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Newsletters 2012 > April 2012

In this issue:
1. Firm and Industry News
2. Supreme Court Rules on Jurisdiction of Canadian Courts Over Foreign Defendants
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 conference.

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 in Toronto.


 

2. SUPREME COURT OF CANADA RULES ON JURISDICTION OF CANADIAN COURTS OVER FOREIGN DEFENDANTS

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 out-of-province defendants.

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 courts.

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 test.

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 another province …

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 forum.

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 province;?
(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 include:

(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 of jurisdiction.

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 between them."

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 conveniens doctrine).

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.

Rui Fernandes

Endnotes

*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
supplier, or
(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 same area.

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 inter-jurisdictional immunity.*8

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, [2012] 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, [2010] 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.

Chris Afonso


 

4. DECEIT AND FRAUDULENT MISREPRESENTATION: A FINDING OF PERSONAL LIABILITY OF CORPORATE DIRECTORS WITH A CHERRY ON TOP (PUNITIVE DAMAGES)

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' acts.

Background

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 available.

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 Leasing.

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:

Plaintiff's position

[28] 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 price.

Individual defendants' position

[29] 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, [1985] 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), [2002] 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:

[66] 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.

[67] 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 appropriate.

Conclusion

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 corporate shell.

James Lea

Endnotes:

*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. 11.
*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, [1955] 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; and
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 to create.

[…]

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.

David Huard

Endnotes

*1 Carter v. Air Canada, 2012 QCCQ 2587 (CanLII)
*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 ("CGL") policy.

Facts

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 and renovation.

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…" (*2).

The Appeal

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 coverage" (*4).

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.

Conclusions

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 tenses.

Kimberly Newton

*1 Hector v. Piazza, 2012 ONCA 26 at para. 9.
*2 Ibid. at para. 10.
*3 Ibid. at para. 12.
*4 Ibid.
*5 Ibid. at para. 15.
*6 Ibid. at para. 16.
*7 Ibid. at para. 17.
*8 Ibid. at para. 19.

 

 

 

 


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