutualize in 1996, the appellants could have had no right to share in the benefits of demutualization.

 

Justice Gillese concluded that a hope or mere expectancy is not illegally enforceable right or interest.

 

In addition, the Court of Appeal held that the appellants’ claim was one for pure economic loss.  Pure economic loss is loss suffered by an individual that is not accompanied by physical injury or property damage.  Damages claimed by the appellants is equivalent to the benefits the class members would have received had they been treated as eligible policyholders upon Manulife’s demutualization.  The damages are not causally connected to physical injury to their persons or physical damage to their property.

 

When a claim is made for pure economic loss, the Supreme Court of Canada in Martel Building Ltd. v. Canada, 2000 has held that such claims or require greater scrutiny when the court is deciding whether to recognize a duty of care.  The Supreme Court of Canada in Martel set out the policy reasons underlying the common law's traditional reluctance to permit recovery for pure economic loss:

 

            “First, economic interests are viewed as less compelling of protection than bodily security or proprietary interests.  Secondly, unbridled recognition of economic loss raises the spectre of indeterminate liability.  Third, economic losses often arise in a commercial context, where they are often an inherent business risk best guarded against by the party in whom they fall through such means as insurance.  Finally, allowing the recovery of economic loss through tort has been seen to encourage a multiplicity of inappropriate law suits.  

 

However, Canadian jurisprudence shows that there was no automatic bar to recovery for pure economic loss.

 

Justice Gillese utilized the test established in Anns v Merton Borough Council  to determine whether a novel duty of care between a mutual insurance company and its participating policyholders should be recognized in the present case.  Anns is a 2 stage test for determining whether a duty of care arises - i.e., 1) was the harm that occurred, the reasonably foreseeable consequence of the Defendant’s Act; and 2) are there reasons, notwithstanding the proximity between the parties that tort liability should not be recognized?

 

Applying the Anns test, the Court of Appeal agreed with Justice Newbould that the harm the class members suffered was a reasonably foreseeable consequence of Manulife’s transfer of their policies.  However, the appeal judges disagreed that a prima facie duty of care had been established.  They concluded that given the tenuous and inchoate nature of the interest that the policyholders sought to have protected, the proximity requirement had not been satisfied and a prima facie duty of care did not arise.

 

Having found no prima facie duty of care at the first stage of the Anns test, the Court held that it was unnecessary to continue the second stage and consider whether there were residual policy considerations that would negate the imposition of a new duty of care.  Despite that finding, Justice Gillese held that there were two policy considerations that precluded a duty of care -  the spectre of indeterminate liability and a multiplicity of inappropriate law suits. 


The court dismissed the policyholders' appeal.


Regards,


Blair 

 

Tuesday, June 3, 2014

Hybrid Trials Best Suited For Will Challenges In "Modest" Estates


In a decision dated April 4, 2014, Justice D. M. Brown of the Ontario Superior Court of Justice refused an applicant’s request for a hearing date for a summary judgment motion and instead ordered that the action be resolved by way of a hybrid trial.

 

The case involved a will challenge for a “modest” estate (about $750,000 in total).  Two of the deceased’s four daughters were challenging the will on the basis of lack of testamentary capacity and undue influence, among other grounds.  In refusing one daughter’s request for a summary judgment hearing date, Justice Brown cited the Supreme Court of Canada’s decision in Hryniak v. Mauldin, 2014 SCC 7, in which the Court stated:

 

            “[73]  A motion for summary judgment will not always be the most proportionate way to dispose of an action.  For example, an early date may be available for a short trial, or the parties may be prepared to proceed with a summary trial.  Counsel should always be mindful of the most proportionate procedure for their client in the case.”

 

Justice Brown held that in this case bringing a summary judgment motion would be a grossly disproportionate way to resolve the dispute for two reasons:

 

  1. The estate was modest and summary judgment motions are expensive; and
  2. Significant credibility issues were at play with conflicting versions of facts between two “antagonistic" daughters.

 

Justice Brown assigned a trial date for the autumn of 2014 and ordered that the matter proceed by way of a “hybrid form of hearing” in which any party who intended to testify at trial must file an affidavit which will serve as his or her evidence-in-chief, and a time-limited oral cross-examinations would be scheduled.  As to the evidence from non-party witnesses (if affidavits could not be obtained), each party must serve a detailed will-say of the anticipated evidence from such witnesses.


Regards,


Blair

Note : Justice Brown held that at the present time in the Toronto Region, trials of five days or less are available "virtually for the asking".  That has not been my recent experience.  I could not get a three day trial heard in Toronto, even though we had been given a trial date of the week of May 10th, on the basis that there were no judges available.  The trial coordinator advised us that we would be put over to a new date between September and December of 2014.