US Supreme Court Says Service By Mail in Canada is Okay

Water Splash Inc. v. Menon, 2017 No. 16-254, Supreme Court of the United States 581 U. S. ___ (2017)

 

The plaintiff, Water Splash Inc., is a corporation that produces aquatic playground systems.  The defendant, Tara Menon, is a former employee of Water Splash.  In 2013, Water Splash sued Menon in State Court in Texas, alleging that she had begun working for a competitor while still employed by Water Splash. 

 

Menon resided in Canada.   As a result, Water Splash sought and obtained permission from the Texas court to effect service of its complaint on Menon by mail.  After Menon declined to answer or otherwise enter an appearance, the Texas court issued a default judgment in favour of Water Splash.  Menon moved to set aside the judgment on the ground that she had not been properly served, but the trial court denied her motion. 

 

Menon appealed, arguing that service by mail does not “comport with the requirements of the Hague Service Convention”.   A majority of the Texas Court of Appeals sided with Menon and held that the Convention prohibited service of process by mail.  One Justice dissented.  The Court of Appeals declined further review and the matter made its way to the US Supreme Court.

 

In an 8 – 0 decision, the court found in favour of Water Splash and vacated the judgment of the Court of Appeals.  The Supreme Court remanded the case back to the Texas Trial Court for further consideration. 

 

The court’s reasoning is as follows.

 

The primary innovation of the Convention is that it requires each state to establish a central authority to receive requests for service of documents from other countries.  When a central authority receives an appropriate request it must serve the documents or arrange for their service and then provide a certificate of service.  However, submitting a request to a central authority is not the only method of service approved by the Convention.  At issue in this case was Article 10 of the convention which reads as follows:

 

10. Provided the State of destination does not object, the present Convention shall not interfere with

(a) the freedom to send judicial documents by postal channels directly to persons abroad,

(b) the freedom of judicial officers, officials or other competent persons of the State of origin to effect service of judicial documents directly through the judicial officers, officials or other competent persons of the State of destination,

(c) the freedom of any person interested in a judicial proceeding to effect service of judicial documents directly through the judicial officers, officials or other competent persons of the State of destination.

 

Articles 10(b) and 10(c) address additional methods of service that are permitted by the Convention (unless the receiving state objects).  By contrast, Article 10(a) does not expressly refer to “service”.  The question in this case was whether, despite this difference, Article 10(a) encompassed sending documents for the purposes of service. 

 

The US Supreme Court found that it did.  The key word in Article 10(a) “send” is a broad term and there is no apparent reason why it would exclude the transmission of documents for the purpose of service.  The Convention’s preamble and Article 1, limit the scope of the Convention to service of documents abroad and its full title includes the phrase “service abroad”.  The US Supreme Court had also previously held that the scope of the Convention is limited to service of documents.  It would therefore be strange if Article 10(a) concerned something other than service of documents.  Indeed such a reading would render Article 10(a) superfluous.  Since Article 1 already eliminated the possibility that the Convention would apply to any communications that do not culminate in service, in order for Article 10(a) to make sense it must pertain to sending documents for the purpose of service.  If the drafters of the Convention wished to limit Article 10(a) to something else, they could have said so as they did in other Articles.

 

Secondly, the structural considerations of the Convention strongly suggests that Article 10(a) pertains to service of documents.  Reading the word “send” as a broad concept that includes, but is not limited to, service is probably more plausible than interpreting the word to exclude service.  Indeed, the French version of the Convention which is equally authentic uses the word “adresser” which has consistently been understood to mean service or notice. 

 

Thirdly, extratextual sources are especially helpful in ascertaining Article 10(a)’s meaning.  The Convention’s drafting history strongly suggests that the drafters understood that service by postal channels was permissible.  In the half century since the Convention was adopted, the Executive Branch of the United States has consistently maintained that the Convention allows service by mail.  Also, other signatories to the Convention have adopted Water Splash’s view.

 

Fourthly, the fact that Article 10(a) encompasses service by mail does not mean that it affirmatively authorizes such service.  Rather, service by mail is permissible if the receiving state has not objected to service by mail and if such service is authorized under otherwise applicable law.  Because the Texas Court of Appeals concluded that the Convention prohibited service by mail, it did not consider whether Texas law authorized the method of service used by Water Splash.  The US Supreme Court remanded that issue and any other remaining issues back to the trial court in Texas for consideration.

Regards,

Blair

 

Law Society Ordered to Pay $1.3 Million in Costs

Law Society of Upper Canada v. DeMerchant, 2017 ONLSTA 5

 

In this case, the Appeal Division of Ontario's Law Society Tribunal, ordered the Law Society of Upper Canada (“LSUC”) to pay $650,000 each to Beth DeMerchant and Darren Sukonick, two lawyers at Torys LLP who were successful in defending themselves against professional misconduct allegations brought by the LSUC.  The LSUC had alleged that the lawyers had acted in a conflict of interest while working on the sale of Conrad Black’s Hollinger Group of Companies.  Both lawyers have since retired from the practice of law.

 

The legal saga lasted 11 years and ended with the Appeal Division of the Tribunal finding that the hearing should never have taken the nearly 140 days that it took.  The Tribunal found the Law Society bore the lion’s share of responsibility for its length.  The LSUC’s definition of the issues, its approach to examination and its lack of focus on the legal test for conflicts of interest were the largest factors in a hearing whose time and costs were grossly disproportionate to the issues at stake.   In the end the Appeal Division found that approximately 110 hearing days were wasted and were not necessary. 

 

The LSUC first learned of an issue between Torys and Hollinger International Inc. from a Globe and Mail article in 2005.  It instituted an investigation into the lawyers' professional conduct.  The allegations included that the lawyers may have acted in a conflict of interest. 

 

In November of 2008, the LSUC concluded that there had been a conflict of interest which impacted the lawyers' ability to represent the legal interests of their clients.  The LSUC’s Proceeding Authorization Committee (“PAC”) then authorized an application for professional misconduct against the lawyers.

 

A hearing panel of the LSUC tribunal held that the proceedings were not unwarranted and that there was a significant public interest in the issues and that it was appropriate for the LSUC to conduct an investigation. 

 

These findings were overturned by the Appeal Division in part.   It held that there were multiple issues that both individually and combined warranted PAC’s decision to commence the application.  There was no evidence of bad faith nor was the application doomed to fail. 

 

However, the Appeal Division criticized the LSUC harshly on the conduct of the hearing. 

 

It held that typically allegations of conflict of interest would, if proven, likely have led to no more of a short suspension.  The LSUC attempted to prove that the lawyers’ conflict had manifested itself in misjudgments in their work for the corporations that resulted from preferences for the interests of executives of the corporations.  The theory of the LSUC's case was that the lawyers should have taken steps when working on the transactions to protect the public companies from exploitation by the executives.  These were serious allegations but importantly did not form part of the legal test for conflict of interest.

 

The hearing started on April 26, 2010 and completed on December 13, 2012, after nearly 140 days of hearing.  The hearing panel found that after the lawyers had presented their expert evidence about general practice in the corporate bar, the proceedings became unwarranted and the LSUC should have re-evaluated its case. 

 

On appeal, the Appeal Division found that continuing after the lawyers’ expert evidence was not the fundamental problem.  A valid legal theory of conflict of interest continued to exist but the problems with the case and how the LSUC conducted the hearings started long before that.

 

The Appeal Division found that the time taken by the LSUC to present its case was unprecedented in the history of LSUC discipline proceedings.  It began with a four day opening statement, conducted cross-examinations of the lawyers for more than 40 hearing days.  It found that the LSUC had acted unreasonably and caused costs to be wasted throughout the hearing by disregarding the need for the proceedings to be proportionate to the issues at stake in their seriousness; failing to focus its evidence in cross-examination on the test for conflict of interest; conducting argumentative cross-examinations of unprecedented length and detail that added little to the analysis and were not justified by the issues at stake in the case; and taking issue with detailed aspects of the lawyers’ work in a complex and specialized area of practice with no expert or other evidentiary support.

 

The tribunal held that it was important to explicitly acknowledge in its reasons the stress the proceedings had put on the lawyers given the pall that hung over their careers for longer than it should have, the months they spent in the hearing room dealing with these allegations and the evident strain of so many days on the witness stand under cross-examination. 

 

In addition, it found that the LSUC had wasted costs without reasonable cause throughout the hearing.  Its conduct at the hearing was entirely disproportionate to what was at stake.  The LSUC did not focus on the key elements of the test for conflict of interest.  Cross-examinations focused on unimportant details, were repetitive and argumentative.

 

In calculating the costs, the Appeal Division found that the lawyers should be awarded costs of approximately 110 hearing days.  Counsel representing the lawyers had practiced for over 20 years and the hourly rate for lawyers with that level of experience under the LSUC’s current tariff was $350.  This resulted in an award of $650,000 each (as opposed to the $1.8 million that they were seeking).   The LSUC also awarded the lawyers costs of the appeal of $17,500.

 

In March of 2017, the lawyers commenced an action against the LSUC claiming over $2 million in damages for misfeasance in public office, negligent investigation, abuse of process, malicious prosecution and libel.  There will be much to follow on this case.  

Regards,

Blair

 

Ecuadorean Villagers Continue Legal Battle Against Chevron

Yaiguaje v. Chevron Corporation 2017 ONSC 135 (CanLII)

 

The saga continues.  This case returned to the Ontario Superior Court of Justice for consideration after a hearing at the Supreme Court of Canada.  Forty-seven individual plaintiffs in this action, representing approximately 30,000 indigenous Ecuadorian villagers, are suing Chevron and Chevron Canada to attempt to enforce a  US$9.5 billion judgment.  The enforcement proceedings first came before the Ontario Court where a motions judge - Justice D.M. Brown (now on the Ontario Court of Appeal) - held that the Ontario Court had jurisdiction to recognize and enforce the Ecuadorian judgment but on his own motion stayed the proceedings.  The Ontario Court of Appeal over-ruled Justice Brown’s imposition of a discretionary stay but upheld his decision on the jurisdictional issue.  The Supreme Court of Canada upheld the decision of the Court of Appeal. 

 

The enforcement proceedings came back before Justice Hainey of the Ontario Court on two motions for summary judgment.  Chevron Canada moved for summary judgment against the plaintiffs and the plaintiffs moved for summary judgment against Chevron Canada.  In addition, the plaintiffs moved to strike the defences pleaded by Chevron in its statement of defence.  

 

The judgment arose out of a dispute involving the exploration of a region in Ecuador by the Texaco Oil Company between 1964 and 1992.  When the plaintiffs commenced proceeding in Ecuador in 2003, Texaco had then merged with Chevron.

 

In the Ontario action, the plaintiffs are seeking to enforce the Ecuadorian judgment of approximately US$9.5 billion made against Chevron against both Chevron and Chevron Canada.

 

Chevron is a Delaware company with its head office in California.  Chevron Canada is a seventh level indirect subsidiary of Chevron with its head office in Calgary, Alberta.  In the Ontario action the plaintiffs, in addition to seeking payment of the US$9.5 billion, are was also seeking a declaration that the shares of Chevron Canada are exigible to satisfy the Ecuadorian judgment and the appointment of an equitable receiver over the shares and assets of Chevron Canada.  Chevron Canada took the position that it had nothing to do with the Ecuadorian proceedings, was not a judgment debtor under the Ecuadorian judgment and therefore being a separate legal entity, should not be subject to enforcement proceedings in Ontario. 

 

Justice Hainey considered the following two issues:

 

1. Are the shares and assets of Chevron Canada exigible and available for execution and seizure pursuant to the Execution Act to satisfy the Ecuadorian judgment against Chevron; and

 

2. If not, should Chevron Canada’s corporate veil be pierced so that it’s shares and assets are available to satisfy the judgment?   

 

He held in favour of Chevron Canada with respect to both issues.

 

On the first issue, Justice Hainey found that Chevron Canada is not an asset of Chevron.  It is a separate legal person.  The Execution Act, which is a procedural statute, does not create any rights in property but merely provides for the seizure and sale of property in which a judgment debtor already has a right or interest.  It does not establish a cause of action against Chevron Canada.  Chevron Canada is not the judgment debtor under the Ecuadorian judgment and therefore the Execution Act does not apply to it with respect to that judgment. 

 

Justice Hainey accepted the argument of Chevron Canada that if the plaintiffs’ position was correct, the debts of individual shareholders could be enforced against the assets of any Ontario company.

 

With respect to the second issue and the piercing of the corporate veil, the plaintiffs argued that it would be an injustice to the indigenous people of Ecuador whose way of life had been ruined by Chevron’s polluting activities to declare the shares and assets of Chevron Canada separate from those of Chevron.  The plaintiffs argued that Chevron had total effective control over Chevron Canada and that ownership was not a corporate separateness issue once judgment was issued against a guilty party.  In this case the plaintiffs argued that the court should pierce the corporate veil because if it did not, it would yield a result “to flagrantly opposed to justice” in this situation.

 

However, Justice Hainey was not going to depart from over 100 years of well-established corporate law that held that Chevron and its indirect subsidiary, Chevron Canada, are separate legal entities with separate rights and obligations.

 

The principle of corporate separateness provides that shareholders of a corporation are not liable for the obligations of the corporation.  Assets of the corporation are owned exclusively by the corporation not by the shareholders and as a result Chevron did not have any legal or equitable interest in the assets of Chevron Canada. 

 

Justice Hainey held that the proper approach to piercing the corporate veil was enunciated in the Trans-America Life Insurance v. Canada Life Assurance case by the Ontario Court of  Appeal in 1997.  In that case, Justice Sharpe held that there were two requirements before the corporate veil would be pierced:

1. There must be complete control or domination by the parent over the subsidiary so that the subsidiary does not in fact function independently; and
    
2. There must be conduct akin to fraud that would otherwise unjustly deprive claimants of their rights.

 

Justice Hainey held that the admission by the plaintiffs that Chevron Canada had itself done nothing wrong was fatal to their claim. Accordingly, he granted summary judgment against the plaintiff and dismissed their claim against Chevron Canada.

 

There was divided success on the second part of the motion, i.e. the plaintiffs’ motion to strike Chevron’s statement of defence in its entirety.

 

The plaintiffs’ motion was brought under subrule 21.01(12)(b) of the Rules of Civil Procedure.  The plaintiff alleged that Chevron’s entire statement of defence should be struck because it raised defences that had no reasonable prospect of success in an action to enforce a foreign judgment in Ontario pursuant to the Supreme Court of Canada’s decision in Beals v. Saldanha.

 

Chevron’s statement of defence raised a number of defences but primarily the following.

 

1. The Ecuador court did not have jurisdiction over it;
2. The Ecuador judgment was based on a law that was applied in a retroactive manner;
3. Chevron was denied standards of fairness and natural justice in Ecuador;
4. The Ecuador judgment was obtained by fraud (as found by a District Court judge in New York);
5. Recognition and enforcement of the Ecuador judgment would constitute a violation of the obligations of Ecuador under international law; and
6. All of the above offended Canadian standards of natural justice and public policy for the recognition and enforcement of foreign judgments.

 

Justice Hainey held that the issue he needed to decide was whether it was "plain and obvious" that the defences raised by Chevron had no chance of success because they were not permitted defences to an action to recognize and enforce a foreign judgment in accordance with the Supreme Court of Canada’s decision in Beals.  

 

In Beals, the SCC held that the defences of fraud, public policy and lack of natural justice are available defences. 

 

Accordingly, insofar as Chevron had raised the defence that the Ecuador judgment was obtained by fraud, that portion of the statement of defence was allowed to stand. 

 

Interestingly, Justice Hainey did not strike the portion of Chevron’s statement of defence that pleaded that the Ecuador court did not have jurisdiction over it for reasons other than judicial corruption and bias, i.e. that it never attorned to the jurisdiction of the court, that it never conducted any business in Ecuador and that there is no real and substantial connection between Chevron Canada and Ecuador.  It seems to the writer that those defences could have, and should have been raised, in Ecuador and cannot be re-litigated here in Ontario. 

 

Where Chevron pleaded matters concerning the retroactive applicable of the law and that recognizing and enforcing the Ecuadorian judgment would constitute a violation under international law, Justice Hainey found that it was plain and obvious that these defences did not fall under the narrow Beals exception and could be struck. 

The plaintiffs have indicated that the will appeal this decision to the Ontario Court of Appeal.  

Regards,

Blair

 

Court of Appeal Upholds Substantial Damage Award Against Durham Police

In a decision released this week - Nissen v. Durham Regional Police Services Board, 2017 ONCA 10  - the Court of Appeal for Ontario upheld a trial decision which awarded a woman substantial damages for "emotional and psychological injury"  against the Durham Police Force for what she pleaded was “breach of informer privilege”.   

 

The plaintiff lived with her husband and two children on a quiet street in Whitby, Ontario.  On occasion, the plaintiff asked the teenaged son of one of her neighbours to babysit her children.  One day when the plaintiff asked another neighbour to babysit, her usual babysitter became angry.  The plaintiff was disturbed by what she regarded as his irrational and frightening behaviour.  The plaintiff subsequently learned from another neighbour that the babysitter had broken into the neighbour’s home, stolen guns, and with his brother had taken the guns to school and threatened students.   

 

The plaintiff decided that she would inform the police but did not wish to have her name associated with any investigation.  She was put in touch with Officer Liepsig of the Durham Regional Police.  Officer Liepsig offered to come to her home.  The plaintiff told him that she felt unsafe as the people that they were going to talk about lived across the street.  The plaintiff emphasized to Officer Liepsig that she did not wish to be identified because she was frightened of the babysitter and his brother.  Officer Liepsig promised her that her identity would not be disclosed.  The officer told her that if she came to the police station to discuss the matter he would keep her identity secret and she would remain totally anonymous. 

 

The plaintiff was given further assurances of confidentiality when she attended at the police station.  Officer Liepsig took notes but did not disclose to the plaintiff that the interview was being recorded on videotape. 

 

After the interview, the babysitter and his brother were arrested.  Officer Liepsig was reassigned and the task of preparing the Crown brief was assigned to other officers who were unaware that the plaintiff had been given any assurance of confidentiality.  The plaintiff later learned that her identity and her videotaped interview had been included in the Crown’s disclosure to the accused’s lawyers.  This disclosure provoked an angry reaction from the parents of the accused.  The plaintiff testified that the father of the accused drove his truck at her causing her to leap from the sidewalk and onto the grass behind a tree to avoid being hit by the truck. 

 

The plaintiff immediately called Officer Liepsig to report the incident and to express her concern that a mistake had been made and that her identity had been disclosed but he did not return her call.  The plaintiff’s husband spoke to the father of the accused who expressed his anger and intention to “pay the plaintiff back” for having gone to the police.  Other members of the police followed up, but not in a meaningful way.

 

The plaintiff and her husband testified that following the truck incident, both parents of the accused subjected them to on-going harassment.  The harassment became unbearable and ultimately the plaintiff and her husband decided to sell their home and move.   

 

The plaintiff complained of feeling hopeless and depressed following these events and has been diagnosed with post-traumatic stress disorder.  A psychiatrist gave evidence of the significant change in her behaviour and enjoyment of life that she had provided to her family.

 

At trial, the judge found that the police owed a common law duty not to disclose the identity of an informer and that even if the duty was not absolute, reasonable care had not been taken in the circumstances.   He awarded the plaintiff general damages for emotional and psychological injury as a result of the post-traumatic stress disorder.  He found that the failure of the police to act after they learned of the neighbours’ harassing behaviour was an aggravating factor.  The trial judge fixed the general damages at $345,000.  He also awarded Family Law Act damages for loss of guidance, care and companionship in the amount of $65,000 to the plaintiff’s husband and $25,000 to each child.

 

The Police Board appealed to the Ontario Court of Appeal. 

 

The Court of Appeal held that the trial judge’s finding that Officer Liepsig had promised confidentiality to the plaintiff was supported by the evidence, attracted deference and there was no basis to overturn it.

 

As to the issue of damages, the Court of Appeal held that, in its view, the case could and should be decided as a civil claim for damages for breach of confidence.  The fundamental point was that, on the findings of the trial judge, Officer Liepsig had made a promise of confidentiality and anonymity to the plaintiff in exchange for the information that she provided.  The trial judge found that the promise was breached and that the plaintiff had suffered damages as a result.  Those findings brought the case squarely within the long-recognized cause of action for breach of confidence and the plaintiff was accordingly entitled to recover on that basis.   

 

The police had argued that the case did not meet the requirements for breach of a duty of informer privilege in criminal law.  However, the Court of Appeal held that there was no reason to qualify the right to sue for breach of confidence by adding additional elements that would take the case into a criminal law regime.  To do so would put an ordinary citizen interacting with the police in an impossible situation.  The plaintiff had no way of determining whether the police could obtain the information she was offering from another source.  Nor did she have any way of gauging what the police considered to be the risk of harm she faced should her identify be disclosed.  She explained her fear of harm to Officer Liepsig and that fear ultimately proved to be well-founded.  She was entitled to rely on Officer Liepsig’s promise of confidentiality in exchange for her cooperation in giving him the information.

 

The court disagreed with the submissions made by the police that the trial judge had made reference to awards made in cases that were not analogous; that the plaintiff suffered from a pre-existing condition, i.e. that she had already experienced anxiety and distress before her identity was revealed; and that the trial judge should not have awarded aggravated damages.   The court held that it was open to the trial judge to find that the failure of the police to take any meaningful steps to protect the plaintiff and her family from the harm they were suffering as a result of the wrongful disclosure of her identity did aggravate the damage she suffered.  The police had promised the plaintiff confidentiality in order to gain her cooperation.  Their duty to her did not cease once they had broken that promise.   The promise they made as police officers included a duty to protect the plaintiff from the consequences of wrongful disclosure.

Regards,

Blair  

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