Canada: Dispute Resolution Handbook 2011/12

MAIN DISPUTE RESOLUTION METHODS

1. What are the main dispute resolution methods used in your jurisdiction to settle large commercial disputes?

Canada is a confederation of ten provinces and three territories, each with a separate and independent judicial system (although the federal government appoints and pays all provincial and territorial superior court judges). The court rules and the administration of justice, including alternative dispute resolution (ADR) procedures, are under provincial or territorial control. The procedural rules can differ significantly but the judicial process in each jurisdiction ends with a provincial or territorial court of appeal.

The final arbiter of all litigation is the Supreme Court of Canada, a federal institution, which decides appeals from decisions of the courts of appeal of the common law jurisdictions and Québec (which operates under a Civil Code), and from the Federal Court of Appeal. Therefore, the remedies available across Canada are similar.

Recent trends in dispute resolution

In the area of commercial dispute resolution, there have been two principal recent trends:

• The growing use of ADR procedures. Most jurisdictions have ADR procedures (such as mandatory settlement conferences) as a part of the judicial process. They are an integral part of the court process in most Canadian commercial centres. The court manages many cases and mandatory mediation is often necessary. For example, the Toronto Commercial List, a subset of the Ontario Superior Court of Justice, encourages the use of ADR techniques (see Question 3). Additionally, several provincial law societies, including Ontario's Law Society of Upper Canada, require lawyers to consider ADR for every dispute and to inform the client of any available ADR options.
• Thriving private dispute resolution service providers and institutions. There is a growing acceptance that there are good alternatives to the judicial process for the resolution of disputes. This development is particularly notable in industry-specific disputes, where private dispute resolution schemes have been implemented by contract. For example, ADR Chambers currently administers specialised arbitration programmes in relation to:
• the National Automobile Dealer Arbitration Program (for disputes between manufacturers and retail dealers);
• Industry Canada (particularly in the telecommunications field);
• the Investment Industry Regulatory Organization of Canada (for certain proceedings involving investment dealers across Canada).

Arbitration is a popular form of dispute resolution and the use of international commercial arbitration is growing in line with the internationalisation of the Canadian economy. Courts have ruled consistently that a high degree of deference is owed to international arbitration clauses and proceedings.

For class action litigation, see Question 21.

COURT LITIGATION - GENERAL

2. What limitation periods apply to bringing a claim and what triggers a limitation period?

Each jurisdiction within Canada has its own limitation periods for different categories of claims. For example:

• British Columbia. The general limitation period for most contract and tort claims is two years from when the claim arises.
• Alberta. This is the same as for British Columbia (subject to certain discoverability rules).
• Québec. Specific enactments establish various limitation periods (known as prescriptions), but generally claims for infringements on personal rights must be brought within three years.
• Ontario. The basic limitation period for starting a claim in contract, tort and most other types of claim is two years from the date on which the claim was discovered. There are transition rules for certain claims that arose before 2004. In addition, like other provinces, Ontario now has an ultimate limitation period of 15 years, which applies to all claims except:
• • certain sexual assault-based claims;
  • undiscovered environmental claims;
  • a limited list of other claims.

There are other limitation periods across Canada (including ultimate limitation periods of up to 30 years) and therefore local counsel should be consulted.

3. What is the structure of the court where large commercial disputes are usually brought? Are certain types of dispute allocated to particular divisions of this court?

Superior courts

The superior courts of each province or territory hear small and large commercial disputes. However, the relevant provincial superior court can decline to hear a matter if it has no "real and substantial connection" to the forum chosen by the claimant.

The provincial and territorial superior courts are the:

• Court of Queen's Bench of Alberta.
• Supreme Court of British Columbia.
• Court of Queen's Bench for Manitoba.
• Court of Queen's Bench of New Brunswick.
• Supreme Court of Newfoundland and Labrador, Trial Division.
• Supreme Court of Northwest Territories.
• Supreme Court of Nova Scotia.
• Nunavut Court of Justice.
• Superior Court of Justice (Ontario).
• Supreme Court of Prince Edward Island, Trial Division.
• Superior Court of Québec.
• Court of Queen's Bench of Saskatchewan.
• Supreme Court of Yukon Territory.

The superior courts of each province and territory also include a court of appeal to which appeals of first instance judgments are made (see Question 20).

Claims relating to the right to commence a claim for damages against the federal government can be brought in any provincial superior court.

Federal courts

Headquartered in Ottawa, the trial division of the Federal Court and the Federal Court of Appeal are statutory courts, each with limited jurisdiction. The federal government appoints judges from the provincial bars. Both courts sit on a regular basis in the major towns.

The trial division has first instance jurisdiction in all cases involving the federal government. It also has first instance jurisdiction to hear:

• Cases between private parties involving conflicting applications for:
• • patents;
  • copyright;
  • trade marks; or
  • industrial designs.
• All cases in which it is sought to:
• • challenge any patent of invention; or
  • alter the register of copyrights, trade marks or industrial designs.

The trial division has concurrent first instance jurisdiction with the provincial and territorial superior courts to hear cases between private parties involving navigation, shipping and admiralty matters. The trial division also has extensive jurisdiction in immigration and related areas.

The Federal Court of Appeal hears appeals from the Federal Court and has original jurisdiction in reviews of certain administrative tribunals.

Tax Court of Canada

The Tax Court of Canada is a federal court to which companies and individuals can appeal government tax decisions. Most appeals made to the Tax Court relate to income tax, the goods and services tax or employment insurance.

The Tax Court has exclusive jurisdiction over tax appeals and the Federal Court of Appeal has exclusive jurisdiction over appeals from the Tax Court.

Toronto's Commercial List

Commercial disputes are put on the Commercial List and dealt with expeditiously by judges experienced in these types of disputes. The Commercial List was established by a Practice Direction under the Rules of Civil Procedure of Ontario. The matters eligible for the Commercial List include proceedings relating to:

• The Canada Business Corporations Act (R.S.C. 1985, c. C-44) (CBCA) and the Ontario Business Corporations Act (R.S.O. 1990, c. B.16).
• The Securities Act (R.S.O. 1990, c. S.5), including takeover and issuer bids.
• Insolvency matters, including winding-up and applications under the Companies' Creditors Arrangement Act (R.S.C. 1985, c. C-36) (CCAA) (the Canadian equivalent to Chapter 11 in the US) and matters relating to the Bankruptcy and Insolvency Act (R.S.C. 1985, c. B-3) (BIA).
• Any other commercial matters that a judge presiding over the Commercial List directs to be listed.

Montreal's Commercial Division

The Commercial Division of the Superior Court of Québec is Montreal's version of the Commercial List.

The Commercial Division's jurisdiction is similar to that of the Commercial List but broader. Matters eligible for the Commercial Division include proceedings relating to the following federal and provincial statutes:

• Statutes of Canada:
• • BIA;
  • CCAA;
  • CBCA;
  • Winding-Up and Restructuring Act (R.S.C. 1985, c. W-11);
  • Bank Act (S.C. 1991, c. 46) (R.S.C. 1985, c. B-1.01);
  • Farm Debt Mediation Act (S.C. 1997, c. 21);
  • Commercial Arbitration Act (R.S.C. 1985, c. 17 (2nd Suppl.)).
• Statutes of Québec:
• • Code of Civil Procedure (R.S.Q., c. C-25):
    
    
    • Article 946.1 (homologation of an arbitration award);
    • Article 949.1 (recognition and execution of an arbitration award rendered outside Québec).
  • Companies Act (R.S.Q., c. C-38);
  • Winding-Up Act (R.S.Q., c. L-4);
  • Securities Act (R.S.Q. c. V-1.1);
  • Act respecting the Autorité des marchés financiers (R.S.Q., c. A-33.2).

The Commercial Division also hears cases that are considered by the judge to be commercial in nature.

4. Which types of lawyers have rights of audience to conduct cases in courts where large commercial disputes are usually brought? What requirements must they meet? Can foreign lawyers conduct cases in these courts?

Any lawyer licensed to practise law in a Canadian province or territory is granted audience rights in:

• His jurisdiction.
• Federal courts.
• The Supreme Court.

Additionally, the National Mobility Agreement (NMA) facilitates temporary and permanent mobility of lawyers between all jurisdictions (other than the three territories). The NMA also applies in relation to mobility to and from Québec, following the introduction in 2008 of a Canadian Legal Advisor category of membership in the Barreau du Québec. The Territorial Mobility Agreement (TMA) facilitates permanent mobility to the territories. Lawyers who meet the criteria under the NMA or TMA are generally permitted to practise law in an unrestricted manner in their new jurisdiction.

Generally, foreign lawyers cannot practise Canadian law in Canada without a licence. Some provinces (for example, Alberta and Québec) provide temporary practice certificates to foreign lawyers, but these are generally limited by conditions. In Ontario, a foreign lawyer can obtain status as a "foreign legal consultant", enabling him to give legal advice in Ontario relating to the law of the foreign jurisdiction. However, this does not authorise foreign lawyers to represent clients before Ontario courts or tribunals.

FEES AND FUNDING

5. What legal fee structures can be used? Are fees fixed by law?

Hourly billing is the predominant legal fee structure. Fees are not fixed by law.

In Toronto, the top commercial litigators charge between Can$750 (as at 1 February 2011, US$1 was about Can$1) and Can$900 per hour. In other commercial centres, such as Vancouver, Calgary and Montreal, the hourly rates can be slightly lower. However, the market is highly competitive and alternative arrangements are becoming increasingly common. These include:

• Contingency fees (that is, an agreement where the lawyer only receives a fee if the client wins).
• Fixed (task-based) fees.
• Discounted rates.

6. How is litigation usually funded? Can third parties fund it? Is insurance available for litigation costs?

Funding

Commercial litigation is generally funded by the parties, although in rare circumstances other parties bear the costs of litigation. A number of proceedings have been commenced in the name of failed corporations by entities who invested in the companies (whether through debt or equity transactions) at distressed levels. The investors typically fund this litigation. More recently, lenders have begun to offer loans at steep rates to claimants who would otherwise not be able to afford the litigation.

In some provinces, such as Québec and Ontario, provincial law foundations have established funds to provide financial assistance to claimants engaged in class proceedings. For example, in Ontario the Class Proceedings Fund provides financial support for claimants' disbursements and indemnifies the claimant against an adverse cost award. If the class proceeding is successful, the Fund receives a 10% levy of the award or settlement, and a return of any funded disbursements.

Insurance

There are many different types of insurance pools (for example, products liability, professional negligence, director and officer liability). However, most of these insurance regimes exclude coverage for intentional misconduct.

COURT PROCEEDINGS

7. Are court proceedings confidential or public? If public, are the proceedings or any information kept confidential in certain circumstances?

Generally, all cases, whether civil or criminal, must be heard in open court. However, in certain exceptional cases, the court can hold a hearing in private if either:

• The presence of the public would make the administration of justice impracticable.
• There is a need to safeguard social values of extreme importance, such as the protection of the innocent.

Sealing orders to protect sensitive trade and other information are also available, and are quite commonly granted.

8. Does the court impose any rules on the parties in relation to pre-action conduct? If yes, are there penalties for failing to comply?

While the courts do not generally impose any rules in relation to pre-action conduct, changes have recently taken place in some provinces. In Ontario, certain actions are subject to mandatory mediation within 180 days after the filing of the first defence. While these mediations are treated as without-prejudice settlement discussions, failure to attend can result in severe consequences, including pleadings being struck out or the action being dismissed.

In Alberta, as of 1 November 2010, parties must engage in a mandatory dispute resolution process before they can obtain a trial date from the court. This requirement, which can be waived by the court, can be satisfied through dispute resolution methods such as mediation or arbitration, or through a judicial dispute resolution process that allows a judge to facilitate a resolution for the parties.

Notwithstanding the general lack of court-imposed rules, as a self-governing profession, the provincial law societies' rules of professional conduct generally address the pre-trial conduct of lawyers. For example, the ethics rules of the Nova Scotia Barristers' Society require lawyers to:

• Encourage the client to compromise or settle whenever it is reasonably possible.
• Discourage the client from commencing useless legal proceedings.
• Consider the use of ADR for every dispute.

Failure to honour these obligations may result in a finding of professional misconduct. Therefore, a growing number of lawyers attempt pre-action facilitations or mediations and the early exchange of documents and other information.

9. What are the main stages of typical court proceedings? In particular:

• How is a claim started?
• How is the defendant given notice of the claim and when must the defence be served?
• What are the subsequent stages?

Starting proceedings

In the common law jurisdictions, depending on the relevant court rules, a claim can be started by issuing one of the following:

• A writ of summons.
• A statement of claim.
• A notice of action.
• A notice of application describing the claim.
• A similar initiating document describing the basis of the claim (for example, a notice of civil claim in British Columbia).

In Québec, a proceeding is commenced through an originating application.

Notice to the defendant and defence

A defendant is generally given notice of the claim by being served personally. In Ontario, the claim must be served on the defendant within six months of being issued, and most other jurisdictions have similar limitations. In British Columbia, the claim must be served within one year.

The defendant must deliver the statement of defence within a prescribed period of time (unless he wishes to challenge the court's jurisdiction or bring other procedural applications). The period of time varies by province, and by the jurisdiction in which the defendant is served. For example, under Ontario's rules a defendant served:

• In Ontario has 20 days to deliver a statement of defence.
• Elsewhere in Canada or in the US has 40 days.
• Anywhere else has 60 days.

In practice, extensions of the time limits are freely granted where prejudice would not result.

A defendant can also file a counterclaim, cross-claim or third party claim to join all necessary issues and parties. There are a number of procedural and substantive rules (including time limits) governing all pleadings, and defendants should consult the applicable provincial rules of court for details. In addition, a defendant wishing to challenge the claim on jurisdictional grounds must usually do so by application before the delivery of a defence or any other step that could be construed as binding it to the jurisdiction.

If the defendant fails to deliver a statement of defence in time, the claimant can obtain default judgment. However, default judgments can usually be set aside on terms prescribed by the court.

Subsequent stages

After the pleadings stage, the parties:

• Exchange documents.
• Conduct examinations for discovery (and other non-party examinations if necessary, for example through letters rogatory).
• Engage in interlocutory applications (if required).
• Conduct some form of mediation (the requirements vary from province to province) (see Questions 1, 8 and 31).
• Attend a pre-trial judicial conference.
• Failing settlement, proceed to trial.

INTERIM REMEDIES

10. What actions can a party bring for a case to be dismissed before a full trial? On what grounds must such a claim be brought? What is the applicable procedure?

Claims can be struck out if they are improperly pleaded and the court can determine questions of law on a pre-trial application. However, claimants are generally permitted to amend their pleadings rather than have their claim struck out.

Under Ontario's new summary judgment rule (effective as of 1 January 2010), a party may be able to obtain judgment without a full trial if it appears to the court that there is no genuine issue requiring a trial with respect to a claim or defence. The determination is based on a consideration of:

• Affidavit evidence.
• Examination transcripts.
• In some cases, oral testimony.

The new rule permits the judge to weigh evidence, evaluate credibility and draw inferences from the evidence. British Columbia has a similar regime and other Canadian jurisdictions have started to follow suit (for example, in 2011 Prince Edward Island will consider whether to incorporate the language of the Ontario rule).

Judgment can also be obtained in favour of the defendant on an application based only on the allegations contained in the claim, if the court is satisfied that the claim fails to set out a reasonable cause of action. However, these applications are rarely successful, since the threshold test (that it is plain and obvious that the claim will fail at trial) is very high.

11. Can a defendant apply for an order for the claimant to provide security for its costs? If yes, on what grounds?

Provincial and territorial civil procedure rules typically permit the defendant to apply to the court for an order for security for costs, if one of the prescribed criteria is met. For example, in Ontario the criteria are:

• The claimant is ordinarily resident outside Ontario.
• The claimant has another proceeding for the same relief pending in Ontario or elsewhere.
• The defendant has an order against the claimant for costs in the same or another proceeding that remains unpaid in whole or in part.
• The claimant is a corporation or a nominal claimant, and there is good reason to believe that the claimant has insufficient assets in Ontario to pay the defendant's costs.
• There is good reason to believe that the action is frivolous and vexatious, and that the claimant has insufficient assets in Ontario to pay the defendant's costs.
• A statute entitles the defendant to security for costs.

12. In relation to interim injunctions granted before a full trial:

• Are they available and on what grounds are they granted?
• Can they be obtained without prior notice to the defendant and on the same day in urgent cases?
• Are mandatory interim injunctions to compel a party to do something available in addition to prohibitory interim injunctions to stop a party from doing something?

Availability and grounds

There are two types of injunctions available before trial (or before the determination of the issues on their merits):

• Interim injunction. This is generally only granted for a very brief period until an application for an interlocutory injunction is made.
• Interlocutory injunction. This is intended to preserve the status quo or to enjoin certain conduct until the court determines the parties' rights.

The test for any injunction in Canada is essentially the same. As prescribed by the Supreme Court in RJR-MacDonald Inc. v Canada (Attorney General), [1994] 1 S.C.R. 311, the court must be satisfied that:

• There is a serious question to be tried.
• The applicant will suffer irreparable harm if the injunction is not granted.
• The balance of convenience favours granting the injunction.

Generally, the party seeking the injunction must give an undertaking to pay any damages suffered by the other party if he or she ultimately succeeds in having the injunction set aside.

Prior notice/same-day

An interim injunction can be obtained without prior notice to the other party and can be granted on the same day if the matter is urgent.

Mandatory injunctions

Mandatory interim injunctions are available but less common as the imposition of an obligation to act positively shifts the balance of convenience (see RJR-MacDonald, above) against granting the injunction. Generally, Canadian courts are also more reluctant to grant any injunctive orders that will require judicial supervision.

13. In relation to interim attachment orders to preserve assets pending judgment or a final order (or equivalent):

• Are they available and on what grounds must they be brought?
• Can they be obtained without prior notice to the defendant and on the same day in urgent cases?
• Do the main proceedings have to be in the same jurisdiction?
• Does attachment create any preferential right or lien in favour of the claimant over the seized assets?
• Is the claimant liable for damages suffered as a result of the attachment?
• Does the claimant have to provide security?

Availability and grounds

There are a variety of interim attachment orders available, including specific pre-judgment attachment orders (also referred to as pre-judgment garnishment). These are available in Alberta, British Columbia, Manitoba, Newfoundland and Labrador, Nunavut, Prince Edward Island, Saskatchewan, the Northwest Territories and the Yukon. This order permits the attachment of all sources of income from a debtor to a creditor to the extent necessary to satisfy the amount of the creditor's claim. A creditor can make an application to the court for an attachment order where legal proceedings have commenced or are imminent. In Saskatchewan, The Enforcement of Money Judgments Act, which will come into force on proclamation (a fixed date is presently unknown), removes pre-judgment garnishment from the interim attachment orders available in that province.

Before granting a pre-judgment attachment order, the court must be satisfied that there are reasonable grounds to believe that the debtor is dealing with his, her or its exigible property in a manner that is likely to seriously hinder the creditor's enforcement of a judgment.

The following remedies, although not express attachment orders, are also available to preserve or gain access to assets under a defendant's control:

• Mareva injunction. This is the well-known interim freezing injunction which restrains the defendant from disposing of or dealing with specific assets pending the determination of a legal action.
• Anton Piller order. This permits a claimant to enter the defendant's premises to preserve relevant materials, to obtain evidence which might otherwise be destroyed. It is sometimes colloquially referred to as a civil search warrant.
• Possession order. This allows for the interim possession of identified goods taken or retained in breach of a proven prima facie right to possession.
• Certificate of pending litigation. This is registered on title to land where the claimant appears to have a reasonable case and an interest in land is claimed.

To obtain a Mareva injunction a claimant must:

• Make full and frank disclosure of all material matters in his knowledge.
• Give particulars of his claim against the defendant, stating the grounds and the amount of his claim.
• Provide some grounds for believing that the defendant has assets.
• Provide some grounds for believing that there is a risk of the assets being dissipated or removed from the jurisdiction of the court.
• Give an undertaking as to damages.

In relation to the other interim orders (see above), a claimant must also both:

• Show that there is a risk of dissipation of the assets.
• Meet similar criteria, including relating to the protection of any privileged information.

To obtain a certificate of pending litigation, the claimant must demonstrate that the litigation involves a claim which, if substantiated, would adversely affect the defendant's interest in the property. This could relate to a direct ownership claim or, for example, an agreement by the defendant to sell an interest in the land to a third party.

Prior notice/same-day

Attachment orders are frequently sought without notice, for fear that relevant evidence could be destroyed or assets put beyond the courts' reach. However, a without notice order is only granted where the claimant has demonstrated that it is necessary in the interests of justice to proceed in the absence of the responding party. In without notice proceedings, disclosure obligations are stringent and if the applicant withholds any, even marginal, material information, the order will be set aside. The courts presume that the opposing party should be notified.

Main proceedings

If the main proceedings are in a foreign jurisdiction, the claimant can apply to a Canadian court for an injunction over the defendant's Canadian assets, to support those foreign proceedings.

Preferential right or lien

Attachment does not create a preferential right or lien.

Damages as a result

The claimant is liable if it is later proved that the order should not have been granted. An undertaking to that effect is a usual requirement to obtain the initial order. The claimant may also be liable for substantial costs if the attachment order is set aside.

Security

On an application for any interim injunction or mandatory order the claimant must, unless the court orders otherwise, undertake to comply with any order concerning damages that the court makes if it decides that both the:

• Granting of the order has wrongfully caused damage to the responding party.
• Claimant ought to compensate the respondent.

In certain cases, for example relating to a foreign claimant, the undertaking may be required to be supported by security.

14. Are any other interim remedies commonly available and obtained?

Other interim remedies include:

• Anti-suit injunction. The claimant makes an application to a Canadian court to restrain a defendant from continuing (or, in rare cases, commencing) a lawsuit in a foreign court.
  
  The Supreme Court has developed a test to determine the circumstances in which a Canadian court should order this remedy (Amchem Products Incorporated v British Columbia (Workers' Compensation Board), [1993] 1 S.C.R. 897). Generally, an anti-suit injunction should be heard in Canada only after the applicant has first exhausted all means available in the foreign proceeding to have it terminated. The general test is that an anti-suit injunction will not be granted in Canada if the foreign court assumed jurisdiction over the defendant (the applicant in Canada) on a basis consistent with Canadian forum non conveniens principles. If it did not assume jurisdiction and it can be shown that the defendant would suffer an injustice outweighing the harm to the claimant (the defendant in Canada) in being deprived of the right to litigate in the foreign jurisdiction, the injunction is issued.
  
  
• Norwich order. This is an order for pre-action discovery of a third party to further a potential claim (for example fraud or internet libel), where the claimant is unable to determine who may be liable unless the third party (such as a financial institution or internet service provider) discloses the necessary information. The test for obtaining this order is whether (GEA Group AG v Ventra Group Co. 2009 ONCA 619):
• • the applicant has provided evidence sufficient to raise a valid, bona fide or reasonable claim;
  • the applicant has established a relationship with the third party from whom the information is sought, such that it establishes that the third party is somehow involved in the acts complained of;
  • the third party is the only practicable source of the information available;
  • the third party can be indemnified for costs to which the third party may be exposed because of the disclosure; and
  • the interests of justice favour obtaining the disclosure.

FINAL REMEDIES

15. What remedies are available at the full trial stage? Are damages just compensatory or can they also be punitive?

The courts generally have jurisdiction to order any remedy that is just, whether it is based on the common law, equity or statute. The following remedies are typically available:

• Damages. These can include the following types of damages:
• • compensatory;
  • aggravated;
  • exemplary;
  • punitive.
• Specific performance.
• Declaration (a formal statement by the court on the rights of interested parties or the construction of a document).
• Rectification (an equitable remedy which corrects a contract in accordance with the parties' prior agreement).
• Permanent injunctions.
• Foreclosure (an order preventing a mortgagor from redeeming the equity of redemption).
• The imposition of a constructive trust (to the effect that the defendant holds an asset in trust for the claimant).

The courts have broad statutory jurisdiction to grant practical relief, particularly in "oppression" and similar cases.

To read this Handbook in full, please click here

About Fraser Milner Casgrain LLP (FMC)

FMC is one of Canada's leading business and litigation law firms with more than 500 lawyers in six full-service offices located in the country's key business centres. We focus on providing outstanding service and value to our clients, and we strive to excel as a workplace of choice for our people. Regardless of where you choose to do business in Canada, our strong team of professionals possess knowledge and expertise on regional, national and cross-border matters. FMC's well-earned reputation for consistently delivering the highest quality legal services and counsel to our clients is complemented by an ongoing commitment to diversity and inclusion to broaden our insight and perspective on our clients' needs. Visit: www.fmc-law.com

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.