Top 5 Civil Appeals from the Court of Appeal
2. Brown v. Baum, 2016 ONCA 325 (Feldman, Lauwers and Benotto JJ.A.), May 3, 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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