Welcome to Listed’s annual ranking of the six most important Canadian high court rulings from the past year. This exclusive selection, based on an informal survey of top Canadian lawyers and legal watchers, identifies the cases with the biggest potential impact on listed companies across the land. While last year’s selections hewed to the bread and butter of business (contracts, arbitration and competition law, among others), this year’s picks reflect a more subtle and outward-focused caseload. They address everything from securities class actions to the constitutionality of monetary penalties, compensation for polluted lands and intellectual property protections. Interestingly, half deal with the growing legal challenges arising under globalization. As such, our review offers boards and senior C-suite executives a prudent glimpse of what might be up next on their agendas.
CASE Canadian Imperial Bank of Commerce v. Green (aka the class action trilogy)
COURT Supreme Court of Canada
ISSUE Evidentiary burden plaintiffs must meet for approval of securities class actions
One of the most significant decisions in the past year—and one that should be music to the ears of CEOs and corporate directors—is a ruling that makes it harder for plaintiffs to bring a securities class action in the secondary market.
Last December, the Supreme Court of Canada issued a ruling in Canadian Imperial Bank of Commerce (TSX:CM) v. Green, a decision that also included rulings on two similar cases: one involving Celestica Inc. (TSX:CLS), and the other Imax Corp. (NYSE:IMAX). All three cases involved the process for launching a securities class action in the secondary market under section 138 of the Ontario Securities Act—wherein investors sue companies and their directors for misrepresentation over public statements in press releases and quarterly filings.
When the Supreme Court agreed to hear this trilogy of cases, it faced two key questions.
One issue had to do with uncertainty over the allowable interval between the alleged misrepresentation and the point at which the plaintiff files a “leave motion” asking a judge for permission to bring the case forward (the three statements in question here dated from 2005 to 2007). However, this was rendered moot before the Supreme Court hearing/ruling when the underlying securities legislation was amended to clarify.
The ruling that will impact future cases related to the second question, which was a factor in both the CIBC and Imax cases. It dealt with what evidentiary threshold a plaintiff must meet in the leave motion in order to get the judge’s permission to bring the lawsuit. Up to that point, some judges had interpreted the threshold as low, and were treating the leave motion as merely a “speed bump,” notes Dana Peebles, a lawyer at McCarthy Tétrault (which represented Imax). “The battle was around how high the bar would be set,” when it comes to allowing a case to go forward. Was the threshold low or higher?
Interestingly, while the Supreme Court ruled that the evidence in the CIBC and Imax cases met the threshold and could proceed (Imax actually settled before this decision), the court’s ruling is seen as a victory for companies rather than plaintiffs. Reason being, the court affirmed the OSA wording which states that cases must be brought in “good faith” and must have a “reasonable possibility that the action will be resolved at trial in favour of the plaintiff.”
In assessing the CIBC case, in particular, the top court referred to a ruling in Theratechnologies Inc. v. 121851 Canada Inc., which was covered in last year’s top list, dealing with the threshold in similar legislation in Quebec. It confirmed that there must be a “reasonable or realistic chance that [the action] will succeed” and the plaintiffs must “show some credible evidence in support of the claim.”
Luis Sarabia, a litigator at Davies Ward Phillips & Vineberg, says the ruling is important because it confirms that there is a “more robust deterrent screening mechanism for securities class action.”
“It’s no longer a low threshold. It requires more serious and credible evidence. For the defence, it gives us more to work with. There is more room for us to show that the case doesn’t meet the threshold.”
Peebles adds that the ruling “empowers motions court judges to take a hard look at the evidence on both sides…It gives public issuers some incentive to invest time and money into showing their defence to the judge.”
There is a downside to the higher threshold. The focus now shifts to the leave application, and away from certification, unlike most class actions. That’s because lawyers say that if a case passes the leave test, then certification will likely be a slam dunk. “Typically if you get leave, you will get certification,” says Sarabia. That contrasts to products liability and competition class actions, where lawyers dig in at the certification stage and duke it out there.
CASE Guindon v. Canada
COURT Supreme Court of Canada
ISSUE Government agencies’ right to impose high regulatory penalties
The cost to companies for regulatory breaches will likely rise, following the Supreme Court of Canada’s ruling last summer in Guindon v. Canada, a case dealing with administrative monetary penalties (AMPs).
AMPs are penalties set out in statutes, and in some cases they can run into the millions of dollars. For example, under the Proceeds of Crime (Money Laundering) and Terrorist Financing Administrative Monetary Penalties Regulations, companies are subject to $500,000 penalties and individuals $100,000 for minor violations of the law. Penalties under the Competition Act for deceptive marketing practices start at $750,000 for an individual and $10 million for a corporation.
The incorporation of AMPs into legislation has generally been rising, as governments (both provincial and federal) hike penalties in an effort to deter bad conduct and encourage compliance with laws. The penalties are considered administrative in nature and stop short of being criminal and do not lead to true penal consequences, such as jail time. Neither are they classified as fines, which are criminal in nature.
In Guindon, a lawyer who endorsed a flawed legal opinion on a time-share donation program was contesting an order to pay $546,000 in penalties for breaching a provision in the Income Tax Act designed to prevent tax preparers from making false statements that others would rely on.
The lawyer argued that the penalty was so high it amounted to a criminal sanction and she should have been provided protections under the Canadian Charter of Rights and Freedoms—which she wasn’t—making the provision unconstitutional. The Supreme Court disagreed and refused to establish an upper limit on when an AMP crosses the line and amounts to a penal consequence that would trigger Charter protections.
Blake Cassels & Graydon lawyer Doug McLeod calls it “an important case.” By creating administrative penalties, governments avoid having to put in place the same level of “procedural protections” as they do in criminal matters, such as a right to counsel and proof beyond a reasonable doubt, which is a high standard prosecutors must meet to prove their case.
AMPs are a “totally different animal from a criminal fine,” he says, adding the court took a “deferential approach” to administrative penalties. McLeod says the number of AMPs is growing, and he thinks this ruling will spur their use. “They have become very popular with regulators and widely adopted.”
For example, AMPs under securities legislation are “probably the most highest profile,” he says, adding AMPs appear in both federal and provincial regulation “and come in all shapes and sizes.”
While McLeod expects AMPs’ popularity among governments and regulators to increase further, he believes they will eventually reach a point where “the pendulum is going to swing back,” and courts will start to find they are penal in nature.
CASE Chevron Corp. v. Yaiguaje
COURT Supreme Court of Canada
ISSUE Foreign rulings enforceability in Canada
This next ruling, in Chevron Corp. v. Yaiguaje, reflects the intersection of court awards and foreign jurisdictions, a growing challenge in a business world that is becoming increasingly global. It involves attempts by a group of 47 plaintiffs, led by Daniel Carlos Lusitande Yaiguaje, on behalf of 30,000 Indigenous Ecuadorian villagers, to enforce a US$9.5-billion award from an Ecuadorian court in 2012. That ruling stemmed from the plaintiffs’ claim that their lands were polluted by Texaco Inc.’s former operations in the region, which Chevron assumed when it merged with Texaco in 2000.
They came to Canada, where Chevron has a subsidiary, after the company, which no longer owns assets in Ecuador, refused to acknowledge the award. Since then, they’ve registered a series of victories—regarding jurisdiction, not payment (which is still to be heard)—first before the Ontario courts, then the Supreme Court of Canada.
In Ontario, the court ruled that the Ecuadorian plaintiffs could seek to have the judgment enforced here. However, on his own initiative, the judge then stayed the action under section 106 of the Courts of Justice Act, which allows judges to impose a discretionary stay. His opinion was based mainly on the fact that Chevron has no assets or business in Ontario.
The plaintiffs appealed to the Ontario Court of Appeal and won, when the court ruled that it was not an appropriate case in which to impose a discretionary stay. That ruling was tested, in turn, at the Supreme Court of Canada, which backed the lower court’s finding. “Once past the jurisdictional stage, Chevron Canada, like Chevron, can use the available procedural tools to try to dispose of the plaintiffs’ allegations,” the judges said, but “this possibility is foreign to and remote from the questions [regarding the stay and jurisdiction] that must be resolved on this appeal.”
In a legal context, this case deals with what’s known as comity—the willingness of one court to defer to another court. Normally, courts will recognize and enforce foreign judgments. According to the Supreme Court, what judges look for is that the court issuing the original judgment had a real and substantial connection to the litigants or the subject matter of the dispute.
In rejecting Chevron’s argument that Canadian courts had no jurisdiction to hear the enforcement matter, Supreme Court of Canada of Canada Justice Clément Gascon wrote that “in a world in which businesses, assets, and people cross borders with ease, courts are increasingly called upon to recognize and enforce judgments from other jurisdictions.
“Cross-border transactions and interactions continue to multiply. As they do, comity requires an increasing willingness on the part of courts to recognize the acts of other states. This is essential to allow individuals and companies to conduct international business without worrying that their participation in such relationships will jeopardize or negate their legal rights,” the justice ruled.
Alan Lenczner, a lawyer at Lenczner Slaght who acted for the Ecuadorians at the Supreme Court, says the judgment recognizes that “in the commercial world, transborder commercial arrangements are gaining speed and rapidity. The world is becoming a smaller place…It is a real demonstration of how courts are prepared to assist each other.”
CASE Equustek Solutions Inc. v. Google Inc.
COURTS British Columbia Court of Appeal
ISSUE Online sale of merchandise that violates intellectual property
One of the big challenges for companies that make goods is cracking down on counterfeiters. Factor in the Internet and the ability of copycats to operate from practically anywhere, and the problem can be exasperating. Yet with this ruling, one Canadian company found a unique way to combat the problem—and in the process may have helped establish a precedent that will address how a technology company could be deemed to be conducting business in a province even if it has no servers or people resident there.
The Supreme Court of Canada will weigh in on the case later this year. But as its stands, the B.C. court’s ruling in Equuestek Solutions Inc. v. Google Inc. is a headturner.
The impetus for the case was a dispute between Equuestek, a Canadian manufacturer of industrial network interface hardware, and a former distributor over trade secrets and violation of intellectual property rights. Equuestek alleged its former distributor, originally based in Vancouver, re-labeled Equuestek products and passed them off as its own. Subsequently, it also alleged the company used Equuestek’s technology to create a competing product. After Equuestek obtained various court orders against its former distributor, the company then moved offshore and started selling the devices online through websites it controlled.
It’s at this point that Equuestek sought, and obtained, an injunction against Google Inc.—even though it was not a party to the main dispute—ordering it to block search results that would lead shoppers to websites featuring the counterfeit goods. Since Google accounts for 70-to-75% of Internet searches, this would significantly hamper the counterfeiter’s sales efforts.
Google appealed, arguing it didn’t have a presence in B.C. and the court had no jurisdiction over it. However, the B.C. Court of Appeal upheld the injunction, agreeing with the original trial court that the subject matter of the litigation was connected to B.C. While Google doesn’t have service or offices in the province, “key parts of Google’s business are carried on here,” the court ruled, including gathering of information through Googlebot, its proprietary web crawler software, and its advertising services.
Bennett Jones lawyers Trent Horne and Andrew Little say it’s the first time a Canadian court has granted such an injunction. In Google’s appeal to the Supreme Court of Canada, it will argue that the order restricts freedom of expression, is contrary to the court’s previous rulings dealing with worldwide orders, and shouldn’t be applied to Google because it is not a party to the main action.
Little says if the order stands, “that would be a very significant benefit to plaintiffs” trying to protect their intellectual property rights in Wild West of the Internet.
Courts, he says, “should be able to make an order that is effective in a virtual world.”
Horne adds that counterfeiting is “a huge problem. If anything is valuable, it’s being counterfeited.” While there are different types of court orders in place to help companies fend off counterfeiters, such as Mareva injunctions and Anton Piller orders, the Equuestek-type order helps fill gaps in an e-commerce world where companies are virtual and sales don’t recognize country boundaries.
CASE World Bank Group v. Wallace
COURT Supreme Court of Canada
ISSUE Access to World Bank records in offshore corruption cases
Here is another case that examined global matters, this time involving foreign corruption. Specifically, World Bank Group v. Wallace dealt with the question of how far an immunity agreement extends to international non-governmental organizations in order to help them ferret out corruption. The answer: pretty far.
The case concerned former SNC-Lavalin Inc. (TSX:SNC) executives charged by the RCMP with corruption involving attempts to bribe Bangladesh officials over a US$2.9-billion bridge contract.
The charges arose after the World Bank Group, a primary lender to the project, received e-mails from four tipsters about an alleged bribe plan. It shared that information with the RCMP, which used some of the information to obtain a court authorization to set up wiretaps.
The men were later charged under the Canadian Corruption of Foreign Public Officials Act. In their defence, the accused’s lawyers intended to challenge the legitimacy of the wiretap authorization and sought an order compelling the World Bank to cough up certain related records.
The World Bank is made up of five separate organizations, each of which has its own set of governing documents that sets out the immunities and privileges negotiated with its 188 member states, including Canada. The agreements state that their “archives shall be inviolable” and “employees shall be immune from legal process with respect to acts performed by them in their official capacity,” unless the immunity is waived.
These immunities have been implemented into Canadian law. The Supreme Court held that the World Bank’s integrity office records “were not disclosable under Canadian law,” and the World Bank did not waive its immunity over the various records and personnel that the defendants sought to compel.
In its judgment, the court noted the gravity of corruption and its willingness to tackle issues around it. “Corruption is a significant obstacle to international development,” it wrote. “In order to tackle this global problem, worldwide cooperation is needed.”
Lawyer Alan Lenczner was also central in this case, representing the World Bank. He says by taking on the case and granting leave to hear it, Canada’s top court indicated that “it is prepared to lend its assistance to stamp out corruption around the world.”
Glen Jennings, a lawyer at Gowlings WLG, adds the ruling “is not going to be limited” to World Bank entities. “Any international entity that has been given this benefit of not having to respond and given immunity [is covered],” he says. “It puts defendants in a difficult position on how to approach these type of cases,” when they can’t “get access to the very origins of the investigation.
Lenczner says “immunity clashes with the rights of the accused,” but the Supreme Court has clearly spelled out the problems corruption causes and its willingness to take on cases related to it.
CASE Midwest Properties Ltd. v. Thordarson
COURT Ontario Court of Appeal
ISSUE Liability for environmental contamination
It’s not often that polluted land cases hit the appeal courts, but that was the situation in Midwest Properties Ltd. v. Thordarson, which the Ontario Court of Appeal ruled on last fall. It was the first time the court was asked to deal with the compensation provisions for a spill under section 99 of the province’s Environmental Protection Act.
The section creates a private right of action for those harmed by spills and allows them to claim compensation under the legislation, in parallel to any lawsuit they bring. Specifically, it states that the Crown or any “other person” has the right to compensation for damage incurred from the owner, or person in control, of a pollutant that has spilled. In its decision, the court overturned a lower court ruling and found Midwest was entitled to $1.3 million, plus $50,000 in punitive damages, from John Thordarson and Thorco Contracting Ltd. to clean up Midwest’s land after oily water from waste petroleum hydrocarbons (PHCs) leeched onto its property from Thordarson’s land.
While Ontario’s Ministry of the Environment (MOE) had issued a clean-up order for the property, Midwest’s initial suit included claims of nuisance and negligence under common law, as well as the damages under section 99. In rejecting the claims under section 99, in particular, the trial judge said that the EPA should not be interpreted in an “expansive manner” that might permit double recovery.
The appeal court saw it differently, however. Its ruling stated the “trial judge’s interpretation undermines the legislative objective of establishing a separate, distinct ground of liability for polluters. It permits a polluter to avoid its no-fault obligation to pay damages solely on the basis that a remediation order is extant.”
The court added “the purposes of the EPA would be frustrated if a defendant could use an MOE order as a shield. Such an interpretation would also discourage civil proceedings, and may even discourage MOE officials from issuing remediation orders for fear of blocking a civil suit.”
The appeal court noted that restricting damages to the diminution in the value of property is contrary to the EPA, and the trend in the common law to award restorative damages, and the “polluter pays” principle.
Osler, Hoskin & Harcourt lawyer Jennifer Fairfax says the ruling is relevant to “everybody involved in the ownership or potential purchase of contaminated land.” Now that the court has given the compensation provision a “broad interpretation,” she expects more statutory claims. “Companies need to be mindful…[of ] the potential for increased liability.”
Illustration: Pete Ryan