Lerners' Monthly Lists
November 2016
Top 5 Civil Appeals from the Court of Appeal
1.  J.J. v. C.C., 2016 ONCA 718 (Strathy C.J.O, Brown and Huscroft JJ.A.), October 3, 2016
2.  Haas v. Gunasekaram, 2016 ONCA 744 (MacPherson, Simmons and Lauwers JJ.A.), October 13, 2016
3.  Singh v. Trump, 2016 ONCA 747 (Rouleau, van Rensburg and Benotto JJ.A.), October 13, 2016
4.  Canada Post Corporation v. Hamilton (City), 2016 ONCA 767 (Doherty, Epstein and Miller JJ.A.), October 19, 2016
5.  Novatrax International Inc. v. Hägele Landtechnik GmbH, 2016 ONCA 771 (Doherty, Feldman and Brown JJ.A.), October 20, 2016
1. J.J. v. C.C., 2016 ONCA 718 (Strathy C.J.O, Brown and Huscroft JJ.A.), October 3, 2016

A teenager was seriously injured in a car accident after he and his friend stole a car from a garage. In this decision, the Court of Appeal considered whether the owner of the garage owed him a duty of care to keep the vehicles on his premises secure in order to prevent the theft.

The appellant in this case was James Chadwick Rankin, carrying on business as Rankin’s Garage & Sales, a garage and car dealership in Paisley, Ontario. On the night of July 8, 2006, the respondent J.J., who was then fifteen years old, and his sixteen year old friend C.C., stole a Toyota Camry from the garage and took it for a joyride. The car had been left unlocked on an unsecured lot, the keys in the ashtray. Both boys were impaired. C.C., who drove the car, did not have a driver’s license and had never driven a car before.

The car crashed, and J.J. suffered a catastrophic brain injury.

J.J. sued Rankin’s Garage, C.C. and C.C.’s mother, D.C. (who had purchased a case of beer for the boys to drink), for negligence. J.J. conceded, through his parents, that he was partially responsible for his injuries.

The trial judge instructed the jury that Rankin’s Garage owed J.J. a duty of care, among other things “because people who [are] entrusted with the possession of motor vehicles must assure themselves that the youth in their community are not able to take possession of such dangerous objects.”

The jury returned a verdict finding Rankin’s Garage, D.C. and C.C. negligent to varying degrees. J.J. was found contributorily negligent (10%).

The appeal turned on whether Rankin’s Garage owed a duty of care to J.J. The Court of Appeal concluded that it did.

Guided by the Anns-Cooper test, Huscroft J.A. considered whether a duty had already been recognized in prior cases and concluded that the trial judge incorrectly found that it had. He noted that the trial judge relied on cases where a third party who was unconnected to the theft was injured, and found that those cases were not analogous to the circumstances of this case. In Huscroft J.A.s’ view, this was a novel situation.

Justice Huscroft held, however, that the trial judge correctly found a duty of care to exist. He concluded that there was ample evidence to support the conclusion of foreseeability. Rankin’s Garage was easily accessible and had no security measures in place to keep people off the property. Cars were left unlocked with the keys inside. There was a history of theft in the area. The risk of theft was clear. He held that the facts established proximity as well, noting that proximity did not depend on whether the appellant knew of J.J. himself but on whether the appellant ought to have had minors like J.J. in mind when he considered security measures at the garage. Huscroft J.A. observed that the appellant had care and control of many vehicles for commercial purposes and held that with that role comes the responsibility of securing the vehicles against minors, in whose hands they are potentially dangerous. He also noted that securing the vehicles is a simple matter of locking them and storing the keys, hardly an onerous obligation.

Huscroft J.A. also agreed with the trial judge that no residual policy concerns existed that would negate the prima facie duty of care, noting that the law does not currently provide a remedy in this case and rejecting the suggestion that the recognition of a duty of care would create a spectre of unlimited liability to an unlimited class of claimants or result in undue hardship to the appellant. Huscoft J.A. emphasized that the duty of care operates independently of the illegal or immoral conduct of an injured party, noting that any wrongdoing on his or her part is properly taken into account in determining contributory negligence, as occurred in this case.

Justice Huscroft went on to hold that the trial judge correctly instructed the jury that the appellant owed an “enhanced” duty to J.J. Though J.J. was engaging in adult activities such as drinking alcohol, smoking marijuana and driving, the case was not concerned with the duty of care owed by minors who participate in adult activities, but with the duty of care owed by adults to minors.

Huscroft J.A. rejected the appellant’s submission that the trial judge erred in admitting evidence from C.C.’s sister as to a previous theft from Rankin’s Garage and from a police officer concerning the establishment of a theft-prevention program. This evidence went to the history of theft in the area and accordingly was relevant to the question of foreseeability. He also rejected the submission that the jury verdict was unsustainable in light of all of the evidence, including the fact that C.C. and J.J. participated in the theft of the vehicle. A jury verdict must be “so plainly unreasonable and unjust as to satisfy the Court that no jury reviewing the evidence as a whole and acting judicially could have reached it” in order for a court to overturn it, and a jury’s decision on the apportionment of liability is entitled to the same deference. The appellant failed to meet this high threshold.

In the result, the Court of Appeal concluded that the appellant did, in fact, owe a duty of care to J.J. While Huscroft J.A. observed that the notion that an innocent party could owe a duty of care to someone who steals from him may seem “extravagant”, he held that “matters are not so simple”.

The appeal was dismissed.  
2. Haas v. Gunasekaram, 2016 ONCA 744 (MacPherson, Simmons and Lauwers JJ.A.), October 13, 2016

The respondent, Andreas Haas, entered into a shareholders’ agreement with the appellants, Gunam, Viscardi and Feng, with respect to a Toronto restaurant. He invested $200,000. When the restaurant failed, Haas commenced an action against the appellants, seeking to recover his investment. He alleged that he was induced to enter into the shareholders’ agreement by fraudulent misrepresentations about the restaurant’s business prospects and how it would be managed, and that these misrepresentations were made in various documents and communications provided to him before he signed the agreement.

The appellants moved to stay the action under s. 7 of the Arbitration Act, 1991, S.O. 1991, c. 17 in favour of the arbitration agreement contained in the shareholders’ agreement.

Gunam and Feng appealed the motion judge’s refusal to stay the action.

Writing for the Court of Appeal, Justice Lauwers observed that an analytical framework has emerged from the jurisprudence, breaking the judge’s task of considering a stay under s. 7 of the Arbitration Act down into the following questions:

(i)   Is there an arbitration agreement?

(ii)  What is the subject matter of the dispute?

(iii) What is the scope of the arbitration agreement?

(iv) Does the dispute arguably fall within the scope of the arbitration agreement?

(v)  Are there grounds on which the court should refuse to stay the action?

Lauwers J.A. noted that it was common ground that there was an arbitration agreement embedded in the language of the shareholders’ agreement. Turning to the subject matter of the dispute, he observed that the motion judge took a “pith and substance” approach in determining that the respondent’s claims were not contractual and related to “the fraudulent misrepresentation of facts which caused Hass to enter into the business agreement”. He held that the motion judge went too far, however, in characterizing Hass’s claims as relating only to fraudulent misrepresentation.

Justice Lauwers observed that the language of the agreement was broad in scope, favouring arbitration over litigation where the parties so provided, as they did in this case. The approach taken by the motion judge in determining whether the dispute fell within the scope of the arbitration agreement was, in Lauwers J.A.’s view, incorrect, and he erred in determining that the scope of the arbitration agreement was limited to contractual issues.

Section 7 of the Arbitration Act and the jurisprudence plainly expect that the determination of jurisdiction will be made by the arbitrator, not by the court. Justice Lauwers held that under s. 7(5) of the Arbitration Act there were grounds to stay the action, but until the arbitrator decided his or her jurisdiction, a motion under that provision was premature.

The motion judge erred in refusing to stay Haas’s action on the ground that the subject matter was beyond the scope of the shareholders’ agreement. Justice Lauwers also concluded that the arbitration agreement was valid and that referral of the dispute to arbitration would not necessarily cause multiple proceedings in the circumstances.

The appeal was allowed.
3.  Singh v. Trump, 2016 ONCA 747 (Rouleau, van Rensburg and Benotto JJ.A.), October 13, 2016

The appellants, Sarbjit Singh and Se Na Lee, each bought a unit in the Trump International Hotel. They bought the units not to occupy themselves but as part of the hotel’s “Reservation Program”, whereby owners could place their units in a common pool of rooms to be rented out at luxury rates by the Hotel’s operator. Neither Singh nor Lee were sophisticated investors. They bought into the Trump project as an investment, believing that high occupancy and rental rates at the Hotel would provide healthy returns. That belief proved to be wrong.

In separate but similar actions, the appellants sued for rescission and damages, claiming that they were misled by marketing materials that projected impressive profit margins for purchasers who participated in the Reservation Program. They brought motions for partial summary judgment against the respondents Donald Trump, Talon International Inc., Val Levitan (the Director, CEO and President of Talon) and Alex Shnaider (the Director and Chairman of Talon).

The motion judge dismissed the motions, as well as the claims against Trump, Levitan and Shnaider in their entirety.

Singh and Lee appealed.

In Queen v. Cognos, [1993] 1 S.C.R. 87, the Supreme Court set out the five elements required for a plaintiff to prove a claim of negligent misrepresentation: (i) the defendant owed a duty of care, (ii) the defendant made an untrue, inaccurate or misleading representation, (iii) the defendant did so negligently, (iv) the plaintiff reasonably relied on the misrepresentation, and (v) damage was suffered by the plaintiff as a result.

The motion judge found that the appellants failed to establish the element of reasonable reliance. He accepted that Singh and Lee “subjectively relied” on the profit estimates, but held that their “subjective reliance was objectively unreasonable”. He noted that the estimates were “for discussion purposes only” and “not a guaranteed investment program”, and that the appellants were given various warnings. He concluded that it was not objectively reasonable for them to rely on the estimates for what they knew was a risky investment. He also observed that once the appellants learned of higher than expected expenses at the time of the interim closing, they did not try to back out of their agreements.

Writing for the Court of Appeal, Justice Rouleau held that the motion judge was correct in finding that the appellants were warned of the risks of their investment, but disagreed with his conclusion that it was unreasonable for them to rely on the profit estimates. The actionable misrepresentations were not that risks such as market conditions and fluctuations in rental and occupancy rates did not exist – those were known, expected risks which were clearly disclosed in the documentation – but rather that the figures in the profit estimates were based on the best available information and that the hotel would be immediately profitable. Rouleau J.A. noted that on the motion judge’s own findings, both misrepresentations were established: the estimates were based not on hard numbers but on Levitan’s “uninformed and ill-informed opinions”, while many known expenses were not disclosed or were grossly understated.

In Rouleau J.A.’s view, the appellants’ reliance on the profit estimates was objectively reasonable. The appeal as against Talon could be decided on the basis that the motion judge erred in holding that the appellants failed to establish the element of reasonable reliance.

Justice Rouleau held that the motion judge further erred in enforcing the entire agreement and exclusionary clauses contained in the purchase documentation to bar the appellants’ action. In Rouleau J.A.’s view, these clauses functioned as a trap to unwary purchasers like Singh and Lee, who had only minimal investing and real estate experience, knew little or nothing about luxury hotel rental and occupancy rates, and who signed the agreements without consulting a lawyer. In light of the circumstances in which they were entered into, it would shock the conscience to enforce these clauses.

Rouleau J.A. found that the motion judge also erred in dismissing Lee’s claim as time-barred, noting that the defendants did not plead the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B., or raise a limitations defence in their written submissions on the motions for summary judgment. It was therefore inappropriate for the motion judge to invoke the Limitations Act, 2002 to dismiss Lee’s claim. Justice Rouleau held that the motion judge further erred in concluding that fraudulent misrepresentation had not been pleaded. Although the Statement of Claim did not contain the words “fraudulent misrepresentation”, all of the elements and material facts for such a claim were pleaded and the claim was brought to the respondents’ attention in the factum filed on the summary judgment motions.

Turning to the action against Shnaider, Levitan and Trump, while Rouleau J.A. agreed that the claims that were the subject of the motions for summary judgment were properly dismissed, he held that the motions judge erred in dismissing the causes of action against the three individual defendants that were pled but not encompassed in the motions before him. He noted that while a judge hearing a motion for summary judgment may grant judgment in favour of the responding party even in the absence of a cross-motion, the judge may not grant or dismiss a claim on a motion for summary judgment that is not within the scope of the motion: doing so would deny procedural fairness and natural justice.

The appeal was allowed.
4. Canada Post Corporation v. Hamilton (City), 2016 ONCA 767 (Doherty, Epstein and Miller JJ.A.), October 19, 2016

In this decision, the Court of Appeal considered whether Canada Post has the authority to make unilateral decisions about the placement of community mailboxes.

The prevalence of electronic communications has sharply reduced the demand for traditional postal services. In an attempt to adapt to the decline in its revenue, the respondent Canada Post announced that it planned to restructure its delivery services away from door-to-door delivery and towards community mailbox (“CMB”) delivery.

The appellant, the City of Hamilton, was among the many parties opposing this restructuring.

Although the City of Hamilton has urged Canada Post to adopt alternate cost-saving options such as reduced home delivery, it recognized that switching to CMBs was Canada Post’s decision to make. The City argued, however, that it has a supervisory role and effectively, a veto over where the respondent chooses to place CMBs within its boundaries.

In response to Canada Post’s decision to roll out the first phase of its conversion to CMBs in downtown Hamilton, the City passed By-Law No. 15-091, which established a regulatory regime giving it control over the installation of equipment, including CMBs, on municipal roads.

Canada Post successfully challenged the By-Law on constitutional and other grounds, the application judge declaring it to be inapplicable and inoperative with respect to the installation of CMBs.

The City of Hamilton appealed.

The Court of Appeal held that although the subject matter of the By-Law fell within the City’s jurisdiction, it conflicted with federal legislation and was therefore inoperative under the doctrine of paramountcy.

The City argued that the purpose of the By-Law was the regulation of equipment, including CMBs, on municipal roads. The application judge rejected this submission, accepting Canada Post’s position that the “true purpose” of the By-Law was revealed in the circumstances of its enactment, namely the vocal opposition of City Council to the imposition of CMBs. He accordingly concluded that the By-Law’s subject matter was the regulation of postal services.

Writing for the Court of Appeal, Miller J.A. agreed with the City that the application judge erred in characterizing the pith and substance of the By-Law, mistakenly conflating motive with purpose. Although City Council members were opposed to the imposition of CMBs and one or more of them may have hoped that the By-Law would derail the implementation of Canada Post’s plan to move to CMBs, the motives of individual Council members, or even of City Council as a whole, do not establish the pith and substance of the By-Law. In Justice Miller’s view, the correct guide to the By-Law’s purpose, and ultimately its subject matter, was its legal effect, or its impact on legal rights and obligations.

The By-Law changed legal relationships by (i) creating a process whereby all persons must obtain a permit before installing equipment on city roads, and by (ii) imposing a moratorium on issuing permits to Canada Post for CMBs for one hundred and twenty days after Canada Post pays permit fees for the first fifty CMBs, a total of $100,000. Miller J.A. noted that the criteria for the issuance of permits were open-ended and included such things as the accessibility of equipment for persons with disabilities, vehicular and pedestrian safety, and the protection of trees. They did not address the efficiency or modality of mail delivery, and did not vest the Director of Engineering Services with authority to grant or refuse a permit based on any judgment about the adequacy of mail service. While the moratorium provision was expressly directed at Canada Post, Justice Miller observed that it was not an indirect prohibition but rather “in the service of the permitting process”, allowing time for the City to develop the standards that would govern the issuance of permits. Miller J.A. concluded that the subject of the By-Law was, as the City asserted, “to protect against risks of harm to property and harm to persons using municipal roadways”.

Turning to a consideration of whether this subject matter fell within a head of power allocated to the provinces by the Constitution Act, 1867, Miller J.A. held that it was “a short walk” from this characterization of the By-Law to the conclusion that it comes within provincial jurisdiction under ss. 92(10) and (13), the power over local works and undertakings, and over property and civil rights, respectively.

Justice Miller agreed with the application judge that the subject matter of the By-Law also fell under the federal power over the postal service, set out in s. 91(5) of the Constitution Act, 1867. He found that the application judge erred, however, in his application of the double aspect doctrine, and in his conclusion that the By-Law usurped the jurisdiction of Canada Post. In Miller J.A.’s view, there was a conflict between the By-Law and federal legislative provisions, but the federal provisions are paramount, rendering the By-Law inoperative to the extent that it applies to Canada Post.

As Justice Miller explained, there was no operational conflict in this case; the relevant conflict was between the By-Law and the purpose of the Canada Post Corporation Act, R.S.C. 1985, c. C-10 (CPCA), which grants sole decision-making power to Canada Post with respect to the location of mailboxes. The purpose of the CPCA in conferring on Canada Post the power to place mail receptacles on municipal roads is in furtherance of the objects of Canada Post, which include having regard to the “need to conduct its operation on a self-sustaining financial basis while providing a standard of service that will meet the needs of the people of Canada.” The impugned By-Law conflicted with this purpose by effectively giving the City of Hamilton a veto over the location of mail receptacles.

Miller J.A. rejected the City’s submission that the placement of CMBs is a “fine-grained” issue that would not have substantial bearing on the operations of Canada Post, noting that the process of converting mail delivery to CMBs is complex, not only due to the necessary coordination with third parties but also because of internal procedures that Canada Post’s collective agreements mandate when a mail delivery route is restructured. These logistical challenges would be magnified by the number of municipalities enacting similar by-laws, each with their own decision-maker and criteria, that would collectively have veto power over a national network of CMBs.

Justice Miller also rejected the City’s claim that there was no conflict because the By-Law and the CPCA could be read together, and that respect for the constitutional principles of co-operative federalism and subsidiarity required giving effect to a harmonious interpretation. In Miller J.A.’s view, a harmonious reading of the By-Law and the CPCA was not possible. The By-Law did not complete or refine the work done by the CPCA; rather, it asserted a supervisory role for the municipality over the decision-making authority of Canada Post. It was not co-operative, but competitive. The By-Law was therefore held to be inoperative to the extent of the conflict.

The appeal was dismissed.
5. Novatrax International Inc. v. Hägele Landtechnik GmbH, 2016 ONCA 771 (Doherty, Feldman and Brown JJ.A.), October 20, 2016

In this split decision, the Court of Appeal considered the effect of a forum selection and arbitration clause in a sales agreement.

In July 2006, the appellant, Novatrax International Inc., renewed an Exclusive Sales Agreement (ESA) with the respondent, Hägele Landtechnik GmbH. Three and a half years later, Hägele notified Novatrax that it was terminating the ESA immediately for cause.

Novatrax commenced an action for damages alleging wrongful termination of the ESA as well as tortious misconduct by Hägele, its principals and Cleanfix North America Ltd., a related company set up by Hägele to sell its products directly into the Canadian and American markets.

The respondents successfully moved to stay the action relying on a provision of the ESA in which the parties agreed to be bound by German law and to settle any disputes by arbitration.

Novatrax appealed.

Writing for the majority, Justice Brown held that the motion judge did not err in interpreting the scope of the forum selection clause to include all of the claims against Novatrax. He found that Novatrax’s contractual claims of wrongful termination and breach of the duty of good faith fell within the scope of the clause for three reasons. First, the scope of a forum selection clause is not determined by the subjective intention of one of the contracting parties at the time the contract was formed. The question of whether the nature of a claim lies outside of what was reasonably contemplated at the time the contract was signed turns on the interpretation of the forum selection clause in accordance with the general principles of contract law and the degree of connectedness between the nature of the claims pleaded and those covered by the clause. Second, the language of the clause was broad enough to include, within the term “any disputes”, claims relating to any stage of the ESA including the wrongful termination and breach of duty of good faith claims pleaded by Novatrax. Finally, the severity of the alleged breach of contract does not play a role in the strong cause analysis.

Brown J.A. held that the motion judge was also correct to find that Novatrax’s tort claims fell within the scope of the clause, noting the well-established principle that a broad forum selection clause covering “any disputes” applies not only to contract claims, but to tort claims as well. Even though Cleanfix and the individual respondents were not parties to the ESA, the claims pleaded against them all arose out of the same transactions and occurrences and raised common questions of fact and law linked to the claims pleaded against Hägele. Therefore, the claims against Hägele and the individual respondents were required to be dealt with together.

Feldman J.A. dissented on the latter issue and held that the stay of the claims against the non-parties to the arbitration clause ought to be set aside. In her view, the motion judge erred in law by depriving the appellant of its right to litigate the claims against the non-party respondents in Ontario under Ontario law. Where it is clear on the face of an arbitration agreement that a party to the litigation is not a party to the agreement, that issue can and should be determined by the court on a stay application. Moreover, an arbitrator cannot make an arbitral award that disposes of the rights between a party and a non-party to the agreement.

Justice Feldman adopted the approach that has been developed and applied by the Alberta Court of Appeal for addressing the question of jurisdiction. The Alberta court has held that it must consider whether the issues in the arbitration are substantially the same as the issues in the action, whether the defendant has satisfied the court that continuing the action would work an injustice, and whether the defendant has satisfied the court that the stay will not cause an injustice to the plaintiff.

Applying this approach, Feldman J.A. noted that the issue to be determined in the arbitration was whether the corporate respondent Hägele wrongfully terminated the ESA with Novatrax, while the only allegation in the Statement of Claim that could involve some or all of the same issues as against the other respondents was that the termination was part of a deliberate strategy to obtain control of sales in the North American market. There may therefore be some risk of inconsistent verdicts if that claim was pursued in the arbitration as well as in the Ontario action. She further found that the respondents failed to demonstrate that they would suffer an injustice if the Ontario action were to continue. On the other hand, there would be prejudice to the appellant if a stay was ordered of its claims against the individual respondents and Cleanfix.

The appeal was dismissed.

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