In the spirit of the season, Canadian Appeals Monitor has decided not only to look back on the key appeals of 2012, but also to make predictions about those Supreme Court of Canada appeals most likely to impact businesses and professionals in 2013. Predicting which appeal judgments are likely to have important and lasting effects before they are even decided involves a high degree of guesswork, perhaps even more than with established predictive sciences like political polling or weather forecasting. Often, appeals that appear likely to be watersheds when leave to appeal is granted – perhaps even by those justices granting leave – turn out to be decided on particularly narrow grounds or through judgments that seem to make a point of leaving many questions unanswered.

That said, we identified appeals in five key areas – class actions, bankruptcy/trusts, professional conduct and regulation, civil procedure, and torts – that we think are likely to make waves in 2013 and beyond.

Class Actions: Three of a Kind and a Pair

2013 has the potential to reshape class action certification law in Canada with no fewer than five important appeals at the Supreme Court.

The Microsoft Trilogy

The Supreme Court has not substantively reviewed Canadian certification law in a common law jurisdiction since Hollick, more than a decade ago. On October 17, 2012, the Court heard the Microsoft trilogy of cases (webcasts available), consisting of two appeals from British Columbia ( Microsoft and Sun-Rype) and one from Quebec (Option Consommateurs). Each appeal deals with whether indirect purchasers who claim to have paid higher prices due to alleged anti-competitive behaviour up the supply chain can recover damages.

In Pro-Sys Consultants Ltd. v. Microsoft, the British Columbia Court of Appeal decertified a class action on behalf of indirect purchasers of Microsoft products. Relying on the SCC's decisions in Kingstreet and Canadian Forest Products, the Court of Appeal held that there was no cause of action because the defendants were precluded from using the passing-on defence. In other words, the Court held that direct purchasers are the only ones with a cause of action at common law. This decision reflects the approach taken by the US Supreme Court in Hanover Shoe and Illinois Brick to indirect purchaser claims, one that led many states to introduce legislation giving indirect purchasers a statutory right to bring an action in such cases.

The BC Court of Appeal heard Microsoft and Sun-Rype together. In Sun-Rype Products Ltd. v. Archer Daniels Midland Company, the plaintiffs alleged a price-fixing scheme had caused overcharges in the price of a sweetener (high fructose corn syrup) used in food products, including many soft drinks. The action was brought to recover the alleged overcharges. For the same reasons given in Microsoft, the Court of Appeal held that the plaintiffs had no cause of action (notwithstanding the fact that the representative plaintiffs in Sun-Rype included both a direct and an indirect purchaser).

In Option Consommateurs c. Infineon Technologies, a.g., direct and indirect purchasers of dynamic random access memory ("DRAM") alleged that they were forced to pay higher prices due to an alleged global price-fixing conspiracy. The Court of Appeal, relying in part on the dissenting reasons of Donald J.A. in Microsoft and Sun-Rype, held that the rules relating to passing-on did not constitute a bar to authorizing a class action where the class included both direct and indirect purchasers. The Court therefore set aside the lower court decision and authorized (i.e. certified) the class action.

The Microsoft Trilogy provides the Court with an opportunity to revisit the certification test. In Hollick, the Chief Justice established the "some basis in fact" test for four out of the five statutory prerequisites to certification under s. 5 of Ontario's Class Proceedings Act. (The same five certification requirements exist in all common law provinces that have enacted class proceedings legislation.) Not surprisingly, the nature and quality of the evidence required to satisfy that test has been a major battle ground at certification motions across the country. If the Court elucidates the evidentiary standard and provides additional guidance about what "some basis in fact" means, the Microsoft Trilogy will be of immense importance.

The Microsoft Trilogy might also provide some much-needed guidance on cross-border class action issues. Notably, the question of jurisdiction was central in the Option Consommateurs decision at the Quebec Court of Appeal. The Court found that the harm suffered by the purchaser of a computer could constitute "damage [...] suffered in Quebec" under article 3148(3) of the Civil Code even in the absence of many other connecting factors. This ruling was subsequently relied on by the British Columbia Court of Appeal in another appeal, Fairhurst v. De Beers Canada Inc., alleging price-fixing conduct which had no obvious connection to any Canadian jurisdiction.

Other Class Action Appeals

In addition to the Microsoft Trilogy, two other appeals will give the Court an opportunity to set out a comprehensive restatement of the law on certification in 2013.

First, the Court will hear an appeal from the Ontario Court of Appeal's judgment in Fischer v. IG Investment Management Ltd. In Fischer, the Court of Appeal rejected the proposition that settlement with a provincial securities regulator displaces a class action as the preferable procedure for resolving claims. The Supreme Court will have the opportunity to examine the "preferable procedure" requirement (found in class proceedings legislation across the country) and determine what impact a regulatory proceeding has on the ability to recover on a class-wide basis. We discussed the Ontario Court of Appeal's decision in a previous post.

Second, the Court will hear an appeal from the Quebec Court of Appeal's decision in Dell'Aniello v. Vivendi Canada Inc., Vivendi, will allow the Court to examine article 1003(a) of Quebec's Code of Civil Procedure, which requires that there be "identical, similar, or related questions of law or fact" when authorizing a class action in Quebec. That is substantially similar to the "common issues" branch of the certification test in the common law provinces, and is another major battleground between plaintiffs and defendants. We also discussed Vivendi in a previous post.

In February, the Ontario Court of Appeal will hear appeals from two important class action decisions: Green v. Canadian Imperial Bank of Commerce and Silver v. Imax. These appeals engage the application of the limitation period for a secondary market misrepresentation cause of action under Part XXIII.1 of the Ontario Securities Act post-Timminco. The Court of Appeal will also have the opportunity to address the leave test on motions to bring a misrepresentation claim under the Securities Act. We discussed these appeals, as well as Timminco, in previous posts.

Bankruptcy/Trusts: Reconsidering Indalex

The Court continues to deliberate on the high-profile Indalex appeal, which is eagerly anticipated by practitioners in pensions, commercial lending, and insolvency (webcast available). Indalex involves a CCAA restructuring where there was a shortfall in the pension liability for two plans. The issue was whether there was a deficiency leading to the creation of a statutory deemed trust in light of the fact that (1) at the time of the sale, the executive plan had not been wound up, and (2) for the union plan, the applicable Regulations permitted the company to make up any deficiency over a period of years.

At the time of the assignment, all pension contributions by the company were paid in full; however, to the surprise of many, the Court of Appeal held that the company's contribution obligation accrued at the time of the assignment. Gillese J.A. – the Ontario Court of Appeal's resident trusts expert – held that the deemed trust prescribed by section s. 57(4) of the Pensions Benefits Act applied to all amounts owed by the employer on the wind up of the union's pension plan. The statutory deemed trust also applied to the executive plan even though no amounts were owing on a plain reading of the statute. Both pension plans ranked in priority to the debtor-in-possession ("DIP") lender, notwithstanding the DIP lender's super-priority charge.

Indalex is arguably at odds with the Supreme Court's recent decision in Century Services (as well as the Ontario Court of Appeal's own decision in Ivaco). Both decisions state that the priority scheme in the Bankruptcy and Insolvency Act (where statutory deemed trusts are often unenforceable) should be used for the distribution of proceeds when the debtor's assets are sold under the CCAA.

The Supreme Court's forthcoming decision in Indalex will therefore be of great interest to a broad range of businesses engaged in commercial lending. Depending on how the Court resolves the appeal, it could significantly impact the cost and availability of credit for companies with defined benefit pension plans, even where the prospect of insolvency is slight. Our colleagues have discussed the Indalex appeal several times, including ways for secured lenders to employ strategies to lessen the impact of what appears to be a troubling decision.

The Indalex appeal is also a case to watch for employers that both provide and administer pension plans. The Court of Appeal held that such an employer owes a fiduciary duty to plan members in its capacity as administrator. In Indalex, the Court found that the company had breached this duty by making an assignment. This finding breathes life back into the question of whether insolvent companies with pension plans can file voluntary proceedings under the BIA without breaching fiduciary duties as plan administrators. The Supreme Court will be called upon to determine whether an employer can fulfill its fiduciary obligations to the plan members during a restructuring, or whether the duty to the members of the plan fundamentally conflicts with the duty of the corporation. We discussed the impact of this decision on pension law in a previous post.

Rascal Trucking

On January 16, 2013, the SCC is set to hear another bankruptcy case involving trusts, having granted leave last year in Rascal Trucking Ltd. v. Nishi.

Rascal Trucking arose from the purchase of a plot of land in Nanaimo. The purchaser, Mr. Nishi, received an advance towards the purchase price from another individual, Mr. Heringa. No contract existed, but the BC Court found that an equitable interest existed in the form of a purchase money resulting trust.

Relying on the Supreme Court's decision in Kerr v. Baranow, the Court of Appeal held there was "no doubt" a presumption of resulting trust arose. Mr. Heringa's gratuitous transfer created a purchase money resulting trust because he advanced the funds as a purchaser (not a lender/creditor) with the subjective intention of securing an interest in the land. On the basis of the resulting trust, and in the absence of evidence to rebut the presumption, the Court held that an equitable interest existed in favour of Mr. Heringa.

The Supreme Court's decision in Rascal Trucking is expected to clarify when a resulting trust is created in the commercial context. How the Court treats gratuitous transfers of property and to what extent the transferee's subjective intentions have an impact on the creation of resulting trusts will be of significant interest to a wide range of businesses and their counsel. We discussed the implications of Rascal Trucking in a previous post.

Professional Conduct and Regulation: Physicians and Lawyers

In two very different appeals, the Supreme Court of Canada will also make important pronouncements that will directly affect two professions near and dear to Canadian Appeals Monitor: physicians and, of course, lawyers.

Physicians: Rasouli

This appeal, which earned newspaper headlines and sparked discussions among lawyers and non-lawyers across Canada throughout much of 2012, deals quite literally with issues of life and death. When the Court heard Rasouli earlier this month (webcast available), it was specifically asked to consider whether patients or their families have the right to insist on certain medical treatments even where physicians have determined that they are not medically indicated in the sense that they can no longer offer any medical benefit to the patient. Physicians and others who care for the critically ill are seeking clear guidance from the Court on how decisions about the withdrawal of life sustaining treatment are to be made and, when caregivers and family members disagree, how disputes are to be resolved.

The case specifically before the Court dealt with a patient who has been unconscious for over two years and breathes, eats and drinks only with mechanical assistance. When physicians determined that such assistance was no longer medically indicated for this patient, his substitute decision-maker took the position that her consent was required before the medical treatment could be withdrawn. The Ontario Superior Court of Justice agreed, a decision which was upheld on appeal, albeit for different reasons. The Court of Appeal's decision turned in part on a characterization of the physicians' proposed course of action – the withdrawal of mechanical ventilation and the delivery of palliative care – as itself a form of "treatment" for which consent was required under Ontario's Health Care Consent Act. The Court found that the withdrawal of non-indicated treatment coupled with the administration of palliative care where death was imminent required consent, even though the withdrawal or withholding of non-indicated care in other circumstances would not require such consent.

The decision will provide important guidance to physicians and others in often difficult circumstances. The Court's judgment can be expected to provide clarity on what patient consent means in the context of end-of-life decision-making. The position of the patient's family was that the withdrawal of particular medical treatments requires consent, without which physicians may be required to provide a treatment that they have determined is no longer appropriate or, indeed, may be of no medical benefit to the patient at all.

The Court's judgment is also expected to provide clarity about what procedure should be followed where a patient's substitute decision-maker disagrees with a medical determination about the withdrawal of treatment. On the appeal, the physicians argued that patients or their substitute decision-makers should be entitled to a second medical opinion and that ultimately recourse to the courts should be available should no agreement be reached.

Lawyers: CNR v. McKercher

Early in January, the Supreme Court will hear the appeal in Canadian National Railway v. McKercher LLP, an important case from Saskatchewan that will have the Court re-visit the "bright-line rule" which applies where lawyers take on, without consent, mandates in which the interests of one client would be directly adverse to the interests of another even if the mandates are unrelated. As reported in an earlier post, whatever the Court ultimately does on the facts of the case, the legal profession will be looking for clear guidance to help navigate the difficult questions that have affected lawyers due to the Neil and Strother judgments which first articulated the "bright-line rule." The appeal also raises the specific issue of whether information about a client's general litigation strategy amounts to "confidential information" that may lead to the disqualification of a law firm.

The case arose in the context of a class action brought against Canadian National Railway ("CN") in respect of grain transportation charges. Law firm McKercher LLP represents the proposed representative plaintiff and, at the time that it accepted that retainer, had been acting for CN in some unrelated litigation matters. CN ultimately terminated the solicitor-client relationship and brought a motion to disqualify McKercher LLP from acting on the proposed class action.

At the Saskatchewan Court of Queen's Bench, the disqualification motion was granted by Justice (now Chief Justice) Popescul on two grounds. First, the Court applied the bright-line rule and determined that, although it should only be applied where there is a "substantial risk" of a material and adverse effect to the client, in this case there was in fact such a risk of harm to CN. The Court noted that McKercher LLP had been CN's "go to firm" in the province and had represented the company for more than a decade. The Court found that the law firm could not rely on the "professional litigant" exception to the rule. Second, the Court found that the law firm had confidential information about CN's "litigation practices, policies, risk tolerances and attitudes toward litigation" and, therefore, that this would confer a special and unfair advantage that would prejudice CN in the class action litigation.

The Court of Appeal endorsed Justice Popescul's articulation of the bright-line rule, which was consistent with the Canadian Bar Association's Task Force on Conflicts of Interest. Nevertheless, it overturned the disqualification on the basis that there was no real evidence of potential prejudice to CN. The Court of Appeal also found that CN was properly seen as a professional litigant whose consent could be inferred in the circumstances despite CN's later protestations. Notably, the Court of Appeal also found that there had been a breach of the duty of loyalty to CN, but that the remedies relating to that breach did not include disqualification of the firm from acting in the proposed class action, which would adversely affect a third party.

Many law firms and in-house counsel across Canada continue to struggle to understand and properly apply conflicts rules in a manner that protects clients while recognizing the complex realities of contemporary litigation. McKercher will therefore be closely watched in the hope that the Court's judgment will provide practitioners and clients alike with a better understanding of the rules, their underlying rationale, and their application in often complicated circumstances.

Civil Procedure: Ontario's Rule for Summary Judgment

Given the central place that summary judgment motions – whether actually brought or merely threatened – enjoy in litigation in most common law jurisdictions, observers will be keen to see what the Supreme Court does when it hears two appeals from the Ontario Court of Appeal's judgment in Combined Air Mechanical Services Inc. v. Flesch: Bruno Appliance and Furniture, Inc. v. Robert Hryniak and Robert Hryniak v. Fred Mauldin et al.

In Combined Air, a panel of five Court of Appeal justices unanimously introduced the "full appreciation" test designed to provide guidance on the circumstances in which it will be appropriate for the court to resolve issues by way of summary judgment.Courts are to ask themselves whether a "full appreciation" of the evidence and issues is possible in the absence of a full trial.

The decision came on the heels of an amendment to Ontario's summary judgment rule which gave motions judges more power. Under the amended rule 20:

  • the test on a motion for summary judgment is whether there is "no genuine issue requiring a trial" rather than "no genuine issue for trial";
  • judges have the power to weigh evidence, evaluate credibility and draw reasonable inferences from the evidence; and
  • judges may order the presentation of oral evidence, with or without time limits.

The Ontario Court of Appeal heard five appeals from motions granting and denying summary judgment to clarify the scope of the newly amended rule. As discussed in a previous post, the Court laid down three types of cases said to be amenable to summary judgment: (1) where the parties agree that it is appropriate to determine an action by way of summary judgment; (2) where the claim or defence is "without merit" or has "no chance of success"; and (3) where the trial process is not required "in the interests of justice".

According to the Court, a motion judge must ask the following question when determining whether to resolve all or part of an action under rule 20:

"... can the full appreciation of the evidence and issues that is required to make dispositive findings be achieved by way of summary judgment, or can this full appreciation only be achieved by way of a trial?"

The two appeals before the Supreme Court are both important, but for different reasons.

In Bruno Appliance, the Court will be asked to review the new summary judgment test in Ontario. The appellant in this case obtained summary judgment at first instance; however, after articulating the new test, the Court of Appeal ordered a trial on the basis that there were genuine issues requiring a trial. The appellant takes the position that the Court of Appeal either misapplied or incorrectly formulated the test for summary judgment. The Supreme Court will therefore be asked to decide whether the Court of Appeal's "full appreciation" test is correct and, if so, whether it was properly applied in this case. The Court will also be asked to consider the appropriate standard of review on appeals of questions of mixed fact and law where the facts dominate, as well as the elements and standard of proof for the tort of civil fraud.

The Fred Mauldin appeal is one to watch because it raises the issue of prospective overruling. In Combined Air, the Court of Appeal expressly created a new test for summary judgment which it then proceeded to apply to only some of the appeals before it. The Supreme Court must grapple with whether the Court of Appeal was required to apply the new test retrospectively to the cases before it if doing so would change the outcome of the appeal, or whether the Court was at liberty to only apply the new test prospectively. The Supreme Court last addressed prospective overruling in Canada (Attorney General) v. Hislop.

Torts

The new year will also provide the Supreme Court with an opportunity to clarify an important area of tort law that, as was noted in an earlier post, has been described as "a mess." In A.I. Enterprises Ltd. v. Bram Enterprises Ltd., the Supreme Court will be faced with an appeal in an economic tort case that will engage appellate jurisprudence that is not only inconsistent across different provinces, but inconsistent within provinces. Canadian courts have long struggled to define the "unlawful means" element of the torts of intentional interference with economic relations and intentional interference with contractual relations.

In A.I. Enterprises, the New Brunswick Court of Appeal noted the "unhelpful" Canadian jurisprudence on the subject and adopted the approach taken by the Ontario Court of Appeal in Alleslev-Krofchak v. Valcom Ltd. which sets out a narrow definition of unlawful means. The Valcom decision itself was released in August 2010, 10 days before the same Court of Appeal released a decision in Barber v. Molson Sport & Entertainment Inc. which does not cite Valcom and seems to apply a different standard. To add even more confusion, the New Brunswick Court of Appeal, having decided to adopt the Valcom standard in A.I. Enterprises Ltd., then determined that the facts of the case were exceptional and merited a finding of liability even though the defendants' conduct did not meet the test.

These decisions have all come after detailed debate by the House of Lords on the subject in a trilogy of 2007 decisions: OBG v. Allan. Douglas v. Hello! Limited, and Mainstream Properties v. Young. This trilogy featured Lord Nicholls proposing a broad definition of "unlawful means" to include conduct that is not actionable and Lord Hoffman reasoning that a narrow definition is more appropriate. A majority of the House of Lords adopted Lord Hoffman's approach in the OBG trilogy. In light of the lack of clarity in the Canadian jurisprudence even with the benefit of the House of Lord's analysis and the Ontario Court of Appeal's detailed discussion of the issue in Valcom, intervention by the Supreme Court of Canada is certainly welcome.

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