Canada: Guide To Doing Business In Canada: Dispute Resolution & Litigation

Last Updated: November 28 2016
Article by Gowling WLG

Dispute resolution & litigation

While it is similar to the American regime, the Canadian approach to dispute resolution is informed by the unique nature of the Canadian court system and legislative regime. Features such as the multi-level federal and provincial court system, and the varying practices and procedures used in courts and tribunals, will influence any strategy for dispute resolution in Canada.

Whether through litigation, mediation or arbitration, effectively resolving disputes in Canada requires experienced lawyers who are well-versed in local practice. Experience and skill in navigating the Canadian legal landscape is particularly important in multi-jurisdictional litigation, complex commercial litigation, class actions, employment claims, product liability claims and other like matters that arise in the course of transnational business.

1. The court system in Canada

The court system in Canada comprises a network of courts in each of the 10 provinces and three territories, as well as courts at the federal level. The provincial courts hear both civil and criminal matters, with trial courts and a court of appeal in each province. The provincial courts are "courts of inherent jurisdiction" and, as such, can award all legal and equitable remedies.

The Federal Court of Canada, by contrast, is a statutory court and can hear only such matters and award such remedies as are specified in its enabling statute, the Federal Courts Act. The Federal Court and the Federal Court of Appeal deal with claims involving specified matters under federal jurisdiction — such as admiralty, immigration and intellectual property — and claims against the federal government.

In addition to the courts, there are hundreds of specialized boards and tribunals at both the federal and provincial level that deal with specific subject matter and regulate specific industries. Examples of these boards and tribunals include:

  • The Canadian International Trade Tribunal (international trade)
  • The Canadian Radio-television and Telecommunications Commission (broadcasting)
  • Provincial municipal boards (land-use planning and expropriation)
  • Provincial securities commissions (capital markets)

Appeals from the decisions of boards and tribunals, as well as appeals of governmental or ministerial decisions, are heard by way of applications for judicial review to either the superior court in a province or the Federal Court of Canada, depending on the jurisdiction of the tribunal or government decision-maker at issue.

Appeals from the provincial courts of appeal and the Federal Court of Appeal are heard by the Supreme Court of Canada, almost always with leave to appeal being required.

2. Civil litigation (including alternative dispute resolution)

a. Court proceedings

Claims in the provincial courts are generally made by way of actions and applications (for civil and commercial disputes) or prosecutions (for criminal or quasi-criminal matters). Civil actions, unless settled, are normally determined by way of trial. A very high percentage of cases settle short of trial at mediation, judicial pre-trial conferences or by the parties or their counsel directly.

Except in cases involving personal injuries, jury trials are not a common feature in civil or commercial disputes in Canada and are actually prohibited in certain types of matters, such as mortgage foreclosures and dissolutions of partnership, as well as cases where there is a claim for an injunction, or claims for partition or sale of real property. There is no right to a jury trial in Federal Court. Applications for judicial review of the decisions of boards and tribunals are normally heard by one or three judges, depending on the decision at issue.

Proceedings in the provincial and federal courts are governed by rules of procedure, which are quite similar across the country and have many aspects in common with American procedure. There are significant differences between Canada and the United States, however, in the procedure for pre-trial discovery and awards of legal costs. Many of the superior courts in the provinces have different divisions for claims of different monetary values. For example, in Ontario there is a small claims court that hears civil actions where the amount claimed is $25,000 or less, exclusive of costs and interest. Ontario also has a Simplified Procedure for claims for money or property (real or personal) up to $100,000.

Parties engaged in civil litigation are generally required to produce to the opposite party all of their non-privileged relevant documents and testify under oath at a pre-trial examination for discovery.

Failure to preserve and produce relevant documents can result in an adverse inference being drawn as to what the missing documents might have proven, an award of damages or costs, or even the striking of the party's pleading. As a result, it is a common practice in Canadian commercial litigation to send litigation hold letters to opponents and/or opposing counsel asking that they preserve all documents relevant to existing or anticipated litigation.

The obligation to disclose all relevant documents in a party's possession can be quite burdensome, particularly with the proliferation of electronic documents. In response, Canadian courts have begun to recognize the principle of proportionality. The rules of procedure, and particularly the rules governing documentary production and examinations for discovery, must be interpreted so that the time and expense devoted to the proceeding is proportionate to the issues and the amount at stake in the action. Proportionality is not a shield that can be used to hide harmful or damaging documents. However, if the cost or degree of effort required to produce all potentially relevant documents is disproportionate to the value of the claim, the principle of proportionality can be invoked in an effort to avoid having to search for all potentially relevant documents.

At examination for discovery, as a general rule, each individual named in the proceedings and a single representative from each corporate party is subject to a pre-trial examination under oath. In general, non-party witnesses are not subject to pre-trial examination or deposition. The representative of a corporate party is required to inform himself or herself of the relevant facts and can be questioned on both his or her own personal knowledge of the matters in issue, as well as the knowledge, information and beliefs of others within the organization. If the witness does not know the answer to a question asked on discovery, the witness may be required to make inquiries of others or to review his or her records to determine the answer to the question. In some provinces, there are limits on the duration of the examination for discovery. In those provinces, a party wishing for more time, or the right to examine a non-party, may seek leave to do so from the court.

b. Interim relief

There are various interim orders that Canadian courts can grant to preserve the rights of the partiespending trial, including:

  • Interlocutory injunction to prevent a defendant from engaging in specified conduct for a set period of time, where the moving party is able to demonstrate that such conduct would cause injury to it and that such injury could not be adequately compensated by damages or could not be cured (because the moving party is unable to collect damages) if the matter were to be resolved in the moving party's favor at trial.
  • Mareva injunction to seize and secure the defendant's assets to ensure that such assets remain available to satisfy any judgment that the plaintiff may ultimately obtain.
  • Anton Piller order, which allows the plaintiff access to the defendant's premises to inspect and remove items over which the plaintiff asserts a proprietary claim, or to secure and preserve evidence needed for trial.
  • Order for interim preservation of property in the possession of a third party.
  • Norwich Pharmacal order, which can be used to compel the production of documents in the possession of a third party in order to find and preserve assets, identify potential defendants and confirm whether a cause of action exists.

In a landmark decision in 2014, the Supreme Court of Canada emphasized that proportionality and the rapidly escalating costs of litigation require courts to take a good look at each case to determine whether a trial is necessary, or whether the issues in dispute can be fairly adjudicated by a motion for summary judgment instead. Since that decision there has been a marked increase in summary judgment motions being brought to resolve or narrow the issues in cases before trial.

c. Costs

In many provinces, the losing party in a civil proceeding is ordered to indemnify the winning party for some or all of the winning party's legal costs (lawyers' fees and disbursements). There are different scales of costs that can be awarded — partial indemnity, substantial indemnity, full indemnity or tariff costs — with the norm being partial indemnity. The award of costs is always at the discretion of the judge(s) hearing the matter, and the obligation to pay costs and the quantum of costs awarded may be influenced by degree of success, the conduct of the parties, offers to settle that may have been exchanged and fairness.

d. Alternative dispute resolution

  1. Mediation

    Mediation is growing in popularity in litigation, primarily because the early resolution of disputes minimizes the cost of litigation. A number of jurisdictions in Canada require the parties to engage in some form of mediation as part of the court process and, if a commercial contract has a mandatory mediation clause, it will likely be enforced before the parties can proceed with litigation.

    At the conclusion of a successful mediation, the parties will normally memorialize the terms of the settlement in a written settlement agreement that is signed by the parties or their lawyers. A settlement agreement can be enforced through court proceedings. An oral settlement agreement is also enforceable if there is sufficient evidence to prove its existence and terms.

  1. Arbitration
     

Businesses in Canada frequently choose to resolve their disputes by arbitration rather than litigation. Arbitration is not necessarily less costly or time consuming than litigation, but it allows greater control over procedure, more confidentiality than a public court process and the ability to select decision-makers with expertise in the subject matter of the dispute.

All of the provinces and territories in Canada have legislation governing both international commercial arbitration and domestic arbitration. Every province has enacted an International Commercial Arbitration Act, which adopts the United Nations Commission on International Trade Law's (UNCITRAL) Model Law on International Commercial Arbitration(1985), with amendments as adopted in 2006,as the law applicable to arbitrations that are commercial in nature and international in scope.1

While there are differences between statutes governing domestic arbitration in each province, they have common provisions. In general, these statutes oust the courts' jurisdiction over disputes that the parties have agreed to submit to arbitration. They also require a stay of related court actions and allow the court to intervene in arbitration only in limited circumstances. The general domestic arbitration acts do not govern certain types of arbitrations — most notably arbitrations in the labour field, which are governed by separate, more specific statutes.

The arbitration statutes in many of the provinces and territories in Canada provide that the provincial law with respect to limitation periods applies to arbitration as though the arbitration proceedings were an action before the province's courts, and must be commenced within the requisite time period. Similarly, there is a limitation period — generally two years from the date of the award — to commence an application to enforce an arbitral award through a court process.

The federal Commercial Arbitration Act (CAA) governs commercial arbitrations involving claims where at least one of the parties to the arbitration is the federal government of Canada, a departmental corporation or a Crown corporation wholly owned by the federal government. The CAA applies to arbitration agreements whether made before or after the CAA came into force in 1985. The CAA adopts, with limited modification, the UNCITRAL Model Law for all commercial disputes, whether domestic or international, which fall under federal jurisdiction.

Domestic arbitral awards may be enforced through a simple application for recognition and enforcement in a province's superior court. Enforcement of arbitral awards made outside of Canada is enabled by federal and provincial legislation on the subject. Canada is a part of the 1958 New York Convention, and any awards subject to the convention are recognized as binding between the parties. With the court's approval, these awards can be enforced in Canada in the same manner as a local judgment or court order.

Generally speaking, a court may decline to recognize or enforce an arbitration award only on limited "public policy" grounds that are set out in the UNCITRAL Model Law, as reflected in CAA and provincial arbitration legislation such as:

  • The incapacity of a party
  • Decisions on matters that are beyond the agreed scope of the arbitration
  • Serious procedural irregularities, e.g. where a party has been deprived of an element of fundamental justice
  • The subject matter of the dispute is incapable of adjudication by arbitration under Canadian law

3. Class proceedings

In Canada, most provinces and the Federal Court have adopted legislation allowing class proceedings. However, by virtue of a 2001 ruling by the Supreme Court of Canada, class actions may be permissible throughout the country even in the absence of express legislation.

a. Certification process

A court must certify a putative class action before it will be allowed to proceed as a class action. For this reason, the first step in a putative class proceeding is usually a motion for certification. While the test for certification varies between jurisdictions, variations on the same five factors are considered in most jurisdictions:

  • The pleadings must disclose a cause of action.
  • There must be an identifiable class.
  • The claims or defences must raise some common issues.
  • The class proceeding must be the preferable procedure for the resolution of common issues.
  • There is a representative plaintiff or defendant who would represent the class interests fairly and adequately in accordance with a litigation plan.

Historically, it has been easier for plaintiffs to certify a class action in Canada than in the U.S. Multi-jurisdictional class actions — that is, a single class action that purports to represent plaintiffs in multiple provinces — are often permitted. Defendants are also often faced with multiple competing class proceedings (brought by different counsel) in the same or in multiple provinces. Canada does not have a process equivalent to the multi-district litigation used in the U.S. After certification, class members must be notified and given the right to opt in or opt out of the class proceeding depending on the province.

b. Discovery process

Only the representative plaintiff(s) and the named defendants are subject to examination for discovery. Those parties are also required to produce all of their non-privileged relevant documents subject to the principle of proportionality, which is typically not as important a factor in class proceedings given the magnitude of the claims.

c. Trial and appeals

In most provinces, one judge will case manage each class action. The case management judge typically will not be the trial judge, except in Québec. However, the majority of class proceedings are disposed of through preliminary motions or settlements. Very few class actions have proceeded through a common issues trial, although trials are becoming more common.

d. Costs

In all provinces, courts may permit plaintiffs' counsel to enter into a contingency fee arrangement with the plaintiff class. Rules for payment of costs in class actions differ from those in individual actions. In most jurisdictions the losing party will not be responsible for paying the opposing side's costs on the certification motion. However, in Ontario, the rule of "loser pays" still applies.

e. Funding

Ontario has established a fund to assist plaintiffs in pre-approved cases to meet their cost obligations in the event they are not successful in the litigation. Public funding is also available for class actions in some other provincial jurisdictions. Where the plaintiff is successful and has obtained approval for funding from a provincial fund, they are generally required to pay a percentage of the recovery to the fund.

f. Industry-specific class actions

There is no restriction on the type of claim that can be advanced as a class proceeding. However, class actions are most common in the following areas of law:

  • Securities: Security holders frequently commence class proceeding against issuers and their directors and officers seeking damages resulting from the drop in the price of their securities attributable to misrepresentations made in the issuer's public disclosure. Where the security holder purchased his or her securities on the secondary market (e.g., a stock exchange), the plaintiff must obtain leave of the court, which will be granted if the court is satisfied that the action was brought in good faith and that there is a reasonable possibility that the plaintiff will be successful at trial.
  • Product liability: Canadian courts have certified product liability class actions, such as claims for property and personal injury damages, medical monitoring costs, refunds and disgorgement of revenues from product sales. However, courts are increasingly scrutinizing plaintiffs' evidence for some basis in fact to establish injury and proximate causation as common issues. Moreover, courts are less likely to certify if the harm pleaded seems trivial or non-existent.
  • Competition law: In Canada, direct and indirect purchasers alleging a breach of the Competition Act have the ability to participate in class actions, which are often preceded by investigations by the federal regulator, the Competition Bureau. A statutory remedy is available under the Act. Courts have been inconsistent in certifying parallel class action claims in tort and in restitution.
  • Privacy: Canadian courts have certified privacy class actions based on breach of contract and tort, and, in some provinces, statutory causes of action. Recent legislative changes have increased reporting requirements on the private sector, and it is possible that the number of such claims will increase in the future. The risk of privacy claims is also increasing due to recent appellate court decisions recognizing a new privacy tort.

4. Product liability

Liability for the manufacture or distribution of defective products that cause damage to persons or property may be found in either tort or contract. Redress may be sought through formal court proceedings, private arbitration, mediation, or another form of alternative dispute resolution depending on the facts of the case and any agreement between the parties. There is no principle of strict liability at common law, although this is not the case in Québec.

In 2011, the federal government enacted the Canada Consumer Product Safety Act (CCPSA), which is broad legislation that affects all manufacturers, distributors, retailers and importers of consumer products in Canada. Additionally, every province has legislation that provides remedies to consumers for defective products. These statutes generally provide statutory warranties of merchantability and fitness for purpose with respect to all consumer products marketed within the province. The statutes also provide for individual causes of action for breach of deemed warranties, in addition to possible government action. Remedies available include rescission of the contract of purchase and sale, and injunctive relief. Foods and drugs are similarly regulated under the federal Food and Drugs Act.

a. Who bears responsibility for a fault or defect?

The designer, manufacturer, importer, distributor or retail supplier of a defective product can be liable for damages arising from the use of that product. As a general rule, it is the designer who bears the ultimate responsibility for a defective product if harm derives from a design flaw, and the manufacturer who bears responsibility for a manufacturing defect. A plaintiff can bring proceedings against anyone and everyone along the supply chain. Unrelated parties may, in turn, sue one another for contribution or indemnity for any liability that they may have to the plaintiff.

The CCPSA regulates all products — including components, parts or accessories, and even packaging — that may reasonably be expected to be obtained by an individual for non-commercial use, such as for domestic, recreational and sports purposes. The CCPSA imposes obligations and liabilities upon each member of the product supply chain. The CCPSA further provides for:

  • A blanket prohibition on the marketing of unsafe products
  • Support by a supplier of the safety of their product
  • An obligation on a supplier to report adverse events
  • Broad governmental investigatory and enforcement powers, including ordering product recalls
  • Penalties in the form of fines of up to $5,000,000 and prison terms of up to two years for breaches of the CCPSA

b. In what circumstances is there an obligation to recall products?

At common law, every participant in the product supply chain has a duty to prevent harm arising from use of its product. This duty may include notification of risk and product recall in certain circumstances, not as a standalone duty, but as part of the "duty to warn."

In addition to the common law obligation, the CCPSA gives the power to the federal minister of health to order a consumer product recall where the minister believes that a recall is warranted. Recall of food and agricultural products may also be required under the Food and Drugs Act.

c. What test is applied for proof of causation?

The test for causation is the so-called "but for" test, under which the requirement for causation is met where it is proven that the harm would not have occurred "but for" the actions of a defendant. Generally speaking, it is not enough for a plaintiff to demonstrate an increased risk of a type of injury claimed as a result of the use of a product without demonstrating actual causation of harm.

d. Is there a duty to warn of known risks?

A manufacturer owes a duty to warn of all material risks of which it was aware — or it ought to have been aware — resulting from the ordinary use of its product. The materiality of a risk depends on:

  • Reasonable foreseeability (the likelihood of the risk materializing)
  • The degree of harm should the risk materialize (ranging from inconsequential product malfunction to severe health consequences)
  • The obviousness of the risk (for example, a manufacturer would not ordinarily be required to warn of the danger of cutting oneself with a knife)
  • The audience to whom the warning would be given (for example, sophisticated professionals as opposed to children, etc.)

The duty to warn is a continuous one. The content of the warning must be adequate, understandable and clearly communicated. The scope of the warning must be commensurate with the degree of risk or gravity of the hazard presented.

e. Is it a defence for the manufacturer to show that he complied with regulatory and/or statutory requirements?

Evidence that a manufacturer complied with all relevant regulatory and/or statutory requirements is not a full defence to a product liability claim. On the other hand, breach of such requirements does not establish liability. Rather, evidence with respect to regulatory or statutory requirements is relevant to, but not dispositive of, the question of whether a manufacturer ought to be found liable in civil proceedings for damages arising out of the use of its product.

f. What remedies are available?

The statutory, common law and equitable remedies that may be available in product liability actions include:

  • Monetary damages
  • Disgorgement of revenue or profit (for unjust enrichment or waiver of tort)
  • Rescission of the contract of purchase and sale
  • Monetary fines
  • Injunctions
  • Criminal sentencing
  • Punitive damages
  • Interest and costs of the proceeding

Footnote

1 The Model Law is designed to assist states in reforming and modernizing their laws on arbitral procedure, so as to take into account the particular features and needs of international commercial arbitration. It covers all stages of the arbitral process — from the arbitration agreement, the composition and jurisdiction of the arbitral tribunal, and the extent of court intervention through to the recognition and enforcement of the arbitral award. It reflects worldwide consensus on key aspects of international arbitration practice, having been accepted by states of all regions and the different legal or economic systems of the world.

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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