Supreme Court Strikes Down Legislation Providing For Court Hearing Fees

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

 

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

 

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

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

Regards,

Blair

Court Disallows Executive's Golden Parachute Benefits

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

UBS appealed and McGoey cross-appealed.

 

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

 

Justice Hourigan wrote the decision of the Court of Appeal.

 

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

 

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

 

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

 

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

Regards,

Blair

Ontario Court of Appeal Stays Securities Class Action

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

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

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

Regards,

Blair

Ontario Securities Commission Rejects Insider Trading Allegations

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

 

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

 

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

 

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

 

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

 

Staff alleged that:

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

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

 

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

 

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

 

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

 

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

Regards,

Blair

 

 

Wal-Mart Ordered to Compensate Former Employee for Workplace Bullying

To state the obvious, there is no precedent until it is done for first time.  So said the Ontario Court of Appeal in confirming a record damage award against an individual employee in the case of Boucher v. Wal-Mart Canada Corp. 2014 ONCA 419.

 Meredith Boucher began working for Wal-Mart in 1999.  She was a good employee.  In 2008, Boucher was promoted to the position of assistant manager at a Wal-Mart store in Windsor, Ontario.   She reported to the store manager, Jason Pinnock. 

 

For health reasons, Wal-Mart is required to maintain temperature logs which record temperatures of food and dairy products stored in its coolers.  Boucher was responsible for ensuring the logs were maintained.

 

In May of 2009, Boucher went on a month long Wal-Mart course and another assistant manager assumed responsibility for maintaining the temperature logs.  However, that employee did not complete the logs.  When Boucher returned to the Windsor store at the end of her course, Pinnock told her that the incomplete log would negatively affect the store’s pending evaluation and in turn would negatively affect his own evaluation as store manager.  Pinnock told Boucher to falsify the log.  Boucher refused to do so.  Because she refused, Pinnock subjected Boucher to a disciplinary “coaching” session.   Subsequently, Pinnock became abusive towards Boucher.  He belittled, humiliated and demeaned her, continuously, often in front of co-workers. 

 

Wal-Mart holds itself out as a business that regards its employees highly.  It has a number of workplace policies intended to reflect its concern for its employees.  One such policy is Wal-Mart's open-door communication policy.  Wal-Mart encourages its employees to report on a confidential basis concerns about how its stores are operated or how its employees are treated. 

 

Wal-Mart also has a prevention of violence in the workplace policy.  It undertakes to take all employee reports of incidents seriously and to protect an employee making a complaint from acts of retaliation.  In addition, Wal-Mart has a harassment and discrimination policy.  The purpose of this policy is to protect employees from unwelcome conduct that offends a person’s feelings.  Wal-Mart, through its policies, requires all of its employees to treat each other with dignity and respect. 

 

Accordingly, Boucher complained about Pinnock’s conduct and his treatment of her to three senior management representatives of Wal-Mart.  The management team said they would investigate her concerns.  They also told her to report any new incidents of misconduct.  But they also cautioned Boucher that if her concerns were found to be unwarranted, she would be held accountable for raising them. 

 

Wal-Mart’s management team investigated Boucher’s complaints.  They told her that they found the complaints to be “unsubstantiated”.  They also told her that she would be held accountable for making these unsubstantiated complaints but they had not yet decided what discipline she would face.  Pinnock on the other hand was not disciplined for his conduct or even cautioned about it.  He was spoken to only about his use of inappropriate language.   

 

Here is a sampling of Pinnock’s conduct.  He repeatedly told Boucher in front of other employees how stupid she was and that her career was blowing up; he pounded his chest and said “let me know when you can’t fucking handle it anymore”; he berated Boucher in front of other managers and customers saying “this is a fucking shit show, look at this fucking mess”; he constantly called Boucher an idiot and stupid.

 

After the management investigation at the end of Boucher’ shift, Pinnock again berated her because 10 extra skids of product had not been unloaded.  Pinnock grabbed Boucher by the elbow in front of co-workers.  He told her to prove to him that she could count to 10.  He prompted her by initiating the count, then told her to count out loud along with him.  Boucher was so humiliated she left the store.  Boucher sent Wal-Mart an email advising that she did not intend to return to work until her complaints about Pinnock were resolved to her satisfaction.  They never were and Boucher never returned to work.  Boucher commenced an action for constructive dismissal and damages.

 

The Court of Appeal commented on Pinnock’s motives.  Pinnock had told other managers at the store that he would not stop harassing Boucher, “not until she fucking quits”.  He was overjoyed when she did so.

 

At trial the jury awarded damages against Pinnock of $100,000 for intentional infliction of mental suffering and punitive damages of $150,000. 

 

Against Wal-Mart, the jury awarded damages of $200,000 for aggravated damages and $1 million in punitive damages. 

 

Pinnock and Wal-Mart appealed to the Ontario Court of Appeal.  The Court of Appeal reduced the damages against both Pinnock and Walmart.  It found that the jury had reasonably found Pinnock liable for intentional infliction of mental suffering.  His conduct was flagrant  and outrageous.  He intended to produce the harm that eventually occurred and Boucher had suffered a visible and provable illness.  The damages award of $100,000 was high but not unreasonable.  However, the award of punitive damages against Pinnock should be reduced to $10,000.  An award of $150,000 was not required for the purposes of retribution, denunciation and deterrence. 

 

As for Wal-mart, the Court of Appeal held that the award of aggravated damages against Wal-Mart in the amount of $200,000 was not excessive and did not result in double recovery by Boucher.  While Pinnock’s misconduct brought about Boucher’s mental anguish, the unfair way Wal-Mart dealt with that misconduct brought about her constructive dismissal.  Wall-mart’s own conduct justified a separate and substantial award for aggravated damages.

 

The Court of Appeal found that the trial judge had erred in instructing the jury that the tort committed by Pinnock could be an actionable wrong by Wal-Mart that supported a finding of punitive damages against it.  However, the error was harmless as Wal-Mart had committed an actionable wrong that supported an award of punitive damages by breaching its duty of good faith and fair dealing towards Boucher.  In light of the compensatory damages awarded, an award of punitive damages in the amount of $1 million was not rationally required to punish Wal-Mart or to give effect to denunciation or deterrence.  The Court of Appeal reduced the punitive damages against Wal-Mart to $100,000. 

Regards,

Blair

 

The Value of Oaths -Telling the Truth for the Sake of the Truth

A few years into my litigation practice, a partner in the Toronto law firm where I worked asked me to conduct a trial for the brother-in-law of his legal assistant.  The brother-in-law, John, was an independent contractor whose contract had been terminated by a large corporation.  John sued the company, claiming that he was an employee rather than an independent contractor and thus was entitled to receive reasonable notice of the termination of his contract. 

At trial, John testified about the details of his relationship with the company.  After the briefest of deliberations, the judge gave oral reasons dismissing John's claim.  Looking down, disapprovingly at John, the judge said, "I find John's testimony to be quite phantasmagorical".

John looked at me, puzzled. 

"Blair," John asked, "What does that mean?" 

"It means that he doesn't believe you John," I answered.

John seemed relieved.  "Okay." was all he said.

In fact, I hadn't believed John either.  Although he had been under oath, John had not told the truth.  As a young lawyer, I quickly came to realize that taking an oath, or making an affirmation to tell the truth, did not always mean that a witness would do so.  I had discovered that witnesses would sometimes "bend" the truth to suit their purposes. 

I discussed the matter with a friend, a former associate who had left the firm to pursue a career in criminal law.  As circumstance would have it, my friend was writing an article on the subject of perjury.  "If I was the other lawyer," my friend said, "I would have charged John with perjury."  This time I was the one who was puzzled.  I knew that witnesses sometimes lied under oath.  In fact, as I gained more experience, I came to expect that someone involved in a proceeding – a party, a witness, perhaps even my own client, would lie under oath.  Despite that, very few people are prosecuted for perjury. I wondered if there was a connection. 

The Origins Of Oaths

If witnesses so casually ignore the importance of swearing an oath, why is it still a requirement in our judicial system?  As one judge put it, "Oaths and their substitutes are designed to emphasize the importance of telling the truth for religious or moral reasons – telling the truth for the sake of the truth."[1]  The difficulty appeared to be, is that people who have a motive to lie, will also lie under oath.  They might not necessarily tell the truth for the sake of the truth but they will certainly lie for the sake of their case. 

The challenge is that, in our adversarial system, oral testimony is the principal item of judicial evidence.  Such testimony is the statement of a witness in court which is offered as evidence of the truth of that which is stated.[2]  For many reasons, testimony was regarded as more reliable if it was supported by an oath. 

Oath-taking has a long history in judicial proceedings going back at least as far as 400 CE.  Twelfth century English courts held their judicial proceedings in the open air and upon the most significant hill in the area.  A local man of power and authority, such as the sheriff, would preside over the court but the largest local land owners were bound by custom to attend and be the "doomsmen" (judgment-men) of the court.  The sheriff took care of the procedures of the court and pronounced the overall sentence but the doomsmen were the participants who found the appropriate "doom" to fit the facts.  If the two litigants contradicted each other in fact, there was no capacity for holding a cross-examination and judging the worth of a witness statement.  In these circumstances, recourse would be to the supernatural to prove "by God" that one or the other was correct.  This proof took three forms:  (1) oaths and oath-helpers,  (2) ordeal; and  (3) trial by battle.[3] 

The Oath As A "Self-Curse"

Thus, the practice of administering an oath in judicial proceedings was rooted in the ancient concept of judicium dei, or divine judgment.  These forms of proof have been traced to a pre-religious, pre-animistic period of history where supernatural beings were unknown and people were believed to possess magical powers which could be invoked through an uttered curse.  In this form, the oath was a traditional self-curse which could be used as security for a promise.  A sworn witness who remained unharmed after testifying was presumed to have been adjudged by God to have spoken the truth.[4]

The Origin Of The Affirmation

An affirmation is a solemn declaration allowed to those who conscientiously object to taking an oath.  An affirmation has the same legal effect as an oath but is usually taken to avoid the religious implications of an oath.  The right to give an affirmation has existed in English law since the Quakers Act, 1695.  It has its origins in the refusal of Quakers to swear any oath, which would otherwise have barred them from holding many public positions.  Quakers believe in speaking the truth at all times, and so the act of only swearing to truth in court, rather than in everyday life, would have implied double standards.[5] 

The Oath In Civil Law Jurisdictions

The practice of administering oaths in judicial proceedings appears to be almost universal.  However, there are at least three systems of law which do not make use of oaths or affirmations namely, Chinese law, Slavic law and Swiss law.  In each of these jurisdictions, the absence of the oath is attributable in part to the absence of any ancient tradition of swearing oaths as a means of proof in itself. 

In Chinese law, the special significance of giving testimony is drawn to the witness's attention by utilizing the same method which is used in private law to emphasize the binding force of an agreement – the written form.  A Chinese witness is usually required to sign a bond or recognisance as to the veracity of his statements, either before or after giving evidence.  Before signing, he is instructed as to the obligations it entails and the punishment imposed for false testimony.  A witness who refuses to sign without good reason is also liable to a small fine.

In Switzerland, a trend towards abandonment towards the oath has also been accelerated by legislation – the Federal Law of Criminal Procedure has reduced the status of an exceptional measure.  The Federal Law of Civil Procedure, makes no mention of oaths at all, merely instructing the judge to admonish the witness as to his duty to tell the truth and as to the penalty of false testimony under the Penal Code.^[6] 

The present day take on Oaths – “ a lingering relic of primordial superstition and primitive mumbo jumbo"

Today, the rationale for swearing an oath to tell the truth is somewhat different:

The historic rationale was that the fear of divine retribution would focus one's mind and heart on telling the truth.  Today in our secular, modern, multi-cultural Canadian society, the fear of divine retribution may seem a quaint anachronism, if not a complete irrelevance.  The law however still recognizes the importance of an oath even if it is not directly tied to a belief in spiritual retribution.  Even in the absence of some religious significance, the solemnity of taking an oath still increases the witness' perception of the importance of telling the truth.[7]  

The present day purpose of oath-taking is to “bind the conscience” of the witness to tell the truth.^[8]  This purpose assumes, of course, that the witness has a conscience.  What about criminals and other notorious liars?  What use is it to administer an oath or an affirmation to a witness who has no (or little) conscience?

In 1993, the Supreme Court of Canada commented on the efficacy of oaths.  The Court was concerned about admitting into evidence, for the truth of their content, prior, unsworn statements that three witnesses had made to the police.  At issue were the "traditional hearsay dangers" including the absence of an oath or solemn affirmation when the statements were made.  The witnesses in the case were described thusly by the trial judge:

…those three witnesses were obviously and deliberately untruthful in their sworn evidence before me with respect to material matters.  Their account of how this fight occurred is not only at odds with the evidence of Steven Wright, Sean Dowling and in my opinion, Ruth Kazan (two independent witnesses), it is at odds with common sense.

…In my opinion, each of these three witnesses lied to me with respect to having lied to the police about what the accused said to them.  I have no doubt that their recantations are false.  That is that I have no doubt that on this point they were telling the police the truth as they knew it about what the accused said.  That finding is not necessarily the same as a finding that the accused made the admissions, but it is tantamount to that finding.[9]

Under the principled exception to the hearsay rule, prior inconsistent statements could be admissible if they met the governing principles of reliability and necessity.  The court held that there should be sufficient circumstantial guarantees of liability to allow a jury to make use of the statement, i.e. if the statement is made under oath, solemn affirmation or solemn declaration following an explicit warning to the witness as to the existence of severe criminal sanctions for the making of a false statement.  That way, the witness would be clearly made aware of the gravity of the situation and his duty to tell the truth.  The court held that while the oath will not motivate all witnesses to tell the truth, its administration may serve to impress on more honest witnesses the seriousness and significance of their statements, especially where they incriminate another person in a criminal investigation. 

However, the Court warned it is also clear that the sanction for lying under oath must be one that is a real threat to the witness.  Therein lies the challenge. 

Why are not more witnesses prosecuted for lying under oath?  Primarily for the simple reason that our courts and criminal justice system are presently overburdened and would possibly be under deluge if all witnesses who lied under oath were prosecuted. 

Some commentators have discounted the significance of the oath as a means of ensuring reliability for a statement".  A New Zealand commentator who had written that the oath is "no more than a lingering relic of primordial superstition and primitive mumbo jumbo".[10]  

The Future Of Oaths

Recently, in England, the Magistrates' Association, which represents magistrates in England and Wales, debated a motion to ask witnesses to promise to "very sincerely tell the truth" ( reminiscent of a Munchkins’ line in the Wizard of Oz ) but voted against the plan.  One magistrate's alternative oath would be to include an acknowledgement of the duty to tell the truth as follows:  "I understand that if I fail to do so, I will be committing an offence for which I will be punished and may be sent to prison."[11] 

Law reform commissions in various jurisdictions have considered the utility of oaths and affirmations.  The Canadian Task Force on Uniform Rules of Evidence has argued that the principles that apply to the competence of children should also apply to adults who take the oath:

The rationale of these cases is that in our modern secular age a witness need not profess a religious belief either in God or in future rewards and punishments.  (Children may not have formed religious beliefs)  The object of the law in requiring an oath is to get at the truth by obtaining a hold on the conscience of the witness.  [12]

Punishing Lying Under Oath

That motion was opposed by others who said that the way you stamp out lying under oath is to punish people who do so, not to get rid of the religious oath.[13]  So what of the threat of prosecution for perjury?

For a false statement made under oath to be considered perjury, it must be in regard to a material fact in the case.  Therefore, not all lying under oath will be considered perjury.  To be convicted of perjury, the prosecution must prove that the lying was intentional and that the witness intended to misrepresented the truth. 

Statistics in the United States show that perjury prosecutions are extremely rare, arising from both civil and criminal proceedings.  In 1996, the US Sentencing Commission indicated that in federal cases, only 86 of 42,436 convicted criminal defendants were found guilty of perjury, encouraging perjury or bribing a witness.[14] 

Prosecutors have had difficulty convicting some of the world's most notorious alleged liars.  For example, former baseball player, Roger Clemens, was acquitted in 2012 of, among other charges, two counts of perjury and three counts of making false statements when he testified at a deposition and a nationally televised hearing before the US Congress in 2008.  The charges centered on his repeated denials that he had used steroids and human growth hormone during his baseball career.  A seven year investigation into the major league baseball's homerun record holder, Barry Bonds, yielded a guilty verdict on one count of obstruction of justice in San Francisco, with the jury deadlocked on whether Bonds had lied to a grand jury when he denied knowingly taking performance enhancing drugs.[15] 

And perhaps the most notorious liar of all, Lance Armstrong, who lied for years as to whether he used performance enhancing drugs in winning his seven Tour de France titles, escaped prosecution for perjury because prosecutors conceded that Armstrong's intentional lying under oath was "probably too old".[16]  

As a result, realistically it is only the threat of prosecution, as unlikely a possibility that such a threat presents, that will serve as a deterrent to lying under oath.  Until prosecutors turn that threat into something that is less than hollow, an oath or affirmation will continue to rely on the moral conscience of the witness to tell the truth for the sake of the truth. 

Regards,

Blair

---

[1] Pomerance, J. in R. v. Carter and Dodd, 2012 ONSC 286, para. 16

[2] Cross on Evidence, 6^th Ed., Butterworth & Co. Ltd., at page 37

[3] English Legal History, wordpress.com April 28, 2013

[4] The Law Reform Commission - Ireland, Report on Oaths and Affirmation - 1990

[5] Wikipedia – Affirmation in Law

[6] The Law Reform Commission Report on Oaths and Affirmation, Ireland, 1990

[7] R. v. Nitsiza, 2001 NWTSC 34 at para. 8

[8] Ian McKenzie, The Truth, The Whole Truth and Nothing but the Truth, Slaw, March 5, 2012

[9] R. v. B (K.G.) 1993 1 SCR 740

[10] McKenzie, supra, footnote 8

[11] Robert Pigott BBC News, October 19, 2013

[12] Canadian Task Force on Uniform Rules of Evidence

[13] Pigott, supra, footnote 11

[14] Criminal Law Attorney – Criminal Law Lawyers Nationwide!!

[15] Joseph White, Associated Press Sports Writer, published The Toronto Star, June 18, 2012

[16] Mail Online, January 22, 2013

Supreme Court Limits Appeals from Commercial Arbitration Awards

One of the benefits of commercial arbitration is finality.  Parties to a commercial arbitration agreement have the ability to contract out of any appeal.   The giving up of appeal rights is one of the most significant factors that a party should consider when entering into an arbitration agreement.    Many provincial arbitration acts provide that a party to an arbitration agreement may appeal the decision of the arbitrator on a question of law only and that leave to appeal must be granted.  This supervisory role of the courts was recently tested in a case – Sattva Capital Corp. v. Creston Moly Corp. 2014 S.C.C. 53 – that went all the way to the Supreme Court of Canada.

 

In this case, Creston was obliged to pay a finder’s fee to Sattva as a result of Sattva introducing Creston to an opportunity to acquire a molybdenum mining property in Mexico.  According to the agreement, the finder’s fee of US$1.5 million would be paid in Creston shares.  The dispute between the parties concerned which date should be used to determine the price of the Creston shares and thus the number of shares to which Sattva was entitled.   Sattva argued that the share price was dictated by the market price definition in the agreement, i.e. the price of the shares “as calculated on close of business day before the issuance of the press release announcing the acquisition”.  Creston claimed that the agreement's “maximum amount” proviso meant that Sattva would receive shares on the date the fee was payable.  

 

The difference in interpretation amounted to approximately 9 million shares.

 

The parties entered into arbitration pursuant to the British Columbia Arbitration Act (“Act”).  The arbitrator found in favour of Sattva.  Creston sought leave to appeal the arbitrator’s decision pursuant to the appeal provisions of the Act.   Leave was denied by the BC Supreme Court.  Creston successfully appealed that decision and was granted leave to appeal the arbitrator’s decision by the BC Court of Appeal.  

 

A BC Supreme Court judge heard the appeal and upheld the arbitrator’s decision.  Creston again appealed that decision to the BC Court of Appeal which once again overturned the motion judge and found in favour of Creston.  Sattva appealed that decision and the Court of Appeal’s decision to grant leave to the Supreme Court of Canada.

 

The Supreme Court of Canada overturned both decisions of the BC Court of Appeal and restored the arbitrator’s award.  

 

Questions Answered By The Court

 

In reaching its decision the Supreme Court asked: when is contractual interpretation to be treated as a question of mixed fact and law and when should it be treated as a question of law?;  How is the balance between reviewability and finality of commercial arbitration awards under the Act to be determined?; and  Can findings made by a court granting leave to appeal with respect to the merits of an appeal bind the court that ultimately decides the appeal?

 

In answering these questions, the Supreme Court overturned its historical approach to contractual interpretation. 

The Court held that appeals from commercial arbitration decisions are narrowly circumscribed.  Under the relevant section of the Act, appeals are limited to questions of law, and leave to appeal is required if the parties do not consent to the appeal.  The court may grant leave if it determines that the result is important to the parties and the determination of the point of law may prevent a miscarriage of justice.

 

The Supreme Court held that the BC Court of Appeal had erred in finding that the construction of the finder’s fee agreement constituted a question of law.  The issue raised a question of mixed fact and law and therefore the Court of Appeal erred in granting leave to appeal.  

 

In reaching its decision, the Supreme Court said that the historical approach to contractual interpretation, according to which determining the legal rights and obligations of the parties under a written contract was considered a question of law should be abandoned.   It held that contractual interpretation involves issues of mixed fact and law because it is an exercise in which the principles of interpretation are applied to the words of the written contract, considered in light of the factual matrix of the contact.  

 

While it may be possible to identify an "extricable" question of law from the exercise, such circumstances will be rare.  The goal of contractual interpretation, which is to ascertain the objective intentions of the parties, is inherently fact specific.  Accordingly, courts should be cautious in identifying “extricable” questions of law in disputes over contractual interpretation.

 

Legal errors made in the course of contractual interpretation include the application of an incorrect principle, the failure to consider a required element of a legal test, or the failure to consider a relevant factor.  In this case, Creston’s application for leave to appeal did not raise a question of law. 

That finding in and of itself was sufficient to dispose of the appeal.  However, the Supreme Court continued with its analysis.

 

The Court also held that:

a)  In order to rise to the level of a miscarriage of justice for the purposes of the Act, an alleged legal error must pertain to a material issue in the dispute, which, if decided differently, would affect the result of the case.  According to this standard, a determination of a point of law “may prevent a miscarriage of justice” only where the appeal itself has some possibility of succeeding.  An appeal with no chance of success will not meet the threshold of “may prevent a miscarriage of justice” because there would be no chance that the outcome of the appeal would cause change in the final result of the case.

 

b)  At the leave stage, it was not appropriate to consider the full merits of the case and make a final determination regarding whether an error of law was made.  However, preliminary consideration of a question of law by the court granting leave is necessary to determine whether the appeal has the potential to succeed and thus to change the result in the case.  The Court held that the appropriate threshold for assessing the legal question is whether it has “arguable merit” meaning that the issue raised by the applicant cannot be dismissed by a preliminary examination of the question of law.

 

 Assessing whether the issue raised by an application for leave to appeal has arguable merit must be done in light of the standard of review in which the merits of the appeal will be judged.  The leave court’s assessment of the standard of review is only preliminary and does not bind the court which considers the merits of the appeal.

 

c)  The words “may grant leave” in the Act, confer on the court a residual discretion to deny leave even where the requirements of the Act are met.  However courts should exercise such discretion with caution.

 

d)  Appellate review of commercial arbitration awards is different from judicial review of a decision of a statutory tribunal, thus the standard of review framework developed for judicial review by the court in the case of Dunsmuir v. New Brunswick, 2008 S.C.C. 9 is not entirely applicable to the commercial arbitration context.   However, because judicial review is analogous in some respects to arbitral appeals, aspects of the Dunsmuir framework are helpful in determining the appropriate standard of review to apply in the case of commercial arbitration. 

 

In the context of commercial arbitration, where appeals are restricted to questions of law, the standard of review will be reasonableness unless the question is one that would attract the correctness standard, such as constitutional questions or questions of law of central importance to the legal system as a whole and outside the adjudicator’s expertise.  The question at issue here did not fall into one of those categories and therefore the standard of review in this case was reasonableness.

 

In this case, the arbitrator’s reasoning met the reasonable threshold of justifiability, transparency and intelligibility. 

 

e)  A court considering whether leave should be granted is not adjudicating the merits of the case.  It decides only whether the matter warrants granting leave, not whether the appeal will be successful, even where the determination of whether to grant leave involves a preliminary consideration of law at issue.  For this reason, comments by a leave court regarding the merits cannot bind or limit the powers of the court hearing the actual appeal.   

Regards,

Blair