SCC Clarifies Test For Civil Fraud

Albert Bruno was the principal of an American company called Bruno Appliance and Furniture, Inc.  In late 2001, Bruno met with Robert Cranston, the principal of a Panamanian company, Frontline Investments Inc.  As a result of those meetings, Bruno signed a number of investment documents in favour of Frontline.

 

In February of 2002, Bruno met with Cranston and Gregory Pebbles, a lawyer at the Toronto offices of Cassels Brock and Blackwell.  Robert Hryniak did not attend this meeting.  However, Hryniak's company, Tropos Financial Corp., received and paid a bill for Pebbles'  attendance. 

 

In early March of 2002, Bruno Appliance wired US$1 million to Cassels Brock who assigned the funds to an account associated with its client, Hyrniak's company, Tropos.  Bruno Appliance's funds were then "bundled" with other funds totalling US$3.5 million and paid to Tropos in a bank draft.  At the end of April 2002, Tropos paid US$2.5 million to a company called Southern Equity Investors Inc. and in June 2002, Tropos transferred approximately US$550,000 to an individual named Reinhard.  By the end of September 2003, the balance in Cassels Brock's  Tropos account had dwindled to US$19,000. 

 

Bruno Appliance's money was not invested and it never received a return on its investment. 

 

Bruno Appliance joined with other plaintiffs in a civil fraud action against Hryniak, Peebles and Cassels Brock.  The plaintiffs brought motions for summary judgment.  The motion judge found that Bruno Appliance had established its claim against Hryniak.  He found that despite his absence from the early meeting, Hryniak knew that the meeting was occurring and that his company Tropos paid for Pebbles' attendance.  The motion judge found that Hryniak was aware that US$1 million was placed in the Tropos account and that he gave instructions regarding those funds. 

 

On appeal to the Ontario Court of Appeal, the court allowed Hyrniak's appeal and held that there were two genuine issues that required a trial:  whether Hryniak induced Bruno Appliance to invest; and whether some of the funds were misappropriated by Cranston rather than Hryniak.

 

The Court of Appeal also found that the motion judge failed to address the issue of whether Hryniak knowingly made any misrepresentation that induced Bruno Appliance to invest, a necessary element of fraud. 

 

The Court of Appeal ordered that the Bruno Appliance action proceed to trial.  The plaintiff further appealed to the Supreme Court of Canada.

 

The Supreme Court of Canada dismissed the plaintiff's appeal and ordered that the action proceed to trial.  

 

At the Supreme Court the parties disagreed as to the elements of the tort of civil fraud, in particular whether proof was required that Hryniak induced Bruno Appliance to invest its money.  The judgment of the court was delivered by Justice Karakatsanis.  

 

The Supreme Court held that a classic statement of the elements of civil fraud stems from an 1889 decision of the British House of Lords, Derry v. Peek: 

 

First in order to sustain an action of deceit, there must be proof of fraud, and nothing short of that will suffice.  Secondly, fraud is approved when it is shewn that a false representation has been made (1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless whether it be true or false... Thirdly, if fraud be proved, the motive of the guilty person of it is material.  It matters not that there was no intention to cheat or injure the person to whom the statement was made.

Since that statement was made, the Supreme Court of Canada has added two additional requirements - the false statement must actually induce the plaintiff to act upon it and proof of loss is required.

 

Accordingly, Justice Karakatsanis summarized the following four elements of the tort of civil fraud:  (1)  a false representation made by the defendant; (2)  some level of knowledge of the falsehood of the representation on the part of the defendant (whether through actual knowledge or recklessness); (3)  the false representation caused the plaintiff to act; and (4)  the plaintiff's actions resulted in a loss.

 

In dismissing the appeal, the SCC found that there was a genuine issue requiring a trial.  Civil fraud required a finding that Hryniak made a misrepresentation which induced Bruno Appliance to invest.  The motion judge did not identify the need for a misrepresentation and did not find that Hryniak had made one.  Since Hryniak was not present at the important meeting, he could only be liable for any misrepresentations made by Peebles or Cranston if their statements could be attributed to him.  However, the Court of Appeal considered and rejected the possibility that Pebbles or Cranston was acting as Hryniak's agent. 

 

While the motion judge found that the evidence clearly demonstrated that Hryniak was aware of the fraud and may have in fact benefited from the fraud, whether Hryniak perpetrated the fraud by inducing Bruno Appliance to contribute the US$1 million to a non-existent scheme was a genuine issue that required a trial. 

 

Regards,

 

Blair

Supreme Court Rejects Prime Minister's Appointment

In a rebuke to Canada's Prime Minister, the Supreme Court of Canada ruled that his attempt to appoint a judge from the Federal Court of Appeal to the country's highest court was unconstitutional.  

 

On September 30, 2013, Stephen Harper, the Prime Minister of Canada, announced the nomination of Justice Marc Nadon, a supernumerary judge of the Federal Court of Appeal to the Supreme Court of Canada.  On October 3, 2013, Justice Nadon was named as a judge of the Supreme Court of Canada by Order in Council.  He replaced Justice Morris Fish as one of the three judges appointed from Quebec pursuant to section 6 of the Supreme Court Act ("Act").   He was sworn in as a member of the court on the morning of October 7, 2013. 

 

On the same day, Justice Nadon's appointment to the SCC was challenged by Rocco Galati, a Toronto lawyer.  Mr. Galati brought an application before the Federal Court of Canada arguing that the Act does not permit Federal Court judges to be appointed to the SCC.  As a result of Mr. Galati's legal challenge, Justice Nadon decided not to participate in any cases that were before the SCC. 

 

In an attempt to confirm its choice of Justice Nadon and cut short Mr. Galati's challenge, the government referred two questions to the Supreme Court for hearing and consideration :

 

1.    Can a person who was, at any time, an advocate of at least 10 years standing at the Barreau du Quebec (Quebec Bar) be appointed to the Supreme Court of Canada as a member of the Supreme Court from Quebec pursuant to sections 5 and 6 of the Act?  (Justice Nadon was a former advocate of the Quebec bar.)

 

2.    Can Parliament enact legislation that requires that a person be or has previously been a barrister or advocate of at least 10 years standing at the bar of a province as a condition of appointment of a judge of the Supreme Court of Canada or enact the annexed declaratory provisions as set out in clauses 471 and 472 of the Bill entitled "Economic Action Plan 2013 Act, No. 2"?  (This was the government's omnibus budget bill.)

 

On the same day that the government referred these two questions to the court, it introduced Bill C-4, Economic Action Plan 2013 Act, No. 2 ("Bill C-4") into the House of Commons.  Clauses 471 and 472 of Bill C-4 proposed to amend the Act by adding sections 5.1 and 6.1.  These provisions were subsequently passed and received Royal Assent on December 12, 2013.  The new provisions were designed to clear the way for Justice Nadon's appointment. 

 

Section 5 of the Act reads:  "Any person may be appointed a judge who is or has been a judge of a Superior Court of a province or a barrister or advocate of at least 10 years standing at the bar of a province." 

 

Section 5.1, added by Bill C-4, reads:  "For greater certainty, for the purpose of section 5, a person may be appointed a judge if at any time, they were a barrister or advocate of at least 10 years standing at the bar of a province."

 

Section 6 of the Act reads:  "At least three of the judges shall be appointed from among the judges of the Court of Appeal or of the Superior Court of the Province of Quebec or from among the advocates of that Province ."

 

Section 6.1, added by Bill C-4, reads:  "For greater certainty, for the purpose of section 6, a judge is from among the advocates of the Province of Quebec if, at any time, they were an advocate of at least 10 years standing at the bar of that Province."

 

Seven judges of the Supreme Court of Canada heard this reference.  

 

In a six to one decision (Justice Moldaver dissenting), the Supreme Court answered the first question in the negative and determined that Justice Nadon did not meet the criteria set out in sections 5 and 6 of the Act and was therefore ineligible to join them on the Supreme Court of Canada.  

 

The Court answered the second question in the negative with respect to the three seats on the court reserved for Quebec and held that Parliament could not enact legislation to make Justice Nadon eligible without the unanimous consent of Parliament and the provincial legislatures because to do so amounted to a amendment to the Constitution Act, 1982.

 

The majority decision, written by all the majority justices, held that reading section 5 and section 6 of the Act together, means that the pool of eligible candidates from the four groups of people that are eligible under section 5 are narrowed by section 6 to two groups, i.e. current members of the Quebec bar or current judges of the courts of Quebec.  The plain meaning of section 6 has remained consistent since the original version of that provision was enacted in 1875 and it has always excluded former advocates.  By specifying that three judges shall be appointed "from among" the judges and advocates of the identified institutions impliedly excludes former members of those institutions and imposes a requirement of current membership.  Reading sections 5 and 6 together, the requirement of at least 10 years standing at the bar applied to appointments from Quebec.  

 

The Court held that this analysis is consistent with the underlying purpose of section 6 and reflects the historical compromise that led to the creation of the Supreme Court as a general court of appeal for Canada and as a federal and bijural institution.   Section 6 seeks to ensure civil law expertise and the representation of Quebec's legal traditions and social values on the Court and to enhance the confidence of Quebec in the Court.  

 

Accordingly, Justice Nadon, as a former but not current advocate, was not eligible.

 

With respect to the second question, the justices held that Parliament's unilateral power to provide for a general court of appeal for Canada found in section 101 of the Constitution Act, 1867, has being overtaken by the Supreme Court's evolution in the structure of the Constitution as recognized in Part V of the Constitution Act, 1982.   The Court's constitutional status arose from its historical evolution into an institution whose continued existence and functioning engaged the interests of both Parliament and the provinces.  As a result, Parliament is now required to maintain the essence of what enables the Supreme Court to perform its current role.  While Parliament has the authority to enact amendments necessary for the continued maintenance of the Court, it cannot unilaterally modify the composition or other essential features of the Court.  

 

Part V of the Constitution Act, 1982, expressly makes changes to the Supreme Court and to its composition subject to constitutional amending procedures.  Accordingly, such changes require the unanimous consent of Parliament and the provincial legislatures.  Any substantive change in relation to the court's eligibility requirements is an amendment to the Constitution in relation to the composition of the Supreme Court and triggers the application of Part V.  Accordingly, section 6.1 of the government's omnibus Economic Act was unconstitutional of Parliament since it substantively changed the eligibility requirements for appointments to the Quebec seats on the court under section 6.  The court found however, that section 5.1 does not alter the law as it existed in 1982 and was therefore validly enacted under the Constitution Act, although it is redundant.  

 

Despite this decision, the government has indicated that it hasn't ruled out re-appointing Justice Nadon to the Court.

 

Regards,

 

Blair

Court Breathes New Life Into Summary Judgment Process

For many years, Ontario litigation counsel cautioned their clients against making motions for summary judgment, even when they believed that the client's case was strong, because of the expense, delay and uncertainty inherent in making such motions.  Under Ontario's Rules of Civil Procedure, summary judgment was available where the court was satisfied that there was no genuine issue requiring a trial.  However, issues of credibility were often viewed by motion judges as "genuine" issues that required a trial to resolve.  In addition, motion judges had limited fact finding powers.

 

In 2010, the summary judgment rule was amended based on the recommendations of former Associate Chief Justice Coulter Osborne.  The new rules gave a judge hearing a motion for summary judgment the powers to weigh evidence, evaluate the credibility of a witness and to draw inferences from the evidence.  In the Combined Air Mechanical Services Inc. v. Flesch, 2011 ONCA764, a five judge panel of the Ontario Court of Appeal explained the effect of the 2010 amendments and adopted a new "full appreciation test" that judges should use to decide whether a trial was required.  Under this test, the motion's judge must assess whether a trial was necessary to enable the court to fully appreciate the evidence and issued posed by the case.  The Court of Appeal held that summary judgment should be granted only where the benefits of the trial process are not required to achieve a "full appreciation" of the evidence.  

 

While the Court of Appeal meant to be helpful in articulating the "full appreciation test", motion judges were still reluctant to grant summary judgment in cases where they considered that a trial would ensure "fairness" in resolving a dispute.

 

In a recent decision of the Supreme Court of Canada (Hryniak v. Mauldin, 2014 SCC 7), the court held that a "shift in culture" in the approach to summary judgment cases was required.  The court held that, far from ensuring it, undue process and protracted trials, with unnecessary expense and delay, could prevent "fairness" in the dispute resolution process.  The court ruled that if the process is disproportionate to the nature of the dispute and the interest involved, it will not achieve a fair and just result.  

 

The court recognized that the summary judgment rule was amended to improve access to justice.  However, failed or even partially successful summary judgment motions only added to costs and delay.  The court set out to address those concerns in this case.  In its decision, written by Justice Karakatsanis, a former judge of the Ontario Court of Appeal, the Supreme Court rejected the "full appreciation test".  It held that the new fact-finding powers granted to motion judges under the new rules may be employed on a motion for summary judgment unless it is in the interest of justice for them to be exercised only at trial.  These new powers included hearing oral evidence, deciding issues of credibility and making findings of fact. 

 

Justice Karakatsanis held that the power to hear oral evidence should be employed when it allows the motion judge to reach a fair and just adjudication on the merits and it is the "proportionate" course of action.  Where a party seeks to lead oral evidence, it should be prepared to demonstrate why such evidence would assist the motion judge and to provide a description of the proposed evidence so that the judge will have a basis for setting the scope of the oral evidence.  

 

The Supreme Court ruled that on a motion for summary judgment under the new rules, the judge should first determine whether there is a genuine issue requiring trial based only on the evidence before him without using the new fact finding powers.  If there appears to be a genuine issue requiring a trial, he should then determine if the need for a trial can be avoided by using the new powers under the rules.  Justice Karakatsanis held that the use of such powers will not be against the interest of justice if they lead to a fair and just result and will serve the goals of timeliness, affordability and proportionality in light of the litigation as a whole.  

 

Then, if summary judgment is unsuccessful or only partially successful, the judge should make use of the trial management powers provided in the rule and the court's inherent jurisdiction to craft a trial procedure that will resolve the dispute in a way that is sensitive to the complexity and importance of the issue, the amount involved in the case and the effort expended on the failed motion.  

 

All of this leads to the obvious conclusion that parties will make motions for summary judgment more frequently, even where they are not confident of success, with a view of taking advantage of the proportionality course of action or to utilize the court's trial management powers of the new rules if the motion fails.  

 

Regards,

 

Blair 

Police Involved in Fatal Shootings Not Entitled to Consult Counsel Before Making Notes

This case concerns whether police officers, who are involved in fatal shootings of civilians, are permitted by the Police Services Act (the "Act") and the Special Investigations Unit regulations (the "Regulation") to seek the assistance of legal counsel before completing their notes on the shootings. 

 

In two independent fatal incidents, Douglas Minty and Levi Schaeffer were shot by the police.  Minty was shot dead by a Constable of the Ontario Provincial Police ("OPP") after he ignored the officer's command to drop a knife he was carrying.  Schaeffer was shot and killed by an Constable of the OPP when he also did not comply with a command to drop a knife.  In both cases, the officers were instructed by superiors to refrain from making their police notes until they had spoken with legal counsel.  The families of the two deceased brought an application before the Superior Court of Ontario seeking an interpretation of various provisions of the Act and "conduct and duties of police officers" respecting investigations in the Regulation.  The relevant issue raised by the families for the purposes of the appeal was whether the legislative scheme of the Act and the Regulation permitted the officers to consult with counsel before completing their notes.

 

The application was dismissed by the court on procedural grounds.  The Ontario Court of Appeal dealt with the matter on its merits and held that the Regulation did not permit police officers to seek counsel's assistance to complete their notes.  The Court of Appeal found that the Regulation did enitle the officers to receive basic legal advice as to their nature of their rights and obligations.  The police officers appealed that finding to the Supreme Court of Canada.  The Director of the Special Investigations Unit ("SIU") cross-appealed, arguing that police officers are not entitled to legal advice, basic or otherwise, prior to completing their notes. 

 

The majority of the Supreme Court of Canada dismissed the police officers' appeal and allowed the cross-appeal of the SIU.

 

Justice Moldaver wrote the decision of the majority of the court.  He held that permitting police officers to consult with counsel before preparing their notes is contrary to the very transparency that the legislative scheme of the Act and the Regulation aims to promote.  Justice Moldaver held that police officers are entrusted by the public with significant legal authority, including in some circumstances, the authority and power to use deadly force against their fellow citizens.  The "indispensable" foundation for such authority is the community's trust in the police.  Such trust can be tested when a member of the community is killed by the police.  The SIU is charged with the task of independently and transparently determining what happened when the community's trust in the police is at stake.  It is imperative that the investigatory process be, and appear to be, transparent. 

 

The majority of the court held that under the Act and the Regulation, a police officer who witnessed or participated in an incident which is being investigated by the SIU is not permitted to speak with a lawyer before preparing his or her notes concerning the incident.  While officers in their capacity as ordinary citizens may be free at common law to consult with counsel, the court was considering them in their professional capacity as police officers who are involved in SIU investigations.  In those circumstances, the Regulation governs.  It comprehensively sets out their rights and duties including their entitlement to counsel.  Justice Moldaver held that so long as police officers chose to wear a badge they must comply with their duties and responsibilities under the Regulation, even if this means at times having to forgo liberties they would otherwise have enjoyed as ordinary citizens. 

 

He held the following:

 

1.    Consultation with legal counsel at the note-making stage is contrary to the dominant purpose of the legislative scheme because it risks eroding the public confidence that the SIU process is meant to foster.  Allowing police to consult with counsel at the note-making stage creates an appearance problem.  A reasonable member of the public would naturally question whether counsel's assistance at the note-making stage was sought by officers in their self-interest to protect themselves and their colleagues from the potential liability of an adverse SIU investigation; 

 

2.    The legislative history demonstrated that the Act was never intended to create a free standing entitlement to consult with counsel that extended to the note-making stage; and

 

3.    Consulting with counsel at the note-making stage impinges on the ability of police officers to prepare accurate, detailed and comprehensive notes in accordance with their duty under the Regulation.  Police officers have a duty to prepare accurate, detailed and comprehensive notes as soon as practicable after an incident.  Permitting officers to consult with counsel before preparing their notes risks having the focus of the notes shift away from the officer's public duty towards his or her private interest and justifying what has taken place.       

 

The case is indexed as Wood v. Schaeffer 2013 SCC 71.

 

Regards,

 

Blair

Fired Employee Entitled to Both Damages and Full Pension Benefits

Richard Waterman had worked for IBM for 42 years when the company fired him without cause.  IBM provided him with 2 months notice of the termination of his employment.  He was 65 years old.  Waterman sued IBM to enforce his contractual right to be given reasonable notice of termination.  The trial judge set the appropriate period of notice at 20 months.  When he was fired, Waterman had a vested interest in IBM's defined benefit pension plan.  Under the terms of the plan, IBM had contributed a percentage of Waterman's salary to the plan on his behalf.  Upon termination, Waterman was entitled to a full pension and his termination had no effect on the amount of his pension benefits.  The trial judge declined to deduct the pension benefits paid to Waterman during the notice period in calculating his damages.  IBM's appeal was dismissed by the British Columbia Court of Appeal.  

 

The Supreme Court of Canada, Justice Cromwell writing for the majority, dismissed IBM's further appeal.  Chief Justice McLachlin and Justice Rothstein dissented.

 

Justice Cromwell held that the rule that damages are measured by the plaintiff's actual loss does not cover all cases.  He ruled that pension benefits are a form of deferred compensation for an employee's service and constitute a type of retirement savings.  They are not intended to be an indemnity for wage loss due to unemployment.  

 

In this case, it was clear to the court that a "compensating advantage" had arisen:  Waterman received both his full pension benefits and the salary he would have earned had he worked during the period of reasonable notice.  Had IBM given him working notice, he would have received only his salary during that period.  A compensating advantage arises if a source other than the damages payable by the defendant ameliorates the loss suffered by the plaintiff as a result of the defendant's breach of a legal duty.  A problem only arises with a compensating advantage when the advantage is one that: (a) would not have accrued to the plaintiff but for the breach; or

(b) was intended to indemnify the plaintiff for the sort of loss that resulted from the breach.

 

Justice Cromwell saw this case as akin to the "private insurance exception" - in general a benefit will not be deducted if it is not an indemnity for the loss caused by the breach and if the plaintiff has contributed in order to obtain entitlement to it.  In addition, the deduction issue was subject to broader policy considerations. 

 

Justice Cromwell held that in this case the factors clearly supported not deducting Waterman's retirement pension benefits from his wrongful dismissal damages.  Waterman's contract of employment was silent on the issue but it did not have any general bar against receiving full pension entitlement and employment income.  Waterman's retirement pension was not an indemnity for wage loss, but rather a form of retirement savings.  While IBM had made all of the contributions to fund the plan, Waterman had earned his entitlement to benefits through his years of service.  Therefore, as in the private insurance exemption, the pension benefits were not an indemnity and Waterman had contributed to the benefits.

 

Finally, the broader policy concerns in this case supported not deducting the pension benefits.  Justice Cromwell held that the law should not provide an economic incentive to dismiss pensionable employees rather than other employees.

 

In his dissenting opinion, Justice Rothstein wrote that the private insurance exception has no application to this case.  The case required an assessment of Waterman's loss under the terms of a single contract which gave rise to both the right to reasonable notice and a right to pension benefits.  Waterman's entitlement therefore turned on the ordinary governing principle that he should be put in a position that he would have been in had the contract been performed.  If his pension benefits were not deducted, he would have been given more than he bargained for and IBM would have been charged more than it had agreed to pay. 

 

Justice Rothstein wrote that employer-provided benefits are an integral component of the employment contract so deductibility of such benefits turns on the terms of the employment contract and the intention of the parties.  Under the terms of Waterman's employment contract he would have been eligible to receive pension benefits only upon being terminated or retiring.  Therefore, his contractual right to wrongful dismissal damages and his contractual right to his pension benefits were based on opposite assumptions about his availability to work.  Damages could not be paid on the assumption that he could have earned both. 

 

Unlike a defined contribution plan, a defined benefit plan guarantees the employee fixed predetermined payments upon retirement for life.  Deducting the benefits would provide the wrongfully terminated employee with exactly what he would have received had the employment contract been performed:  an amount equal to his salary during the reasonable notice period and thereafter defined benefits for the rest of his life.

 

In this case, Waterman's wrongful dismissal had no impact on his pension entitlement and he could not have received both his salary and his pension benefits had he continued to work for IBM through the reasonable notice period.

 

Regards,

 

Blair

Supreme Court Enlarges Public Interest Powers of Provincial Securities Commissions

Patricia McLean served as a director of Hucamp Mines Ltd., a reporting issuer registered in Ontario under the Ontario Securities Act, from March of 1996 to June of 2001.   Beginning in July of 2001, McLean began cooperating with the Ontario Securities Commission ("OSC") in respect of certain possible improper actions at Hucamp.  Although the OSC announced in July of 2005 that it would hold a hearing under its public interest powers to sanction McLean and others for their alleged misconduct at Hucamp, McLean did not enter into a settlement agreement with the OSC until September 8, 2008.  In the settlement agreement, McLean consented to the making of an order against her which barred her for 5 years from trading in securities, with some exceptions, and banned her for 10 years from acting as an officer or director of certain entities registered under the Ontario Securities Act.  

It was not until 15 months latter - January 14, 2010 - that the executive director of the British Columbia Securities Commission notified McLean that he was applying to that commission for a "public interest" order against her in British Columbia.   The BC Commission relied on McLean's settlement agreement with the OSC in bringing the proceeding.  However, section 159 of the BC Securities Act provides that all proceedings under that Act "must not be commenced more than 6 years after the date of the events that gave rise to the proceedings".   The BC Commission issued an order adopting the same prohibitions that were set out in the OSC's order.  In doing so, it interpreted that "the event" that had triggered the 6 year limitation period was McLean's entering into a settlement agreement with the OSC and not the misconduct that occurred in 2001 or earlier.  The BC Court of Appeal applied a correctness standard of review and upheld the commissions implied decision.  

McLean appealed to the Supreme Court of Canada.  The court dismissed her appeal.  

Justice Moldaver, writing for the majority of the court, held that that issue before the court was whether "the event" that triggered the 6 year limitation period, was the underlying misconduct that gave rise to McLean's settlement agreement with the OSC or the settlement agreement itself.  

Justice Moldaver found that in reviewing the ordinary meaning, the context and the purpose of the relevant provisions of the BC Securities Act, the Commission's conclusion that the event giving rise to the proceeding was McLean's settlement agreement was reasonably supported. 

He further held that the appropriate standard of review of the Commission's decision was "reasonableness", not correctness as the BC Court of Appeal had held.  Justice Moldaver held that both parties, i.e. the Commission and McLean, had proposed reasonable interpretations of the British Columbia Securities Act.  However, under the reasonableness review, the courts will defer to any reasonable interpretation adopted by an administrative decision maker, even if other reasonable interpretations may exist.  Because the Commission'`s interpretation was not shown to be an unreasonable one, there was no basis to interfere on judicial review. 

Justice Moldaver held that the modern approach to judicial review recognizes that courts may not be as qualified as an administrative tribunal to interpret that tribunal's home statute.  In particular, the resolution of unclear language in a home statute is usually best left to the administrative tribunal because the tribunal is presumed to be in the best position to weigh the policy considerations often involved in choosing between multiple reasonable interpretations of such language. 

Allowing secondary jurisdictions (British Columbia in this case) to wait until the conclusion of a primary proceeding (the OSC proceeding) obviates the need for parallel and duplicative proceedings that will overburden securities commissions and the targets of proceedings.  The Commission's interpretation of its statute therefore furthered the legislative goal of improving inter-jurisdictional cooperation between provinces and territories.

Finally, Justice Moldaver found that although the Commission's interpretation significantly extended the duration of time for which a person might be subject to regulatory action, of itself, that was not offensive to the purpose of limitation periods.  Limitation periods are always driven by policy choices in an attempt to balance the interests of the parties.  The Commission's interpretation struck a reasonable balance between facilitation of inter-provincial cooperation and the underlying purposes of limitation periods.  

Regards,

Blair

Ontario Court of Appeal Allows Enforcement Action Against Chevron To Proceed

Last September, I blogged about a decision of Justice David Brown of the Ontario Superior Court of Justice in which the judge concluded that the courts of Ontario had jurisdiction to hear an action commenced by Ecuadorean plaintiffs to enforce a US $18 billion judgment that they had obtained in Ecuador against Chevron Corporation ("Chevron").   However, this finding was not necessarily good news for the plaintiffs.  On his own motion, Justice Brown stayed the action on the basis that, "Chevron does not possess any assets in this jurisdiction at this time" and "the plaintiffs have no hope of success in their assertion that the corporate veil of Chevron Canada should be pierced and ignored so that its assets become exigible to satisfy the judgment against its ultimate parent". 

The Ecuadorian plaintiffs appealed to the Ontario Court of Appeal from Justice Brown's order imposing a stay of the action.  Chevron and its co-defendant in Ontario, Chevron Canada,  cross-appealed from the judge's finding that Ontario had jurisdiction to hear the case. 

The Court of Appeal unanimously allowed the plaintiffs' appeal and dismissed Chevron's cross-appeal.  Justice MacPherson wrote the judgment of the court. 

Justice MacPherson briefly summarized the facts of the case, noting that since the date of Justice Brown's decision, the highest appeal court in Ecuador had affirmed the judgment of the intermediate appeal court for damages for remediation for Chevron's alleged environmental pollution and costs totaling US$9.51 billion, but had allowed Chevron's appeal with respect to punitive damages.  The bottom line was that there was a final judgment in Ecuador against Chevron for US$9.51 billion.  The Ecuador plaintiffs sought to have this order recognized and enforced in Ontario against Chevron and Chevron Canada.

The Court of Appeal held that the appeal and cross-appeal identified two distinct and separate issues:

1.    Did Justice Brown err by, on his own initiative, staying the action? and

2.    Did Justice Brown err by concluding that an Ontario court has jurisdiction to determine whether the judgment of the Ecuadorean court should be recognized and enforced in Ontario? 

The Court of Appeal considered the jurisdictional question first.  The three justices agreed with Justice Brown's analysis.  Justice MacPherson found that the ruling of the Supreme Court of Canada in the Beals v. Saldhana case was "crystal clear" about how the real and substantial connection test is to be applied.  That case held that the real and substantial connection test requires that a significant connection exist between the cause of action and the foreign court and that the enforcing court was required to determine whether such a connection existed, i.e. the exclusive focus of the real and substantial connection test is on the foreign jurisdiction.   There is no parallel or even secondary inquiry into the relationship between the legal dispute and the foreign country and the domestic Canadian court being asked to recognize and enforce the foreign judgment (as Chevron had argued).

Once it is established that the foreign court had a real and substantial connection to the subject matter of the action, the analysis shifts to a consideration of whether the judgment is enforceable in Ontario as a matter of domestic law.

It was clear that the Ecuadorean judgment against Chevron satisfied the requirements of Rule 17.02(m) of Ontario's  he Rules of Civil Procedure, i.e. that a statement of claim may be served on a defendant without a court order outside Ontario where the claim is based on a judgment of a court outside Ontario.  With respect to Chevron Canada, Justice Brown correctly found that Chevron Canada had a physical, non-transitory, presence in Ontario and carried on business in Ontario.  

However, the Court of Appeal disagreed with Justice Brown's decision to stay the action on his own motion pursuant to section 106 of Courts of Justice Act.  Justice MacPherson gave several reasons for this decision.  

Firstly, Chevron and Chevron Canada are sophisticated parties with excellent legal representation.  They chose not to attorn to the jurisdiction of the Ontario courts and did not seek a stay of the action.  The Court held that Justice Brown's decision to stay a major case involving poor and vulnerable foreign residents and one of the world's largest corporations in a long and difficult process in a foreign court and a huge damages award was entirely his own construct.  No party had sought it.  Consequently, the issue was not argued before Justice Brown and no cases were put before him regarding the appropriateness of granting a discretionary stay.  

Secondly, Chevron and Chevron Canada made the decision to refuse to attorn to Ontario's jurisdiction "with their eyes wide open".  Having made this choice, they were limited to making only a jurisdictional objection in their motion. 

Thirdly, against the backdrop of no law and no argument on section 106, what Justice Brown really did was to embark on a disguised, unrequested and premature rule 20 and/or rule 21 (summary judgment) motion.  He made significant findings about the corporate and legal structures of Chevron and Chevron Canada and the viability of the plaintiffs' action as pleaded in the statement of claim.  Those issues deserved to be addressed and determined in the context of a record and legal arguments made under the rules 20 or 21 or at trial.  To do so, without a complete record would constitute an injustice to the plaintiffs. 

Fourthly, Justice Brown erroneously imported a forum non conveniens argument into his reasoning on the stay.  Justice MacPherson held that there was a serious problem with such an  analysis.  The location of Chevron's head office and Chevron's place of business in the United States and the lack of any connection between Chevron and Chevron Canada were issues that were at the heart of the conflict between the parties.  They could not be decided by easy resort to a potential action in New York.  It was an error in principle for Justice Brown to stay the action on these grounds absent a hearing on the matter and an opportunity for the plaintiffs to fully contest this very issue.  Additionally, the forum non conveniens analysis was not appropriate, and indeed may be irrelevant, in the recognition and enforcement context.

Fifthly, there was a disconnect between the rationale underlying Justice Brown's reasons on the jurisdiction issue and the content of his reasons on the discretionary stay issue.  His jurisdictional reasons properly opened the door to a "hugely significant decision of Ecuador's highest court possibly being recognized and enforced in Ontario".   However, his discretionary stay analysis "completely undermines the jurisdiction of the court" by pointing to a myriad of factors that show that New York was the better forum and suggested that the case not be heard in Ontario.  In Justice MacPherson's view, this derailment was premature in the context of the respondents not raising the discretionary stay issue. 

Sixthly,  Justice MacPherson did not share Justice Brown's concern about the waste of judicial resources where "there is nothing to fight over".  He held that the long history of this litigation and especially Chevron's role in it, suggested the opposite.  He held that the picture is an obvious one.  For 20 years Chevron has contested the legal proceedings of every court involved in this litigation - in the United States, Ecuador and Canada.  Chevron even sought and briefly obtained a global injunction against enforcement of the Ecuadorean judgment.  Accordingly, the recognition and enforcement action in Ontario is not an academic exercise and would not be an "utter and unnecessary of valuable judicial resources."  

In these circumstances, Justice MacPherson held that the Ecuadorean plaintiffs do not deserve to have their entire case fail on the basis of an argument against a position that was not even made and to which they did not have an opportunity to respond.  He held that it is not the role of the court to weed out cases on this basis and it is a risky practice for a judge to second guess counsel on strategy in the name of judicial economy.

The Court of Appeal held that this case cries out for assistance, not unsolicited and premature barriers and allowed the appeal.

Regards,

Blair