April saw the court release decisions dealing with termination provisions in an employment contract, the requirements for registration as a status Indian, application of the law of misnomer in an action against a trade union, forfeiture of a deposit on a commercial real estate transaction, and fiduciary duties owed within a professional partnership
1. Redstone Enterprises Ltd.
v. Simple Technology Inc., 2017 ONCA 282 (Sharpe,
Lauwers and Hourigan, JJ.A.), April 4, 2017
2. Covenoho v. Pendylum
Ltd., 2017 ONCA 284 (Rouleau, Pepall and Roberts
JJ.A.), April 5, 2017
3. Tim Ludwig Professional
Corporation v. BDO Canada LLP, 2017 ONCA 292
(Strathy C.J.O., Weiler and Benotto JJ.A.), April 12, 2017
4. Gehl v. Canada (Attorney
General), 2017 ONCA 319 (Sharpe, Lauwers and
Miller JJ.A.), April 20, 2017
5. Lawrence v. International
Brotherhood of Electrical Workers (IBEW) Local
773, 2017 ONCA 321 (Sharpe, Lauwers and Hourigan
JJ.A.), April 20, 2017
1. Redstone Enterprises Ltd. v. Simple Technology
Inc., 2017 ONCA 282 (Sharpe, Lauwers and Hourigan,
JJ.A.), April 4, 2017
In this case, the Court of Appeal set important limits on the
degree to which equitable principles may support relief from
forfeiture for a sizeable deposit on a failed commercial real
estate transaction.
Redstone Enterprises Ltd. sold a warehouse in Brantford to
Simple Technology Inc., for $10,225,000. The purchaser successively
extended the closing date while it was applying for a marijuana
grow-op license, and successively increased its deposit on the
property to $750,000. Ultimately, Simple Technology was unable to
obtain the license or the necessary financing, and failed to close
the transaction. Redstone then applied for a declaration that it
was entitled to be paid the deposit of $750,000, which was being
held in trust. The motion judge found no legally acceptable
justification for the purchaser not to close the transaction and
agreed that the deposit was to be forfeited to the seller. He then
exercised his equitable jurisdiction under s. 98 of the Courts
of Justice Act, R.S.O. 1990, c. C.43 and reduced the sum to be
forfeited from $750,000 to $350,000.
The Court of Appeal held that the application judge erred in
granting partial relief from forfeiture of the deposit to the
buyer. Although Redstone suffered no damages, that alone did not
render the forfeiture unconscionable. The analysis of
unconscionability requires the court to consider the full
commercial context, and a finding of unconscionability must be an
exceptional one, strongly compelled on the facts of the case. There
was no evidence that the deposit of slightly more than seven
percent was a commercially unreasonable amount. In considering
other indicia of unconscionability such as inequality of bargaining
power, a substantially unfair bargain, the relative sophistication
of the parties and their conduct – an analysis which the
application judge failed to undertake – the court held that
there was no unconscionability in this case.
2. Covenoho v. Pendylum Ltd., 2017
ONCA 284 (Rouleau, Pepall and Roberts JJ.A.), April 5, 2017
This case highlights that termination provisions in an
employment contract that could ever contravene
the Employment Standards Act, 2000, S.O. 2000, c. 41
("ESA") will be voided altogether; and it
happens to mark a win for a self-represented appellant.
The employee was employed by the company under a one-year
fixed term contract. The employee signed the company's standard
form agreement, which included a term that the employer could
terminate on no notice if its client for whom the employee was
doing her work in turn terminated its contract with the employer.
Within three months of the employee's start date, the company
terminated the employee's employment because its client
terminated, and in reliance on the termination provisions of the
agreement, the company provided no notice or payment in lieu. The
motion judge dismissed the employee's motion for summary
judgment, reasoning that she had been employed for less than three
months, so she was not entitled to notice under the ESA;
and reasonable common law notice was excluded by operation of her
employment agreement.
The Court of Appeal held that the termination provisions of
the employment agreement contravened the ESA, since they
purported to permit the employer to be liable for less than the
statutory minimum notice period (really, nothing), regardless of
how long the employee was employed. That is, once the employee was
past her probationary period, and still within the one-year term of
her employment, the termination provisions were below the statutory
minimum. So although she happened to have been terminated during
the three month probationary period recognized by the ESA
(and under the ESA would be entitled to no notice), the
clause was void when the parties entered into the agreement,
because it also provided that she could be eligible for no notice
beyond her probationary period, when the ESA
dictated she would be entitled to minimum notice. The Court of
Appeal held the termination provisions were void, and found that
the employee was entitled to be paid not common law notice, but for
the balance of her one year fixed term contract, with no obligation
to mitigate during the remainder of its term.
3. Tim Ludwig Professional Corporation v. BDO
Canada LLP, 2017 ONCA 292 (Strathy C.J.O., Weiler and
Benotto JJ.A.), April 12, 2017
The Court of Appeal considered fiduciary duties in a
professional partnership context, the first time it has
substantively done so in many years.
Tim Ludwig was a partner of BDO Canada LLP, a national
accounting and advisory firm, for 22 years. On July 8, 2014, he was
called into a meeting and told to retire. He brought an action
against BDO claiming that it breached the terms of their
partnership agreement. The motion judge granted Ludwig summary
judgment on the basis that (i) Ludwig's expulsion did not
comply with the language of Article 17.4 of the Partnership
Agreement, and (ii) common law principles governing partnerships
require that a partner's expulsion must be reasonable and made
in good faith, rather than arbitrary or capricious. BDO did not
advance any evidence that the Policy Board independently decided
that to expel Ludwig was in the best interest of the partnership,
and it did not act in good faith because it did not give Ludwig an
opportunity to explain why he should not be expelled. The motion
judge awarded Ludwig expectation and aggravated damages.
Proceeding on a standard of correctness, the Court of Appeal
found that the motion judge correctly interpreted the Partnership
Agreement. The court found that BDO breached the agreement. There
was no evidentiary basis on which to reasonably conclude that it
was in the best interest of the partnership to request Ludwig's
retirement. Moreover, it was clear from the evidence that the
decision to expel Ludwig was made not by the Policy Board as
required, but by the CEO. The Court of Appeal also agreed with the
motion judge's decision in awarding expectation and aggravated
damages. Caution must be exercised when directly applying the rules
governing intangible damages in the employment context to partners,
as partners are typically not employees and are governed by a
separate legal regime at common law and have specialized
legislation. However, given the duty of utmost good faith owed
between partners, the reasoning in Keays v. Honda Canada
Inc., 2008 SCC 39 should apply in the partnerships context.
Damages flowing from bad faith in the manner of a partner's
expulsion were within the reasonable contemplation of the parties
when they entered into the partnership agreement.
4. Gehl v. Canada (Attorney
General), 2017 ONCA 319 (Sharpe, Lauwers and Miller
JJ.A.), April 20, 2017
At issue in this appeal was whether Gehl was entitled to
registration as a status Indian, and particularly how Gehl was to
prove her lineage to the Registrar for Aboriginal Affairs and
Northern Development. Was the Registrar's insistence that she
prove her paternal grandfather's identity and status
unreasonable and/or contrary to the Charter?
The Indian Act, R.S.C. 1985, c. I-5 was amended in
1985, in part to address a regime of determining status by
references to parentage that included reliance on a system of
patrilineage and such concepts as "illegitimacy",
particularly embarrassing in light of what was then a
newly-in-force s. 15 of the Charter. The new regime
established a two-tier system of registration. Children with two
Indian parents now receive "full" status, whereas a child
with only one Indian parent receives "partial" status.
The former can pass on status to their own children, regardless of
the status of the other parent, while the latter can pass on status
to their own child only if the other parent also has Indian status,
whether full or partial.
Gehl brought an application to register as an Indian. The
Registrar denied the application. Because the identity of
Gehl's paternal grandfather was unknown, her father could only
claim status through one parent, his mother, and accordingly, the
Registrar only recognized him as having partial status. Since
Gehl's mother had no status, the Registrar considered Gehl to
be the child of one, partial, status Indian parent. Accordingly,
Gehl could not satisfy the "two-parent rule," and had no
right to be registered.
Gehl relented on her s. 15 Charter attack on the
validity of the regime imposed in the post-1985 Indian
Act, but she pressed that the Registrar's exercise of its
authority to determine status was to be reasonable, and that
reasonableness exercise is to be informed by Charter
values.
The majority of the Court of Appeal panel (Lauwers and Miller
JJ.A.) deciding the case, however, chose to resolve the appeal
solely on the basis of administrative law principles, without
resort to the Charter. The Registrar's decision was
unreasonable because he imposed a burden on Gehl to conclusively
prove that her paternal grandfather had status, when, in the
circumstances, such was impossible: she could not identify that
relevant ancestor by name. The demand for evidence of his identity
was not only superfluous, but now, through the passage of time, was
unobtainable. Here, circumstantial evidence, which the Registrar
would not consider, supported an inference that Gehl's unknown
paternal grandfather was of aboriginal ancestry; and there was no
evidence to contradict that he may have had status. Such should
have been enough in the circumstances. Despite that Gehl really
should have pursued an appeal of the Registrar's decision, the
Court of Appeal granted a declaration that Gehl is entitled to
register for status.
The concurring reasons by Sharpe J.A. are intriguing: he would
find that the Registrar is to guard against an exercise of
discretion that results in substantive inequality, informed by s.
15 Charter values. He would find that the Registrar failed
to take proper heed of the Charter interests engaged
– and the equity-enhancing values and remedial objective
underlying the 1985 amendments to the Indian Act –
and for that reason afforded no deference to the Registrar's
decision. The outcome of Sharpe J.A.'s reasoning was the same
as the majority's: Gehl was entitled to her declaration and her
status.
5. Lawrence v. International Brotherhood of
Electrical Workers (IBEW) Local 773, 2017 ONCA 321
(Sharpe, Lauwers and Hourigan JJ.A.), April 20, 2017
This case involves a novel use of the developing law of
'misnomer' to permit a plaintiff to properly plead a
representative action against a labour union after expiration of a
limitation period.
Pamela Lawrence was terminated from her employment with the
International Brotherhood of Electrical Workers, Local 773. She
brought an action for damages for wrongful dismissal, naming Local
773 as defendant. She later obtained a consent order adding the
directors of Local 773 as defendants, and amended her statement of
claim to plead that the individual defendants were jointly and
severally liable for her claim as against Local 773. Relying on s.
3(2) of the Rights of Labour Act, R.S.O. 1990 c. R.33,
Local 773 asserted that as a trade union, it could not be named as
a party. The action proceeded, with Local 773 and the individual
defendants all represented by the same counsel. The individual
defendants participated in the proceedings without reiterating the
objection made in their Statement of Defence that Local 773 was not
a suable entity. After the expiry of the two-year limitation
period, the defendants moved under Rule 21 for an order dismissing
the action on the ground that Local 773 was not a suable entity.
They argued that the only way a trade union could be sued was by
way of a representation order pursuant to Rule 12.07, under which
the court may authorize one or more individuals to defend a
proceeding as representatives of the members of the trade union.
They also argued that the individual defendants were not personally
answerable for the respondent's claim.
The defendants' motion to dismiss the action was
dismissed, as was their motion to the Divisional Court for leave to
appeal the dismissal. The former employee then brought a successful
motion pursuant to Rule 12.07 for an order granting her leave to
amend her Statement of Claim to add the individual defendants as
representatives of all the members of Local 773. The appeal of that
ruling turned on whether the motion judge erred by making a
representation order authorizing the individual defendants to
defend the proceeding as representatives of all the members of
Local 773 after the expiry of the limitation period.
The court dismissed the respondent's motion to quash the
appeal on jurisdictional grounds and went on to dismiss the appeal,
citing the principle that where there is a coincidence between the
plaintiff's intention to name a party and the intended
party's knowledge that it was the intended defendant, an
amendment may be made despite the passage of the limitation period
to correct the mis-description or misnomer. The members of Local
773 would have known that the former employee intended to name the
legal entity that they comprised as members. Local 773 cannot be
sued in its own name but it can be sued by way of a representation
order. The motion judge held that the request for a representation
order in this case could properly be characterized as a request to
"correct the name of a party incorrectly named" within
the meaning of Rule 5.04(2). Local 773 and its members knew well
before the expiry of the limitation period that the respondent had
brought an action claiming damages for wrongful dismissal against
the entity that had been her employer. It was significant that both
Local 773 and the individual parties participated in the action for
over two years. Further, no additional procedural steps would be
required as a result of the representation order and the defendants
would suffer no prejudice as a consequence. Hourigan J.A.
dissented.
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