Friday, 24 August 2018

A Small Step Toward Faster Justice: Mandatory Dispute Resolution

Authors: Matthew Ryan, Summer Student and Peter Major, Q.C.

Slow courts are bad for the economy. Inefficient justice discourages investment, since businesses and investors cannot be certain that their property and contract rights can be effectively upheld. Even if an investor is confident about the strength of their claim, sluggish justice makes lawsuits more expensive­—to a point where would-be plaintiffs are sometimes better off abandoning their claims altogether. This uncertainty about the efficacy of the justice system creates a disincentive for businesses to enter contracts in the first place.
The World Bank’s Doing Business survey measures the ease of starting and conducting businesses across the world. One of the survey’s key metrics is the time taken to enforce a contract through the courts. While this survey does not measure individual Canadian provinces, the nation ranks a dismal 114 out of 190 countries for the enforcement of contracts. This is one of the worst rankings for an OECD nation, coming ahead of only Slovenia and Greece. The pain is felt in Alberta too, where lead times for civil trials can sometimes extend past three years.
In January 2016, the Court of Queen’s Bench of Alberta submitted a proposal to the provincial and federal governments to increase the number of full-time judges to fix the clogged justice system. This proposal was justified by the rapid increase in Alberta’s population coupled with slow or non-existent increases to the number of judges sitting on the Court of Queen’s Bench. Continued population growth has led Alberta to maintain the highest ratio in Canada for population to Superior Court Justices, with one Superior Court Justice for every 63,000 Albertans. By comparison, the national average was one Justice for every 35,000 Canadians when the proposal was made in 2016. In light of this, the Court requested an additional ten Justices to be appointed to the Court of Queen’s Bench. Since this proposal, only four have been added and that may only offset some of the pending judicial retirements on the near horizon. Now in 2018, justice remains as slow as ever.
 
Proposed changes by the Alberta Court of Queen’s Bench
In an attempt to speed up justice, the Court of Queen’s Bench of Alberta has proposed mandatory dispute resolution before litigants can book a trial date. This means that parties must participate in some form of dispute resolution, either through a Judge-run Judicial Dispute Resolution (JDR) or through a private mediator. This process is meant to offer parties an opportunity to settle disputes without encountering the time and expense of a trial. Although JDR services also depend on the Court’s resources, they can ultimately reduce court backlogs if parties settle and avoid a trial. The Court of Queen’s Bench is seeking feedback from the legal community and the public regarding this proposal. If implemented, this requirement will take effect January 1, 2019.
Dispute resolution can be effective in many cases where parties are open-minded and interested in settling. This is common with commercial litigation, where litigants often remain conscious of their litigation risk and enter disputes with their bottom line in mind. However not all parties in a civil dispute will navigate a lawsuit guided by pure economics. Dispute resolution can be a waste of time where one or both parties are rooted in their positions and unwilling to negotiate a settlement. Those who value principles over profit won’t find a resolution without a trial. In those cases, mandating dispute resolution will only slow things down by requiring parties to enter a dispute resolution process that is guaranteed to fail. This doesn’t necessarily mean the Court’s proposal is a bad idea. Mandated dispute resolution can still reduce wait times for trials if enough litigants are willing to engage with dispute resolution with a genuine interest in settling the dispute.
McLennan Ross partner Don McGarvey has offered his opinion on the proposed changes during recent interviews with the Edmonton Journal and CBC Radio. While the proposed requirement for dispute resolution is a step in the right direction according to McGarvey, it’s not enough to address the current backlogs facing the Court. Instead, the onus lies with the provincial and federal governments to ensure the justice system has adequate resources. This means hiring not only more Superior Court Justices, but also more support staff.
Along with increasing court resources and alternative dispute resolution, the World Bank’s Doing Business survey also identifies best practices for efficient civil justice. Some of these include: maintaining a specialized commercial court or division, expanding case management systems, court automation, and computerization. Alberta courts have well established court management systems firmly in place, they have ongoing improvements in computerization both in the courtrooms and administration offices, they are separated into different practice areas and over the past decade they have been earnest in trying to speed up processes through certain specializations. Unfortunately, the efficiency and success of all of these efforts often goes unnoticed or is unable to reach their full potential so long as judicial vacancies and sometimes razor-thin levels of support staff remain the status quo in Alberta.
If you are contemplating litigation but are already discouraged by the concern with the delay, or you are presently in litigation without seeing light at the end of the tunnel, understanding the value of the mandatory dispute resolution process would be of great value. Even better, if you think you and your opposing party are willing to consider settlement without a trial, this proposed change can accelerate the prospect of settlement or certainly help each of you narrow the issues that may need to be resolved at trial.
The commercial litigation group at McLennan Ross has years of experience assisting clients with these issues and are always happy to guide the way.

Thursday, 26 July 2018

Email Communication and Formation of Contract

Author: Peter Major, Q.C. and Cesar Agudelo, Summer Student

Electronic communication continues to grow and, by most observations, it is becoming indispensable in our social discourse. The advantages of instantaneous communication allow for people to connect quicker and expand their circle of contacts. At the same time, this access to instantaneous communication carries risk. A flippant or ill-tempered remark sent in the course of a speedy exchange could later prove embarrassing or destructive to a relationship. Should the same cautionary tale apply to business negotiations? Can a careless or poorly considered email or text bind you to an agreement that you did not intend?
 
In two recent cases, appellate courts closely scrutinized the role that email exchanges played in business relationships. The first case, Cana v Standard Innovation, 2018 ONCA 145, was heard by the Ontario Court of Appeal and it had to decide if two separate agreements were created amid several email exchanges between the parties. The Defendant, Standard Innovation, was the patent holder of a popular sex toy called “We-Vibe”. The Plaintiff, Cana, was a distributor of adult sex health and wellness products. The parties entered negotiations for Cana’s exclusive distribution of the We-Vibe. The relationship eventually soured and Cana sued Standard Innovation for breach of contract, among others claims. In that claim, Cana alleged that three different agreements formed, only two of which are of concern here: 
  1. A Mainstream Agreement whereby Cana would be the exclusive distributor of the We-Vibe in mainstream stores such as drug stores; and
  2. An Adult Stream Agreement whereby Cana would be the sole distributor of the popular toy through adult sex shops and websites.

In analyzing the Mainstream Agreement, the facts identified that between August and September 2009, Cana signed one copy of the Mainstream Agreement while Standard signed an identical yet separate copy. There was no one document that could be clearly identified as the one contract for the Mainstream Agreement. Subsequently, the parties exchanged emails discussing and modifying some of the terms of the documents that had been signed. Cana argued that the Mainstream Agreement was formed when both parties signed a copy of the document. Standard Innovation, pointed to the subsequent email exchanges and discussion of the terms as proof that there was no agreement, but rather an ongoing negotiation.

In the Adult Stream Agreement, the parties signed different copies of the document held out as the agreement while continuing to negotiate the terms of that agreement. These negotiations also continued well into 2010. Notwithstanding these negotiations, Cana argued that the email exchange was proof that an agreement had been reached, while the Standard Innovation argued that the emails proved that these were mere negotiations so no agreement was ever finalized.

The Ontario Supreme Court held that there was no Mainstream Agreement or Adult Stream Agreement established and dismissed the claim. The Ontario Court of Appeal reversed the trial court’s decision regarding the Mainstream Agreement but upheld its findings regarding the Adult Stream Agreement. The difference in the Court of Appeal’s findings illustrate what the Court considers important when analyzing the role that email communications play in contract formation and interpretation.

The Court of Appeal agreed with the trial court on the approach for analyzing contract formation and interpretation. Implicit in their decisions are the principles established by the Supreme Court of Canada in Sattva Capital Corp. v Creston Moly Corp. 2014 SCC 53. A contract should be interpreted by objectively determining the intention of the parties at the time that they entered into the contract in light of the factual matrix of the surrounding circumstances. In the Cana case, the two courts arrived at different conclusions. Each court agreed that the main factors to determine contract formation are: the wording and content of the contract, where one exists; the conduct of the parties; the factual or business context at the time of formation; and lastly, and less importantly, other evidence that may help solve uncertainties.
 
The difference in their conclusions and the palpable error of the trial court was not in finding that the email exchange overcame the written contract, but in forgetting to apply the principle of agreements signed by counterpart. The trial judge characterized the email exchanges of partially signed copies as “two unique offers.” The Court of Appeal disagreed and found there to be one, executed agreement signed in counterpart. The Court noted that the parties “conducted themselves in this manner until the relationship broke down in May 2010.” The Court also considered the subsequent email exchange as “negotiations concerned with relatively minor matters of the kind that would be expected to arise within the framework of a long-term exclusive distribution agreement.”
 
The Court did not ignore the email evidence, but relied on it mainly to clear up uncertainties. For example, it highlighted an email where the Standard Innovation said “I look forward to growing the mainstream market with you,” as evidence confirming the existence of an agreement while noting that they could now do a term for the sex toy industry. The Court also relied on the Standard Innovation’s internal emails to interpret their intention and understanding the relevant events dealing with formation and intention. The emails indicated that Standard Innovation considered the Mainstream Agreement as ‘done’. The email evidence supported the Court’s interpretation of the written contract, the conduct of the parties and the factual context.
 
The Adult Stream Agreement was resolved differently. Ironically, there was a fully executed document, but in Cana’s own emails they requested a clean copy after this executed copy was signed. The negotiations on major terms, contained in some of these emails, continued. The Court took this, and other evidence to mean, that Cana themselves did not consider it an enforceable agreement. Also, and unlike the Mainstream Agreement, the parties did not conduct their business in accordance to the agreement.
 
At the end of this analysis, the Court concluded that there was no written contract, no conduct to support an agreement and the factual context evidenced an ongoing negotiation. Furthermore, the Court found that the email exchange was too uncertain to support the formation of an agreement and no one email accidentally bound the parties.
 
The second case, Skylink Express Inc. v Innotech Aviation, 2018 NSCA 32 was heard by the Nova Scotia Court of Appeal. The Plaintiff, Skylink and the Defendant, Innotech had a long business relationship dating back to 1998. Their relationship was grounded on a lease where Skylink became Innotech’s tenant for hangar space with accompanying office and parking space. Over the years, the parties renewed and amended their agreement and they had a specific process for amendments where they would negotiate an addendum to the original lease.
 
In 2014 the parties negotiated a renewal. Innotech offered Skylink three options, a one, three and five year lease. The longer the lease, the lower the rate of rent. Skylink chose the five year lease with the lowest rent. Before executing the addendum, however, Skylink sent an email asking Innotech: “If the need arose, and Skylink needed additional space or to change the type and number of aircraft they had, would they be able to do so via an Ad Hoc Addendum?” Innotech confirmed that this would be agreeable. After this confirmation, the parties executed the addendum to their original agreement.
 
A few months later, Skylink lost a major deal, resulting in a reduction of business. In turn, Skylink attempted to rely on its email exchange with Innotech to reduce the amount of space it rented and to ultimately terminate the agreement. After Skylink failed to pay rent, Innotech made an application for a declaration that Skylink was in breach of their lease.
 
Skylink argued that the email exchange before the execution of the addendum to the original lease constituted a collateral agreement. Both, the trial court and the Court of Appeal disagreed.
 
First, the parties had a long history of doing business and their established method of amending the agreement weighed heavily. If anything, the email exchange supported this practice. Secondly, Skylink’s argument would allow it to unilaterally modify the contract and pass its business losses to Innotech. Thirdly, the intention of the parties was clear from the evidence. Skylink chose the longer of the leases when it had the option of a one year term, plus witnesses for Skylink testified that they had not anticipated a reduction in business.
 
Like the Court in Cana, the Nova Scotia Court of Appeal put more weight on the written contract, the conduct of the parties and the factual or business context.
 
The take away from these two cases is that emails and presumably other electronic exchanges during business negotiations can be an important part of the factual matrix courts will look to in determining whether a contract is formed, enforceable or left open. Emails and texts are just as useful as any other evidence the courts are required to review to find out what the parties intended, if a contract was formed and when it was formed. If you are engaged in electronic communications in business, think twice before you send the flippant or ill-tempered remark. There is a good chance a judge won’t see your comment in the same light you thought when you sent it and when reviewed years later.
 
With a strong reputation in commercial litigation, McLennan Ross LLP is well positioned to provide you with the best advice and representation. If you have any questions or concerns about this or any other matter, please contact any member of our Commercial Litigation Team 

Wednesday, 27 June 2018

Security for Judgment in Alberta

Authors: Peter Major, Q.C. and Jonathan Kikuchi, Summer Student

Commercial litigation is almost invariably expensive and time consuming. No one should embark on commencing a lawsuit for financial damages without some realistic consideration given at the beginning for the recovery of any successful award of damages, interest or costs (“Award”). Usually a court can grant each component of the Award but it does not guarantee that the defendant will have the necessary funds to pay them out nor will it chase down the defendant for payment on the plaintiff’s behalf. However, in limited circumstances, a plaintiff might receive the court’s assistance to secure the payment of some part or all of an Award through an order for Security for Judgment.

Security for Judgment is a seldom-awarded remedy that typically requires a defendant to pay a sum of money into court in advance of or after a judgment has been granted against them. It has traditionally been ordered in situations where:
  • a plaintiff applies before trial to require a defendant to post security for the amount claimed as a condition for defending against the claim; or
  • a respondent on an appeal applies to require an appellant to post security for the judgment granted by the lower court as a condition for proceeding on the appeal.

McLennan Ross was previously successful in obtaining a Security for Judgment Order in WestJet v ELS Marketing Inc., where the Alberta Court of Queen’s Bench ruled that Security for Judgment can be ordered in situations where a litigant seeks to use the court to their advantage yet refuses to comply with that same court’s judgments, and that the court retains a general authority to order Security for Judgment in circumstances where it is fair and just to do so considering all surrounding circumstances. More on this decision can be read here.

In general, courts tend to be hesitant to award Security for Judgment – in Aetna Financial Services v Feigelman, the Supreme Court of Canada described it as an “exceptional” remedy. There are two main reasons why courts are hesitant to award Security for Judgment. First, they do not want to preclude appellants with a lack of financial resources from pursuing an appeal. This is a recognition by the courts that there are appellants that simply do not have the means to put up security to continue litigation following an unfavorable decision, no matter how strong their appeal may be. Secondly, courts do not want to act as a collection agency; instead, the expectation is that judgment creditors will use the comprehensive enforcement scheme set out in the Civil Enforcement Act.

Vaillancourt v Carter
In Vaillancourt v Carter, the Alberta Court of Appeal allowed an application for Security for Judgment in a breach of contract case.  In the 2016 Alberta Court of Queen’s Bench decision, Ms. Vaillancourt claimed that Mr. Carter had promised her 25% ownership of Encott in exchange for her services running a number of Jenny Craig locations, and that he reneged on this agreement once the business grew faster than he anticipated. The Court agreed and rendered a judgment against Mr. Carter in the amount of $1,097,234 plus interest and costs, which, as a general rule, is an immediate obligation to pay.

Mr. Carter appealed the trial decision. An appeal does not operate as a stay of the obligation to pay an Award but in this case Mr. Carter refused to pay the Award or even post some portion of it with the Court. Fearing that she might be further out of pocket for the expense of a successful defence of the appeal, Ms. Vaillancourt proceeded on two routes: First, Ms. Vaillancourt took steps to enforce her judgment by serving a Form 13 – Financial Statement of Debtor on Carter under the Civil Enforcement Act. Form 13 is a written form of examination in aid of execution that requires an enforcement debtor to provide a comprehensive report of their financial position at the request of an enforcement creditor (Michel v Lafrentz). Mr. Carter’s response to the Form 13 was both perfunctory and dishonest. More importantly, it was a clear signal that he had no intention of paying any part of the Award.

Given this response, Ms. Vaillancourt proceeded with a second option and brought an application early in the appeal process for both Security for Judgment and Security for Costs. The purpose of the application was to prevent Mr. Carter from having a free shot at challenging the trial decision and still being able to evade his financial obligations if he were unsuccessful.

The Alberta Court of Appeal allowed both the application for Security for Judgment (for the damages portion of the Award) and the application for Security for Costs (for the appeal) and in doing so admonished Mr. Carter for his conduct in dishonestly filling out a Form 13, remarking that:
A person who swears a statutory declaration does not do so as a formality, but as evidence of their legal obligation to verify the truthfulness of the financial report that person is required to provide to the judgment creditor. Yet, the number of inaccuracies and omissions in Mr. Carter’s sworn evidence suggests that he considered this obligation to be optional.

In reaching its decision, the Court mentioned three notable exceptions to the general rule against granting Security for Judgment:

    1. Where there are no assets in the jurisdiction against which to enforce a judgment and the appeal has little merit;
    2. To preserve assets that would otherwise be destroyed, disposed of, or dissipated prior to the resolution of the dispute;
    3. To encourage respect for the judicial process and avoid abuse of process [citations omitted]

    This decision, much like in WestJet v ELS Marketing Inc., was primarily decided on the third point. The Court suggested that Mr. Carter’s actions could be prosecuted as perjury and that the use of the not-so-subtle name of “Shield Investments Inc.” for a holding company was illustrative of his shielding of millions of dollars in assets, including several residences and multiple luxury vehicles.

    Implications
    While it may not be available in most situations, a Security for Judgment Order is a remedy that is still available in certain exceptional situations. By affirming WestJet v ELS Marketing Inc. and through the reasons given in Vaillancourt v Carter, the Alberta Court of Appeal has confirmed that the judicial process is not to be abused and deliberate attempts to make oneself “judgment-proof” will not be tolerated. What remains less certain, with the increasing concern of access to justice, is how successful a plaintiff might be seeking a Security for Judgment Order against an appellant of less nefarious character and of significantly lower financial means.

    Having litigated two leading cases in Alberta, our team at McLennan Ross is well-practiced in applications for Security for Judgment. If you would like to discuss whether an application for Security for Judgment is right for your situation, please contact any member of our Commercial Litigation Team.

    Thursday, 24 May 2018

    Anton Piller Orders - What Not To Do

    Author: Ainslie Fowler and Peter Major, Q.C.

    Plaintiffs sometimes determine that the rules and remedies afforded to them to acquire or preserve evidence and assets in the regular course of litigation are inadequate. In certain instances, Plaintiffs can overcome the hurdles that delay these standard remedies through Anton Piller Orders, Mareva Injunctions or Attachment Orders. An Anton Piller Order is a form of civil search warrant that displaces the normal rules on discovery of records. It enables the Applicant to attend at the premises of the Defendant, without notice, and take possession of the records of the Defendant. Mareva Injunctions are court orders temporarily freezing a defendant's assets pending the final resolution from the Court. It is granted pursuant to the court's equitable jurisdiction to grant injunctive relief pursuant to Section 13(2) of the Judicature Act. An Attachment Order is made pursuant to the Civil Enforcement Act, Part 3 and is an order permitting a party to obtain pre-judgment relief where there are reasonable grounds for believing that a defendant is dealing, or is likely to deal, with its exigible property other than for the purpose of meeting its reasonable and ordinary business and living expenses.

    Each of these remedies are considered extraordinary because they permit the Court to restrict or impede a defendant's use of certain assets before the Court has rendered a final determination of the issues in dispute. Invariably, applications for these remedies commence with an ex-parte Application supported by Affidavit evidence. Since the Court only hears from one party in that application, it is imperative that the evidence be precise and there is complete candor from the applicant about all of the relevant facts that the Court must consider before granting such remedies.

    Recently, the Court of Appeal of Alberta in Secure 2013 Group Inc. v. Tiger Calcium Services Inc., 2017 ABCA 316 confirmed the need for strict compliance with the criteria for each remedy. In that case, Plaintiff’s counsel applied for Anton Piller Orders against the Defendants as well as against the offices of the Defendant’s lawyers and accountants. The Plaintiff’s counsel also applied for Mareva/Attachment Orders.

    In a wide and comprehensive overview of what not to do, the Court set aside each of the Anton Piller Orders and Mareva Injunctions excluding one, which remains subject to a pending application to set it aside.

    The Anton Piller Orders were set aside against the accounting and law firms for being far too broad based on multiple inadequacies, including the failure to advise the Court that the Orders were against third party accounting and law firms, misstatements going well beyond the Affidavit evidence, failing to properly identify that the accounting and law firms actually possess incriminating evidence or that there was a real possibility that records in their possession would be destroyed, that there was no explanation why alternative remedies were not suitable or that notice was not given to the Defendants about the documents being seized from these third parties. This case sets a high bar for obtaining a third party Anton Piller Order, and confirms that "searching the registered office of a defendant (often a law firm) or its accountant is generally 'unwarranted'."

    The Anton Piller Order was also set aside against the Defendants on the grounds that the representations before the Court were far too broad in the circumstances. Most notably, there was an unlimited number of people ordered to produce the records with no mechanism to address confidentiality or commercially sensitive non-privileged information and the Order was granted for a remarkable period of 60 days rather than the customary 10-14 days.

    The Mareva/Attachment Orders were likewise set aside. The Court found it was improper to have similar and unlimited financial caps with respect to any of the parties. There was a failure to specify a return date to afford the Defendant an opportunity to oppose the Order and the limits imposed on the individuals for living expenses and legal expenses was unreasonably low.

    The Court of Appeal reminds us that extraordinary care and attention to detail is required to properly secure these remedies, and there is much to be lost if a commensurate level of analysis is not an overarching concern to the applicant in this process.

    If you or your company have any questions regarding any of the extraordinary remedies raised in this blog please do not hesitate to contact Ainslie Fowler and Peter Major, Q.C. in the commercial litigation practice group.

    A Small Step Toward Faster Justice: Mandatory Dispute Resolution

    Authors: Matthew Ryan, Summer Student and Peter Major, Q.C. Slow courts are bad for the economy. Inefficient justice discourages inves...