Canada: Ontario Court Of Appeal Summaries (September 24 – 28, 2018)
Blaney's Appeals

Good evening.

Following are the summaries for the civil decisions released by the Court of Appeal this week.

There were two wrongful dismissal cases this week. One was brought by a physician against Sick Kids Hospital. The Court found against the Hospital and allowed the appeal, remitting the matter back to the Superior Court for a determination of the damages. The second involved the breach of fiduciary duty of a senior officer of a public company who was found to have been self-dealing. The Court confirmed that the breach of fiduciary duty constituted just cause for termination.

Other topics included a complex variation of spousal support case that has been to the Court of Appeal on more than one occasion, setting aside an order in the CCAA context, and dismissal for delay.

Until next week.

John Polyzogopoulos
Blaney McMurtry LLP
416.593.2953 Email

Table of Contents

Civil Decisions

Dunsmuir v. Royal Group, Inc, 2018 ONCA 773

Keywords: Employment Law, Wrongful Dismissal, Cause, Corporations, Officers, Breach of Fiduciary Duty, Conflicts of Interest, Related Party Transactions, Duty to Disclose, McKinley v BC Tel, 2001 SCC 38, Advanced Realty Funding Corp v Bannink (1979), 27 OR (2d) 193 (CA), Hodgkinson v Simms, [1994] 3 SCR 377

Crystallex International Corporation (Re), 2018 ONCA 778

Keywords: Bankruptcy and Insolvency, Appeals, Leave to Appeal, Orders, Debtor in Possession Financing, Setting Aside, Stay of Proceedings, Lifting Stay, Companies' Creditors Arrangement Act, RSC 1985, c C-36, Nortel Networks Corporation (Re), 2016 ONCA 332, Hebditch v Birnie, 2017 ONCA 169, Rules of Civil Procedure, RRO 1990, Reg 194, r 37.14 and 59.06(2)

Gholami v. The Hospital for Sick Children, 2018 ONCA 783

Keywords: Employment Law, Wrongful Dismissal, Termination for Cause, Duty of Good Faith, Defamation, Damages, Appeals, Suffiency of Reasons, R v Sheppard, 2002 SCC 26, Dovbush v Mouzitchka, 2016 ONCA 381, Maple Ridge Community Management Ltd v Peel Condominium Corp No 231, 2015 ONCA 520, R v Dinardo, 2008 SCC 24, Honda Canada Inc v Keays, 2008 SCC 39, Wallace v United Grain Growers Ltd, [1997] 3 SCR 701

Pustai v. Pustai, 2018 ONCA 785

Keywords: Family Law, Spousal Support, Variation, Material Change in Circumstances, Termination, Imputing Income, Spousal Support Guidelines, LMP v LS, 2011 SCC 64, Miglin v Miglin, 2003 SCC 24, Drygala v Pauli (2002), 61 OR (3d) 711 (CA), Riel v Holland, [2002] OJ No 5609, affirmed (2003), 67 OR (3d) 417 (CA), Gray v Rizzi, 2016 ONCA 152, Cassidy v McNeil, 2010 ONCA 218, Gray v Gray, 2014 ONCA 659, Schulstad v. Schulstad, 2017 ONCA 95

S.I.A.S.I Trading Limited v Teplitsky, 2018 ONCA 788

Keywords: Civil Procedure, Dismissal for Delay, Nissar v. Toronto Transit Commission, 2013 ONCA 361, Ticchiarelli v. Ticchiarelli, 2017 ONCA 1, Rules of Civil Procedure, Rules 24.01 and 48.11

Short Civil Decisions

McGregor v. O'Sullivan Animal Hospital , 2018 ONCA 776

Keywords: Civil Procedure, Summary Judgment, Procedural and Natural Justice, Notice

Markham Village Shoppes Limited v. Gino's Pizza Ltd., 2018 ONCA 782

Keywords: Costs, Summary Judgment

Esposito (Re), 2018 ONCA 780

Keywords: Ontario Review Board, Absolute Discharges, Conditional Discharges

Galanis v. Kingston General Hospital, 2018 ONCA 786

Keywords: Civil Procedure, Amending Pleadings, Adding Parties, Misnomer, "Litigating Finger" Test

Criminal Decisions

R. v. Lowe , 2018 ONCA 777

Keywords: Criminal Law, Domestic Violence, Sentencing, R v Campbell, 170 OAC 282, R v S (P), 2007 ONCA 299, R v Lacasse, 2015 SCC 64

R. v. H.C. , 2018 ONCA 779

Keywords: Criminal Law, Sexual Assault, Evidence, Burden of Proof, Credibility, R v W.D, [1991] 1 SCR 742

R. v. Abdella, 2018 ONCA 789

Keywords: Criminal law, Drug Trafficking, Evidence, Circumstantial Evidence

R. v. Yaghob , 2018 ONCA 775

Keywords: Criminal Law, Drug Trafficking, Drug Possession, Sentencing, Controlled Drugs and Substances Act, SC 1996, c. 19, s 5(2)

R. v. Omar , 2018 ONCA 787

Keywords: Criminal Law, Possession for the Purpose of Trafficking, Possession of Proceeds of Crime, Evidence, Voir Dire, Hearsay, Principled Exception to Hearsay Rule, Confidential Informants, Charter of Rights and Freedoms, ss. 8, ss. 9, s. 24(2), R v Debot, [1989] 2 SCR 1140, R v Baldree, 2013 SCC 35, R v Bridgman, 2017 ONCA 940, R v Malcolm-Evans, 2016 ONCA 28

CIVIL DECISIONS

Dunsmuir v. Royal Group, Inc, 2018 ONCA 773

[Rouleau, Pardu and Benotto JJ.A.]

Counsel:

M.A. Davis, R.D. Davis and S. Green, for the appellant

N. Campbell and D. McLeod, for the respondent

Keywords: Employment Law, Wrongful Dismissal, Cause, Corporations, Officers, Breach of Fiduciary Duty, Conflicts of Interest, Related Party Transactions, Duty to Disclose, McKinley v BC Tel, 2001 SCC 38, Advanced Realty Funding Corp v Bannink (1979), 27 OR (2d) 193 (CA), Hodgkinson v Simms, [1994] 3 SCR 377

Facts:

At the time of his termination in 2004, the appellant was the Senior Vice-President, Chief Financial Officer, and a member of the board of directors of the respondent. The respondent is a public company. The trial judge held that there was just cause for the appellant's termination without notice, and relied on three incidents of misconduct.

The first incident involved a land flip. The controlling shareholder of the respondent (the "controlling shareholder") and senior officers of the respondent (the "controlling shareholder's group") bought property through a third party. Immediately after closing, the property was sold to the respondent for $6.5 million more than what had been paid for it. At the time, the appellant was responsible for real estate acquisitions, and was approached by the vendor's agent regarding whether the respondent was interested in purchasing the property. The appellant consulted the controlling shareholder and thereafter indicated to the vendor's agent that the respondent was not interested. Later, the controlling shareholder asked the appellant to assist him with effecting the land flip transaction. The appellant was involved with and assisted in the acquisition by the controlling shareholder's group and the immediate resale to the respondent.

The second incident involved the sale of one of the respondent's subsidiaries. The purchase price included a share warrant that entitled the respondent to purchase an additional 200,000 shares at a strike price. After the share price rose, the warrants were redeemed for the benefit of the respondent's senior management – including the appellant – for a total profit of $2 million. When this was disclosed through regular reporting, the shareholders launched a public outcry. The appellant allowed a different story to be told to the independent directors that covered up the reasons for why senior management's bonuses were greater than what the approved bonus plan provided. The third incident stemmed from the second incident and involved a tax scheme. The effect of the scheme was to mislead the Canada Revenue Agency (the "CRA") about the exercise of the warrants in order to reduce senior management's tax liability.
The three incidents led the trial judge to find that the appellant breached his fiduciary duty to the respondent. The first two incidents constituted failures to disclose related party transactions to the independent directors or auditors. The third incident constituted a breach of a fiduciary duty because it involved the falsification of corporate documents for personal gain and the misleading of the CRA.

Issues:

(1) Did the trial judge err in law by failing to follow the test in McKinley v BC Tel, 2001 SCC 38 ("McKinley")?

(2) Did the trial judge err in law by relying on Advanced Realty Funding Corp v Bannink (1979), 27 OR (2d) 193 (CA) ("Advanced Realty")?

(3) Did the trial judge err in law by failing to consider that the appellant's actions had been condoned?

Holding:

Appeal dismissed.

Reasoning:

(1) No, the trial judge did not err in law by failing to follow the test in McKinley. The appellant argued that McKinley required the trial judge to conduct a contextual analysis of the entire employment situation, which in this case involved a corporate culture dominated by an autocratic controlling shareholder. No corporate culture existing in a public company can reasonably support the course of conduct of the appellant in his role as fiduciary, as evidenced by the three incidents. The appellant owed a fiduciary duty to the respondent and its shareholders which included a duty to disclose.

(2) No, the trial judge did not err in law by relying on Advanced Realty. The appellant argued that Hodgkinson v Simms, [1994] 3 SCR 377 ("Hodgkinson") overruled Advanced Realty such that the respondent had to show that the board of directors would have taken action if the appellant had disclosed the three incidents. Hodgkinson did not overrule Advanced Realty. Hodgkinson involved an assessment of damages and did not deal with a fiduciary's duty to disclose.

(3) No, the trial judge did not err in law by failing to consider that the appellant's actions had been condoned. The appellant cannot rely on other senior managers who were themselves participants of the unlawful conduct to establish condonation.

Crystallex International Corporation (Re), 2018 ONCA 778

[Sharpe, Juriansz and Pepall JJ.A.]

Counsel:

C.P. Prophet and N. Kluge, for the moving party, the Ad Hoc Committee of Shareholders of Crystallex International Corporation

T. Pinos, R.C. Jacobs and S. Kukulowicz, for the respondent, the DIP Lender

J.A. Swartz, J. Doris and R. Schwill, for the respondent, Crystallex International Corporation

A.E. Kauffman, for the respondent, Robert Fung and Marc Oppenheimer

Keywords: Bankruptcy and Insolvency, Appeals, Leave to Appeal, Orders, Debtor in Possession Financing, Setting Aside, Stay of Proceedings, Lifting Stay, Companies' Creditors Arrangement Act, RSC 1985, c C-36, Nortel Networks Corporation (Re), 2016 ONCA 332, Hebditch v Birnie, 2017 ONCA 169, Rules of Civil Procedure, RRO 1990, Reg 194, r 37.14 and 59.06(2)

Facts:

The Ad Hoc Committee of Shareholders of Crystallex International Corporation (the "Committee") sought leave to appeal the dismissal of their motion for an order lifting the stay of proceedings to allow the shareholders to commence an action. Such order was imposed by the initial order granted in the Companies' Creditors Arrangement Act (the "CCAA") proceedings. The Committee wished to vary Debtor in Possession ("DIP") financing orders and amending orders that had received court approval four to five years ago.

In 2011, the respondent-company entered into arbitration with the Venezuelan government for breach of an exclusive mining contract. A DIP Lender was chosen to fund the arbitral claim in exchange for an interest in the potential recovery (the "Net Arbitration Proceeds" or "NAP"). A management incentive plan was also struck, which provided compensation to the respondent-company's management if the arbitration was successful. These were approved in 2012. In 2013 and 2014, the initial credit agreement with the DIP Lender was amended. In 2014, a NAP transfer agreement was approved. In 2016, the respondent-company received a large arbitral award. In 2017, the motion judge approved a settlement agreement.

The shareholders alleged in the proposed action that the DIP financing amendments and the NAP transfer agreement severely diluted their interest in the arbitral award by assigning all but a small percentage of the proceeds to the DIP Lender and the individual respondents. The shareholders claimed that these amendments were entered into in unfair disregard of, and to the prejudice of, the shareholders' interests.

In 2018, the Committee sought to vary the amending orders but did not impugn the initial order which approved the DIP financing and the management incentive plan. The Committee contended that the amending orders in 2013 and 2014 were granted without prior notice to the shareholders. The motion judge dismissed the motion to lift the stay of proceedings, concluding that the orders granted which approved the DIP financing amendments and the NAP transfer agreement were final in nature and constituted a complete bar to the relief requested.

Issues:

Should leave to appeal from the decision of the motion judge supervising the CCAA proceeding be granted:

(1) Is the proposed appeal prima facie meritorious and not frivolous?

(2) Is the proposed appeal significant to the practice of law?

(3) Is the proposed appeal significant to the proceeding?

(4) Will the proposed appeal unduly hinder the progress of the action?

Holding:

Motion dismissed.

Reasoning:

No, leave to appeal from the decision of the motion judge supervising the CCAA proceeding should not be granted.

(1) No, the appeal is not prima facie meritorious. The issue to be addressed here is the motion judge's ability to vary the impugned orders. The limited circumstances for varying a final, issued and entered order are found under Rules 59.06(2) and 37.14. The motion judge concluded that there was no slip or error in expression in the orders and that the shareholders had not alleged any fraud or newly discovered facts – Rule 59.06(2). The motion judge concluded that the shareholders had notice – Rule 37.14. Moreover, the Committee did not move forthwith, as required by Rule 37.14, to vary the orders that had been granted four to five years earlier. Thus, the motion judge correctly determined that he could not vary the orders.

(2) Yes, the use of litigation funding agreements in CCAA proceedings may be of importance to the insolvency bar. However, this issue does not determine the leave to appeal motion. To challenge the agreements, the Committee must first overcome the hurdle of varying the orders granted by the motion judge. The issue regarding variation of these CCAA orders is not of public importance as the law on varying orders is neither new nor contentious. The motion judge's conclusion that there was no basis to vary the orders was a fact-specific determination which is of limited significance to the practice of law or the public.

(3) Yes, the appeal may be of significance to the proceeding, but standing alone, this factor is insufficient to warrant granting leave to appeal.

(4) Yes, the appeal would unduly hinder the progress of the action. The motion judge accepted that varying final orders would have a serious impact on the credit arrangements and would throw the CCAA proceedings into chaos. There was no basis to interfere with this conclusion.

Gholami v. The Hospital for Sick Children, 2018 ONCA 783

[Pepall, Roberts and Miller JJ.A.]

Counsel:

C. Foulon and B. Hassibi, for the appellant/respondent by way of cross-appeal

R. Weir and B. Dinning, for the respondents/appellants by way of cross-appeal

Keywords: Employment Law, Wrongful Dismissal, Termination for Cause, Duty of Good Faith, Defamation, Damages, Appeals, Suffiency of Reasons, R v Sheppard, 2002 SCC 26, Dovbush v Mouzitchka, 2016 ONCA 381, Maple Ridge Community Management Ltd v Peel Condominium Corp No 231, 2015 ONCA 520, R v Dinardo, 2008 SCC 24, Honda Canada Inc v Keays, 2008 SCC 39, Wallace v United Grain Growers Ltd, [1997] 3 SCR 701

Facts:

From October 4, 2010, to June 8, 2011, the appellant was employed by The Hospital for Sick Children (the "Hospital") as an associate physician in the Department of Anesthesia and Pain Medicine (the "Department"), under a fixed-term, one-year contract (the "Contract"). The Contract was part of the Pathway 4 licensing process, prescribed by the College of Physicians and Surgeons of Ontario (the "College").

Physicians who apply for registration in Ontario under a Pathway 4 Certificate of Registration (the "Certificate") are granted a conditional licence to practice medicine. They must complete a one-year period of supervision and are assigned a supervisor from their workplace. At the end of the year, they must pass a Practice Ready Assessment conducted by the College (the "Assessment").

The appellant received his conditional Certificate on October 1. The appellant's receipt of a permanent Certificate beyond one year was contingent upon conditions, such as completing the first year of clinical work, passing the Assessment and complying with the College's policies and procedures. The Certificate automatically expired on the occurrence of certain events, such as: notification from the supervisor to the College that there were concerns about the physician's knowledge, skill, judgment or attitude, or the supervisor being unwilling to continue to supervise the physician.

Up until May, the appellant was advised that there were no serious concerns about his clinical performance, although there were ongoing issues about his fit within the cardiac team. After that, personality conflicts between the appellant and other members of the team had occurred and performance issues were also raised.
In July, the appellant obtained employment in the United States, aided by positive reference letters from members of the cardiac team, some of whom had given the appellant poor reviews. Shortly after, he commenced an action against the respondents, alleging wrongful dismissal, damage to his reputation and career prospects and breach of the duty of good faith. He sought eight different heads of damages. At trial, the respondents withdrew their allegation of just cause for dismissal but denied the appellant's entitlement to damages. The trial judge dismissed the action.

The trial judge found that: the Contract did not guarantee the appellant he would work on cardiac cases; the Contract provided he would work as an associate in the Department; the Hospital had no obligation to find the appellant another supervisor; and the appellant could have avoided or mitigated the complaints about himself if he accepted the offer to work in another group. With respect to defamation, the trial judge observed that the communications between the respondents and College were truthful, professional and protected by qualified privilege.

The trial judge did not characterize the nature of the appellant's termination as a wrongful dismissal or find that the Hospital terminated the Contract. The trial judge rejected the claim of bad faith and intentional harm. Since the trial judge did not find a breach of the Contract, she did not quantify damages.

Issues:

Did the trial judge err in:

(1) finding that the appellant was not wrongfully dismissed?

(2) failing to assess the conflicting evidence regarding the renewal of the appellant's contract?

(3) failing to find that the respondents acted in bad faith and in failing to address the manner of dismissal and mental distress suffered by the appellant?

(4) failing to address defamation?

Holding:

Appeal allowed. Cross-appeal dismissed.

Reasoning:

(1) Yes, the trial judge erred in finding that the appellant was not wrongfully dismissed. The Hospital withdrew its allegation of just cause. This concession meant that it was not open to the trial judge to find that the Hospital had not breached the employment agreement. The only conclusion open to the trial judge was that the Hospital had wrongfully terminated the appellant's employment. The trial judge's legal basis for this finding was unclear. Moreover, the respondent did not allege that the employment agreement was frustrated when the College revoked the appellant's Certificate.

Thus, the only relevant issues regarding the wrongful dismissal claim for the trial judge's determination should have been: (i) the damages that flowed from the dismissal; (ii) whether the appellant had an obligation to mitigate his damages under his fixed-term contract by finding comparable employment following the termination of his employment; (iii) whether the respondents acted in bad faith in the manner of the appellant's dismissal of employment; and (iv) whether the appellant suffered any damages as a result of any bad faith conduct.

(2) No, the trial judge did not err in failing to assess the conflicting evidence regarding the renewal of the appellant's contract. Since the trial judge was required to consider whether damages flowed from the dismissal, this required a consideration of whether the contract had been renewed prior to the dismissal. Nothing turned on the conflict in the evidence. The renewal was conditional on the Assessment from the College. There could be no renewal of the appellant's contract by one of the doctors.

Accordingly, the appellant's wrongful dismissal damages should be assessed only to October 4, 2011, which was the end of Contract. Since the trial judge made no finding in this regard, it was not possible to calculate damages and the issue was remanded to the court below.

(3) Yes, the trial judge erred in failing to find that the respondents acted in bad faith and in failing to address the manner of dismissal and mental distress suffered by the appellant.
The appellant argued that the reasons of the trial judge were devoid of a meaningful explanation for her findings of fact and that they prevented proper appellate review, particularly with respect to issues of credibility. While the trial judge does not need to reconcile or refer to every discrepancy in the evidence, a particular challenge arises when credibility findings are required but not made, or if no analysis for the rejection of important conflicting evidence is provided.

In this case, the trial judge simply recited the respondents' legal position and indicated that she agreed with it. She did not resolve the conflicting evidence between the appellant's and respondents' diametrically opposed versions of events. The Court could not determine the basis for the trial judge's credibility findings that were central to the determination of that dispute.

The trial judge also erred by focusing only on the appellant's conduct. She failed to consider the respondents' actions and inactions and whether they amounted to bad faith conduct.

(4) Yes, the trial judge erred in failing to address defamation. The trial judge's blanket finding that the respondents did not act in bad faith did not adequately dispose of the appellant's claim for defamation. The trial judge was required to critically analyze the evidence.

The trial judge failed to make essential credibility findings in accepting certain evidence on the issues of bad faith and defamation. Since it was not possible for the Court to make factual findings on the trial record, these issues were remanded to the court below.

Pustai v. Pustai, 2018 ONCA 785

[Hoy A.C.J.O., van Rensburg and Pardu JJ.A.]

Counsel:

M.H. Tweyman, for the appellant

S.P. Kirby and G.S. Joseph, for the respondent

Keywords: Family Law, Spousal Support, Variation, Material Change in Circumstances, Termination, Imputing Income, Spousal Support Guidelines, LMP v LS, 2011 SCC 64, Miglin v Miglin, 2003 SCC 24, Drygala v Pauli (2002), 61 OR (3d) 711 (CA), Riel v Holland, [2002] OJ No 5609, affirmed (2003), 67 OR (3d) 417 (CA), Gray v Rizzi, 2016 ONCA 152, Cassidy v McNeil, 2010 ONCA 218, Gray v Gray, 2014 ONCA 659, Schulstad v Schulstad, 2017 ONCA 95

Facts:

The parties married in 1989, separated in 2001 and divorced in 2003. The marriage produced four children. The respondent owned and continues to own a trucking business ("TTMI"). The appellant did not work outside the home.

In 2008, custody and access were resolved on consent. The parties entered into minutes of settlement, some of which was incorporated into the consent order of Lack J. Contemporaneously with the minutes of settlement, the parties signed a secret trust agreement. Eight months later, the respondent brought his first motion to change. In 2009, Magda J. dismissed the motion to change. In an action by the appellant's counsel for payment of legal and accounting fees, Pollack J. determined that, on the respondent's initiative, both parties colluded to evade payment of the appellant's legal fees: Pellman v Pustai, [2009] OJ No 4412 (SC).

The respondent appealed the order of Magda J. (the "2010 Appeal"). This Court held that the respondent could not argue, a mere eight months after the consent order, that the trial judge erred in not setting a termination date for spousal support and in not imputing income to the appellant: Pustai v Pustai, 2010 ONCA 251. Further, this Court held that the "trial judge did not err in finding that the consent order provided that only the quantum but not the duration of spousal support could be subject to variation." This Court dismissed the 2010 Appeal.
Additionally, in 2010, the respondent sought an order terminating spousal support (the "2010 Motion to Change"). There were two trials of the motion to change. In 2012, the first trial resulted in an order that was set aside on appeal (the "2014 Appeal"): Pustai v Pustai, 2014 ONCA 422. This Court concluded that the trial judge failed to apply the proper analysis required in a motion to change under Supreme Court of Canada jurisprudence: LMP v LS, 2011 SCC 64; Miglin v Miglin, 2003 SCC 24. Rouleau J.A. held that the trial judge erred by ignoring the comprehensive settlement leading to the original consent order of Lack J. This Court also concluded that the trial judge erred in making an order for child support without assessing the impact of the consent order, minutes of settlement and the secret trust agreement. A new trial was directed to address whether there was a material change and to address the variation of terms.

In 2015, the second trial of the respondent's 2010 Motion to Change began. This is the trial from which the appeal before the Court arose. The respondent sought orders terminating spousal support, imputing income to the appellant, and requiring the equity in the former matrimonial home to be transferred to him. The trial judge: rejected the argument that Lack J.'s order foreclosed any change in spousal support; accepted the evidence of the respondent's material change in financial circumstances; concluded that the appellant was not credible and that there was a material change in her financial circumstances; concluded that the appellant had not made proper financial disclosure; ordered that spousal support would decrease to $1,000 a month effective June 1, 2013, and would terminate on June 1, 2014; rejected the respondent's claim for child support; and concluded that the appellant was liable to the respondent for 50% of the net proceeds of the matrimonial home.

Issues:

Did the trial judge err in:

(1) stepping down and then terminating spousal support by: