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Aris’s Blog

Aggregate Assessment of Damages – The Next Step in Class Actions Jurisprudence?

Aggregate assessment of damages is a powerful tool in class proceedings legislation that permits the court to determine all or part of a defendant’s monetary liability to a class without evidence from each individual class member.

The purpose of aggregate assessment of damages, as envisioned by the Law Reform Commission Report on Class Actions, is to provide “greater justice for class members and improved efficiency for courts, without unfairness to defendants.”[1]

The application of aggregate damages does not require that the defendant’s liability be assessed with the same degree of accuracy as in an ordinary action.[2] In Ontario, courts have accepted that some class members may end up over-compensated while others are under-compensated, as long as the defendant’s overall exposure to liability is the same.[3] In fact, the Court of Appeal in Markson v. MBNA Canada Bank confirmed that aggregate damages may even lead to situations where some class members who did not actually suffer damage receive a share of the award.[4]

In order to qualify for aggregate assessment of damages under section 24 of the Class Proceedings Act, 1992 (“CPA”), a representative plaintiff must show that:

1.) monetary relief is claimed on behalf of all or some class members;

2.) no questions of fact or law other than those relating to the assessment of monetary relief remain to be determined in order to establish the amount of the defendant’s monetary liability; and

3.) the aggregate or a part of the defendant’s liability to some or all class members can reasonably be determined without proof by individual class members.

Given the requirement that no questions remain other than those relating to the assessment of monetary relief, aggregate assessment of damages may not be available in cases where resolution of the common issues does not establish the defendant’s liability.

However, where it is available, aggregate assessment of damages can provide a solution to an inherent dilemma in class proceedings – the ever-present possibility that a class action does not settle, and thousands or tens of thousands of individual proceedings are unleashed in the courts following the common issues trial.

The vast majority of class actions do not get to this stage, often settling after certification, before the common issues trial. In the rare cases in which a class action has reached the individual issues phase (such as Webb v. Kmart[5]), the cost of proceeding individually has often rivaled or outstripped the amounts recovered by class members.

Yet common issues trials, as rare as they are, have been trending upwards in recent years, and as the existing pool of certified class actions matures, the possibility of an action successfully completing a common issues trial and proceeding to individual issues is increasing.

As such, it is perhaps unsettling to realize that, despite the fact that the CPA has been in effect for over two decades now, aggregate assessment has never before been considered or applied in a trial judgment in this province.

That may soon change. On January 7-9, 2014, a damages trial took place in the Ramdath v. George Brown College action, in which the Plaintiffs sought aggregate assessment of damages for breach of the Consumer Protection Act, 2002 (“Consumer Protection Act” or “Act”).  The trial was adjourned on January 9, with a continuation to be scheduled at the next case conference.

Background

The Ramdath v. George Brown action arose from George Brown College’s publication of

a description for its B411 International Business Management Program (“Program”) (“Program Description”) in its course calendar and on the George Brown website between September 2006 and September 2008. The Program Description indicated that students who completed the Program would receive an “opportunity to complete three industry designations in addition to the George Brown College Graduate Certificate”, and grouped the Program courses under headings for each of the three industry designations. The industry designations were considered valuable because they would provide industry recognized credentials to students who wished to work in the field of international business. However, at the end of the Program, students received only a George Brown certificate, and none of the three industry designations advertised in the Program Description.

The Plaintiffs launched a class action on behalf of students who enrolled in the Program during the time that the Program Description was in place, and advanced claims for breach of the Consumer Protection Act, negligent misrepresentation, and breach of contract stemming from publication of the Program Description. The action was certified as a class action by Justice Strathy on April 8, 2010.[6]

The common issues trial, held on October 23 and 26, 2012, proceeded largely by way of agreed facts and admissions made by George Brown College, including that it had no ability to independently confer any of the three designations to its students, and that it had no agreements in place with any of the three industry associations that would automatically award designations upon successful completion of the Program. Based on these admissions and the evidence at trial, the trial judge held that the Program Description was misleading, and found George Brown liable for committing an unfair practice under the Consumer Protection Act, 2002.[7]

The common issues trial judgment was upheld by the Court of Appeal in a decision released on July 9, 2013.[8] Apart from affirming the trial judge’s finding that the Program Description was misleading, the Court of Appeal’s reasons were particularly significant because they constituted the first appellate authority in Ontario to consider the definition of “consumer” under the Consumer Protection Act, and to confirm that reliance is not necessary for entitlement to a remedy under the Act.

By not having to prove individual reliance to establish liability under the Consumer Protection Act, the Plaintiffs had effectively met one of the key requirements in section 24 and were one step closer to obtaining aggregate assessment of damages.

Since it is not disputed that monetary relief is claimed on behalf of the class members, the only issue at the damages trial was whether the Plaintiffs could demonstrate to the Court that the class members’ damages could reasonably be determined on an aggregate basis without proof by individual class members. To do so, the Plaintiffs retained an expert labour economist, who generated aggregate loss estimates based largely on demographic and background information gathered from student records provided by George Brown and census data.

Implications

It is not yet certain what the outcome of the damages trial will be. The Plaintiffs are pressing for complete aggregate assessment of damages, while the Defendant is insisting on individual discovery and proceedings. As section 24 contemplates the availability of partial aggregate assessment, the answer may alternatively lie somewhere in the middle of this spectrum.

Whatever the ultimate decision, the reasons from this trial will set a tremendous precedent in Ontario and in other common law provinces.

A decision in favour of the Plaintiffs will serve as a much needed blueprint for future aggregate assessment of damages in subsequent class actions. Aggregate assessment could prove particularly amenable in actions predicated on the Consumer Protection Act and Part XXIII of the Ontario Securities Act secondary market misrepresentations cases, both of which allow recovery for misrepresentation without proof of individual reliance. Application of aggregate assessment under section 24 could obviate the need for individual trials altogether and assess both liability and damages on a common basis.  Such an outcome would maximize the judicial economy, access to justice, and behaviour modification objectives of the Class Proceedings Act, as well as the general policy reasons underpinning securities and consumer protection legislation.

Conversely, a decision rejecting aggregate assessment of damages will constitute a missed opportunity to obtain insight on how exactly damages could be assessed on an aggregate basis without individual evidence. The bar will be forced to wait for another class action to reach trial, an all-too infrequent event (despite anecdotal opinion of many in the bar that more cases are going to trial, it remains true that trials are a very rare exception). This is significant because aggregate assessment is arguably the only practical way to deal with mass harm.

The unpleasant reality is that there is no actual infrastructure in place to handle an influx of individual proceedings after a common issues trial, and many class actions may not be feasible to prosecute on an individual level. In Ramdath v. George Brown, for example, more than ¾ of the class of 108 are international students, originating from 14 different countries. Attempting to track down and examine each student for discovery, produce an affidavit of documents for each student, generate an expert report calculating future economic loss for each student, and ultimately participate in an individual trial or assessment for each student would be tremendous undertaking of time and resources that may or may not be feasible, given the anticipated recovery. If the class were 10,000 instead of 108, it may very well be impossible.

At the end of the day, any judicial clarity on how and in what types of cases aggregate assessment should be applied will be welcomed. The class actions bar has been practicing in the dark for far too long on this issue, and it is time for section 24 of the CPA  to be put to the test.



[1] Ontario Law Reform Commission, Report on Class Actions, Vol II (Ministry of the Attorney General: Toronto, 1982) [“OLRC Report”] at p. 555.

[2] Compare wording of section 24(1)(c) of CPA to bill proposed in Ontario Law Reform Commission, Report on Class Actions, Vol III (Ministry of the Attorney General, 1982), at p. 869.

[3] Healey v. Lakeridge Health Corp., [2010] O.J. No. 417 at para. 282 (S.C.J.).

[4] Markson v. MBNA Canada Bank, [2007] O.J. No. 1684 at para. 49 (C.A.).

[5] Webb v. 3584747 Canada Inc., 2001 CarswellOnt 2390 (S.C.J.).

[6] Ramdath v. George Brown College of Applied Arts and Technology, [2010] O.J. No. 1411 (S.C.J.).

[7] Ramdath v. George Brown College of Applied Arts and Technology, 2012 ONSC 6173 (S.C.J.).

[8] Ramdath v. George Brown College of Applied Arts and Technology, 2013 ONCA 468 (C.A.).

Mark’s Blog

A debt or not a debt? What is an arbitration award?

Comment on British Columbia (Forests) v. Teal Cedar Products Ltd., 2013 SCC 51

by Mark Hines – Heenan Blaikie

Fellow arbitration nerds may have noticed one aspect of the Supreme Court’s recent decision in British Columbia (Forests) v. Teal Cedar Products Ltd. that is a little confusing, to say the least.  The issue is whether an arbitral award is simply a debt, to be enforced by court action, or something more akin to a judgment, which is enforceable on its own terms.

The case concerned an arbitrator’s ability to award compound interest under the B.C. Commercial Arbitration Act (“CAA”).  Teal Cedar Products (“Teal”) initiated arbitral proceedings against the Province under the Forest Act claiming compensation for partial expropriation of its allowable annual harvest of trees.  The arbitrator awarded Teal $6.3 million in damages and $2.2 million in interest, compounded annually.  The Province appealed the award of interest, which was ultimately overturned by a unanimous Supreme Court.

Simply put, the Court’s reasoning concerning the issue of interest was that s. 1 of B.C.’s Court Order Interest Act (“Interest Act”) allows a court to award simple interest only; and although the CAA doesn’t define an arbitrator as a “court,” for all intents and purposes arbitral and court proceedings are the same.

However, hidden in the details of this reasoning is something quite confusing.  Section 1 of the Interest Act contemplates interest calculated from the “the date on which the cause of action arose to the date of the order.”  At the Supreme Court, Teal argued that s. 1 did not apply because the “cause of action” was the arbitration award—not the underlying expropriation.  In other words, the arbitration award was simply a debt to be enforced by a subsequent action.  In rejecting this submission, the Court held the following:

There are two problems with this approach. First, it relies on an unnatural and strained interpretation of the phrase “cause of action” in the context of arbitration under the CAA. An arbitration award is the result of a resolution of the cause of action and there is nothing to suggest that it gives rise to a new cause of action itself. (paragraph 26).

Now cast your minds back to 2010 and Russian gangsters interrupting arbitral proceedings with Kalashnikovs.  In Yugraneft v. Rexx Management Corp., 2010 SCC 19, the Supreme Court was asked to determine whether the enforcement of an arbitral award was barred by a two-year limited period.  A central issue was whether an arbitral award can be treated like a judgment (in which case a 10-year limitation period applied), or simply a debt (in which case a two-year limitation period applied).  In that case, the Court held that “an arbitral award is not a judgment or a court order”:

…An arbitral award is not a judgment or a court order, and Yugraneft’s application falls outside the scope of s. 11.  In Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34 (CanLII), 2007 SCC 34, [2007] 2 S.C.R. 801, Deschamps J., writing for the majority, noted that “[a]rbitration is part of no state’s judicial system” and “owes its existence to the will of the parties alone” (para. 51).  See also Desputeaux v. Éditions Chouette (1987) inc., 2003 SCC 17 (CanLII), 2003 SCC 17, [2003] 1 S.C.R. 178, in which LeBel J., for the Court, wrote, “[i]n general, arbitration is not part of the state’s judicial system, although the state sometimes assigns powers or functions directly to arbitrators” (para. 41).

Unlike a local judgment, an arbitral award is not directly enforceable. In Alberta, it must first be recognized by the Court of Queen’s Bench (ICAA, s. 3), and this recognition can be resisted by the arbitral debtor on the grounds set out in art. V of the Convention…

In other words, an arbitral award is a debt!  So, which is it?  As both these decisions show, the judgment-debt distinction can have a significant impact on the enforcement of an award.  Indeed, if Yugraneft had been followed in this case the result would arguably have been the opposite.  This unexplained discrepancy—Yugraneft was not expressly overturned—leaves the law unclear and lower courts are now left to guess which precedent should apply.

However, the more troubling aspect of this discrepancy is that it might suggest result-oriented reasoning.  In both cases, there were compelling reasons for the ultimate result.  But even in a common law system, the law shouldn’t be quite so malleable.  As they say, “omne trium perfectum!” (Three times is a pattern.)  So we’ll just have to wait and see which way the next one goes.

 

Michael’s Blog

Class Action Decision Considers Secondary Market Misrepresentation Actions

by Michael Beeforth – Dentons

On July 25, 2013, Justice Belobaba of the Ontario Superior Court of Justice released his decision in Dugal v. Manulife Financial (2013 ONSC 4083) certifying a proposed class action brought against Manulife and granting the plaintiffs leave to commence an action for secondary market misrepresentation under s. 138 of the Ontario Securities Act (the “Act”). In doing so, Belobaba J. focused on two aspects integral to asserting the statutory cause of action: the applicable standard for granting leave, and the requirement that the pleadings disclose a cause of action. His comments regarding the standard for granting leave are notable in that they suggest a higher standard than that which has been applied in Ontario to date is warranted.

Background

In early 2004, Manulife added a number of new guaranteed investment products (the “Guaranteed Products”) to its array of segregated funds. Unlike most of its older products, Manulife decided that the Guaranteed Products would not be hedged or reinsured – any risk of equity market fluctuations would be borne entirely by Manulife. The Guaranteed Products were very successful, growing Manulife’s business from approximately $71 billion in early 2004 to approximately $165 billion by the end of 2008. However, almost all (if not completely all) of that business was unhedged and uninsured. When the global financial crisis hit in the fall of 2008 and the Canadian and American equity markets fell by more than 35%, Manulife was badly overexposed.

On February 12, 2009, Manulife released its 2008 annual financial statements which disclosed that corporate profits had fallen by almost $3.8 billion from the previous year ($2 billion of which was attributable to the Guaranteed Products line) and EPS had dropped from $2.78 to $0.32. Investors reacted immediately: Manulife’s share price dropped 6% on the date it released its financial statements, fell a further 37% over the following ten days and, by the end of Manulife’s Q1 2009, was trading at $8.92, a 77% decline from its $38.28 trading price six months earlier.

The plaintiffs commenced a proposed class action in July 2009 based on claims of negligence, negligent misrepresentation, unjust enrichment and the secondary market liability provision of the Act. The plaintiffs alleged that while Manulife was entitled to make a business decision not to hedge or reinsure its equity market risk, it had a legal obligation to fully and fairly disclose to investors its decision to abandon such techniques and the resulting risks. The plaintiffs further alleged, among other things, that Manulife consistently misrepresented in its core disclosure documents that it had in place “effective, rigorous, disciplined and prudent” risk management systems, policies and practices.

Leave Test under Section 138.8(1) of the Act

Belobaba J. discussed at some length the uncertainties surrounding the second branch of the leave test set out at s. 138.8(1) of the Act: that is, that there is a reasonable possibility that the action will be resolved at trial in favour of the plaintiff.[1] In Ontario, class action judges have consistently treated the “reasonable possibility” threshold as a relatively low standard, holding that the plaintiff must simply show, based on a reasoned consideration of the evidence, that there is something more than a de minimis possibility of success at trial. On the other hand, courts in British Columbia have viewed the test as a higher standard which is intended to do more than screen out clearly frivolous, scandalous or vexatious actions.

Belobaba J. pointed out that while his opinion was more consistent with the latter interpretation, the debate may have been decided in favour of the more lenient interpretation by the Supreme Court of Canada’s recent decision in R. v. Imperial Tobacco Canada, 2011 SCC 42. In that decision, the Supreme Court held that under the strike-pleadings rule – which allows a claim to be struck if it is plain and obvious, assuming the facts as pleaded to be true, that the pleading discloses no reasonable cause of action – one must only show a “reasonable prospect of success”, which amounts to the same thing as a “reasonable possibility of success” and may effectively render the test under s. 138.8 of the Act a de minimis threshold (as articulated by the Ontario courts). In any event, Belobaba J. held that he would have come to the same conclusion in favour of the plaintiffs under either interpretation of the test.

Whether Pleadings Disclose Cause of Action

In certifying the action as a class proceeding, Belobaba J. addressed Manulife’s argument that the pleadings did not disclose a cause of action claim in respect of the s. 138 claim because the action was not commenced within three years of the alleged misrepresentations (as required by s. 138.14 of the Act and the Ontario Court of Appeal’s decision in Sharma v. Timminco Ltd., 2012 ONCA 107).

While Timminco is currently under review by a five-member panel of the Court of Appeal, Belobaba J. agreed with Manulife that he is bound by the current state of the law. However, he also agreed with the plaintiffs’ position that Timminco did not deal directly with the court’s jurisdiction to grant leave nunc pro tunc, and that case law subsequent to Timminco has held that the limitation period in s. 138 of the Act is subject to the special circumstances doctrine (which provides a limited jurisdiction to make orders nunc pro tunc that have the effect of reviving a statute-barred cause of action[2]). On this basis, Belobaba J. concluded that he could not say that it is plain and obvious that the limitation period defence applies and the statutory claim is certain to fail.

Conclusion

Justice Belobaba’s decision, while uncontroversial in its application of current legal principles, stands as an interesting commentary on future potential developments regarding the threshold to be applied in the test for leave under s. 138 of the Act. Indeed, in light of Imperial Tobacco, it may be inevitable that a lower standard is confirmed which, in Belobaba J.’s words, renders the test for leave “nothing more than a speed bump”. Appellate guidance will be required to determine whether his premonition proves true.

 


[1] Belobaba J. held that the first branch – that the action is being brought in good faith – was easily satisfied based on the plaintiffs’ argument and content of their expert reports.

[2] See, e.g., Millwright Regional Council of Ontario Pension Trust Fund v. Celestica Inc., 2012 ONSC 6083 at para. 85.

Vanessa’s Blog

Contractual Commitments to Negotiate in Good Faith – A Serious Issue to be Tried?

By Vanessa Voakes – Stikeman Elliott LLP

Absent a special relationship between parties to a negotiation, a tortious duty to bargain in good faith has generally gone unrecognized in Canadian law.  However, in Molson Canada 2005 v. Miller Brewing Company, 2013 ONSC 2758, Justice Wilton-Siegel of the Ontario Superior Court of Justice considered the question of whether a contractual commitment to negotiate in good faith is enforceable.

In that case, Molson Canada 2005 (“Molson”) brought an application for an injunction, pending trial, to enjoin Miller Brewing Company (“Miller”) from terminating a licence agreement between them for the distribution and sale of Miller-brand beers in Canada by Molson, and to set aside the notice of termination delivered by Miller. One of the main issues considered was whether Miller had terminated its relationship with Molson in accordance with the “good faith negotiation” clause in their agreement. Although His Honour only assessed the question from the perspective of whether there was a serious issue to be tried such that an injunction should be granted, he rejected the argument that contractual provisions to negotiate in good faith are always unenforceable and his reasons for judgment provide interesting discussion and commentary on the issue.

Background

Justice Wilton-Siegel’s Endorsement sets out an extensive discussion on the facts and background of the relationship between the parties.  For the purposes of this discussion, the following facts are relevant:

  • Pursuant to a licence agreement dating back to 1982 (as amended from time to time) Molson has been the exclusive Canadian licensed distributor of Miller’s key trademarks and brands, including one of its “flagship brands” Miller Genuine Draft (“MGD”) which has to be imported from the United States because it is produced in clear bottles (under the Industry Standard Bottle Agreement (“ISBA”) among Canadian brewers, beer produced in Canada is to be bottled in brown bottles).
  • In 2005 Molson merged with Coors (one of Miller’s primary competitors) and the parties amended their licence agreement; among other amendments, Miller’s rights of termination were amended to provide that its right to terminate without cause could not be exercised until September 2017 and that it could provide at least six months’ notice and terminate the agreement if Molson’s sales volume fell below certain limits.
  • Molson met its sales volume targets in 2007-2009 but failed to do so in 2010-2012 and so the parties began discussions to adjust the licence agreement in the summer of 2010.  These negotiations resulted in a Letter of Intent and a second amendment to the licence agreement (“Amendment No. 2.”) which gave effect to the principles set out in the Letter of Intent.
  • In the Letter of Intent Miller waived its right to terminate the agreement in the event that Molson did not achieve the sales volume targets in 2010 and 2011 and agreed there would be no volume targets for 2012-2015 for certain brands.  The Letter of Intent also provided that if certain changes were not made to ISBA by January 2013 (a change to allow for production of beer in clear bottles in Canada), the amendment would terminate and the parties would go back to their current licensing agreement.
  • Amendment No. 2 provided that if the ISBA was not amended prior to January 2013 the original licence agreement would continue without regard to the modifications in the amending agreement so long as the parties agreed to re-negotiate minimum volume targets and other issues.  Importantly, section 2.1(b) of Amendment No. 2 provided that such negotiations were to be conducted “in good faith”.
  • In December, 2012 Miller found out that changes to ISBA would not be made and advised Molson of its intention to terminate the agreement.  Molson’s position was that Miller didn’t have the right to terminate and the parties entered into discussions.
  • In January, 2013 Miller delivered a notice of termination to Molson advising of its intention to terminate the agreement as of July 22, 2013 on the basis that changes to ISBA had not been made, terminating Amendment No. 2, and on the basis that Molson had failed to meet minimum volume targets in 2011 and 2012.
  • Upon receiving Miller’s notice of termination, Molson commenced the action that is the subject of this interlocutory decision, seeking declarations that the licence agreement remained in effect and that Miller’s purported termination constituted a breach of contract and a breach of its duty of good faith.
  • The trial is set for December, 2013 and in the interim, Molson sought interlocutory injunctive relief enjoining the purported termination.

The Test for an Injunction

The three-part test for an injunction espoused by the Supreme Court of Canada in RJR-MacDonald Inc. v. Canada (Attorney General), [1994] 1 SCR 311 (SCC) requires (i) a preliminary assessment of the merits to ensure there is a serious question to be tried (which is a low threshold); (ii) a consideration of whether the application would suffer irreparable harm if the application were refused; and (iii) an assessment of which of the parties would suffer the greater harm from the granting or refusal of the remedy pending a decision on the merits (i.e., the balance of convenience).

In determining the first issue of whether there was a serious issue to be tried, Justice Wilton-Siegel considered the allegations that Miller’s waiver of its right of termination continued to have legal effect notwithstanding the termination of Amendment No. 2 and that Miller was not entitled to exercise its right of termination pending satisfaction of a condition precedent pertaining to the conduct of good faith negotiations as contemplated by section 2.1(b) of Amendment No. 2.  His Honour concluded that there was a serious issue to be tried on both allegations, however only the discussion pertaining to the purported obligation to negotiate in good faith is considered here.

Are Contractual Commitments to Negotiate in Good Faith Enforceable?

Ultimately, in this case, there was no conclusion on the question of whether contractual commitments to negotiate in good faith are enforceable because the question was considered in the context of whether it gave rise to a serious issue to be tried for the purposes of an injunction.  On the facts of this case, Justice Wilton-Siegel was satisfied that Molson had met that low threshold.  Despite not actually deciding the issue, His Honour’s analysis and discussion on the issue is interesting, in particular his analysis of recent US jurisprudence in which the courts found that an agreement to negotiate a contract in good faith may be enforced if all of the material terms of the contract have been agreed to in principle by the parties (Siga Technologies Inc. v. Parmathene, Inc., 2013 WL 2303303 Del. Sup. Ct.). Justice Wilton-Siegel stated:

…any covenant to negotiate in good faith, as any other contractual obligation, must be interpreted in accordance with the intention of the parties in the context in which the agreement was negotiated and executed.  The issue is not whether a court should imply an obligation to negotiate in good faith as a matter of commercial morality but rather whether the parties themselves understood from the circumstances in which an express commitment to negotiate in good faith was given, and intended in those circumstances, that any breach of the specific commitment was to have some legal consequence.  In this regard, in my opinion, Siga and the case law cited therein reflect a much more nuanced and modern understanding of commercial realities than the arbitrary and formulaic approach evidenced in the case law which would exclude the possibility of an enforceable obligation to negotiate in good faith under all circumstances. (para 108)

One of Miller’s positions on the issue was that the negotiations contemplated by section 2.1(b) of Amendment No. 2 were not a condition precedent to its right to exercise its option to terminate and alternatively, that all contractual provisions to negotiate in good faith are unenforceable. Justice Wilton-Siegel noted that Molson refrained from arguing that the obligation of good faith negotiation in the licence agreement was enforceable but instead raised it as a basis for a serious issue to be tried.

His Honour then went on to analyze the issue “in terms of the enforceability of a commitment to negotiate a specified matter in good faith, given consideration for the commitment, in a document purporting to be binding on the parties”, examined the case law and drew the following principle conclusions:

  • ·         While a bald agreement to agree or negotiate is an unenforceable obligation due to the uncertainty with respect to the specific obligation, whether an agreement to negotiate in good faith is enforceable is case and fact specific and may be enforceable if it is sufficiently certain, “either on its plain meaning or when interpreted in the context of the factual circumstances in which it was negotiated and executed.”  (Justice Wilton-Siegel noted that in some circumstances courts have found a covenant to negotiate in good faith enforceable where the parties had reached sufficient agreement on the principal issues).
  • ·         Of critical importance is the content of any contractual obligation to negotiate in good faith; absent objective standards as to what was intended, “it may be impossible for a court to establish the standard of behaviour of a negotiating party against which performance of such a covenant is to be measured”.
  • ·         The feasibility of the remedy is closely related to the determination of the enforceability of an agreement to negotiate in good faith.  For example, while many cases have found support for the unenforceability of such a covenant in the inability of a court to award damages for a breach, there may be circumstances where injunctive or other equitable relief is an appropriate remedy.

Serious Issue to be Tried

Turning to the issues of whether there was a serious issue to be tried with respect to the enforceability of the good faith negotiation obligation, His Honour considered both parties’ arguments: Miller argued that on the facts of the case there was no serious issue to be tried because there was no agreement in principle on the matters contemplated in section 2.1(b) of Amendment No. 2; the provision didn’t require the negotiations contemplated by it to be “in accordance with the terms” of any prior understanding or agreement in principle in respect of the relevant matters, and there was nothing in Amendment No. 2 that set out any objective standards for the establishment of MGD minimum volume targets in any negotiations.  Molson didn’t dispute the latter point but argued that there was sufficient evidence to demonstrate that the parties knew what principles would govern the negotiations surrounding revised MGD volume targets prior to the execution of the Letter of Intent and Amendment No. 2.

Although Justice Wilton-Siegel stated that he was of the opinion that Miller had the stronger argument in respect of the enforceability of the obligation of good faith negotiation set out in section 2.1(b) (i.e., that it was not enforceable), Molson had satisfied the requirement of demonstrating there was a serious issue to be tried regarding the enforceability of the provision for a variety of reasons including, among others, that on its face the good faith negotiation obligation purported to be an enforceable obligation and His Honour stated that the court must strive to give effect to all of the provisions agreed to by the parties in the interpretation of a commercial agreement and, although the Letter of Intent and Amendment No. 2 did not contain objective standards, it was possible that the factual matrix surrounding their formation would supply such standards on a trial of the issue.

Injunction Granted

For the reasons set out above (and others as set out in the decision), Justice Wilton-Siegel found that there was a serious issue to be tried.

In considering irreparable harm, His Honour found that it was reasonable to conclude that there would be some irreparable harm to Molson’s customer relationships and that, at least in some cases, termination of Molson’s distribution of Miller-brand beer would result in a loss of sales of other beer sold by Molson giving rise to potentially unquantifiable losses.  In addition, His Honour found that there was a risk of damage to the Miller brand equity if Miller began marketing under a different marketing plan and if Molson was successful at trial it may be unable to restore the original Miller image upon which it based its marketing plan.

At the same time, His Honour recognized that Miller would also suffer irreparable harm if an injunction were granted, firstly because it would be prevented from “re-invigorating” its own brands and taking steps to restore the Miller products that had declined (such as MGD) or had not been launched under Molson’s marketing of the Miller brands.  Secondly, Miller would be a new entrant into the Canadian beer market and it was uncertain what additional sales volumes Miller would generate above those Molson would expect to achieve.

In assessing the balance of convenience, His Honour considered numerous factors and ultimately concluded that the status quo should be preserved and granted an injunction pending trial that prohibited Miller from terminating the licence agreement pursuant to the termination notice.

Conclusion

While each case is fact specific, and the issue of enforceability of contractual commitments to negotiate in good faith was only considered in the context of the low threshold requirement of demonstrating a serious issue to be tried, the decision may signal a shift in the approach to certain contractual disputes between parties in light of, as Justice Wilton-Siegel put it, a “nuanced and modern understanding of commercial realities”.

Safina’s Blog

The worst of both worlds: The lack of protection against self-incrimination for Canadians giving evidence in US actions

By Safina Lakhani, Polley Faith LLP

In Davidson v Barnhardt, 2012 ONSC 6016, Justice O’Neill held that a witness in Ontario who is compelled to give evidence in a US civil action pursuant to a Letter of Request is not allowed to invoke the right against self-incrimination in the Fifth Amendment to the United States Constitution.  As a result, such witnesses are left with neither the Canadian nor American protections against self-incrimination.

Letters of Request

A foreign litigant may request evidence from a Canadian citizen or resident through a Letter of Request.  The foreign litigant must obtain a Letter of Request from a court in its jurisdiction.  A Canadian court will then enforce or not enforce the request in its discretion.  If the request is granted, the Canadian court will issue an order compelling the production of the evidence.

Protections against self-incrimination in Canada and the US

In Canada, the right against self-incrimination is protected by the Charter.  Section 13 provides that “a witness who testifies in any proceedings has the right not to have any incriminating evidence so given used against that witness in any other proceedings, except in a prosecution for perjury or for the giving of contradictory evidence.”  A witness also has protections under section 9 of the Ontario Evidence Act and section 5(2) of Canada Evidence Act when giving a compelled statement.  The Canadian ‘use immunity’ regime requires that a witness answer questions that may incriminate him or her, but as a quid pro quo, provides immunity against the subsequent use of that statement.

The protection against self-incrimination in the US operates quite differently.  The Fifth Amendment states that “no person… shall be compelled in any criminal case to be a witness against himself.”  In order to invoke the right against self-incrimination in the US, the witness must refuse to answer the question.  The protection applies to both civil and criminal actions and its availability is related to the nature of the statement made and exposure it invites.  The privilege is also available to any “person,” and is therefore not limited to Americans.

Where evidence is collected for use in a US civil action, the Canadian use immunity regime will not protect the witness against self-incrimination in a US criminal proceeding.  The question of whether a Canadian witness is entitled to invoke the protections of the Fifth Amendment in an examination pursuant to a Letter of Request was not addressed until the Davidson v Barnhardt decision.

Davidson v Barnhardt, 2012 ONSC 6016

In Davidson v Barnhardt, the Ontario Superior Court was asked to give effect to a Letter of Request issued by a California court with respect to an action related to an alleged fraudulent offer of securities.  The applicant sought to compel testimony from an Ontario resident, Gertrude Barnhart, the mother of a defendant in the California proceeding (J. Barnhardt).  Ms. Barnhardt was independently sued for her involvement in the alleged fraud and Ms. Barnhardt’s case was referred to the Federal Bureau of Investigation for investigation.  There is evidence that Ms. Barnhardt was involved in creating a “shell company” which was used in a money laundering scheme related to the fraud.

The Ontario Superior Court gave effect to the Letter of Request and ordered that Ms. Barnhardt testify regarding certain allegedly fraudulent transfers of money in which she is alleged to have been involved.  During her examination, Ms. Barnhardt invoked the protection of the Fifth Amendment and refused to answer many of the questions put to her.

The applicant brought a motion to determine whether Ms. Barnhardt could ‘plead the Fifth.’  Justice O’Neill heard the motion and found that Ms. Barnhardt was not entitled to plead the Fifth.

Ms. Barnhardt argued that there is a gap in the respective legal systems in Canada and the US with respect to protection from self-incrimination.  If Ms. Barnhardt were examined in the US, she would be entitled to refuse to answer questions on the basis of the Fifth Amendment.  If Ms. Barnhardt were examined in Canada, the Canadian regime of use immunity would protect her against self-incrimination.  However, where a Canadian gives evidence for a civil action in the US, the witness is not protected from the subsequent use of that evidence in the US.

She further argued that Canadian courts have acknowledged the risk that they might put citizens or residents of Canada in the worst of both worlds – compulsion to testify in Canada followed by the use of the compelled material in the US.  Ms. Barnhardt argued that if deprived of the right to plead the Fifth, she is exposed to the risk that the FBI or its investigators could use the transcript of her evidence to bring or further support criminal charges against her.

Justice O’Neill acknowledged this argument, but disagreed that it was “necessary” for Ms. Barnhardt to invoke the Fifth Amendment in order to protect herself from self-incrimination.  In support of this conclusion, he commented that there was no evidence that the FBI investigation against Ms. Barnhardt had progressed, and that there was an undertaking from the applicant that he would not divulge the evidence that Ms. Barnhardt gave, except as required by law.  Justice O’Neill also commented that the sovereignty of a US court may be “impinged” or “underappreciated” if a Canadian court ruled on the validity or applicability of the witness’ Fifth Amendment rights.  He found that it was for the US court to rule on the admissibility of the evidence.

Finally, Justice O’Neill held that arguments relating to the rights and protections of the Fifth Amendment “remain available” to Ms. Barnhardt if and when she is subject to US criminal charges and seeks to oppose the admission of her compelled evidence.  He held that it is for the US court to determine whether the admission of the evidence would “shock the judicial conscience” or “violate the baseline due process requirements with respect to Ms. Barnhardt’s Fifth Amendment rights.”  As such, he found that Ms. Barnhardt was not entitled to invoke the Fifth Amendment in her examination.

Implications of the decision

This decision eviscerates the protection from self-incrimination of those Canadians that are compelled to give evidence for use in a US action.  Both Canada and the US have robust protections against self-incrimination, although the regimes are different.  The Barnhardt decision creates a lacuna within which the unfortunate witness is left without the protection of either regime.

Justice O’Neill creates a risk-threshold only beyond which a witness will be granted the right against self-incrimination.  In Ms. Barnhardt’s case, he found that it was not “necessary” to invoke the Fifth Amendment to protect her against self-incrimination.  However, he did not clarify the circumstances under which it would be necessary to invoke the protections of Fifth Amendment in order to protect a witness against self-incrimination.

While the lack of clarity of the threshold for necessity is troubling, more problematic is the implication that the witness’ right to protection against self-incrimination is only available when the Court deems it necessary.  This is counter to the regime for the protection against self-incrimination in Canada.  The use immunity rule is not contingent on anything.  (However, see R v Nedelcu, 2012 SCC 59, where the Court narrowed the definition of “incriminating evidence” that is protected by section 13 of the Charter and permitted non-incriminating evidence to be used to test a witness’ credibility at a subsequent criminal proceeding.)

Justice O’Neill further states that Ms. Barnhardt may assert her Fifth Amendment rights to oppose the admission of the compelled evidence if a US criminal proceeding is brought against her.  That is no substitute for her right to protection against self-incrimination.  A US court is entitled exclude evidence that would violate baseline due process requirements, but that discretion is unrelated to Ms. Barnhardt’s rights; it relates to the court’s jurisdiction to exclude evidence.

Oddly, the procedure to which Justice O’Neill alludes is similar to the Canadian use indemnity regime, whereby an accused may object to the admission of a prior compelled statement.  This scheme stands in stark contrast to the US regime, whereby a witness must refuse to answer a question in order to invoke the protections of the Fifth Amendment.  In light of this, Ms. Barnhardt’s only “protection” against self-incrimination is the hope that a US court will agree that the admission of her compelled evidence is a violation of due process.

The important practical implication is that a party to a US action that seeks evidence from a Canadian citizen or resident would prefer to use the Letter of Request procedure to compel the evidence.  By using this procedure, the witness is likely not entitled to refuse to answer questions on the basis of the Fifth Amendment.  The witness is therefore required to give far more evidence than he or she otherwise would be.  A strategic US litigant could easily take advantage of this loophole.

Perhaps the most troubling aspect of this decision is that the evidence sought from Ms. Barnhardt was pursuant to a Letter of Request.  The Court knew that the evidence sought was for use in a US action and that the use immunity rule would not protect Ms. Barnhardt against self-incrimination.  The Court knowingly put Ms. Barnhardt, who was compelled to testify in the US action, in the worst of both worlds.  Similarly situated witnesses will be left with no protection against the risk of self-incrimination, which is an affront to an overarching principle in our criminal justice system.

Amanda’s Blog

Needs vs. Preferences and the role of Lifestyle Choices in the Accommodation of Family Status

By Amanda McLachlan – Bennett Jones

Family status has become a hot topic before provincial and federal human rights tribunals over the last year and has likewise become an intriguing issue for both employers and employees alike. Although family status is not a newly minted protected ground under either the Ontario Human Rights Code or the Canadian Human Rights Act by any means, until recently it has received very little attention. As a result, the ground was often somewhat misunderstood, with many employers and employees believing it applied only to parents with childcare obligations.
In the midst of an aging population and in an era in which the majority of parents return to the workplace after child birth, an increasing number of people have been impacted by the need to balance elder care or more traditional child care responsibilities with employment duties and obligations. This balancing exercise has resulted and will likely continue to result in an upward trend in the number of cases being heard at the Ontario Human Rights Tribunal and the Canadian Human Rights Commission, as well as several recent significant changes to the applicable test applied by both.

The Test in Ontario

The Ontario Human Rights Tribunal recently refined the applicable test for employer’s faced with accommodation requests on the basis of family status in a case involving an employee with elder-care responsibilities. In Devaney v. ZRV Holdings, 2012 HRTO 1590 the Tribunal’s findings suggest that employers must accommodate care-giving responsibilities where they are required duties, not mere preferences. Devaney was a generally well performing employee who bore primary responsibility for the care of his elderly mother. He commenced an application to the Tribunal after his employment was terminated as a result of his failure to attend work during mandatory working hours. Devaney had requested that he be permitted to work in certain circumstances from home, given his employer had the necessary technology to facilitate his request. Ultimately, the Tribunal concluded that given the nature of his elder-care giving duties were in fact true requirements, not preferences, and given the plethora of technology that could enable him to work from home, the employer should have accommodated his absences rather than upholding the confines of a strict 8:30 a.m. to 5 p.m. workday. Of particular importance in this case was a finding that the employer had failed to engage in a meaningful dialogue about Devaney’s needs and requirements. Rather than attempting to understand his reasoning, the employer had routinely dismissed Devaney’s requests out of hand. As a result of the employer’s failure to accommodate Devaney’s requests, Devaney was awarded $15,000 in damages – a fairly significant award by the Tribunal.

The Test for Federally Regulated Employees

In late January, the Federal Court of Canada released its decision in Attorney General of Canada v. Fiona Anna Johnstone and Canadian Human Rights Commission, 2013 FC 113 following a judicial review of a decision previously rendered by the Canadian Human Rights Commission. In Johnstone, the Federal Court distilled the key issue in family status accommodation cases to the following question: “whether or not the employment rule in question interfered with an employee’s ability to fulfill substantial parental obligations in a realistic way”. Johnstone was an employee of the Canada Border Services Agency (CBSA) who worked, like all other full time employees, rotating shifts. Johnstone commenced an application to the Canadian Human Rights Commission alleging that the CBSA had discriminated against her by failing to accommodate her requests for accommodation. Specifically, following a return from maternity leave, she had sought accommodation by way of a special exemption from the CBSA’s mandatory scheduling requirements which denied her the flexible scheduling she sought and which imposed ten hour shift maximums.

On review, the Federal Court rejected a line of cases arising out of British Columbia which had previously suggested that in order to successfully make out a claim of discrimination, the applicant would have to demonstrate a “serious interference” with a “substantial family duty”. In departing from these strict requirements Johnstone may have inadvertently opened the door to a new broader requirement that employers accommodate employee lifestyle choice. On review, the Federal Court rejected a series of arguments advanced by the CBSA that Johnstone’s requests for scheduling accommodation arose principally because of a “series of choices she and her husband jointly made” and which were within the couple’s exclusive control (her husband also being an employee of the CBSA). The specific “choices” leading to Johnstone’s accommodation request included the choice of where to live (Johnstone and her husband had voluntarily decided to relocate to a small town that was more than 60 kilometers away from their workplace), the size of the home purchased by the employee, the choice to have the children’s father continue to work rotating shifts, the choice to have Johnstone work only three days per week, the choice to have their children cared for by family members exclusively and ultimately, the preference not to pay for childcare. In rejecting these arguments, the Federal Court appears to be signaling a stark departure from the Commission’s prior treatment of family status cases.

What This Means for Employers and Employees

Ultimately, there is still a level of uncertainty in this area of the law which is unlikely to be resolved until the number of decisions in this area increases. Despite the uncertainty however, it does seem clear that the earlier lines of cases requiring a higher threshold for family status claims have been rejected. This shift away from tests that imposed a sort of two-tiered human rights regime in which the threshold required to demonstrate discrimination on the basis of family status seemed to be higher than the threshold required to establish a prima facie claim on the basis of other enumerated grounds is likely not surprising. The Ontario Human Rights Code and the Canadian Human Rights Act is intended to provide protection equally, across all of the enumerated grounds.

As a result of Devaney, for now, employers in Ontario may still be able to refuse accommodation that is based merely on an employee’s preferences and not related to genuine “needs”. However, employers within the jurisdiction of the Canadian Human Rights Act will likely continue to be held to a slightly higher standard. Regardless of which regime applies to your workplace, what is clear is that employers faced with accommodation requests will be well advised to follow certain best practices, including ensuring they don’t dismiss accommodation requests out of hand.

Carole’s Blog

Speak Your Mind: Third Party Communications in Class Actions Clarified by Appellate Court

By Carole Piovesan – McCarthy Tetrault

For those choosing not to participate in a class action, the Court of Appeal in Pet Valu Canada Inc., has now clarified their right to communicate freely with fellow class members still considering their decision.

Background

The plaintiff represents a class of franchisees claiming that Pet Valu Canada Inc. had a duty to pass on volume discounts and rebates received from suppliers.

After certification and during the opt-out period, several franchisees opposing the lawsuit formed a group known as “Concerned Pet Valu Franchisees” (CPVF) aimed at encouraging other franchise owners to opt-out of the action. CPVF launched a telephone and web campaign that included direct calls to franchisees to persuade them to opt-out, and the online publication of the names of franchisees that had opted-out of the class action.

The results of the campaign were dramatic. By the end of the opt-out period – 11 days after the start of the campaign – the number of opt-out forms received jumped from 37 to 140. This amounted to 65% of current and 10% of former franchisees, thereby drastically reducing the size of the class.

The Lower Court Decision

The plaintiff brought a motion to set aside those opt-out notices. The motion was granted by Justice Strathy, who concluded that CPVF’s actions established a “reasonable probability…that many franchisees decided to opt out as a result of misleading information and unfair pressure amounting to intimidation.”

Concerned that franchisees were not making a voluntary and informed decision to opt-out of the class action, Justice Strathy invoked his discretion under s. 12 of the Class Proceedings Act, 1992 to nullify all opt-out notices received after the commencement of CPVF’s campaign. He also extended the opt-out period to a date after final disposition of the action.

The Court of Appeal Overturns Strathy J.’s Order

The Court of Appeal concluded that Justice Strathy’s analysis erred in two material respects. First, His Honour erred by drawing an inference of undue influence and coercion in the absence of direct evidence. Unlike the earlier A&P decision (2002 CanLII 6199 (ON SC)) where the court had direct evidence of coercive tactics, Justice Strathy had drawn an inference of coercion from the content of the statements on CPVF’s website and the perception that the disclosure of names and store locations of opt-outs on the website had a coercive effect. On the evidence, the Court of Appeal set aside that inference.

Second, the Court of Appeal disagreed with Strathy J.’s finding that CPVF’s campaign was unfair because it failed “to provide any form of informational balance or to discuss the issues in the class”. The finding incorrectly set a standard of objectivity for a third party to the action and misapplied the informed and voluntary test.

Importantly, the Court determined that the information presented by CPVF in favour of opting-out of the action amounted to a business perspective. CPVF did not purport to discuss the legal merits of the action and, in any event, class members had access to the court-approved certification notice and class counsels’ website with full particulars of the action. The Court concluded that CPVF’s communications were “simply acceptable intra-class debate” and did not undermine the class members’ ability to make an informed and voluntary decision about opting-out.

Conclusion

The Court of Appeal has now recalibrated the standard for communication by non-parties to class members during the sensitive opt-out period.

As is often the case, however, the limits of judicial guidance remain to be tested. Were the campaign’s tactics subliminally coercive or was it the campaign’s direct communication with class members that drove up opt-outs (as opposed to passively posting information online for members to access and understand on their own)? Where neutral information about the lawsuit is available to class members, is any communication that is not expressly coercive acceptable? For now, third parties may present subjective positions and perspectives to class members without judicial supervision or intervention.

Andrea’s Blog

Taking out the hired gun: Recent jurisprudence on expert independence

By Andrea Bolieiro – Pape Barristers

The Nova Scotia Court of Appeal recently described the “uncomfortable seat” occupied by expert witnesses in the courtroom:

“On one hand, there are there to assist the court by offering advice in areas where special knowledge is required…On the other hand, the court typically does not select them. Instead, they are retained by and testify on behalf of one of the combatants.” (Abbott and Haliburton Company v. WBLI Chartered Accountants, 2013 NSCA 66, at para. 1)

Experts are paid to provide their opinions. It comes as no surprise, then, that they routinely face attacks on their independence.

A successful attack on an expert’s independence, however, must do more than show a mere “alignment of interest” between the expert and the party who retained him or her. The attack must show that the expert’s opinion has been influenced by “the exigencies of litigation”, and is not the product of an independent analysis.

How does one prove that an expert has succumbed to the “exigencies of litigation”? And what is the remedy if he or she has? Ontario courts have recently offered some guidance on these issues, and may have also broadened the circumstances under which an expert’s evidence can be excluded in its entirety.

The warning signs

How can counsel prove that an opposing expert is not independent? The first and primary source of evidence for most counsel is the report itself.

Ask yourself the following questions about the expert’s report:

  • Is it repetitious and argumentative in tone?
  • Does it exaggerate or speculate?
  • Does it go beyond the areas in which the expert is qualified?
  • Does it address factual issues or attempt to the weigh evidence?
  • Does it treat the evidence selectively or inaccurately?
  • Does it opine on matters of law or offer legal conclusions?

(See Alfano v. Piersanti, 2012 ONCA 297, paras 115-116; see also Gould v. Western Coal Corporation, 2012, ONCS 5184, at paras. 82-91)

Reports exhibiting these characteristics indicate that expert has likely tiptoed (or bulldozed) into advocate territory.

Some of these characteristics, however, may be difficult to extricate from the expert’s opinion itself. Experts often select and analyze evidence to reach their conclusions. Their conclusions often directly relate to the legal issues. As a result, the party defending an attack on the expert’s independence will have to point to the expert’s methodology or the content of his or her opinion

that demonstrates the expert’s independence analysis, and characterize any fact-treating or legal commentary as part and parcel of that independent analysis.

If counsel does successfully raise questions regarding the expert’s independence, the next question is the proper remedy.

Discounting or excluding the report

Judges often prefer to deal with tainted evidence by applying a “discount”; i.e, by minimizing the weight afforded to that expert’s evidence. However, recent Ontario cases suggest that judges are increasingly willing to exclude the expert’s evidence in its entirety.

The Court of Appeal in Alfano v. Piersanti stated that a court has discretion to exclude an expert’s evidence where that evidence “is so tainted by bias or partiality as to render it of minimal or no assistance” (at para. 111). In other words, where the expert has strayed so far afield of her role as an expert as to render her evidence unhelpful, the court can exclude that evidence. Notably, the court does not require evidence of actual bias to exclude the evidence.

For example, in Gould v. Western Coal, the court found that the accusation of bias against the expert was “utterly unfounded”. It nevertheless excluded all of that expert’s evidence, on the basis that 1) the expert opined on issues beyond his expertise; 2) the expert purported to weigh evidence, evaluate credibility and make findings of fact; and 3) the expert engaged in advocacy, making exaggerated comments and engaging in speculation (paras 81-95). This decision demonstrates an increased willingness to exclude an expert’s evidence.

These recent decisions provide some guidance on how courts can identify non-independent experts. They also appear to have broadened the circumstances justifying total exclusion of an expert’s evidence.

 

 

Amy’s Blog

Baglow v. Smith: Where Robust Debate Ends and Defamation Begins

By Amy Archer – Lerners LLP

As online communication evolves, so too does the potential for the wide spread publication and dissemination of defamatory statements.  In Grant v. Torstar, 2009 SCC 61, the Supreme Court of Canada emphasized the need for the law of defamation to evolve in order to keep pace with the norms of new communications media.  Although Canadian courts have been swift to adapt the law to online modes of publication, many issues must still be addressed. One such issue is the unique impact of statements made in the blogosphere on an individual’s reputation.

In Baglow v. Smith, 2012 ONCA 407 (“Baglow”), the Ontario Court of Appeal unanimously allowed an appeal by the plaintiff blogger from a summary dismissal of his defamation action over a comment made on a political blog.  In August, 2010, the plaintiff and defendant engaged in a debate over a series of strongly worded blog posts relating to the Conservative government and the trial of Omar Kahdr.  Following a heated exchange, the plaintiff sued the defendant for defamation for referring to him as “one of the Taliban’s more vocal supporters.”

The lower court allowed the defendant’s motion for summary judgment based, in large part, on the diminished impact that comments on a political blog have on an individual’s reputation.  The lower court distinguished internet blogs from other forms of publication and found that the statement lacked the “sting of liable” in the context of a political blog “where insults were regularly treated as part of the give and take of debate.”

The Court of Appeal found that the lower court erred in granting summary judgment in the context of the “novel milieu” of defamation in the blogosphere.  In overturning the lower court’s decision, the Court of Appeal found that several issues have not been sufficiently addressed and queried whether different legal considerations should be applied.  Until the law crystalizes, the Court concluded that responses are best crafted on the basis of a full record after trial.

The need to rethink the application of traditional tests to internet communication is largely driven by the unique impact that online publications may have on an individual’s reputation. In order to establish a claim for defamation, a plaintiff must establish, among other things, that the impugned words are defamatory, in the sense that they would tend to lower the plaintiff’s reputation in the eyes of a reasonable person.  Context is, therefore, important.

In Baglow, the debate between the plaintiff and defendant was heated and politically charged.  The reference to the plaintiff as a Taliban supporter was made in the course of a series of impassioned statements.  During this exchange, the plaintiff had, himself, referred to supporters of the Conservative government as “yokels with pitchforks.”  Although not part of the plaintiff’s defamation action, the defendant also referred to the plaintiff as a traitor who should be arrested for treason. Indeed, the plaintiff admitted that debates on political blogs can be “caustic, strident or even vulgar and insulting.”

In this context, where insults are freely thrown and tolerated, the Court of Appeal emphasized that an expert may be needed to provide insight into how the internet blogging world functions and what may or may not be the expectation and sensibilities of those who engage in such discourse.
The reasons of the Court of Appeal provide useful insight into the questions that must be addressed in a defamation action for statements published in the blogosphere.  What is an acceptable part of the “robust and free-wheeling exchange of political views in the internet blogging world” and what constitutes defamation has yet to be fully addressed.

Ren’s Blog

Cottages, Activists and Arbitrators: When Legislation Overrides an Agreement to Arbitrate

By Ren Bucholz – Lenczner Slaght

When disputes arise between parties to an agreement containing an arbitration provision, the first step is often a fight over the scope of the arbitrator’s jurisdiction. These tussles can be motivated by a party’s realization that the arbitration will be seated in their opponent’s backyard, or that the costs of the proceeding will be borne by the parties. Whatever the strategic motivation, courts are routinely asked to decide the scope of what the arbitrator can hear.

This scenario arose in the recent case of Zwack v Pocha, [2013] 354 DLR (4th) 83 (Sask. Q.B.) [Zwack], where the plaintiffs purchased a lakefront property on which they planned to build their dream cottage. They found a builder on the Internet and were contacted by the builder’s agents. The plaintiffs, the builder, and his agents signed a sales agreement, and construction began.

As Justice Schwann noted, “it did not proceed smoothly.”

The plaintiffs eventually hired another builder to finish the work and commenced an action for the recovery of lost construction costs. The builder relied on the arbitration clause in the sales agreement, which provided that “any dispute” between the parties would be referred to mediation and arbitration in the state of Washington, under Washington law. The Saskatchewan-resident plaintiffs later amended their pleadings to include claims under provincial consumer protection legislation.

In some cases, litigants seeking to escape an arbitration clause will plead their claims to take advantage of statutory causes of action or remedies that can only be ordered by a court. The theory is that such claims and remedies render the arbitration clause “null and void, inoperative or incapable of being performed”, which is one of the only ways for a court to avoid the common law and statutory directions to stay court proceedings where the parties have agreed to arbitration. This test comes from Article 8(1) of the UNCITRAL Model Law on International Commercial Arbitration, UN Doc. (Sales No. E.08.V.4) (2008) [Model Law], which has been adopted in every Canadian province, including Ontario.

In Zwack, the plaintiffs adopted this approach and argued that their claims were like those considered by the Supreme Court of Canada in Seidel v Telus Communications Inc., [2011] 1 SCR 533 [Seidel]. That case involved British Columbia consumer protection legislation that creates broad statutory rights of action that can be pursued by virtually anyone, including those who have suffered no damage as a result of the alleged shabby conduct. The B.C. legislation specifically contemplates the claims being brought as court proceedings. The Court in Seidel reasoned at para. 32 that, “[o]pening the door to private enforcement in the public interest vastly increases the potential effectiveness of the Act and thereby promotes adherence to the consumer standards set out therein.” The Court went on to say at para. 40 that this provision “offers remedies different in scope and quality from those available from an arbitrator and constitutes a legislative override of the parties’ freedom to choose arbitration.”

Justice Schwann considered Seidel and found that the analogous Saskatchewan legislation did not have the same clear mandate for “consumer activism”, and that the mere existence of statutory rights of action do not result in “legislative override” of an arbitration provision. Without cogent evidence of legislative intent to bar arbitration, Justice Schwann found that the Model Law’s direction to stay the court proceedings must be followed.

The reasons in Zwack are clear and well-researched, and they provide a useful guide to analyzing whether legislation that does not specifically bar arbitration may nonetheless amount to a legislative override of an arbitration clause. The threshold for finding such an override remains high, which is consistent with Canada’s support for the private arbitration system.

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