Canada: Top 5 Civil Appeals From The Court Of Appeal – July 2018

Last Updated: July 24 2018
Article by Cynthia B. Kuehl

1. Thunder Bay (City) v. Canadian National Railway Company, 2018 ONCA 517 (Laskin, MacPherson and Fairburn JJ.A.), June 11, 2018

The bridge across the Kaministiquia River in Thunder Bay was open to railway, vehicle and pedestrian traffic for more than a hundred years. When the Canadian National Railway Company ("CN") closed the bridge to motor vehicles in 2013, the City of Thunder Bay brought an application for a determination of its rights under the 1906 agreement for the bridge's construction.

The parties to the agreement were the Town of Fort William, now amalgamated into the appellant, the City of Thunder Bay, and the Grand Trunk Pacific Railway, now the respondent Canadian National Railway Company. Grand Trunk Pacific built the bridge, completing it in 1909.

The bridge was a combined railway and roadway bridge, accessible to railway trains, cars, trucks, and pedestrians.

In 2013, CN briefly closed the bridge because of a fire. When it reopened the bridge three days later, however, it reopened it only for railway trains and pedestrians, but not for motor vehicles. CN claimed that the bridge could not safely be reopened for motor vehicles because of the risk that an "errant" or wayward vehicle would leave the roadway, go across the sidewalk and into the river, despite the fact that for over a century, this had never occurred.

Thunder Bay's application turned on two provisions of the agreement: section 3, in which Grand Trunk Pacific agreed to give Fort William "the perpetual right to cross the said bridge for street railway, vehicle and foot traffic", and section 5, in which CN agreed to "maintain the bridge in perpetuity". Thunder Bay took the position that CN was in breach of its contractual obligation to keep the bridge open perpetually for vehicles, while CN argued that it could not do so safely without making significant structural changes to the bridge, which were beyond its obligation to "maintain" it.

The application judge found in favour of CN. He found: (i) that the parties intended that CN would maintain the bridge for the type of traffic that existed at the time the 1906 agreement was entered into, meaning streetcars, horse, and cart traffic, not motor vehicle traffic; (ii) that although CN had maintained the bridge for motor vehicle traffic, it consistently took the position that it had no contractual obligation to make structural changes necessary to keep motor vehicle traffic flowing; and (iii) that Thunder Bay had the onus to define clearly the relief it sought and the changes needed to make the bridge safe for motor vehicles, and it failed to do so.

Thunder Bay appealed, arguing that the parties to the 1906 agreement intended that citizens would have the perpetual right to cross the bridge by any kind of vehicle and that, to enable them to do so, CN would have the obligation to maintain the bridge in perpetuity.

The Court of Appeal agreed.

Justice Laskin held that the application judge's finding on the parties' intent was unreasonable and tainted by extricable errors of law.

Justice Laskin explained that the application judge's finding on the parties' intent was unreasonable because he failed to give proper effect to the words of the 1906 agreement or to the context in which the agreement was made. The application judge interpreted the words "vehicle traffic" and "vehicular traffic" narrowly to mean only that vehicle traffic which existed in 1906, namely streetcars, horses and carts. The full context in which the agreement was signed, however, supported the broad interpretation of vehicle traffic that includes the motorcar. Justice Laskin noted that the purpose of the agreement was to accommodate population growth, which would result in greater transportation needs. He found that the parties could reasonably be taken to have known in 1906 that automobiles would soon become the predominant mode of transportation.

Justice Laskin held that the application judge also committed two extricable errors of law. First, he failed to give any effect to the words "perpetual" and "in perpetuity". The right to cross the bridge perpetually, and the corresponding obligation to maintain the bridge in perpetuity, can only mean that the parties intended the bridge to be open to any kind of vehicle, as the word "vehicle" is undefined. Second, the application judge erred in taking into account the subsequent conduct of the parties, though the meaning of the 1906 agreement was not ambiguous. If any relevant ambiguity existed in the meaning of the agreement, that ambiguity related not to the scope of CN's maintenance obligation, but to the meaning of "vehicle traffic". The subsequent conduct of the parties, however, especially that of CN itself in maintaining the safe operation of the bridge for the use of cars and trucks, resolved any ambiguity and supported the positon that vehicle traffic was meant to include motor vehicles.

Justice Laskin held that the application judge made a further error of law in placing an onus on Thunder Bay to provide the court with a specific and detailed proposal to make the bridge safe for motor vehicles. CN had a contractual obligation to maintain the bridge for motor vehicles in perpetuity – an obligation which it breached. To rectify its breach, CN had to reopen the bridge. Accordingly, it had the onus to determine what maintenance was needed to alleviate any safety concerns associated with the bridge's reopening.

In the result, the Court allowed the appeal, issuing a declaration that CN breached the 1906 agreement and ordering CN to reopen the bridge for motor vehicle traffic and maintain it in accordance with the agreement.

2. Davies v. Davies Smith Developments Partnership, 2018 ONCA 550 (Strathy C.J.O., Feldman and Brown JJ.A.), June 15, 2018

The appellant, Walter Davies, retired from a partnership that carried on a construction business. The partners signed an agreement in June 2005 which called for his equity and his share in the profits of the business' projects to be paid to him between June 2005 and June 2008, according to a schedule of payments. The payments were not made at the times set out in the schedule, however, because the respondent did not have sufficient funds to make them. There were also disagreements over the quantification of the appellant's share of the profits.

Davies commenced litigation in September 2012, but the trial judge found that his action was time-barred. In the trial judge's view, the appellant's claim was "discovered" within the meaning of section 5 of the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B., when he did not receive the payments: he knew by July 2008 – more than four years before the action was initiated – that he had suffered injury, loss or damage; that the damage was caused by the failure of the respondent to make the payments; and that it was legally appropriate to commence an action.

The trial judge dismissed the appellant's action. In a brief decision, the Court of Appeal dismissed Davies' appeal from that decision.

In the Court's view the trial judge's interpretation of the agreement, and his finding that it called for payment by the end of June 2008, were based on the language of the agreement, interpreted in light of the factual matrix, and entitled to deference. While it was agreed that the amounts set out in the agreement were estimates, the evidence did not support the appellant's submission that the payment dates set out in the schedule to the agreement were estimated dates. The appellant did not demonstrate a palpable and overriding error in the trial judge's conclusion that the claim was discovered in July 2008.

The Court rejected the appellant's submissions that the amount owed to him was in dispute and that the profits could not be ascertained until the partnership's projects had been completed. The Court agreed with the respondent that the appellant confused "damage" with "damages": the appellant knew by the end of June 2008 that he had suffered damage, even though the amount of his damages was a matter of dispute and had not been quantified.

The Court also rejected the appellant's claim that an action was not an "appropriate" means to remedy his loss because he knew that the partnership had insufficient funds. While it recognized that this might explain why Davies failed to commence his action sooner, the Court emphasized that the respondent's lack of funds did not stop the limitation period from running. The word "appropriate", as it appears in section 5 of the Limitations Act, 2002 means "legally appropriate". The appellant's claim was "fully ripened" by July 2008. That is when the limitation period began to run, and it continued to run, irrespective of the respondent's financial situation.

Finally, the Court rejected the appellant's submission that there had been forbearance or a novation of the agreement, whereby he agreed to postpone his claim in exchange for receipt of draws and accrual of interest. The Court noted that this issue was not pleaded, that no evidence was adduced with respect to it, and that it was not argued in the court below. In any event, the Court held, there was no evidence to support this argument.

3. Pong Marketing and Promotions Inc. v. Ontario Media Development Corporation, 2018 ONCA 555 (Laskin, Miller and Paciocco JJ.A.), June 15, 2018

The appellant, the Ontario Media Development Corporation ("OMDC"), is an agency of Ontario's Ministry of Tourism, Culture and Sport. It jointly administers, alongside the Canada Revenue Agency, the Ontario Interactive Digital Media Tax Credit ("DMTC"), a tax credit provided to developers for digital products whose primary purpose is to "educate, inform or entertain the user".

The respondent, Pong Marketing and Promotions Inc., applied to the OMDC for a Certificate of Eligibility for a DMTC of approximately $2 million for its development of fifteen digital "sweepstakes" games, which it licensed to third party retailers. The OMDC denied Pong's application on the basis that the games were not developed for the primary purpose of educating, informing, or entertaining the user, but rather were developed for promoting the sale of long-distance phone cards and related products and services.

Pong successfully brought an application for judicial review of that decision.

The Divisional Court held that the OMDC's decision was inconsistent with the plain meaning of the regulation governing eligibility for the DMTC, and was therefore unreasonable. It also noted that if the OMDC's interpretation was reasonable it would nonetheless have applied a residual presumption in favour of the interpretation of the taxpayer, Pong. It remitted the matter back to the OMDC for reconsideration.

The Court of Appeal allowed the OMDC's appeal, and restored the original decision.

At issue was whether Pong's products had the requisite characteristics found in section 34(1) of Regulation 37/09 under the Taxation Act 2007, S.O. 2007, c. 11, Schedule A – specifically, that "their primary purpose is to educate, inform or entertain the user." The majority of the Divisional Court held that the OMDC's interpretation of section 34 of the Regulation was not consistent with the text and was therefore unreasonable because it considered Pong's reasons or motivation for developing the games as the requisite "primary purpose", rather than the purpose of the users when playing the games. In the view of the majority, the purpose of a person playing the games was to be entertained; therefore, the purpose of the games was to entertain. In dissent, Sachs J. held that it was reasonable for the OMDC to have regard to what the intended purpose of the product was when it was being developed.

The Court of Appeal agreed with Sachs J. that the OMDC's interpretation was reasonable, and held that the majority of the Divisional Court erred in its interpretation of section 34(1) of the Regulation.

Writing for the Court, Justice Miller found that all the Regulation directs is that the OMDC ascertain the primary purpose of a product by determining what functions the digital files perform when they are being operated. Nothing in the text suggests that the user's purposes in playing the games must take priority over any other purpose the products serve. In assessing what digital files do when they are being operated, the OMDC considered the documentation that it received from the respondent, including promotional materials and licensing agreements. These materials demonstrated that the games were marketed to retailers not for the purpose of entertaining users as an end in itself, but as a means to the more ultimate end of inducing users to purchase phone cards from the retailers.

Justice Miller noted that in order to succeed on its appeal, the OMDC did not need to establish that its interpretation of the Regulation was more plausible than the one identified by the majority of the Divisional Court. All it needed to do was establish that its interpretation was reasonable, and that its decision flowed from the evidence before it. The OMDC met that burden.

Justice Miller held that the Divisional Court further erred in finding in the alternative that the residual presumption in favour of taxpayers would apply and work in favour of the interpretation advanced by the respondent. The Regulation required the OMDC to determine a product's "primary purpose" as well as whether that purpose was to "educate, inform or entertain the user". These criteria required evaluations of what is primary, and specifications of what it means to educate, inform or entertain. If the residual presumption were to be applied in the manner suggested by Pong, it would eliminate much of the authority conveyed on the OMDC by statute, undermining the statutory scheme.

4. Ontario (Children's Lawyer) v. Ontario (Information and Privacy Commissioner), 2018 ONCA 559 (Rouleau, Benotto and Roberts JJ.A.), June 18, 2018

A father sought access to the files of the Children's Lawyer in relation to its representation of his children in a custody and access case. In this decision, the Court of Appeal considered whether those records are "in the custody or under the control" of the Ministry of the Attorney General for the purposes of the Freedom of Information and Protection of Privacy Act.

Two children were the subject of a custody and access dispute between their parents. In 2008, when they were nine and eleven years old, the children were represented by the Children's Lawyer for Ontario pursuant to section 89(3.1) of the Courts of Justice Act, R.S.O. 1990, c. C.43 . In May 2010, Warkentin J. made a final order terminating the father's access to the children as well as all forms of verbal communication.

In January 2014, the father requested access to information from the Ministry of the Attorney General for Ontario ("MAG") pursuant to the Freedom of Information and Protection of Privacy Act, R.S.O. 1990, c. F.31 ("FIPPA"). He sought records in the Children's Lawyer's litigation files, including both privileged and non-privileged reports, notes, and other information. MAG advised the father that it did not have custody or control of the records and that FIPPA did not apply because the office of the Children's Lawyer represents the independent legal interests of children and does not act on behalf of MAG or the Crown.

On the father's appeal of MAG's decision to the Information and Privacy Commissioner of Ontario, the Adjudicator concluded that the records at issue were in MAG's custody or control. She identified two "overriding considerations" leading to this conclusion: the "undisputed fact" that the Children's Lawyer is a branch of MAG, and the fact that the impugned records were generated in the course of the Children's Lawyer fulfilling its core mandate. She ordered MAG to issue an access decision to the father, which could be made by the Children's Lawyer.

The Children's Lawyer, supported by MAG, applied to the Divisional Court for judicial review of the Adjudicator's order. Under a reasonableness standard of review, the Divisional Court upheld the Adjudicator's decision, holding that it was reasonable and consistent with the text and scheme of FIPPA.

The Court of Appeal allowed the Children's Lawyer's appeal from that decision.

Writing for the Court, Justice Benotto first held that the Divisional Court failed to identify the appropriate standard of review: the Adjudicator's decision should have been reviewed for correctness. Both City of Ottawa v. Ontario, 2010 ONSC 6835 and Ontario (Ministry of the Attorney General) v. Ontario (Information and Privacy Commissioner), 2011 ONSC 172, applied correctness to judicial reviews of the IPC's interpretation of "in the custody or under the control". But in any event, the nature of the question at issue attracted correctness under the second stage of the standard of review analysis. The unique role of the Children's Lawyer is fundamental to the proper functioning of the legal system, and is therefore reviewable on the standard of correctness in accordance with the decision of the Supreme Court in Dunsmuir v. New Brunswick, 2008 SCC 9.

Applying a correctness standard of review and situating the issue on appeal within the context of the best interests of the child, the voice of the child, the confidential role of the Children's Lawyer, the child's privacy interests, the fact that confidentiality is broader than solicitor-client privilege, and the fact that the records belong to the child, Justice Benotto went on to hold that the lower court erred in upholding the Adjudicator's determination that the Children's Lawyer's records were in MAG's custody or control.

Justice Benotto held that the Adjudicator's conclusion was based on a fundamental misunderstanding of the role and function of the Children's Lawyer and her relationship to MAG. The Children's Lawyer is not a branch of MAG, but an independent statutory office holder appointed by Cabinet through the Lieutenant Governor. She derives her independent powers, duties and responsibilities through statute, common law and orders of the court. While the Children's Lawyer is administratively structured under and has a funding relationship with MAG, when representing children the Children's Lawyer operates separate and apart from MAG, does not take direction or obtain input from MAG, and does not provide MAG with access to records relating to children – nor does MAG have authority to request them.

Applying the two-part test outlined by the Supreme Court in Canada (Information Commissioner) v. Canada (Minister of National Defence), 2011 SCC 25, for determining whether records held by bodies that are not part of an institution are under the institution's control and thus subject to freedom of information requests, Justice Benotto concluded that it is clear that the records were not under MAG's custody or control and therefore not compellable under FIPPA. The contents of the requested records did not relate to a departmental matter and MAG could not reasonably expect to obtain a copy of the records upon request.

Justice Benotto noted that in City of Ottawa v. Ontario, 2010 ONSC 6835, the Divisional Court cited approvingly ten questions former Commissioner Sidney Linden outlined to be asked when determining whether an institution has custody or control of records. Although the Adjudicator referred to some of these questions, she failed to conduct her analysis within the context of the Children's Lawyer's work. Addressing these questions in the proper context, Justice Benotto held that the records were not created for or on behalf of MAG and were in fact not in the possession of MAG; they were intended solely for use in litigation on behalf of child clients in custody and access proceedings; and they were held exclusively by the Children's Lawyer for the purposes of her independent duties to children. MAG has no statutory or other right to possess the records: allowing MAG to have access to the records would violate the duty of the Children's Lawyer to maintain the confidentiality of her child clients' records. Justice Benotto emphasized that the content of the records did not relate to MAG's mandate or functions, but solely to litigation where the Children's Lawyer is acting independently from MAG in representing child clients who are subjects of custody and access proceedings. MAG has no authority to regulate the use of the records, nor does it rely on them.

Ultimately, Justice Benotto held that the Adjudicator's decision to provide a third party with access to a child's records would significantly undermine the Children's Lawyer in her role as advocate for the child, sabotaging the child's privacy rights, silencing the voice of the child, and limiting the court's ability to pursue the child's best interests.

The Adjudicator's order was accordingly quashed.

5. Canada Life Insurance Company of Canada v. Canada (Attorney General), 2018 ONCA 562 (Sharpe, Epstein and van Rensburg JJ.A.), June 21, 2018

In December 2007, the Canada Life Insurance Company of Canada ("CLICC") and some of its affiliates carried out a series of transactions designed to realize a $168 million tax loss to offset unrealized foreign exchange gains accrued in the same taxation year. A few years later, the Canada Revenue Agency ("CRA") disallowed the claimed loss in a reassessment.

CLICC applied to the Superior Court for an order setting aside the transaction and replacing it with other steps that would permit it to enjoy the intended tax benefit, claiming that it had proceeded on the basis of erroneous advice from its tax advisor. The application was opposed by the CRA, represented by the Attorney General of Canada.

Relying on the Court of Appeal's decisions in Canada (Attorney General) v. Juliar (2000), 136 O.A.C. 301 (C.A.), and Fairmont Hotels Inc. v. Canada (Attorney General), 2015 ONCA 441, the application judge granted the order requested by CLICC and ordered "rectification" of the transaction, nunc pro tunc.

The parties agreed to hold the Attorney General's appeal from that decision in abeyance until the Supreme Court released its decision in Fairmont Hotels. In light of the Supreme Court's decision, the parties agreed that the application judge erred in granting rectification, as the recent decision in Fairmont Hotels changed the law on which he relied, restricting the scope of this equitable remedy to the correction of written agreements.

In its cross-appeal, CLICC sought to substitute for the order made in the Superior Court a new order that would permit it to achieve the intended tax purpose of the transaction. CLICC relied on the Court of Appeal's inherent jurisdiction in equity and equitable rescission as alternative bases for the relief sought. The cross-appeal was opposed by the Attorney General.

Writing for the Court of Appeal, Justice van Rensburg explained that the cross-appeal turned on whether the remedy sought by CLICC was available under the inherent jurisdiction of the Court to relieve from the effects of a mistake, in the light of the Supreme Court's decision in Fairmont Hotels.

Justice van Rensburg concluded that the remedy was not available: the relief sought was the very type of intervention that the Supreme Court considered and rejected in Fairmont Hotels and Jean Coutu Group (PJC) Inc. v. Canada (Attorney General), 2016 SCC 55, a companion appeal released on the same day as Fairmont Hotels. In those cases, Supreme Court concluded that it is not possible to "rectify" a corporate transaction to retroactively avoid adverse tax consequences. Whether characterized as rectification or some other equitable remedy, the remedy sought by CLICC was precluded by the reasoning in Fairmont Hotels and Jean Coutu. In both cases, the Supreme Court emphasized that tax consequences flow from the transaction that the taxpayer undertook, and not from its motivations or objectives. The court cannot substitute one series of transactions for another to avoid an unintended tax result.

The Court also rejected CLICC's attempt to obtain this relief through equitable rescission. The purpose of rescission is to eliminate a benefit that one party has received due to a mistake made by one or both parties to a contract by cancelling and unwinding the contract, and by issuing whatever ancillary orders are necessary to restore the parties to their original rights. As Justice van Rensburg noted, however, in this case CLICC did not ask the court to rescind the entire transaction and restore it and its affiliates to their original rights. Rather, it sought to have only part of the transaction rescinded in order to generate a particular tax outcome.

As the Court explained in Miller Paving Limited v. B. Gottardo Construction Ltd., 2007 ONCA 422, a party seeking equitable rescission of a contract must establish that the parties were under a common misapprehension as to the facts or their respective rights, that the misapprehension was fundamental, that the party seeking to set the contract aside was not itself at fault, and that one party will be unjustly enriched at the expense of the other if equitable relief is not granted. CLICC failed to establish any of these requirements.

Finally, Justice van Rensburg held that equitable jurisdiction should not be invoked in this case. She noted that CLICC had adequate alternative remedies to address the adverse tax consequences resulting from the mistake it relied on. She also emphasized that there is nothing inequitable about CLICC being taxed on what it did rather than on what it intended to achieve. Further, the unjust enrichment that CLICC relied on is the alleged "windfall gain" to the CRA, which the Supreme Court in Fairmont Hotels explicitly rejected as a basis for equitable relief in such circumstances.

The appeal was allowed and the cross-appeal dismissed.

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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Cynthia B. Kuehl
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