Daniel practices in all areas of civil litigation, with a focus on professional liability, construction law, product liability, coverage, and fidelity insurance.

Prior to joining FCL LLP, Daniel practiced at boutique firm specializing in insurance defence litigation, where he acted for clients in a diverse range of matters involving motor vehicle accident, construction, occupiers’ liability, commercial general liability, product liability, and property damage claims. He has appeared before the Ontario Superior Court of Justice, where he has experience with contested motions, Small Claims Court trials, and assisting senior counsel with jury trials.

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Consumer v. Business Protection – Public Policy Debates in the COVID-19 Era

The Government of Ontario has recently alluded to proposals of joining other jurisdictions that have enacted legislation that shields businesses against lawsuits related to COVID-19. While details are still underway, these novel measures will likely be subject to scrutiny for on the one hand, protecting businesses who were tasked with dealing with unchartered circumstances, and on the other hand, insulating businesses who should be held accountable for its negligence or poor practice during and beyond this pandemic.

Many provinces and states have implemented executive orders granting various grades of immunity to health care practitioners and facilities. In British Columbia for example, a Ministerial Order came into force in April, that precludes law suits or any damages therein arising out of infection or exposure to the pandemic while providing essential services. The only caveats to trigger these protections are: a) the business must have been complying with the provincial public health guidelines and, b) the business was not grossly negligent. Given the wide range of sectors that are qualified as “essential services”, this new policy is far-reaching. Similar legislation was passed in Oklahoma, Utah, North Carolina and Wyoming; and other states and provinces are projected to follow.

These policies have contentious implications on the community at large . Many fatalities over the last few months for instance, are attributed to negligence within the elder care regime, and can be connected to long term care homes. These facilities are already the subject of several class action law suits. Those in favour of these policies suggest that these measures are imperative for businesses to remain operable, qualify for insurance coverage, and sustain its practice. However, advocates against these immunities argue that such protections will only allow businesses to circumvent liability for poor business practices. The Government will be tasked with balancing these compelling narratives to create a regime that bolsters the economy while protecting its citizens.

As the debate between good public policy and sound economic decisions ensue, the next few weeks will be determinative in Ontario with respect to the precedent it seeks to set. The legal community awaits further guidance on the scope and breadth of such legislation to properly assess its implications on businesses and its consumers.

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You Snooze You Lose: Court Declines to Stay Proceeding Despite Existence of Arbitration Clause

In the recent decision Paulpillai v. Yusuf, 2020 ONSC, the Superior Court of Justice refused to stay litigation in favour of arbitration, because the Respondent delayed in seeking the stay.

In this case, the Applicant and Respondent signed a partnership agreement which contained an arrangement to arbitrate any disputes. The Applicant passed away, and contentions arose between the Respondent and the Applicant’s estate. The parties attempted to divide the partnership enterprise, and the Applicant’s estate commenced a court application. For the next seven months, the parties made court appearances for several interlocutory motions. At the hearing itself, the Respondent wished to rely on the arbitration agreement to seek a stay of proceedings. The court declined to grant this stay.

The court held that it had jurisdiction to hear the application because the Respondent took steps in moving matters forward, and neglected to bring a motion to stay the application in advance of the hearing. The court relied on the provision of the Arbitration Act, 1991, which allows courts to stay a proceeding if an arbitration agreement exists, but on motion of the other party. The exception to this rule is that such motion must be brought without undue delay.

In this case, though the Respondent indicated in his affidavit evidence that this matter should proceed by way of an arbitration, he failed to bring a motion, or do so in a timely manner. Once the Respondent took steps in advancing the proceeding, he abandoned his right to have the matter be determined by an arbitration.

This decision serves as a cautionary tale for parties wising to continue by way of arbitration when a proceeding has already commenced. In such cases, counsel should bring a motion to stay the matter immediately at the commencement of the proceeding. A party is deemed to acquiesce to the proceeding if they take actions to move the litigation along. This can result in the party forfeiting their right to have the action or application stayed at a later time.

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All Canadian workplaces are obligated under Canadian Privacy Laws to secure the use, collection, retention, disclosure or disposal of sensitive data. In the legal world, this obligation is doubly compounded by our professional duty to protect the confidentiality of our clients. Law firms therefore, invest in all precautions necessary to secure against risks of unauthorized use of data. This often translates into strict technical and organizational measures to insulate against privacy breaches in practice.

With the rapid spread of COVID-19, the world has witnessed an extraordinary turn of events that could not have been anticipated. To keep operational, law firms have had to promptly adapt to a remote workplace model where employees are working from home. However, given the speed at which this arrangement was implemented, many organizations may not have had systems in place to insulate against the security risks that may arise.

Many employees working from home share equipment and spaces with other family members. Such settings can present situations of unattended documents and notes with sensitive information recorded. Additionally, electronic information may be accessed on devices that are not exclusively for the use of the authorized person. The device itself, may not be equipped with passwords and technical guards that are offered at an office. Employees are now presented with the challenge of discharging the same duties to secure confidential material, but without the infrastructure in place to do so. Therefore, the current climate of mass disruption, has made organizations particularly susceptible to privacy breaches or cyber attacks.

It is important for organizations to take immediate steps to ensure the protection of sensitive information. These steps include:

Updating and implementing security measures

• Employers need to update their privacy policies and procedures to reflect the current needs, issues, and solutions surrounding a remote workplace;
• Employers need to consider the risks of cyber attacks and have measures in place to respond to any security breaches;
• Employers need to invest in revamping their IT infrastructure to ensure employees have access to a secure remote platform. These measures may include providing a protected VPN connection to employees which encrypts confidential communication;
• Employers should utilize access-based security features such as a multi-factor authentication protocol to protect their employees’ accounts; and,
• Employers should closely monitor network-related activities to flag security breaches.

Training employees

• Employee training should focus on how to manage security risks from home. Some of these measures include the use of a secure location such a locked cabinet to limit the exposure of confidential information to family members;
• Employees should password protect all devices, and access confidential documents through a centralized and secured device; and,
• Employees should use electronic platforms enabled by the organization so they are connecting to the workplace network through a secure VPN connection that is protected by firewalls and antivirus software.

It is imperative to maintain the integrity of this profession by ensuring that the duty of confidentiality owed to our clients is not compromised under any circumstance. It is incumbent on the prudent organization and employee to jointly make best efforts to conduct our business as securely as possible.

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In the Absence of Force Majeure Clauses, Frustration Pays Off

Last week we examined force majeure clauses within contracts that may relieve a party’s contractual obligations during unforeseen emergencies, often referred to as “Acts of God”. In this article, we will discuss what happens when a force majeure clause is not expressly provided in the contract.

Canadian courts have not implied a force majeure provision in the absence of one, despite the occurrence of a force majeure event. In such circumstances, the doctrine of frustration also known as the doctrine of discharge, may be relied upon to vacate a contract altogether. This equitable remedy accounts for unforeseen events which have irreparably altered the basis of the contract. The doctrine of frustration can be applied broadly to all types of contracts including commercial or employment disputes. The standard to prove frustration is higher than force majeure, and the implications are also different: a force majeure clause will freeze the contractual obligation as it relates to the unforeseen event, whereas, a finding of frustration will effectively end the contract.

Doctrine of Frustration

The Supreme Court of Canada in Naylor Group Inc. v Ellis-Don Construction Ltd., 2001 SCC 58, describes the appropriate use of frustration where: “a situation has arisen for which the parties made no provision in the contract and the performance of the contract becomes ‘a thing radically different from that which was undertaken by the contract.’”

To establish frustration, the relying party must prove that an unforeseen event has radically changed or interrupted the performance of the agreement, making it impossible, or impractical to execute the contract as originally intended. The new event must have been beyond the reasonable contemplation of the parties when they were contracting, and therefore it would be unjust to hold the parties to the agreement under these altered circumstances.

Considerations when applying the doctrine of frustration

• Is there a Force Majeure clause in the contract?
  The doctrine of frustration operates as a last resort, only to be utilized in the absence of a force majeure clause. In other words, parties cannot double dip to rely on both a force majeure clause and the doctrine of frustration, it must be one or the other.

• Was there a supervening event that occurred?
  The event must not have been foreseeable or within the contemplation of either party when the contract was executed. There may also be cases where the non-performance of an integral party to the contract, frustrates the entirety of the agreement.
• Did the event cause a radically different performance of the contract?
  The event must have rendered the performance of the contract substantially different than what the parties initially anticipated. Courts will consider events: that have rendered the performance of the contract impossible; where performance is possible but the purpose of the contract has been undermined; or, where the temporary impossibility has frustrated the contract itself. The courts have established a threshold of a minimum level of radical difference, for example, a task that has simply become more onerous or expensive since it was originally contemplated will not activate the doctrine of frustration.

Successfully establishing frustration terminates the contract from the date of the supervening event. Additionally, Ontario’s Frustrated Contracts Act, R.S.O. 1990, c. F.34 provides for other recourses such as the recovery of past benefits conferred after a contract has been frustrated. The doctrine of frustration is particularly topical in these days of uncertainty when clients are confronting situations that were beyond their contemplation when finalizing their contracts. At this time, it is incumbent on lawyers to be well versed in these contractual defences so damages are well mitigated.

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Contracts in the Time of COVID-19: Relying on Force Majeure Clauses

In response to the global pandemic of COVID-19, on March 17, 2020, Premier Doug Ford declared a state of emergency in Ontario, effectively banning people from most public spaces and outlawing events of over 50 people. The Federal Government also advised civilians to take extreme precautions by isolating themselves. As the world hinges on the rapidly changing news and national directives, we see a broad sweep of closures across many businesses. The unprecedented impact of this health crisis has permeated throughout almost every industry, leaving clients and lawyers to navigate unfamiliar territories. Clients now want to know how to protect themselves from contractual obligations that they or their vendors are unable to fulfill.

Force Majeure clauses

The principle of Force Majeure, also referred to as “acts of God”, may provide protection for extraordinary or unforeseen circumstances such as COVID-19. The Supreme Court of Canada defines this as follows:

An act of God clause or force majeure clause … generally operates to discharge a contracting party when a supervening, sometimes supernatural, event, beyond control of either party, makes performance impossible. The common thread is that of the unexpected, something beyond reasonable human foresight and skill, Atlantic Paper Stock Ltd. v. St. Anne-Nackawic Pulp & Paper Co., 1 S.C.R. 580 at para. 4 [Atlantic Paper].

Parties wishing to rely on this clause have the burden of establishing that the Force Majeure event has prevented the fulfillment of the contract. However, to rely on this provision, the contract must of course, contain the clause. Even then, that is only the start of the inquiry.

Considerations when evoking the Force Majeure provision

• Is the clause explicit enough to encompass events like COVID-19?
  Absent words such as “pandemic”, “health emergency”, “disease” and “national emergency” stated within the clause, courts may refuse to classify COVID-19 as a Force Majeure event. It is important to draft such clauses comprehensively.
• Did COVID-19 really cause the non-performance of the contract?
  The party relying on this clause must prove the event was one beyond their control. At this stage of the inquiry, in Atlantic Paper the court asked the following questions:
  1. Was the contract incomplete because of an unexpected event occurring after the date the contract was signed?
  2. Was the change so radical as to strike at the root of the contract?
  3. Were there alternative avenues available to complete the contract?

• What lead up to the need to evoke a Force Majeure clause?
  The courts may assess whether the Force Majeure event predated the contract, or if the clause was relied upon as a scapegoat for other negligence or unsound business decision. If the client contributed to the failure to perform the contract, the use of this clause may be jeopardized. A court may ask:
  1. Was the event foreseeable?
  2. Was performance impossible?

• What steps to mitigate the damage were taken?

Some contracts require a minimum level of effort to mitigate the damage before being able to rely on this clause. The duty to mitigate has a standard of commercial reasonableness.

If a court finds that the Force Majeure is valid, each party may be excused from their contractual obligations, or be entitled to a relief contemplated by the contract itself.

Many legal professionals disregard the importance of this clause because of its infrequent use. However, this epidemic serves as reminder that it is a lawyer’s duty to anticipate the unexpected and protect their client against it. A well-crafted contract should include an explicit Force Majeure clause, broad enough to encompass all unforeseen events; and in addition, contain the specific relief sought, should it occur. Think worst case scenario, and work backwards to the contract!

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The new prompt payment and adjudication provisions contained in the Ontario Construction Act, come into force on October 1, 2019.

The legislation follows recommendations from a 2018 report, Building Better Framework for Prompt Payment and Adjudication in Canada (the “Report”), prepared for Public Services and Procurement Canada by the authors of the Ontario Expert Review of the Construction Lien Act.

The prompt payment and adjudication model piloted by Ontario is now ushering a new era in the construction industry across Canada.

Here is a snapshot of how the rest of the country has responded:

Canada: Bill C-97, the Budget Implementation Act received Royal Assent on June 21, 2019. Division 26 of the Act enacts the Federal Prompt Payment for Construction Work Act, which also follows recommendations from the Report.

British Columbia: Bill M223, the Prompt Payment (Builders Lien) Act was introduced in May, 2019. This legislation does not contain an adjudication model.

Saskatchewan: Bill 152, The Builders’ Lien (Prompt Payment) Amendment Act, 2018, appears to be modelled on the Ontario Act, and went through its third reading in May, 2019.

Manitoba: The Manitoba Law Reform Commission published The Builders’ Liens Act: A Modernized Approach. The Commission supports the Ontario model and further recommends that these changes should be incorporated within the Builders’ Liens Act, so it is not a standalone statute.

Québec: The Act to Facilitate Oversight of Public Bodies’ Contracts implemented preliminary projects for prompt payment and adjudication for certain government contracts. This regime has yet to be extended to the private sector.

New Brunswick: The Legislative Services Branch of the New Brunswick Office of the Attorney General intends to adopt the Ontario model for prompt payment and adjudication.

Nova Scotia: Bill 119 introduced a prompt payment and adjudication regime, which has received Royal Assent, but has not yet been proclaimed.

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In Greater Vancouver, Wastech Services Ltd. (Wastech), had a long-standing arrangement to dispose of waste on behalf of Greater Vancouver Sewerage and Drainage District (Metro). Metro relocated waste disposal locations, which was in accordance with the agreement. Wastech’s operating costs greatly increased as a result. Did Metro breach its duty of good faith in carrying out the terms of the agreement? The BCCA held that no such duty was breached by Metro. The BCCA supported the reasoning of the lower court, that the decision in Bhasin did not create a freestanding obligation on one party to consider the interests of their counterparty. What will the SCC say?

We can expect the SCC to address the following questions:

• If a party executes their contractual obligations in an honest and reasonable manner, but their conduct undermines the interests of their counterparty, did they nonetheless breach their duty of good faith?
• Must a contravention to the duty of good faith have at least a subjective element of improper motive or dishonesty, or is merely a negative impact on the counterparty sufficient?
• Are implied terms in a contract, also subject to the duty of good faith?
• Does the duty of good faith encompass conduct that must show appropriate regard for legitimate expectations of the contracting parties?
• Must parties’ legitimate expectation arise out of express terms in the contract?
• Does Bhasin stand as authority for the premise that contracts should be adjusted to accommodate situations where parties regret the contract in hindsight?

The highly anticipated decision in this case will be instructive of the scope of the duty of good faith.

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