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Civil Writes
CBA National Civil Litigation Section newsletter
April 2003
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Table of Contents
Message from the Chair
by Yves Tourangeau
The National Civil Litigation Section is active on many fronts across the country, a fact often overlooked by some of our colleagues. This is regrettable, because our actions as an Association have a significant impact on the legal profession.
In the last year, the Section has been involved in the development of a national position on several issues of interest. CBA submissions concerning proposed mandatory disclosure of information by lawyers in certain transactions - Proceeds of Crime (Money Laundering) Act - were made to Parliamentary Committees. These disclosures threatened lawyer-client relations and lawyer-client confidentiality, something we hold sacred. All provincial bars were involved and a moratorium exists today because of pending court challenges from one end of the country to the other.
On the same topic, the CBA submission to the U.S. Securities and Exchange Commission produced some results.
All will remember the leadership role played by the CBA during debates on Bill C-36 (Anti-terrorism Act). The Minister of Justice recognized the major contribution made by CBA throughout the decision-making process and to the amendments that were introduced.
While these garnered the most media attention, members should know that every time a particular bill impacts on the legal profession, our Section ensures that the voice of litigators in this country is heard.
Recently, I had the opportunity to meet representatives from all provinces and territories, and many would be surprised to find out how similar our concerns are. Sharing ideas helps us to build a consensus for orderly and efficient action, and to speak with a single voice, that is strong and united.
We are pleased that our Executive Committee representatives from different legal sectors and different regions, bring the concerns of lawyers to our attention.
I want to emphasize the high energy level of our Executive Committee and National Office staff and especially our CBA liaison, Marie-Claude Noël, who has given us her full cooperation. To maintain and improve our actions, we invite you to get involved, either as a member of our Executive Committee, or as a member of other Section committees.
Let me close with a friendly invitation to the CBA annual meeting - now called the CBA Canadian Legal Conference - being held in Montréal, August 17-19, 2003. This is a rendez-vous you will not want to miss!
Meeting with the federal Department of Justice
by Yves Tourangeau
In November 2002, the Secretary of our Section, Ben V. Hanuka, and the Chair, met with Caroline Guillemette, spokesperson for the Department of Justice. At this meeting, we talked informally and off the record, about several issues and probed the Department on common concerns.
We discussed at length ways to improve and facilitate a common perception of positions taken by the Department of Justice in different courts and about how Canadian lawyers are informed of these positions. The major part of our discussions focused on this problem, which underlines the difficulties experienced by lawyers in private practice as they try to pinpoint with speed and ease the DOJ position on specific issues and how this position is presented in courts throughout the country.
The Department provided explanations about the structure and consultations in the decision-making process, and about how its position is enforced and channeled to the courts through different regional structures.
We also talked about problems arising out of the notification of court decisions, and more specifically those of the Supreme Court of Canada or certain provincial appeal courts on issues of public interest.
Sensitive issues were also addressed, such as Bill C-36 on antiterrorism and the judicial challenges conducted by various bars across the country on proposed mandatory disclosure of information by lawyers in certain situations. Since this point is currently before the courts and a moratorium is in effect, no official comment could be given.
We also talked about our respective positions on cameras in courtrooms. Some corporations are on the record as being in favour. Discussions on this issue were fruitful but resulted in no official position.
Finally, our discussions led us to the interest shown by Department officials in recent changes to the Code of Civil Procedure of the Province of Québec. They hope that the CBA will pursue contacts and participate in discussions, comments and submissions that have come to light since the new rules took effect January 1, 2003. In this regard, Department officials and private practice lawyers are in the same boat and must join in a common front. It was agreed that everyone’s interests, comments and concerns would be reviewed in a future consultation.
We concluded that this type of joint meeting should be pursued. Issues are better understood on both sides, and comments and positions on various issues of interest are better circulated to the legal community. We think it is vital that detailed agendas be submitted in advance and that each section makes sure it has at least two representatives present, preferably from different regions, to obtain a more complete vision of existing concerns and favour constructive dialogue.
We wish to thank The Department of Justice and particularly Ms. Guillemette for this fruitful meeting.
Rescission as a remedy for innocent misrepresentation:
Are damages also available?
Tip: Be careful in face of negligence claims on assessment
by James C. Morton
I had always understood that an Assessment Officer on an assessment could not make findings regarding solicitors’ negligence which would lead to issue estoppel in later proceedings. I understood this to be the case because the general scope of an Assessment Officer’s task is not to determine whether a solicitor acted negligently but rather the value, if any, of solicitor’s work. Of course, often the client claims the solicitor was negligent and therefore the value of the work was less.
To my surprise (and thanks to Ted Goddard of LPIC for these cases) there is a line of cases suggesting that issue estoppel on solicitor’s negligence can arise in an assessment. Corbett v. Kealey (unreported, December 19, 1985) is an early example of this. During an assessment, the Officer found that the solicitor had been negligent and reduced fees to nil. The client then sued the solicitor and argued that issue estoppel applied and the solicitor could not challenge the finding of negligence. In an appeal decision without reasons, the Court found that issue estoppel did apply and the solicitor could not challenge the findings of negligence by the Assessment Officer.
The later case of Woods v. Chamberlain (1991), 6 OR (3rd) 419 held that where a client is alleging negligence in the context of an assessment of costs, the assessment is more properly heard by a judge because a finding of negligence during the assessment "may have far reaching consequences in addition to the reduction or elimination of the solicitor’s fees". The obvious implication is that a finding of negligence may be made during an assessment and such finding may be binding in later proceedings.
Finally, the fairly recent decision in Susin v. Baker (1997) O.J. 834 is relevant in that the Court of Appeal (Brooke, Osborne and Weiler) upheld a decision in which an action against a solicitor for negligence was dismissed. The Court found that an earlier assessment of costs had focused on the question of solicitor’s negligence and negligence found not to exist. The Court held that it was improper to allow the claim to continue as this would result in the "relitigation of the issue of the solicitor’s alleged negligence." Although Susin was peculiar factually, it does stand strongly for the proposal that issue estoppel with respect to negligence can arise on an assessment.
Accordingly, it is prudent to be very careful in the face of claims of negligence on an assessment. If the matter is determined adversely to a solicitor, the solicitor may be stuck with that determination. While the Assessment Officers are uniformly good, counsel may not be properly prepared to deal with issues of negligence during an assessment and the Assessment Officers may not be in the best position to determine what amounts to negligence. Certainly, where negligence is alleged, it makes sense, at the least, to prepare fully and not to have the matter dealt with by a junior lawyer with slight preparation.
Rescission as a remedy for innocent misrepresentation:
Are damages also available?
by James C. Morton
Until very recently, the standard view of contract has been that where rescission is available as a remedy because a contract is entered into on the basis of an innocent misrepresentation, damages may not be awarded in addition to rescission. Thus, in Fridman, Law of Contract (2nd Ed. 1986), 734, it says:
"If fraud is not established, it may still be possible to obtain rescission of the contract on the ground that the plaintiff was induced to enter into it as a result of a misrepresentation that was innocently, that is, non-fraudulently, made. In such a case, however, the Court cannot order the payment of damages to the plaintiff, in addition to granting rescission."
This statement of the law is intellectually consistent in that rescission, arising at Equity, is an alternative to damages arising at Law. That said, for some time courts outside of Ontario have granted money payments in addition to restitution where restitution arises from an innocent misrepresentation, on the basis that such money payments ordered are not damages, but rather an indemnity.
The indemnity is intended to ensure that restitution is properly made. Thus, in Samardzija v. Judd [1986] M.J. 90, the Manitoba Court of Queen’s Bench awarded rescission together with an indemnity. The Court based this award of an indemnity upon the Manitoba Court of Appeal decision in Fleischhaker v. Fort Garry (1957), 23 W.W.R. 390. The Fleischhaker case is not completely clear, but does seem to suggest that some type of accounting for expenses is proper in the context of rescission for innocent misrepresentation. The accounting for expenses was needed to ensure rescission was properly effected.
Similarly, in the Nova Scotia decision of Taylor v. MacKenzie [1991] N.S.J. 270, the Court awarded, in addition to rescission, costs for expenses incurred. It does not seem that the Court in Taylor explicitly considered the issue of whether or not an award of monetary damages in addition to rescission was appropriate.
The issue of whether an indemnity is available in addition to rescission for innocent misrepresentation does not appear to have been considered by the Ontario courts until very recently. The digest version of Osley v. Hamilton Philharmonic, CCH DRS 1979 P2-454,0 appears to award indemnification for costs in addition to rescission, however, it is not completely clear from the digest whether or not innocent, or fraudulent, misrepresentation was in question. In a case of fraudulent misrepresentation it is clear that damages may accompany rescission.
The question was, however, explicitly considered in the recent decision of Mr. Justice Jurianz in Weiner v. Cargioli (unreported as yet, December 7, 2000). This decision, which is likely to be reported, at least on electronic case collections, explicitly considers the issue of indemnity or damages in addition to rescission in the context of innocent misrepresentation. The Court found that the defendant sold an antique motor vehicle to the plaintiff and represented that it was in near showroom-like condition. In fact, the Court found the floor and undercarriage of the vehicle was severely rusted and that the plaintiff would never have purchased the vehicle had the plaintiff known of the vehicle’s true condition.
The Court explicitly found that misrepresentation was innocent and awarded rescission. The Court was explicitly asked to make an award, as an indemnity, for certain expenses incurred by the plaintiff following the purchase of the vehicle which were incidental to discovering the misrepresentation (specifically, auto mechanics bills). The Court, after considering the issue, made the award on the basis that the money being awarded was not damages, but rather was, on its terms, an indemnity intended simply to allow for the implementation of rescission.
Accordingly, the measure of damages was to be taken as being such expense as necessary to put the plaintiff in the position the plaintiff would have been in, had the contract not been entered into once rescission was affected. How this measure differs from other ways of measuring damage for breach of contract is unclear; however, in most cases where rescission is viable as an option there will, presumably, be "slippage"costs which can properly be attributed to an indemnification.
James C. Morton is with Steinberg Morton Frymer in North York, Ontario.
Licensing trade-marks - control and confusion:
The "Boston Pizza" and "Boston Chicken" case
by Ben V. Hanuka
The case of Boston Pizza International Inc. v. Boston Chicken Inc. [2001] FCT 1024 (T.D.) is significant to licensing and intellectual property litigators, as the court’s findings were based on part on the nature and comprehensiveness of the applicant’s franchise agreements and how effectively they actually maintained and enforced its franchise system.
This was an application by a franchisor, Boston Pizza International Inc., for a declaration of invalidity and expungement of Boston Chicken's trade-mark and design "Boston Chicken". The application was based on the main ground that Boston Chicken's trade-mark was confusing with Boston Pizza's registered trade-mark, which has been used extensively in Canada.
The initial evidentiary burden: whether Boston Pizza exercised sufficient control over its Franchisees to benefit from their use of the mark.
Boston Pizza led affidavit evidence that it exercised close control over approximately 150 franchisees across Canada, particularly with respect to the decor and the nature and quality of the food products and services. Its comprehensive franchise agreements controlled virtually every aspect of the franchisees’ operations and were supplemented by an operations manual, memoranda and inspections to ensure quality control.
The affidavit material also explained how Boston Pizza in fact exerted close and continuous control over its franchisees' business and how the franchise agreement empowered it to ensure that the standards of quality were met, and if not met, the remedies available, including termination.
In response, Boston Chicken argued that Boston Pizza, since 1993, failed to demonstrate sufficient control, direct or indirect, over the character or quality of the wares or services provided by its franchisees.
It also argued that the distinctiveness of the trade-mark ‘Boston Pizza’ was lost because prior to 1993, Boston Pizza had not registered its franchisees as registered users (as was then required by the Trade-Marks Act).
The court rejected Boston Chicken's argument, holding it was undeniable that Boston Pizza, through its comprehensive franchise agreement, purported to control every aspect of the franchisees’ operations, supplemented by its operations manual, memoranda and inspections, which served to ensure that quality control was achieved.
The court found that the trade-mark "Boston Pizza" lacked inherent distinctiveness because there was considerable evidence of third-party use of trade names/marks containing the word "Boston". In effect, a great number of other third party restaurants operated under the banner of "Boston" to associate their services and wares with food derived from the city of Boston. In addition, because the word "pizza" was viewed as being descriptive, it also added to the lack of inherent distinctiveness.
Nonetheless, the court concluded that through long use by Boston Pizza's franchisees, the mark had acquired distinctiveness in connection with a chain of franchise restaurants serving food prepared in a "Boston style". Consequently, the mark was found to be worthy of protection.
The court noted that while the trade-mark ‘Boston Chicken’ had widespread public recognition in the United States in association with Boston Chicken restaurants offering home style food available on a take-out basis, there was very little evidence with respect to use of the trade-mark in Canada. As a result, the court found the trade-mark deserved little protection.
Despite Boston Pizza’s success on the above points, it eventually lost the application, as the court concluded that based on the evidence before it, there was no likelihood of confusion between the two marks as at the date of the Boston Chicken registration.
This conclusion was based on the following reasons:
- The two marks related to different styles of food, namely, pizza and chicken, even though both marks were used in association with restaurant services. The difference in the nature of the wares to which the marks relate is sufficient to distinguish the marks, despite any similarity and resemblance.
- The use by third parties of the word "Boston" was a highly relevant factor in determining the likelihood of confusion between the trade-marks, and the court gave it significant weight. The court accepted Boston Chicken's evidence that there was significant third-party use of the word "Boston" within the restaurant industry. In addition, Boston Pizza did not adduce any evidence so as to demonstrate confusion or the likelihood of confusion between its marks and the marks of these many third party users of the word "Boston". As a result, Canadian consumers have been "conditioned" to look to the other elements of a mark as a means of distinguishing the source of goods or services in the field. In other words, Canadian consumers would look not to the word "Boston", but to the words "Pizza" and "Chicken," and would therefore distinguish the trade-marks on that basis, the court reasoned.
As a result, the court concluded there was no confusion between Boston Pizza’s and Boston Chicken’s respective trade-marks, and the application was dismissed.
Note: Various disputed aspects in this case between these parties are still before the Federal Court of Canada, both at first instance and appeal levels.
Summary:
- Boston Pizza’s franchise agreements are comprehensive and control every aspect of franchisees’ operations.
- Boston Chicken argued there was insufficient direct control by Boston Chicken of its franchisees’ operations.
- Effective control by franchisor was demonstrated.
- Boston Pizza lacks inherent distinctiveness, but is still distinctive and deserves protection because of considerable public recognition through franchising.
- Boston Chicken deserves little protection.
- Still, Court concludes no likelihood of confusion - Boston Chicken wins.
Ben Hanuka heads the Franchise Litigation Team at Goldman Sloan Nash & Haber LLP in Toronto, and is founding chair of the Joint Subcommittee on Franchising of the Ontario Bar Association.
Roundup of recent decisions: January/February 2003
by Ben V. Hanuka, Goldman, Sloan, Nash & Haber LLP
CIVIL PROCEDURE
Menegon v. Philip Services Corp., O.J. No. 8 (C.A.)
The Court of Appeal upheld a decision of a motions judge striking out the statement of claim for not disclosing a reasonable cause of action. The statement of claim alleged negligent misstatement and breach of statutory duty pursuant to the Ontario Securities Act and Business Corporations Act. The pleadings in this case fell far short of setting out material facts that could give rise to a duty of care to Menegon on the part of the auditors.
Refco Alberta Inc. v. Nipsco Energy Services Inc., A.J. No. 1567 (C.A.)
Where a waiver of solicitor-client privilege is made to facilitate a defence of good faith reliance on legal advice, the waiver can be limited in scope with respect to its purpose.
Chadha v. Bayer Inc., O.J. No. 27 (C.A.)
The Court of Appeal upheld the decision of the Divisional Court, reversing the certification of this action by the motions judge. The action alleged price fixing in the market for iron oxide, and was commenced on behalf of a class of end-users, being mostly home buyers. The evidence presented by the appellant plaintiffs on the motion for certification did not provide sufficient evidence to support certification. Access to justice was not a significant concern since most plaintiffs did not know whether they have suffered any damage each claim was for a minimal amount. Judicial economy would be undermined rather than enhanced by certification. Finally, the definition of the class depends on the merits of the claim or the outcome of the litigation.
Reid v. British Columbia (Egg Marketing Board), B.C.J. No. 69 (S.C.)
This action was brought on behalf of all organic egg producers and organic egg graders in B.C., seeing a declaration that the Egg Marketing Board had no jurisdiction in relation to organic eggs, as well as damages for the torts of misfeasance and unlawful interference with economic interest. The certification motion was denied. A class proceeding was not the preferable procedure, as the more specific common issues could be identified with respect to the plaintiff's claim in tort. This would allow for a full assessment of whether common issues predominate over individual issues in the trial of all claims. However, the plaintiffs were invited to consider resubmitting their application for certification by reframing the issues.
White v. Canada (Attorney General), B.C.J. No. 2956 (C.A., In Chambers)
The action was based on allegations of negligence in breach of the defendant's obligations "to take reasonable measures in the operation or management of the cadet program at HMCS Discovery to protect cadets from misconduct of a sexual nature by employees, agents or other cadets at HMCS Discovery". The action was certified as a class action, and the Crown sought leave to appeal. Leave to appeal was granted. It could be that the entire class proceeding would be resolved on the basis of the decision of the court, depending on the way the appeal was resolved.
Wilson v. Re/Max Metro-City Realty Ltd., O.J. No. 79 (S.C.J.)
On a motion for certification, the parties agreed that the cause of action for breached of contract and breach of a fiduciary duty had been met. The plaintiffs, all past and present sales agents affiliated with Re/Max Metro-City Realty Ltd. who entered into a standard form contract with Re/Max, claim that each salesperson was entitled to a refund of all amounts paid to Re/Max in excess of the actual premiums paid to the insurer on account of the salesperson's insurance coverage. The contract stated that "the Salesperson shall pay the amount the Corporation determines in its discretion to be fairly attributable for any errors and omissions insurance from time to time maintained by the Corporation for the benefit of the Salespeople." The action alleged that Re/Max withheld each month an amount in excess of the actual premium attributable to each salesperson. The damages, except for the punitive damages claim, are essentially liquidated damages claims, the determination of which will be relatively simple.
CORPORATE/COMMERCIAL LITIGATION
Jam's International Ventures Ltd. v. Westbank Holdings Ltd.,B.C.J. No. 2894, (S.C.)
No fiduciary duty is owed between parties negotiating for a commercial tenancy at arm's length.
John James Rickard Noble Second Generation Family Trust (Trustee of) v. Hueson Pharmaceutical Corp.,B.C.J. No. 2933 (S.C.)
Directors and officers of a corporation are liable to compensate purchasers of shares for the loss of their investment, where the directors and officers made personal misrepresentations to induce the purchasers to purchase the shares.
SECURITIES LITIGATION
Menegon v. Philip Services Corp., O.J. No. 8 (Ont. C.A.).
The Court of Appeal upheld the dismissal of the claim by the motions judge, holding there was no cause of action for the benefit of purchasers of shares in a secondary market, in the absence of a special relationship. This was consistent with the Supreme Court of Canada in Hercules Management Ltd. v. Ernst & Young, ([1997] 2 S.C.R. 165) where the court considered the question of duty of care in relation to a claim by individual investors based on their reliance on audit reports.
Cybersettle offers online dispute resolution
The CBA has entered into a preferred supplier arrangement with an online claim settlement company, Cybersettle, Inc., which is designed to provide cost-effective access to Internet-facilitated dispute resolution.
With more than 70,000 registered U.S lawyers on its system and over $300 million USD in settlements, Cybersettle offers online claim resolution. The company says that over the last four years, insurance companies and lawyers in the United States have realized savings by settling cases quickly and efficiently with Cybersettle. The company reports that outside studies and customer results have shown that Cybersettle can reduce the time to settlement by as much as four to six months.
As more property/casualty insurance companies in Canada start using Cybersettle as part of their claims resolution process, it is anticipated that an increased number of lawyers will receive notification of offers through the Cybersettle system.
Formed in 1998, Cybersettle is grantee of US patent # 6,330,551 for the Computerized Dispute Resolution System and Method and other international patents. Cybersettle facilitates high-speed, confidential claim settlements by matching offers and demands via a secure Web site, www.cybersettle.com available 24/7.
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