Tag Archives: Supreme Court of Canada

The Supreme Court of Canada Reiterates the Duty of Good Faith Contractual Performance

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If the Supreme Court releases a decision and no one follows it, is it still the law?

Six years ago, the Supreme Court of Canada released a case that was meant to clarify the law of contract.  The case was called Bhasin v Hrynew and, at the time, it was viewed as a bombshell in Canadian law.  Everyone in the legal industry was talking about this landmark case.  And then, something very peculiar happened: just as quickly, everyone stopped talking about.  They went back to carrying on as though this case had never been released.  No one seemed to notice that a case, which everybody agreed was a game-changer when it was released, was not changing any games.

The Supreme Court must have been frustrated that the Bhasin case was not having the impact that was intended.  So frustrated, that they decided to hand down the same judgment a second time, just to drive the point home.  The most recent case released by the Supreme Court is called C. M. Callow Inc. v Zollinger, but it might as well be called Bhasin: Redux.

The similarities between Bhasin and Zollinger are striking and the differences inconsequential.  Both cases involved a small business which had a contract with a larger entity.  In both cases, the larger entity could terminate the contract early by giving written notice (six months’ notice in the Bhasin case, ten days’ notice in the Zollinger case). 

In both cases, the larger entity misled the small business about its intention to terminate the contract.  In both cases, the small business was led to believe that the contract would be continued, and even renewed, when that was not so.  And in both cases, the larger entity terminated the contract by giving the required written notice in accordance with the terms of the contract. 

Bhasin

In Bhasin, the Court set out to resolve an ambiguity in the common law.  They stated for the first time, clearly and unequivocally, that there was, in Canadian law, a duty of good faith contractual performance.  This duty of good faith means that parties to a contract cannot lie or actively mislead each other about matters directly linked to the performance of the contract.  This duty applies whether it is written as a term of the contract or not.  The parties cannot mutually agree that this duty does not apply to their contract.  They held that the larger entity had breached the duty of good faith contractual performance when it misled Mr. Bhasin into thinking his contract would be renewed, when in fact they had already decided to terminate it. 

The Court described this duty as “a general duty of honesty in contractual performance.”  This case made a big splash when it was released, but in the years following, it didn’t really change the way the lower courts decided contract disputes.  It turned into the legal equivalent of the waffle iron you got for your wedding: you were really excited when you got it, and you even talk about it from time to time, but you never really use it. 

Zollinger at the Ontario Court of Appeal

The Zollinger case came up from the Ontario Court of Appeal.  The plaintiff provided maintenance services for a condominium complex.  Just like in Bhasin, the plaintiff’s contract had a term which allowed for early termination on notice. 

The condo complex decided in the Spring that they were not going to renew the contract, but they didn’t tell the plaintiff until September.  At trial, the Superior Court found that they had basically misled the plaintiff about the renewal so that it would do extra work outside the scope of the contract for free over the summer, to try and convince the condo complex to renew the contract. 

The Court of Appeal considered Zollinger in light of Bhasin.  And yet, the Court of Appeal still held that the condo complex’s actions did not constitute a breach of the duty of good faith contractual performance.  They distinguished Zollinger by pointing out that Bhasin dealt with a contract that was set to renew automatically unless cancelled, while the contract in Zollinger did not automatically renew.  By granting leave, and the appeal, the Supreme Court seems to be saying that the similarities between these two cases were far more important than their differences. 

Zollinger at the Supreme Court of Canada

It seems that the Supreme Court granted leave to appeal in this case at least in part because they were frustrated with the way that the Ontario Court of Appeal applied the Bhasin precedent.  They took this case to send the message that the lower courts have not been taking the Bhasin precedent seriously enough. 

The Supreme Court’s legal analysis in Zollinger is, in large part, a repetition of the analysis from Bhasin.  The decision is not written as though it is meant to expand the law in the area: more like it is meant to remind the bar and the lower courts of the law.  The Supreme Court concluded that the condo complex had the right to terminate the contract on notice, but that it was not permitted to be dishonest in the way that it exercised that right.  In other words, the exact same conclusion they reached in the Bhasin case.

There is no legal innovation in Zollinger: just a restatement of a previous precedent which, it seems, the Supreme Court would like to see applied more rigorously.  We didn’t see a major change in the jurisprudence after Bhasin – maybe Zollinger will end up having that effect.

Can You Daisy-Chain Your Way Around a Limitation Deadline?

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The short answer is “no”.

The long answer is contained in this fascinating case from the Ontario Court of Appeal called H.M.B. Holdings Limited v The Attorney General of Antigua and Barbuda.

Background

If you get a civil court judgment against someone in another country, you can (in most cases) have that judgment registered in Canada.  You would want to do this if the party against whom you have a foreign civil judgment owns assets in Canada which you could potentially seize in satisfaction of your judgment. 

If you have a judgment in a country which has a reciprocal enforcement treaty with Canada (such as the United Kingdom), then you can simply apply at the Court office to have the foreign judgment registered as a judgment of the court in Canada.

If the country in which you have your judgment does not have a treaty with Canada, then you have to start a traditional lawsuit in the Canadian court in which you ask the court to grant a judgment recognising and incorporating the foreign judgment.  The deadline to bring this lawsuit is governed by the limitations law of whatever province you are commencing the lawsuit in. 

Ontario, via British Columbia?

H.M.B. Holdings Limited had a judgment from an Antiguan court against the Government of Antigua and Barbuda for millions of dollars.  H.M.B. Holdings must have believed that the Government of Antigua and Barbuda had assets in Ontario, because it wanted to have its Antiguan court judgment recognised in Ontario. 

The problem for H.M.B. Holdings was that the two-year limitation period to commence a lawsuit in Ontario had already expired.  (It had been more than two (2) years since it had obtained the court judgment from Antigua and Barbuda.)

However, the limitation deadlines are not the same across the country.  The deadline for starting a lawsuit in British Columbia to recognise a foreign judgment is six (6) years, not two (2).  A law in Ontario called the Reciprocal Enforcement of Judgments Act states that the courts in Ontario have to recognise court judgments obtained in other Canadian provinces.

H.M.B. Holdings decided to seek a court judgment in British Columbia, where the limitation deadline had not yet expired and then, within two (2) years of obtaining the British Columbian judgment, bring a lawsuit in Ontario to recognise the British Columbian judgment. 

Too clever by half?  Two (2) of the three (3) judges presiding at the Ontario Court of Appeal thought so.

When H.M.B. Holdings sued to have the British Columbia judgment registered in Ontario, the court dismissed the action.  H.M.B. Holdings appealed to the Court of Appeal. 

The “Original Judgment”

One of the legal issues considered by the Court was the meaning of the term “original judgment” in the Reciprocal Enforcement of Judgments Act.  The Act prohibits registration of a judgment where the judgment debtor would have a good defence if an action were brought on the “original judgment” [subsection 3(g)].  The majority held that “original judgment” referred to the Antiguan judgment.  Since Antigua and Barbuda would have valid limitations defence to an action to register the Antiguan judgment, the Act prohibits the registration of that “original judgment”, even if it takes a pit stop in Vancouver.

In dissent, Justice Nordheimer expressed his view that the term “original judgment” in the Act had to mean the specific judgment which the plaintiff sought to have registered which, in this case, was the British Columbian judgment. 

One can easily see both sides of this.  One could say that a litigant should not be allowed to do through the back door what it could not have done through the front door.  At the same time, one could equally say that judgment debtors should not be able to escape having to pay the judgment against them by having the enforcement proceedings defeated on procedural, rather than substantive, grounds.  There is also an argument that creative counsel should be rewarded, not punished, for using all of the legal mechanisms available to them in pursuit of justice for their client. 

UPDATE: We will have the opportunity to see this dispute go the next level, because the Supreme Court of Canada has granted H.M.B. Holdings Limited leave to appeal this decision. It will be fascinating to see how the Supreme Court deals with this question which divided the Ontario Court of Appeal.

Déjà Vu all Over Again

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It was déjà vu all over again at the Court of Appeal on the issue of punitive damages. 

Punitive damages are already a bit weird in the realm of civil litigation, because the purpose of the civil law is to compensate.  It is not to punish: that is a purpose of the criminal law.  Yet punitive damages can be awarded in a civil proceeding to (as their name implies) punish the defendant when his, her, or its conduct has been so malicious, oppressive, and high-handed that it offends the court’s sense of decency. 

The Supreme Court of Canada has said that punitive damages should be rare and modest, and they usually are.  I’ve only ever argued one case in which punitive damages were awarded and, even then, the punitive damages were only $25,000.00.

But sometimes, a showstopper of a case will come along where the jury makes an enormous award of punitive damages.  Two Ontario cases, about twelve years apart, both featured jury awards of $1,000,000.00 for punitive damages.  And yes, one of the cases involved Wal-Mart.

The first case was Whiten v Pilot Insurance.  A homeowner’s house burned down.  Her insurance company took the unreasonably hard-headed position of denying her claim on the basis that she had burned the house down herself, even though Pilot Insurance had no evidence of arson whatsoever.  The homeowner had to sue her insurance company, and take it all the way to trial, just to get her house rebuilt.  The jury was incensed by Pilot Insurance’s intransigent stance and, in addition to the compensatory damages, ordered the defendant to pay punitive damages of $1,000,000.00. 

Pilot Insurance appealed and the Court of Appeal reduced the punitive damages from $1,000,000.00 to $100,000.00.

On appeal to the Supreme Court of Canada, though, the Supreme Court overturned the Court of Appeal’s ruling on punitive damages and reinstated the jury award of $1,000,000.00.

The second case was Boucher v Wal-Mart Canada Corp.  Ms. Boucher, an employee at a Windsor Wal-Mart, had been really viciously bullied by her immediate supervisor.  This supervisor yelled at Ms. Boucher, singled her out, screamed at her, and swore both to and about her, both in front of and behind her back.  (This manager, a one Jason Pinnock, had a propensity for workplace use of the F-word which was nothing short of pathological.) 

Perhaps the most disturbing part of this case of workplace bullying was the fact that Wal-Mart took Mr. Pinnock’s side and backed him up.  The jury was not impressed, and ordered Wal-Mart to pay Ms. Boucher punitive damages in the amount of $1,000,000.00. 

History repeated itself at the Court of Appeal.  When faced with an appeal of a $1,000,000.00 jury award for punitive damages, the Ontario Court of Appeal reduced it to—you guessed it—$100,000.00. 

Obviously it was not the same panel of judges at the Court of Appeal who heard Boucher as heard Whiten.  Still, it seems strange that the Boucher panel did not say, “Hey, last time we slashed a jury’s $1,000,000.00 punitive damages award by 90% the Supreme Court reinstated it – maybe we shouldn’t do that again?” 

In Whiten, the Supreme Court of Canada did not go so far as to say ‘the jury is always right’.  They said that juries should be given enough leeway to do their job and their awards should not be overturned on appeal unless they are “irrational”.  The Supreme Court went on to hold that, in that case, the jury award of $1,000,000.00, was not irrational and it should not have been overturned. 

In Boucher, the Court of Appeal held that $100,000.00 was all that was rationally required to punish Wal-Mart and to denounce and deter its conduct.  Which, allow me to say, is bonkers.  This is Wal-Mart we are talking about.  If $1,000,000.00 was not an “irrational” amount to punish, denounce, and deter a small Canadian insurance company which acted in an oppressive and high-handed manner, then how is the same amount of money, awarded for the same purpose, against one of planet earth’s largest corporations “irrational”? 

The facts of the two (2) cases were different but the respective juries’ decisions on the issue of punitive damages were the same.  If it was incorrect for the Court of Appeal to have reduced the first award by 90%, then I would have argued that it was similarly incorrect for the Court of Appeal to have reduced the second award by 90%. 

Might history have been repeated at the Supreme Court?  Would the Supreme Court have reinstated the million-dollar damages award in the Boucher case, just like it reinstated the million-dollar damages award in the Whiten case?  We will never know, because Ms. Boucher did not seek leave to appeal to Canada’s top court.

Sprayed in the Face with a Fire Extinguisher at Wal-Mart

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Wal-Mart gets involved in a lot of litigation in Ontario, usually not by choice.  The most recent lawsuit against Wal-Mart to make it through the courts is a doozy.

It was brought by a guy name Kim Manos who was accidentally sprayed with a fire extinguisher by an employee at the Waterdown Wal-Mart.  This is amazing to me for a few reasons.  First, how does a fire extinguisher go off accidentally anyway?  Second, what employee thinks it is a good idea to handle a fire extinguisher within spraying-distance of a customer?  And, of course, what are the chances you are going to hit the customer who already has respiratory problems?

I’m also fascinated by this case because I used to live in Waterdown and the Waterdown Wal-Mart is the Wal-Mart I have visited more than any other.  From a customer’s perspective, it was a really well-run store.  It was clean, safe, and well-organised.  My personal experience would be that it was one of the better-run Wal-Mart stores I have seen.  It is unlikely to make an appearance on the “People of Wal-Mart” blog.  (The Wal-Mart here in Stratford, on the other hand . . .)

Kim Manos sued Wal-Mart and the matter went to trial.  Wal-Mart retained medical experts who disputed the Plaintiff’s contention that he had developed a particular respiratory condition.  Wal-Mart’s experts also opined that, even if the Plaintiff did have that respiratory condition, it wasn’t caused by the fire extinguisher accidentally discharging in his face in the Waterdown Wal-Mart.  (It sounds more and more ridiculous each time I say it.)

The Plaintiff won at trial.  In addition to compensation for his actual monetary losses, the trial judge also awarded him $225,000.00 in general damages for his pain and suffering which, for sure, is on the high end for this kind of injury.

Insufficiency of Reasons

In giving his reasons, the trial judge accepted the evidence of the Plaintiff’s medical experts and did not accept the evidence of Wal-Mart’s medical experts.  The problem was that he never explained in his reasons why he was rejecting the evidence of Wal-Mart’s expert witnesses. 

Wal-Mart appealed.  The Court of Appeal granted the appeal and ordered a new trial.  The Court of Appeal’s rationale was that the trial judge failed to give adequate reasons for rejecting the expert evidence put forward by the Defendant.  The Court of Appeal confirmed that the trial judge was entitled to reject the Defendant’s expert evidence if he wanted to, but he had to give intelligible reasons for doing so.  By giving no reasons at all, he made it impossible for the Defendant to know why it had lost and made his decision incapable of meaningful appellate review. 

This is another reason why I find this case so fascinating because the very first appeal I ever argued, way back in my law school days, was successful for the very same reason.  In that case, we were appealing a decision of the Discipline Committee of the College of Physicians and Surgeons of Ontario.  The Committee had a report from an independent assessor which was critical of the doctor in question.  In its decision, the Committee did not accept the conclusions of the report, but neither did it give any reasons for rejecting the report’s conclusions.  In the appeal to the Health Professions Appeal and Review Board we argued that this was unreasonable, and the Board agreed.  The Board held, “The Committee is not bound to accept the report of an independent assessor, but it is incumbent on the Committee to offer cogent reasons if it chooses to reject or discount the opinion of an assessor.”

That case was sent back to the Committee for re-consideration, just like the Manos case was sent back for a new trial. 

Appeal to the Supreme Court of Canada?

So when will the Manos case be re-tried?  Not any time soon, because (plot twist!) Mr. Manos has sought leave to appeal to the Supreme Court of Canada.

The overwhelming majority of applications for leave to appeal to the Supreme Court of Canada are dismissed, and my money would be on this application for leave being dismissed as well. 

So why would the Plaintiff seek leave when the chance of getting it is so low?  Well, one reason might be because the pay-off would be very much worth it in the unlikely event that that leave (and the subsequent appeal) are granted.  Success at the Supreme Court could mean that the Plaintiff gets to keep his $225,000.00 general damages award and would not have to put in the time and expense of a re-trial (which he might not even win, and which could also be appealed . . .).  I suspect that the Plaintiff knows very well that, even if he wins the re-trial, his is not going to get anywhere near the $225,000.00 he got the first time, because that really is on the high end of damages for the type of injury which he allegedly suffered.  If he can get the Supreme Court to overturn the Court of Appeal’s ruling the $225,000.00 damages award will stand and he will almost certainly be better off than he would be after winning the re-trial. 

I will keep a close eye on this fascinating case and provide an update once the application for leave to appeal is decided by the Supreme Court.

Quick, Good, Cheap – Pick Two

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Her Honour Madam Rosalie Abella, a Justice of the Supreme Court of Canada, recently penned an opinion column in The Globe and Mail titled, “Our Civil Justice System needs to be Brought into the 21st Century” (subscription required). 

While I came to agree with Justice Abella’s conclusion, she actually made two arguments in order to get there.  And while I agree with her second argument, I cannot bring myself to agree with her first.

Her first argument is basically just “Change for change’s sake.”  She notes that the adversarial system of civil litigation we use today is pretty similar to the one used at the turn of the (last) century.  She then goes on to argue that, since the airplane and the Internet have been invented in that time, we should similarly change the way we resolve civil disputes. 

The flip side to the sentiment that “we should change with the times” is “if it ain’t broke, don’t fix it.”  And of course, our adversarial system of civil litigation has a lot of things to commend it.  It is a system which has been honed and refined over centuries and it does a fairly good job of serving its objectives.  While other systems of dispute resolution have been conceived and tried our adversarial system remains, to paraphrase Churchill, the worst system except for all the others which have been tried from time to time.  So I would disagree with the suggestion that we ought to make any substantial changes to our civil litigation system solely on the basis that it is an old system.  We should not tear down a fence unless we know why it was put up in the first place. 

That being said, Justice Abella’s second argument really lays bare the biggest shortcoming of our “least bad” system.  She persuasively argues that the system is just too inaccessible for regular people, for the dual reasons that (i) it is too expensive and (ii) it takes too long.  One cannot really disagree with her assertion that it should not take litigants “forever and thousands of dollars to decide where their children live, whether their employer should have fired them, or whether their accident was compensable.” 

The gap between reality and expectation for participants in the civil litigation system can be profound.  I blogged last week about an employment case in Ontario which took eleven (11) years to go from start to completion at the Court of Appeal.  By comparison, a few years ago I represented an employee in an employment case that was decided by the Court of Appeal eleven months after the employee was fired.  And do you know what they told me after it was over?  They said, “If I knew it would have taken this long, I never would have done it.”  And that was in a case which, by the usual standards, was resolved quickly.

In my own practice, I have seen a fair number of clients walk away from good, promising cases—cases worth tens or even hundreds of thousands of dollars—because they are not willing to wait 1, 2, or 3 years before seeing the inside of a courtroom, or because they are no longer willing to continue funding litigation which will go on for another 1, 2, or 3 years. 

The people who are most likely to be caught on the outside are those who can’t or won’t sink thousands of dollars, and years of their lives, into fighting a legal dispute – even though their case may be just.  Justice Abella perspicaciously identifies this problem when she says, “They want their day in court, not their years.”

Normally, this is where I would criticize the author for identifying the problem but not identifying any solutions.  But I can’t criticize Justice Abella here, because I don’t have any answers at the moment either.  The civil justice system serves multiple goals, among them efficiency, truth-seeking, and justice.  Major reforms to improve the outcomes in one area are almost certain to be at the expense of the other goals of the justice system.  The legal system finds itself stuck in the classic consumer quandary of “Quick, cheap, good – pick two”. 

What should we do?  Eliminate or severely curtail pre-trial discovery?  That would certainly get us to trial more efficiently.  It would also bring back the old days of “trial by ambush”, which the profession definitely wants to avoid.  Getting rid of “trial by ambush” was a major reason for the significant expansion of pre-trial discovery in the first place.  We can make our civil litigation system quicker and cheaper, but it won’t be as good.

While I can’t say what we should do, I can make a suggestion about what we should not do.  We should not do mandatory mediation.

In my opinion, the experiment of mandatory mediation is a failure and should be abandoned.  For a number of years now, any civil lawsuit in Ottawa, Toronto, or Windsor has been required to go to mandatory mediation as a necessary pre-condition to going to trial.  And why is this such a bad a idea?  Simply put, if you want to make the process of a lawsuit quicker and cheaper, you should not add additional procedural hurdles to the lawsuit.  Mandatory mediation adds both time and expense and makes the overall lawsuit take even longer.  I cannot understand why anyone thought that the system would be made more efficient by adding an extra step to civil lawsuits: it is impossible to make a journey quicker by adding pit stops.  If we want to make the process of civil lawsuit a little bit quicker and a little bit less expensive without sacrificing quality, we can start by eliminating the costly and time-consuming step of mandatory mediation.