Thursday, August 3, 2017

Alberta Court of Appeal Closely Examines Employer's Privilege Claims


The Alberta Court of Appeal recently released its decision in Alberta v. Suncor Energy Inc., 2017 ABCA 221.  The court upheld the importance of lawyer-client and litigation privileges, holding that they play a "central role" in the Canadian justice system,.  However, where an employee had been fatally injured, the court took a closer look at the factual basis for the employer's claims of privilege over documents that formed part of its investigation into the death. 
 
On April 20, 2014, an employee of Suncor Energy Inc. (“Suncor”) was fatally injured at a worksite near Fort McMurray, Alberta.  The Alberta Occupational Health and Safety (“OHS”) officers issued a stop-work order that day.  Immediately after the accident, anticipating litigation, Suncor began an internal investigation and threw a privilege blanket over all information relating to the investigation.  Legal counsel for Suncor directed the investigation team to segregate all documents and to endorse all material as “privileged and confidential”. 
 
The Suncor investigation team interviewed witnesses, recorded statements and collected photographs.  On May 5, 2014, OHS issued a demand under relevant section of the Alberta Occupational Health and Safety Act (the “Act”) for Suncor to provide copies of the witness statements, as well as employees’ names and contact information.  Suncor replied and provided the names and contact information of employees but asserted privilege over the witness statements collected by its investigation team.   Later, nearly a year after Suncor had provided OHS with a copy of its report on the accident, OHS issued another demand for information and copies of witness statements, notes, records, photos and other documents collected by Suncor.   Suncor claimed privilege over certain documents and information.  OHS issued an administrative penalty against Suncor.
 
The province of Albert filed an originating application seeking an order that Suncor provide the refused materials and allow OHS to interview Suncor’s internal investigators or at least provide further particulars about the claims of privilege.  At the return of the application, the judge held that the dominant purpose of Suncor’s internal investigation was in contemplation of litigation and upheld its claim for privilege on that basis.  The judge ordered Suncor to meet with a referee who would assess the claims of privilege and provide recommendations to the court. 
 
Alberta appealed that decision to the Alberta Court of Appeal. 
 
The Alberta Court of Appeal concluded that the application judge had erred in finding that the dominant purpose of Suncor’s investigation was in contemplation of litigation so as to clothe all material “created and/or collected” during the investigation with legal privilege.  However, it also held that the judge had not erred in invoking the referee process under the Alberta Rules of Court. 

The Court of Appeal held that the relevant sections of the Act did not preclude claims of privilege.  After the application judge's decision was issued, the Supreme Court of Canada clarified the law pertaining to lawyer-client privilege and litigation privilege in Lizotte v. Aviva Insurance Company of Canada and in Albert (Information and Privacy Commission) v. University of Calgary.   Those decisions confirmed the central role of legal privilege in the justice system as well as the legal and policy reasons behind why privilege must be protected.  The Supreme Court held that both litigation privilege and lawyer-client privilege “cannot be abrogated by inference and that clear, explicit and unequivocal language is required in order to lift it”.
 
Lawyer-client privilege attaches to confidential communications between a client and a legal advisor that are connected to giving or seeking legal advice.  The communication does not have to be in contemplation of litigation and the privilege is of permanent duration. 
 
Litigation privilege attaches to documents created for the dominant purpose of litigation.  This includes any document created for the dominant purpose of preparing for related litigation that “remains pending or may reasonably be apprehended”.  The object of this inquiry is the purpose for which the document was created or came into existence as distinct from the purpose for which it may have been collected or put to use.   
 
Accordingly, the Court of Appeal held that if legal privilege does not cover particular records or information, and the requirements of the Act apply to those records or information, the question of whether the Act operates to override any aspect of privilege disappears.  Once the procedure for assessing the contested materials is complete, records or information sifted out of the scope of privilege will be subject to consideration under the correct legal interpretation of the Act.
 
In this case, the appeal judges found that the application judge had erred in finding that the dominant purpose of the investigation was in contemplation of litigation and that Suncor created and/or collected documents and material with the dominant purpose that they would assist in any litigation.   It held that a referee appointed under the Alberta Rules of Court must focus on the dominant purpose for creating each document as opposed to the purpose for its collection. 
 
Suncor could not simply by having legal counsel declare that an investigation had been commenced, throw a blanket over all materials “created and/or collected during the internal investigation” so as to clothe them with lawyer-client or litigation privilege.  The Court of Appeal held that where a workplace accident has occurred and the employer has statutory duties under the Act and simultaneously undertakes an internal investigation claiming legal privilege over all materials derived as part of that investigation, an inquiry is properly directed to a referee under the Alberta Rules of Court to determine the dominant purpose for the creation of each document.

Regards,

Blair
 

Tuesday, June 20, 2017

Supreme Court finds no Discrimination in Company's Drug Use Policy


 
In a decision that was made remarkable by the dissent of a single judge, the Supreme Court of Canada dismissed an appeal from an employee of a mining company whose employment was terminated on the basis that he had violated his employer’s drug use policy.  See Stewart v. Elk Valley Coal Corp. 2017 SCC 30.
 
The employee, Ian Stewart, worked driving a loader in a mine operated by the company.  The mine operations were dangerous and maintaining a safe work site was a matter of great importance to the employer and its employees.  To ensure safety the employer implemented a policy requiring that employees disclose any dependency or addiction issues before any drug-related incident occurred.  If they did, they would be offered treatment.  However, if they failed to disclose and were involved in an incident and tested positive for drugs, their employment would be terminated.
 
Stewart used cocaine on his days off.  He did not tell his employer that he was using drugs.  When he was involved in an accident with his loader at work, he tested positive for drugs and later said that he thought he was addicted to cocaine.  The company terminated his employment.  Stewart, through his union representative, argued that he was terminated for addiction and that constituted discrimination under section 7 of the Alberta Human Rights, Citizenship and Multiculturalism Act.
 
The Albert Human Rights Tribunal (“Tribunal”) held that Stewart was terminated for breaching the company policy, not because of his addiction.  Its decision was affirmed by the Alberta Court of Queen’s Bench and by the Alberta Court of Appeal.
 
There were three sets of reasons written by the judges of the Supreme Court.  Six judges for the majority, two in separate but concurring in the result, and one dissent.
 
The majority (reasons written by Chief Justice McLachlin) held that the Tribunal decision was reasonable.  There was evidence that was capable of supporting the Tribunal’s conclusion that the reason for Stewart’s termination was not addiction but breach of a policy.  The separate concurring reasons were written jointly by Justices Moldaver and Wagner.  They held that the Tribunal’s conclusion that Stewart’s direct dependence was not a factor in his termination was unreasonable but that the Tribunal reasonably held that the employer had met its obligation to accommodate Stewart to the point of undue hardship.  Justice Gascon, the only dissenting judge, held that the Tribunal had improperly considered the issues in the case and effectively excluded Stewart from the scope of human rights protections.  While the Tribunal had cited the proper legal test for prima facie discrimination, the matter in which it applied the test and the lack of an evidentiary foundation for its findings demonstrated that its holding on “contribution” was unreasonable and thus unworthy of deference. 
 
Six Justices for the Majority
 
The majority decision was supported by  Justices McLachlin, Abella, Karakatsanis, Cote, Brown and Rowe.  The Tribunal had found that Stewart had not established prime facie discrimination.  The majority held that the issues before the Tribunal were within its purview and attracted deference.  The only questions was whether the Tribunal’s decision was reasonable.  They found that there was evidence capable of supporting the Tribunal’s conclusion that the reason for the termination was not addiction but breach of the policy.  On the facts of this case, the Tribunal concluded that Stewart had the capacity to comply with the terms of the policy and that he would have been fired whether he was an addict or a casual user.  It was therefore not unreasonable for the Tribunal to conclude that there was no prima facie discrimination.  The Tribunal had unequivocally and repeatedly stated that addiction was not a factor in the company’s decision to terminate Stewart’s employment.  It also rejected the argument that denial prevented Stewart from disclosing his addiction prior to the accident.  While Stewart may have been in denial about his addiction, he knew he should not take drugs before working, had the ability to decide not to take them as well as the capacity to disclose his drug use to his employer.  Accordingly, the majority found that denial about Stewart’s addiction was irrelevant in this case.
 
The Two Concurring Justices
 
Justices Moldaver and Wagner held that the Tribunal’s conclusion that Stewart’s direct dependency was not a factor in his termination was unreasonable.  To show prima facie discrimination, Stewart was not required to show that his termination was not caused by his drug dependency, rather he had only to show that there was a connection between the protected ground – his direct dependency – and the adverse effect.  His exercise of some control over his drug use merely reduced the extent to which his dependency contributed to his termination.  It did not eliminate it as a factor in his termination. 
 
The two justices found that notwithstanding these factors, the Tribunal reasonably held that the employer had met its obligation to accommodate Stewart to the point of undue hardship.  Given the employer’s safety objectives and responsibilities at the coal mine, it was crucial to deter employees from using drugs in a manner that could negatively affect their work performance and potentially lead to devastating consequences.  Subjecting Stewart to an individual assessment or imposing an unpaid suspension for a limited period as a disciplinary measure instead of imposing the serious and immediate consequence of termination of his employment would have undermined the policies deterrent effect.   
 
The Lone Dissenter
 
Justice Gascon viewed the matter much differently than did the other 8 judges.  His dissent is logical and forceful.  .  He held that although drug dependence is a protected ground of discrimination in human rights law, stigma surrounding drug dependence – like the belief that individuals suffering from it are the authors of their own misfortune or that their concerns are less credible than those people suffering from other forms of disability – sometimes impair the ability of courts and society to objectively assess the merits of their discrimination claims.  He held that the improper considerations by the Tribunal effectively excluded Stewart from the scope of human rights protections. 
 
Justice Gascon held that a drug policy that automatically terminates employees who use drugs prima facie discriminates against individuals burdened by drug dependence.  The legal threshold for prima facie discrimination is whether the complainant’s protected ground is a factor in the harm they suffer (this is also called “contribution”).  In this case, drug dependence was a factor in Stewart’s drug use, so the policy under which Stewart’s employment was terminated for using drugs was  prima facie discriminatory.
 
Justice Gascon ruled that the analysis of prima facie discrimination and, in particular, contribution, is concerned with discriminatory effect, not discriminatory intent.  Contribution addresses the relationship between an employee’s protected ground and harm, not between the ground and the intent to harm that employee.  A ground need only be at least one of the factors linked to the employees harm.  The Tribunal unreasonably held that Stewart’s addiction did not contribute to his termination based on four conceptual errors:
 
  1. It required Stewart to make prudent choices to avoid discrimination.  Justice Gascon commented that requiring a complainant to be prudent in avoiding discrimination amounts to a sort of contributory fault defence in discrimination cases which places a burden on complainants to avoid discrimination, rather than on employers not to discriminate; it is irreconcilable with recently recognized statutory grounds that arguably implicate a complainant’s choices that are significant to their identity; generally contradicts the court’s rejection of drawing superficial distinctions between protected grounds and contact inextricably linked to those grounds; specifically contradicts the courts rejection of the view that choice makes drug users responsible for the harms of their drug use; re-enforces stigma by blaming marginalized communities for their choices; and substitutes the proper inquiry (i.e. whether drug-dependent individuals are adversely impacted by the policy) with an improper inquiry (whether drug dependent individuals are so overwhelmingly impacted by their addictions that any discrimination that they experience is caused exclusively by their addictions);
  2. The Tribunal limited Stewart’s protections to an assurance of formal equality.  While both dependant and recreational drug users will receive similar treatment for violating the policy, only drug-dependent persons will uniquely and disproportionately struggle in complying with the terms of the policy. 
  3. The Tribunal required Stewart to prove that he was treated arbitrarily or stereotypically, importing substantive consideration into the settled and low threshold for prima facie discrimination and shifting a justificatory burden from the employer onto the complainant; and
  4. The Tribunal at all times required Stewart to prove a causal relationship between his ground and harm, a higher bar than the mere “factor” threshold repeatedly adopted by the court.  Justice Gascon held that prima facie discrimination should not be narrowly construed to preserve the enforceability of drug and alcohol policies.  Doing so imports justificatory implications into the prima facie discrimination analysis and narrows the court’s recent jurisprudence that holds that terminating an employee for a reason related to addiction is precisely what it means for that addiction to be a factor in the employee’s harm.
 
Justice Gascon held that under the proper test, the evidence before the Tribunal could not support its conclusion that Stewart’s drug dependence did not contribute to his termination.  His residual control over his choices merely diminished the extent to which his dependence contributed to his harm, it did not eliminate it as a factor. 
 
A workplace policy that accommodates employees through mechanisms which are either inaccessible by the employee due to their disability or only applicable to the employee post-termination, cannot justify prima facie discrimination.  Reasonable accommodation requires that the employer arrange the employee’s work place or duties to enable the employee to do his or her work, if it can do so without undue hardship.  In the human rights context, it is not appropriate for the employer to forego individual assessment in the interest of deterrence even in the safety-sensitive atmosphere of this particular workplace and even though that environment motivates strict drug policies.
 
Finally, Justice Gascon found that none of the employer’s efforts at accommodating Stewart provided him with accessible accommodation during his employment and those efforts failed to consider his individual circumstances in a dignified manner.   Accordingly, the employer could not be said to have discharged its duty to accommodate Stewart as an employee up to the point of undue hardship.  As a result, the Tribunal’s findings to the contrary were unreasonable.    
 
Regards,
 
Blair
 

Friday, May 26, 2017

US Supreme Court Says Service By Mail in Canada is Okay


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

 

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

 

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

 

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

 

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

 

The court’s reasoning is as follows.

 

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

 

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

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

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

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

 

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

 

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

 

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

 

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

 

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

Regards,

Blair

 

Wednesday, May 10, 2017

Law Society Ordered to Pay $1.3 Million in Costs


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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

Regards,

Blair

 

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.  

Regards,

Blair

 

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.

Regards,

Blair  

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.

Regards,

Blair