Canada: Top 5 Civil Appeals from the Court of Appeal (May 2017)

Last Updated: May 23 2017
Article by Jason Squire

April saw the court release decisions dealing with termination provisions in an employment contract, the requirements for registration as a status Indian, application of the law of misnomer in an action against a trade union, forfeiture of a deposit on a commercial real estate transaction, and fiduciary duties owed within a professional partnership

1. Redstone Enterprises Ltd. v. Simple Technology Inc., 2017 ONCA 282 (Sharpe, Lauwers and Hourigan, JJ.A.), April 4, 2017
2. Covenoho v. Pendylum Ltd., 2017 ONCA 284 (Rouleau, Pepall and Roberts JJ.A.), April 5, 2017
3. Tim Ludwig Professional Corporation v. BDO Canada LLP, 2017 ONCA 292 (Strathy C.J.O., Weiler and Benotto JJ.A.), April 12, 2017
4. Gehl v. Canada (Attorney General), 2017 ONCA 319 (Sharpe, Lauwers and Miller JJ.A.), April 20, 2017
5. Lawrence v. International Brotherhood of Electrical Workers (IBEW) Local 773, 2017 ONCA 321 (Sharpe, Lauwers and Hourigan JJ.A.), April 20, 2017
1. Redstone Enterprises Ltd. v. Simple Technology Inc., 2017 ONCA 282 (Sharpe, Lauwers and Hourigan, JJ.A.), April 4, 2017
In this case, the Court of Appeal set important limits on the degree to which equitable principles may support relief from forfeiture for a sizeable deposit on a failed commercial real estate transaction.
Redstone Enterprises Ltd. sold a warehouse in Brantford to Simple Technology Inc., for $10,225,000. The purchaser successively extended the closing date while it was applying for a marijuana grow-op license, and successively increased its deposit on the property to $750,000. Ultimately, Simple Technology was unable to obtain the license or the necessary financing, and failed to close the transaction. Redstone then applied for a declaration that it was entitled to be paid the deposit of $750,000, which was being held in trust. The motion judge found no legally acceptable justification for the purchaser not to close the transaction and agreed that the deposit was to be forfeited to the seller. He then exercised his equitable jurisdiction under s. 98 of the Courts of Justice Act, R.S.O. 1990, c. C.43 and reduced the sum to be forfeited from $750,000 to $350,000.
The Court of Appeal held that the application judge erred in granting partial relief from forfeiture of the deposit to the buyer. Although Redstone suffered no damages, that alone did not render the forfeiture unconscionable. The analysis of unconscionability requires the court to consider the full commercial context, and a finding of unconscionability must be an exceptional one, strongly compelled on the facts of the case. There was no evidence that the deposit of slightly more than seven percent was a commercially unreasonable amount. In considering other indicia of unconscionability such as inequality of bargaining power, a substantially unfair bargain, the relative sophistication of the parties and their conduct – an analysis which the application judge failed to undertake – the court held that there was no unconscionability in this case.
2. Covenoho v. Pendylum Ltd., 2017 ONCA 284 (Rouleau, Pepall and Roberts JJ.A.), April 5, 2017
This case highlights that termination provisions in an employment contract that could ever contravene the Employment Standards Act, 2000, S.O. 2000, c. 41 ("ESA") will be voided altogether; and it happens to mark a win for a self-represented appellant.
The employee was employed by the company under a one-year fixed term contract. The employee signed the company's standard form agreement, which included a term that the employer could terminate on no notice if its client for whom the employee was doing her work in turn terminated its contract with the employer. Within three months of the employee's start date, the company terminated the employee's employment because its client terminated, and in reliance on the termination provisions of the agreement, the company provided no notice or payment in lieu. The motion judge dismissed the employee's motion for summary judgment, reasoning that she had been employed for less than three months, so she was not entitled to notice under the ESA; and reasonable common law notice was excluded by operation of her employment agreement.
The Court of Appeal held that the termination provisions of the employment agreement contravened the ESA, since they purported to permit the employer to be liable for less than the statutory minimum notice period (really, nothing), regardless of how long the employee was employed. That is, once the employee was past her probationary period, and still within the one-year term of her employment, the termination provisions were below the statutory minimum. So although she happened to have been terminated during the three month probationary period recognized by the ESA (and under the ESA would be entitled to no notice), the clause was void when the parties entered into the agreement, because it also provided that she could be eligible for no notice beyond her probationary period, when the ESA dictated she would be entitled to minimum notice. The Court of Appeal held the termination provisions were void, and found that the employee was entitled to be paid not common law notice, but for the balance of her one year fixed term contract, with no obligation to mitigate during the remainder of its term.
3. Tim Ludwig Professional Corporation v. BDO Canada LLP, 2017 ONCA 292 (Strathy C.J.O., Weiler and Benotto JJ.A.), April 12, 2017
The Court of Appeal considered fiduciary duties in a professional partnership context, the first time it has substantively done so in many years.
Tim Ludwig was a partner of BDO Canada LLP, a national accounting and advisory firm, for 22 years. On July 8, 2014, he was called into a meeting and told to retire. He brought an action against BDO claiming that it breached the terms of their partnership agreement. The motion judge granted Ludwig summary judgment on the basis that (i) Ludwig's expulsion did not comply with the language of Article 17.4 of the Partnership Agreement, and (ii) common law principles governing partnerships require that a partner's expulsion must be reasonable and made in good faith, rather than arbitrary or capricious. BDO did not advance any evidence that the Policy Board independently decided that to expel Ludwig was in the best interest of the partnership, and it did not act in good faith because it did not give Ludwig an opportunity to explain why he should not be expelled. The motion judge awarded Ludwig expectation and aggravated damages.
Proceeding on a standard of correctness, the Court of Appeal found that the motion judge correctly interpreted the Partnership Agreement. The court found that BDO breached the agreement. There was no evidentiary basis on which to reasonably conclude that it was in the best interest of the partnership to request Ludwig's retirement. Moreover, it was clear from the evidence that the decision to expel Ludwig was made not by the Policy Board as required, but by the CEO. The Court of Appeal also agreed with the motion judge's decision in awarding expectation and aggravated damages. Caution must be exercised when directly applying the rules governing intangible damages in the employment context to partners, as partners are typically not employees and are governed by a separate legal regime at common law and have specialized legislation. However, given the duty of utmost good faith owed between partners, the reasoning in Keays v. Honda Canada Inc., 2008 SCC 39 should apply in the partnerships context. Damages flowing from bad faith in the manner of a partner's expulsion were within the reasonable contemplation of the parties when they entered into the partnership agreement.
4. Gehl v. Canada (Attorney General), 2017 ONCA 319 (Sharpe, Lauwers and Miller JJ.A.), April 20, 2017
At issue in this appeal was whether Gehl was entitled to registration as a status Indian, and particularly how Gehl was to prove her lineage to the Registrar for Aboriginal Affairs and Northern Development. Was the Registrar's insistence that she prove her paternal grandfather's identity and status unreasonable and/or contrary to the Charter?
The Indian Act, R.S.C. 1985, c. I-5 was amended in 1985, in part to address a regime of determining status by references to parentage that included reliance on a system of patrilineage and such concepts as "illegitimacy", particularly embarrassing in light of what was then a newly-in-force s. 15 of the Charter. The new regime established a two-tier system of registration. Children with two Indian parents now receive "full" status, whereas a child with only one Indian parent receives "partial" status. The former can pass on status to their own children, regardless of the status of the other parent, while the latter can pass on status to their own child only if the other parent also has Indian status, whether full or partial.
Gehl brought an application to register as an Indian. The Registrar denied the application. Because the identity of Gehl's paternal grandfather was unknown, her father could only claim status through one parent, his mother, and accordingly, the Registrar only recognized him as having partial status. Since Gehl's mother had no status, the Registrar considered Gehl to be the child of one, partial, status Indian parent. Accordingly, Gehl could not satisfy the "two-parent rule," and had no right to be registered.
Gehl relented on her s. 15 Charter attack on the validity of the regime imposed in the post-1985 Indian Act, but she pressed that the Registrar's exercise of its authority to determine status was to be reasonable, and that reasonableness exercise is to be informed by Charter values.
The majority of the Court of Appeal panel (Lauwers and Miller JJ.A.) deciding the case, however, chose to resolve the appeal solely on the basis of administrative law principles, without resort to the Charter. The Registrar's decision was unreasonable because he imposed a burden on Gehl to conclusively prove that her paternal grandfather had status, when, in the circumstances, such was impossible: she could not identify that relevant ancestor by name. The demand for evidence of his identity was not only superfluous, but now, through the passage of time, was unobtainable. Here, circumstantial evidence, which the Registrar would not consider, supported an inference that Gehl's unknown paternal grandfather was of aboriginal ancestry; and there was no evidence to contradict that he may have had status. Such should have been enough in the circumstances. Despite that Gehl really should have pursued an appeal of the Registrar's decision, the Court of Appeal granted a declaration that Gehl is entitled to register for status.
The concurring reasons by Sharpe J.A. are intriguing: he would find that the Registrar is to guard against an exercise of discretion that results in substantive inequality, informed by s. 15 Charter values. He would find that the Registrar failed to take proper heed of the Charter interests engaged – and the equity-enhancing values and remedial objective underlying the 1985 amendments to the Indian Act – and for that reason afforded no deference to the Registrar's decision. The outcome of Sharpe J.A.'s reasoning was the same as the majority's: Gehl was entitled to her declaration and her status.
5. Lawrence v. International Brotherhood of Electrical Workers (IBEW) Local 773, 2017 ONCA 321 (Sharpe, Lauwers and Hourigan JJ.A.), April 20, 2017
This case involves a novel use of the developing law of 'misnomer' to permit a plaintiff to properly plead a representative action against a labour union after expiration of a limitation period.
Pamela Lawrence was terminated from her employment with the International Brotherhood of Electrical Workers, Local 773. She brought an action for damages for wrongful dismissal, naming Local 773 as defendant. She later obtained a consent order adding the directors of Local 773 as defendants, and amended her statement of claim to plead that the individual defendants were jointly and severally liable for her claim as against Local 773. Relying on s. 3(2) of the Rights of Labour Act, R.S.O. 1990 c. R.33, Local 773 asserted that as a trade union, it could not be named as a party. The action proceeded, with Local 773 and the individual defendants all represented by the same counsel. The individual defendants participated in the proceedings without reiterating the objection made in their Statement of Defence that Local 773 was not a suable entity. After the expiry of the two-year limitation period, the defendants moved under Rule 21 for an order dismissing the action on the ground that Local 773 was not a suable entity. They argued that the only way a trade union could be sued was by way of a representation order pursuant to Rule 12.07, under which the court may authorize one or more individuals to defend a proceeding as representatives of the members of the trade union. They also argued that the individual defendants were not personally answerable for the respondent's claim.
The defendants' motion to dismiss the action was dismissed, as was their motion to the Divisional Court for leave to appeal the dismissal. The former employee then brought a successful motion pursuant to Rule 12.07 for an order granting her leave to amend her Statement of Claim to add the individual defendants as representatives of all the members of Local 773. The appeal of that ruling turned on whether the motion judge erred by making a representation order authorizing the individual defendants to defend the proceeding as representatives of all the members of Local 773 after the expiry of the limitation period.
The court dismissed the respondent's motion to quash the appeal on jurisdictional grounds and went on to dismiss the appeal, citing the principle that where there is a coincidence between the plaintiff's intention to name a party and the intended party's knowledge that it was the intended defendant, an amendment may be made despite the passage of the limitation period to correct the mis-description or misnomer. The members of Local 773 would have known that the former employee intended to name the legal entity that they comprised as members. Local 773 cannot be sued in its own name but it can be sued by way of a representation order. The motion judge held that the request for a representation order in this case could properly be characterized as a request to "correct the name of a party incorrectly named" within the meaning of Rule 5.04(2). Local 773 and its members knew well before the expiry of the limitation period that the respondent had brought an action claiming damages for wrongful dismissal against the entity that had been her employer. It was significant that both Local 773 and the individual parties participated in the action for over two years. Further, no additional procedural steps would be required as a result of the representation order and the defendants would suffer no prejudice as a consequence. Hourigan J.A. dissented.

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