Canada: Top 5 Civil Appeals From The Court Of Appeal - June 2018

Last Updated: June 19 2018
Article by William E. Pepall

With the dog days of summer upon us, take a moment to cool off with the Top 5 Court of Appeal decisions from May: the latest entry in the Chevron saga; confirmation that discoverability applies to claims for contribution and indemnity under s. 18 of the Limitations Act, 2002; enforcement of a non-solicitation clause in an employment contract; the proper application of the standard of review to a decision of a professional disciplinary tribunal; and interpretation of an "illegal substances clause" in an agreement of purchase and sale (in a case involving past use of a property as a marijuana grow-op).

This month's Netletter author, William Pepall, also brings you his picks for the Top 5 summer concerts.

1. College of Physicians and Surgeons of Ontario v. Peirovy, 2018 ONCA 420 (Rouleau, Benotto and Roberts JJ.A.), May 3, 2018

This appeal concerned the proper application of the standard of review to a decision of a professional disciplinary tribunal.

The appellant, Dr. Javad Peirovy, was found guilty of professional misconduct by the Discipline Committee of the College of Physicians and Surgeons of Ontario. He was granted leave to appeal from the order of the Divisional Court, which had overturned the penalty imposed on him by the Discipline Committee and remitted the penalty decision back to the Discipline Committee for reconsideration.

Dr. Peirovy's misconduct involved the sexual abuse of four female patients and inappropriate conduct with respect to a fifth at a walk-in family medicine clinic in 2009 and 2010. The Discipline Committee imposed a penalty consisting of a six-month suspension and restrictions on his return to practice, which included supervision during all encounters with female patients and the posting of a sign publicizing this requirement for a minimum of 12 months. The penalty also included a requirement that Dr. Peirovy undergo individualized instruction on consent, boundaries and doctor-patient communications, and that he complete a clinical education program focused on physical examinations. The Discipline Committee also ordered that Dr. Peirovy pay $64,240 for the victims' therapy costs, plus $35,680 in costs of the proceedings.

The College appealed the penalty decision on the basis, inter alia, that it was unreasonable in that the Discipline Committee made inconsistent findings of fact and the penalty imposed was manifestly unfit.

The Divisional Court allowed the College's appeal. While acknowledging that the Discipline Committee's decision on penalty was subject to deference, the Divisional Court determined that the penalty imposed was unreasonable on the bases submitted by the College.

In an expansive decision, a majority of the Court of Appeal allowed Dr. Peirovy's appeal and restored the Discipline Committee's penalty.

Writing for a majority of the Court of Appeal, Rouleau J.A. (Roberts J.A. concurring) held that while the Divisional Court correctly selected and articulated the reasonableness standard of review, it failed to properly apply it – instead incorrectly substituting its own assessments of the evidence and penalty for those of the Discipline Committee. Rouleau J.A. also held that the Divisional Court erred in concluding that the Discipline Committee made inconsistent findings of fact warranting intervention.

The Divisional Court rejected the Discipline Committee's suggestion that Dr. Peirovy's lack of awareness with respect to his behaviour could possibly explain his abuse of his patients. According to the Divisional Court, there was:

[N]o line of analysis that could reasonably lead the tribunal to conclude that [Dr. Peirovy's] awkward, unskilled and non-empathic manner was a factor in understanding his abusive behaviour or that it could reasonably infer that he was genuinely and completely unaware of the ways in which his behaviour in relation to his patients was in fact abusive.

The "possible inference" of unawareness drawn by the Discipline Committee was, in the Divisional Court's view, inconsistent with the finding of fact that there were several offences. More importantly, the Divisional Court found that this inference was inconsistent with the Discipline Committee's finding that Dr. Peirovy had touched the complainants in a way that an objective observer would find to be sexual. The Divisional Court also noted that Dr. Peirovy had been found guilty of criminal assault against two of the complainants.

Rouleau J.A. found several problems with the Divisional Court's conclusion. He noted that the Discipline Committee's finding was well supported by expert testimony as well as its assessment of Dr. Peirovy's testimony. He pointed out that the Discipline Committee did not, as the Divisional Court suggested, find that Dr. Peirovy's "awkward, unskilled and non-empathic manner" was the only cause of his misconduct; it simply opined that it was a factor. Rouleau J.A. also noted that the Discipline Committee specifically considered the significance of the number of incidents, and rejected the inference that Dr. Peirovy had predatory intent or uncontrollable deviant urges. In Rouleau J.A.'s view, this finding was open to the Discipline Committee on the record, as was its conclusion that this improved the prognosis and lessened the risk that Dr. Peirovy would re-offend. It was also open to the Discipline Committee to suggest that the number of incidents, including one which occurred after Dr. Peirovy had been informed of a complaint against him, might be explained by his lack of insight into the abusive nature of his conduct.

Rouleau J.A. rejected the Divisional Court's conclusion that this inference was inconsistent with the finding of guilt for simple assault. He pointed out that simple assault merely contemplates unwanted touching; a sexual motivation need not be proven.

Rouleau J.A. concluded that while the Divisional Court chose the correct standard of review, it erred in its understanding of the evidence and of the reasons of the Discipline Committee, and effectively sought to retry the case. In Rouleau J.A.'s view, the Divisional Court subjected the reasons of the Discipline Committee to "excessive scrutiny", rejecting its reasonable findings and making new ones based on its improper reassessment of the evidence.

Rouleau J.A. held that the Divisional Court also erred in determining that the penalty imposed by the Discipline Committee was manifestly unfit. Not only did the Divisional Court misunderstand the Discipline Committee's reasons and misapply the reasonableness standard of review, it also effectively substituted its own view of what might constitute an appropriate penalty. It thereby failed to defer to the Discipline Committee's decision as required.

In Rouleau J.A.'s view, the penalty imposed on Dr. Peirovy was not manifestly unfit but in fact reflected the Discipline Committee's careful consideration of all relevant factors, and was within the range of reasonable outcomes. Rouleau J.A. emphasized that the Discipline Committee is an expert tribunal, created by the legislature to assess allegations of misconduct in the medical profession and to determine an appropriate penalty in the circumstances of each case. In this case, the Discipline Committee did just that: it imposed a penalty which was carefully tailored to the unique facts of the case, and which was consistent with penalties imposed in other similar or more serious cases of sexual abuse.

Accordingly, the court allowed the appeal and restored the penalty imposed by the Discipline Committee.

Benotto J.A. dissented. While she agreed with the majority that the standard of review was reasonableness, she did not agree that the Divisional Court erred in its application. She would have dismissed the appeal.

2. Mega International Commercial Bank (Canada) v. Yung, 2018 ONCA 429 (Doherty, Paciocco and Nordheimer JJ.A.), May 7, 2018

The appellants, Tony Man Tung Yung and Yvonne Pui Ling Lai, commenced third party claims against the respondents, their former lawyer, Jimmy K. Sun and his law firm, Sun & Partners. They did so after Mega International Commercial Bank (Canada) sued Yung and Lai on personal guarantees they provided to Mega International's predecessor, International Commercial Bank of Cathay (Canada). The personal guarantees were given to secure financing for the development of a Toronto property.

At the heart of Yung's and Lai's third party claim was their allegation that Sun was instructed to obtain releases from the personal guarantees, but failed to do so.

Yung and Lai did not bring their third party claims against Sun and his law firm until more than two years after Mega International served Lai with a claim on her personal guarantee. The motion judge held that s. 18 of the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B established an absolute two-year limitation period for claims for contribution and indemnity, which commenced when Lai was served with Mega International's claim. Accordingly, he found that Yung's and Lai's third party claims were statute-barred.

Yung and Lai appealed the summary dismissal of their third party claims.

They raised two grounds of appeal. First, they challenged the motion judge's interpretation of s. 18 of the Limitations Act, 2002. Second, they argued that the motion judge erred in exercising his fact-finding powers under Rule 20 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.

The Court of Appeal agreed.

Writing for the court, Paciocco J.A. held that the motion judge misinterpreted s. 18 of the Limitations Act, 2002. Specifically, he erred in law in holding that it created an absolute limitation period of two years for the commencement of claims for contribution and indemnity.

As Paciocco J.A. explained, s. 18 does not displace the discoverability principles found in ss. 4 and 5 of the statute. Properly interpreted, s. 18 works with other provisions of the Limitations Act, 2002 to create a presumed start date for the running of the limitation period. That presumed start date will result in a claim for contribution or indemnity being statute-barred two years after the party seeking contribution or indemnity is served with a claim, unless that party proves that the claim for contribution or indemnity was not discovered and was not capable of being discovered through the exercise of due diligence until some later date. In Paciocco J.A.'s view, ss. 18 and 5(2) are "clearly meant to intersect and work together".

Paciocco J.A. went on to hold that the motion judge's findings relating to Yung's and Lai's knowledge could not be relied upon to resolve the discoverability issue in Sun's favour. It would not be appropriate to treat a finding that the defendants had knowledge of the main action as a finding that a third party claim against their lawyer was discoverable.

Paciocco J.A. concluded that the motion judge's decision to grant summary judgment was undermined by his misinterpretation of s. 18 of the Limitations Act, 2002. In Paciocco J.A.'s view, the motion judge did not have a full appreciation of the significance of the conflicting evidence and the facts central to the discoverability issue. Had he properly appreciated the nature of the dispute, he may have found a genuine issue requiring a trial.

The appeal was allowed.

3. MD Physician Services Inc. v. Wisniewski, 2018 ONCA 440 (MacPherson, Hourigan and Benotto JJ.A.), May 9, 2018

The appellants, Joy Sleeth and Duane Wisniewski, were former employees of the respondent companies, MD Physician Services Inc. and MD Management Limited (collectively "MD"), which provide financial services to physicians.

When they were hired in 2003 and 2005, respectively, Sleeth and Wisniewski signed identical non-solicitation agreements in which they agreed not to solicit during their employment with MD and for a period of two years following their termination – regardless of how it occurred – within the geographic area in which they provided services to MD. "Solicit' was defined in the agreement as "to solicit, or attempt to solicit, the business of any client, or prospective client" of MD who was serviced or solicited by the employee during his or her employment with MD.

Sleeth and Wisniewski left MD in 2014 to work for the appellant, RBC Dominion Securities Inc., a competitor company. On their first day of work with RBC, Sleeth and Wisniewski wrote out from memory a list of MD clients that they had serviced and began phoning them.

Following an eight-day trial, the trial judge concluded that Sleeth and Wisniewski had breached the non-solicitation terms of their employment contracts with MD, and that RBC was vicariously liable for the breach.

The appellants' primary submission was that the non-solicitation agreement was so ambiguous – particularly with respect to the meaning of "solicit" – that it was unenforceable. The Court of Appeal disagreed.

In a succinct decision, the court determined that the meaning of the word "solicit" was obvious. The calls made by Sleeth and Wisniewski to former clients were not, as the appellants suggested, courtesy calls; rather, they were attempts to bring MD's clients to RBC. The calls were made immediately after Sleeth and Wisniewski were hired by RBC, they were made personally, and they followed a predetermined structure.

The court noted that the trial judge properly directed himself with respect to the legal principles governing the enforceability of a non-solicitation clause. He found that the clause was reasonable in terms of the public interest, protecting MD without unduly compromising its employees. There was no ambiguity with respect to the two year term, the geographical scope was reasonable, and the scope of the proscribed activities was clearly defined by the agreement.

The appeal was dismissed.

4. Yaiguaje v. Chevron Corporation, 2018 ONCA 472 (Hourigan, Huscroft and Nordheimer JJ.A.), May 23, 2018

Between 1964 and 1992, an indirect subsidiary of Texaco Inc. undertook oil exploration and extraction in the Orienté region of Ecuador. The result was extensive environmental pollution. The appellants, indigenous peoples of that area, brought a class action against Chevron Corporation, of which Texaco became a part.

After an eight-year trial and two appeals, the appellants obtained a $9.5 billion USD judgment against Chevron Corporation. Chevron Corporation had no assets in Ecuador, however, so the appellants sought enforcement of their judgment in the United States. Chevron Corporation successfully opposed enforcement of the judgment on the ground that it had been obtained by fraud (not by the appellants, but by their counsel in the Ecuadorian proceeding). That decision was upheld on appeal.

The appellants then commenced the present action in the Ontario Superior Court of Justice, targeting the shares and assets of Chevron Canada Limited, a seventh-level subsidiary of Chevron Corporation, with its head office in Calgary.

After a jurisdictional challenge by Chevron Corporation and Chevron Canada that was ultimately rejected by the Supreme Court of Canada, the parties agreed to determine by means of a summary judgment motion the issue of whether Chevron Canada's shares and assets were exigible to satisfy the judgment debt of Chevron Corporation.

Chevron Corporation and Chevron Canada were successful on that motion.

The appellants submitted before the Court of Appeal that the broad wording of s. 18(1) of the Execution Act, R.S.O., 1990, c. E. 24 permitted execution on Chevron Canada's shares and assets to satisfy the Ecuadorian judgment. They submitted in the alternative that the court should pierce the corporate veil in order to render Chevron Canada's shares and assets exigible.

Writing for the court, Hourigan J.A. held that the appellants' position suggested an interpretation of the Execution Act that found no support in the wording of the legislation or its jurisprudence. He cautioned that if the court endorsed this interpretation, it would result in significant changes to fundamental principles of our corporate law and the law of execution, and would create new substantive rights arising from what is supposed to be a purely procedural statute. Simply put, a declaration against Chevron Canada that the shares of its company were exigible was a legal impossibility and could not be made.

Hourigan J.A. emphasized that the courts have repeatedly rejected an independent "just and equitable" ground for piercing the corporate veil. Courts have instead favoured the approach taken in Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co., (1996), 28 O.R. (3d) 423, which held that there are only three circumstances where the court will pierce the corporate veil:

  1. when the court is construing a statute, contract or other document;
  2. when the court is satisfied that a company is a "mere facade" concealing the true facts; and
  3. when it can be established that the company is an authorized agent of its controllers or its members, corporate or human.

Hourigan J.A. noted that this test is consistent with the principle of corporate separateness, reflected in Canada's various business corporation statutes. Further, it is important that courts be rigorous in their application of the Transamerica test because the rule is provided for in statute and stakeholders of corporations have a right to believe that, absent extraordinary circumstances, they may deal with the corporation as a natural person.

The appellants submitted that the motion judge erred in finding that Chevron Corporation did not wield sufficient control of Chevron Canada to meet the first part of the Transamerica test. The court did not consider this argument, as the appellants could not meet the second part of the conjunctive test: that the subsidiary company was incorporated for a fraudulent or improper purpose or used by the parent as a shell for improper activity. Hourigan J.A. concluded that the motion judge correctly held that, under the Transamerica test, this was a complete bar to the appellants' request to pierce the corporate veil.

Hourigan J.A. rejected the appellants' assertion that Transamerica was not applicable because this case concerned the enforcement of a judgment debt, rather than the establishment of liability. He cautioned that if this submission were accepted, a judgment against any corporation could be enforced against the assets of any other related corporation. Not only was such an argument problematic from a policy standpoint, it came dangerously close to the adoption of the group enterprise theory of liability, which has been consistently rejected by the courts.

In Hourigan J.A.'s view, the appellants offered no basis for piercing the corporate veil other than their urging that the court "do the right thing", without regard to the jurisprudence, the statutory rights of corporations, or any discernible principle. He held that even if the court were free to do that – which it is not – this case illustrates the difficulties with such an approach.

The court dismissed the appeal, but significantly reduced the costs awarded to the Chevron corporations, having determined that this was public interest litigation.

In separate reasons concurring in the result, Nordheimer J.A. disagreed with the majority on whether the test established in Transamerica was the appropriate one to apply in these circumstances. While he accepted the conclusion that it would not be appropriate to pierce the corporate veil in this particular case, he did not agree that the requirements of the Transamerica test would invariably have to be met in order to pierce the corporate veil to permit the enforcement of a judgment.

5. Beatty v. Wei, 2018 ONCA 479 (Pepall, Hourigan and Brown JJ.A.), May 24, 2018

This case arose from a purchaser's attempt to terminate an agreement for the purchase and sale of a property after learning that it had once been used as a marijuana grow-op. The appeal turned on the interpretation of an Illegal Substances Clause commonly used in real estate agreements.

The parties entered into a standard form Ontario Real Estate Association/Toronto Real Estate Board Agreement of Purchase and Sale (APS) dated May 15, 2016, whereby Zhong Wei agreed to purchase from Jonathan and Jacqueline Beatty a residential property at 39 Stainforth Drive in Toronto. The purchase price was $916,000. The Purchaser provided a deposit of $30,000. Closing was scheduled for August 22, 2016.

The APS contained the following clause:

The Seller represents and warrants that during the time the Seller has owned the property, the use of the property and the buildings and structures thereon has not been for the growth or manufacture of any illegal substances, and that to the best of the Seller's knowledge and belief, the use of the property and the buildings and structures thereon has never been for the growth or manufacture of illegal substances.

This warranty shall survive and not merge on the completion of this transaction.

About a month after the execution of the APS, the Purchaser's real estate agent discovered that the property had been used as a marijuana grow-op before the Sellers purchased it. Purchaser's counsel conveyed this information to the Sellers' counsel, advising that the Purchaser was not willing to complete the transaction and demanding return of the deposit.

The Sellers refused to terminate the APS. They commenced an application seeking declarations that the Purchaser had breached a binding APS by refusing to close, forfeiture of the deposit to them, and damages for any loss they might suffer as a result of the delayed re-sale of the property. The Purchaser commenced a competing application seeking a declaration that he was not required to complete the purchase of the property, together with the return of the deposit and damages resulting from the Sellers' breach of the APS.

The Sellers ultimately sold the property to another purchaser, for $86,100 less than the price stipulated in the APS.

After hearing the applications together, the application judge dismissed the Sellers' application and granted the Purchaser's. He held that the Purchaser's discovery of information about the property's prior use amounted to a breach by the Sellers of their representation and warranty in the Illegal Substances Clause. The application judge concluded that the Purchaser was entitled to rescind the agreement and obtain the return of the deposit, but directed the Purchaser's claim for damages to proceed to trial.

The Sellers appealed.

Proceeding on a standard of correctness in accordance with Ledcor Construction Ltd v. Northbridge Indemnity Insurance Co., 2016 SCC 37, Brown J.A. explained that the application judge erred in his interpretation of the Illegal Substances Clause in a number of ways.

First, he mistakenly applied different analytical approaches to the terms "representation" and "warranty", interpreting the latter as a term of the contract while looking at the former through the lens of the principles concerning pre-contractual representations. He ought to have interpreted the Clause as a term of the parties' contract in accordance with the standard rules of contractual interpretation. The application judge also erroneously relied on a duty to disclose to inform his interpretation of the Clause, improperly applying principles concerning a vendor's concealment of material information about the condition of a property when no such concealment had occurred. He further erred with respect to the meaning of the Clause. The Sellers' representation and warranty that the use of the property had never been for the growth or manufacture of illegal substances was limited to their knowledge and belief as it existed when they executed the APS. At that time, they did not know about the property's prior use as a grow-op. Therefore, the application judge erred in finding that the Sellers breached the Clause.

In allowing the appeal, Brown J.A. concluded that the Sellers were entitled both to a declaration that the Purchaser breached the APS by failing to close, and to keep the $30,000 deposit.

Top 5 Local* Summer Concerts

*Toronto-centricity alert

In an earlier edition recommending summer concerts, it was observed that the selections would be of interest to an "older" demographic. In this edition – and at the risk of becoming a shill for Ticketmaster – we list two age-adjusted concert categories. You know who you are!

Category One

Foo Fighters Rogers Centre July 12
Radiohead ACC July 19, 20
Taylor Swift with Camila Cabello and Charli XCX Rogers Centre August 3, 4
Drake with Migos ACC August 10, 11, 12
Bruno Mars with Cardi B ACC September 22, 23

Category Two

Shania Twain ACC July 6, 7
The Eagles ACC July 15, 17
Chicago with REO Speedwagon Budweiser Stage August 8
Rod Stewart and Cyndi Lauper Budweiser Stage August 10
Elton John ACC September 25, 26

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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William E. Pepall
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