SCC - Federal Court does not have Jurisdiction to Interpret City By-law

Windsor (City) v. Canadian Transit Co. 2016 SCC 54 

 

In a 5 – 4 decision, the Supreme Court of Canada dismissed an appeal from the Federal Court of Appeal on whether the Federal Court had jurisdiction to decide whether the Canadian Transit Co. (the “Company”) was required to comply with the City of Windsor’s by-law and repair orders.

 

The Company owns and operates the Canadian half of the Ambassador Bridge connecting Windsor, Ontario and Detroit, Michigan.   The Company was incorporated in 1921 by An Act to incorporate the Canadian Transit Co. (the “Act”).  The Act empowered the Company to construct, maintain and operate a general traffic bridge across the Detroit River, to purchase, lease or otherwise acquire and hold lands for the bridge and to construct, erect and maintain buildings and other structures required for the convenient working of traffic to, from and over the bridge.  The Act also declared the works and undertakings of the Company to be for the general advantage of Canada, triggering federal jurisdiction under the Constitution Act, 1867.

 

The Company purchased more than 100 residential properties in Windsor with the intention of eventually demolishing the houses and using the land to facilitate the maintenance and expansion of the bridge.  Most of the houses are now vacant and in varying states of disrepair.   The City of Windsor issued repair orders against the properties pursuant to a municipal by-law.  The Company has not complied with the repair orders. 

 

The parties have been engaged in litigation relating to the repair orders in the Ontario Superior Court of Justice.  In addition, the Company applied to the Federal Court for declarations saying that it has rights under the Act which supersede the by-law and the repair orders.  The City moved to strike the Company’s notice of application on the ground that the Federal Court lacked jurisdiction to hear the application.  The Federal Court struck the Company’s notice for want of jurisdiction.  The Federal Court of Appeal set aside that decision.

 

On further appeal to the Supreme Court of Canada, Justices McLachlin, Cromwell, Karakatsanis, Wagner and Gascon held that the Federal Court does not have jurisdiction to decide whether the City’s by-law applies to the Company’s properties and that the issue should be decided by the Ontario Superior Court.   

 

Justices Abella, Moldaver, Côté and Brown dissented.

 

The majority framed the question this way:  The issue is whether the Federal Court has the jurisdiction to decide a claim that a municipal by-law is constitutionally inapplicable or inoperative in relation to a federal undertaking.  The majority decision was written by Justice Karakatsanis. 

 

Justice Karakatsanis wrote that the Federal Court has only the jurisdiction that has been conferred upon it by statute.  It is a statutory court, without inherent jurisdiction.  Accordingly, the language of the Federal Courts Act is completely determinative of the scope of the court’s jurisdiction.   The majority held that the role of the Federal Court is constitutionally limited to administering federal law.  The Federal Court has jurisdiction where a federal statute grants it jurisdiction and where the claim is for relief made or a remedy sought under an Act of Parliament or otherwise.  The relief must be sought under, and not merely in relation to, federal law. 

 

In this case, the Company was not seeking relief under an Act of Parliament or otherwise as required by the Federal Courts Act.  The Company was seeking relief under the Act that created it.  The court held that the Federal Courts Act is not itself a federal law under which the Company could seek relief.  For that right, parties must look to other federal law.  Further, although the Act confers certain rights and powers on the Company, it does not give the Company any kind of right of action or right to seek the relief that it was seeking.  The Company in fact was seeking relief under constitutional law, because constitutional law confers on parties the right to seek a declaration that a law is inapplicable or inoperative.  A party seeking relief under constitutional law is not seeking relief under an Act of Parliament or otherwise within the meaning of the Federal Courts Act, therefore the applicable section of the Federal Courts Act does not grant jurisdiction over the Company’s application to the Federal Court.  As a result, the motion to strike the Company’s notice of application in the Federal Court must succeed.

 

There were two separate dissenting reasons – one by Justices Moldaver, Côté and Brown and a separate set of dissenting reasons by Justice Abella. 

Justices Moldaver and Brown held that the Federal Court’s jurisdiction should be construed broadly and that its purposes are better served by a broad construction of its jurisdiction.  The essential nature of the case is not relevant to whether the Federal Court has jurisdiction but to whether it should exercise it.  The dissenters held that requiring a federal statute to expressly create a cause of action before jurisdiction may be founded under an Act of Parliament was unduly narrow and inconsistent with Parliament’s intent in creating the Federal Court.  The court’s jurisdiction should be construed broadly so that if the claim for relief is related to a federal work or undertaking and the rights being enforced arise from an Act of Parliament, the claimants may approach the Federal Court. 

 

In separate dissenting reasons, Justice Abella held that the appeal should be dismissed in part and a stay of the Federal Court proceedings should be entered.  She held that notwithstanding that the Federal Court has concurrent jurisdiction with the Ontario Superior Court, it should not exercise it in this case.  Both the Company and the City appealed orders to the Ontario Superior Court.  Rather than wait for the outcome of the appeals before the Superior Court, the Company sought to activate the Federal Court’s intervention.  Justice Abella reasoned that the Company had attempted to divert the proceedings into a jurisdictional sideshow which added expense and delay in aid of nothing except avoiding a determination of the merits for as long as possible.  To date that jurisdictional diversion has cost the public a delay of three years.  There was no basis for further delaying the Superior Court proceedings.

Regards,

Blair

 

SCC - Litigation Privilege and Solicitor-Client Privilege Are Substantive Rights

The Supreme Court of Canada released two decisions last week dealing with the issue of privilege:  (1)  Lizotte v. Aviva Insurance Company of Canada 2016 SCC 52 which dealt with the issue of litigation privilege; and (2)  Alberta (Information and Privacy Commissioner) v. University of Calgary 2016 SCC 53 which dealt with the issue of solicitor-client privilege. 

 

In both cases, the court clearly emphasized the importance of both privileges as “substantive rights that are fundamental to the proper functioning of our legal system”.

 

In the Lizotte case, in the course of an inquiry into a claims adjustor, the assistant syndic of the Chambre de l’assurance de dommages (the "syndic”) asked an insurer to send her a complete copy of its claim file with respect to one of its insured.  The syndic based her request on section 337 of the Act respecting the distribution of financial products and services (“Act”).  In response, the insurer produced some documents but withheld others alleging that they were protected by either solicitor-client privilege or litigation privilege.

 

At a hearing, the syndic conceded that solicitor-client privilege could be asserted against her and therefore the issue before the court was limited to litigation privilege.  The Superior Court of Quebec concluded that litigation privilege cannot be abrogated absent an express provision and that the provision in the Act was not "express" in that sense.

 

The syndic’s appeal was dismissed by the Quebec Court of Appeal and further appeal to the Supreme Court of Canada was dismissed.  In an unanimous decision, the court held that litigation privilege is a common law rule that gives rise to an immunity from disclosure for documents and communications whose dominant purpose is preparation for litigation.  Litigation privilege differs from solicitor-client privilege in that litigation privilege is to ensure the efficacy of the adversarial process .  The purpose of solicitor-client privilege is to protect a relationship.  Solicitor-client privilege is permanent whereas litigation privilege is temporary and lapses when the litigation ends.  In addition, litigation privilege applies to unrepresented parties and to non-confidential documents.  

 

However, the court held that litigation privilege is a class privilege and gives rise to a presumption of inadmissibility for a class of communications – namely those whose dominant purpose is preparation for litigation.  Exceptions to litigation privilege include those relating to public safety, to the innocence of the accused and to criminal communications.  However, because it is a class privilege it has nothing to do with balancing competing interests on a case by case basis.   

 

In this case, none of the exceptions applied.  The court held that there is a robust line of authority according to which a party should not be denied the right to claim litigation privilege without clear and explicit legislative language to that effect.  Litigation privilege therefore cannot be abrogated by inference and the Act did not apply to do so. 

 

In the second case, in the context of a constructive dismissal claim, a delegate of the Information and Privacy Commissioner of Alberta ordered the production of records over which the University of Calgary had claimed solicitor-client privilege.  The delegate was acting in accordance with the Office of the Commissioner’s solicitor-client privilege adjudication protocol and issued a notice to produce the records.  Under section 56(3) of the Freedom of Information and Protection of Privacy Act (“Privacy Act”), a public body was required to produce required records to the Commissioner “despite…any privilege of the law of evidence”.  The University sought judicial review of the decision which upheld the Commissioner’s decision but on appeal to the Alberta Court of Appeal, it was found that “any privilege of the law of evidence” as used in the Privacy Act did not refer to solicitor-client privilege.  

 

The Supreme Court of Canada dismissed the appeal in three separate, partially concurring reasons.  In the first set of reasons written by Justice Côté (Justices Moldaver, Karakatsanis, Wagner and Gascon concurring), the court held that whether the relevant section of the Privacy Act allows a review of documents over which solicitor-client privilege is claimed is a question of central importance to the legal system as a whole and outside the Commissioner’s specialized area of expertise.  Therefore, the applicable standard of review was correctness for both the decision that the Commission had the authority to require production of the records over which solicitor-client privilege was asserted and for the decision to issue the notice to produce the records. 

 

The majority held that the phrase “any privilege of the law of evidence” does not require a public body to produce to the Commissioner documents over which the solicitor-client privilege is claimed.  Solicitor-client privilege is no longer merely a privilege of the law of evidence but a substantive right that is fundamental to the proper functioning of our legal system.

 

In separate concurring reasons Justice Cromwell held that the grammatical and ordinary meaning of the words “any privilege of the law of evidence” includes solicitor-client privilege.  Solicitor-client privilege is both an evidentiary privilege and a substantive principle and it was the evidentiary privilege that was at issue here. 

 

He held that in this case even though the Commissioner had the authority to compel production for review of records over which solicitor-client privilege was asserted and assuming, without deciding, that the correctness standard of review applied, she made a reviewable error to order production in the face of the evidence submitted in relation to the claim of privilege.  The University’s claim of privilege complied with the requirements of Alberta civil litigation practice at the time, and it was a reviewable error for the Commissioner’s delegate to impose a more onerous standard on the University in relation to its assertion of privilege than that applicable in civil litigation before the courts.

 

Justice Abella in further separate but concurring reasons held that that standard of review in this case should be reasonableness in accordance with the Supreme Court’s prior decisions.  However, she held that the Commissioner’s decision to order disclosure was unreasonable.  The Commissioner should have exercised her discretion in a manner that interfered with solicitor-client privilege only to the extent absolutely necessary to achieve the ends sought by her enabling legislation.  In ordering disclosure, she did not sufficiently take into account the fact that the University provided adequate justification for solicitor-client privilege particularly in light of the laws and practices applicable in the civil litigation context in Alberta. 

Regards,

Blair

Supreme Court Tosses Oppression Remedy Claim

Mennillo v. Intramodal Inc. 2016 SCC 51

 

In the above-noted case, the Supreme Court of Canada refused to allow an appeal involving a claim for shareholder oppression under the Canada Business Corporations Act (“CBCA”). 

 

The plaintiff’s claim for oppression was dismissed by the trial judge and the Quebec Court of Appeal.  The Supreme Court affirmed those decisions in an 8 to 1 decision. 

 

Johnny Mennillo and Mario Rosati, two friends, agreed to create a road transportation company.  They agreed that Mennillo would contribute the money to start up the business while Rosati would bring his skills to run the company.  Rosati incorporated Intramodal in 2004 and the board of directors passed a resolution to issue 51 shares to Rosati and 49 shares to Mennillo.  Throughout the operation of the company, Rosati and Mennillo rarely complied with the requirements of the CBCA and almost never put anything in writing.  They did not enter into a partnership agreement or a shareholders' agreement and there was no written contract or any other legal formality relating to Mennillo’s advances of substantial amounts of money to the company.   

 

Less than a year after incorporation of Intramodal, Mennillo sent a letter to the company indicating that he was resigning as an officer and director of the company.  At trial, Mennillo testified that he never intended to stop being a shareholder, but Rosati alleged that Mennillo also resigned as a shareholder and accordingly the company transferred his shares to Rosati.  Mennillo sued claiming that the corporation and Rosati had wrongfully stripped him of his status as a shareholder and applied for an oppression remedy pursuant to section 241 of the CBCA. 

 

The trial judge dismissed Mennillo’s oppression claim based on the factual finding that Mennillo had undertaken to remain as a shareholder only so long as he was willing to guarantee the corporation's debts and later was not willing to do so.  The Court of Appeal dismissed Mennillo’s appeal.

 

The Supreme Court of Canada held that the trial judge’s factual findings were not reviewable because the trial judge had committed no palpable and over-riding error. 

Justice Cromwell wrote the main reasons for decision of the majority of the court.  He held that in light of the trial judge’s factual findings, Mennillo’s oppression claim was groundless.  What really happened is that the corporation failed to make sure that all the legal formalities were complied with before it registered a transfer of shares to Rosati.  However, the fact that a corporation fails to comply with the requirements of the CBCA does not on its own constitute oppression.   What triggers the remedy is conduct that frustrates the reasonable expectations of the shareholder not simply conduct that is contrary to the CBCA. 

 

Justice Cromwell reasoned that an issuance of shares can only be cancelled if (a)  the corporation’s articles are amended; or (b) the corporation reaches an agreement to purchase the shares which requires that the directors pass a resolution.  Meeting the requirements with respect to the maintenance of shared capital is not optional given that it is the share capital that is the common pledge of the creditors and is the basis for their acceptance of doing business with the corporation. 

 

However, there was no doubt that Mennillo knew that this formality had not been complied with when the company proceeded to register the transfer of shares in its books and he was aware that he had not endorsed his share certificate when the shares were transferred to Rosati.  As he was aware of the situation of which he now complains more than three years later, his claim in that regard was prescribed.

 

Justices Moldaver agreed with Chief Justice McLachlin who wrote separate concurring reasons.  The Chief Justice held that the appeal could be disposed of on the basis that Mennillo had failed to show a reasonable expectation that he would not be removed as a shareholder from the corporation’s books given that he asked to be removed as a shareholder.  This is confirmed by the fact that Mennillo subsequently ceased to conduct himself as an equity shareholder and advance money to the corporation as a loan.  The trial judge’s findings of fact were supported by the evidence.

 

Justice Côté was the only dissenting judge.  She wrote a long and convoluted dissent which, at times, seemed to prefer form over substance.  She held that the fact that one shareholder claims he and his fellow shareholder entered into an agreement for the transfer of shares does not relieve the corporation of its legal (and somewhat artificial) duty to "make the necessary inquiries" before passing a resolution approving that transfer of shares and registering the transfer in its books.  She held that the CBCA imposes strict requirements be met before a transfer of shares is registered including that the security be endorsed and that the transfer be rightful.  The corporation’s failure to make such inquiries, in this case, was in itself a form of oppression.   

Regards,

Blair

 

Judge Orders Lawyer and Client Jailed For Contempt

Business Development Bank of Canada v. Cavalon Inc. 2016 ONSC 6825

                             

In this case, both a lawyer and his former client were ordered to serve 90 day custodial sentences after being found in contempt of an order of a judge of the Ontario Superior Court of Justice.    

 

These reasons arose out of the penalty phase of contempt proceedings.  In previous reasons, Justice Gray found Robert Bortolon (“Bortolon”) and his former lawyer, Robyrt Regan (“Regan”), in contempt of an order of Justice Lemay.  The context involved an application commenced by the Business Development Bank of Canada ("Bank").  Justice Gray found that Regan and Bortolon had made a deal under which a number of documents would be shipped to Bortolon rather than being made available for inspection by the Bank.  The order had required Regan to make those documents available to lawyers for the Bank for inspection. 

 

Justice Gray found that Bortolon and Regan agreed between them that if Bortolon settled a dispute with Regan, the lawyer would ship a number of incriminating documents to Bortolon.  Justice Gray found that the agreement had been carried out. 

 

At the penalty hearing, Bortolon argued that the court should be sensitive to his "feelings of injustice" in arriving at the appropriate penalty.  Bortolon fixed most of the responsibility on his former lawyer Regan.  He sought a non-custodial penalty. 

 

Regan filed material in which he took the position that he did not intentionally violate Justice LeMay’s order.  He said he was truly sorry for writing a letter that could be, and indeed was, misunderstood.  He was also sorry for doing something that appeared to bring the administration of justice into disrepute. 

 

Bortolon did not offer an apology.  Regan did, but it was couched in terms similar to his affidavit, i.e. that he was sorry that his conduct had the appearance of bringing the administration of justice into disrepute. 

 

Counsel for the Bank did not seek a penalty against either Bortolon or Regan.  Rather he sought an order striking the responding material and in effect granting default judgment in the Bank’s favour.   The Bank argued that as a result of the actions of Bortolon and Regan in concealing documents, it can no longer be assured of a fair hearing. 

 

Justice Gray agreed with the Bank.  He found that there could be "no doubt that highly relevant documents have disappeared" and would never be made available to the Bank.  The Bank would never be satisfied that it could obtain a fair hearing because of the actions of Regan and Bortolon.  Accordingly, this is an appropriate case to strike the responding material and to grant default judgment in favour of the Bank. 

 

The judge then looked at factors for the appropriate sanction for contempt.  He found that as to mitigating factors, he was not aware that either Bortolon or Regan had a criminal record.  There was no history of violating court orders.

 

An apology would ordinarily be a mitigating factor.  However, there was no apology from Bortolon and Regan’s apology was at best equivocal. 

 

A purging of contempt would ordinarily be a mitigating factor however neither party had purged their contempt.  As an aggravating factor he found it an affront to the administration of justice that parties believed that they could ignore a court order if there was a personal advantage in doing so.

 

In the circumstances, he found that only a custodial penalty would suffice.  He ordered that Bortolon and Regan both serve 90 days in custody.


I have been advised that the case is under appeal.

Regards,

Blair

 

Supreme Court Tosses Finding of Contempt Against Student Leader

The Supreme Court of Canada released this week its decision in a case overturning a ruling in which a court in Quebec had found a student leader guilty of contempt of court - Morasse v. Nadeau-Dubois 2016 SCC 44.

 The background goes back to the spring of 2012, when massive and sustained student protests took place in the province of Quebec over the issue of proposed increases in university tuition fees.  The increases were announced as part of the budget introduced by the provincial government.  Several student organizations which were opposed to the increases organized protests. 

 

The protests paralyzed several post-secondary institutions.  Classes at several institutions were cancelled.  Student organizations held votes declaring themselves to be “on strike”.  Picket lines were formed at several universities and CEGEPs.  Students and teachers were prevented from entering the buildings in which classes were to be held.  As a result, several injunctions were sought to resist these blockages and help ensure the continuation of the school year.

 

At the time, the defendant Gabriel Nadeau-Dubois, was the spokesperson for the Coalition large de L’Association pour une solidarite syndicaté etudiante (“CLASSE”).  CLASSE was one of the most active student organizations in Quebec.   It organized protests and picket lines in various post-secondary institutions. 

 

At the height of the protests, the plaintiff Jean-François Morasse was a student in his final year at Laval University’s Faculty of Planning, Architecture, Arts & Design.  Mr. Morasse was completing a certificate in visual arts. The Association des etudiants en arts plastiques de L’Universite Laval (“ASETAP”), the organization representing students in that program, held a strike vote and organized protests.  On February 29, 2012, picket lines were erected to block the entrance to the building where Mr. Morasse’s classes were held.  Mr. Morasse instituted civil proceedings against Laval University, ASETAP and another student organization and in April of 2012 obtained a provisional interlocutory injunction for a 10 day period.  The injunction mandated free access to the facilities in which classes for the visual arts program were held.  It also ordered all persons who were then boycotting classes to refrain from obstructing or otherwise blocking access to classes by way of intimidation or through other actions likely to have this effect.   

 

Mr. Morasse brought an application to renew the injunction after the initial 10 day period.  A judge of the Quebec Superior Court renewed the injunction through a safeguard order which was valid until September of 2012.  The judge’s order reaffirmed the prohibition to obstruct or otherwise prevent access to classes but made no specific reference to picketing generally.  Eleven days after the court renewed the injunction, in May of 2012, Mr. Nadeau-Dubois was interviewed by CBC’s French television news network after one CEGEP resumed its regular schedule of classes upon being ordered to do so by the Superior Court.  Appearing with him was Léo Bureau-Blouin, head of the Fédération etudiante collégiale du Québec, a coalition representing student unions of Quebec’s CEGEPs and private colleges.  The interview was broadcast live throughout the province.

 

After the interview, Mr. Morasse filed a motion for contempt against Mr. Nadeau-Dubois for his comments in the interview.  Mr. Morasse claimed that Mr. Nadeau-Dubois’ comments had violated a paragraph in the Superior Court’s May 2012 order relating to refraining from instructing or impeding access to classes by means of intimidation or from taking any action that could prevent or adversely affect access to the classes in question.  Mr. Nadeau-Dubois had stated during the interview that such attempts to force students back to class do not work, that a minority of students use the courts to circumvent the majorities collective decision to go on strike, and that picket lines are an entirely legitimate means to ensure respect of the vote to strike. 

 

Mr. Nadeau-Dubois was found guilty of contempt of court under an article of the Quebec Civil Code and sentenced to 120 hours of community service to be completed within six months under the supervision of a probation officer.

 

The Quebec Court of Appeal set aside the conviction and sentence and entered an acquittal. 

 

The matter was further appealed to the Supreme Court of Canada. 

 

The appeal was dismissed by the Supreme Court of Canada (6 – 3).  The majority decision was written jointly by Chief Justice McLachlin and Justice Abella.  Separate but concurring reasons were written by Justice Moldaver. 

 

Justices McLachlin and Abella held that what is at issue is whether a contempt charge brought by a private citizen against another individual, meets the strict procedural and substantive safeguards required by law to ensure that the liberty interest of those accused of contempt are fully protected.    

 

The power to find an individual guilty of contempt of court is an exceptional one.  It is an enforcement power of last resort and the only civil proceeding in Quebec that may result in a penalty of imprisonment.  Because of the potential impact on an individual’s liberty, the formalities for contempt proceedings must be strictly complied with.  The accused must be given clear, precise and unambiguous notice of a specific contempt offence and the elements required for a conviction must be proven beyond a reasonable doubt.  A conviction for contempt should only be entered where it is genuinely necessary to safeguard the administration of justice. 

 

The only allegations raised by Mr. Morasse against Mr. Nadeau-Dubois related to an alleged violation of one paragraph in an injunction order in the form of comments that Mr. Nadeau-Dubois had made in an interview.  Mr. Nadeau-Dubois was not given notice as to which specific branch of the Civil Code, if any, he was being charged under.  There was no evidence that Mr. Nadeau-Dubois had knowledge, either actual or inferred, of the order that the Superior Court had made.  Knowledge could not be imputed to Mr. Nadeau-Dubois on the basis of his comments during the interview, questions he was asked or the statements other student leader had made.  His endorsement of students picketing in general did not amount to an encouragement to use picket lines to block access to classes since the order did not prohibit picketing altogether.  Mr. Morasse’s failure to provide Mr. Nadeau-Dubois’ actual or inferred knowledge of the order was dispositive of the appeal. 

 

In his occurring reasons, Justice Moldaver held that in the television interview, Mr. Nadeau-Dubois intended to incite students at large to breach any and all court orders which enjoined the use of picket lines to block access to classes.  Had the case proceeded on that basis, his call to disobey at large would have included the injunction obtained by Mr. Morasse regardless of whether or not he had specific knowledge of it.  However, the issue at trial was whether Mr. Nadeau-Dubois breached this particular order.  The Quebec Court of Appeal had found correctly that the evidence did not support a finding that he had specific knowledge of the order that was in place and this was fatal to the finding of contempt.

 

The dissenting judges were Justices Wagner, Cote and Brown.  Justice Wagner wrote those reasons.  He held that the purpose of convictions for contempt of court, whether in a civil or criminal context is to maintain public confidence in the administration of justice and ensure the smooth functioning of the courts.  This power is exceptional and must be exercised only as a last resort.  Exercising it is nonetheless justified where a contempt conviction is necessary to protect the integrity of the justice system and ensure the systems credibility in the eyes of the public.

 

In this case, Mr. Nadeau-Dubois knew full well that the contempt charge he had to answer had been laid under two articles of the Civil Code as could be seen from statements made by Mr. Morasse’s counsel and other matters alleged by Mr. Morasse. 

 

Specific knowledge of an order is not essential for the purposes of the specific article under the Civil Code because actual personal knowledge can always be inferred from circumstantial evidence.  The inference must be reasonable given the evidence or absence of evidence, assessed logically and in the light of common sense and human experience.

 

The dissenting judges found that in this case a contextual analysis of Mr. Nadeau-Dubois’ words could lead to only one reasonable inference.  When considering the context of the entire interview, those words showed beyond a reasonable doubt that he knew of the existence, content and scope of the orders and that he incited students to breach them. 

 

Finally the dissenting judges held that the importance of freedom of expression and the protection of that freedom in a democratic society can never be overstated.  But one may not use the exercise of one’s freedom of expression as a pretext for inciting people to breach a court order.   

Regards,

Blair

 

Bernie Madoff's Frauds Continue To Reverberate Years Later

Seven years after Bernie Madoff was sentenced to 150 years in prison for frauds worth an estimated US$65 billion, the legal shockwaves from his disgraced empire continues to reverberate.  In a case that was recently decided by the Grand Court of the Cayman Islands, the court determined how the remaining value of a Cayman “feeder fund”, once part of the Madoff empire and now in official liquidation, should be distributed among its investors.

 

In this case, Herald and Primeo were open-ended investment funds.  They both placed funds for investment with a Madoff-related entity called BLMIS. 

 

In 2007, Primeo assigned the credit of its account with BLMIS to Herald in return for subscribing for shares in Herald.  The number of Herald shares provided to Primeo was based on the perceived value of Primeo’s account with BLMIS, which at that time was valued at US$466 million. 

 

In 2008, it was discovered that BLMIS was a Madoff run Ponzi scheme, with the consequence that every reported Net Asset Value (“NAV”) had been misstated, including the NAV used to calculate the value of Primeo’s consideration under its subscription with Herald. 

 

Herald was subsequently put into liquidation and its liquidator sought to determine how the remaining value in the fund should be distributed among its shareholders, including Primeo.  In particular, the liquidator was tasked with determining whether Primeo’s shareholding in Herald should be adjusted to reflect the fact that it had received a greater number of shares in Herald than it would have otherwise received if the actual value of its account with BLMIS had been known at the time of the subscription.  

The issues before the Cayman Court were:  (a) whether Herald’s share register should be rectified; and, (b) if so, on what basis should any rectification be performed.  

Under the applicable Cayman Islands Companies Law, the concept of rectification implied restoring the shareholder’s register to a position that accurately reflected the relative position of all shareholders as it would be if all subscriptions and redemptions had been transferred at a “true” NAV per share.  The court found that since every subscription and redemption of shares in Herald after the initial offering had occurred on the basis of a fraudulently misstated NAV, there could be no clearer case in which the power of the liquidator to rectify should be exercised.  The court held that any rectification needed to apply equally to all remaining shareholders.

 

There were several methods as to what basis rectification should be performed.  The liquidator submitted that the register should be rectified so that the net loss of subscription monies in Herald was borne rateably and that the remaining shareholders shared equitably in the pool of funds available for distribution. 

Two methods were proposed to achieve this:  (a) the net investment method – this method calculates each shareholder's economic interest on the basis of the amount of their total subscriptions, less any redemptions, as a percentage of the total surplus fund available for distribution; and  (b) the rising tide method – this method directly takes account of redemptions that have already been paid to investors in addition to the remaining value in the company.  It works by distributing remaining funds to shareholders according to the value each shareholder has already realized.

 

The Cayman Court found that both methods would create a result whereby Herald's shareholders would "share in the common misfortune of Madoff's fraud".  However, he concluded that the Companies Law prevented either method from being available.

Instead, the court held that the proper approach was to assign a constant “true” NAV for each and every subscription and redemption throughout Herald’s active life.  Since Herald’s NAV had been fraudulently misstated since its inception, the true NAV was held to be the initial offering price of the shares.  All NAVs after this date needed to be disregarded despite the value that may have actually been assigned (and paid) for shares at the time. 

 

The court directed the liquidator to recalculate each subscription and redemption of shares in Herald  at this constant “true” NAV and rectify the share register accordingly. 

Regards,

Blair

Supreme Court Unwilling to Reject Canada Labour Code's Unjust Dismissal Scheme

The Supreme Court of Canada recently released its decision Wilson v. Atomic Energy of Canada Ltd. 2016 SCC29.  This case involved the question of whether an  federally regulated employer could terminate the employment of a non-unionized employee without just cause.

 

In this case, the appellant Joseph Wilson worked for Atomic Energy of Canada Ltd. (“AECL”) for 4½ years until he was dismissed in November of 2009.  He had a clean disciplinary record.  Wilson filed an unjust dismissal complaint under the Canada Labour Code (the “Code”) claiming that his dismissal was in reprisal for having filed a complaint of improper procurement practices on the part of AECL.  AECL said Wilson was terminated on a non-cause basis and was provided with a generous dismissal package.

 

A labour adjudicator was appointed to hear the complaint.  AECL sought a preliminary ruling on whether a dismissal without cause, together with a severance package, meant that the dismissal was just.  The adjudicator concluded that an employer could not resort to severance payments, no matter how generous, to avoid a determination under the Code about whether the dismissal was unjust.  Because AECL did not rely on any cause to fire him, Wilson’s complaint was allowed. 

 

On appeal to the Federal Court of Canada, a judge found that the adjudicator’s decision was unreasonable because in his view nothing in the Code prevented employers from dismissing non-unionized employees without cause.   The Federal Court of Appeal agreed but reviewed the issue on a standard of correctness. 

 

The appeal was heard by the Supreme Court of Canada.  In a 6 to 3 decision, the court held that the appeal should be allowed and that the adjudicator’s decision should be restored. 

 

The 6 judges of the majority wrote three separate reasons for their decision. 

 

Justice Abella wrote that at common law, a non-unionized employee could be dismissed without cause if he or she was given reasonable notice or pay in lieu of notice.  However, in 1978, Parliament added a series of provisions to Part III of the Code, i.e. an "unjust dismissal" scheme which consisted of protections like those available to employees covered by a collective agreement and which applied to non-unionized employees who had completed 12 consecutive months of continuous employment.  A dismissed employee could ask the employer for a written statement setting out the reasons for the dismissal.  The employer was required to provide the statement within 15 days.  If an adjudicator determined that the dismissal was unjust, he or she had broad authority to grant an appropriate remedy including requiring the employer to pay the person compensation or to reinstate the person. 

 

Both Wilson and AECL accepted that the standard of review of the adjudicator’s reasons was “reasonableness” because he was interpreting a statute within his expertise.  Applying that standard, Justice Abella found that the adjudicator’s decision was reasonable and consistent with the approach overwhelmingly applied to the unjust dismissal sections of the Code since they were enacted.  It made no sense, as the Federal Court of Appeal had done, to attempt to “calibrate” reasonableness by applying a potentially indeterminate number of varying degrees of deference within it.  Such an approach unduly complicated an area of law in need of greater simplicity.

 

Justice Abella then provided what she called "general comments" on the need for greater simplicity with respect to the standards of review of the decisions of administrative bodies.  However, Justices McLachlin, Karakatsanis, Wagner and Gascon, held that although Justice Abella’s efforts to stimulate a discussion on how to clarify or simplify the standard of review jurisprudence was appreciated, it was unnecessary to endorse any particular proposal to redraw the current standard of review framework at this time. 

 

In separate reasons, Justice Cromwell agreed that the standard of review in the case was reasonableness and that the adjudicator’s decision was reasonable but held that reasonableness is a single standard and must be assessed in the context of the particular type of decision making involving all relevant factors.  He held that the standard of review jurisprudence does not need yet another overhaul and he disagreed with the approach developed by Justice Abella in obiter. 

 

Justices Moldaver, Cote and Brown dissented.   They held in a dissenting opinion written by Justice Moldaver, that in the specific context of this case, a correctness review was justified.

The respondent's case was valiantly argued by my colleagues Ronald Snyder and Eugene Derenyi.

Regards,

Blair

 

English Court Issues Stand-Alone "Notifcation Injunction"

On April 29, 2016, in the case of Holyoake v. Candy [2016] EWHC 970 (Ch), the England and Wales High Court granted that country's first stand-alone “notification injunction”.  Such an injunction requires a defendant to give notice to the plaintiff or claimant before disposing of or dealing with particular assets.  Previously, notification orders were given as ancillary remedies to freezing orders or Mareva injunctions.  However, in this case, Justice Nugee  of the High Court was willing to grant a notification injunction without the usual combined order preventing the defendants from actually dealing with those assets.

 

The underlying facts related to a loan made by CPC, a company controlled by wealthy English property developers, Nick and Christian Candy, to Mr. Holyoake.  Holyoake alleged an unlawful means conspiracy against CPC and its directors and complained that as a result of being compelled to enter into further disadvantageous agreements, he ultimately repaid over

£37 million to CPC in respect of an initial loan of £12 million.

 

Following concerns that CPC might dissipate assets in order to make enforcement of an order difficult, Holyoake and other claimants applied for a notification injunction.  They did not seek a full freezing (Mareva) injunction on the basis that they were “seeking no more relief than they considered reasonably necessary to protect their position”.  They argued that if they were notified that the defendants were about to enter into a transaction, they could consider at that stage whether to apply for a freezing injunction or to take other protective steps.

 

The judge found that the court did have jurisdiction to grant a stand-alone notification injunction and that the test for such an injunction was the same as a freezing injunction, namely the claimant must show a good arguable case and a risk of dissipation of assets.  Justice Nugee found that there was a good arguable case and gave guidance on the meaning, stating that it was “a case which is more than barely capable of serious argument, and yet not necessarily one which the judge believes to have better than 50 per cent chance of success”. 

In respect of the risk of dissipation of assets, the judge ruled that a claimant must be able to show that there are objective factors from which risk can be inferred.  In this regard, the judge took into account that CPC had an unusually complex and particularly opaque offshore corporate structure.  He also referred to two unexplained high value transactions which could be innocent but, in the absence of an explanation could also be instances of dissipation.  One was a transfer of property from Christian Candy to his wife and the other was a purchase of a £26 million yacht by Nick Candy for his wife.  All in all, these transactions together with CPC’s corporate structure meant, objectively there was a risk of dissipation.  The court granted the notification injunction.

 

English commentators are unsure as to how these stand-alone notification injunctions will be used in the future.  However, in applying for such an injunction, it is clear that the claimant will have to give an undertaking in damages i.e. undertake to the court to compensate the defendant if it is later found that the claimant was not entitled to the relief granted.  In a freezing order, the consequences of a wrongly made order can be extremely wide-ranging and financially disastrous.  However, the scope for serious damages in result of a wrongly made notification injunction is dramatically less serious.  Accordingly, many suggest that in circumstances where claimants are unable to pursue a freezing order due to their inability to give a cross undertaking, they should be able to successfully apply for a notification injunction.


Take note.  These stand-alone notification injunctions may be coming soon to a courthouse near you.

Regards,

Blair

SCC: World Bank Group has Immunity in SNC-Lavalin Corruption Trial

In a recent decision, the Supreme Court of Canada granted jurisdictional immunity to institutional members of the World Bank Group where Canadians had been charged under the Corruption of Foreign Public Officials Act (“CFPOA”) - see World Bank Group v. Wallace, 2016 SCC 15.

 

The court's decision was jointly written by Justices Moldaver and Cote.  The Supreme Court provided an introduction to its decision by stating that because corruption was a significant obstacle to international development,  worldwide cooperation was needed to fight corruption.  When international financial organizations, such as the World Bank Group, shared information gathered from informants across the world with the law enforcement agencies of its member states,  they achieved what neither could do on their own.  In consideration of this cooperation, member states often agreed to grant such international organizations immunities and privileges to preserve their independent operation. 

 

In this case, the World Bank Groups’ Integrity Vice Presidency (“INT”) investigated allegations that representatives of the Montreal based company SNC-Lavlin Inc. (“SNC-Lavlin”) were planning to bribe officials of the Government of Bangladesh to obtain a contract related to the construction of the Padma Multipurpose Bridge, a project valued at US$2.9 billion.  The World Bank Group shared some of the information from its investigation with the RCMP.  On the basis of this information and other information gathered by the RCMP, the Mounties obtained wiretap authorizations.  The RCMP charged, among others, former employees of SNC-Lavlin with offences under the CFPOA. 

 

The accused challenged the RCMP wiretap authorizations and applied for a third party production order to compel senior investigators of the World Bank Group to appear before a Canadian court to produce documents. 

 

Justice Nordheimer of the Ontario Superior Court of Justice granted the application.  The World Bank Group appealed that decision to the Supreme Court of Canada with leave.  The Supreme Court allowed the appeal on both issues which were argued before it.   

 

The World Bank Group is an international organization headquartered in Washington, D.C.  It is composed of five separate organizations.  Canada has ratified the Articles of Agreement and the conventions establishing the various member organizations of the World Bank Group. 

 

The World Bank Group provides loans, guarantees, credits and grants for development projects and programs in “developing” countries.  Of the US$2.9 billion cost for the Padma Bridge Project, the World Bank Group was to lend the Government of Bangladesh US1.2 billion.  SNC-Lavlin was one of several companies bidding for a contract to supervise the construction of the bridge.

 

The INT is responsible for investigating allegations of fraud, corruption and collusion, in relation to projects financed by the World Bank Group.  In 2010, the INT received the first of a series of emails suggesting that there was corruption in the process for awarding the project's supervision contract.  The tipsters alleged SNC-Lavlin employees were negotiating to pay a portion of the contract amount to Bangladeshi officials in exchange for favourable treatment.   

 

The INT contacted the RCMP and shared the tipsters’ emails, investigative reports and other documents with the RCMP.  The RCMP then sought a wiretap authorization to intercept private communications pursuant to the provisions of the Criminal Code.   The authorization was granted along with two further authorizations. 

 

As a result, several individuals were charged with offences under the CFPOA.  The World Bank Group cancelled its financing for the Padma Bridge Project and barred SNC-Lavlin from participating in World Bank Group-funded projects for 10 years. 

 

The accused sought to challenge the wiretap authorization and sought an order requiring production of certain INT records.  However, the Articles of Agreement provided that the two affected member organizations of the World Bank Group and their officers and employees would be immune from legal process with respect to acts performed by them in their official capacity. 

 

The two issues that were raised on the application were:

 

1. Whether the World Bank Group could be subject to a production order issued by a Canadian court given the immunities accorded to its members; and

 

2. If so, whether in the context of a challenge to the wiretap authorizations, the documents sought met the test for relevance.

 

At trial, Justice Nordheimer found that the World Bank Group had waived the immunities granted to it by participating in the RCMP investigation.  On the second issue, he concluded that the documents were likely relevant to issues that could arise on the production application and ordered that the documents be produced for review by the court.

 

The Supreme Court of Canada held that the Articles of Agreement provided the legal foundation for the World Bank Group's integrity regime and by extension the INT.  Accordingly, the immunities outlined in those Articles of Agreement shielded the documents and personnel of the INT.  The court held that that "immunity" should be given a broad interpretation.  It also held that any waiver of the immunity must be express, i.e. while personnel immunity can be waived, the object and purpose of the treaty favoured an express waiver requirement.

 

With respect to the issue of relevance of the documents sought to be produced, the Supreme Court held that Justice Nordheimer erred in that respect as well.  To obtain third party records in such an application, the accused must show a reasonable likelihood that the records will be of probative value to the narrow issues in play.  The “reasonable likelihood" threshold is appropriate to the context and fair to the accused.

 

In this case, although Justice Nordheimer correctly placed the burden on the accused, he did not properly assess the relevance of the documents being sought.  While the documents sought might be relevant to the ultimate truth of the investigation in the affidavits sworn by the RCMP, they were not reasonably likely to be of probative value to what the RCMP sergeant knew or ought to have known when he swore his information to obtain the wiretap authorization since he did not consult them.  

Regards,

Blair  

 

 

Court of Appeal: No Duty to Mitigate if Employment for Fixed Term

On April 8, 2016, the Ontario Court of Appeal affirmed that an employee whose employment is subject to a fixed term, is upon early termination of his employment, entitled to payment of an amount equal to his salary and benefits for the unexpired term of the contract, with no duty to mitigate.

 

In the case of Howard v. Benson Group Inc. 2016 ONCA 256 the Ontario Court of Appeal overturned the summary judgment decision of Justice Donald MacKenzie of the Superior Court of Justice.  Benson had employed Howard pursuant to the terms of a written employment agreement.  The agreement provided for a fixed five year term but also provided that Benson could terminate Howard’s employment at any time “in accordance with the terms and conditions of this agreement”.  Specifically, a paragraph of the agreement provided that upon termination, Howard would only be entitled to receive  amounts in accordance with the Employment Standards Act of Ontario. 

 

Accordingly, when Benson terminated Howard’s employment almost two years into the contract, it argued that its liability was limited to two weeks salary in lieu of notice.  The motion judge found that the clause was unenforceable due to ambiguity and awarded Benson common law damages for wrongful dismissal, subject to a duty to mitigate.

 

The Ontario Court of Appeal (Justices Cronk, Pepall and Miller) disagreed with the motion judge.  Justice Miller wrote the decision of the court.  Justice Miller held that the applicable standard of review in this case was one of correctness.  In other words, where the motion judge’s decision contained an "extricable question of law" it was reviewable on the correctness standard. 

 

Justice Miller held that where an employment agreement states unambiguously that the employment is for a fixed term it will oust the implied term of an agreement that reasonable notice must be given for termination without cause.  If the parties to such a fixed term contract do not specify a pre-determined notice period, the employee is entitled, on early termination, to the wages he would have received to the end of the term.  Justice Miller cited an Ontario Court of Appeal case called Bowes v. Goss Power Products Ltd. 2012 ONCA 425  for such authority. 

 

Because the impugned clause was void for uncertainty, Howard’s employment agreement unambiguously remained a fixed term contract. 

 

With respect to Howard’s duty to mitigate his damages, Justice Miller found that the leading case from the Ontario Court of Appeal was Bowes.  Bowes held that a contractually fixed term of notice is distinguishable from common law reasonable notice.  Where the agreement stipulates a fixed term of notice or payment in lieu, it should be treated as fixing liquidated damages or a contractual amount.  In such cases, there was no obligation on the employee to mitigate his damages.  Thus, the duty to mitigate does not apply to liquidated damages or contractual amounts.

 

The Court of Appeal allowed the appeal and remitted the matter to the motion judge for determination of the quantum of damages to which Howard was entitled.

Regards,

Blair

Ontario Court of Appeal: No Right to Require Proof of a Will in Solemn Form

In a decision released March 8, 2016 – Neuberger v. York, 2016 ONCA 191 – the Ontario Court of Appeal rejected the argument that Ontario's  Rules of Civil Procedure (“Rules”) give a person the right to require that a will be proved "in solemn form" before it is subject to probate. 

 

Chaim and Sara Neuberger had two daughters – Edie and Myra.  Chaim's long-standing intention was to provide for his daughters equally on his death.  Chaim died on September 25, 2012 at age 86.  Sara predeceased him.  He left a real estate empire estimated to be worth over $100 million.  Edie and Myra survived him.  Each daughter has adult children.

 

Chaim executed primary and secondary wills in 2004 and again in 2010.  Both sets of wills left his estate to his two daughters and their children.  However, the sets of wills differed in one significant way which allegedly resulted in Myra’s share exceeding Edie’s share by approximately $13 million.  As a result of this unequal sharing, which was contrary to Chaim's stated intention, Edie and her son Adam commenced separate actions challenging the 2010 wills. 

 

Justice Susan Greer of the Ontario Superior Court of Justice dismissed the will challenges on a motion on the basis that they were barred by the equitable doctrines of estoppel by representation and estoppel by convention.  Justice Greer held that Edie was estopped from challenging the validity of the 2010 wills because she delayed in bringing her challenge and had no reasonable explanation for the delay.  Justice Greer also held that the actions that Edie had taken as estate trustee and the prejudice that would ensue from having to unwind the estate freeze and that the respondents would suffer as having taken steps on the basis of the 2010 wills. 

 

Justice Greer also held that Adam should not be allowed to challenge the 2010 wills because he had no independent knowledge of the estate, its assets, previous wills and pertinent information about the estate planning nor did he have a close relationship with his grandfather or a real explanation as to why he left it so late to come forward.

 

The Court of Appeal (Justices Gillese, van Rensburg and Miller) disagreed with the conclusion reached by Justice Greer and allowed the appeal.  The decision of the Court of Appeal was written by Justice Gillese.

 

Justice Gillese examined the nature of the court’s role and jurisdiction in probate cases.  She accepted Justice Maurice Cullity’s explanation that the court’s jurisdiction in probate is inquisitorial.  In other words, the court does not simply adjudicate upon a dispute between the parties.  The court’s function and obligation is to ascertain and pronounce what documents constitute the testator’s last will and that are entitled to be admitted to probate.

 

Justice Gillese then looked at rules 74 and 75 of the Rules.  She held that subrule 75.06(3) plays an important role in contentious estate proceedings.  The subrule provides:  “any person who appears to have a financial interest in an estate may apply for directions, or move for directions in another proceeding under this rule, as to the procedure for bringing any matter before the court.” 

 

In addition, rule 75.01 provides:  “…any person appearing to have a financial interest in an estate may make an application under rule 75.06 to have a testamentary instrument that is being put forward as the last will of the deceased proved in such manner as the court directs.” 

 

Justice Gillese did not accept the proposition that as a general principle an interested person is entitled, as of right, to require that a will be proved in solemn form.  Rather the rule provides such a person the ability to make an application to have the will “proved in such manner as the court directs”.   The two rules read together provide that a court has discretion whether to order that a will be proved, as well as discretion over the manner in which the will is proved. 

 

In the Justice Gillese's  view, an “interested person” must meet some minimal evidentiary threshold before a court will accede to a request that a will be proved.  Otherwise, estates would be exposed to needless expense and litigation. She held that the correct approach was that the applicant must adduce "some evidence" which, if accepted, would call into question the validity of the will or testamentary instrument that was being propounded.

 

Justice Gillese accepted that some decisions have indicated that next of kin are entitled as of right to have the will proved in solemn form.  However, such cases are reflective of a presumption that applies in situations where no certificate of appointment of estate trustee has been issued, rather than a hard and fast rule. 

 

The Court of Appeal also rejected Justice Greer's reasoning dealing with the equitable doctrines of estoppel by representation and estoppel by convention.  Justice Greer had relied on three cases as authority for the power to invoke estoppel to bar the will challenge.  However, Justice Gillese held that one of the cases did not offer any authority or support for the notion that the doctrines applied to probate matters.  She found that there is nothing in the jurisprudence to support the extension of the equitable doctrines of estoppel by convention or representation to matters involving validity of a will.   

Regards,

Blair

Court of Appeal Rejects Lawyer's Application to Set Aside Fraudulent Misrepresentation Finding

In a recent decision - Meridian Credit Union Limited v. Ahmed Baig, 2016 ONCA 150  - the Ontario Court of Appeal affirmed a motion judge’s decision to grant summary judgment against the party who had made the motion despite the fact that the responding party had not made a cross-motion for judgment.  The court also upheld a finding by the motion judge that the defendant  was personally liable for fraudulent misrepresentation; failed to disturb the motion judge’s finding that the defendant could be held vicariously liable for his lawyer’s fraudulent misrepresentation; and refused leave of the lawyer, and his law firm, to introduce fresh evidence on appeal .  The court dismissed the lawyers' argument that they had a right to be heard and refused to set aside the findings of fraudulent misrepresentation the motion judge had made against them.

 

In this case, Meridian Credit Union Limited (“Meridian”) was a creditor in a court-appointed receivership.  The defendant, Ahmed Baig (“Baig”), agreed to purchase a building located on Bay Street in Toronto from the receiver for $6.2 million.  Unknown to the receiver and prior to closing, Baig agreed to resell the property to Yellowstone Property Consultants Corp. (“Yellowstone”) for $9 million.   The receiver claimed that had it known of this resale transaction, it would not have recommended that the court approve the sale to Baig.

 

Meridian subsequently discovered the resale transaction.  It had not recovered the full amount owing to it in the receivership.  The receiver assigned its cause of action against Baig to Meridian and Meridian then commenced an action against Baig for breach of contract and fraudulent misrepresentation.

 

The receiver had agreed to sell the property to Baig in trust for a corporation to be incorporated.  Before that transaction closed, Baig agreed to resell the property to Yellowstone.  Baig did not tell the receiver about the second agreement with Yellowstone.

 

Baig then retained the law firm of Miller Thomson to assist him with the transaction.  Peter Kiborn, who practiced law at Miller Thomson, acted for Baig in structuring the transaction.  Both Baig and Kiborn wanted to prevent the receiver from discovering the sale to Yellowstone because they believed that the $2.8 million difference in price would jeopardize court approval.  As a result, Kiborn informed the receiver that title was to be directed to Yellowstone on closing.   The receiver assumed that Yellowstone was Baig’s corporation incorporated for the purpose of the agreement.  Neither Baig or Kiborn,  or anyone else at Miller Thomson,  ever corrected that misunderstanding. 

 

At the summary judgment motion before Justice Frederick Myers of the Superior Court of Justice, Baig brought a motion for summary judgment dismissing Meridian’s claim.  Justice Myers dismissed that motion.  Instead he found Baig liable for fraudulent misrepresentation.  The Court of Appeal found that Justice Myers did not err by granting summary judgment against Baig.  Baig’s lawyers had submitted that all of the relevant evidence was before the court and had explicitly invited Justice Myers to render a decision in favour of either party.  Two recent decisions from the Court of Appeal make it clear that it is permissible for a motion judge to grant judgment in favour of the responding party even in the absence of a cross-motion for such relief. 

 

Justice Myers found Baig liable for two reasons.  He concluded Baig was liable for misrepresentations made by Miller Thomson – the documents delivered as part of the closing contained untrue statements.  Kiborn knew that these statements were false and he intended for the receiver to rely on them.  On the motion, Justice Myers noted a concession made by Baig’s lawyer, that Baig could be held liable for tortious misrepresentations made by his lawyers Miller Thomson.

 

Second, Justice Myers found Baig liable for his own personal conduct.  He held that Baig’s failure to correct the misimpression that Yellowstone was a corporation created by Baig amounted to a fraudulent misrepresentation.

 

Baig subsequently commenced an action against both Kiborn and Miller Thomson, claiming among other things, contribution and indemnity.  Miller Thomson and Kiborn obtained leave to intervene on the appeal.  In addition, they sought leave to introduce fresh evidence on the appeal.  The interveners sought to set aside the finding of Justice Myers that they had made fraudulent misrepresentations on the grounds that the motion judge breached the rules of natural justice and procedural fairness by making findings about them in their absence. 

 

The appeal was heard before Justices LaForme, Strathy and Huscroft.  The court’s decision was written by Justice LaForme.

 

The Court of Appeal dismissed Baig’s appeal and denied the interveners’ application for the following reasons.  The Court of Appeal reviewed the recent Supreme Court of Canada decision in Hyrniak v. Mauldin concerning proving civil fraud and noted that the record disclosed that Baig had engaged in actions that amounted to misrepresentation.  Both he and his counsel had actively concealed the agreement to sell to Yellowstone and had fraudulently misrepresented that Yellowstone was the corporation incorporated to close the sale with the receiver.  In certain circumstances, silence and half-truths can amount to a misrepresentation. 

 

At the appeal, Baig’s counsel attempted to withdraw his concession at the motion that Baig would be liable for any tortious misrepresentation made by his lawyers.  Justice LaForme found that it was inappropriate for Baig to withdraw such concession and argue for the first time on appeal that there was no basis for him to be held liable because he was protected by the corporate veil.  In any case, Justice LaForme found that Baig had made the fraudulent misrepresentations in his personal capacity.  Because that finding was upheld, Justice LaForme found it was not necessary to address whether Baig would be liable for his lawyers’ actions.

 

With respect to the interveners’ arguments, Justice LaForme denied their application to introduce fresh evidence on the appeal.  He held that the fresh evidence about why they did not intervene in the summary judgment motion was irrelevant to the issues raised and could not have affected the results of the motion. 

 

Justice LaForme also rejected the interveners’ argument that they had a right to be heard because Justice Myers had made adverse findings against them.  To the contrary, he held that they did not have a right to be heard or to receive notice.  As non-parties to the action, Miller Thomson and Kiborn were not directly impacted by the summary judgment order.  They were not bound by Justice Myers’ finding that they made fraudulent misrepresentations.  They were free to defend their reputations and argue in the action made against them by Baig that they never made fraudulent misrepresentations. 

 

Their main complaint was that Justice Myers’ publicly available reasons could damage their reputations.  Justice LaForme found that the authorities did not support the right in a civil action to notice of a non-party witness or to adduce evidence and make submissions whenever an adverse finding may be made.  Such procedural entitlements would impose too great a burden on the courts and threaten the finality of decisions.   Justice LaForme held that non-parties are limited to whatever procedural rights they have under the rules. 

 

Justice LaForme held that Miller Thomson and Kiborn were fully aware of the action and its potential impact on the claim against them.  In spite of this, they chose not to intervene, adopting a wait and see approach.  Now that a finding had been made with which they took issue, they believed that the finding should be set aside.  He held that non-parties should not be able to lurk in the shadows and then spring up to challenge a decision whenever the outcome or findings of fact may affect them in some manner they do not like.  

Regards,

Blair