A Year in Review: Top Ten Canadian Law Cases of 2010 May 05, 2011 Top Ten By Crawford G. Smith, Torys LLP This resource is sponsored by: Authored by Crawford G. Smith, Torys LLP The top cases of 2010 encompass a broad variety of issues and produced favourable results for both businesses and individual plaintiffs. The cases in this list were selected for their breadth in subject matter, level of court and geography, and overall, the significant impact they are likely to have on the business community. Canadian Courts in 2010 seemed to embrace the certification of class actions in novel subject matters including competition, securities and environmental law, although commonality of the issues continued to be the area of greatest discussion, and proved to be a barrier to certification in a major unpaid wage and overtime case. Courts have also provided additional clarity on the law related to defamation, jurisdiction over foreign defendants, contract interpretation and the patentability of inventions, to name a few; all which will assist companies in making informed decisions in these areas going forward. Looking ahead, 2011 will continue to be a year to watch developments carefully, as many of the cases below are proceeding to appeal where the issues will considered anew. 10. Leave granted for securities class action - Silver v. Imax Corporation In late 2009, two decisions of the Ontario Superior Court granted leave for the plaintiffs (consisting of Imax shareholders) to proceed in a class action for alleged misrepresentations made by Imax in its public disclosure documents and press releases in 2006. The leave decision marked the first consideration these provisions of Ontario s Securities Act. In a concurrently released decision, the plaintiffs class action with respect to their statutory and common law claims was certified. Under the Ontario Securities Act ( OSA ) the right to seek leave to bring a claim for a misrepresentation in the secondary market is governed by the following test; the court must be satisfied that the claim has been brought in good faith, and that there is a reasonable possibility of success at trial. Justice van Rensberg held that both requirements imposed low thresholds. Under the first branch, the plaintiffs merely had to show that they possessed an honest belief that they had an
arguable claim that was consistent with the intent and purpose of the OSA, and that was not for a oblique or collateral purpose. The reasonable possibility test required something more than a de minimis possibility or chance on a reasoned consideration of the evidence. The Court also considered the role of statutory defences at the leave stage, finding that the evidence relied upon by the defendants in asserting the defence of reasonable investigation was not sufficient to preclude the possibility of success at trial ; a substantial onus for the defendants to meet. Justice van Rensberg also held that the certification of the common law claim, for negligent misrepresentation, did not require proof of actual reliance on behalf of every member of the class. The low threshold under the statutory test, and availability of common law claims expands the scope of recovery for shareholders and appears to reflect a compensatory (rather than deterrent) focused model. The availability of the common law route may also allow plaintiffs to sidestep the leave requirements and avoid the damages cap imposed by the OSA; over time this could prove to make the statutory regime redundant. 9. Defense of responsible communication is created - Grant v. Torstar and Quan v. Cusson In two companion cases in December 2009, the Supreme Court of Canada ( SCC ) addressed the defences available in defamation actions. In both cases, the SCC recognized the concerns about the state of the law of defamation; it afforded little protection to journalists who diligently attempted to verify the truth of their stories. As a result, the new defence of responsible communication was born. The test is summarized by Chief Justice McLachlin in Grant: 1) the publication must be on a matter of public interest; and 2) the publication must be responsible, i.e. the publisher must have acted diligently in attempting to verify the allegations, having regard to a number of factors including, for example; the seriousness of the allegation, the urgency of the matter, and whether the plaintiff s side of the story was sought and accurately reported. Under the first branch of the test, the public interest has been given a broad definition. The matter must engage more than mere curiosity and must be one where the public has a genuine stake in knowing about it. The plaintiff need not be a public figure, nor the subject matter limited to politics or government activities. The protection will extend to publications on any topic that falls within the public interest. Moreover, the new test applies to any individuals who publish information, which in the world of technology could include blogging, tweeting and communications via other electronic media. 8. Foreign arbitral awards are not judgments or court orders - Yugraneft Corp. v. Rexx Management Corp. Parties proceeding with international arbitration will encounter an additional complication following the SCC s decision in Yugraneft. Canada s highest court held that foreign arbitral awards are not judgments or court orders and therefore cannot be treated as such to determine appropriate limitation periods for enforcement. In this case, the International Commercial Arbitration Court made a $950,000 award in favour of Yugraneft in 2002. Three years later, Yugraneft brought an application under Alberta s International Commercial Arbitration Act for recognition and enforcement of the award. Rexx objected to the application on the basis that it was time-barred. Two provisions of Alberta s Limitations Act were at issue: on one hand the statute applied a two year period for a proceeding to obtain a remedial order, on the other hand, a ten year period applied to enforce domestic foreign judgments. The SCC held that an arbitral award is not a judgment or a court order since it arises at the will of the parties, is not part of any judicial system and requires a court order to be enforced. Though the decision specifically applies to the Alberta context, many felt that it could be a deterrent to parties to refer to arbitration and to see Canada as an arbitration-friendly venue. However, there is nothing in the decision that hinders the enforcement of these awards in Canada. Parties and their counsel must be careful to examine which Canadian statutes are applicable, and what time limits are enforced by those statutes, in order to ensure that they bring their applications in time. 7. New test for jurisdiction over foreign defendants - Van Breda v. Village Resorts Ltd. In early 2010, the Ontario Court of Appeal provided clarity on the test for bringing an action against a foreign defendant.
The decision involved two related cases where plaintiffs suffered damages arising from accidents that occurred while on vacation at resorts in Cuba. The resort operator, Club Resorts Ltd. was incorporated in the Cayman Islands. The Court took the opportunity to reformulate the traditional test for jurisdiction, which was perceived by many to be overly complex and unpredictable. The new test created a multi-step process. First, there are a number of situations where jurisdiction will be presumed, for example, for contracts executed in Ontario and torts committed in Ontario. The presumption is not conclusive, and it remains to the defendants to establish that the real and substantial connection test is not met. If the matter does not fall into the enumerated categories the burden will fall to the plaintiffs to show a real and substantial connection to Ontario. In the second step, the analysis centres on two main considerations; the connection that each of the parties has to Ontario. It is not required that the defendants carry on business in Ontario; the Court s decision to assume jurisdiction rested in part on the fact that both defendants had carried on substantial advertising activities in the province, including hiring advertisers and entering into contracts with tour operators for promotion of their resorts. The decision may cause an increase in the number of claims sought against foreign residents who carry on significant activities (including advertising and promotion) in Ontario. On the other hand, Ontario companies who do business internationally may increasingly be subject to claims from foreign claimants, as the Court has also suggested that foreign judgments should be recognized in Ontario on the same basis. The Supreme Court of Canada granted leave to appeal on July 8, 2010. The appeal was heard on March 21, 2011 and the reasons for the decision have yet to be released. 6. Certification denied in CIBC overtime case - Fresco v. Canadian Imperial Bank of Commerce In September 2010, the Divisional Court upheld the decision to deny certification of a class of plaintiffs in their claims for unpaid overtime and wages against CIBC. The key allegation at the certification motion was that CIBC engaged in a systemic practice of unpaid overtime. In upholding the decision, the Court pointed to the lack of evidence supporting the plaintiffs claims. They found that it was plain and obvious that CIBC s Overtime Policy complied with the requirements of the Code, there was no evidence of any systemic practice of unpaid overtime at CIBC or that CIBC s record keeping violated the law. Overall, the decision was based on the lack of commonality amongst the plaintiffs, the Court repeatedly recognized the individual nature of the claims and highlighted the lack of evidence of any kind of systemic problem. Therefore the decision re-enforces the importance of the content of these policies, which can combat claims of systemic or collective wrongdoing brought by potential employee classes. For example, CIBC s policy required that overtime hours receive management pre-approval (or if unavailable, post approval) and included a provision which allowed an employee to choose time off in lieu of payment but which defaulted to payment if the time was not taken within 90 days. Leave to appeal to the Court of Appeal was granted on Jan. 21, 2011. The issues on appeal might be expected to track the issues raised by the dissenting opinion of Justice Sachs who held that the motions judge erred in finding that it was plain and obvious that the Overtime Policy was lawful and that this holding drove her to fail to consider the evidence of systemic issues. 5. Business methods are patentable - Amazon.com, Inc. v. The Commissioner of Patents The Federal Court s landmark decision in Amazon overruled the Patent Appeal Board to hold that business methods were patentable subject matter in Canada. The decision is good news for companies that employ similar proprietary methods of using computers and software. At issue was Amazon s application for its one-click shopping system, which was rejected by the Commissioner of Patents and the Patent Appeal Board. The Board held that the claims of the proposed patent did not define a technological advance that was either a physical object, or an act performed by some physical agent upon a physical object to effect a change in character or condition. In reversing the Board s decision, Justice Phelan noted that there had
never been a specific prohibition on business method patents. Unlike some European jurisdictions, Canada s patent regime rests on a broad definition of invention, not a series of exclusions. The Board s interpretation was held to be too restrictive and Justice Phelan noted that an invention could properly include new and innovative methods of applying skill or knowledge provided that they had a method of practical application and a commercially useful result. Therefore, so long as the new method met the usual test for an invention, there was no reason it should not be patentable. The Patent Office has commenced an appeal attacking several aspects of Justice Phelan s analysis. The hearing of the appeal is expected in Spring 2011. 4. Indirect purchasers certified in competition class action - Pro-Sys Consultants v. Microsoft Corp. Indirect purchasers of Microsoft s operating systems and software were granted certification for a class action, overcoming a historically difficult obstacle. The decision closely followed the B.C. Court of Appeal s decision in Infineon, which ordered certification in a similar case. The plaintiffs in Microsoft alleged that the defendant participated in anticompetitive behaviour which allowed it to charge higher prices for its products. One of the elements that the plaintiffs were required to show was harm to the plaintiff class members. Since the class was made up of indirect purchasers, they had to demonstrate that the inflated prices were passed through the distribution channels. This has been a difficult requirement for plaintiffs to meet on a class wide basis in the past. Justice Myers applied Infineon and held that it stood for the proposition that plaintiffs need only show a credible or plausible methodology for proving pass-through at trial; setting a low evidential bar for certification. Although the Court was of the opinion that the plaintiffs proposed methodologies could be sufficient to show harm to the whole class, in the alternative, on the basis of Infineon it was held that the plaintiffs could rely on the aggregate damages provisions of the Class Proceedings Act to prove harm to some of the purchasers. This represents a big shift from previous caselaw, which generally held that aggregate damages could not be used to prove the fact of the harm, only the quantum. It remains to be seen whether pass-through can be proven on a class-wide basis at trial. 3. Ontario s first environmental tort class action is decided - Smith v. Inco In July 2010, the Ontario Superior Court released its decision in Ontario s first ever environmental tort class action. The plaintiffs, representing 7000 property owners in the Port Colborne area, brought an action to recover for damage to their property values. This damage was alleged to stem from the negative publicity associated with soil contamination produced by Inco s nickel refinery. Despite the fact that Inco had ceased operations at the refinery in 1984, the damages were asserted to have been incurred in 2000; 16 years after the refinery was closed. Justice Henderson concluded that the defendant was liable for $36,000,000 on the basis of strict liability, i.e. the nickel refinery was a non-natural use of the property that created a danger to others. It was no defense to liability that the use of the property was ordinary and lawful. A cause of action in private nuisance was also made out, which required the plaintiffs to show material physical damage to their property. On the question of limitation, the Court found that the plaintiffs were not time-barred. The Court relied on the date that the residents could have been taken to be aware of the drop in their property values (through a report publicized by the Ministry of the Environment in 2000), not the date the contamination had occurred. This was despite finding that most of the class members were aware of the possibility of the presence of nickel on their properties prior to 1990. Perhaps the most interesting aspect of the case is the fact that the damages were based not on the actual presence of the nickel in the soil but on the tenor of the public message regarding the impact of the contamination. In determining the damages, the Court accepted the evidence of the plaintiffs without requiring that they had attempted to sell their properties or mitigate their damages. In addition, the trial judge did not consider the fact that Inco had remediated the soil contamination on several of the properties to be a factor in determining the outcome.an appeal has been commenced by the defendants and is set to be heard this year. 2. Supreme Court of Canada clarifies exclusion of liability clauses - Tercon Contractors Ltd. v. British Columbia
The SCC provided some guidance in 2010 on the treatment of exclusion of liability clauses in commercial contracts. This conflict arose from a bidding process for a $35 million road project. Ultimately, Tercon lost the bid to a joint venture which included an ineligible bidder. Tercon brought an action for breach of contract on the basis that the winning bid was invalid, however, the RFP included an exclusion clause which stated that bidders were prevented from bringing claims as a result of participating in the tendering process. The first step in the Court s analytical approach to the clause was to determine whether it applied to the facts of the case. The majority of the Court held that it did not, and that Tercon s claim was not excluded. Justice Cromwell reasoned that the claim could not be barred on the basis of the participation of other, ineligible parties. Moreover, he found that the exclusion clause could not effectively limit the liability of the province in breaching its duty to act fairly to legitimate bidders. On the facts of this case, the eligibility of the bidders was an important aspect of the RFP process, and considerations of both the integrity and fairness of the bidding process weighed in favour of allowing Tercon s claim to proceed. The decision is likely to be controversial, given the split in the Court. A majority of 5 held that the clause did not apply, whereas the minority reasoned that the clause was engaged by Tercon s involvement in the bid process, and was not so egregious as to justify interference with the contract. However, the entire Court was united in approving the principle that there will be rare circumstances where judges should refuse to enforce these types of clauses on the basis of the public policy of freedom of contract. This decision should cause parties to pay increased attention during the drafting and negotiating of RFPs, as it was found in Tercon that the clause was, at best, ambiguous. It was this ambiguity that ultimately allowed the majority to find in favour of the plaintiffs. 1. Magna s plan of arrangement is fair and reasonable to shareholders - Magna International Inc. (Re) In the summer of 2010, the Divisional Court upheld the approval of Magna s reorganization plan under s. 182(5) of the OBCA, finding it to be fair and reasonable to shareholders. Magna sought approval for a plan of arrangement that would eliminate its dual class share structure. Prior to the transaction, Magna had two classes of shares, with the Class B shares 100% owned, directly or indirectly, by the Stronach Trust. The Class B shares constituted 66% of the voting shares of the company although they made up less than 1% of the equity. A transaction was proposed where the Trust would sell all of its Class B shares in exchange for 9,000,000 Class A shares and a one-time payment of $300 million. The proposal was put to a vote of the unrelated Class A shareholders, and 75.28% voted in favour of proceeding. Magna then sought the approval of the Court. In the court application, a minority of dissenting shareholders took an opposing position. They argued that the transaction was not beneficial to shareholders as it imposed a cost (the payment and the dilution of the class A shares) when the benefits were uncertain and unquantifiable. In coming to the conclusion that the plan was fair and reasonable, the Court relied heavily on the shareholder vote, finding that it was a significant, although not determinative, factor. In addition, the Court noted that there was no evidence of: any misleading, incomplete or inadequate disclosure, a lack of information to shareholders about the transaction, or a coercive element in the structure of the plan or the voting process. The Court found that the minority shareholders claims that the benefits were uncertain were not a reason to deny the transaction; the test required only the demonstration of reasonable prospect of the benefits being realized. The information in this Top Ten should not be construed as legal advice or legal opinion on specific facts and should not be considered representative of the views of its authors, its sponsors, and/or the ACC. This Top Ten is not intended as a definitive statement on the subject addressed. Rather, it is intended to serve as a tool providing practical advice and references for the busy in-house practitioner and other readers.
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