1. Addison Chevrolet Buick GMC
Limited v. General Motors of Canada Limited, 2016
ONCA 324 (Doherty, Pardu and Benotto JJ.A.), May 3, 2016
2. Brown v.
Baum, 2016 ONCA 325 (Feldman, Lauwers and Benotto
JJ.A.), May 3, 2016
3. Nortel Networks Corporation
(Re), 2016 ONCA 332 (Hoy A.C.J.O, and Blair and
Pepall JJ.A.), May 3, 2016
4. Ottawa (City) v. Coliseum
Inc., 2016 ONCA 363 (MacPherson, van Rensburg and
Miller JJ.A.), May 13, 2016
5. Livent Inc. v. Deloitte &
Touche, 2016 ONCA 395 (Strathy C.J.O., in
chambers), May 24, 2016
1. Addison Chevrolet Buick GMC Limited v.
General Motors of Canada Limited, 2016 ONCA 324
(Doherty, Pardu and Benotto JJ.A.), May 3, 2016
This appeal arose out of the financial collapse and rebirth of
General Motors.
The appellants, long-standing dealers of GM vehicles in the
Greater Toronto Area, have dealer agreements with General Motors
Canada Limited (GMCL), a subsidiary of General Motors Corporation
(GM).
In the early 2000s, the auto industry in Canada and the United
States began to fall into financial difficulty. In 2009, GM and
GMCL approached their respective governments for assistance in
fashioning an integrated North American market for GM vehicles. GM
commenced bankruptcy proceedings in the United States, and its
assets were transferred to a new company, General Motors Company,
or its subsidiary, General Motors LLC (collectively, GM US). As
part of the reorganization process, GM US acquired the shares of
GMCL.
When GM US emerged from bankruptcy, it reached out to the
appellants, stating that it was setting a new "course for the
future". In this August 7, 2009 letter, GM US announced that
it planned to restructure its dealer network, focus on four core
brands, introduce a fresh line-up of vehicles and discontinue
production of Pontiac brand vehicles and medium duty trucks.
The appellants were among those dealers included in the new
dealer network. In October, 2010, they signed Dealer Sales and
Service Agreements (DSSAs) with GMCL.
The appellants' claim turns on allegations that GMCL and
GM US, which was not a party to the DSSAs, owed and breached their
duty to act fairly and in good faith under the Arthur Wishart
Act (Franchise Disclosure), 2000, S.O. 2000, c. 3
(AWA) and at common law. They alleged that GM US and GMCL
structured its dealer network and products in order to maximize
their own "contribution margin", or profit per vehicle,
at the expense of the appellants' interest in volume and market
share. The appellants argued that GMCL and GM US's preference
for their own interests was reflected in uncompetitive vehicle
offerings, their refusal to offer incentives like price reductions
or special offers and a lack of financial help. They further
asserted that GM US used "bailout" money from the
governments of Canada and Ontario to assist dealers in American
cities, while ignoring its duty to dealers in the GTA. The
appellants pleaded that GMCL's and GM US's actions caused
them "disastrous financial consequences" and were
inconsistent with their duties of good faith and fair
dealing.
GM US brought a motion under Rule 21 of the Rules of Civil
Procedure, R.R.O. 1990, Reg. 194, submitting that it did not
owe a duty of good faith to the appellants under the AWA
or at common law. It argued that to impose any such duties would be
to improperly pierce the corporate veil.
While there was some issue as to whether the DSSA was, in
fact, a franchise agreement, since the appellants paid no franchise
fee, the motion judge proceeded on the assumption that it was. The
motion judge dismissed the entire claim against GM US without leave
to amend. The appellants' claim against GMCL proceeded, with
certain allegations struck out. The appellants appealed the
dismissal of their claim against GM US.
At issue before the Court of Appeal was whether it was plain
and obvious that GM US could not owe a duty of good faith or fair
dealing to the appellants under: (i) the AWA, or (ii) at
common law.
Writing for the Court, Benotto J.A. held that while the motion
judge correctly directed himself as to the "plain and
obvious" test, his reasons as a whole revealed an approach
that required that the appellants demonstrate that they
would succeed on their action, rather than requiring the
respondent to demonstrate that the appellants could not
possibly succeed. This flawed approach guided his
consideration of both the statutory and common law claims. Benotto
J.A. noted that the duties owed under the AWA involve
important questions of legal interpretation, are the subject of
limited jurisprudence and require a factual record. Moreover, the
interaction between the franchise context and the duties of good
faith and fair dealing at common law raises "a novel and not
implausible argument" that ought not to have been struck on a
Rule 21 motion. She concluded that it was not plain and obvious
that a parent company in the position of GM US could never owe a
duty of good faith or fair dealing to the appellants under the
AWA or at common law.
The appellants conceded that GM US was not a signatory to the
franchise agreement. They argued, however, that GM US was a
"franchisor's associate" under the AWA and,
due to the degree of its control over GMCL, was subject to the duty
of fair dealing imposed by section 3 of the statute. The
respondents asserted that the duties contained in section 3 were
only imposed on a "party" to the franchise agreement and
that GM US was neither a franchisor's associate nor a party to
the agreement. The motion judge agreed with the respondents and
concluded that all claims against GM US founded upon the
AWA must be dismissed under Rule 21.01(1)(b).
Benotto J.A. held that the motion judge erred in finding that
GM US was not a "franchisor's associate" pursuant to
the two-part test in section 1 of the AWA. Specifically,
he erred in concluding that GM US could not be "directly
involved in the grant of the franchise" because it occurred
before GM US was in existence. In fact, the evidence demonstrated
that GM US was making decisions about the grant of the franchise
and setting terms. Benotto J.A. held that the motion judge further
erred in concluding that the appellants failed to plead the
material facts necessary to sustain an argument that GM US
exercised significant operational control and that the franchisees
owed GM US a continuing financial obligation. The pleadings in fact
alleged that GM US exercised significant operational control and
direction over GMCL and the appellants through the terms of the
DSSA and the Participation Agreements. In Justice Benotto's
view, if the facts were viewed in the most generous light possible
to the appellants, it could not be said that it was plain and
obvious that GM US was not a franchisor's associate. As the
Court explained in Miguna v. Ontario (Attorney General),
2008 ONCA 799, the test is not whether it is likely or unlikely
that the claim will succeed, it is whether it is plain and obvious
that it cannot.
Section 3 of the AWA imposes on each party to a
franchise agreement a duty of fair dealing and good faith in its
performance and enforcement. Justice Benotto held that the motion
judge erred in finding that, even if GM US was found to be a
franchisor's associate, it did not owe a duty of fair dealing
to the appellants under this provision because it was not a party
to the franchise agreement. She found that the motion judge's
approach to this issue revealed a misapplication of the test under
Rule 21: instead of inquiring whether the duty of good faith could
not apply to a franchisor's associate, he asked if a
franchisor's associate is deemed to be a party to the franchise
agreement. At issue was whether, on the facts pleaded, it was plain
and obvious that GM US could never owe a duty to the appellants
under section 3(2) of the AWA. By framing the issue in the
manner that he did, the motion judge embarked on a flawed
approach.
Benotto J.A. held that the motion judge further erred in
dismissing the appellants' claims that GM US breached the duty
to act fairly and in good faith under the DSSA and at common law.
Because the relationship between a franchisor and franchisee is a
vulnerable one for the latter, a duty of good faith exists at
common law in the context of that relationship, in addition to the
statutory protections afforded franchisees. Despite the lack of a
direct contractual relationship between the parties, Justice
Benotto concluded that it was not plain and obvious that GM US
could not owe a duty of good faith to the appellants. Whether the
level of control alleged and the special obligations owed in the
context of a franchise relationship could open the door for the
imposition of a common law duty was a "novel argument"
that should be explored at trial. While the common law claim may be
untenable as a matter of law or deemed redundant in light of
section 3 of the AWA, it was not plain and obvious that it
could not succeed. That the cause of action may be a weak one is
not relevant to a Rule 21 motion.
2. Brown v. Baum, 2016 ONCA
325 (Feldman, Lauwers and Benotto JJ.A.), May 3, 2016
Diana Brown suffered complications following a medical
procedure performed by Dr. Joseph Baum. Over the next thirteen
months, Dr. Baum continued to treat Brown in an attempt to correct
the damage. When these ameliorative treatments were unsuccessful,
Brown initiated legal proceedings against her doctor.
When did Brown discover her claim? In this decision, the Court
of Appeal considered the issue of discoverability and the
commencement of the limitation period.
The respondent Brown suffered severe complications following a
breast reduction surgery, which was performed by the appellant Dr.
Baum on March 25, 2009. Brown brought an action against the
appellant alleging lack of informed consent, claiming that he
failed to inform her of the risks of the surgery and, in
particular, those posed by her obesity and smoking.
Brown brought her action on June 4, 2012, more than three
years after the surgery, but within two years of June 16, 2010,
when Dr. Baum last treated her in an attempt to improve the outcome
of the procedure.
The appellant was unsuccessful on his summary judgment motion
to dismiss the action as statute barred under the Limitations
Act, 2002, S.O. 2002, c. 24, Sch. B. The motion judge found
that by July, 2009, Brown knew that the surgery had not gone well
and that she had suffered an injury that was caused or contributed
to by an act or omission of Dr. Baum. She therefore met the first
three parts of discoverability, as set out in sections
5(1)(a)(i-iii) of the statute, as of that date. Section 5(1)(a)
provides that a claim is discovered on the day on which the person
with the claim first knew:
(i) that the injury,
loss or damage had occurred,
(ii) that the injury,
loss or damage was caused by or contributed to by an act or
omission,
(iii) that the act or omission was
that of the person against whom the claim is made ...
The motion judge found that because the appellant continued to
treat Brown, however, the fourth part, section 5(1)(a)(iv), was not
met because she did not know that "a proceeding would be an
appropriate means to seek to remedy" the injury, loss or
damage she had suffered. The motion judge concluded that the
limitation period did not commence until June 16, 2010, the date of
Brown's last ameliorative surgery by Dr. Baum and, accordingly,
that the respondent's claim was issued within the limitation
period.
The Court of Appeal agreed, and dismissed the appeal. Writing
for the Court, Feldman J.A. noted that the fourth condition of
discoverability under the Limitations Act, 2002 is met at
the point when the claimant not only knows the factual
circumstances of the loss she has suffered, but also knows that
"having regard to the nature of the injury, loss or
damage", an action is an appropriate remedy. Once she knows
that, she has two years to initiate her action.
Feldman J.A. also found that a reasonable person in
Brown's circumstances would not consider it legally appropriate
to sue her doctor while he was in the process of trying to correct
his error. It was open to the motion judge to find that Brown did
not know that she had a claim against the appellant until after the
last procedure he performed to try to improve the outcome of the
original surgery. Justice Feldman cautioned that it is not simply
an ongoing treatment relationship that will prevent the discovery
of a claim under section 5. In this case, it was the fact that the
doctor was "engaging in good faith efforts to remediate the
damage" which delayed discoverability of the claim. Had the
damage caused by the initial procedure been minimized by these
efforts, the need for an action may have been avoided.
3. Nortel Networks Corporation (Re),
2016 ONCA 332 (Hoy A.C.J.O, and Blair and Pepall JJ.A.), May 3,
2016
In January, 2009, Nortel Networks Corporation and the other
Nortel Canadian Debtors filed for insolvency protection under the
Companies Creditors' Arrangement Act, while Nortel
Networks Inc. and other U.S. Debtors filed bankruptcy claims in the
Unites States and overseas. Shortly thereafter, courts in Canada
and the United States approved a cross-border, court-to-court
protocol that established procedures for the coordination of
cross-border proceedings in the two countries. More than seven
years later, these insolvency proceedings continue.
This decision arises from a joint trial dealing with the
allocation of "Lockbox Funds", $7.3 billion in proceeds
from the sale of Nortel's assets that have been placed in
escrow. The six-week trial was presided over by one judge of the
Ontario Superior Court and one of the U.S. Bankruptcy Court for the
District of Delaware. Each judge rendered separate decisions on May
12, 2015, with each concluding that the Lockbox Funds should be
allocated on a pro rata basis among the various Nortel
debtor estates. Appeal proceedings were initiated in Canada and the
United States.
The six moving parties, led by the U.S. Debtors, sought leave
to appeal the trial judge's judgment pursuant to section 13 of
the Companies Creditors' Arrangement Act, R.S.C. 1985,
c. C-36 (CCAA). They submitted before the Court of Appeal
that the trial judge made fundamental errors and that the proposed
appeal was of significance to the practice of insolvency and to the
parties, and would not delay the completion of the CCAA
proceedings. The Court dismissed the motions, holding that the test
for leave to appeal was not satisfied.
Section 13 of the CCAA provides that any person
dissatisfied with an order or a decision made under the statute may
appeal from the order or decision with leave. The Court noted that
leave to appeal is granted sparingly in CCAA proceedings
and only where there are serious and arguable grounds that are of
real and significant interest to the parties. In addressing whether
leave should be granted, the court will consider whether:
(a) the proposed appeal is
prima facie meritorious or frivolous;
(b) the points on the proposed
appeal are of significance to the practice;
(c) the points on the proposed
appeal are of significance to the action; and
(d) whether the proposed appeal
will unduly hinder the progress of the action.
With respect to the merit of the appeal, the moving parties raised three issues: substantive consolidation (whether all entities of a corporate group are treated as one entity), the interpretation of the Master Research and Development Agreement (MRDA) and the question of fairness. The Court rejected the moving parties' submissions on each issue.
The Court noted that the trial judge concluded that pro
rata allocation was appropriate, that it did not amount to
substantive consolidation, and that even if it could be said that a
pro rata allocation involved substantive consolidation, it
was not precluded by law in the unique circumstances of the case.
The Court held that there was no prima facie merit to the
argument that it should interfere with the trial judge's
conclusion that the allocation decision did not amount to
substantive consolidation, finding that this conclusion was based
on the nature and effect of his allocation decision and his factual
findings.
The Court also rejected the moving parties' submission
that the trial judge erred in his interpretation of the MRDA,
finding no reason to interfere on the basis of a palpable and
overriding error. Nor did the Court find merit to the moving
parties' claim that the allocation was arbitrary. The Court
held that the trial judge was alive to the fairness concerns and
gave reasons for adopting the approach he did after careful
consideration of the evidence and argument at trial.
The Court went on to consider and reject the submission that
granting leave to appeal would provide it with an opportunity to
offer guidance on legal issues of significance to the practice. The
moving parties argued that the trial judge's decision presented
important issues of first impression in the cross-border insolvency
context and that there was a risk that substantive consolidation
would become far more widely available. The Court noted that the
facts in this case were unique and exceptional and that substantive
consolidation was not engaged. Nor did the case engage any issues
requiring clarification of the application of Sattva Capital
Corp. v. Creston Moly Corp., 2014 SCC 53.
While it accepted that the allocation of the Lockbox Funds was
a significant issue in the action, satisfying the third factor of
the test, the Court held that this consideration alone was
insufficient to warrant granting leave to appeal.
Turning to the final question of whether the proposed appeal
would unduly hinder the progress of Nortel's CCAA
proceeding, the Court noted that the parties had repeatedly been
encouraged to resolve their differences, without success. Moreover,
the fact that this case is a liquidation and not a restructuring
does not render delay immaterial, where so many individuals and
businesses continue to await a resolution of the proceeding. The
Court also noted that the parties acceded to a liquidation under
the CCAA and could not now reject the parameters of that statute,
which required leave to appeal, and where the jurisprudence on the
applicable test is settled and long-standing.
4. Ottawa (City) v. Coliseum Inc.,
2016 ONCA 363 (MacPherson, van Rensburg and Miller JJ.A.), May 13,
2016
This appeal arose from a dispute and subsequent arbitration
between the parties to a lease of property at Ottawa's Frank
Clair Stadium.
The appellant, The Coliseum Inc., entered into a long-term
lease agreement with the respondent, the City of Ottawa, to operate
an indoor sports and recreation facility at Frank Clair Stadium,
the former home of the Ottawa Rough Riders football team, at
Lansdowne Park. A dispute between the parties over Coliseum's
right of possession was resolved by Minutes of Settlement. When a
further dispute arose, Coliseum invoked the agreement's
arbitration clause.
The arbitration turned on the interpretation of two key
paragraphs of the Minutes of Settlement. These provisions held that
the extension and optional renewal of the agreement was conditional
upon and subject to any bona fide redevelopment plans that
the City, acting in good faith, may have in relation to Frank Clair
Stadium that would prevent Coliseum's use of the facilities. In
that event, Coliseum would be given the option to lease a portion
of Ben Franklin Park or, if Ben Franklin Park was also not suitable
due to the City's development plans, then a similar City-owned
property.
Following an eleven-day hearing, the arbitrator found in
Coliseum's favour, awarding it damages in the amount of
$2,240,000 against the City for breach of the Minutes of
Settlement. He concluded that the City had breached the settlement
when it offered Coliseum the option to lease Ledbury Park without
taking "meaningful steps" to determine that it was
appropriate for Coliseum's operations, despite Ledbury Park
fulfilling the requirement of being "similar" to Ben
Franklin Park within the meaning of the Minutes. The City brought
an application to appeal the arbitrator's decision pursuant to
section 45(1) of the Arbitration Act, 1991, S.O. 1991, c.
17.
The application judge granted leave to appeal and allowed the
City's appeal, overturning the arbitrator's award. She
concluded that the arbitrator's interpretation of the crucial
paragraphs 5 and 6 of the Minutes of Settlement was both an error
of law and unreasonable. Notably, she found that the arbitrator
erred "by imposing an overarching objective" that the
alternative site at Ledbury Park site must be appropriate to
Coliseum's operations as well as similar to Ben Franklin Park.
The arbitrator also overlooked language which required best efforts
negotiations of a new lease in accordance with market rates and
conditions within six months after the exercise of the option by
Coliseum. In the application judge's view, once the arbitrator
found that Ledbury Park was similar to Ben Franklin Park within the
meaning of the Minutes of Settlement, Coliseum had to have
exercised the option to lease before the "best efforts to
negotiate a new lease" obligation arose. Coliseum did not
exercise the option, so the best efforts negotiation obligation did
not arise.
Coliseum's appeal from the application judge's
decision raised both procedural and substantive issues: first,
whether the Court of Appeal has jurisdiction to review a decision
of a Superior Court judge granting leave to appeal an arbitral
decision under section 45(1) of the Arbitration Act; and,
second, the reasonableness of the arbitrator's decision.
The City of Ottawa submitted that the application judge's
decision to grant leave to appeal the arbitrator's award was
not subject to review. Writing for the Court, MacPherson J.A.
agreed, noting that the Court has twice considered this issue and
concluded that an order refusing leave to appeal is not appealable.
As Morden J.A. explained in Denison Mines Ltd. v. Ontario
Hydro (2001), 56 O.R. (3d) 181 (C.A.), with the exception of
cases where the lower court judge mistakenly declines jurisdiction,
"the non-appealability of orders refusing leave is the general
rule." Accordingly, the Court had no jurisdiction to review
the application judge's decision to grant leave to appeal from
the arbitral award.
Turning to the substance of the case, MacPherson J.A. held
that the application judge erred in finding that the
arbitrator's interpretation of the Minutes of Settlement was
unreasonable.
The arbitrator found that paragraph 6 of the Minutes of
Settlement must be read in light of the more general provisions of
paragraph 5 which contained the overarching requirement that the
parties enter into good faith negotiations in an effort to find an
alternative site appropriate for Coliseum's operations. The
application judge interpreted these provisions in a two-step
fashion. In her view, paragraph 5 mandated that the parties work
together in good faith to find an alternative site for
Coliseum's operations if Frank Clair Stadium became unavailable
and, if those negotiations failed to identify an alternative site,
then the provision was exhausted and paragraph 6 triggered. At that
point, the City was required to identify a single alternative site
and the parties could then try to negotiate a new lease acceptable
to them both.
While he found the application judge's approach to
paragraphs 5 and 6 of the Minutes of Settlement a possible, and
even reasonable, interpretation, MacPherson J.A. noted that the
same could be said of the arbitrator's interpretation.
The arbitrator's interpretation did not flow from only the
language contained in the Minutes of Settlement. He explicitly
relied on the evidence he heard during the hearing to provide
background and context to his analysis.
In Justice MacPherson's view, there was nothing
unreasonable about this approach. The arbitrator's analysis was
faithful to the principles of contractual interpretation set out by
the Supreme Court in Sattva Capital Corp. v. Creston Moly
Corp., 2014 SCC 53. As Rothstein J. explained in that seminal
decision:
[T]he interpretation of contracts
has evolved towards a practical, common-sense approach not
dominated by technical rules of construction. The overriding
concern is to determine "the intent of the parties and the
scope of their understanding". To do so, a decision-maker must
read the contract as a whole, giving the words used their ordinary
and grammatical meaning, consistent with the surrounding
circumstances known to the parties at the time of formation of the
contract. Consideration of the surrounding circumstances recognizes
that ascertaining contractual intention can be difficult when
looking at words on their own, because words alone do not have an
immutable or absolute meaning.
MacPherson J.A. held that in light of these principles, the
arbitrator's reasoning and result could not be deemed
"unreasonable". The application judge erred by setting
aside the arbitrator's interpretation of the Minutes of
Settlement and substituting her own. The fact that her
interpretation was also reasonable did not affect the result, as
the arbitrator was owed deference regarding his reasonable
interpretation.
5. Livent Inc. v. Deloitte &
Touche, 2016 ONCA 395 (Strathy C.J.O., in chambers),
May 24, 2016
Following the Court of Appeal's recent decision in this
case, upholding the ruling of the trial judge, the appellants filed
an application for leave to appeal to the Supreme Court of Canada.
In this decision, the Court considered the appellants' motion
for a stay of its judgment and of that of the lower court, pending
determination of their application.
In RJR-MacDonald Inc. v. Canada (Attorney General),
[1994] 1 S.C.R. 311, the Supreme Court set out the issues to be
considered on a motion for a stay pursuant to section 65.1 of the
Supreme Court Act, R.S.C. 1985, c. S-26. The court must
inquire: (i) whether there is a serious question to be determined
on the proposed appeal; (ii) whether the moving party will suffer
irreparable harm if the stay is not granted; and, (iii) whether the
balance of convenience favours a stay.
In a brief endorsement, Chief Justice Strathy explained that
these factors are not to be treated as "watertight
compartments", noting that the strength of one may compensate
for the weakness of another. The overarching consideration is
whether the interests of justice call for a stay.
As the Court of Appeal explained in Yaiguaje v. Chevron
Corporation, 2014 ONCA 40, the "serious question"
factor is modified in this context to require not simply an
assessment of the merits of the proposed appeal, but also whether
it raises an issue of public or national importance, meeting the
stringent requirements of section 40(1) of the Supreme Court
Act. Strathy C.J.O. held that the appellants' proposed
appeal met this threshold, finding that the duty of care owed by an
auditor of a public company and the applicable standard of care can
reasonably be considered issues of public importance. The
appellants therefore satisfied the test of whether there was a
serious question to be determined.
Turning to the matter of "irreparable harm", Strathy
C.J.O. noted that this factor concerns harm which either cannot be
quantified in monetary terms or which cannot be cured, usually
because one party is unable to collect damages from the other.
While he deemed the appellants' evidence on irreparable harm
weak, the Chief Justice nonetheless held that permitting the
respondent to immediately enforce its judgment, while the leave
application is pending, would be sufficiently disruptive of the
appellants' business to amount to irreparable harm.
Strathy C.J.O. ultimately found that the interests of justice
made up for this weakness, holding that the "balance of
convenience", or which party will suffer the greater harm from
the stay being granted or refused, favoured the appellants.
The Chief Justice found that the security offered by the
appellants was reasonable, providing the respondent with
"satisfactory assurance" that the judgment would be
promptly paid in full if their application for leave failed.
Notably, the appellants provided evidence of their own solvency,
that their liability insurance covered the full amount of the
judgment, that there was no evidence of issues regarding the
solvency of the insurer and that the insurer had been directed to
pay the funds directly to the respondents. The respondent therefore
had all the protection it could reasonably require pending the
disposition of the leave application.
Strathy C.J.O. allowed the appellants' motion, granting a
stay of the judgment of the Superior Court and order of the Court
of Appeal pending the determination of the application for leave to
appeal to the Supreme Court.
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