Thursday, 1 April 2021

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.

Sunday, 18 October 2020

Court Limits Leniency for Self-Represented Litigants

By Sarah Levine

In a world where the costs of hiring legal representation continue to increase, the presence of individuals representing themselves in legal proceedings, otherwise known as self-represented litigants, shows no signs of slowing down. Parties engaged in legal proceedings against a self-represented litigant are likely to face a whole host of challenges that naturally arise from an individual with no legal background trying to navigate the legal and procedural complexities of litigation. As Officers of the Court, lawyers have a duty to uphold and advance the administration of justice, but when litigating a claim opposite a self-represented litigant who does not abide by the Rules of Court (“Rules”) or other legislation or procedural norms and expectations, how much are legal practitioners and the courts expected to accommodate, and where does the buck stop?

The Alberta Court of Appeal has provided helpful guidance on these parameters in its recently released decision, Blomer v Workers Compensation Board, 2020 ABCA 334 [Blomer] where it upheld the trial court’s decision that fatal procedural missteps made by the self-represented litigant could not be cured by the Court.

Ms. Blomer, a self-represented litigant, objected to two decisions rendered by the WCB Appeals Commission. In order to appeal decisions of the Appeals Commission, the Workers’ Compensation Act requires that an appellant must file and serve on the respondents an originating application for judicial review within six months of the date of the decision to be appealed. Ms. Blomer failed to do so, and instead, she filed a statement of claim against WCB, wherein she announced her decision to appeal the first decision. She filed an Amended Statement of Claim, close to twenty-four months after the expiration of the six-month deadline, announcing her intention to appeal the second decision. Ms. Blomer then filed an Amended Amended Statement of Claim which removed any references to the two Appeals Commission decisions. After all this, Ms. Blomer then brought an application under Rules 1.4 and 1.5 of the Rules asking the motions court to convert the Amended Amended Statements of Claim filed to an originating application for judicial review and appeal of a decision of the Appeals Commission for the Workers’ Compensation Board”. Ms. Blomer’s application was rejected and she appealed.

The Court of Appeal was unanimous in rejecting Ms. Blomer’s appeal. They found that Rule 1.5 of the Rules did not allow the lower court to overlook Ms. Blomer’s fatal procedural missteps.

Ms. Blomer was represented at the appeal, and her counsel urged the Court to take Ms. Blomer’s self-represented status into account. It is a frustrating reality for many lawyers who find themselves playing on an uneven playing field when appearing opposite self-represented litigants, who are often afforded considerable leniency by the Courts when it comes to adhering to deadlines or other requirements of the Rules or relevant legislation. However, in Blomer, the Court of Appeal definitively proclaimed that “there are not separate statutory regimes for persons who are represented by counsel and persons who are not. The Canadian Judicial Council has proclaimed that “[s]elf-represented persons are expected to familiarize themselves with relevant legal practices and procedures pertaining to their case”.

There are many resources made available by various organizations in the province for individuals who represent themselves in legal proceedings, such as the Alberta Civil Liberties Research Centre’s “Resources to Navigate the Civil Court System” or the Government of Alberta’s publication for self-represented litigants, to name but a few. While a helpful place to start, these resource guides can only do so much, and cannot substitute for the expertise and experience of legal counsel. Ultimately, given the complexities of the law and legal proceedings, self-represented parties cannot possibly learn all there is to know to litigate their case without legal education and training, and so procedural missteps are bound to occur. While the courts, in their discretion, may afford some leniency to self-represented parties to correct these errors, the commentary in Blomer makes it clear that there are limits to what the courts can cure.

In declaring that there are not “two sets of court rules” for parties who are represented by counsel and self-represented litigants, the Court of Appeal has sent a strong message that the Rules and other legislation apply to all parties equally, and that there are limits to the flexibility that will be afforded to self-represented litigants by the courts. It is to the benefit of all involvedthe parties, counsel, and the courts that the legal and procedural requirements of proceedings are adhered to and respected, so that the focus can be on the resolution of the dispute in the most expedient and efficient way possible.

McLennan Ross will continue to monitor the impact of Blomer and any further developments in the law with respect to self-represented litigants with interest.

Wednesday, 30 September 2020

Considerations on Service of a Statement of Claim

 by Michaela Kocon

In today’s increasingly litigious world, it is imperative for both those in the legal field and non-legal field who may be involved in litigation to have a solid understanding of the service requirements for a Statement of Claim. This includes both serving a claim on an opposing party and being served as a Defendant. In some cases, consideration must be given where service may be deemed sufficient, even in situations where a document is not formally served according to the Alberta Rules of Court, Alta Reg 124/2010 (the “Rules”).

What the Rules say

Rules 3.26-3.28 specifically outline the formal service requirements of a commencement document, setting out very strict requirements for proper service. While service of all types of documents is governed by the Rules (see Part 11, Division 2: Service of Commencement Documents in Alberta for further information), a commencement document has specific and unique requirements. Failure to ensure a Statement of Claim is served within the required time period can be fatal to a claim, no matter how strong it may be. Generally, a claim must be served within one year as stated in the Rule below:

3.26(1) A statement of claim must be served on the defendant within one year after the date that the statement of claim is filed unless the Court, on application filed before the one-year time limit expires, grants an extension of time for service.

How can an extension be granted?

There are certain circumstances in which the Court will permit an extension of time for service to be granted up to a maximum of three months. This time limit is designed to prevent unnecessary litigation delays, balancing “a Plaintiff’s needs with the prevention of undue delay” (Oberg v Foothills Provincial General Hospital, (1999), 232 AR 263). Rule 3.27(1) outlines the circumstances governing an extension:

(a) if a defendant, anyone purporting to be a defendant, or a lawyer or other person purporting to negotiate on behalf of a defendant, has caused the plaintiff or the plaintiff’s lawyer to reasonably believe and to rely on the belief that

(i) the defendant has been served,

(ii) liability is not or will not be contested, or

(iii) a time limit or any time period relating to the action will not be relied on or will be waived;

(b) if an order for substitutional service, an order dispensing with service or an order validating service is set aside;

(c) special or extraordinary circumstances exist resulting solely from the defendant’s conduct or from the conduct of a person who is not a party to the action.

What happens if the claim is not served in time?

Rule 3.28 states that if a Statement of Claim is not served within the time period outlined in 3.26 (one year with a potential additional 3 months), the Plaintiff is unable to take any further proceedings against the Defendant. This means the claim will no longer be active.

There are a number of decided cases that uphold the “strict and mandatory limit on service of a Statement of Claim” (Foster v Robb, 2011 ABQB 776). In Foster, the Court dismissed the Plaintiff’s case for failing to serve in accordance with the Rules. The Court referenced several other cases that upheld the principles developed in the old Rule 11, which have been incorporated into Rules 3.26-3.28. These are the principles referred to in Foster:

·         Failure to serve a Statement of Claim on time leaves the Court with little or no options (Martinez v Hogeweide, 1998 ABCA 34);

·         After a Statement of Claim expires, service is impossible (Hansraj v Ao, 2004 ABCA 223, para 63); and

·         Exceptions to the service requirements in the Rules are rare. In these exceptional circumstances, the onus is on the Plaintiff to show that service should be considered valid (Hiep v Cain, 2004 ABQB 876, paras 25 and 66).

The Court of Appeal in Martinez also rejected the idea that Rule 11 was optional or discretionary, and suggested the Court cannot cure a Plaintiff’s failure to serve through an Order.

If you are a Plaintiff:

If you have filed a Statement of Claim against someone, you will want to confirm it is served properly according to the Rules (Rules Part 11, Division 2). This will ensure the claim remains valid and active, at least as far as service is concerned; if the Defendant contests service and the claim has not been served in accordance with the Rules, Courts can deem service to be invalid. In a recent Alberta Court of Appeal case, Al-Ghamdi v College and Association of Registered Nurses of Alberta, 2020 ABCA 81, the Court ruled that no further proceedings could be taken against Defendants “who were not served in time pursuant to [Rule] 3.28”, which highlights the importance of ensuring service is performed properly. A Plaintiff can prove service through an Affidavit of Service or an Order validating service to safeguard their claim.

Despite the strict requirements of the Rules, the Court has discretion to grant an order deeming service sufficient. There are circumstances in which Courts have considered service to be valid even where a document has not been served in accordance with the Rules. In Clarke v Treadwell, 1997 ABCA 206, the Court of Appeal held that even knowledge of a claim was enough to consider service to be sufficient where the Defendants “had actual and substantial, though perhaps imperfect knowledge of the contents of the Statement of Claim” issued within the limitation period (para 3). In Cloutier Estate v Caterpillar of Canada Ltd., [1997] A.J. No. 1009, the Court of Queen’s Bench referred to Clarke, noting:

The Defendants were aware of the lawsuit during the currency of the Statement of Claim. The Plaintiff was dealing with the Defendants Insurer and the Defendants expected the Insurer to defend the lawsuit, as it was obliged to do.

This shows that in some cases, with sufficient awareness of the existence of a claim and its contents, formal service is not necessarily required for a Court to find that service is valid, and cannot be used as grounds to have a claim dismissed.

If you are a Defendant

The Rules outline strict service requirements as a method of ensuring a Defendant has sufficient notice of a claim against them to properly defend the lawsuit. If a Defendant is unable to defend themselves, a Plaintiff could obtain default judgment after noting the Defendant in default, obtaining an Order which may be unfair. The Court of Queen’s Bench discussed this issue in Ritter v Donell, 2005 ABQB 197, recognizing that defects in service are cured if the Defendant has notice, can respond, and is not prejudiced. If these factors are met, the Defendant cannot obtain an order determining service to be insufficient.

While it may appear that this test is seemingly simple, the Courts have differentiated between no service and defective service. They have recognized that there is a distinction between the two, and cautioned that a Defendant’s mere knowledge about the possible existence of a lawsuit is not enough to consider service to be sufficient (Ranger v Ferreira, 1999 ABQB 625, para 20). In Ranger, the Court of Queen’s Bench also cited Bolingbroke v Bolingbroke, 2001 ABQB 40 at para 12, noting “a Court can deem defective service of a document to be good and sufficient”. This should not be confused with complete lack of service.

Pursuant to Rule 11.31(1), a Defendant may apply to set aside service of a commencement document, but only before filing a Statement of Defence. This is imperative to keep in mind if making an application to set aside service.

Conclusion

It is important to consider all the above factors involving service of a commencement document within the required time period. Today’s litigation world is increasingly complicated and service is one of the most vital factors in safeguarding that a claim will be able to proceed. Retaining effective legal representation to ensure a claim is properly served and defended as required by the Rules and shaped by significant caselaw is always recommended.

With a strong reputation in commercial litigation, McLennan Ross LLP is well-positioned to provide you with exceptional advice and representation. If you have any questions or concerns with respect to a Statement of Claim or any other litigation matter, please do not hesitate to contact Michaela Kocon, Peter Major, Q.C., or any member of our Commercial Litigation Team.


Monday, 14 September 2020

Gaining Access to Experts’ Foundational Materials

By Lydia Roseman

Background

The disclosure of expert reports and their supporting data is a widely litigated area.

The jurisprudence in all Canadian jurisdictions is fairly consistent that a party is entitled to the foundational or underlying material of an opposing party’s expert report at some point. As stated by the Supreme Court, “the opposing party must be given access to the foundation of [expert] opinions to test them adequately”.[1] This disclosure requirement applies even to factual underpinnings that the expert had in its possession but did not actually use in creating its ultimate report.[2]

The dividing issue when it comes to the factual underpinnings of expert reports is when they must be produced. Some courts and jurisdictions consider production required when an expert report is served, for others it is only when the report is entered at trial or the expert is called to testify.

The Rule

Recent Alberta jurisprudence generally only requires production of underlying materials to expert reports once the report has been entered at trial or the expert has been called to testify.

This is a departure from previous case law and from the jurisprudence in most other jurisdictions.[3] Older Alberta jurisprudence under the previous Alberta Rules of Court generally held that once an expert report is served, privilege is waived and the opposing parties are entitled to the underlying materials.

Under the previous rule, Rule 218.1, the party was required to serve a copy of the expert report including “the substance of his opinion”. In a 1985 decision, the Alberta Court of Queen’s Bench concluded that the substance of the opinion includes not only the opinion but the factual information upon which that opinion is based.[4]

The Alberta Court of Queen’s Bench eventually diverged from this opinion in 2005 in Chernetz v Eagle Copters Ltd,[5] preferring upholding privilege over trial efficiency. The Court held that privilege is not waived over the underlying materials until the expert report is entered, or the expert is called, at trial. This also means that if the expert report is not ultimately used at trial, privilege over the foundational materials is never waived.

Despite a 2008 Alberta Court of Appeal[6] decision emphasizing the importance of early production of the information underlying expert reports, new Alberta cases since the introduction of the 2010 Alberta Rules of Court have generally followed the Chernetz line of reasoning, holding that privilege is not waived over the underlying materials until the report is entered or the expert is called at trial.

For example, in Grammer v Langpap,[7] Master Smart dealt with an application for the production of underlying documents to an expert report that was voluntarily disclosed to them by the plaintiff.

In conclusion, Master Smart said:

“Despite the laudable objectives of the foundational rules when noting the limited ability to question experts before trial under the rules and absent clear language in the rules altering litigation privilege historically afforded to litigants, I'm not prepared to order the production of the experts underlying documents in these circumstances”.[8]

Master Smart applied Chernetz and found that litigation privilege continued to exist for those documents not compelled to be disclosed until trial. Privilege therefore continues to win the day over trial efficiency in Alberta jurisprudence.

The Way Around

There is however a “go-around” in the form of Rule 5.37 for the questioning of experts before trial.

Rule 5.37 allows a party to question an opposing party’s witness prior to trial by agreement or in “exceptional circumstances”. Where a successful application is brought, the party can question the opposing expert on their report and all underlying materials, which are required to be disclosed at that time.

This “exceptional circumstances” test has been applied in applications seeking the production of the foundational materials to an expert report, independent of an application to question the expert.[9] This potentially allows a party to gain access to the foundational materials well in advance of trial. The difficulty is that the court will only grant such an application in “exceptional circumstances”; however, one case shows that efficiency considerations can be enough to satisfy this requirement.

In M (BJ) v M (SL),[10] the Court dealt with an application under Rule 5.37 for questioning an expert before trial. The Court found that exceptional circumstances existed because this was a particularly complicated family matter and the pre-trial questioning “may well result in a reduction in the time and complexity of the forthcoming trial”.[11] The judge also thought that the questioning might reduce the number of experts or even lead to settlement.

The Court found that granting the application “with a view to achieving some or all of these results is consonant with the foundational rules set forth in the Rules”.[12] The Court therefore allowed the questioning of the expert approximately three months before trial, including requiring that the opposing party produce the documents reviewed in preparing the report.

Of note, Rule 8.4(3) of the Alberta Rules requires that parties requesting a trial date certify that expert reports have been exchanged and that the questioning of experts is complete. There is, therefore, a general expectation that a Rule 5.37 application will be brought early in the litigation process, before the matter is set for trial.

Takeaway

If you are involved in litigation involving experts, you will be entitled to the foundational material of any opposing party’s expert report so that you and your expert(s) can adequately test the validity of that report. Under recent Alberta jurisprudence, this entitlement does not arise until the expert report is entered at trial or the expert is called to testify. This leaves little time for testing.

One potential route to earlier production of these factual underpinnings is through Rule 5.37. Where “exceptional circumstances” exist, the Court may order the production of the underlying materials earlier in the litigation process. While “exceptional” on its face is a difficult bar to meet, the Court has previously granted such an order based entirely on efficiency considerations as codified in the Alberta Rules of Court. Gaining early access to these materials may be very helpful to your case, whether for settlement discussions or informing your own expert’s report

Our Commercial Litigation group would be happy to help you with questions regarding expert reports or any other aspect of the litigation process.



[1] R v Stone, [1999] 2 SCR 290 at para 99.

[2] Lamont Health Care Centre v Delnor Construction Ltd, 2002 ABQB 1125.

[3] For example, in Ontario the foundational materials must be produced when an expert report is served in accordance with Rule 53.03, in other words at a minimum of 90 days before a pre-trial conference: Moore v Getahun, 2015 ONCA 55; Galea v Best Water Limited, 2019 ONSC 7213.

[4] Commonwealth Construction Co v Syncrude Canada Ltd (1985), 64 AR 132 at para 22 (QB).

[5] 2005 ABQB 712 [Chernetz].

[6] Deloitte & Touche LLP v Institute of Chartered Accountants of Alberta, 2008 ABCA 162.

[7] 2014 ABQB 74 [Grammer].

[8] Ibid at para 10.

[9] See e.g., Grammer, ibid.

[11] Ibid at para 29.

[12] Ibid.

Thursday, 6 August 2020

“Waiver of Tort”: Confusing, Inconsistent, and (now) Abandoned

By Eric Appelt

Last week, the Supreme Court of Canada issued its decision in Atlantic Lottery Corp. Inc. v Babstock, 2020 SCC 19 (“Atlantic Lottery”).  The Court considered – and ultimately rejected – a doctrine known as the “waiver of tort”, and in doing so closed the chapter on an inconsistent line of recent Canadian jurisprudence.

In Atlantic Lottery, two individuals applied for certification of a class action against the Atlantic Lottery Corporation Inc. (the “ALC”).  The ALC is responsible for overseeing the operation of video lottery terminal games (“VLTs”) in Newfoundland and Labrador.  The class action was pursued on the basis that VLTs administered by the ALC were inherently dangerous and deceptive, and that players should have been warned of addiction, suicidal ideation, and other risks allegedly associated with VLTs.

A general, underlying principle of tort law is that a plaintiff must establish actual loss in order for compensation to follow. The individuals in Atlantic Lottery, however, sought compensation based in part on the doctrine of waiver of tort.  Waiver of tort provides a plaintiff with the option of waiving traditional tort compensation (measured by the plaintiff’s loss) in favour of compensation through “disgorgement” (measured by the defendant’s gain).  In this sense, the plaintiffs in Atlantic Lottery did not allege having suffered actual damages, but instead sought a gain-based award of damages, quantified by the profit earned by the ALC through licensing VLTs.  These profits were claimed to be in the range of $60-90 million annually.

In response, the ALC applied to strike the plaintiffs’ Statement of Claim for disclosing no reasonable cause of action.  The ALC contended that, even when assuming the facts pleaded to be true, it was plain and obvious that the plaintiffs’ action had no reasonable prospect of success.  While some Canadian courts had chosen to recognize waiver of tort as an accepted cause of action, others had shown reluctance. 

In a narrow majority, the Court allowed the ALC’s appeal and struck the plaintiffs’ Statement of Claim in its entirety.  In doing so, the Court held that “waiver of tort has become a hollow and internally inconsistent doctrine, leaving judges and litigants confused…”.

The Court went on to conclude that the phrase “waiver of tort” should be abandoned.  It was also confirmed that the concept underlying the notion of waiver of tort – disgorgement of a defendant’s ill-gotten gains, irrespective of whether the plaintiff suffered harm – continues to exist in Canadian law as a remedy for certain types of misconduct, but not as an independent cause of action.  Granting disgorgement without proof of liability, the Court held, was akin to allowing “the remedy tail [to] wag the liability dog”.

In addition to waiver of tort, the plaintiffs in Atlantic Lottery made two alternative claims.  First, the plaintiffs advanced the somewhat creative argument that a contract was formed by the ALC’s offer of VLTs to the public, and the plaintiffs’ acceptance by paying to play.  However, disgorgement for breach of contract is only available where other remedies are proven to be inadequate, such as where the plaintiff’s loss is impossible to calculate, or where their interest is not purely economic.  Those circumstances were not present in this case. 

The Court also rejected the second alternative claim of the plaintiffs, being that the ALC had been unjustly enriched.  The Court found that the claim of unjust enrichment failed on the basis that any such enrichment was justified by the “contract” alleged by the plaintiffs.

Prior to Atlantic Lottery, Canadian courts had approached the doctrine of waiver of tort in a confusing and often contradictory manner.  The Supreme Court’s decision provides both clarity and finality in this respect.

The majority’s rejection of waiver of tort as an independent cause of action is not entirely unexpected.  To rule otherwise would have both (a) opened the door to a potential super-compensatory regime in which “windfalls” to plaintiffs were more common, and (b) violated the foundational principle underlying tort law that a plaintiff must establish actual loss in order for compensation to follow.  

While it remains the law that a defendant should not be able to profit from its own misconduct, disgorgement of ill-gotten gains in the hands of a defendant will still be granted where some other cause of action is established.

McLennan Ross LLP has years of experience and a strong reputation in a variety of practice areas, including commercial and class action litigation.  If you or your company have questions regarding waiver of tort, disgorgement of profits, or any other litigation-related issue, please do not hesitate to contact DonMcGarvey, Q.C. or Eric Appelt in the commercial litigation practice group.

Thursday, 23 July 2020

Informal Settlement Offers can have Significant Costs Implications



The Alberta Court of Queen’s Bench recently provided important direction regarding the cost implications of informal settlement offers. In ILI’s Painting Services Ltd. v. Homes by Bellia Inc., the plaintiff provided paintwork for two large homes which the defendant was building. The defendant never paid for the work, and the plaintiff filed a lien on each property. In turn, the defendant argued it incurred remedial costs to repair deficiencies in the plaintiff’s work. The plaintiff made settlement offers of $50,000, which the defendant refused. The parties engaged in lengthy litigation culminating in extensive written submissions and a trial lasting three and a half days. At trial, the court found the defendant’s testimony regarding deficiencies was “wholly unreliable.” The court therefore found in the plaintiff’s favour and awarded it $58,652, exclusive of costs and interest.

After these proceedings had concluded, the parties brought costs submissions before the court. The plaintiff sought double costs from the date on which it made its offer, whereas the defendant argued enhanced costs were inappropriate. 

The court emphasized that costs are highly discretionary, and that as a guiding rule, the successful party is entitled to its costs. Rule 4.29 of the Rules of Court states a party who makes a formal offer and then receives more than that offer at trial is entitled to double costs. However, in this particular case, the offers were informal.

With that in mind, the court turned to analyzing when an informal or “Calderbank” offer merits enhanced costs. The defendant argued the plaintiff’s offers did not contain the “old formal offer type language” which would trigger enhanced costs. The court noted the offers were marked “without prejudice” and contained no reference to using the offers for obtaining costs after trial. 

However, the court found Alberta no longer requires such formality around informal offers. While doubled costs are not presumed, the court retains its wide discretion over costs. The court emphasized that costs rules are necessary to encourage reasonable settlement. Citing earlier authority, the court found informal offers should enhance costs awards where:
a)     The offer was a reasonable, genuine compromise;
b)    It gave a cost advantage if accepted;
c)     Adequate time for consideration was provided;
d)    The offer was unreasonably rejected; and
e)     The party making the offer fared better than if the offer was accepted. 

In this case, the settlement offer met all these criteria. The offer, though not significantly higher than the “bare quantum of the plaintiff’s claim, [was made] in the context of a strong case.” The plaintiff had also significantly bested this offer at trial when costs and interest were added to its award.
Having deemed enhanced costs appropriate in the circumstances, the court ultimately awarded double costs—though it noted there is no presumption of double costs in cases involving informal offers. In this case, the size and scope of the trial, as well as the amount of litigation involved, were out of proportion to the money at issue. The court emphasized that this created a risk of failure of access to justice, as the plaintiff may have decided to abandon its strong claim due to the costs involved. Furthermore, the defendant’s behaviour “increase[d] the duration and expense of litigation.” The defendant also gave contradictory evidence amounting to litigation misconduct—this in and of itself would have allowed an independent costs sanction. 

Takeaways:

This case highlights the danger of disregarding informal settlement offers. In this case, aside from costs and interest, the amount the plaintiff received was only $8,000 more than their settlement offer. However, factoring in the defendant’s conduct and the reasonableness of the offer, the court still exercised its discretion and awarded double costs. Lawyers should therefore be mindful that refusing an informal settlement offer could mean suffering significant costs consequences. 

McLennan Ross has a strong reputation in commercial litigation and is well-positioned to provide you with exceptional advice and representation. If you have any questions or concerns with respect to a contractual dispute or any other litigation matter, please do not hesitate to contact any member of our Commercial Litigation Team.

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 goo...