Privacy Means Privacy: A New Tort Recognized

 by Erik Holmstrom and Peter Major, Q.C., Q.Arb

Since Edward Snowden’s leaking of highly classified information against the United States’ National Security Agency in 2013, both companies and citizens alike have begun taking steps to protect privacy at all costs. Even recently this year, both Google and Apple introduced new technology to prohibit the tracking of their users without permission. Despite such steps, people are nonetheless susceptible to their information or private photos being publicized or distributed by others, sometimes even by those they trust the most.

In ES v Shillington, 2021 ABQB 739, a recent Court of Queen’s Bench Decision, Justice A.B. Inglis recognized the need to remedy such privacy concerns and established a new tort in Alberta aimed at protecting individuals’ privacy.

In this case, the Plaintiff and Defendant, were in a long-term relationship riddled with sexual and physical abuse. The Defendant was an officer in the Canadian Armed Forces. In the beginning, during a period of long distance, the Plaintiff sent intimate photos to the Defendant, as a private gift. She provided the images to him due to their separation caused by his military deployment but with the understanding between them that he would not distribute the images in any way.

Eventually, as the relationship collapsed, the Plaintiff was shocked to discover these images online, and was eventually even confronted by a neighbour after being recognized on one of the many websites that the images were posted to. As a result, the Plaintiff suffered ongoing psychological injuries that negatively affected her life. She later sued the Defendant, who failed to respond to the lawsuit, and asked the court to recognize the tortious act of “Public Disclosure of Private Facts”.

While Alberta had already implemented the Protecting Victims of Non-Consensual Distribution of Intimate Images Act, a statute in force since 2017 that prohibits the non-consensual distribution of intimate images, the court was unable to retroactively apply the statute against the Defendant given that the photos were distributed long before the act came into effect. Moreover, Justice Inglis noted that the statute only protected the distribution of “intimate images”, a narrowly defined term under the act that limited the remedy solely against images containing nudity or sexual activity. This loophole left other arguably private information, such as financial or health records, potentially unprotected.

Justice Inglis further explained that torts, such as defamation and intentional infliction of mental distress, were meant to address different circumstances, and explained that the tests for these torts created unnecessary barriers to a remedy.

Finally, the court noted that the right to privacy had continued to expand in recent years, and was incorporated in both the Criminal Code and Charter, among other statutes. As such, the court noted that this proposed tort was an appropriate subject for judicial adjudication given that the proliferation in technology made way for the potential for new breaches, thereby requiring “adequate legal protection”.

Alberta is not the first province to recognize this new tort. In fact, Ontario, has recognized the need to respond more fully to privacy breaches since 2018. In Jane Doe 72511 v Morgan, 2018 ONSC 6607, the Defendant posted illicit photographs of the Plaintiff on a pornographic website without consent. In recognizing a lack of available remedy or statute, the court approved the tort thereby prohibiting posting intimate images of another without consent.

In the Novia Scotia case, Racki v Racki, 2021 NSSC 46, the Defendant posted a memoir online, which included anecdotes about his ex-wife’s suicide attempts and previous addiction. Given the Plaintiff’s humiliation towards the publication, and lack of a modern remedy, the court stated that society needed to evolve to the changes in technology and approved the tort of public disclosure of private facts. Racki appeared to widen the scope of this tort, given that the disclosed private information was not “intimate” or “sexually explicit” in nature.

Based on the need for an appropriate remedy, the need to respond to the wrongdoing, and the fact that the subject matter was appropriate for judicial consideration, Justice Inglis confirmed the right of action for Public Disclosure of Private Facts.

Therefore, in order to prove liability, Justice Inglis established that a plaintiff must meet the following test, and prove that:

            (a) the defendant publicized an aspect of the plaintiff’s private life;

            (b) the plaintiff did not consent to the publication;

            (c) the matter publicized or its publication would be highly offensive to a
                  reasonable person in the position of the plaintiff; and

            (d) the publication was not of legitimate concern to the public.

Ultimately, the Plaintiff was successful in her action, and awarded $80,000.00 in general damages plus $50,000.00 in punitive damages and $25,000.00 aggravated damages.

While both the Criminal Code, and the Protecting Victims of Non-Consensual Distribution of Intimate Images Act protect citizens from having their intimate images distributed online without consent, the new tort appears to broaden the scope of what interests are protected, and leaves the door open for other private information to be protected against unwanted distribution.

The improper use of private information continues to be a growing area of law. This new tort falls into the closely related category of other torts:

•        Intrusion upon the plaintiff’s seclusion or solitude, or into his private
      affairs.
•       Publicity which places the plaintiff in a false light in the public eye.
•       Appropriation, for the defendant’s advantage, of the plaintiff’s name or
      likeness.

While it is useful to have multiple means of addressing the improper use of private information, it is equally important to make sure the correct tort is applied in the correct circumstance. McLennan Ross has considerable experience litigating in this area and is well equipped to assist you if you encounter a concern with privacy issues. Please contact Erik Holmstrom, Peter J. Major,Q.C., Q.Arb., or our broader commercial litigation group for further assistance.

At Your Discretion: The Art of Contractual Decision-Making

by Peter Major, Q.C., Q.Arb. and Matthew McCarthy, Student-at-Law

In our most recent blog post, our colleague Erik Holmstrom discusses the Supreme Court of Canada decision in CM Callow v Zollinger et al. There, he discusses the general duty of good faith, and the requirement for parties to refrain from active dishonesty in performing their contractual duties. Rightly so, he points out that this decision does not prevent parties from pursuing their own self-interests, and this is exactly what the Supreme Court sought to clarify in its subsequent decision in Wastech Services Ltd v Greater Vancouver Sewerage and Drainage District, 2021 SCC 7. More specifically, the Supreme Court discussed the concept of good faith as it relates to contracts that provide either one or more parties with discretionary rights.

Background

Wastech Services Ltd. (“Wastech”) is a company in British Columbia that provides waste transportation and disposal services. The Greater Vancouver Sewerage and Drainage District (the “District”) is a statutory body that administers waste disposal programs in the Greater Vancouver area. Wastech and the District had contracted many times, and in 1996 they entered into the agreement before the Court (the “Contract”). The Contract superseded four existing agreements between the parties and was very complex. Essentially, Wastech was to remove and transport waste on behalf of the District to three locations.

Wastech received different compensation rates depending on which landfill it was instructed to bring waste to. The Contract gave the District “absolute discretion” to determine and amend the minimum amount of waste to be transported to Cache Creek Landfill, which is the only location that carried a higher compensation rate. Additionally, the Contract specified a target operating ratio, where Wastech’s operating costs would amount to 89% of total revenue. This would ordinarily result in an 11% profit margin. The parties would share the financial consequences if the actual operating ratio was less than or exceeded the target.

In 2011, the District directed a significant amount of waste away from Cache Creek Landfill to another landfill, which caused Wastech to operate at a 4.5 percent loss. After adjustments and cost sharing, Wastech recorded only 4% profit for 2011 – well short of its 11% target. As a result, Wastech initiated arbitration proceedings under the Contract, arguing that the District breached the Contract and that it was entitled to compensation for the District’s failure to uphold its duty of good faith. The case went through arbitration, and multiple appeals through the Supreme Court of British Columbia and the British Columbia Court of Appeal before ending up at the Supreme Court of Canada.

The Court’s Ruling

The Court held that, while the duty to exercise contractual discretion in good faith is a well-established point of law in Canada, this does not mean that a party must exercise their discretion in deference to the other party’s interests. By contrast, a party will have upheld its duty of good faith if it exercises its discretion reasonably and consistent with the purposes of the parties’ bargain. If a party exercises its discretion dishonestly, it will constitute a breach of contract.

The Supreme Court had held in previous cases that the duty of good faith and honest performance was a “general organizing principle” of contract law. Indeed, this duty expressly covered the exercise of discretionary powers; however, there was very little discussion on what exercising discretion in good faith would look like.[1] In addition to this, the Court acknowledged the further confusion over what this duty would be where a party has unfettered discretion – as the District did in this case.

Wastech argued that it would be “unreasonable for a party to exercise its discretion “in such a way as to deny the other contractual party substantial benefits flowing to it which represent fundamental aspects of the parties’ legitimate contractual expectations.”” By this, they meant that when the District elected to divert waste away from Cache Creek, they did so knowing that it would result in a significant reduction in profits flowing to Wastech, which it had previously received and expected to receive in future. As it had discretion over this, and could potentially have elected to send more waste to Cache Creek, Wastech felt that this was done in bad faith.

The Court disagreed. They stated that good faith should not be used as an excuse for punishing a party’s motives. Even if a decision results in the substantial or total loss of contractual benefits for another party, this alone will not mean that a party has acted in bad faith. Good faith in discretion will be highly-context specific, and the content of a party’s duty is found in the wording of the agreement. This means that parties simply must uphold the objectives of their discretion, as per the negotiations of the parties.

In this case, the Contract gave the District the absolute discretion to determine the minimum amount of waste to be transported to Cache Creek. There was no guaranteed minimum. The purpose of giving the District this discretion was to allow the parties to adjust waste flows to accommodate changing circumstances. The parties knew there would be operational variability when they negotiated the Contract, and that is why the adjustment payments were in place – to compensate parties where there are unfortunate results. The Court was adamant that the Contract did not require the District to subordinate its own interests to Wastech’s interests. The discretion was related to the efficiency and capacities of the landfill sites, and they had the absolute right to make decisions about this. Wastech’s “legitimate expectations” were not guaranteed by the Contract, and thus the District did not breach its duty of good faith.

Takeaways

Despite the Supreme Court’s rulings in CM Callow v Zollinger et al and others, the duty of good faith and honest performance does not necessarily mean that a party exercising contractual discretion must do so with the other party’s interests in mind. In fact, where a party has absolute or unfettered discretion over certain matters, they must simply exercise those powers in reference to the purposes and objectives of their agreement and they must do so honestly.

I note, however, that what this means will vary from case to case. Your contractual duties of good faith will depend on the wording of your contract, and as such you should always seek the advice of experienced and qualified lawyers. Here at McLennan Ross LLP, our team of commercial litigators are ready and waiting to answer your questions and help you should you require assistance with matters like these. So, if you have questions about how you must exercise discretionary powers under a contract, or if you have any other questions about a commercial litigation matter, please contact a member of our Litigation team and we would be glad to assist you.

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[1] Bhasin v Hrynew, 2014 SCC 71, [2014] 3 SCR 494 at paras 47, 48.

Keep the Faith! Good Faith in Contracts Returns

By Erik Holmstrom

Despite the age old maxim of “freedom of contract”, parties should nevertheless continue to keep their duty to act in good faith when performing their contractual obligations, even if such obligations are to the sole benefit of one party. In the Supreme Court case C.M. Callow v Zollinger et al, the Supreme Court discusses a contracting party’s duty to act in good faith when utilizing a clause that enabled a party to unilaterally terminate a contract.

Background

In this case C.M. Callow Inc. (“Callow”), a landscaping company, was hired by a condominium management group and property manager to perform various services for 10 condominium corporations (collectively called “Baycrest”).

In 2012, the parties entered into two maintenance service agreements for both winter and summer seasons. The winter service agreement spanned the winter months between November 2012 and April 2014. Pursuant to clause 9 of that agreement, however, Baycrest was entitled to terminate their agreement if Callow failed to perform their services, such as snow removal, satisfactorily. The clause further enabled Baycrest to terminate the agreement if Callow’s services were no longer required by providing Callow with 10 days’ written notice.

After the first year however, complaints began to arise regarding Callow’s work. In 2013, Callow’s owner attended a meeting with the condominium corporations’ management group to discuss such service issues. The meeting’s notes showed that Callow had properly dissuaded the committee’s concerns.

Months later Tammy Zollinger was brought on as the new property manager, and after reviewing the agreement, advised the management group that Baycrest could terminate Callow’s services without any financial penalty. Without informing Callow, Baycrest subsequently voted to terminate Calllow’s winter service agreement in the spring of 2013

As the summer of 2013 continued, Callow began discussing with Baycrest the possibility of renewing their winter service agreement. After providing various free services for Baycrest in an effort to bolster his chances, and after various conversations with management, Callow was led to believe his contract would be renewed after the April 2014 contract expired.

Around September 2013, however, Baycrest issued the required 10 days’ notice to Callow of their decision to terminate the current winter service agreement. In response, Callow sued for breach of contract, alleging that Baycrest had acted in bad faith by accepting Callow’s free services and communicating that Callow’s services were sufficient leading Callow to believe that his agreement would not be pre-maturely terminated. As a result of Baycrest’s representations, Callow claimed, Callow did not bid on other contracts, and lost other work opportunities.

The Supreme Court took this case as an opportunity to clarify the law surrounding the duty of good faith, and what constituted a breach of the duty of honest performance in relation to a unilateral termination clause. The focus of the decision, however, was not directed at whether the termination clause was valid, or whether Callow’s termination was unjustified, but whether Baycrest failed to satisfy its duty at law to not lie, or knowingly deceive Callow about matters directly linked to the performance of their maintenance agreement. In other words, whether Baycrest breached its duty to exercise the termination clause in good faith.

The Doctrine of Good Faith

In law there is a distinct organizing principle of good faith which requires a contracting party to exercise their contractual rights and obligations under their contract in an honest and reasonable manner by refraining from capricious or arbitrary actions.

In the seminal decision, Bhasin v Hrynew, the Supreme Court set out this principle of good faith, explaining that the principle was not itself a free-standing rule, but rather manifested itself through various enforceable doctrines, such as the doctrine that parties had duty to act honestly in the performance of their contracts. Under this doctrine, any dishonest or misleading conduct directly linked to the performance of a contract would result in that party breaching the contract, thereby resulting in damages.

Such conduct, the court explained, is not simply the duty to refrain from lying. Instead, the duty encompassed a wide array of actions ranging from a party’s failure to disclose a material fact to the other party to knowingly misleading another party through one’s actions. However, such a duty does not compel a contracting party to be completely transparent. So long as a party performs their own self-interest honestly, their obligations will be met.

Decision

In rendering their decision, the court reiterated that the duty of honest performance required a direct link between the alleged dishonest conduct, and the performance of the contract. On this point the Supreme Court disagreed with the conclusion reached by Ontario’s Court of Appeal that Baycrest’s dishonest conduct was related to a future, potential, contract, and was therefore not directly linked to the performance of the current winter service agreement. Instead, the Supreme Court clarified that the alleged dishonesty was directly linked to the winter service agreement because Baycrest’s use of the termination clause provided to it under the agreement was dishonest.

In concluding that Baycrest acted dishonestly, the court took note of various conversations and communications between the management group and Callow which suggested that Callow was under the impression that the winter agreement would be renewed.

Secondly, the court explained that Baycrest’s conduct was deceptive when one of Baycrest’s board members acknowledged in an email that Baycrest knew they were accepting free work from Callow as an incentive to renew the winter services agreement, and that the board member had informed Callow that he would relay Callow’s efforts to the other board members.

Given Baycrest’s conduct, the court concluded that Callow was unfairly led to infer that their current agreement would not be terminated given that Baycrest would be renewing it next year. Baycrest also made no attempts to correct Calloway’s false impression that the contract would be renewed. As such, Baycrest breached their duty to honestly perform their contractual duties.

The court subsequently awarded Callow damages related to his lost opportunities in the amount of $64,306.96, and $14,835.14 for the cost of machinery leased in relation to the winter maintenance agreement.

Takeaway

This decision effectively broadens the applicability of a contracting party’s duty of honest performance. When a party’s failure to correct a misapprehension amounts to active dishonesty in a manner directly related to the performance of the contract, a contracting party is now seen as having breached their duty of honest performance, and liable to damages resulting therefrom.

It must be remembered however, that such a determination involves a heavy factual review by the court. Therefore, as a contracting party it is important to consider whether any of your actions or inaction have led a counterparty to misapprehend anything related to the performance of the contract, before exercising your rights.

However, this decision should not be read as the courts attempting to limit a party from pursuing their own self-interest. Such a duty does not impose a duty to disclose or fiduciary-like obligation on contracting parties. Instead, parties should simply be aware that in pursuing their own interests, they should do so honestly, and correct any misapprehensions that arise from their conduct.

If you’re worried about the potential ramifications of exercising your own contractual rights, McLennan Ross has a strong and experienced commercial litigation team capable of providing superior advice and representation in relation to such matters. Please contact us with any contractual or litigation issues you may have.