In a unanimous ruling, ONCA has overturned its prior decision in Handley Estate v. DTE Industries Ltd. (“Handley”) and reshaped the law governing the disclosure of partial settlement agreements in multiparty litigation.

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Nicole first joined the firm in 2011 as an articling student.  She has developed a specialized legal practice defending professionals in various legal and regulatory arenas.

As a Partner, Nicole continues her commitment to providing exceptional and creative legal services to FCL LLP clients in the areas of employment law, directors and officers liability, and professional liability law.

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Defamation Action Commenced in Bad Faith Results in Full Indemnity Costs Award

by Marie Boisvert

In Canadian Thermo Windows Inc. v. Seangio, 2021 ONSC 6555, the plaintiffs, a window company and its principal was ordered to pay costs of $164,186 to former customers who posted negative reviews of the quality of the products received and their experience with the company. The plaintiffs sued for defamation claiming that the reviews incorrectly represented their products and customer service practices. The defendants sought for the dismissal of the action in reliance of the anti-SLAPP provisions under section 137.1 of the Court of Justice Act (“the Act”). The night prior to this motion, the plaintiffs filed a notice of discontinuance.

The first issue before the court was then whether the plaintiffs were procedurally permitted to discontinue the action in light of the anti-SLAPP motion. The plaintiffs argued that the defendants, contrary to the requirements under section 137.1 of the Act, could not seek costs on full indemnity basis as they failed to book a motion date prior to serving their notice of motion. As such, the motion was never “made”. If an anti-SLAPP motion is deemed to be “made”, a stay is granted until the motion is disposed of, and the parties are barred from taking any further steps in the proceeding.

The court determined that such a motion “must be considered “made” when the moving defendant has done all that it can do unilaterally to deliver the formal documents to commence the process under the Rules and any applicable Practice Direction”. The motion brought by the defendants in response to the defamation suit was made when the defendant delivered a Requisition to Attend Civil Practice Court, meaning that the notice of discontinuance previously filed by the plaintiffs was deemed ineffective.

Relying on the framework offered by the decision of the Supreme Court in 1704604 Ontario Ltd. v. Pointes Protection Association, 2020 SCC 22, the court turned to the merits of the anti-SLAPP motion. A defendant holds the burden of proof to demonstrate that the expressions are a matter of public interest. The criticisms made were not considered personal attacks, as alleged by the plaintiffs. Rather, they were determined to be matters to which “a segment of the community would have a genuine interest in receiving information” about. Of note, Justice Myers points out that in addition to comments on the quality of the products of a said business, the “behaviour of the manager and owner during a meeting to deal with a customer’s complaint is a proper part of a review of the business’s customer service”.

If the burden is met by the defendants, the claim will be dismissed unless the plaintiffs can show that there are “grounds to believe” that the claim has “substantial merit”, and the defendants have “no valid defence in the proceeding”. The real issue was whether the defendants had a valid defence as to the truth of the statements made. Due to the lack of expert evidence and cross-examinations conducted, it could not be ruled out that the content of the reviews was true. The court also briefly touched on “the harm suffered by the plaintiffs [as] against the public interest in the defendants’ expression”. The plaintiffs were not able to demonstrate that their alleged loss in revenue was the direct cause of these reviews.

The action was dismissed as against the defendants and the court upheld the presumption that they were entitled to costs on a full indemnity basis totaling $164,186. In other words, the defendants were awarded the total extent of their legal costs for the litigation. Additionally, the defendants benefited from an award in damages of $2,500. Justice Fred Myers was clear that the action was brought in an obvious attempt to bully the defendants to remove their reviews. The court noted that this case was exactly the type of action the anti-SLAPP legislation aimed to prevent.

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On July 29, 2021, the Supreme Court of Canada clarified the common law discoverability rule and the applicable standard to determine when a plaintiff has the requisite knowledge to discover a claim. The Court of Appeal of New Brunswick had previously left the state of the law rather unstable when broadening the limitation period for a negligence action. This previous decision had significantly increased the length of time permitted for a plaintiff to discover a negligence claim by extending the discoverability of a claim as far as requiring the delivery of an expert report indicating negligence. The court strongly disagreed with the standard instilled by the Court of Appeal and reinstated the decision emitted at first instance by the motion judge that the claim was statute-barred. The Supreme Court expressed that “a plausible inference of liability was sufficient” to meet the standard. Importantly, it also noted that the common law discoverability rule can be expressly ousted from the legislation. In this case, it was not excluded and in fact, clearly embedded within the legislative framework and was to serve as an interpretative tool.

New-Brunswick company, Atcon Group, upon applying for loans, required guarantees from the Province of New Brunswick. The Province agreed to the issuance of guarantees solely based on the condition that the company’s assets be reviewed by an independent auditing firm, Grant Thornton LLP. Grant Thornton confirmed that the company’s books were representative of their current financial circumstances and the Province thereafter issued $50 million in loan guarantees. Shortly after, Atcon Group ran out of working capital and defaulted on the loans issued by the Bank of Nova Scotia. The Province subsequently retained an additional auditing firm, RSM Ritcher Inc., to assess Atcon Group’s financial position. This latter report indicated that the assessment completed by Grant Thornton LLP was erroneous and the financial statements as prepared by the Atcon Group overstated their assets and was inconsistent with the Generally Accepted Principles of Accounting. The Province of New Brunswick, a year and a half later, commenced an action against Grant Thornton LLP alleging negligence. Denying the allegations, Grant Thornton LLP moved for summary judgement claiming that the action exceeded the limitation period as permitted under s.5(1)(a) of the Limitation of Actions Act. The trial judge had determined that the action was not commenced within the permitted 2-year timeframe and that the Province ought to have known that they had a potential cause of action prior to the deliverance of the subsequent report. The decision was appealed by the Province of New Brunswick and surprisingly, the Court of Appeal widely expanded the standard by articulating that the two-year limitation was to start when the plaintiff discovered, they, in fact, had a claim rather than the plausibility of one. In the case of a negligence claim, the Court of Appeal took a surprising direction, inconsistent with the previous application of the discoverability rule. It had established that the limitation period would start when the plaintiff would have knowledge or ought to know that the “defendant was under a relevant duty of care and its loss-causing act or omission fell below the applicable standard of care”.

The Supreme Court opined that the NBCA erred in their analysis and raised the discoverability rule to a far too high standard approaching certainty and potentially resulting in the “indefinite postponement of the limitation period”. Justice Moldaver illustrates that a claim is discovered when the plaintiff “has knowledge, actual or constructive, of the material facts upon which a plausible inference of liability on the defendant’s part can be drawn”. In his words, “in order to properly set the standard, two distinct inquiries are required”. Firstly, it must be determined whether “the state of the plaintiff’s knowledge is to be assessed in the same manner as the common law rule of discoverability”. In other words, is the common law rule excluded from the legislative framework? If not ousted, the “rule is triggered when the plaintiff discovers or ought to have discovered the material facts upon which the claim is based”. The latter part of the analysis moves on to considering the degree of knowledge required to lead to the discovery of the claim. The plaintiff should know or should reasonably expect that the claim exists. The Supreme Court notes that the requisite standard is “not certainty of liability or perfect knowledge” as the Court of Appeal had proposed, rather, the “plausible inference of liability is sufficient”.

In all, the recognition that the standard for discoverability was set too high was rather welcomed by defence counsel. Unless expressly incorporated within the legislative framework, an expert report which specifically indicates the occurrence of negligence is not required to trigger the clock for the limitation period for a negligence action.

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Solicitor-client privilege is the cornerstone of our legal system. It can only be set aside in the rarest of circumstances. As a rule, solicitor-client privilege remains as close to absolute as possible. The exceptions are few. Recently, on appeal of a motion, the Ontario Divisional Court reviewed one such exception to the rule, the crime/fraud exception in Industrial Alliance Securities Inc. v Kunicyn, 2020 ONSC 3393.

BACKGROUND

The Respondent, Industrial Alliance Securities Inc., brought an action against the Appellant, Ms. Kunicyn, for the repayment of the remainder of a forgivable loan. In response, the Appellant counterclaimed that the remainder was compensation for the losses she incurred due to the termination of her agreement with Industrial Alliance. Additionally, the Appellant claimed for damages for breach of contract, breach of duty of good faith and malicious prosecution.

The Appellant pleaded that the Respondent procured her prosecution by the regulatory body, Investment Industry Regulatory Organization of Canada (“IIROC”). The Respondent allegedly facilitated her prosecution by providing false evidence in the form of a correction email. The email correction stated that the Respondent was, in fact, unaware of the appellant’s office sharing arrangement with a permanently barred investment representative until the IIROC investigation. The correction stems from the Vice President of the Respondent’s, Industrial Alliance, previous statements to IIROC claiming that the Respondent had long known of the appellant’s office sharing arrangement.

The President of the Respondent was examined for discovery regarding the circumstances of the correction email. However, the questions and requests for further productions pertaining to the correction email were refused on the basis of solicitor-client privilege.

Subsequently, the former Vice President of the Respondent, was examined and testified to being coerced into changing his IIROC testimony by the President. He stated that contents of the correction email were false and that the Respondent had known of the appellant’s office-sharing arrangement prior to entering into a business agreement with her.

THE MOTION

The Appellant brought a motion for an order to compel the questions regarding the correction emails to be answered and for the productions to be made. There was no issue that the information sought was privileged, rather it was whether the crime/fraud exception applied. However, the motion judge found the Appellant had not met the threshold for applying the fraud/crime exception.

The Appellant appealed the motion judge’s decision on two bases:

• the motion judge erred in requiring proof of a crime in applying the test for the exception;
• the motion judge erred in applying too high a standard of proof to the exception.

ON APPEAL

The fraud/crime exception, as per the Supreme Court of Canada in Descôteaux et al. v. Mierzwinski, [1982], is solicitor-client communication made for the purpose of committing a crime or the communication itself is a material element of the crime.

The Divisional Court found that the motion judge judiciously did not weigh in on the debate on whether the fraud/crime exception should be extended to include civil wrongs such as the tort of malicious prosecution. Instead, the motion judge turned to whether, if the exception could be extended, had the Appellant made out a prima facie case that the exception should apply?

The Court reviewed the alleged wrongdoing at issue in the Appellant’s counterclaim, malicious prosecution. The appellate judges found that there was no evidence to support the claim that it was impossible for IIROC to exercise independent discretion regarding her prosecution. Moreover, they found no evidence that the correction email, in any way, influenced IIROC’s prosecution of her. The evidence before the motion judge, and the Court, illustrates IIROC’s prosecution of the appellant stemmed from her arrangement with the banned investment representative.

Additionally, the Court disagreed with the Appellant that the motion judges analysis focused on whether there was prima facie evidence of malicious prosecution in deciding that the exception should not apply as that would have been erroneous.

The Court reaffirmed that the characterization of communications is central to the exceptions to the solicitor-client privilege. As such, the exception does not depend on whether communication is for a criminal or civil purpose.

At law, for a deceit to constitute a wrong, the dishonest conduct must cause injury. The Court took issue with the application of the exception in this case. There was an absence of prima facie evidence that the communications were either unlawful in of themselves, or they were made for the purpose of furthering unlawful conduct. The appellate judges determined that the evidence from the Respondent’s former Vice President does not show that the communications were made to injure the Appellant or that her injury would be a consequence from the correction email. While there was prima facie evidence to support that the correction email was a untrue; however, there was no prima facie evidence to support the Appellant’s allegation that the lie to IIROC would harm her or protect the Respondent.

In sum, the Court concurred with the motion judge’s finding that given the lack of harm stemming from the correction email, it does not warrant invoking what is meant to be “a very narrow exception to a very important privilege”.

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The Court of Appeal establishes a common law duty of care between investment fund managers and investors

The Ontario Court of Appeal’s decision in Wright v. Horizons ETFS Management (Canada) Inc., 2020 ONCA 337 may generate a significant impact in the investment fund community, after establishing a novel common law duty of care between investment fund managers and investors, for negligence under pure economic loss.

The defendant, Horizons ETFS Management (Canada) Inc. (“Horizons”) created and managed a complex derivatives-based exchange traded fund (“ETF”), which was purchased through stock exchanges and was available to retail investors, one of whom was the plaintiff, Wright. The Fund was meant to provide inverse exposure to stock market volatility. The Fund was described in the prospectus as “highly speculative” and “involv[ing] a high degree of risk”. After two years of growth, the value of the Fund dropped suddenly and dramatically; the Fund lost almost 90% of its value overnight. Investors lost nearly $40 million and the Fund never recovered. Wright commenced a proposed class action alleging that Horizons was negligent and liable for:

1. Designing, developing, offering, and promoting a financial product that was not adequately tested before launching, excessively risky, complex and doomed to fail, and;
2. Making misrepresentations in its prospectus within the meaning of s. 130 of the Securities Act.

The certification judge denied Wright’s motion, holding that the statement of claim did not disclose a reasonable cause of action, because it was plain and obvious that Horizons did not owe the class a duty of care. Wright appealed.

The Court of Appeal granted the appeal in part, holding that the certification judge erred in concluding that the claim disclosed no reasonable cause of action. Wright had a reasonable prospect of demonstrating that the claim fell within a recognized duty of care under the category of negligent performance of service as Horizons had undertaken to create and sell an ETF that was suitable for some investors and, on pleading as drafted, it was not.

In deciding whether there was a reasonable cause of action in negligence, the Court first assessed whether the claim could fit within an existing duty of care. Wright proposed that this claim was analogous to cases for negligent performance of service. The Court agreed, and relied on a previous case that established a reasonable cause of action against the creditors of a tax avoidance program, when the participants alleged that the program was negligently designed and did not operate as advertised. The Court found a relationship of proximity between Horizons and the proposed class because as a funds manager, it had a duty to investors to act honestly, in good faith and in the best interest of the Fund. Horizons failed to disclose the nature and extent of the risks to the investors; and therefore, the risk of injury was reasonably foreseeable.

The Court has now remanded this case to the lower Court to determine whether other certification criteria are met, before the merits of the case are assessed. Nevertheless, this case serves as a prudent reminder to fund managers to reassess the appropriate market for their products, and to make the requisite disclosures to identify potential risk exposure for investors. The legal and investor community will wait to see whether this case catalyzes other unhappy investors to come forward to try and recoup their losses from adverse investments.

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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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The New Tort of Harassment? Not yet.

In the common law system where passed precedents rule the courts, breaking through the law to set your own, is the ultimate legal feat. But, how malleable is the justice system in allowing novel ideas to supersede its predecessor? In Merrifield v. Canada (Attorney General), 2019 ONCA 205, the plaintiff attempted to preserve the Superior Court’s decision to establish, for the first time, the tort of harassment. On appeal, this decision was overturned, with the court deciding that there was no freestanding tort of harassment in Ontario.

In this case, the plaintiff employee brought a claim against the RCMP management for harassment and bullying that caused severe impairments to his reputation, career and mental health over seven years. The strained relationship allegedly began after the plaintiff ran a campaign to be nominated as the Conservative Party’s candidate for Barrie, in the federal election. The plaintiff sought damages for the mental distress he suffered at the hands of the management.

The Superior Court’s Decision

In allowing the action, the trial judge held that the managers’ behaviour towards the plaintiff was egregious enough to warrant damages under the tort of harassment. The trial judge took into account the following, in order to establish entitlement for damages under harassment:

1. Was the conduct of the defendants toward the plaintiff outrageous?
2. Did the defendants intend to cause emotional distress or did they have a reckless disregard for causing the plaintiff to suffer from emotional distress?
3. Did the plaintiff suffer from severe or extreme emotional distress?
4. Was the outrageous conduct of the defendants the actual and proximate cause of the emotional distress?

The Court of Appeal’s Decision

When the RCMP appealed, the court decided that the trial judge erred in establishing a new tort of harassment because no legal authorities supported this tort; and this case was not one “whose facts [cried] out for the creation of a novel legal remedy.” The court held that there were other legal remedies such as tort of intentional infliction of mental suffering (IIMS) to redress the alleged conduct. Interestingly, the court decided that this case did not even meet the threshold for entitlement to damages under IIMS.

In affirming that a novel tort was unnecessary, the court reiterated a quote by McLachlin J, that: “common law change is evolutionary in nature: it proceeds slowly and incrementally rather than quickly and dramatically.” However, despite the resistance to recognize harassment as a tort, the court did not dispense with the possibility altogether, but instead suggested that this was not the appropriate case to inaugurate the change.

This case has at the very least, continued the conversation in Jones v. Tsige, 2012 ONCA 32 (Ont. C.A.), which established the tort of intrusion upon seclusion. As for harassment as a standalone tort – we’re not there yet. The law is quick to bind and slow to change. The legal community eagerly anticipates the breakthrough case that will establish harassment as a new tort, but for now, we continue to rely on human rights and employment standards legislation to protect against workplace harassment.

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