Thursday, February 16, 2017

Ecuadorean Villagers Continue Legal Battle Against Chevron

Yaiguaje v. Chevron Corporation 2017 ONSC 135 (CanLII)


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


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


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


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


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


Justice Hainey considered the following two issues:


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


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


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


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


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


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


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


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


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

  1. There must be complete control or domination by the parent over the subsidiary so that the subsidiary does not in fact function independently; and
  2. There must be conduct akin to fraud that would otherwise unjustly deprive claimants of their rights.
Justice Hainey held that the admission by the plaintiffs that Chevron Canada had itself done nothing wrong was fatal to their claim. Accordingly, he granted summary judgment against the plaintiff and dismissed their claim against Chevron Canada.
There was divided success on the second part of the motion, i.e. the plaintiffs’ motion to strike Chevron’s statement of defence in its entirety.
The plaintiffs’ motion was brought under subrule 21.01(12)(b) of the Rules of Civil Procedure.  The plaintiff alleged that Chevron’s entire statement of defence should be struck because it raised defences that had no reasonable prospect of success in an action to enforce a foreign judgment in Ontario pursuant to the Supreme Court of Canada’s decision in Beals v. Saldanha.
Chevron’s statement of defence raised a number of defences but primarily the following.

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


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


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


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


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


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

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




Tuesday, January 10, 2017

Court of Appeal Upholds Substantial Damage Award Against Durham Police

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


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


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


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


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


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


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


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


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


The Police Board appealed to the Ontario Court of Appeal. 


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


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


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


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



Wednesday, December 14, 2016

SCC - Federal Court does not have Jurisdiction to Interpret City By-law

Windsor (City) v. Canadian Transit Co. 2016 SCC 54 


In a 5 – 4 decision, the Supreme Court of Canada dismissed an appeal from the Federal Court of Appeal on whether the Federal Court had jurisdiction to decide whether the Canadian Transit Co. (the “Company”) was required to comply with the City of Windsor’s by-law and repair orders.


The Company owns and operates the Canadian half of the Ambassador Bridge connecting Windsor, Ontario and Detroit, Michigan.   The Company was incorporated in 1921 by An Act to incorporate the Canadian Transit Co. (the “Act”).  The Act empowered the Company to construct, maintain and operate a general traffic bridge across the Detroit River, to purchase, lease or otherwise acquire and hold lands for the bridge and to construct, erect and maintain buildings and other structures required for the convenient working of traffic to, from and over the bridge.  The Act also declared the works and undertakings of the Company to be for the general advantage of Canada, triggering federal jurisdiction under the Constitution Act, 1867.


The Company purchased more than 100 residential properties in Windsor with the intention of eventually demolishing the houses and using the land to facilitate the maintenance and expansion of the bridge.  Most of the houses are now vacant and in varying states of disrepair.   The City of Windsor issued repair orders against the properties pursuant to a municipal by-law.  The Company has not complied with the repair orders. 


The parties have been engaged in litigation relating to the repair orders in the Ontario Superior Court of Justice.  In addition, the Company applied to the Federal Court for declarations saying that it has rights under the Act which supersede the by-law and the repair orders.  The City moved to strike the Company’s notice of application on the ground that the Federal Court lacked jurisdiction to hear the application.  The Federal Court struck the Company’s notice for want of jurisdiction.  The Federal Court of Appeal set aside that decision.


On further appeal to the Supreme Court of Canada, Justices McLachlin, Cromwell, Karakatsanis, Wagner and Gascon held that the Federal Court does not have jurisdiction to decide whether the City’s by-law applies to the Company’s properties and that the issue should be decided by the Ontario Superior Court.   


Justices Abella, Moldaver, Côté and Brown dissented.


The majority framed the question this way:  The issue is whether the Federal Court has the jurisdiction to decide a claim that a municipal by-law is constitutionally inapplicable or inoperative in relation to a federal undertaking.  The majority decision was written by Justice Karakatsanis. 


Justice Karakatsanis wrote that the Federal Court has only the jurisdiction that has been conferred upon it by statute.  It is a statutory court, without inherent jurisdiction.  Accordingly, the language of the Federal Courts Act is completely determinative of the scope of the court’s jurisdiction.   The majority held that the role of the Federal Court is constitutionally limited to administering federal law.  The Federal Court has jurisdiction where a federal statute grants it jurisdiction and where the claim is for relief made or a remedy sought under an Act of Parliament or otherwise.  The relief must be sought under, and not merely in relation to, federal law. 


In this case, the Company was not seeking relief under an Act of Parliament or otherwise as required by the Federal Courts Act.  The Company was seeking relief under the Act that created it.  The court held that the Federal Courts Act is not itself a federal law under which the Company could seek relief.  For that right, parties must look to other federal law.  Further, although the Act confers certain rights and powers on the Company, it does not give the Company any kind of right of action or right to seek the relief that it was seeking.  The Company in fact was seeking relief under constitutional law, because constitutional law confers on parties the right to seek a declaration that a law is inapplicable or inoperative.  A party seeking relief under constitutional law is not seeking relief under an Act of Parliament or otherwise within the meaning of the Federal Courts Act, therefore the applicable section of the Federal Courts Act does not grant jurisdiction over the Company’s application to the Federal Court.  As a result, the motion to strike the Company’s notice of application in the Federal Court must succeed.


There were two separate dissenting reasons – one by Justices Moldaver, Côté and Brown and a separate set of dissenting reasons by Justice Abella. 

Justices Moldaver and Brown held that the Federal Court’s jurisdiction should be construed broadly and that its purposes are better served by a broad construction of its jurisdiction.  The essential nature of the case is not relevant to whether the Federal Court has jurisdiction but to whether it should exercise it.  The dissenters held that requiring a federal statute to expressly create a cause of action before jurisdiction may be founded under an Act of Parliament was unduly narrow and inconsistent with Parliament’s intent in creating the Federal Court.  The court’s jurisdiction should be construed broadly so that if the claim for relief is related to a federal work or undertaking and the rights being enforced arise from an Act of Parliament, the claimants may approach the Federal Court. 


In separate dissenting reasons, Justice Abella held that the appeal should be dismissed in part and a stay of the Federal Court proceedings should be entered.  She held that notwithstanding that the Federal Court has concurrent jurisdiction with the Ontario Superior Court, it should not exercise it in this case.  Both the Company and the City appealed orders to the Ontario Superior Court.  Rather than wait for the outcome of the appeals before the Superior Court, the Company sought to activate the Federal Court’s intervention.  Justice Abella reasoned that the Company had attempted to divert the proceedings into a jurisdictional sideshow which added expense and delay in aid of nothing except avoiding a determination of the merits for as long as possible.  To date that jurisdictional diversion has cost the public a delay of three years.  There was no basis for further delaying the Superior Court proceedings.




Tuesday, December 6, 2016

SCC - Litigation Privilege and Solicitor-Client Privilege Are Substantive Rights

The Supreme Court of Canada released two decisions last week dealing with the issue of privilege:  (1)  Lizotte v. Aviva Insurance Company of Canada 2016 SCC 52 which dealt with the issue of litigation privilege; and (2)  Alberta (Information and Privacy Commissioner) v. University of Calgary 2016 SCC 53 which dealt with the issue of solicitor-client privilege. 


In both cases, the court clearly emphasized the importance of both privileges as “substantive rights that are fundamental to the proper functioning of our legal system”.


In the Lizotte case, in the course of an inquiry into a claims adjustor, the assistant syndic of the Chambre de l’assurance de dommages (the "syndic”) asked an insurer to send her a complete copy of its claim file with respect to one of its insured.  The syndic based her request on section 337 of the Act respecting the distribution of financial products and services (“Act”).  In response, the insurer produced some documents but withheld others alleging that they were protected by either solicitor-client privilege or litigation privilege.


At a hearing, the syndic conceded that solicitor-client privilege could be asserted against her and therefore the issue before the court was limited to litigation privilege.  The Superior Court of Quebec concluded that litigation privilege cannot be abrogated absent an express provision and that the provision in the Act was not "express" in that sense.


The syndic’s appeal was dismissed by the Quebec Court of Appeal and further appeal to the Supreme Court of Canada was dismissed.  In an unanimous decision, the court held that litigation privilege is a common law rule that gives rise to an immunity from disclosure for documents and communications whose dominant purpose is preparation for litigation.  Litigation privilege differs from solicitor-client privilege in that litigation privilege is to ensure the efficacy of the adversarial process .  The purpose of solicitor-client privilege is to protect a relationship.  Solicitor-client privilege is permanent whereas litigation privilege is temporary and lapses when the litigation ends.  In addition, litigation privilege applies to unrepresented parties and to non-confidential documents.  


However, the court held that litigation privilege is a class privilege and gives rise to a presumption of inadmissibility for a class of communications – namely those whose dominant purpose is preparation for litigation.  Exceptions to litigation privilege include those relating to public safety, to the innocence of the accused and to criminal communications.  However, because it is a class privilege it has nothing to do with balancing competing interests on a case by case basis.   


In this case, none of the exceptions applied.  The court held that there is a robust line of authority according to which a party should not be denied the right to claim litigation privilege without clear and explicit legislative language to that effect.  Litigation privilege therefore cannot be abrogated by inference and the Act did not apply to do so. 


In the second case, in the context of a constructive dismissal claim, a delegate of the Information and Privacy Commissioner of Alberta ordered the production of records over which the University of Calgary had claimed solicitor-client privilege.  The delegate was acting in accordance with the Office of the Commissioner’s solicitor-client privilege adjudication protocol and issued a notice to produce the records.  Under section 56(3) of the Freedom of Information and Protection of Privacy Act (“Privacy Act”), a public body was required to produce required records to the Commissioner “despite…any privilege of the law of evidence”.  The University sought judicial review of the decision which upheld the Commissioner’s decision but on appeal to the Alberta Court of Appeal, it was found that “any privilege of the law of evidence” as used in the Privacy Act did not refer to solicitor-client privilege.  


The Supreme Court of Canada dismissed the appeal in three separate, partially concurring reasons.  In the first set of reasons written by Justice Côté (Justices Moldaver, Karakatsanis, Wagner and Gascon concurring), the court held that whether the relevant section of the Privacy Act allows a review of documents over which solicitor-client privilege is claimed is a question of central importance to the legal system as a whole and outside the Commissioner’s specialized area of expertise.  Therefore, the applicable standard of review was correctness for both the decision that the Commission had the authority to require production of the records over which solicitor-client privilege was asserted and for the decision to issue the notice to produce the records. 


The majority held that the phrase “any privilege of the law of evidence” does not require a public body to produce to the Commissioner documents over which the solicitor-client privilege is claimed.  Solicitor-client privilege is no longer merely a privilege of the law of evidence but a substantive right that is fundamental to the proper functioning of our legal system.


In separate concurring reasons Justice Cromwell held that the grammatical and ordinary meaning of the words “any privilege of the law of evidence” includes solicitor-client privilege.  Solicitor-client privilege is both an evidentiary privilege and a substantive principle and it was the evidentiary privilege that was at issue here. 


He held that in this case even though the Commissioner had the authority to compel production for review of records over which solicitor-client privilege was asserted and assuming, without deciding, that the correctness standard of review applied, she made a reviewable error to order production in the face of the evidence submitted in relation to the claim of privilege.  The University’s claim of privilege complied with the requirements of Alberta civil litigation practice at the time, and it was a reviewable error for the Commissioner’s delegate to impose a more onerous standard on the University in relation to its assertion of privilege than that applicable in civil litigation before the courts.


Justice Abella in further separate but concurring reasons held that that standard of review in this case should be reasonableness in accordance with the Supreme Court’s prior decisions.  However, she held that the Commissioner’s decision to order disclosure was unreasonable.  The Commissioner should have exercised her discretion in a manner that interfered with solicitor-client privilege only to the extent absolutely necessary to achieve the ends sought by her enabling legislation.  In ordering disclosure, she did not sufficiently take into account the fact that the University provided adequate justification for solicitor-client privilege particularly in light of the laws and practices applicable in the civil litigation context in Alberta. 



Thursday, November 24, 2016

Supreme Court Tosses Oppression Remedy Claim

Mennillo v. Intramodal Inc. 2016 SCC 51


In the above-noted case, the Supreme Court of Canada refused to allow an appeal involving a claim for shareholder oppression under the Canada Business Corporations Act (“CBCA”). 


The plaintiff’s claim for oppression was dismissed by the trial judge and the Quebec Court of Appeal.  The Supreme Court affirmed those decisions in an 8 to 1 decision. 


Johnny Mennillo and Mario Rosati, two friends, agreed to create a road transportation company.  They agreed that Mennillo would contribute the money to start up the business while Rosati would bring his skills to run the company.  Rosati incorporated Intramodal in 2004 and the board of directors passed a resolution to issue 51 shares to Rosati and 49 shares to Mennillo.  Throughout the operation of the company, Rosati and Mennillo rarely complied with the requirements of the CBCA and almost never put anything in writing.  They did not enter into a partnership agreement or a shareholders' agreement and there was no written contract or any other legal formality relating to Mennillo’s advances of substantial amounts of money to the company.   


Less than a year after incorporation of Intramodal, Mennillo sent a letter to the company indicating that he was resigning as an officer and director of the company.  At trial, Mennillo testified that he never intended to stop being a shareholder, but Rosati alleged that Mennillo also resigned as a shareholder and accordingly the company transferred his shares to Rosati.  Mennillo sued claiming that the corporation and Rosati had wrongfully stripped him of his status as a shareholder and applied for an oppression remedy pursuant to section 241 of the CBCA. 


The trial judge dismissed Mennillo’s oppression claim based on the factual finding that Mennillo had undertaken to remain as a shareholder only so long as he was willing to guarantee the corporation's debts and later was not willing to do so.  The Court of Appeal dismissed Mennillo’s appeal.


The Supreme Court of Canada held that the trial judge’s factual findings were not reviewable because the trial judge had committed no palpable and over-riding error. 

Justice Cromwell wrote the main reasons for decision of the majority of the court.  He held that in light of the trial judge’s factual findings, Mennillo’s oppression claim was groundless.  What really happened is that the corporation failed to make sure that all the legal formalities were complied with before it registered a transfer of shares to Rosati.  However, the fact that a corporation fails to comply with the requirements of the CBCA does not on its own constitute oppression.   What triggers the remedy is conduct that frustrates the reasonable expectations of the shareholder not simply conduct that is contrary to the CBCA. 


Justice Cromwell reasoned that an issuance of shares can only be cancelled if (a)  the corporation’s articles are amended; or (b) the corporation reaches an agreement to purchase the shares which requires that the directors pass a resolution.  Meeting the requirements with respect to the maintenance of shared capital is not optional given that it is the share capital that is the common pledge of the creditors and is the basis for their acceptance of doing business with the corporation. 


However, there was no doubt that Mennillo knew that this formality had not been complied with when the company proceeded to register the transfer of shares in its books and he was aware that he had not endorsed his share certificate when the shares were transferred to Rosati.  As he was aware of the situation of which he now complains more than three years later, his claim in that regard was prescribed.


Justices Moldaver agreed with Chief Justice McLachlin who wrote separate concurring reasons.  The Chief Justice held that the appeal could be disposed of on the basis that Mennillo had failed to show a reasonable expectation that he would not be removed as a shareholder from the corporation’s books given that he asked to be removed as a shareholder.  This is confirmed by the fact that Mennillo subsequently ceased to conduct himself as an equity shareholder and advance money to the corporation as a loan.  The trial judge’s findings of fact were supported by the evidence.


Justice Côté was the only dissenting judge.  She wrote a long and convoluted dissent which, at times, seemed to prefer form over substance.  She held that the fact that one shareholder claims he and his fellow shareholder entered into an agreement for the transfer of shares does not relieve the corporation of its legal (and somewhat artificial) duty to "make the necessary inquiries" before passing a resolution approving that transfer of shares and registering the transfer in its books.  She held that the CBCA imposes strict requirements be met before a transfer of shares is registered including that the security be endorsed and that the transfer be rightful.  The corporation’s failure to make such inquiries, in this case, was in itself a form of oppression.   




Wednesday, November 23, 2016

Judge Orders Lawyer and Client Jailed For Contempt

Business Development Bank of Canada v. Cavalon Inc. 2016 ONSC 6825


In this case, both a lawyer and his former client were ordered to serve 90 day custodial sentences after being found in contempt of an order of a judge of the Ontario Superior Court of Justice.    


These reasons arose out of the penalty phase of contempt proceedings.  In previous reasons, Justice Gray found Robert Bortolon (“Bortolon”) and his former lawyer, Robyrt Regan (“Regan”), in contempt of an order of Justice Lemay.  The context involved an application commenced by the Business Development Bank of Canada ("Bank").  Justice Gray found that Regan and Bortolon had made a deal under which a number of documents would be shipped to Bortolon rather than being made available for inspection by the Bank.  The order had required Regan to make those documents available to lawyers for the Bank for inspection. 


Justice Gray found that Bortolon and Regan agreed between them that if Bortolon settled a dispute with Regan, the lawyer would ship a number of incriminating documents to Bortolon.  Justice Gray found that the agreement had been carried out. 


At the penalty hearing, Bortolon argued that the court should be sensitive to his "feelings of injustice" in arriving at the appropriate penalty.  Bortolon fixed most of the responsibility on his former lawyer Regan.  He sought a non-custodial penalty. 


Regan filed material in which he took the position that he did not intentionally violate Justice LeMay’s order.  He said he was truly sorry for writing a letter that could be, and indeed was, misunderstood.  He was also sorry for doing something that appeared to bring the administration of justice into disrepute. 


Bortolon did not offer an apology.  Regan did, but it was couched in terms similar to his affidavit, i.e. that he was sorry that his conduct had the appearance of bringing the administration of justice into disrepute. 


Counsel for the Bank did not seek a penalty against either Bortolon or Regan.  Rather he sought an order striking the responding material and in effect granting default judgment in the Bank’s favour.   The Bank argued that as a result of the actions of Bortolon and Regan in concealing documents, it can no longer be assured of a fair hearing. 


Justice Gray agreed with the Bank.  He found that there could be "no doubt that highly relevant documents have disappeared" and would never be made available to the Bank.  The Bank would never be satisfied that it could obtain a fair hearing because of the actions of Regan and Bortolon.  Accordingly, this is an appropriate case to strike the responding material and to grant default judgment in favour of the Bank. 


The judge then looked at factors for the appropriate sanction for contempt.  He found that as to mitigating factors, he was not aware that either Bortolon or Regan had a criminal record.  There was no history of violating court orders.


An apology would ordinarily be a mitigating factor.  However, there was no apology from Bortolon and Regan’s apology was at best equivocal. 


A purging of contempt would ordinarily be a mitigating factor however neither party had purged their contempt.  As an aggravating factor he found it an affront to the administration of justice that parties believed that they could ignore a court order if there was a personal advantage in doing so.


In the circumstances, he found that only a custodial penalty would suffice.  He ordered that Bortolon and Regan both serve 90 days in custody.

I have been advised that the case is under appeal.




Friday, October 28, 2016

Supreme Court Tosses Finding of Contempt Against Student Leader

The Supreme Court of Canada released this week its decision in a case overturning a ruling in which a court in Quebec had found a student leader guilty of contempt of court - Morasse v. Nadeau-Dubois 2016 SCC 44.

 The background goes back to the spring of 2012, when massive and sustained student protests took place in the province of Quebec over the issue of proposed increases in university tuition fees.  The increases were announced as part of the budget introduced by the provincial government.  Several student organizations which were opposed to the increases organized protests. 


The protests paralyzed several post-secondary institutions.  Classes at several institutions were cancelled.  Student organizations held votes declaring themselves to be “on strike”.  Picket lines were formed at several universities and CEGEPs.  Students and teachers were prevented from entering the buildings in which classes were to be held.  As a result, several injunctions were sought to resist these blockages and help ensure the continuation of the school year.


At the time, the defendant Gabriel Nadeau-Dubois, was the spokesperson for the Coalition large de L’Association pour une solidarite syndicaté etudiante (“CLASSE”).  CLASSE was one of the most active student organizations in Quebec.   It organized protests and picket lines in various post-secondary institutions. 


At the height of the protests, the plaintiff Jean-François Morasse was a student in his final year at Laval University’s Faculty of Planning, Architecture, Arts & Design.  Mr. Morasse was completing a certificate in visual arts. The Association des etudiants en arts plastiques de L’Universite Laval (“ASETAP”), the organization representing students in that program, held a strike vote and organized protests.  On February 29, 2012, picket lines were erected to block the entrance to the building where Mr. Morasse’s classes were held.  Mr. Morasse instituted civil proceedings against Laval University, ASETAP and another student organization and in April of 2012 obtained a provisional interlocutory injunction for a 10 day period.  The injunction mandated free access to the facilities in which classes for the visual arts program were held.  It also ordered all persons who were then boycotting classes to refrain from obstructing or otherwise blocking access to classes by way of intimidation or through other actions likely to have this effect.   


Mr. Morasse brought an application to renew the injunction after the initial 10 day period.  A judge of the Quebec Superior Court renewed the injunction through a safeguard order which was valid until September of 2012.  The judge’s order reaffirmed the prohibition to obstruct or otherwise prevent access to classes but made no specific reference to picketing generally.  Eleven days after the court renewed the injunction, in May of 2012, Mr. Nadeau-Dubois was interviewed by CBC’s French television news network after one CEGEP resumed its regular schedule of classes upon being ordered to do so by the Superior Court.  Appearing with him was Léo Bureau-Blouin, head of the Fédération etudiante collégiale du Québec, a coalition representing student unions of Quebec’s CEGEPs and private colleges.  The interview was broadcast live throughout the province.


After the interview, Mr. Morasse filed a motion for contempt against Mr. Nadeau-Dubois for his comments in the interview.  Mr. Morasse claimed that Mr. Nadeau-Dubois’ comments had violated a paragraph in the Superior Court’s May 2012 order relating to refraining from instructing or impeding access to classes by means of intimidation or from taking any action that could prevent or adversely affect access to the classes in question.  Mr. Nadeau-Dubois had stated during the interview that such attempts to force students back to class do not work, that a minority of students use the courts to circumvent the majorities collective decision to go on strike, and that picket lines are an entirely legitimate means to ensure respect of the vote to strike. 


Mr. Nadeau-Dubois was found guilty of contempt of court under an article of the Quebec Civil Code and sentenced to 120 hours of community service to be completed within six months under the supervision of a probation officer.


The Quebec Court of Appeal set aside the conviction and sentence and entered an acquittal. 


The matter was further appealed to the Supreme Court of Canada. 


The appeal was dismissed by the Supreme Court of Canada (6 – 3).  The majority decision was written jointly by Chief Justice McLachlin and Justice Abella.  Separate but concurring reasons were written by Justice Moldaver. 


Justices McLachlin and Abella held that what is at issue is whether a contempt charge brought by a private citizen against another individual, meets the strict procedural and substantive safeguards required by law to ensure that the liberty interest of those accused of contempt are fully protected.    


The power to find an individual guilty of contempt of court is an exceptional one.  It is an enforcement power of last resort and the only civil proceeding in Quebec that may result in a penalty of imprisonment.  Because of the potential impact on an individual’s liberty, the formalities for contempt proceedings must be strictly complied with.  The accused must be given clear, precise and unambiguous notice of a specific contempt offence and the elements required for a conviction must be proven beyond a reasonable doubt.  A conviction for contempt should only be entered where it is genuinely necessary to safeguard the administration of justice. 


The only allegations raised by Mr. Morasse against Mr. Nadeau-Dubois related to an alleged violation of one paragraph in an injunction order in the form of comments that Mr. Nadeau-Dubois had made in an interview.  Mr. Nadeau-Dubois was not given notice as to which specific branch of the Civil Code, if any, he was being charged under.  There was no evidence that Mr. Nadeau-Dubois had knowledge, either actual or inferred, of the order that the Superior Court had made.  Knowledge could not be imputed to Mr. Nadeau-Dubois on the basis of his comments during the interview, questions he was asked or the statements other student leader had made.  His endorsement of students picketing in general did not amount to an encouragement to use picket lines to block access to classes since the order did not prohibit picketing altogether.  Mr. Morasse’s failure to provide Mr. Nadeau-Dubois’ actual or inferred knowledge of the order was dispositive of the appeal. 


In his occurring reasons, Justice Moldaver held that in the television interview, Mr. Nadeau-Dubois intended to incite students at large to breach any and all court orders which enjoined the use of picket lines to block access to classes.  Had the case proceeded on that basis, his call to disobey at large would have included the injunction obtained by Mr. Morasse regardless of whether or not he had specific knowledge of it.  However, the issue at trial was whether Mr. Nadeau-Dubois breached this particular order.  The Quebec Court of Appeal had found correctly that the evidence did not support a finding that he had specific knowledge of the order that was in place and this was fatal to the finding of contempt.


The dissenting judges were Justices Wagner, Cote and Brown.  Justice Wagner wrote those reasons.  He held that the purpose of convictions for contempt of court, whether in a civil or criminal context is to maintain public confidence in the administration of justice and ensure the smooth functioning of the courts.  This power is exceptional and must be exercised only as a last resort.  Exercising it is nonetheless justified where a contempt conviction is necessary to protect the integrity of the justice system and ensure the systems credibility in the eyes of the public.


In this case, Mr. Nadeau-Dubois knew full well that the contempt charge he had to answer had been laid under two articles of the Civil Code as could be seen from statements made by Mr. Morasse’s counsel and other matters alleged by Mr. Morasse. 


Specific knowledge of an order is not essential for the purposes of the specific article under the Civil Code because actual personal knowledge can always be inferred from circumstantial evidence.  The inference must be reasonable given the evidence or absence of evidence, assessed logically and in the light of common sense and human experience.


The dissenting judges found that in this case a contextual analysis of Mr. Nadeau-Dubois’ words could lead to only one reasonable inference.  When considering the context of the entire interview, those words showed beyond a reasonable doubt that he knew of the existence, content and scope of the orders and that he incited students to breach them. 


Finally the dissenting judges held that the importance of freedom of expression and the protection of that freedom in a democratic society can never be overstated.  But one may not use the exercise of one’s freedom of expression as a pretext for inciting people to breach a court order.