chairs

Sandra Forbes Davies Ward Phillips & Vineberg LLP

Matthew Gottlieb

Lax O’Sullivan Lisus Gottlieb LLP

September 15, 2016

THE TWELVE-MINUTE Civil Litigator 2016

*CLE16-0090501-A-PUB*

DISCLAIMER: This work appears as part of The Law Society of Upper Canada’s initiatives in Continuing Professional Development (CPD). It provides information and various opinions to help legal professionals maintain and enhance their competence. It does not, however, represent or embody any official position of, or statement by, the Society, except where specifically indicated; nor does it attempt to set forth definitive practice standards or to provide legal advice. Precedents and other material contained herein should be used prudently, as nothing in the work relieves readers of their responsibility to assess the material in light of their own professional experience. No warranty is made with regards to this work. The Society can accept no responsibility for any errors or omissions, and expressly disclaims any such responsibility.

© 2016 All Rights Reserved

This compilation of collective works is copyrighted by The Law Society of Upper Canada. The individual documents remain the property of the original authors or their assignees.

The Law Society of Upper Canada 130 Queen Street West, Toronto, ON M5H 2N6Phone: 416-947-3315 or 1-800-668-7380 Ext. 3315Fax: 416-947-3991 E-mail: cpd@lsuc.on.ca www.lsuc.on.ca

Library and Archives Canada Cataloguing in Publication

The Twelve-Minute Civil Litigator 2016

ISBN 978-1-77094-386-5 (Hardcopy) ISBN 978-1-77094-387-2 (PDF)

September 12, 2016

Chairs: Sandra Forbes, Davies Ward Phillips & Vineberg LLP Matthew Gottlieb, Lax O’Sullivan Lisus Gottlieb LLP

September 15, 2016

9:00 a.m. to 12:00 p.m. Total CPD Hours = 2 h 30 m Substantive + 30 m Professionalism

The Law Society of Upper Canada

130 Queen Street West Toronto, ON

SKU CLE16-00905

Agenda 9:00 a.m. – 9:08 a.m. Welcome and Opening Remarks

Sandra Forbes, Davies Ward Phillips & Vineberg LLP Matthew Gottlieb, Lax O’Sullivan Lisus Gottlieb LLP

9:08 a.m. – 9:22 a.m. Fireside Chat With A Judge

The Honourable Victoria Chiappetta, Superior Court of Justice

THE TWELVE-MINUTE

Civil Litigator 2016

9:22 a.m. – 9:36 a.m. Three Surprises at Trial and

How You Dealt with Them

Kent Thomson, Davies Ward Phillips & Vineberg LLP 9:36 a.m. – 9:50 a.m. The SCC Decision in Chevron Corp. v. Yaiguaje

On Enforcement of Foreign Judgments: Has the Landscape Been Clarified?

John Callaghan, Gowling WLG (Canada) LLP

9:50 a.m. – 10:20 a.m. Ethics panel (30 minutes )

Michael Eizenga, Bennett Jones LLP Heather Williams, Cavanagh LLP

10:20 a.m. – 10:34 a.m. Coffee and Networking Break 10:34 a.m. – 10:48 a.m. Revisiting Bhasin v. Hrynew –

How Have The Lower Courts Applied The “Good Faith” Doctrine?

Ian Matthews, Lax O’Sullivan Lisus Gottlieb LLP

10:48 a.m. – 11:02 a.m. Digital Privacy Act:

Key Things That Litigators Need to Know

Wendy Wagner, Gowling WLG (Canada) LLP 11:02 a.m. – 11:16 a.m. When Should You Move Pre-Trial to

Strike Expert Evidence? Ever?

Tamryn Jacobson, Goodmans LLP

11:16 a.m. – 11:30 a.m. “Meritless Litigation” – The New Rule 2.1 –

What Is It and How Should It Be Used?

Matthew Cohen, Pro Bono Ontario 11:30 a.m. – 11:44 a.m. Rule 49 Offers –

Tips and Traps

David Elman, Borden Ladner Gervais LLP 11:44 a.m. – 11:58 a.m. Can You “Win” A Discovery?

If Yes, How?

David Chernos, Chernos Flaherty Svonkin LLP 11:58 p.m. – 12:10p.m. Go Ahead and Ask Us - Panel 12:10 p.m. Program Ends

Thursday, September 15, 2016

SKU CLE16-00905

Table of Contents TAB 1 Three Surprises at Trial and

How You Deal With Them ..................................................... 1 - 1 to 1 - 1 Kent Thomson, Davies Ward Phillips & Vineberg LLP

TAB 2 Revisiting Bhasin v. Hrynew:

How Have the Lower Courts Applied The “Good Faith” Doctrine? ................................................ 2 - 1 to 2 - 12 Ian Matthews, Lax O’Sullivan Lisus Gottlieb LLP

TAB 3 PIPEDA, The Digital Privacy Act

And Litigation: Q and A ...................................................... 3 - 1 to 3 - 10 Wendy Wagner, Gowling WLG (Canada) LLP

TAB 4 When Should You Move Pre-Trial to

Strike Expert Evidence? Ever? ............................................... 4 - 1 to 4 - 2

Tamryn Jacobson, Goodmans LLP

THE TWELVE-MINUTE

Civil Litigator 2016

TAB 5 “Meritless Litigation” – The New Rule 2.1

What Is It and How Should It Be Used? ................................ 5 - 1 to 5 - 4 Matthew Cohen, Pro Bono Ontario

TAB 6 Rule 49 Offers – Tips and Traps ............................................. 6 - 1 to 6 - 5

David Elman Katherine Deakon Borden Ladner Gervais LLP

TAB 7 Can You “Win” a Discovery? If Yes, How? ............................. 7 - 1 to 7 - 6

David Chernos Bryan McLeese Chernos Flaherty Svonkin LLP

TAB 1

Three Surprises at Trial and

How You Deal With Them

Kent Thomson

Davies, Ward Phillips & Vineberg LLP

September 15, 2016

THE TWELVE-MINUTE

Civil Litigator 2016

Twelve Minute Civil Litigator 2016 Law Society of Upper Canada

September 15, 2016

Three Surprises at Trial

and How You Deal With Them

Kent E. Thomson

Davies Ward Phillips & Vineberg LLP 416.863.5566

kentthomson@dwpv.com

Citations for Referenced Cases:

1) United Grain Growers Ltd. v. Canada (Commissioner of Competition), [2006] C.C.T.D. No. 24, 2006 Comp. Trib. 25. Not available on CanLII; however, it is available for free on the Tribunal website at (http://www.ct-tc.gc.ca/CasesAffaires/CasesDetails-eng.asp?CaseID=174).

2) Moore Corp. v. Clark, [1997] O.J. No. 2363, 102 O.A.C. 85, 13 C.P.C. (4th) 332, 71 A.C.W.S. (3d) 854.

3) IN THE MATTER OF Jowdat Waheed and Bruce Walter, 2014 LNONOSC 543, (2014), 37 OSCB 8007. Not available on CanLII; however, it is available for free on the OSC website at (http://www.osc.gov.on.ca/en/Proceedings_rad_20140826_waheed-walter.htm ) or (http://www.osc.gov.on.ca/en/SecuritiesLaw_20140904_oscb_3736_toc.htm

(4) Canada (Attorney General) v Bitove Corp, [1998] OJ No 2663 (CA), rev'g 1995 CarswellOnt 1202 (Ct J [Gen Div Comm]).

Canada (Attorney General) v Bitove Corp, 1996 CarswellOnt 780 (Ct J [Gen Div Comm]).

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TAB 2

Revisiting Bhasin v. Hrynew:

How Have The Lower Courts Applied

The “Good Faith” Doctrine?

Ian Matthews

Lax O’Sullivan Lisus Gottlieb LLP

September 15, 2016

THE TWELVE-MINUTE

Civil Litigator 2016

Revisiting Bhasin v. Hrynew: How Have The Lower Courts Applied The “Good Faith” Doctrine?

Ian C. Matthews, Lax O’Sullivan Lisus Gottlieb LLP September 2016

Nearly two years have passed since the November 2014 decision of the Supreme Court of Canada in Bhasin v. Hrynew.1 That decision, as litigators across the country undoubtedly know, formally recognized a common law duty of “honest performance” that applies to all contracts.2

Commentators hailed Bhasin as a “landmark” decision that “changes everything”.3 Some predicted that the Supreme Court’s decision “unwittingly unleashed something that the litigation Bar will feast on for at least a decade,” as parties to litigation would scour “the entire history of the contractual relationship with a view to finding a perceived dishonest act in the contract’s performance” that will support a good faith-based argument.4 Others predicted that good faith-related litigation “will be confined to the small minority of cases that reveal extreme departures from the parties’ reasonable expectations.”5

This brief paper canvasses Canadian jurisprudence that has applied or considered Bhasin. Thus far, lower courts have for the most part applied the decision in a restrained, narrow manner. Situational or relational interactions that give rise to an obligation of good faith that pre-dated Bhasin have been preserved and continue to be recognized by the courts. The Ontario Court of Appeal has determined that Bhasin did not expand the doctrine of unconscionability, and the Ontario Superior Court of Justice has observed that Bhasin has not altered the law of latent defects or the established principles of contractual interpretation. Breaches of the duty of honest contractual performance have been found where there has been dishonesty or bad faith.

Yet there are some modest indications that courts may be using Bhasin to expand the reach of the contractual organizing principle of good faith. The Alberta Court of Queen’s Bench has recognized a common law duty requiring that discretionary powers granted under a contract must be exercised fairly and reasonably, and decided that this duty cannot be abridged by an entire agreement clause. The Ontario Superior Court of Justice has suggested that dishonesty prior to the establishment of an employment relationship could amount to a breach of the duty to honestly perform the resulting employment contract. Time will tell whether these are just the first of many developments that will augment Bhasin and the notion of contractual good faith. For the most part, however, early experience with Bhasin suggests that the decision has been received by the lower courts as “modest, incremental step” that strikes an appropriate balance between predictability and flexibility.6

                                                            1 Bhasin v. Hrynew, 2014 SCC 71 [Bhasin]. 2 Ibid., para. 93. 3 Julius Melnitzer, “Did the Supreme Court clarify or muddy the duty of good faith?” Lexpert Magazine (May 25, 2015), online: <http://www.lexpert.ca/article/did-the-supreme-court-clarify-or-muddy-the-duty-of-good-faith/>. 4 Ibid. 5 Ibid. 6 Bhasin, supra note 1, paras. 71, 80.

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The Bhasin Decision

Critics of the Bhasin decision suggest that the case was an instance of “hard facts making bad law”.7 A review of Bhasin’s facts is therefore in order.

A) Facts

Mr. Bhasin was an enrollment director who marketed education savings plans (“ESPs”) to investors for Canadian American Financial Corp. (“Can-Am”). Over a period of 10 years beginning in 1989, he assembled an ESP sales force. Can-Am bestowed numerous awards on Mr. Bhasin, recognizing him as one of their top enrollment directors in the country.

Around the time of the events leading to his lawsuit, Mr. Bhasin’s relationship with Can-Am was governed by an enrollment director’s agreement that had taken effect in 1998 (the “Agreement”). The Agreement was a commercial dealership agreement, and contained a provision that it would automatically renew after its three-year term unless either party gave six months’ written notice to the contrary. The Agreement also contained an entire agreement clause.

Mr. Hrynew was also an enrollment director for Can-Am. He was a competitor of Mr. Bhasin and wanted to capture his market share. Mr. Bhasin had previously rebuffed Mr. Hrynew’s merger proposals, which the trial judge characterized as amounting to hostile takeover bids.

In late 1999, Can-Am appointed Mr. Hrynew as its provincial trading officer (“PTO”), a position that involved him auditing the business records of other enrollment directors, including his competitor Mr. Bhasin. Unsurprisingly, Mr. Bhasin was reluctant to share his sensitive business information with one of his competitors. The trial judge found that Can-Am repeatedly misled Mr. Bhasin by telling him that as PTO, Mr. Hrynew was under an obligation to treat the financial information he reviewed confidentially and that it was not possible to have an outside PTO, neither of which was true.

In June 2000, Cam-Am, in response to a compliance request from the Alberta Securities Commission, outlined a restructuring plan to the Commission. That plan contemplated Mr. Bhasin working for Mr. Hrynew. This was not made known to Mr. Bhasin at the time. When Mr. Bhasin later heard about Can-Am’s plan and asked if the forced merger with Mr. Hrynew was a “done deal”, Can-Am’s representative “equivocated” and did not tell Mr. Bhasin the truth – even though from its perspective, the merger was a done deal.

Can-Am ultimately gave six months’ notice under the Agreement in May 2001 and Mr. Bhasin lost the value of his business. The majority of his sales agents were successfully solicited by Mr. Hrynew. The trial judge held that Can-Am acted dishonestly toward Mr. Bhasin in exercising the non-renewal clause, and focused on the events leading up to the non-renewal.

B) Decision of the Supreme Court

The Supreme Court of Canada held that Can-Am breached a common law duty to perform the Agreement honestly. Relying on the trial judge’s finding that but for Can-Am’s dishonesty, Mr. Bhasin would have

                                                            7 Melnitzer, supra note 3.

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acted so as to “retain the value in his agency,” the Supreme Court assessed Mr. Bhasin’s damages at $87,000, the value of his business around the time of Can-Am’s non-renewal.8

The Supreme Court explained that good faith is an organizing principle that underlies many facets of contract law.9 The Court observed that the good faith principle is already apparent in the doctrine of unconscionability, in instances where terms are implied into certain classes of contract (e.g., employment, landlord-lessee and insurance contracts) and in contractual interpretation (insofar as parties may generally be assumed to intend certain minimum standards of conduct).10 Certain facets of particular classes of relationships have also, for many years, been interpreted by Canadian courts as engendering an obligation of good faith. Employment contracts have an implied term of good faith governing the manner of termination.11 Insurers have a duty of good faith that requires them to deal with an insured fairly with respect to the manner of investigation and assessment of a claim, as well as the decision of whether to pay the claim under the insurance policy.12 In the tendering context, a company that tenders a contract has an obligation of good faith and fair dealing with bidders.13

The Supreme Court’s identification of good faith as an organizing principle of contract law links these doctrines and classes of relationships. The common thread is that parties generally must perform their contractual duties honestly and reasonably and not capriciously or arbitrarily.14 In carrying out performance of a contract, good faith captures the notion that a party “should have appropriate regard to the legitimate contractual interest of the contracting partner.”15 What is ‘appropriate’ will necessarily vary depending on the nature of the contractual relationship in issue. As an example, the Supreme Court notes that the notion of good faith would “likely have different implications in the context of a long-term contract of mutual cooperation than it would in a more transactional exchange.”16

The common law duty of honesty in contractual performance was identified and formally recognized by the Supreme Court as a species of the organizing principle of contractual good faith. The common law duty, to use the words of the Supreme Court, “means simply that the parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract.”17 It does not impose a duty of loyalty or disclosure or require a party to forego advantages flowing from the contract.18 This duty operates “irrespective of the intentions of the parties,”19 meaning that it could not be foreclosed by an entire agreement clause such as the one in Mr. Bhasin’s Agreement with Can-Am.

                                                            8 Bhasin, supra note 1, paras. 108-111. 9 Ibid., para. 93. 10 Ibid., paras. 43-45. 11 Ibid., para. 54. 12 Ibid., para. 55. 13 Ibid., para. 56. 14 Ibid., para. 63. 15 Ibid., para. 65. 16 Ibid., para. 69. 17 Ibid., para. 73. 18 Ibid., para. 73. 19 Ibid., para. 74.

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However, the Supreme Court did not foreclose parties from relaxing the scope of honest performance in some contractual contexts, so long as they respect the “core” requirement of the duty.20

Application of the Bhasin Decision by Lower Courts

Lower courts have noted that the principle of good faith and its concomitant duties “do not just tack an extra sanction onto the breach of an explicit contractual term,” but are independent implied contractual obligations that derive from the existence of the contract.”21 Below, twelve decisions that have considered Bhasin are reviewed and summarized.

1. Antunes v. Limen Structures Ltd., 2015 ONSC 2163 (C. Brown J.)

The plaintiff sued for wrongful dismissal. He alleged, among other things, that the notice period for termination should be increased owing to the defendant corporation’s bad faith conduct in its manner of offering and subsequently terminating his employment. The employment contract specified that in the course of the plaintiff’s employment, he would receive a 5% shareholding interest in the defendant plus a potential option for an additional 5% in the defendant’s “Residential Division”.

The court determined that “the defendant failed to act honestly in its contractual performance vis-à-vis the plaintiff, both in negotiations entering into the contract of employment and at the time of termination.”22 It cited Bhasin for the proposition that “[p]arties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of a contract.”23

The court found that prior to signing the employment contract, the defendant made misrepresentations regarding the financial circumstances of the corporation, which subsequently proved not to be accurate or true.24 It held that the plaintiff relied on the valuation of the defendant corporation that was provided by one of its principals in accepting the job.25 Moreover, once the plaintiff began his employment, the initial shareholding of 5% was never issued to him and the evidence indicated that no Residential Division of the defendant was in existence at any material time, nor had there been any discussion of the creation of a Residential Division.

The Antunes decision suggests that dishonesty by a defendant prior to the establishment of a contractual relationship that caused an employee to accept a job could amount to a breach of the duty to honestly perform the resulting employment contract. Here, the pre-agreement (dishonest) representations made about the value of an initial 5% shareholding interest in the defendant corporation and the potential for a further 5% shareholding in its (non-existent) Residential Division, coupled with an employment contract that memorialized these share entitlements, was held by the court to be a breach of the duty of honest in performance of the employment contract.

                                                            20 Ibid., para. 77. 21 Industrial Alliance Insurance and Financial Services Inc. v. Brine, 2015 NSCA 104, para. 101. 22 Antunes v. Limen Structures Ltd., 2015 ONSC 2163, para. 66 (emphasis added). 23 Ibid., para. 64. 24 Ibid., para. 65. 25 Ibid.

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Although employment law has long-recognized an obligation of good faith applicable to the manner of an employer’s termination of an employee26 and prohibited bad faith conduct calculated to cause an employee to withdraw from employment,27 it does not appear that employment law has recognized a good faith obligation that pertains to the commencement of the employment relationship. Bhasin appears to have been applied by the court in Antunes to sanction misrepresentations made during the lead up to and outset of the employer-employee contractual relationship.

2. 0856464 B.C. Ltd. v. TimberWest Forest Corp., 2014 BCSC 2433 (Sigurdson J.)

The plaintiffs brought an action for damages arising from the termination of certain timber harvesting contracts by the defendant. They alleged that the defendants failed to negotiate annual logging rates in good faith, as was expressly required by the contracts between the parties, which led to the unlawful termination of the contracts. The relevant contractual provision provided that “the Parties will negotiate in good faith to agree upon Rates payable by the Company for Work under this Agreement.” If the parties were unable to agree on rates, either party was permitted to terminate on 90 days’ notice.

During the rate negotiations in late 2007 and early 2008, the court determined that the defendant was intent on executing a “subdivision strategy”.28 That strategy could only succeed if the contracts with the plaintiffs were terminated. The key question pertinent to the good faith obligation, in the court’s mind, was “whether the execution of [the subdivision] strategy was the dominant motivation for the defendant in its negotiation strategy with [the plaintiffs], or merely an incidental motive or an ancillary consideration.”29

The court held that the defendant breached its contractual obligation to negotiate in good faith and that the plaintiffs were entitled to damages for the unlawful termination of the contracts. Relying on the defendant’s “conduct as a whole,”30 the court determined that the “dominant motivation” of the defendant in its rate negotiations was the execution of its subdivision strategy, and that “the defendant's motivation and objective in the short 2008 rate negotiations was to bring the contracts to an end because of the strategic importance” of achieving the subdivision strategy.31

Citing Bhasin, the court noted that “the question of whether the defendant breached the obligation to negotiate in good faith involves a careful consideration of the particular facts and circumstances of the case.”32 In this case, the court grounded the breach of the defendant’s contractual good faith obligation in four key conclusions:

First, it is clear that the [subdivision] strategy was very important to [the defendant], and that it could only succeed if the contracts were terminated. … Second, the pattern of negotiations changed dramatically, suggesting a different intention than simply agreeing on rates for the next year. Third, the rates were lower than the agreed rates for the

                                                            26 Wallace v. United Grain Growers, [1997] 3 S.C.R. 701. 27 Shah v. Xerox Canada Ltd., [2000] 49 C.C.E.L. (2d) 166. 28 0856464 B.C. Ltd. v. TimberWest Forest Corp., 2014 BCSC 2433, para. 308 [TimberWest]. 29 Ibid., para. 294 (emphasis added). 30 Ibid., para. 309. 31 Ibid., para. 308. 32 Ibid., para. 169.

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previous year and the offer was made by the defendant with full knowledge of [plaintiffs’] financial difficulties. Fourth, negotiations were over a relatively short time period and terminated with the end of the contracts early in the new year of 2008.33

The parties had performed three years of a five year contract at the time of termination. Importantly, the court did not find that the defendant’s witnesses were “deceitful” in their evidence, and it does not appear that they ever lied to the plaintiffs. However, the court found that the defendant breached its obligation of good faith because its conduct “was not reasonable given the history of the parties contractual relationship and was not honest given that rather than pursuing a course of conduct that was in its best interests in continuing the agreement, it was pursuing a conflicting [subdivision] strategy which strategy required eviscerating the agreement to succeed.”34

3. Data & Scientific Inc. v. Oracle Corp., 2015 ONSC 4178 (Belobaba J.)

This was a motion to strike by the defendant in the plaintiff’s action for damages resulting from the termination of a long-term business relationship. The plaintiff’s agreement with the defendant was an annual agreement, to be renewed “at [the defendant’s] sole discretion”. The agreement had been renewed every year for 20 years, and in the fall of 2014, the defendant again invited the plaintiff to renew the agreement. The plaintiff unsuccessfully attempted to do so online. It then wrote to the defendant and requested a renewal, and the defendant responded by indicating that the agreement would not be renewed.

The parties agreed that it had long been settled that as a general rule, discretionary contractual powers (such as the defendant’s discretion to renew the agreement) had to be exercised reasonably. However, the defendant argued that Bhasin “explicitly curtailed” this general rule and that there was no longer any obligation to exercise discretionary contractual powers reasonably in contract renewal situations.35

The court disagreed and dismissed the motion to strike. It rejected the defendant’s “extreme” proposition that under no circumstances does a ‘sole discretion’ contractual provision have to be exercised reasonably.36 In the court’s opinion, Bhasin was a decision that dealt with dishonesty, not unreasonableness.37 The court held that the Supreme Court did not discard the long-standing requirement that discretionary contractual power must be exercised reasonably. Specifically, the court held that in Bhasin, “the pre-existing situational and relational aspects or pockets of implied good faith (such as the obligation to exercise discretionary contractual powers reasonably) were not eliminated but were simply realigned under a broad organizing principle of good faith.”38

4. Empire Communities Ltd. v. Ontario, 2015 ONSC 4355 (Myers J.)

The Crown defendant moved for summary judgment in an action alleging that it failed to disclose material facts in a real estate transaction. The plaintiff had purchased excess land from the defendant in 1997. The Crown had not disclosed that between 1980 and 1995, an aboriginal group had made claims

                                                            33 Ibid., para. 297. 34 Ibid., para. 308. 35 Data & Scientific Inc. v. Oracle Corp., 2015 ONSC 4178, para. 8-9 [Data & Scientific]. 36 Ibid., para. 17. 37 Ibid., para. 14. 38 Ibid., para. 11.

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pertaining to the land being sold and that, in 1995, the aboriginal group had sued the Crown for mismanagement of the lands and breach of fiduciary duty.

Years after the sale, in 2009, an aboriginal group blockaded the plaintiff’s lands, which the plaintiff alleged caused it to suffer damages. The plaintiff claimed, among other things, that the Crown breached a duty of good faith at the time of the original real estate transaction.

The court expressly agreed with Belobaba J.’s analysis of the Bhasin decision in Data & Scientific, and offered its own observations on the import of Bhasin:

… the Supreme Court has rationalized, renamed, and provided an overall framework for understanding several pre-existing aspects of duties of good faith that have been recognized by the law. In addition, it added one arguably new (arguably not new) duty not to lie to one's contractual counterparty. Nothing in Bhasin eliminated the pre-existing law of latent defects or the contractual interpretation principles enunciated just a few months earlier in Creston Moly Corp. v. Sattva Capital Corp., [2014] 2 S.C.R. 633, 2014 SCC 53 (S.C.C.). Neither did it create a freestanding, ill-defined, and potentially arbitrary duty of good faith against which to measure all aspects of contractual performance.39

The court rejected the allegation that the Crown defendant had breached a duty of good faith. The Court observed that there was “no hint in the evidence of either intentional dishonesty or knowing misrepresentation by the defendants”.40 It held:

Apart from the duty not to lie, Bhasin does not create contractual obligations or replace the existing law. As to the (possibly) new duty not to lie or knowingly misrepresent; absent a duty to disclose, the defendants’ silence can be neither. If one does not have a positive obligation to disclose certain facts, then silence as to those facts is neither dishonest nor a misrepresentation.41

The decision of the court interprets Bhasin’s duty of honesty in contractual performance to require evidence of “dishonesty, a knowing misrepresentation, or a duty to disclose that could make silence a misrepresentation”42 in order to ground a breach of that duty.

5. Trillium Motor World Ltd. v. General Motors of Canada Ltd., 2015 ONSC 3824 (McEwan J.)

This was a trial decision in a franchise law class action, a context that has a well-developed body of jurisprudence about the duty of good faith and fair dealing that arises between franchisor and franchisee that predates Bhasin. Factually, the defendant had abruptly terminated (on six days’ notice) a number of its dealers as part of an effort to reduce its dealership network at the height of the financial crisis and avoid insolvency. The court made the following comments on the interplay between the Bhasin duty of good faith and the duty in the franchise context:

                                                            39 Empire Communities Ltd. v. Ontario, 2015 ONSC 4355, para. 26. 40 Ibid., para. 25. 41 Ibid., para. 27. 42 Ibid., para. 30.

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It is true that the Supreme Court in Bhasin held that the common law contractual duty of good faith does not give rise to a positive duty to disclose. The Supreme Court was not, however, purporting to address the franchise context … In my view, there is nothing inconsistent with the court in Bhasin limiting the scope of the duty of good faith in the context of ordinary contractual relationships, but not in the unique context of franchise relationships.43

In terms of whether there was a breach of the duty of good faith and fair dealing on the facts of this case, the court held that there was not. The court found that the defendant General Motors of Canada was “not dishonest” with its dealers and acted reasonably in the circumstances; namely, the “frenetic” circumstances following on the recent global financial crisis where the company teetered on the brink of insolvency.44

6. Algo Enterprises Ltd. v. UPM-Kymmene Miramichi Inc., 2014 NBQB 265 (Walsh J.)

The plaintiff sued the defendant for failure to renew a contract. For in excess of 15 years, the plaintiff cut, processed and delivered wood for the defendant pursuant to annual “Logging Agreements” that were made each year in relation to a single cutting season. In March 2001, as the plaintiff was completing its work under the Logging Agreement for the 2000-2001 season, the defendant advised that it was no longer needed as a contractor. The plaintiff alleged that the defendant breached its duty of good faith by not providing any notice or reason for termination.

The key issue before the trial judge was whether what transpired between the parties was the defendant terminating an existing contract, or simply refusing to enter into another contract for the upcoming logging season. The court held that it was the latter.

The court held that Bhasin “did not, in my respectful view, go so far as to recognize a good faith duty to bargain.”45 Thus, even though the manner in which the defendant ended its relationship with the plaintiff was “high-handed” and no explanation was offered by the defendant,46 the court reminded itself that it should not “veer into a form of ad hoc judicial moralism or ‘palm tree’ justice” no matter how much it might otherwise be tempted to on the evidence.47

The contractual language at issue provided that the agreement may be renewed “from year to year by mutual agreement of both parties”. This was held to be an unenforceable agreement to agree. The court held that all the defendant did was refuse to enter into a logging agreement for the following year, which did not attract any liability in law.48 The court distinguished the contractual language from that in Bhasin, where the agreement “would automatically renew at the end of the three-year term unless one of the parties gave six months’ written notice to the contrary.”49 The court also pointed out that in Bhasin, the Supreme Court’s finding of a breach of the duty of good faith was premised on the dishonesty of the                                                             43 Trillium Motor World Ltd. v. General Motors of Canada Ltd., 2015 ONSC 3824 , para. 161. 44 Ibid., para. 181. 45 Algo Enterprises Ltd. v. UPM-Kymmene Miramichi Inc., 2014 NBQB 265, para. 19 [Algo]. 46 Ibid., para. 43. 47 Ibid. 48 Ibid., para. 44. 49 Ibid., para. 45.

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defendant, whereas in this case, there was “no evidence” that would trigger the common law duty of honest contractual performance.50

7. Royal Bank of Canada v. 4445211 Manitoba Ltd., 2015 SKQB 261 (Danyliuk J.)

The plaintiff bank moved to strike the defendants’ Statement of Defence, which alleged that the plaintiff failed to act in good faith because it did not “play fair” when negotiating two loans.51 But those very negotiations were so the defendants could escape the strict terms of their existing loan agreements with the plaintiff, and obtain more generous terms to their repay debts.

The court struck the defendants’ Statement of Defence. It held that there was “nothing to indicate that either loan arrangement carried with it a term that the plaintiff would renegotiate the terms reflected in the agreements.”52 The court held that the defendants improperly conflated “performance of a contractual duty (clearly subject to the Bhasin duties) with negotiations to extinguish or vary those same duties (not within the scope of the express contract, or Bhasin).”53

8. Styles v. Alberta Investment Management Corp., 2015 ABQB 621 (Yungwirth J.)

The plaintiff was terminated without cause and sued the defendant employer for payments he alleged to be owed under a Long Term Incentive Plan (“LTIP”). The plaintiff grounded his argument in the contractual organizing principle of good faith and Bhasin’s duty of honesty in contractual performance.

After reviewing the caselaw, including Bhasin, the court concluded that “it is reasonable to recognize as a manifestation of the organizing principle of good faith, a common law duty which requires that discretionary powers granted under a contract must be exercised fairly and reasonably and not in a manner that is ‘capricious’ or ‘arbitrary’.”54 This duty, in the court’s view, could not be excluded by the parties by means of an entire agreement clause.55 The court did not purport to limit this duty to the employment context, though it did say that the duty “is designed to deal with both the unfair manner of termination and the consequences that flow from unduly insensitive conduct of an employer when dismissing an employee.”56

Here, the employment contract specifically permitted termination without cause. However, benefits accrued under the LTIP only vested after 4 years. The court noted that it was “difficult to reconcile” the ability of an employee to accrue LTIP payments with an employer’s ability to terminate without cause at any time, “and thereby effectively deprive the employee of the compensation earned.”57

The court found that there was no evidence that the plaintiff had been terminated in bad faith. However, it also noted that the defendant had provided no evidence “as to the reasons for the termination and no

                                                            50 Ibid., para. 49. 51 Royal Bank of Canada v. 4445211 Manitoba Ltd., 2015 SKQB 261, para. 33. 52 Ibid. 53 Ibid. 54 Styles v. Alberta Investment Management Corp., 2015 ABQB 621, para. 63 [Styles]. 55 Ibid., para. 64. 56 Ibid., para. 66. 57 Ibid., para. 109.

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reasonable explanation for the associated or consequential denial of the LTIP grants.”58 It also pointed out that the plaintiff had been terminated at a point of time where his entitlement to LTIP benefits was fast approaching.59 In the judgment of the court, the plaintiff’s termination was arbitrary and was contrary to the Supreme Court’s pronouncement in Bhasin that “a minimum standard of honesty” in contractual performance meant that, if the contract did not work out, a contracting party would have “a fair opportunity to protect their interests.”60 It held that the defendant breached the common law duty to exercise contractual powers reasonably.

9. Bank of Montreal v. Javed, 2016 ONCA 49 (Lauwers J.A.)

The respondent Bank had obtained summary judgment on a guarantee. The appellants appealed and argued, among other things, that the Bank’s conduct rendered the guarantee unconscionable. In support of this position, the appellants asserted that the Bhasin decision “modified the test for unconscionability by requiring the court to import ‘a general organizing principle of good faith and recognizing a duty to perform contracts honestly’.”61 Specifically, it was asserted that the effect of Bhasin was to extend the test for unconscionability from an assessment of the equities of an agreement or transaction, to the assessment of a party's performance of its obligations under the agreement.

The Court of Appeal rejected this argument. It held that Bhasin did not provide “any basis” for extending the common law test for unconscionability.62 The Court remarked that Bhasin “recognized a duty of honest performance” and noted that there was “no basis” for suggesting that the respondent Bank did not conduct itself honestly throughout.63 The appeal was dismissed.

10. Nexus Quality Control Services, Inc. v. Matrix Service Canada ULC, 2016 ABPC 24 (Sharek J.)

This was a trial decision involving the termination of a consulting agreement between the plaintiff and defendant. The consulting agreement was to “continue indefinitely” unless terminated on 60 days’ written notice. The defendant terminated the agreement without any notice.

The court held that the defendant had not acted dishonestly in terminating. However, citing Bhasin, it held that the defendant “ought to have had appropriate regard for the legitimate contractual interests of [the plaintiff] by providing … 60 days' notice of termination when they first knew or ought to have known that the services of [the plaintiff] were no longer required.”64 The court observed that the defendant had many opportunities to provide the applicable notice, but held off on doing so because it wanted to keep its options open in the event that it did need the services of the plaintiff. This was held to constitute bad faith.65

                                                            58 Ibid., para. 115. 59 Ibid., para. 130. 60 Ibid., para. 116. 61 Bank of Montreal v. Javed, 2016 ONCA 49, para. 11. 62 Ibid., para. 12. 63 Ibid. 64 Nexus Quality Control Services, Inc. v. Matrix Service Canada ULC, 2016 ABPC 24, para. 44. 65 Ibid.

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The court held that there was a both a breach of contract by the defendant and a breach of its “obligation to abide by the underlying organizing principle of good faith and perform their contractual duties reasonably and not capriciously or arbitrarily.”66 The court assessed damages based on the lost value of the opportunity the plaintiff would have had to look for new work had 60 days’ notice had been given, characterizing the amount awarded as “equitable damages” payable for the breach of the duty to be reasonable and act in good faith.67

11. Mayotte v. Ontario, 2016 ONSC 1233 (Gans J.)

This was a class action common issues trial in a case brought by the private operators of “Service Ontario” locations against the government. These operators entered into a number of agreements with the government, but the government had unilateral discretion to set compensation under those agreements. The plaintiffs argued that Ontario had an obligation to exercise its discretion in a fair and reasonable manner, and that it failed to do so.

There was no allegation that Ontario engaged in any dishonesty vis-à-vis the class members. Ultimately, the court was not persuaded that Ontario had acted unreasonably and in bad faith in setting the compensation of the plaintiffs.68 In reaching that conclusion, however, the court considered the plaintiffs’ argument that the Province’s duty of reasonableness and good faith “applied to outcome and not to process.”69 The court found no support for this proposition in the caselaw, including Bhasin, and rejected the argument.70

12. 2336574 Ontario Inc. v 1559586 Ontario Inc., 2016 ONSC 2467 (Morgan J.)

The plaintiff purchaser sued for specific performance and relief from forfeiture of its deposit in connection with a failed condominium transaction that did not close on the specified date. The defendant moved for summary judgment. Both sides accused one another of failing to act in good faith. The plaintiff, for its part, alleged that the defendant was unreasonable in setting a closing date without consultation and then failing to grant any extensions. The defendant alleged that the plaintiff failed to close the transaction for no reason, despite having the funds available to it.

The court noted that the content of the good faith obligation was to be measured by the specific relationship between the parties.71 It distinguished between a situation where the parties have a long term, ongoing relationship – where “a level of good faith may be expected that imposes flexibility and obligations beyond the letter of the contract” – and a situation where commercially experienced buyers act in “a discreet, one-off transaction,” where the “the level of contract adherence would not be expected to vary from the strict contractual terms.”72

                                                            66 Ibid., para. 46. 67 Ibid. 68 Mayotte v. Ontario, 2016 ONSC 1233, para. 71. 69 Ibid., para. 43. 70 Ibid., para. 45. 71 2336574 Ontario Inc. v 1559586 Ontario Inc., 2016 ONSC 2467, para. 23. 72 Ibid., para. 24.

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Here, the plaintiff missed the closing date by a single business day. In the court’s judgment, however, that was enough to put an end to the contract.73 The parties were strictly held to the terms of their agreement, and the purchaser forfeited its deposit to the vendor.

Conclusion

Bhasin is a landmark decision. Yet nearly two years into the post-Bhasin era, there is very little jurisprudence that suggests that lower courts have taken the Supreme Court’s decision as an invitation for “unbridled creativity in the creation from whole cloth of obligations in a contractual context which the parties have not provided for or have addressed in a fashion which one party regrets in hindsight.”74 If anything, the restrained manner in which Bhasin has been applied suggests that courts are scrutinizing good faith-based arguments very carefully. But given the Supreme Court’s comment in Bhasin that the application of the good faith principle “should be developed where the existing law is found to be wanting,”75 there can be little doubt that creative lawyers will rely on Bhasin for many years to come and continue to push the boundaries of contractual good faith.

The TimberWest decision is interesting because a breach of good faith was identified notwithstanding the fact that there was no finding that the defendant lied or was actively dishonest with the plaintiffs. Rather, the court found that the defendant’s conduct was “not reasonable” in the circumstances and “not honest” in the sense that it was intent on pursuing a course of conduct that presupposed discontinuance of the agreement with the plaintiffs. The key to understanding TimberWest may lie in the fact that the agreement between the parties contained an express term that imposed a positive obligation on the parties to “negotiate in good faith” about the logging rates payable under the agreement. Had that provision not existed, the result may well have been the same as in Algo. There, the court observed that Bhasin did not recognize “a good faith duty to bargain” and that a contractual term providing that the agreement would be renewed from year to year “by mutual agreement of both parties” was an unenforceable agreement to agree. The TimberWest decision was appealed to the BC Court of Appeal, but settled before the appeal could be argued.

Styles will be a case to watch. The trial decision is under appeal to the Alberta Court of Appeal. Though Styles is an employment decision, its recognition of a broad common law duty to exercise contractual discretion fairly and reasonably (as opposed to an implied term of similar effect) may be significant insofar as the court determined that this duty cannot be excluded by virtue of an entire agreement clause. Thus, Styles could be read to suggest that discretionary provisions in any contract that give one party unfettered discretion – no matter how sophisticated the parties, how heavily that provision was negotiated, or how clear the contractual language – will always be subject to a fairness or reasonableness requirement. A party who exercises contractually-conferred discretion and gives no reason or explanation for its actions may find itself facing a lawsuit relying on Styles in the foreseeable future.

                                                            73 Ibid., para. 27. 74 Addison Chevrolet Buick GMC Limited. v. General Motors of Canada Limited, 2015 ONSC 3404, para. 116. 75 Bhasin, supra note 1, para. 66.

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TAB 3

PIPEDA, The Digital Privacy Act

And Litigation: Q and A?

Wendy Wagner

Gowling WLG (Canada) LLP

September 15, 2016

THE TWELVE-MINUTE

Civil Litigator 2016

Gowling WLG is an international law firm comprising the members of Gowling WLG International Limited, an English Company Limited by Guarantee, and their respective affiliates. Each member and affiliate is an autonomous and independent entity. Gowling WLG International Limited promotes, facilitates and co-ordinates the activities of its members but does not itself provide services to clients. Our structure is explained in more detail at gowlingwlg.com/legal

PIPEDA, THE DIGITAL PRIVACY ACT AND LITIGATION: Q AND A This presentation addresses the impact of the Digital Privacy Act amendments to the Personal

Information Protection and Electronic Documents Act (PIPEDA) on litigation. To understand how

the amendments might affect litigation practice, it is essential to know the impact that PIPEDA

has on lawyers and litigation practice. The following is a series of Q and As that aim to provide

this background and to respond to the question at hand.

Does PIPEDA Apply to Law Firms and Lawyers In Ontario?

Yes.

PIPEDA is Canada’s federal privacy legislation. It is applicable in all provinces except those

which have passed their own substantially similar legislation (currently Alberta, BC and Quebec)

and is also applicable to cross-border transfers of information within Canada. PIPEDA also

applies across Canada to organizations that are a Federal Work, Undertaking or Business

(FWUB), and in the case of FWUBs, the law also applies to personal information that is about

an employee of the organization. The basic obligation imposed by the legislation is that

knowledgeable consent (whether express or implied) must be obtained for the collection, use

and disclosure of personal information in the course of commercial activities. Other notable

obligations include providing individuals with a right of access to their personal information and

the right to withdraw consent.

Law firms are private organizations that engage in commercial activities and therefore PIPEDA

applies directly to law firms regarding the collection, use and disclosure of their clients’ personal

information. Law firms must have privacy policies and practices and obtain knowledgeable

consent for activities involving the collection, use and disclosure of client information. The

Privacy Commissioner has held that law firm clients have a right to access their personal

information contained in their file, even where the law firm has a solicitor’s lien on the file (see

Settled Case Summary #30). In the context of the Digital Privacy Act, like other organizations

subject to PIPEDA, a law firm that is subject to a privacy breach incident will be subject to the

new mandatory breach notification and record keeping regime imposed by the Act, which will

come into force at a later date when regulations are adopted.

In the context of litigation, PIPEDA may also impact on the collection, use and disclosure of

personal information that is relevant to the prosecution of the litigation.

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Does PIPEDA Constrain Litigants/Lawyers When Gathering (i.e. “Collecting”) Personal Information For Purposes of Litigation?

It depends who you ask.

Based on the decision of the Federal Court in State Farm Mutual Automobile Insurance

Company v Privacy Commissioner of Canada, 2010 FC 936, it is arguable that the answer is

“no”.

The State Farm case involved a motor vehicle accident in which State Farm (the insurer) had

retained and was instructing legal counsel on behalf of the insured (the defendant in the action).

The plaintiff in the suit made a request to State Farm under PIPEDA for access to copies of a

surveillance tape of the plaintiff obtained by a private investigator acting on behalf of State

Farm. The Federal Court held that the plaintiff did not have access to the tape under PIPEDA

since the personal information therein was not collected in the course of “commercial activity”,

and therefore PIPEDA was not applicable. The Court held:

[98] Collection of evidence on a plaintiff by an individual who is a defendant in a tort

action brought by the plaintiff would clearly not constitute a “particular transaction, act or

conduct that is of a commercial character” as set out in the definition of “commercial

activity” found in ss. 2(1) of PIPEDA. Indeed, the fact that an individual defendant

collects evidence himself or herself for the purpose of a defence to a civil tort action is

clearly not a commercial activity on the part of that defendant since there is no

“commercial character” associated to that activity”.

The Privacy Commissioner argued a “commercial character” was present since the defendant

paid the insurer to defend her. The Court rejected this argument, holding:

[100] In short, the logic of the Privacy Commissioner is such that all collection of

evidence about a plaintiff by third parties retained by a defendant in response to a tort

action would not be permitted by PIPEDA unless the plaintiff were to consent to such

collection of evidence. Presumably this would extend to all collection of evidence about a

defendant by third parties retained by a plaintiff to assist in prosecuting a tort action. I

cannot accept that such was the intent of Parliament in adopting PIPEDA.

In reaching these conclusions, the Court referred to the substantially similar privacy laws in BC,

Alberta and Quebec, and noted that in each jurisdiction, there is an exception to consent for

information collected for purposes of a legal proceeding.

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Wendy Wagner Partner Gowling WLG (Canada) LLP T +1 613 786 0213 Wendy.Wagner@gowlingwlg.com

The Privacy Commissioner does not read the State Farm decision this broadly. Its position (as

stated in its guidance document, “A Privacy Handbook for Lawyers” available here:

https://www.priv.gc.ca/information/pub/gd_phl_201106_e.asp) is as follows: “PIPEDA may

continue to apply to aspects of litigation proceedings depending on the context. For example,

the collection, use or disclosure of personal information in connection with litigation involving

commercial organizations may well be carried out in the course of commercial activities, as

distinguished from a personal injury claim involving individual litigants in their personal

capacity”.

The Privacy Commissioner therefore takes the position that litigants and their representatives

may need express or implied consent, or an applicable exemption, in order to collect personal

information that is relevant to the conduct of the litigation.

The Privacy Commissioner has held that a defendant has “implied consent” to collect personal

information (e.g. video surveillance) from a plaintiff who initiates a law suit, in order to defend

herself (see PIPEDA Report of Findings #2005-311). However, the Commissioner has

expressed that this is not unlimited or uncontrolled access to personal information, but

authorizes collection “only to the extent it is relevant to the merits of the case and conduct of the

defence”. The Commissioner has not stated that implied consent would exist for a corporate

plaintiff to collect information about a defendant.

There is also an exception to the knowledgeable consent requirement in PIPEDA section

7(1)(b), which allows for collection of personal information where: “it is reasonable to expect that

the collection with the knowledge or consent of the individual would compromise the availability

or the accuracy of the information and the collection is reasonable for purposes related to

investigating a breach of an agreement or a contravention of the laws of Canada or a province”.

The Privacy Commissioner has issued guidelines regarding section 7(1)(b) in the specific

context of video surveillance, at:

https://www.priv.gc.ca/information/pub/gd_cvs_20090527_e.asp.

Presumably the exception in section 7(1)(b) would authorize collection of personal information

about litigants in most litigation contexts, though query the extent to which it authorizes

collection without consent of personal information about third parties to the litigation which may

be relevant to the lawsuit? Given litigation privilege, it would seem highly problematic to require

lawyers to obtain the consent of either litigants or third parties in order to collect relevant

personal information in the context of prosecuting or defending a lawsuit, especially bearing in

mind that consent is required to collect even publicly available information (e.g. from social

media), unless the information falls within one of the narrow categories of personal information

specified in the regulations.

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Wendy Wagner Partner Gowling WLG (Canada) LLP T +1 613 786 0213 Wendy.Wagner@gowlingwlg.com

It is important to keep in mind that the collection of personal information for purposes

tangentially related to the initiation of litigation may not be considered by the Privacy

Commissioner to be authorized by “implied consent” or by the section 7(1)(b) exception to

consent, especially if the collection has an apparent commercial character. For example, in

PIPEDA Report of Findings #2006-340, a law firm was found to have contravened PIPEDA

when it made a credit bureau inquiry on behalf of a client in order to determine the financial

status of a potential defendant to assess whether it was worthwhile to commence litigation

against the potential defendant.

Under PIPEDA, Can a Litigant Use Personal Information Collected In The Course of Commercial Activities to Initiate, Prosecute or Defend a Lawsuit?

Yes, presuming such use is authorized by PIPEDA section 7(2)(a).

PIPEDA section 7(2)(a) allows personal information to be used without the knowledge or

consent of the individual where, “(a) in the course of its activities, the organization becomes

aware of information that it has reasonable grounds to believe could be useful in the

investigation of a contravention of the laws of Canada, a province or a foreign jurisdiction that

has been, is being or is about to be committed, and the information is used for the purpose of

investigating that contravention”. Based on agency principles adopted by the courts in the

context of PIPEDA, this exception also should permit litigation counsel to use such information

to prosecute or defend a client in a lawsuit.

Does PIPEDA Allow A Litigant to Disclose Personal Information Collected In The Course of Commercial Activities to its Own Legal Counsel?

If the legal counsel is in Canada, the answer is an unqualified “yes”.

This flows from the exception in section 7(3)(a), which provides that knowledge and consent of

the individual is not required to disclose an individual’s personal information if the disclosure is:

“(a) made to, in the Province of Quebec, an advocate or notary or, in any other province, a

barrister or solicitor who is representing the organization;”. Notably, this exception does not

extend to foreign legal counsel.

However, a litigant may be able to disclose personal information to foreign legal counsel if

another exception applies. For example, when litigation has been commenced and the

disclosure is necessary to comply with rules of court pertaining to discovery/production in the

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Wendy Wagner Partner Gowling WLG (Canada) LLP T +1 613 786 0213 Wendy.Wagner@gowlingwlg.com

foreign jurisdiction, the disclosure may be authorized by PIPEDA section 7(3)(c), which allows

disclosure without the individual’s knowledge or consent where “required to comply with a

subpoena or warrant issued or an order made by a court, person or body with jurisdiction to

compel the production of information, or to comply with rules of court relating to the production

of records”.

PIPEDA does not contain a definition of “court” or “rules of court” that would confine this

exception to the territory of Canada. If the disclosure of personal information to foreign legal

counsel is required for some purpose other than to comply with production obligations under

rules of court, then the disclosure may be prohibited by PIPEDA unless another exception

applies.

How Does PIPEDA Impact on a Litigant’s Production Obligations In the Context of Discovery?

Disclosure of personal information in this context is primarily governed by the rules of court, and

therefore implicates the exception in PIPEDA section 7(3)(c). To date, attempts by litigants to

confine the scope of production based on PIPEDA or to challenge the admissibility of

documents produced in litigation by reference to PIPEDA have not been met with success.

An early case is Ferenczy v. MCI Medical Clinic 2004 CanLII 12555 (ON SC). In Ferenczy, the

plaintiff sued a doctor for medical negligence. The insurer for the doctor had collected video

surveillance evidence using a private investigator. The plaintiff asserted that the evidence was

inadmissible on the basis of an alleged breach of PIPEDA. The Court’s primary holding (at

paragraph 15) was that PIPEDA does not constrain or prohibit the admissibility into evidence of

personal information collected or recorded in contravention of PIPEDA. Therefore, even if the

video surveillance was conducted in breach of PIPEDA, this would not impact upon the

admissibility of the evidence in court proceedings.

The Court in Ferenczy also made obiter comments about the interpretation of PIPEDA,

including that principles of agency are applicable to PIPEDA, such that it is the defendant in the

civil case who would be considered to be the person “collecting” the information for his personal

use to defend against allegations brought by the plaintiff (therefore rendering the Act

inapplicable). In addition, the court opined that a plaintiff in litigation gives implied consent to the

collection, recording and use of his or her personal information in so far as it is related to the

defence of the lawsuit. The Court also made mention of the exceptions to PIPEDA which would

allow collection, use and disclosure of such information without consent, including section

7(1)(b) [breach of an agreement or contravention of the laws of Canada or a province], section

7(2) [permitting use of information collected under section 7(1)(b) without consent], and section

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Wendy Wagner Partner Gowling WLG (Canada) LLP T +1 613 786 0213 Wendy.Wagner@gowlingwlg.com

7(3)(c) [permitting disclosure of information in order to comply with rules of court relating to the

production of records].

Data Treasury Corp v Royal Bank of Canada 2008 FC 955 concerned a motion brought before

the court to settle the terms of a protective order that the parties to the litigation were seeking in

order to protect from disclosure certain patented technology, confidential pricing and costing,

and confidential business practices. At issue was a provision that the Royal Bank of Canada

sought to have included in the protective order that was referred to as the “Canada Only

Clause”. The clause would have allowed a party to the litigation to make a written request to the

other party to prevent confidential information from being exported outside of Canada, and if

such request were denied, the requesting party would be permitted to bring a notice of motion to

request an order preventing disclosure of the information outside of Canada.

The bank maintained that the clause was necessary in order to avoid potential issues regarding

the United States Patriot Act, PIPEDA and the implied undertaking rule. The Court refused to

include the “Canada Only Clause” in the protective order, citing section 7(3) of PIPEDA, which

permits disclosure of personal information to “comply with the rules of court relating to the

production of records. The Court did however address privacy concerns without resorting to a

geographical limitation on review of the records, by directing that the draft protective order be

amended:

“a. to include a provision encompassing the implied undertaking rule applicable to the

parties, their counsel and advisers;

b. to include a provision that gives any party a right to come back to Court regarding any

specific issue concerning a specific document;

c. to include a provision that personal information of customers of the Banking Group

need not be produced and may be redacted; and,

d. to include a provision that documents produced which may be sent to the United

States for review is sanctioned by and subject to the protective order of this Court.”

In its guidance document A Privacy Handbook for Lawyers, the Privacy Commissioner has

attempted to encourage legal counsel to be mindful of privacy when considering production

obligations in the context of litigation, and to this end has cited Principle 9 of the Sedona

Canada Principles, which provides that: “During the discovery process parties should agree to

or, if necessary, seek judicial direction on measures to protect privileges, privacy, trade secrets

and other confidential information relating to the production of electronic documents and data.”

The comments to Principle 9 nonetheless acknowledge that: “The courts have not been

sympathetic to objections to production of records or answering questions based on privacy

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Wendy Wagner Partner Gowling WLG (Canada) LLP T +1 613 786 0213 Wendy.Wagner@gowlingwlg.com

legislation. Confidentiality orders, common law or civil procedure rules may limit the extent to

which commercially sensitive or personal information must be disclosed, offering solutions to the

protection of private or commercially sensitive information.”

While not a subject of discussion within the Privacy Commissioner’s guidance, it is also

essential to recognize that any attempt to redact or impose a sealing order on personal

information that is included in documents that are filed as part of court proceedings necessarily

runs up against the conflicting constitutionally protected guarantee of freedom of expression,

which includes the open court principle. Any attempt to obtain a sealing order in the context of

civil litigation must meet the rigorous standard imposed by the Dagenais/Mentuck test, which

requires that: (a) such an order is necessary in order to prevent a serious risk to the proper

administration of justice because reasonably alternative measures will not prevent the risk; and

(b) the salutary effects of the order outweigh the deleterious effects on the rights and interests of

the parties and the public, including the effects on the right to free expression (see, for example,

M.E.H. v. Williams, 2012 ONCA 35 (CanLII)).

Does PIPEDA Constrain Non-Parties to Litigation From Disclosing Personal Information That is Collected in the Course of Commercial Activities?

As a result of the Digital Privacy Act, perhaps not as much as it did before the amendments

effect by the Act.

Prior to the Digital Privacy Act amendments, PIPEDA constrained the ability of non-parties to

voluntarily disclose personal information that had been collected in the course of commercial

activities for purposes relevant to a litigation matter, absent a court order. This constraint is

illustrated by BMG Canada Inc. v. Doe, 2005 FCA 193 (CanLII), a case in which an association

representing music producers sought access from ISPs to the identities of Internet users who

were alleged to have illegally downloaded music files. At paragraph 37, the Court observed that

privacy considerations were an important issue, and that “Pursuant to PIPEDA, ISPs are not

entitled to "voluntarily" disclose personal information such as the identities requested except

with the customer's consent or pursuant to a court order.”

The Court in BMG noted that a factor to be considered in deciding whether to grant an equitable

bill of discovery (commonly referred to as a Norwich Order) is whether “the public interests in

favour of disclosure must outweigh the legitimate privacy concerns.” The Court ultimately

concluded that although privacy concerns must be considered, they must yield to public

concerns for the protection of intellectual property rights in situations where infringement

threatens to erode those rights (paragraph 41). However, the Court noted that in ordering

disclosure, caution must be exercised by the courts to ensure that privacy rights are invaded in

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Wendy Wagner Partner Gowling WLG (Canada) LLP T +1 613 786 0213 Wendy.Wagner@gowlingwlg.com

the most minimal way, including by avoiding delay (which may result in a disconnect between

an IP address and user identity), by ensuring that the acquisition of personal information is

limited to information relevant to the lawsuit, and by providing specific directions as to the type

of information disclosed and the manner in which it can be used (see paragraphs 43 to 45).

The Digital Privacy Act amendments may give new latitude to non-parties to litigation to

voluntarily disclose personal information to litigants, therefore making it unnecessary for the

litigant to seek Norwich-type orders. Specifically, clause 6(10) of the Digital Privacy Act adds a

new exception (PIPEDA section 7(3)(d.1)) that would allow disclosure of personal information

without knowledge or consent of the individual where such disclosure is “made to another

organization and is reasonable for the purposes of investigating a breach of an agreement or a

contravention of the laws of Canada or a province that has been, is being or is about to be

committed and it is reasonable to expect that disclosure with the knowledge or consent of the

individual would compromise the investigation”.

Presumably the new exception would permit (but not require) non-parties to litigation to disclose

personal information to a party to litigation without obtaining a court order authorizing such

disclosure so long as the following applies:

• The other organization is investigating a breach of an agreement or a contravention of

the laws of Canada or a province that has been, is being, or is about to be committed;

• The information that is requested from the organization that holds the personal

information is relevant to this investigation;

• It is reasonable to believe that seeking the consent of the individual to disclose the

information would compromise the investigation.

The new exception, along with another exception that authorizes disclosure without consent for

purposes of detecting or suppressing fraud, replaces the former concept of “investigative

bodies” under PIPEDA. Under the former regime, the Governor in Council could approve

specified investigative bodies to which personal information could be disclosed without consent,

and who were in turn authorized to disclose personal information in circumstances where the

disclosure was reasonable for purposes related to investigating a breach of an agreement or a

contravention of the laws of Canada or a province.

Some commentators have criticized the new exception on the basis that it will remove court

oversight of such disclosures and the attendant ability to impose restrictions to safeguard the

privacy of affected individuals (see for example Michael Geist,

https://www.thestar.com/business/2014/04/11/why_the_governments_new_digital_privacy_act_

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Wendy Wagner Partner Gowling WLG (Canada) LLP T +1 613 786 0213 Wendy.Wagner@gowlingwlg.com

puts_your_privacy_at_risk.html; Hasna Shireen, http://www.aclrc.com/blog/2015/9/8/bill-s-4-

digital-privacy-act-extensive-expansion-of-warrantless-disclosures-of-personal-information).

Are There Any Other Digital Privacy Act Amendments Worth Noting?

Clause 9(3) of the Digital Privacy Act amends PIPEDA section 9(3)(a), which formerly provided

an exception to the obligation to give an individual access to their personal information where

the information is protected by solicitor-client privilege. The amendment specifies that this

exception also applies in the civil law context to the professional secrecy of lawyers and

notaries. In Canada (Privacy Commissioner) v Blood Tribe Department of Health, 2008 SCC 44,

the Supreme Court of Canada held that the Privacy Commissioner does not have authority

under PIPEDA to compel the production of records that an organization claims are subject to

solicitor-client privilege. PIPEDA contains other exceptions to the obligation to provide access to

personal information requested by an individual, including where to do so would reveal

confidential commercial information, where the information was collected under section 7(1)(b),

or where it was generated in the course of a formal dispute resolution process.

In PIPEDA Report of Findings #2013-005, the Privacy Commissioner held that a law firm that

was acting as agent for another law firm involved in the administration of two estates had an

obligation to respond to a request made by a beneficiary of the estate for access to his personal

information. The beneficiary was not a client of either law firm. The Commissioner ultimately

held that it was satisfied that the law firm had conducted a reasonable search of its records and

found that it did not hold any of the individual’s personal information. Surprisingly, even though

the Commissioner’s Report was issued after the State Farm decision, it does not consider the

issue of whether any personal information in the law firm client’s file was collected by an

organization in the course of commercial activities and the threshold issue of the applicability (or

non-applicability) of PIPEDA to this information.

Clause 7(3) of the Digital Privacy Act adds a new exception (PIPEDA section 7(1)(b.1)) that

allows for the collection of personal information without knowledge or consent of the individual if

“it is contained in a witness statement and the collection is necessary to assess, process or

settle an insurance claim”. New PIPEDA section 7(2)(b.1) allows this information to be used

without knowledge and consent of the individual, for the same purposes. The addition of these

exceptions stands as a stark reminder that, in the context of commercial activity, PIPEDA does

not necessarily allow organizations to collect, use and disclose personal information without the

knowledge and consent of the individual, even if that information appears in a publicly available

document.

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10

Wendy Wagner Partner Gowling WLG (Canada) LLP T +1 613 786 0213 Wendy.Wagner@gowlingwlg.com

While there is an exception for personal information that is “publicly available and is specified by

the regulations”, the categories of publicly available information that are specified by regulation

are very narrow. In particular, in the Regulations Specifying Publicly Available Information,

SOR/2001-7, the exception that is applicable to court records applies only to: “personal

information that appears in a record or document of a judicial or quasi-judicial body, that is

available to the public, where the collection, use and disclosure of the personal information

relate directly to the purpose for which the information appears in the record or document”.

Accordingly, the use of such personal information without knowledge and consent of the

individual may be constrained by PIPEDA if the information will be used for a purpose unrelated

to the legal proceeding.

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TAB 4

When Should You Move Pre-Trial to

Strike Expert Evidence? Ever?

Tamryn Jacobson

Goodmans LLP

September 15, 2016

THE TWELVE-MINUTE

Civil Litigator 2016

When Should You Move Pre-Trial to Strike Expert Evidence? Ever?

Tamryn Jacobson

Rules touching on admissibility of expert evidence:

4.1 Sets out duty of expert, including that opinion evidence is fair, objective, non-partisan,

and only related to matters within that expert’s expertise

53.03 Sets out timing and requirements for expert reports, and that expert may not testify with

respect to an issue unless it is in a report served in accordance with the rule, except with

leave of trial judge

53.08 Leave to admit expert evidence not in accordance with 53.03 shall be granted by trial

judge on such terms as are just and with an adjournment if necessary, unless to do so

will cause prejudice to the opposite party or will cause undue delay in the conduct of the

trial

Ontario cases explicitly addressing availability of preliminary motion to strike expert evidence:

Paramount Tavern (Toronto) v Global Real Estate Co, [1993] OJ No 4341 (Ont Div Ct) – “The

trial judge is the only judge vested with jurisdiction to rule upon the admissibility of potentially

relevant evidence.”

Wilson v Servier Canada Inc., 2003 CarswellOnt 1231 (Ont SCJ) – Class Action context –

Although the case management judge should generally defer questions of admissibility of expert

reports to the trial judge, section 12 of the Class Proceeding Act permits any order the case

management judge considers appropriate respecting the conduct of a class proceeding so as to

ensure its fair and expeditious determination, including striking expert reports. Trial judge retains

power under Rule 53.03 to determine admissibility ultimately in the course of the trial.

Harrop (Litigation Guardian of) v. Harrop, 2010 ONCA 390 – If a motions judge has jurisdiction,

it should be exercised only in the rarest of cases. Policy considerations of having trial judge

determine issue include: 1) avoids multiplicity of proceedings, 2) ensures full context for decision,

3) avoids preliminary steps for tactical reasons, 4) avoids different appeal rights depending on

whether interlocutory order or trial decision.

Forbes v Net Ministries of Canada 2011 ONSC 6006 – A motions judge can rule in advance on

the admissibility of expert evidence at trial, but this should be undertaken only in the rarest of

cases because strong policy considerations will almost always dictate that it be the trial judge

determining this question.

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Iventic v State Farm Mutual Automobile Insurance Co, 2016 ONSC 1397 – Even though motions

judge was going to be trial judge, same public policy considerations apply and matter here should

be left to trial.

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TAB 5

“Meritless Litigation” – The New Rule 2.1

What Is It and How Should It Be Used?

Matthew Cohen

Pro Bono Ontario

September 15, 2016

THE TWELVE-MINUTE

Civil Litigator 2016

“Meritless Litigation” – The New Rule 2.1

What Is It and How Should It Be Used?

Matt Cohen1

August 29, 2016

1. Introduction

Rule 2.1 provides new powers to stay or dismiss frivolous, vexatious or abusive

proceedings or motions. While the purpose and operation of the Rule are

straightforward, the way in which the Rule interacts with modern realities of the civil

justice system is more complex. These realities include an access to justice crisis, an

attendant rise in the number of self-represented litigants, and an overburdened court

system. In my view, the Rule is necessary but its application must be sympathetic to

these competing realities. Courts have struck a good balance so far.

2. Discussion

At its heart, Rule 2.1 is a compliment to procedures designed to bring an appropriate

end to proceedings at an early stage. The Rule recognizes that these existing procedures

– summary judgment, determination of issues before trial, applications declaring

litigants vexatious – are not equipped to properly dispose of certain proceedings. The

Rule applies to two types of proceedings: a) those that appear, on their face, to be

frivolous, vexatious or otherwise an abuse of process; and b) those that have been

instituted or continued by parties subject to an order under subsection 140(1) of the

Courts of Justice Act without the order having been rescinded or leave granted.

Rule 2.1 responds to a thorny dilemma: Existing procedures can give troublesome

parties a fresh opportunity to litigate in precisely those circumstances in which litigation

should be curtailed. The objective of appropriate curtailment is met with a streamlined

process. The pillars of that process are easy engagement and a summary procedure.

The process can be engaged on the court’s own initiative or at the request of a party. A

party’s request should be bare, as argument could negate the view that the proceeding is

problematic on its face. Once the process is engaged, a plaintiff/applicant/moving party

has 15 days to provide submissions of no more than 10 pages. Other parties can respond

at the court’s direction. Invited responses must be provided within 10 days and be no

more than 10 pages. Relative to procedures other than Rule 2.1, the savings of time and

volume are potentially enormous.

Many aspects of the Rule have been judicially considered, some on appeal. Early on, the

Superior Court held the Rule was constitutional in that it “reflects the well-established

1 Director of Litigation Projects, Pro Bono Ontario (PBO). Many thanks to Matthew Milne (U of T Law Student/Donner Fellow with PBO), Louis Tsilivis (Osler) and Adam Hirsh (Osler) for their terrific help.

5-1

principle that a court has the authority to control its own processes and ensure that

those processes are not abused.”2 In respect of the Rule’s purpose and operation,

Justice Myers has written most of the Superior Court’s jurisprudence. His two

foundational decisions in Gao v. Ontario (Workplace Safety and Insurance Board)3

address the values underlying the Rule and the kinds of cases it is intended to end. In

Gao #1 (the decision that directed the Registrar to give the plaintiff notice that the Court

was considering a Rule 2.1 order), the Court articulates the following approach:

Rule 2.1 is not meant to apply to close calls. It is not a short form of summary judgment. But that

does not mean that it is not to be robustly interpreted and applied. Where a proceeding appears

on its face to meet the standards of frivolous, vexatious or an abuse of process, the court should be

prepared to rigorously enforce the rule to nip the proceeding in the bud. Rigorous enforcement of

this rule will not only protect respondents from incurring unrecoverable costs, but should

positively contribute to access to justice by freeing up judicial and administrative resources that

are so acutely needed to implement the “culture shift” mandated by the Supreme Court of

Canada. The new rule tailors appropriate procedural fairness for the category of cases involved

and is an example of early resolution of civil cases that is very much in line with the goals set out

in Hryniak.4

In Gao #2 (the decision to dismiss a motion under Rule 2.1), the Court confirms that the

purpose of the Rule is to deny vexatious litigants a platform to drag out litigation, incur

further costs that will go unpaid, or to further defame the parties. In addition, it

identifies the following 14 “unmistakable hallmarks of querulous litigant behaviour”:

Form ● Curious formatting. ● Many, many pages. ● Odd or irrelevant attachments—e.g., copies of letters from others and legal decisions, UN

Charter on Human Rights etc., all usually, extensively annotated. ● Multiple methods of emphasis including:

highlighting (various colours) underlining capitalization.

● Repeated use of ‘‘’’, ???, !!!. ● Numerous foot and marginal notes.

Content ● Rambling discourse characterized by repetition and a pedantic failure to clarify. ● Rhetorical questions. ● Repeated misuse of legal, medical and other technical terms. ● Referring to self in the third person. ● Inappropriately ingratiating statements. ● Ultimatums. ● Threats of violence to self or others. ● Threats of violence directed at individuals or organizations.5

2 R. v. Jayaraj, 2014 ONSC 6367, para. 2 3 Gao v. Ontario (Workplace Safety and Insurance Board), 2014 ONSC 6100 (Gao #1) Gao v. Ontario (Workplace Safety and Insurance Board), 2014 ONSC 6497 (Gao #2) 4 Gao #1, para. 9 5 Gao #2, para. 15

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The Court then summarizes the careful approach that is needed:

While rule 2.1 should be applied robustly to bring to an early end to vexatious proceedings, the

matters should not considered lightly or dismissively. Care should be taken to allow generously

for drafting deficiencies and recognizing that there may be a core complaint which is quite

properly recognized as legitimate even if the proceeding itself is frivolously brought or carried out

and ought to be dismissed.6

I think the Court has struck an appropriate balance. There should be no doubt that the

Rules need to prevent the potential harms and excesses of vexatious litigation. I am not

worried that the Court’s approach erodes access to justice. Unclogging an overburdened

system by curtailing the excesses of a few can enhance access for many. Moreover, Pro

Bono Ontario’s experience serving self-represented litigants suggests that there will be

no meaningful reduction in their access as a result of Rule 2.1. Instead, without wanting

to sound patronizing, the Rule may do some of these litigants a favour by confining

them to a short period of time and short submissions. Often through no fault of their

own, self-represented litigants fail to advance their positions in a concise and helpful

manner. Imposed constraints can actually assist. Our justice system also serves an

increasing number of self-represented defendants. If they are subject to vexatious

claims, Rule 2.1 can provide massive relief by offering them a streamlined, court-

initiated process.

Following the Gao decisions, the Court identified two conditions generally required to

apply Rule 2.1.7 First, as required by the Rule, the frivolous, vexatious, or abusive

nature of the proceeding should be apparent on the face of the pleading. This means

that defendants’ requests should be limited to one or two lines. A detailed factual and

legal submission shows that a defendant was not content to submit the pleading for

review on its face and therefore should not have invoked Rule 2.1.8

Secondly, as more of a guideline, there should generally be a basis in the pleadings to

support the resort to the attenuated process of rule 2.1. This latter condition is a

reminder that Rule 2.1 is a special process that must be justified – through an

examination of the face of the pleading -- as an alternative to existing procedures. For

example, a defendant shouldn’t invoke Rule 2.1 solely on the basis that it is named but

not referred to in the body of a claim.9

In Scaduto v. Law Society of Upper Canada, the Court of Appeal endorsed the broad

principles Justice Myers set out.10 More specifically in that case, it held that it was not

6 Gao #2, para. 18 7 Raji v. Borden Ladner Gervais LLP, 2015 ONSC 801, para. 9 8 Covenoho v. Ceridian Canada, 2015 ONSC 2468 9 Haidari v. Sadeghi-Pour, 2015 ONSC 2904 10 2015 ONCA 733

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an error to restrict the Rule 2.1 analysis to a review of the pleadings and decline to

review evidence. The Court has agreed with the motion judge’s characterization of cases

considered under Rule 2.1 in a number of other appeals.11

The Court of Appeal has also considered Rule 2.1 in the context of motions brought to it

under Rule 59.06. In two cases, it has dismissed motions it found to be frivolous,

vexatious and abusive attempts to reargue cases. In one, it found that there were no

circumstances justifying a re-hearing and that the moving party’s appropriate avenue

would be to seek leave to the Supreme Court.12 In the other, it concluded that that the

moving party was attempting to re-open a 2009 decision in which he had already

unsuccessfully sought leave to the Supreme Court.13

More recently, the Court of Appeal made an interesting decision that could expand the

options for engaging Rule 2.1.14 In response to the appellant’s motion to dismiss orders

of the Registrar, the respondent brought a cross-motion seeking an order that the

matter be referred to a panel of the Court of Appeal for a determination under Rule 2.1.

The Court granted the cross-motion. In respect of its jurisdiction, it held that even

though Rule 2.1.01(6) contemplates that a party may request an order under sub-rule

(1), the word “may” is permissive and does not preclude the cross-motion. On the

merits, the Court found that the moving party’s notices of motion appear to be frivolous,

vexatious and an abuse of process, consist of bald assertions, and relate to a proposed

appeal that had twice been considered by the Divisional Court. The Court was also

satisfied that the appellant would be fairly heard through the available process under

Rule 2.1.

3. Conclusion

Rule 2.1 is about bringing an appropriately quick end to cases that have no chance of

succeeding or even being properly adjudicated. That sounds simple, but modern,

systemic exigencies make it a delicate matter. On the one hand, we need a justice

system that is sensitive to the perils of crushing caseload and chronic delay. If Rule 2.1

is applied too narrowly, meritless litigation will swallow precious resources. On the

other hand, we need a justice system that promotes access to justice and responds to the

challenges faced by self-represented litigants. If Rule 2.1 is applied too broadly, people

with an important point to make and no representative to help them make it may be cut

off too early. In the early days of Rule 2.1, justice system stakeholders should feel

comforted by decisions that essentially say two things: The Rule is meaningful but must

be used carefully.

11 Brown v. Lloyd’s of London, 2015 ONCA 235; Obermuller v. Kenfinch Co-Operative Housing Inc., 2016 ONCA 330 12 Hoang v. Mann Engineering Ltd., 2015 ONCA 838 13 Gallos v. Toronto (City), 2014 ONCA 818 14 Damallie v. Ping, 2016 ONCA 603

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TAB 6

Rule 49 Offers –

Tips and Traps

David Elman

Katherine Deakon

Borden Ladner Gervais LLP

September 15, 2016

THE TWELVE-MINUTE

Civil Litigator 2016

RULE 49 OFFERS: TIPS AND TRAPS

Presentation Highlights from The Twelve-Minute Civil Litigator 2016

David Elman and Katherine Deakon, Borden Ladner Gervais LLP

The Basics

What?

Rule 49.10 creates cost consequences for failing to accept an offer to settle which should

have been accepted, unless the court orders otherwise.

1. Plaintiff Offer (49.10(1)) – Where a plaintiff’s Rule 49 offer is not accepted and the

plaintiff obtains judgment as or more favourable than the terms of offer, the plaintiff is

entitled to costs on a partial indemnity basis up to the date of the offer and costs on a

substantial indemnity basis thereafter.

2. Defendant Offer (49.10(2)) – Where a defendant’s Rule 49 offer is not accepted and

the plaintiff obtains a judgment as or less favourable than the terms of the offer, the

plaintiff is entitled to costs on a partial indemnity basis up to the date of the offer and

the defendant is entitled to costs on a partial indemnity basis thereafter.

“Unless the court orders otherwise” – Courts have narrowly construed their discretion

to depart from the application of rule 49.10 where an offer satisfies the rule.

Lavoie and Trudel, 2016 ONSC 4796 (CanLII) – In the context of a bitter dispute over

the validity of a will, the Court exercised its discretion to “order otherwise”. In the

Court’s view, the $20,000 all-inclusive offer to settle was “not a reasonable offer that

would attract the acceptance of the plaintiffs and the plaintiffs (despite the end result

of the litigation) were not unreasonable in insisting on a trial given all the factors in

this case.”

Who?

A party to a proceeding (claim, third party claim, motion or application) may serve on any

other party an offer to settle any one or more of the claims in the proceeding. Where there

are multiple parties and/or claims, it is important that the offer be clear as to which party

the offer is being made to and in respect of which claim.

Multiple Defendants (49.11) – Where there are two or more defendants, a plaintiff

may offer to settle with any defendant but where the defendants are alleged to be

jointly or jointly and severally liable to the plaintiff and rights of contribution or

indemnity may exist between the defendants, the costs consequences prescribed by

rule 49.10 may not apply.

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Offer to Contribute (49.12) – Where two or more defendants are alleged to be

jointly or jointly and severally liable to the plaintiff in respect of a claim, any

defendant may serve on any other defendant an offer to contribute (Form 49D)

toward a settlement of the claim which can be taken into account in determining

whether another defendant should: (a) pay the costs of the defendant who made the

offer and/or (b) indemnify the defendant who made the offer with respect to any

costs owed to the plaintiff.

Parties under disability (including minors) can make and accept offers to settle but

the settlement must be approved by a judge pursuant to Rule 7.08 (49.08).

When?

To elicit the cost consequences of Rule 49.10, an offer to settle must be made no less than

7 days before the commencement of the hearing (49.03) and may not expire or be

withdrawn before the commencement of the hearing.

Elbakhiet v. Palmer, 2014 ONCA 544 – A civil trial commences within the

meaning of Rule 49 when evidence has been heard.

Fonseca v. Hansen, 2016 ONCA 299 (CanLII) – Without specific language, a

mistrial does not revitalize or extend an offer to settle. The offer which “shall

remain open for acceptance until one minute after the commencement of the trial

herein and shall, thereafter, be withdrawn” had expired before the second trial

began.

The Manufacturers Life Insurance Company v. Sorozan Estate, 2016 ONSC 3805

(CanLII) – On a motion, no weight was given to an offer to settle made while

reasons were pending but after argument.

Consideration should be given to a common law offer if a party is looking to create

immediate or time-limited settlement pressure.

Where?

To qualify as a Rule 49 offer, an offer to settle must be made in writing. A Rule 49 offer

does not have to be set out in Form 49A but can be in the body of a letter or email.

Bernstein v. Poon, 2015 ONSC 2125 (CanLII) – Court refused to consider an oral

offer made following mediation over which counsel had differing recollections.

“The whole purpose of the Rule 49 regime is to encourage the making of clear and

unequivocal offers which can then be measured against the ultimate outcome of a

case in the event that settlement does not occur.”

Contrary to common law offers, a Rule 49 offer must be withdrawn in writing

(49.04).

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How?

Clarity – Clarity with respect to the terms of the offer allows the court to conduct the

comparison necessary to determine whether the cost consequences under rule 49.10 apply.

Ambiguity may be construed against the offeror.

Mayer v 1474479 Ontario Ltd., 2014 ONSC 2622 – None of the defendant’s four

offers were sufficiently clear to engage Rule 49.10. Clarity is important where there

are multiple plaintiffs.

Dobara Properties Limited et al. v Arnone et al., 2016 ONSC 4442 (CanLII) – An

offer which contained a material error was found to be incapable of acceptance and,

therefore, not relevant to the application of Rule 49.10.

Compromise – Rule 49 offers must represent a genuine effort to settle. The compromise

may be modest and can be reflected in terms beyond the claim for damages.

Shannon Gohm v. Larry York, Corey MacDougall, Lisa Frew, 2014 ONSC 4459

(CanLII) – Overriding principle in awarding costs is reasonableness. The

Defendants’ repeated offers to settle without costs were not “reasonable” offers to

settle but, rather, an invitation to the plaintiff to capitulate. The offers did not

constitute an offer to “compromise” and the Court declined to exercise its discretion

and award substantial indemnity costs following a successful motion for summary

judgment.

OPB Realty Inc. v. Canada International Medical Suppliers Company Limited,

2015 ONSC 6 (CanLII) – The court declined to award substantial indemnity costs

following a motion on the basis that the plaintiff’s offer that the defendants abandon

their motion and pay costs was an offer to settle in the letter but not the spirit of the

rule. The offer was not regarded as a genuine offer to settle.

Beswick Properties Yonge Street Inc. v. Royal Bank of Canada, 2013 ONSC 394

(CanLII) – On an application, an offer which included an agreement to waive partial

indemnity costs up to the date of the offer to settle (which were claimed to be in

excess of $100,000.00) was found to be a significant compromise in the

circumstances.

Other Issues / Considerations

Comparing the Offer

Determining whether a judgment (which includes Pre-Judgment Interest) is as or more

favourable than an unaccepted Rule 49 offer is not always straight-forward and will depend

on the circumstances of each case. Clarity and compromise are essential to ensuring that

the benefit of Rule 49.10 is obtained.

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The party seeking the benefit of Rule 49.10 bears the onus of demonstrating that

the offer was more favourable. Evidence may be required in rare circumstances.

All-inclusive Rule 49 offers (damages, interest, costs and disbursements) should

generally be avoided as they create significant difficulties for comparison. Best

practice is to itemize or separate the: (1) settlement figure; (2) the rate and term of

pre-judgment interest; and (3) costs on a partial indemnity basis in an amount to be

agreed or otherwise fixed or assessed. See Mayer v 1474479 Ontario Ltd., 2014

ONSC 2622.

Offers with ongoing costs or pre-judgment interest provisions may be valid Rule

49 offers.

Hunger Project v. Council on Mind Abuse (COMA), 1995 CanLII 7390 – Plaintiff

made an offer to discontinue the action if the defendant issued a written retraction

and apology of the defamatory statements. A judgment in the amount of $25,000

was found to be more favourable than the offer as it substantiated the plaintiff’s

allegations in addition to a monetary award.

No “Near Miss” Policy

A party that comes close to meeting the judgment is not thereby entitled to an award of

costs as if they did provide a successful offer. However, Rule 49.13 allows a court, in

exercising its discretion with respect to costs, to take into account any offer to settle made

in writing, the date the offer was made and the terms of the offer.

Elbakhiet v. Palmer, 2014 ONCA 544 – An offer to settle which is virtually the

same as the judgment, but fails for technical reasons to exceed the judgment,

requires the court to consider the impact of Rule 49.13 and is the type of offer that

should be given “considerable weight in arriving at a costs award.” Costs reduced

from $580,000 to $100,000.

Konig v Hobza, 2015 ONCA 885 – The no “near miss” policy applies to meeting

the timing requirement under Rule 49.03 as well as to the amount of the judgment.

The offer served nine calendar days before trial did not engage Rule 49.10.

Non-Rule 49 offers can also be taken into consideration during the court’s exercise

of its discretion to award costs generally under Rule 57.01.

No “Cost Holiday”

Rule 49.07(5) deals with circumstances where a Rule 49 offer does not provide for the

disposition of costs.

1. Defendant Offer – Plaintiff is entitled to its costs assessed up to the date the offer

was served.

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2. Plaintiff Offer – Plaintiff is entitled to its costs assessed up to the date the offer

was accepted.

Milanovic v. Le et al., (2015) 125 OR (3d) 758 – Defendant made an offer to settle

which included “costs to be agreed upon or assessed”. The offer was not accepted

by the plaintiff until 11 months later (one week before trial). In line with the

purpose of Rule 49, costs were awarded up to the date the offer was served.

Multiple Rule 49 Offers

Depending upon the facts of the particular case, a second written offer can withdraw a first

offer by clear implication, even if it does not do so explicitly.

Love v. Acuity Investment Management Inc., 2011 ONCA 130 (CanLII) – Where

an offeror makes a second Rule 49 offer that is less favourable to the opposing party

than the first, it is presumed that the second offer was intended to be a withdrawal

of the first offer.

Marshall v. Legge & Legge, 2015 ONSC 3028 – There is conflicting case law on

whether a second Rule 49 offer that is more favourable to the opposing party than

the first offer is an implicit withdrawal of the first offer.

To avoid any ambiguity, a party wishing to make a further Rule 49 offer should

indicate expressly whether the offer withdraws any previous offers.

Timing

In addition to cost consequences down the road, a timely offer may cause an opposing party

to pause and take stock of its position and desire to continue.

Although there may be little risk in making a Rule 49 offer early in the proceeding,

an appropriate offer may be difficult to quantify without the benefit of discovery

on the merits of the proceeding.

Offers to settle should generally be considered before embarking on significant

steps in the litigation process.

Offers made prior to mediation may end up as an informal floor or ceiling for

negotiations.

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TAB 7

Can You “Win” a Discovery?

If Yes, How?

David Chernos

Bryan McLeese

Chernos Flaherty Svonkin LLP

September 15, 2016

THE TWELVE-MINUTE

Civil Litigator 2016

CHERNOS FLAHERTY SVONKIN LLP

Can You “Win” A Discovery? If Yes, How?

David Chernos and Bryan McLeese

The Twelve-Minute Civil Litigator 2016

Thursday, September 15, 2016

7-1

CHERNOS FLAHERTY SVONKIN LLP

Can You “Win” A Discovery? If Yes, How?

Part 1: Can you win a discovery of the opposing party?

Short Answer: YES.

A discovery of the opposing party is largely risk free. As the examining party, you are the only

one entitled to use the transcript at trial.

At worst, you leave no worse than you started (although you can give up ground you’ve gained

earlier in the discovery process).

But you CAN win. Below are some tips on how.

Focus on the purpose

There are, broadly speaking, four related and often overlapping purposes for discovery: (i) use of

the evidence at trial; (ii) obtaining admissions; (iii) furthering settlement; and (iv) fact finding.

(1) Use at Trial

Discovery evidence from the opposing party can be read in at trial as part of your case and can

also be used for impeachment purposes during cross-examination.

While either party may read-in discovery evidence (from the opposing party’s discovery), it can

also be used to effectively cross-examine the other’s party’s witness(es).

When conducting a discovery, be aware of these uses.

Strategically, this requires you to think ahead to the facts you will be required to prove to succeed

at trial.

Mechanically, phrase questions carefully, and in the manner you would at trial, to allow for a

more direct impeachment.

Also phrase questions so they stand alone, without the need to refer back to earlier questions,

evidence or documents.

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CHERNOS FLAHERTY SVONKIN LLP

Design questions to elicit one piece of information each, attempting to avoid “compound

questions”.

(2) Admissions

Seeking admissions is useful both in terms of the use of discovery evidence at trial as well as its

use to promote settlement.

Admissions can also be helpful to narrow the issues in dispute, by allowing the parties to rely on

a discovery admission in place of proving each element of their case at trial.

Some admissions will not be controversial and will be offered voluntarily. Consider seeking these

first.

Consider whether it will be more effective to cross-examine to obtain an admission or whether to

simply allow the witness to talk.

Remember to know when to quit. If you get a good admission, be careful not to let the witness

undo it by giving him or her another opportunity to cover the same ground.

(3) Settlement

Obtaining useful evidence on discovery can, of course, help promote settlement.

Similarly, showing the opposing party’s witness to be unreliable or ineffective can create

settlement leverage.

Also consider using the discovery process as an opportunity to obtain information that could help

aid in settlement negotiations (e.g. key financial information and information regarding insurance

coverage).

(4) Fact Finding

Think of it as “focused fishing”.

Use the opportunity to learn facts you do not know and obtain documents you do not have.

Explore a variety of case theories.

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CHERNOS FLAHERTY SVONKIN LLP

Decide where to start

This is a strategic matter. You need not always ask the witness to spell his or her name as the first

question.

Tone is important. Conventional wisdom suggests addressing uncontroversial matters first, before

contested matters cause the witness to potentially become hostile or defensive.

However, consider whether helpful admissions can be better obtained if sought early, before a

witness has his or her “guard up”. Weigh this against the risk that you may miss the opportunity

to have the witness be helpful to you on uncontroversial matters.

Consider whether you need more time

The default rule is seven hours per examining party, regardless of the number of parties being

examined.

This can be difficult, for example, in a case with one plaintiff but several defendants (or vice-

versa).

Often counsel will be reasonable when more time is requested, but the favour is often requested

in return. Consider whether it is in your client’s best interest to be examined for longer before

requesting additional time.

Even when more time is granted on consent or by motion, it will not be endless. Use your time

judiciously to achieve these goals.

Be thoughtful about the witness you select

This applies to corporate parties only.

The choice is yours. Use it wisely.

If you reject the witness proffered by the opposing party, and the one you do examine does not

have useful evidence, you will likely not be successful in seeking to examine a further witness.

When choosing a witness, be alive to the purposes of the discovery as referred to above. You may

seek to achieve some goals at the expense of others (e.g. furthering settlement by challenging a

witness’ credibility rather than simply obtaining admissions or searching for facts).

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CHERNOS FLAHERTY SVONKIN LLP

Part 2: Can you win a discovery of your own client?

Short Answer: No. Not really. But you can lose

There is generally no upside to having your witness examined.

An examination for discovery of your own witness is largely an exercise in damage control.

Prepare your witness

The importance of preparation cannot be overstated.

Show the witness all of the problematic documents and ask all the hard questions they are likely

to face, so they are prepared and not caught by surprise.

Prepare for content, but also for the situation. Prepare the witness for the potential pitfalls of the

process of being examined (e.g. that opposing counsel may become agitated or aggressive or may

seek to provoke the witness).

Remember: it’s a transcript.

Remember that only the other side can use the transcript. Less is better.

Emphasize the importance of just answering the question. Don’t plead your case.

Take care with undertakings

Undertakings you give are your undertakings. You are personally responsible for fulfilling them

once they are made. As a result, be reasonable but be circumspect.

Be careful of an undertaking to use “best efforts”.

Object as necessary

Typically, objections will relate to relevance, proportionality or privilege.

However, they can also relate to improper questions that are unfair to the witness (e.g. questions

assuming facts not established, compound questions or questions that are ambiguous or overly

complex).

Generally, the witness’ opinion is not relevant.

Feel free to seek to clarify questions.

Develop with your witness a system for objections. Don’t be afraid to use your hands.

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CHERNOS FLAHERTY SVONKIN LLP

Consider whether you should agree to more time

Weigh the risk that more time will allow the opposing party a further opportunity to obtain

additional evidence against the potential that additional time will assist you.

Be aware that the court will grant more time in appropriate, complex cases. Do not be

unreasonable.

Be thoughtful about the witness you propose

While, strictly speaking, the opposing party is entitled to select a witness, often counsel will

accept your recommendation (usually, as above, in an effort to avoid examining a witness who

will not have useful information).

Witness selection is of central importance when attempting to minimize the damage from a bad

discovery.

Consider not only the information that the witness has to offer, but whether they will be an

effective witness.

Be aware that, when offering a witness as a discovery representative, it allows the opposing party

an opportunity to examine him or her and accumulate ammunition for a potential cross-

examination at trial. Consider whether you voluntarily subject an important trial witness to this

risk.

Also consider the purpose of the discovery. If you hope to achieve an early settlement, it may be

to your advantage to put forward a witness who presents well live.

Remember that a transcript is all that results from a discovery when selecting a witness. How a

witness’ answers will “read” is an important consideration.

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