March 30, 2013
In Ross River Dena Council v. Government of Yukon, 2012 YKCA 14, the Yukon Court of Appeal unanimously held that the Government of Yukon has a duty to consult with First Nations before recording mineral claims staked in areas claimed by First Nations, and that merely providing notice of mining claims will not be sufficient to meet that duty.
The “duty to consult” is a duty on the part of Canada’s governments (the “Crown”) to engage in a process of consultation with First Nations where proposed Crown conduct may adversely affect Aboriginal claims or rights.
The decision may have implications for similar mining claim regimes in British Columbia and other Canadian jurisdictions.
On February 25, 2013, the Government of Yukon filed an application seeking leave to appeal the decision to the Supreme Court of Canada.
The plaintiff, the Ross River Dena Council (the “Council”), claimed Aboriginal title and rights to a portion of traditional territory known as the “Ross River Area”. The claim covered approximately 13% of the Yukon.
The dispute focused on the mining claim system established by the Quartz Mining Act, S.Y. 2003, c. 14 (the “Act”), which provides that an individual may acquire mineral rights simply by physically staking a claim and then recording it with a designated regulatory authority.
Once a mining claim is recorded, the Act provides that a claimant is entitled to the minerals within the claim and may conduct certain exploration activities on the land without further authorization and without notice to the Government of Yukon. Such a system is typically referred to as an “open entry” or “free entry” mineral claim system.
The regulatory authority’s role in registering a mineral claim is purely ministerial in nature. That is, the authority does not possess any discretion to refuse to record a claim that complies with the requirements of the Act.
The Council argued that this system permits exploration activities potentially adverse to its asserted Aboriginal title and rights, and that the Government has a duty to consult before recording mining claims within the claimed territory.
The chambers judge held that the Government’s practices in respect of new mineral claims under the Act did not measure up to the consultation requirements required by the law, but held that those requirements would be satisfied by a scheme under which the Government provided notice to the Council of newly-recorded quartz mining claims within its traditional territory.
The Council appealed, arguing that consultation must take place before the recording of mineral claims, and that consultation requires more than mere notice of new claims.
The law provides that the Crown has a duty to consult with First Nations with respect to contemplated Crown activities when:
- The Crown has knowledge, actual or constructive, of the potential existence of a First Nations claim or right;
- The Crown contemplates conduct or a decision; and
- The conduct or decision may adversely affect the First Nations claim or right.
The duty to consult is grounded in the honour of the Crown. While the treaty claims process is ongoing, there is an implied duty to consult with First Nations claimants on matters that may adversely affect their treaty and Aboriginal rights, and, where appropriate, to accommodate those interests in the spirit of reconciliation.
It is not necessary for a First Nation to definitely establish a claim or right for the duty to consult to arise. The depth of the required consultation in connection with an unproven claim increases with:
- The strength of the prima facie First Nations claim; and
- The seriousness of the impact on the underlying claim or treaty right.
As a result, a dubious or peripheral claim may attract a mere duty of notice, while a stronger claim may attract more stringent duties.
The remedy for a breach of the duty to consult varies with the situation. The Crown’s failure to consult can lead to a number of remedies ranging from injunctive relief against the conduct, to damages, to an order to carry out the consultation prior to proceeding further with the proposed Crown conduct.
The question on appeal was whether the three elements of the duty to consult were present where the Government sought to record a mineral claim within territory subject to Aboriginal rights and title claims.
There was no dispute that the first element of the duty to consult was satisfied, since the Government had knowledge of the Council’s asserted Aboriginal rights.
There was also no doubt that the third element of the duty to consult was met. The regulatory regime could allow mineral claims to be granted without regard to asserted Aboriginal title, and could also allow exploratory work that might adversely affect claimed Aboriginal rights to be carried out without consultation.
Accordingly, the key issue in dispute was whether the second element of the duty to consult was met. That is, the question was whether the recording of a mineral claim under the Act qualified as “contemplated Crown conduct” despite the fact that the regulatory authority had no discretion in respect of the granting of the mineral claim provided that the requirements of the Act were met.
Mr. Justice Groberman, writing for the Yukon Court of Appeal, rejected the notion that “the absence of statutory discretion in relation to the recording of claims under the … Act absolve[d] the Crown of its duty to consult.” In the Court’s view, the duty to consult “exists to ensure that the Crown does not manage its resources in a manner that ignores Aboriginal claims”, and that “[s]tatutory regimes that do not allow for consultation and fail to provide any other equally effective means to acknowledge and accommodate Aboriginal claims are defective and cannot be allowed to subsist.”
The Court also held that the duty to consult required more than the mere provision of notice of mining claims. Although the Court acknowledged that “the open entry system … under the … Act has considerable value in maintaining a viable mining industry and encouraging prospecting” and “that the system is important both historically and economically”, the Court held that the system had to be modified “in order for the Crown to act in accordance with its constitutional duties.”
However, the Court did not specify precisely how the regime could be brought into conformity with the requirements of the duty to consult. In the Court’s view, “[w]hat is required is that consultations be meaningful, and that the system allow for accommodation to take place, where required, before claimed Aboriginal title or rights are adversely affected.”
In particular, where “exploration activities are expected to have serious or long-lasting adverse effects on claimed Aboriginal rights, … [t]he affected First Nation must be provided with notice of the proposed activities and, where appropriate, an opportunity to consult prior to the activity taking place.” In doing so, “the Crown must ensure that it maintains the ability to prevent or regulate activities where it is appropriate to do so.”
In the result, the Court declared that the Government had a duty to consult “in determining whether mineral rights … within [the claimed lands] are to be made available to third parties under the provisions of the … Act.” The Court also declared that the Government “has a duty to notify and, where appropriate, consult with and accommodate the plaintiff before allowing any mining exploration activities to take place within the [claimed territory], to the extent that those activities may prejudicially affect Aboriginal rights claimed”.
The Court suspended these declarations for one year in order to permit the Government time, if it wished, to make statutory and regulatory changes in order to provide for appropriate consultation.
The decision may have implications for similar “open entry” mining claim regimes in British Columbia and other Canadian jurisdictions. Although the decision is binding precedent only in the Yukon, the judges of the Yukon Court of Appeal are comprised of the judges of the British Columbia Court of Appeal. Accordingly, the decision is likely to be highly influential in British Columbia.
On February 25, 2013, the Government of Yukon filed an application seeking leave to appeal the decision to the Supreme Court of Canada.
In Antrium Truck Centre Ltd. v. Ontario (Minister of Transportation), 2013 SCC 13, the Supreme Court of Canada reviewed the law of injurious affection, which occurs when a defendant’s activities interfere with the claimant’s use or enjoyment of land. The decision provides important guidance with respect to the circumstances in which a landowner will be entitled to compensation when their business or property is negatively affected by the construction of public works but no expropriation has occurred.
The key issue on appeal was how to determine whether an interference with the private use and enjoyment of land is unreasonable when it results from construction which serves an important public purpose.
The Court held that the reasonableness of an interference must be determined by balancing the competing interests, as in all other cases of private nuisance. That balance will be appropriately struck by answering the question of whether, in all of the circumstances, the individual claimant has shouldered a greater share of the burden of construction than it would be reasonable to expect individuals to bear without compensation.
Antrim Truck Centre Ltd. (“Antrim”) owned and operated a truck stop on Highway 17 near Ottawa. For more than 25 years, the business benefited from the patronage of motorists travelling along the highway.
In 2004, the Province of Ontario constructed a new highway that significantly and permanently altered Highway 17 in a manner that restricted motorists’ access to the truck stop, decreasing the market value of the land and effectively putting the truck stop out of business.
Antrim sought compensation for injurious affection before the Ontario Municipal Board, which awarded damages of approximately $400,000 for business loss and for loss in the market value of the property.
The award was upheld by the Divisional Court of the Ontario Superior Court of Justice, but set aside by the Ontario Court of Appeal on the basis that the interference was not unreasonable given the important public purposes served by the highway’s construction.
The key issue on appeal was how to determine whether an interference with the private use and enjoyment of land is unreasonable when it results from construction which serves an important public purpose.
In order to establish a claim for injurious affection, Antrim had to establish three elements under the Ontario Expropriations Act:
- The damage must result from action taken under statutory authority;
- The action would give rise to liability but for that statutory authority; and
- The damages must result from the construction and not the use of the works.
If Antrim could establish those three elements, it would be compensated for the amount by which the affected land’s market value was reduced because of the interference, and for personal and business damages.
On appeal, there was no dispute that the first and third requirements of injurious affection were met. The unresolved question was whether the second requirement was met. That is, if the highway construction had not been done under statutory authority, could Antrim have successfully sued for damages caused by the construction under the law of private nuisance?
Mr. Justice Cromwell, writing for the Court, began by observing that in order to establish a claim in private nuisance a claimant must establish that the interference with their use or enjoyment of land is both substantial and unreasonable.
To conclude that an interference is substantial, it must be shown to be “non-trivial” and “amount[ing] to more than a slight annoyance or trifling interference.” This requirement “underlines the important point that not every interference, no matter how minor or transitory, is an actionable nuisance; some interferences must be accepted as part of the normal give and take of life.”
Once the substantial interference threshold is met, the inquiry proceeds to the unreasonable interference analysis, which is concerned with whether the substantial interference was also unreasonable in all of the circumstances.
The question of whether an interference is unreasonable where that interference arises from an activity that furthers the public good “must be determined by balancing the competing interests”. In the Court’s view, that balance is “appropriately struck by answering the question whether, in all of the circumstances, the individual claimant has shouldered a greater share of the burden of construction than it would be reasonable to expect individuals to bear without compensation.”
In the traditional law of private nuisance, courts assess whether an interference is unreasonable by balancing the gravity of the harm against the utility of the defendant’s conduct. However, because the acts of a public authority will generally be of significant utility, public interests will generally outweigh the private interests affected by even very significant interferences. Accordingly, a simple balancing of private interests against public utility may well undermine the purpose of legislation that provides compensation for injurious affection.
In order to avoid that result, the Court held that “the question is not simply whether the broader public good outweighs the individual interference when the two are assigned equal weight”. Rather, “the question is whether the interference is greater than the individual should be expected to bear in the public interest without compensation”. The rationale is that “everyone must put up with a certain amount of temporary disruption caused by essential construction.”
The Court thus drew a distinction between interferences that constitute the “give and take” expected of all members of the public and “interferences that impose a disproportionate burden on individuals.” The Court observed that “the reasonableness analysis should favour the public authority where the harm to property interests, considered in light of its severity, the nature of the neighbourhood, its duration, the sensitivity of the plaintiff and other relevant factors, is such that the harm cannot reasonably be viewed as more than the claimant’s fair share of the costs associated with providing a public benefit.” Another relevant factor is whether the public authority “has made all reasonable efforts to reduce the impact of its works on neighbouring properties.”
The Court ultimately allowed the appeal on the basis that it was reasonable for the Board to conclude that, in all of the circumstances, Antrim should not be expected to endure “permanent interference with the use of its land that caused a significant diminution of its market value in order to serve the greater public good.”
It is important to recognize that Antrim was decided on the basis of Ontario’s statutory regime. Although s. 41 of the British Columbia Expropriation Act also permits claims for compensation on the basis of injurious affection, it remains unclear how Antrim will impact compensation claims in British Columbia.
October 24, 2012
In TELUS Corporation v. Mason Capital Management LLC, 2012 BCCA 403, the British Columbia Court of Appeal considered the validity of a shareholder’s requisition for a general meeting of shareholders. The Court clarified that a requisition made under s. 167 of the British Columbia Business Corporations Act need not identify the beneficial owner of the shares used to call the meeting in order to be valid. In addition, the Court held that it had no authority under the Act to restrain a shareholder from requisitioning a meeting on the basis of its “net investment” or that its interests are not aligned with the economic well-being of the company.
Read the full article here: Matthew Nied and Taylor Little, “Mason Capital Succeeds: Appeal Court Confirms CDS’s Ability to Requisition Meeting By ‘Empty Voter’” (2012) 7:4 Corporate Governance Report 41.
Also published on the Canadian Securities Law Blog (Stikeman Elliott)
October 21, 2012
In Southcott Estates Inc. v. Toronto Catholic District School Board, 2012 SCC 51, the Supreme Court of Canada considered whether a plaintiff in a case involving a failed real estate transaction was excused from mitigating its losses on the basis that it had made a claim for specific performance.
Although the Court recognized that a plaintiff’s refusal to mitigate may be reasonable if the plaintiff had a “substantial justification” or a “substantial and legitimate interest” in specific performance, the Court held that the plaintiff had no such interest because the property was intended as an investment and had no peculiar or special value to the plaintiff.
The plaintiff, Southcott Estates Inc. (“Southcott”) was a single-purpose company incorporated solely for the purpose of a specific land purchase. It had no assets other than money advanced to it by its parent company for the deposit relating to the land purchase.
Southcott entered into an agreement of purchase and sale for a specific property with the defendant, the Toronto Catholic District School Board (the “Board”). When the Board failed to satisfy a condition and refused to extend the closing date, Southcott brought a claim for specific performance of the contract, and argued that it was not required to mitigate its losses by purchasing a different property.
The trial judge refused to award Southcott specific performance and, instead, awarded damages to Southcott. On appeal, the Court of Appeal concluded that the Board had breached its contractual obligations, but that Southcott had failed to take available steps to mitigate its losses. As a result, the Court of Appeal reduced Southcott’s damage award to a nominal sum.
The key issue on appeal was whether a plaintiff must mitigate its losses where the plaintiff has made a claim for specific performance.
The majority reasons, penned by Madam Justice Karakatsanis, recognized that “there may be situations in which a plaintiff’s inaction is justifiable notwithstanding its failure to obtain an order for specific performance.” In particular, “[i]f the plaintiff has a ‘substantial justification’ or a ‘substantial and legitimate interest’ in specific performance, its refusal to purchase other property may be reasonable, depending upon the circumstances of the case”.
In the Court’s view, this was not a case where the plaintiff could reasonably refuse to mitigate. The Court began by observing that “[a] plaintiff deprived of an investment property does not have a “fair, real, and substantial justification” or a “substantial and legitimate” interest in specific performance unless he can show that money is not a complete remedy because the land has “a peculiar and special value” to him. In this case, Southcott had no “substantial and legitimate” interest in specific performance because the land had no peculiar or special value to it. Rather, Southcott had simply “engaged in a commercial transaction for the purpose of making a profit”, such that “[t]he property’s particular qualities were only of value due to their ability to further profitability.”
As a result, the Court held that Southcott owed a duty to mitigate its damages by purchasing an alternative property, notwithstanding its specific performance claim.
In light of the decision, a plaintiff with a claim of specific performance must carefully evaluate the strengths and weakness of its claim. If a plaintiff chooses to pursue its claim of specific performance and declines to mitigate its losses in the interim by buying an alternative property, the plaintiff must be prepared to suffer a reduction in its damage award in the event that a court rejects its claim of specific performance and finds that the plaintiff unreasonably failed to mitigate its losses.
July 9, 2012
In Edward Jones v. Voldeng, 2012 BCCA 295 (“Voldeng”), the British Columbia Court of Appeal considered the test for granting an interlocutory injunction in the context of a restrictive covenant prohibiting solicitation contained in the employment contract of an investment advisor. The Court made several notable remarks regarding the irreparable harm and balance of convenience elements of the test for granting an interlocutory injunction.
Randy Voldeng, an investment advisor, worked at Edward Jones, a national brokerage firm. The employment agreement contained a restrictive covenant that prevented Mr. Voldeng from soliciting sales from any client of Edward Jones after his employment relationship with Edward Jones ended.
Ultimately, Mr. Voldeng left his employment with Edward Jones and commenced employment with a competing brokerage firm. Shortly after leaving Edward Jones, Mr. Voldeng contacted a number of Edward Jones’ clients and allegedly encouraged them to transfer their accounts to the competing brokerage firm.
Edward Jones commenced an action and sought an interlocutory injunction restraining Mr. Voldeng from making further solicitations.
In order to obtain an interlocutory injunction, an applicant must establish that:
- there is a serious question to be tried;
- the applicant will suffer irreparable harm if the injunction is not granted; and
- the balance of convenience favours granting the injunction.
The lower court held that Edward Jones had established these three elements. Accordingly, the lower court granted an interlocutory injunction.
The key issues on appeal were whether there was evidence of irreparable harm and whether the balance of convenience favoured granting the injunction. There was no dispute that there was a serious question to be tried.
Mr. Justice Chiasson, writing for the Court, began by describing two types of irreparable harm:
- harm that cannot be quantified in monetary terms, such as permanent market loss or irrevocable damage to business reputation; and
- harm that cannot be compensated because, for example, an award of damages will not be collectible.
The lower court accepted that the facts gave rise to the first type of irreparable harm. It held that damages were not an adequate remedy for the alleged breach of the non-solicitation covenant because it would be extremely difficult to separate damages for loss of business caused by the breach from those resulting in fair competition.
The Court disagreed. In its view, “the damages that flow from a violation of a non-solicitation covenant in the employment contract of an investment advisor generally are calculable”. This is because the industry is regulated in a manner such that the “value of the portfolio of a departing client is known, as is the return to the brokerage firm of managing the portfolio.”
In the case at bar, the evidence was clear that Mr. Voldeng had received instructions to transfer client accounts with an approximate total value of $20.2 million. Accordingly, the potential damages arising out of the alleged solicitation, being calculable, did not constitute irreparable harm.
Turning to the assessment of whether the balance of convenience favoured the granting of an injunction, the Court held that “in the context of a non-solicitation covenant, the interests of an individual investment advisor and his or her clients often tips the balance of convenience in favour of the investment advisor.”
In particular, the Court recognized that the interests of the clients of an investment advisor are a legitimate public policy factor to consider in the balance of convenience analysis. On this point, the Court cited previous decisions which emphasized that “clients should be free to receive information from all competitive sources and to have the ability to decide if they wish to follow a person with whom they have developed an individual trust and confidence regarding investment advice.”
The Court also noted that while the “interests of the clients of investment advisors are a legitimate factor to take into account, [they] should not be considered as unique to that relationship.” Accordingly, “[t]here are many other relationships in which similar interests may be relevant.”
In the course of assessing the balance of convenience, the Court also observed that granting the interlocutory injunction could have caused irreparable harm to Mr. Voldeng “because, if his conduct were found to be proper, it would not be possible to determine which of his clients would have shifted to [the competing brokerage firm] if he had been able to inform them of his contact particulars.”
Based on these factors, the Court concluded that the balance of convenience did not favour the granting of an injunction.
In the result, having determined that the irreparable harm and balance of convenience elements were not met, the Court overturned the lower court’s decision to grant an interlocutory injunction.
Freeway Properties Inc. v. Genco Resources Ltd: Financial Statements and Confirmation of Causes of Action Under the Limitation Act
June 25, 2012
In the recent case of Freeway Properties Inc. v. Genco Resources Ltd., 2012 BCCA 258 (“Freeway”), the British Columbia Court of Appeal Court held that a company’s financial statements are capable of confirming a creditor’s cause of action against the company and extending the creditor’s time for commencing an action under the Limitation Act, R.S.B.C. 1996, c. 266 (the “Act”).
The decision concerned appeals from summary trial dismissals of two debt actions. The trial courts held that the actions were statute barred by s. 3(5) of the Act because they were brought after the expiration of six years after the right to bring the actions arose. The Court of Appeal heard the appeals together since they involved common issues of law and fact, related plaintiffs, and a common defendant.
The focus of the appeal was whether the defendant, a public company, had confirmed the plaintiffs’ causes of action by mailing to its shareholders, including the plaintiffs, a copy of the defendant’s financial statements. The financial statements, which were approved and signed by two of the defendant’s directors, contained a balance sheet with an entry of $73,402 described as a current liability “[d]ue to related parties”. The entry made no specific reference to the plaintiffs. The financial statements were also broadly addressed to the defendant’s shareholders rather than addressed specifically to the plaintiffs.
The law of confirmation is governed by s. 5 of the Act. Section 5(1) of the Act provides that if a confirmation takes place before the expiration of a limitation period, the time during which the limitation period runs before the date of confirmation does not count in the reckoning of the limitation period. In other words, when a confirmation occurs before a limitation period expires, the limitation period starts afresh.
In order for a person to have the benefit of a confirmation under the Act, three elements must be established:
- the cause of action must be confirmed, which requires either an acknowledgement of the cause of action, right, or title of another (s. 5(2)(a)(i), Act) or payment in respect of a cause of action, right, or title of another (s. 5(2)(a)(ii), Act);
- the confirmation must be in writing and signed by the maker (s. 5(5), Act); and
- the confirmation must be made to the person or to a person through whom the person claims (s. 5(6)(a), Act).
The first issue on appeal was whether the defendant’s financial statements contained an acknowledgement of the plaintiffs’ causes of action in accordance with s. 5(2) and (5) of the Act. The Court relied on a line of English authorities to conclude that a company’s financial statements are capable of containing an acknowledgement of a cause of action. In the Court’s view, “what must be decided objectively is whether the ‘maker’ of the alleged acknowledgement intended by it to admit liability.” The Court held that the defendant had clearly intended to admit liability to the “related parties” mentioned in the balance sheet, and that the plaintiffs had proven by extrinsic evidence that they were the “related parties”.
The second issue was whether the confirmation was made to the plaintiffs in accordance with s. 5(6)(a) of the Act. The Court held that it was sufficient that the financial statements were sent to the plaintiffs, observing that “nothing in the Act requires that the acknowledgment be ‘specifically written to the plaintiff, or that the communication be addressed to the plaintiff’”. Although not necessary for the determination of the issue, the Court went on to add that “an acknowledgement actually received by the creditor would be effective … whether or not the ‘maker’ of the acknowledgment intended that the creditor should receive it, and it is not necessary to imply such an intention.”
The final issue was whether the effective date of the confirmation was the date of the year end to which the balance sheet related or, rather, the date that the plaintiffs received the financial statements. The Court relied on English and Australian authorities to conclude that the effective date of confirmation was the date of the balance sheet.
Based on that conclusion, the Court dismissed the plaintiffs’ actions as statute barred under s. 3(5) of the Act because the actions had been commenced after the expiration of six years after the date of the confirmation.
The reasoning in Freeway will likely to apply to the new Limitation Act once it has been brought into force: Bill 34 – 2012 Limitation Act (the “New Act”). Like s. 5(1) of the Act, s. 24(1) of the New Act provides that a person may extend a limitation period before it expires if “[b]efore the expiry of [the applicable limitation period] … a person acknowledges liability in respect of the claim”. Similarly, s. 24(6) of the New Act provides, like s. 5(5) and (6) of the Act, that an acknowledgement must be in writing, signed, made by the person making the acknowledgement, and made to the person with the claim.
Read the full article here:
November 22, 2011
Recent years have witnessed the phenomenal growth of social networking websites, such as Facebook and MySpace. Social networking websites are now commonly used by individuals to communicate information about their personal life to other members of their network. As a result, they have become an integral part of the disclosure process in insurance litigation where plaintiffs put their enjoyment of life, psychological well-being, or ability to work in issue. In these cases, photographs or other materials on a plaintiff’s social networking profile may be relevant to demonstrating their ability to engage in work or recreational activities. For these reasons, courts now routinely admit profile material as evidence in insurance litigation.
Few disclosure issues will arise when a plaintiff’s profile is publicly accessible because insurers will have access to any relevant material. However, not all material is publicly accessible. Many users now have “access-limited” profiles which permit them to limit access to designated persons. Accordingly, a user’s profile will often have a public space and a private space. Because material on a profile’s private space will generally not be accessible to insurers, it will often be impossible for insurers to determine whether it contains relevant material. Where an insurer has reason to believe that a plaintiff has not complied with their disclosure obligation, they may move for relief before the courts. Unfortunately, recent cases demonstrate that some plaintiffs, if alerted of an insurer’s attempts to seek production of access-limited profile evidence, will frustrate those attempts by deleting material harmful to their claims.
Some insurers have attempted to reduce this risk by seeking ex parte orders to compel plaintiffs to preserve the contents of their access-limited profiles. Preservation orders are remedies sought to ensure that evidence is preserved and available for the trial of an action where there is a significant likelihood that a party will destroy it once notified of the other’s interest in accessing it. This article discusses the risk of spoliation of social networking profile evidence, considers cases in which insurers have sought ex parte preservation orders to alleviate that risk, and discusses potential alternatives.
Read the full article here:
Matthew Nied, “Preventing Spoliation of Social Networking Profile Evidence in Insurance Litigation” (2011) 29:6 Canadian Journal of Insurance Law 81.
October 24, 2011
Last week, the Supreme Court of Canada released its landmark decision in Crookes v. Newton, 2011 SCC 47, affirming 2009 BCCA 392 and 2008 BCSC 1424. At issue was whether creating an internet hyperlink to defamatory material constitutes “publication” of the material for the purposes of defamation law. The case challenged the Court to strike an appropriate balance between the competing interests of freedom of expression and the protection of reputation in the new context of internet communications.
To succeed in a defamation action, a plaintiff must first prove that defamatory words were published. The decision in Crookes stands for the proposition that a hyperlink, by itself, is not publication of the content to which it refers. Publication will only occur if the hyperlink is presented in a way that repeats the defamatory content. This article discusses the decision’s background, reasoning, and implications.
The appellant brought numerous defamation actions against various individuals and organizations alleging that he had been defamed in several articles on the internet. After those actions were commenced, the respondent posted an article on his website which commented on the implications of the plaintiff’s defamation suits for operators of internet forums. The respondent’s article included hyperlinks to websites containing some of the allegedly defamatory articles that were the subject of the plaintiff’s actions. However, the respondent’s article did not reproduce or comment on the content in those articles.
The appellant discovered the respondent’s article and advised him to remove the hyperlinks. When the respondent refused, the appellant brought an action seeking damages for defamation on the basis that the hyperlinks constituted publication of the allegedly defamatory articles. There was evidence that the respondent’s article had been viewed 1,788 times, but no evidence as to how many times, if any, the hyperlinks in the article had been followed.
Decision of the Supreme Court of Canada
The issue on appeal was whether creating a hyperlink to allegedly defamatory material constitutes publication of that material. The reasons of the six-justice majority, penned by Abella J., began by describing the evolution of the “publication rule.” Under this rule, any act which had the effect of communicating defamatory words to a third person constituted publication. The breadth of activity caught by the publication rule over the years has been vast. For example, a person whose role was to manually operate a printing press was, in one older case, found liable for defamatory words contained in the publication, despite being unaware of its contents.
The majority observed that the harshness of the publication rule was later alleviated by the development of the “innocent dissemination” defence, which protects defendants that play a role in the distribution of potentially defamatory material. Defendants, such as booksellers and libraries, may avoid liability if they had no actual knowledge of alleged libel, were not aware of circumstances that would give cause to suspect a libel, and were not negligent in failing to discover the libel.
The majority also recognized that, in recent years, the application of the publication rule has been tempered by cases which suggest that some acts of communication are so passive that they should not be considered publication. For example, the majority referred to English cases in which internet service providers and search engines were not held liable as publishers because they only played a passive instrumental role, and acted without knowledge, in the process of publishing the defamatory words. In other cases referred to by the majority, courts had held that merely making a reference to defamatory material was not publication.
In light of these developments, the majority concluded that creating a hyperlink to defamatory material is not the type of act that constitutes publication. In the majority’s view, modern realities made it necessary to interpret the publication rule to exclude references, such as hyperlinks, in order to accord with Charter values, recent jurisprudence, and the evolution of communications technology.
In declining to expose hyperlinks to the wide breadth of the traditional publication rule, the majority reasoned that hyperlinks are essentially content neutral references to material that hyperlinkers have not created and do not control. Although a hyperlink communicates that information exists and may facilitate the transfer of information, it does not, by itself, communicate information.
It is also significant that the majority’s reasons focused on the important role of the internet in promoting freedom of expression, and the importance of hyperlinks in facilitating access to information on the internet. As Abella J. writes,
 The Internet cannot, in short, provide access to information without hyperlinks. Limiting their usefulness by subjecting them to the traditional publication rule would have the effect of seriously restricting the flow of information and, as a result, freedom of expression. The potential “chill” in how the Internet functions could be devastating, since primary article authors would unlikely want to risk liability for linking to another article over whose changeable content they have no control. Given the core significance of the role of hyperlinking to the Internet, we risk impairing its whole functioning. Strict application of the publication rule in these circumstances would be like trying to fit a square archaic peg into the hexagonal hole of modernity.
However, the majority also recognized that a hyperlink will constitute publication if it “presents content from the hyperlinked material in a way that actually repeats the defamatory content.” This might occur, for example, where a person inserts a hyperlink in text that repeats the defamatory content in the hyperlinked material. In these cases, the hyperlink would be more than a reference; it would be an expression of defamatory meaning. This had not occurred in the case at bar, so the majority dismissed the appeal.
McLachlin C.J.C. and Fish J. substantially agreed with the majority, but held that “a hyperlink should constitute publication if, read contextually, the text that includes the hyperlink constitutes adoption or endorsement of the specific content it links to.” In their view, a hyperlinker should be liable for linked defamatory content if the surrounding context communicates agreement with the linked content. In these cases, the hyperlink “ceases to be a mere reference and the content to which it refers becomes part of the published text itself.”
Deschamps J. agreed with the result, but disagreed with the approaches taken by the other justices. In her view, the blanket exclusion of all references from the scope of the publication rule erroneously treats all references alike. According to Deschamps J.’s reasons, the majority’s approach “disregards the fact that references vary greatly in how they make defamatory information available to readers and, consequently, in the harm they cause to reputations.” To address this concern, Deschamps J. proposed a nuanced and highly fact-driven framework under which a hyperlink would constitute publication if the plaintiff established two elements: that the defendant “performed a deliberate act that made defamatory material readily available to a third party in a comprehensible form,” and that “a third party received and understood the defamatory [material].”
To establish the first element under Deschamps J.’s approach, plaintiffs would need to demonstrate that the defendant played more than a passive instrumental role in making the information available, and make reference to numerous factors bearing on the ease with which the referenced information could be accessed. To establish the second element, plaintiffs would need to adduce direct evidence that a third party had received and understood the defamatory material, or convince the court to draw an inference to that effect based on the totality of the circumstances.
Crookes presented the Court with a welcome opportunity to consider the proper balance between the competing interests of freedom of expression and the protection of reputation in the context of internet communications. Five years ago, defamation law leaned significantly towards protecting reputation. Today, as a result of Crookes and other landmark cases – such as WIC Radio Ltd. v. Simpson, 2008 SCC 40, and Grant v. Torstar, 2009 SCC 61 – defamation law better protects and promotes the fundamental right to freedom of expression.
However, the decision in Crookes could have undesirable consequences in certain circumstances. As the Court recognized, the internet’s borderless and far-reaching mode of publication has tremendous power to harm reputation. As a result of Crookes, a victim of internet defamation who wishes to vindicate their reputation and prevent the spread of defamatory material only has a remedy against the person who created and controls the material – not persons who have referred their readers to it.
It is surprising that in the majority’s view this approach creates “little or no limitation to a plaintiff’s ability to vindicate his or her reputation.” Yet, in some cases, the majority’s approach may create opportunity for abuse that significantly limits a plaintiff’s ability to vindicate their reputation. The creation of a hyperlink is a means by which defamatory material can be rapidly disseminated. Defamatory material contained on an obscure website may, for example, receive the attention of a vast number of readers if a popular blogger hyperlinks to it. In these circumstances, the plaintiff would have no action against the hyperlinker, even if they created the hyperlink with the malicious intent of spreading the defamatory words.
Such a situation would be especially troubling if the victim were also unable to pursue a remedy against the creator of the defamatory material because they published the material anonymously – a common occurrence on the internet. In addition, if the defamatory material were posted on a third party’s website operated in the United States, and that website passively hosted the material, legislation would apply to immunize the operator of the website from liability: see Communications Decency Act, 47 U.S.C. § 230 (1996); see also Crookes at para. 28. If the operator of the website refused to remove the defamatory material, it would remain visible for the world to see. The victim would be left without any remedy and, meanwhile, the use of hyperlinks could cause the defamatory material to rise from obscurity to notoriety.
Although this concern might be alleviated by adopting the more contextual and nuanced approaches suggested by McLachlin C.J. and Fish J., and Deschamps J., those approaches lack the welcome certainty of the majority’s bright-line rule. McLachlin C.J. and Fish J.’s test for publication is dependent on the presence of indicia of “adoption or endorsement,” the scope of which is inherently uncertain. Deschamps J.’s approach is similarly fact-driven. If either test applied, it would be difficult to predict in advance whether a hyperlink constituted publication. Uncertain exposure to liability might then deter the public from using hyperlinks, which could inhibit the internet as a medium for free expression. This very concern likely drove the majority to establish its bright-line rule.
The non-majority approaches would also have the undesirable effect of shifting the weight of litigation to defendants. Once a plaintiff establishes a prima facie case of defamation, the onus shifts to the defendant to raise any available defences. Both of the non-majority approaches would lower the threshold to be met by plaintiffs in order to establish a prima facie case. As a result, more internet users would be thrown into the costly position of having to justify their conduct by reaching for the protection of a defence. Although the wide availability of defences for hyperlinkers may, as Deschamps J. suggests, “dissuade overeager litigants from having a chilling effect on hyperlinking,” it would not deter plaintiffs who wish to stifle criticism by intimidating defendants through costly litigation.
Lastly, it is important to recognize that the decision in Crookes may not be the final word on defamation liability for hyperlinks. The Court expressly left open the question of whether the same principles apply to embedded or automatic hyperlinks, which automatically display referenced material with little or no prompting from the reader. These hyperlinks are distinguishable from the user-activated hyperlinks in Crookes, which require users to click on the hyperlink in order to access content. Although the Court declined to comment on the legal implications of automatic or embedded hyperlinks, it appears that they would constitute publication, according to the majority’s reasoning, to the extent that they make third party content appear as part of the website that the hyperlinker controls.
This article was originally posted at The Court (Osgoode Hall Law School), and is reproduced here with permission. This article was also referred to on the Heenan Blaikie LLP Entertainment and Media Law Signal.
September 8, 2010
There will be no updates for the duration of the author’s clerkship with the Supreme Court of British Columbia, due to the requirement of impartiality associated with that role. Readers are thanked and encouraged to visit again in September 2011.