October 21, 2012
In Southcott Estates Inc. v. Toronto Catholic District School Board, 2012 SCC 51, the Supreme Court of Canada considered whether a plaintiff in a case involving a failed real estate transaction was excused from mitigating its losses on the basis that it had made a claim for specific performance.
Although the Court recognized that a plaintiff’s refusal to mitigate may be reasonable if the plaintiff had a “substantial justification” or a “substantial and legitimate interest” in specific performance, the Court held that the plaintiff had no such interest because the property was intended as an investment and had no peculiar or special value to the plaintiff.
The plaintiff, Southcott Estates Inc. (“Southcott”) was a single-purpose company incorporated solely for the purpose of a specific land purchase. It had no assets other than money advanced to it by its parent company for the deposit relating to the land purchase.
Southcott entered into an agreement of purchase and sale for a specific property with the defendant, the Toronto Catholic District School Board (the “Board”). When the Board failed to satisfy a condition and refused to extend the closing date, Southcott brought a claim for specific performance of the contract, and argued that it was not required to mitigate its losses by purchasing a different property.
The trial judge refused to award Southcott specific performance and, instead, awarded damages to Southcott. On appeal, the Court of Appeal concluded that the Board had breached its contractual obligations, but that Southcott had failed to take available steps to mitigate its losses. As a result, the Court of Appeal reduced Southcott’s damage award to a nominal sum.
The key issue on appeal was whether a plaintiff must mitigate its losses where the plaintiff has made a claim for specific performance.
The majority reasons, penned by Madam Justice Karakatsanis, recognized that “there may be situations in which a plaintiff’s inaction is justifiable notwithstanding its failure to obtain an order for specific performance.” In particular, “[i]f the plaintiff has a ‘substantial justification’ or a ‘substantial and legitimate interest’ in specific performance, its refusal to purchase other property may be reasonable, depending upon the circumstances of the case”.
In the Court’s view, this was not a case where the plaintiff could reasonably refuse to mitigate. The Court began by observing that “[a] plaintiff deprived of an investment property does not have a “fair, real, and substantial justification” or a “substantial and legitimate” interest in specific performance unless he can show that money is not a complete remedy because the land has “a peculiar and special value” to him. In this case, Southcott had no “substantial and legitimate” interest in specific performance because the land had no peculiar or special value to it. Rather, Southcott had simply “engaged in a commercial transaction for the purpose of making a profit”, such that “[t]he property’s particular qualities were only of value due to their ability to further profitability.”
As a result, the Court held that Southcott owed a duty to mitigate its damages by purchasing an alternative property, notwithstanding its specific performance claim.
In light of the decision, a plaintiff with a claim of specific performance must carefully evaluate the strengths and weakness of its claim. If a plaintiff chooses to pursue its claim of specific performance and declines to mitigate its losses in the interim by buying an alternative property, the plaintiff must be prepared to suffer a reduction in its damage award in the event that a court rejects its claim of specific performance and finds that the plaintiff unreasonably failed to mitigate its losses.
July 9, 2012
In Edward Jones v. Voldeng, 2012 BCCA 295 (“Voldeng”), the British Columbia Court of Appeal considered the test for granting an interlocutory injunction in the context of a restrictive covenant prohibiting solicitation contained in the employment contract of an investment advisor. The Court made several notable remarks regarding the irreparable harm and balance of convenience elements of the test for granting an interlocutory injunction.
Randy Voldeng, an investment advisor, worked at Edward Jones, a national brokerage firm. The employment agreement contained a restrictive covenant that prevented Mr. Voldeng from soliciting sales from any client of Edward Jones after his employment relationship with Edward Jones ended.
Ultimately, Mr. Voldeng left his employment with Edward Jones and commenced employment with a competing brokerage firm. Shortly after leaving Edward Jones, Mr. Voldeng contacted a number of Edward Jones’ clients and allegedly encouraged them to transfer their accounts to the competing brokerage firm.
Edward Jones commenced an action and sought an interlocutory injunction restraining Mr. Voldeng from making further solicitations.
In order to obtain an interlocutory injunction, an applicant must establish that:
- there is a serious question to be tried;
- the applicant will suffer irreparable harm if the injunction is not granted; and
- the balance of convenience favours granting the injunction.
The lower court held that Edward Jones had established these three elements. Accordingly, the lower court granted an interlocutory injunction.
The key issues on appeal were whether there was evidence of irreparable harm and whether the balance of convenience favoured granting the injunction. There was no dispute that there was a serious question to be tried.
Mr. Justice Chiasson, writing for the Court, began by describing two types of irreparable harm:
- harm that cannot be quantified in monetary terms, such as permanent market loss or irrevocable damage to business reputation; and
- harm that cannot be compensated because, for example, an award of damages will not be collectible.
The lower court accepted that the facts gave rise to the first type of irreparable harm. It held that damages were not an adequate remedy for the alleged breach of the non-solicitation covenant because it would be extremely difficult to separate damages for loss of business caused by the breach from those resulting in fair competition.
The Court disagreed. In its view, “the damages that flow from a violation of a non-solicitation covenant in the employment contract of an investment advisor generally are calculable”. This is because the industry is regulated in a manner such that the “value of the portfolio of a departing client is known, as is the return to the brokerage firm of managing the portfolio.”
In the case at bar, the evidence was clear that Mr. Voldeng had received instructions to transfer client accounts with an approximate total value of $20.2 million. Accordingly, the potential damages arising out of the alleged solicitation, being calculable, did not constitute irreparable harm.
Turning to the assessment of whether the balance of convenience favoured the granting of an injunction, the Court held that “in the context of a non-solicitation covenant, the interests of an individual investment advisor and his or her clients often tips the balance of convenience in favour of the investment advisor.”
In particular, the Court recognized that the interests of the clients of an investment advisor are a legitimate public policy factor to consider in the balance of convenience analysis. On this point, the Court cited previous decisions which emphasized that “clients should be free to receive information from all competitive sources and to have the ability to decide if they wish to follow a person with whom they have developed an individual trust and confidence regarding investment advice.”
The Court also noted that while the “interests of the clients of investment advisors are a legitimate factor to take into account, [they] should not be considered as unique to that relationship.” Accordingly, “[t]here are many other relationships in which similar interests may be relevant.”
In the course of assessing the balance of convenience, the Court also observed that granting the interlocutory injunction could have caused irreparable harm to Mr. Voldeng “because, if his conduct were found to be proper, it would not be possible to determine which of his clients would have shifted to [the competing brokerage firm] if he had been able to inform them of his contact particulars.”
Based on these factors, the Court concluded that the balance of convenience did not favour the granting of an injunction.
In the result, having determined that the irreparable harm and balance of convenience elements were not met, the Court overturned the lower court’s decision to grant an interlocutory injunction.
July 2, 2012
In Clements v. Clements, 2012 SCC 32 (“Clements”), the Supreme Court of Canada clarified the circumstances in which a plaintiff in a negligence action may establish causation on the basis that the defendant’s conduct materially contributed to the risk that gave rise to the plaintiff’s injury, rather than the “but for” test.
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.
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.
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.
Freeway Properties Inc. v. Genco Resources Ltd: Financial Statements and Confirmation of Causes of Action Under the Limitation Act
June 25, 2012
In the recent case of Freeway Properties Inc. v. Genco Resources Ltd., 2012 BCCA 258 (“Freeway”), the British Columbia Court of Appeal Court held that a company’s financial statements are capable of confirming a creditor’s cause of action against the company and extending the creditor’s time for commencing an action under the Limitation Act, R.S.B.C. 1996, c. 266 (the “Act”).
The decision concerned appeals from summary trial dismissals of two debt actions. The trial courts held that the actions were statute barred by s. 3(5) of the Act because they were brought after the expiration of six years after the right to bring the actions arose. The Court of Appeal heard the appeals together since they involved common issues of law and fact, related plaintiffs, and a common defendant.
The focus of the appeal was whether the defendant, a public company, had confirmed the plaintiffs’ causes of action by mailing to its shareholders, including the plaintiffs, a copy of the defendant’s financial statements. The financial statements, which were approved and signed by two of the defendant’s directors, contained a balance sheet with an entry of $73,402 described as a current liability “[d]ue to related parties”. The entry made no specific reference to the plaintiffs. The financial statements were also broadly addressed to the defendant’s shareholders rather than addressed specifically to the plaintiffs.
The law of confirmation is governed by s. 5 of the Act. Section 5(1) of the Act provides that if a confirmation takes place before the expiration of a limitation period, the time during which the limitation period runs before the date of confirmation does not count in the reckoning of the limitation period. In other words, when a confirmation occurs before a limitation period expires, the limitation period starts afresh.
In order for a person to have the benefit of a confirmation under the Act, three elements must be established:
- the cause of action must be confirmed, which requires either an acknowledgement of the cause of action, right, or title of another (s. 5(2)(a)(i), Act) or payment in respect of a cause of action, right, or title of another (s. 5(2)(a)(ii), Act);
- the confirmation must be in writing and signed by the maker (s. 5(5), Act); and
- the confirmation must be made to the person or to a person through whom the person claims (s. 5(6)(a), Act).
The first issue on appeal was whether the defendant’s financial statements contained an acknowledgement of the plaintiffs’ causes of action in accordance with s. 5(2) and (5) of the Act. The Court relied on a line of English authorities to conclude that a company’s financial statements are capable of containing an acknowledgement of a cause of action. In the Court’s view, “what must be decided objectively is whether the ‘maker’ of the alleged acknowledgement intended by it to admit liability.” The Court held that the defendant had clearly intended to admit liability to the “related parties” mentioned in the balance sheet, and that the plaintiffs had proven by extrinsic evidence that they were the “related parties”.
The second issue was whether the confirmation was made to the plaintiffs in accordance with s. 5(6)(a) of the Act. The Court held that it was sufficient that the financial statements were sent to the plaintiffs, observing that “nothing in the Act requires that the acknowledgment be ‘specifically written to the plaintiff, or that the communication be addressed to the plaintiff’”. Although not necessary for the determination of the issue, the Court went on to add that “an acknowledgement actually received by the creditor would be effective … whether or not the ‘maker’ of the acknowledgment intended that the creditor should receive it, and it is not necessary to imply such an intention.”
The final issue was whether the effective date of the confirmation was the date of the year end to which the balance sheet related or, rather, the date that the plaintiffs received the financial statements. The Court relied on English and Australian authorities to conclude that the effective date of confirmation was the date of the balance sheet.
Based on that conclusion, the Court dismissed the plaintiffs’ actions as statute barred under s. 3(5) of the Act because the actions had been commenced after the expiration of six years after the date of the confirmation.
The reasoning in Freeway will likely to apply to the new Limitation Act once it has been brought into force: Bill 34 – 2012 Limitation Act (the “New Act”). Like s. 5(1) of the Act, s. 24(1) of the New Act provides that a person may extend a limitation period before it expires if “[b]efore the expiry of [the applicable limitation period] … a person acknowledges liability in respect of the claim”. Similarly, s. 24(6) of the New Act provides, like s. 5(5) and (6) of the Act, that an acknowledgement must be in writing, signed, made by the person making the acknowledgement, and made to the person with the claim.
In the companion cases of Breeden v Black, 2012 SCC 19 (“Breeden”) and Éditions Écosociété Inc. et al. v Banro Corp., 2012 SCC 18 (“Banro”), the Supreme Court of Canada clarified the manner in which courts should determine whether to exercise jurisdiction over multijurisdictional defamation claims involving foreign defendants.
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.
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.
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.
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.
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