Canada: Top 5 Civil Appeals From The Court Of Appeal - November 2017

Last Updated: November 28 2017
Article by Carolyn Brandow
  1. Holterman v. Fish, 2017 ONCA 769 (Feldman, Cronk and Miller JJ.A.), October 5, 2017
  2. Reeb v. The Guarantee Company of North America, 2017 ONCA 771 (Sharpe, Lauwers and Roberts JJ.A.), October 5, 2017
  3. North v. Metaswitch Networks Corporation, 2017 ONCA 790 (Feldman, Sharpe and Roberts JJ.A.), October 16, 2017
  4. Airia Brands Inc. v. Air Canada, 2017 ONCA 792 (Gillese, MacFarland and Pepall JJ.A.), October 17, 2017
  5. Jay-Pee Drycleaners Inc. v. 2321324 Ontario Inc., 2017 ONCA 798 (Pepall, van Rensburg and Trotter JJ.A.), October 18, 2017

1. Holterman v. Fish, 2017 ONCA 769 (Feldman, Cronk and Miller JJ.A.), October 5, 2017

The appellants, Marc Holterman and Thomas Tiffin, commenced an action for misfeasance in public office against the respondents, the Attorney General of Canada and Andrew Fish, a Canada Revenue Agency (CRA) investigator. The action was discontinued on consent. After discovering new information, the appellants sought to have the discontinuance set aside. The Court of Appeal heard the appellants' appeal from the decision dismissing that motion.

The CRA investigated the appellants for fraud on the suspicion that they had underreported their incomes for the years 1995 through 1999. In 2002, Fish swore an Information to Obtain (ITO) in support of an application for search warrants in which he stated that he had reasonable grounds to believe that the appellants were in breach of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp) (ITA). Following the execution of the search warrants, the appellants were charged with fraud and tax evasion.

The following year, the appellants filed Notices of Objection with the Minister of National Revenue (MNR), challenging the CRA's conclusion that monies they had received were payments rather than loans and were therefore subject to income tax.

At the appellants' criminal trial, the trial judge found that the ITO contained misstatements of fact and that Fish had been "intentionally misleading". He quashed the search warrants and excluded evidence obtained pursuant to their execution. The Court of Appeal allowed the Crown's appeal from that decision, but did not overturn the trial judge's finding that Fish had been intentionally misleading.

The appellants commenced a civil action against the respondents for misfeasance in public office, claiming that Fish had intentionally sworn a false ITO with the intent to injure them. The Attorney General was alleged to be vicariously liable for Fish's actions.

After they had closed their case in the civil trial, the judge alerted the appellants that the onus was on them to prove that the monies they had received were in fact loans and therefore not taxable. The appellants had not led any evidence to establish this. The trial judge had refused to admit Fish's evidence or accept that the findings at the criminal trial were binding. Faced with this "potentially insurmountable obstacle", the appellants decided to pursue a discontinuance of the action. The action was discontinued on consent.

In January 2016, around a month after the discontinuance, the appellants received Notices of Reassessment from the MNR in response to the Notices of Objection that they had filed in 2003. The money that was the subject of the investigation had been reassessed as non-taxable. No explanation for this reversal 13 years after the Objection was given.

The appellants then brought a motion to set aside the discontinuance on the basis of "exceptional circumstances", arguing that if the reassessments were available at trial, it would have likely changed the result. The appellants took the position that the reassessments proved that Fish had acted in bad faith when he swore in the ITO that he had reason to believe that they had undisclosed taxable income.

The motion judge concluded that the reassessments could not help prove what Fish knew 12 years earlier, at a time before the search warrants were executed, before the CRA investigation was complete, and before the Notices of Objection setting out the appellants' argument had been received. The motion judge also found that this evidence could have been obtained by the appellants had they exercised proper diligence. He noted that the appellants could have exercised their right of appeal under s. 169 of the ITA to apply for an order vacating or varying the original assessment.

The Court of Appeal dismissed the appeal, holding that the appellants fell far short of meeting the high bar for setting aside a consent discontinuance.

In considering whether there were exceptional circumstances for setting aside the discontinuance, the motion judge had applied the test outlined by the Supreme Court in 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., 2001 SCC 59. This test is often distilled to two questions: (i) whether the new evidence, if presented at trial, would probably have changed the result; and (ii) whether the evidence could have been obtained before trial by the exercise of reasonable diligence. Miller J.A. noted, however, that the test is not that simplistic. As the Court of Appeal explained not long ago in Mehedi v. 2057161 Ontario Inc., 2015 ONCA 670, the test includes "considerations of finality, the apparent cogency of the evidence, delay, fairness and prejudice", as well as a consideration of the importance of deferring to trial judges, who are "in the best position to decide whether, at the expense of finality, fairness dictates that the trial be reopened".

Applying the Sagaz test, Miller J.A. upheld the motion judge's finding that there were no exceptional circumstances that would justify setting aside the discontinuance.

As Miller J.A. explained, the significance of the appellants' fresh evidence - the reassessments - turned on whether it would satisfy elements of their cause of action of misfeasance in public office. While the reassessments determined, based on facts that existed in 2002, that the appellants had no tax liability, it did not necessarily follow that Fish did not have reasonable grounds to believe that they did. The reassessments demonstrated that the original Notices of Assessment were wrong, but they did not provide evidence of what Fish knew in 2002. The fresh evidence failed to meet the high bar of "probably changing the result".

While he agreed that there were no exceptional circumstances that would justify setting aside the discontinuance, Miller J.A. disagreed with the motion judge that the appellants did not pursue the fresh evidence with reasonable diligence. He felt it was "unduly harsh" to put the burden on the appellants to bring an appeal before the Tax Court in order to force the MNR to comply with its statutory obligations, particularly when they would not have known that the MNR would ultimately allow their objection.

Nonetheless, the appeal was dismissed on the basis that the appellants failed to meet the test for setting aside the discontinuance.

2. Reeb v. The Guarantee Company of North America, 2017 ONCA 771 (Sharpe, Lauwers and Roberts JJ.A.), October 5, 2017

In February 2007, James Riley and Ryan Reeb were playing with pellet guns at James' house. Ryan shot James, who tragically lost an eye.

James brought a claim for $1.5 million against Ryan and his parents, Tim and Laura Reeb, who were separated at the time of the incident. Laura had a homeowner's insurance policy with Royal & Sun Alliance Insurance Company of Canada (RSA), which had a third party liability limit of $1 million. RSA appointed counsel to represent Ryan under a non-waiver and reservation of rights agreement.

Ryan's counsel brought an application for a declaration that Ryan was insured under two additional policies of insurance, the first issued to Tim Reeb by the respondent, The Guarantee Company of North America, and the other to Tim's second wife by the respondent, Co-operators General Insurance Company.

The respondent insurers conceded that Ryan was insured under their policies, but argued that the "intentional act" exclusion applied. The motion judge agreed, and dismissed the application.

The Court of Appeal allowed Ryan's appeal from that decision on the basis of the apparent conflict of interest between Ryan and RSA – the insurer which appointed, instructed and paid for his counsel – rather than on the merits of the appeal.

The court noted that if the appeal failed, then it would be to RSA's advantage and Ryan's disadvantage because RSA would have no coverage obligation. If Ryan was not entitled to coverage under the RSA policy, then he would likely also not be covered under his mother's policy, which has a similar "intentional act" exclusion.

Citing its decision in Hoang v. Vicentini, 2015 ONCA 780, the court explained that when considering whether there is a conflict of interest between an insured and his insurer with respect to the insured's legal representation, the court must find a balance between the insured's right to a full and fair defence and the insurer's right to control that defence because of its potential obligation to indemnify. This balance is struck by requiring that there be a "reasonable apprehension of conflict of interest" on the part of counsel appointed by the insurer before the insured is entitled to independent counsel at the insurer's expense.

The court found that there was a reasonable apprehension of a conflict between Ryan's interests and those of RSA, which precluded the court from ruling on the merits of the appeal. The court held that Ryan ought to have had independent counsel who did not report to or take instructions from RSA.

The appeal was allowed on that basis.

3. North v. Metaswitch Networks Corporation, 2017 ONCA 790 (Feldman, Sharpe and Roberts JJ.A.), October 16, 2017

Doug North's employment with Metaswitch Networks Corporation was governed by a written employment agreement. When his employment was terminated without cause, a dispute arose as to whether North was entitled to be paid in accordance with the written agreement or with common law reasonable notice.

North's employment agreement contained a termination clause that amounted to a contracting out of the Employment Standards Act, 2000, S.O. 2000, c. 41 (ESA). It also contained a severability clause. At issue before the application judge and on the appeal was the interpretation and application of these two clauses in light of s. 5 of the ESA, which prohibits employers and employees from waiving or contracting out of any employment standard prescribed by the ESA, except to provide a greater benefit to the employee.

North took the position that the agreement was void under s. 5 of the ESA because the "Termination of Employment" paragraph provided that payments owed to him upon termination were to be based on his base salary, which contravened the ESA by excluding his commission. He asked for termination compensation based on common law pay in lieu of reasonable notice instead of based upon the contract.

The employer, Metaswitch, took the position that if a portion of the termination paragraph was illegal, then the offending portion should be excised from the agreement using the severability clause contained in paragraph 17(a), leaving the balance of paragraph 9(c) intact and entitling the appellant to termination pay calculated in accordance with the ESA.

North sought to have the issue of the applicability and effect of the severability clause determined by the court on an application pursuant to Rule 14 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.

The application judge agreed with North that the impugned phrase had the effect of excluding payment of commission to which he was entitled, and therefore contravened the ESA. She concluded, however, that the parties' intention was to comply with the ESA, and used the severability clause to excise the offending language, applying the remainder of the termination clause.

Writing for the Court of Appeal, Feldman J.A. held that the application judge erred in doing so.

Citing the court's recent decision in Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158 and the decision of the Supreme Court in Machtinger v. HOJ Industries Ltd., [1992] 1 S.C.R. 986, Feldman J.A. noted the rule that where a termination clause contracts out of an employment standard, the court is to find the entire termination clause to be void. To void merely the offending portion and leave the rest of the termination clause to be enforced is an error in law. The application judge erred in law by severing only the offending phrase that referred to using just base salary to calculate termination pay in lieu of notice, rather than finding the entire termination clause to be void.

Feldman J.A. further held that the application judge erred in law by failing to find that the severability clause had no application to the termination clause. She discussed that when a severability clause is introduced into the contract, there could be two possible approaches: (i) allow the severability clause to be used to remove the illegality in the termination clause, or (ii) determine that there is nothing on which the severability clause can act because the termination clause is void due to s. 5 of the ESA. Feldman J.A. considered both approaches, and concluded that the latter was consistent with the intent of the ESA and the Supreme Court's decision in Machtinger. She emphasized that this conclusion did not make the severability clause void. The severability clause continued to have application to the rest of the agreement, but could not have any effect on clauses of the contract rendered void by the ESA.

Feldman J.A. concluded that North was entitled to receive termination pay based on common law pay in lieu of reasonable notice as the whole termination clause was void due to s. 5 of the ESA. The appeal was allowed, and the decision of the application judge set aside.

4. Airia Brands Inc. v. Air Canada, 2017 ONCA 792 (Gillese, MacFarland and Pepall JJ.A.), October 17, 2017

In this decision, the Court of Appeal considered the applicable test for determining jurisdiction over absent foreign claimants in a class action.

The appellants alleged that the respondent airlines participated in a conspiracy to increase the price of air freight shipping services to and from Canada between the years 2000 and 2006. Specifically, they alleged that the respondents conspired to limit or unduly lessen the supply of air freight shipping services, or to enhance unreasonably the price of fuel and security surcharges.

The appellants sought an order certifying a class action on behalf of persons who purchased air freight shipping services for shipments to or from Canada either directly or through a freight forwarder. Although the action was limited to the alleged conspiracy to increase the price of air freight shipping services to and from Canada, the proposed class included claimants outside of Canada.

The respondents brought a motion for a declaration that the Ontario court did not have jurisdiction over absent foreign claimants (AFCs) and that the class should be defined to exclude such parties. They served a notice questioning the constitutional applicability of the real and substantial connection test and ss. 27(3), 28(1), and 29(3) of the Class Proceedings Act, 1992, S.O. 1992, c. 6, which codify Ontario's opt-out class proceedings regime, to AFCs. They also sought an order staying the proposed action insofar as it related to AFCs on the basis of jurisdiction simpliciter and alternatively on the basis of forum non conveniens.

The motion judge granted the respondents' jurisdiction motion. She concluded that the real and substantial connection test for jurisdiction simpliciter should not be applied, but rather the jurisdictional analysis should be guided by the principles of order, fairness, and comity. The motion judge concluded that as the AFCs were not present in Ontario and had not consented in some way to the jurisdiction of the court, jurisdiction had not been established. In the alternative, she held that there was no real and substantial connection between the AFCs and Ontario and, in any event, that Ontario should decline to exercise jurisdiction on the basis of forum non conveniens.

The motion judge certified the action as a class proceeding, but excluded AFCs from the class.

The Court of Appeal held that the motion judge erred law in concluding that the real and substantial connection test was inapplicable and that jurisdiction existed only if AFCs were present in Ontario or consented to the Ontario court's jurisdiction. The court held that the motion judge further erred in concluding that if the real and substantial connection test were to be applied, the test was not satisfied, and in her failure to ask whether any jurisdiction was clearly more appropriate than Ontario in considering forum non conveniens.

After a thorough discussion of the evolution of the real and substantial connection test from Morguard Investments Ltd. v. De Savoye, [1990] 3 S.C.R. 1077 to Van Breda v. Village Resorts Ltd., 2012 SCC 17, and the intersection of jurisdiction and class action proceedings, Pepall J.A. concluded that the motion judge erred by anchoring her analysis in a negation of the traditional bases for jurisdiction, namely presence or consent, and in failing to apply the real and substantial connection test outlined in Van Breda. The principles of order, fairness and comity are not "independent roots of jurisdiction", but rather are "subsumed" by the real and substantial connection test. While jurisdiction may be based on presence and consent to jurisdiction, the absence of those factors are not grounds for rejecting it. The real and substantial connection test ought to have been the start of the motion judge's analysis.

As Pepall J.A. explained in the following analytical framework, jurisdiction may be established over AFCs where:

  1. there is a real and substantial connection between the subject matter of the action and Ontario, and jurisdiction exists over the representative plaintiff and the defendants;
  2. there are common issues between the claims of the representative plaintiff and AFCs; and,
  3. the procedural safeguards of adequacy of representation, adequacy of notice, and the right to opt out as outlined in Currie v. McDonald's Restaurants of Canada Ltd. (2005), 74 O.R. (3d) 321 (C.A.) are provided, thereby serving to enhance the real and substantial connection between AFCs and Ontario.

In this case, there was "unquestionably" a real and substantial connection between the subject matter of the action and Ontario as all of the respondents carried on business in Ontario such that there was jurisdiction over them based on presence in the jurisdiction. As well, the three representative plaintiffs were present and consented to the jurisdiction. In addition, three specific meetings in furtherance of the conspiracy were alleged to have taken place in Canada, one of which was in Toronto. The common issues certified by the motion judge related to the question of whether the respondents were liable to the class members for the tort of conspiracy and breaches of the Competition Act, R.S.C. 1985, c. C-34, arising from the supply of airfreight shipping services to and from Canada in the relevant time period. These issues clearly extended to the AFCs. Finally, as a result of the settlements with some of the other defendants, the AFCs had been afforded the three procedural safeguards outlined in Currie. Pepall J.A. accordingly concluded that the Ontario court had jurisdiction over the AFCs.

Turning to the motion judge's conclusion that jurisdiction should also be declined on the basis of forum non conveniens, Pepall J.A. explained that a forum non conveniens analysis involves a consideration of a number of factors and listed the non-exhaustive factors from Van Breda: the location of the parties and the witnesses, the cost of transferring the case to another jurisdiction or declining the stay, the impact of a transfer on the conduct of the litigation or on related or parallel proceedings, the possibility of conflicting judgments, problems related to recognition and enforcement of judgments, and the relative strength of the connection of the parties. The burden was on the respondents to show that another jurisdiction had a real and substantial connection to the claim and was clearly a more appropriate forum than Ontario.

In Pepall J.A.'s view, the motion judge erred in failing to ask whether any jurisdiction was clearly more appropriate than Ontario. There was no such forum and the evidence clearly demonstrated a "robust connection" between the parties and Ontario. On review of the motion judge's analysis of recognition and enforcement, Pepall J.A. emphasized that those are two factors to consider, but that it can be dangerous to accord primacy to those factors over the multitude of other factors. There was no clearly more appropriate forum to resolve the AFCs' claims than Ontario.

The appeal was allowed.

5. Jay-Pee Drycleaners Inc. v. 2321324 Ontario Inc., 2017 ONCA 798 (Pepall, van Rensburg and Trotter JJ.A.), October 18, 2017

The appellant operated a dry cleaning business in leased premises. The commercial lease required that the appellant comply with all applicable statutes and regulations affecting the premises.

In April 2012, the respondent landlord wrote to the appellant advising that the appellant had to "successfully complete a course approved by the Director in the Management of Contaminants and Wastes in connection with the operation of dry cleaning equipment" due to the lease a regulation under the Environmental Protection Act, R.S.O. 1990, c. E. 19 (EPA). The respondent stated that the appellant had to complete the course within 90 days and provide proof of completion to the property manager.

The appellant did not complete the course, and the respondent terminated the lease.

The appellant claimed the lease was unlawfully terminated and the respondent counterclaimed on the basis that the appellant failed to deliver vacant possession. The respondent moved for summary judgment asking for a dismissal of the action and judgment on the counterclaim.

The appellant claimed that the Ministry of the Environment had checked his premises and that he told the property manager that he understood that the training course was unnecessary. He agreed to take the course, but was unable to do so as no courses were available. The appellant informed the property manager that the course had not been available since March 2012 and would not be available again until early in 2013. The lease was terminated before the course would be available again.

The motion judge granted summary judgment to the respondent, dismissing the appellant's claim and allowing the respondent's counterclaim, in part.

The motion judge's conclusion was based on his determination that the respondent had lawfully terminated the lease. The Court of Appeal agreed with the appellant that the motion judge erred in doing so.

Section 19(2) of the Commercial Tenancies Act, R.S.O. 1990, c. L.7 provides that a landlord's right of re-entry for breach of any covenant or condition in a lease, other than in respect of the payment of rent, is not enforceable unless (1) the landlord serves on the tenant a notice specifying the breach, and (2) if the breach is capable of remedy, the tenant has failed within a reasonable time thereafter to remedy it.

The Court of Appeal pointed out that, as set out in 780046 Ontario Inc. v. Columbus Medical Arts Building Inc. (1994), 20 O.R. (3d) 457 (C.A.) and in Mason Homes Ltd. v. Woodford, 2014 ONCA 816, when considering a landlord's termination of a lease, courts insist upon strict compliance with the notice requirement. The particular breach must be identified. The respondent's submission that the tenancy could be terminated pursuant to s. 289 of the Commercial Tenancies Act, which provides for one month's notice of termination for a month-to-month tenancy, was rejected as that provision was not mentioned in the landlord's notice.

The court noted that the motion judge failed to consider that the regulation under the EPA could be satisfied in one of three ways and neglected to address the appellant's evidence that one of the three ways to satisfy the regulation had been met. Further, the motion judge erred in failing to consider that the training course was unavailable and the breach therefore was not capable of being remedied in the time period provided by the landlord.

In the result, the court set aside the summary judgment granted in favour of the landlord and granted summary judgment in favour of the tenant as that the lease had been wrongfully terminated. The action was remitted back to the Superior Court to quantify damages for the wrongful termination.

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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