Top 10 cases of 2018

Torys Quarterly: What to expect in 2019

2018 will be remembered as the year that Cambridge Analytica, Meghan Markle and Stormy Daniels all became household names. There were dramatic rescues of Thai soccer players, tariffs on steel and aluminum, and Canada put the “can” in “cannabis.”

While all of these stories captured our hearts and minds throughout the year, they did not answer the question that weighs on so many Canadian lawyers at the beginning of a new year. No, it’s not “how do I shed those holiday pounds?” or even “when can I go to a warm destination?” but the far more serious “what were the 10 most important judicial decisions?” We answer that question (although sadly not the other two) below.

Protection of shared private information

As the popular saying goes, sharing is caring. But sharing information can be risky. Private information is often protected only because it is private. So sharing that information can cause the protection to be lost. In 2018, the Canadian courts considered when sharing is not so much caring as it is a waiver.

In a case that is extremely important for transactional lawyers, the Federal Court of Appeal approved of what is sometimes referred to as “deal privilege.” It had long been assumed that when Baker seeks to purchase Abel, in either a share or asset transaction, Abel could show Baker solicitor-client privileged information as part of the due diligence process, without waiving that privilege. However, a decision of the Federal Court called this into question. However, this decision was appealed, and in IGGillis Holdings Inc. v. The Minister of National Revenue,1 the Federal Court of Appeal confirmed that common interest privilege protects the sharing of information between parties to a commercial transaction, so long as the documents are themselves subject to solicitor-client privilege, shared in confidence and for a common interest.2 The Court emphasized the efficiency and improved legal services flowing from sharing privileged documents in the context of a transaction.3

Organizations may want to revisit their reliance on consent from one individual (e.g., from a spouse or a household) in light of Reeves.

Spouses and families often share a computer. However, sometimes one member of that family is using the computer for an illegal purpose. The question the Supreme Court faced in R. v. Reeves4 is whether the consent of one user to police access negates the other user’s right to privacy. In Reeves the police seized a shared computer containing the information belonging to both Reeves and his wife. They only had his wife’s consent. The majority of the Supreme Court held that the seizure of the computer with only his wife’s consent breached section 8 of the Charter: “waiver by one holder does not constitute waiver for all rights holders.” Although this case emerges from the criminal context, Charter concepts, such as an individual’s reasonable expectation of privacy, are increasingly used by courts to guide privacy obligations in the private sector, and Reeves may have relevance where an organization relies on consent from an individual to collect information from a spouse or a household.

Ontario courts value comity and enforced limits on class actions

Stephen Sondheim once said “tragedy tomorrow, comity tonight” and this prediction was at least partially accurate when it comes to securities and tort-based class actions before the Court of Appeal for Ontario in 2018.

The tragedy of Rana Plaza in Bangladesh, and the subsequent litigation, was well-covered by the Canadian media. In Das v. George Weston Limited5 (Das), the plaintiff proposed a class action on behalf of victims of the collapse of the Rana Plaza building in Bangladesh, from which a contractor to George Weston Limited operated.6 The plaintiff sought to rely on a corporate social responsibility code as the basis of its duty of care. Although this had been rejected in the Superior Court, the plaintiff appealed, asking the Court of Appeal to use its discretion to apply Ontario law (the application of Bangladeshi law was alleged to result in injustice). In rejecting this, the Court emphasized that unless the plaintiff can demonstrate the place of the alleged tort is Ontario, the plaintiff cannot benefit from its potentially favourable law.7 The Court also concluded that adopting corporate social responsibility standards did not create a duty of care.8

The Court of Appeal also clarified the jurisdictional scope for secondary market misrepresentation class actions brought by Canadian owners of foreign securities purchased on a foreign exchange. In Yip v. HSBC Holdings Inc.,9 the OCA found that Ontario lacked jurisdiction simpliciter to hear the claim of Canadian plaintiffs against Hong Kong-based HSBC Holdings in respect of securities purchased on the Hong Kong stock exchange.10 This decision clarified uncertainty in the law in the wake of the court granting and then lifting a stay in the Kaynes v. BP class action brought by Ontario shareholders regarding to BP’s deepwater horizon well.11 The Court held that comity and the desire to avoid a multiplicity of proceedings will generally favour the forum in which trading took place, but that the presumption can be rebutted if it can be shown that a proceeding is not possible in that forum.12

The Ontario Court of Appeal reinforces foundations of corporate law

Some of us have often wondered, since no one ever “pierces” an actual veil (at least without causing serious ocular damage), why do people speak about “piercing” the corporate veil? Unfortunately, this seems like an issue that is unlikely to be addressed. Etymology aside, two cases from the Court of Appeal in 2018 have clarified fundamental tenets of corporate law, confirming a high bar for piercing the corporate veil and the duties owed by auditors to non-clients in a statutory audit.

In Yaiguaje v. Chevron Canada,13 the Court found there was no basis for piercing the corporate veil and refused Yajguaje’s attempts to seek shares of Chevron Canada and its assets to satisfy a US$9.5 billion judgment against the U.S. parent corporation. It confirmed the separate legal personality of the corporation as a foundational concept in Canadian law.14 The Court rejected a “group enterprise” theory of liability, in which one corporate entity may be liable for the actions of other corporate entities where they operate closely as a group as having no basis in the legislation.15 Although a concurring judgment argued that there may be an equitable basis for piercing the corporate veil when it would be “too flagrantly opposed to justice” to do otherwise, the majority’s decision reaffirms the primacy of the doctrine of separate legal personality. This suggests that this doctrine will not be lightly departed from any time soon.

The Court of Appeal also clarified the nature of the duty of care owed by auditors when conducting a statutory audit. In Lavender v. Miller Bernstein LLP, the Court determined that an auditor did not owe a duty of care to a class of individuals who were not the intended audience of the auditor’s report and who did not read or rely upon the misstatements at issue. The Court concluded that no relationship of proximity had been established, and that therefore no duty of care was owed to the plaintiff class.16 The Court further noted that significant scrutiny is required when considering whether to impose a duty of care in a claim based on pure economic loss. The decision solidifies the approach set out by the SCC last year in Deloitte & Touche v. Livent17 and confirms that claims by non-clients against auditors arising from statements made in the course of an audit will be subject to a high threshold.

Courts interpret trademark and employment law in the interest of fairness

No one can seriously contest that fairness is a good thing. The problem in litigation is that fairness, like beauty, is often in the eye of the beholder. Or, as Miles once put it, “where you stand depends on where you sit.” Plaintiffs and defendants often sit in very different corners, and therefore have different views on what is and what is not fair.

Mohamed had been forthright with ISA from the beginning of their relationship about his criminal record, but ISA terminated him on this basis anyway. The Court of Appeal was not impressed.

The Ontario Court of Appeal embraced the duty of good faith in contractual performance articulated by the SCC a in Bhasin v. Hrynew in the context of a relationship for independent contractor services.18 The Court held that an expansive and unfettered right to terminate the services of an independent contractor could only be exercised in good faith in Mohamed v. Information Systems Architects Inc.19 The defendant IT company terminated the plaintiff because the client required the contractor not have a criminal record. Mohamed had been forthright with ISA from the beginning of their relationship about his criminal record, but ISA terminated him on this basis anyway. The Court of Appeal was not impressed. It concluded that ISA’s termination was not in good faith and found that, because the agreement was a fixed-term contract, Mohamed was entitled to damages reflecting the remaining term of the contract.20

Canadian courts have demonstrated that they are willing to protect trademarks for services in Canada, even where the primary service is located outside Canada. The Federal Court, in Hilton Worldwide Holding LLP v. Miller Thomson,21 revisited the “use it or lose it” test for maintaining a trademark legislation in order to protect Hilton’s “Waldorf-Astoria” trademark in Canada. The Federal Court’s decision overturned the deregistration of the “Waldorf-Astoria” trademark for use in association with “hotel services.” The Trademark Registrar was of the view that the absence of a Waldorf-Astoria hotel in Canada was disqualifying. The Federal Court adopted a liberal interpretation of “services” to include ancillary and incidental services, and concluded that hotel reservation and booking services were encompassed by the ordinary commercial scope of “hotel services.”22 This is considered an expansion of trade-mark rights, if only a modest one.

Supreme Court nods to structural changes on the horizon

While we have largely focused on decisions from the Court of Appeal, the Supreme Court also had a busy, if controversial, year. The SCC clarified the path forward on national securities regulation, and muddied the waters on the Crown’s duty to consult Indigenous peoples.

In 2011, the SCC struck down a previous proposal for a mandatory pan-Canadian securities regulator. In 2018, in Reference re Pan-Canadian Securities Regulation,23 the SCC gave the green light to provinces, territories and the federal government for the creation of a national securities regulator that would only govern those provinces that opted in to the regime. The Court based its decision in the cooperative, optional nature of this proposal, which (in contrast to its predecessor) does not fetter the sovereignty of the provincial legislatures.24 The reference was brought on behalf of the Federal Government and six provinces and territories which can be expected to be the initial participants. Other provinces may follow (although Québec and Alberta have clearly indicated they will not).

While the SCC clarified the constitutionality of a national securities regulator, it muddied the waters regarding the duty owed to Indigenous peoples when legislating. In four sets of reasons dismissing the appeal on different grounds, the SCC in Mikisew Cree First Nation v. Canada25 cobbled together a majority holding that the duty to consult does not apply to the legislative process. However, a majority of the Court held that the honour of the Crown applies in enacting legislation; Wagner C.J., and Karatkatsanis and Gascon J.J. indicated that while the duty to consult does not apply to the legislative process, the honour of the Crown may give rise to “other doctrines” that have not yet been identified.26 Justice Brown highlighted that the Court’s fractured approach will “sow uncertainty.”27 Those in government relations, particularly in respect of land use, will want to monitor the development of this area of law with interest.

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1 2018 FCA 51

2 Iggillis .v The Minister of National Revenue, paras 32-34.

3 Iggillis v. The Minister of National Revenue, para 42.

4 R2018 SCC 56.

5 2018 ONCA 1053

6 2018 ONCA 1053

7 Das v. George Weston Limited, para. 85.

8 Das v. George Weston Limited, para. 176.

9 2018 ONCA 626.

10 Yip v. HSBC Holdings Inc., para 50.

11 Kaynes v. BP PLC, 2014 ONCA 580 and 2016 ONCA 601.

12 Yip v. HSBC Holdings Inc., paras 60-61.

13 2018 ONCA 472

14 (1996), 28 O.R. (3d) 423.

15 Yaiguaje v. Chevron Canada, para 111.

16 Lavender v. Miller Bernstein LLP, para 65.

17 2017 SCC 63.

18 2014 SCC 71.

19 2018 ONCA 428.

20 Mohamed v. Information Systems Architects Inc., para 21 and 30.

21 2018 FC 895.

22 Hilton Worldwide Holding LLP v. Miller Thomson, para 68.

23 2018 SCC 48.

24 Reference re Pan-Canadian Securities Regulation para. 7.

25 2018 SCC 40.

26 Mikisew Cree, para. 45.

27 Mikisew Cree, para. 144.

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