Canada: 10 Most Important Appeals Of 2013

In order to help lawyers argue about cases at holiday parties, the Appeals Monitor is happy to once again present our countdown of the most significant civil appeals of 2013 that are sure to impact Canadian businesses.  Watch out soon for a review of the upcoming appeal decisions that are likely to be big stories in 2014

Sable Offshore Energy: Is a settlement with one defendant really without prejudice?

Sable Offshore Energy Inc. v. Ameron International Corp., previously reported on here, is a significant development in the law of settlement privilege and will affect legal strategy of businesses involved in multi-party litigation.  At issue was what information a non-settling defendant is entitled to know about a settlement between the plaintiff and certain defendants.  The Supreme Court held that settlement privilege protects all communications made in the course of settlement negotiations, including the settlement amount, whether or not the negotiations are successful or marked "without prejudice".  The Court acknowledged that there are exceptions to settlement privilege when a competing public interest prevails, such as when a fraud allegation requires the disclosure of details around the settlement.  However, a non-settling defendant's request for the settlement quantum for the purposes of litigation strategy did not qualify as an exception.  The Court held that a "proper analysis of a claim for an exception to settlement privilege does not simply ask whether the non-settling defendants derive some tactical advantage from disclosure, but whether the reason for disclosure outweighs the policy in favour of promoting settlement."

This decision effectively nullifies jurisprudence from Alberta, Manitoba, Ontario, and Nova Scotia, which supported the principle of disclosing settlement quantums to non-settling defendants.  Although this case involved a specific type of settlement called a Pierringer agreement, its principles are arguably applicable to any multiparty litigation involving settlements with some but not all defendants.

Katz & "private label" Drugs

In Katz Group Canada Inc. v. Ontario (Health and Long-Term Care) (discussed in a previous post), the Supreme Court upheld the validity of drug regulations in Ontario which banned "private label" generic drugs.  "Private label" describes a corporate structure where a manufacturer, which is controlled by a pharmacy, buys drugs from other sources instead of fabricating them, and then sells them to the pharmacy for retail distribution.  The Court found that this structure creates incentives that keep drug prices high, since a pharmacy that buys drugs from a manufacturer it controls would be involved in setting prices.  The Court upheld the regulations on the basis that they were aimed at stopping this practice and were consistent with their enabling statute's goals (which were to stifle increasing drug prices in Ontario).  Companies in the pharmaceutical industry should be aware of this decision and ensure that they do not employ a private label structure for the purposes of selling drugs in Ontario.

Barclays: The intangible good faith

In Barclays Bank plc v. Devonshire Trust (discussed in a previous post), the Ontario Court of Appeal delivered a significant decision regarding good faith obligations in contractual relations.  Despite the current uncertainty over whether a standalone duty of good faith exists in the common law (Quebec's civil law is to the opposite), the Court recognized two forms of good faith obligation that arose in this case.  The first was a duty to negotiate in good faith because of an express contractual term dictating this– the Court suggested that this agreement was enforceable and not merely an "agreement to agree".  The Court also relied on a line of Ontario jurisprudence recognizing parties' implied duty of good faith in performing contractual obligations.  It held that this duty prohibits parties from acting in a way that defeats the purpose of the very contract they have entered into.  This holding was consistent with prior Ontario Court of Appeal decisions, such as Transamerica Life Canada Inc. v. ING Canada Inc.  Interestingly, other authorities, such as the Alberta Court of Appeal decision in Bhasin v. Hrynew, suggest that there is no duty to perform most contracts in good faith (the Supreme Court granted leave to appeal from the Court of Appeal's decision).  Barclays has filed an application seeking leave to appeal the decision to the Court of Appeal, [2013] S.C.C.A. No. 374, and if leave is granted, the Court will have an opportunity to further clarify the scope of good faith obligations in common law in the wake of its upcoming decision in Bhasin.  The Supreme Court's pronouncements could have a significant impact on the type of behaviour that is acceptable in the performance of contractual obligations, particularly in the context of long term business relationships.

AIC: Access to justice still the paramount factor in class actions

In AIC Limited v. Fischer, (previously reported here and here), the Supreme Court rendered its much-anticipated decision in the mutual fund "market timing" case, settling the issue of whether private class actions can co-exist with securities regulatory enforcement proceedings.  The Court upheld the certification of a class action against mutual fund managers by investors, confirming that settlement of a regulatory proceeding does not preclude certification of a class action on behalf of the same class of investors who received compensation through the regulatory process.  The Court concluded that a class action was the preferable procedure (under Ontario's Class Proceedings Act) because there was some basis in fact to believe that procedural and substantive access to justice concerns continued to remain after the settlements, which a class action could address.  In doing so, the Court substantially reformulated the second branch of the preferable procedure test, which asks whether a class action would be preferable to any other reasonably available means of resolving the class members' claims.  The Court also reaffirmed that certification is largely procedural and that the evidentiary threshold at the certification stage is low.  The revised preferability test is likely to be of importance to defendants in industries (e.g. pharmaceutical, banking, retail, mining) that are frequently targeted by class actions.

Theratechnologies and the settlement pressures associated with secondary market liability claims

In Theratechnologies inc. v. 121851 Canada inc. (previously reported on here), the Quebec Court of Appeal rendered its first decision on the province's statutory secondary market liability regime and upheld a lower court decision to authorize a claim in the context of a class action instituted by the shareholders of Theratechnologies ("Thera").  The decision is significant in two respects.  First, it held that a judgment authorizing a claim under the statutory regime can be appealed with leave of the Court of Appeal (the court declined to apply article 1010 of the Quebec Code of Civil Procedure ("CCP"), which states that a judgment authorizing a class action cannot be appealed).  Interestingly, the Court of Appeal based its analysis in this regard on the rationale specified in the Quebec and other provincial  legislative debates for requiring authorization to pursue a QSA claim, i.e. to shield defendants from the costs and other negative economic effects of unmeritorious and opportunistic litigation, and from the pressure to settle even unmeritorious claims.  Second, the Court attempted to clarify the test applicable to authorization of claims under the statutory regime by contrasting it to the less stringent test applicable to authorization of class actions.  Despite a lengthy discussion, the test remains somewhat unclear and further clarification will be needed, particularly as to the role of evidence where the authorization process under the statutory regime coincides with that applicable to class actions.  Thera has filed an application seeking leave to appeal the Court of Appeal's decision, [2013] S.C.C.A. No. 35550, and if leave is granted, the Supreme Court will have an opportunity to bring clarity in a field of significant importance to public issuers.

Irving Pulp & Paper: Guidance for random drug and alcohol testing of employee

In Irving Pulp & Paper,the majority of the Supreme Court tipped the scales of employee privacy interests vs. management rights in favour of privacy interests.  The Court upheld a decision of the arbitration board, which found that the management's decision to unilaterally impose random drug or alcohol testing on unionized employees holding safety sensitive positions was unreasonable.  The Court agreed that imposing random drug and alcohol testing, which are highly intrusive in nature, is unreasonable absent a demonstrated "significant" workplace problem and even though the employees held highly dangerous positions.  Following this decision, employers may continue to test individual employees for cause in dangerous work environments and may randomly test employees if they establish the existence of a substance abuse problem.  McLachlin C.J., Rothstein, and Moldaver J.J. disagreed with the majority, holding that the preponderance of arbitral jurisprudence requires the employer to provide some evidence justifying their policy choice and not prove that there was a "significant" alcohol or drug problem at the Irving mill.

Beyond the employment law context, this case is significant in that the Court affirms the importance of arbitral jurisprudence, requiring arbitral boards to provide reasons for explicitly deviating from the jurisprudence.  Here, the majority and minority disagreed on whether the board's decision was against the grain of arbitral jurisprudence, with the majority interpreting the decision as consistent with the jurisprudence and the minority finding that the decision was not.  The Irving decision as well as the decision in Alberta (Information and Privacy Commissioner) v. United Food and Commercial Workers, Local 401, previously reported on here, suggest that the Supreme Court is showing an increasing willingness to uphold union rights.

McLean and clock ticking for provincial securities commissions

In McLean v. British Columbia (Securities Commission) (previously reported on here), the Supreme Court affirmed that the standard of review for an administrative tribunal in interpreting its own statute was reasonableness.  This decision is significant because it allows for further variance amongst securities law in various provinces, while also suggesting that the Court will be supportive of efforts to coordinate regulation inter-provincially.  Patricia McLean entered into a settlement agreement with the Ontario Securities Commission ("OSC") in 2008 for misconduct occurring in 2001 and earlier.  The British Columbia Securities Commission ("BCSC") brought public interest proceedings against Ms. McLean in 2010, within the 6 year limitations period to institute proceedings if the clock started running from the moment Ms. Mclean entered into the settlement agreement with the OSC, but not within the limitations period if the clock started running from the time of the misconduct.  The SCC found that the BCSC's interpretation was reasonable and it accorded their decision deference notwithstanding that limitations period are generally of central importance to the fair administration of justice and that other provincial securities commissions may arrive at different interpretations of similar provisions.  One of the repercussions of the McLeandecision is that future Securities Commission decisions are going to be difficult to overturn.

Payette and the enforceability of restrictive covenants associated with the sale of a business

In Payette v. Guay inc. (previously reported on here), the Supreme Court clarified the test for the validity of restrictive covenants when they accompany the sale of a business.  In unanimously upholding an injunction issued against the seller of a crane rental business, the Supreme Court held that restrictive covenants primarily linked to the sale of a business ("the reason why" they were "entered into"), rather than to a contract of employment, must not obey to the restrictive rules governing covenants in the employment context.  Under these less demanding rules, reasonableness is to be assessed "on the basis of the criteria applicable in commercial law".  Non-competition covenants will be reasonable and lawful if they are limited as to their terms, territories and activities, to whatever is necessary for the protection of the legitimate interests of the party in whose favour they was granted.  Importantly, even within the commercial context, the Court noted that there could be different degrees of rigour in applying this test, depending upon the comparative bargaining power of the parties.  The Court also noted that a provision acknowledging the reasonableness of a covenant was an important albeit non-determinative factor.  Although the non-solicitation covenant did not contain any territorial limitation at all, the Court found it was still reasonable on the theory that territorial limitations are generally unnecessary for non-solicitation covenants in the commercial context.  The approach taken in Payette should be largely applicable in provinces outside Quebec.

McKercher: Can your lawyer act against you?

In Canadian National Railway Co. v. McKercher LLP (previously reported on here) the Supreme Court of Canada upheld the bright line test from Neil which provides that a lawyer may not act against an existing client, even in unrelated matters.  However, the Supreme Court watered down the bright-line rule by limiting its application to certain circumstances –i.e. where the immediatelegalinterests of the new client is directly adverse to those of the current client, where the existing client is not exploiting the bright-line rule for tactical reasons, and where the existing client can reasonably expect that their law firm will not act against it in unrelated matters.  This reasonable expectation branch is the Court's attempt to appreciate the realities of the Canadian legal market—one where many professional litigants rely on multiple large firms with high lawyer turnover rates.

While the decision is framed as a guide for counsel in determining whether they can act simultaneously for an existing and new client, the decision can be read to provide guidelines to clients as well.  If a client does not want their law firm of choice to act against them in unrelated matters, a client should take steps to ensure that the position is reasonable.  For example, clearly articulating expectations with counsel as well as strategically considering the number of law firms retained for various matters, will be important steps impacting a client's ability to bring a motion to disqualify on the basis of a conflict of interest.

Pro-Sys,  Sun-Rype & Infineon: The much anticipated trilogy

In a trilogy of cases that may be the biggest occurrence of the past year (Pro-Sys Consultants Ltd. v. Microsoft Corporation, Sun-Rype Products Limited v. Archer Daniels Midland Company, and Infineon Technologies AG v. Option consommateurs, previously reported here and here), the Supreme Court recognized the right of indirect purchasers to assert actions based on alleged anti-competitive conduct while confirming its rejection of the "passing on" defence in this context.  Pro-Sys involved allegations that Microsoft overcharged for their PC operating systems and applications software. In Sun-Rype, the allegations involved a price-fixing conspiracy for high fructose corn syrup (HFCS). In Infineon, a conspiracy was alleged with respect to the sale of dynamic random-access memory chips (DRAM).  In Sun-Rype and Infineon, the Court decided that the existence of a mixed class (brought on behalf of both direct and indirect purchasers) was not prohibitive to certification.  Together, the decisions set out the framework for indirect purchaser actions in Canada.  They also provide some important guidance on other elements of certification, including the evidentiary burden and the role of aggregate damages provisions.  The trilogy is also significant on the issue of the proper grounds for jurisdictions in circumstances when Canadian consumers purchase products offered for sale on websites.

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