BLANEY’S APPEALS: ONTARIO COURT OF APPEAL SUMMARIES (JANUARY 14 – 18, 2019)

By John Polyzogopoulos on January 18, 2019

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Good evening.

Following are our summaries of the civil decisions of the Court of Appeal for Ontario this past week. The Court released a number of decisions this week, including an important pronouncement on Construction Act trusts, and the ability of the provincial legislature to establish trust certainties, in The Guarantee Company of Canada v Royal Bank of Canada, 2019 ONCA 9.

In this decision, the Ontario Court of Appeal considered whether the funds owing to, or received by, a bankrupt contractor and impressed with a statutory trust created by s. 8(1) of the Construction Lien Act, RSO 1990, c C. 30 (“CLA”), as it was formerly named, were excluded from distribution to the contractor’s creditors pursuant to s. 67(1)(a) of the Bankruptcy and Insolvency Act, RSC 1985, c B-3 (“BIA”). This involved a detailed review of the Supreme Court of Canada’s decision in British Columbia v Henfrey Samson Belair Ltd, [1989] 2 SCR 24. The Court of Appeal found that a statutory deeming provision can give rise to certainty of intention, and that provision s. 8(1) of the CLA is constitutionally valid because the s. 8(1) trust is a matter that is the proper subject of property and civil rights in the province, and there is no operational conflict between s. 8(1) of the CLA and the BIA that would make the doctrine of paramountcy operative. The Court of Appeal also found that amounts owed were debts and were accordingly choses in action capable of meeting the requirement for certainty of subject matter, and that certainty of subject matter was made out because, despite the funds being commingled, it was possible to identify the funds in question. This decision runs contrary to the general understanding in the construction insolvency bar that Ontario CLA trust claims will generally not succeed when challenged by secured creditors in BIA proceedings.

In Apotex Inc v Nordion (Canada) Inc, 2019 ONCA 23 the Court of Appeal upheld a finding of breach of contract and negligence in respect of a contract for the provision of clinical research services, as well as the resultant damages award. The Court clarified the operation of section 5(1)(a) of the Limitations Act, 2002, observing that a claim only becomes discoverable once all the elements of s. 5(1)(a) are met.

In Almalki v Canada (Attorney General), 2019 ONCA 26 the Court of Appeal confirmed that a carefully worded contingency fee agreement does not necessarily run afoul of the Solicitors Act even where it entitles counsel to a percentage of any amounts paid to the client for legal fees (which is prohibited save for in certain circumstances). Such agreements are acceptable so long as they conform with section 28.1(8) of the Solicitors Act, as the Court found to be the case here.

Other topics covered this week included forbearance agreements, seniority in the collective bargaining context, agreements of purchase and sale and a provincial offences decision which examined sentencing principles.

Wishing everyone a pleasant weekend.

John Polyzogopoulos
Blaney McMurtry LLP
416.593.2953 Email

Civil Decisions

The Guarantee Company of Canada v Royal Bank of C anada, 2019 ONCA 9

Keywords: Bankruptcy and Insolvency, Construction Law, Priorities, Statutory Deemed Trusts, Trust, Three Certainties, Certainty of Intention, Certainty of Subject Matter, Commingling, Tracing, Constitutional Law, Paramountcy, Bankruptcy and Insolvency Act, RSC 1985, c B-3, ss 67(1)(a), Construction Lien Act, RSO 1990, c C. 30, ss 8(1)(a), 8(1)(b), Constitution Act, 1867, ss 91(21), Income Tax Act, RSC 1985, c 1 (5th Supp), ss 227(4) and (5), Bank Act, SC 1991, c 46, Personal Property Security Act, SA 1988, c P-4.05, British Columbia v Henfrey Samson Belair Ltd, [1989] 2 SCR 24, Minneapolis-Honeywell Regulator Co v Empire Brass Manufacturing Co, [1955] SCR 694, John MM Troup Ltd et al v Royal Bank of Canada, [1962] SCR 487, Alberta (Attorney General) v Moloney, 2015 SCC 51, Husky Oil Operations Ltd v Minister of National Revenue, [1995] 3 SCR 453, Saskatchewan (Attorney General) v Lemare Lake Logging Ltd, 2015 SCC 53, Québec (Deputy Minister of Revenue) c Rainville, [1980] 1 SCR 35, Federal Business Development Bank v Québec (Commission de la santé et de la sécurité du travail), [1988] 1 SCR 1061, Deloitte Haskins and Sells Limited v Workers’ Compensation Board, [1985] 1 SCR 785, Québec (Revenue) v Caisse populaire Desjardins de Montmagny, 2009 SCC 49, Citadel General Assurance Co v Lloyds Bank Canada, [1997] 3 SCR 805, BMP Global Distribution Inc v Bank of Nova Scotia, 2009 SCC 15, Royal Bank of Canada v Sparrow Electric Corp, [1997] 1 SCR 411, R v Perka, [1984] 2 SCR 232, GMAC Commercial Credit Corporation – Canada v TCT Logistics Inc (2005), 74 OR (3d) 382 (CA)

Apotex Inc v Nordion (Canada) In c, 2019 ONCA 23

Keywords: Contracts, Breach, Negligence, Damages, Civil Procedure, Limitations Periods, Discoverability, Pre-Judgment Interest, Limitations Act, 2002, SO 2002, c 24, Sched B, s 5(1)(a), 407 ETR Concession Company Limited v Day, 2016 ONCA 709, Naylor Group Inc v Ellis-Don Construction Ltd, 2001 SCC 58, leave to appeal refused, [2016] SCCA No 509, Courts of Justice Act, RSO 1990, c C43, ss 127, 128 & 130

Almalki v Canada (Attorney General), 2019 ONCA 26

Keywords: Alternative Fee Arrangements, Contingency Fees, Legal Fees, Civil Procedure, Contractual Interpretation, Costs, Solicitors Act, RSO 1990, c S-15, Rules of Civil Procedure, RRO 1990, Reg 194, 56 King Inc v Aviva Canada Inc, 2017 ONCA 408

TFS RT Inc v Dyck, 2019 ONCA 25

Keywords: Civil Litigation, Summary Judgment, Loan Agreement, Guarantee, Pending Receivership Proceedings, Motion for Summary Judgment, Interest Rate, Interest Act, RSC 1985, c I-15, s 4, Solar Power Network Inc v ClearFlow Energy, 2018 ONCA 727, Forbearance Agreement, Modern Commercial Reality, Party Sophistication

McKnight v Ontario (Transportation), 2019 ONCA 28

Keywords: Personal Injury, Motor Vehicle Accidents, Damages, Mistrials, Amending Pleadings, Dunk v Kremer, 2018 ONCA 274

Cherrier v Canada (Attorney General), 2019 ONCA 20

Keywords: Labour Law, Administrative Law, Constitutional Law, Collective Bargaining, Seniority, Arbitration, Discrimination, Procedural Fairness, Fresh Evidence, Canadian Charter of Rights and Freedoms, ss 7, 15, Canada Labour Code, RSC 1985, c L-2, s 18.1(2)(a)

Vatcher v Quazi, 2019 ONCA 18

Keywords: Real Estate, Agreement of Purchase and Sale, Mitigation, Contractual Interpretation, Summary Judgment, Procedural Fairness

Short Civil Decisions

Lee v Choice Bank Limited, 2019 ONCA 24

Keywords: Appeal Dismissed

Criminal Decisions

R v Boast, 2019 ONCA 19

Keywords: Criminal Law, Harassment, Evidence, Witness Identification, Criminal Code, s 372(4)

R v Brissett, 2019 ONCA 11

Keywords: Criminal Law, Drug Trafficking, Delay, Canadian Charter of Rights and Freedoms, s 11(b), R v Sinclair, 2011 SCC 40, R v Jordan, 2016 SCC 27, R v Albinowski, 2018 ONCA 1084

R v Deiaco, 2019 ONCA 12

Keywords: Criminal Law, Human Trafficking, Assault, Kidnapping, Sentencing, Evidence, R v Duncan, 2016 ONCA 754, R v Edwards (2001), 54 OR (3d) 737 (CA)

R v Benjamin, 2019 ONCA 10

Keywords: Criminal Law, Drug Trafficking, Delay, Canadian Charter of Rights and Freedoms, s 11(b)

R v Wawrykiewicz, 2019 ONCA 21

Keywords: Criminal Law, Drug Trafficking, Search and Seizure, Evidence, Sentencing, Canadian Charter of Rights and Freedoms, s 8, Trespass to Property Act, RSO 1990, c T.21, FL Receivables Trust 2002-A v Cobrand Foods Ltd, 2007 ONCA 425, R v Bryan, 2011 ONCA 273

R v FF, 2019 ONCA 17

Keywords: Criminal Law, Sexual Assault, Sufficiency of Reasons

R v Saliba, 2019 ONCA 22

Keywords: Criminal Law, Sexual Assault, Sexual Interference, Invitation to Sexual Touching, Internet Luring, Sentencing, Prior Convictions, Aggravating Factors, Mitigating Factors, Evidence, Similar Facts, Prejudice, Jury Instructions, R v Saliba, 2013 ONCA 661, R v Kienapple, [1975] 1 SCR 729, R v Adjei, 2013 ONCA 512, leave to appeal refused, [2014] SCCA No 72, R v Prince, [1986] 2 SCR 480, R v Shah, 2017 ONCA 872, R v Rayo, 2018 QCCA 824

R v KS, 2019 ONCA 14

Keywords: Criminal Law, Evidence, Sufficiency of Reasons

R v Fiddes, 2019 ONCA 27

Keywords: Criminal Law, Break and Enter, Theft, Possession of Stolen Property, Possession of Break-In Instruments, Possession of Ammunition, Drug Possession, Sentencing, Prior Convictions, Mitigating Factors, Sufficiency of Reasons, Victim Fine Surcharge, Canadian Charter of Rights and Freedoms, s 8, 9, 24, R v Boudreault, 2018 SCC 58

R v Strong, 2019 ONCA 15

Keywords: Criminal Law, Drug Trafficking, Marijuana, Sentencing

Provincial Offences

Ontario (Labour) v New Mex Canada Inc, 2019 ONCA 30

Keywords: Provincial Offences, Sentencing, Occupational Health and Safety, Proportionality, Deterrence, Parity, Restraint, Moral Blameworthiness, Incarceration, Occupational Health and Safety Act, RSO 1990, c O.1, ss 25(2)(a) & 32(a), Industrial Establishments, RRO 1990, Reg 851, s 85(a), Provincial Offences Act, RSO 1990, c P.33, R v Lacasse, 2015 SCC 64, R v M (CA), [1996] 1 SCR 500, R v Anderson, 2014 SCC 41, Re BC Motor Vehicle Act, [1985] 2 SCR 486, R v Ipeelee, 2012 SCC 13, [2012] 1 SCR 433, R v Cotton Felts Ltd (1982), 2 CCC (3d) 287 (Ont CA), R v Priest (1996), 30 OR (3d) 538 (CA), R v Di Franco, 2008 CanLII 8785 (Ont SC)

Constitutional Reference

Reference re Greenhouse Gas Pollution Pricing Act, 2019 ONCA 29

Keywords: Reference, Constitutionality, Interveners, Greenhouse Gas Pollution Pricing Act, SC 2018, c 12, s 186, Bedford v Canada (Attorney General), 2009 ONCA 669

CIVIL DECISIONS

The Guarantee Company of Canada v Royal Bank of Canada, 2019 ONCA 9

[Hoy A.C.J.O., Doherty, Sharpe, Roberts and Fairburn JJ.A.]

Counsel:

J. Hunter and H. Pitcher, for the appellant, The Attorney General of Ontario

M. B. Lerner and S. M.J. Rollwagen, for the appellant, The Guarantee Company of North America

S. Babe and M. Spence, for the respondent, Royal Bank of Canada

R. M. Slattery, for the respondent, A-1 Asphalt Maintenance Ltd. (Receiver of)

P. Cavalluzzo and A. St. John, for the intervener, LIUNA Local 183

Facts:

This appeal arises from a priority dispute between certain creditors and employees of a bankrupt company, A-1 Asphalt Maintenance Ltd. (“A-1”). The issue was whether the funds owing to, or received by, a bankrupt contractor and impressed with a statutory trust created by s. 8(1) of the Construction Lien Act, RSO 1990, c C. 30 (“CLA”), were excluded from distribution to the contractor’s creditors, pursuant to s. 67(1)(a) of the Bankruptcy and Insolvency Act, RSC 1985, c B-3 (“BIA”). The motion judge concluded that the funds were not excluded from A-1’s estate and were available for distribution to creditors.

A-1, an Ontario corporation engaged in the paving business, filed a Notice of Intention to make a proposal under the BIA. It subsequently failed to file a proposal and was deemed bankrupt. At the time of its bankruptcy, it had four major ongoing paving projects (the “Four Projects”) which had outstanding accounts receivable for work performed by A-1. The bankruptcy judge directed the Receiver to establish a “Paving Projects Account”, in which all receipts from the Four Projects were to be deposited into, and a general post-receivership account. The order also provided that the segregation of receipts by the Receiver between the two Post Receivership Accounts would be without prejudice to the existing rights of any party and would not create any new rights in favour of any party. A subsequent order provided that funds from other projects would be deposited into the Paving Projects Account.

Funds for the Four Projects (the “Funds”) were paid to the Receiver, who deposited them into the Paving Projects Account. That amount represented debts owing to A-1 stemming from the Four Projects when A-1 filed its Notice of Intention to make a proposal. While the Receiver commingled the trust funds received from A-1’s various paving projects into the Paving Projects Account, the allocation of the funds in the Paving Projects Account to each specific project was identifiable because of the Receiver’s accounting.

A priority dispute arose between: Royal Bank of Canada (“RBC”) as a secured creditor of A-1 pursuant to a general security agreement; Guarantee Company of North America (“GCNA”) as a bond company and secured creditor of A-1 that paid out twenty CLA Lien claims to certain suppliers and subcontractors of A-1 and was subrogated to those claims; and, certain employees represented by unions. RBC took the position that the Funds formed part of A-1’s estate available to creditors. GCNA and the unions took the position that the Funds were s. 8(1) CLA trust funds that must be excluded from A-1’s property on bankruptcy, pursuant to s. 67(1)(a) of the BIA. All parties agreed that to qualify as a “trust” that is excluded from A-1’s property for distribution to creditors pursuant to s. 67(1)(a) of the BIA, the deemed statutory trust created by s. 8(1) of the CLA must have satisfied the general principles of trust law per British Columbia v Henfrey Samson Belair Ltd, [1989] 2 SCR 24 (“Henfrey”).

IssueS:

(1) Can a statutory deeming provision give rise to certainty of intention?

(a) Is s. 8(1) of the CLA constitutionally valid?

(b) Does the doctrine of paramountcy apply?

(2) Were the debts from the Four Projects choses in action that supplied the required certainty of subject matter for a trust?

(3) Did commingling the Funds mean that the required certainty of subject matter was not present?

(4) Does RBC’s security interest have priority even if the trust created by s. 8(1) of the CLA survives bankruptcy?

Holding:

Appeal allowed.

Reasoning:

(1) Yes. Henfrey contemplated that a provincial statute can supply the required element of certainty of intention for a statutory trust, and the trust created by the CLA, s. 8(1) did not give rise to an operational conflict with the BIA, s. 67(1)(a). The motion judge did not deal with the issue of certainty of intention in her reasons and appeared to have assumed it was created by s. 8(1). However, RBC argued that it was necessary to prove that the settlor had the subjective intention to create a trust, and this argument appeared to rest on a broad proposition that the three certainties must be established on facts independent of any statutory deeming provisions.

(a) Yes. The Court of Appeal found that s. 8(1) was constitutionally valid. The Court found that there was no issue that the CLA, as a whole, was valid provincial legislation in relation to property and civil rights in the province. The s. 8(1) trust must be seen as an integral part of the scheme of holdbacks, liens and trusts, designed to protect the rights and interests of those engaged in the construction industry and to avoid the unjust enrichment of those higher up on the construction pyramid. That purpose exists outside the bankruptcy context. Accordingly, the s. 8(1) trust was a matter that was the proper subject of legislation relating to property and civil rights in the province: John MM Troup Ltd et al v Royal Bank of Canada, [1962] SCR 487, at p. 494.

(b) No. No conflict between the s. 8(1) CLA trust and the BIA arose. The doctrine of paramountcy therefore did not apply. The BIA was valid federal legislation dealing with bankruptcy and insolvency. It has the dual purpose of ensuring the orderly and equitable distribution of the assets in the event of insolvency and enabling the rehabilitation of those who have suffered bankruptcy: Husky Oil Operations Ltd v Minister of National Revenue, [1995] 3 SCR 453 (“Husky Oil”), at para. 7. Parliament has the authority under s. 91(21) of the Constitution Act, 1867, to define terms in the BIA without reference to provincial law: Husky Oil, at para. 32. As McLachlin J. held in Henfrey, the definition of “trust” which is operative for the purposes of the BIA is that of Parliament, not the provincial legislatures: p. 35.

The Court of Appeal agreed with the motion judge that Henfrey addressed the paramountcy issue, stating that Henfrey held that Parliament only intended s. 67(1)(a) of the BIA to apply to trusts arising under general principles of law, namely trusts that meet the three certainties: p. 34. It followed that if a province purported to legislate into existence a trust that lacked one or more of the three certainties, the trust would not survive in bankruptcy: Henfrey, at p. 35. A provincial deemed statutory trust that lacked one or more of the three certainties would be in operational conflict with the meaning of trust in s. 67(1)(a), making it impossible for the receiver to comply with both the BIA and provincial legislation deeming the trust into existence. The Court of Appeal found that Henfrey contemplated and required courts to look to the deeming language of a statute to determine whether there is certainty of intention. The Court of Appeal found that no conflict between the s. 8(1) CLA trust and the BIA arose, and the paramountcy doctrine was not triggered on the basis that the deemed statutory trust lacked certainty of intention. The Court of Appeal reached this conclusion for five reasons:

(i) It was appropriate to look to provincial statutory law to determine whether a trust satisfied the three certainties required under Henfrey. The Supreme Court of Canada has recognized that the application of the national regime of insolvency and bankruptcy would vary to some extent from province to province due to differences in provincial law in relation to property and civil rights: Husky Oil, at para. 38. Because property and civil rights are determined by provincial law, the BIA cannot and does not operate as a watertight compartment. Its application to a significant degree depends upon provincial law definitions of various forms of property. As stated in Husky Oil at para. 30, the BIA “is contingent on the provincial law of property for its operation” and “is superimposed on those provincial schemes when a debtor declares bankruptcy”. This means that “provincial law necessarily affects the ‘bottom line’” in bankruptcy, and this, said the Supreme Court of Canada, “is contemplated by the [BIA] itself.” It is the “substance of the interest created” by the provincial law that is “relevant for the purpose of applying the Bankruptcy Act”: Husky Oil, at para. 40. The Supreme Court has held that section 72 of the BIA demonstrates that Parliament intended provincial law to continue to operate in the bankruptcy and insolvency context unless it was inconsistent with the BIA: Saskatchewan (Attorney General) v Lemare Lake Logging Ltd, 2015 SCC 53, at para. 49. In the Court of Appeal’s view, the principles and concepts of provincial law must include provincial statutory law, and it was appropriate to look to provincial law to determine whether a trust satisfies the three certainties required for it to operate in bankruptcy.

(ii) Henfrey itself contemplated that the statute deeming the trust into existence could provide the required certainty of intention. The Court of Appeal stated that Henfrey supported the proposition that provinces can create trusts by statute that would survive bankruptcy by legislating the requirements for a trust under general principles of law.

(iii) The s. 8(1) CLA trust neither created an operational conflict with the BIA nor did it engage policy concerns cited in Henfrey because the s. 8(1) trust neither attempted to create a general floating charge over all of the bankrupt’s assets, nor attempted to obtain a higher priority for the provincial Crown. RBC argued that the Supreme Court of Canada in Henfrey was concerned with preventing a province from elevating the priority of a Crown claim by deeming it to be a trust claim: Henfrey, at p. 33, and held that the provincial Crown could only obtain a higher priority by benefiting from rights that could be “obtained by anyone under general rules of law”: Henfrey, at pp. 31–32, quoting Québec (Deputy Minister of Revenue) c Rainville, [1980] 1 SCR 35 (“Rainville”), at p. 45. However, the Court of Appeal stated that the amendments Parliament made to s. 67 of the BIA via s. 67(2) confirmed the distinction drawn between provincial legislation that created a priority in favour of the province and the type of statutory trust at issue in this case. The Supreme Court of Canada held that this amendment reflected Parliament’s intention to rank the Crown with ordinary creditors in most bankruptcy scenarios: Québec (Revenue) v Caisse populaire Desjardins de Montmagny, 2009 SCC 49 (“Desjardins”), at paras. 12–15.

Furthermore, the policy concern about the reordering of priorities in favour of the province that the Henfrey court identified was not relevant to the trust that s. 8(1) of the CLA created. The deemed statutory trust that s. 8(1) of the CLA created benefits private parties in the Ontario construction industry, not the provincial Crown. Ontario did not create a “personal preference” for itself: Henfrey, at p. 32, quoting Rainville, at p. 45. The trust that s. 8(1) of the CLA created did not attempt to create a general floating charge over the bankrupt’s assets that would constitute a prohibited “general priority.” Instead, it impressed specific property – the funds owing to or received by the contractor or subcontractor – with the trust.

(iv) There was no frustration of the purpose of the BIA that would render s. 8(1) of the CLA inoperative. Excluding s. 8(1) CLA trust funds from distribution to A-1’s creditors was consistent with the objective of the BIA to provide for the equitable distribution of the bankrupt’s remaining assets. The purpose of the CLA trust is to create a “closed system” to protect those suppliers and contractors down the construction pyramid and to ensure that the funds are not diverted prior to reaching their beneficial owner. The CLA scheme is directed at equity and at preventing the unjust enrichment of those higher up in the construction pyramid.

(v) The cases RBC relied upon on this point were all distinguishable. Most notably, RBC argued that GMAC Commercial Credit Corporation – Canada v TCT Logistics Inc (2005), 74 OR (3d) 382 (CA) (“GMAC”) stood for the proposition that deemed statutory trusts could never survive in bankruptcy. The Court of Appeal stated that GMAC seemed to have assumed that Parliament intended to only protect deemed statutory trusts in favour of the Crown and not those in favour of private parties. The Court of Appeal found that such an assumption runs contrary to Desjardins, where the Supreme Court of Canada held that Parliament enacted ss. 67(2) and (3) to limit the Crown’s priority and rank the Crown with ordinary creditors in most bankruptcy scenarios: at paras. 12–15.

(2) Yes. The motion judge erred by finding that the requirement of certainty of subject matter was not met in this case. The amounts owed on account of the Four Projects were debts. It is well-established that a debt is a chose in action which can properly be the subject matter of a trust. In Citadel General Assurance Co v Lloyds Bank Canada, [1997] 3 SCR 805, at para. 29, the court stated: “[a] debt obligation is a chose in action and, therefore, property over which one can impose a trust”. It did not matter that neither of the debtors for the Four Projects had created segregated accounts or specifically earmarked the source of the funds they would use to pay the debts they owed for the paving projects. The statutory trust attached to the property of the contractor or subcontractor, namely the debt, not to the funds the debtor would use to pay that debt. Section 8(1) embraces “all amounts, owing to a contractor or subcontractor, whether or not due or payable”. It followed that at the moment of A-1’s bankruptcy, the trust created by s. 8(1) was imposed on the debts owed to A-1.

(3) No. The motion judge erred by ruling that the requisite certainty of subject matter was not made out. The evidence clearly established that the funds paid out for each paving project were readily ascertainable and identifiable. They were commingled only to the extent that they had all been paid into the same account but they had not been converted to other uses and they did not cease to be traceable to the specific project for which they had been paid. Commingling of trust money with other money can destroy the element of certainty of subject matter, but only where commingling makes it impossible to identify or trace the trust property. Subsequent jurisprudence also fortified this conclusion, including the Supreme Court of Canada’s decision in BMP Global Distribution Inc v Bank of Nova Scotia, 2009 SCC 15, where it held that the mixing of funds does not necessarily bar recovery and that it is possible to trace money into bank accounts as long as it is possible to identify the funds: at para. 85.

(4) No. The Court of Appeal declined to consider whether RBC’s security interest had priority even if the trust created by s. 8(1) of the CLA survived bankruptcy. RBC did not advance this argument before the motion judge nor did it introduce its general security agreement with A-1 into the record. A respondent on appeal cannot seek to sustain an order on a basis that is both an entirely new argument and in relation to which it might have been necessary to adduce evidence before the lower court: see R v Perka, [1984] 2 SCR 232, at p. 240.

Apotex Inc v Nordion (Canada) Inc, 2019 ONCA 23

[Strathy C.J.O., Benotto and Roberts JJ.A.]

Counsel:

J.A. Campion, A. Di Domenico and S. Clark, for the appellants/respondents by way of cross-appeal

D.S. Murdoch, J.S.A. Moss and E. Nixon, for the respondent/appellant by way of cross-appeal

Facts:

The appellants conducted clinical research trials and studies for the respondent in support of its regulatory filings with the American FDA for generic drugs. In May 1999, the parties signed a “Master Laboratory Services Agreement” (the “MLSA”), which set out the general terms for the services that the appellants were providing. In 2003 and 2004, the parties signed three separate project agreements for the appellants to conduct trials on two different drugs that were the subject of the respondent’s FDA filings.

Shortly after the parties entered into the 2003 project agreement, and unbeknownst to the respondent, an FDA inspector inspected the appellants’ Montreal facility and issued a standard-form notice expressing concerns about potential contamination in the laboratory and about the storage and preservation of samples. Further FDA inspections over the next eight months led to the issuance of additional notices.

Over the next 3½ years, the FDA conducted further inspections of the Montreal facility, repeatedly issuing standard-form notices and thrice issuing formal endorsements of those notices. These formal endorsements recommended corrective action, and were publically posted on the FDA’s website. The respondent was made aware of these ongoing problems, although the appellants provided assurances that they were working with the FDA to resolve these issues.

On April 24, 2006, the respondent received a “deficiency letter” from the FDA relating to its filings for the latter two project agreements, citing concerns about the appellants and advising that the application for approval could not proceed until the concerns were resolved. The respondent expected that the FDA’s position would apply to the first project agreement as well.

The respondent contacted the appellants to request a response to the FDA’s notice. On May 8, 2006 in an internal email chain, the respondent noted that if the respondent was not able to respond to the deficiency notice by the end of May 2006, the internally projected approval date for the latter two project agreements should be shifted to November 2006.

In January 2007, the FDA informed the respondent that it would not accept the appellants’ studies as a result of concerns about the integrity of studies carried out by the appellants at their Montreal facility. In order to obtain FDA approval for the drugs, the respondent had to repeat the studies or obtain independent third party certification of the appellants’ studies, resulting in additional costs and lost profits due to the delay in its ability to sell the drugs in the US market. The respondent repeated the studies for both drugs and obtained independent certification. It ultimately amended or re-submitted its FDA filings, received FDA approvals, and began selling the drugs in the US until the FDA imposed an import ban unrelated to the appellants’ issues in early September 2009.

The respondent commenced the action against the appellants on November 10, 2008, claiming damages for breach of contract and negligence. The trial judge found that the appellants had breached their contract and were negligent in their performance of the clinical trials and studies.

The appellants asserted a limitations defence, claiming that the two-year discovery period had elapsed before the respondent had brought its claim. The trial judge concluded that although the first three requirements set out in ss. 5(1)(a) of the Limitations Act, 2002 had been met on May 8, 2006 – when the respondent changed its internal estimate for FDA approval of its filings – discovery was postponed by virtue of s. 5(1)(a)(iv) until the respondent knew “that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it”. That requirement was met on December 11, 2006, when a representative of the respondent spoke to the FDA and learned that it would not accept the appellants’ studies.

With respect to damages, the trial judge awarded approximately $8.3 million for lost profits caused by the delay in approval of the drugs for sale in the US market, and approximately $3 million for the costs of repeating and certifying the MDS studies. The trial judge held that the respondent was entitled to prejudgment interest from the date of the commencement of the action until the date of judgment in accordance with the Courts of Justice Act.

The respondent submitted that the appropriate interest rate was 3.3% per annum, the bank rate in effect for the quarter in which the action was commenced. The appellants asked the trial judge to exercise his discretion under s. 130 of the Courts of Justice Act to fix a different rate, noting that there had been a fluctuation in interest rates in the over 9 years between the commencement of the action and judgment. Accordingly, the appellants suggested either a variable rate or an average rate.

The trial judge applied the rate of 3.3% per annum, awarding roughly $3.4 million in interest. The trial judge noted that fluctuation of interest rates is only one factor in deciding whether to depart from the presumptive rate, and its significance depends on the extent of the fluctuation. In this case, he found that the extent of the fluctuation did not justify a deviation from the presumptive rate. The trial judge awarded interest from the date the action was commenced, rather than the date on which the respondent wrote a demand letter giving notice of its claim (January 8, 2007), to reflect what he considered to be a significant unexplained delay in commencing the action.

On appeal, the appellants contended that the trial judge erred in finding a breach of contract, that the claim was not statute-barred, in finding that the respondent had reasonably mitigated its damages, and in the calculation of prejudgment interest. By way of cross-appeal, the respondent argued that the trial judge erred in his assessment of damages for lost profits.

IssueS:

(1) Did the trial judge err in finding that the respondent’s action was not statute-barred?

(2) Did the trial judge err in finding that the appellants were liable for breach of contract and in finding that the respondent had mitigated its damages?

(3) Did the trial judge err in his assessment of pre-judgment interest?

(4) Did the trial judge err in his calculation of damages for lost profits?

Holding:

Appeal and cross-appeal dismissed.

Reasoning:

(1) No. The Court of Appeal agreed with the trial judge that the claim was not statute-barred, but disagreed with how the trial judge reached that conclusion. The Court of Appeal held that the first three elements of s. 5(1)(a) of the Limitations Act, 2002, were not met on May 8, 2006, but rather were met on December 11, 2006. The Court then turned to a detailed review of the Limitations Act, 2002 itself in order to explain this conclusion.

First, the Court stressed that the elements of s. 5(1)(a) are conjunctive, such that the plaintiff must know that the damage that they suffered was caused by an act or omission of the defendant. With respect to claims for breach of contract, the limitation period does not necessarily run from the date of the breach, since all of the conditions under s. 5(1)(a) must be met. In other words, the plaintiff must also know about the damage it suffered, and must know that the defendant caused that damage by an act or omission.

Noting that the complex issue in this case was determining when the breach of contract occurred, the Court concluded that the respondent only became fully aware of the damage, and the fact that the appellants had caused it, on December 11, 2006, when the FDA communicated that the studies were not acceptable due to the regulatory compliance issues. The trial judge erred in finding that the respondent extending its internal “approval date” for the projects on May 8, 2006, was evidence of its knowledge of damage caused by the appellants, as this “approval date” was simply an internal estimate.

Further, the Court noted that on May 8, the FDA had not yet taken a firm position on whether the appellants’ studies complied with FDA requirements. It was not until January 7, 2007, that the FDA formally rejected the studies, although the respondent was aware of this by December 11, 2006.

As a final note on this issue, the Court observed that although the respondent knew before December 11, 2006, that its projected launch date would be extended (i.e., its “approval date” would be moved back), the respondent had reason to believe that this delay could simply have been a result of the usual course of the FDA approval process.

(2) No. The trial judge’s interpretation of the MLSA was reasonable and entitled to deference. In fact, the trial judge’s findings on this point were fully supported by the evidence. With respect to mitigation, the Court similarly found no error in the trial judge’s conclusion that it was reasonable for the respondent to allow the appellants to address the FDA’s concerns once it learned that the FDA was not satisfied with the appellants’ efforts.

(3) No. Section 130 of the Courts of Justice Act gives the court broad discretion to award interest at a rate other than the presumptive rate pursuant to ss. 127 and 128, where it is “just to do so”. In declining to exercise that discretion, the trial judge considered the factors set out in s. 130 and the appellant’s submissions. Accordingly, the trial judge committed no error.

(4) No. The determination of lost profits required a calculation of two variables. First, the period during which the respondent would have sold the two drugs in the US market “but for” the delay caused by the appellants’ breaches – i.e., the delay period. Second, the net revenue the respondent would have earned during the delay period, based on its projected sales, less its projected costs of manufacturing and distribution. The determination of projected sales depended, in part, on the respondent’s estimated market share for the drugs in the generic market. The greater its market share, the higher the estimated sales during the delay period, and the greater the damages.

The Court found that the trial judge made no error in accepting the evidence of the appellants’ experts over that of the respondent’s. He rejected the evidence of the respondent’s expert and gave cogent reasons for doing so. Given that the “palpable and overriding error” standard of review applies to a trial judge’s assessment of conflicting expert evidence, the Court saw no reason to interfere.

Almalki v Canada (Attorney General), 2019 ONCA 26

[Doherty, Miller and Paciocco JJ.A.]

Counsel:

P.I. Waldmann, for the appellants

J.T. Curry and T.M.O. Davies, for the respondent, Stockwoods LLP

Facts:

This appeal is in respect of a law firm’s contingency fee agreement with its clients, and specifically the firm’s entitlement to a percentage of a settlement paid to the clients for their legal costs.

The respondent law firm represented the appellants in respect of their lawsuit against the Government of Canada in respect of one of the appellant’s detention and torture in Syria (the lawsuit was brought by this individual and his family). The parties agreed to a contingency fee agreement in respect of this lawsuit, which provided that the respondent would receive a percentage of any settlement or judgment obtained by the appellants. The percentage depended on the timing and amount of the judgment or settlement. Paragraphs 15 and 16 of the agreement provided that the respondent could apply to court for approval to include in the fee a percentage of any amounts paid to the appellants for legal fees. That amount would be in addition to the percentage of any settlement or judgment owed to the respondent under the agreement. Pursuant to the Solicitors Act, a lawyer can only recover its contingency fee on legal fees if the lawyer and client jointly “apply” to Court for approval, and are able to demonstrate that exceptional circumstances warrant inclusion of the costs.

The contingency agreement included language in paragraph 16 that obligated the appellants to support the respondent’s motion to obtain the Court’s approval to permit the law firm to recover a portion of legal fees.

The action settled, with the settlement providing that the appellants were to receive a specific amount as damages and a specific amount for legal costs. On behalf of the appellants, the respondent sought approval of the settlement as it applied to the infant plaintiffs, and at the same time sought approval of the payment to the law firm of a portion of the amount paid for legal fees. The approval of the settlement was not opposed. However, the named appellant contested the respondent’s right under the contingency fee agreement to claim a portion of the amount paid for the appellants’ legal costs. The settlement was approved, but the issue of the respondent’s entitlement to a portion of legal fees was put over.

A preliminary issue arose regarding whether it was proper to proceed by way of motion in the existing proceeding, or whether a new proceeding had to be commenced. The motion judge who heard the legal fee issue determined that a new proceeding was not required, and held that the relevant provisions in the contingency fee agreement were valid and binding on the appellants. Under those provisions, the appellants were required to join the respondent in its application for court approval to include in the fee payable to the respondent part of the amount paid to the appellants as costs. The motion judge held that the appellants were required by the agreement to support the respondent’s application, and that they could not lead evidence or make submissions opposing its request for court approval of the payment.

The motion judge subsequently held that the respondent had established that “exceptional circumstances” existed, and accordingly, the respondent was entitled to a portion of the amount paid to the appellants as legal fees. She approved the payment of that portion of the costs as set out in the contingency fee agreement, and awarded the respondent its costs on the motions.

IssueS:

(1) Did the motion judge err in allowing the respondent to proceed by motion rather than requiring a new proceeding by way of application?

(2) Did the motion judge err in interpreting paragraph 16 of the contingency fee agreement?

(3) Did the motion judge err in denying the appellants the opportunity to make submissions on the existence of “exceptional circumstances”?

(4) Did the motion judge err in finding exceptional circumstances?

(5) Should leave be granted to appeal the motion judge’s costs order?

Holding:

Appeal dismissed.

Reasoning:

The Court of Appeal identified section 28.1(8) as the key provision for the purposes of this case. The Court identified two important functions of s. 28.1(8). The first function is to prohibit a lawyer from taking both a percentage of the amount paid to the clients for damages and a percentage of the amount paid for legal fees.

However, the section function is to qualify the prohibition by the exception set out in the rest of the section. That exception applies if the two criteria set down in subsections (a) and (b) are met. Subsection (a) requires that the solicitor and client bring a joint application before the court seeking approval of the term providing for payment of all or a portion of the costs paid to the client. Subsection (b) requires that the court be satisfied that “exceptional circumstances” exist justifying the inclusion of the provision requiring payment of all or part of the costs to the lawyer as part of the contingency fee agreement.

After discussing s. 28.1(8), the Court then turned to its analysis of the decision below.

(1) Does the matter have to proceed by way of application? No. The Court held that the word “apply” in s. 28.1(8) does not refer to the need to bring a formal application as described in the Rules of Civil Procedure, but rather simply indicates that the parties must jointly put the matter before the court seeking the approval. In this case, the motion under s. 28.1(8) was brought with a motion for approval of the settlement as it related to the infant appellants. The enforceability of the contingency fee agreement as against all of the appellants was properly viewed as part of the motion for the approval of the settlement and the contingency fee agreement as it related to the infant appellants.

However, the Court also observed that the matter could also have been brought by way of application. The Court concluded its analysis on this issue by observing that the appellants failed to demonstrate any prejudice flowing from proceeding by way of motion rather than application.

(2) Did the judge err in interpreting the agreement? No. The Court of Appeal found that, regardless of which standard of review applied, the motion judge’s interpretation of paragraph 16 of the agreement was the correct interpretation. The agreement was the product of lengthy negotiations between the parties, and the respondent recommended that the appellants obtain independent legal advice (which they did). Further, the evidence indicated that the named appellant understood the terms of the agreement and the possibility that the respondent might ultimately be owed a portion of the amounts paid for legal costs. In the circumstances, there was no evidence of fraud, duress, or unconscionability.

The Court further rejected the appellants’ submission that paragraph 16 contemplates that the appellants would be free to assess the circumstances at the time of the respondent’s application and determine whether to support the respondent claim that “exceptional circumstances” existed justifying the payment. Rather, the plain wording of paragraph 16 clearly indicated that the appellants would agree to join the respondent’s application for the payment.

Lastly, the Court rejected the appellants’ contention that paragraph 16 was contrary to s. 28.1(8), noting that a client who agrees to give up the effective veto over the payment contemplated by s. 28.1(8) does so upon a consideration of the other terms of the agreement, and in particular, the percentage of the damages the client will be required to pay to the lawyer. In the present case, the named appellant was in a position to assess the likelihood of “exceptional circumstances” developing in the course of this litigation. The interpretation favoured by the motion judge promoted the effective operation of the client and solicitor relationship in cases where the retainer involves a contingency fee agreement. As such, paragraph 16 of the agreement was perfectly consistent with s. 28.1(8) of the Solicitors Act.

(3) Did the judge err in refusing to permit the appellants to argue there were no exceptional circumstances? No. The Court swiftly rejected this argument, noting that this was essentially a reformulation of the second issue. The proper interpretation of paragraph 16 disposed of any procedural fairness argument, as procedural fairness could not demand that the appellants be given the opportunity to do something they promised they would not do.

(4) Did the judge err in finding exceptional circumstances? No. The factors identified by the motion judge were properly considered by her. Those factors included the factual and legal complexity of the litigation, the substantial financial risk assumed by the respondents during the several years in which it represented the appellants, the significant importance of the litigation – not only to the parties, but to the public – and the immense resources expended by the respondents in achieving what was a very good result for the appellants. In my view, these factors, all of which were supported by the record before the motion judge, justified the motion judge’s finding of “exceptional circumstances”.

(5) Should leave be granted to appeal the costs awarded against the appellants? No. The Court concluded that there was no arguable case against the entitlement of costs in relation to the time spent by the respondent’s lawyers on the motion. Indeed, using lawyers familiar with the file may well have reduced the costs.

TFS RT Inc v Dyck, 2019 ONCA 25

[Rouleau, van Rensburg and Zarnett JJ.A.]

Counsel:

C. Edwards, for the appellants

M. Shapiro and M. Brzezinski, for the respondents

Facts:

The appellants appealed the summary judgment granted against them to enforce guarantees in favour of the respondents. The individual appellants were the officers, directors, shareholders of the corporate appellant. They were also the directing minds of another corporation (the “Borrower”) that incurred obligations to the respondents under a Loan Agreement which were guaranteed by the appellants. The Borrower later defaulted under the Loan Agreement. The Loan Agreement provided that advances under it would bear interest before maturity at the rate of 2.5% per 30 days, and after maturity at an additional rate of 0.416% per 30 days (5% per annum). Loan statements, which were never disputed, showed that interest was calculated at 30% prior to maturity, which the motion judge interpreted to describe a per annum rate, and 35% per annum after maturity.

After demands by the respondents under the Loan Agreement and the guarantees, a Forbearance Agreement was entered into by the appellants, the Borrower, and the respondents. The Forbearance Agreement stated the amount then owing for principal and interest. The motion judge found that this amount clearly calculated an interest rate of 30% per annum pre-maturity and 35% per annum afterwards. It also contained covenants by the Borrower and the appellants that there were no defences to the amount owed and that the Loan Agreement and guarantees were binding. The Borrower did not make the payments the Forbearance Agreement required, and the respondents commenced proceedings for the appointment of a receiver over the assets of the Borrower.

The motion judge found that by five days before the pending receivership proceedings, counsel for the Borrower, who were also counsel for the appellants, were aware of a potential argument that the interest payable by the Borrower under the Loan Agreement should be reduced and limited by virtue of s. 4 of the Interest Act, RSC 1985, c I-15.

In the pending receivership proceedings, an endorsement was made recording an agreement (the “Agreement”) between the Borrower and the respondents where the Borrower would forgo any argument, defence or counterclaim regarding the quantum of the outstanding obligations, including the accrued and accruing interest. Subsequently a receiver was appointed and realizations were made from the Borrower’s assets and distributed to the respondents under court order. The payments to the respondents were not reduced by virtue of the Interest Act.

The motion judge found that he did not have to determine whether the Loan Agreement violated the Interest Act, because the combined effect of the Forbearance Agreement and the orders consented to or made in the receivership, including the Agreement, foreclosed any such argument and granted summary judgment against the appellants.

IssueS:

(1) Did the motion judge err in not considering it necessary to determine whether the Interest Act was violated?

(2) Could the Forbearance Agreement and Agreement have the effect the motion judge gave them?

(3) Were the Appellants parties to the Agreement?

Holding:

Appeal dismissed.

Reasoning:

(1) No. The Court of Appeal found it was not necessary to consider whether or not the Interest Act was violated as the Loan Agreement and loan statements could together be taken as providing the required yearly equivalent rate. This was because of the sophistication of the parties and the comments of the Court of Appeal in Solar Power Network Inc v ClearFlow Energy, 2018 ONCA 727 about interpreting s. 4 of the Interest Act to accord with “modern commercial reality”.

(2) Yes. Whatever the restrictions that may exist on contracting out of the Interest Act, the parties did not dispute that potential Interest Act arguments can be consensually resolved and such a resolution would be binding. This is exactly what the Agreement was.

(3) Yes. The Court of Appeal found that the appellants were parties to the Agreement. The appellants were the Borrower’s directing minds and were represented to the same counsel. When they directed the Borrower to make the Agreement, they had knowledge of the potential Interest Act issue and must be taken to have consented to the waiver by the borrower of any defence or dispute based on it, confirming the borrower’s obligations which they had guaranteed. The Appellants cannot contend that interest was calculated and agreed to by the borrower in accordance with the Agreement but interest would be calculated in a different way for the Appellant as guarantor.

McKnight v Ontario (Transportation), 2019 ONCA 28

[Sharpe, Juriansz and Roberts JJ.A.]

Counsel:

S. Ross and A. Yolles, for the appellants

C. Morrison and J. Cormier, for the respondent

Keywords: Personal Injury, Motor Vehicle Accidents, Damages, Mistrials, Amending Pleadings, Dunk v Kremer, 2018 ONCA 274

Facts:

This appeal arose out of a relatively minor motor vehicle accident, in which the respondent-plaintiff alleged that caused him to suffer from chronic pain, anxiety and depression. At the jury trial, the appellants took the position that many of the respondent’s complaints were the product of pre-accident psychological trauma and stress from the litigation. During his cross-examination, the respondent exhibited signs of stress and complained that the appellants’ trial counsel was yelling at him and that he was asking about the suicide of the respondent’s stepfather. In re-examination, he complained that the appellants’ counsel had also yelled at him and questioned him about his step-father’s suicide during his examination for discovery.

The trial judge ruled that evidence about what had transpired on the discovery was not admissible as it risked making the appellants’ counsel a witness. Subsequently, the respondent’s psychiatrist was asked to comment on the stress of the lawsuit. The psychiatrist testified that the respondent felt abused and mistreated by the appellants’ counsel and opined that the counsel’s conduct had a negative impact on the respondent’s psychological condition.

The appellants asked the trial judge to declare a mistrial. The trial judge refused, holding that while the evidence should not have been introduced and was prejudicial to the appellants, any prejudice could be cured by a mid-trial jury instruction. The trial judge instructed the jury that the allegation against the appellants’ counsel was inadmissible, was to be totally disregarded and that the jury should not even speculate whether any such comments had been made. He told the jury the same thing applied to the psychiatrist’s testimony. He told them that the history and statements of the respondent contained in the doctor’s evidence should not be considered as evidence in itself, but simply as the basis of the doctor’s diagnosis and treatment.

With respect to damages, the statement of claim sought only $250,000 special damages and $750,000 general damages. The jury awarded $600,000 for non-pecuniary general damages; $840,000 for loss of income; $860,000 for future health care expenses and special damages within the limit claimed in the statement of claim. The jury was not instructed on the “cap” for non-pecuniary general damages and the trial judge reduced that award to the then current cap, $379,153.00. The trial judge then granted the respondent’s motion to amend the statement of claim to increase the claim for damages in the amount of $2,079,153, in order to allow for judgment in the amount awarded by the jury after the reduction to take into account the cap.

IssueS:

(1) Did the trial judge err in declining to declare a mistrial?

(2) Did the trial judge err in allowing the amendment to the statement of claim?

Holding:

Appeal dismissed.

Reasoning:

(1) No. It is well-established that a mistrial is the remedy of last resort, and the trial judge’s decision to deal with the matter by way of instruction rather than mistrial attracts deference from the Court of Appeal. The jury was appropriately cautioned that litigation is inherently stressful and that the relationship between a plaintiff and defence counsel would be difficult and stressful. The jury was also cautioned about the use it could make of the objectionable evidence. Moreover, over the course of the trial judge’s final charge, the jury was repeatedly instructed to assess the damages issues without sympathy or prejudice, and that damages were intended to be compensation and not a form of retribution against the defendants.

It was well within the discretion of the trial judge to conclude that, in the context of this case, the respondent’s criticism of the conduct of appellants’ trial counsel did not rise to the level of causing an injustice that could only be cured by a mistrial. The fact that the non-pecuniary damages award exceeded the cap and, after amendment by the trial judge, was at the top end of the range, did not demonstrate that the jury was inflamed, particularly in the light of the fact that the jury’s pecuniary damages award was materially less than the damages requested by the respondent.

(2) No. The Court rejected the appellants submission that they prepared for and conducted the litigation on the basis of the amount claimed, and that they were unfairly prejudiced by the amendment. The Court concluded that the trial judge – who was in the best position to assess prejudice – carefully reviewed the record and concluded that the appellants were fully aware of the nature and quality of the respondent’s claim and suffered no prejudice.

The amendment did not alter the case to be met by the appellants and they failed to persuade the trial judge that they would have led different evidence or conducted the case any differently had the amendment been sought earlier.

Cherrier v Canada (Attorney General), 2019 ONCA 20

[Rouleau, van Rensburg and Roberts JJ.A.]

Counsel:

Y. Cherrier, acting in person

S. Phillips, for the respondent, Attorney General of Canada

Facts:

The appellant was formerly employed as a flight attendant by an airline which subsequently merged with Air Canada. At the time of the merger, the appellant and members of the two airlines’ cabin crews were represented by the same union. The Canada Industrial Relations Board later declared the airlines to be a single employer under the Canada Labour Code, RSC 1985, c L-2 (the “Code”). The Board requested under s. 18.1(2)(a) of the Code that the parties seek agreement with respect to the determination of the merged bargaining unit and other issues arising from the declaration, which included the issue of seniority integration. The parties agreed to settle the seniority integration issue in relation to the merged bargaining unit through a mutually agreed upon arbitration process. The arbitrator determined that seniority integration of the merged bargaining unit would be on the basis of the members’ relative position on the seniority lists rather than on date of hire.

The appellant brought a series of unsuccessful proceedings to challenge this finding. The present application saw the appellant seeking a declaration that the integration of seniority rights on the basis of relative position on a seniority list rather than by date of hire contravened his rights under ss. 7 and 15 of the Canadian Charter of Rights and Freedoms (the “Charter”).

Issue:

(1) Did the application judge err in concluding that the integration of the seniority rights of the merged lists did not infringe the appellant’s ss. 7 and 15 Charter rights?

Holding:

Appeal dismissed.

Reasoning:

(1) No. The Court of Appeal saw no basis to interfere with the application judge’s decision. The application judge made no error in concluding that the alleged psychological, emotional and physical stress did not amount to the kind of harm that constitutes an infringement of the appellant’s s. 7 Charter rights. The Court saw no error in the application judge’s finding that the alleged devaluation of the appellant’s seniority concerned harm to economic rights, which are not protected under the Charter and are properly addressed in a collective bargaining process. Further, the application judge did not err in finding that the integration of seniority rights did not result from any discrimination because of age, or other enumerated or analogous ground protected under s. 15 of the Charter.

The Court was not persuaded by the appellant’s argument on the issue of procedural fairness that he was prevented from making several arguments before the application judge. The appellant argued that his counsel did not raise arguments he wanted to raise before the trial judge. The Court stated that counsel and the court are circumscribed by the issues raised by the parties in their pleadings. The appellant pursued all available avenues of relief in his various proceedings in which he already litigated many of the issues he was seeking to raise on appeal and could not pursue those issues in this application. The Court also dismissed the appellant’s motion to adduce fresh evidence because the proposed new evidence concerned matters already litigated and outside the scope of the application, meaning it would not have affected the outcome.

Vatcher v Quazi, 2019 ONCA 18

[Rouleau, van Rensburg and Zarnett JJ.A.]

Counsel:

D. Marcovitch, for the appellants

T. Corsianos, for the respondents

Keywords: Real Estate, Agreement of Purchase and Sale, Mitigation, Contractual Interpretation, Summary Judgment, Procedural Fairness

Facts:

The appellants agreed to purchase the respondents’ property. After the market declined and they were unable to sell their own home, they failed to complete the purchase. The respondents sued for damages, ultimately selling the house at a lower price. They were awarded summary judgment for $135,841.24 and $8,000 in costs.

IssueS:

(1) Did the motion judge err in declining to adjourn the motion?

(2) Did the motion judge err in rejecting the appellants’ interpretation of the agreement?

(3) Did the motion judge err in his conclusion that the respondents had mitigated their damages?

Holding:

Appeal dismissed.

Reasoning:

(1) No. Although the appellants did not attend court on the date that the motion was scheduled, the scheduling judge made it clear in his endorsement that they could move for an adjournment. The appellants were aware of the requirements and deadlines for the submission of responding materials. They did not respond to a letter from opposing counsel setting out a proposed schedule. On the day of the hearing of the motion, the motion judge made every effort to assist the appellants, who had not filed any materials in response to the motion.

Although they did not request an adjournment, the motion judge explored with them the option of retaining counsel and whether they had a defence to the respondents’ claim. Although the appellants referred to the broker having given certain assurances, there was no indication, even after probing by the motion judge, that the broker could offer evidence to assist in the defence of the motion, or that the appellants were seeking an adjournment to put forward evidence.

Indeed, it was only after the motion judge read out his reasons granting the motion that the appellants requested an adjournment and suggested that they wanted the opportunity to bring the broker to court. The refusal at that stage to grant an adjournment was a proper exercise of the motion judge’s discretion, and there was no unfairness in how the motion proceeded.

(2) No. The Court of Appeal rejected the appellants’ contention that a handwritten notation on the agreement regarding the deposit rendered the entire agreement conditional, instead affirming the motion judge’s finding that this notation only addressed the deposit. That interpretation was reasonable and consistent with the evidence.

(3) No. The Court of Appeal agreed with the motion judge that the respondents’ supplementary affidavit – which referred to the downturn in the market and the sale they were able to conclude – was unchallenged at the motion, was sufficient to support their claim for damages, and adequately demonstrated their efforts to mitigate.

SHORT CIVIL DECISIONS

Lee v Choice Bank Limited, 2019 ONCA 24

[Rouleau, van Rensburg and Zarnett JJ.A.]

Counsel:

R. Colson, for the appellant

C. Cosgriffe, for the respondent

Keywords: Appeal Dismissed

CRIMINAL DECISIONS

R v Boast, 2019 ONCA 19

[MacPherson, Roberts and Paciocco JJ.A.]

Counsel:

I. Carter, for the appellant

E.N. Rivers, for the respondent

Keywords: Criminal Law, Harassment, Evidence, Witness Identification, Criminal Code, s 372(4)

R v Brissett, 2019 ONCA 11

[MacPherson, Roberts and Paciocco JJ.A.]

Counsel:

P. Thorning and D. Negandhi, for the appellant

B. Puddington and K. Ramchand, for the respondent

Keywords: Criminal Law, Drug Trafficking, Delay, Canadian Charter of Rights and Freedoms, s 11(b), R v Sinclair, 2011 SCC 40, R v Jordan, 2016 SCC 27, R v Albinowski, 2018 ONCA 1084

R v Deiaco, 2019 ONCA 12

[MacPherson, Roberts and Paciocco JJ.A.]

Counsel:

D. Gildiner, for the appellant

A. Derwa, for the respondent

Keywords: Criminal Law, Human Trafficking, Assault, Kidnapping, Sentencing, Evidence, R v Duncan, 2016 ONCA 754, R v Edwards (2001), 54 OR (3d) 737 (CA)

R v Benjamin, 2019 ONCA 10

[MacPherson, Roberts and Paciocco JJ.A.]

Counsel:

A. Moustacalis, for the appellant

B. Puddington and K. Ramchand, for the respondent

Keywords: Criminal Law, Drug Trafficking, Delay, Canadian Charter of Rights and Freedoms, s 11(b)

R v Wawrykiewicz, 2019 ONCA 21

[MacPherson, Roberts and Paciocco JJ.A.]

Counsel:

G. Lafontaine and Ricardo Golec, for the appellant

K. Wilson and W. Levant, for the respondent

R v FF, 2019 ONCA 17

[MacPherson, Roberts and Paciocco JJ.A.]

Counsel:

M. Halfyard and C. Rudnicki, for the appellant

A. Terrana, for the respondent

Keywords: Criminal Law, Sexual Assault, Sufficiency of Reasons

R v Saliba, 2019 ONCA 22

[MacPherson, Roberts and Paciocco JJ.A.]

Counsel:

A. Ostroff, for the appellant

M. Petrie, for the respondent

R v KS, 2019 ONCA 14

[Doherty, Hourigan and Harvison Young JJ.A.]

Counsel:

J. Marshman, for the appellant

M. Goswami, for the respondent

Keywords: Criminal Law, Evidence, Sufficiency of Reasons

R v Fiddes, 2019 ONCA 27

[Simmons, Lauwers and Trotter JJ.A.]

Counsel:

A.F., in person

H. Freeman, for the respondent

R v Strong, 2019 ONCA 15

[MacPherson, Roberts and Paciocco JJ.A.]

Counsel:

M.C. Halfyard, for the appellant

K. Wilson, for the respondent

Keywords: Criminal Law, Drug Trafficking, Marijuana, Sentencing

PROVINCIAL OFFENCES

Ontario (Labour) v New Mex Canada Inc, 2019 ONCA 30

[MacPherson, Miller and Paciocco JJ.A.]

Counsel:

D. Kleiman and A. Dewitt, for the appellant

J. Warning, for the respondents

Facts:

A small business, New Mex Canada Inc, (“New Mex”), and its two sole directors (the “directors”, and collectively with New Mex, the “defendants”) were charged under the Occupational Health and Safety Act, RSO 1990, c O.1 (the “OHSA”) after one of their employees fell to his death. Each of the defendants plead guilty. New Mex received $250,000 in fines and the directors received 25-day intermittent sentences and 12 months of probation.

A summary conviction appeal court judge allowed all three appeals, reducing the amount to $50,000 and imposed $15,000 in fines on both directors. The appeal judge held that based on the jurisprudence cited, the sentences imposed by the sentencing justice were “significantly out of the range of sentences regularly imposed by the courts for these types of offences and for these types of offenders.” He found that since the sentences imposed departed substantially and markedly from appropriate sentences, the sentences imposed were “demonstrably unfit”. He also found that the sentencing judge did not “pay sufficient heed to the fact that the courts have repeatedly found that significant fines act as a deterrent in these types of cases and that sentences of incarceration are more appropriate for defendants with prior convictions for whom fines have not had a deterrent effect.” Finally, he found that the sentencing justice erred by imposing sentences of incarceration on the directors because fines would cause them more financial hardship. The Crown appealed to the Court of Appeal and sought a restoration of the sentences imposed at first instance.

IssueS:

(1) Did the appeal judge err by misapplying the standard of review in a sentencing appeal?

(2) Did the appeal judge err in finding that the sentencing justice erred in imposing sentences of incarceration because fines would be unduly harsh for the directors?

(3) Did the appeal judge err in identifying the principles of sentencing for regulatory offences?

(4) Did the appeal judge err in finding that the fines imposed on New Mex by the sentencing justice were demonstrably unfit?

(5) Did the appeal judge err in imposing the sentences he did?

Holding:

Appeal dismissed.

Reasoning:

(1) No. The appeal judge did not misapply the standard of review. The Crown argued that the appeal judge misapplied the standard of review in a sentencing appeal by failing to apply the limited powers identified in R v Lacasse, 2015 SCC 64 (“Lacasse”), which the Crown contended governed the Provincial Offences Act, RSO 1990, c P.33 (“POA”) appeals, overtaking the Court of Appeal’s decision in R v Cotton Felts Ltd (1982), 2 CCC (3d) 287 (Ont CA) (“Cotton Felts”). The court in Cotton Felts said that pursuant to the POA, s. 105(1) (now s. 122(1)), the power of an appellate court to vary a sentence imposed is not limited to cases where the sentencing judge has proceeded upon an error of law or an error in principle. An appellate court can, and is duty bound to, “form its own opinion on the fitness of sentence and to vary any sentence if it does not consider it to be fit”.

The Court found that appeal judge in this case did not claim a power to intervene inconsistent with the principles articulated in Lacasse and reviewed them. Under Lacasse, there are two bases for appellate intervention in sentencing appeals: (1) “where a sentencing judge makes an error of law or an error in principle that has an impact on the sentence”; or (2) where the sentence is demonstrably unfit. What Lacasse clarified with respect to the first situation is that an appellate court cannot simply find an error of law or an error in principle, and then proceed to vary a sentence. An appellate court may do so only if that error of law or error in principle “has an impact on the sentence”. What Lacasse added with respect to the second situation is that in determining whether a sentence is demonstrably unfit, “[t]he fact that a judge deviates from the proper sentencing range does not in itself justify appellate intervention”: at para. 11. Lacasse also affirmed a very high threshold for determining whether a sentence is demonstrably unfit. It must be “clearly excessive or inadequate” or represent a “substantial and marked departure” from a proportional sentence properly arrived at based on the correct application of the principles and objectives of sentencing: Lacasse, at para. 52. The appeal judge recognized the controversy over the continued application of Cotton Felts and proceeded on the basis that mere unfitness was not enough.

The appeal judge also did not commit the error of varying the sentences simply because they deviated from the proper sentencing range. It was evident that he did not base his finding of demonstrable unfitness simply on the gap between the sentences imposed and the usual sentencing range. Instead, he measured the fitness of the sentences by considering what is required to achieve the deterrent effect that is the priority consideration in sentencing for regulatory offences. He then applied the principles appropriate to imposing sentences of incarceration, and he measured the corporate fine using the Cotton Felts principles. In other words, he assessed the fitness of the sentence by considering the objectives and principles of sentencing, as he was meant to do.

(2) No. The appeal judge was correct in finding that the sentencing justice erred in imposing a jail term because a fine would cause more financial hardship. The sentencing justice accepted that the directors would have to pay the corporate fine, which New Mex could clearly not afford. Against this backdrop, she opted to incarcerate them because it would be too difficult for them to pay an additional personal fine. The Court of Appeal cited the Supreme Court of Canada’s decision in R v Wu, 2003 SCC 73, at para. 3, which stated that “[g]enuine inability to pay a fine is not a proper basis for imprisonment.” Although the sentencing judge did not address expressly whether this error affected the sentence, it is obvious that it did. On this basis alone, the appeal judge was entitled to set aside the sentences of incarceration and to vary the sentences “within the limits prescribed by law”: POA, s. 122(1)(b).

(3) Yes. The Court of Appeal found that the appeal judge erred in identifying four principles of sentencing for regulatory offences but did not on a fifth. The Court elected to analyze the five principles the appellant argued were misapplied in turn:

(a) The principle of moral blameworthiness: The appeal judge erred in accepting as a sentencing principle the erroneous view that regulatory offences are not concerned with moral blameworthiness. The Court said that the term “moral blameworthiness” refers to an offender’s level of culpability, determined primarily by his or her mental state: R v M. (CA), [1996] 1 SCR 500, at para. 79. Where the moral blameworthiness of a regulatory offender is elevated, it may be appropriate to elevate the sentence imposed. The appeal judge was incorrect in adopting as a sentencing principle, the proposition stated in R v Di Franco, 2008 CanLII 8785 (Ont SC), at para. 11, that “[r]egulatory offences are concerned with attaining public policy objectives as opposed to punishing moral blameworthiness”. While it was true that regulatory offences are concerned with attaining public policy objectives and the criminal law punishes according to the degree of the offender’s moral blameworthiness, this does not mean that moral blameworthiness may not also be a relevant sentencing consideration for regulatory offences. Regulatory offences often have a moral dimension, and this can vary according to the categories of offences identified in R v Sault Ste Marie, [1978] 2 SCR 1299.

The Court of Appeal said that relevance of moral blameworthiness in sentencing for regulatory offences follows necessarily from the application in regulatory offences of the fundamental sentencing principle of proportionality. The principle of proportionality holds that a “sentence must be ‘proportionate to both the gravity of the offence and the degree of responsibility of the offender”: R v Anderson, 2014 SCC 41, at para. 21. This is clearly applicable to sentencing for regulatory offences per R v Ipeelee, 2012 SCC 13, [2012] 1 SCR 433, at para. 37. The principle of proportionality, in turn, necessarily invites considerations of moral blameworthiness because moral blameworthiness is one of the primary variables relied on to identify the degree of responsibility of the offender and hence the proportionality of the sentence imposed.

The Court of Appeal concluded by noting that moral blameworthiness does not operate the same way in sentencing regulatory offenders as it does in sentencing criminal offenders because regulatory offences tend to reflect lower levels of moral blameworthiness.

(b) The principle of restraint: The Crown argued that the appeal judge erred by holding that incarceration is per se an unreasonable sentence for a first offender convicted of a regulatory offence, and that a fine is the only fit sentence, regardless of the circumstances of the case. The Court of Appeal found that the appeal judge did not go that far. The appeal judge cited the principle of restraint from R v Priest (1996), 30 OR (3d) 538 (CA) that requires a sentencing judge, before imposing a custodial sentence on a first offender, to explore whether dispositions other than incarceration are sufficient. He did not err in noting that incarceration is “more appropriate for defendants with prior convictions for whom fines have not had a deterrent effect.”

However, the Court noted that the “first offender” principle from Priest must be applied to regulatory offences with contextual sensitivity. Particular restraint is called for in criminal cases because prolonged incarceration can push non-criminalized individuals towards criminality, and incarceration is more difficult for offenders who are not already criminalized. These considerations, while still relevant, do not have the same currency with respect to shorter periods of incarceration imposed for regulatory offences that inherently do not carry the stigma of criminalization. This was particularly so in the case of OHSA offences, where deterrence is the most important sentencing principle. Even in the case of first offenders, this sentencing priority should not be undercut by over-emphasizing rehabilitation or specific deterrence. The Court also agreed that a sentence imposed must be no greater than is required to meet the objectives of sentencing applied just as much in sentencing for regulatory offences.

(c) The primacy of fines over incarceration: The Court of Appeal agreed that the appeal judge gave undue emphasis to the rarity of sentences of incarceration in arriving at the sentences he imposed and should not have used the rarity of sentences of incarceration as a reason not to impose one. The rarity of incarceration for regulatory offences is a descriptive observation, not a prescriptive one. Where a sentencing judge, applying proper principles of sentencing, determines that incarceration is required to achieve the goals of sentencing, the judge is not forestalled from imposing a sentence of incarceration simply because incarceration is uncommon.

(d) The relevance of corporate fines to the ability of directors in closely held corporations to pay related fines: To the extent that he may have done so, the appeal judge erred by relying on an eventuality that might never occur to assist in quantifying fit fines. The implication was that the directors were being doubly punished since they would have to pay the fines of the New Mex as well as their own. The appeal judge did not say expressly that he was relying on this factor when imposing the fines he did on the directors, but the Court found appeared to have done so. In law, the fines are distinct, and the director is under no obligation to pay the corporate fine. The difficulty with reducing individual fines on this basis was that the directors were under no legal obligation to actually pay the corporate fine.

(e) The relevance of compliance with orders issued after the accident: The appeal judge erred to the extent that the appeal judge relied on this as a mitigating factor in setting the sentences he imposed. The Court cited Flex-N-Gate, at para. 19, for the proposition that courts “should not have discretion to treat an employer’s post-offence compliance, though statutorily required, as a mitigating factor on sentence” because doing so reduces the incentive to comply before the accident and reduces the deterrent effect of sentences.

(4) No. Despite the errors in principle made by the appeal judge noted above that affected his conclusion that the New Mex fine was demonstrably unfit, the Court of Appeal found that the appeal judge was correct in finding that the fines imposed were demonstrably unfit. The sentencing justice was right in identifying “deterrence” as the paramount sentencing objective. However, the Court said that the question of a fit sentence does not rest only on whether that sentence would be an effective deterrent. The inquiry is more subtle, involving a careful examination of the circumstances of the offence and the offender, and a determination of what a fair and effective sentence would be in those circumstances.

The Court said that the fitness of an OHSA fine, and hence the demonstrable unfitness of a sentence of a fine, can be determined by asking: “what amount of fine is required to achieve general and specific deterrence, and would otherwise be appropriate bearing in mind the principles of sentencing, including proportionality, and parity?” The answer to that question in this case did not remotely support a $250,000 fine. The $250,000 fine was proportionate to the circumstances of the man’s death. However, the fine imposed was a substantial and marked departure from what the principle of parity would suggest and this was a relevant factor in evaluating whether the sentence imposed was “demonstrably unfit”. The sentencing judge did not demonstrate why this was fit given that a fine of $250,000 was typically imposed on much larger corporations. A fine imposed on a corporate regulatory offender should meaningfully take into account the size and economic activity of the corporation. Additionally, the fine imposed on New Mex was markedly more than would have been required to achieve the sentencing objectives of general and specific deterrence in this case.

(5) No. The Court of Appeal declined to vary the fines imposed on the directors by the appeal judge, or substitute sentences of incarceration despite disagreeing with the appeal judge’s conclusion that the sentences of incarceration imposed by the sentencing justice were demonstrably unfit. The appeal judge erred in the principles that he applied in identifying a fit sentence for all three defendants. The sentences of incarceration were entirely fit, and, in the circumstances at the time of sentencing, much to be preferred to the modest fines imposed by the appeal judge. The Court said that it would have found the appeal judge to have erred in finding those sentences of incarceration to be demonstrably unfit had the sentencing justice not erred in law by choosing to incarcerate the men because of the financial burden of a fine.

The Court declined to substitute a sentence of incarceration. A fine was now appropriate given evidence that the directors’ respective life situations were difficult and the economic fallout from the incident severe. The fines, although lenient, were not demonstrably unfit given the corporate structure and the impact on the directors. Likewise, the fines imposed by the appeal judge on New Mex were not unfit.

CONSTITUTIONAL REFERENCE

Reference re Greenhouse Gas Pollution Pricing Act, 2019 ONCA 29

Counsel:

G. Morley, for the moving party Attorney General of British Columbia

A. Attaran and M. Hulse, for the moving party Athabasca Chipewyan First Nation

S. Elgie, for the moving party Canada’s Ecofiscal Commission

J. Castrilli, for the moving party Canadian Environmental Law Association, Environmental Defence, and Sisters of Providence of St. Vincent de Paul

J.L. King and M. Finley, for the moving party Canadian Public Health Association

R.B.E. Hallsor, for the moving party Canadian Taxpayers Federation

M. Bishai, for the moving party Centre québécois du droit de l’environnement and Équiterre

N. Hume, for the moving party Intergenerational Climate Coalition

L. DeMarco and J. McGillivray, for the moving party International Emissions Trading Association

C. Westaway and N. Chalifour, for the moving party United Chiefs and Councils of Mnidoo Mnising

R. Martin, for the moving party United Conservative Association

G. Vezina, acting in person

S. Telles-Langdon, B. Sittler, M. Matthews and N. Djordjevic, for the Attorney General of Canada

J. Hunter and T. Lipton, for the Attorney General of Ontario

Keywords: Reference, Constitutionality, Interveners, Greenhouse Gas Pollution Pricing Act, SC 2018, c 12, s 186, Bedford v Canada (Attorney General), 2009 ONCA 669

The information contained in our summaries of the decisions is not intended to provide legal advice and does not necessarily cover every matter raised in a decision. For complete information or for specific advice, please read the decision or contact us.

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CONSTITUTIONAL REFERENCE

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John Polyzogopoulos
Blaney McMurtry LLP
416.593.2953 Email