A Premier

Toronto Law Firm

serving all of Canada and International clients since 1996
 
Telephone:
416-203-9500
 


Newsletters 2018 > March 2018

View/Download this newsletter in PDF

In this issue:
1. News & Upcoming Events
2. Subrogation is Not an Assignment
3. Doing Business in Canada – Employment
4. Discretionary Orders v. Injunctive Relief
5. Sexual Harassment Claim
6. Partial Summary Judgments


 

1. News & Upcoming Events

  • Carole McAfee Wallace will be participating in a webinar presentation hosted by the Canadian Transport Lawyers Association concerning “Updates to Recent Legislation in Ontario Concerning Owner/Operators & Sub-Contractors” on April 5, 2018.  

  • Gordon Hearn will be a speaker at the Transportation Intermediaries Association 2018 Capital Ideas Conference & Exhibition in Palm Desert, California on April 11, 2018.  Gordon will be addressing the loss and liability exposure facing shippers and intermediaries arising from the insertion of multiple layers of intermediaries in a supply chain.

  • Louis Amato-Gauci be participating in a webinar regarding the NAFTA Modernization Negotiations being hosted by the National Customs Brokers & Forwarders Association of America, Inc., on April 12, 2018.  

  • Gordon Hearn, Louis Amato-Gauci and Carole McAfee Wallace will be representing the Firm at the Annual Meeting of the Transportation Lawyers Association on May 3, 2018 at Orlando, Florida. Gordon will be hosting a panel presentation on the “The Need for Freight Forwarder and Load Broker Due Diligence: A Study in Risk Management and the Protection of Commercial Interests”Carole will be presenting a paper on updates and developments in “International Transportation”.

  • Kim Stoll will be representing the firm at the DRI Trucking Seminar on April 26, 2018 in Chicago, Illinois

  • Kim Stoll will be attending the WISTA USA Annual General Meeting on April 27, 2018 in New York, New York. Kim is the Vice-President (Central Region) for Wista Canada.

  • Marine & Energy Symposium of the Americas 2018 (“MESA 2018”) conference April 18-20, 2018 in Toronto. Fernandes Hearn LLP is a Platinum Sponsor of the conference. The following is the program for the conference.

    Where? Omni King Edward Hotel, Toronto Canada

    When? 18-20 April 2018

    Registration: http://www.mesa2018.com

    Wednesday, April 18, 2018

    6:00 - 8:00 pm         Registration - Mezzanine, Omni King Edward Hotel 
    6:30 - 8:00 pm         Opening Reception - Palm Court, Omni King Edward Hotel 
    8:00 pm                    Dinner on your own - or join us at a pre-arranged restaurant

  • Thursday, April 19, 2018

    Time

    Vanity Fair Ballroom

    8:30 to 8:45 am

    Welcome – Rui Fernandes, Partner Fernandes Hearn LLP

    8:45 to 9:45 am

    Arctic Exploration and Shipping / The Polar Code
    Moderator: Rui Fernandes, Partner Fernandes Hearn LLP
    Peter Pamel – Partner Borden Ladner Gervais, (Canada)
    Aldo Chircop – Professor of Law; Canada Research Chair (Tier 1) in Maritime Law and Policy Dalhousie University

    9:45 to 11:15 am

    NAFTA Modernization and Impact on Energy and Trade
    Moderator: Louis Amato-Gauci, Partner, Fernandes Hearn LLP
    Hon. Lisa Raitt, Member of Parliament for Milton, Deputy Leader of the Official Opposition (Canada)
    Dan Ujczo – Counsel, Dickenson Wright PLLC (USA)

    11:15 to 11:30 am

    Coffee Break

    11:30 to 12:30 pm

    Catastrophes and Crisis Management
    Moderator: Kim Stoll – Partner, Fernandes Hearn LLP
    Mark Newcomb – Counsel and VP Claims & Insurance, Zim Integrated Shipping Services Ltd. (USA)
    Bruce Hennes, Managing Partner, Hennes Communications (USA)

    12:30 pm to 1:30 pm      Lunch Speaker – One Ocean Expeditions


    Time

    Vanity Fair Ballroom

    1:30 to 2:15 pm

    Application of Jurisdiction Clauses in Different Countries
    Shelley Chapelski – Partner Norton Rose Fulbright (Canada)
    Robert Reeb – Shareholder, Marwedel, Minichello & Reeb (USA)
    Fabiana Simões Martins – Partner, Siano & Martins (Brazil)

    2:15 to 3:00 pm

    Arrest of Vessels in Various Jurisdictions 
    Susan Dorgan – Special Lines Recovery Lead, Global Recovery, AIG (USA)
    Jean-Francois Bilodeau – Partner, Robinson Sheppard Shapiro (Canada)
    Jorge Luis Cordoba – Partner, Cordoba & Associates (Colombia)

    3:00 to 3:30 pm

    Issues Arising from Project Cargo 
    John Evans – Senior Vice-President, Marine, Berkshire Hathaway (USA)

    3:30 to 4:00 pm

    Blockchain & Smart Contracts
    Chris Burruss – President, Blockchain in Transport Alliance

    4:00 to 4:30 pm

    Autonomous Ships and Equipment
    Laura Hill – Associate, Perkins Coie LLP (U.S.)

    6:00 pm        MESA 2018 Cocktail Reception and Dinner – Hotel

    Friday, April 20, 2018


    Time

    Vanity Fair Ballroom

    8:30 to 9:30 am

    Limitation of Liability by Statute – Conventions and in Contracts
    Prof. Dr. Didem Light, York University, Osgoode Hall Law School, Visiting Scholar (Turkey)
    Hon. Elizabeth Heneghan – Judge,  Federal Court of Canada
    Steven W. Block – Member, Foster Pepper LLC (USA)

    9:30 to 10:15 am

    Impact of Climate Change on Shipping and Energy Projects
    Dr. Peter Tsantrizos – CEO, Terragon Environmental Technologies Inc. (Can)
    Sean Dalton – Head of Marine Underwriting, NA, Munich Reinsurance America, Inc. (USA)
    Janya Kelly – Climate Change and Air Quality Specialist, Golder Associates (Can)

    10:15 to 11:00 am

    Cyber Risks in Transportation and Energy Projects
    Caroline Leprince – Senior Policy Analyst, Canadian Cyber Incident Response Centre – Public Safety Canada
    Max J. Bobys – Vice-President, Global Strategy, HudsonAnalytix (USA)

    11:00 to 11:15 am

    Coffee

    11:15 to 12:00 pm

    Offshore Exploration and Exploitation: Liability and Compensation Issues
    Lawrence Malizzi – Senior Manager – O’Brien & Gere (USA)
    Lucas Leite Marques – Partner, Kincaid Mendes Vianna Advogados (Brazil)

    12:00 to 12:45pm

    Pipeline Technologies, Development Issues and Litigation
    Joshua Jantzi – Partner, Dentons Canada LLP (Canada)
    Kori Patrick – Technical Manager, Research & Development, Enbridge (Canada)

    12:45 pm to 1:45 pm          Lunch – Ethics Presentation


    Time

    Vanity Fair Ballroom

    1:45 to 2:30 pm

    Emerging Issues in Insurance in Marine and Energy
    Simon Swallow – Chief Executive,  Shipowners’ Club (UK)
    Brian Murphy – Vice President, Berkley Offshore (USA)

    2:30 to 3:15 pm

    LNG Contracts and Transportation
    Jason Hicks – Associate, Bernard LLP (Canada)
    R. Michael Sceery – Principal, Nitrogas Ltd. (USA)

    3:15 to 3:45 pm

    Wind Turbine Litigation
    Sarah Powell – Partner, Davies Ward Phillips & Vineberg LLP (Canada)

    1 pm to 2:00 pm                        Lunch –  Ethics Presentation

 

 

2. Insurers Take Note: Subrogation is Not the Equivalent of An Assignment

The recent decision by a five-judge panel of the Ontario Court of Appeal in Douglas v. Stan Fergusson Fuels Ltd. (and others) (*1)should be “cause for pause” for an insurance company interested in commencing subrogation proceedings against a third party responsible for a loss and for which they have indemnified an insured under a policy of insurance. A general benefit of this decision is the helpful articulation of “subrogation” principles and the rationale behind an insurer being able to exercise such a right.

A more focused “take away” from this decision is that it is important for insurers to be aware of potential issues that may frustrate recovery when the insured is an undischarged bankrupt at the time that the subrogation lawsuit is to be filed.  This case illustrates how this recovery goal may be frustrated where the “subrogation” clause in the policy of insurance does not amount to an effective assignment to the insurer of the right to sue upon the payment of the indemnity and the insured subsequently becomes bankrupt. 

The case addresses possible steps and tactical machinery available to the insurer in trying to set up the right to sue the responsible third party in such circumstances, the discussion of same however being beyond the scope of this article. 

Insurers must take care when drafting of policy language and in the instruction of their legal counsel at the time of commencing subrogation proceedings where the insured is bankrupt.

Introduction

As stated above, this case concerned a decision rendered by five judges.  Three of the five judges, forming the “majority decision” detailed below, ruled that there were fundamental flaws in the formulation of the subrogation proceeding such that the insurer could not proceed with the lawsuit. The other two judges (being the “dissenting judges”) came to agree with the finding that the action was replete with flaws, but, rather than dismissing the action outright, they suggested that the matter be “remanded” back to a trial judge, where certain technical procedural amendments or “work around” might be considered so as to revive the insurer’s claim.  As mentioned, these potential approaches, being technical features of the Rules of Court and federal bankruptcy protection, are beyond the scope of this article. 

This article focuses on the result; that is, what the majority came to find.  Like all else in a democracy, when a number of judges are involved, the “majority rules”.   For the purposes of this article, in examining the relevant findings by the “majority” below, reference is simply then made to the “Court”.

The Court aptly introduces this case as involving the “intersection of bankruptcy law and the doctrine of subrogation”: is an insurer entitled to commence a subrogated claim in the name of its bankrupt insured?

The Court held that the insurer in this case was not entitled to do so because, at the time the action was commenced, the insured’s cause of action had “vested” in his trustee in bankruptcy as the insured was an undischarged bankrupt. Upon an assignment into bankruptcy, the property of the bankrupt transfers to the trustee in bankruptcy. This includes the “right to sue”.  The question for consideration was whether in a subrogation claim the right to sue has been transferred to the insurer upon the payment of a policy indemnity, or whether such right remained with the insured such that it would have transferred to the trustee upon bankruptcy. In short, does the insurer have a right to exercise?

Background

Art and Wendy Douglas purchased a home in Kingston, Ontario and arranged for Stan Fergusson Fuels Ltd. to deliver fuel oil to their home. On January 9, 2008, fuel oil was delivered to the Douglas’ external oil tank. It was alleged that the fuel oil subsequently escaped and contaminated the property.

The following day, the Douglas’ insurer, State Farm Fire and Casualty Company (“State Farm”), appointed an adjuster, who determined that the associated Homeowners Policy provided coverage for losses associated with the spill. 

At the time of the oil leak, Wendy Douglas had no ownership interest in the property. Several months prior, on November 14, 2007, she had been discharged from bankruptcy subject to the stipulation that her interest in the property remained vested in her trustee in bankruptcy (the “Trustee”). The Trustee remained on title to the property, together with Mr. Douglas. 

The adjuster for the defendant sent invoices from the January clean-up to State Farm on March 17, 2008. State Farm paid the invoices, and advised that it intended to recover these and any future clean-up costs from the defendant.

The Homeowners Policy contained a subrogation clause providing as follows:

We will be entitled to assume all your rights of recovery against others and bring action in your name to enforce these rights when we make payment or assume liability under this policy.
[Emphasis appearing in the in original policy wording.]

On or about June 4, 2009, Mr. Douglas himself filed an assignment in bankruptcy. The Trustee then became Mr. Douglas’s trustee in bankruptcy and replaced him on the title to the property.

In October 2009, the Trustee sold the property after it had been cleaned up and paid debts owing to the various creditors. In total, State Farm spent over $800,000 to remediate the property. 

The Subrogation Claim

On January 7, 2010, State Farm commenced this action against Stan Fergusson Fuels Ltd. and other certain related companies (hereafter collectively referred to as “the defendant”) in the Ontario Superior Court in the names of its insureds, Art Douglas and Wendy Douglas.

The action was commenced prior the discharge of either Mr. or Mrs. Douglas from bankruptcy.

The defendant brought a motion for summary judgment to dismiss the lawsuit, arguing that the Douglases lacked capacity to commence the action because of their bankruptcies, and that accordingly that the State Farm subrogation action, which had been commenced in their names was a “nullity”.

State Farm replied by asking the judge, before whom the issues were presented:

(a) for directions with respect to the continuation of the action in the Douglas’ or its own name;
(b) alternatively, for a declaration that it was the party who could and who had the right to control the subrogation claim; and
(c) for an order permitting it to amend the statement of claim to plead that the plaintiffs were “Art Douglas and Wendy Douglas by their Subrogee State Farm Fire & Casualty Company”.

The judge granted State Farm’s request for a declaration that it was in control of the subrogation claim and dismissed the defendant’s motion to strike the claim. He also ordered that State Farm had the right to continue and control the action without needing to amend its statement of claim to add State Farm as a party. The judge reached this result on the basis that State Farm’s right of subrogation was a “contingent right” that vested at the time the policy was entered into and that at common law State Farm was allowed to control the subrogation claim once the Douglases were fully indemnified. 

The judge was not persuaded that the applicable legislation governing Canadian bankruptcy law [(*2)] extinguished or trumped the subrogation rights of State Farm, which vested at the time that the policy was entered into and which remained in place at the date of loss”.

The defendant then filed an appeal of this decision to the Ontario Divisional Court. The Divisional Court dismissed the defendant’s appeal, finding that State Farm had a vested contingent right to assume Mr. Douglas’s right to recover and, further, to bring an action that crystallized after State Farm had assumed liability for the loss on or about March 17, 2008, before Mr. Douglas filed for bankruptcy. Accordingly, the Divisional Court concluded that State Farm was entitled to commence the action in Mr. Douglas’s name without the consent of his Trustee and that the defendant’s summary judgment motion had been properly dismissed by the original judge. 

The defendant appealed this result to the Ontario Court of Appeal.

At the Court of Appeal

The defendant raised various arguments, the most salient being that the Divisional Court erred in its application of the principle of subrogation and the law as to the effect of an earlier bankruptcy order. The defendant cited British case law authority clarifying that the principle of subrogation only gives an insurer an interest in the recovered proceeds of an action, not a proprietary interest in the cause of action itself; that is, the ability in and of itself to bring the law suit. (*3) The defendant argued that the subrogation clause in the Homeowners Policy did not actually assign or transfer Mr. Douglas’s cause of action to State Farm – rather, it only gave State Farm the limited right to commence whatever action was open to Mr. Douglas to commence, in his name. 

Accordingly, it followed that Mr. Douglas’s right to sue for losses arising out of the oil spill passed to and vested in the Trustee, with Mr. Douglas no longer having capacity to commence the action upon his assignment in bankruptcy. Since Mr. Douglas did not have capacity to commence an action on January 7, 2010, it followed that State Farm could not commence an action in his name on that date.

The defendant further argued that striking the claim that State Farm commenced in the name of the Douglases was not unjust. State Farm could have provided in the Homeowners Policy that the Douglases assigned their cause of action to State Farm.

In reply, State Farm argued that Mr. Douglas’ right of action had vested in State Farm prior to his bankruptcy and that the Divisional Court correctly concluded that Mr. Douglas’s assignment in bankruptcy was subject to State Farm’s vested right to commence an action in his name. State Farm cited the legal principle that a trustee acquires title to the bankrupt’s assets subject to all the equities existing at the date of bankruptcy and is bound by the terms of contracts the bankrupt entered into prior to bankruptcy. It followed then that when Mr. Douglas made his assignment in bankruptcy under the Homeowners Policy that he had already granted State Farm the right to commence an action in his name. State Farm further argued that the subrogation clause in the Homeowners Policy amounted to an assignment of Mr. Douglas’s right to sue to State Farm and that State Farm should be permitted to continue the action.

The Court reviewed the relevant aspects of the doctrine of subrogation and the applicable provisions of the applicable bankruptcy legislation.

The Doctrine of Subrogation: Governing Legal Principles

1. The common law doctrine of subrogation is one of the cornerstones of insurance law. The objectives of the doctrine are to ensure that (i) the insured receives no more and no less than a full indemnity, and (ii) the loss falls on the person who is legally responsible for causing it (*4).
2. The doctrine of subrogation is related to the principle of indemnity. It mandates that, having indemnified the insured for a loss caused by a third party, the insurer may bring an action against the third party in the insured’s name. The insurer is said to be subrogated to the insured’s rights and is entitled to exercise those rights in the name of the insured
3. At common law, the insurer’s right of subrogation arises upon “full indemnification” of the insured.  In the absence of statutory or contractual terms to the contrary, the insurer’s right of subrogation does not arise until the insured has been fully indemnified. “Fully indemnified” means indemnified for both insured and uninsured losses, such as losses that exceed policy limits or losses that are not covered by the policy.
4. Before the point of full indemnification, the insured is obligated to pursue any claim it has against the third party in good faith.
5. At common law, the insurer becomes the dominus litis (that is, the party entitled to control the claim) upon “full indemnification” of the insured.
6. The insured is in control of the litigation, or the dominus litis, until it has been fully indemnified for its insured and uninsured losses.
7. The right to control the litigation does not necessarily follow from an insurer’s contractual right to be subrogated to the rights of the insured and to bring action in the name of the insured before the insured is fully indemnified. Put another way, the right of subrogation and the right to control the litigation may not necessarily be the same thing.
8. Subrogated claims are “derivative” in nature: the insurer can be in no better position as against the third party than the insured would be. Expressed otherwise, the insurer “stands in the shoes of the insured”. Any restriction or limit on the insured’s right of recovery against the third party applies equally to the insurer.
9. Where an insurer is subrogated to the claim of its insured, the claim nonetheless remains that of the insured in whose name and with whose rights the claim must be advanced.
10. Recoveries by the insurer beyond the indemnified losses are payable to the insured.  The right of subrogation gives the insurer the right to recover from the third party the amount that the insurer has paid out under the insurance contract to its insured. Any recovery in excess of the amount paid out by the insurer is payable to the insured.
11. Recoveries by the insured for indemnified losses are held in trust for the insurer. Where the insured commences an action against a third party and recovers in respect of an indemnified loss, the insurer is entitled to seek reimbursement from the insured.

Having canvassed the relevant law on rights of subrogation, the Court then reviewed the relevant provisions of applicable bankruptcy legislation.
Relevant Provisions of the Bankruptcy and Insolvency Act (the “BIA”)

Section 71 of the BIA provides that upon an assignment in bankruptcy being filed, the bankrupt ceases to have any capacity to deal with his property, which, subject to the BIA and the rights of secured creditors, immediately passes to and vests in his trustee. The section provides as follows:

On a bankruptcy order being made or an assignment being filed with an official receiver, a bankrupt ceases to have any capacity to dispose of or otherwise deal with their property, which shall, subject to this Act and to the rights of secured creditors, immediately pass to and vest in the trustee named in the bankruptcy order or assignment, and in any case of change of trustee the property shall pass from trustee to trustee without any assignment or transfer.

This gives effect to the ‘vesting’ of property in trustee as referred to above.

“Property” is broadly defined in s. 2 of the BIA and includes “things in action” like Mr. Douglas’s cause of action in this case. The Act states:

Property means any type of property, whether situated in Canada or elsewhere, and includes money, goods, things in action, land and every description of property, whether real or personal, legal or equitable, as well as obligations, easements and every description of estate, interest and profit, present or future, vested or contingent, in, arising out of or incident to property. [Emphasis added.]

The Court identified three issues for consideration:

  1. Did State Farm acquire a proprietary interest in Mr. Douglas’s right to sue the defendant – or had the right to sue vested in the Trustee?
  2. If not, did the subrogation clause in the Homeowners Policy permit State Farm to commence the action in the name of Mr. Douglas?
  3. If the answer to the first two questions was “no”, could the court make an order to remedy any procedural impediment to (or, in effect, to somehow otherwise legitimize) State Farm’s subrogated action? 

The Court ruled against State Farm on all three points, concluding that:

a) Mr. Douglas’s right to sue vested in the Trustee on the date of his assignment into bankruptcy;
b) the subrogation clause in the Homeowners Policy did not permit State Farm to commence the action in Mr. Douglas’s name; and,
c) in the circumstances, it could not make an order to remedy any procedural impediments to State Farm’s subrogated action. 

The Court noted that as a sophisticated party, State Farm could have included an assignment clause in the Homeowners Policy setting up a formal assignment of the right to sue.  As this was not the case State Farm should have commenced its action in the name of the Trustee, as “Trustee of the estate of Art Douglas, a bankrupt”. The Court could not “regularize” State Farm’s subrogated action simply by now substituting the name of the Trustee, as the plaintiff in the proceedings.

The Court took into consideration the following key considerations in arriving at this result:

i) Subrogation is not the equivalent of assignment. When an insurer is subrogated to the claim of its insured, the claim nonetheless remains that of the insured in whose name and with whose rights the claim must be advanced. 
ii) Subrogation rights do not give rise to a proprietary interest in the “cause of action” itself. 
iii) An insured does not assign a right to sue to its insurer simply by operation of the common law doctrine of subrogation.
iv) An insured who makes a recovery from a wrongdoer, and has recouped the costs of recovery, holds the rest in trust for the insurer up to the value of the insurer’s payment.
v) The subrogation clause in the Homeowners Policy did not amount to an assignment of Mr. Douglas’s right to sue. There is a difference between subrogation and assignment. Among other things, an assignment would permit an insurer to recover and keep any damages suffered by the insured in excess of the insurance proceeds paid to him.
vi) Mr. Douglas’s right to sue was “property” that passed to and vested in the Trustee pursuant to s. 71 of the BIA at the time he filed his assignment in bankruptcy.
vi) The case law is clear that an undischarged bankrupt lacks capacity to commence an action in his name, if his cause of action vested in the trustee on his assignment or at any time before his discharge.
vii) Because the Trustee acquired Mr. Douglas’s cause of action subject to State Farm’s right of subrogation, State Farm was entitled to commence the action in the Trustee’s nameThis conclusion gives effect to both the objectives and principles of the doctrine of subrogation and established principles of bankruptcy law.

On the basis of the foregoing the Court ruled in favour of the defendant and the lawsuit was dismissed once and for all.

Gordon Hearn

Endnotes
(*1) 2018 ONCA 192
(*2) Bankruptcy and Insolvency Act R.S.C. 1985, c. B-3
(*3) Ballast Plc, Re, [2006] E.W.H.C. 3189, [2007] B.C.C. 620 (Eng. Ch. Div.)
(*4) Somersall v. Friedman, 2002 SCC 59 (CanLII), [2002] 3 S.C.R. 109, at para. 50



3. Doing Business in Canada – Part 6 (*1) – Employment

Employment in Canada is regulated both at the provincial and federal levels. Legislation includes:

Employment Standards
Labour Relations
Human Rights
Occupational Health & Safety
Privacy Rules
Pension Benefits
Unemployment Insurance
Workers’ Compensation

Most employees are governed by provincial legislation unless they in a federally regulated industry: banking, shipping, federal railways, federal pipelines, airlines and airports, broadcasting and telecommunications. Contracts of employment will have to abide by both statutory legislation and common law. Such contracts may restrict or limit employee conduct both during the term of employment and after termination. For example, many contracts commonly contain three types of restrictions: a) non-solicitation covenants, b) non-competition covenants and c) non-disclosure covenants. The enforcement of these covenants depends on their duration and geographic scope, the wording of the contract, the nature of the business and the interests of the employer that need to be protected. Courts will interpret such covenants narrowly and no further than is necessary to protect the employer’s legitimate interests.

Employment Standards

Provincial and federal statues govern such matters as minimum wage rates, frequency of payment, hours of work, overtime, vacation pay, statutory holidays, maternity and other leaves, notices for termination of employment and pay in lieu thereof.

Employees who are dismissed without just cause are entitled to reasonable notice of termination of employment, and may recover damages if such notice is not given. For federally regulated industries, in certain circumstances, under the Canada Labour Code, a non-managerial employee may only be terminated for cause. Notice of termination is not an option. Termination is only possible if certain conditions exist, such as the legitimate elimination of the position. Examples of what constitutes just cause may be set out in the employment contract.

The length of the required notice period varies among jurisdictions, but generally increases with an employee’s length of service. In Alberta, for example, an employee with ten or more years of service are entitled to eight weeks of notice. Notice is not required for termination for cause. It usually includes repeat offences of a serious nature.

Labour Relations

Each province and the federal government have enacted legislation governing the formation and selection of unions and their collective bargaining procedures. Trade unions represent a significant portion of the Canadian work force. Collective bargaining consists of negotiations between an employer and group of employees over the terms and conditions of employment. The result of collective bargaining is a collective agreement.

Employees have the right to belong to a trade union of their choice, free of any coercion or interference by the employer. Employers have a duty to recognize and bargain in good faith with the trade union chosen by their employees. Labour relations tribunals supervise the organization of employees and, to some extent, the collective bargaining process. Failure of an employee to bargain in good faith may result in penalties being imposed. Most workers are entitled to strike if collective bargaining negotiations between the union and the employer do not result in an agreement; however, workers may not strike during the term of a collective agreement.

Collective agreements must provide for a private system of dispute resolution, typically in the form of arbitration. Employees who are dismissed or disciplined by their employer have the right to seek redress through arbitration. Arbitrators are given the power under the collective agreement to reinstate employees if they find that the employer acted with insufficient cause. They have the right to substitute a penalty of less severity than that imposed by the employer. The common law right to notice does not exist for unionized employees. 

Human Rights

The Canadian Charter of Rights and Freedoms (Charter) is a constitutional charter that governs the content of legislation and other government actions. In addition, every provincial and federal jurisdiction has legislation designed to protect human rights. Among other things, this legislation is aimed at preventing and redressing discrimination in the work place. For each jurisdiction, the relevant legislation should be referred to, as the prohibited grounds of discrimination are not uniform. Most jurisdictions prohibit discrimination on the basis of race, ancestry, nationality, ethnic or place of origin, political belief, colour, gender expression and/or identity, religion or creed, sex, sexual orientation, marital status, family status, age, physical or mental disability, or criminal conviction for which a pardon has been granted. Sexual harassment is considered discrimination on the basis of sex. Some jurisdictions allow for mandatory retirement at age 65, while in other jurisdictions mandatory retirement constitutes age discrimination. With respect to disability, employers have a duty to accommodate employees with a disability to the extent possible, to the point of undue hardship.

Examples of human rights legislation in effect include Ontario legislation where, in January 2012, Ontario started enforcing a rolling set of compliance deadlines relating to the implementation of the Accessibility for Ontarians with Disabilities Act, 2005 (AODA). The AODA creates significant obligations for publicand private sector organizations in Ontario with respect to accessibilityfor persons with disabilities, including specific obligations relating to accessibility and accommodation in employment. Manitoba has recently enacted similar accessibility legislation with rolling compliance deadlines, which commenced in 2016.

Occupational Health & Safety

Worker health and safety legislation exists in every province and federally. The legislation is designed to protect the safety, health and welfare of the employee as well as that of non-employees entering work sites. The legislation also provides compensation in cases of industrial accidents and diseases.

Occupational health and safety officers have the power to inspect workplaces and have the power to order the situation to be rectified and to make “stop-work” orders if necessary. Contraventions of the acts, codes or regulations are treated very seriously, and may result in fines or imprisonment. The Criminal Code has provisions for potential employer liability for failing to ensure safe workplaces.

In Canada, it is a criminal offence for an employer to take disciplinary measures, or threaten or adversely affect the employment of an employee, with the intent to stop such employee from providing information to law enforcement officials regarding wrongful activity. Provincial legislation also contain anti-reprisal provisions.

Privacy Rules

Canada has federal privacy laws that governs the collection, use, disclosure, storage and retention of personal employee information. Many provinces have similar legislation. Businesses operating in Canada should set up procedures for the protection of information, including:

a) the adoption of a privacy compliance strategy that identifies the organization’s compliance with the applicable regulatory regimes;
b) the adoption of a privacy policy, and personal information management practices, to ensure compliance with applicable privacy laws;
c) the appointment of an individual who will be responsible for the administration and oversight of the organization’s policy and practices;
d) a review of the current personal information practices of the organization;
e) a review of the organization’s data management infrastructure and data management practices;
f) the implementation of consent language in contracts, forms utilized when collecting personal
information from individuals, including customers and employees; and
g) the requirement, where there are contracts with third parties to whom personal information will be disclosed, that the third party agree to appropriate contractual term to protect private information.

Pension Benefits

The Canada Pension Plan is a federally created plan that provides pensions for employees, as well as survivors’ benefits for widows and widowers and for any dependent children of a deceased employee. Quebec has its own similar plan. All employees and employers contribute to the plans by way of deductions from pay. For the Canadian plan, an employee must contribute to the plan 4.95 per cent of all employment earnings in excess of C$3,500 up to a specified maximum of C$2,593.80 per year (in 2018). Employers are required to deduct this amount from an employee’s remuneration and remit it to the federal government, and are required to match this contribution. The maximum annual pensionable earnings for 2018 is $55,900.00.

Employment Insurance

The federal Employment Insurance Act regulates an insurance scheme to which both employers and employees must contribute. Workers, who qualify for assistance, receive benefits while they are unemployed, or without pay because of parental leave, temporary sickness or quarantine, or compassionate family care leave. Since January 2006 Québec also has its own Parental Insurance Plan, which provides benefits to insured employees when they take a maternity or parental leave and to which both employers and employees in Québec contribute.

Under the Employment Insurance Act, employers are required to deduct the contribution amount from an employee’s pay and remit it to the federal government and are required to match the contribution, at a rate of 1.4 times the employee’s contribution amount. For 2018, the maximum insurable earnings is $51,700 and the employee premium rate is $1.66 per $100. The employer contribution is $2.32 per $100. In Quebec, the premium rate for employees is $1.30 per $100.00.

Workers’ Compensation

For certain types of business, as set out in provincial legislation, employers may be required to provide injured workers with benefits in the form of workers’ compensation. The Government Employees Compensation Act provides compensation to federal government employees who are injured while on the job or become ill because of the work. Provincial and federal programs protect employers and employees from the impact of work-related injuries. All programs are administered by provincial workers’ compensation agencies. They compensate employees for lost income, health care and other costs related to their injuries. They protect employers from being sued by workers if they are injured on the job. In most jurisdictions, injured employees receive between 75 per cent and 90 per cent of their pre-injury income while disabled. Such compensation payments are largely funded through employer contributions.

Rui M. Fernandes
Follow Rui M. Fernandes on Twitter @RuiMFernandes and on Linkedin. See also his blog at http://transportlaw.blogspot.ca

Endnotes
(*1) This article is part 6 of 17 parts dedicated to a review of doing business in Canada. Subsequent articles will include Directors and Officers, International Trade, Competition, Sale of Goods, Intellectual Property, Privacy, Real Property, Environmental Laws, Taxation, Insolvency, Litigation and ADR.


 

4. Discretionary Orders on “Terms” in Lieu of Injunctive Relief

Injunctions are notoriously difficult to obtain.  A recent decision of the Ontario Superior Court of Justice in ProPurchaser.com v. Wifidelity Inc. (“ProPurchaser”) confirms as much. (*1)  However, it also suggests a possible willingness on the part of the court to order that the parties abide by “terms” to prevent unfairness prior to trial.

In the ProPurchaser matter, ProPurchaser provided pricing information about raw materials, supplies, goods, and services on its website.  To do so, it depended upon Wifidelity, which was a software developer specializing in software to price commodities and to assist parties in negotiations.  The arrangement between ProPurchaser and Wifidelity included a non-exclusive software licence, support services from Wifidelity, and collateral terms.  Over time, a dispute arose as to the amounts due on account of the licence fee versus the support services.  Litigation was commenced last July and in August an emergency injunction order was issued to maintain the status quo.  It required Wifidelity to continue providing access and services for a stipulated fee until further order of the court.  In November, the parties were back before a judge with ProPurchaser seeking an extension of the injunction, effectively to keep the licensing and services agreement alive until trial.

The Honourable Mr. Justice Perell considered the well-known test for issuing an injunction, approved by the Supreme Court of Canada in RJR-Macdonald v. Canada. (*2)  Pursuant to that test, the moving party must show (i) a triable or serious issue, (ii) evidence that it would be irreparably harmed if the order was not made, and (iii) that evidence that the “balance of convenience” weighed in its favour such that the prejudice to the moving party in failing to obtain the injunction would be greater than the prejudice to the respondent in having it issued.

Over time, the “irreparable harm” branch of the test has proven difficult to meet in many circumstances.  It is generally understood that “irreparable harm” means that harm will ensue that cannot be adequately compensated by the award of damages. In RJR-Macondald v. Canada, the Court was clear that this branch of the test relates to the quality or nature of the harm and not its magnitude.

In the case of ProPurchaser, the Honourable Mr. Justice Perell found that any damage would be compensable by a money award, noting also that Wifidelity had asserted that it had validly terminated the contract.  In any event, His Honour commented further that the balance of convenience lay with Wifidelity, finding that it would be unfair to extend the injunction, particularly as such an order would be tantamount to the remedy of “specific performance”, whereby a person is ordered to fulfil a contractual obligation because money damages would be inadequate.  Courts are loath to make such orders, preferring the more common remedy of money damages.

Despite theoretically dismissing the motion in the respondent’s favour, the Court invoked Rule 37.13 of Ontario’s Rules of Civil Procedure, (*3) which permits a motions judge to dispose of a motion on such terms as it finds just.  In the circumstances, the Court ordered a six-month delay to its order vacating the injunction.  In the interim, ProPurchaser was required to continue to pay Wifidelity the stipulated fee. 

The Court did not explicitly say so as part of its conclusion, but it had earlier noted evidence that replacement software with similar functionality to that of Wifidelity could be created in a matter of months.  It would take two to three months to replicate the core functionality, and no more than five months to recreate most of the enhanced features.  Thus, there was evidence to support the six-month delay as having been in the interests of justice.

His Honour did not mention it, but a similar power exists for all proceedings in Ontario – not just motions – pursuant to Rule 1.05 of the Rules of Civil Procedure.  That Rule provides that any order of the court may be made on such terms or conditions that are considered “just” in the circumstances.  Other Canadian jurisdictions have similar provisions in their rules governing civil litigation.  For example, Rule 53 of the Federal Courts Rules permits the Federal Court to make any order that it considers “just”, even if the order extends beyond the relief sought by a party; (*4) and Rule 13-1(1) of British Columbia’s Supreme Court Civil Rules permits a judge or master of the BC Supreme Court to impose any terms or conditions, or to give directions, as “it considers will further the object of [the Rules]”. (*5)

In the ProPurchaser matter, the moving party dodged a couple of bullets insofar as it had relied upon a third-party supplier to support critical functionality without a sufficient termination provision and, in fact, without sufficiently reducing its arrangement in writing.  Since any damages were theoretically not “irreparable” in the sense that a damages award could compensate for them, injunctive relief was disallowed.  In short, it was lucky.

One wonders just how far courts may be willing to go to order injunction-like terms to protect parties like ProPurchaser.  One also wonders whether those courts would be more restrained in the circumstances of a final order rather than an interlocutory order pending trial.

Alan S. Cofman

Endnotes
(*1) 2017 ONSC 7307
(*2) [1994] 1 S.C.R. 311
(*3) R.R.O. 1990, Reg. 194
(*4) SOR/2004-283
(*5) B.C. Reg. 168/2009

 

 

5. Sexual Harassment Claim Survives Motion to Strike

At a chance meeting in 2015, two WestJet flight attendants realized that they both alleged to have been sexually assaulted by the same pilot for the airline, one in 2008 and the other in 2010.

As a federal corporation subject to the Canada Labour Code, WestJet is obligated to issue a policy statement on harassment and discrimination (*1). WestJet however allegedly went much further than the statutory minimum by including an “Anti-Harassment Promise” in its standard form employment contract.

The plaintiff, who alleged the later instance of sexual assault, brought civil proceedings in the British Columbia Supreme Court for certification of a class action on behalf of all female flight attendants entitled to the protections of the Anti-Harassment Promise (*2).

The plaintiff alleged in the Notice of Civil Claim that the airline had failed to implement the contractually mandated Anti-Harassment Policy and, that moreover, as a result, the airline had made profits by benefitting from its reputation as an equality driven business, and also by saving the costs associated with investigation of harassment claims and with dismissing non-compliant staff and training new hires to replace errant employees.

The relief claimed by the plaintiff in the Notice of Civil Claim was broad in scope and ranged from declarations as to the failure to implement the contractually required Anti-Harassment Policy to restitution by disgorgement of profits made by WestJet and general damages.

The airline brought a motion to strike pursuant to Rule 9-5(1)(b) of the Supreme Court Civil Rules, B.C. Reg. 168/2009 (*3) on the basis that the claim was unnecessary and properly within the purview of the Canadian Human Rights Tribunal and the provincial Workers’ Compensation Boards. WestJet argued that the claim was deliberately disingenuous in seeking to reframe discrimination claims into breach of contract causes of action in order to escape the mandatory jurisdiction of the administrative boards.

The motion failed. The plaintiff was ordered to amend the pleadings so as to strike claims for general damages. Such claims were patently claims by workers for injuries suffered in the scope of their employment and therefore did fall squarely within the jurisdiction of the Workers’ Compensation Boards.

As for the balance of the claim, and particularly the novel relief claim by way of disgorgement of profits by the airline, the court relied on precedent Supreme Court of Canada jurisprudence which establishes the high threshold for striking of a claim at a preliminary stage and urge at the striking notion that, “The approach must be generous and err on the side of permitting a novel but arguable claim to proceed to trial” (*4).    

Although the court acknowledged that the pleadings were anything but a model of clarity, it also refused to find that the relief claimed was “manifestly unprovable or widely speculative”. The court distinguished the present case from precedent where a plaintiff was seeking to enforce a statutory right, such as payment of overtime, where there was an express administrative decision maker enabled by legislation to adjudicate such dispute (*5).

Moreover, since the claim was not bound to fail and did not lack any arguable basis, the proceeding could not be considered an abuse of process and unnecessary as alleged by WestJet.

The matter will proceed to a certification hearing and should raise concern for employers who make broad undertakings as to no tolerance of improper sexual conduct given that they may be contractually held to such undertakings that are more exacting than those minimum standards imposed by legislation.
 
Mark Glynn

Endnotes
 (*1) Canada Labour Code, R.S.C. 1985, c. L-2 s. 247.4 (1)(a)
(*2) Lewis v. WestJet Airlines Ltd. 2017 BCSC 2327
(*3) Supreme Court Civil Rules, BC Reg. 168/2009, Rule 9-5(1)(b)
(*4) R. v Imperial Tobacco Canada Ltd., 2011 SCC 42
(*5) Macaraeg v. E Care Contact Centers Ltd., 2008 BCCA 182

 

 

6. Partial Summary Judgments: A Word to the Wise (or, My Recent Civil Practice Court Attendance)

The Civil Practice Court in Toronto is a scheduling court where junior (and not-so-junior) associates appear to schedule hearing dates for summary judgment motions, among other things. Starting at 9:30 a.m. each morning, counsel make short appearances (of usually only a few minutes) before a judge in an effort to have their various hearings set down and timetabled.

Civil Practice Court is widely known to be a fairly efficient process, where counsel simply have their schedules and requests “rubber-stamped” by the Court. Scheduling requests seem to rarely be denied.

However, that may be changing, with respect to scheduling summary judgment motions, and in particular partial summary judgment motions. Based on recent experience in Civil Practice Court, counsel and litigants should be aware that judges appear to be more willing to “push back” on requests for summary judgment and partial summary judgment. This is particularly this case in light of the recent Ontario Court of Appeal decision in Butera v. Chown, Cairns LLP, (*1) discussed below.

Butera v. Chown, Cairns LLP and Partial Summary Judgments

The Butera decision from the Ontario Court of Appeal provides guidance on how courts in Ontario are to approach motions for partial summary judgment. Butera was a lawyers’ negligence case, arising from a situation where the plaintiff was a client of the defendant law firm. The plaintiff had a cause of action against a manufacturer for breach of contract, misrepresentation, negligence and breach of provincial franchise legislation. Its action against the manufacturer was dismissed, however, because it was commenced after the relevant limitation period. In dismissing the action, Justice Hambly provided commentary about the misrepresentation argument being advanced by the plaintiff against the manufacturer.

The plaintiff then appealed Justice Hambly’s decision to the Court of Appeal. The Court dismissed the appeal, agreeing that the limitation deadline had expired. The Court did not consider the plaintiff’s misrepresentation argument.

Thus, the plaintiff then sued its lawyers for negligence in missing the limitation period deadline, which resulted in the plaintiff’s inability to prosecute its action against the manufacturer. In its lawsuit against the lawyers, the plaintiff argued that, due to various errors made by the lawyers, the plaintiff had lost its ability to argue certain aspects, including that the manufacturer in the underlying lawsuit had made certain misrepresentations to the plaintiff.

In response, the defendant law firm brought a motion for, ultimately, what became a request for partial summary judgment only. It asked the Court to dismiss part of the plaintiff’s action only – the part dealing with the plaintiff’s claim for damages arising out of the alleged misrepresentations.

On the motion, Justice Belobaba considered the grounds of appeal that had been advanced by the plaintiff on the appeal and concluded that the plaintiff had never actually appealed Justice Hambly’s finding on its misrepresentation argument. Accordingly, Justice Belobaba concluded that the plaintiff had never lost an opportunity to argue its misrepresentation argument before the Court of Appeal, because it never tried to do so.

Justice Belobaba thus granted the law firm partial summary judgment on this issue and removed it from the lawyer’s negligence case.

The plaintiff then appealed Justice Belobaba’s decision to the Court of Appeal.

On appeal, the Court of Appeal reversed Justice Belobaba’s decision, and allowed the plaintiff’s entire action to proceed. The Court found, among other things, that the plaintiff’s original notice of appeal contained an implicit appeal on the misrepresentation issue, which was enough for the Court to conclude that the plaintiffs had appealed Justice Hambly’s entire order. Accordingly, the underlying action and appeal resulted in a complete loss of the plaintiff’s cause of action.

The Court also concluded that Justice Belobaba’s decision was not in keeping with summary judgment principles, which direct judges to consider whether a summary judgment motion is advisable in the context of the litigation as whole.

The Court observed that motions for partial summary judgment “raises further problems that are anathema to the stated objectives of the summary judgment regime” (*3) in Ontario, because of the following reasons:

(1) they cause the resolution of the main action to be delayed, because typically an action does not move forward while a summary judgment motion is pending;

(2) a motion for partial summary judgment can be very expensive;

(3) judges will be required to spend lots of time and energy dealing with a narrow issue, and writing reasons that ultimately do not dispose of the entire action; and

(4) the record filed on a partial summary judgment motion will likely not be as extensive as the record at trial, which increases the risk of inconsistent findings.

The Court admonished litigants that, when bringing a motion for partial summary judgment, the moving party should consider these factors in assessing whether the motion is good idea in the context of the litigation as a whole. (*4) A motion for partial summary judgment should be considered to be a “rare procedure” that is “reserved for an issue or issues that may readily be bifurcated from those in the main action and that may be dealt with expeditiously and in a cost effective manner”. (*5)

In the case at bar, the Court concluded that, even if the misrepresentation argument had been removed from the plaintiff’s action against its lawyers, all of the other claims against the lawyers would nonetheless proceed. Since the alleged misrepresentation claims were “largely intertwined” with the plaintiff’s other claims, there was little if anything to be gained from an efficiency point of view.

The Court also observed the usual point that, if the partial summary judgment motion was granted but part of the action still proceeded, it might lead to inconsistent findings from two different judges.

Accordingly, the Court allowed the appeal and permitted the entire action to proceed.

Conclusion

The merits of the Butera decision are fairly unique and are not really so important generally. What is important, however, is that the Court of Appeal appears to be taking a “hard line” on partial summary judgments. And, what is more, that “hard line” is translating to more difficult scheduling court appearances. Although in Hryniak v. Mauldin, (*6) the Supreme Court of Canada called for a “culture shift” in Canada from a trial-oriented civil litigation system to one based on summary judgments, it seems to be the case in Ontario that requests for summary judgment will be carefully scrutinized by scheduling judges in order to ensure that they are appropriate in light of the litigation as a whole, as directed by the Court in Hryniak. Moreover, absent very special circumstances, partial summary judgments will not be viewed as appropriate in light of the litigation as a whole. Counsel and litigants would be well-advised to bear this in mind.

James Manson

Endnotes
(*1) 2017 ONCA 783 (CA).
(*2) See paragraph 29.
(*3) Ibid.
(*4) See paragraph 34.
(*5) Ibid.
(*6) [2014] 1 S.C.R. 87. Hryniak is the new locus classicus from the Supreme Court of Canada on summary judgment motions in Canada.

 



 

 

 

 

 

 

 

 


This newsletter is published to keep our clients and friends informed of new and important legal developments. It is intended for information purposes only and does not constitute legal advice. You should not act or fail to act on anything based on any of the material contained herein without first consulting with a lawyer. The reading, sending or receiving of information from or via the newsletter does not create a lawyer-client relationship. Unless otherwise noted, all content on this newsletter (the "Content") including images, illustrations, designs, icons, photographs, and written and other materials are copyrights, trade-marks and/or other intellectual properties owned, controlled or licensed by Fernandes Hearn LLP. The Content may not be otherwise used, reproduced, broadcast, published,or retransmitted without the prior written permission of Fernandes Hearn LLP.

 


A proud Canadian law firm specializing in Transportation, Insurance and Commercial Law.