"Those who cannot remember the past are condemned to
repeat it"
– George Santayana
Over the holidays, many reflect over the past year in search of lessons learned for the coming year. In line with this tradition the Appeals Monitor is, once again, pleased to present our annual review of the most significant appeal decisions of the past year which we should be mindful of and which can be expected to impact Canadian employees and businesses for years to come.
10. OEB v OPG and
ATCO v AUC: Power to the Regulators
Starting out our countdown are the companion decisions of
Ontario (Energy Board) v Ontario Power Generation Inc, 2015 SCC 44
("OEB"), and ATCO Gas and
Pipelines Ltd v Alberta (Utilities Commission), 2015 SCC 45
("ATCO"), (previously discussed
here), in which the Supreme Court of Canada
("SCC") held that utility regulators can
assess the prudence of a utility's costs with the benefit of
hindsight. These decisions were included in our top ten Appeals to Watch in 2015.
Both cases involved utility regulators disallowing costs that the
utilities claimed were prudent. (Generally, utilities are entitled
to recover prudent costs from ratepayers.) OEB involved
labour costs that the utility was obligated to pay under collective
bargaining agreements (including following a binding arbitration).
ATCO involved pension costs related to an annual cost of
living adjustment. In both cases, the regulators relied upon
after-the-fact benchmarking—i.e., comparing the subject costs
to costs incurred by similar utilities.
The SCC held that statute and circumstances can mandate a specific
methodology in determining the prudence or
"reasonableness" of a utility's costs. For example,
committed costs (i.e., costs to which the utility is already
committed) or statutory language referring to "prudently
incurred" costs may mandate a "no-hindsight"
approach that only looks at the information available to the
utility at the time the decision to incur the cost was made. If the
statute and circumstances do not mandate a specific methodology,
then the regulator has discretion to choose the methodology. Absent
statutory language to the contrary, there is no presumption of
prudence, particularly when the onus of proof in a rate application
is on the utility. The SCC held that the regulators' decisions
in both cases were not unreasonable.
OEB and ATCO affirm the broad discretion of
utility regulators in determining whether costs are prudent (i.e.,
borne by ratepayers) or should be disallowed (i.e., borne by the
utility or its shareholders). As noted by Abella J in her
OEB dissent, this introduces some uncertainty into utility
rate regulation. Moreover, the decisions legitimize a role for
utility regulators to act as a countervailing force against the
demands of unionized labour.
The OEB decision is also significant because it provides
guidance on when and how a statutory decision-maker can participate
in a judicial review of its own decision.
9. Tervita: No
Predicting the Future in Merger Competition Cases
Tervita Corporation et al v Commissioner of Competition,
2015 SCC 3, was a long-awaited
decision on the merger review test under the Competition
Act (it was previously discussed here and was included on both the Appeals to Watch in 2014 and Appeals to Watch in 2015 lists).
In this decision, the SCC confirmed the proper analytical framework
to apply to the "prevention" branch of s. 92(1). Justice
Rothstein (writing for the entire Court on this issue) confirmed
that a two-stage forwarding-looking "but for" market
condition analysis should be used to determine if a merger gives
rise to a substantial prevention of competition under s. 92(1).
First the potential competitor must be identified, then it must be
determined whether "but for" the merger, the potential
competitor would have likely entered the market and had a
substantial effect on competition. The Court clarified that the
timeframe for likely entry must be discernable, based on evidence
of when the potential competitor was realistically expected to
enter the market (in absence of the merger). It was emphasized
that, in performing this analysis, the Competition Tribunal should
not look farther into the future than the evidence supports, as
speculation is improper and mere possibilities are insufficient to
meet the standard, nor should the Tribunal or courts try to make
future decisions for companies.
A majority of the SCC also confirmed the proper approach to the
"efficiencies defence" set out in s. 96 (one justice was
in dissent). This was described as a balancing test, requiring
analysis of whether the quantitative and qualitative efficiency
gains of the merger outweigh the anti-competitive effects. The
Tribunal has flexibility to choose which methodology should be used
in light of the particular circumstances of each merger but the
approach should be as objectively reasonable as possible,
quantifying all effects that are realistically measurable and
ensuring that the estimates provided are grounded in the
evidence.
The SCC did not restrict at all the scope of the Competition
Bureau's power to review and undo mergers of any size, but it
did comment briefly that this case (dealing with competition on a
local scale) did not appear to reflect the policy considerations
Parliament likely had in mind in in creating the efficiencies
defence (although, it was technically available, given the current
wording of the statute).
Overall, this decision should: (i) reduce complications in
assessing competitive effects of mergers, since there cannot be any
speculation about the future; and (ii) return an objective standard
to the efficiencies defence, making it more predictable.
8. CBC v SODRAC:
Copyright Shifts into Technological Neutrality
Canadian Broadcasting Corp v SODRAC 2003 Inc, 2015 SCC 57, was also identified as one of our
top ten Appeals to Watch in 2015. In this decision
(previously discussed here and here), the SCC addressed the scope of
reproduction rights under the Copyright Act (whether
broadcasters must pay royalties for creating
"broadcast-incidental" internal copies made solely for
the purpose of facilitating the broadcast of a performance) and
clarified the principle of technological neutrality.
Justice Rothstein, for the SCC majority, found that
broadcast-incidental copies engage copyright holders'
reproduction rights and therefore royalties were owed. The majority
focused on the ordinary language of the Copyright Act, as
opposed to more amorphous concepts such as balance between user and
owner rights. The majority held that the principle of technological
neutrality could not override the clear statutory language in the
Act. Also, the principle was not violated, since making
broadcast-incidental copies was not necessarily the result of using
a particular technology but was rather a function of broadcasting
activity. The right to create broadcast-incidental copies could not
be implied from an existing "synchronization" licence,
which permits incorporation of a musical work into a program.
In fixing the amount of royalties, the majority held that the
Copyright Board must apply the principle of technological
neutrality. In applying the principle, the Board should consider
certain factors including the risks taken by the user, the extent
of the investment the user made in the new technology, the nature
of the copyright-protected work's use in the new technology and
the value contributed to the user by reproductions of the
copyright-protected work. The SCC held that the Board had failed to
take these principles into account and, as a result, its valuation
of the royalties was unreasonable and should be set aside and
remitted back to the Board for consideration.
In dissent, Abella J (Karakatsanis J concurring except on standard
of review) held that the majority's decision was a departure
from the principle of technological neutrality and distorted the
balance between users and copyright holders.
This case has significant ramifications for users of copyrighted
works. Any copy of a work created in the process of preparing a
media product can trigger reproduction rights and attendant
royalties (subject to limited statutory exceptions). The principle
of technological neutrality has been affirmed but delimited: where
a user benefits from using a new, efficient technology which
involves making additional copies, the user may have to pass some
of that benefit to the copyright holder.
7. White Burgess: Six
Degrees of Expert Evidence
The SCC addressed admissibility of expert evidence in White
Burgess Langille Inman v Abbot and Haliburton Co., 2015 SCC 23 (previously discussed here and here). In this case, the Court tackled
difficult questions about how trial judges should deal with
proposed evidence from potentially biased experts and when such
evidence should be excluded, finding the decision as to whether
expert evidence should be admitted despite an interest or
connection with the litigation is a matter of fact and
degree.
A unanimous Court set out a two-step inquiry to determine the
admissibility of expert evidence and held that an expert's lack
of independence and impartiality should be considered at both
stages. Court clarified that expert witnesses have an overriding
duty to the court to provide fair, objective and non-partisan
opinion assistance and must be willing to carry out that duty. That
is the first or threshold consideration included as part of the
R v Mohan framework for admissibility. The threshold
requirement was noted as being "not particularly
onerous"; there must be a clear case of an actual lack of
independence or impartiality for expert evidence to be excluded at
the initial stage. At the second stage, less fundamental concerns
about an expert's impartiality and independence must be weighed
by trial judges as part of a cost–benefit analysis to
determine whether the expert evidence is sufficiently beneficial to
the judicial process despite the potential harm.
While this decision does not entirely revamp the framework to be
applied, the nuances adopted will affect trial judges' approach
to the evaluation of expert evidence in all cases going forward.
This decision will, therefore, be important in all actions that
involve expert evidence, particularly where there are issues
relating to the admissibility of expert opinion evidence for
reasons of bias and partiality.
6. Guindon: Getting
AMPed Up is Constitutional
In Guindon v Canada, 2015 SCC 41 (previously discussed here, here and here), the SCC upheld the constitutionality of
administrative monetary penalties
("AMPs").
At issue were fines imposed by the Canada Revenue Agency
("CRA") under s. 163.2 of the Income
Tax Act, which allows the CRA to fine individuals who
knowingly make false statements relied upon by others for the
purposes of the Act. In this case, a lawyer received a
small payment in exchange for her part in a scheme involving
timeshares and charitable tax credits and was fined in an amount
equivalent to the tax avoided.
The SCC considered two main issues in this case. The first was the
procedural question of when the SCC would exercise its discretion
to consider the constitutional issue raised even when, as here,
notice of a constitutional question was not provided in the lower
courts. A majority of the SCC (4 of 7 justices) held the Court
ought to exercise its discretion to consider the Canadian
Charter of Rights and Freedoms
("Charter") issue since the
issue was important and the Attorney General had not suffered
prejudice. The dissent found the lack of notice was a bar to
hearing the question.
Only the majority considered the second, substantive issue, which
was whether proceedings under s. 163.2 of the Income Tax
Act are, in substance, of an administrative nature, or are
criminal in nature and thus attract the protections in s. 11 of the
Charter. The majority considered the test for determining
whether a fine has "true penal consequences", which
includes considerations of its magnitude, to whom it is paid,
whether its magnitude is determined by regulatory considerations
rather than principles of criminal sentencing, and the stigma
associated with the penalty. They concluded that the fine and
related proceedings in this case were meant to deter non-compliance
and, although the fine was high, it did not constitute a true penal
consequence. Therefore, the proceedings were administrative (not
criminal) in nature and individuals assessed for penalties under s.
163.2 of the Income Tax Act are not "charged with an
offence" so the protections under s. 11 of the
Charter do not apply.
While each case involving an AMP will depend on its circumstances,
this SCC decision may well have consequences in other areas of law,
including in environmental matters, where the imposition of AMPs is
now common practice.
5. Chevron v Yaiguaje:
Foreign Judgment Day
In Chevron Corp v Yaiguaje, 2015 SCC 42, the SCC addressed the test for
recognition and enforcement of a foreign judgment in domestic
courts. This decision (previously discussed here, here and here) was identified as one of our top ten Appeals to Watch in 2015. This decision has
important implications for both foreign corporations and their
Canadian subsidiaries.
This case involved a long-running legal battle resulting in a
US$9.51 billion Ecuadorian judgment for damages related to
environmental pollution against Chevron. Chevron had no assets in
Ecuador and it refused to pay the award, contending that the
judgment was obtained through fraud or other illegal means. US
courts had been sympathetic to Chevron's allegations of fraud
against the Ecuadorian court so the Ecuadorian plaintiffs sought
enforcement of the judgment in Ontario against both Chevron and
Chevron Canada, a wholly-owned subsidiary of Chevron that was not
involved in the Ecuadorian action.
Justice Gascon, for a unanimous SCC, clarified the requirements for
when a domestic court will have jurisdiction to hear a proceeding
for recognition and enforcement of a foreign judgment: (i) the
plaintiff proves a real and substantial connection between the
dispute and the foreign court; (ii) there is presence-based
jurisdiction over the domestically-named defendant (e.g., a
corporate defendant carrying on business in the province);
or (iii) the domestically-named defendant
consents to the domestic court's jurisdiction. In this case,
Ontario could assume jurisdiction over Chevron, as it was not
disputed that the Ecuadorian court had jurisdiction over the
dispute that led to the foreign judgment. Traditional
presence-based jurisdiction was established over Chevron Canada, as
it carried on business in Ontario.
Importantly, the SCC clarified that the plaintiff does not need to
prove a "real and substantial connection" between the
province and the defendant or the subject-matter. It is not
necessary that the defendant have assets in the province at the
time of the proceeding because, in the era of globalization, assets
move quickly between jurisdictions. It is not even necessary that
the domestically-named defendant to be a party to the foreign
judgment—in this case, jurisdiction extended to a corporate
affiliate of the defendant from the Ecuadorian action. Justice
Gascon emphasized that a recognition and enforcement action is, in
essence, the enforcement of a debt.
However, the SCC noted that a defendant was free to argue forum
non conveniens or make further defences against recognition
and enforcement (e.g., based on fraud, denial of natural justice,
or public policy) after the jurisdictional stage.
This SCC decision significantly increases litigation risk for
companies that engage in activities abroad and that have assets in
Canada, particularly in the resource extraction sectors, given that
enforcement in Canada can be pursued against foreign companies and
their Canadian affiliates even if neither party to the original
dispute has a "real and substantial" connection to
Canada. It continues the judicial trend over the past 25 years,
concurrent with the growth of globalization and emerging
technologies, of extending the boundaries of comity and recognition
of foreign court decisions.
4. Potter: Have a
Little Good Faith
In Potter v New Brunswick Legal Aid Services Commission,
2015 SCC 10, (previously discussed here, here and here), the SCC clarified the test for
constructive dismissal and incorporated the requirement of good
faith from its previous decision in Bhasin v Hrynew, 2014 SCC 71, into the law of constructive
dismissal. This case was identified as one of our top ten Appeals to Watch in 2015.
In this case, a lawyer who held public office in New Brunswick had
been suspended indefinitely with pay and his powers had been
delegated to another worker.
The majority of the SCC explained that the first branch of the test
for constructive dismissal requires the court to, first, examine
the specific terms of the contract to determine whether the
employer effected a unilateral change constituting a breach of the
employment contract and, if so, then determine whether the change
substantially altered an essential term of the contract. The
majority noted that the court must determine the second step by
asking whether a reasonable person in the situation of the employee
would have felt the essential terms substantially changed, without
considering evidence of information the employee did not know or
reasonable foresee. The second branch of the test is to determine
whether the employer's conduct was such that a reasonable
person would conclude that they were no longer bound by the
contract.
While the concurring judges took a broader approach to the
analysis, the SCC unanimously held that held that constructive
dismissal can take two forms: a single unilateral act that breaches
an essential term of the contract (the first branch), or a series
of acts that, taken together in the circumstances and viewed
objectively be a reasonable person in the employee's position,
show that the employer intended to no longer be bound by the
contract (the second branch).
Ultimately, the SCC unanimously found in this case that the
employee had been constructively dismissed. The majority found that
the first branch of the test had been established in light of the
indefinite duration of his suspension, the employer's failure
to act in good faith by withholding the reasons from him, and the
employer's concealed intention to have the employee
terminated.
This case not only clarifies the principles of constructive
dismissal, but acts as an important reminder to employers to ensure
that they act honestly and in good faith and use caution when
suspending employees, even with pay.
3. Theratechnologies:
More Bite than Bark Required in Secondary Market Misrepresentation
Actions in Quebec
The SCC raised the bar for plaintiffs in secondary market liability
actions in Theratechnologies Inc v 121851 Canada Inc, 2015 SCC 18 (previously discussed in numerous
prior posts: here, here, here, here, here, here, here and here). This was the SCC's first decision
on the Quebec statutory secondary market liability regime adopted
in 2007 pursuant to a reform of the Quebec Securities Act
(QSA).
In this decision, the SCC clarified the test applicable to the
authorization of claims pursuant to the QSA and specified the
analysis to be performed. In particular, the SCC confirmed that the
analyses of judges deciding motions to pursue secondary market
liability claims under the QSA and similar statutes may have to be
comprehensive enough to determine whether or not a material change
occurred.
In this case, the SCC made that determination and, in contrast with
the Quebec Court of Appeal which had authorized the class action
claim by the shareholders of Theratechnologies (a public company
listed on the Toronto Stock Exchange), the SCC reversed on the
result and held that the evidence brought forward by the plaintiff
shareholders did not establish a reasonable possibility that the
action could succeed. While it agreed there should not be a mini
trial on the merits, the SCC disagreed with the Quebec Court of
Appeal that determining whether there had been a material change
crossed inappropriately into merits territory, thus confirming that
the preliminary merits test should have more bite.
More broadly, this decision can be viewed as another effort on the
part of the SCC to promote procedural tools which can lead to
preliminary dismissal of actions, in continuation with earlier
decisions such as Hryniak v Mauldin, 2014 SCC 7.
This decision will surely be embraced by public issuers and class
action defence lawyers going forward.
2. CIBC v Green: Return
of the Limits – Courts Must Be Robust Gatekeepers for
Secondary Market Liability Actions
Taking the #2 spot on our list is Canadian Imperial Bank of
Commerce v Green, 2015 SCC 60, due to anticipated impact and the
sheer number of past mentions on our Blog (it has been discussed or
mentioned in no less than 11 past posts, as the case made its way
through multiple appeal courts, including in our Top Appeals to come in 2013 post and our Appeals to Watch in 2015 post, as well as here, here, here, here and here). This was a greatly anticipated decision
in a trilogy of secondary market class action cases in Ontario in
which the SCC made three important determinations.
First and most importantly, the SCC unanimously confirmed that the
merits test for leave to proceed with a proposed securities class
action is to be construed as a "robust deterrent screening
mechanism" across Canada. The Court adopted the analysis it
recently applied under Quebec's analogous statute in its
Theratechnologies decision (discussed immediately above),
endorsing the line of Ontario case law which emphasizes that judges
should apply real scrutiny to the evidence presented by investors
to show a "reasonable possibility of success" for their
proposed statutory claim. As a result, there can no longer be any
serious dispute that the test for secondary market class actions in
Ontario is far more stringent than a pleadings standard.
Second, by a 4–3 majority, the SCC reversed course on the
limitation period applicable to statutory secondary market
misrepresentation claims in Ontario. Overruling the Ontario Court
of Appeal (which had overruled its own prior decision), the SCC
held that the limitation period for such claims continues to run
until the Plaintiff obtains leave to proceed from the court.
However, the SCC used equitable principles to allow two of the
cases to proceed. The impact of that analysis is limited given the
recent amendments to Ontario's Securities Act which
prescribes a different limitation period going forward.
Nevertheless, the principles and policy rationales emphasized by
Côté and Karakatsanis JJ in their respective judgments
are at the heart of, and will undoubtedly find their way into
arguments about other aspects of, the statutory secondary market
liability regime. Indeed, the division within the SCC on this issue
(as to balancing the rights of investors, and of public issuers)
will most likely continue to animate the case law relating to this
regime into the future.
Third, of benefit to issuers, the SCC unanimously rejected the
investor argument that Canadian courts should endorse a US-style
"fraud on the market" theory, which would have allowed
the individual investor to prove reliance on a misrepresentation by
an entire class of investors by inference. On the other hand, the
SCC confirmed that investors may advance certain aspects of their
common law misrepresentation claims focused on the conduct of
defendants, as common issues in a class action. It remains to be
seen whether and how this ruling might impact arguments in future
cases relating to plaintiffs' attempts to commence common law
causes of action alongside statutory causes of action where a
provincial statute does not, like Ontario's Securities
Act, expressly preserve common law remedies.
1. Saskatchewan Federation
of Labour v Saskatchewan: The Charter
Strikes Back
Taking the top spot on our list is Saskatchewan Federation of
Labour v Saskatchewan, 2015 SCC 4 (previously discussed here, here, here and here). In this case, a majority of the Supreme
Court of Canada ("SCC") recognized a
constitutionally-protected right to strike under s. 2(d) of the
Charter, reversing its own decades-old decision.
At issue was The Public Service Essential Services Act
("PSESA") in Saskatchewan,
which limited the ability of "essential services
employees" in the public sector to strike. The SCC majority
held that the legislation was unconstitutional on the basis that it
granted unilateral authority to the government to determine which
employees were providing "essential services", with no
meaningful method of arguing the "essential services"
designation, and no mechanism for tailoring the employees'
responsibilities to the essential services alone.
The majority further held that the right to strike is essential to
a meaningful process of collective bargaining. Therefore, the
PSESA was unconstitutional because it prohibited essential
services public sector employees from striking, with no alternative
means to apply social or economic pressure or alterative mechanism
for resolving bargaining impasses, such as arbitration.
The dissenting justices strongly disagreed, stating that
constitutionalizing a right to strike implies that all statutory
limits on the right to strike are unconstitutional, and wrongly
interferes in the government's policy choices.
While it is clear that this decision prohibits an absolute ban on
unionized employees' right to strike without a meaningful
dispute resolution mechanism, the constitutionality of other, less
extensive legislative restrictions—such as essential services
legislation in other provinces or back-to-work
legislation—remains to be seen. Given the strong dissent, we
can expect the issue of statutory limits on striking to be
litigated further. Regardless, this case sends a strong message to
policymakers throughout Canada that any legislation limiting the
right to strike will come under careful Charter scrutiny
by the courts.
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