In this issue:
1. Firm and Industry News
2. Supreme Court Rules on Jurisdiction of Canadian Courts Over Foreign
3. Airlines Argue That Provincial Consumer Protection Acts Do Not
Apply to Them: B.C. Court Disagrees
4. Deceit and Fraudulent Misrepresentation: A Finding of Personal
Liability of Corporate Directors
5. The Montreal Convention vs. The Quebec Civil Code
6. The CGL "Property Owned" Exclusion and Duty to Defend
1. Firm and Industry News
- May 1 - 4, 2012, Naples Florida,
Transportation Lawyers Association Annual Conference and Canadian
Transport Lawyers Association Mid-Year Meeting.
- May 8 - 9, 2012, Toronto: Supply Chain &
Logistics Association of Canada Annual Conference in Naples, Florida
- May 11 - 12, 2012, Vancouver: Canadian Maritime
Law Association Annual Meeting and Seminar
- May 13 - 18, 2012, Vancouver: International
Congress of Maritime Arbitrators
- May 23 & 24, 2012, Banff Springs: Semi-Annual
Meeting Canadian Board of Marine Underwriters
- May 30, 2012, Toronto: The Commons
Institute Aviation & Litigation Seminar
Rui Fernandes, Gordon Hearn, Kim Stoll and Kimberly Newton represented the firm at the TLA and CTLA
Rui Fernandes will be speaking on Environmental
Concerns in the Aftermath of an Accident, at The Commons Institute
Aviation & Litigation Seminar on May 30th at the Old Mill Inn
2. SUPREME COURT
OF CANADA RULES ON JURISDICTION OF CANADIAN COURTS OVER FOREIGN
In a recently released pair of cases, Club Resorts
Ltd. v. Van Breda and Club Resorts Ltd. v. Charron (*1) the Supreme Court of Canada has updated and clarified the "real
and substantial connection test" that Canadian courts must
apply to determine whether they have jurisdiction over foreign and
The two cases on appeal before the Supreme Court involved
actions for personal injuries suffered by Canadian tourists while
at resorts in Cuba. Morgan Van Breda suffered catastrophic injuries
on a beach in Cuba. Claude Charron died while scuba diving, also
in Cuba. Actions were brought in Ontario against a number of parties,
including Club Resorts Ltd., a company incorporated in the Cayman
Islands that managed the two hotels where the accidents occurred.
Club Resorts sought to block those proceedings arguing that the
Ontario courts lacked jurisdiction and, in the alternative, that
a Cuban court would be a more appropriate forum on the basis of
the doctrine of forum non conveniens. In both cases, the
two application judges found that the Ontario courts had jurisdiction
with respect to the actions against Club Resorts. In considering forum non conveniens, it was also held that the Ontario court
was clearly a more appropriate forum.
These decisions were appealed to the Ontario Court
of Appeal, which convened a special five-judge panel to reconsider
the content of the real and substantial connection test. The Court
of Appeal rearticulated the test in an attempt to increase the consistency
and predictability of the jurisdictional determinations of Ontario
The Court of Appeal's decision was then appealed to
the Supreme Court of Canada, which unanimously endorsed a new framework
for the real and substantial connection test. The Supreme Court
went even further than the Court of Appeal in an effort to improve
the predictability and certainty of the real and substantial connection
The Supreme Court of Canada commented on the nature
and scope of private international law. Justice Lebel stated:
These appeals raise broad issues about the
fundamental principles of the conflict of laws as this branch
of the law has traditionally been known in the common law, or
"private international law" as it is often called now
Although both appeals raise issues concerning
both the determination of whether a court has jurisdiction (the
test of jurisdiction simpliciter) and the principles governing
a court's decision to decline to exercise its jurisdiction (the
doctrine of forum non conveniens), those issues may have
an impact on the development of other areas of private international
law. Private international law is in essence domestic law, and
it is designed to resolve conflicts between different jurisdictions,
the legal systems or rules of different jurisdictions and decisions
of courts of different jurisdictions. It consists of legal principles
that apply in situations in which more than one court might claim
jurisdiction, to which the law of more than one jurisdiction might
apply or in which a court must determine whether it will recognize
and enforce a foreign judgment or, in Canada, a judgment from
Three categories of issues - jurisdiction, forum non conveniens and the recognition of foreign judgments
- are intertwined in this branch of the law. Thus, the framework
established for the purpose of determining whether a court has
jurisdiction may have an impact on the choice of law and on the
recognition of judgments, and vice versa. Judicial decisions on
choice of law and the recognition of judgments have played a central
role in the evolution of the rules related to jurisdiction. None
of the divisions of private international law can be safely analyzed
and applied in isolation from the others. This said, the central
focus of these appeals is on jurisdiction and the appropriate
A Canadian court will have jurisdiction over a dispute
when there is a "real and substantial connection" between
the litigation and the jurisdiction. In the Van Breda and Charron cases, the Supreme Court explained that the inquiry
involves two stages:
Firstly, the claimant has the onus of establishing
that a "presumptive connecting factor" connects the litigation
to the jurisdiction.
Secondly, if the claimant succeeds in establishing
that a presumptive connecting factor exists, the defendant has the
opportunity to rebut the presumption of jurisdiction by showing
that, on the facts of the particular case, the connection is insufficient
to establish a real and substantial connection.
Step 1: Establishing a Presumptive Connecting Factor
At the first stage, the claimant must show that the
litigation is joined to the jurisdiction by one or more "presumptive
connecting factors". Where one or more of the presumptive connecting
factors is present, the court is presumed to have jurisdiction over
the litigation (subject to the defendants' opportunity to rebut
the presumption). Conversely, if no recognized presumptive connecting
factor is present, the court should not assume jurisdiction.
The Supreme Court identified four presumptive connecting factors
in the context of tort claims:
(a) the defendant is domiciled or resident in the
(b) the defendant carries on business in the province;?
(c) the tort was committed in the province; and?
(d) a contract connected with the dispute was made in the province.
Although the factors set out in the list are considered
presumptive, this does not mean that the list of recognized factors
is complete, as it may be reviewed over time and updated by adding
new presumptive connecting factors. When a court considers whether
a new connecting factor should be given presumptive effect, the
values of order, fairness and comity can serve as useful analytical
tools for assessing the strength of the relationship with a forum
to which the factor in question points. These values underlie all
presumptive connecting factors, whether listed or new. In identifying
new presumptive factors, a court should look to connections that
give rise to a relationship with the forum that is similar in nature
to the ones that result from the listed factors. Relevant considerations
(a) Similarity of the connecting factor with the
recognized presumptive connecting factors;
(b) Treatment of the connecting factor in the case law:
(c) Treatment of the connecting factor in statute law; and
(d) Treatment of the connecting factor in the private international
law of other legal systems with a shared commitment to order,
fairness and comity.
The Supreme Court also confirmed that the presence
of a claimant in the jurisdiction is not, by itself, a sufficient
connecting factor to ground the assumption of jurisdiction. Similarly,
an allegation that the claimant has suffered damages in the jurisdiction
is insufficient. Neither of these bases would ensure that the claimant's
claim has a sufficient connection with a province to trigger a presumption
Step 2: Rebutting the Presumption of Jurisdiction
If a presumption of jurisdiction is engaged, the onus
shifts to the defendant, who may rebut the presumption. The Supreme
Court gave the following explanation of what the defendant must
establish to rebut the presumption:
"[The defendant must] establish facts
which demonstrate that the presumptive connecting factor does
not point to any real relationship between the subject matter
of the litigation and the forum or points only to a weak relationship
For example, where the presumptive connecting factor
is a contract made within the jurisdiction, the presumption can
be rebutted by showing that the contract does not relate to the
subject matter of the litigation. The Supreme Court also explained
that even if a defendant carries on business in a province, the
presumption can be rebutted by showing that the subject matter of
the litigation is unrelated to the defendant's business activities
in the province.
If the defendant succeeds in rebutting the presumption
of jurisdiction, the court must decline to determine the matter.
However, it should be noted that even if the court has jurisdiction
over a matter, the defendant can still argue that the court should
decline to exercise that jurisdiction in favour of proceedings in
another province or country, which may be the more appropriate forum
in which to the litigate the dispute (i.e., under the forum non
The court cannot decline to exercise its jurisdiction
unless the defendant invokes forum non conveniens. The decision
to raise this doctrine rests with the parties, not with the court
seized of the claim. If a defendant raises an issue of forum
non conveniens, the burden is on him or her to show why the
court should decline to exercise its jurisdiction and displace the
forum chosen by the claimant. The defendant must show that the alternative
forum is clearly more appropriate and that, in light of the characteristics
of the alternative forum, it would be fairer and more efficient
to chose an alternative forum and to deny the claimant the benefits
of his or her decision to select a forum.
When it is invoked, the doctrine of forum non conveniens requires a court to go beyond a strict application of the test governing
the recognition and assumption of jurisdiction. It is based on a
recognition that a common law court retains a residual power to
decline to exercise its jurisdiction in appropriate, but limited,
circumstances in order to assure fairness to the parties and the
efficient resolution of the dispute. The court however, should not
exercise its discretion in favour of a stay solely because it finds,
once all relevant concerns and factors are weighed, that comparable
forums exist in other provinces or states. It is not a matter of
flipping a coin. A court hearing an application for a stay of proceedings
must find that a forum exists that is in a better position to
dispose fairly and efficiently of the litigation.
On the other hand, a court must refrain from leaning
too instinctively in favour of its own jurisdiction. The doctrine
focuses on the contexts of individual cases and the factors that
a court may consider in deciding whether to apply forum non conveniens may vary depending on the context. Such factors might include the
locations of parties and witnesses, the cost of transferring the
case to another jurisdiction or of declining the stay, the impact
of a transfer on the conduct of the litigation or on related or
parallel proceedings, the possibility of conflicting judgments,
problems related to the recognition and enforcement of judgments,
and the relative strengths of the connections of the two parties.
Ultimately, the decision falls within the reasoned discretion of
the trial court. This exercise of discretion will be entitled to
deference from higher courts, absent an error of law or a clear
and serious error in the determination of relevant facts, which
takes place at an interlocutory or preliminary stage.
*1 2012 SCC 17
3. AIRLINES ARGUE THAT PROVINCIAL CONSUMER PROTECTION
ACTS DO NOT APPLY TO THEM: B.C. COURT DISAGREES
Faced with a class action lawsuit in British Columbia
concerning alleged deceptive pricing practices, Air Canada and Lufthansa
sought to dismiss this class action at a preliminary stage by arguing
that B.C.'s Business Practices and Consumer Protection Act*1,
(the "BPCPA"), which prohibits so-called "deceptive
pricing practices", is constitutionally inapplicable to airlines. *2 Ultimately, the court rejected this argument and allowed
the class action to proceed.
The representative plaintiff, Mr. Unlu, alleged that
Air Canada and Lufthansa charged and collected a fuel surcharge
deceptively when they described the surcharge as a "tax"
on electronically issued airline tickets. The alleged deception
allegedly arose because the surcharge was not, in fact, a tax collected
for any government, but, instead, was an additional charge collected
for the benefit of the airlines in addition to the base airfare.
Mr. Unlu relied on a prohibition in the BPCPA regarding communications with consumers that have the effect of
deceiving or misleading the public.
in relation to a consumer transaction
(a.) an oral, written, visual, descriptive or other
representation by a
(b.) any conduct by a supplier
that has the capability, tendency or effect of deceiving
or misleading a consumer or guarantor*3
The class action sought an order preventing the airlines
from continuing this practice and also sought compensatory damages
equal to all of the surcharges collected by the airlines in the
allegedly improper manner.
The core of the airlines' argument in this motion
was that the Federal government had already created a regime for
regulating airline pricing and ticketing practices. The airlines
argued that since this regime had already accepted its rate structure,
it was not for the provinces to overturn that decision. Technically,
the airlines argued that, because the federal regime already existed
in the area of airlines ticketing practices, provincial governments
were prevented from making competing laws that would apply to the
By way of background, the Canadian Federal government
regulates airlines pursuant to the Canada Transportation Act (the "CTA")*4. Under the CTA, the
Canada Transportation Agency (the "Agency") is empowered
to make regulatory decisions regarding airlines tariffs, rates,
charges and the terms and conditions of passenger air carriage.
Part of this regulatory authority extends to empowering the Agency
to accept or reject an airline's proposed tariffs and terms of carriage.
The Agency is also empowered by section 86.1 of the CTA to
regulate advertising by airlines. In this case, the airlines' tariffs
and rates had been accepted by the Agency.
The airlines relied on two separate Canadian constitutional
doctrines used in order to "strike down" laws that interfere
with Federal authority; that is, the doctrines of "paramountcy"
and "inter-jurisdictional immunity".
The paramountcy doctrine applies when an actual conflict
arises between federal and provincial laws on a particular subject
matter. In such cases, the federal laws will be found to be "paramount"
to the provincial laws and a court will strike down the provincial
law. This doctrine is a longstanding Canadian constitutional rule
to prevent the federal and provincial government from passing inconsistent
laws on the same subject matter. Colloquially speaking, this doctrine
provides a sort of "tie-breaker" when there is a contest
between laws passed by two levels of government.
There are two types of conflict that will lead to
the application of the paramountcy doctrine: an operational conflict
and a "frustration of a federal purpose". To paraphrase
the definition of these types of conflict, they roughly equate to
a direct and indirect conflict. Direct or operational conflicts
arise when it is impossible for one to follow both laws at the same
time. Indirect conflicts or "frustration of a federal purpose"
arise when the provincial law interferes with the underlying aims
of the federal law, even if it is possible to comply with both laws.
To be more precise, the Supreme Court of Canada defines these two
types of conflict as follows:
The first is operational conflict between federal
and provincial laws, where one enactment says "yes"
and the other says "no", such that "compliance
with one is defiance of the other"
a second branch
of paramountcy, in which dual compliance is possible, but the
provincial law is incompatible with the purpose of federal legislation...
Federal paramountcy may thus arise from either the impossibility
of dual compliance or the frustration of a federal purpose.*5
The court rejected the first aspect of the paramountcy
argument, as it found that there are no operational conflicts between
the rules passed by the Agency and the BPCPA.
The Airlines' primary argument is that the BPCPA is inapplicable because it frustrates the purpose of the federal
law. However, they also say that there is an operational conflict
between the federal law and the BPCPA. I will deal first
with their operational conflict argument.
In my view, there is no operational conflict. For
an operational conflict to exist, and in the context of the issues
raised in Mr. Unlu's pleadings, the Agency would have to require
that an airline display a tariff containing a statement or statements
that have the capability, tendency or effect of deceiving or misleading
a consumer, something prohibited under the BPCPA. To put
it another way, there would be an operational conflict if the
Agency accepted an act or practice that would be deceptive under
the BPCPA. However, I see nothing in either the Transportation
Act or the Regulations to suggest that the Agency would
impose such a requirement on an air carrier, or conclude it was
acceptable. The idea borders on the absurd.*6
The court also found that the BPCPA did not
frustrate any federal purpose because it did not accept that the
Federal government intended that the Agency be the sole authority
regarding airline tariff, rates and terms and conditions. The court
was swayed by the fact that the Agency had limited power to grant
remedies to the consumer when airlines contravene its regulations.
This left a legislative void for which it was open for the B.C.
government to fill same with the BPCPA.
The Airlines argue that the Transportation Act and the Regulations vest the Agency with final decisional
authority over all economic aspects of air travel, in accordance
with the objects in s. 5 of the Act. They say that Parliament
intended the legislation to be a complete code for regulating
contracts for international carriage by air
I do not accept the Airlines' argument that the
federal legislation has as its purpose making the Agency the exclusive and final decision-making authority with respect to matters relating
to air travel, particularly in relation to the subject matter
of Mr. Unlu's complaints. The legislation is limited when it comes
to consumer remedies
I do not see anything in the legislation
to suggest that remedies described are to be the only remedies
available to a consumer dealing with an air carrier.*7
The second doctrine relied on by the airlines, inter-jurisdictional
immunity, does not require conflict between two competing laws,
but, instead, applies when a provincial law intrudes into a core
area of federal jurisdiction in such a fundamental way that the
provincial law must be struck down in order to preserve federal
power. As explained by the court in Unlu, this doctrine applies
when (1) a provincial intrudes on a core federal area, and (2) the
impairing effect of the provincial law on the exercise of federal
power is so serious as to require striking down:
The analysis with respect to the doctrine of inter-jurisdictional
immunity presumes the validity of a law and focuses exclusively
on the law's effects on the core of a federal power. What matters,
from the perspective of inter-jurisdictional immunity, is that
the law has the effect of impairing the core of a federal competency.
In those cases where the doctrine applies, it serves to protect
the immunized core of federal power from any provincial impairment
The first step in the analysis is to determine whether
a provincial law trenches on the protected "core" of
a federal competence. If it does, then the second step is to determine
whether the provincial law's effect on the exercise of the protected
federal power is sufficiently serious to invoke the doctrine of
The court rejected the airlines' argument under this
doctrine as well. The court found that BPCPA did not seriously
intrude on the exercise of federal power because the BPCPA did
nothing to impair the federally enacted CTA or the powers
of the Agency:
The Airlines raise the concern that air carriers
would become subject to the decisions of provincial regulators
who, unlike the Agency, have neither the mandate nor the expertise
to take into account unique features of the airline industry or
to take into account international fuel surcharges. However, Mr.
Unlu does not complain about the fact of the fuel surcharges,
or challenge the ability of the Airlines to levy them. For the
doctrine of inter-jurisdictional immunity to apply, the impairment
must seriously or significantly trammel the federal power. Provincial
regulation of the deceptive acts and practices alleged by Mr.
Unlu would not impair Parliament's power to regulate airline tariffs,
tolls, terms and conditions of carriage or advertising, as contemplated
by the Transportation Act and the Regulations. In
those circumstances, the Airlines' arguments based on the doctrine
of inter-jurisdictional immunity cannot succeed.*9
Ultimately, the court upheld the applicability of
the BPCPA to airlines, and dismissed this preliminary attempt
to dismiss Mr. Unlu's class action.
The lesson for passenger carriers, and any cargo carriers
interacting with the consumers and not just sophisticated shippers,
is to ensure that provincial consumer protection laws are considered
in structuring billing and contracting practices.
*1 Unlu v. Air Canada,  B.C.J.
No. 86 (S.C.) ("Unlu").
*2 Business Practices and Consumer Protection Act, S.B.C.
2004, c. 2.
*3 BPCPA, section 4.
*4 Canada Transportation Act, S.C. 1996, c. 10.
*5 Quebec v. Canadian Owners and Pilots Association, 
2 S.C.R. 536 ("COPA") at para. 63; cited in Unlu
at para. 63.
*6 Unlu at paras. 66-67.
*7 Unlu at paras. 73 & 77.
*8 Unlu at paras. 79-80, also see COPA at paras. 35-36.
*9 Unlu at para. 90.
4. DECEIT AND FRAUDULENT MISREPRESENTATION: A FINDING
OF PERSONAL LIABILITY OF CORPORATE DIRECTORS WITH A CHERRY ON TOP
Since the mid-nineteenth century, the corporation
has been the vehicle of choice in commerce. Much of the corporation's
dominance is because, in the ordinary course, it provides limited
liability for its directors, officers, and shareholders due to its
own legal personality, separate from those groups of persons so
mentioned. Therefore, ordinarily if a corporation commits a breach
of contract or is found liable in tort, judgment will be against
the corporation alone and not its directors, officers, or
shareholders. Or, by way of another example, the bankruptcy of a
corporation will implicate the assets of a corporation but not the
assets of its directors, officers of shareholders (well, only insomuch
that the directors and officers may find themselves without their
former positions, and shareholders may lose some or all of the amount
that they invested in exchange for their shares).
This limited liability feature has made the corporation
the most successful business vehicle of all time; however, it is
not without its limits and, as is discussed below, in certain circumstances
where the Court finds deceit and misrepresentation on the part of
the directors, officers and/or shareholders of a corporation in
connection with the liability of a corporation, the Court will sometimes
attribute the liability of the corporation to those very individuals.
The following is a discussion one of such recent case.
The Supreme Court of British Columbia, in WS Leasing
Ltd. v. Platinum Equipment, 2012 BCSC 558 (CanLII), found two
directors of a corporation personally liable for the full amount
claimed in connection with a sham transaction on the basis that
the two directors had committed the tort of deceit and made fraudulent
representations in order to obtain funds from the plaintiff. Further,
the Court ventured so far as to award $5,000.00 as against each
personal defendant director for punitive damages, which is an extraordinary
remedy and reflects the extent of the Court's condemnation directors'
The plaintiff, WS Leasing Ltd. ("WS Leasing"),
was in the business of lease financing.
The corporate defendant, Platinum Equipment Ltd. ("Platinum")
was in the business of procuring and selling heavy equipment, including
trailers and shipping containers. The personal defendants, Mr. Fanning
and Mr. Knott, were directors, officers, and shareholders of Platinum
and, in the words of the Court, they "were involved in the
day-to-day operations and oversaw Platinum's sales transactions." *1
With regard to the transaction that was the subject
of the litigation, Platinum had entered into a contract with a third
party purchaser (the "Purchaser") whereby Platinum agreed
to procure 40 steel shipping containers from a third party manufacturer
(the "Manufacturer"). The Purchaser required lease financing
and, to this end, its finance broker contacted the plaintiff, WS
Leasing, for financing. WS Leasing approved funding of $645,000
for the transaction.
The sales order for the containers was dated September
19, 2008, with an expected delivery date of November 19th. There
were delays and the aforementioned delivery date was not met. Platinum
advised of a new date, which came and passed without the arrival
of the containers.
Behind the scenes, the Manufacturer would not ship
the containers until Platinum made payment in respect of same, but,
of significance, at no point did Platinum reveal this fact to the
Purchaser. In early January 2009, Mr. Fanning of Platinum wanted
to reassure the Purchaser that the containers would arrive shortly,
even though he knew that they had not yet shipped from China. Mr.
Fanning provided the Purchaser with a listing of the serial numbers
of the containers and requested payment. The Purchaser, by way of
WS Leasing, responded by requesting a New Vehicle Information Statement
("NVIS") in respect of each container being a "document
that certifies the existence of a new vehicle, with a specific vehicle
identification number, as of a certain date."*2 Further,
around this time, the finance broker advised Mr. Fanning that WS
Leasing would not pay out the funds without a bill of sale and the
NVIS forms for the containers.
Following the above, Mr. Fanning then prepared an
invoice for WS Leasing indicating that the containers were being
sold by Platinum to WS Leasing. At Mr. Fanning's request, Mr. Knott
prepared 40 NVIS forms for the containers. Moreover, Mr. Knott signed
the NVIS forms, certifying the accuracy of the contents of the forms
without actually having examined the containers, verified their
existence, or knowing if the containers had, in fact, been manufactured
or, if they had been so manufactured, the date when they would be
shipped from China.
That same day, the Manufacturer wrote to Mr. Fanning
and advised him that it only had 25 containers available and that
it would take more than two months to manufacture more units. Mr.
Fanning did not relay this information to any of the following parties:
the Purchaser, the Purchaser's finance broker, or WS Leasing. Despite
this information, Mr. Fanning sent the invoice and NVIS forms to
WS Leasing to receive payment.
Upon receipt of the invoice and NVIS forms, WS Leasing
issued a payment to Platinum for the purchase price. (At trial,
witnesses appearing for WS Leasing testified that "WS Leasing
would not have released the cheque for the purchase price to Platinum
without the invoice and the NVIS forms." *3)
A few days later, Mr. Knott obtained the payment cheque
from WS Leasing. Summarizing Mr. Knott's failure to act at that
time, the Court states at paragraph 22 of its decision:
Mr. Knott did not advise anyone at WS Leasing that
Platinum was not in a position to transfer any containers to it
because some of the containers were not manufactured and the ones
that were manufactured had not been shipped from China, and had
not been paid for by Platinum. Further, Mr. Knott did not disclose
that the serial numbers on the NVIS forms and the invoice were
from a prior transaction, and for containers that were no longer
In February of 2009, Mr. Fanning arranged for Platinum
to issue a cheque to the Purchaser's finance broker for the first
lease payment. Shortly thereafter, Mr. Fanning met with the Purchaser
and produced a document that he purported to be a shipping manifest
allegedly proving that the containers were on their way. The Purchaser,
however, immediately identified the document as not being a shipping
manifest and requested further information. In response, Mr. Fanning
advised that "the containers were being shipped on a vessel
known as the Perth on voyage 18." *4 He then asked the
Purchaser to sign the leases but the Purchaser responded that it
would need confirmation that the containers were indeed on the Perth
before it agreed to anything in writing. The Purchaser then investigated
the voyage information provided by Mr. Fanning and discovered that
the containers were, in fact, not on the Perth. As a result, the
Purchaser cancelled the agreement to lease the containers from WS
Following the above, WS Leasing recovered part of
the first payment from the Purchaser's finance broker, leaving $494,974.80
of the amount provided by WS Leasing outstanding.
Issue 1: Should Mr. Fanning and Mr. Knott be
held Personally Liable?
The first issue considered by the Court was whether
Mr. Fanning and Mr. Knott should be held personally liable for the
monies paid by WS Leasing to Platinum. With regard to this issue,
the Court succinctly summarized the parties' positions as follows:
 WS Leasing says it relied on representations
made by Mr. Fanning and Mr. Knott in the invoice and the NVIS
forms when it issued the cheque to Platinum to purchase the containers.
At the time that Mr. Fanning and Mr. Knott represented that Platinum
could sell the containers to WS Leasing, Platinum was not in a
position to deliver the containers. Neither Mr. Fanning nor Mr.
Knott informed WS Leasing that Platinum could not deliver the
containers, even though they were well aware that Platinum was
unable to deliver the containers. The transaction was a sham and
WS Leasing received nothing in return for paying the purchase
Individual defendants' position
 Mr. Fanning and Mr. Knott concede that
Platinum is indebted to WS Leasing because it has failed to deliver
the containers. They point to the fact that Platinum has admitted
liability for the debt. However, Mr. Fanning and Mr. Knott say
there is no basis for a finding of personal liability in this
case. They take the position that at all times they were acting
through a company and it is the company that is liable for the
debt. Mr. Fanning and Mr. Knott say there was no fraud or deceit
on their part.
With regard to the relevant law to be considered in
the context of whether it is appropriate to hold a personal defendant
liable in his or her capacity as a director and/or officer of a
corporation in respect of the obligations owed by a corporation,
the Court enumerated a helpful list of pertinent common law principles:
i. "Directors and officers of companies are
not immune from liability for their tortious acts, even when acting
in the best interests of the company." *5
ii. "Directors and officers have been found
liable on the basis that the appropriate remedy for fraud is to
award damages against both the individuals and the company that
committed a fraud." *6
iii. "The proper award for fraudulent misrepresentation
is to place the innocent party in the position it would have been
in but for the fraudulent misrepresentation." *7
iv. "In order to establish the tort of deceit
the plaintiff must prove a fraudulent misrepresentation. In order
for a representation to be fraudulent, the representation must
be false, the party making the representation must have known
it was false at the time it was made, or have made it with reckless
disregard as to its truth, the victim must have been induced to
act as a result of the representation, and the party making the
representation must have intended the victim to act." *8
v. "In order for a representation to be reckless,
there is no need for an intention to deceive. A wanton disregard
as to whether or not the representation will deceive or not is
sufficient." *9 As noted in Noble v. Fuller, 
B.C.J. No. 1007 at para. 20 (S.C.):
When a professional salesperson chooses to give
answers to serious questions from potential purchasers without
ascertaining whether or not they are true, recklessness and
the tort of deceit are established.
vi. "Liability can be imposed for remaining
silent and allowing false statements to be made." *10
vii. "A defendant can be held liable for false
statements to a third party when the defendant is aware that the
plaintiff will rely on them." *11
viii. "There is no onus on the victim of fraud
to have detected the fraud in advance." *12
Applying the law to the facts, the Court concluded
that Mr. Fanning and Mr. Knott should be held personally liable
for the monies advanced by WS Leasing to Platinum. In their defence,
the two personal defendants argued that there had been no fraud
or deceit and they provided self-serving explanations to justify
their actions. The Court, however, found neither of them to be credible
with respect to their testimony. In fact, the Court found it to
be clear from the evidence that Mr. Knott and Mr. Fanning acted
together to create documents intended to show that Platinum was
in possession of 40 containers and regarding which it was in a position
to pass title to them, when they knew that same was untrue. They,
in fact, provided those false documents to the finance broker and
WS Leasing knowing that WS Leasing would rely on the representations
contained in the documents, which representations the Mr. Knott
and Mr. Fanning knew were false.
Further, the Court gave consideration as to what had
become of the unreturned funds and the fact that the personal defendants
enjoyed the direct benefit of those funds. This consideration appears
to have played a part in the Court's decision: *13
If Mr. Fanning intended to have Platinum deliver
the containers, presumably he would have done so by immediately
paying the monies [the Manufacturer] required upon receipt of
the cheque from WS Leasing. Instead, the evidence is that the
cheque was deposited into Platinum's account and the monies were
used in part to pay down Platinum's loans that Mr. Fanning and
Mr. Knott were personally liable for as well as their salaries (emphasis added).
Of note, Mr. Knott argued that he was not aware that
the meaning of the NVIS forms, which he had prepared and signed.
On this point, the Court gave him no quarter on account of his level
of business sophistication: *14
I do not accept Mr. Knott's evidence in this regard.
Mr. Knott is a salesman and one of four shareholders in Platinum. He is a sophisticated businessman who deals in contracts and
forms on a day-to-day basis in his business. He signed 40 NVIS
forms as the authorized representative of Platinum, declaring
that each of the containers was available to be assigned for registration
when he knew that they were not (emphasis added).
Based on the evidence as a whole, the Court concluded
that Mr. Fanning and Mr. Knott committed the tort of deceit by making
fraudulent representations to WS Leasing, upon which the directors
intended WS Leasing to rely to its detriment.
Issue 2: What Damages should be Awarded against
Mr. Fanning and Mr. Knott?
As stated earlier, the proper award for fraudulent
misrepresentation is to place the innocent party in the position
it would have been in but for the fraudulent misrepresentation.
In this case, the amount of the loss suffered by WS Leasing was
$494,974.80; thereby, the Court awarded judgment jointly and severally
for the said amount against Platinum, Mr. Fanning and Mr. Knott.
WS Leasing also sought punitive damages against Mr.
Fanning and Mr. Knott. In considering whether such damages were
appropriate in the circumstances, the Court referred to the Supreme
Court of Canada's seminal decision on the subject, Whiten v.
Pilot Insurance Co., 2002 SCC 18 (CanLII),  1 S.C.R. 595;
specifically, the Court restated the list of factors to consider
regarding whether an award of punitive damages is appropriate. At
paragraph 94 of Whiten, the Court stated: *15
(1) Punitive damages are very much the exception
rather than the rule, (2) imposed only if there has been high-handed,
malicious, arbitrary or highly reprehensible misconduct that departs
to a marked degree from ordinary standards of decent behaviour.
(3) Where they are awarded, punitive damages should be assessed
in an amount reasonably proportionate to such factors as the harm
caused, the degree of the misconduct, the relative vulnerability
of the plaintiff and any advantage or profit gained by the defendant,
(4) having regard to any other fines or penalties suffered by
the defendant for the misconduct in question. (5) Punitive damages
are generally given only where the misconduct would otherwise
be unpunished or where other penalties are or are likely to be
inadequate to achieve the objectives of retribution, deterrence
and denunciation. (6) Their purpose is not to compensate the plaintiff,
but (7) to give a defendant his or her just desert (retribution),
to deter the defendant and others from similar misconduct in the
future (deterrence), and to mark the community's collective condemnation
(denunciation) of what has happened. (8) Punitive damages are
awarded only where compensatory damages, which to some extent
are punitive, are insufficient to accomplish these objectives,
and (9) they are given in an amount that is no greater than necessary
to rationally accomplish their purpose. (10) While normally the
state would be the recipient of any fine or penalty for misconduct,
the plaintiff will keep punitive damages as a "windfall"
in addition to compensatory damages. (11) Judges and juries in
our system have usually found that moderate awards of punitive
damages, which inevitably carry a stigma in the broader community,
are generally sufficient.
Without delving into the finer points of the factors
enumerated above, the Court summed up the personal defendants' deliberate
conduct as "reprehensible" and stated the following:
 The knowing falsification of documents
by dealers of products should be deterred. In this case, the conduct
of falsifying the invoice and NVIS forms when they knew Platinum
was not in a position to deliver the containers was planned and
deliberate. As set out earlier, Mr. Fanning admitted that the
purpose of sending the invoice and the NVIS forms to WS Leasing
was to get paid by it. Mr. Knott and Mr. Fanning attempted to
conceal their fraudulent behaviour when they received the cheque.
They placed it in a bank account and used it, in part, to pay
down personal liabilities and their own salaries.
 Based on the factors set out in Whiten,
and keeping in mind the circumstances of this case, that punitive
damage awards are an exceptional remedy, and fairness to both
sides, it is my view that an award of punitive damages in the
amount of $5,000 against each of Mr. Fanning and Mr. Knott is
The decision discussed above is an example of the
limits of a corporation's separate legal personality as well as
a helpful summary of the Canadian common law in respect of situations
involving the fraud of a director and/or officer of corporation.
Further, this decision is particularly valuable in the context of
the transportation industry where, unfortunately, fraud can occasionally
rear its ugly head leaving the innocent to look to only an empty
*1 WS Leasing Ltd. v. Platinum Equipment
Ltd, 2012 BCSC 558 (CanLII) at para. 4.
*2 Ibid at para. 11.
*3 Ibid at para. 21.
*4 Ibid at para. 24
*5 Ibid, at para. 31; ADGA Systems International Ltd.
v. Valcom Ltd. 1999 CanLII 1527 (ON CA), (1999), 168 D.L.R.
(4th) 351 at para. 18 (Ont.C.A.).
*6 WS Leasing, ibid at para. 31; B.G. Preeco 1
(Pacific Coast) Ltd. v. Bon Street Holdings Ltd. 1989 CanLII
230 (BC CA), (1989), 60 D.L.R. (4th) 30 at 40 (B.C.C.A.).
*7 Ibid; B.G. Preeco at 41.
*8 WS Leasing, ibid at para. 31; Islip v. Coldmatic Refrigeration
of Canada Ltd., 2002 BCCA 255 (CanLII), 2002 BCCA 255 at para.
*9 WS Leasing, ibid at para. 33.
*10 Ibid, at para. 34; Sugar v. Peat Marwick Ltd. reflex, (1988), 55 D.L.R. (4th) 230 at 238-239 (Ont H Ct J); Sidhu
Estate v. Bains 1996 CanLII 3332 (BC CA), (1996), 25 B.C.L.R.
(3d) 41 at para. 30 (C.A.).
*11 WS Leasing, ibid at para. 35; Smith v. Porter (1979), N.B.R. (2d) 439 at 451 (C.A.); Cherewick v. Moore,
 2 D.L.R. 492 at 494 (B.C.S.C.).
*12 Islip, supra at para. 15.
*13 WS Leasing, ibid at para. 49.
*14 Ibid, at para. 53.
*15 Ibid, at para. 62.
5. THE MONTREAL CONVENTION v. THE QUEBEC CIVIL CODE
Given the specific international nature of the transportation industry,
which most of the time knows no boundaries, conflicts of law are
not rare. In Carter v. Air Canada (*1), the Court of Quebec
recently had the chance to review the extent of the Montreal Convention
application and its potential conflict with the Quebec Civil Code.
1. The Facts
In this case the plaintiffs, Brian Carter and Alicia
Languedoc ("the plaintiffs"), filed a claim for damages
against Air Canada. The facts surrounding their claim remain unclear.
During a vacation in Barbados in February of 2008, Ms. Languedoc
seriously injured herself. As a result of her injury she, and Mr.
Carter decided to return to Montreal earlier than planned. To do
so, they booked flight tickets with Air Canada from Bridgetown,
Barbados to Montreal with a stop in Toronto. During their stop in
Toronto, there apparently was an argument between the plaintiffs
and two Air Canada employees regarding the state of Ms. Languedoc
and her capacity to board the flight to Montreal. The plaintiffs
sued Air Canada for damages resulting from their argument with the
Air Canada employees.
Air Canada pleaded that, notwithstanding the validity
of the plaintiffs' claim, the plaintiffs were statute-barred from
taking any action against Air Canada given the application of the
Montreal Convention, codified in Canada under the Carriage by
Air Act (*2), and its article 35, provided as follows:
"Article 35 - Limitation of Actions
1. The right to damages shall be extinguished if
an action is not brought within a period of two years, reckoned
from the date of arrival at the destination, or from the date
on which the aircraft ought have arrived, or from the date on
which the carriage stopped.
2. The method of calculating that period shall be determined by
the law of the court seized of the case.
The plaintiffs pleaded that the Montreal Convention
was not applicable in the circumstances because the plaintiffs'
claim arose from the alleged misconduct of the Air Canada employees
that occurred during a stop in Toronto and, therefore, the Quebec
Civil Code's three-year limitation period should apply instead of
the two-year limitation period of the Montreal Convention.
2. The Legal Issues
The Court of Quebec answered the two following questions:
a. Did the Montreal Convention apply to this action;
b. If yes, did the Montreal Convention apply to the exclusion
of the Quebec Civil Code.
3. The Ruling
The Court of Quebec answered affirmatively that the
Montreal Convention applied to this action. To support its ruling,
the Court of Quebec referred to Article 1 of the Montreal Convention:
Article 1 - Scope of Application
1. This Convention applies to all international
carriage of person, baggage or cargo performed by aircraft for
reward. It applies equally to gratuitous carriage by aircraft
performed by an air transport undertaking.
2. For the purpose of this Convention, the expression international
carriage means any carriage in which, according to the agreement
between the parties, the place of departure and the place of destination,
whether or not there be a break in the carriage or a transshipment,
are situated either within the territories of two State Parties,
or within the territory of a single State Party if there is an
agreed stopping place within the territory of another State, even
if that State is not a State Party. Carriage between two points
within the territory of a single State Party without an agreed
stopping place within the territory of another State is not international
carriage for the purposes of this Convention.
Accordingly, the Court of Quebec held that the plaintiffs'
flight was an "international carriage" and, hence, the
Montreal Convention applied to their action against Air Canada.
As to whether the Montreal Convention applied to the
exclusion of the Quebec Civil Code, the Court adopted the reasoning
in Lemieux v. Halifax International Airport Authority and Air
Canada (*3), a decision of the Nova Scotia Supreme Court that
addressed the very same issue as follows:
"It would be entirely contrary to that purpose
to allow different limitation periods to be set by domestic law
of all the states, provinces, counties, etc., in each country
which is a signatory. That would result in a lack of harmony and
unity in the application of the Convention which it was designed
The Montreal Convention is a complete code on the
subject of airline liability and the plaintiff has not brought
her action within the two-year limitation period set out in the
Convention. That provision is a substantive one and ousts the
jurisdiction of domestic courts in Nova Scotia (and elsewhere)
to apply their own law to the limitation period.
The Court of Quebec concluded that, not only did the
Montreal Convention apply to this action, but that it also applied
to the exclusion of the Quebec Civil Code. Accordingly, since the
plaintiffs had brought their action more than two years after the
alleged incident, their action was statute-barred under article
35 of the Montreal Convention, notwithstanding the three-year limitation
period under the Quebec Civil Code.
*1 Carter v. Air Canada, 2012 QCCQ
*2 Carriage by Air Act, R.S.C., 1985, c. C-26.
*3 Lemieux v. Halifax International Airport Authority and Air
Canada, 2011 NSSC 296 (CanLII).
6. THE CGL "PROPERTY
OWNED" EXCLUSION AND THE DUTY TO DEFEND
The Court of Appeal for Ontario recently issued its
judgment in Hector v. Piazza, 2012 ONCA 26, a decision regarding
whether the insurer, AXA Insurance Canada ("Axa"), was
obliged to provide a defence to its insured, Piazza. In concluding
that AXA was required to provide a defence, the Court interpreted
the use of the word "owned" in a Commercial General Liability
Giuseppe Reitano bought an apartment building in Ottawa
with the intent of renovating and developing it. His business partner
John Piazza had located the property and arranged for financing,
while Reitano was responsible for arranging the renovation work.
Once renovated, the building was sold to one Daniel
Hector in 2006. Several years later, the building's foundation settled
and Hector sued Reitano and the City of Ottawa for negligent construction
AXA had issued a CGL policy and a property insurance
policy to Reitano and Piazza. The policies covered the period from
October 15, 2001 to October 15, 2002. Aviva Insurance Company of
Canada insured the property from October to December 2002, followed
by Dominion of Canada General Insurance from December 2002 to the
sale of the property to Hector in 2006.
AXA had denied coverage to Piazza under the CGL, including
any duty to defend the litigation. Piazza brought AXA into the litigation
as a third party, and argued that AXA had a duty to defend because
the claims alleged by Hector fell within coverage.
The Motion Judge's Decision
Piazza brought a motion to determine the question
of AXA's duty to defend. There were two main issues before the judge
in first instance on this motion:
(1) whether Hector's negligence claims were derivative
of the contract for purchase and sale of the property; and
(2) whether Piazza's claim was excluded by the terms
of the policy.
The motion judge held that "the claim was not
derivative and that the wording of the policy in issue was ambiguous"
such that AXA's duty to defend was triggered (*1).
AXA appealed to the Court of Appeal. The issue on
appeal was whether the motion judge correctly interpreted the CGL
policy, which excluded, amongst other things, "property damage
to property owned or occupied by or rented to the insured
The Court noted the well-known principle that "the
threshold for the duty to defend" is simply "the possibility
of coverage" (*3). AXA, as insurer, has the burden of
proving that the exclusion "clearly and unambiguously excludes
AXA argued that the word "owned" in the
exclusions to the policy should be read in the past tense only on
the basis that there was no ambiguity as to whether "owned"
referred to the past or present tense. The Court did not agree with
this argument, concluding that, as a matter of simple grammar, the
phrase "property owned" can refer to "property which
is now owned or which was previously owned" (*5). In
addition, the other words in the clause could all be read in the
present tense as well as the past tense.
Considering the CGL policy as a whole, the Court found
that the exclusions generally dealt with "items that would
be the subject of first-party coverage" (*6). AXA argued
that, because "unexpected property damage can never give rise
to a third party liability claim against an insured while the insured
still owns the property", the exclusion must be read in the
past tense only (*7). However, the Court held that while
a CGL policy is not intended to insure first party claims, this
is not always the case, which can result in overlapping coverage.
The Court concluded that:
if the words "property owned"
in the exclusion are interpreted as referring to the present tense,
property that was owned by the insured in the past, and that is
subject to a third party claim, could fall within the ambit of coverage
under the policy. Contrary to the submission of the appellant [AXA],
this is not inconsistent with the intention of the parties to exclude
first party liability. (*8).
Thus, the policy exclusion did not clearly and unambiguously
exclude coverage. AXA was required to provide a defence to Piazza
in the Hector litigation.
This decision of the Court of Appeal affirms an insurer's
obligation to ensure that policy wording is clear and unambiguous.
In this case, the relatively simple phrase "property owned"
was interpreted against AXA's intent. Drafters of policies of insurance
should ensure clarity with the entirety of the policy, paying particular
attention to grammatical principles and the clear use of proper
*1 Hector v. Piazza, 2012 ONCA 26 at para.
*2 Ibid. at para. 10.
*3 Ibid. at para. 12.
*5 Ibid. at para. 15.
*6 Ibid. at para. 16.
*7 Ibid. at para. 17.
*8 Ibid. at para. 19.
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