Canada: Court of Appeal's Top Five Appeals Last Month (January 2011)

Last Updated: January 11 2012
Article by Kirk F. Stevens

1) Rosenhek v. Windsor Regional Hospital (Doherty, Moldaver and Epstein JJ.A – decision "by the Court")

In this decision, the Court of Appeal considered the obligations an administrative body owed to a physician in the context of the revocation of his privileges.

Dr. Rosenhek, a specialist in cardiology, first applied for privileges at the defendant hospital in 1984. At the time, it was thought he would occupy a role running a critical care unit the hospital was planning to develop. However, the plans for this unit were opposed by a number of internists at the hospital and ultimately it did not proceed. Unfortunately, personal divisions had developed among the doctors over the merits of the plan and those lingered. Dr. Rosenhek was excluded from the internist coverage group as a result.

By 1988, Dr. Rosenhek brought his concern about his inability to be part of the coverage group to the attention of the hospital's Board of Governors. He was on call almost all the time and the stress of his work was having a negative impact on his health. The Board concluded that the coverage issue was a private matter among the doctors and refused to become involved in any attempt to resolve it. Then, in 1989, the Board renewed Dr. Rosenhek's privileges for three months, significantly less than the customary year. He was given associate staff status - the equivalent of a probationary appointment. Two months later, the hospital's Medical Advisory Committee recommended the immediate revocation of Dr. Rosenhek's privileges. Two days after that, without any notice to Dr. Rosenhek, the Board adopted the recommendation and revoked his privileges effective immediately. This action was taken although there were no concerns over Dr. Rosenhek's competency or ability to care for patients, but apparently to resolve the problem between the specialists.

Dr. Rosenhek appealed the Board's revocation of his privileges to the Hospital Appeal Board, which found the hospital had complied with its statutory obligations relating to a mid-term revocation of privileges but failed to give Dr. Rosenhek adequate notice. It ordered a new hearing, but declined to order Dr. Rosenhek's reinstatement pending the rehearing. The rehearing eventually took the form of a de novo appeal before a different constituted panel of the Appeal Board. That panel released reasons setting aside the order of the Board revoking Dr. Rosenhek's privileges and ordering that he be granted active staff privileges at the hospital.

Dr. Rosenhek began litigation against the hospital, which centered on his allegation that the Board acted in bad faith when it revoked his privileges. He claimed losses of substantial income. At trial, the parties agreed to be bound by the findings of fact from the two Appeal Board decisions. The trial judge found the Board acted in bad faith and its conduct caused Dr. Rosenhek to lose income over several years. However, he was critical of Dr. Rosenhek's evidence quantifying that loss and awarded damages that were significantly less than Dr. Rosenhek sought. The hospital appealed against the finding of liability and damages, while Dr. Rosenhek cross-appealed from the damages assessment.

The Court of Appeal held that a bad faith exercise of a statutory public power can, in law, be the basis for a tort claim by the doctor against the hospital. The Board's power to revoke Dr. Rosenhek's privileges, found in s. 33(c) of the Public Hospitals Act, is part of a comprehensive statutory scheme which governs the operations of public hospitals. The power to revoke privileges is exercised having regard to public interest factors relating, in particular, to the quality of care provided by the hospital. The Court of Appeal concluded that the exercise of the revocation power is thus properly characterized as public in nature.

The hospital made three arguments challenging the bad faith finding. First, it argued that Dr. Rosenhek did not plead bad faith in his claim. The Court of Appeal noted that the pleadings were drafted by Dr. Rosenhek and, while they left much to be desired, they did refer to a breach of statutory duty and a breach of the duty to act fairly, and describe those breaches as "malicious". The Court of Appeal was satisfied that the bad faith allegation was properly before the trial judge and central to the dispute between the parties. The hospital did not argue that it did not have adequate notice of the bad faith allegation at trial. In the result, any inadequacy in the pleading caused no prejudice and posed no bar to the trial judge's finding of bad faith.

Second, the hospital argued that the trial judge erred by equating a failure to comply with the rules of natural justice in the revocation process with the finding of bad faith by the Board. It argued that failing to comply with the requirements of the statute or the dictates of natural justice may give rise to a remedy, but will not, in and of itself, give rise to a private cause of action. The Court of Appeal held that trial judge's reasons showed that he understood the distinction between finding that a hearing was procedurally flawed and finding a bad faith exercise of statutory power. However, the trial judge correctly considered the failure to accord procedural fairness to the doctor as part of the overall evidentiary picture.

Third, the hospital argued that the evidence could not support a finding of bad faith. The hospital argued that the trial judge erred by equating the Appeal Board's finding that Dr. Rosenhek's privileges were improperly revoked with the finding of bad faith, and noted, correctly, that the question of bad faith was not before the Appeal Board. The hospital argued that the Appeal Board's findings went no further than to establish that the Board, in revoking Dr. Rosenhek's privileges, made an error in judgement.

On a careful review of the trial record, the Court of Appeal rejected that submission, finding that there was ample basis on which the trial judge could have made his finding of bad faith.

The Court of Appeal referred to the conclusion of the Appeal Board that none of the reasons advanced by the Board for revocation were made out, and most were devoid of any merit and contrary to the factual reality. The hospital had no basis on which to revoke Dr. Rosenhek's privileges. The Court of Appeal held that "while a wrong decision, even a very wrong decision, cannot be equated to a decision made in bad faith, a decision may be so clearly wrong on the merits as to provide some evidentiary support for a finding of bad faith."

The Court of Appeal also noted the timing and manner of the Board's decision to revoke Dr. Rosenhek's privileges, when he had only a month remaining on those privileges and they had been renewed only two months earlier. Nothing in the records suggested anything had changed between the renewing of those privileges and their revocation. In addition, his privileges were terminated effective immediately and he was told to leave the hospital at once, conduct the Court of Appeal found difficult to understand in the face of his acknowledged competence, absent bad faith.

The Court of Appeal also noted that findings of fact of the Appeal Board pointed to the existence of an oblique or improper motive for the revocation of the doctor's privileges – to resolve a perceived problem (the coverage dispute) between specialists. Bad faith could be inferred from this. The court concluded "the Board, in bad faith, exercised its decision making function for an ulterior purpose and not for public good, in circumstances where it had to known that its conduct would likely injury the plaintiff. We are satisfied that the tort of misfeasance in a public office was made out..."

The court then turned to the damage appeals. The hospital relied on Martin v. Goldfarb (1999), 163 D.L.R. 4th 639, arguing that Dr. Rosenhek failed to adduce readily available evidence to prove his damages and so was entitled to nominal damages only. In Martin, Finlayson J.A. differentiated between damages that are difficult in nature to assess, and those that are unproven due to a failure to adduce available evidence. In the latter case, only nominal damages should be awarded. However, the Court of Appeal noted that even in Martin, Finlayson J.A. declined to award nominal damages based on insufficient support for the damage claim. Instead, he referred the damages back to the trial judge on the basis that the plaintiff had adduced enough evidence to prove a significant loss. Thus, the Court of Appeal held that nominal damages are not appropriate where a substantial loss has been demonstrated, even if evidence proving quantum is lacking.

The court noted that, without justification, Dr. Rosenhek failed to introduce evidence that would have allowed his damages to be quantified with any degree of precision. He failed to adduce his OHIP records or his income tax returns - documents which were the subject of a specific production order. However, the Court of Appeal found that the trial judge was entitled to make an assessment of damages despite having inadequate evidence.

There was evidence that Dr. Rosenhek's previously lucrative practice was reduced and limited to walk-in clinics. Dr. Rosenhek's expert evidence was deficient but constituted some evidence that the income loss was sizable. On this basis, the Court of Appeal dismissed the hospital's appeal as to damages.

It then turned to Dr. Rosenhek's cross-appeal from the damage award. The doctor argued that his entire lost income was sufficiently proven, but the Court of Appeal disagreed. It noted that there was no evidence as to the income the doctor could have made by working full time at the hospital. As a result, he could not receive an award based on the assumption that he could have made more income from the hospital during the period for which he claimed than he had in his previous time there. The court found that where Dr. Rosenhek did not adduce evidence that was justifiably expected and readily available, he had only himself to blame if he received lower damages than he had hoped for.

2) Empire Life Assurance Company v. Arnold (MacFarland, Rouleau and Watt JJ.A. – decision "by the Court")

In this appeal, the Court of Appeal provides some useful guidance on how a contract between parties may affect the duty of care owed by one to the other in tort. The appellants were limited partners in a condominium complex. The respondent, Colonia, provided the limited partners with loans through a fractured mortgage arrangement. The investment went badly, and Colonia sought the deficiency remaining after power of sale proceedings. The limited partners claimed damages from Colonia for negligent misrepresentation or alternatively, breach of fiduciary duty and offered a number of defences to the shortfall action.

The appeal turned on a single renewal letter prepared by Colonia and sent to the general partner, and then by the general partner to the limited partners, in 1992. The letter implicitly represented that the condominium complex had no property tax arrears.

At the time the letter was written, Colonia was not aware of any outstanding property taxes. However, after the letter was sent to the general partner but before it was forwarded to the limited partners, Colonia became aware that the 1991 property taxes were outstanding. During that time, Colonia and the general partner, Clansen, entered into a forbearance agreement under which Clansen agreed to pay the taxes arrears over the next 12-18 months. The general partner only sent the renewal letter to the limited partners, and not the forbearance agreement. The tax arrears were never paid. The limited partners did not learn of the arrears until 1994, by which time the project was no longer salvageable. The trial judge dismissed the limited partners' claims of negligent misrepresentation, finding that Colonia's duty of care did not include the duty to communicate directly with the limited partners and in any case, the limited partners had not relied on the renewal letter as an implied statement that there were no tax arrears. The trial judge also found that Colonia was not a fiduciary because there was no suggestion that it would act on behalf of, or look out for, the interests of the limited partners.

The trial judge also dismissed the various defences the limited partners offered to the shortfall action finding that, inter alia, the limited partners acted through the general partner who negotiated the renewal on their behalf. The limited partners could not argue that Colonia failed to disclose the tax arrears when their agent was a party to the forbearance agreement. The limited partners appealed.

The Court of Appeal noted that the relationship between Colonia and the limited partners was contractual. It considered how the contract would factor into the tort analysis and concluded that, while there could be a claim against Colonia in tort, the contractual nature of their relationship could not be ignored when considering whether a duty of care arises.

The limited partners invested in speculative securities. The offering memorandum made it clear that each limited partner would be required to assume the Colonia mortgage and would become personally liable for the mortgage amount associated with his or her partnership unit. The offering memorandum attached, as a schedule, a mortgage assumption agreement which each limited partner was required to execute. The mortgage assumption agreement caused the limited partners to become personally liable for the mortgage debt and adopt all of the mortgagor's covenants.

The Court of Appeal noted that throughout the dealings between the parties, Colonia made it clear that it would deal only with the general partner and would not deal directly with the limited partners. The Court of Appeal reviewed the evidence which left it without doubt that "the arrangements, clearly understood by all, were that Colonia would deal only with the general partner in relation to the mortgage debt".

The Court of Appeal held that Colonia was entitled to assume that the general partner would pass all relevant information on to the limited partners. Colonia had never dealt directly with the limited partners but had only ever dealt with the general partner. It did not have any obligation to communicate directly with the limited partners.

The relationship between Colonia and the limited partners was defined by the contracts between them and the general partner. Without the contracts, Colonia and the limited partners were strangers in law. On the basis of the dealings between the partners, the court found that the only party that the limited partners relied on in relation to the mortgages was the general partner. As a result, there was no reason for Colonia to have the limited partners in its contemplation - it had specifically refused to have any relationship with them. Colonia's relationship of proximity was with the general partner. The general partner was in full possession of the facts long before the loan was ever renewed. The general partner did not pass the information along to the limited partners.

The Court of Appeal also referred to expert evidence that it was not the lender's role to communicate information to the limited partners that was available within the partnership. It was the general partner who should have sent the forbearance letter to the limited partners. In view of the structure of the transaction and history of the interactions between the parties, the Court of Appeal agreed with the trial judge's conclusion that no duty of care was owed by Colonia to the limited partners.

In addition, the "misrepresentation" in the renewal letter with respect to the property tax arrears was corrected by the forbearance agreement 10 days later (and over a month before the mortgage came due). At the time of the renewal letter, Colonia did not know of the property tax arrears. It did not misrepresent anything.

The Court of Appeal also turned to the shortfall claims and the defences and affirmed the trial judge's conclusions.

3) Monteith v. Monteith (MacPherson J.A., in Chambers)

In what is surely a positive sign of the collegiality of the Appellate Bar, the Court of Appeal appears to have broken new ground this month in laying out the test to be considered on a motion seeking an extension of time to perfect an appeal.

In Monteith, the appellant filed a notice of appeal on September 10, 2009, from a judgment dated August 11, 2009. A costs order was made on October 21, 2009, which the appellant also appealed. On October 26, 2009, the registrar sent a notice of intent to dismiss for delay, setting November 17, 2009 as the deadline to perfect the appeal. The appellant was informed of the perfection deadline in person on November 18, 2009. He advised the registrar that he did not receive the notice because his mail was being forwarded to Montreal. The registrar allowed the appellant until November 27, 2009 to either perfect his appeal, or serve and file his motion to extend. On November 25, 2009 the appellant filed a notice of motion for an order granting an extension of time to perfect the appeal, noting that the notice of the November 17, 2009 deadline was not received because it had been sent to the wrong address; the appellant was continuing an active effort to retain counsel to perfect the appeal but had not yet succeeded; and asking that no deadline be assigned but that as soon as counsel was retained, he would advise the court and propose a date for perfecting the appeal.

On January 11, 2010, the appellant retained counsel who filed a supplementary notice of motion requesting an order extending the time to February 18, 2010.

In determining the test to extend the time to perfect an appeal, MacPherson J.A. (in Chambers) found that it should be similar to the test for extending the time to file a notice of appeal. He referred to the decision of Gillese J.A. in Rizzi v. Mavros (2007), 83 O.R. (3d) 401 (C.A.), which set out five factors to consider on a motion to extend the time to file a notice of appeal: (1) whether the appellant formed an intention to appeal within the relevant period; (2) the length of delay and explanation for it; (3) any prejudice to the respondent; (4) the merits of the appeal; (5) whether the justice of the case requires the extension. After noting that the first of the factors is not relevant on this motion, MacPherson J.A. turned to consider the other four factors. We note that the first of these factors would not likely be relevant on a motion of this sort, as presumably if one is seeking an extension of time to perfect an appeal, one has already filed the notice of appeal.

In the result, MacPherson J.A. allowed the extension of time to perfect the appeal, noting that the delay in perfection here was relatively brief and the explanation for the delay was reasonable. MacPherson J.A. also noted that the respondent did not assert any specific prejudice if the motion was granted. Although an assessment of the merits of the appeal weighed in favour of the respondent, MacPherson J.A. found that the balancing of the factors and the justice of the case pointed towards a disposition that would permit the appeal to be heard on the merits.

Interestingly, MacPherson J.A. determined that each party should bear its own costs of the motion. He disagreed that the respondent had unreasonably withheld his consent to this motion, finding it was a "close call" and characterizing his order as "in effect ... an indulgence".

4) R. v. Gibbons (Goudge, Feldman and WattJJ.A.)

Yes, I know, we said civil appeals only. But occasionally a criminal case comes along that has an interesting lesson from a civil perspective. This is one of them.

Linda Gibbons is anti-abortion activist who was named in an injunction granted over 15 years ago, prohibiting anti-abortion protest activity at a number of places in Ontario, including the Scott Clinic in Toronto.

On October 8, 2008, with the interlocutory injunction still in force, Ms. Gibbons displayed a sign within 60 feet of the Scott Clinic in breach of the court order. She was charged under s. 127(1) of the Criminal Code which provides for a hybrid offence for disobeying an order of the court. It holds:

Everyone who, without lawful excuse, disobeys a lawful order made by a Court of Justice or by a person or body of persons authorized by any Act to make or give the order, other than an order for the payment of money, is, unless a punishment or other mode of proceeding is expressly provided by law, guilty of (a) an indictable offence and liable to imprisonment for a term not exceeding two years; or (b) an offence punishable by summary conviction.

The issue before the Court of Appeal was whether Ms. Gibbons' conduct fell within the reach of s. 127(1), or beyond it because another "punishment or other mode of proceeding" is "expressly provided by law" for her conduct under the Rules of Civil Procedure.

The prosecutor proceeded by summary conviction. Counsel entered a plea of not guilty on behalf of Ms. Gibbons and then successfully applied to quash the information on the basis that the conduct was disobedience of a civil order, such that the appropriate enforcement mechanism was a motion for contempt under the Rules. The trial judge found that the Rules, in particular Rule 60.11 and 60.12, were a "punishment or other mode of proceeding..." expressly provided by law", within the exception in s. 127(1), thus rendering the Criminal Code section inapplicable to Ms. Gibbons.

The summary conviction appeal court ("SCAC") judge allowed the prosecutor's appeal, relying on R. v. Clement, [1981] 2 S.C.R. 468, to find that Rules 60.11 and 60.12 did not fall within the exception set out in s. 127(1). A new trial was ordered.

Ms. Gibbons then sought leave to appeal to the Court of Appeal on the issue of whether Rule 60.11 and 60.12 provide a punishment or other mode of proceeding to coerce compliance with, or punish disobedience of, the interlocutory injunction, such that s. 127(1) was inapplicable. The prosecutor supported her request for leave on this point. Ms. Gibbons also sought leave to argue that if s. 127(1) does apply to her conduct, the proceeding against her should be stayed as an abuse of process, an issue not argued at trial or before the SCAC.

The Court of Appeal granted leave on the first question. In examining the applicability of s. 127(1), it noted the diverging arguments of the parties as to whether Rule 60.11 and 60.12 provided a "punishment or other mode of proceeding... expressly provided by law". Ms. Gibbons argued that the Rules are specific and comprehensive provisions authorizing and governing proceedings to obtain a contempt order, not simply an expression of a common law power. She argued it was consistent with the underlying purpose of s. 127 to acknowledge that the primary enforcement agency for court orders is not "the blunt instrument of the criminal law, but rather the processes of the court that made the order a party seeks to enforce". In contrast, the prosecutor argued that the Rules formulate the practice to be followed to invoke the inherent power of the Superior Court to punish for contempt of its orders, but do not create the legal foundation for contempt, which is the common law. Common law authority is not "expressly provided by law" as the decision in Clement requires. The prosecutor argued that its interpretation of the exception in s. 127(1) was consistent with its purpose, as the public interest requires a criminal law response to breaches of court orders, both civil and criminal. The appellant's interpretation would render s. 127 ineffective as a device to compel obedience to civil orders, thereby rendering of no effect the holding in Clement that s. 127 applies to all court orders, whether civil or criminal.

The Court of Appeal noted that nothing in s. 127(1) restricts or limits the nature of the order or of the proceedings in which the order may be granted, apart from the limitation that it may not be an order for the payment of money. Disobedience of an injunction would thus fall within the boundaries of s. 127(1), unless the exception which applies where the conduct is subject to a "punishment or other mode of proceeding...expressly provided by law" is engaged. To determine whether the exception applies, it is necessary to determine the source of the contempt power. Are the Rules promulgated under the Courts of Justice Act "a punishment or other mode of proceeding...expressly provided by law"?

In Clement, the court limited the phrase "by law" in the s. 127(1) exception to statute law, because it is only that which is "expressly provided". But the Court of Appeal here asked what "statute law" means? Federal statutes only, or also regulations? What about provincial statutes and regulations? The court noted that authority subsequent to the Clement decision have considered certain provincial legislation as engaging the exception in s.127(1). It also noted that other provincial appellate courts have considered whether procedural rules are a "punishment or other mode of proceeding...expressly provided by law". The jurisprudence is split.

The Court of Appeal held that the authority to punish disobedience or compel compliance through contempt proceedings originates in the common law, which does not meet the requirement of s. 127(1). The Rules of Civil Procedure do not fall within the exception set out in s. 127(1). Although Rules 60.11 and 60.12 are detailed, specific and comprehensive, they are not the legal foundation for a contempt proceeding. They specify the procedure to be followed in a proceeding for civil contempt, but do not provide the authority to take contempt proceedings. They depend on the common law for their legal foundation. The mere availability of another mode of proceedings to address the disobedience of the court order does not render s. 127(1) inapplicable, unless the language of the exception is engaged. A punishment or other mode of proceeding originating in the common law does not meet the requirements of the exception since its origin is not statutory and it is not "expressly provided".

The court pointed to several provincial statutes which do contain provisions authorizing proceedings for disobedience of lawful orders that would otherwise fall within the scope of s. 127(1) but instead are subject to the exception. However, the court also noted that the Clement court did not decide whether the term "by law" is confined to federal statutes or whether provincial statutes may also engage the exception. The Court of Appeal here also found it unnecessary to resolve that question but went this far:

"What might be said, however, is that neither Clement nor any of its progeny foreclose provincial statute law (including regulations) as potentially capable of engaging the exception in s. 127(1) of the Criminal Code. Indeed, in each case what the courts considered, and in both Dawson and Nutter found to fall within the exception, was provincial legislation or rules of practice promulgated under provincial statute."

In the result, the Court of Appeal dismissed this ground of appeal. It then turned to the second ground, abuse of process, but declined to grant Ms. Gibbons leave on the point. It found the issue is governed by well settled principles of law and has no significance to the administration of justice beyond the facts of this particular case. There was no evidentiary record such that the proposed ground lacked any reasonable prospect of success, much less arguable merit.

The Gibbons case tells civil litigators that, to the extent a party breaches an order of a court, other than for the payment of money, there is more than one avenue of potential redress. Civil litigators will reflexively reach for the Rules of Civil Procedure, but there are instances where a client's interests will be better served by remembering s. 127(1) of the Criminal Code. Equally important is the ethical admonition that we must not threaten criminal proceedings to secure a civil advantage. No doubt most often, the Rules of Civil Procedure will suffice, but in a few cases, one can hear the rumblings of some heated debates in the boardrooms of firms across the province...

5) Griffin v. Dell Canada Inc. (Winkler C.J.O., Doherty, Feldman, Sharpe and Gillese JJ.A.)

In this case, a five judge panel was faced with appeals involving a class action with a large number of claims for relatively small amounts, rooted in allegations of defective Dell Computers. Dell's standard form sales agreement contained a clause requiring that all disputes be arbitrated. On a motion to stay the proposed class action, the motions judge concluded that to enforce the arbitration clause would effectively immunize Dell from accounting for any wrong it may have caused, as it was "fanciful to think any claimant could pursue an individual claim in a complex products liability case". The motions judge refused to stay the class action in favour of arbitration. She also granted the plaintiff leave to amend to add a second representative plaintiff ("SRP"). Subsequently, Dell sought a reconsideration of the refusal of the stay because of new developments in the jurisprudence, but was refused. Dell appealed both the initial refusal to grant the stay, and the subsequent refusal to reconsider the decision.

Another issue appealed related to the Consumer Protection Act, 2002 ("CPA"), which bans mandatory arbitration clauses in consumer agreements. The SRP, added pursuant to the motions judge's order, fell within the definition of "consumer" under the CPA. (The original representative plaintiff was not a "consumer" under the CPA.) The SRP purchased his computer before the effective date of the CPA, but his claim against Dell did not arise until after its effective date. The issue was whether the CPA applied to his claim.

Subsequent to the motions judge's decision, two significant things happened. First, the SRP was added to the action and the Statement of Claim was amended to plead details about the claim under the CPA. The motions judge approved the plaintiff's revised litigation plan and certified the class action. Although Dell sought leave to appeal that decision, a single judge at the Divisional Court dismissed its motion.

Second, the body specified in Dell's arbitration clause to administer the exclusive and final arbitration, National Arbitration Forum ("NAF"), ceased to function with respect to consumer disputes following allegations of serious impropriety. NAF agreed to cease accepting or administrating any new consumer arbitrations in a consent judgment entered into between it and the State of Minnesota. The suit it settled alleged that NAF had significant conflicts of interest and did not provide impartial, dependent, and neutral adjudicators for consumer disputes.

The Court of Appeal began by reviewing the history of the original stay motion, and the subsequent motion to reconsider. On the original motion, the motions judge had to consider whether the Supreme Court of Canada decisions in two Quebec appeals, Dell Computer Corp. v. Union des Consommateurs, [2007] 2 S.C.R. 801 and Rogers Wireless Inc. v. Muroff,[2007] 2 S.C.R. 921, required a stay to be granted in this class proceeding. The Dell decision involved the same arbitration clause at issue before the Court of Appeal. In Dell, the Supreme Court of Canada found, under Quebec law, that the right to arbitrate was a substantive right. It did not yield to the procedural right to bring a claim by way of class action. In Dell, the Supreme Court also found that the enforceability of an arbitration clause should be determinative in a class action as well as in an individual action. There, the court stayed the class proceeding and referred the matter to arbitration.

The motions judge held that she was bound to apply the earlier decisions of Smith v. National Money Mart Co. (2005), 258 D.L.R. 4th, 453 (Ontario C.A.), leave to appeal to S.C.C. refused, [2005] S.C.C.A. No. 528 ("Smith"), which followed the decision of the British Columbia Court of Appeal in MacKinnon v. National Money Mart Co. (2004) 50 B.L.R. 3rd, 291 B.C.C.A ("MacKinnon"). Both these cases (collectively, the "Money Mart cases") determined that a class action should not automatically be stayed where the consumer agreement provides for arbitration, but the legality of the arbitration prevision should be determined at the certification hearing. This allows the judge to consider the language and underlying policies of class action and arbitration legislation and to decide upon the enforceability of the arbitration clause and the appropriateness of a class action on the basis of a full record. The motions judge concluded that adjudication through arbitration was a form of individual adjudication and would require each claimant to bring a separate proceeding before an arbitrator. The motions judge found that staying the action in favour of arbitration would effectively immunize Dell from accounting to class members for any wrong it may have caused and would not serve the interests of access to justice. At the same time, by aggregating the individual actions in a class proceeding, duplication of fact finding and analysis will be avoided and fixed litigation costs would be distributed among class members, making it economical to prosecute the claim.

The Court of Appeal reviewed the history of the Money Mart cases, noting that following the release of Dell and Rogers by the Supreme Court of Canada, counsel in the Money Mart cases asked the British Columbia Supreme Court and the Ontario Superior Court to find that Dell and Rogers had effectively overruled MacKinnon and Smith. Neither court agreed. In Smith, Perell J. held that Dell and Rogers were explicitly decided on the basis of Quebec law and did not overrule the law that allowed an Ontario court to determine whether to stay an action in the context of preferable procedure when determining a certification motion. In MacKinnon, the British Columbia Supreme Court found that Dell and Rogers did not, by necessary implication, overturn the earlier MacKinnon decision and in any event, refused re-litigation on the basis of issue estoppel.

That decision was appealed to the British Columbia Court of Appeal which affirmed the motions judge's decision to refuse to stay the action on the ground of issue estoppel but concluded that Dell and Rogers "effectively overruled" the earlier decision that the validity of an arbitration agreement should be determined at certification. The British Columbia Court of Appeal noted that there was no legislation in B.C. prohibiting arbitration clauses in consumer agreements so the Supreme Court's reasoning in Dell and Rogers logically extended to B.C. At the same time, in Seidel v. Telus Communications Inc., [2009] 5 W.W.R. 466 (B.C.C.A.), the British Columbia Court of Appeal applied Dell and stayed a proposed class action on the basis of an arbitration clause. The Supreme Court of Canada has granted leave in that decision, an opportunity for it to settle the issue of the extent to which Dell applies outside of Quebec.

The court then turned to its substantive analysis of the issues on appeal. It began with the question of the application of the CPA, 2002 to the claims of the SRP. It noted that consumer contracts tend to be contracts of adhesion where suppliers of services and sellers of goods are able to unilaterally impose their own terms. It referred to academic research and common sense which indicate that suppliers and sellers regularly insert arbitration clauses to defeat claims, rather than out of a genuine desire to arbitrate consumer disputes. Such consumer claims are often small and not individually viable. Clauses requiring arbitration and precluding the aggregation of claims effectively remove consumer claims from the reach of class actions. The arbitration of consumer disputes through bodies like NAF often result in consumers being disadvantaged by arbitrator bias in favour of the repeat corporate client, exactly the kind of allegations that forced NAF to cease participating in consumer arbitrations. Because of the unfairness of mandatory arbitration clauses, the Ontario Legislature enacted the CPA provisions which prohibit mandatory arbitration clauses in consumer agreements.

In considering whether the SRP was entitled to the benefit of the CPA, the Court of Appeal looked to the decision of the Supreme Court of Canada in Dell. There, the Supreme Court considered the application of an amendment to Quebec's Consumer Protection Act, enacted after the case had reached the Supreme Court. The Supreme Court concluded that the legislation had immediate effect and applied to all claims arising after its effective date. But since it did not expressly state that it applied retroactively, it did not apply to claims that arose before its effective date. In the Dell case before the Supreme Court, all the facts giving rise to the claim occurred before the effective date of the legislation, such that the legislation did not apply. The Court of Appeal in this case followed the Supreme Court's reasoning, and concluded that the legislation governs even though the contract was concluded prior to the legislation's effective date, as long as not all the facts relating to the claim existed before the effective date. As a result, the SRP was entitled to the benefit of the CPA. Until his computer failed, he had no claim, but only "an ongoing legal situation" that came to an end when his claim arose upon the failure of his computer. Since the facts which triggered the application of the arbitration clause did not occur until after the effective date of the CPA, the CPA applies. Thus, the application of the arbitration clause to all "consumer" claims, where the alleged defect of malfunction occurred after the effective date of the CPA (July 31, 2005) is prohibited by the CPA. Those claims could proceed by way of class action.

The Court of Appeal also considered whether it should grant a partial stay of non-consumer claims which made up about 30% of class claims. The court noted that the Arbitration Act, s. 7(5) confers discretion to grant a partial stay where an action involves some claims subject to arbitration and some that are not. The court held that it would not be reasonable to separate the consumer from the non-consumer claims and thus refused a partial stay. The court found that "granting a stay of the non-consumer claims would lead to inefficiency, a potential multiplicity of proceedings, and added cost and delay. The liability and damages issues to be litigated are the same for both the consumer claims and the non-consumer claims. Since the consumer claims dominate, the remaining claims should follow the same procedural route that the consumer claims must take". The crux of the court's policy conclusion is found in paragraph 57, where it says:

"In my view, it is clearly beyond any serious doubt on this record that staying any claims advanced in the action will not result in any of the stay of claims being arbitrated. I agree with the motions judge that there is a lack of reality to Dell's argument that the claim should proceed by way of arbitration. There will be no arbitration. The choice is not between arbitration and class proceedings; the real choice is between clothing Dell with immunity from liability for defective goods sold to non-consumers and giving those purchasers the same day in court afforded to consumers by way of the class proceeding.

It may be argued that the complexity and cost of the arbitration process selected by Dell will effectively neutralize the risk of multiple proceedings by eliminating arbitration as a viable means of pursuing a claim. This is no doubt true. However, allowing one party to erect economic and procedural barriers which trump substantive rights and deny the other party access to justice is not what the jurisprudence has in mind when it speaks of promoting judicial economy and efficiency and avoid multiple proceedings...."

The court noted that the arbitration clause at issue also precluded the possibility of class arbitration which the court took to be further evidence that Dell did not genuinely seek to have the claims advantaged against it determined by way of arbitration. The court, clearly being more impressed with the justice of the plaintiff's case, refused a partial stay of the claims not covered by CPA.

Finally, the court turned briefly to the issue on which much of the appeal was argued: does Dell apply in Ontario? After noting that the Court of Appeal for Ontario has applied some of the general principles that emerge from the decision in Dell in other cases, the court pointed out that by enacting the CPA, the Ontario Legislature excluded the application of the reasoning in Dell to agreements covered by the CPA and, "to the extent that the application of Dell does remain a live issue, we are likely to receive further guidance from the Supreme Court of Canada when it decides the appeal in Telus". Reading the judgment, it seems clear that, much as the Court of Appeal will be receiving guidance from the Supreme Court in Telus, it is providing some guidance of its own to the Supreme Court through its decision in this case.

One final note of interest: on February 5, 2010, the United States Court of Appeals for the 9th Circuit heard an appeal in Omstead v. Dell, Inc. dealing with the same issue. The United States District Court for the Northern District of California last year granted a motion by Dell to stay a class proceeding and compel arbitration of the plaintiffs' claim relating to their defective computers. The plaintiffs refused to comply with the arbitration order and the court dismissed their action for failure to prosecute. The plaintiffs successfully appealed the dismissal and the underlying arbitration order. The Court of Appeals found that the class action waiver in the agreement at issue was unconscionable under California law, applying the test in the Discover Bank case which held that a waiver will be unconscionable if (i) it is found in a consumer contract of adhesion; (ii) the contractual setting is one in which disputes between the contracting parties predictably involve small amounts of damages; and (iii) it is alleged that the party with superior bargaining power has carried out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money.

The court then considered whether the class action waiver could be severed from the reminder of the arbitration provision and found it could not be, because the waiver was central to the arbitration provision. The Court of Appeals thus reversed the District court's dismissal. No doubt, counsel in Telus is watching.

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.

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