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.

Background

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.

Law

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.

Decision

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.

Subscribe to this blog by email, in a reader, or follow it on Twitter

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.

Background

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.

Decision

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.

Subscribe to this blog by email, in a reader, or follow it on Twitter

The Court held that a deposit will generally be forfeited without proof of damages, subject to a clear expression of contrary intention in the contract. This decision clarifies the law in British Columbia and resolves a conflict between prior inconsistent decisions.

Background

The sellers entered into a standard form contract to sell a residential property for approximately $2,000,000. The buyer paid a deposit of $100,000. The contract provided that if the buyer did not complete the sale, “the Seller [could], at the Seller’s option, terminate [the] Contract, and, in such event, the amount paid by the Buyer [would] be absolutely forfeited to the Seller … on account of damages, without prejudice to the Seller’s other remedies.”

The buyer paid the deposit, but failed to complete the transaction. The sellers subsequently went to court seeking a declaration that the deposit was absolutely forfeited to them. In the meantime, the sellers managed to sell the property to another buyer at a higher price. As a result, the seller did not suffer any damages as a result of the buyer’s failure to complete the sale.

The trial judge observed that the contract provided that the sellers “were only entitled to the deposit ‘on account of damages’” in the event that the buyer did not complete the sale. The trial judge interpreted this to mean that the sellers did not have an unconditional right to the full deposit; instead, they only had a right to claim proven damages out of the deposit funds. Because the sellers had suffered no damages, the buyer was entitled to the return of the deposit.

Decision

The sole issue on appeal was whether the deposit was absolutely forfeited without proof of damages.

The Court began by reviewing the legal principles that govern deposits. The Court observed that the common law supports the notion that, in general, a deposit is lost by the party who fails to perform a contract, even in the absence of damages, on the basis that a deposit is “not merely a part payment”, but also a practical mechanism to “creat[e] by the fear of its forfeiture a motive in the payer to perform the rest of the contract.”

The Court held that although the question of whether a deposit is forfeited is a matter of contractual interpretation, a deposit is generally forfeited without proof of damages. This is consistent with the purpose of deposits, which is to motivate contracting parties to carry through with their bargains.

However, the Court noted that the mere act of labeling a payment as a “deposit” in a contract will not permit the parties to “immunize [the payment] from judicial scrutiny.” A court is not precluded from considering whether a “deposit” is in fact a penalty (in which case relief from forfeiture is available at common law), or unconscionable (in which case relief is available in equity). The Court observed that a deposit of up to 10% of the purchase price has generally been regarded as reasonable, and noted that there was an instance in which a deposit of 20% was regarded as reasonable.

The Court expressly rejected the argument that the phrase “on account of damages” should be interpreted to limit the forfeiture of a deposit to proven damages. In the Court’s view, the phrase was intended to mean that “in any action by a vendor to recover damages against a defaulting purchaser for breach of contract, the amount of the deposit would be counted toward (or “on account of”) such damages.” Seen in this manner, “[t]he phrase forecloses double recovery if damages are proven”, which is “not inconsistent with the nature of the deposit as a ‘guarantee’ of performance which encourages contracting parties to complete their contracts in accordance with their terms.”

Tang does not preclude parties to a contract from providing that a deposit will not be forfeited unless damages are proven. However, in light of the Court’s reasoning, doing so would appear to require the use of language that clearly and unambiguously expresses the parties’ intentions to negate the general rule and the policy rationale underlying it.

 Subscribe to this blog by email, in a reader, or follow it on Twitter

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)

Subscribe to this blog by email, in a reader, or follow it on Twitter

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.

Background

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.

Decision

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.

Subscribe to this blog by email, in a reader, or follow it on Twitter

Background

The Appellants, Scott and Brian Lines (the “Lines”), became the subjects of a complaint filed by the United States Security Exchange Commission (“SEC”) for alleged infractions of U.S. securities laws. The complaint was settled when the Lines entered into settlement agreements with the SEC (the “Agreements”).

Significantly, the Agreements provided that the Lines were neither admitting nor denying the alleged infractions but would nevertheless disgorge certain funds, pay certain penalties, and refrain from trading in penny stocks on over-the-counter markets for a number of years. This restriction left the Lines free to continue trading on the main American exchanges.

The terms of the Agreements were ultimately incorporated into final judgments filed by consent in a New York court (the “Judgments”). The Judgments were discreet. They did not expressly state the nature of the SEC’s complaints against the Lines, or the reason why disgorgement and civil penalties were agreed to, nor did they explain why the Lines were required to refrain from trading only in penny stocks for the stated periods.

Some time later, the Commission issued a “reciprocal order” against the Lines pursuant to s. 161(6)(d) of the Act (the “Reciprocal Order”). The Reciprocal Order prohibited the Lines from trading in any securities for a number of years. This was a far more onerous result than provided by the terms of the Agreements which only prohibited the Lines from trading in penny stocks on over-the-counter markets.

The Commission relied only on the Agreements and the Judgments in making its determination under s. 161 of the Act that the Reciprocal Order was in the public interest.

The Lines appealed to the British Columbia Court of Appeal on various grounds, including that in the absence of evidence or admissions of wrongdoing, the Commission did not have an evidentiary basis to found a substantially more onerous order.

Law

Section 161(1) of the Act provides that if after a hearing the Commission or the Executive Director considers it to be in the public interest, either of them may make various orders, including orders prohibiting a person from trading, acting as a director or officer of an issuer, engaging in “investor relations activities”, or disseminating information to the public.

In particular, s. 161(1)(b) of the Act permits the Commission or Executive Director to order that:

(i)         all persons,

(ii)        the person or persons named in the order, or

(iii)       one or more classes of persons

cease trading in, or be prohibited from purchasing, any securities or exchange contracts, a specified security or exchange contract or a specified class of securities or class of exchange contracts …

In addition, s. 161(6) of the Act permits the Commission or Executive Director to make orders based on finding of contravention made by a court or securities regulatory authority in another jurisdiction:

The commission or the executive director may, after providing an opportunity to be heard, make an order under subsection (1) in respect of a person if the person

…

(d)        has agreed with a securities regulatory authority, a self regulatory body or an exchange, in Canada or elsewhere, to be subject to sanctions, conditions, restrictions or requirements.  [Emphasis added.]

Decision

The issue on appeal was whether, under s. 161(6)(d) of the Act, a settlement agreement in which wrongdoing was not admitted could found a substantially more onerous order than that made by a regulatory authority in a foreign jurisdiction.

The Lines’ principal argument was that, in accordance with principles of procedural fairness, s. 161(6)(d) of the Act should, in the circumstances in the case at bar, be interpreted to only permit orders that replicated or closely mirrored the undertakings given by persons who were the subject of complaints by foreign regulatory authorities.

Madam Justice Newbury, writing for the Court, applied a standard of reasonableness in reviewing the Commission’s decision and found that the material before the Commission, which did not include any finding or admission of wrongdoing on the part of the Lines by any regulatory authority, did not reasonably support the order of the Commission. In the Court’s view, the Commission had unreasonably “made the leap in logic from the fact that the Lines had consented to certain sanctions without admitting wrongdoing, to the conclusion that the public interest required that they be prohibited from trading in all securities in British Columbia.”

Although the Court found the Commission’s decision to be unreasonable, it held that the Commission could, if it determined it was in the public interest, make an order that “mirrored” the Agreement.

Interestingly, the Court concluded by noting that it was not deciding “that the Commission may never impose a sanction under s. 161(6)(d) that is materially more onerous than the terms of the agreement on which it is based”. Nevertheless, the Court stated that “justice as well as transparency and intelligibility require that the Commission have evidence or an admission of a defendant’s wrongdoing ‒ and of course that the defendant be in a position to challenge such evidence at a hearing ‒ before such an order could reasonably be made under s. 161(6)(d).”

Subscribe to this blog by email, in a reader, or follow it on Twitter

]]> http://matthewnied.com/2012/07/22/lines-v-british-columbia-securities-commission-foreign-regulatory-authorities-and-reciprocal-orders/feed/ 0 Matthew Nied http://matthewnied.com/2012/07/09/edward-jones-v-voldeng-non-solicitation-covenants-and-injunctions/ http://matthewnied.com/2012/07/09/edward-jones-v-voldeng-non-solicitation-covenants-and-injunctions/#comments Mon, 09 Jul 2012 06:10:56 +0000 Matthew Nied http://matthewnied.com/?p=590 ]]> 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.

Background

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.

Decision

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.

Subscribe to this blog by email, in a reader, or follow it on Twitter

The Court held that the “material contribution to risk” test will apply only where the plaintiff’s injury would not have occurred “but for” the negligence of two or more wrongdoers, each of which are potentially responsible for the loss, and the plaintiff, through no fault of their own, is unable to show that any one of the possible wrongdoers was the “but for” cause of the injury.

Background

The parties went on a motorbike trip. The defendant was driving the bike and the plaintiff was riding behind on the passenger seat. The weather was wet and the bike was overloaded with weight. Unbeknownst to the parties, a nail had punctured the bike’s rear tire. Although the defendant was travelling in a 100 km/h zone, he accelerated to at least 120km/h in order to pass a car. As he did so, the nail fell out of the tire, the rear tire deflated, and the bike began to wobble. The defendant was unable to bring the bike under control, and it crashed. The plaintiff was thrown off and suffered a severe traumatic brain injury. She sued the defendant, claiming that her injury was caused by his negligent operation of the bike.

In order to succeed in a negligence claim, a plaintiff must establish that:

• the defendant owed the plaintiff a duty of care;

• the defendant breached their duty of care;

• the plaintiff suffered damages; and

• the defendant’s breach of their duty of care caused the plaintiff’s damages.

In Clements, there was little dispute with respect to the first three elements. The key issue was whether the defendant’s negligence caused the plaintiff’s injury.

In general, the test for showing causation is the “but for” test. This means that a plaintiff cannot establish causation unless the plaintiff shows that they would not have suffered the loss “but for” the defendant’s breach of their duty of care.  In other words, the defendant’s breach must have been necessary in order for the the plaintiff’s loss to have occurred.

At trial, the defendant called an expert witness who testified that the probable cause of the accident was the tire puncture and the deflation, and that the accident would have occurred even without the plaintiff’s negligence. The trial judge rejected this evidence, but did not conclude that the plaintiff’s injury would have occurred “but for” the defendant’s breach. Instead, the trial judge held that the defendant’s breach materially contributed to the plaintiff’s injury, and that this was sufficient to establish causation.

Decision

The key issue before the Supreme Court of Canada was whether the “but for” test for causation applied, or whether causation could be established on the basis of the “material contribution to risk” test.

Chief Justice McLachlin, writing for the majority, clarified that although a plaintiff must generally establish causation on the basis of the “but for” test, a plaintiff may, in exceptional circumstances, establish causation by showing that the defendant’s breach materially contributed to the risk of the plaintiff’s injury. In order to do so, the plaintiff must establish that:

• the damage would not have occurred “but for” the negligence of two or more wrongdoers, each of which are possibly responsible for the loss; and

• the plaintiff, through no fault of their own, is unable to show that any one of the possible wrongdoers in fact was the necessary or “but for” cause of her injury, because each can point to one another as a possible “but for” cause of the injury, defeating a finding of causation on a balance of probabilities against anyone.

In these exceptional circumstances, the “material contribution to risk” test will, in the Court’s view, result in a fair outcome. The plaintiff will have established “but for” causation with respect to the group of defendants as a whole, each defendant will have failed to act with the necessary care to avoid potentially causing the plaintiff’s loss, and each defendant may have in fact caused the plaintiff’s loss.

In the result, the Court concluded that the “material contribution to risk” test did not apply. Because the case involved a single defendant, the only issue was whether the injury would have occurred “but for” the defendant’s breach. Accordingly, the Court returned the matter to the trial judge to be assessed on the basis of the “but for” test.

Subscribe to this blog by email, in a reader, or follow it on Twitter

Background

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).

Decision

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.

Subscribe to this blog by email, in a reader, or follow it on Twitter

Although the decisions support the ability of plaintiffs to advance defamation claims in any Canadian jurisdiction in which allegedly defamatory material is published, the decisions also leave open the possibility that the law will evolve to reduce the potential for forum shopping.

Background

In Breeden, the plaintiff commenced defamation actions in Ontario against the defendants, who were certain directors, advisors, and a vice president of a corporation headquartered in the United States. The plaintiff alleged that statements issued by the defendants and posted on the internet were defamatory and were published in Ontario when they were downloaded, read, and republished in Ontario by Canadian newspapers. The defendants brought a motion to have the defamation actions stayed on the grounds that the Ontario court should not exercise jurisdiction because there was no real and substantial connection between the actions and Ontario or, alternatively, because an American court was the more appropriate forum.

The facts in Banro are similar. There, the defendants, who were based in Québec, published a book which commented on the international mining activities of certain corporations, including the plaintiff. Copies of the allegedly defamatory book were available to be purchased or read in Ontario. The plaintiff brought an action in Ontario against the defendants alleging that the book was defamatory. The defendants moved to stay the Ontario action on the basis that there was no real and substantial connection between the action and Ontario, and that a Québec court was the more appropriate forum.

Decisions

In both cases, Justice LeBel, writing for the Court, applied a new analytical framework for determining whether a court should exercise its jurisdiction. That analytical framework was established in the companion case of Club Resorts Ltd. v Van Breda, 2012 SCC 17 (“Club Resorts”), reasons of which were issued at the same time as those in Breeden and Banro.

The analytical framework involves a two-stage analysis. In the first stage, which depends on the application of the real and substantial connection test, the plaintiff must demonstrate a “presumptive connecting factor” that links the subject matter of the litigation with the jurisdiction. If the plaintiff demonstrates a presumptive connecting factor, then there will be a presumption of jurisdiction unless the defendant rebuts the presumption. In Club Resorts, the Court identified a non-exhaustive list of presumptive connecting factors. The most important of those presumptive connecting factors, for the purposes of Breeden and Banro, is the commission of a tort in the jurisdiction.

The defendant may rebut a presumption of jurisdiction by establishing “facts which demonstrate that the presumptive connecting factor does not point to any real relationship between the subject matter of the litigation and the forum or points only to a weak relationship between them.” For example, where the presumptive connecting factor is the commission of a tort in the jurisdiction, rebutting the presumption may be possible “where only a relatively minor element of the tort has occurred in the province.” If no presumptive connecting factor applies in the circumstances of the case, or if the presumption of jurisdiction resulting from such a factor is rebutted, the court cannot assume jurisdiction.

If the plaintiff establishes jurisdiction, the court will proceed to the second stage of the analysis, which involves application of the doctrine of forum non conveniens. At this stage, the burden shifts to the defendant to demonstrate that the court should not exercise jurisdiction because the court of another jurisdiction is the more appropriate forum for the hearing of the action. To succeed, a defendant must show that the other forum is “clearly more appropriate” because it is better suited to “fairly and efficiently” resolve the dispute. The defendant may point to a variety of factors, including the locations of the parties and witnesses, the possibility of conflicting judgments, and the substantive law that should apply to determine the claims.

In Breeden and Banro, the Court concluded that jurisdiction had been properly assumed. There was a real and substantial connection between Ontario and the defamation actions based on the fact that the alleged torts had been committed in Ontario. The Court was not convinced that the defendants in either case had rebutted the presumption of a real and substantial connection.

Significantly, the Court recognized that the analytical framework raises concerns about libel tourism, which is a variety of forum shopping in which a plaintiff brings a defamation action in the jurisdiction most likely to provide a favorable result. The prospect of libel tourism arises because the tort of defamation “crystalizes” upon publication of defamatory material.

Defamatory material is “published” whenever it is viewed or read by a third party, and is presumed to be “published” when it is printed in a book. As a result, where allegedly defamatory material is published in multiple jurisdictions – a feat easily achievable, even inadvertently, due to the ubiquity, universality, and accessibly of the internet – the courts of multiple jurisdictions will generally be able to exercise jurisdiction over the same claim.

Because the law of defamation varies between jurisdictions such that it is easier or more difficult for plaintiffs to establish their claims depending on their choice of jurisdiction, plaintiffs can strategically advance their actions in the jurisdictions in which they have the greatest juridical advantage. For example, American defamation law may require some plaintiffs to demonstrate malice on the part of the defendant as a pre-requisite to establishing liability. Because no such requirement exists in Canada, plaintiffs may enjoy a juridical advantage by pursuing their defamation claims in Canada rather than in the United States.

The Court’s reasons in Banro may provide courts in future cases with a way to restrain libel tourism. After concluding that jurisdiction had been properly assumed, the Court turned to determine whether the court of another jurisdiction was a more appropriate forum for the hearing of the action. In the course of applying the doctrine of forum non conveniens, the Court considered the question of which substantive law should be applied to determine the claim. Courts have traditionally applied the lex loci delicti rule (“the place where the tort occurred”) to decide which law applies to determine tort claims. The rationale for the application of the lex loci delicti rule is that, in the case of most torts, the occurrence of the wrong constituting the tort occurs in the same jurisdiction in which the consequences of the wrong are suffered.

The Court recognized that the lex loci delicti rule may not be appropriate in all defamation cases. In certain cases, the reputational harm caused by the publication of defamatory material may be suffered in a jurisdiction other than the one in which the defamatory material was published. The Court suggested that in those circumstances it may be more appropriate to apply a rule based on the “place of most substantial harm to reputation.” According to that rule, the applicable law would be that of the jurisdiction most closely connected to the harm occasioned by the publication. Such an approach could eliminate the strategic advantage to libel tourism by providing that the same law would apply regardless of where the matter was heard.

The Court concluded that it did not need to decide whether the lex loci delicti rule ought to be abandoned as the choice of law rule in multijurisdictional defamation cases in favour of an approach based on the location of the most substantial harm to reputation. The Court observed that, on the facts of both cases, application of either rule had the same effect. Under a rule based on the location of the most substantial harm to reputation, Ontario law would apply. Alternatively, under the lex loci delicti rule, Ontario law would also apply because the alleged torts were committed in Ontario.

Implications

Breeden and Banro challenged the Court to consider the appropriate balance between the protection of reputation, freedom of expression, and jurisdictional restraint. The decisions clarify that Canadian courts will have presumptive jurisdiction over defamation cases involving foreign defendants if the defamatory statements are published to at least one person in the jurisdiction. For example, if a person in Hong Kong were to create an allegedly defamatory website, an Ontario court would have presumptive jurisdiction over an action brought by the plaintiff against the person in Hong Kong if the plaintiff demonstrated that at least one other person in Ontario viewed the website.

This precedent will likely have significant consequences, particularly given the ubiquity, universality, and accessibility of the internet. As Lebel J. recognized, with a “globalized world comes the sometimes poisonous gift of ubiquity.” Statements published in one location may, with the aid of the internet, be widely disseminated and viewed in a multitude of jurisdictions all over the world. Given the ease by which allegedly defamatory material may be published in Canadian jurisdictions through the use of the internet, plaintiffs in cases involving internet defamation will likely face little difficulty establishing a presumption of jurisdiction.

As a result, litigation involving jurisdictional disputes in defamation cases will likely turn on whether the foreign defendant is able to rebut a presumption of jurisdiction or demonstrate that another jurisdiction is a more appropriate forum. Foreign defendants may succeed in rebutting a presumption of jurisdiction by demonstrating that only a relatively minor element of the tort of defamation, such as publication, occurred in the jurisdiction.

Although the analytical framework applied in Breeden and Banro may create a heightened risk of libel tourism in future cases, the Court’s remarks with respect to the appropriateness of a choice of law rule based on the location of most substantial harm to reputation may provide lower courts with a legal foundation to curb libel tourism.

Finally, it must be recognized that the analytical framework applied in Breeden and Banro is subject to legislation in certain provinces that governs the assumption of jurisdiction and the doctrine of forum non conveniens: see e.g. Court Jurisdiction and Proceedings Transfer Act, S.B.C. 2003, c. 28. However, because those statutes contemplate an approach similar to the analytical framework applied in Breeden and Banro, the reasoning in those cases is likely to influence the manner in which courts in those provinces determine whether to exercise jurisdiction over defamation cases involving foreign defendants.

This article was originally published at The Court (Osgoode Hall Law School).

Subscribe to this blog by email, in a reader, or follow it on Twitter

Read the full article here:

Matthew Nied, “I Browse Therefore I Accept: Recent Developments in the Enforceability of Website Terms of Use Agreements” (2012) 1:1 Commercial Litigation and Arbitration Review 11.

Subscribe to this blog by email, in a reader, or follow it on Twitter

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.

Subscribe to this blog by email, in a reader, or follow it on Twitter

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.

Background

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,

[36]      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.

Implications

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.

Subscribe to this blog by email, in a reader, or follow it on Twitter

These decisions may contribute to an erosion of privacy rights as the internet becomes increasingly central to daily life. Individuals use the internet to perform a variety of personal activities, including writing and receiving correspondence, storing personal files, and developing social networks. However, in order to use these increasingly vital services, individuals must trust their information to online service providers. In doing so, users often unknowingly subject themselves to non-negotiated terms of service agreements that may limit their privacy expectations. As computing trends fuel a migration of information from personal computers to remote servers controlled by online service providers, more of the public’s information may become exposed to warrantless seizure by the state. This article surveys the law, discusses the effect of terms of service agreements, and considers the privacy implications.

…

Read the full article here. It was published in:

Matthew Nied, “The Internet, Cloud Computing, and the Charter Right to Privacy: The Effect of Terms of Service Agreements on Reasonable Expectations of Privacy” (2011) 69:5 The Advocate (Magazine of the Vancouver Bar Association) 701. Also published in (2011) 12:5 Internet and E-Commerce Law in Canada 40.

Subscribe to this blog by email, in a reader, or follow it on Twitter

The plaintiff claimed that the defendants defamed him by making statements that exceeded the boundaries of their normally acrimonious political debate on the internet. In particular, the plaintiff complained that the defendants defamed him by branding him “one of the Taliban’s more vocal supporters” on an internet message board. The words complained of referred back to an ongoing discussion, largely on the plaintiff’s blog, where the parties had debated the validity of the trial of Omar Khadr. The parties had aggressively berated each other, and often employed colourful derogatory characterizations. Although the plaintiff had the opportunity to respond to the impugned statements on the internet message board, he did not do so. The defendants brought a summary judgment motion to dismiss the action on the basis that the statements were not defamatory or, alternatively, that the defence of fair comment applied.

Mr. Justice Annis concluded that the impugned statements were not defamatory and granted summary judgment dismissing the action. Significantly, the Court proceeded to remark in obiter that the conclusion that the statements were not defamatory was supported by the fact that the statements were made “in the context of an ongoing blogging thread over the Internet” that provided each party with the opportunity to “respond to disparaging comments before the same audience in an immediate or relatively contemporaneous time frame.” According to the Court, “a statement is not derogatory when made in a context that provides an opportunity to challenge the comment and the rules of the debate anticipate a rejoinder, unless the statement is wholly outside the scope of the debate or otherwise so outrageous as to prevent meaningful argument from continuing.”

In the Court’s view, the fact that the statements were made in the context of an internet debate forum was a contextual factor to consider in determining whether the statements were defamatory:

[58] Although I am satisfied that the words complained [of] are not capable of damaging the reputation of the plaintiff, I am of the view that there is another contextual factor that would further bolster this conclusion, namely that the alleged defamatory words were made in the context of an ongoing blogging thread over the Internet.

[59] Internet blogging is a form of public conversation. By the back and forth character it provides an opportunity for each party to respond to disparaging comments before the same audience in an immediate or a relatively contemporaneous time frame.

[60] This distinguishes the context of blogging from other forms of publication of defamatory statements. One exception could be the live debate, of which blogging constitutes the modern written form.

[61] I am not suggesting that defamation can never occur in a live debate. I do say however, that the live debate forum should be considered as a contextual factor to determine whether the statement is defamatory in so far as whether it is complete.

The Court suggested that the defamatory sting arising from statements made on the internet may be substantially reduced or eliminated by responding to the statements:

[62] An example that does not in any manner reflect the Court’s views on these issues, but which might serve to explain how derogatory, even defamatory remarks are expected to be parried in a live debate so as to remove the “sting of the libel” and attenuate any threats of diminution of reputation might be as follows:

[The defendant] knows full well that I abhor what the Taliban stand for. His calling me one of their supporters because I think they should be entitled to due process in accordance with International law would be like me calling him (some derogatory descriptor, e.g. “a Nazi fascist”) because he wants to trample the rights that Canadians cherish, etc. [Example provided by the Court]

[63] Given that the plaintiff pleads his belief that “there is a reasonable likelihood of damage to my reputation if it became generally believed that I supported the enemies of the Canadian Forces”, it seems that the tendency of the comment to lower his reputation, particularly when arising in the form of a comment in a debate, could have been quickly nipped in the bud by a simple rejoinder in the fashion described above. This would have had the additional benefit of allowing him to score some points of his own.

The Court’s comments were based on the principle that a statement is defamatory if it tends to injure the reputation of the person to whom it refers by lowering him or her in the estimation of right-thinking members of society: Baglow, at para. 11.  Accordingly, the issue of whether the statements on the blog were defamatory was to be judged through the eyes of its readers:

[64] More importantly to the issue of context, the blogging audience is expecting and would indeed want to hear a rejoinder of this nature where the parry and thrust of the debaters is appreciated as much as the substance of what they say.

[65] In essence, I am suggesting that the Court, in construing alleged defamatory words in an ongoing debate, should determine whether the context of the comment from the perspective of the reasonable reader or listener is one that anticipates a rejoinder, which would eliminate the possible consequence of a statement lowering the reputation of the plaintiff in their eyes.

[66] To some extent the Court is attempting to decide whether the debate should have gone forward, such that walking off the blogging stage, so to speak, is a form of “gotcha” contrary to the rules governing the debate.

[67] I realize that this sounds like a form of defence of mitigation of a defamatory comment. But I see it more as an uncompleted comment, something akin to a plaintiff arguing that he or she has been defamed by a question, when the response was what the audience was expecting.

It appears that the Court’s view was a response, in part, to the concern that the threat of legal action may chill debate on the internet:

[70] Bringing an action on the comment in mid-debate runs contrary to the rules and has the effect of chilling discussion. If allowed, it places the opposing party in a defensive mode, rather than an offensive one, strategically putting that party at a disadvantage.

…

[74] The comment of the defendant Smith was on topic and generally consistent with the language and positions taken in the on-going debate. Accordingly, in no sense was it one that would have had any different effect on the plaintiff’s reputation from other derogatory remarks made throughout the blogs. Like those comments, it should have been answered to remove the sting, if any, and to comply with expectations of readers of these blogs.

It is interesting to note that the impugned statements were made on an internet message board that was distinct from the blogs on which much of the previous debate had occurred. The Court appears to have considered the comments made in all of these forums as a whole rather than concentrating on isolated comments in determining whether the impugned statements were defamatory: Baglow, at para. 27. However, one might question whether the forums had the same audience, and whether a reasonable reader will  anticipate a rejoinder in a place on the internet that differs from the one where the previous debate occurred.

In any event, the Court’s comments should not be read to suggest that persons defamed on the internet should necessarily enter the fray and respond to defamatory comments if given the opportunity to do so. The allegedly defamatory statements in this case were made in the context of an acrimonious debate in which the plaintiff was found to have participated. This is distinguishable from circumstances in which a plaintiff finds themselves defamed by statements made on a blog or message board in which they have not participated. In these cases, the context of the comment from the perspective of the reasonable reader will not be one that anticipates a rejoinder. It may be advisable for victims of internet defamation in these circumstances to avoid responding to defamatory comments in order to avoid inviting further attention to the matter and increasing the harm to their reputation.

Subscribe to this blog by email, in a reader, or follow it on Twitter

Quoted on Slaw, the Heenan Blaikie LLP Entertainment and Media Law Signal, and also posted on the International Forum for Responsible Media.

Yesterday, the Ontario Divisional Court released its decision in Warman v. Fournier et al, 2010 ONSC 2126 (Div. Ct.) rev’g (2009), 309 D.L.R. (4th) 227, 76 C.P.C. (6th) 155 (Ont. S.C.J.) (“Warman”). At issue was whether the disclosure provisions of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (the “Rules”) automatically entitle plaintiffs in internet defamation cases to obtain the identifying information of anonymous posters from websites and ISPs, or whether courts must balance the interests of plaintiffs with the freedom of expression and privacy interests of anonymous posters. The decision is now the leading authority in Ontario for the proposition that the objectives of the disclosure obligations under the Rules must be balanced with the right of freedom of expression in internet defamation cases. This article discusses the background, holding, and implications of Warman.

1. Background

The Respondent commenced an action against the Appellants, the operators of an internet message board, and eight anonymous message board participants with respect to a series of allegedly defamatory postings. After commencing the action, the Respondent brought a motion for an order compelling the Appellants to comply with Rule 76.03 of the Rules which required the Appellants to file an affidavit of documents that disclosed the email and internet protocol (“IP”) addresses of the anonymous posters in order to allow the Respondent to identify the posters and serve them with the statement of claim.

The motions judge rejected the Appellants’ submission that the Respondent was required to establish a prima facie case of defamation before disclosure could be ordered. Instead, Justice Kershman concluded that Rule 76.03 of the Rules required the Appellants to disclose all documents in their power or control and that such disclosure should be automatic upon the issuance of a statement of claim because the information was relevant and not protected by privilege.

This decision stood in stark contrast with earlier cases that offered some protection to the privacy interests of internet users by requiring plaintiffs to demonstrate a bona fide or prima facie case of defamation before ordering disclosure (see: previous posting). The motions judge distinguished these cases on the basis that the Respondent was seeking to compel the Appellants to follow the Rules as required by named parties to the action, whereas the other cases involved discretionary orders for the production of documents from third parties.

2. Holding on Appeal

The Divisional Court unanimously allowed the appeal and remitted the matter to a different motions judge for re-consideration, recognizing that the anonymous posters’ right of freedom of expression under the Charter should have been taken into account in considering the Respondent’s request for disclosure under the Rules. Moreover, the Court noted that the posters’ express decisions to remain anonymous gave them a reasonable expectation of privacy that weighed in their favour.

In rejecting the notion that disclosure should be automatic, the Court also expressed concern for the ease by which a plaintiff could abuse the Rules by filing claims in a spurious manner simply to identify an anonymous poster:

If disclosure were automatic, a plaintiff with no legitimate claim could misuse the Rules of Civil Procedure by commencing an unmeritorious action for the sole purpose of revealing the identity of anonymous internet commentators, with a view to stifling such commentators and deterring others from speaking out on controversial issues. For this reason, the commencement of a defamation claim does not trump freedom of expression or the right to privacy.

[Warman, at para. 33]

After surveying previous decisions, Justice Wilton-Siegel set out four considerations, aimed at preventing abuse of the Rules and respecting the privacy of internet users, that should have been considered by the motions judge in deciding whether to order disclosure under the Rules:

• whether the unknown alleged wrongdoer could have a reasonable expectation of anonymity in the particular circumstances;
• whether the Respondent has established a prima facie case against the unknown alleged wrongdoer and is acting in good faith;
• whether the Respondent has taken reasonable steps to identify the anonymous party and has been unable to do so; and
• whether the public interests favouring disclosure outweigh the legitimate interests of freedom of expression and right to privacy of the persons sought to be identified if the disclosure is ordered.

[Warman, at para. 34]

In concluding that plaintiffs should be required to meet a prima facie standard rather than a lower bona fide standard, the Court emphasized the importance of protecting freedom of expression and noted that there was no concern that the higher standard would deprive applicants of a remedy:

In para. 34 of BMG [2005 FCA 193], the Federal Court of Appeal expressed the concern that, in that case, imposition of a prima facie case standard would effectively strip an applicant of a remedy because the plaintiff could not know the actual case it wished to assert against the defendants until it knew not only their identities but also the nature of their involvement in the [internet] file-sharing activities. Because the present proceeding is a defamation action, that concern does not arise. Unlike BMG, the respondent knows the details of precisely what was done by each of the unknown alleged wrongdoers.

In addition, because this proceeding engages a freedom of expression interest, as well as a privacy interest, a more robust standard is required to address the chilling effect on freedom of expression that will result from disclosure. It is also consistent with the recent pronouncements of the Supreme Court that establish the relative weight that must be accorded the interest in freedom of expression. In the circumstances of a website promoting political discussion, the possibility of a defence of fair comment reinforces the need to establish the element of defamation on a prima facie basis in order to have due consideration to the interest in freedom of expression. On the other hand, there is no compelling public interest in allowing someone to libel and destroy the reputation of another, while hiding behind a cloak of anonymity. The requirement to demonstrate a prima facie case of defamation furthers the objective of establishing an appropriate balance between the public interest in favour of disclosure and legitimate interests of privacy and freedom of expression.

[Warman, at paras. 41 - 42]

3. Implications

Warman represents an important recognition that while internet users’ anonymity ought not to be protected absolutely, the mere commencement of a defamation action should not give rise to an automatic entitlement to information identifying a previously anonymous poster without a consideration of the interests of privacy and freedom of expression.

Nevertheless, there is still uncertainty with respect to the degree of protection that courts will afford to anonymous posters in the future. Under Canadian law, plaintiffs have two ways to seek disclosure in internet defamation cases. Apart from identifying anonymous defendants by seeking pre-action discovery or production of relevant information under procedural rules, as occurred in Warman, plaintiffs may also bring independent actions for disclosure of the identity of anonymous defendants by way of an equitable bill of discovery known as a “Norwich order”. Norwich orders were introduced in the decision of the House of Lords in Norwich Pharmacal Co. v. Customs and Excise Commissioners, [1974] A.C. 133 (H.L.) in which it was held that where a third party becomes involved in the tortious acts of others, that third party has a duty to disclose the identity of the tortfeasor so that the plaintiff may pursue its remedies. The Norwich factors were recently confirmed by the Ontario Court of Appeal in GEA Group AG v. Flex-N-Gate Corporation, 2009 ONCA 619 and applied in the internet defamation context by the Ontario Superior Court of Justice in York University v. Bell Canada Enterprises (2009), 311 D.L.R. (4th) 755 (Ont. S.C.J.) (“York University”):

• whether the applicant has provided evidence sufficient to raise a valid, bona fide or reasonable claim;
• whether the applicant has established a relationship with the third-party from whom the information is sought, such that it establishes that the third party is involved in the acts;
• whether the third party is the only practicable source of the information;
• whether the third party can be indemnified for costs to which it may be exposed because of the disclosure; and
• whether the interests of justice favour obtaining the disclosure.

[York University, at para. 13]

Although the second and fourth Norwich factors were not relevant in Warman because they apply only to third party respondents rather than co-defendants [see Warman, at para. 39], some of the other Norwich factors are similar to the considerations set out in Warman that are now applicable to the question of whether a court should order disclosure under the Rules. However, an important difference remains. While the approach under Warman requires plaintiffs to demonstrate a prima facie case of defamation, Norwich jurisprudence has required plaintiffs to meet the lower bona fide standard. For example, even though the plaintiff in York University managed to establish a prima facie case of defamation, the court did not require the plaintiff to demonstrate more than a bona fide case. Although Warman provides compelling reasons to prefer the higher prima facie standard where the plaintiff seeks disclosure through a Norwich order, it remains open for courts to require plaintiffs to meet the lower standard instead.

Subscribe to this blog by email, in a reader, or follow it on Twitter

Also posted on Law is Cool and quoted on Slaw, the Wise Law Blog, the Heenan Blaikie LLP Entertainment and Media Law Signal, the International Forum for Responsible Media, and the Blog Law Blog.

Importantly, the Defence applies not only to journalists and print-based publishers – the types of defendants in Grant and Quan – but also to non-journalist bloggers and users of other online media:

[T]he traditional media are rapidly being complemented by new ways of communicating on matters of public interest, many of them online, which do not involve journalists. These new disseminators of news and information should, absent good reasons for exclusion, be subject to the same laws as established media outlets. I agree … that the new defence is “available to anyone who publishes material of public interest in any medium”. [Grant, at para. 96]

[Emphasis added]

Although the extension of the Defence to non-journalist bloggers and users of other online media is an important recognition of the growing relevance and legitimacy of these groups, the Defence is – at least currently – unlikely to protect most members of these groups. To gain the protection of the Defence, the defendant must establish two elements: (1) that the publication is on a matter of public interest; and (2) that the publication was responsible, in that the defendant was diligent in trying to verify the allegation. The trial judge will determine the first element. If the judge concludes that the first element is met, the jury will determine the second element, having regard to several factors:

• the seriousness of the allegation;
• the public importance of the matter;
• the urgency of the matter;
• the status and reliability of the source;
• whether the plaintiff’s side of the story was sought and accurately reported;
• whether the inclusion of the defamatory statement was justifiable;
• whether the defamatory statement’s public interest lay in the fact that it was made rather than its truth; and
• any other relevant circumstances

In assessing whether the defendant was diligent, the jury will be guided by “established journalistic standards”:

[M]any actions now concern blog postings and other online media which are potentially both more ephemeral and more ubiquitous than traditional print media. While established journalistic standards provide a useful guide by which to evaluate the conduct of journalists and non-journalists alike, the applicable standards will necessarily evolve to keep pace with the norms of new communications media. [Grant, at para. 97]

[Emphasis added]

This indicates that the same journalistic standard must be applied to every defendant irrespective of whether or not they are journalists. As a result, the Defence will likely not apply to non-journalist bloggers and users of other online media unless they perform the due diligence expected of a journalist in the circumstances.

The problem for many members of these groups is that they are generally not guided by established journalistic norms. Although they may approach online publishing in good faith and with a level of diligence reasonably expected of non-journalists, this level of diligence is unlikely to meet the required journalistic standard. For example, although journalists will generally make a point of seeking the plaintiff’s side of the story and speaking directly to witnesses and experts, non-journalist bloggers – who are generally unpaid for their efforts – will rarely have the time, resources, training, or willingness to do so. As one American commentator argues,

blogging and journalism clearly differ. The former ‘implies that a disinterested third party is reporting facts fairly’ (Andrews, 2003: 64). Blogs are ‘unedited, unabashedly opinionated, sporadic and personal’ (Palser, 2002) – in many ways, the antithesis of traditional US journalism. Some say that is the best thing about them. ‘Journalism is done a certain way, by a certain kind of people,’ but bloggers “are oblivious to such traditions” (Welsh, 2003). [Jane B. Singer, “The political j-blogger: ‘normalizing’ a new media form to fit old norms” (2005) 6(2) Journalism 173 at 176]

[Emphasis added]

Even if a non-journalist blogger or user of other online media does engage in the level of diligence required to meet the journalistic standard, they may unknowingly fail to do so in a way that produces a strong record of evidence from which a court can conclude that they did act diligently. As a result, many of these defendants may simply not have access to the protection of the Defence.

Nonetheless, Grant does not foreclose the possibility that courts will apply a different diligence standard to non-journalist bloggers and users of other online media as the “norms of new communications media” evolve. Although the court isn’t clear on this point, these groups might be able to gain the protection of the Defence in future cases even if they haven’t performed their diligence in the same way that a traditional journalist would have:

While established journalistic standards provide a useful guide by which to evaluate the conduct of journalists and non-journalists alike, the applicable standards will necessarily evolve to keep pace with the norms of new communications media. [Grant, at para. 97]

[Emphasis added]

Even if the standard applicable to these groups does not shift to allow them to gain the protection of the Defence, juries – who have been tasked with the responsibility for assessing whether the defendant was diligent – may be sympathetic to these groups and apply the journalistic standard less rigidly.

In summary, although the Defence extends to non-journalist bloggers and users of other online media, many members of these groups are unlikely to be protected by the Defence because it requires that they performed the due diligence expected of a journalist. Nonetheless, the law does not necessarily foreclose the possibility that courts will apply a different diligence standard to these groups in future cases, or that juries will less rigidly apply the existing journalistic standard.

Subscribe to this blog by email, in a reader, or follow it on Twitter

Also posted on Law is Cool and quoted in the Canadian Association of Journalists Media Magazine at p. 27.