The cornerstone of the Canadian legal system is based on two principles: (1) the rule of law; and (2) the independence of the judiciary. The rule of law provides that everyone is subject to the law and no one is above the law. The preservation of such a principle is ensured by the independence of the judiciary, which dates back 300 years.
Generally, the Canadian court system is divided in two spheres: provincial/territorial; and federal. Within the provincial/territorial and federal realms are courts which have jurisdiction over different types of disputes. In Ontario, for example, the Superior Court of Justice (Ontario) hears civil matters where more than $50,000 is in dispute. The Divisional Court (Ontario) hears civil appeals on matters of not more than $50,000 and small claims court matters. An appeal on a fi nal order from those courts lies to the Ontario Court of Appeal and then to the Supreme Court of Canada.
In Canada, court procedures are governed by provincial/territorial rules of procedure. Within those rules, different procedural mechanisms are available for resolving disputes. In Ontario, for example, summary judgment is an available remedy to help litigants reduce costs and time. Most recently, the Ontario Court of Appeal has clarifi ed the summary judgment rule in Combined Air Mechanical Services Inc. v Flesch. In a summary judgment motion, judges are allowed to weigh the evidence, evaluate credibility and draw reasonable inferences from the evidence. This is permitted in cases where: (i) the parties agree to use summary judgment; (ii) the claims or defence are without merit; or (iii) the motion judge can "fully appreciate" all of the evidence and issues required to make a dispositive fi nding without a trial. For the latter circumstance, the judge must consider whether meeting the full appreciation test requires oral testimony and a hearing. In March 2013, the Supreme Court of Canada heard the appeal in Combined Air. As of the date of writing this article, no judgment has been rendered.
Similarly, another mechanism that allows a party to reduce costs and time is to ask the court to determine, before the trial, a question of law where the determination of the question may dispose of all or part of the action, substantially shorten the trial, or result in a substantial saving of costs.
Mediation and ADR
Mediation and ADR have grown in popularity in Canada over the years, and are now widely used. Numerous ADR bodies offer the services of experienced mediators, arbitrators and dispute resolution professionals, including many retired judges.
In addition to being privately available, mediation is now often part of the public justice system (and the process adopted by various administrative tribunals and boards) in Canada. There is a large variety of court-sponsored programmes, some mandatory, some voluntary. For example, Ontario has a mandatory mediation programme in three counties, including Toronto and Ottawa. Under this programme, unless the court orders otherwise or the parties consent to a postponement, a mediation session has to take place within 180 days after the fi rst defence has been fi led. The parties can choose a mediator from a roster maintained by the court (who will charge court-approved rates) or a privatesector mediator. If the parties cannot agree on a mediator, the court assigns one from the roster. Some types of actions are excluded from the mandatory mediation programme, including bankruptcy and insolvency actions, certifi ed class actions, and actions that are on the Commercial List.
All Canadian provinces and territories have passed domestic arbitration legislation (international arbitration legislation is discussed in the next section below). For most Canadian provinces, this legislation is largely based on the Model Law on International Commercial Arbitration developed by the United Nations Commission on International Trade Law (UNCITRAL).
The competence-competence principle generally applies in Canada. The Supreme Court of Canada has laid down the rule that in any case involving an arbitration clause, a challenge to the arbitrator's jurisdiction must be resolved fi rst by the arbitrator. A court should depart from the rule of systemic referral to arbitration only if the challenge to the arbitrator's jurisdiction is based solely on a question of law, or on a question of mixed fact and law that requires for its disposition only a superfi cial consideration of the documentary evidence in the record. Further, before departing from the general rule of referral, the court must be satisfi ed that the challenge to the arbitrator's jurisdiction is not a delaying tactic and that it will not unduly impair the conduct of the arbitration proceeding.
A number of provinces, including Ontario, Québec, Alberta and British Columbia, have adopted legislation that imposes limitations on arbitration clauses in consumer contracts. The Supreme Court of Canada recently considered the effect of such consumer legislation on a mediation/arbitration provision in Seidel v TELUS Communications Inc. In that case, part of the plaintiff's court action was stayed and referred to arbitration, and part was allowed to continue based on the particular language of the consumer legislation in issue. The Supreme Court held that the choice to restrict arbitration clauses in consumer contracts was a matter for the legislature. However, the Court also confi rmed that, absent legislative intervention, an arbitration clause freely entered into would generally be given effect, even if it was found in a contract of adhesion.
The UNCITRAL Model Law has been adopted, subject to some modifi cations, by every jurisdiction in Canada. The implementing legislation applies to international commercial arbitrations (as defi ned in the Model Law) conducted in the particular province or territory. In most provinces and territories, different legislation governs domestic arbitrations.
Similarly, with the exception of Ontario, all provinces and territories have legislation adopting the United Nations Convention on the Reciprocal Recognition and Enforcement of Foreign Arbitral Awards (the "New York Convention"). In Ontario, the only provisions regarding the recognition and enforcement of foreign arbitral awards are those found in the legislation implementing the Model Law. The Supreme Court of Canada recently considered the issue of the limitation period applicable to the recognition and enforcement of foreign arbitral awards in the province of Alberta in Yugraneft Corp. v Rexx Management Corp. After noting that, under international arbitration law, the matter of limitation periods was left to the local procedural law of the jurisdiction where recognition and enforcement was sought, the Court found that an application for recognition and enforcement of an arbitral award was subject to the general two-year limitation period applicable to most causes of action, and not the ten-year limitation period applicable to an application for a remedial order based on a judgment or court order for the payment of money.
Costs and funding
Generally speaking, Canada has a "loser pays" costs system. That is, costs are usually awarded to the successful party at the conclusion of the proceeding to indemnify that party for allowable expenses and services that were reasonably incurred and that are relevant to the proceeding. Costs constitute a contribution to the successful party's actual expense, not a full indemnifi cation. In the usual case, such contribution is in the range of 60% or less of the actual fees billed to the client. A higher level of indemnifi cation can be ordered by the court, but such an order is only made in rare cases because it typically requires reprehensible or egregious conduct by the losing party.
Although the general principles above govern the law of costs in most cases, the power to order costs is discretionary and a court can depart from these principles. However, because the court's discretion must be exercised judicially, the ordinary rules of costs are followed unless the circumstances or special factors justify a different approach.
Class actions are subject to different rules regarding costs in certain jurisdictions. Thus, class actions in the Federal Court or in the courts of British Columbia, Manitoba, Newfoundland and Saskatchewan are under a no-costs regime, but the normal "loser pays" system applies to class actions in the other provinces.
Security for costs
Security for costs is available to defendants in particular circumstances. For instance, in Ontario, an order for security for costs may be made where, among others: (a) the plaintiff is ordinarily resident outside of Ontario; (b) the plaintiff has another proceeding for the same relief pending in Ontario or elsewhere; (c) the defendant has an order against the plaintiff for costs in the same or another proceeding that remain unpaid in whole or in part; (d) the plaintiff is a corporation or a nominal plaintiff, and there is good reason to believe that the plaintiff has insuffi cient assets in Ontario to pay the costs of the defendant; and (e) there is good reason to believe that the action is frivolous and vexatious and that the plaintiff has insuffi cient assets in Ontario to pay the costs of the defendant. Security for costs, however, is discretionary and is not granted automatically once one of the factors above is established. Rather, in determining whether an order for security for costs would be just in the circumstances, the court will consider a multitude of factors, including the merits of the case, a balancing of the interests of the parties, the fi nancial circumstances of the plaintiff and the effect of an order.
Contingency fee agreements
Compared to the United States, the use of contingency fee agreements is relatively recent in Canada. Contingency fee agreements are permitted in Canada, but their use is governed by statutes, regulations and/or rules that vary from province to province. Typically, the applicable rules include a requirement that the contingency fee be fair and reasonable, and provide for a mechanism by which such fee can be reviewed by the court. Contingency fee agreements that relate to class actions require court approval in all provinces except Québec.
The use of third-party funding agreements is a new development in Canada, and has only been approved in a few cases in the context of class actions, mostly in Ontario. In Fehr v Sun Life Assurance Co. of Canada, one of the most recent cases on this issue (decided in 2012), Justice Perell of the Superior Court of Justice (Ontario) summarised the state of the law as follows:
[...] the current state of the law in Ontario is that third party funding agreements are not categorically illegal but they may be. In ruling on the legality of third party agreements, Ontario courts have considered some of the issues that might be raised to challenge a third party funding agreement but there is much unexplored territory. [...] Whether and the extent to which third party funding is permissible should be regarded as an unsettled issue and a work in progress.
The following principles can be gathered from the decisions released to date:
1. Third-party funding agreements must be promptly disclosed to the court and cannot come into force without court approval.
2. Such approval can be obtained by a plaintiff by motion, on notice to the defendant.
3. Third-party funding agreements will only be approved if they are fair and reasonable. Court approval will likely be easier to obtain if the agreement contains commission caps.
4. The plaintiff, as opposed to the third-party funder, must remain in effective control of the litigation. The agreement must not permit offi cious intermeddling in the conduct of the litigation by the funder. 5. If the third-party funder is a non-resident of Canada, it may be required to provide security for costs.
6. With respect to the sharing of information pertaining to the litigation with the third-party funder, suffi cient safeguards must be present in order to protect the defendants' rights to privacy and confi dentiality.
In Canada, solicitor-client privilege attaches to legal advice given by in-house counsel to the client company. The Supreme Court of Canada has held that to determine if a communication is subject to solicitor-client privilege, the following legal test should be applied:
1. the communication must take place between a lawyer and a client;
2. the communication must involve the seeking or giving of legal advice; and
3. the communication must be intended to remain confi dential.
If a communication is privileged, the privilege belongs to the client and can only be waived by the client. It also survives the termination of the solicitor-client relationship.
In addition, if a lawyer is also a director or manager, no privilege attaches to work performed by a lawyer in his or her capacity as a director or manager. (See Presswood v International Chemalloy Corp. and Toronto Dominion Bank v Leigh Instruments Ltd.)
In-house counsel are often presented with issues of privilege that are unique to their situation. For example, advice given on non-legal matters, such as business advice, is not protected by privilege, even though the advice is given by a lawyer. There is also the issue of privilege in the context of internal corporate investigations. In R. v Dunn, a decision rendered in the criminal proceeding involving three Nortel Networks executives, the Court was asked to rule on whether lawyers' notes of an investigation interview were compellable evidence against their clients. Even though this decision related to external counsel, it is equally applicable to in-house counsel. The Court determined that the lawyers' notes were protected by litigation privilege and, therefore, were not compellable. However, litigation privilege was not an impediment to the lawyers reading their notes to refresh their memory prior to testifying and, in fact, the lawyers were ordered to do so.
It is important to note that the mere fact that a lawyer is involved in a communication does not trigger the doctrine of privilege. Rather, the legal test outlined above must be met in order for the communication to be subject to solicitor-client privilege. Thus, for example, corporate minutes will not be blankly privileged. The privilege would only extend to the portions of the minutes that deal with the giving of legal advice. If the communication is extensively circulated, the privilege may be lost.
There are many different types of privilege that can apply to communications. For example, as discussed above, litigation privilege may be an applicable doctrine; there is also common interest privilege, joint defence privilege and without prejudice/settlement privilege. Each of these privileges has a different test that must be applied in order to make a privilege determination.
Obtaining evidence from a non-party Canadian resident
When a litigant wants to obtain evidence from a non-party Canadian resident for use in a proceeding outside Canada, the litigant is required to bring a motion for a letter of request (or letters rogatory) from a judge in the jurisdiction of the proceeding. The litigant may then move to have the letter of request enforced in Canada against the non-party witness by bringing an application. In order to give effect to the letter of request, the Court considers whether the evidence establishes that: (1) the evidence sought is relevant; (2) the evidence sought is necessary for trial and will be adduced at trial, if admissible; (3) the evidence is not otherwise obtainable; (4) the order sought is not contrary to public policy; (5) the documents sought are identifi ed with reasonable specifi city; and (6) the order sought is not unduly burdensome, having in mind what the relevant witnesses would be required to do, and produce, were the action to be tried in Canada.
The process in Canada is not just a rubberstamp on a letter of request. Rather, the Canadian court carefully considers the evidence requested. It is important that the letters rogatory are precisely drafted in order to enforce them in Canada. Counsel seeking to enforce the letters rogatory are required to provide a detailed list of documents as well as evidence of their relevance and necessity for trial. A recent case that considers witness rights in parallel cross-border proceedings is Treat America Limited v Leonidas. The Ontario Court of Appeal confi rmed an order compelling the former CEO of a Canadian company to attend at a deposition in Canada to give evidence in a US class action; this happened despite the fact that the former CEO was the subject of criminal investigations in Canada. The former CEO opposed the order, arguing that it was unduly burdensome and that its enforcement would be contrary to public policy, as a result of his right against self-incrimination. In its reasons, the Court addressed how the principles of sovereignty and comity co-relate in the context of enforcement of a letter of request, and when public policy or sovereignty override the comity principle. In this case, the Court of Appeal determined that the Appellant's rights under the Canadian Charter of Rights and Freedoms were not violated and, therefore, the enforcement of the letters of request was not contrary to public policy.
Norwich Pharmacal orders can also be used to obtain evidence from Canadian non-parties. These orders are discussed below.
In Canada, an order can be made to prevent a party from removing, spending or dissipating his or her assets in the course of litigation. This order is called a Mareva injunction. Generally, the Canadian courts require that the applicant show a strong prima facie or good arguable case, and a real risk that the defendant will remove or dissipate assets to avoid judgment. Canadian courts have also issued worldwide freezing orders. This means that the assets of the defendant are frozen, no matter where they are located. This extraterritorial order occurs when the Canadian courts have in personam jurisdiction over the defendant.
Conversely, Canadian courts have enforced freezing orders from foreign jurisdictions. However, most of the case law on this issue originates from a United Kingdom judgment. This will likely change in light of the Uniform Law Commission's Asset-Freezing Orders Act. (As of March 27, 2013, the Act has been introduced in North Dakota and Colorado.) The new act allows courts to recognise assetfreezing orders from outside the US (subject to various exceptions) and to issue orders similar to Mareva injunctions in specifi c circumstances, which can subsequently be enforced in Canada. It also allows for in personam freezing orders prior to judgment (as opposed to in rem orders).
In Canada, generally, a victim of a fraudulent scheme can either follow or trace assets. These two processes are set out below.
Following the client's assets
"Following" is the exercise of following the client's assets as they move from hand to hand, and it relies on the nemo dat rule. Nemo dat quod non habet means that one cannot give that which one does not have. Once the original asset is followed to someone with good title, the victim can no longer claim the asset. However, in Canada, if fungible assets have been mixed with the fraudster's assets, there is an irrefutable presumption that those items remaining in the fraudster's possession are the innocent party's, subject to the "lowest intermediate balance" rule. The rule states that a claimant to a mixed fund cannot assert a proprietary interest in that fund in excess of the smallest balance in the fund during the interval between the original contribution and the time when a claim with respect to the contribution is being made against the fund. In Ontario, the Court of Appeal rejected the "lowest intermediate balance" rule in favour of one that allows constructive trust benefi ciaries to claim a pro rata proprietary remedy in the entire fund, and to be reimbursed in full from the account as of the time it was frozen.
Claiming against substituted assets: tracing
"Substitution" allows the victim to substitute the traceable proceeds for the original asset as the subject matter of the claim. A trust is critical in order for the claimant to allege that the substituted property is his or hers where the fraudster is insolvent and the case involves competing creditors. In Canada, the law requires: unjust enrichment of the fraudster's estate by specifi c assets which belong in equity to the victim; and a connection between the asset in which ownership is claimed and the victim's contribution.
Canadian courts have identifi ed some of the following principles in equitable tracing cases using a constructive trust:
(a) a fi duciary equitable duty is not required to trace in equity (unlike in the United Kingdom);
(b) to allow tracing, the value that the plaintiff gave to the defendant must be identifi ed in the asset that is now claimed;
(c) at common law, the right to trace was often lost once the property being followed was mixed with other property. In equity, the mixing of the traced property is not always fatal; and
(d) trust property is not divisible among the creditors of the bankrupt.
In appropriate circumstances, Canadian courts will grant an anti-suit injunction. The order is an in personam order preventing a party that is subject to the jurisdiction of Canada from participating in litigation in a foreign jurisdiction. The order has the effect of restraining the continuation of foreign proceedings. In recognition of the principles of comity and respect for foreign courts, anti-suit injunctions are rare in Canada. As established by the Supreme Court of Canada (Amchem Products Inc. v British Columbia (Workers' Compensation Board)), the party seeking the order must show that the foreign court assumed jurisdiction in a manner contrary to the principles of forum non conveniens. Therefore, before an anti-suit injunction is brought in Canada, it is preferable if a foreign proceeding has already been commenced, and the defendant in the foreign proceeding has sought a stay or termination of that proceeding and lost. However, this is not an absolute requirement. If the improper assumption of jurisdiction is established, the defendant to the foreign proceeding must then additionally establish that the continuation of the foreign action would result in an injustice. Determining whether there would be an injustice requires a balancing of: the loss of advantage to the plaintiff in the foreign proceeding if that foreign proceeding does not proceed, with the loss of advantage to the defendant in the foreign proceeding if the dispute is decided in the foreign court rather than a domestic court. This test, the importance of comity, and the respect for foreign courts were recently confi rmed in the 2012 dismissal of an anti-suit injunction by the Ontario court in Agemian v Pactiv LLC.
Forum non conveniens
Once a Canadian court has properly assumed jurisdiction in connection with a dispute, a defendant can nevertheless contest the exercise of that jurisdiction, under the doctrine of forum non conveniens. According to this doctrine, a Canadian court can, at its discretion, decline jurisdiction if a more appropriate forum clearly exists. The issue of forum non conveniens was considered and applied by the Supreme Court of Canada in 2012 (Breeden v Black). The Supreme Court of Canada stated that, in considering whether a more appropriate forum clearly exists, the court can consider numerous and variable factors. Some of these factors have been codifi ed in statutes in various Canadian provinces. While the possible factors are not limited, they include: inconvenience and expense for parties and witnesses; choice of law/applicable law; the avoidance of multiplicity of proceedings and confl icting results; enforcement of the judgment; and fairness to the parties.
Anton Piller orders
Canadian courts provide a remedy, known as an Anton Piller order, to preserve evidence. An Anton Piller order is a type of civil search warrant that permits a plaintiff to enter a defendant's premises to search for and seize evidence. Anton Piller orders are not easy to obtain and require the moving party to establish a strong prima facie case, clear evidence that the defendant has material evidence, and a real possibility that the material evidence will be destroyed if the ordinary rules of disclosure apply. Protocols are in place for carrying out the implementation of the order, including the involvement of an independent supervising solicitor who explains the order to the defendant and ensures that the order is carried out fairly and in accordance with its terms.
Norwich Pharmacal orders
A Norwich Pharmacal order allows a party to obtain evidence needed to commence the action from a third party before an action is commenced. It is typically used in a suspected fraud. A Norwich Pharmacal order can be used to determine whether a cause of action exists, where the defendant is located, and where the defendant's assets are located. This kind of order is frequently obtained against a bank or an internet service provider.
In addition to Mareva injunctions (previously discussed), other interlocutory orders are available to freeze assets, in particular and limited circumstances. Instruments which have the effect of preventing a sale, mortgage or even a lease of real property can be registered on title where an interest in the land is in dispute. Different jurisdictions in Canada have a mechanism for preserving personal property where the dispute relates to specifi c personal property. In situations where a dispute involves a specifi c and identifi able fund, it may be possible to preserve those funds, pending the outcome of litigation.
Enforcement of foreign judgments
In Canada, the enforcement of foreign judgments is usually governed by provincial/territorial laws (with limited exceptions for matters falling within Canada's federal jurisdiction, pursuant to the Federal Courts Act).
In some instances, there is a legislative scheme for the recognition and enforcement of foreign judgments. However, that legislative scheme is not uniform across the country. All provinces except Québec have enacted legislation making the Convention between Canada and the United Kingdom of Great Britain and Northern Ireland, providing for the Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters, part of the laws of those provinces. Some Canadian jurisdictions have enacted other reciprocal enforcement legislation governing the enforcement of certain foreign judgments, including foreign judgments from some states in the United States.
Where there is no reciprocal recognition and enforcement legislation, monetary judgments obtained in a foreign country will be recognised by Canadian courts provided that the foreign court properly exercised jurisdiction over the foreign action. Jurisdiction is properly exercised if there is a "real and substantial connection" between the foreign jurisdiction and the matter on which the foreign court adjudicated. In 2012, the Supreme Court of Canada reviewed the concept of a "real and substantial connection" in Van Breda v Village Resorts Ltd. In an effort to establish parameters that would make this test more predictable and certain, the Supreme Court of Canada identifi ed four factors which create the rebuttable presumption of a real and substantial connection: (1) domicile/ residence of the defendant in a jurisdiction; (2) the defendant carrying on business in a jurisdiction; (3) a tort being committed in the jurisdiction; and (4) a contract connected to the dispute being made in the jurisdiction. This list is not exhaustive and a court can consider connections similar in nature to establish a real and substantial connection. However, neither residence of the plaintiff nor the location in which the plaintiff suffered damages are presumptive factors.
In the absence of specifi c legislation permitting the recognition and registration of a foreign judgment from a reciprocating jurisdiction, the enforcement of a foreign judgment in Canada is generally obtained by commencing an action. A foreign judgment is treated in the same manner as a debt, and the limitation period for commencing an action is the same limitation period that applies to a debt. In some Canadian provinces, this limitation period is as short as two years. If the circumstances are such that the issues can be determined without oral evidence, it may be possible for the action to be heard by way of a summary procedure rather than a trial. The procedure is different in Québec, where the procedure is set out in the Québec Code of Civil Procedure.
Assuming jurisdiction has been established, the other criteria for the enforcement of a foreign judgment in Canada are: (1) the judgment has not been fully satisfi ed; (2) the judgment is fi nal; (3) the judgment is not for a penalty, taxes or enforcement of a foreign public law; (4) enforcement of the foreign judgment does not violate Canadian public policy; (5) the judgment was not obtained by fraud; and (6) the procedure of the foreign court complies with the principles of natural justice.
Historically, the enforcement of foreign judgments was limited to monetary judgments. In 2006, the Supreme Court of Canada suggested that a non-monetary foreign judgment may be enforceable in Canada under certain circumstances, but declined to do so in that case (Pro Swing Inc. v Elta Gold Inc.). More recently, in 2010, the Court of Appeal for Ontario permitted the enforcement of a nonmonetary judgment for the fi rst time (United States of America v Yemec). This case was soon followed by another case (Hartzog v McGriskin) enforcing a foreign non-monetary judgment. The trend in Canada is now towards enforcing non-monetary foreign judgments in appropriate circumstances. Of paramount importance is that the order is clear in terms of geographic scope and in terms of what is expected of the defendant, and that the order will not unduly burden the Canadian legal system. Canadian courts recognise that a challenge in enforcing non-monetary judgments is that the enforcement could require the Canadian court to consider foreign law in order to determine the scope or intent of the order. Despite this diffi culty, Canadian courts are showing an increasing willingness to enforce these orders.
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