The first half of 2015 is almost in the books, and it has been an eventful time. The second half of 2015 looks to be even more eventful as we move to a federal election. Hopefully, we will all get some time to pause over the summer. The Court of Appeal continued its own eventful 2015, releasing several interesting and important decisions in May, including what will now likely be the leading decision in Canada on investigative receiverships. In addition, the Court released decisions in May dealing with employment law, interpretation of insurance policies, contractual interpretation and the scope of the oppression remedy.
1. King v. 1416088 Ontario Ltd. (Danbury Industrial), 2015 ONCA 312 (Simmons, Gillese and Rouleau JJ.A.), May 4, 2015
2. Allstate Insurance Company of Canada v. Aftab, 2015 ONCA 349 (Strathy C.J.O., LaForme and Tulloch JJ.A.), May 15, 2015
3. Akagi v. Synergy Group (2000) Inc., 2015 ONCA 368 (Simmons, Blair and Juriansz JJ.A.), May 22, 2015
4. Gold Leaf Products Ltd. v. Pioneer Flower Farms Ltd., 2015 ONCA 365 (Strathy C.J.O., LaForme and Tulloch JJ.A.), May 22, 2015
5. Rea v. Wildeboer, 2015 ONCA 373 (Weiler, Sharpe and Blair JJ.A.), May 26, 2015
1. King v. 1416088 Ontario Ltd. (Danbury Industrial), 2015 ONCA 312 (Simmons, Gillese and Rouleau JJ.A.), May 4, 2015
Jack King had worked as an accountant for the Danbury group of companies for 38 years when he was terminated without cause in October, 2011. King was formally employed by a series of Danbury corporations, through which the Danbury group carried on a liquidation and auctioneering business in Toronto. At the time of his termination, King was 72 years old. He was given no compensation for his wrongful termination: no pay in lieu of notice, no statutory termination pay and no pension payments.
King sued the appellant companies, a number of Danbury corporations for which he had worked over the course of his career.
With issues relating to the Employment Standards Act, 2000, ("ESA") S.O. 2000, chapter 41 settled prior to trial, what remained to be determined was which of the Danbury corporations were liable for the amounts King was owed, and whether King was entitled to the retirement compensation promised under a pension agreement which he entered into in 1981 with the Danbury company that was his formal employer at the time. Under the terms of that agreement, King was entitled to monthly compensation for life, as long as he continued to be employed by the company or its successors until he was 65.
The trial judge found that all of the appellant companies were King's common employer and were accordingly jointly and severally liable for the monies owed to him, including the benefits due under the pension agreement, which he deemed valid. The appellant companies submitted that the trial judge erred in both of these conclusions.
The Court of Appeal observed that the trial judge correctly referred to the principles it set out in Downtown Eatery (1993) Ltd. v. Ontario (2001), 54 O.R. (3d) 161 (C.A.), and made findings of fact that revealed the interconnection among the Danbury companies and King's contributions to all of them. Those findings confirmed that although the Danbury company known as DSL Commercial did not officially begin operations until after the termination of King's employment, King did work for DSL prior to its formal launch. The trial judge concluded that DSL has "too many attributes in common" with the other Danbury defendants to escape from liability and is, in fact, "the current incarnation" of the business which employed King for nearly four decades.
The Court agreed with the trial judge that there was a sufficient relationship among the appellant companies that they should be regarded as one for the purpose of liability for the wrongful termination of King's employment.
The Court went on to find that once the trial judge found that the pension agreement was valid and that King had provided essentially the same services throughout his 38 years of employment with the various Danbury companies, the appellant companies were jointly and severally liable for the amounts owing under that agreement. The fact that the appellant companies did not themselves execute the pension agreement did not shield them from liability.
The Court deemed irrelevant the appellant companies' submissions with respect to section 4 of the ESA, noting that issues surrounding the ESA were resolved prior to trial and formed no part of the judgment. Regardless, the Court rejected the appellants' claim that section 4 of the ESA modified the principles in Downtown Eatery.
2. Allstate Insurance Company of Canada v. Aftab, 2015 ONCA 349 (Strathy C.J.O., LaForme and Tulloch JJ.A.), May 15, 2015
Sumaira Aftab's young son Sameer was hit by a car driven by the respondent Meng Chiu. When she commenced an action against Chiu on Sameer's behalf, Chiu counterclaimed against Aftab for indemnification, alleging that she had failed to take reasonable steps to ensure her son's safety.
Aftab's auto insurer, Unifund Assurance Company, and her homeowner insurer, Allstate Insurance Company of Canada, brought separate proceedings for declarations that they had no duty to defend the counterclaim or to provide coverage for damages. The applications were heard together, at the conclusion of which the judge found that both insurers had a duty to defend Aftab from the counterclaim.
Allstate appealed, arguing that coverage for the counterclaim was excluded by its homeowner policy. The policy states that the homeowner is not insured for claims made against her arising from bodily injury to any person residing in the household. Allstate submitted that this was one such claim.
The Court of Appeal observed that the counterclaim for inadequate supervision fell within the broad scope of coverage such that Allstate had an obligation to defend, absent an applicable exclusion. At issue was whether the Court's decision in Quick v. MacKenzie (1997), 33 O.R. (3d) 362, which interpreted a virtually identical exclusion clause, ought to be applied, or whether, as the application judge suggested, its more recent decision in Bawden v. Wawanesa Mutual Insurance Company, 2013 ONCA 717, represented a change in the law, reflecting the purpose of the exclusion and the "reasonable expectations" principle.
Quick, which was heard together with Sheppard v. Co-Operators General Insurance Co., also involved a counterclaim by a tortfeasor against a parent for negligent failure to supervise a child. In that case, the motion judge had held that the claim did not "arise" from the injury to the child, but rather from the parent's lack of supervision. Catzman J.A. rejected this interpretation on appeal, however, holding that on the plain wording of the policy the counterclaim was one "arising from" the child's injury.
The application judge observed that the exclusion clause in Allstate's homeowner policy was nearly identical to that in Quick. He found, however, that the decision in Quick was displaced by that in Bawden, in which the Court interpreted an exclusion provision more narrowly. In Bawden, the Court found that a narrow interpretation of the exclusion clause was consistent with its purpose, namely to remove from coverage claims that raise a risk of collusion between the claimant and the insured family member.
The Court of Appeal disagreed with the application judge that Bawden displaced Quick, distinguishing Bawden from both Quick and the case under appeal. The Court noted that in Quick the scope of the wording in the exclusion was as broad as that in the coverage provision, with the term "arising from" used in both. There was no such symmetry in the Bawden policy. In that case, the use of the word "for" in the exclusion clause, rather than the repetition of the term "arising out of" from the coverage provision, was found to limit the scope of the exclusion. In the Allstate policy, like that in Quick, the language of the exclusion clause mirrored that of the coverage provision. With the term "arising from" used in both, the exclusion should be interpreted as broadly as the coverage itself.
The Court concluded that its decision in Bawden supported Allstate's submission that the language in its policy, like the homeowner's policy in Quick, served to exclude coverage for the counterclaim because it "arises from" the injury to Sameer.
The Court rejected the respondents' submission that the application judge's interpretation gave effect to the reasonable expectation of the parties, noting that the reasonable expectations doctrine has no application where, as in this case, the policy language is unambiguous and where "the plain meaning of that language does not strip the policy of all efficacy or deprive the insured of what she bargained for". While the prevention of collusion between family members may have been the purpose of the narrower exclusion in Bawden, the purpose of the exclusion clause in this case was clear and broader: to exclude the risk of claims arising from injuries to the insured or those residing in her household.
The Court allowed the appeal, declaring that Aftab was not entitled to coverage from the appellant with respect to the counterclaim against her.
3. Akagi v. Synergy Group (2000) Inc., 2015 ONCA 368 (Simmons, Blair and Juriansz JJ.A.), May 22, 2015
In this decision, the Court of Appeal considered what it deemed a "breathtakingly broad" investigative receivership, clarifying the limits of the duties of receivers appointed by the court to enforce judgment debts.
Trent Akagi invested in a tax program which was promoted and sold by the Synergy Group. The scheme was supposed to generate tax loss allocations, but ultimately failed to do so. Akagi sued Synergy and certain individuals associated with the business for fraud, obtaining default judgment in the amount of approximately $137,000.
He subsequently applied for and obtained an ex parte order appointing J.P. Graci & Associates as Receiver over all the assets, undertakings and property of Synergy and a company called Integrated Business Concepts Inc. ("IBC").
Akagi's primary evidence in support of the application was a three-page affidavit, to which were attached three affidavits sworn by representatives of the Canada Revenue Agency ("CRA"). The CRA affidavits outlined the details of an investigation into Synergy's tax loss allocation scheme and indicated that as many as 3800 other investors may have been the victims of fraud. What Akagi's materials did not include was a reference to the fact that the CRA investigation was terminated four months earlier.
Through a series of further ex parte applications - brought by the Receiver without notices of motion, notices of application or facta - the receivership evolved into a wide-ranging "investigative receivership", freezing the assets of forty-three additional individuals and entities, including authorizing the registration of certificates of pending litigation against their properties. None of these additional targets was party to the original receivership proceeding. Only three of them were connected to Akagi's action against Synergy and only two were actually judgment debtors.
The Receiver ultimately obtained what the Court of Appeal described as a "breathtakingly broad" extension of the initial order, which not only extended its powers to apply to these additional parties, but also contained sweeping injunctive provisions operating on a worldwide scale. The Receiver was also authorized to register certificates of pending litigation against the property of not only the three judgment debtors and IBC, but 41 additional persons against whom no action or application had been commenced seeking such relief and who had not been given any notice and granted the Receiver a $500,000 borrowing charge against the frozen funds to fund its activities.
Only after that order was granted were the affected parties notified. In September, 2013, the appellants moved unsuccessfully before the application judge in a "come-back proceeding" to set aside the receivership orders. They appealed to the Court of Appeal from the application judge's order and from the ex parte orders.
In a comprehensive decision, the Court held that the receivership orders, based on "a fundamentally flawed premise" and "unjustifiably overreaching" in the powers they granted, must be set aside.
Writing for the Court of Appeal, Blair J.A. noted the value of the relatively new "investigative receivership" where it is utilized in appropriate circumstances and with appropriate restraints. Section 101 of the Courts of Justice Act, R.S.O. 1990, chapter C.43, under which the receivership orders were sought and obtained, gives the court broad powers to make such an order "where it appears ... just or convenient to do so". Blair J.A. cited a number of cases in which the appointment of a receiver to investigate the affairs of a debtor or to review certain transactions, including even the affairs of and transactions concerning related non-parties, was a proper exercise of this authority. He cautioned, however, that this extraordinary and intrusive remedy must be granted only after a careful balancing of the impact of such an order on all of the parties and others who may be affected.
After reviewing the case law on investigative receiverships, Blair J.A. identified several themes. The appointment of the receiver must be necessary to alleviate the risk posed to the plaintiff's right of recovery. Accordingly, the primary objective of the receivership is to gather information and determine "the true state of affairs" of the financial dealings and assets of a debtor. The receivership must be carefully tailored to only what is required to assist in the recovery of the claimant's judgment and must go no further than necessary to achieve this objective. Moreover, the receiver must allow the debtors to continue to carry on their business.
In Blair J.A.'s view, the trouble was not in the notion of appointing a receiver to investigate into the affairs of a debtor, but in the "runaway nature" of the use to which that concept was put in this case. This was exacerbated by the fact that a number of procedural safeguards were neglected "in the dust of the chase".
Blair J.A. emphasized that ex parte proceedings are to be taken sparingly, and on full disclosure, in circumstances where it is demonstrated that notice to other parties would undermine the purpose of the proceeding. Here, the Receiver failed to prepare a notice of motion or application, a motion or application record, or a proper evidentiary foundation for the request. Blair J.A. suggested that if the normal processes of the Commercial List - which are carefully designed to permit the parties to get to the merits of a dispute and resolve them in real time without trampling their procedural rights - had not been permitted to become overly casual, "the galloping nature of the receivership may well have been reigned in". He was particularly critical of Akagi's failure to disclose that the CRA investigation upon which the receivership application was based had been discontinued, observing that this raised serious doubts about whether there had been full and fair disclosure. Applicants in ex parte proceedings have strong obligations of candor and disclosure. Those obligations were clearly not met in this case.
On the substantive side, Blair J.A. noted that the orders were made on the erroneous premise that the Receiver could carry out a broad, stand-alone, investigative inquiry: the civil equivalent of a criminal investigation or public inquiry. Further, that inquiry was used to determine whether wrongs were suffered by "an unidentified hodgepodge" of non-parties not represented by anyone in the proceedings, who had expressed no interest in becoming parties or in having their interests protected in the proceedings, and, most significantly, whose interests did not need to be protected to preserve those of the creditor. These flaws were compounded by the overarching nature of the orders granted.
Blair J.A. also observed that the relief granted was unnecessary to protect Akagi, who sought the appointment of a receiver because he had an unsatisfied judgment against Synergy and two individuals associated with the company. The purpose of appointing a receiver in aid of execution under section 101 of the Courts of Justice Act is to protect the interests of a claimant seeking an order where there is a real risk that recovery would otherwise be seriously jeopardized. There was no evidence that this was an issue in this case, however, or that Akagi made any attempt whatsoever to collect on the judgment. The powers ultimately granted to the Receiver reached well beyond the scope of what could be justified in a single creditor receivership involving an outstanding claim of approximately $120,000.
Blair J.A. concluded that the receivership orders ought to be set aside. He held that the order authorizing the issuance of certificates of pending litigation must be set aside as well, noting that certificates of pending litigation relate to land and that Akagi did not commence, nor did he intend to commence, an action asserting a claim to an interest in land.
4. Gold Leaf Products Ltd. v. Pioneer Flower Farms Ltd., 2015 ONCA 365 (Strathy C.J.O., LaForme and Tulloch JJ.A.), May 22, 2015
Pioneer Flower Farms Ltd. and Gold Leaf Garden Products Ltd. entered into an agreement whereby Gold Leaf would solicit customers for Pioneer, which would in turn pay Gold Leaf a five percent commission on sales to those customers.
Pioneer's termination of the agreement led to a dispute between the parties over whether Pioneer was required to pay Gold Leaf ongoing commissions for sales to the customers Gold Leaf had brought in. Gold Leaf brought an action seeking commissions for those sales following the termination of the agreement. On Gold Leaf's motion for summary judgment, the motion judge found that the agreement required that Pioneer continue to pay these commissions.
Pioneer appealed. In a brief endorsement, the Court of Appeal rejected each of Pioneer's submissions as without merit.
The motion judge observed that there were two ways in which the relevant provision of the agreement could be interpreted. On one reading of the provision, the commission would be paid to Gold Leaf only during the period of the agreement; on the other, the commission would be paid only for new clients brought to Pioneer during the period of the agreement, meaning that the provision would not terminate commissions from those customers recruited during the agreement who continued to purchase from Pioneer. The motion judge opted for the latter interpretation.
Pioneer submitted that the motion judge erred, and that, faced with two possible interpretations of the agreement, he ought to have found ambiguity. The rules of construction would then have led him to treat the provision as a qualification of the general term providing for the payment of commissions.
The Court disagreed, noting that the motion judge found that, unlike the first interpretation, which would create inconsistencies in the agreement, the second gave reasonable meaning to each of its terms. He determined the objective intentions of the parties which, as the Supreme Court emphasized in Creston Moly Corp. v. Sattva Capital Corp., 2014 SCC 53, is precisely the goal of contractual interpretation.
The Court also agreed with the motion judge that the defence of non est factum was unavailable to Pioneer. The defendant Henk Sikking Jr. did not read the agreement prior to executing it on Pioneer's behalf. Failing to exercise reasonable care in signing the agreement, he was precluded from relying on the defence, in accordance with Marvco Color Research Ltd. v. Harris, [1982] 2 S.C.R. 774.
Pioneer lastly claimed that, prior to hearing the summary judgment motion, the judge misdirected its counsel such that he reasonably believed that the court would not decide the question of equitable set-off on summary judgment and accordingly led no evidence on that issue. Pioneer asserted that it was denied natural justice when the motion judge dismissed the defence.
The Court rejected this submission, noting that the parties and the motion judge discussed the possibility of bifurcating the proceedings between set-off and the remaining issues, with Gold Leaf seeking to bifurcate the proceedings and Pioneer refusing its consent. Because Pioneer did not agree to bifurcation and the motion judge did not order it, it ought to have known that set-off had not been split off from the rest of the issues and was "at play" in the summary judgment motion. Pioneer was required to put its best foot forward on the summary judgment motion and simply failed to do so.
5. Rea v. Wildeboer, 2015 ONCA 373 (Weiler, Sharpe and Blair JJ.A.), May 26, 2015
In this decision the Court of Appeal considered whether a complainant may assert, by way of an oppression remedy proceeding, a claim that is by nature a derivative action for a wrong done solely to the corporation, circumventing the requirement to obtain leave to commence a derivative action.
Martinrea International Inc. is a widely-held Canadian public company that manufactures auto parts. The appellants brought an oppression claim under section 248 of the Business Corporations Act, RSO 1990, chapter B.16, alleging that the defendants, including directors and an executive of Martinrea, undertook a series of transactions and other activities that constituted a breach of their fiduciary and other duties to the corporation, and resulted in the misappropriation of at least $50 million of Martinrea's corporate funds for their own personal benefit. The action sought the recovery of these funds for the corporation.
The appellants submitted that they were entitled to proceed on the basis of an oppression claim, arguing that the "somewhat murky" line between oppression remedies and derivative actions has all but disappeared. The motion judge agreed with the respondents that the claim was solely Martinrea's claim and that it must be pursued as a derivative action on behalf of the corporation, with leave of the court. The claim was struck.
Citing the decision of the Supreme Court in Re BCE Inc., 2008 SCC 69, the appellants submitted that a complainant may pursue an oppression remedy even where the wrong at issue is a wrong in respect of the corporation, provided that the complainant's reasonable expectations have been violated by means of conduct caught by the terms "oppression", "unfair prejudice" or "unfair disregard". They argued that the oppression remedy provisions provide stakeholders with "a personal, statutory right" not to have their reasonable expectations violated in this manner.
The appellants also submitted that the Court of Appeal recognized in Malata Group (HK) Ltd. v. Jung, 2008 ONCA 111, and Jabalee v. Abalmark Inc., [1996] O.J. No. 2609 (C.A.), that there could be a degree of overlap between claims that could be made out as a derivative action and those that could fall under the oppression remedy, and that the two remedies are not mutually exclusive.
The respondents meanwhile asserted that while there had been some relaxation in the approach to the commencement of oppression remedy actions in cases where the factual circumstances create an overlap between the two remedies, particularly in the case of small, closely-held corporations, the distinction between the two remedies remains. They argued that the leave requirement for derivative actions makes this distinction a vital one, particularly in the case of a publicly-held corporation like Martinrea. The leave requirement fulfills its objectives of preventing strike suits and meritless suits, and avoiding a multiplicity of proceedings, all of which may lead the corporation to incur significant and unwarranted costs. The respondents also relied on Malata, in which the Court observed that these concerns are less acute for closely-held corporations.
Writing for the Court of Appeal, Blair J.A. recognized that the derivative action and oppression remedy are not mutually exclusive and that the jurisprudence is inconsistent about how to treat cases where there is an overlap.
Blair J.A. agreed with the respondents, however, that claims must be pursued by way of a derivative action after obtaining leave of the court where the claim asserted seeks to recover solely for wrongs done to a public corporation, where the relief sought is solely for the benefit of that corporation and where there is no allegation that the complainant's personal interests have been affected by the wrongful conduct.
Blair J.A. observed that in the cases where an oppression claim was permitted to proceed even though the wrongs asserted were wrongs to the corporation, those same wrongful acts also directly affected the complainant in a manner that was different from the indirect effect of the conduct on similarly placed complainants. Moreover, most, if not all, involved small closely-held corporations, not public companies.
In this case, there was no such overlap. The appellants were not asserting that their personal interests as shareholders had been adversely affected in any way other than the type of harm that had been suffered by all shareholders collectively. The wrongs as pleaded in the statement of claim were wrongs done to solely to the corporation. In Malata, on the other hand, the misappropriation of funds affected not only the company - and the indirect interests of all shareholders - but the direct interests of the minority shareholder as a creditor of the company as well. Blair J.A. held that although the courts have taken a broad and flexible approach to the application of the oppression remedy, the appellants' argument forgets the fundamental principle that the impugned conduct must harm the complainant personally, and not just the body corporate.
Blair J.A. dismissed the appellants' claim that the oppression remedy is available where a complainant simply asserts a "reasonable expectation" which has been violated by conduct falling within the terms "oppression," unfair prejudice" or "unfair disregard." The impugned conduct must rather be "oppressive" of or "unfairly prejudicial" to, or "unfairly disregard" the interests of the complainant. Here, there was no particularized allegation of any wrong done to the interests of the plaintiffs themselves.
The Court concluded that the appellants' claim did not disclose a reasonable cause of action based on the oppression remedy and dismissed the appeal.
