“Those who cannot remember the past are condemned to repeat it”
– George Santayana
Over the holidays, many reflect over the past year in search of lessons learned for the coming year. In line with this tradition the Appeals Monitor is, once again, pleased to present our annual review of the most significant appeal decisions of the past year which we should be mindful of and which can be expected to impact Canadian employees and businesses for years to come.
OEB v OPG and ATCO v AUC: Power to the Regulators
Starting out our countdown are the companion decisions of Ontario (Energy Board) v Ontario Power Generation Inc, 2015 SCC 44 (“OEB”), and ATCO Gas and Pipelines Ltd v Alberta (Utilities Commission), 2015 SCC 45 (“ATCO”), (previously discussed here), in which the Supreme Court of Canada (“SCC”) held that utility regulators can assess the prudence of a utility’s costs with the benefit of hindsight. These decisions were included in our top ten Appeals to Watch in 2015.
Both cases involved utility regulators disallowing costs that the utilities claimed were prudent. (Generally, utilities are entitled to recover prudent costs from ratepayers.) OEB involved labour costs that the utility was obligated to pay under collective bargaining agreements (including following a binding arbitration). ATCO involved pension costs related to an annual cost of living adjustment. In both cases, the regulators relied upon after-the-fact benchmarking—i.e., comparing the subject costs to costs incurred by similar utilities.
The SCC held that statute and circumstances can mandate a specific methodology in determining the prudence or “reasonableness” of a utility’s costs. For example, committed costs (i.e., costs to which the utility is already committed) or statutory language referring to “prudently incurred” costs may mandate a “no-hindsight” approach that only looks at the information available to the utility at the time the decision to incur the cost was made. If the statute and circumstances do not mandate a specific methodology, then the regulator has discretion to choose the methodology. Absent statutory language to the contrary, there is no presumption of prudence, particularly when the onus of proof in a rate application is on the utility. The SCC held that the regulators’ decisions in both cases were not unreasonable.
OEB and ATCO affirm the broad discretion of utility regulators in determining whether costs are prudent (i.e., borne by ratepayers) or should be disallowed (i.e., borne by the utility or its shareholders). As noted by Abella J in her OEB dissent, this introduces some uncertainty into utility rate regulation. Moreover, the decisions legitimize a role for utility regulators to act as a countervailing force against the demands of unionized labour.
The OEB decision is also significant because it provides guidance on when and how a statutory decision-maker can participate in a judicial review of its own decision.
Tervita: No Predicting the Future in Merger Competition Cases
Tervita Corporation et al v Commissioner of Competition, 2015 SCC 3, was a long-awaited decision on the merger review test under the Competition Act (it was previously discussed here and was included on both the Appeals to Watch in 2014 and Appeals to Watch in 2015 lists).
In this decision, the SCC confirmed the proper analytical framework to apply to the “prevention” branch of s. 92(1). Justice Rothstein (writing for the entire Court on this issue) confirmed that a two-stage forwarding-looking “but for” market condition analysis should be used to determine if a merger gives rise to a substantial prevention of competition under s. 92(1). First the potential competitor must be identified, then it must be determined whether “but for” the merger, the potential competitor would have likely entered the market and had a substantial effect on competition. The Court clarified that the timeframe for likely entry must be discernable, based on evidence of when the potential competitor was realistically expected to enter the market (in absence of the merger). It was emphasized that, in performing this analysis, the Competition Tribunal should not look farther into the future than the evidence supports, as speculation is improper and mere possibilities are insufficient to meet the standard, nor should the Tribunal or courts try to make future decisions for companies.
A majority of the SCC also confirmed the proper approach to the “efficiencies defence” set out in s. 96 (one justice was in dissent). This was described as a balancing test, requiring analysis of whether the quantitative and qualitative efficiency gains of the merger outweigh the anti-competitive effects. The Tribunal has flexibility to choose which methodology should be used in light of the particular circumstances of each merger but the approach should be as objectively reasonable as possible, quantifying all effects that are realistically measurable and ensuring that the estimates provided are grounded in the evidence.
The SCC did not restrict at all the scope of the Competition Bureau’s power to review and undo mergers of any size, but it did comment briefly that this case (dealing with competition on a local scale) did not appear to reflect the policy considerations Parliament likely had in mind in in creating the efficiencies defence (although, it was technically available, given the current wording of the statute).
Overall, this decision should: (i) reduce complications in assessing competitive effects of mergers, since there cannot be any speculation about the future; and (ii) return an objective standard to the efficiencies defence, making it more predictable.
CBC v SODRAC: Copyright Shifts into Technological Neutrality
Canadian Broadcasting Corp v SODRAC 2003 Inc, 2015 SCC 57, was also identified as one of our top ten Appeals to Watch in 2015. In this decision (previously discussed here and here), the SCC addressed the scope of reproduction rights under the Copyright Act (whether broadcasters must pay royalties for creating “broadcast-incidental” internal copies made solely for the purpose of facilitating the broadcast of a performance) and clarified the principle of technological neutrality.
Justice Rothstein, for the SCC majority, found that broadcast-incidental copies engage copyright holders’ reproduction rights and therefore royalties were owed. The majority focused on the ordinary language of the Copyright Act, as opposed to more amorphous concepts such as balance between user and owner rights. The majority held that the principle of technological neutrality could not override the clear statutory language in the Act. Also, the principle was not violated, since making broadcast-incidental copies was not necessarily the result of using a particular technology but was rather a function of broadcasting activity. The right to create broadcast-incidental copies could not be implied from an existing “synchronization” licence, which permits incorporation of a musical work into a program.
In fixing the amount of royalties, the majority held that the Copyright Board must apply the principle of technological neutrality. In applying the principle, the Board should consider certain factors including the risks taken by the user, the extent of the investment the user made in the new technology, the nature of the copyright-protected work’s use in the new technology and the value contributed to the user by reproductions of the copyright-protected work. The SCC held that the Board had failed to take these principles into account and, as a result, its valuation of the royalties was unreasonable and should be set aside and remitted back to the Board for consideration.
In dissent, Abella J (Karakatsanis J concurring except on standard of review) held that the majority’s decision was a departure from the principle of technological neutrality and distorted the balance between users and copyright holders.
This case has significant ramifications for users of copyrighted works. Any copy of a work created in the process of preparing a media product can trigger reproduction rights and attendant royalties (subject to limited statutory exceptions). The principle of technological neutrality has been affirmed but delimited: where a user benefits from using a new, efficient technology which involves making additional copies, the user may have to pass some of that benefit to the copyright holder.
White Burgess: Six Degrees of Expert Evidence
The SCC addressed admissibility of expert evidence in White Burgess Langille Inman v Abbot and Haliburton Co., 2015 SCC 23 (previously discussed here and here). In this case, the Court tackled difficult questions about how trial judges should deal with proposed evidence from potentially biased experts and when such evidence should be excluded, finding the decision as to whether expert evidence should be admitted despite an interest or connection with the litigation is a matter of fact and degree.
A unanimous Court set out a two-step inquiry to determine the admissibility of expert evidence and held that an expert’s lack of independence and impartiality should be considered at both stages. Court clarified that expert witnesses have an overriding duty to the court to provide fair, objective and non-partisan opinion assistance and must be willing to carry out that duty. That is the first or threshold consideration included as part of the R v Mohan framework for admissibility. The threshold requirement was noted as being “not particularly onerous”; there must be a clear case of an actual lack of independence or impartiality for expert evidence to be excluded at the initial stage. At the second stage, less fundamental concerns about an expert’s impartiality and independence must be weighed by trial judges as part of a cost–benefit analysis to determine whether the expert evidence is sufficiently beneficial to the judicial process despite the potential harm.
While this decision does not entirely revamp the framework to be applied, the nuances adopted will affect trial judges’ approach to the evaluation of expert evidence in all cases going forward. This decision will, therefore, be important in all actions that involve expert evidence, particularly where there are issues relating to the admissibility of expert opinion evidence for reasons of bias and partiality.
Guindon: Getting AMPed Up is Constitutional
At issue were fines imposed by the Canada Revenue Agency (“CRA”) under s. 163.2 of the Income Tax Act, which allows the CRA to fine individuals who knowingly make false statements relied upon by others for the purposes of theAct. In this case, a lawyer received a small payment in exchange for her part in a scheme involving timeshares and charitable tax credits and was fined in an amount equivalent to the tax avoided.
The SCC considered two main issues in this case. The first was the procedural question of when the SCC would exercise its discretion to consider the constitutional issue raised even when, as here, notice of a constitutional question was not provided in the lower courts. A majority of the SCC (4 of 7 justices) held the Court ought to exercise its discretion to consider the Canadian Charter of Rights and Freedoms (“Charter”) issue since the issue was important and the Attorney General had not suffered prejudice. The dissent found the lack of notice was a bar to hearing the question.
Only the majority considered the second, substantive issue, which was whether proceedings under s. 163.2 of the Income Tax Act are, in substance, of an administrative nature, or are criminal in nature and thus attract the protections in s. 11 of the Charter. The majority considered the test for determining whether a fine has “true penal consequences”, which includes considerations of its magnitude, to whom it is paid, whether its magnitude is determined by regulatory considerations rather than principles of criminal sentencing, and the stigma associated with the penalty. They concluded that the fine and related proceedings in this case were meant to deter non-compliance and, although the fine was high, it did not constitute a true penal consequence. Therefore, the proceedings were administrative (not criminal) in nature and individuals assessed for penalties under s. 163.2 of the Income Tax Act are not “charged with an offence” so the protections under s. 11 of theCharter do not apply.
While each case involving an AMP will depend on its circumstances, this SCC decision may well have consequences in other areas of law, including in environmental matters, where the imposition of AMPs is now common practice.
Chevron v Yaiguaje: Foreign Judgment Day
In Chevron Corp v Yaiguaje, 2015 SCC 42, the SCC addressed the test for recognition and enforcement of a foreign judgment in domestic courts. This decision (previously discussed here, here and here) was identified as one of our top ten Appeals to Watch in 2015. This decision has important implications for both foreign corporations and their Canadian subsidiaries.
This case involved a long-running legal battle resulting in a US$9.51 billion Ecuadorian judgment for damages related to environmental pollution against Chevron. Chevron had no assets in Ecuador and it refused to pay the award, contending that the judgment was obtained through fraud or other illegal means. US courts had been sympathetic to Chevron’s allegations of fraud against the Ecuadorian court so the Ecuadorian plaintiffs sought enforcement of the judgment in Ontario against both Chevron and Chevron Canada, a wholly-owned subsidiary of Chevron that was not involved in the Ecuadorian action.
Justice Gascon, for a unanimous SCC, clarified the requirements for when a domestic court will have jurisdiction to hear a proceeding for recognition and enforcement of a foreign judgment: (i) the plaintiff proves a real and substantial connection between the dispute and the foreign court; (ii) there is presence-based jurisdiction over the domestically-named defendant (e.g., a corporate defendant carrying on business in the province); or (iii) the domestically-named defendant consents to the domestic court’s jurisdiction. In this case, Ontario could assume jurisdiction over Chevron, as it was not disputed that the Ecuadorian court had jurisdiction over the dispute that led to the foreign judgment. Traditional presence-based jurisdiction was established over Chevron Canada, as it carried on business in Ontario.
Importantly, the SCC clarified that the plaintiff does not need to prove a “real and substantial connection” between the province and the defendant or the subject-matter. It is not necessary that the defendant have assets in the province at the time of the proceeding because, in the era of globalization, assets move quickly between jurisdictions. It is not even necessary that the domestically-named defendant to be a party to the foreign judgment—in this case, jurisdiction extended to a corporate affiliate of the defendant from the Ecuadorian action. Justice Gascon emphasized that a recognition and enforcement action is, in essence, the enforcement of a debt.
However, the SCC noted that a defendant was free to argue forum non conveniens or make further defences against recognition and enforcement (e.g., based on fraud, denial of natural justice, or public policy) after the jurisdictional stage.
This SCC decision significantly increases litigation risk for companies that engage in activities abroad and that have assets in Canada, particularly in the resource extraction sectors, given that enforcement in Canada can be pursued against foreign companies and their Canadian affiliates even if neither party to the original dispute has a “real and substantial” connection to Canada. It continues the judicial trend over the past 25 years, concurrent with the growth of globalization and emerging technologies, of extending the boundaries of comity and recognition of foreign court decisions.
Potter: Have a Little Good Faith
In Potter v New Brunswick Legal Aid Services Commission, 2015 SCC 10, (previously discussed here, here and here), the SCC clarified the test for constructive dismissal and incorporated the requirement of good faith from its previous decision in Bhasin v Hrynew, 2014 SCC 71, into the law of constructive dismissal. This case was identified as one of our top ten Appeals to Watch in 2015.
In this case, a lawyer who held public office in New Brunswick had been suspended indefinitely with pay and his powers had been delegated to another worker.
The majority of the SCC explained that the first branch of the test for constructive dismissal requires the court to, first, examine the specific terms of the contract to determine whether the employer effected a unilateral change constituting a breach of the employment contract and, if so, then determine whether the change substantially altered an essential term of the contract. The majority noted that the court must determine the second step by asking whether a reasonable person in the situation of the employee would have felt the essential terms substantially changed, without considering evidence of information the employee did not know or reasonable foresee. The second branch of the test is to determine whether the employer’s conduct was such that a reasonable person would conclude that they were no longer bound by the contract.
While the concurring judges took a broader approach to the analysis, the SCC unanimously held that held that constructive dismissal can take two forms: a single unilateral act that breaches an essential term of the contract (the first branch), or a series of acts that, taken together in the circumstances and viewed objectively be a reasonable person in the employee’s position, show that the employer intended to no longer be bound by the contract (the second branch).
Ultimately, the SCC unanimously found in this case that the employee had been constructively dismissed. The majority found that the first branch of the test had been established in light of the indefinite duration of his suspension, the employer’s failure to act in good faith by withholding the reasons from him, and the employer’s concealed intention to have the employee terminated.
This case not only clarifies the principles of constructive dismissal, but acts as an important reminder to employers to ensure that they act honestly and in good faith and use caution when suspending employees, even with pay.
Theratechnologies: More Bite than Bark Required in Secondary Market Misrepresentation Actions in Quebec
The SCC raised the bar for plaintiffs in secondary market liability actions inTheratechnologies Inc v 121851 Canada Inc, 2015 SCC 18 (previously discussed in numerous prior posts: here, here, here, here, here, here, here and here). This was the SCC’s first decision on the Quebec statutory secondary market liability regime adopted in 2007 pursuant to a reform of the Quebec Securities Act(QSA).
In this decision, the SCC clarified the test applicable to the authorization of claims pursuant to the QSA and specified the analysis to be performed. In particular, the SCC confirmed that the analyses of judges deciding motions to pursue secondary market liability claims under the QSA and similar statutes may have to be comprehensive enough to determine whether or not a material change occurred.
In this case, the SCC made that determination and, in contrast with the Quebec Court of Appeal which had authorized the class action claim by the shareholders of Theratechnologies (a public company listed on the Toronto Stock Exchange), the SCC reversed on the result and held that the evidence brought forward by the plaintiff shareholders did not establish a reasonable possibility that the action could succeed. While it agreed there should not be a mini trial on the merits, the SCC disagreed with the Quebec Court of Appeal that determining whether there had been a material change crossed inappropriately into merits territory, thus confirming that the preliminary merits test should have more bite.
More broadly, this decision can be viewed as another effort on the part of the SCC to promote procedural tools which can lead to preliminary dismissal of actions, in continuation with earlier decisions such as Hryniak vMauldin, 2014 SCC 7. This decision will surely be embraced by public issuers and class action defence lawyers going forward.
CIBC v Green: Return of the Limits – Courts Must Be Robust Gatekeepers for Secondary Market Liability Actions
Taking the #2 spot on our list is Canadian Imperial Bank of Commerce v Green, 2015 SCC 60, due to anticipated impact and the sheer number of past mentions on our Blog (it has been discussed or mentioned in no less than 11 past posts, as the case made its way through multiple appeal courts, including in our Top Appeals to come in 2013 post and our Appeals to Watch in 2015 post, as well as here, here, here, here and here). This was a greatly anticipated decision in a trilogy of secondary market class action cases in Ontario in which the SCC made three important determinations.
First and most importantly, the SCC unanimously confirmed that the merits test for leave to proceed with a proposed securities class action is to be construed as a “robust deterrent screening mechanism” across Canada. The Court adopted the analysis it recently applied under Quebec’s analogous statute in its Theratechnologies decision (discussed immediately above), endorsing the line of Ontario case law which emphasizes that judges should apply real scrutiny to the evidence presented by investors to show a “reasonable possibility of success” for their proposed statutory claim. As a result, there can no longer be any serious dispute that the test for secondary market class actions in Ontario is far more stringent than a pleadings standard.
Second, by a 4–3 majority, the SCC reversed course on the limitation period applicable to statutory secondary market misrepresentation claims in Ontario. Overruling the Ontario Court of Appeal (which had overruled its own prior decision), the SCC held that the limitation period for such claims continues to run until the Plaintiff obtains leave to proceed from the court. However, the SCC used equitable principles to allow two of the cases to proceed. The impact of that analysis is limited given the recent amendments to Ontario’s Securities Actwhich prescribes a different limitation period going forward. Nevertheless, the principles and policy rationales emphasized by Côté and Karakatsanis JJ in their respective judgments are at the heart of, and will undoubtedly find their way into arguments about other aspects of, the statutory secondary market liability regime. Indeed, the division within the SCC on this issue (as to balancing the rights of investors, and of public issuers) will most likely continue to animate the case law relating to this regime into the future.
Third, of benefit to issuers, the SCC unanimously rejected the investor argument that Canadian courts should endorse a US-style “fraud on the market” theory, which would have allowed the individual investor to prove reliance on a misrepresentation by an entire class of investors by inference. On the other hand, the SCC confirmed that investors may advance certain aspects of their common law misrepresentation claims focused on the conduct of defendants, as common issues in a class action. It remains to be seen whether and how this ruling might impact arguments in future cases relating to plaintiffs’ attempts to commence common law causes of action alongside statutory causes of action where a provincial statute does not, like Ontario’s Securities Act, expressly preserve common law remedies.
Saskatchewan Federation of Labour v Saskatchewan: The Charter Strikes Back
Taking the top spot on our list is Saskatchewan Federation of Labour v Saskatchewan, 2015 SCC 4 (previously discussed here, here, here and here). In this case, a majority of the Supreme Court of Canada (“SCC”) recognized a constitutionally-protected right to strike under s. 2(d) of the Charter, reversing its own decades-old decision.
At issue was The Public Service Essential Services Act (“PSESA”) in Saskatchewan, which limited the ability of “essential services employees” in the public sector to strike. The SCC majority held that the legislation was unconstitutional on the basis that it granted unilateral authority to the government to determine which employees were providing “essential services”, with no meaningful method of arguing the “essential services” designation, and no mechanism for tailoring the employees’ responsibilities to the essential services alone.
The majority further held that the right to strike is essential to a meaningful process of collective bargaining. Therefore, the PSESA was unconstitutional because it prohibited essential services public sector employees from striking, with no alternative means to apply social or economic pressure or alterative mechanism for resolving bargaining impasses, such as arbitration.
The dissenting justices strongly disagreed, stating that constitutionalizing a right to strike implies that all statutory limits on the right to strike are unconstitutional, and wrongly interferes in the government’s policy choices.
While it is clear that this decision prohibits an absolute ban on unionized employees’ right to strike without a meaningful dispute resolution mechanism, the constitutionality of other, less extensive legislative restrictions—such as essential services legislation in other provinces or back-to-work legislation—remains to be seen. Given the strong dissent, we can expect the issue of statutory limits on striking to be litigated further. Regardless, this case sends a strong message to policymakers throughout Canada that any legislation limiting the right to strike will come under careful Charter scrutiny by the courts.