Published by the Litigation Group
McCarthy Tétrault FRANÇAIS VOL.4,
ISSUE 1
2010
August
2
Litigation Co-Counsel

Welcome to Volume 4, Issue 1 of McCarthy Tétrault Co-Counsel: Litigation (March-June 2010). This issue marks the introduction of a new, more convenient format for our Co-Counsel publications.

We are now including summaries of each issue's articles so that you can quickly grasp what they're about. To read a specific article, click on the "Full Story" button or the article title. To read all the articles in a consolidated format, click the "View All" link on the right-hand side of the home page.

If you have any questions, please contact Geoff R. Hall (Editor-in-Chief) or Martin Halpern (Knowledge Management Lawyer).



In This Issue


Letter from the Editor
by: Shaun E. Finn, Geoff R. Hall, Martin B. Halpern, Miranda Lam, Kara L. Smyth

Welcome to Volume 4, Issue 1 of McCarthy Tétrault Co-Counsel: Litigation. This is an exciting issue as it contains such variety and scope.

One of the primary objectives of this publication is to allow our readers to see the world of litigation through the eyes of McCarthy Tétrault’s litigation team.

We ask the hard questions. Then, we put them in a "need to know" context.

In class actions, we examine whether a class action can be used as a solely punitive instrument: check out No crime, lots of punishment.

We explore how consumer and non-consumer contracts that contain an arbitration clause can be made subject to class proceedings. Griffin v. Dell Canada Inc. provides a framework for this interplay.

And, we learn the lesson of certification requirements in light of Singer v. Schering-Plough Canada Inc.

We turn our eyes to the United States as we probe the civil fraud charges commenced by the SEC against Goldman Sachs & Co., a development that raises issues about materiality with potentially significant ramifications in Canada.

And, we ask about, and then place in context, the divergent ways that limitation periods in different provinces apply to various forms of demand obligations in view of the recent ruling of the Ontario Court of Appeal in Bank of Nova Scotia v. Williamson.

Much ink has been spilled over the decision of the Supreme Court of Canada in Tercon Contractors Ltd. v. British Columbia (Transportation and Highways). But, in terms of contractual exclusion clauses, have the reports of the death of the doctrine of fundamental breach been greatly exaggerated?

We also follow new criminal cartel and civil competition agreement provisions under the Competition Act.

And, we boldly go into the electronic era’s impact of electronic evidence on litigation preparation and practice. This is an extended piece for this issue that provides some practical analysis of the challenges ahead.

Arbitration in an international commercial context presents a unique set of issues that do not often get the attention deserved. In Yugraneft Corp. v. Rexx Management Corp., we see how the highest court in the land resolves a matter and its effect on developing jurisprudence.

Finally, we raise the ultimate existential question in The Honourable James M. Farley’s latest reflection: To Be or Not to Be … a Truly Qualified Expert Witness.

Raising important questions, finding important answers — just how we practise law everyday.


Class Action

No Crime, Lots of Punishment
by: Donald Bisson, Shaun E. Finn

Can a class action be used as a solely punitive procedural vehicle? Yes, if we rely on the decision in Brault & Martineau inc. v. François Riendeau and Fédération des caisses Desjardins du Québec, 2010 QCCA 366 (Can LII), where the Court of Appeal confirmed the decision to grant punitive damages despite the absence of any proof whatsoever that a prejudice had occurred.

Riendeau v. Brault & Martineau for authorization

In Riendeau, the Superior Court was seized of a motion for authorization to institute a class action. The petitioner, after being attracted by an ad published by the respondent, had purchased some merchandise at B&M. As proof, the petitioner produced an ad that had been published one year later and that he claimed was identical to the one he had seen. This ad offered two options, namely to pay in 24 equal instalments without fees or interest, or to pay within one year with no deposit, payment or interest. Both options referred the reader to a footnote that said: "Pay only the sales tax. Subject to credit approval." There was no mention of interest or other fees if purchasers failed to make a payment.

According to the Superior Court, there was no requirement for a consumer to offer written proof (Section 263, Consumer Protection Act (CPA)). The affirmation, together with the ad, was sufficient to establish a rebuttable presumption and constitute a credible allegation.

Although it is impossible to escape the payment of taxes in a contract, vendors frequently assume these costs to attract customers. Therefore, the petitioner's claims in this regard had, in the court's opinion, at least the semblance of credibility.

Section 247 CPA provides that no person may make use of advertising regarding the terms and conditions of credit, except the credit rate, unless such advertising includes the particulars prescribed by regulation. The petitioner claimed, and the court agreed, that a merchant cannot evade its liability under the law to advertise credit terms and conditions even if offered by other merchants. B&M had in fact advertised a variable credit agreement, but had only included one of the terms and conditions in the ad, namely the delay within which the consumer may discharge his obligation without incurring any credit charges.

In addition, the court believed that a monetary loss need not be invariably established. Section 272 CPA includes moral damages. It is plausible that a consumer, though obliged to pay sales taxes as a matter of public order, may nevertheless claim moral damages, however modest, for having been led to believe that none were payable.

According to the court, a consumer who pays credit charges without having been informed of what they are in the advertising may ask that these charges be cancelled and refunded. He may also file a claim for punitive damages, even if he has not incurred any loss. After all, the court reasoned, the petitioner may plausibly contend that he would have never gone to B&M had he been aware that credit charges would be imposed for late payment.

Importantly, however, the same judge who authorized the class action later changed his mind. In Ata v. 9118-8169 Québec inc. et als, under the exceptional heading "Confession of an error," he explained that his fresh outlook was based on the similarities between Section 272 CPA and Section 49 of the Charter of human rights and freedoms, which, according to the Supreme Court of Canada, could not justify the award of punitive damages in the absence of moral or material damages to which they are ancillary.

The Riendeau decision on its merits

In spite of this remarkable confession by the motions judge, Justice Roy partially agreed with the petitioner’s arguments on the merits. The court came to the conclusion, in light of the evidence presented, that indeed the respondent's advertising had contravened the provisions of the CPA. According to the court, the charges paid by the respondent to credit companies were not credit charges within the meaning of the law since they were included in the net worth of the goods. As such, all buyers, whether they availed themselves of the financing options or their methods of payment or not, had to support them. By transforming the cost of the delay in payment of the sales price into part of the net worth, however, and by omitting to inform consumers that they could obtain a discount if they paid cash, the respondent misrepresented and omitted to disclose an important fact.

As to the remedy the members of the group are entitled to in the case of prohibited commercial practices, the court noted that on the one hand, Section 272 CPA, which addresses the civil recourses a consumer may initiate if there is a violation to the CPA, applies in the case of prohibited commercial practices. On the other hand, the court found that the evidence did not show the probable existence of a prejudice for each of the members, and made it impossible to quantify the prejudice for those who had actually suffered one.

As for punitive damages, the court agreed that under Section 272 CPA, punitive damages may be claimed even if compensatory damages are not granted. It also noted that this type of remedy is particularly appropriate in prohibited commercial practice cases since it is difficult to assess the impact of a violation of the CPA on consumers. To obtain such damages, the consumer does not have to prove the merchant's bad faith, but only a disregard for the law and those behaviours the law wants to repress. In its assessment of punitive damages, the court considered damages in the amount of $2 million to be appropriate under the circumstances.

The Riendeau decision on Appeal

B&M appealed this decision, asking for the class action to be dismissed. The petitioner cross-appealed, claiming an amount of $11,859,889.50 for illegally billed credit charges. The court dismissed the appeal and cross-appeal. According to the court, B&M had indeed committed a prohibited practice under the CPA and its associated regulation by publishing the ads in question. But the court did confirm that the trial judge was right in not considering the taxes as hidden charges.

The court also confirmed the decision of the trial court judge granting punitive damages without compensatory damages. According to the court, the CPA is subject to the principles governing the assessment of damages and the respondent did not prove the existence of harm. However, unlike Section 49 of the Charter of human rights and freedoms, punitive damages may be granted under the CPA even in the absence of compensatory damages. Furthermore, the court denied B&M’s argument that punitive damages are only granted in the case of bad faith or negligence, and refused to reconsider the amount granted in punitive damages by the Superior Court.

McCarthy Tétrault Notes

Riendeau is significant for at least three reasons. First of all, it sets out the principle according to which it is possible to obtain punitive damages under the CPA without having to grant compensatory damages. Secondly, the case implies that the mere presence of a fault is enough to establish the liability of a respondent even where no one has relied on its misrepresentations. This would mean, at least conceptually, that someone who would have bought the product advertised, who would have seen the advertising, or who would neither have bought nor seen anything whatsoever, would have a sufficient legal interest to claim punitive damages. Finally, during parliamentary debates leading to the adoption of class actions in Québec, the provincial Bar as well as most members of the National Assembly agreed that this procedure would ensure access to justice and should not be used as a purely punitive proceeding. It is at the very least debatable that Riendeau could alter the nature of the class action by changing it from being a convenient procedural mechanism to a formidable social weapon.


A Decision that Rings a Dell
by: Shaun E. Finn, Miranda Lam, Dana M. Peebles, Sean S. Smyth

Griffin v. Dell Canada Inc and the Interplay between Arbitration and Class Actions

Can consumer and non-consumer contracts that contain an arbitration clause be made subject to class proceedings? Yes, according to a recent decision by the Court of Appeal for Ontario.

Facts

This appeal involves a proposed class action arising from the sale of allegedly defective Dell notebook computers between March 2003 and May 2005. The terms and conditions of sale contained a mandatory arbitration clause for any claim to be resolved by arbitration and administered by the National Arbitration Forum (NAF).

The first representative plaintiff leased his Dell notebook through his business, and therefore did not qualify as a "consumer" under the Consumer Protection Act, 2002 (CPA). The CPA bans mandatory arbitration clauses in consumer agreements. A second representative plaintiff, one who did qualify, was then added. This plaintiff had purchased his computer after the CPA came into effect on July 30, 2005.

Dell appealed both the Ontario Superior Court of Justice’s decision refusing Dell’s request for a stay in favour of arbitration, and the court’s decision refusing to reconsider its original decision in light of new developments in the jurisprudence. It must be noted that since these decisions were rendered by the motions judge, NAF has ceased to function with respect to consumer disputes following allegations of serious impropriety.

Issues

Accordingly, the Court of Appeal had to decide whether (i) the demise of NAF rendered Dell’s appeals moot, (ii) the CPA was applicable, and (c) a partial stay of the non-consumer claims should be granted.

Decision

The Court of Appeal concluded that the agreement in question did not name NAF as the arbitrator and that therefore Section 16(5) of the Arbitration Act, 1991, which provides that the court has no power to appoint a substitute arbitrator, did not apply. NAF will no longer accept consumer arbitrations, so it will not exercise its power to appoint an arbitrator, and thus the court will be able to do so under Section 10(1)(b) of the Act. Furthermore, when an order refusing to grant a stay is based on grounds that the matter is not subject to arbitration, an appeal is not precluded by Section 7(6) of the Act.

Concerns about the unfairness of mandatory arbitration clauses led the Ontario legislature to enact the CPA provisions outlawing mandatory arbitration clauses in consumer agreements. According to the Court of Appeal, it has been determined that sellers regularly insert arbitration clauses in order to defeat claims, not because they truly wish to arbitrate disputes with consumers. These disputes are often small claims that only become viable when aggregated by way of a class proceeding.

The second representative purchased his computer prior to the coming into force of the CPA, but his computer allegedly failed afterwards, in 2007. As the Supreme Court explained in Dell Computer Corp. v. Union des consommateurs, [2007] 2 S.C.R. 801, the legislation governed despite the fact that the contract was concluded prior to the effective date. Until the failure of the computer there was no claim, but rather "an ongoing legal situation," and the application of the arbitration clause was not yet triggered.

Finally, under the assumption that Dell applies in Ontario, the Court of Appeal found that non-consumer claims should proceed by way of arbitration. However, Section 7(5) of the Arbitration Act confers discretion to grant a partial stay where an action involves some claims that are subject to arbitration and some that are not. In this case, a partial stay was refused to allow all the claims to proceed under the class proceeding, as it would not have been reasonable to separate the consumer from the non-consumer claims. Granting a stay of the non-consumer claims would have led to inefficiency, a potential multiplicity of proceedings, and additional costs and delays, contrary to the Courts of Justice Act.

The liability and damages issues to be litigated are the same for both consumer and non-consumer claims. As the consumer claims dominate (70 per cent), it was reasonable that the remaining claims should follow the procedural route of the consumer claims. In this case, it is clear that the staying of any claims advanced would not result in any of the claims being arbitrated. Moreover, Dell’s arbitration clause precludes any possibility of class arbitration. Dell’s position may have been more persuasive had this option been available.

The court also found that it did not need to decide on the application of Dell in Ontario and preferred to await the Supreme Court’s decision in Seidel v. Telus Communications Inc., [2009] 5 W.W.R. 466 (B.C.C.A.).

McCarthy Tétrault Notes

Companies doing business in Ontario should be aware that both consumer and non-consumer contracts containing an arbitration clause can, for reasons of efficiency and judicial economy, be included in the same class proceedings. Moreover, a clause that explicitly prohibits class-wide arbitration can create a rebuttable presumption that an arbitration clause is designed to thwart, rather than encourage, the resolution of disputes.


Sunscreen Litigation Reminds Potential Class Action Plaintiffs that Effort is Required to Meet Certification Requirements
by: Glynnis P. Burt, Jeffrey E. Feiner, Warren B. Milman, F. Paul Morrison

When a company is named as a defendant in a class action lawsuit, it is imperative that the case be taken seriously from the outset and vigourously defended at every stage. Similarly, potential class counsel must put in legwork to ensure that a prospective case will meet the legislative and procedural requirements for certification as a class action. Failure to do so can result in serious cost consequences.

These lessons were reinforced in a recent decision by Justice Strathy of the Ontario Superior Court in Singer v. Schering-Plough Canada Inc., in which he dismissed two motions for certification involving sunscreen products manufactured by Schering-Plough Canada Inc. and Playtex Limited under the Coppertone® and Banana Boat® brand names. The proposed representative plaintiff, Brian Singer, sought $20 million in damages. Singer alleged that Schering-Plough and Playtex had misrepresented the effectiveness of their sunscreen products by, among other things, advertising their products to have "UVA/UVB protection," thereby allegedly misleading consumers to believe the products provided equal protection from both UVB and UVA rays.

In dismissing the motions, Justice Strathy concluded that the plaintiff met none of the five requirements for certification under Section 5 of the Class Proceedings Act. The plaintiff pleaded causes of action that were not available to him, and improperly pleaded causes of action that were unsuitable for certification in a class action. There was no evidence of an identifiable class sharing the plaintiff’s expressed interest in an issue that Justice Strathy noted "appears to have been conceived by lawyers." Further, there was a lack of connection between the common issues and the causes of action pleaded, and no evidence or basis in fact for the proposed common issues. A class proceeding was not the preferable procedure because it would be unmanageable and inefficient, there was insufficient evidence of a real complaint (and in any event, it could be pursued in Small Claims Court or as a test case), and there was an appropriate statutory and regulatory regime in place to which complaints could be directed. Justice Strathy also concluded that the proposed representative plaintiff was not suitable for this case.

Notably, Justice Strathy was critical of the plaintiff’s apparent lack of research of the Canadian regulatory regime and of the lack of effort invested by the plaintiff, stating:

I must say that the statement of claim in this action looks as if it has been borrowed from a US pleading without adequate research of the Canadian regulatory regime…These circumstances make me question whether adequate effort and investigation has been made in the preparation of these two actions which seek to represent millions of consumers.

Justice Strathy concluded his reasons as follows:

The certification of these actions would not serve any of the goals of the [Class Proceedings Act]. It would not provide access to justice because there is no class of people who have suffered damages and are looking for justice. Far from promoting judicial economy, it would saddle the court with two massive class actions that have been cobbled together with an insufficient legal and evidentiary foundation. It would not result in behaviour modification because there is a sophisticated and scientifically supported regulatory system that serves that very purpose. In my view, the public will be rightly cynical, and the administration of justice will be brought into disrepute, if the class action process is used to prosecute theoretical and insubstantial wrongs, creating massive and enormously expensive litigation, but not redressing real injuries suffered by real people.

McCarthy Tétrault Notes

Following the dismissal of the certification motions, Justice Strathy ordered the plaintiff to pay $200,000 in costs to each of Schering-Plough and Playtex. Justice Strathy affirmed the principle that "costs follow the event" in litigation. This decision should remind prospective plaintiffs and plaintiffs’ counsel that serious cost consequences can result when advancing unsuccessful claims. Justice Strathy noted that "a failure to hold parties accountable for the costs of litigation will only serve to encourage speculative and unmeritorious claims."


Securities

SEC v. Goldman Sachs: Issues in Focus
by: Andrew Matheson, Michael C. Nicholas

Many requisite ingredients for a media feast accompanied the civil fraud charges commenced by the Securities and Exchange Commission (SEC) against Goldman Sachs & Co. and its employee Fabrice Tourre on April 16, 2010: The SEC was under criticism for the perceived weakness of its response to the credit crisis. The White House was stepping up pressure for financial sector reform. Goldman, a pre-eminent firm, had repaid its government loans and was reporting good results. The type of securities involved in the SEC charges — collateralized debt obligations (CDOs) and credit default swaps referenced to the residential mortgage market, including subprime loans — were blamed for contributing to the credit crisis. And to this stewing pot, Mr. Tourre, the 31-year-old French math whiz principally responsible for devising and marketing the ABACUS 2007-AC1, added the spice.

However, attention raised by interesting politics and personalities aside, this case also raised an interesting legal issue with potentially broad implications — that of "materiality."

The SEC’s Case

Relying on its widely used "anti-fraud" provisions — Section 10(b) of the Securities Act and Section 17 of the Exchange Act — the SEC alleges that Goldman and Tourre:

  • represented that the reference portfolio of residential mortgage-backed securities underlying ABACUS 2007 - AC1 was selected by ACA Management LLC, which was experienced in analyzing credit risk in these types of securities; and
  • failed to disclose to investors that Paulson & Co. Inc., a large hedge fund with economic interests adverse to investors in ABACUS 2007-AC1, played a significant role in the portfolio selection process.

Thus, the key allegation is of an omission in disclosure to investors, as the following passage from the Complaint encapsulates:

"[Goldman] arranged a transaction at Paulson’s request in which Paulson heavily influenced the selection of the portfolio to suit its economic interests, but failed to disclose to investors, as part of the description of the portfolio selection process contained in the marketing materials used to promote the transaction, Paulson’s role in the portfolio selection process or its adverse interests."

Another significant allegation is that Tourre misled ACA into believing that Paulson had invested approximately $200 million in the equity of ABACUS 2007-AC1 and, accordingly, Paulson’s interest in the selection of collateral was aligned with ACA's. In reality Paulson’s interests were sharply conflicting because it was taking a significant short position. If ACA had known this, ACA likely would have refused to serve as portfolio selection agent, according to the SEC. ACA’s parent invested in the vehicle.

The SEC alleges that the other investor, IKB Deutsche Industriebank AG, relied on the involvement of ACA, as an experienced and independent collateral manager, when assessing whether to invest in ABACUS 2007-AC1, especially since the market had started to show signs of distress. According to the SEC, IKB would not have invested had it known that Paulson had played a significant role in the collateral selection process while intending to take a short position. In the end, IKB lost $150 million.

The Defences

Goldman issued a press release denying the SEC’s allegations and identifying "four critical points that were missing from the SEC’s complaint":

  • While Goldman earned $15 million in fees, it lost $90 million on the transaction by being long on the portfolio.
  • ACA’s parent and IKB were among the most sophisticated investors in these types of transactions, and were provided with extensive information about the underlying mortgage securities.
  • The portfolio was selected by ACA, whose discussions with Paulson were typical for such transactions. ACA had the obligation to select appropriate securities and the incentive to do so, given its large exposure to the transaction. 
  • As normal business practice, a market maker does not disclose the identities of a buyer to a seller, and vice versa. Therefore, according to Goldman, it cannot be faulted for not disclosing that Paulson was taking a short position. Furthermore, according to Goldman, it never represented to ACA that Paulson was going to be a long investor.

At this stage, only the SEC has pleaded, and we have not seen the evidentiary record that may support either side.

Potential Implications

The anti-fraud statutes upon which the SEC relies upon are part of bedrock of US securities law.

The anti-fraud statutes prohibit, inter alia, (i) the making of any untrue statement of material fact, or (ii) the omission of any material fact necessary for a statement, in light of the circumstances in which it was made, to not be misleading.

Typically, material facts relate to the nature or quality of an investment. Here, the SEC’s case focuses on the identity and incentive of a party that participated in creating the investment. There is no suggestion of a failure to disclose material facts about the investment itself. Detailed information about the underlying mortgage-backed assets was disclosed.

It is not uncommon for purchasers of securities not to know the identity of the seller. This is the case in a secondary market stock purchase, for instance. Major institutional investors regularly invested in CDOs, not knowing or caring about the identity of the party on the other side of the risk. So, does it matter that the other party assisted in selecting the assets, if all of the facts relating to the assets were disclosed?

Materiality

The US Supreme Court has held that the materiality threshold requires a "substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information made available."1

Under Section 1 of Ontario’s Securities Act, a "material fact" is defined as "a fact that would reasonably be expected to have a significant effect on the market price or value of the securities."2

The tests are similar. Obviously they are both directed to the goal of ensuring adequate disclosure for investment decisions. Arguably there is a subtle difference in that the American "total mix" is more general than the focus on "market price or value" under Section 1 of Ontario’s Securities Act.

Two principles of materiality that find expression in both jurisdictions appear highly relevant in the context of the Goldman case.

First, the test of materiality is objective.3 It is not based on the subjective perspective of the particular investor involved, but rather on the perspective of a reasonable investor in the same circumstances.

Second, materiality is not determined retrospectively or with the benefit of hindsight.4

Applying these principles to the Goldman case, it must be borne in mind that at the time of the transaction, the housing market was not widely regarded as a bubble. And that Paulson was not the well-known billionaire he is today. Rather, he was a low-profile hedge fund manager with a view about a market that differed from others’ views, including the ABACUS 2007-AC1 investors'.

McCarthy Tétrault Notes

It is interesting to note that if a similar case were brought before the Ontario Securities Commission (OSC), it might not necessarily turn on the issue of materiality. If the charge were strictly under Section 126.2 of Ontario’s Securities Act, which is similar to the American anti-fraud statutes, materiality would be a necessary element. However, the OSC claims authority to impose sanctions for abuse of the capital market even if no particular breach of this Act is made out pursuant to "public interest jurisdiction" under Section 127 of the Act.5 This "public interest jurisdiction" affords OSC Staff great latitude in how they formulate and attempt to establish a case. They are not constrained by having to allege or prove a breach of a specific securities law.

The open-ended nature of "public interest jurisdiction" is vulnerable to criticism, particularly when it is invoked in a context where a specific securities law applies. Why should a respondent be sanctioned based on an ill-defined, after-the-fact notion of what is "the public interest," rather than judged based on a specific securities law that applied at the time? Shouldn’t there be precision in the law that market participants are expected to follow? Isn’t it unfair to prosecute based on an after-the-fact "gotcha"?


1 Basic, Inc. v. Levinson 485 US 224, 232 (1988).

2 See Securities Act, R.S.B.C. 1996, c. 418, s. 1(1); Securities Act, R.S.A. 2000, s. S-4, s. 1(gg); Securities Act, S.S. 1988-89, c. S-42.2, s. 2(1)(z); Securities Act, C.C.S.M. c.s50, s.108(1); Securities Act, R.S.Q. c.V-1.1, s. 5; Securities Act, S.N.B. 2004, c. S-5.5, s. 1(1); Securities Act, R.N.S. 1989, c. 418, s. 1(1); Securities Act, R.S.P.E.I. 1988, c.S-3.1, s.1(gg); Securities Act, R.S.N.L. 1990, c. S-13, s. 2(1)(x).

3 Re YBM Magnex International Inc., (2003), 26 O.S.C.B. 5285 at para.91; TSC Industries, Inc. v. Northway, Inc., 426 US 438, 445 (1976).

4 Core Mark International Inc. v. 162093 Canada Ltd. (8 June 1989), Toronto 1220/89 (Ont. H.C.) cited in Re YBM Magnex International Inc., (2003), 26 O.S.C.B. 5285 at para. 90; Value Line Fund, Inc. v. Marcus, 161 F. Supp. 533, 535 (Dist. Ct. N.Y.) cited in SEC v. Texas Gulf Sulphur Co. 258 F. Supp. 262, 283 (Dist. Ct. N.Y.), rev’d on other grounds, 401 F. 2d 833 (2d Cir. 1968).

5 In the matter of Mithras Management Ltd. et al. (1990), 13 O.S.C.B. 1600 at pp. 1610-1611; Re H.E.R.O. Industries Ltd., (1990), 13 O.S.C.B. 3775 at pp. 3794-3795.


Procedure

Demand Obligations — Divergences in Provincial Limitation and Prescription Periods
by: Anthony M.C. Alexander, Martin Boodman, Mendy M. Chernos, Byran Gibson, Daniel E. Sears, Harry Underwood

Overview

The recent ruling of the Ontario Court of Appeal in Bank of Nova Scotia v. Williamson, 2009 ONCA 754 provides an opportunity to address the divergent ways that limitation periods in different provinces apply to various forms of demand obligation.

Demand obligations play a key role in many financing transactions, and fall into two broad categories: (i) primary demand obligations (such as demand promissory notes and demand mortgages), and (ii) secondary demand obligations (such as demand guarantees and third-party demand collateral mortgages). Each form of demand obligation has its own specific legal characteristics.

Of particular significance to both lenders and borrowers is the limitation period (or, in Québec, the prescription period) applicable to both primary and secondary demand obligations. A limitation or prescription period is, of course, the time frame within which a creditor must commence a legal proceeding against the borrower, guarantor, or other obligor, seeking to enforce the obligation in question. Once the limitation or prescription has expired, the right to commence such an enforcement action is generally lost.

Limitation and prescription periods are established by provincial legislation. Thus, the limitation or prescription applicable to a particular demand obligation will flow from the provincial law selected by the parties to govern their relationship more generally. The law varies from province to province as to both the length of the relevant limitation or prescription period and the date this time begins to run. This fact may make the parties’ selection of the relevant governing law a potentially important negotiating point.

Recent Developments in Ontario

In its recent Williamson ruling, the Ontario Court of Appeal considered the limitation principles applicable to various categories of demand obligation, both historically and in light of significant amendments made to the Ontario Limitations Act, 2002 in November 2008. This Act establishes a "basic limitation period" of two years, applicable to most claims falling under it. The period begins from the date a claim arises or from the date it is first reasonably discoverable by a plaintiff.

Ontario limitations legislation had, prior to the November 2008 amendments, been silent with regard to demand obligations. However, the common law had developed distinctly different approaches to the running of those limitation periods applicable to primary and secondary demand obligations:

  • With regard to secondary obligations, such as demand guarantees or third-party demand collateral mortgages, the relevant limitation period only began running against the creditor after the creditor had actually made the requisite demand against the obligor.
  • In contrast, a more draconian common law principle applied to creditors seeking to enforce a primary obligation (e.g., a demand promissory note or a demand mortgage). In such cases, the relevant limitation period was deemed to commence running immediately (i.e., from the date that the primary demand obligation came into existence), rather than at the point in the future when the demand was actually made.

These common law rules had been in force in Ontario for many years, and in earlier rulings the Court of Appeal had confirmed that they continued to apply even after the coming into force of the Ontario Act on January 1, 2004. (See Hare v. Hare (2006), 83 O.R. (3d) 766 (C.A.) and The Mortgage Company of Canada v. Grant Estate, 2009 ONCA 655.)

The potential confusion flowing from these common law rules was finally addressed in November 2008, when the Legislature amended the Ontario Act to ensure that the limitation period applicable to "demand obligations" (an undefined term) would only commence running after a demand had actually been made by the creditor against the obligor. This amendment was made retroactive, so that it applied to every "demand obligation" created on or after January 1, 2004.

In interpreting this retroactive amendment, the Court of Appeal in the Williamson case has confirmed that the traditional common law rule governing the running of the limitation period applicable to demand promissory notes (as primary obligations) has been radically changed, and has been made consistent with the very different rule previously applicable to demand guarantees (as secondary obligations). The Court of Appeal accepted that, for both categories of "demand obligation" created after January 1, 2004 and governed by Ontario law, the relevant limitation period will only commence running after a demand has actually been made by a creditor against an obligor.

An interesting fact that was not expressly addressed by the Court of Appeal in Williamson is that certain key limitation periods applicable to mortgages appear in a separate statute, the Ontario Real Property Limitations Act. Since the Legislature has not yet implemented parallel amendments specifically addressing "demand obligations" in that latter statute, the running of such limitation periods against both demand mortgages and demand collateral mortgages may require further judicial clarification.

The Governing Principles in Québec

There is no specific provision in the Civil Code of Québec regulating the starting date of the prescription or limitation period for a demand obligation. According to the generally applicable rules of prescription, the prescription period for a demand obligation is three years beginning from the date of the cause of action of the creditor.

Regarding demand loans, under the law of Québec prescription begins to run on the date of the advance of funds. (See Charron v. Investissement Royal Montréal Inc., 2008 QCCS 157; and 9022-8818 Québec inc. (Magil Construction Inc.) (Syndic de) 2005 QCCA 275).) Similarly, the prescription period for a demand note begins on the date of issuance of the note, rather than on the date of presentation for payment. (See Stone (Syndic de), 2007 QCCA 534; and G.G. Guertin inc. v. Sevan, 2008 QCCQ 12724.)

Regarding demand suretyships or demand guarantees, prescription begins to run on the date of the default of the principal debtor.(See Caisse populaire Desjardins de la Vallée de l’Or v. Dion, 2001 CanLII 2403 (C.S.); Banque Nationale du Canada v. Campeau, 2003 CanLII, 20051 (C.Q.).) The starting date for prescription of the claim against the surety may, however, be affected by the terms of the contract of suretyship where, for example, it requires a formal demand against the surety prior enforcing a claim against him.

The Governing Principles in British Columbia

Similarly, the British Columbia Limitations Act does not specifically provide for creditors’ claims. Consequently, these claims are captured by the BC Act’s general six-year limitation period, calculated from the date that the right to bring a cause of action arises. British Columbia has not made any legislative changes to the common law principles governing primary and secondary demand obligations.

For primary demand obligations, the limitation period runs from the date the obligation is created. For example, the limitation period for a demand promissory note runs from the date the note is made and the funds are advanced. (See Berry v. Page (1989), 38 B.C.L.R. (2d) 244 (C.A.); Barclay Construction Corporation v. Bank of Montreal (1988), 28 B.C.L.R. (2d) 376 (S.C.); and Ponti v. Marathon Motors Limited (1978), 9 B.C.L.R. 46 (Co. Ct.).)

For collateral demand obligations, such as demand guarantees, the six-year limitation period runs from the date of the demand. (See Canadian Imperial Bank of Commerce v. Sayani (1994), 100 B.C.L.R. (2d) 294 (S.C.); and Canadian Imperial Bank of Commerce v. Pittstone Developments Ltd. (1985), 69 B.C.L.R. 292 (S.C.).)

The Governing Principles in Alberta

Under the previous limitations regime, and subject to the wording of the governing document, claims in Alberta respecting a breach of contract (including a claim pursuant to a collateral demand obligation, such as a guarantee) were subject to a six-year limitation period running from the date of the breach and not from the date the breach was discovered. (See Alberta Treasury Branches v. Jarvis Engineering [1998] A.J. No. 285 (Master); and James H. Meek Trust v. San Juan Resources Inc., 2005 ABCA 448.)

For a primary demand obligation, such as a promissory note, a six-year limitation period applied, running from the date the obligation was created. As a result, the limitation period began to run from the date a promissory note was signed. (See Royal Bank v. Dwigans, [1933] 1 W.W.R. 672 (Alta. C.A.); and Canada Trustco Mortgage Co. v. 112293 Holdings Ltd., [1984] A.J. No. 126 (C.A.).)

With the coming into force of the current Alberta Limitations Act, the law on point appears to have changed. The Alberta Act provides that a claim is statute barred after the expiry of the earlier of (i) a two-year limitation period (running from the date the claim should have been reasonably discovered), and (ii) a 10-year ultimate limitation period (running from the date the claim arose). It further provides that the limitation period provided by the Alberta Act can be extended by express agreement.

The Alberta Act makes specific reference to "demand obligations" (an undefined term), and provides that the ultimate limitation period commences running upon the default of the obligor, after a demand has been made.

The Alberta Court of Queen’s Bench has noted the apparent change to the law with respect to demand obligations, but has declined to engage in an interpretation of the Alberta Act on that point. (See Kendell v. Kendell, [2006] 411 A.R. 332.) Accordingly, the effect of the legislative change in Alberta is not yet clear. A plain reading of the Alberta Act would seem to suggest that both collateral and primary demand obligations are subject to a two-year discoverability limitation period and an ultimate limitation period of 10 years, with the latter period running only after a demand for performance has been made.


Contracts

Contractual exclusion clauses: have the reports of the death of the doctrine of fundamental breach been greatly exaggerated?
by: Geoff R. Hall, Thomas G. Heintzman, Brandon Kain, Awanish Sinha, Herman Van Ommen, Doug T. Yoshida

Upon reading his own obituary, which had been published in error, Mark Twain is said to have remarked that "the reports of my death are greatly exaggerated." The decision of the Supreme Court of Canada in Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4 provides an odd twist on Twain’s witticism.

On the one hand, Tercon has been widely touted as marking the death of the doctrine of fundamental breach. That doctrine reflected judicial hostility to contractual limitation of liability provisions, commonly known as "exclusion clauses," and precluded a party who had committed an egregious breach of contract from relying upon an exclusion clause to avoid or limit liability for the breach.

In fact, the doctrine of fundamental breach was supposed to have died over 20 years ago, when the Supreme Court of Canada rejected it in Hunter Engineering Co. v. Syncrude Canada Ltd., [1989] 1 S.C.R. 426. A decade later, the Supreme Court reaffirmed the doctrine’s death in Guarantee Co. of North America v. Gordon Capital Corp., [1999] 3 S.C.R. 423. Thus the announcement of the doctrine’s demise in 2010 is somewhat surprising.

On the other hand, while all nine members of the Supreme Court agreed in Tercon that fundamental breach is no longer the law, a five-to-four majority decided the case in a manner that is hard to distinguish from the apparently deceased doctrine.

So what is going on? Is the doctrine of fundamental breach really dead? Or, as Mark Twain would have said, have the reports of its death been greatly exaggerated?

Tercon involved a dispute between a construction contractor and the Province of British Columbia. B.C. issued a request for expressions of interest for the construction of a highway. Six parties responded, including Tercon and a competitor named Brentwood. B.C. then issued a request for proposals (RFP). The RFP specified that only the six parties who had responded to the original request for expression of interest were eligible to participate. In breach of that requirement, Brentwood entered into a joint venture, which made a bid and was awarded the job. Tercon sued B.C. for allowing the Brentwood joint venture to respond to the RFP and for awarding it the highway job.

In defending against Tercon’s claim, B.C. pointed to what would seem to be a broad exclusion clause:

Except as expressly and specifically permitted in these Instructions to Proponents, no Proponent shall have any claim for any compensation of any kind whatsoever, as a result of participating in this RFP, and by submitting a proposal each proponent shall be deemed to have agreed that it has no claim.

Consider first what the court said about the law. Writing for the four dissenters, Justice Binnie decisively held that the doctrine of fundamental breach is no longer good law. He held that whether an exclusion clause applies requires three analytical steps:

  1. As a matter of ordinary contractual interpretation, does the exclusion clause apply to the circumstances established in the evidence?
  2. If yes, was the exclusion clause unconscionable at the time the contract was made?
  3. If no, should the court decline to enforce the exclusion clause because of an overriding public policy concern which outweighs the very strong public interest in the enforcement of contracts?

Applying this test to the facts, Justice Binnie found the exclusion clause to be applicable and enforceable, and would have dismissed Tercon’s action.

The majority decision, written by Justice Cromwell, agreed with Justice Binnie’s formulation of the legal principles, but disagreed with his interpretation of the exclusion clause.

Justice Cromwell reasoned that by allowing the Brentwood joint venture to participate in the RFP process and by awarding the work to a party ineligible to participate, the very premise of the RFP process was missing. Tercon’s claim arose from the participation of ineligible parties in the RFP, not "as a result of participating in this RFP," and thus was not covered by the exclusion clause. In any event, Justice Cromwell found the exclusion clause to be ambiguous and concluded that it should be interpreted contra proferentem against the interests of the drafter of the contract, which was B.C.

So the expression of the law is clear, but difficult to reconcile with the majority’s application to the facts of the case. The doctrine of fundamental breach is officially dead, but the animus underlying it — a judicial hostility to exclusion clauses — still seems to be present. It is hard to imagine a clearer and more comprehensive exclusion clause than was present in Tercon ("no Proponent shall have any claim for any compensation of any kind whatsoever, as a result of participating in this RFP"), and difficult to imagine two more sophisticated contracting parties than a highway contractor and a province. Yet the majority of the Supreme Court found a way to interpret the exclusion clause so narrowly that it did not apply.

McCarthy Tétrault Notes

The result of Tercon is an unfortunate uncertainty. Will courts applying Tercon do as the Supreme Court says, or as the Supreme Court does? Is the doctrine of fundamental breach really dead, as the Supreme Court has now said on three different occasions in three different decades (Hunter Engineering in 1989, Guarantee in 1999, and Tercon in 2010)? Or are the reports of its death greatly exaggerated — will future cases, like the majority in Tercon, continue to show an inherent hostility to exclusion clauses that is highly reminiscent of the supposedly deceased doctrine of fundamental breach? Tercon makes it hard to know how to draft exclusion clauses, and harder still to predict whether they will be enforced.


Competition

New Criminal Cartel and Civil Competitor Agreement Provisions under the Competition Act Come into Force
by: Donald B. Houston, Madeleine Renaud, Dominic Thérien

When significant changes to the Competition Act were adopted in March 2009 as part of Bill C-10, the Budget Implementation Act, 2009,1 a one-year transitional period was provided before the coming into force of the amendments to the conspiracy provisions. This transitional period ended on March 12, 2010. The new per se criminal conspiracy offence and associated increased penalties, as well as the new civil provision for agreements between competitors, are now in force.

Per se Conspiracy Offence

Under the new Section 45, agreements among competitors and potential competitors to fix prices, allocate markets or restrict output are per se illegal. This means that the prosecution no longer has to demonstrate beyond a reasonable doubt that such agreements unduly lessen competition. The amendments therefore make it easier for the prosecution (and civil plaintiffs) to prove so-called "hard core" cartels.

The new provision provides a defence for ancillary restraints: parties to agreements may defend a charge if they can establish on a balance of probabilities that the agreement is ancillary and reasonably necessary to a broader agreement that is not within an impugned "hard core" category. The regulated conduct defence, which exempts conduct prescribed or authorized by a regulatory scheme, has also been expressly preserved.

The maximum fine for conspiracy has now been increased to $25 million (from $10 million), and the maximum prison term has been increased to 14 years (from five years).

Civil Competitor Agreement Provision

The Competition Act now provides a dual-track approach to competitor agreements. Agreements or arrangements among competitors and potential competitors other than agreements to fix prices, allocate markets or restrict output (such as joint ventures and strategic alliances) may be subject to review, but only if they substantially prevent or lessen competition. Under this new civil provision, the Commissioner of Competition may bring an application to the Competition Tribunal for an order prohibiting any person from doing anything under the agreement, but the conduct is not subject to criminal sanction or monetary penalties. The new civil regime provides for treatment similar to merger review, including an efficiencies defence that allows the parties to argue that the pro-competitive efficiencies resulting from the agreement outweigh its anti-competitive effects, and would not be attained if the Competition Tribunal were to issue a prohibition order.

Competition Bureau’s Guidelines

The Competition Bureau recently issued Competitor Collaboration Guidelines2 that describe the approach it will take in applying the new dual-track regime to agreements between competitors. The Guidelines indicate that the criminal conspiracy offence will apply only to agreements between competitors to fix prices, allocate markets and restrict output that constitute "naked restraints" on competition, i.e., restraints that are not implemented in furtherance of a legitimate collaboration between competitors such as a strategic alliance or a joint venture.

As indicated above, both the criminal and the civil provisions apply to agreements among competitors and "potential competitors." The Guidelines include a discussion on factors that the Bureau will consider in order to determine whether parties to an agreement are potential competitors, i.e., whether they are likely to compete with respect to a product in the absence of the agreement under consideration.

The Guidelines adopt a strict interpretation of the ancillary restraints defence. The Bureau states that it will conclude that a restraint on competition (i.e., price fixing, market allocation and output restriction) is not reasonably necessary to a broader agreement, for example a joint venture, if "the parties could have achieved an equivalent or comparable arrangement through practical, significantly less restrictive means that were reasonably available to the parties at the time when the agreement was entered into." While the Bureau indicates that it will not second-guess the parties with potentially less restrictive alternatives, the scope of the defence will inevitably be subject to interpretation.

The Guidelines also clarify some areas of uncertainty, for example by stating that vertical agreements between suppliers and customers, as well as dual-distribution agreements and franchise agreements, will be assessed under the civil, rather than criminal, provisions (except where such agreements are used to cover agreements among distributors or franchisees to fix prices or allocate markets). The Guidelines also confirm that the criminal price-fixing provision will only apply to agreements between sellers, and not to agreements between buyers.

Finally, the Guidelines discuss the potential application of the new civil regime to different types of agreements between competitors including: commercialization and joint selling agreements, information-sharing agreements, research and development agreements, joint production agreements, and joint purchasing agreements and buying groups.

McCarthy Tétrault Notes

While the intent of the new dual-track approach is to restrict application of the criminal provisions to "hard core cartels," questions remain as to how the new civil competitor agreement provisions will be applied.

If such exercise has not been completed during the one-year transitional period, all businesses operating in Canada should review their competition law compliance programs to prevent and detect potential violation of the new per se criminal conspiracy offence. Companies should also review their existing agreements with competitors and potential competitors, including strategic alliances and joint ventures, to determine whether they raise issues under the new civil provision, and carefully consider these issues before entering into future agreements with competitors. The McCarthy Tétrault National Competition/Antitrust Group can assist businesses in conducting these reviews.


1 For further information, please see the following McCarthy Tétrault LLP publication, "Government Enacts Sweeping Changes to Canada’s Competition and Foreign Investment Laws."

2 Available online: http://competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03177.html.


Defamation

Historic Defamation Decision Recognizes New Defence: Responsible Communication on Matters of Public Interest
by: Geoffrey A. Duckworth, Michael Feder, Kara L. Smyth

In a dramatic and historic shift from the principles laid out by the Supreme Court of Canada in Hill v. Church of Scientology of Toronto, the same court determined in Grant v. Torstar Corp. that Canadian law needs a new rule that "gives greater scope to freedom of expression while offering adequate protection of reputation." The parameters of a new defence of "responsible communication on matters of public interest" were set out and justified on the basis that traditional defamation law "does not give adequate weight to the constitutional value of free expression." The following brief analysis will elucidate the shift in principles of the Supreme Court and outline the broad tenets of the new defence. The facts will not be commented on.

The contrast with Hill was marked and unambiguous, commencing with a new perspective on the value of defamatory communications in the context of Charter values. In Hill, Justice Cory held that defamatory communications were "inimical to the search for truth," and "very tenuously related to the core values" that underlie freedom of expression. In Grant, Chief Justice McLachlin recited the three core rationales or purposes of freedom of expression set out in Irwin Toy c. Quebec: democratic discourse, truth-finding and self-fulfillment, and found that only the third — self-fulfillment — was of "dubious relevance to defamatory communications on matters of public interest." The court held that a free flow of information engenders truth-finding and is critical in a democracy on matters of public interest: "It is simply beyond debate that the limited defences available to press-related defendants may have the effect of inhibiting political discourse and debate on matters of public importance, and impeding the cut and thrust of discussion necessary to discovery of the truth." The statements in Hill "must be read in the context of that case."

The decisions differed on the utility of the defences of justification and qualified privilege from a media perspective. Whereas the court had opined in Hill that it was "not requiring too much of individuals that they ascertain the truth of the allegations they publish," Chief Justice McLachlin critiqued the defence of justification on exactly that basis in Grant. According to the court, freedom of expression encompasses more than just statements that can be proven to be substantially accurate in a court of law after the fact, and more than communications that do not injure reputation. Requiring publishers to be certain of their ability to prove statements in a court of law before publication may have a chilling effect on communications.

Conservative interpretations of qualified privilege often leave the defence unavailable to the media, held McLachlin. Qualified privilege requires, inter alia, the existence of an occasion in which there is a compelling public duty or private interest justifying the making of a communication, and also that the recipient of the communication have a corresponding interest in receiving it. In a media context, where communications are made to the "world at large" rather than to a narrower audience with a particular stake in the communication, there was uncertainty about "when, if ever, a media outlet can avail itself" of the defence.

Privacy should not be conflated with the protection of reputation, the court held, in a further shift from Hill. Privacy rights had been relied upon in Hill to fortify the sturdy protection granted to reputation in the decision. However, in Grant, the Supreme Court found that the purpose of defamation law is to "provide recourse against false injurious statements," while privacy law "typically focuses on keeping true information from the public gaze" [court’s italics].

Charter values, as distinct from a direct application of Charter rights, drove the analysis in Grant, and the finding that the common law must be amended to reflect such values. The Supreme Court’s conclusion in Hill that freedom of expression and protection of reputation are "twin values" and "equally important rights" has given way to recognition of the primacy of freedom of expression in a public interest context as long as there is "adequate" protection for reputation.

On that basis, the court recognized a new defence, "responsible communications on matters of public interest," named thus in order to capture a broader class of defendants than traditional media. It is available to "anyone who publishes material of public interest in any medium." The defence will apply where the publication is on a matter of "public interest" and the publisher was diligent in attempting to verify the allegation, having regard to: (a) the seriousness of the allegation, (b) the public importance of the matter, (c) the urgency of the matter, (d) the status and reliability of the source, (e) whether the plaintiff’s side of the story was sought and accurately reported, (f) whether the inclusion of the defamatory statement was justifiable, (g) whether the defamatory statement’s public interest lay in the fact that it was made rather than its truth, and (h) any other relevant circumstances. The threshold question of "public interest" is principally, but not exclusively, a question of law. Mere curiosity or prurient interest is not enough to meet the "public interest" test. Some segment of the public must have a "genuine stake" in the matter.

McCarthy Tétrault Notes

Interestingly, Justice McLachlin, as she then was, sat on the panel of Supreme Court Justices concurring with Justice Cory in the 1995 decision of Hill.

In Grant, the Supreme Court elected not to recognize the new defence as an extension of the defence of qualified privilege. Qualified privilege attaches to a particular occasion rather than to a speaker or a communication. It is the exigency of the occasion and the public duty or private interest that defines the scope of the communication that will be protected. On the other hand, the new defence applies to communications where there is a public interest in the communication and the speaker has been diligent in attempting to verify the allegations made.

Chief Justice McLachlin expressly recognized in Grant the shift in emphasis away from the falsity of a defamatory communication to the conduct and diligence that led to the publication of the same. She acknowledged that the law had to take a "balanced approach" reflecting the interests of both plaintiffs and defendants, and agreed with the Ontario Court of Appeal decision in Cusson v. Quan that the shift was an "acceptable price to pay for free and open discussion" in a democracy.

The court was not persuaded by the argument that a defence based on the defendant’s conduct could lead to costly and protracted litigation over journalistic practices about which the plaintiff would have no advance knowledge. Procedural objections could not negate the shortcomings of the traditional law.

The court recognized the "reportage" exception to the principle that repeating another party’s allegations (the "Repetition Rule") is not a defence to defamation. Where the "dominant public interest" lies in the fact that a communication was made, rather than in the truth of its contents, the reportage exception will apply.

A communication is defamatory if: (1) the impugned words would tend to lower the plaintiff’s reputation in the eyes of a reasonable person; (2) the words did in fact refer to the plaintiff; and (3) the words were published, meaning that they were communicated to at least one person other than the plaintiff.


E-Discovery

Litigation Case Management: The Impact of Electronic Evidence on Litigation Preparation and Practice
by: David Gray, Thomas N.T. Sutton, Andrew Wilkinson

This article is an abridged version of an article Mr. Sutton presented as Course Leader at Federated Press’ 4th E-Discovery Program: Best Practices and Procedures Relating to E-Discovery, March 1 & 2, 2010, Toronto

The electronic era continues to transform business and society and the volume of electronic information continues to grow. By one estimate, mankind created 150 exabytes (billion gigabytes) of data in 2005. It is expected that mankind will create 1,200 exabytes in 20101. For lawyers, a failure to adapt to the electronic era by developing and applying project management skills and tools to effectively work with clients to manage electronic evidence will be professionally fatal. For those who lead the way in the collection and use of electronic evidence in ways that provide value to their clients, the rewards will be significant. Similarly, clients that develop and implement electronic record management policies and practices stand to benefit the most from their counsel’s litigation project management skills through improved litigation outcomes. Litigation readiness, which includes a client’s and counsel’s ability to effectively locate, preserve and collect electronic evidence and then manage this evidence through to resolution, will have a direct impact on litigation risk assessment, litigation risk management, and litigation outcomes.

The recent amendments to the Ontario Rules of Civil Procedure have brought the litigation process more in line with the objectives and approach of litigation project management. Early case assessment, including an assessment of the parties’ evidentiary needs, is now strongly encouraged. Likewise, several of the amendments reflect a recognition that yesterday’s approach to evidence collection, disclosure and use at trial — an approach that was created when documents were largely in paper format in much smaller volumes — can no longer accommodate today’s technology.

Early Case Assessment and Planning

a) Proportionality

The objectives of project management — avoiding unnecessary expense, matching the complexity and risk of the matter to the expertise and expense of the available resources, and enhancing the control and management of costs — are meant to ensure that the means are proportionate to the ends. This proportionality principle, so essential to project management, is now enshrined in the Rules.

Rule 1.04(1.1) provides, as an overarching principle of interpretation, that the Court shall make orders and give directions that are proportionate to the importance and complexity of the issues, and the amount involved, in the proceeding. In addition to the general principle in Rule 1.04(1.1), Rule 29.2 expressly requires that proportionality be considered on all motions relating to discovery. When combined, these two Rules now require counsel, clients and the court to consider the following proportionality principles throughout the litigation process:

  • whether the time required and expense to produce the information would be unreasonable in light of the importance and complexity of the issues, and the amount involved, in the proceeding (Rules 1.04(1.1) and 29.2.03(1)(a) and (b));
  • whether requiring the party to produce the information would cause him or her undue prejudice balanced against the importance and complexity of the issues, and the amount involved, in the proceeding (Rules 1.04(1.1) and 29.2.03(1)(c));
  • whether requiring a party to produce the information would unduly interfere with the orderly progress of the action balanced against the importance and complexity of the issues, and the amount involved, in the proceeding (Rules 1.04(1.1) and 29.2.03(1)(d));
  • whether the information is readily available from other sources (Rule 29.2.03(1)(e)); and
  • the volume of documentation in light of the importance and complexity of the issues, and the amount involved, in the proceeding (1.04(1.1) and 29.2.03(1)(a) and (b)).

The requirement that these principles be considered throughout the litigation process ensures that relevance is not the sole determinant of the obligation to disclose and produce. Relevance is now but one of several factors. The proportionality factors (cost of production, importance of the records, importance of the case, amount of money at issue) are more concerned with pragmatism than with legal rules. Proportionality means that, in an average case with a smaller dollar value, a party’s production obligations should be less onerous than in a case with a larger dollar value or in a case where the interests at stake are of greater importance.

This amendment should, if properly applied, provide some degree of reassurance to clients who have seen legal costs associated with litigation, and discovery in particular, skyrocket in recent years — often in extreme disproportion to the amount or issues at stake in the litigation.

b) Relevance

The amendments to Rules 30 and 31 represent a recognition that the old "semblance of relevance" test for disclosure is no longer suited to the digital age, and that without substantive reform, access to civil litigation for individuals and corporations was at risk due to the sheer volume of electronic information that might have a "semblance of relevance." These amendments, which introduce the new standard of "relevance," will hopefully be applied in conjunction with the proportionality principles in a way that brings the litigation process into line with the business and financial realities of civil litigation. Already the court has recognized that the new standard is "stricter" than the old "semblance of relevance" test and may require an evidentiary foundation before a finding of relevance will be made2.

As was noted above, in order to determine the potential relevance of documents that may be in the possession of the client, or that may be in the possession of adverse or third parties, both counsel and client must take the time to carefully define the legal elements of the claim or defence and determine, in a general sense, what evidence will be needed to support or respond to the legal elements of the claim or defence. Once this has been done, Rules 30 and 31 provided a useful starting point for the development of a plan for the preservation, collection, review and production of relevant documents, including electronic documents.

  • Who: Rule 31.06(2) requires both counsel and client to identify which individuals might reasonably be expected to have knowledge of transactions or occurrences relevant to the issues in the action. In addition to identifying the potential witnesses in the case, the document custodian list flows naturally from this Rule. Likewise, since this Rule applies to all parties, it is worthwhile identifying individuals from the other parties and non-parties to assist with the development of your own document and information requests and the eventual development of the discovery plan.
  • What: Under the Rules, "document" includes a sound recording, videotape, film, photograph, chart, graph, map, survey, book of account, and data and information in electronic form (Rule 30.01(1)(a)). Every document relevant to any matter in issue in an action that is or has been in the possession, control or power of a party to the action must be disclosed (Rule 30.02(1)).
  • Where: A document is be deemed to be in a party’s power if that party is entitled to obtain the original document or a copy of it and the party seeking it is not so entitled (Rule 30.01(1)b)) and relevant documents in the possession, control or power of the party’s subsidiary or affiliated corporation or corporation controlled directly or indirectly by the party (Rule 30.02(4)). Having determined the "who, what and where," counsel and client can now begin planning the preservation, collection, review and production process, including issues such as staffing and the retainer of third-party consultants, if necessary.

c) Discovery Plans

The addition of the discovery plan requirement marks an important development in the Rules that, depending on the conduct of counsel and the approach of the court over the next several years, could fundamentally change the cost-effectiveness of civil litigation in Ontario. If this process works as intended, the overuse, and occasional tactical misuse, of the discovery process will be reined in and counsel will focus on producing and requesting only the evidence that is material to the dispute. In particular, the discovery plan process has the potential to reduce, or at the very least, enhance, the value of the costs associated with the preservation, review and production of electronic evidence.

The discovery plan is required by Rule 29.1 and must be updated as the litigation progresses. The Rule requires that the parties agree to the following:

  • The Scope of Production: The intended scope of documentary production, taking into account the relevance, costs and the importance and complexity of the issues in the particular action (Rule 30.02).
  • The Process for Production: The timing, costs and manner of documentary production by the parties and any other persons with access to relevant documentation (Rule 30.04).
  • The Examinations for Discovery: The names of the individuals who will be produced for oral examination for discovery and information respecting the timing and length of the examinations (Rule 31).
  • Other Forms of Discovery: Where applicable, a plan for the inspection of property (Rule 32) and/or medical examinations (Rule 33).
  • Other Factors: Any other information intended to result in the expeditious and cost-effective completion of the discovery process that is disproportionate to the importance and complexity of the action.

A model discovery agreement has been drafted by the Ontario E-Discovery Implementation Committee (EIC); it can be found at http://www.oba.org/en/publicaffairs_en/E-discovery/model_precendents.aspx.

The discovery plan requirement provides an important early opportunity for the parties to meet and engage in a discussion about the issues and what documents and other information are truly required to either resolve or litigate the dispute. Assuming counsel can co-operate, there are many foreseeable benefits to this process. For example, many of the documentary and other requests traditionally made at examinations for discovery often required undertakings. The discovery plan process now provides an opportunity for these requests to be made well in advance of the examinations. This provides counsel with an opportunity to consider the feasibility of the request (i.e., is the request proportionate) and ensure that relevant documents are produced before the examinations for discovery take place. Likewise, the discovery plan process provides counsel with an opportunity to discuss why particular types of documents or documents in the possession of a particular custodian may or may not be relevant. This has the potential of streamlining the production process by allowing the parties to focus on the production of specific documents from specific "high-value" custodians, while at the same time ensuring that relevant documents that may be in the possession or control of peripheral custodians are preserved in the event that it is necessary to review their collections.

Beyond the inherent value of cooperating with counsel to develop a plan for the litigation, a failure to plan also carries procedural consequences. Where the parties fail to either agree to a plan or update the plan in the face of changed circumstances, the court has the discretion to refuse to grant any discovery relief and may award costs against obstructive parties.

Lastly, and perhaps most importantly, Rule 29.1 also requires that the parties consult and have regard to the Sedona Canada Principles of Addressing Electronic Discovery. This represents an important recognition that electronic evidence is no longer something that is only engaged in a few cases. It is now essential and expected that counsel and clients will plan for the preservation, review and production of electronic evidence. As is discussed below, for the parties to be able to comply with this requirement, the parties and their counsel must first, on their own, answer several key questions relating to electronic evidence before meeting opposing counsel to devise a discovery plan.

Litigation Project Management and Electronic Evidence

Because the growth of electronic documents and communications happened so quickly, and often in an organic as opposed to a structured way, counsel and clients have often been ill-equipped, both organizationally and conceptually, to efficiently locate, cull and review the electronic documents. Some counsel and clients have adapted or are adapting. Yet, despite these efforts, the sheer size of the document collections that need to be reviewed for relevance, privilege, confidentiality and privacy continues to pose a mounting challenge. The key to meeting this challenge is early and effective project management.

As was noted by the Honourable Coulter Osborne in the Civil Justice Reform Project Report, there are four key issues relating to electronic evidence:

  • Scope: When fulfilling an obligation to search and disclose documents, to what extent must a party search for and disclose information found in all electronic sources?
  • Preservation: What measures should parties involved in litigation, or imminent litigation, follow to ensure that all relevant electronic data is preserved to avoid subsequent potential tort litigation (i.e., allegations of spoliation)?
  • Review: What procedures should be adopted to review, efficiently and cost-effectively, electronic documents to determine which documents are relevant and which are not?
  • Production: Under what circumstances should parties produce documents electronically (rather than in hard copy)? In what electronic format should they be produced? Should documents in hard copy be produced electronically3?

As was noted above, early case assessment allows both counsel and client to define the client’s objectives, define the legal issues in the case, and determine, in a general sense, what evidence will be needed. This information provides the context in which counsel and client can then determine what steps will be necessary and proportionate to deal with these four issues. A helpful Annotated E-Discovery Checklist (with suggestions on how to minimize e-discovery costs), drafted by the Ontario EIC, can be found at http://www.oba.org/en/publicaffairs_en/E-discovery/model_precedents.aspx

The Scope

Determining the "who, what, where" for the preservation, collection, review and production of relevant documents is the lawyer’s responsibility, but the source of the information needed to answer the "who, what, where" is the client. For electronic evidence, it is essential that counsel understands, certainly in advance of agreeing to a discovery plan, but ideally at the outset of or before litigation strikes, the client’s business and how it manages its paper and electronic documents.

For external counsel, the nature of electronic evidence reinforces the need to "know your client." Unless the client is retaining your firm as counsel for the first time, it is not good client service to get to know the operational side of your client’s business after litigation has commenced. In the electronic age, external litigation counsel must:

  • understand the client’s approach to document creation, storage, recovery and review;
  • understand the client’s approach to litigation preparedness and management;
  • have an internal team structure in place to ensure continuity and institutional memory about the client’s approach to documents and litigation preparedness and management; and
  • regularly ask about the client’s objectives, expectations and plans in these areas, listen and provide insight and experience, provide advice to the client, and configure legal services accordingly and build on this shared knowledge once litigation has commenced.

McCarthy Tétrault Notes

Clearly there is no "one-size-fits-all" solution. The work plan and the discovery plan will depend on a number of factors, including the importance and complexity of the legal issues, the amount involved, the reputational or business risks involved, privacy concerns and other client goals.

When combined with litigation project management skills and tools, the recent amendments to the Rules present an opportunity to rein in skyrocketing litigation costs and bring all counsel in line with the electronic era. Whether clients receive the full benefit of these amendments depends on the extent to which they take the opportunity (and assistance, where needed, from external counsel) to consider their discovery strategy and approach to document management in general. Those that do should expect to see some of the cost savings and efficiencies the amendments were designed to achieve.


1 The Economist, February 25, 2010, "The Data Deluge"

2 In Pederson v. Shtulberg, 2010 ONSC 335 (S.C.), Master Muir stated that the new test should be "stricter" than the old one and proceeded to determine relevance based upon the legal issues and a clear evidentiary foundation demonstrating relevance. It seems that simply relying on the pleadings to establish relevance, which was generally enough under the old test, will no longer be enough to establish relevance except in the clearest of cases.

3 Civil Justice Reform Project Report, pages 61 to 62


International

Yugraneft Corp. v. Rexx Management Corp.: Victors in International Arbitration Proceedings Must Look Out for Local Limitation Periods
by: John W. Boscariol, John P. Brown, Orlando E. Silva

Arbitration as an option for dispute resolution in international commercial transactions presents a unique set of issues that are often not given the attention and due care they deserve. Perhaps the primary attraction of international arbitration is that an award rendered pursuant to a valid arbitration clause has virtual finality and international currency in terms of enforcement. This award is final and will not be subject to appeal, as is the case with court judgments. The intention is that the parties will be able to enforce an arbitration award with minimal court intervention.

This is precisely what Yugraneft Corporation tried to do in Alberta, where the arbitral debtor Rexx Management Corporation was located. Unfortunately, Yugraneft waited too long and the local limitation period for enforcing its arbitral award had expired. Consequently, its application in 2006 in the Alberta courts for the recognition and the enforcement of the foreign arbitral award that it had secured against Rexx, in Russia in 2002, was time-barred and was dismissed.

The Facts

Yugraneft, a Russian corporation that operates oilfields in Russia, purchased materials from Rexx, an Alberta corporation. After a contractual dispute, Yugraneft was successful in its arbitration claim against Rexx before the International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation, and was awarded approximately US $1M in damages by the arbitral tribunal in September 2002. More than three years later, in January 2006, Yugraneft applied to the Alberta Court of Queen’s Bench for recognition and enforcement of the arbitral award. The court (subsequently upheld by the Court of Appeal) dismissed the application on the basis that it was time-barred under the applicable two-year limitation period of the Alberta Limitations Act.

The SCC Decision

The SCC upheld the Alberta Court of Appeal decision, notwithstanding interventions and submissions from the ADR Chambers Inc., the Canadian Arbitration Congress, and the London Court of International Arbitration (in addition to the argument from Rexx) that the Alberta Limitations Act did not apply.

The court rejected the argument that the enforcement and recognition of foreign arbitral awards are not subject to limitation periods, notwithstanding that neither the New York Convention nor the Model Law expressly impose a limitation period on recognition and enforcement. Even though the list of grounds set out in the Convention and the Model Law, on which the recognition and enforcement of an award may be refused, do not refer to local limitation periods, the court relied on Article III of the New York Convention. This convention stipulates that recognition and enforcement shall be "in accordance with the rules of procedure of the territory where the award is relied upon." Rothstein J., writing for a unanimous court, noted that notwithstanding the exhaustive list of grounds under Article V to the New York Convention on which recognition and enforcement may be resisted, the courts in the enforcing State may refuse to recognize and enforce an award on the basis that the proceedings are time-barred. The court held that for the purposes of the New York Convention, "any limitation period that, under domestic law, is applicable to the recognition and enforcement of a foreign arbitral award, is a ‘rule of procedure’" under Article III of the New York Convention.

McCarthy Tétrault Notes

Enforcement of International Arbitral Awards in Canada

Canada and the provinces have clear sets of rules for the enforcement of international arbitral awards. In 1986, Canada, with the consent of the provinces, ratified the "Convention on the Recognition and Enforcement of Foreign Arbitral Awards" (New York, 1958) (the "New York Convention")1 and adopted the UNCITRAL Model Law on International Commercial Arbitration (the "Model Law"). In terms of enforcement, international arbitral awards, subject to very limited specified exceptions, are enforceable in every Canadian jurisdiction. Canada and the provinces have clear sets of rules for the recognition and enforcement of arbitral awards, although the form of implementing legislation varies. Many provinces, such as Alberta and Ontario, implemented the New York Convention and the Model Law within the same statute (i.e., the Alberta International Commercial Arbitration Act and the Ontario International Commercial Arbitration Act). However, Alberta attached both the New York Convention and the Model Law to its respective International Commercial Arbitration Act, whereas Ontario has only attached the Model Law on the basis that it, together with the introductory provisions of the Act, served to implement the New York Convention in Ontario. Other provinces, such as British Columbia, enacted international commercial arbitration acts to implement the Model Law and separate foreign arbitral awards acts to implement the New York Convention.

Both the New York Convention and the Model Law limit essentially the same grounds on which enforcement of an international arbitral award may be refused. These include (i) the incapacity of a party, (ii) a lack of notice or inability to present case, (iii) the award decides matters not within the scope of the arbitration agreement, (iv) the tribunal was not properly constituted, (v) the award has been set aside or suspended in the originating jurisdiction; or (v) the award is contrary to public policy.

Significance of the Decision

This decision is significant because the court resisted enforcing and recognizing an international arbitration award on the basis of a provincial limitation period as opposed to any of the enumerated grounds for refusal under the New York Convention or the Model Law.

It will be interesting to see how the jurisprudence develops in other Canadian jurisdictions as there are differences in how each province has implemented the New York Convention and the Model Law, and curious results in terms of enforcement may follow. For example, Ontario’s International Commercial Arbitration Act, which implements both the Convention and the Model Law, but only appends the Model Law, does not have a provision equivalent to Article III of the New York Convention as does Alberta’s International Commercial Arbitration Act, which was relied on by the Supreme Court.

Successful arbitration parties with awards in hand, wishing to enforce an award in a given province, should take careful note of the provincial legislation that applies to international commercial arbitration awards and of any provincial limitation period legislation that may be applicable when the award is presented to the court for recognition and enforcement.


1 Under the New York Convention, the procedure for obtaining the enforcement of an arbitral award is straightforward. The arbitral award does not have to be confirmed by the courts in the jurisdiction of the seat of arbitration. Under Article IV of the New York Convention, the party seeking enforcement is only required to supply the court in the enforcing jurisdiction with a duly authenticated original award and either the original or certified copies of the arbitration agreement.


Farley's Reflections

To Be or Not to Be… a (Truly Qualified) Expert Witness
by: James Farley

The practical definition of an expert witness is someone who wears a suit and a tie, carries a briefcase, and comes from over 300 kilometres away. When I was a trial judge, I found that there were supposed to be experts on every topic under the sun (and sometimes even within the shadows of the dark side of the moon). Two questions come to mind: (1) How many of these proposed experts were helpful, let alone necessary?; and (2) Was the briefcase just an expensive lunchbox?

While many trials might benefit from expert testimony, it is interesting to look at how many of these proffered experts were in fact truly qualified to testify. Allow me to expand on some of the pitfalls and provide some insight as to what is required in order that a trial proceed in a fair and efficient manner to reach a just result.

There have been some refinements to the test since Sopinka J.’s advice in R. v. Mohan, [1994] 2 S.C.R. 9. However, the summary of that case succinctly frames the issues:

Admission of expert evidence depends on the application of the following criteria: (a) relevance; (b) necessity in assisting the trier of fact; (c) the absence of any exclusionary rule; and (d) a properly qualified expert. Relevance is a threshold to be decided by the judge as a question of law. Logically relevant evidence may be excluded if its probative value is overborne by its prejudicial effect, if the time required is not commensurate with its value or if it can influence the trier of fact out of proportion to its reliability. The reliability versus effect factor has special significance in assessing the admissibility of expert evidence. Expert evidence should not be admitted where there is a danger that it will be misused or will distort the fact-finding process, or will confuse the jury.

Expert evidence, to be necessary, must likely be outside the experience and knowledge of a judge or jury and must be assessed in light of its potential to distort the fact-finding process. Necessity should not be judged by too strict a standard. The possibility the evidence will overwhelm the jury and distract them from their task can often be offset by proper instructions. Experts, however, must not be permitted to usurp the functions of the trier of fact causing a trial to degenerate to a contest of experts.

Expert evidence can be excluded if it falls afoul of an exclusionary rule of evidence separate and apart from the opinion rule itself. The evidence must be given by a witness who has shown to have acquired special or peculiar knowledge through study or experience in respect of the matters on which he or she undertakes to testify.

In summary, expert evidence which advances a novel scientific theory or technique is subjected to special scrutiny to determine whether it meets a basic threshold of reliability and whether it is essential in the sense that the trier of fact will be unable to come to a satisfactory conclusion without the assistance of the expert. The closer the evidence approaches an opinion on an ultimate issue, the stricter the application of this principle.

Sopinka J. referred to R. v. Melaragni (1992), 73 C.C.C. (3d) 348 (Ont. Gen. Div.) in which Moldaver J. applied a threshold test of reliability as to what he described as "a new scientific technique or body of scientific knowledge" (namely, "What degree of reliability has the proposed scientific technique or body of knowledge achieved?") along with two other factors to be considered in such circumstances: (1) Is the evidence likely to assist the fact-finder (jury or judge) in its fact-finding mission, or is it likely to confuse and confound?; and (2) Is the fact-finder likely to be overwhelmed by the ‘mystic’ infallibility of the evidence, or will the fact-finder be able to keep an open mind and objectively assess the worth of the evidence?

Binnie J. also noted in R. v. J.-L.J., [2000] S.C.R. 600 at p. 615 that the Canadian courts were open to novel science (as mentioned in Mohan), but subject to the "reliable foundation" test that the US Supreme Court laid down in Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 US 579 (1993). This would cover:

  1. whether the theory or technique can be and has been tested;
  2. whether the theory or technique has been subjected to peer review and publication;
  3. the known or potential rate of error or the existence of standards; and
  4. whether the theory or technique used has been generally accepted.

In R. v. Trochym, [2007] 1 S.C.R. 239, the Supreme Court of Canada ruled that post-hypnosis testimony should not be allowed without the jury hearing expert evidence as to its reliability.

Dickson J.’s observation in R. v. Abbey, [1982] 2 S.C.R. 24 at p. 42 is important when considering whether expert testimony is warranted:

With respect to matters calling for special knowledge, an expert in the field may draw inferences and state his opinion. An expert’s function is precisely this: to provide the judge and jury with a ready-made inference which the judge and jury, due to the technical nature of the facts, are unable to formulate. ‘An expert’s opinion is admissible to furnish the court with scientific information which is likely to be outside the experience and knowledge of a judge or jury. If on the proven facts a judge or jury can form their own conclusions without help, then the opinion of the expert is unnecessary.’

I would note in passing that it is not necessary to have an expert merely make some arithmetical calculations; yet there have been trials that would have benefitted from an adding machine rather than a hocus-pocus witness.

In Smith v. Inco Limited, 2009 CanLII 63374 (ON S.C.), Henderson J. emphasized at para. 28 that the test is not whether the testimony is helpful, but whether it is necessary. He went on to state in the next paragraph:

I accept that there is a certain expertise exhibited by Hilsee in inputting the data, organizing the data, creating the spreadsheets, and creating search engines; and that technical organizational expertise is beyond most triers of fact. However, it is not necessary to have the data organized in this way in order to determine the issues. That is, the technical expertise of being able to create an organized spreadsheet is not necessary for a judge to read, identify, organize and make findings of fact regarding the data in question.

The criminal courts have been fertile fields as to how to address expert opinion evidence. However, it should be noted that all of the criminal case analyses are equally applicable to civil litigation. Indeed it is the civil courts (with their unfortunate tendency to "relax" the rules of evidence generally) that need to more carefully consider the admissibility of such evidence. All too often in "judge alone" trials, if proffered evidence is questioned, one hears the refrain of: "Well, I will let it in and it will just go to weight." The fact of the matter is: if it is not admissible, it does not even get put on the weighing machine. I would therefore take issue with the seeming relaxation of that when Binnie J. observed at page 612 of R. v. J.-L.J.:

… the court has emphasised that the trial judge should take seriously the role of "gatekeeper." The admissibility of the expert evidence should be scrutinized at the time it is proffered, and not allowed too easy an entry on the basis that all the frailties could go at the end of the day to weight rather than admissibility.

Similarly, in Johnson v. The Town of Milton (2008) 91 O.R. (3d) 190 (C.A.), Moldaver J.A. observed that there may be a more flexible approach to admissibility in civil cases if it were a judge alone trial, as opposed to a jury trial. But he certainly did not approve of "anything goes," pointing out that this approach is legally incorrect and wastes time. In Wightman c. Widdrington (Estate of), 2009 QCCA 1542 (CanLII), it was noted that I had observed in another case when speaking at the justice system, that it "…is to be there for everyone — everyone is entitled to their day in Court, but not someone else’s day. Trials should not be unnecessarily extended by counsel attempting to overload their case by superfluous ‘experts.’"

The criminal courts are also "green" in their way — that is, they believe in recycling names. Cases in point are R. v. Abbey, 2009 ONCA 624 (CanLII) and R. v. Mohan, 2010 ONCJ 52 (CanLII) — the names are the same, but the accused are different from those in the earlier cases. In the Abbey case, the issue was whether an expert could give an opinion on the meaning of a tear drop tattoo worn by a gang member. There were alternative meanings: (i) that there had been a death of a fellow gang member or family member of the tattoo wearer; (ii) that the tattoo wearer had served time in prison; or (iii) that the tattoo wearer had murdered a rival gang member. On appeal, the expert was permitted to give all possible meanings, but not an opinion as to the which of the three meanings seemed most likely (namely murder — remember the admonition about usurping the role of the trier of fact). Doherty J.A. at para. 70 stated that the secondary use of this opinion evidence would not go directly to the ultimate issue of identity and did not invite the jury to move directly from acceptance of the opinion to a finding of guilt. In the Mohan case, which involved impaired driving, the accused was able to delay the conclusion of his impaired driving trial for six months as a result of his objections regarding the adequacy of a toxicology report. However, after noting that the accused had admitted he was so drunk he remembered nothing of the crash, with the result that the toxicology report was redundant, the judge observed in a single footnote that the accused did not present any expert evidence when he testified at the trial.

In Consulate Ventures Inc. v. Amico Contracting & Engineering (1992) Inc., 2010 ONSC 2181, Newbould J. ruled that the expert must testify within his own knowledge and not merely assemble in his report the conclusions of other witnesses. The evidence of the conglomerator would be unreliable as there would not be the opportunity for testing that evidence under examination. Further, one would not know what information was provided to these other persons.

It is important that the qualification of an expert witness be carefully scrutinized and that, if accepted, the area of expertise be suitably restricted. Too often all counsel in a case will accept a witness as an expert in a wide-open category that allows the witness to wander outside the scope of his qualification. In Canadian 88 Energy Corp. v. Union Carbide Canada Inc., 2009 ABCA 126 (CanLII), the witness was not qualified as an expert in corrosion, but was acknowledged in certain other areas. An expert may be qualified on the basis of the "school of hard knocks" experience, as opposed to being formally trained, as in R. v. N.O., 2009 ABCA 75 (CanLII). An expert, if properly qualified by training, study and/or experience, may opine on a standard notwithstanding that qualification is retroactive in the sense that it is subsequent to the time of the standard in question, as in Cleveland v. Hamilton Health Science Corporation, 2009 CanLII 59152 (ON S.C.).

In R. v. Candir, 2009 ONCA 915 (CanLII), Watt J.A. noted at paragraphs 59-60:

[59] A party who meets the requirements of a listed or the principled exception to the hearsay rule removes its exclusionary features as a barrier to admissibility but ascension over one barrier to admissibility does not preordain reception. A trial judge has a residual discretion to exclude otherwise admissible evidence, including admissible hearsay, where its impact on the trial process (costs) exceeds it value as to the correct disposal of the litigation at hand (benefit). The prejudicial effect of the evidence may overwhelm its probative value. Introduction of the evidence may involve a significant expenditure in time, not commensurate with the value of the evidence. The evidence may mislead because of its effect on a trier of fact, especially a jury, may be disproportionate to its reliability…

[60] The general exclusionary rule described in the preceding paragraph is sufficiently expansive to permit exclusion in order to prohibit or reduce the needless presentation of cumulative evidence. This forensic piling on of evidence by the acre unnecessarily lengthens trials, defuses their focus and diverts the attention of the trier of fact. Cumulative evidence, whether testimony, exhibits or both, often occupies a borderland around the periphery of the case, adding nothing to the contested issues, preferring instead to suffocate that trier of fact with the uncontroversial or marginal.

So if a trial judge in a criminal case has the discretion to exclude otherwise admissible evidence, then a fortiori a trial judge in a civil trial may take that action. It is highly desirable for counsel to arrange with the civil court in advance of the trial how and what expert evidence will be advanced and permitted. Traditionally, this was considered to be the exclusive jurisdiction of the actual trial judge. However, if this is not feasible, it would be helpful for all counsel to agree that a "case management" judge be authorized to take on this responsibility.

There is a continued need to scrutinize the evidence as delivered by a qualified expert as it is necessary to evaluate the potential prejudicial effect on the trial fairness: R. v. Ranger, 2003 CanLII 32900 (ONCA).

In Maple Leaf Foods Inc. v. Schneider Corp. (1998), 42 O.R. (3d) 177 (C.A.), Weiler J.A. for the Court, at pp. 194-5, observed that I was correct in not admitting evidence, saying:

Farley J. ruled that the qualifications of the experts related to corporations, their securities, take-over bids and directors’ obligations. He declined to receive the experts’ reports on three bases: (i) that the opinions expressed related to domestic law, a matter upon which a court ought not to receive opinion evidence; (ii) that there was no specialized and standardized body of conduct to study in this area; and (iii) that he did not need the assistance of the experts and understanding the evidence or the concepts and principles involved.

I had noted Sopinka, Lederman and Bryant, The Law of Evidence in Canada (1992) at page 545 that: "Questions of domestic law as opposed to foreign law are not matters upon which a court will receive opinion evidence." Of course, if the trial involves foreign law, unless it is otherwise proven by a qualified expert in the laws of that foreign jurisdiction, it is presumed that the foreign law in question is identical to domestic law: ABN Amro Bank N.V. v. BCE Inc., 2003 CanLII 64276 (ON S.C.) at para. 13.3.

I must say that I was the proposed beneficiary of more than my fair share of expert witnesses who would assist me with respect to domestic law. In each case I was obliged to say that, like it or not, I, as the trial judge was the expert in Ontario and Canadian law. While I sympathize with the concern of the judge in Taubner Estate (Re), 2010 ABQB 60 (CanLII) at paras. 336-337:

[that the proposed lawyer expert] knows far more about corporate and commercial law than I, and his evidence would be of assistance to me. It is unclear why the lawyer’s affidavit in R. v. Q.A.M., 2005 BCCA 615 (CanLII) had been ruled inadmissible. The B.C. Court of Appeal’s approach was novel: reject the affidavit but treat it as if it had been a submission by counsel. I need not fall back on that approach here, as I have ruled Mr. Tod’s report in evidence to be admissible.

However, the B.C. Court of Appeal’s approach is simply a variation of what I believe the proper approach should be — recognizing that in this age of specialization, it is relatively unlikely that a judge of a court of general jurisdiction will have been a specialist in the area involved in the trial. It is the role of counsel appearing to try to persuade the judge as to what should be the law and its correct interpretation. If lead counsel is not confident of being able to so educate the judge, then that counsel should consider retaining the "expert" as co-counsel to deal with that area in argument. Alternatively, the expert could assist lead counsel in the preparation of a memorandum of law or factum to be provided to supplement oral argument.

It is an unfortunate reality that some counsel are perhaps so overwhelmed by the seeming complexity of the case that they present proposed expert witness upon expert witness. This has led to many trials deteriorating into a battle of the experts and of how many experts can dance on the head of a pin. The situation in Ontario is that according to the Ontario Evidence Act, each party is restricted to no more than three expert witnesses, except with leave of the court. That is three experts in total, not the bastardized view that the restriction was merely three experts on each issue or topic. See Bank of America v. Mutual Trust Co., 1998 CanLII 14679 (ON S.C.), a case where I was prompted to analyze this question because one side was proposing 13 experts — which of course prompted the other side to retaliate (out of "fear of the unknown") with a substantial number in return. This case was favourably commented on by Hughes J. in Eli Lilly and Company v. Apotek Inc., 2007 FC 1041 (CanLII) concerning controlling numbers of experts in Federal Court cases.

Then of course there is a special place in one of the levels of Dante’s Inferno reserved for the biased proposed expert. A favourite of mine was the less-than-neutral and objective proposed witness in Bank of Montreal v. Citak, [2001] O.J. No. 1096 (S.C.J.). He admitted that he always took "the position of advocate for my client," and that "I’m paid a good fee," but insisted nevertheless that his advocacy views would never interfere with his independence or objectivity. Advocacy should never be dressed up as expert opinion. I did, however, admire him for his honesty when he said in his written material: "It is true, I do not have special expertise in receiverships." So I took him at his word!