Contractual Interpretation Attracts Deference: Heritage Capital Corp v Equitable Trust Co, 2016 SCC 19

The Supreme Court of Canada recently confirmed that considerable deference is due to trial judges in the context of contractual interpretation.

This case centres on the Lougheed Building, a downtown landmark familiar to many Calgarians. In 2004, it was designated a “Municipal Historic Resource” under the Historical Resources Act, R.S.A. 2000, c. H-9 (“HRA”). The owner at the time agreed to refurbish the building in exchange for 15 annual incentive payments from the City of Calgary. The agreement was registered by caveat on title to the land pursuant to the HRA. The building was subsequently sold in a judicial sale.

A dispute arose between the present owner of the building and a creditor of the former owner regarding questions of both statutory and contractual interpretation, as follows:

  • whether the incentive payments constituted a positive covenant running with the land by virtue of the HRA;
  • whether they were sold in the judicial sale of the building; and
  • the present-day effect of a number of agreements assigning an interest in the incentive payments.

The Supreme Court agreed with the master in chambers that the incentive payments did not run with the land and were not sold as an asset in the judicial sale of the property.

In reaching this decision, the Supreme Court explicitly confirmed that its earlier statement on contractual interpretation in Creston Moly Corp v Sattva Capital Corp, 2014 SCC 53 [Sattva] applies to all appellate review, not just review of arbitral decisions. Sattva established that contractual interpretation involves a finding of mixed law and fact, and the proper standard of review on appeal is therefore one of palpable and overriding error. The only exception is when there is an “extricable question of law”, such as “the application of an incorrect principle, the failure to consider a required element of a legal test, or the failure to consider a relevant factor” – the standard is then correctness. The policy reasons behind this deferential standard reflect the recent emphasis on judicial efficiency seen in cases such as Hyrniak v Mauldin, 2014 SCC 7: “deference to fact-finders furthers the goals of limiting the number, length and cost of appeals, and of promoting the autonomy and integrity of trial proceedings.”

This case is also notable for the unanimous Court’s clear statement that statutory exceptions to common law rules should be narrowly construed. The Court found that the provisions of the HRA did not entirely displace the common law rule that positive covenants cannot run with land. In so finding, the Court stated that “the legislature is assumed not to have intended to change the common law unless it has done so clearly and unambiguously.”

Putting Your Best Foot Forward in Summary Judgment Applications

In P. Burns Resources Limited v. Honourable Patrick Burns Memorial Trust, 2015 ABCA 390, the Court of Appeal of Alberta confirmed that there is no “default position” that document production and questioning procedures should be put on hold pending an application for summary judgment or summary dismissal.

The Respondent trustee brought an action for oppression against the Appellants and sought document production. The Appellants then applied for summary dismissal of a part of the action, and the Respondent sought to cross-examine on the Appellants’ affidavit of records and to conduct questioning in accordance with Part 5 of the Alberta Rules of Court, AR 124/2010. The Master set aside the appointments for questioning and cross examination, and in so doing, stated that:

… one might as well remove the summary judgment provisions of the Rules of Court if a respondent is entitled, as of right, to insist on the usual production of documents and questioning (discoveries) prior to the hearing of a summary judgment application. [3]

Subsequently, the Respondent trustee issued appointments for questioning on the Appellants’ corporate representative related to the balance of the claim which was not part of the summary dismissal application. In response the Appellants expanded their application for summary judgment to the entire claim and refused to attend the appointments. The Respondents then sought an order compelling attendance before the same Master. Again, the Master declined to grant the order, stating that there should not be document production or discoveries when a summary judgment hearing is pending.

The Court of Queen’s Bench disagreed, and after hearing the appeal, overturned both of the Master’s orders. In overturning the Master, the chambers judge noted that the Master made:

… no inquiry into the nature of the action, or the nature of the application, but proceeded on the basis that, in the face of a summary dismissal application or an application for summary judgment, the rules related to questioning and document production should be put on hold. [5]

The Court explained that while parties are required to “put one’s best foot forward in summary applications”, and cannot oppose an application for summary dismissal by arguing that some evidence supporting its claim may arise through discovery or document production, there are instances where “the Defendants have all of the knowledge and all of the documents related to the Plaintiff’s claim [and] the situation cries out for an analysis of what disclosure is necessary or reasonable before the summary judgment application goes ahead”.

The Court of Appeal upheld the decision of the Queen’s Bench judge, and noted that the decision to allow document production and questioning prior to summary judgment applications is discretionary. In all circumstances, the discretion to allow discovery must be in compliance with the purpose of Part 5 of the Rules, and in particular, Rule 5.1(1), which discourages “conduct that unnecessarily or improperly delays proceedings or unnecessarily increases their costs”. In situations where a great deal of the supporting evidence is in the possession of the opposing party, then it is more likely that an applicant will require disclosure of documents and discoveries to be able to put their best foot forward in a summary judgment application.

Feuding Neighbours: Facebook Defamation

A defendant’s liability for posting defamatory content on social media forms the subject of a number of recent court decisions, and encompasses potential vicarious liability for responding comments or replies posted by others.

In the recent case of Pritchard v. Van Nes, 2016 BCSC 686, the Supreme Court of British Columbia awarded the Plaintiff, a teacher, significant damages against his next door neighbour for posting defamatory comments on the Facebook social media network.

The parties’ acrimonious relationship began in 2011, when the Defendant installed a fish pond along the property line. In June 2014, the Defendant made several Facebook postings about the Plaintiff, accusing him of setting up a 24-hour surveillance system to monitor her backyard and children. The postings could be viewed by all Facebook users, including her 2,000 Facebook “friends”. Her remarks, along with her friends’ replies, implied that that the Plaintiff was a pedophile.

One of the Defendant’s friends forwarded the Defendant’s initial post to the principal of the school where the Plaintiff taught. This caused the Plaintiff to suffer serious professional and personal consequences.

The Defendant did not defend the action, and the Plaintiff obtained default judgment for damages and costs to be assessed.

The court found the Defendant liable for defamation. Her Facebook posts and subsequent replies to her friends’ comments, together and by innuendo, implied that the Plaintiff was a pedophile unfit to teach, and were therefore defamatory in nature. The postings were completely false, unjustified, and resulted in serious damage to the Plaintiff’s reputation. Though the Defendant deleted the posts from her own Facebook page after a day, the Defendant did not offer a retraction or apology, and did nothing to counteract the effect of her posts having “gone viral” through her friends.

The Defendant was found liable for her friends’ republication of her defamatory postings, as republication was the natural and probable result of her posts.

The Court also found the Defendant liable for her friends’ defamatory replies to her postings. It was apparent that her Facebook page was being constantly viewed but she did not actively monitor and control the comments. She failed to delete them within a reasonable time given the gravity of the remarks and the ease with which deletion could be accomplished – i.e. immediately.

The Defendant’s liability also accounted for the actions of her friend who sent the defamatory post to the Plaintiff’s school principal. Her friend had previously advised on Facebook that he would “let the world know” about the Plaintiff, and the Court found that the Defendant’s silence effectively served as authorization for republication. She failed to warn him to not take measures on his own.

The court found that the Defendant’s thoughtless and reckless actions effectively destroyed the Plaintiff’s reputation as a teacher. He was entitled to significant general ($50,000) and punitive ($15,000) damages.

While the outcome of each case is ultimately fact specific, Pritchard showcases the heightened responsibility borne by users of social media, whose comments may be widely circulated by others and prompt dialogue that is itself defamatory and likely to attract liability on the part of the author of a defamatory ‘thread’ or remark.   The result is, in effect, to impose a positive duty on the part of social media users – to exercise care in published statements but also to monitor and curtail the responding comments of others having access to online comments, including one’s so-called “friends” to whom defamatory posts may be accessible.

Pedestrian Liability

If a pedestrian is injured by a motor vehicle, one would assume that the driver will be held liable, right?

In fact, depending on the circumstances, a pedestrian may be found partially or even completely responsible for the accident. The Alberta Traffic Safety Act sets out the legal standard in this respect.

Pursuant to section 186 of the Act, the driver bears the onus to establish that the pedestrian’s injury did not entirely or solely arise through the driver’s negligence or improper conduct. As the Alberta Court of Queen’s Bench found in Yurchi v Johnston, 2006 ABQB 25, this section creates a rebuttable presumption of driver liability. The driver can rebut the presumption if the evidence demonstrates that the pedestrian contributed in a material way to the accident, and that the driver could not have avoided it by exercise of reasonable care.

In Murhula v Yetman, 2010 ABQB 655, the Alberta Court of Queen’s Bench held that a driver must anticipate reasonably apparent risks and exercise reasonable care in the circumstances. A pedestrian not following the rules of the road is not enough on its own to absolve the driver of this responsibility. However, the standard is not one of perfection.

There are several examples in Alberta case law where a pedestrian has been held partially or fully responsible for an accident.

The accident in Yurchi occurred at an intersection during heavy rush hour traffic. The pedestrian was wearing dark clothing, and neither he nor the driver saw each other before impact. He was rushing across the street to catch a bus and walked into the side of the driver’s vehicle. The court found the driver 2/3 liable and the pedestrian 1/3 liable. The pedestrian was in an unmarked crosswalk at the time of the collision, and the driver was preoccupied by navigating around a bus. He did not pay adequate attention to the potential of a pedestrian crossing. The pedestrian, by walking quickly in dark conditions without adequate attention to his surroundings, materially contributed to the accident.

Murhula involved a pedestrian who hit the side of a vehicle after alighting from a bus and rushing across the middle of a street without looking. The collision took place at night, and the passenger was wearing dark clothing. The court dismissed the action, finding that the driver discharged the onus under the Act. She was driving with care, it was impossible for her to see the pedestrian, and there was nothing she could have done to prevent the collision. Even if she had seen the pedestrian and stopped, he still would have struck her vehicle. Had the pedestrian looked for oncoming traffic before rushing across the street, he would have seen the driver.

The pedestrian in Bouchard (Estate of) v Chalifoux, 2004 ABQB 877, tried to run across a busy highway without looking. He was hit by the driver at high speed, sadly killing him. The court found that due to the volume and speed of the traffic, it was a vital responsibility for the pedestrian to carefully assess the traffic flow before crossing. The driver exercised reasonable care in the circumstances. When he saw the pedestrian’s car parked on the shoulder, he slowed down but did not see the pedestrian until the last possible moment. Consequently, the Court concluded that the driver was not even partially responsible for the accident.

Judgment links

Yurchi v. Johnston
Murhula v Yetman:
Bouchard (Estate of) v Chalifoux

Being Paid to Stay Home: Constructive Dismissal or a Dream Come True?

Although many employees may not always appreciate the drudgery of their daily grind, work is more than merely getting paid. Canadian courts have long recognized that work is “an essential component of [an employee’s] sense of identity, self-worth and emotional well-being”.[1] So, while an administrative suspension with pay may seem like a dream come true to many people, in some circumstances it may lead to termination of the employment relationship whether intended or not.

In a recent Supreme Court of Canada decision, Potter v New Brunswick Legal Aid Society, 2015 SCC 10, Wagner J. reviewed an employer’s obligations in the context of an administrative suspension with pay, which, if breached, may give rise to a claim for constructive dismissal by the employee.

Mr. Potter was appointed Executive Director of the New Brunswick Legal Aid Society by the Lieutenant-Governor in Council for a 7-year term. The Board of Directors had broad authority to supervise Mr. Potter’s employment and, after 4 years and several issues concerning his performance had arisen, the Board and Mr. Potter entered into negotiations for the Board to buyout Mr. Potter’s remaining employment contract.The second feature is the Keyboard Shortcuts, as you know in every Windows operating Software they have their set of keyboard shortcuts

Some months later, Mr. Potter took sick leave from work and while on leave he received a letter from the Board indicating that he was suspended with pay indefinitely. No reasons for his suspension were provided. On that same day and unbeknownst to him, the board sent a letter to the Lieutenant-Governor in Council requesting that Mr. Potter’s appointment be terminated. Eight weeks later, Mr. Potter started an action for constructive dismissal. The board responded by asserting that Mr. Potter resigned and terminated his salary and benefits.

The trial judge found that Mr. Potter was not constructively dismissed as he did not know about the board’s move to terminate his employment and the board had not done anything that “could be construed by a reasonable person as a repudiation of the contract”.[2] The New Brunswick Court of Appeal also found that an indefinite suspension with full pay, given the surrounding circumstances, did not constitute constructive dismissal.[3]

The SCC disagreed. Wagner J. for the majority noted that while employers have the implicit power to suspend employees with pay for administrative reasons, that power is limited to instances where it is reasonable and justified to do so.[4] Whether such a suspension is reasonable and justified depends upon “the duration of the suspension, whether the suspension is with pay, and good faith on the employer’s part, including the demonstration of legitimate business reasons”.[5]

Legitimate business reasons for a suspension are to be grounded in the reasons actually provided to the employee: it is not an ad hoc exercise to justify the suspension.[6] Failure to provide reasons will typically constitute a breach of the employer’s duty of good faith.[7] Since Mr. Potter was not provided any reasons for the suspension and it was of indefinite duration, the suspension did not meet the standard of being reasonable and justified.

On this basis, Wagner J. found it unlikely that “a reasonable employee would not have felt that [the employer’s] unreasonable and unjustified acts evinced an intention no longer to be bound by the contract”.[8] As a result, Mr. Potter was found to have been constructively dismissed, and was awarded the balance of his salary and benefits owing under the fixed-term employment contract.

In sum, to avoid the liability for constructive dismissal, an employer who administratively suspends an employee with pay must act in good faith, provide a legitimate business reason to that employee, and minimize the duration of the suspension. For an employee, these conditions will help ensure that time off with pay is closer to a dream come true and less of a blow to their self-worth or emotional well-being.

A Duty to Defend: Interpreting ambiguous insurance policies

Case: Tien Lung Taekwon-Do Club v Lloyd’s Underwriters, 2015 ABCA 46

If the language of an insurance policy is ambiguous, and general rules of contract construction do not aid in its interpretation, the Court must interpret the policy against the insurer.

In the above case, the respondents owned a taekwon-do club. While participating in a match, an individual was injured and filed a statement of claim against the club, alleging it should be held vicariously liable.

The insurer refused to defend the claim on the basis of an exclusion clause. The clause read that the policy does not apply to: Any Bodily Injury caused or contributed by any Insured to any participant and/or any Bodily Injury caused or contributed by any participant in a match or practice in regards to Category 4 Sports unless specified in the Declarations.

The chambers judge ruled that the clause did not apply as the declarations page overrode the exclusions, and reasonably contemplated that matches and practices were to be covered under the policy. The insurer was obliged to defend the action.

The issue on appeal was whether the language of the exclusion clause vitiated the insurer’s duty to defend.

The standard of review to interpret a contract is reasonableness. The Court of Appeal reviewed the exclusion clause and found that it did not appear to be standard form language. Interpretation of the clause required deference per Sattva Capital Corp., however the Court found that the chambers judge had correctly stated and applied the relevant legal principles and correctly interpreted the policy.

The Court stated that if language of the policy is ambiguous, it must be interpreted according to general rules of contract construction (reasonable expectation of parties, avoiding unrealistic results, ensuring similar policies are construed consistently). Failing that, the policy must be interpreted according to the longstanding doctrine of contra proferentem – meaning, against the insurer as the stronger bargaining party and author of the policy in issue.

In the result, the respondents were only required to show that there was an alternative reasonable interpretation of the policy, supported by the text and the parties’ reasonable expectations. The Court upheld the chambers judge’s ruling and affirmed that the insurer was obliged to defend.

Batter Up: Judicial Replacement of a Labour Arbitrator’s Award

Telus Communications Inc. v. Telecommunications Workers Union, 2014 ABCA 199, is a recent Alberta Court of Appeal decision addressing the just cause termination of an employee, the amount of deference that a reviewing court must give to a labour arbitration decision, and the issue of when a reviewing court may replace a labour arbitrator’s award.

In the case, the Alberta Court of Appeal dismissed an appeal from a Queen’s Bench decision (2013 ABQB 355) quashing a labour arbitration award and resulting remedy.

The decision concerned a Telus employee who asked for a day off to play in a slo-pitch tournament. His request was denied due to staffing concerns. Shortly before his shift began on the requested day, he informed his manager via text message that he could not attend work due to unforeseen circumstances. The manager went to the ball park later that morning and found the employee pitching.

At a subsequent investigative meeting, the employee initially said that he was ill. When questioned further, he admitted to being at the ball park, but stated that he was able to manage his symptoms there (which he could not have done at a customer’s home). He asserted that he was at the park to watch, not play. He later said that he was only pitching, not batting.

Telus ultimately terminated the employee. The Union grieved the termination.

The arbitrator found that the employee’s account of his illness and his explanation of being able to manage his illness at the ball park was plausible, and that Telus had no evidence that he was not sick. Though the employee’s lies about playing ball were misguided and demonstrative of bad judgment, he was remorseful, and his lies did not have significant impact. The arbitrator did not see sufficient reason to conclude that the trust between Telus and the employee could not be re-established if he were reinstated, so the arbitrator substituted a one-month suspension for the termination.

On judicial review, Justice J.T. McCarthy quashed the arbitrator’s conclusion and upheld the employee’s termination.

Writing for the majority, Justices O’Ferrall and Veldhuis of the Court of Appeal recognized that, generally, a reviewing court must afford deference to an arbitration award under a collective agreement and review it on a standard of reasonableness. If the court determines that the arbitrator’s decision was unreasonable, the matter must in theory be sent back for a re-hearing. However, the court has discretion to not do so where the facts lead to only one reasonable result.

The majority agreed with the reviewing justice that it was unreasonable for the arbitrator to require Telus to prove that the employee was sick. The arbitrator erred in not considering all available evidence and by not conducting a thorough assessment of the employee’s credibility. Further, the arbitrator’s finding that the employee’s conduct did not have significant impact was not supported by the evidence, given that the employee himself acknowledged that his trust relationship with Telus had been broken and that his actions negatively impacted customer service. Reinstatement was an unreasonable remedy, as it failed to consider relevant factors such as Telus’ evidence that its trust relationship with the employee was irreparably damaged. Termination was the only reasonable outcome.

Consequently, the majority concluded that the reviewing justice was correct in overturning the arbitrator’s decision and upholding the employee’s termination.

Look who’s talking: Collaboration in the authorship of expert reports

The Ontario Court of Appeal has reaffirmed the propriety of effective consultation between counsel and expert witnesses.

In Moore v Getahun, 2015 ONCA 55, the plaintiff was injured in a motorcycle accident. Prior to surgery, his wrist was placed in a cast which resulted in the plaintiff suffering from compartment syndrome. At trial, the central issue was whether applying a full cast to the plaintiff’s wrist was below the standard of care, and whether the cast caused the compartment syndrome.

Experts were retained to provide medical reports on the above issues. During cross-examination, one expert testified that he produced and discussed his draft and final report with counsel who provided advice on the report. The trial judge criticised these actions and stated that these discussions breached an expert’s duty of impartiality. The judge found that it was improper for counsel to assist an expert witness in preparation of the expert’s report. This view was challenged on appeal.

The Ontario Court of Appeal concluded that the trial judge erred in ruling that it is unacceptable for counsel to review and discuss draft expert reports, although this did not affect the overall decision of the court.

At paragraph 49, the Court of Appeal discussed Ontario Rules of Civil Procedure Rule 53.03, stating that it is:

“Widely accepted that consultation between counsel and expert witnesses in the preparation of Rule 53.03 reports, within certain limits, is necessary to ensure the efficient and orderly presentation of expert evidence and the timely, affordable and just resolution of claims.”

Further, Rule 4.1.01(1) specifically states that an expert witness has a duty to “provide opinion evidence that is fair, objective, and non-partisan.” This evidence should be seen as the independent product of an uninfluenced party which provides independent and unbiased assistance to the court.
In Moore, the changes made by the expert at the direction of counsel were relatively minor, and were aimed at improving clarity of the report. The Court stated that banning discussions between counsel and expert witnesses or mandating that all communication be documented is contrary to well-established precedent. These discussions may be necessary in highly technical areas of the law when an expert requires an increased level of instruction and consultation. Proper communication is vital to the expert being able to communicate effectively to the court.

There are a number of factors that foster an expert witness’ independence, including: professional standards forbidding counsel from engaging in practices that may interfere with this objectivity, ethical standards requiring members of professional bodies to be impartial when giving expert evidence, and the tool of cross-examination during the trial process.

Finally, at para 65, the Court stated:

“Leaving the expert witness entirely to his or her own devices, or requiring all changes to be documented in a formalized written exchange, would result in increased delay and cost in a regime already struggling to deliver justice in a timely and efficient manner. Such a rule would encourage the hiring of “shadow experts” to advise counsel. There would be an incentive to jettison rather than edit and improve badly drafted reports, causing added cost and delay. “

Just as judges require the assistance of expert witnesses, these expert witnesses require the assistance of lawyers to frame their evidence in a comprehensive and responsive manner. As such, these discussions are to be permitted.

“Like or Unlike” – Facebook, better than a police line-up?

In R v Mohamed, 2014 ABCA 398, photographs obtained from Facebook were shown to an eye witness in attempts to identify the shooter in a crime. At the time of the crime, the eye witness did not know the accused. However, after providing a description to a friend, the witness was presented with photographs obtained from Facebook showing a group of men fitting a similar description.  The eye witness identified the accused as being present in two of those photographs.

The trial judge awarded this method of identification significant weight, as it “demonstrate[d] the consciously serious and spontaneous nature of the identification from a group of men, all similar in description with similar features”. Further, the trial judge observed this process had similar characteristics to that of a police lineup.

The Court of Appeal ruled that although the process was similar to a police lineup, it arose spontaneously and was more akin to a real life identification. It compared the situation to that where an eye witness did not know the accused at the time of the crime, but later identifies the accused on the street after having their attention drawn to him.

While the friends who provided the photographs did not recall the same amount of descriptive detail provided by the eye witness relating to the individual’s appearance, the substance of their descriptions was largely consistent with the eye witness’ description and original recollection provided to the police. The Court stated that absolute uniformity and consistency in every detail provided by witnesses is highly unlikely and unnecessary.

It is the role of the trial judge to assess and determine the degree of reliability of presented evidence. The description provided by the eye witness was consistent with the appearance of the accused in the photo. As such, there was no palpable or overriding error by the trial judge in accepting the Facebook identification as evidence.

Honesty the Best Policy

It may have been news to some people that parties to a contract could cheat and mislead with impunity so long as they performed their contractual obligations. The Supreme Court of Canada now says otherwise in Bhasin v Hrynew, 2014 SCC 71 – importing minimum standards of honesty and good faith to the common law of contract.

Mr. Bhasin’s agency sold investment instruments exclusively for Canadian American Financial Corp (Can‑Am). Their business relationship was governed by a contract with a 3 year term that automatically renewed unless 6 months’ written notice was given stating the contrary. They enjoyed 10 years of business together.

Enter Mr. Hrynew. Mr. Hrynew was Mr. Bhasin’s competitor and sought to merge his agency with Mr. Bhasin’s, first by approaching Mr. Bhasin and then by pressuring Can‑Am to force a merger. During the same period, the Alberta Securities Commission had compliance concerns with agencies selling Can‑Am’s investment instruments and required Can‑Am to appoint someone to oversee compliance. Mr. Hrynew was appointed and sought to review Mr. Bhasin’s confidential business records. Mr. Bhasin refused.

Can‑Am responded by:

  1. lying to Mr. Bhasin about Mr. Hrynew being bound to a confidentiality agreement – no such agreement was in place;
  2. lying to Mr. Bhasin about the Alberta Securities Commission rejecting a proposal to have an outside person to oversee the compliance of agencies; and
  3. equivocally answering Mr. Bhasin’s question as to whether a merger of his and Mr. Hrynew’s agencies was a done deal.

When Mr. Bhasin continued to refuse Mr. Hrynew access to his confidential business records, Can‑Am gave notice not to renew its contract with Mr. Bhasin. As a result, Mr. Bhasin lost the value of his business and his employees joined Mr. Hrynew’s agency.

While Mr. Bhasin was clearly wronged by Can‑Am, it had not breached the terms of their agreement, potentially foreclosing a remedy for Mr. Bhasin.

This prompted the Supreme Court’s review of the doctrine of good faith in the law of contract – typically reserved for established classes of contracts (franchise and insurance contracts, for example).

The Court took two “incremental steps” to find in Mr. Bhasin’s favour and to end the “piecemeal” approach to importing a duty of good faith in contractual performance. The first step was to find that good faith contractual performance is a general organizing principle of the law of contract. Within the rubric of good faith the Court then established a new duty of honest performance applicable to all contracts.

Can‑Am failed to meet that minimum standard when it lied to Mr. Bhasin about Mr. Hrynew’s appointment. The Court found Can‑Am to have breached the agreement and awarded Mr. Bhasin the lost value of his business had Can‑Am fulfilled its duty.

Somewhat unusually, these incremental developments made the front page of the national news (Globe and Mail, November 14, 2014). Why does a commercial case verifying contractual principles garner such attention?

First, businesses will have to be more mindful in how and what they communicate to contracting parties. While there may be no express duty to disclose information affecting one party’s performance, equivocally answering direct questions affecting performance may constitute a breach of contract (Bhasin, paras 86 and 100). Savvy parties will seek to inform themselves knowing they are entitled to an honest answer.

Second, the organizing principle of good faith contractual performance provides fertile ground for new duties of contractual performance. Claims of good faith are no longer limited to discrete situations and relationships. Litigators will certainly test the principle’s fecundity in all manner of contexts. Justice Cromwell forestalls some potential proliferation of new duties when he states:

The application of the organizing principle of good faith to particular situations should be developed where the existing law is found to be wanting and where the development may occur incrementally in a way that is consistent with the structure of the common law of contract and gives due weight to the importance of private ordering and certainty in commercial affairs (para 66).

Specific new duties of good faith contractual performance may not spring up overnight without warning. However, cautious parties may think twice in making representations affecting performance, in a way that does not take unfair advantage of their contractual partners. Enterprising lawyers will be on the lookout.

And, finally, the decision is newsworthy because most non‑lawyers are incredulous to learn that honest performance is in fact something new. Most would agree that honesty is, or should be, expected from every party to a contract.

Fairness Over Form In Billing For Legal Services

The Alberta Court of Queen’s Bench recently emphasized the public importance of judicial oversight in billing for legal services – in essence, a form of consumer protection regulation—in Stubbard v Hajduk Gibbs LLP, 2014 ABQB 632.

In Alberta, billing for legal services is subject to the Alberta Law Society’s Code of Conduct and the Alberta Rules of Court. Section 206(1) of the Code provides that a lawyer’s charges must be fair and reasonable. Rule 10.2(1) states that, except to the extent a retainer agreement otherwise provides, a lawyer is entitled to be paid a reasonable amount. Rule 10.5 allows a lawyer and client to agree to billing at a different rate than would be determined under Rule 10.2, again subject to reasonableness. Rule 10.7 outlines requirements specific to a contingency agreement, which include that it must be in writing, be signed by the client (in the presence of a witness) and lawyer, contain certain particulars, and be served on the client.

In other words, notwithstanding parties’ right to contract, the court has inherent jurisdiction to review agreements and billing for legal services for reasonableness The regulation of contingency agreements is particularly pointed.

Stubbard involved the review of lawyers’ charges in a divorce action. In 2005 the client and her counsel entered into a retainer agreement for billing on a flat fee or hourly basis. In 2010, the firm discovered that it did not have a signed copy of the agreement and took steps to formalize and change it – by lowering the hourly fee and adding a contingency component by which the firm would be entitled to 35% of the matrimonial property and spousal support awards if the matter required a trial or settled within 12 days of trial (the firm had estimated the client’s matrimonial property claim as between $900K to $2.4M).

The parties then executed the 2005 agreement, adding a footnote stating that the document replaced the 2005 agreement and was effective retroactive to 2005, and attaching a second document by which the client agreed to enter into the revised terms of retainer. The formalized 2010 agreement, however, was never executed.

The client applied to a review officer for a taxation of accounts. She had been billed $71,000 cumulatively, was still married, and the issue of matrimonial property had yet to be resolved. The review officer sought a reference from the Court of Queen’s Bench.

Counsel for the law firm argued that contracts for legal services are enforceable in accordance with their terms regardless of criteria for assessment under the Rules, relying on Steinke v Hajduk Gibbs LLP, 2014 ABQB 34 and Samson Cree Nation v O’ Reilly & Associés, 2014 ABCA 268.

The Court distinguished the Steinke and Samson decisions and discussed legal fees, legal fee contracts, and public policy at some length (paras. 19‑26). The Court noted that the basis for taxation rules is the uneven bargaining position between lawyer and client, and insisted on this basis that — even where there is an agreement to contract out of the Rules, and even if the Rules permit such an agreement — there must still be oversight, and it is the overarching duty of the Court to view work performed through the filter of reasonableness.

While the Court concluded that it could and would distinguish Steinke and Samson, it was not necessary to do so because neither the 2005 nor the 2010 agreement took effect – the 2005 agreement having been replaced in its entirety, while the 2010 agreement failed to meet the Rules’ requirements for contingent fee agreements. On this basis, the Court directed the review officer to ignore both the 2005 and 2010 agreements and to tax the client`s account based on the criteria in Rule 613 of the former Rules of Court (in force at the time of the lawyer’s appointment).

Ultimately, the Court rejected any notion that contractual terms in a retainer agreement oust the Court’s inherent jurisdiction to review accounts for fairness in the context of assessment Rules, or what it considered is “clearly consumer protection regulation” (paras. 21‑24).

You Think You Have Issues…

Appellate courts often raise issues and pose questions to parties before or during oral argument. While these interjections can rattle seasoned litigators and may pose strategic problems, the Supreme Court of Canada in R v. Mian, 2014 SCC 54 affirmed that an appellate court has jurisdiction to raise any issue that does not suggest bias.

But there is a limit to an appellate court’s discretion. If an issue raised by the court was neither raised by the parties nor grounded in any issue raised by the parties and provides a new basis for reviewing the decision under appeal, then it is a new issue.

So, there are ‘new issues’ and there are ‘not new issues’. Appellate courts are free to raise not new issues while new issues should rarely be raised. How can we distinguish a not new issue from a new issue?

The distinction between not new and new issues can be seen in the two issues raised by the Alberta Court of Appeal in R v Mian:

1) What is a question of law on an appeal from an acquittal?

2) What are the limits of cross-examination and consequences of exceeding the limits?

The Alberta Court of Appeal granted the appeal in Mian on the basis of the second issue, that the trial judge erred in relying on an impermissible cross-examination.

The Supreme Court of Canada ruled that the first question was not a new issue because as a question of jurisdiction it simply goes to the “backdrop of litigation” (paras 34 and 61). As such, the appeal court was free to raise the issue.

In contrast, the second question was a new issue because it provided a new basis to review the decision, it was not raised by the parties nor grounded in any of the issues raised by the parties.

As a new issue, the Alberta Court of Appeal should have only raised it if the court had good reason to believe that failure to raise the issue would risk an injustice. The Supreme Court of Canada found that an injustice was not at risk because the trial judge’s decision did not rely on the impugned cross-examination. And, even if the testimony was relied upon, it would not made a material difference. And finally, the cross-examination was not objected to at the time (paras 64 – 66). Since the issue would not have changed the result, the court should not have raised the issue in the first place.

Complicating matters of course is that the Alberta Court of Appeal must have thought it had a good reason to believe that there was a risk to injustice since they overturned the trial judge’s decision on that very basis.

The upshot is that if an appeal court raises an issue that is a bona fide new issue then the appeal court must have “good reason” to believe that failure to raise the issue would risk an injustice. Short of that, the court should not exercise its discretion. Lastly, whether or not the court in fact had “good reason” is itself reviewable.

Sattva Capital Corp v. Creston Moly Corp 2014 SCC 53

In this case the Supreme Court of Canada decides that contractual interpretation is a question of mixed fact and law – not simply a question of law.

Practically, the result is that contracts cannot be interpreted on their face alone, and decisions by trial courts regarding the meaning of a contract are not likely to be readily overturned on appeal.

A question of law deals with the correct legal test to determine an issue. A question of mixed fact and law considers what facts are necessary to satisfy a legal test. Questions of law may be overturned on appeal if incorrect. Questions of mixed fact and law are not to be overturned on appeal absent a legal or palpable and overriding error.

This case regards a dispute over the date to evaluate a share price in determining a finder’s fee. The parties agreed on the value of the finder’s fee, but could not agree on the evaluation date and so disagreed on the number of shares to be distributed in payment.

An arbitrator agreed with the claimant’s interpretation of the contract. The Court of Appeal overturned that decision, saying the issue was legal and not correctly decided.

The Supreme Court determined otherwise – stating that contractual interpretation is not simply a matter of law, but one of mixed fact and law. In so doing, the Supreme Court has largely settled the question, as there were two lines of judicial authority on the point.

Historically, the question of contract interpretation was considered a legal one, as members of a jury were considered incapable of understanding a contract. More recently, some courts abandoned that approach and treated contractual interpretation as an exercise in determining a question of mixed fact and law.

In Sattva, the Supreme Court recognized contractual interpretation is inherently fact specific, and also is often limited to the obligations between the parties. Interpretation was recognized as requiring consideration of each term in the contract, surrounding circumstances, the purpose of the agreement, the nature of the relationship, and the ordinary meaning of each word.

The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean.

Therefore, courts have an obligation to consider the “intent of the parties and the scope of their understanding”. However, the Supreme Court cautioned that those considerations cannot “overwhelm the words of [the] agreement”.

The parole evidence rule – which precludes evidence of subjective intent – does not prohibit evidence of surrounding circumstances.

In the result, the words of a contract alone should not determine a case, the context must be considered. And because that is a factual inquiry, absent an extricable question of law, appeal courts should give deference to the trial judge.

More recently, the Alberta Court of Appeal considered the application of Sattva in Vallieres v Vozniak, 2014 ABCA 290, limiting its restrictive application in circumstances involving a standard form contract. Distinguishing Sattva, the Alberta Court of Appeal held that the interpretation of a standard form contract, in this case an agreement to purchase real estate, is a question of law as its interpretation goes beyond the dispute at hand and requires consistency.

In the case of a pro forma standard real estate purchase contract, the court found that it must interpret the intention of the drafting committee that adopted the form, rather than the intention of the individual parties or the surrounding circumstances relevant to the contract’s formation.

This reasoning is consistent with the Alberta Court of Appeal’s decision in Access Mortgage Corporation (2004) Limited v Arres Capital Inc., 2014 ABCA 280, which draws a distinction between bilateral and unilateral commercial instruments. In this decision, the court utilizes the reasoning of Sattva to interpret a bilateral commercial instrument, which the court held requires an objective interpretation to ascertain the intent of independent parties to the contract.