Supreme Court Rules Early Dismissal of Cases Beneficial

In Quebec, Article 165 of the Code of Civil Procedure (“Code”) provides the courts of that province with a mechanism, at a preliminary stage, to put an end to actions that are bound to fail.  In a recent Supreme Court of Canada decision (Canada (Attorney General) v. Confederation des syndicats nationaux, 2014 SCC 49), the court ruled that judges must be cautious in exercising this power:  although the proper of administration of justice requires that the court’s resources not be expended on actions that are bound to fail, the cardinal principle of access to justice requires that the power be used sparingly, where it is clear that an action has no reasonable chance of success. 

 In this case, the court agreed that an action brought by the Confederation des syndicats nationaux and the Federation des travailleurs et travailleuses du Quebec (referred to collectively as the “Unions”) was bound to fail, finding that the application of the doctrine of stare decisis was fatal to it.  A previous decision of the Supreme Court of Canada had settled the law on the legal issues that the action raised.  That previous decision deprived the Unions’ motion to institute proceedings of any legal basis. 

The Code

The motion was based on an article in the Code which was designed to avoid a trial where an action has no basis in law, even if the facts in support of it are admitted.  The court held that the Code "favoured the sound and effective management of judicial resources", i.e. the power of the courts to dismiss actions at a preliminary stage and held that the tool  “is a valuable housekeeping measure essential to effective and fair litigation.  It unclutters the proceedings, weeding out the hopeless claims and ensuring that those that have some chance of success go on to trial.” 

 

However, because dismissing an action at a preliminary stage can have very serious consequences the courts must be cautious in exercising this power.  As a result, an action will not be dismissed at such an early stage in the proceedings unless it is “plain and obvious” that it lacks a basis in law. 

 

The plain and obvious situation opens the door to a dismissal of an action that is apparent from the allegations set out in the motion.  The facts alleged in the motion must be assumed to be true.

Operation of Stare Decisis

 

In respect of dismissing an action on the basis of stare decisis, the Supreme Court held that judgments rendered under the article of the Code often concerned situations in which the right being claimed was clearly prescribed.  An action will sometimes be dismissed if it is clear that an authoritative decision had already resolved the issue or issues raised in the motion.  The court held that the doctrine of stare decisis is "not inflexible".   The precedential value of a judgment may be questioned “if new legal issues are raised as a consequence of significant developments in the law, or if there is a change in the circumstances or evidence that fundamentally shift the parameters of the debate” where, on the other hand, the legal issue remains the same and arises in a familiar context, the precedent still represents the law and must be followed by the courts. 

Accordingly, the judge must be satisfied in light of the record and the alleged facts that the precedent relied on by the applicant actually concerned the entire dispute that it should normally resolve and that it provided a complete, certain and final solution to the dispute. 

The Case

In 1996 the federal government carried out a major reform of the employment insurance program when it enacted the Employment Insurance Act (“1996 Act”).  One of the main components of the reform concerned the mechanism for setting the premiums payable by workers and employers who contributed to the program and thus the method of financing the program.  Faced with periodic deficits in the program and fearing the effects of an economic downturn on the Consolidated Revenue Fund, Parliament sought to create a reserve to enhance the program's stability while avoiding significant fluctuations in premiums. 

 

In 1998 and 1999, the Unions went to court to strike down certain provisions of the 1996 Act, arguing that the premium-setting mechanism was unconstitutional because the annual surpluses in the account were being reallocated by the government to its general expenses, including budget deficit reduction (there was a surplus of several billion dollars in the account).  In the Unions’ view, this was a misappropriation of monies that were supposed to be ear-marked for employment insurance.

 

In December of 2008, the Supreme Court declared that the measures adopted in the 1996 Act were valid and constitutional with the exception of the measures that applied in 2002, 2003 and 2005.  For those years, premium rates had been set by sections in the 1996 Act that made it possible to disregard the criteria which governed the exercise of the power to set rates.  The Supreme Court accepted that for the years in question,  the improper exercise by the Governor in Council of the power conferred on Parliament was a technical defect and it suspended the effect of the declaration of invalidity of the impugned sections to enable Parliament to rectify the situation.

 

In July of 2010, Parliament enacted the Jobs and Economic Growth Act (“2010 Act”) which provided for, among other thing, closing the Employment Insurance Account and creating a new account called the Employment Insurance Operating Account retroactive to January 1, 2009.  

 

The 2010 Act did not specify that the balance of the Employment Insurance Account, which at that point amounted to over $57 billion was to be transferred to the new Employment Insurance Operating Account.   This is the context in which the litigation began.

 

In April of 2011, the Unions filed a motion in order to have certain provisions of the 2010 Act declared unconstitutional.  The Attorney General of Canada argued that the issues raised by the Unions had already been decided by the Supreme Court in 2008 and moved to dismiss the action under an Article of the Code on the basis that it was unfounded in law. 

 

The motion to dismiss was granted by the Quebec Superior Court.  The motion judge held that the Supreme Court had previously held it its 2008 case, that the monies from the program belonged to the government and not to the contributors.  The accumulated surpluses formed part of the government’s revenues, did not have to be used solely for the employment insurance program and were not a debt owed to the program by the Consolidated Revenue Fund.  Accordingly, she dismissed the action. 

 

The Quebec Court of Appeal set aside the motion judge’s decision and found that the action was concerned more with the ”effects of the act of eliminating the balance and resulting accounting entries” that flowed from the 2010 legislative amendment than with the use of the surpluses that had accumulated in the account.  The Court of  Appeal held that the issue had not been disposed of by the Supreme Court in its 2008 decision since the legislation in question had not yet been enacted.  The Court of Appeal also noted that the Union’s allegation that the Consolidated Revenue Fund was indebted to the Employment Insurance Account was one of the facts that the trial judge had to assume to be true. 

 

In allowing the appeal, the Supreme Court held that before granting a motion to dismiss on the basis that an authoritative decision had already resolved the issue before him or her, the judge "must be satisfied in light of the record and the alleged facts that the precedent relied on by the applicant concerned the entire dispute that it should normally resolve, and that it provided a complete, certain and final solution to the dispute". 

 

In this case, the Supreme Court held that Unions’ action was bound to fail.  The action's underlying premise was that a balance in the Employment Insurance Account is a debt owed by the Consolidated Revenue Fund to that account.  In the Unions’ view, the premiums paid in the context of the employment insurance program are constitutionally valid only if they are properly accounted for.  The court held however, that its 2008 decision settled the law in that regard and it deprived the motion to institute proceedings of any legal basis.  In that case, the Supreme Court held that the amounts collected as contributions to the employment insurance program formed part of the government’s revenues and could be used for purposes other than paying benefits.  Although, the connection between the program and the premiums was a fact that could be considered in determining the nature of the levies, it was wrong to say that the validity of these levies depended on the existence of that connection. 

 

Furthermore, the Supreme Court held that no debt of the Consolidated Revenue Fund to the Employment Insurance Account ever existed, since the government cannot be indebted to itself. 

Because the action had no reasonable chance of success the section of the Code applied and was appropriate to dismiss the action at the preliminary stage.

Regards,

Blair

 

BC Court Enforces $4.5 Million SEC Disgorgement Judgment

In dismissing an appeal from a order enforcing a United States judgment, the British Columbia Court of Appeal held that it was the character of the foreign judgment that governed whether it was enforceable, not the way in which the parties responded to it. 

On August 18, 2011, the United States District Court for the Southern District of New York (“US Court”) rendered a judgment against William Peever and Phillip Curtis.  The judgment was for injunctive relief and the disgorgement of profits derived from illegal price manipulation of stock of American corporations.  The suit was advanced by the United States Securities and Exchange Commission (“SEC”).

 

Peever and Curtis consented to the injunction, admitted liability and did not contest the quantum of the judgment.  They were ordered by the US Court to pay the sum of $4,506,535.66 into court.

 

The SEC brought an action in British Columbia to ask the court of that province to recognize and enforce the judgment.  Peever and Curtis resisted the enforcement proceedings on the basis that the judgment was penal or public in nature, a recognized exception to the enforcement of foreign judgments in Canada.  Notwithstanding such argument, a BC trial judge held that the judgment of the US Court should be recognized and enforced.  Peever and Curtis appealed from that decision to the British Columbia Court of Appeal.

 

In dismissing the appeal ( United States (Securities and Exchange Commission) v. Peever 2014 BCCA 141 ) the Court of Appeal recited the facts and noted that the US Court’s judgment was final, obtained in a civil proceeding within the court’s jurisdiction and from which no appeal was taken. 

 

In respect of the appellants' arguments that the judgment was penal or public in nature, the Court disagreed, holding that the SEC’s mandate was to enforce securities laws.  On the evidence, a vital part of its mandate was to distribute disgorged funds to defrauded investors.  Peever and Curtis argued (and it was not disputed by the SEC) that the SEC is not bound by statute to distribute disgorged funds in accordance with its policy.  Should it not do so, any fund established would be retained by the United States federal government as general revenue, although that would be subject to court approval.  Peever and Curtis argued that in that event, a judgment for disgorgement would not constitute a civil remedy because the government had suffered no loss but would rather serve a penal purpose in imposing a fine for wrongdoing or a public purpose in deterring others from offending.

 

The trial judge considered that argument and held that, given the judgment was prima facie enforceable (a final judgment within the US Court’s jurisdiction), Peever and Curtis bore the onus of establishing that it was not to be enforced because to do so would “accomplish a foreign penal or public law purpose”.  The question became whether they had demonstrated that it was more likely than not that if the judgment was enforced in BC its enforcement would serve a penal or public law purpose in the United States.  The trial court held that based on the evidence, the SEC’s policy was to distribute the proceeds of judgment to injured investors and that given the judgment described a mechanism that the SEC could employ to achieve that distribution he found that Peever and Curtis had not shown that it was more likely than not that the SEC would simply keep the proceeds of judgment to itself.  Accordingly, he found that the defendants had not discharged their burden of proof of showing that enforcement of the judgment in BC would be to serve a foreign penal or public law purpose. 

 

On appeal, Peever and Curtis argued that the trial judge had erred in burdening them with the onus of establishing that argument. 

 

However, the BC Court of Appeal agreed with the trial judge.  It held that in its view, it was the subject or character of the judgment itself that governed, quite apart from the way in which the parties responded to it. 

On its terms, the judgment was clearly not penal or public in nature.  It provided for the disgorgement of profits with such profits being paid into court to be invested and held as a fund subject to further court order.  It contemplated the SEC obtaining court approval of a plan for distribution to the victims of the fraud.  The disgorging of profits facilitated restitution which was a civil remedy.  As a result, the Court of Appeal concluded that there was simply no basis on which it could be said that the character of the judgment was penal or public in nature. 

Regards,

Blair